-----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, SKG6juhCmW1qsm/SPCU6CBj+OpYKMPLsYTuWouRghmhilkhoN8KBDoswXQNH7Vdr Xkb62725yE9NubNJcEWbzw== 0000950132-96-000525.txt : 19960820 0000950132-96-000525.hdr.sgml : 19960820 ACCESSION NUMBER: 0000950132-96-000525 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19960819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIN COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001020391 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251795265 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10447 FILM NUMBER: 96617762 BUSINESS ADDRESS: STREET 1: 300 GREENTREE COMMONS, STREET 2: 381 MANSFIELD AVENUE CITY: PITTSBURGH STATE: PA ZIP: 15220 MAIL ADDRESS: STREET 1: 300 GREENTREE COMMONS STREET 2: 381 MANSFIELD AVENUE CITY: PITTSBURGH STATE: PA ZIP: 15220 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ ALLIN COMMUNICATIONS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 7389 25-1795265 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification No.) incorporation or Code Number) organization) 300 GREENTREE COMMONS 381 MANSFIELD AVENUE PITTSBURGH, PENNSYLVANIA 15220 (412) 928-8800 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------ RICHARD W. TALARICO CHIEF EXECUTIVE OFFICER ALLIN COMMUNICATIONS CORPORATION 300 GREENTREE COMMONS 381 MANSFIELD AVENUE PITTSBURGH, PENNSYLVANIA 15220 (412) 928-8800 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------ COPIES TO: BRYAN D. ROSENBERGER, ESQ. PETER J. ROMEO, ESQ. ECKERT SEAMANS CHERIN & MELLOTT HOGAN & HARTSON L.L.P. 42ND FLOOR, 600 GRANT STREET 555 13TH STREET, N.W. PITTSBURGH, PA 15219 WASHINGTON, D.C. 20004 (412) 566-6000 (202) 637-5600 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM OFFERING MAXIMUM TITLE OF EACH CLASS OF TO BE PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share................ 2,300,000 shares $16.00 $36,800,000 $12,690
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1)Estimated pursuant to Rule 457 solely for the purpose of calculating the registration fee. ------------ 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 SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION, DATED , 1996 2,000,000 SHARES ALLIN COMMUNICATIONS CORPORATION COMMON STOCK All of the shares of Common Stock, par value $.01 per share ("Common Stock"), offered hereby are being offered by Allin Communications Corporation (the "Company"). Prior to this offering (the "Offering"), there has been no public market for the Common Stock. The Company has submitted an application for the Common Stock to be quoted and traded on the NASDAQ National Market under the symbol "ALLN." It is currently estimated that the initial public offering price will be between $14 and $16 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. ----------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9. ----------- 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 DISCOUNTS(1) COMPANY(2) - ------------------------------------------------------------------------------ Per Share........................... $ $ $ - ------------------------------------------------------------------------------ Total(3)............................ $ $ $ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities. See "Underwriting." (2) Before deducting estimated expenses of $ payable by the Company. (3) The Company has granted to the Underwriters a 30-day over-allotment option to purchase up to additional shares of Common Stock on the same terms and conditions as set forth above. If all such shares are purchased by the Underwriters, the total Price to Public, Underwriting Discount and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to withdraw, modify, correct and reject orders in whole or in part. It is expected that delivery of the certificates representing the shares of Common Stock will be made against payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia, or in book entry form through the book entry facilities of the Depository Trust Company, on or about , 1996. FRIEDMAN, BILLINGS, RAMSEY & CO., INC. THE DATE OF THIS PROSPECTUS IS , 1996. [GRAPHICS] IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary information is qualified in its entirety by reference to, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Simultaneously with the closing of the Offering, the Company will acquire International Sports Marketing, Inc., a Pennsylvania corporation ("ISM"), in exchange for cash and certain future contingent payments (the "ISM Acquisition"), and the Company will acquire Kent Consulting Group, Inc., a California corporation ("KCG"), in exchange for cash, shares of Common Stock and certain future contingent payments (the "KCG Acquisition"). See "The Acquisitions." Unless the context otherwise requires, all references herein to the "Company" mean Allin Communications Corporation, a Delaware corporation, and its subsidiaries, including ISM and KCG. Unless otherwise indicated, all information in this Prospectus assumes that (i) the over-allotment option granted to the Underwriters will not be exercised, (ii) the price to the public in the Offering will be $15.00 per share, the mid-point of the range set forth on the cover of this Prospectus, and (iii) prior to closing of the Offering, a 2,400:1 split of the Common Stock will occur. THE COMPANY Allin Communications Corporation (the "Company") provides customized interactive television ("ITV"), digital imaging and other communications and media services to users in the travel and leisure, sports marketing and promotion and other industries. These services are provided principally through the use of the Company's proprietary interactive communications platform which was created to run on the Microsoft Windows NT operating system. The platform includes a multimedia digital file server and Windows- based software applications, and features high resolution and animated graphics, compressed full motion video, superior quality audio and flexible input capacity. Unlike many other ITV platforms, the Company's platform features rapid response and real time interfacing with a variety of third party systems permitting the immediate execution and confirmation of transactions. The platform, which received an applications development award from Microsoft in 1995, can provide its media and imaging services over a variety of network architectures, including the Internet, telephone and cable television systems, and other public and private communications networks. The Company maintains a constant focus on creating ITV design features that emphasize ease of use and eye-catching graphics. THE INTERACTIVE TELEVISION SYSTEM The Company's ITV system offers customers a variety of interactive services through 18 separate system modules. Among the pay services that can be offered are video-on-demand, music-on-demand, shopping, games of chance, event ticketing and customized photographs using digital imaging technology. Free- to-user services include informational messages, account review and room service. While free services do not currently provide revenue, they enhance the usefulness of the system, afford the Company a competitive advantage in marketing its system, attract users to other services offered on the Company's system and provide potential sources of additional revenue from sponsorship of various services by advertisers and from transaction fees. The ITV system can also serve as a response-based marketing vehicle that can target specific audiences for potential advertisers and can make available to service providers a variety of other services, including activity reports and market research. The Company's ITV system permits a user to access the transactional and other services offered on the system by using a handheld television remote control to make selections from easy-to-use menus on a television screen that may be located in a user's cruise ship cabin, hotel room or other individual station, or in a centrally located kiosk. Users can limit access to various pay services by utilizing lock out codes and password procedures. The system currently operates in six languages: English, Spanish, French, Italian, German and Portuguese. MARKETS AND APPLICATIONS Revenue from the domestic ITV service and advertising market increased from approximately $252 million in 1992 to $866 million in 1995. This revenue resulted primarily from the delivery of a limited number of 3 interactive services, predominantly on-demand movies. The market for ITV services and advertising is projected to increase to $1 billion by 1997 and to $8 billion by 2001, driven by growth in the delivery of multiple interactive services, including on-demand movies, full-motion video-on-demand, games, educational products and transactional services. The Company believes that it is one of the first to market a fully operational ITV system which is capable of providing multiple interactive services. The Company believes that the capabilities of its ITV system and the proceeds to be realized from the Offering position the Company to participate in the projected growth in the market for ITV services and advertising. The Company initially marketed its ITV system to the travel and leisure industry, principally the international cruise ship industry, which the Company believes provides a substantial market opportunity for its ITV system and related services. Through its wholly owned subsidiary, SeaVision, Inc. ("SeaVision"), the Company has installed and operates its ITV system on three cruise ships operated by Celebrity Cruises Inc. ("Celebrity"), Carnival Cruise Lines ("Carnival") and Norwegian Cruise Lines ("NCL"), respectively. As of August 15, 1996, SeaVision had entered into contracts to install and operate its system on five additional Celebrity cruise ships and one additional NCL ship. Based on its historical and projected installation schedules, the Company anticipates completion of these six installations by December 31, 1996, which will result in the ITV system being operational on nine ships with 7,165 cabins. The Company's contracts with Carnival and NCL provide Carnival and NCL with the option of having SeaVision install and operate its ITV system on up to twelve and four additional cruise ships, respectively, and the Company is currently pursuing negotiations with various other cruise lines to install its system on up to 30 additional vessels. Based on its historical and projected installation schedules, the Company believes that if it obtains firm contracts for 16 additional installations, either through the exercise of cruise line options or through the acquisition of additional contracts, the Company would have its systems installed and operational on 25 ships by December 31, 1997. There can be no assurance, however, that any option will be exercised or that any additional contracts will be acquired or, if additional firm contracts are secured, that unforeseen delays in installation will not occur. SeaVision's in-cabin ITV system provides cruise passengers with a variety of services, including casino video gaming, on-demand pay-per-view movies, shopping, shore excursion ticket purchasing and room service ordering. The system also can be used by passengers to preview and purchase photographs taken by the ship's photographers during their voyage, and to customize photos with special graphic overlays, borders and backgrounds. SeaVision and Eastman Kodak Company ("Kodak") have entered into a market trial agreement for the operation of this service on three ships fitted with SeaVision's ITV system. As of August 1, 1996, SeaVision's ITV system had been utilized on over 366,000 occasions, or an average of 5,000 sessions per week per ship, by passengers on board the three ships currently equipped with the system, resulting in what the Company believes represents the largest multiple service application of interactive television in the United States. SeaVision's system can also be utilized for advertising on behalf of retailers, corporate sponsors and other third parties and for gathering data and disseminating information by cruise operators. The Company is actively seeking to market its services in other industries and niche markets in which its technology may afford a competitive advantage. Through SeaVision, the Company is marketing to the hotel and resort industry an ITV system offering guest services that include not only on-demand pay-per- view movies but also other services not typically provided, including high- speed Internet access through the hotel's television system. Through its wholly owned subsidiary, PhotoWave, Inc. ("PhotoWave"), the Company intends to market a turnkey package of digital imaging services to industries dependent on conventional "wet" photography, including the real estate, insurance and commercial photography industries. The Company's wholly owned subsidiary, SportsWave, Inc. ("SportsWave"), intends to use the platform to expand the existing sports marketing capabilities of ISM, which has exclusive worldwide marketing rights with the Major League Baseball Players Alumni Association ("MLBPAA") and significant relationships with former athletes in other professional sports. The Company also intends to continue to operate KCG's software design and network solutions business. 4 STRATEGY To achieve its goal of becoming a leader in the processing and distribution of ITV and digital imaging services, the Company's strategy is (i) to expand its presence in the travel and leisure industry by (a) completing the installation of ITV systems on ships for which the Company has firm contracts, (b) seeking additional commitments from cruise line operators for the installation and operation of ITV systems, (c) adding new applications to its platform to maintain its competitive position within the cruise industry and (d) extending the use of its platform to other segments of the travel and leisure industry, including hotels and resorts; (ii) to develop its digital imaging business by marketing, through PhotoWave, digital imaging services to niche markets currently dependent on conventional photography; (iii) to expand the sports marketing business of ISM by marketing, through SportsWave, new applications for the Company's platform directed at promoters of sporting events and corporate sponsors and spectators at such events; (iv) to utilize KCG's technical and creative expertise to further develop the Company's digital platform and to provide third party software design and network solutions; (v) to engage from time to time in acquisitions of businesses and the development of joint venture relationships that offer opportunities to complement or expand the Company's ITV and other capabilities and the marketing of such capabilities; and (vi) to supply specialized software and creative program enhancements to mass market providers of interactive communications and digital imaging services, such as cable television and telephone companies. THE ACQUISITIONS The Company was formed in July 1996 to act as a holding company for SeaVision, PhotoWave, SportsWave and KCG. The Company's principal offices are located at 300 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220, and its telephone number is (412) 928-8800. Simultaneously with, and conditioned upon, the closing of the Offering, the Company will acquire the sports marketing business of ISM, which has been in operation since 1989, and the software design and network solutions business of KCG, which, including a predecessor business, has been in operation since 1983. ISM and SeaVision have been exploring and continue to explore applications of SeaVision's ITV system and interactive platform for the sports marketing and promotions industry. Since 1994, KCG has assisted SeaVision with many aspects of the development of its ITV system. The acquisition of ISM and KCG by the Company is an opportunity for these companies to combine their resources, talents and capabilities. ISM ACQUISITION The ISM Acquisition is being made pursuant to a stock purchase agreement (the "ISM Stock Purchase Agreement") providing for the acquisition by the Company of all of the issued and outstanding shares of capital stock of ISM. The ISM Stock Purchase Agreement provides for the payment of up to $4.8 million by the Company to the ISM stockholders, consisting of $2.4 million in cash at the time of closing of the ISM Acquisition and up to $2.4 million in contingent payments based on the operating income of ISM for the years 1997, 1998 and 1999. One-half of the contingent payments, if any, will consist of promissory notes bearing interest at seven percent per annum. Henry Posner, Jr. and Thomas D. Wright, who currently own more than ten percent of the outstanding Common Stock, Richard W. Talarico, a director and executive officer of the Company, and James C. Roddey, a director of the Company, are ISM stockholders. These individuals are affiliated with The Hawthorne Group, a private investment and management company whose principals have had investments in diversified media and communications businesses, including television and radio broadcasting, cable, outdoor advertising, paging, video production and interactive services. At the closing of the ISM Acquisition, Messrs. Posner, Wright, Talarico and Roddey will receive cash payments in amounts of approximately $1,273,000, $791,000, $48,000 and $120,000, respectively, and will be entitled to receive contingent payments up to the same approximate amounts (not including interest payable on any promissory note delivered in respect of the contingent payments). See "Certain Transactions," "Management" and "Principal Stockholders." 5 KCG ACQUISITION The KCG Acquisition is being made pursuant to an agreement and plan of merger (the "KCG Merger Agreement") providing for the merger of KCG with and into a wholly owned subsidiary of the Company. The KCG Merger Agreement provides for consideration to the sole stockholder of KCG of up to $8.0 million, consisting of $2.0 million in cash at the time of closing of the KCG Acquisition, $3.2 million in Common Stock valued at the initial public offering price in the Offering and up to $2.8 million in contingent payments, the amount of which would be based on the operating income of KCG for the years 1997, 1998 and 1999. Additionally, certain restricted stock grants totaling $400,000, which will not vest until the third anniversary of the KCG Acquisition, will be made to various employees of KCG. The sole stockholder will have certain registration rights with respect to the shares of Common Stock issued in the merger. See "Certain Transactions--Registration Rights." THE OFFERING Common Stock Offered Hereby(1)............. 2,000,000 shares. Common Stock Currently Outstanding......... 2,400,000 shares. Common Stock to be Outstanding After this Offering(1)(2)....................... 4,884,065 shares. Use of Net Proceeds........................ To repay accrued interest on indebtedness, to acquire ISM and KCG and for general corporate purposes, which may include further acquisitions. See "Use of Proceeds." Proposed NASDAQ National Market symbol..... "ALLN."
- -------- (1) Excludes 300,000 shares of Common Stock that may be issued pursuant to the Underwriters' over-allotment option. See "Underwriting." (2) Includes 213,333 shares to be issued as a portion of the consideration in the KCG Acquisition, 26,666 shares to be issued as restricted stock under the Company's 1996 Stock Plan (the "1996 Stock Plan") in connection with the KCG Acquisition (the "Restricted Grant Shares") and 244,066 shares to be issued in exchange for the extinguishment of certain loans by stockholders (the "Stockholder Loans"), but excludes 203,385 shares issuable on conversion of the Company's Series A Convertible Redeemable Preferred Stock, par value $100 per share (the "Convertible Preferred Stock"), and the remaining 239,334 shares issuable under the 1996 Stock Plan. See "--The Acquisitions--KCG Acquisition," "Certain Transactions-- Stockholder Loans," "Certain Transactions--Sale of Convertible Preferred Stock" and "Management--1996 Stock Plan." RISK FACTORS The securities offered hereby involve a high degree of risk and immediate and substantial dilution to purchasers. See "Risk Factors" and "Dilution." 6 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) The historical financial data for each of the periods ended December 31, 1994 and 1995 presented below have been derived from the audited consolidated financial statements of the Company. The pro forma consolidated financial data for each of the periods ended December 31, 1995 and June 30, 1996 have been derived from the unaudited pro forma condensed consolidated financial statements. The summary financial data should be read in conjunction with the Consolidated Financial Statements of the Company, Pro Forma Condensed Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus. The historical financial data for each of the interim periods ended June 30, 1995 and 1996 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such periods. The pro forma consolidated financial data are provided for comparative purposes only and are not necessarily indicative of future results or the results that would be achieved if the transactions reflected therein had occurred at the beginning of the period. The pro forma consolidated statement of operations data and pro forma per share data give effect to (i) the acquisitions of ISM and KCG, (ii) the issuance of the Convertible Preferred Stock and (iii) the Offering and the application of the net proceeds therefrom, as if each had occurred as of January 1, 1995. The pro forma consolidated balance sheet data give effect to the transactions described above as if each had occurred as of June 30, 1996. For all periods presented, SeaVision, Inc. elected to be treated as an S Corporation and, as a result, the taxable loss has been reflected on the federal and state tax returns of the shareholders rather than the corporate returns. The pro forma net loss and pro forma net loss per share do not reflect any tax benefit, due to the uncertainty of realization.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, -------------------------- ------------------------------ HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------- AS ADJUSTED --------------- AS ADJUSTED 1994 1995 1995(2) 1995 1996 1996(3) ----- ------ ----------- ------ ------- ------------- STATEMENT OF OPERATIONS DATA: Revenue................ $ -- $ 44 $ 6,212 $ -- $ 163 $ 3,505 Operating loss......... (588) (1,799) (2,120) (707) (1,752) (1,912) Interest (income) ex- 24 369 (33) 105 438 3 pense, net............ Net loss............... (612) (2,168) (2,087) (812) (2,190) (1,915) Pro forma net loss per $(0.65) $(0.38) share (1)............. ========= ========== Weighted average number of common shares out- standing (1).......... 5,087,450 5,087,450 ========= ==========
AS OF JUNE 30, 1996 --------------------------------- PRO FORMA CONSOLIDATED PRO FORMA FOR AS HISTORICAL ACQUISITIONS ADJUSTED ---------- ------------ --------- BALANCE SHEET DATA: Working capital............................ $(4,357) $ (6,205) $19,388 Total assets............................... 3,926 11,191 36,784 Total liabilities.......................... 8,893 10,458 6,651 Convertible, redeemable preferred stock.... -- 2,500 2,500(4) Shareholders' equity....................... (4,967) (1,767) 27,633(5)
- -------- [footnotes appear on next page] 7 (1) The weighted average number of shares of Common Stock used to calculate pro forma net loss per share includes the assumed conversion of the Convertible Preferred Stock. The pro forma net loss for the year ended December 31, 1995 used to compute pro forma net loss per share has been increased for the charges related to the conversion of (a) the Stockholder Loans of $661,000 and (b) Convertible Preferred Stock of $551,000. (2) Includes (a) elimination of intercompany profit of $253,000 capitalized as software development costs, (b) compensation expense of $134,000 related to the issuance of the Restricted Grant Shares to certain employees of KCG, (c) amortization of intangible assets of $712,000, (d) reduction of interest charges on the Stockholder Loans of $369,000 and (e) reduction of tax provision of $57,000. (3) Includes (a) elimination of intercompany profit of $35,000 capitalized as software development costs and $10,000 capitalized as equipment, (b) compensation expense of $66,000 related to the issuance of the Restricted Grant Shares to certain employees of KCG, (c) amortization of intangible assets of $356,000, (d) reduction of interest charges on the Stockholder Loans of $438,000 and (e) reduction of tax provision of $170,000. (4) Conversion of the Convertible Preferred Stock at $12.29 per share will result in a charge to accumulated deficit of $551,000 based upon an assumed public offering price of $15.00 per share. (5) Includes a charge of $661,000 to be incurred upon the conversion of the Stockholder Loans into 244,066 shares of Common Stock (based upon an assumed public offering price of $15.00 per share). 8 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider, along with the other information contained in this Prospectus, the following risk factors in evaluating an investment in the Company. Additionally, this Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Prospectus. LIMITED OPERATING HISTORY The Company was not organized until July 1996 and will not, until the Offering is consummated, conduct any operations as a combined entity consisting of the businesses of SeaVision, ISM and KCG. Furthermore, SeaVision has been in operation only since 1994 and has concentrated on developing its digital platform and ITV system and on securing contracts to install and operate the ITV system on cruise ships. To date, SeaVision is operating its ITV system in only three installations, and as a result, revenue generated by the ITV system has not been significant. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Although SeaVision, ISM and KCG have had prior relationships, and SeaVision and ISM have certain common owners, there can be no assurance that the Company will be able to integrate the businesses successfully. Because SeaVision has only a limited operating history and the Company has no operating history as a combined entity, there can be no assurance that the Company will succeed in implementing its strategy for development and growth or that it will obtain financial returns sufficient to justify its investment in the markets in which it participates. See "Business--Operating and Growth Strategy." RECENT NET LOSSES AND ACCUMULATED DEFICIT On a pro forma basis, the Company has sustained substantial net losses during the year ended December 31, 1995 and during the six months ended June 30, 1996 and, as of June 30, 1996, had an accumulated deficit of $1.8 million. SeaVision has recognized net losses since inception in 1994 primarily because of the limited revenue generated during its start-up phase, which have also impacted the pro forma net losses noted above. During the start-up phase, the Company has researched, developed and installed the only ITV system presently in use in the cruise industry, and has incurred substantial costs in doing so. The Company anticipates that it will continue to incur losses at least through 1996, and there can be no assurance that it will be able to achieve revenue growth or profitability on an ongoing basis in the future. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS INHERENT IN DEVELOPMENT OF NEW PRODUCTS AND MARKETS The Company's strategy includes developing new applications for its interactive entertainment and information technologies and entering new markets. This strategy presents risks inherent in assessing the value of development opportunities, in committing capital in unproven markets and in integrating and managing new technologies and applications. Within these new markets, the Company will encounter competition from a variety of sources. It is also possible that the Company will experience unexpected delays or setbacks in developing new applications of its technology. There can be no assurance that the Company's new products and applications will generate additional revenue for the Company or that the Company will successfully penetrate these additional markets. See "Business--Operating and Growth Strategy." DEPENDENCE ON PROPRIETARY TECHNOLOGY; ABSENCE OF PATENTS The Company's success is highly dependent upon its proprietary technology. The Company does not have patents on any of its technology and relies on a combination of copyright and trade secret laws and contractual restrictions to protect its technology. It is the Company's policy to require employees, consultants and clients to execute nondisclosure agreements upon commencement of a relationship with the Company, and to limit access to and distribution of its software, documentation and other proprietary information. Nonetheless, it may be possible for third parties to misappropriate the Company's technology and proprietary information or independently to develop similar or superior technology. There can be no assurance that the legal protections 9 afforded to the Company and the measures taken by the Company will be adequate to protect its technology. Any misappropriation of the Company's technology or proprietary information could have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company is not aware that any of its technology infringes upon the rights of third parties, there can be no assurance that other parties will not assert technology infringement claims against the Company, or that, if asserted, such claims will not prevail. In such event, the Company may be required to engage in protracted and costly litigation, regardless of the merits of such claims; discontinue the use of certain software codes or processes; develop non-infringing technology; or enter into license arrangements with respect to the disputed intellectual property. There can be no assurance that the Company would be able to develop alternative technology or that any necessary licenses would be available or that, if available, such licenses could be obtained on commercially reasonable terms. Responding to and defending against any of these claims could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Technology and Licensing." RISK OF TECHNOLOGICAL OBSOLESCENCE The ability of the Company to maintain a standard of technological competitiveness is a significant factor in the Company's strategy to maintain and expand its customer base, enter new markets and generate revenue. While the Company believes that its digital platform and application software are currently technologically competitive, the Company's continued success will depend in part upon its ability to identify promising emerging technologies and to develop, refine and introduce high quality services in a timely manner and on competitive terms. There can be no assurance that future technological advances by direct competitors or other providers will not result in improved equipment or software systems that could adversely affect the Company's business, financial condition and results of operations. See "Business-- Competition." MANAGEMENT OF GROWTH The Company's growth strategy will require its management to conduct operations and respond to changes in technology and the market, while substantially expanding operations and personnel. If the Company's management is unable to manage growth effectively, its business, financial condition and results of operations will be materially adversely affected. See "Business-- Operating and Growth Strategy." RISK OF SYSTEM FAILURE OR INADEQUACY The failure of one of the Company's ITV systems at any particular time could occur as a result of component malfunction, operator error or some other reason. Although system interruptions have been inconsequential, any system failure could harm the Company's reputation, cause a loss or delay in market acceptance of the Company's systems, and have a material adverse effect on the Company's business, financial condition and results of operations. To reduce the risk of system failure, the Company performs extensive testing of its platform and related software upon installation and engages in ongoing quality assurance efforts involving the use of redundant systems and sophisticated diagnostic tools to aid in system maintenance and trouble-shooting. DEPENDENCE ON KEY PERSONNEL The Company's success is dependent on a number of key management, research and operational personnel for the management of operations, development of new products and timely installation of its systems. The loss of one or more of these individuals could have an adverse effect on the Company's business and results of operations. The Company has in place key person life insurance policies on certain of its key employees. The Company depends on its continued ability to attract and retain highly skilled and qualified personnel and to engage nonemployee consultants. There can be no assurance that the Company will be successful in attracting and retaining such personnel or contracting with such nonemployee consultants. See "Business--Technology and Licensing" and "Management." 10 DEPENDENCE ON CRUISE INDUSTRY AND CONTINUED OPERATION OF CRUISE LINE CUSTOMERS A substantial portion of the Company's revenue is expected to be generated in the near term from its cruise industry operations, thereby making the Company's business dependent upon the cruise industry in general and the continued operations of the Company's current cruise line customers. A significant reduction in the operations of any of these customers could, depending on the extent of the reduction and the ships involved, have a material adverse effect on the Company. Additionally, the cruise industry is dependent on customers having disposable income. Therefore, a general economic downturn or a recession could negatively impact the cruise industry before affecting other segments of the economy, even though cruise lines typically offer promotional pricing and incentives during recessionary periods to ensure a steady occupancy rate. See "Business--Travel and Leisure Industry-- International Cruise Industry." CRUISE LINES' RIGHTS TO TERMINATE OR BUY OUT CONTRACTS WITH THE COMPANY Each of the Company's contracts with the cruise lines is subject to renewal by mutual consent of the parties at the expiration of the initial term. A decision by one or more of the cruise lines to discontinue its agreement with the Company at the contractual expiration date could have a material adverse effect on the Company. Under certain circumstances, following termination of the Company's contract with each of its cruise lines customers, the cruise line will have the right to purchase the hardware installed by the Company and to obtain a nontransferable license to use the software installed by the Company. Any such purchase of the systems installed by the Company would result in the discontinuation of revenue sharing provisions with the cruise lines. Additionally, one cruise line will have the right to purchase such hardware and license such software from the Company, for a one-year period following such termination, to enable it to install the Company's system on other ships for an agreed upon aggregate purchase and license price. Although the Company would receive payment for the purchase of the system and the license, any such purchase would eliminate the Company's ability to share in revenue produced by the purchased system. The loss or elimination of the Company's right to share in revenue produced by its systems resulting from any of the foregoing events could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Travel and Leisure Industry--International Cruise Industry--Customer Contracts." DEPENDENCE ON MAJOR LEAGUE SPORTS The Company's sports marketing and promotion business conducted through ISM is dependent on the success and continued popularity of major league sports. Factors which adversely affect major league sports could also adversely affect the Company's business and results of operations. For example, ISM's business was adversely impacted by the players' strike and owners' lockout during the 1994 and 1995 Major League Baseball seasons. There can be no assurance that there will be no strike or other event with a similar adverse impact in the future involving one or more of Major League Baseball, the National Football League, the National Basketball Association or the National Hockey League. See "Business--Sports Marketing Industry." FLUCTUATIONS IN OPERATING RESULTS The Company expects to experience significant fluctuations in its future quarterly operating results that may be caused by many factors, including the seasonal aspects of ISM's business. Accordingly, quarterly revenues and operating results will be difficult to forecast, and the Company believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. See "Management's Discussions and Analysis of Financial Condition and Results of Operations." POTENTIAL IMPACT OF PRIVACY CONCERNS One of the features of the Company's ITV system is the ability to develop and maintain information regarding usage of the system by cruise ship passengers and other parties. Although the Company's systems are designed to prevent the distribution of any data attributable to identifiable individuals, privacy concerns may nevertheless cause users to resist providing any personal information that might be useful for demographic 11 purposes. Moreover, even the perception by the users of substantial security and privacy concerns, whether or not valid, may inhibit market acceptance and usage of the Company's video systems. In the event such concerns are not adequately addressed, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--Travel and Leisure Industry." COMPETITION The market for interactive communications and digital imaging is new, rapidly evolving and highly competitive. Many of the Company's current and potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company and therefore may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Although the Company's business strategy targets certain markets which it believes offer a competitive advantage, there can be no assurance that the Company will be able to compete effectively with current or future competitors or that the competitive pressures faced by the Company will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Operating and Growth Strategy" and "-- Competition." ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS The Company's Certificate of Incorporation and Bylaws contain a number of provisions that could inhibit a change in control of the Company by means of a tender offer, merger, proxy contest or otherwise, including advance notice provisions and provisions that enable the Board of Directors to issue "blank check" preferred stock. See "Description of Capital Stock--Certain Anti- Takeover Effects of Certificate and Bylaws Provisions." LIMITATIONS ON DIRECTOR LIABILITY; INDEMNIFICATION As permitted by Delaware law, the Certificate of Incorporation of the Company contains provisions eliminating or limiting director liability to the Company and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director, subject to certain exceptions provided by law. As a result of these provisions, the directors generally will not be liable to the stockholders for negligence or even gross negligence in the performance of their duties as directors. The Certificate of Incorporation and By-Laws of the Company also provide that all directors and officers and certain other persons shall be indemnified to the fullest extent permitted by law in connection with each such person's service to the Company, with certain limited exceptions. See "Description of Capital Stock-- Limitations on Liability and Indemnification of Directors and Officers." ABSENCE OF TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial offering price for the Common Stock offered hereby will be determined by negotiation between the Company and the representative of the Underwriters and may not be indicative of the market price for the Common Stock after the Offering. After the Offering, the market price of the Common Stock could be subject to significant fluctuations in response to variations in results of operations, changes in earnings estimates by securities analysts, general economic and market conditions and other factors. See "Underwriting." ABSENCE OF DIVIDENDS The Company has not paid any dividends to its stockholders since its inception and does not anticipate paying any dividends on the Common Stock or the Convertible Preferred Stock in the foreseeable future. The Company intends to reinvest earnings, if any, in the development and expansion of its business. See "Dividend Policy." 12 IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of the shares of Common Stock in the Offering will experience immediate and substantial dilution in net tangible book value per share of Common Stock from the initial public offering price. See "Dilution." POSSIBLE ADVERSE MARKET IMPACT OF FUTURE SALES OF COMMON STOCK Sales of substantial amounts of Common Stock into the public market following the Offering, or the perception that such sales might occur, could adversely impact prevailing market prices for the Common Stock and the ability of the Company to raise equity capital. A substantial number of shares of Common Stock outstanding or issuable in the future pursuant to existing Company commitments could become eligible for future sale in the public market at varying times following the Offering. Included among these shares are 239,999 shares issuable upon the closing of the KCG Acquisition (including the 26,666 Restricted Grant Shares), 244,066 shares issuable upon the closing of the Offering in exchange for the extinguishment of the Stockholder Loans, the remaining 239,334 shares issuable under the 1996 Stock Plan, and 203,385 shares issuable upon conversion of the Convertible Preferred Stock. Holders of these shares of Common Stock which will be outstanding upon closing of the Offering (other than the Restricted Grant Shares) or issued upon conversion of the Convertible Preferred Stock have agreed or will agree not to sell their shares for twelve months following the closing of the Offering. See "Shares Eligible for Future Sale." GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES The Company is subject, both directly or indirectly, to various laws and governmental regulations relating to its business. The Company believes that it is currently in compliance with such laws and that they do not have a material impact on its operations. However, as a result of rapid technology growth and other related factors, laws and regulations may be adopted which significantly impact the Company's business. See "Business--Government Regulation." 13 USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be approximately $ million ($ million if the Underwriters' over- allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds of the Offering as follows: (i) $2.4 million to pay the cash portion of the consideration due at the closing of the ISM Acquisition; (ii) $2.0 million to pay the cash portion of the consideration due at the closing of the KCG Acquisition, (iii) approximately $950,000 to pay the accrued interest on the Stockholder Loans; and (iv) the remainder (approximately $ if the Underwriters' overallotment option is not exercised) for general corporate purposes, including working capital, capital expenditures and possible future acquisitions. Pending such uses, the Company intends to invest the net proceeds in short-term, investment grade, interest-bearing securities. The Company intends to continue to identify businesses which are available for acquisition and which offer opportunities to complement and expand the Company's ITV and other capabilities and the marketing of such capabilities. There can be no assurance that the Company will be able to identify other suitable and available acquisition candidates or that it will be able to reach agreement with any such identified candidate. The Stockholder Loans were made during the years 1994, 1995 and 1996 by certain stockholders (the "Funding Stockholders") of SeaVision in the aggregate principal amount of $6.6 million to permit development and operation of SeaVision's business. Certain of the Funding Stockholders are stockholders, officers and/or directors of the Company. Currently, the principal amount outstanding is $3.0 million. The entire principal amount outstanding at the closing of the Offering will be extinguished at the closing in exchange for 244,066 shares of Common Stock. The accrued interest of approximately $950,000 will be paid in cash at the closing of the Offering. See "Certain Transactions." DIVIDEND POLICY The Company has no dividend history and presently intends to retain earnings to finance the expansion of its business. Payment of future dividends, if any, on the Common Stock will be at the discretion of the Company's Board of Directors, after taking into account various factors, including the Company's earnings, capital requirements, financial position and other relevant business conditions, and there can be no assurance that dividends will be paid. Dividends on the Convertible Preferred Stock will be paid when and as declared by the Company's Board of Directors. See "Description of Capital Stock--Series A Convertible Redeemable Preferred Stock." The Company currently intends to defer payment of dividends on the Convertible Preferred Stock. 14 DILUTION The pro forma deficit in net tangible book value of the Company at June 30, 1996 was $(6,536,000) or $(2.27) per share of Common Stock, based upon 2,884,065 shares of Common Stock outstanding. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities of the Company, divided by the number of shares of Common Stock outstanding. After giving effect to the sale of the 2,000,000 shares of Common Stock offered by the Company hereby (at an assumed public offering price of $15.00 per share and after deduction of estimated underwriting discounts and commissions and offering expenses), the pro forma net tangible book value of the Company at June 30, 1996 would have been $19,864,000 or $4.07 per share. This represents an immediate increase in such net tangible book value of $6.34 per share to existing stockholders and an immediate dilution of $10.93 per share to new investors purchasing the shares in the Offering. Net tangible book value dilution per share represents the difference between the amount per share paid by new investors purchasing shares of Common Stock in the Offering and the pro forma net tangible book value per share of Common Stock immediately after completion of the Offering. The following table illustrates this per share dilution: Assumed public offering price....................................... $15.00 Net tangible book value before the Offering(1)(2).......... $(2.27) Increase attributable to new investors..................... 6.34 Pro forma net tangible book value after the Offering................ 4.07 Dilution to new investors........................................... $10.93 ------
The following table summarizes, on a pro forma basis as of June 30, 1996, the differences between existing stockholders and new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company, and the average consideration paid per share (based upon an assumed initial public offering price of $15.00 per share and before deduction of estimated underwriting discounts and commissions and offering expenses payable by the Company):
SHARES PURCHASED TOTAL CONSIDERATION ----------------- ------------------- AVERAGE NUMBER PERCENT AMOUNT PERCENT PRICE --------- ------- ----------- ------- ------- Current Stockholders(1)(2)........ 2,884,065 59.1 $ 6,227,000 17.2 $ 2.16 New Investors..................... 2,000,000 40.9 30,000,000 82.8 15.00 --------- ----- ----------- ----- Total........................... 4,884,065 100.0 $36,227,000 100.0 ========= ===== =========== =====
- -------- (1) Includes (i) the effects of the 2,400 to 1 stock split, (ii) 244,066 shares issued in connection with the conversion of the Stockholder Loans, (iii) 213,333 shares issued as a portion of the consideration in the KCG Acquisition and (iv) 26,666 Restricted Grant Shares granted to certain employees of KCG under the 1996 Stock Plan. (2) Does not include (i) 25,000 shares of Convertible Preferred Stock, which are convertible into 203,385 shares of Common Stock six months after the closing of the Offering, and (ii) the remaining 239,334 shares of Common Stock reserved for awards under the 1996 Stock Plan. 15 CAPITALIZATION The following table sets forth, as of June 30, 1996, (a) the Company's actual capitalization, (b) the pro forma capitalization giving effect to the issuance of the Convertible Preferred Stock and the borrowings under the Company's senior revolving credit facility and (c) the pro forma capitalization adjusted to give effect to (i) the Offering, assuming an initial public offering price of $15.00 per share, and (ii) the application by the Company of the estimated net proceeds from the Offering to the Company as described under "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto and other information included elsewhere in this Prospectus.
JUNE 30, 1996 (IN THOUSANDS) ------------------- PRO FORMA ACTUAL AS ADJUSTED ------ ----------- Cash and cash equivalents................................ $ 572 $24,514 ====== ======= Senior revolving credit facility......................... 4,850 5,000 Shareholder notes payable................................ 3,000 0 Preferred stock, 100,000 shares authorized, 25,000 shares of Series A Convertible Redeemable Preferred Stock, par value $100 per share, issued and outstanding............ 0 2,500 Shareholders' equity: Common Stock, par value $.01 per share, 20,000,000 shares authorized, 2,400,000 shares issued and outstanding (4,884,065 shares as adjusted) (1)...................... 24 49 Additional paid in capital............................... 3 33,639 Deferred compensation (3)................................ -- (400) Retained deficit......................................... (4,994) (5,655)(2) ------ ------- (4,967) 27,633 ------ ------- Total Capitalization..................................... $2,883 $35,133 ====== =======
- -------- (1) Includes the 26,666 Restricted Grant Shares granted to certain employees of KCG under the 1996 Stock Plan, but does not include the remaining 239,334 shares of Common Stock reserved for issuance under the 1996 Stock Plan, under which options to purchase a total of 191,000 shares at the initial public offering price will be granted upon the effective date of the Offering. See "Management--1996 Stock Plan." (2) Includes charges of $661,000 to be incurred upon the conversion of the Stockholder Loans into 244,066 shares of Common Stock (based upon an assumed public offering price of $15.00 per share). (3) Represents future compensation expense related to the issuance of the Restricted Grant Shares to certain employees of KCG to be incurred ratably over a 36-month period. 16 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) The historical financial data for each of the periods ended December 31, 1994 and 1995 presented below have been derived from the audited consolidated financial statements of the Company. The pro forma consolidated financial data for each of the periods ended December 31, 1995 and June 30, 1996 have been derived from the unaudited pro forma condensed consolidated financial statements. The selected financial data should be read in conjunction with the Consolidated Financial Statements of the Company, Pro Forma Condensed Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus. The historical financial data for each of the interim periods ended June 30, 1995 and 1996 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such periods. The pro forma consolidated financial data are provided for comparative purposes only and are not necessarily indicative of future results or the results that would be achieved if the transactions reflected therein had occurred at the beginning of the period. The pro forma consolidated statement of operations data and pro forma per share data give effect to (i) the acquisitions of ISM and KCG, (ii) the issuance of the Convertible Preferred Stock and (iii) the Offering and the application of the net proceeds therefrom, as if each had occurred as of January 1, 1995. The pro forma consolidated balance sheet data give effect to the transactions described above as if each had occurred as of June 30, 1996. For all periods presented, SeaVision, Inc. elected to be treated as an S Corporation and, as a result, the taxable loss has been reflected on the federal and state tax returns of the shareholders rather than the corporate returns. The pro forma net loss and pro forma net loss per share do not reflect any tax benefit, due to the uncertainty of realization.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, --------------------------- --------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA -------------- AS ADJUSTED -------------- AS ADJUSTED 1994 1995 1995 (2) 1995 1996 1996 (3) ----- ------- ----------- ----- ------- ----------- STATEMENT OF OPERATIONS DATA: Revenue................. $ -- $ 44 $ 6,212 $ -- $ 163 $ 3,505 Cost of sales........... -- 10 3,367 -- 40 2,014 ----- ------- --------- ----- ------- --------- Gross profit............ -- 34 2,845 -- 123 1,491 Depreciation & amortiza- tion................... 6 288 1,015 11 339 759 Selling, general & ad- ministrative........... 582 1,545 3,950 696 1,536 2,644 ----- ------- --------- ----- ------- --------- Operating loss.......... (588) (1,799) (2,120) (707) (1,752) (1,912) Interest (income) ex- pense, net............. 24 369 (33) 105 438 3 ----- ------- --------- ----- ------- --------- Net loss................ $(612) $(2,168) $(2,087) $(812) $(2,190) $(1,915) ===== ======= ========= ===== ======= ========= Pro forma net loss per share (1).............. $ (0.65) $ (0.38) ========= ========= Weighted average number of common shares out- standing (1)........... 5,087,450 5,087,450 ========= =========
17
AS OF DECEMBER 31, AS OF JUNE 30, 1996 -------------------- ----------------------------------- HISTORICAL PRO FORMA -------------------- CONSOLIDATED FOR PRO FORMA 1994 1995 HISTORICAL ACQUISITIONS AS ADJUSTED --------- ---------- ---------- ------------ ----------- BALANCE SHEET DATA: Working capital....... $ 57 $(1,493) $(4,357) $(6,205) $19,388 Total assets.......... 146 2,353 3,926 11,191 36,784 Total liabilities..... 756 5,130 8,893 10,458 6,651 Convertible, redeemable preferred stock................ -- -- -- 2,500 2,500(4) Shareholders' equity.. (610) (2,777) (4,967) (1,767) 27,633(5)
- -------- (1) The weighted average number of shares of Common Stock used to calculate pro forma net loss per share includes the assumed conversion of the Convertible Preferred Stock. The pro forma net loss for the year ended December 31, 1995 used to compute pro forma net loss per share has been increased for the charges related to the conversion of (a) the Stockholder Loans of $661,000 and (b) Convertible Preferred Stock of $551,000. (2) Includes (a) elimination of intercompany profit of $253,000 capitalized as software development costs, (b) compensation expense of $134,000 related to the issuance of the Restricted Grant Shares to certain employees of KCG, (c) amortization of intangible assets of $712,000, (d) reduction of interest charges on the Stockholder Loans of $369,000 and (e) reduction of tax provision of $57,000. (3) Includes (a) elimination of intercompany profit of $35,000 capitalized as software development costs and $10,000 capitalized as equipment, (b) compensation expense of $66,000 related to the issuance of Restricted Grant Shares to certain employees of KCG, (c) amortization of intangible assets of $356,000, (d) reduction of interest charges on the Stockholder Loans of $438,000 and (e) reduction of tax provision of $170,000. (4) Conversion of the Convertible Preferred Stock at $12.29 per share will result in a charge to accumulated deficit of $551,000 based upon an assumed public offering price of $15.00 per share. (5) Includes a charge of $661,000 to be incurred upon the conversion of the Stockholder Loans into 244,066 shares of Common Stock (based upon an assumed public offering price of $15.00 per share). 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the information contained in Selected Financial Data and the Consolidated Financial Statements of the Company and the Financial Statements of ISM and KCG and the other financial information appearing elsewhere in this Prospectus. OVERVIEW The Company was formed in July 1996 to act as a holding company for four subsidiaries: SeaVision, Inc., PhotoWave, Inc., SportsWave, Inc. and Kent Consulting Group, Inc. Each of these subsidiaries will focus on a particular aspect of the Company's business plan. SeaVision was formed in June 1994 and focuses on the travel and leisure industry. Its operations to date have involved the development of an interactive digital platform and the installation and operation of ITV systems in the international cruise industry. It seeks to expand its business in the international cruise industry and to extend the use of its platform to other segments of the travel and leisure industry, including hotels and resorts. See "Business--Travel and Leisure Industry." SeaVision became a subsidiary of the Company in August 1996 through a merger. See "Certain Transactions-- Transactions Relating to Formation and Organization of the Company." PhotoWave was formed as a subsidiary of the Company in August 1996 to focus on the development of the Company's digital imaging business. See "Business-- Digital Imaging Industry." Concurrently with the closing of this Offering, the Company will acquire all of the capital stock of ISM, and the name of ISM will be changed to SportsWave, Inc. The Company, through SportsWave, will continue to operate ISM's traditional sports marketing business and intends to expand that business by marketing ITV systems to sports arenas and stadiums and applying interactive technology and digital imaging to corporate hospitality and promotions. See "Business--Sports Marketing Industry." Concurrently with the closing of this Offering, through a merger, KCG will become a wholly owned subsidiary of the Company. KCG, which has assisted the Company in the development of the Company's digital platform, will support the further development of the platform and will also continue to provide third party clients with software design and network solutions services. See "Business--Software Design and Network Solutions." The Company's historical results of operations (see "--Historical Results of Operations") reflect the operations of SeaVision since inception. The pro forma results of operations of the Company as a consolidated entity consisting of SeaVision, ISM and KCG for the year ended December 31, 1995 and the six months ended June 30, 1996 are discussed under "--Pro Forma Results of Operations." REVENUE SeaVision SeaVision was organized in June 1994, and until August 1995 its activities were limited to start-up operations, including developing its ITV system, recruiting key operating personnel and procuring contracts for the installation of the system. As a result, revenue generated by SeaVision to date has been limited. The Company currently operates three ITV systems that SeaVision installed on cruise ships in August 1995, December 1995 and July 1996, respectively. SeaVision currently generates revenue primarily through the use by cruise ship passengers of various "passenger pay" modules of the Company's ITV system. SeaVision's revenue 19 from the video wagering module is based upon the aggregate amount of net "drop" or loss by passengers playing video games of chance on SeaVision's system. SeaVision's revenue from video-on-demand consists of its share of the prices paid by passengers to view movies, and it is anticipated that revenue from music-on-demand and video games would be derived in a similar fashion. With respect to SeaVision's shopping module, SeaVision acts as either the retailer earning a markup on the wholesale cost of the goods sold through its ITV system or a distributor earning a portion of the retail price of the goods sold through its ITV system. SeaVision also anticipates generating revenue from the sale of advertising to retailers, corporate sponsors and other third parties. The Company is currently pursuing negotiations with various advertisers, but there can be no assurance that any contract will result from such negotiations. SeaVision is currently installing the PhotoPlace digital imaging module of its system on one cruise ship. Under that contract, SeaVision is to receive the excess of the amount received by the cruise operator from the sales to passengers through the PhotoPlace module over the operator's historical net revenue from traditional shipboard photography sales. In the digital imaging area, SeaVision is prepared to work with the cruise line photography concessionaire, act as a supplier to a cruise line if it operates this function in-house or provide turnkey photographic concessionaire services to its cruise line clients. In addition, the Company anticipates generating revenue from systems integration services, including the installation of shipboard media centers. The Company is currently pursuing negotiations with two cruise lines to act as a systems integrator, but there can be no assurance that any contract will result from such negotiations. SeaVision also anticipates generating revenue from the use of its system in the hotel and resort industry. The Company is currently pursuing negotiations with a resort operator to install its system, but there can be no assurance that any contract will result from such negotiations. The Company presently contemplates that contracts it might enter into with hotels and resorts would, like the Company's current cruise line contracts, provide for an arrangement whereby the Company shares with the operator a portion of the revenue from the sale to users of various pay services, as well as a portion of the revenue from the sale of advertising. The Company is also willing to offer other arrangements to cruise operators and hotels and resorts, such as the sale of the system coupled with an operation and maintenance contract. See "Business-- Travel and Leisure Industry." PhotoWave PhotoWave has had no significant operations to date, although the Company has developed digital imaging applications for use in the international cruise industry and is establishing digital imaging pilot sites which will serve to test the market for the services to be offered by PhotoWave to various industry segments. The Company anticipates that PhotoWave will generate revenue from user fees and transaction fees charged to businesses utilizing the Company's package of digital imaging services. See "Business--Digital Imaging Industry." SportsWave ISM currently generates revenue from payments under its contracts for the coordination of various events, including sports-themed premiums, promotions, sales incentives, games, clinics and personal appearances by athletes. The Company anticipates that SportsWave will continue to generate revenue from ISM's traditional sports marketing business. SportsWave also anticipates generating revenue from the installation and operation in sports arenas and stadiums of ITV systems using the Company's digital platform, and the Company has recently commenced marketing its system to these potential customers. In addition, SportsWave anticipates generating revenue from fees charged to corporate sponsors in connection with the mobile media center which the Company and Wolf Coach, Inc. are currently developing. There can be no assurance, however, that such marketing and development efforts will result in the execution of contracts with customers or the generation of revenue for the Company. See "Business--Sports Marketing Industry." 20 KCG KCG currently generates revenue from fees under its contracts for software design and network solutions services. The Company anticipates that KCG will continue to generate revenue from providing such services to third party clients in addition to providing technical and creative support in the further development of the Company's digital platform. See "Business--Software Design and Network Solutions." EXPENSES The expenses associated directly with the revenue described above include (i) the cost of the goods or services provided through the Company's ITV system; (ii) the cost of administering and storing digital images at the Company's site on the Internet in connection with PhotoWave's package of digital imaging services; (iii) the cost of sports marketing events coordinated by SportsWave; (iv) staffing and other direct costs related to mobile media centers; (v) direct labor, costs of materials and travel associated with shipboard system integration contracts; and (vi) compensation costs directly related to KCG's revenue generation. Direct costs associated with the Company's ITV system include a percentage of the revenue generated from the sale of pay-per-view movies which is payable to the movie distributor, the cost of goods sold through the video shopping module and any commissions paid on advertising revenue realized through the system. The costs directly attributable to the sports marketing revenue include event costs, such as leasing a location, costs of promotional items, travel and meal expenses, licensing fees payable to the MLBPAA and appearance fees paid to retired professional athletes. Selling, general and administrative expenses include (i) compensation and related benefits; (ii) selling and marketing costs; (iii) rent; (iv) professional services and general overhead expenses; (v) contract payments made to customers (such as cruise line operators) with whom the Company has contracted to install and operate its ITV system; and (vi) costs incurred in operating the Company's ITV system, such as the cost of transporting supplies to the ship, travel expenses, credit card processing fees and the cost of promotions to increase awareness and usage of the system. Depreciation expense relates primarily to the cost of installation of the Company's ITV system on cruise ships to the extent borne by the Company under a particular contract, which are capitalized when incurred, and the cost of computers and other equipment. Amortization expense relates primarily to other intangible assets including trademarks, licensing fees paid for certain software rights, research and development costs, formation expenses of the Company and its subsidiaries, costs associated with this Offering and portions of the purchase prices of the ISM Acquisition and the KCG Acquisition. HISTORICAL RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, PERIOD ENDED DECEMBER 31, (UNAUDITED) -------------------------- ---------------- 1994 1995 1995 1996 ------------ ------------- ------- -------- Revenue.......................... $ -- $ 44 $ -- $ 163 Direct expenses.................. -- 10 -- 40 ----------- ------------- ------ -------- Gross profit..................... -- 34 -- 123 Selling, general & administrative................... 582 1,545 696 1,536 Depreciation & amortization...... 6 288 11 339 ----------- ------------- ------ -------- Operating loss................... (588) (1,799) (707) (1,752) Interest expense................. 24 369 105 438 ----------- ------------- ------ -------- Net loss......................... $(612) $(2,168) $(812) $(2,190) =========== ============= ====== ========
21 SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 As of June 30, 1996, SeaVision had installed its ITV system on two cruise ships with an annual passenger capacity of 155,272, based on their itineraries and passenger configurations at that time. SeaVision did not complete installation of its first system on a ship until August 1995 and thus did not record revenue or direct expenses for the six months ended June 30, 1995. Accordingly, a comparison of revenue and direct expenses for the six-month periods ended June 30, 1995 and June 30, 1996 is not meaningful. Revenue for the six months ended June 30, 1996 was $163,000, including $84,000 for pay-per-view movies and $75,000 for games of chance. Direct costs for the six months ended June 30, 1996 were $40,000 and related primarily to cost of sales for the video-on-demand module. Selling, general and administrative expenses during the six months ended June 30, 1996 increased to $1.5 million from $696,000 for the corresponding period in 1995. This increase is attributable primarily to the costs of additional personnel that were hired as the Company moved from the developmental stage to the implementation stage of its ITV system. Depreciation and amortization expense increased to $339,000 during the six months ended June 30, 1996 as compared to $11,000 in the corresponding period in 1995 because the Company had not completed installation of ITV systems during the earlier period. The Company's operating loss increased to $1.8 million for the six months ended June 30, 1996, from $707,000 for the six months ended June 30, 1995. This increase resulted from the continued growth of SeaVision's staff and operations as SeaVision moved from the developmental stage to the implementation stage of its ITV system. As SeaVision's installed base of ITV systems increases, the Company anticipates revenue growth from the systems will substantially outpace the growth of expenses. Interest expense increased from $105,000 to $438,000 for the periods ended June 30, 1995 and June 30, 1996, respectively. Most of the interest expense was accrued but unpaid during the period, and the increase reflected continued funding of the Company's operating losses by certain of its stockholders in the form of loans, and in respect of the six months ended June 30, 1996, one month of interest expense relating to the borrowings under its line of credit with Integra Bank (now National City Bank). See "Certain Transactions--Stockholder Loans." The Company sustained a net loss of $2.2 million during the six months ended June 30, 1996, compared to a net loss of $812,000 for the six months ended June 30, 1995, as a result of the increased operating losses and interest expense discussed above. YEAR ENDED DECEMBER 31, 1995 COMPARED TO INCEPTION THROUGH DECEMBER 31, 1994 During the period from inception through December 31, 1994, SeaVision was in the development phase of its first ITV implementation. Because SeaVision did not complete installation of its first system on a ship until August 1995, it did not record revenue or direct expenses for the year ended December 31, 1994. Accordingly, a comparison of revenue and direct expenses for the year ended December 31, 1995 and the period ended December 31, 1994 is not meaningful. Revenue for the year ended December 31, 1995 was $44,000, primarily from pay-per-view movies and games of chance. Direct expenses for the year ended December 31, 1995 were $10,000, primarily representing costs of sales for pay- per-view movies. Selling, general and administrative expenses for the year ended December 31, 1995 increased to $1.5 million from $582,000 during the period ended December 31, 1994 as a result of additions to the staff and increased travel and other expenses as SeaVision entered the implementation phase for its ITV system. Depreciation and amortization expense increased to $288,000 during the year ended December 31, 1995 as compared to $6,000 for the period ended December 31, 1994 because the Company had not completed installation of ITV systems during the earlier period. The Company incurred an operating loss in the amount of $1.8 million for the year ended December 31, 1995, compared to an operating loss of $588,000 during the period ended December 31, 1994. Interest expense increased from $24,000 to $369,000 for the periods ended December 31, 1994 and 1995, respectively. All of the interest expense was accrued but unpaid during the period and the increase reflected continued funding of the 22 Company's operating losses by certain of its stockholders in the form of loans. See "Certain Transactions--Stockholder Loans." The Company sustained a net loss of $2.2 million during the year ended December 31, 1995, compared to a net loss of $612,000 for the period ended December 31, 1994, as a result of the increased operating losses and interest expense discussed above. PRO FORMA RESULTS OF OPERATIONS The following table sets forth certain pro forma consolidated financial data of the Company, expressed as a percentage of total consolidated revenue for the Company, for the year ended December 31, 1995 and the six months ended June 30, 1996, as if this Offering and the ISM Acquisition and the KCG Acquisition had been consummated as of January 1, 1995. The pro forma financial data may not be indicative of the results that would have been achieved if the transactions reflected herein had occurred at the beginning of the period for which the pro forma data is presented or of future results.
PRO FORMA CONSOLIDATED FINANCIAL DATA -------------------------------------------- (IN THOUSANDS) -------------------------------------------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 --------------------- --------------------- REVENUE SeaVision....................... $ 44 0.7% $ 163 4.7% SportsWave (ISM)................ 4,878 78.5 1,771 50.5 KCG............................. 1,995 32.1 1,792 51.1 Less: Intercompany eliminations..................... (705) (11.3) (221) (6.3) ---------- -------- ---------- -------- TOTAL REVENUE.................... 6,212 100.0 3,505 100.0 Direct costs..................... 3,367 54.2 2,014 57.5 ---------- -------- ---------- -------- Gross margin..................... 2,845 45.8 1,491 42.5 Selling, general & administrative................... 3,950 63.6 2,644 75.4 Depreciation & amortization...... 1,015 16.3 759 21.6 ---------- -------- ---------- -------- Operating loss................... (2,120) (34.1) (1,912) (54.5) Interest income (expense)........ 33 0.5 (3) (.1) ---------- -------- ---------- -------- Net loss......................... $(2,087) (33.6)% $(1,915) (54.6)% ========== ======== ========== ========
PRO FORMA RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THESIX MONTHS ENDED JUNE 30, 1996 On a pro forma consolidated basis, the Company recognizes revenue from three sources: SeaVision's ITV system, sports marketing revenue generated by ISM and software design and network solutions fees generated by KCG. The Company, ISM and KCG have had various business relationships during the periods covered by this discussion. For the purposes of the consolidated pro forma numbers presented above and the following discussion, all such intercompany transactions have been eliminated. Revenue Revenue for the year ended December 31, 1995 totaled $6.2 million, with 0.7% being generated by SeaVision, 78.5% by ISM and 32.1% by KCG. Revenue for the six months ended June 30, 1996 totaled $3.5 million, with 4.7% being generated by SeaVision, 50.5% by ISM and 51.1% by KCG. SeaVision completed the installation of its system on its first ship in August 1995 and on its second ship in December 1995, and therefore reported only $44,000 of revenue for the year ended December 31, 1995 and $163,000 of revenue for the six months ended June 30, 1996. SeaVision completed the installation of its ITV system on its third ship in July 1996 and holds firm contracts for the installation of its system on six additional 23 ships which it expects to complete by December 31, 1996. Accordingly, SeaVision anticipates a significant increase in revenue from its ITV system as these installations are completed. SeaVision also holds contracts under which cruise lines have the option to request SeaVision to install its system on an aggregate of 16 additional vessels. In addition, SeaVision is pursuing negotiations with various other cruise lines to install its system on up to 30 additional vessels. The Company believes, based on its historical installations and its projections of installations for which it has firm contracts, that, if the Company receives firm contracts for 16 additional installations (either through the exercise of cruise line options or through the execution of additional contracts), the Company could complete such installations and, accordingly, have its ITV system in operation on a total of 25 ships by December 31, 1997. The Company believes that the installations which might result from exercise of the cruise line options and from these negotiations represent a significant market opportunity for the installation and operation of numerous additional systems. There can be no assurance, however, that any option will be exercised or that any additional contracts will result from the current negotiations or, if additional firm contracts are secured, that unforeseen delays in installation will not occur. Subsequent to June 30, 1996, SeaVision has added an Onboard Promotions Manager to its staff, added a blackjack game to its video games of chance module and continues to add content to the video shopping module to broaden the selections available to users. The Company expects that these additions will have a positive impact on the revenue derived from the ships on which the Company's ITV system is installed. ISM reported revenue of $4.9 million for the year ended December 31, 1995 and $1.8 million for the six months ended June 30, 1996. Revenue is generated by contract payments as sports-themed events occur. For the year ended December 31, 1995, ISM's revenue was negatively affected because publicity resulting from a 232-day baseball players' strike and owners' lockout between Major League Baseball and its players union caused certain key customers to cancel their promotions with ISM and the MLBPAA. ISM has established relationships with retired pro football, basketball and hockey players to minimize its reliance on any one sport in the future. SportsWave is projecting a decline in revenue for the year ending December 31, 1996 compared to the same period of the prior year because management believes that ISM's traditional customers utilized a substantial portion of their sports marketing budget on the summer Olympic games held in the United States. Based on firm contracts and discussions with current and past customers, management expects that revenue for ISM for the year ending December 31, 1997 will increase compared to the year ending December 31, 1996. KCG reported revenue of $2.0 million for the year ended December 31, 1995 and $1.8 million for the six months ended June 30, 1996. Revenue for the period ended June 30, 1996 increased 134.2% compared to the same period of the prior year. KCG's software design work on SeaVision's ITV platform was recognized when the platform received an applications development award from Microsoft in 1995. Successful marketing efforts associated with this award plus the addition of a number of new clients were primarily responsible for the substantial increase in revenue recognized during this period. Expenses Direct costs were $3.4 million and $2.0 million for the periods ended December 31, 1995 and June 30, 1996, respectively. SeaVision's direct costs for the year ended December 31, 1995 and the six months ended June 30, 1996 are discussed above under "--Historical Results of Operations." ISM's direct costs were $2.7 million for the year ended December 31, 1995 and $1.1 million for the six months ended June 30, 1996. Gross margin realized by ISM traditionally ranges from 42.5% to 43.8%. Gross margin for the year ended December 31, 1995 was 43.7%. Gross margin for the six months ended June 30, 1996, at 39.6%, was below this range because of the replacement of several higher margin contracts with contracts at lower margin. 24 KCG's direct costs were $948,000 for the year ended December 31, 1995 and $1.0 million for the six months ended June 30, 1996. Gross margin for KCG was 52.5% for the year ended December 31, 1995 and 42.5% for the six months ended June 30, 1996. The decline in gross margin resulted from a reclassification in the way certain sales commission are handled. Sales commissions directly attributable to revenue are now accounted for as direct costs while prior to January 1, 1996 these expenses were categorized as indirect selling expenses. Selling, general and administrative expenses of $3.9 million and $2.6 million for the periods ended December 31, 1995 and June 30, 1996, respectively, were equal to 63.6% and 75.4% expressed as a percentage of total revenue. The increase in selling, general and administrative expenses as a percentage of sales resulted from additions to SeaVision's staff, the seasonal nature of ISM's revenue base and the decline in revenue discussed above. Depreciation and amortization expense for the year ended December 31, 1995 and the six months ended June 30, 1996 were $1.0 million and $759,000, respectively. The increases in depreciation and amortization expense have resulted almost entirely from the continued installation of SeaVision's ITV system. The Company realized operating losses of $2.1 million and $1.9 million for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. The operating losses were primarily attributable to losses incurred by the Company relating to the growth of SeaVision's staff and operations and the decrease in ISM's revenue, both of which are described above. Interest income for the year ended December 31, 1995 was $33,000, and interest expense was $3,000 for the period ended June 30, 1996. Interest expense of $369,000 and $438,000 for the periods ended December 31, 1995 and June 30, 1996, respectively, was eliminated because, on a pro forma basis, the obligations on which such interest accrued are treated as having been extinguished in connection with the Offering. The Company incurred net losses of $2.1 million and $1.9 million for the periods ended December 31, 1995 and June 30, 1996, respectively, for the reasons discussed above. Based on scheduled installations for ITV systems by SeaVision, firm contracts for ISM's services and trends in KCG's revenue, management expects that the Company's combined revenue will increase after the acquisition of these entities and as the Company develops. LIQUIDITY AND CAPITAL RESOURCES From its organization in June 1994 through May 31, 1996, the working capital needs of SeaVision were funded through stockholder loans. See "Certain Transactions--Stockholder Loans." On May 31, 1996, SeaVision entered into a line of credit with Integra Bank (now National City Bank). The maximum amount of borrowing allowed under the line of credit is $5 million, all of which was outstanding as of August 1, 1996. The initial funding under the line of credit occurred May 31, 1996 and was in the amount of $4.6 million, $3.6 million of which was used to repay a portion of the principal amount of the Stockholder Loans. The Company may choose between two rates of interest at each funding date, the Prime Rate or the Euro-Rate (as defined in the Line of Credit Note dated May 31, 1996) plus one and one-half percent. The remaining amounts funded under the line of credit have been used as general working capital in the operation of the Company. The line of credit expires on May 31, 1997 and is guaranteed by certain stockholders of the Company. The guarantors are entitled to a guarantee fee from the Company equal to the difference between 15% per annum and the rate which the Company is charged under the terms of the line of credit. On August 16, 1996 the Company issued 25,000 shares of Convertible Preferred Stock. The Company intends to use the net proceeds from the sale of the Convertible Preferred Stock for general working capital purposes. 25 The Company recognized an operating loss for the year ended December 31, 1995, and the Company's business will require substantial capital investment on an ongoing basis to finance its expansion in the travel and leisure industry and for the implementation of its business plans for PhotoWave and SportsWave. Capital expenditures were $1.6 million during the year ended December 31, 1995 and $1.4 million for the six months ended June 30, 1996. The Company expects to incur capital expenditures of approximately $6 million during the full year ended December 31, 1996 and approximately $17 million for the year ending December 31, 1997. The actual amount and timing of the Company's capital expenditures will vary (and such variations could be material) depending primarily upon the number of new contracts for installation of its ITV systems entered into by the Company, the costs of the installations and the rate of implementation of the PhotoWave and SportsWave business plans. The Company believes that the net proceeds from this Offering, together with available funds and cash flows expected to be generated by operations, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next 24 months. If cash generated by operations, together with the net proceeds of the Offering, were insufficient to satisfy the Company's cash requirements, the Company would be required to consider other financing alternatives, such as selling additional equity or debt securities or obtaining long or short-term credit facilities, although no assurance can be given that the Company could obtain such financing. Any sale of additional equity or convertible debt securities would result in additional dilution to the Company's shareholders. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), was issued in March 1995 and is effective for fiscal years beginning after December 15, 1995. This statement will be applied prospectively and requires that impairment losses on long-lived assets be recognized when the book value of the asset exceeds its expected undiscounted cash flows. The Company adopted SFAS No. 121 on January 1, 1996, and adoption at that time did not have a material impact on the Company's financial position or results of operations. 26 BUSINESS The Company provides customized ITV, digital imaging and other communications and media services to users in the travel and leisure, sports marketing and promotion and other industries. The Company initially marketed its ITV system to the travel and leisure industry, principally international cruise lines, and expects to expand its presence in the cruise industry. The Company anticipates installing ITV systems in hotels and resorts and intends to adapt its system to other industries and niche markets in which its technology may afford a competitive advantage, including the commercial photography and sports marketing and promotion industries. The Company also will operate KCG's software design and network solutions business to support the Company's other businesses and to serve third party clients. OPERATING AND GROWTH STRATEGY The Company's goal is to become a leader in the processing and distribution of interactive television and digital imaging services. To achieve this goal, the Company's strategy is: . To expand the Company's presence in the travel and leisure industry by (i) completing the installation of ITV systems on ships for which the Company has firm contracts, (ii) seeking additional commitments from cruise line operators for the installation and operation of ITV systems, (iii) adding new applications to its platform to maintain its competitive position within the cruise industry and (iv) extending the use of its platform to other segments of the travel and leisure industry, including hotels and resorts; . To develop the Company's digital imaging business by marketing, through PhotoWave, a turnkey package of digital imaging services to niche markets currently dependent on conventional photography; . To expand the sports marketing business of ISM by marketing, through SportsWave, new applications for the Company's platform directed at promoters of sporting events and spectators and corporate sponsors at such events; . To utilize KCG's software design and creative expertise to further develop the Company's digital platform and continue KCG's third party software design and network solutions business; . To engage from time to time in acquisitions of businesses and the development of joint venture relationships that offer opportunities to complement or expand the Company's ITV and other capabilities and the marketing of such capabilities; and . To supply specialized software and creative program enhancements to mass market providers of interactive communications and digital imaging services, such as cable television and telephone companies. Expand Presence in the Travel and Leisure Industry The Company intends to expand its presence in the travel and leisure industry through a number of initiatives. In addition to completing the installation of ITV systems in ships for which it has firm contracts, it is seeking additional commitments for the installation and operation of its ITV system on cruise ships. Two of SeaVision's contracts give the cruise operators the option to have SeaVision's system installed on an aggregate of 16 additional ships. Additionally, during the term of its contract with NCL, the Company has the right to be afforded the opportunity to match any third-party offer that NCL may receive with respect to the provision of on-board ITV and video entertainment services. The Company is currently negotiating with various other cruise lines regarding contracts to install its system on up to 30 additional ships. There can be no assurance, however, that any option will be exercised or that any additional contracts will result from the current negotiations. The Company also intends to continue to develop new applications for SeaVision's ITV system for the purpose of enhancing the system's appeal to cruise operators. For example, the Company, working with Kodak, recently developed a cost-effective digital imaging application that the Company believes will significantly 27 improve the delivery of photography services on cruise ships by providing passengers with the ability to preview, customize and purchase photos on the ITV system. The Company also is seeking to utilize its platform as a media center for various shipboard systems, including the ship's information systems, broadcast studio, print shop and photography department. In addition, the Company is pursuing contractual arrangements under which the Company would act as a systems integrator for ships that are under construction or being retrofitted. In the hotel market, the Company is currently marketing an ITV system to hotels and resorts that would make available to guests not only on-demand pay- per-view movies, but also other services that most current hotel movie operators do not provide, such as high speed Internet access, e-mail access and direct airline ticketing and rental car reservations. Develop the Digital Imaging Business Through PhotoWave, the Company plans to market a turnkey package of digital imaging services to businesses currently dependent on conventional "wet" photography. The Company's services include a data processing and image archival center that permits storage and transmission of digital images at the Company's site on the Internet and other private networks and feature high-end content and graphics, photo enhancement tools and customized business management reporting tools to support users. The Company believes that its digital imaging applications will make digital imaging technology available on a cost effective basis to users with only minimal training, which may provide the basis for broad acceptance of the Company's services by current users of conventional photography. Expand ISM's Sports Marketing Business Through SportsWave, the Company is adapting its platform to offer interactive services for use in sports arenas and stadiums to enhance the impact of advertising messages. This program envisions equipping arenas and stadiums with interactive capabilities at a patron's seat, in luxury boxes or at central locations, which would enable patrons to retrieve sports data, purchase team logo and other concession items and view advertisements and special offers. The Company also intends to support ISM's core business of corporate hospitality and event promotion by providing innovative digital imaging products to ISM's clients and expanding upon the services currently being offered by ISM. The Company is developing a mobile media center that could be made available to corporate sponsors for promotional purposes and corporate incentives. Among other things, the center could be used to deliver prints of pictures taken with major sports figures and to supply promoters of sporting events with on-site office services, such as copying, information processing and communications. Utilize KCG's Technical and Creative Expertise The Company intends to utilize KCG, which was responsible for much of the software design and programming for the Company's proprietary digital platform, to strengthen the creative and technical foundation for the further development of the platform and its adaptation to new markets. The Company, through KCG, also intends to continue to provide software design and network solutions services to third parties. Acquire Complementary Businesses and Develop Joint Venture Relationships The Company intends to continue to identify businesses which are available for acquisition and which offer opportunities to complement and expand the Company's ITV and other capabilities and the marketing of such capabilities. The Company will also seek to develop joint venture relationships with other businesses in order to further the marketing of the Company's system for existing or additional applications. In addition, if and as new applications for the Company's system are identified, the Company may find it desirable to seek acquisitions of technologies which could enhance the capabilities of its system in respect of such applications. There can be no assurance, however, that the Company will be able to identify suitable and available acquisition or joint venture opportunities or that it will be able to reach agreement with any identified candidate. 28 Supply Specialized Software and Creative Program Enhancements to Mass Market Providers The Company believes that the activities of SeaVision, PhotoWave and SportsWave, as well as the expertise and industry relationships provided by KCG, will provide a basis for establishing relationships with mass market providers of interactive communications and digital imaging services that could lead to the Company becoming a supplier of specialized software to such providers. The Company plans to offer specialized software from the Company's platform, such as software permitting immediate processing of transactions, to these providers for use in other system architectures. The Company also intends to provide creative program enhancements to telephone and cable companies that are developing pilot programs to provide interactive services to households. The Company is pursuing discussions with a telephone company regarding the possible use of the Company's digital file server and software for a mass market ITV trial. TRAVEL AND LEISURE INDUSTRY The Company's initial development and marketing efforts for its ITV system have been directed at the international cruise industry. The Company is seeking additional contracts for the installation and operation of its system on cruise ships and intends to add new applications to its platform for cruise operators. The Company also intends to extend the use of its platform to other segments of the travel and leisure industry, including hotels and resorts. International Cruise Industry Industry Overview. From its inception in 1994, SeaVision identified the cruise industry as an ideal initial market for its interactive communications platform. The cruise industry is the fastest growing segment of the worldwide travel business. An industry trade group, using information as of December 31, 1995, has indicated that approximately 120 cruise ships with a capacity of more than 100,000 berths serve the North American market. The industry has experienced steady and rapid growth, with passenger volume increasing from 500,000 North American passengers in 1980 to 4.4 million passengers in 1995, and expected to reach 7.0 million in 2000. An industry trade group has estimated that the market for the cruise industry will grow to more than $50 billion per year in the next five years. The increasing popularity of cruise excursions in both the United States and abroad, combined with the high level of customer satisfaction, is expected to foster continued growth in the industry. To meet this anticipated demand, the cruise lines are investing in new ships, with 23 new luxury liners set to enter service in the next two years. In addition, the typical cruise line passenger's age and income profile presents an ideal market for SeaVision's services. According to an industry trade group, the average cruise passenger is 50 years old and has a household income of $63,000. Eleven percent of cruise passengers have an annual household income of $100,000 or more. The Company believes that it is the only company to date that has successfully operated digital ITV systems on cruise ships. Use of the Company's ITV System in the Cruise Industry. The Company's cruise industry business began in March 1995 with a single contract to install its ITV system on NCL's m/s Dreamward. The Company has now installed its ITV system on two additional cruise ships, one owned and operated by each of Celebrity and Carnival, and provides service to approximately 2,500 cabins. Recently, the Company's contract with Celebrity was expanded to provide for the installation and operation of the Company's system on board the five additional ships in Celebrity's fleet, and the Company's contract with NCL was expanded to provide for the installation and operation of the Company's system on board one additional ship in NCL's fleet. Upon completion of these six additional installations, SeaVision's ITV system will be operational in nine ships with a total of approximately 7,165 cabins and a total estimated annual passenger carry of approximately 699,000. These nine installations will represent approximately 7% of all existing cruise ships, 14% of total cabins in the industry and 12% of total passenger carry in 1995. Part of the Company's strategy in expanding its presence in the cruise industry involves the development of new features which the Company believes will enhance the value of the system to cruise operators. As a part of this strategy, SeaVision has developed PhotoPlace, an on-board digital photography service which the Company 29 is marketing as a cost-effective alternative to shipboard photography which presently relies on conventional photography. See "--Services for Passengers-- Shipboard Photography." The Company is also developing a media center which will use the Company's platform to support various shipboard systems. See "-- Services for Cruise Operators." Services for Passengers. The Company's ITV system offers various services to passengers, some of which currently generate revenue to the Company and some of which are currently offered free to passengers. Passenger Pay Services. SeaVision's revenue from its cruise ship operations is derived primarily from fees paid by passengers for in-cabin ITV services. Video Wagering. On cruise ships, the Company's ITV system allows passengers, from their cabins, to play games of chance, presently including video slots, video poker and blackjack, using credits charged to their cabin accounts. The Company's video wagering module provides photo quality, high resolution graphics, unlike video games of chance offered in casinos, but still has the speed of play of casino games. The Company intends to add more modules to the three modules currently available for gaming purposes, including one providing a sports book whereby passengers can place wagers on major sporting events. Video On-Demand. Through the Company's ITV system, a passenger can choose from a large number of movie selections and individually start the selected film at the passenger's convenience. In contrast to other video-on-demand providers, the Company's system allows on-demand selection and viewing of full motion previews of movies offered on the system. SeaVision is the only company providing the cruise industry with digitally formatted pay-per-view movies from Walt Disney Pictures and Metro-Goldwyn-Mayer. The Company currently offers on-demand movies on a pay-per-view basis at prices established by the Company ranging from $5.95 to $9.95. Shipboard Photography. The Company, working with Kodak, has developed PhotoPlace, which offers on-board digital photography services to cruise passengers through a digital imaging system tied to the Company's ITV system. Currently, the on-board photography market is serviced by concessionaires utilizing conventional "wet" photography, which requires the processing and developing of all photographs taken (regardless of the number of photographs sold) and generally limits the passenger's choice of size and number of prints. With PhotoPlace, shipboard photographers using digital cameras take passenger photos and upload the images for viewing on the Company's ITV system. Guests are able to preview, customize and purchase their photographs through their cabin television. The Company believes that this convenience will result in additional sales of photographs. In addition, since photographs are processed in accordance with passenger purchases, there is a substantial reduction in the number of photographs processed. While the per unit cost of processing is higher for digital images than for conventional photographs, the Company believes that the PhotoPlace system will be cost-effective as a result of the reduction in the number of photographs processed. Consequently, the Company believes that PhotoPlace should gain wide acceptance in the travel and leisure industry, and that it could become a significant source of revenue. The Company is currently installing PhotoPlace on NCL's Dreamward, and will begin installing it on two other ships in the fall of 1996. Management believes that the Company should be able to develop improved capabilities for storing, displaying and distributing digital images. The Company is already actively working on applying its existing digital imaging capabilities elsewhere in the operation of cruise ships, including the printing of crew identification badges and passenger identification cards, the publishing of the ship's daily newspaper in four-color output, the printing of daily menus and television programming guides and the reproduction of on-board promotional materials. There can be no assurance that the Company will be able to apply its existing digital imaging capabilities as anticipated or develop improved digital imaging capabilities as quickly as expected. 30 Shopping. The Company's shopping service provides passengers with the ability to preview and purchase products through their cabin ITV system. The Company acts as either the retailer earning a markup on the wholesale cost of the goods sold or a distributor earning a portion of the retail price of the goods sold. The Company presently offers for sale items from such vendors as Bobby Jones Sportswear, Wenger Swiss Army Brand and The Nature Company. The Company is currently negotiating contracts with a number of other high quality, name-brand manufacturers and retailers and anticipates that revenue from in-cabin shopping will increase as more vendors are added. Additional Passenger Services. The Company's ITV system also includes various services for which the Company does not currently receive direct revenue but which enhance the usefulness of the system to customers, afford the Company a competitive advantage in marketing its system, attract users to other services offered on the Company's system and provide a potential source of additional revenue. The Company anticipates that these services will represent a source of future revenue through the use, for example, of corporate sponsorships of particular modules and transaction fees paid either by the cruise operator or the passenger using the service. Shore Excursion Preview and Ordering. The Company's ITV system includes what the Company believes to be the world's first interactive shore excursion preview and ordering system which features on-demand full-motion videos illustrating the entertainment options available in each port-of-call. The Company's shore excursion system can interface with the ship's excursion inventory control system and also makes available to cruise operators the Shore Excursion Reservation and Ordering System (SEROS), a proprietary inventory control system. This module increases shipboard productivity by reducing the need for staff to market and answer questions about shore tours and by automating the inventory control system and ticket sales. The shore excursion service has been well-received by passengers as evidenced by its extensive usage. As of August 1, 1996, passengers on Celebrity's m/v Century had used it on more than 33,500 occasions, or an average of approximately 1,340 occasions per cruise, and passengers on NCL's m/s Dreamward had used it on more than 54,500 occasions, or an average of approximately 1,185 occasions per cruise. Wine Ordering; Room Service. Through the Company's ITV system, a passenger can review the ship's wine menu, order wine for dinner, pay for it and have it waiting upon arrival in the restaurant. The Company is currently pursuing discussions with advertisers to sponsor a full motion informational interactive video using a sponsor's wines to explain the appropriate wine selections for various meals. A passenger can also order room service through a series of easy-to-use menus, avoiding the need, for example, for ship personnel to collect and process breakfast orders manually. Personal Account Review; Free Television. The Company's ITV system permits a passenger to view the status of his account and also provides access to free television programs on closed-loop channels and through satellite-received cable programming. Other Services Under Development. The Company is developing modules to make other services available to passengers, such as a module that will interface with a ship's Global Positioning System, allowing passengers to follow their itinerary and receive current weather information. Services for Cruise Operators. The Company makes several kinds of services available to cruise operators. Management Information. The Company's digital platform provides various management information services. The system can generate detailed activity reports and reports on usage of the system. Cruise operators can also use the system for various types of surveys, from user satisfaction questionnaires to sophisticated market research. Systems Integration--Media Centers. The Company is pursuing negotiations with two cruise lines to act as the systems integrator for ships that are under construction or being retrofitted. The Company's 31 shipboard media center is being jointly developed with Wolf Coach, Inc., a developer of truck or trailer mounted satellite communications and production centers ("Wolf Coach"). The integrated shipboard media center would use the Company's digital platform to support various shipboard systems, such as shipboard information systems, the broadcast studio, the print shop and the photography department. The Company believes that no other company has gone beyond integration of components within a department to integrating these shipboard systems. Although the Company anticipates that its media center design and software will be available for installation on cruise ships prior to the end of 1996, there can be no assurance that the Company will be successful with efforts to obtain media center or other systems integration contracts. Crew Entertainment. To assist in maintaining crew morale, the Company's system offers a product marketed as "Backstage Pass" which provides a number of staff entertainment options, including foreign language programming. Advertising and Marketing. The demographic profile of cruise passengers, including their age and high average income, make them desirable to advertisers. Before the Company's ITV system, vehicles to access this audience were limited. The Company's system offers advertisers and merchandisers a broad range of options for reaching this audience including a flexible system able to handle a variety of interactive applications to entertain, inform and gather data; placement of corporate logos on individual interactive screens; sponsorship of free programming; interactive commercials of interest to a particular audience; and special event marketing. Furthermore, the Company's system may be used as a test platform for advertisers interested in obtaining invaluable knowledge and experience with interactive television now, before such systems are generally available ashore. The Company's ITV system allows advertisers and merchandisers to design a wide variety of applications, experiment with them in a number of ways and analyze the results of their efforts. Following installation of the Company's system on all ships for which it currently has firm contracts, the Company's system will be operational on nine ships having an estimated annual passenger carry of approximately 699,000. The Company believes the revenue potential from advertisers and merchandisers to be substantial, and the Company is actively pursuing discussions with advertisers, although the Company currently has no contracts with advertisers. The Company believes that a recent demonstration of its shopping module at a Microsoft-sponsored symposium for on-line merchandising will assist it in attracting advertisers. Customer Contracts. As of August 15, 1996, the Company had entered into contractual arrangements with each of Celebrity, Carnival and NCL relating to the installation and operation of the Company's ITV system on board certain of each cruise line's ships, as indicated in the following table:
SHIPS ON WHICH SHIPS ON WHICH SHIPS UNDER FIRM CRUISE OPERATOR SYSTEMS ARE IN CONTRACT FOR CAN ELECT TO HAVE CRUISE LINE OPERATION SYSTEM INSTALLATION SYSTEMS INSTALLED - ------------ -------------- -------------------- ------------------ Celebrity................ 1 5 -- Carnival................. 1 -- 12 NCL...................... 1 1 4 --- --- --- Total.................. 3 6 16
All of the Company's current contracts with cruise lines involve an arrangement under which the Company installs its ITV system on board and operates the system as a concessionaire, bearing most of the costs of installation and operation. The Company, which retains ownership of the system, shares with the host cruise line a portion of the revenue the system generates from the sale to passengers of various pay services, as well as a portion of the revenue from the sale of advertising to retailers, corporate sponsors and other third parties. Each of the Company's contracts with the cruise lines is subject to renewal by mutual consent of the parties at the expiration of the initial term. A decision by one or more of the cruise lines to discontinue its agreement with the Company at the contractual expiration date could have a material adverse effect on the Company. Each 32 of the Company's existing cruise line contracts grant to the cruise line the right, under certain circumstances, following termination of its agreement with the Company, to purchase the hardware installed by the Company on the subject ship and to obtain a nontransferable license to use the software installed by the Company on the subject ship. One contract grants the cruise line the right to purchase such hardware and license such software from the Company, for a one-year period thereafter, to enable the operator to install the Company's system on other ships in its fleet. Hotels and Resorts Industry Overview. In 1995, the lodging market in the United States consisted of over 3.4 million hotel rooms, of which approximately 1.9 million were in hotels containing 100 or more rooms. Guest pay services were introduced in the lodging market in the early 1970's and have since become a standard amenity offered by many hotels to their guests. Virtually all hotels offer free-to-guest services as well. In 1986 certain hotels began offering their guests limited interactive services, and in 1991 on-demand movies became available. Guest pay services are attractive to hotel operators because they provide an additional amenity for their guests, as well as incremental revenue to their establishments. The Company's strategy is to pursue contracts for the installation and operation of its ITV system in hotels and resort properties with more than 100 rooms. Use of the Company's ITV System in the Hotel and Resort Industry. The Company believes that the ITV system which the Company uses in cruise industry applications can be used in essentially its present form to provide digital interactive services to the hotel and resort industry. Given the nature and configuration of the Company's platform, the Company will be able to offer services not generally available to hotels and resorts at the present time, such as in-room Internet access at speeds much faster than the typical home computer and a ticket purchasing system which permits guests to reserve and purchase theater and event tickets on the system. The Company intends to focus its hotel services on the needs of the business traveler and plans to offer airline ticketing and rental car reservations, as well as e-mail access. For resorts, the Company intends to offer video gaming for children and instructional videos for adults on subjects such as golf and tennis. In addition to the services described above, the Company intends to offer similar entertainment options to hotel and resort guests as it does to cruise passengers, including video on-demand and shopping, at prices comparable to those charged in the cruise industry. Games of chance cannot be offered in any United States hotel rooms at this time. The Company is also exploring other forms of revenue-generating entertainment. The Company is currently negotiating with a resort operator to install and operate its system. There can be no assurance, however, that these negotiations will result in a firm contract. Advertising and Marketing. The Company's advertising strategy for hotels and resorts will focus on both local advertisers who wish to make guests aware of their presence and large national campaigns that recognize the value of reaching these guests beyond in-room magazines and traditional television commercials. To reach local advertisers in a cost-effective manner, the Company anticipates developing revenue-sharing relationships with other local media such as in-room hotel magazines. Several of such companies have expressed an interest in working with the Company to expand their media offerings. While management believes that such relationships would provide a low-cost stream of revenue for the Company, no definitive arrangements have been entered into, and there can be no assurance that such relationships will materialize. DIGITAL IMAGING INDUSTRY Industry Overview Digital imaging involves the capture of images in or conversion of images to a digital format, the storage of images in a computer and the transmission of the images over electronic networks. Digital imaging equipment such as cameras and scanners has been developed which permits the capture of digital images instantly without 33 the need for film or the chemical development process. The camera records the image on magnetic memory cards which can be removed and inserted in any computer equipped with a standard slot for such cards. Alternatively, digital imaging equipment can be connected directly to computers through standard industry interfaces. Once an image is stored in a computer, software can be used to manipulate and enhance the image in various ways such as changing the size, rotating it or adding color. Use of the Company's Platform in the Digital Imaging Industry Through PhotoWave, the Company intends to market a turnkey package of digital imaging services to commercial markets that currently depend on conventional photography. The Company's digital imaging services, which can be used with minimal training, include storage and transmission of digital images at the Company's site on the Internet and other private networks, high-end content and graphics, photo enhancement tools and customized business management reporting tools. The Company intends initially to market its digital imaging services to real estate, school portrait and insurance companies. These companies are ideal candidates for digital imaging technology because of their need to transmit and store a large number of images. The Company is pursuing discussions with a large photography company to jointly establish an independent dealer network using digital imaging technology and the Company's package of digital imaging storage, retrieval, transmission and processing services. The Company also intends to use PhotoWave's digital imaging applications to support its other businesses, such as sports marketing. See "Sports Marketing Industry-- Corporate Promotion and Hospitality." The Company established a digital imaging pilot site in Lisbon, Ohio in May 1996 which makes the Company's package of digital imaging services available to independent business owners in that area. A similar pilot site will shortly be opened in Pittsburgh, Pennsylvania. The Company believes that these pilot sites will serve as the basis for a program to offer businesses such as local commercial photographers the ability to offer digital imaging services to other local businesses. Potential Commercial Applications The Company intends to commence marketing of digital imaging services in the markets described below. Independent Businesses. The Company's strategic plan includes the aggressive implementation of a digital imaging program to enable independent business owners to offer digital imaging services to businesses within a given geographic territory. These local independent business owners could provide digital imaging services to youth and school athletic programs, promoters of community and civic events and other local businesses for use, for example, for corporate identification badges and restaurant menus. The Company's digital imaging data center would support this network by providing high-end creative and graphic content services through high-speed digital phone circuits over the Internet. The Company has launched digital imaging test sites which would serve as pilots in developing products and services of interest to the local customer base. Real Estate. Photographs play a significant role in the marketing of real estate. It has been estimated that over 50 million photographs were taken in the real estate industry in the United States in 1995. Real estate companies were among the first to use the Internet to disseminate information and photographs to potential customers. However, the existing limited capacity to store such information and images in a standard format and centralized location has limited the expansion of such application. Using its proprietary central file server platform, the Company plans to make available to real estate companies a central hub for data and image storing. Insurance. It has been estimated that over 27 million photographs were taken in the insurance industry in the United States in 1995. Accessible digital imaging would provide the insurance industry with the ability to process claims more efficiently. Digital imaging equipment would enable an insurance adjuster to capture the 34 image at a claim site to determine the extent of the insurance company's obligation to pay the claim. The insurance adjuster could transmit the image on the Company's network and store it on the Company's file server. The claims examiner could then download the image and the accompanying report. School Photographs. School photography represents a major portion of the commercial photography industry. It has been estimated that school photographs of over 46 million students were taken in the United States in 1995. School photography companies must take, archive, store and have ready access to a large number of photographs. Additionally, the product offering is rather narrow and the costs are substantial as photographs must be processed into proofs for customers to view and purchase. A combination of digital imaging and the Company's transmission and storage capabilities would enable the photographer to offer a wider variety of products, enhance or alter images and archive and instantly retrieve images. Customers would also be able to view the images on a high resolution screen, thereby eliminating the need to actually print the photograph in all cases unless the customer decides to purchase it. The Company anticipates offering this service to commercial photographers for an annual membership fee plus additional fees for individual services such as archiving software, storage and image enhancement tools. SPORTS MARKETING INDUSTRY Industry Overview According to the 1996 Sports Almanac, in 1995, over 150 million spectators attended a sporting event sponsored by Major League Baseball, the National Football League, the National Basketball Association, the National Hockey League or Division I football and basketball of the National Collegiate Athletic Association in approximately 300 arenas and stadiums in the United States, and millions more attended concerts and other events in those venues. The current seating capacity of arenas, stadiums and racetracks in the United States and Canada has been estimated at over 4,000,000, and it has been estimated that as much as $3 billion will be spent on new arena and stadium construction over the next two years. The Company believes that the demand for interactive technology in sports venues to enhance the impact of advertising at sporting events will grow substantially in the next decade and present substantial opportunities for sports marketing services. The Company plans to begin marketing prior to the end of 1996 an ITV system tailored to operate in sports venues. Event marketing, often centering on a sports event, is a growing sector of the worldwide advertising industry. It has been estimated that $20 billion is spent annually on corporate sports sponsorships, advertising and special events promotions. The Company intends to take advantage of this market by continuing the corporate promotion and hospitality business of ISM and by expanding that business through the use of the Company's digital platform in sports marketing applications. ISM's Activities SportsWave was formed to develop and market applications of the Company's digital platform in the sports industry and to operate the existing business of ISM, which is to be acquired by the Company concurrently with the closing of the Offering. ISM, which was formed in 1989, offers a full range of sports marketing and promotion services. The principal focus of ISM's operations has traditionally been in the areas of promotions and premiums, corporate incentive programs, event marketing and licensing. Since 1989, ISM has held a worldwide license with Major League Alumni Marketing, Inc., with certain exclusive rights, to use the name "Major League Baseball Players Alumni Association" ("MLBPAA") and certain related logotypes and trademarks and the name "Major League Alumni Marketing" in connection with certain marketing, merchandising and promotional activities. The MLBPAA is a nonprofit organization, currently comprised of over 3,000 former players, that was founded to, among other things, promote and encourage the sport of baseball and to assist in charitable work. Management believes its relationship with MLBPAA to be good. 35 The activities covered by the Company's license include (i) sponsorships and events with former players, such as tours, exhibition games and autograph and photograph sessions, (ii) creating and supplying products autographed by former players and (iii) corporate and sales incentive programs including fantasy camps and spring training trips. ISM pays royalties for the use of such rights, and, subject to certain limitations, ISM is permitted to sublicense such rights. The Company believes that this license from the MLBPAA is important to its sports marketing and promotion business. The Company's license currently expires on December 31, 1998 and automatically renews for successive two-year terms unless either party gives notice of its election not to renew at least one year prior to expiration of the then-current term. ISM has contracted with numerous corporate clients in the past several years to provide or sublicense former players and baseball memorabilia for varied events. ISM has contracted to provide similar services in 1996 to corporate clients such as American Airlines, MCI Telecommunications Corporation, Nabisco Biscuit Company, Campbell Soup Company and Pennzoil Products Company. The traditional sports marketing aspect of ISM's business has historically been seasonal, with the largest number of events and promotions being staged during the Major League Baseball season. However, ISM also contracts with former professional football, basketball and hockey players to participate in events, promotions and incentive programs for ISM clients, which reduces ISM's reliance on events held during the Major League Baseball season. Potential Commercial Applications Advertising Enhancements at Sporting Events. Arena owners and operators have begun experimenting with new media technology in an effort to enhance advertising at sporting events. An example is the Rose Garden, the home arena of the Portland Trailblazers franchise of the National Basketball Association, which is equipped with acoustic clouds and wired with miles of fiber optic cable capable of delivering advertising and other information instantly to over 750 television monitors throughout the arena. The Company plans to begin marketing prior to the end of 1996 a system which includes a central interactive digital file server and terminals located at a patron's seat, in luxury boxes or at central locations. Such a system could be configured to permit attendees at sports events to watch instant replays during the game and order team merchandise and other stadium products. The system could also be used for a number of advertising applications, including enhancing ad messages through fan interaction with promotion campaigns seen on scoreboard video screens during the event. The actual services offered would be determined by the arena owner or operator in conjunction with the Company and its clients. The Company does not currently have any contractual arrangement with respect to placement of an interactive system in any sports venue. Corporate Promotion and Hospitality. The existing business of ISM is expected to be a key component in the Company's development of corporate promotion and hospitality programs. In addition to the current services provided by ISM, the Company intends to expand its sports promotion and hospitality offerings by developing new applications of its digital platform, such as the development of a mobile media center. The Company and Wolf Coach are working to use the Company's digital platform as a base to develop such a mobile media center for use at sporting events and by event managers and corporate sponsors. The mobile media center would contain an office suite and a multimedia customer area which could be deployed on behalf of clients to their sports-related hospitality events. The center could be fitted with necessary office services (such as copying, information processing and communications) and a variety of interactive and digital imaging applications tailored to the needs of the client, including quick and economical delivery of prints of pictures taken with a major sports figure for a corporate sponsor's customers and sales personnel. The Company intends to commence marketing of the mobile media center prior to the end of 1996. Currently, no contractual arrangements exist with respect to building a mobile media center. 36 Customer Contracts ISM's business generally results from large contracts relating to a particular event, series of events or promotion. Although a significant portion of ISM's revenue in any particular year is often attributable to a small number of customers, such customers differ from year to year. SOFTWARE DESIGN AND NETWORK SOLUTIONS Industry Overview As information technology has become increasingly complex and important, businesses have used third party specialists to provide various services in the design and implementation of electronic solutions. The worldwide outsourcing market in 1995 has been estimated at over $18 billion, of which more than 40% relates to market segments in which KCG does business, that is, providing services in the development of applications software and solutions for the desktop and distributed environments and networking. An industry analyst has projected that the outsourcing market will increase substantially in the next five years and that the market segments in which KCG does business will increase as a percentage of the total outsourcing market. KCG's Activities The Company intends to acquire the existing business of KCG concurrently with the closing of the Offering. The KCG Acquisition is expected to strengthen the technical and creative foundation for the continued evolution of the Company's proprietary digital platform and to enable the Company to provide third party clients with software design and network solutions services. KCG was formed in 1994, but has been operating through a predecessor entity since 1983. KCG provides varied software design and network solutions services to businesses ranging from startup companies to Fortune 500 companies, such as Chevron, Clorox, Intuit, National Semiconductor, Pacific Bell, VISA and Wells Fargo Bank. KCG has also provided software design services to the Company in the development of the proprietary software for the Company's digital platform. KCG is authorized as a Microsoft Solutions Provider Partner and is also authorized as a service provider for Pacific Bell, Lotus, IBM and Novell. KCG's areas of expertise include ITV platforms, Internet applications (including specialization in improving connectivity and access), groupware and e-mail applications, networking products and database applications. Its services include design of system architecture, installation and configuration of software and hardware, custom software development, training, systems management support and trouble-shooting. KCG enables its customers to tie new applications and new technologies into existing information systems quickly and with minimal disruption. It has been on the leading edge in developing structures for multi-site computing to enhance the productivity of travelers, workers in remote and field offices and the growing number of telecommuters. During the year ended December 31, 1995 and the six months ended June 30, 1996, SeaVision accounted for 35% and 12%, respectively, of KCG's revenue. Other significant customers during the year ended December 31, 1995 were Read- Rite Corporation and Watkins-Jonson International which accounted for 15% and 10%, respectively, of KCG's revenue. After the KCG Acquisition, KCG will continue to provide technical and creative support in the further development of the Company's digital platform and third party services. Historically, KCG has served customers primarily in the San Francisco Bay area. The Company may seek to expand its operations into other geographic areas in which the Company does business and expects that KCG's software design and network solutions business will benefit from referrals from the Company's other businesses. The Company also expects to benefit from KCG's relationships with major computer software and hardware companies. SUPPLIERS The Company has one or more sources of supply for all hardware components utilized in its platform. The Company believes that reasonable alternative sources of supply exist for all components. The Company has entered into agreements with distributors of motion pictures for nontheatrical viewing under which the distributor licenses to the Company the right to make pay-per-view movies available on the Company's ITV system. Payment to the distributor is based on revenue derived from the sale of such movies on 37 the Company's ITV system. The distributor pays the associated royalties to the motion picture studios and other third parties. Although a specific title may be available from a single source, the Company does not anticipate that it will experience difficulty in obtaining these products. The retail offerings of merchandise on the Company's ITV system are made pursuant to various electronic retail sales agreements between the Company and individual vendors. The Company has also entered into a consulting agreement with a third party for the provision of consulting services related to retail marketing and assistance in contracting with vendors for the sale of merchandise on the Company's system. The Company pays such consultant a fixed consulting fee and, after recapturing such fee, a portion of the revenue generated from the sale of merchandise by a vendor introduced to the Company by the consultant or with which the consultant assisted in contracting. The Company presently offers for sale items from such vendors as Bobby Jones Sportswear, Wenger Swiss Army Brand and The Nature Company. The Company is seeking other vendors in order to expand its shopping service; it does not anticipate any difficulty in contracting with vendors to offer and sell retail products on the Company's system. The Company currently plans to offer user-pay video games and music-on- demand on its ITV system; however, it has not entered into any contract with a distributor or other source of supply of the product for such services. Although there can be no assurance, management does not anticipate any difficulty in securing such sources of video games and music-on-demand product. MARKETING AND SALES The Company's marketing and sales efforts are directed toward several distinct groups: customers (such as cruise and hotel operators) that will contract for the installation and operation, or the sale, of the Company's digital platform and ITV system; advertisers and merchandisers who will utilize the ITV system to deliver promotional messages of various kinds to system users; retailers who will sell products on the Company's ITV shopping service; and end users of the system (such as cruise passengers and hotel guests) who utilize pay services that generate revenue for the Company. The Company has a 15 person sales and marketing staff. Three members of this staff currently focus on the travel and leisure industry, ten focus on the Company's sports marketing business and two focus on software design and network solutions. The Company, however, intends to emphasize the marketing of an integrated package of its services in order to provide effective marketing solutions to its clients. The Company also markets its products and services and seeks advertisers and retailers through independent sales agencies. The Company's shipboard representatives also market its services to end users of its ITV system. Responsibilities of the shipboard representative include implementing company-wide programs and policies to enhance revenue from each service offered by the system. The Company may offer price reductions for pay-per-view movies or merchandise, and free credits, prizes and sweepstakes for video gaming. The Company intends to pursue contractual arrangements with national advertisers seeking to reach specific targeted audiences. The Company's ITV system has significant capability to report response and use frequency. COMPETITION The interactive services industry is in the early stages of its development. The Company competes with numerous other companies utilizing various technologies and marketing approaches, and the Company anticipates that additional competition will develop in all of the markets that the Company is targeting. A number of these companies are larger than the Company and have greater financial and other resources. The Company is unable to predict the level of competition that will actually develop and the time frame in which it will develop. In the cruise line market, although cruise operators have received many proposals to develop and install ITV systems, to the Company's knowledge, no system with features comparable to the Company's has been installed on a cruise ship. The Company believes that the architecture of the Company's platform and its 38 adaptation to the cruise environment will be difficult to duplicate and that its successful implementation of its system gives it a competitive advantage. However, there can be no assurance that competitors, some of which may have greater financial resources than the Company, will not enter the field. Two companies are the dominant providers of interactive and cable television services to the lodging industry. These competitors are larger and have greater resources than the Company. There are also a number of small regional providers and a number of potential competitors such as cable companies, telecommunications companies and direct-to-home and direct broadcast satellite companies that could provide in-room entertainment to the lodging industry. Although the Company believes that its ITV system includes features that are not currently available to the lodging industry, there can be no assurance that the Company will be able to penetrate this market. The sports marketing and software design and network solutions services industries are fragmented and highly competitive. A number of the companies and sales agencies that provide such services are larger than the Company and have greater resources, both financial and otherwise. ISM generally competes based on its specialized promotional and event marketing capabilities. The business of ISM could be adversely affected if one or more large competitors decide to directly focus their resources on providing the same services in the same markets as ISM. The digital imaging market is new and rapidly evolving. The Company expects that a highly competitive market will develop and that many of the competitors may have longer operating histories and greater resources than the Company. TECHNOLOGY AND LICENSING In the initial development of its system, the Company acquired a software license from a developer of a hotel ITV system. The Company has made major modifications to its system and its software since that time and now uses only certain communications software from the licensed package. The Company intends to develop communications software which does not make use of the licensed rights. The Company has used the services of third party software and graphics designers in the development of its digital platform and ITV system. All proprietary rights to the platform and system belong to the Company. KCG was the principal software designer involved in software development for the platform. While third party graphics designers have been important in developing the visual amenities of the Company's system, if the Company should no longer have access to their services, the Company believes that its in- house personnel are capable of performing these functions or, if necessary, that it will be able to engage third party graphics designers and personnel capable of doing so. See "Risk Factors--Dependence on Key Personnel." The ability of the Company to maintain a standard of technological competitiveness is a significant factor in the Company's strategy to maintain and expand its customer base, enter new markets and generate revenue. There can be no assurance that future technological advances by direct competitors or other providers will not result in improved equipment or software systems that could adversely affect the Company's business. Also, the Company does not have patents on any of its technology and relies on a combination of copyright and trade secret laws and contractual restrictions to protect its technology. There can be no assurance that the legal protections afforded to the Company and the measures taken by it will be adequate to protect its technology. GOVERNMENT REGULATION The Company's ITV system currently offers games of chance to cruise ship passengers while operating in international waters. However, such gaming cannot be offered while the ship is in any United States port and it cannot be offered in any United States hotel room at this time. Such service is discontinued while a cruise ship is in port and will not be offered to hotels. 39 LEGAL PROCEEDINGS The Company from time to time is involved in litigation incidental to the conduct of its business. There are no pending legal proceedings to which the Company or any of its subsidiaries is a party, or to which any of their respective properties is subject. EMPLOYEES As of July 31, 1996, the Company had 57 employees. None of these employees is covered by a collective bargaining agreement. The Company has never experienced a strike or work stoppage and believes its relationship with its employees to be good. PROPERTIES The Company's executive offices are located in leased premises in Pittsburgh, Pennsylvania. The Company also leases premises for the operations of SeaVision in Lisbon, Ohio, for the operations of ISM in Pittsburgh and for the operations of KCG in Oakland, California and sales and marketing offices for SeaVision and ISM in Miami, Florida and New York City, respectively. The Company believes that its properties are adequate for its operations. 40 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information concerning each of the directors and executive officers of the Company. Ages are given as of August 1, 1996.
NAME AGE POSITION WITH THE COMPANY - ---- --- -------------------------------------- Richard W. Talarico.................. 41 Chairman of the Board and Chief Executive Officer and Acting Chief Financial Officer R. Daniel Foreman.................... 33 President and Director Brian K. Blair....................... 34 Chief Operating Officer, Secretary and Director William C. Kavan(1)(2)............... 45 Director James C. Roddey(1)................... 63 Director
- -------- (1) Member of Compensation Committee. Richard S. Trutanic, who will become a director of the Company after the closing of the Offering, will also serve as a member of the Compensation Committee. (2) Member of Audit Committee. Richard S. Trutanic will also serve as a member of the Audit Committee. Richard W. Talarico became Chairman of the Board and Chief Executive Officer of the Company in July 1996. Mr. Talarico also serves as Acting Chief Financial Officer of the Company. He has served as a director of SeaVision since October 1994 and as Chairman of the Board and Chief Executive Officer of SeaVision since June 1996. Mr. Talarico has served SeaVision in various other capacities, including Vice President of Finance from October 1994 to October 1995, President from October 1995 to June 1996 and Chief Financial Officer, Secretary and Treasurer from October 1994 to June 1996. Since 1991, Mr. Talarico has been a partner in The Hawthorne Group ("THG"), where he has been involved in numerous business ventures and has served in various financial and operating capacities. THG is a private investment and management company which invests primarily in media and communications companies. R. Daniel Foreman became a director and President of the Company in July 1996. He has served as a director of SeaVision since October 1994 and as President since June 1996. Mr. Foreman also served as Vice President of Technology of SeaVision from October 1994 to June 1996. Since May 1989, Mr. Foreman has served as Executive Vice President of Blair Haven Entertainment, Inc., which operates under the name Commercial Downlink ("Commercial Downlink"), a company founded to serve the needs of the satellite communications industry, where he has been responsible for technology development and implementation. Since 1992, Mr. Foreman has been Executive Vice President of ComTek Printing & Graphics Inc. ("ComTek"), a commercial printing company. He also serves as President of Digital Media Corp., a company which provides closed-circuit video to racetracks. Since the formation of SeaVision in June 1994, Mr. Foreman has devoted substantially all of his time to its operations. Brian K. Blair became a director, Chief Operating Officer and Secretary of the Company in July 1996. Mr. Blair has served as a director of SeaVision since October 1994. Mr. Blair also served as Vice President of Administration and Operations of SeaVision from October 1994 until June 1996. Since May 1989, Mr. Blair has been President of Commercial Downlink where he is responsible for the day-to-day activity of such company. Mr. Blair also serves as Secretary and Treasurer of Digital Media Corp. Since the formation of SeaVision in June 1994, Mr. Blair has devoted substantially all of his time to its operations. William C. Kavan became a director of the Company in July 1996 and has served as a director of SeaVision since October 1994. Since 1980, Mr. Kavan has been president of Berkely-Arm, Inc. ("Berkely"), the largest provider of revenue generating passenger insurance programs for the cruise industry. Berkely serves twenty-five cruise line clients, including Carnival, Costa, Cunard, Epirotiki, NCL, P&O, Princess, Radisson and Royal Caribbean. 41 James C. Roddey became a director of the Company in July 1996 and has served as a director of SeaVision since October 1994. Mr. Roddey served as President of ISM from 1992 to 1996 and currently serves as Chairman and a director of ISM. He has served as Chairman or as President of various other entities affiliated with THG, including President of Star Cable Associates, a cable television operator in various states, since 1991. He served as President of Turner Communications Corporation from 1968 to 1971, and as President of Rollins Communications Corporation from 1971 to 1979. Mr. Roddey currently serves as a Trustee of the University of Pittsburgh. Richard S. Trutanic, age 44, has been President and Managing Director of The Somerset Group, a financial advisory firm, since 1990 and senior advisor to Friedman, Billings, Ramsey & Co., Inc., an investment banking firm, since 1993. Mr. Trutanic was, from 1985 to 1990, a director and member of the Executive Committee of Telecom U.S.A. (formerly SouthernNet, Inc.), a telecommunications company. He is a Trustee of the New York Life Mainstay Funds and a director of several private companies. COMPENSATION OF DIRECTORS Pursuant to the 1996 Stock Plan, the non-employee directors of the Company will be entitled, following the Offering, to receive at the conclusion of each year of service, an automatic grant of an immediately exercisable option to acquire 5,000 shares of Common Stock at an exercise price per share equal to the closing price of the Common Stock as reported by NASDAQ for the date on which the option is granted. Non-employee directors of the Company will also be entitled to receive $2,500 for each Board of Directors meeting attended and $500 for each separate committee meeting attended on a date on which no full board meeting is held. Directors of the Company who are also employees will not receive additional compensation for attendance at Board and committee meetings, except that all directors will be reimbursed for out-of-pocket expenses in connection with attendance at Board and committee meetings. For additional information concerning the 1996 Stock Plan, see "-- 1996 Stock Plan." COMPENSATION OF EXECUTIVE OFFICERS During the year ended December 31, 1995, Richard W. Talarico, Chief Executive Officer of the Company, was employed by THG which received payments from SeaVision under a consulting agreement. See "Certain Transactions." No separate allocation of the compensation paid to Mr. Talarico by THG was made for services performed by Mr. Talarico on behalf of SeaVision during 1995. Under employment agreements with the Company, Mr. Talarico, R. Daniel Foreman, President of the Company, and Brian K. Blair, Chief Operating Officer of the Company, will earn salaries of $62,500 each during the remainder of 1996. See "--Employment Agreements" for additional information regarding these employment arrangements. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with Richard W. Talarico, R. Daniel Foreman and Brian K. Blair. Each such employment agreement contains restrictive covenants prohibiting such officer from competing with the Company for a period of three years after the end of the employment term. The terms of the employment agreements commenced as of August 1, 1996 and will continue through December 31, 1999. The annual salaries as set forth in the employment agreements are $150,000 for each of Messrs. Talarico, Foreman and Blair. Pursuant to the employment agreements, options to acquire shares of Common Stock granted to Messrs. Talarico, Foreman and Blair under the 1996 Stock Plan will, if not already vested, vest on the date of a change in control of the Company, defined as a sale of all or substantially all of the Company's assets, a merger in which the Company is not the surviving corporation or when a person or group, other than the stockholders of SeaVision as of August 1, 1996, owns 50% or more of the outstanding Common Stock. The employment agreements also provide that each of Messrs. Talarico, Foreman and Blair will be entitled to receive for one year following such person's termination of employment by the Company without cause or contemporaneously with the occurrence of a change in control, semi-monthly severance payments equal to the semi-monthly base salary payment which such person was receiving immediately prior to such termination. 42 1996 STOCK PLAN Immediately prior to the effectiveness of the Registration Statement of which this Prospectus is a part, the Board of Directors will adopt the 1996 Stock Plan. The 1996 Stock Plan provides for awards of stock options, stock appreciation rights, restricted shares and restricted units to officers and other executive employees of the Company and to consultants and advisors (including non-employee directors) of the Company. An aggregate of 266,000 shares of Common Stock has been reserved for issuance under the 1996 Stock Plan. The 1996 Stock Plan will be administered by the Board of Directors which has broad discretion to determine the individuals entitled to participate in the 1996 Stock Plan and to prescribe conditions (such as the completion of a period of employment with the Company following an award) that must be satisfied before awards vest. Awards under the 1996 Stock Plan may be made in the form of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and options that are non-qualified for federal income tax purposes. Participants in the 1996 Stock Plan may also receive stock appreciation rights ("SARs"), which may be awarded separately from or in tandem with any option granted under the 1996 Stock Plan. In addition, the Board of Directors may, in its discretion, award restricted shares or restricted units under the 1996 Stock Plan. Effective upon the closing of the Offering, the Board of Directors will award options to purchase an aggregate of 191,000 shares of Common Stock at the initial public offering price. Of this amount, Richard W. Talarico and all executive officers as a group will receive options to purchase 21,000 and 63,000 shares, respectively, of Common Stock. There will be a five-year vesting period for grantees who are employees of the Company. All of these options will be non-qualified options for federal income tax purposes. Effective upon the closing of the KCG Acquisition, the Board of Directors will grant 26,666 shares of restricted stock under the 1996 Stock Plan to various employees of KCG. 43 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as to the ownership of Common Stock as of the effective date of the Registration Statement, and after giving effect to the sale of the shares of Common Stock offered hereby by (i) each person who is known to the Company to own beneficially more than five percent of the outstanding shares of Common Stock, (ii) each director and (iii) all executive officers and directors as a group. Except as indicated below, the persons named have sole voting and investment power with respect to all shares shown as being beneficially owned by them.
NUMBER OF SHARES OF COMMON STOCK PERCENT OF BENEFICIALLY OWNED COMMON STOCK -------------------- ----------------- BEFORE AFTER BEFORE AFTER NAME OFFERING OFFERING OFFERING OFFERING - ---- --------- ---------- -------- -------- Henry Posner, Jr. (1)................... 964,800 1,111,240 40.2% 22.7% 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Thomas D. Wright (1).................... 241,200 277,810 10.1% 5.7% 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Terence M. Graunke (1).................. 241,200 277,810 10.1% 5.7% 400 West Erie Suite 504 Chicago, IL 60610 Richard W. Talarico (1)................. 80,400 92,603 3.4% 1.9% R. Daniel Foreman....................... 198,000 198,000 8.3% 4.1% Brian K. Blair.......................... 198,000 198,000 8.3% 4.1% William C. Kavan (1).................... 100,800 100,800 4.2% 2.1% James C. Roddey......................... 80,400 92,603 3.4% 1.9% All executive officers and directors as a group (5 persons) (1)................ 657,600 682,006 27.4% 14.0%
- -------- (1) Ownership of shares following the Offering for Messrs. Posner, Wright, Graunke, Talarico and Roddey and for all executive officers and directors as a group include the shares of Common Stock to be issued upon conversion of the Stockholder Loans into Common Stock. See "Certain Transactions-- Stockholder Loans." Ownership of shares for Messrs. Posner, Wright, Talarico, Kavan and Roddey and for all executive officers and directors as a group does not include the shares of Common Stock that may be issued upon conversion of the shares of Convertible Preferred Stock owned by such persons. See "Certain Transactions--Sale of Convertible Preferred Stock." 44 CERTAIN TRANSACTIONS CONSULTING AGREEMENTS SeaVision and Berkely were parties to a Consulting Agreement, entered into in June 1994 and terminated as of June 30, 1996, which required Berkely to provide certain marketing, sales and consulting services to SeaVision, including the design and development of marketing strategies for the cruise ship industry. William C. Kavan, a principal of Berkely, is a director of the Company. The consulting agreement provided for the payment of a consulting fee of $10,000 per month to Berkely, which was reduced to $2,000 per month in January 1996. SeaVision was also obligated to pay $200 per hour for services rendered by certain professional personnel of Berkely. During the fiscal years ended December 31, 1994 and 1995, SeaVision paid $97,229 and $181,228, respectively, to Berkely under the consulting agreement, including out-of- pocket expenses. SeaVision and Hawthorne Group, Inc. ("Hawthorne"), were parties to a Consulting Agreement, entered into in June 1994 and terminated as of June 30, 1996, which required Hawthorne to provide SeaVision certain accounting and financial services, including the preparation of financial models and plans, the design and implementation of accounting systems and controls and assistance in acquiring third party financing. Henry Posner, Jr. and Thomas D. Wright, each of whom owns more than ten percent of the outstanding Common Stock, and two of Mr. Posner's sons are shareholders of Hawthorne, and Messrs. Posner and Wright and Richard W. Talarico, a director and executive officer of the Company, and James C. Roddey, a director of the Company, were shareholders of Hawthorne Media Group, Inc. ("HMG"), the original party to the agreement which assigned its rights and obligations thereunder to Hawthorne. The consulting agreement provided for the payment of a consulting fee of $18,000 per month. During the fiscal years ended December 31, 1994 and 1995, SeaVision paid an aggregate of $149,437 and $205,252, respectively, to Hawthorne and HMG under the consulting agreement, including out-of-pocket expenses. AGREEMENTS WITH COMMERCIAL DOWNLINK AND AFFILIATE SeaVision and Commercial Downlink were parties to an agreement entered into in June 1994 and terminated as of July 31, 1996, which required Commercial Downlink to act as a general contractor for the installation of ITV systems on cruise ships, and to devote its full-time efforts to the business of SeaVision. Brian K. Blair and R. Daniel Foreman, principals of Commercial Downlink, are executive officers and directors of the Company and currently own more than five percent of the outstanding Common Stock. SeaVision reimbursed Commercial Downlink, at cost, for construction services and materials provided in connection with the installation of SeaVision systems on cruise ships. SeaVision also paid Commercial Downlink a monthly management fee. During the fiscal years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, SeaVision paid $147,000, $322,000 and $91,600, respectively, to Commercial Downlink under the consulting agreement in addition to reimbursing Commercial Downlink for construction services and materials provided in connection with the installation of ITV systems on cruise ships. As of August 1, 1996, SeaVision and Commercial Downlink entered into a sublease agreement relating to facilities in Lisbon, Ohio owned by Comtek, a majority owned subsidiary of Commercial Downlink, and including provisions pursuant to which Commercial Downlink will provide certain administrative services for an aggregate monthly payment of $3,700. Such agreement is terminable on 30 days' prior notice by either party. The Company believes that such payments are on terms as favorable to the Company as could be obtained from an unaffiliated party. During the fiscal years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, SeaVision made payments to ComTek in the amounts of approximately $7,000, $25,000 and $40,000, respectively, for commercial printing services. The Company believes that such payments were on terms as favorable to the Company as could have been obtained from an unaffiliated third party. The Company expects to continue to conduct business with ComTek in the future. 45 In 1996, SeaVision made advances in the aggregate amount of $53,000 to Commercial Downlink. These advances have been repaid. TRANSACTIONS RELATING TO FORMATION AND ORGANIZATION OF SEAVISION Brian K. Blair and R. Daniel Foreman (the "Commercial Downlink Shareholders"), Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James C. Roddey and Richard W. Talarico (the "Hawthorne Shareholders"), and William C. Kavan, Mark Kottler and David F. Gould (the "Kavan Shareholders") were the founders of SeaVision. Each group of founders received from SeaVision the amount of expenses incurred by it in forming and organizing SeaVision in 1994. The Hawthorne Shareholders received reimbursement of expenses in the amount of $21,437, the Commercial Downlink Shareholders received reimbursement of expenses in the amount of $109,083, and the Kavan Shareholders received reimbursement of expenses in the amount of $17,871. Pursuant to an Assignment of Intellectual Property Rights dated October 3, 1994, Commercial Downlink, Brian K. Blair and R. Daniel Foreman contributed to SeaVision, intellectual property rights relating to the technology utilized by SeaVision. TRANSACTIONS RELATING TO FORMATION AND ORGANIZATION OF THE COMPANY In August 1996, a merger (the "Formation Merger") occurred in which SeaVision, Inc., a Delaware corporation ("Old SeaVision"), merged with and into SeaVision Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of the Company, with SeaVision Acquisition Corporation surviving the Formation Merger and changing its name to SeaVision, Inc. In the Formation Merger, each share of common stock of Old SeaVision was converted into one share of Common Stock. All shares of Common Stock currently outstanding were issued in the Formation Merger. In connection with the Formation Merger, the holders of shares of Common Stock of the Company were granted certain registration rights. See "--Registration Rights". STOCKHOLDER LOANS In each of fiscal years 1994, 1995 and 1996, the Funding Stockholders made various Stockholder Loans to SeaVision. Each Stockholder Loan, represented by a promissory note which requires the principal amount outstanding under the note to be paid in full on the third anniversary of the date of the note, bears interest at a rate of 15% per annum, compounded quarterly. Stockholder Loans were made in the following aggregate principal amounts: Mr. Posner-- $4,166,014; Mr. Wright--$1,041,506; Mr. Graunke --$718,800; Mr. Roddey-- $347,165; and Mr. Talarico--$347,165. Mr. Graunke owns more than ten percent of the outstanding Common Stock. Stockholder Loans in an aggregate amount up to $1.5 million are guaranteed by each of Brian K. Blair, R. Daniel Foreman and William C. Kavan. Such guarantees are secured by a pledge of the shares of Common Stock owned by Messrs. Blair, Foreman and Kavan. On May 31, 1996, the Company used $3.6 million of the $5.0 million available under its line of credit from Integra Bank (now National City Bank) (the "Integra Loan") to repay a portion of the principal amount of the Stockholder Loans, leaving Stockholder Loans in the following aggregate principal amounts outstanding: Mr. Posner--$1,800,000; Mr. Wright--$450,000; Mr. Graunke-- $450,000; Mr. Roddey--$150,000; and Mr. Talarico $150,000. The Company intends to use approximately $950,000 of the net proceeds of the Offering to pay the accrued interest on the Stockholder Loans. See "Use of Proceeds." The Funding Stockholders have agreed, contingent upon the completion of the Offering, to convert the remaining principal balance of the Stockholder Loans into shares of Common Stock at a rate of approximately 8.1 shares of Common Stock for each $100 principal amount outstanding. Cash payments will be made in lieu of the issuance of fractional shares of Common Stock upon such conversion. The Funding Stockholders will receive the following number of shares of Common Stock upon conversion of the Stockholder Loans: Mr. Posner--146,440 shares; Mr. Wright--36,610 shares; Mr. Graunke--36,610 shares; Mr. Roddey--12,203 shares and Mr. Talarico--12,203 shares. The holders of these shares will have certain registration rights with respect to these shares. See "--Registration Rights." 46 On July 19, 1996, William C. Kavan made a loan in the amount of $1.0 million to SeaVision at the interest rate of 8% per annum. Such loan was converted into 10,000 shares of Convertible Preferred Stock following the Formation Merger. INTEGRA LOAN GUARANTEE The Integra Loan was personally guaranteed by each of Messrs. Posner, Wright, Roddey and Talarico and by Lyndhurst Associates, a Pennsylvania limited partnership ("Lyndhurst"), for which such guarantors receive a guarantee fee from time to time based on a percentage of the outstanding principal balance of the Integra Loan. Such percentage is the difference between 15%, the interest rate on the Stockholder Loans, and the interest rate on the Integra Loan. Mr. Posner is the Managing General Partner of Lyndhurst. LEGAL SERVICES During each of the fiscal years ended December 31, 1995 and 1994, SeaVision retained the law firm of Eckert Seamans Cherin & Mellott ("Eckert Seamans") to represent SeaVision on various matters. During each of the fiscal years ended December 31, 1995, 1994 and 1993, ISM retained Eckert Seamans to represent ISM on various matters. Thomas D. Wright is a partner and chairman of the Operations Committee of Eckert Seamans. SALE OF CONVERTIBLE PREFERRED STOCK On August 16, 1996, the Company issued 10,000 shares of Convertible Preferred Stock to William C. Kavan in exchange for the extinguishment of a $1.0 million loan to SeaVision. Additionally, on August 16, 1996, the Company sold approximately 7,059, 1,765, 588 and 588 shares of Convertible Preferred Stock to Henry Posner, Jr., Thomas D. Wright, Richard W. Talarico and James C. Roddey, respectively, for an aggregate purchase price of $1.0 million. During the seven-month period beginning six months after the closing of the Offering (the "Conversion Period"), each holder of Convertible Preferred Stock will have the right to convert all, but not less than all, of the Convertible Preferred Stock then owned by such holder into shares of Common Stock at the rate of approximately 8.1 shares of Common Stock for each share of Convertible Preferred Stock (as adjusted for stock dividends, stock splits, reverse stock splits and any other stock combination or division). Cash payments will be made in lieu of the issuance of any fractional shares of Common Stock upon any such conversion. If all of the shares of Convertible Preferred Stock held by Messrs. Posner, Wright, Talarico, Roddey and Kavan are converted into Common Stock during the Conversion Period, Messrs. Posner, Wright, Talarico, Roddey and Kavan will receive 57,427, 14,365, 4,785, 4,785 and 81,355 shares, respectively, of Common Stock. See "Description of Capital Stock--Series A Convertible Redeemable Preferred Stock." The holders of these shares will have certain registration rights with respect to these shares. See "-- Registration Rights." REGISTRATION RIGHTS If the Company issues shares of Common Stock upon conversion of the Convertible Preferred Stock (the "Conversion Shares"), the holders of Conversion Shares will have certain rights to require the Company to register the Conversion Shares under the Securities Act. Under the terms of the registration rights agreement relating to the Conversion Shares, the holders of Conversion Shares and their transferees holding at least the number of Conversion Shares into which 5,000 shares of Convertible Preferred Stock have been converted will have the right, until the third anniversary of the last date on which the Convertible Preferred Stock may be converted into Common Stock (the "Commencement Date"), to require the Company, on one occasion, to register the Conversion Shares for public offering and sale on Form S-3 in a "shelf" registration pursuant to Rule 415 under the Securities Act. If any holder requests a shelf registration, all Conversion Shares will be registered thereunder unless a holder requests that all or a portion of his Conversion Shares be excluded. Holders of a majority of the Conversion Shares will also have the right on one occasion to elect to have their Conversion Shares which are registered on the shelf registration statement sold in an underwritten offering. In addition, the holders of Conversion Shares and their transferees will have the right to participate in any registration of 47 Common Stock for an underwritten offering initiated by the Company or any other stockholder of the Company prior to the third anniversary of the Commencement Date, subject to certain limitations. The Company will pay all out-of-pocket expenses of any such registrations, including fees and expenses of one counsel for the holders of Conversion Shares and their transferees, but not including underwriting discounts and commissions, and will indemnify the holders of Conversion Shares and their transferees against certain liabilities under the federal securities laws, in connection therewith. The current holders of Common Stock will also have certain rights under a registration rights agreement to require the Company to register under the Securities Act such shares and the shares of Common Stock to be issued upon conversion of the Stockholder Loans. Such rights are substantially similar to the rights granted to holders of Conversion Shares. However, holders of such shares and their transferees holding at least ten percent of the shares covered are required to cause the Company to register the shares for public offering and sale on Form S-3 in a shelf registration pursuant to Rule 415 under the Securities Act. The sole stockholder of KCG will have the right, subject to certain limitations, to have the shares of Common Stock that he receives upon consummation of the KCG Acquisition included in any registration statement that includes shares to be registered at the request of the current stockholders under such registration rights agreement. The holders of Convertible Preferred Stock, the existing stockholders and the individual receiving Common Stock in connection with the KCG Acquisition have agreed, or will agree, not to sell any Conversion Shares or other shares of Common Stock owned by them and subject to the registration rights agreements described above for a period of twelve months following the closing of the Offering. See "Shares Eligible for Future Sale." VIDEO PRODUCTION PAYMENTS During the fiscal years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, SeaVision made payments to Production Masters Inc. ("PMI") in the amounts of approximately $10,000, $137,000 and $93,000, respectively, for the production of videos and other visual media for use with the Company's ITV system. Messrs. Posner, Wright, Roddey and Talarico are shareholders of PMI. The Company believes that such payments were on terms as favorable to the Company as could have been obtained from an unaffiliated party. The Company expects to continue to conduct business with PMI in the future. ARRANGEMENTS INVOLVING ISM The Company, ISM and the ISM stockholders have entered into the ISM Stock Purchase Agreement pursuant to which the Company will acquire all of the issued and outstanding shares of capital stock of ISM from the ISM stockholders promptly following, and conditioned upon, the closing of the Offering. See "The Acquisitions--ISM Acquisition." The aggregate purchase price to be paid to the ISM stockholders by the Company in the ISM Acquisition is a maximum of $4.8 million, consisting of $2.4 million in cash at the time of closing of the Acquisition and up to $2.4 million in contingent payments. One-half of the contingent payments, if any, is to be paid by delivery to the ISM stockholders of promissory notes bearing interest at seven percent per annum. Henry Posner, Jr., Thomas D. Wright, Richard W. Talarico and James C. Roddey are ISM stockholders. At the closing of the ISM Acquisition, Messrs. Posner, Wright, Talarico and Roddey will receive cash payments in the amounts of approximately $1,273,000, $791,000, $48,000 and $120,000, respectively, and will be entitled to receive contingent payments up to the same approximate amounts (not including interest payable on any promissory note delivered in respect of the contingent payments). ISM and Hawthorne are parties to an oral management arrangement pursuant to which Hawthorne provides general, administrative, accounting and tax planning and preparation services to ISM for an aggregate of $5,000 per month. During the fiscal years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, ISM made payments in the aggregate amounts of $60,000, $60,000, $60,000 and $30,000, respectively, to Hawthorne under this agreement. The Company intends to terminate this arrangement within 90 days of the closing of this Offering. 48 JOINT PROMOTIONAL ACTIVITIES SeaVision, ISM, PMI and other entities affiliated with THG have engaged in various joint promotional marketing activities and have shared the revenue and expenses of such activities. Examples of such activity in 1996 are ISM sports marketing events at which SeaVision supplied digital imaging services. The Company believes that such activities involving SeaVision or ISM have been conducted on terms as favorable to SeaVision and ISM as could have been obtained from an unaffiliated party. LEASES During the fiscal years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, ISM made payments pursuant to a lease agreement in the amount of $39,524, $53,777, $76,774 and $39,832, respectively, to Executive Office Associates ("EOA") for the lease of office space. Henry Posner, Jr., Thomas D. Wright and two of Mr. Posner's sons and his spouse each own an indirect equity interest in EOA. The Company believes that such payments were on terms as favorable to the Company as could have been obtained from an unaffiliated third party. The Company anticipates that it will maintain this lease. As of May 1, 1996, the Company entered into a four-month lease for office space with EOA. The aggregate rental payment under this lease is $41,508. The Company believes that such payment is on terms as favorable to the Company as could have been obtained from an unaffiliated third party. KCG TRANSACTIONS During the year ended March 31, 1994, and the nine months ended December 31, 1994, KCG's predecessor ("Predecessor") leased a building from its principal shareholders. Rental payments made in accordance with the lease agreement were approximately $102,000 and $76,000, respectively. During the year ended December 31, 1995, KCG leased office and other space and an automobile from its shareholder. Rental payments made under these arrangements were approximately $69,000. The Company intends to continue leasing such space and automobile on a month-to-month basis for an aggregate of $5,600 per month. The Company believes that such payments are on terms as favorable to the Company as could be attained from an unaffiliated party. KCG had a marketing commission agreement with Predecessor under which commissions of $100,000 were paid during the year ended December 31, 1995. This agreement provided for certain rights of Predecessor to be used by KCG, including customer lists and employment agreements with employees. This agreement was terminated and the related rights were acquired by KCG, effective November 1, 1995, for $150,000, of which $65,000 was paid during the year ended December 31, 1995. The remaining $85,000 was in the form of a bank loan assumption. Additionally, approximately $88,000 under a separate bank loan was assumed in exchange for certain tangible assets. KCG had notes receivable from Predecessor and another affiliated entity of approximately $25,000 and $18,000 as of December 31, 1995. KCG had a shareholder note payable of $79,964 and $4,964 as of December 31, 1995 and June 30, 1996, respectively. Predecessor had a note receivable from one of its principal shareholders of approximately $14,000 as of December 31, 1994. 49 DESCRIPTION OF CAPITAL STOCK The following is a description of certain provisions of the Company's Certificate of Incorporation (the "Certificate"), Certificate of Designation relating to the Convertible Preferred Stock (the "Designation") and By-Laws (the "By-Laws)." Such summary does not purport to be complete and is qualified in its entirety by reference to the terms of the Certificate, the Designation and By-Laws. See "Additional Information" as to how to obtain a copy of these documents. GENERAL Prior to the closing of the Offering, the Company intends to amend the Certificate to permit the Company to issue up to 20,000,000 shares of Common Stock, par value $0.01 per share, and 100,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The Designation provides that 40,000 shares of the authorized Preferred Stock have been designated, and may be issued as, Series A Convertible Redeemable Preferred Stock, par value $100 per share. Following the Offering, there will be 4,884,065 shares of Common Stock issued and outstanding and 25,000 shares of Series A Convertible Redeemable Preferred Stock, par value $100 per share, issued and outstanding. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held of record on all matters to be submitted to a vote of the stockholders. The Certificate does not provide for cumulative voting for the election of directors. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. See "Dividend Policy." The holders of Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock are, and the Common Stock to be sold in the Offering, when issued and paid for, will be, fully paid and nonassessable. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and liquidation payments to holders of outstanding shares of Preferred Stock. UNDESIGNATED PREFERRED STOCK The Board of Directors of the Company is authorized, without further action of the stockholders, to issue up to 100,000 shares of Preferred Stock in one or more classes or series and to fix the designations, powers, preferences and the relative participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereon. Of such authorized shares, 40,000 shares have been designated as Convertible Preferred Stock. Any Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring or seeking to acquire, a significant portion of the outstanding Common Stock. SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK The holders of Convertible Preferred Stock are entitled to receive, when and as declared by the Company's Board of Directors, cumulative compounded quarterly dividends at the rate of eight percent per annum. If the Company has not consummated an initial public offering of Common Stock on or before December 31, 1996, the dividend rate will increase to 12% per annum from and after such date. The holders of Convertible Preferred Stock have no voting rights except as provided by the Delaware General Corporation Law (the "DGCL") and except with respect to actions which affect adversely the rights and preferences of the Convertible Preferred Stock set forth in the Designation. The Convertible Preferred Stock is senior in right of payment and on liquidation to the Common Stock. 50 During the seven-month period beginning six months after the closing of the Offering (the "Conversion Period"), each holder of Convertible Preferred Stock will have the right to convert all, but not less than all, of the Convertible Preferred Stock then owned by such holder into shares of Common Stock at the rate of approximately 8.1 shares of Common Stock for each share of Convertible Preferred Stock (as adjusted for stock dividends, stock splits, reverse stock splits and any other stock combination or division). Cash payments will be made in lieu of the issuance of any fractional shares of Common Stock upon any such conversion. In connection with, and upon such conversion, the holders of Convertible Common Stock will have no right to receive any accrued and unpaid dividends. Shares of Convertible Preferred Stock which are not converted to Common Stock during the Conversion Period will remain outstanding until the earlier of the time such shares are redeemed by the Company or June 30, 2006. If the Company, prior to the end of the Conversion Period, issues Common Stock or warrants or options exercisable for Common Stock (other than pursuant to any employee stock option plan or director stock plan approved by the Board of Directors of the Company), and the price per share at which such shares, warrants or options are issued (the "New Share Price") multiplied by the aggregate number of issued and outstanding shares of Common Stock (determined on a fully diluted basis, but excluding shares then being issued or which are issuable pursuant to warrants or options then being issued) is less than $35.0 million, then the outstanding shares of Convertible Preferred Stock will become convertible into such additional number of shares of Common Stock equal to a fraction, the numerator of which is the number of outstanding shares of Convertible Preferred Stock multiplied by 100 and the denominator of which is the New Share Price. The Company has the right at any time after the Conversion Period but prior to maturity, to redeem the outstanding shares of Convertible Preferred Stock at $100 per share, plus accrued and unpaid dividends, if any. Unless earlier redeemed or converted into Common Stock, the outstanding shares of Convertible Preferred Stock are to be redeemed by the Company at $100 per share, plus accrued and unpaid dividends, if any, on June 30, 2006. CERTAIN ANTI-TAKEOVER EFFECTS OF CERTIFICATE AND BY-LAWS PROVISIONS Certain provisions of the Certificate and By-Laws summarized in the following paragraphs may be deemed to have anti-takeover effects. These provisions may have the effect of discouraging a future takeover attempt which is not approved by the Board of Directors but which individual Company stockholders may deem to be in their best interests or in which stockholders may receive a substantial premium for their shares over then-current market prices. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of the current Board of Directors more difficult. Number of Directors; Removal; Filling Vacancies The Certificate and By-Laws provide that the number of directors will be fixed from time to time with the consent of two-thirds of the Board of Directors. Moreover, the Certificate provides that directors may only be removed with cause by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Company then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause and allows two-thirds of the incumbent directors to add additional directors without approval of stockholders until the next annual meeting of stockholders at which directors are elected. Advance Notice of Nominations and Stockholder Proposals The By-Laws contain a provision requiring at least 60 but no more than 90 days' advance notice by a stockholder of a proposal or director nomination that such stockholder desires to present at any annual or special meeting of stockholders, which would prevent a stockholder from making a proposal or a director nomination at a stockholder meeting without the Company having advance notice of the proposal or director nomination. This provision could make a change in control more difficult by providing the directors of the Company with more time to prepare an opposition to a proposed change in control. 51 Vote Requirement for Calling Special Meeting The By-Laws also contain a provision requiring the vote of the holders of two-thirds of the outstanding Common Stock in order to call a special meeting of stockholders. This provision would prevent a stockholder with less than a two-thirds interest from calling a special meeting to consider a merger unless such stockholder had first obtained adequate support from a sufficient number of other stockholders. Statutory Business Combination Provision. Upon completion of the Offering, the Company will be subject to the provisions of Section 203 ("Section 203") of the DGCL. Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person, or an affiliate or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder; (ii) the interested stockholder acquired 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans); or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. Under Section 203, an "interested stockholder" is defined (with certain limited exceptions) as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. A corporation may, at its option, exclude itself from the coverage of Section 203 by amending its certificate of incorporation or by-laws by action of its stockholders to exempt itself from coverage, provided that such by-law or charter amendment does not become effective until 12 months after the date it is adopted. Neither the Certificate nor the By-Laws contains any such exclusion. LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS Limitations on Liabilities Consistent with the DGCL, the Certificate contains a provision eliminating or limiting liability of directors to the Company and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful dividends or unlawful stock purchases or redemptions as provided in Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of the Company protection against awards of monetary damages resulting from breaches of their duty of care, except as indicated above. As a result of this provision, the ability of the Company or a stockholder thereof to successfully prosecute an action against a director for a breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The Securities and Exchange Commission has taken the position that the provision will have no effect on claims arising under the federal securities laws. Indemnification The Certificate and By-Laws provide for mandatory indemnification rights to the maximum extent permitted by applicable law, subject to limited exceptions, to any director or officer of the Company who, by reason of the 52 fact that he is a director or officer of the Company, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director or officer in advance of the final disposition of such proceeding in accordance with the applicable provisions of the DGCL. The Company may also maintain directors' and officers' liability insurance. TRANSFER AGENT AND REGISTRAR The Company has selected ChaseMellon Shareholder Services as the transfer agent and registrar for the Common Stock. 53 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no public market for the Common Stock. Sales of substantial amounts of Common Stock into the public market after the Offering, or the perception that such sales could occur, could adversely affect the prevailing market price for the Common Stock and the ability of the Company to raise equity capital. The Company can make no prediction as to the effect, if any, that the sale or availability for future sale of shares of additional Common Stock will have on the market price of the Common Stock prevailing from time to time. Upon completion of the Offering, the Company will have 4,884,065 shares of Common Stock outstanding (assuming no exercise of options). These shares will consist of 2,400,000 shares of Common Stock currently issued and outstanding and held by the existing stockholders of the Company, 2,000,000 shares of Common Stock sold in the Offering, 244,066 shares of Common Stock to be issued upon conversion of the Stockholder Loans and 239,999 shares to be issued upon consummation of the KCG Acquisition (including the 26,666 Restricted Grant Shares). See "Certain Transactions--Stockholder Loans." The 2,000,000 shares of Common Stock sold in the Offering will immediately be freely tradable, except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act of 1933, as amended ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 ("Rule 144") under the Securities Act, as described below. The 2,400,000 shares of Common Stock held by the existing stockholders, the 244,066 shares of Common Stock to be issued upon conversion of the Stockholder Loans and the 239,999 shares of Common Stock to be issued upon consummation of the KCG Acquisition (including the 26,666 Restricted Grant Shares) have not been registered under the Securities Act, and, accordingly, such shares may not be sold except in transactions registered under the Securities Act or pursuant to an exemption from registration. In addition, the existing stockholders and the persons receiving Common Stock in connection with the KCG Acquisition have agreed, or will agree, not to sell any shares of Common Stock owned by them for a period of twelve months following the closing of the Offering. After the expiration of such twelve-month period, all of such shares, other than the 26,666 Restricted Grant Shares, may be sold in accordance with Rule 144, subject to the applicable volume, holding period and other limitations of Rule 144 as described below. In addition, the holders of these shares, other than the 26,666 Restricted Grant Shares, will have certain rights to require the Company to register such shares under the Securities Act for public offering and sale. See "Certain Transactions--Registration Rights." Up to 203,385 additional shares could be issued upon conversion of the Convertible Preferred Stock, which become convertible into shares of Common Stock 180 days after the closing of the Offering. These Conversion Shares will not be registered under the Securities Act, and, accordingly, such shares may not be sold except in transactions registered under the Securities Act or pursuant to an exemption from registration. In addition, the holders of Convertible Preferred Stock have agreed not to sell any Conversion Shares owned by them for a period of twelve months following the closing of the Offering. After the expiration of such twelve-month period, all of such shares may be sold in accordance with Rule 144, subject to the applicable volume, holding period and other limitations of Rule 144 as described below. In addition, the holders of Conversion Shares will have certain rights to require the Company to register such Conversion Shares under the Securities Act for public offering and sale. See "Certain Transactions--Registration Rights." In addition to the shares described above, 239,334 additional shares of Common Stock have been reserved for issuance as restricted stock or upon exercise of options that may be granted under the Company's 1996 Stock Plan. As of the closing of the Offering and the KCG Acquisition, an aggregate of 26,666 shares of restricted stock granted under 1996 Stock Plan and options granted under the 1996 Stock Plan to acquire an aggregate of 191,000 shares of Common Stock will be outstanding. The Company intends to file one or more registration statements on Form S-8 under the Securities Act to register all of these shares of Common Stock, which registration statements will become effective immediately upon filing. Shares covered by these registration statements will be eligible for sale in the public markets upon the effectiveness of such registration statements (unless such shares are held by an Affiliate). 54 Any shares of Common Stock that have not been registered under the Securities Act could be sold under Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the Offering, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years, including a person who may be deemed an Affiliate, is entitled to sell within any three-month period a number of shares of Common Stock that does not exceed the greater of one percent of the then-outstanding shares of Common Stock or the average weekly reported trading volume of the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are subject to certain restrictions relating to manner of sale, notice, and the availability of current public information about the Company. A person who is not an Affiliate at any time during the three months preceding a sale, and who has beneficially owned shares for at least three years, would be entitled to sell such shares immediately following the Offering without regard to the volume limitations, manner of sale provisions, or notice or other requirements of Rule 144. The Securities and Exchange Commission has published a notice of proposed rulemaking that, if adopted as proposed, would shorten the applicable holding periods under Rule 144(d) and Rule 144(k) to one and two years, respectively (from the current two- and three-year periods). The Company cannot predict whether such amendments will be adopted or the effect thereof on the trading market for its Common Stock. 55 UNDERWRITING The Underwriters named below, represented by Friedman, Billings, Ramsey & Co., Inc. (the "Representative"), have severally agreed to purchase, subject to the terms and conditions of the underwriting agreement (the "Underwriting Agreement"), and the Company has agreed to sell, the number of shares of Common Stock set forth opposite the name of each Underwriter.
UNDERWRITERS NUMBER OF SHARES ------------ ---------------- Friedman, Billings, Ramsey & Co., Inc.......................... Total........................................................
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the shares of Common Stock if any shares are purchased. The Representative has advised the Company that the Underwriters propose initially to offer the shares of Common Stock to the public on the terms set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. After the shares of Common Stock have been released for sale to the public, the offering price and concession may be changed. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Representative has informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority in excess of five percent of the number of shares of Common Stock offered hereby. The Company has granted the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to an aggregate of 300,000 additional shares of Common Stock at the public offering price less the underwriting discount shown on the cover of this Prospectus. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the 2,000,000 shares of Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 2,000,000 shares of Common Stock are being offered. Prior to the Offering, there has been no public market for the Common Stock. The offering price will be determined by negotiation among the Company and the Representative. In determining such price, consideration will be given to, among other things, the financial and operating history and trends of the Company, the experience of its management, the position of the Company in its industry, the Company's prospects and the Company's financial results. Additionally, consideration will be given to the status of the securities markets, market conditions for new offerings of securities and the prices of similar securities of comparable companies. The Company has applied for the Common Stock to be quoted and traded on the NASDAQ National Market under the symbol "ALLN." The Company, its directors, executive officers and certain other stockholders who, immediately following the Offering, will hold 2,857,399 shares have agreed not to offer, sell or otherwise dispose of any such shares of Common Stock or any Conversion Shares for a period of one year after the closing of the Offering without the prior written consent of the Representative. See "Shares Eligible for Future Sale." The Company has agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company also has agreed to reimburse the Representative for its actual out-of-pocket legal expenses incurred in connection with the offering of the Common Stock. The Company has also given the Representative the right to act as the exclusive financial advisor, placement agent and underwriter to the Company in connection with certain financings, sales, transfers, mergers, consolidations or other similar transactions involving the Company during the period ending 18 months after the closing of the Offering. The Representative has agreed to provide such services to the Company on terms and conditions as are customary and competitive. The Representative will also have a right to 7.0% of the proceeds from any sale by the Company of securities within 12 months after closing of the Offering to an individual identified to the Company by the Representative prior to closing. 56 The Company has agreed that Richard Trutanic will serve on the Board of Directors after closing of the Offering. LEGAL MATTERS Certain legal matters with respect to the validity of the shares of Common Stock offered hereby will be passed upon for the Company by Eckert Seamans Cherin & Mellott, Pittsburgh, Pennsylvania. Thomas D. Wright, a partner and chairman of the Operations Committee of such firm, currently owns more than ten percent of the outstanding Common Stock of the Company. Certain legal matters related to the Offering will be passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C. EXPERTS The consolidated financial statements and schedule of Allin Communications Corporation as of December 31, 1995 and 1994 and for the period from June 8, 1994 to December 31, 1994 and the year ended December 31, 1995, the financial statements of International Sports Marketing, Inc. as of December 31, 1995 and 1994 and for the three years ended December 31, 1995 and the financial statements of Kent Consulting Group, Inc. as of December 31, 1995 and 1994 and for the nine months ended December 31, 1994 and the year ended December 31, 1995 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm in accounting and auditing in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information concerning the Company and the Common Stock offered hereby, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete; with respect to each such contract or document filed as an exhibit to the Registration Statement, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected, without charge, at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of each such document may be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file such materials electronically with the Commission. The Company intends to distribute to its stockholders annual reports containing audited financial statements and quarterly reports containing unaudited financial information for each of the first three quarters of its fiscal year. 57 INDEX TO FINANCIAL STATEMENTS ----------------
PAGE ---- PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Introduction.............................................................. F-2 Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited).............................................................. F-3 Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1995 (unaudited)...................................... F-4 Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 1996 (unaudited)................................... F-5 Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited).............................................................. F-6 ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.................................. F-7 Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)......................................................... F-8 Consolidated Statements of Operations for the period from June 8, 1994 (date of inception) to December 31, 1994, for the year ended December 31, 1995 and for the six months ended June 30, 1995 and 1996 (unaudited)..... F-9 Consolidated Statements of Shareholders' Equity for the period from June 8, 1994 (date of inception) to December 31, 1994, for the year ended December 31, 1995 and for the six months ended June 30, 1996 (unaudited). F-10 Consolidated Statements of Cash Flows for the period from June 8, 1994 (date of inception) to December 31, 1994, for the year ended December 31, 1995 and for the six months ended June 30, 1995 and 1996 (unaudited)..... F-11 Notes to Consolidated Financial Statements................................ F-12 INTERNATIONAL SPORTS MARKETING, INC. FINANCIAL STATEMENTS Report of Independent Public Accountants.................................. F-17 Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited).............................................................. F-18 Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996 (unaudited)......... F-19 Statements of Shareholders' Equity for years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996 (unaudited).............. F-20 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996 (unaudited)......... F-21 Notes to Financial Statements............................................. F-22 KENT CONSULTING GROUP, INC. FINANCIAL STATEMENTS Report of Independent Public Accountants.................................. F-26 Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited).............................................................. F-27 Statements of Operations for the year ended March 31, 1994, the nine months ended December 31, 1994, the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996 (unaudited)...................... F-28 Statements of Shareholders' Equity for the year ended March 31, 1994, the nine months ended December 31, 1994, the year ended December 31, 1995 and the six months ended June 30, 1996 (unaudited)........................... F-29 Statements of Cash Flows for the year ended March 31, 1994, the nine months ended December 31, 1994, the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996 (unaudited)...................... F-30 Notes to Financial Statements............................................. F-32
F-1 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following Pro Forma Condensed Consolidated Financial Statements of Allin Communications Corporation (the Company) are based on the historical financial statements of SeaVision, Inc. (SeaVision), International Sports Marketing, Inc. (ISM) and Kent Consulting Group, Inc. (KCG), adjusted to give effect to the acquisitions of ISM and KCG by the Company. The Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1995 and for the six months ended June 30, 1996 assumes that such acquisitions, the issuance of Convertible Preferred Stock and the offering of Common Stock by the Company pursuant to the Prospectus of which the following Pro Forma Condensed Consolidated Financial Statements are part (the "Offering") had occurred on January 1, 1995. The pro forma condensed consolidated financial information reflects the purchase method of accounting for the acquisitions of ISM and KCG, and accordingly is based on estimated purchase accounting adjustments that are subject to further revision depending upon completion of any appraisals or other studies of the fair value of assets and liabilities. Final purchase accounting adjustments will differ from the pro forma adjustments presented herein and described in the accompanying notes due to the results of operations of ISM and KCG from June 30, 1996 to the date of closing. The final purchase accounting adjustments are not expected to differ significantly from the estimates used herein. The pro forma condensed consolidated financial information reflects certain assumptions described above and in Notes to Pro Forma Condensed Consolidated Statement of Operations below. The pro forma financial information does not purport to present what the Company's results of operations would actually have been if the acquisitions of ISM and KCG, the issuance of Convertible Preferred Stock and the Offering had occurred on the assumed dates, as specified above, or to project the Company's financial condition or results of operations for any future period. F-2 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS)
INTERNATIONAL SPORTS KENT OFFERING PRO SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED ---------- ------------- ----------- ----------- ------------ ------------ ----------- ASSETS: Current Assets: Cash................... $ 572 $ 57 $ 42 $(1,750)(1)(2) $(1,079) $25,593 (3) $24,514 Investments............ -- 420 -- 420 420 Accounts receivable.... 90 90 646 826 826 Prepaid expenses and other current assets.. 67 203 6 276 276 ------- ---- ---- ------- ------- Total current assets.. 729 770 694 443 26,036 Property and Equipment, net.................... 2,502 116 177 2,795 2,795 Other Assets............ 695 28 106 7,124 (1) 7,953 7,953 ------- ---- ---- ------- ------- $ 3,926 $914 $977 $11,191 $36,784 ======= ==== ==== ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities.... $ 5,086 $774 $638 $ 150 (1) $ 6,648 $ 6,648 Long-term debt......... 3,807 -- 3 3,810 (3,807)(3)(4) 3 Redeemable preferred stock................. -- -- -- 2,500 (2) 2,500 2,500 Shareholders' equity .. (4,967) 140 336 2,724 (1) (1,767) 29,400 (3)(4) 27,633 ------- ---- ---- ------- ------- $ 3,926 $914 $977 $11,191 $36,784 ======= ==== ==== ======= =======
The accompanying notes are an integral part of these financial statements. F-3 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INTERNATIONAL SPORTS KENT OFFERING PRO SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED ---------- ------------- ----------- ----------- ------------ ------------ ----------- Revenue................. $ 44 $4,878 $1,995 $(705)(5) $ 6,212 $ $ 6,212 Cost and expenses: Cost of revenue........ 10 2,747 948 (338)(5) 3,367 3,367 Selling, general and administrative........ 1,833 1,647 753 732 (5)(6)(7) 4,965 4,965 Interest expense, net.. 369 (37) 4 336 (369)(8) (33) --------- ------ ------ ------- --------- Total cost and expenses............. 2,212 4,357 1,705 8,668 8,299 --------- ------ ------ ------- --------- Income (loss) before taxes.................. (2,168) 521 290 (2,456) (2,087) Provision for income taxes.................. -- -- 57 (57)(9) -- -- --------- ------ ------ ------- --------- Net income (loss)....... $ (2,168) $ 521 $ 233 $(2,456) $(2,087) ========= ====== ====== ======= ========= Net loss per share (10). $ (0.90) $(0.65) ========= ========= Weighted average number of common shares outstanding............ 2,400,000 5,087,450 --------- ---------
The accompanying notes are an integral part of these financial statements. F-4 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INTERNATIONAL SPORTS KENT OFFERING PRO SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED ---------- ------------- ----------- ----------- ------------ ------------ ----------- Revenue................. $ 163 $1,771 $1,792 $(221)(5) $ 3,505 $ 3,505 Cost and expenses: Cost of revenue........ 40 1,070 1,031 (127)(5) 2,014 2,014 Selling, general and administrative........ 1,875 820 335 373 (5)(7) 3,403 3,403 Interest expense, net.. 438 -- 3 441 (438)(8) 3 --------- ------ ------ ------- --------- Total cost and expenses............. 2,353 1,890 1,369 5,858 5,420 --------- ------ ------ ------- --------- Income (loss) before taxes.................. (2,190) (119) 423 (2,353) (1,915) Provision for income taxes ................. -- -- 170 (170)(9) -- -- --------- ------ ------ ------- --------- Net income (loss)....... $ (2,190) $ (119) $ 253 $(2,353) $ (1,915) ========= ====== ====== ======= ========= Net loss per share...... $ (0.91) $ (0.38) ========= ========= Weighted average number of common shares outstanding............ 2,400,000 5,087,450 --------- ---------
The accompanying notes are an integral part of these financial statements. F-5 NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following pro forma adjustments are based upon the assumption of the closing of the Offering with the sale of 2,000,000 shares of common stock at $15.00 per share. The pro forma adjustments to the condensed consolidated balance sheet are as follows: (1) To record the acquisitions of ISM and KCG, for which the estimated excess purchase price of approximately $7,124 has been assigned to intangible assets including customer lists, contracts and goodwill. These assets have useful lives ranging from 2 to 20 years. Along with these acquisitions, the remaining available borrowings of $150 under the line of credit have been reflected. (2) To record the issuance of 25,000 shares of Series A Convertible Redeemable Preferred Stock with a par value of $100 per share for a total consideration of $2,500. (3) To record the receipt of the net proceeds of the Offering of $26,400 and the application of these proceeds, primarily for the payment of accrued interest on shareholder notes of $807 and the acquisitions of ISM and KCG. (4) To record the conversion of $3,000 of shareholder loans to 244,066 shares of common stock. The pro forma adjustments to the condensed consolidated statements of operations are as follows: (5) To eliminate the effects of transactions between the companies including intercompany profit capitalized as software development costs of $253 for the year ended December 31, 1995 and $35 as software development costs and $10 as onboard equipment for the six-month period ended June 30, 1996. (6) To record compensation expense related to the issuance of the Restricted Grant Shares to certain employees of KCG of $134 for the year ended December 31, 1995 and $66 for the six-month period ended June 30, 1996. (7) To record amortization of excess purchase price of $712 for the year ended December 31, 1995 and $356 for the six-month period ended June 30, 1996. (8) To reduce interest expense on borrowings of $369 for the year ended December 31, 1995 and $438 for the six-month period ended June 30, 1996. (9) To reduce the tax provision recorded by KCG of $57 for the year ended December 31, 1995 and $170 for the six-month period ended June 30, 1996. (10) The weighted average number of shares of common stock used to calculate pro forma net loss per share includes the assumed conversion of the Convertible Preferred Stock. The pro forma net loss for the year ended December 31, 1995 used to compute pro forma net loss per share has been increased for the charges related to the conversion of (a) shareholder notes of $661 and (b) preferred stock of $551. F-6 After the proposed stock split in connection with the initial public offering of the Company, as discussed in Note 7 to the Notes to Consolidated Financial Statements, is effected, we expect to be in a position to render the following audit report. Arthur Andersen LLP Pittsburgh, Pennsylvania August 19, 1996 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Allin Communications Corporation: We have audited the accompanying consolidated balance sheets of Allin Communications Corporation (a Delaware corporation) as of December 31, 1994 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the period from June 8, 1994 (date of inception), to December 31, 1994, and for the year ended December 31, 1995. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allin Communications Corporation as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the period from June 8, 1994 (date of inception), to December 31, 1994, and for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Pittsburgh, Pennsylvania, August , 1996 F-7 ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------- JUNE 30, 1994 1995 1996 -------- ---------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................... $ 32,852 $ 192,995 $ 571,961 Accounts receivable......................... -- 42,692 79,730 Related party receivable.................... -- -- 10,000 Prepaid expenses............................ 25,668 8,765 67,766 -------- ---------- ---------- Total current assets....................... 58,520 244,452 729,457 -------- ---------- ---------- Property and equipment, at cost: Leasehold improvements...................... -- 42,450 47,836 Furniture and equipment..................... 16,404 188,897 279,113 On-board equipment.......................... -- 1,313,206 1,505,121 Construction-in-progress.................... -- -- 1,009,388 -------- ---------- ---------- 16,404 1,544,553 2,841,458 Less--accumulated depreciation.............. (1,093) (153,648) (339,951) -------- ---------- ---------- 15,311 1,390,905 2,501,507 Other assets, net of accumulated amortization of $5,295, $141,052 and $293,379, respectively..................... 72,238 717,375 695,110 -------- ---------- ---------- $146,069 $2,352,732 $3,926,074 ======== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit.............................. $ -- $ -- $4,850,000 Shareholder notes payable................... -- 1,493,000 -- Accounts payable............................ 1,600 151,436 40,000 Accrued liabilities......................... -- 92,849 195,989 -------- ---------- ---------- Total current liabilities................ 1,600 1,737,285 5,085,989 -------- ---------- ---------- Long-term liabilities: Accrued interest............................ 24,080 393,138 807,284 Shareholder notes payable................... 730,000 3,000,000 3,000,000 -------- ---------- ---------- 754,080 3,393,138 3,807,284 -------- ---------- ---------- Shareholders' equity (Notes 1 and 7): Preferred stock, authorized 100,000 shares.. -- -- -- Common stock, par value $.01 per share- authorized, 20,000,000 shares; issued and outstanding, 2,400,000 shares.............. 10 10 24,000 Additional paid-in capital.................. 1,990 1,990 3,000 Retained deficit............................ (611,611) (2,779,691) (4,994,199) -------- ---------- ---------- Total shareholders' equity................. (609,611) (2,777,691) (4,967,199) -------- ---------- ---------- $146,069 $2,352,732 $3,926,074 ======== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. F-8 ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 31, DECEMBER 31, -------------------------- 1994 1995 1995 1996 ------------ ------------ ------------ ------------- (UNAUDITED) Revenue................. $ -- $ 44,413 $ -- $ 163,000 Cost of sales........... -- 10,000 -- 40,045 --------- ----------- ----------- ------------- Gross profit............ -- 34,413 -- 122,955 Selling, general & administrative......... 587,531 1,833,435 707,331 1,874,801 --------- ----------- ----------- ------------- Loss from operations.... (587,531) (1,799,022) (707,331) (1,751,846) Interest expense, net... 24,080 369,058 105,311 437,662 --------- ----------- ----------- ------------- Net loss................ $(611,611) $(2,168,080) $ (812,642) $ (2,189,508) ========= =========== =========== ============= PRO FORMA INFORMATION-- UNAUDITED (NOTE 8): Net loss............... $(2,168,080) $ (812,642) $ (2,189,508) Pro forma income taxes. -- -- -- ----------- ----------- ------------- Pro forma net loss..... $(2,168,080) $ (812,642) $ (2,189,508) =========== =========== ============= Pro forma net loss per common share.......... $ (.90) $ (.34) $ (.91) =========== =========== ============= Weighted average common shares outstanding during the period............. 2,400,000 2,400,000 2,400,000
The accompanying notes to financial statements are an integral part of these statements. F-9 ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK TOTAL ------------------- PAID-IN SHAREHOLDERS' SHARES PAR VALUE CAPITAL RETAINED DEFICIT EQUITY --------- --------- ------- ---------------- ------------- Balance, June 8, 1994... $ -- $ -- $ -- $ -- $ -- Issuance of common stock................. 2,400,000 10 1,990 -- 2,000 Net loss............... -- -- -- (611,611) (611,611) --------- ------- ------ ----------- ----------- Balance, December 31, 1994................... 2,400,000 10 1,990 (611,611) (609,611) Net loss............... -- -- -- (2,168,080) (2,168,080) --------- ------- ------ ----------- ----------- Balance, December 31, 1995................... 2,400,000 10 1,990 (2,779,691) (2,777,691) Initial capitalization (unaudited) (Note 1).. -- 23,990 1,010 (25,000) -- Net loss (unaudited)... -- -- -- (2,189,508) (2,189,508) --------- ------- ------ ----------- ----------- June 30, 1996 (unaudited)............ 2,400,000 $24,000 $3,000 $(4,994,199) $(4,967,199) ========= ======= ====== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-10 ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31, ---------------------- 1994 1995 1995 1996 ------------ ------------ --------- ----------- (UNAUDITED) Cash flows from operating activities: Net loss.................... $(611,611) $(2,168,080) $(812,642) $(2,189,508) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization.............. 6,388 288,312 10,508 338,630 Accrued interest on shareholder notes payable. 24,080 369,058 105,311 414,146 Changes in certain assets and liabilities: Accounts receivable........ -- (42,692) -- (37,038) Related party receivable... -- -- -- (10,000) Prepaid expenses........... (25,668) 16,903 19,303 (59,001) Software development costs. - (753,252) (528,092) (130,062) Other assets............... (77,533) (27,642) (26,368) -- Accounts payable........... 1,600 149,836 366,455 (111,436) Accrued liabilities........ -- 92,849 -- 103,140 --------- ----------- --------- ----------- Net cash flows from operating activities...... (682,744) (2,074,708) (865,525) (1,681,129) --------- ----------- --------- ----------- Cash flows from investing activities: Capital expenditures........ (16,404) (1,528,149) (538,772) (1,296,905) --------- ----------- --------- ----------- Cash flows from financing activities: Proceeds from shareholder loans...................... 730,000 3,763,000 1,607,950 2,127,650 Proceeds from line of credit..................... -- -- -- 4,850,000 Payments on shareholder loans...................... -- -- -- (3,620,650) Issuance of common stock.... 2,000 -- -- -- --------- ----------- --------- ----------- Net cash flows from financing activities...... 732,000 3,763,000 1,607,950 3,357,000 --------- ----------- --------- ----------- Net change in cash and cash equivalents.................. 32,852 160,143 203,653 378,966 Cash and cash equivalents, beginning of period.......... -- 32,852 32,852 192,995 --------- ----------- --------- ----------- Cash and cash equivalents, end of period................ $ 32,852 $ 192,995 $ 236,505 $ 571,961 ========= =========== ========= ===========
The accompanying notes to financial statements are an integral part of these statements. F-11 ALLIN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information for the six-month periods ended June 30, 1995 and 1996, is unaudited.) 1. ORGANIZATION AND NATURE OF OPERATIONS: Allin Communications Corporation (the Company) was formed as a wholly owned subsidiary of SeaVision, Inc. (SeaVision) on July 23, 1996. Effective August 16, 1996, the Company consummated a transaction pursuant to an agreement whereby SeaVision became a wholly owned subsidiary of the Company. Prior to this date, the Company had no operations. SeaVision was formed on June 8, 1994 for the purpose of designing, developing, selling and installing interactive entertainment and communications systems for cruise ships. Revenues are derived from passengers aboard the cruise ships through usage of pay-per-view, gaming and video shopping services. During 1995, SeaVision completed installation of two interactive systems on cruise ships. The discussion under the heading "Risk Factors" contained in this Registration Statement is incorporated herein by reference. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies affecting the consolidated financial statements of the Company. Use of Estimates in the Preparation of Financial Statements 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all certificates of deposit with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Revenue Recognition Revenue and related costs are recognized when the services are rendered. The Company's revenue and receivables result from contracts with cruise lines. To date, two cruise lines account for all of the Company's revenue and the resulting receivables. Property and Equipment The Company provides for depreciation on the straight-line method over the estimated useful lives of the assets. In the year of acquisition, the Company takes a full year of depreciation if the asset was purchased in the first six months, and half a year of depreciation if the asset was purchased in the last six months of the year. The estimated useful lives of property and equipment range from three to five years. Expenditures for ordinary maintenance and repairs which do not extend the lives of the applicable assets are charged to expense as incurred, while renewals and betterments that materially extend the lives of the applicable assets are capitalized and depreciated. Other Assets Certain expenditures related to the organization and start-up of SeaVision have been capitalized in the accompanying consolidated financial statements. Organizational and start-up costs included in this balance are being amortized over a five-year period. F-12 ALLIN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Costs of software development are capitalized and amortized subsequent to the project achieving technological feasibility and prior to market introduction. Prior to the project achieving technological feasibility, development costs are expensed as incurred. Amortization of capitalized software costs, for both internally developed and purchased software products, is computed on a product-by-product basis over a three-year period. Software development expense, net of amortization of capitalized costs, was approximately $173,000 and $216,000 for the periods ended December 31, 1994 and 1995, respectively. Advertising and Promotional Expenditures for advertising and promotions are expensed as incurred due to the short duration of the periods benefited. Income Taxes The shareholders of SeaVision had elected to file under Subchapter S for both state and federal income tax purposes. Accordingly, no provision for income taxes has been reflected in the financial statements as the taxable income or loss is reflected on the individual income tax returns of the shareholders. Certain events, including the transactions described in Notes 1 and 7, will automatically terminate the S corporation status of SeaVision, thereby subjecting future income to federal and state income taxes at the corporate level. Financial Instruments It was not practicable to estimate the fair value of the shareholder notes payable. These notes are reflected at their outstanding face value, excluding unpaid interest accrued at 15% annually. As no ready market exists for these instruments, comparable instruments available from outside the Company are not available. Based upon the closely held nature of these instruments and the Company itself, it is not practicable to estimate the fair value of these notes. All other financial instruments are classified as current and will be utilized within the next operating cycle. Recently Issued Accounting Standards Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), was issued in March 1995 and is effective for fiscal years beginning after December 15, 1995. This statement will be applied prospectively and requires that impairment losses on long-lived assets be recognized when the book value of the asset exceeds its expected undiscounted cash flows. The Company adopted SFAS No. 121 on January 1, 1996, and adoption at that time did not have a material impact on the Company's financial position or results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123) in October 1995. This statement establishes a "fair value based method" of financial accounting and related reporting standards for stock- based employee compensation plans, such as the plans that will be established, subsequent to year-end (see Note 7). SFAS No. 123 becomes effective in 1996 and provides for adoption in the income statement or through disclosure only. The Company anticipates accounting for any adopted plan under APB Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123, but will provide the disclosure in the notes to the 1996 financial statements. F-13 ALLIN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Unaudited Interim Financial Statements The consolidated balance sheet as of June 30, 1996, and the related statements of operations, shareholders' equity and cash flows for the six- month periods ended June 30, 1995 and 1996, are unaudited and are not covered by the report of independent public accountants. However, in the opinion of management, these interim financial statements include all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods and are prepared on the same basis as the audited financial statements. The results of operations and cash flows for the unaudited six-month period ended June 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. Supplemental Disclosure of Cash Flow Information There were no cash payments for income taxes during the periods presented. Cash payments for interest were approximately $23,000 during the six months ended June 30, 1996. 3. RELATED PARTY TRANSACTIONS: The following summarizes related party information. The discussion under the heading "Certain Transactions" contained in this Registration Statement is incorporated herein by reference. Shareholder Notes Payable These obligations represent numerous individual notes due to certain shareholders, each with a three-year maturity. These notes bear interest at 15%, payable at maturity, and mature at various dates from July 1997 through December 1998. That portion of the notes paid in connection with the Company's line of credit entered into on May 31, 1996 (Note 4) has been included with current liabilities in the accompanying consolidated balance sheets. The remaining outstanding balance of $3.0 million will be converted into 244,066 shares of Common Stock, effective upon the closing of the initial public offering (Note 7). Management Services Certain shareholders of the Company own interests in three separate entities which perform installation, marketing, consulting and administrative services and made purchases for the Company. Fees related to these services and reimbursements for expenditures incurred on behalf of the Company were approximately as follows:
PERIOD ENDED FEES REIMBURSEMENTS ------------ -------- -------------- December 31, 1994 $343,000 $ 287,000 December 31, 1995 644,000 1,668,000 June 30, 1996 230,000 213,000
During 1996, the Company hired a management team that reduced its need for the services provided by these entities. Accordingly, the fees and reimbursements paid under these arrangements have declined. Management agreements with two of the entities were terminated in July 1996. The third management agreement has been converted to a lease agreement effective August 1, 1996. The lease agreement includes the rental of office space and certain administrative services to be provided to the Company. This agreement provides for monthly fees of $3,700 and can be terminated by either party upon 30 days notification. Professional Services A shareholder of the Company is a partner in an entity which performs legal services for the Company. Fees for these services were approximately $25,000, $71,000 and $21,000 for the periods ended December 31, 1994 and 1995, and June 30, 1996, respectively. F-14 ALLIN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Other Services Certain shareholders of the Company have an equity interest in an entity which performs services for the Company related to visual media. Payments for these services were approximately $10,000, $137,000 and $93,000 for the periods ended December 31, 1994 and 1995, and June 30, 1996, respectively. Another entity in which certain shareholders of the Company have an equity interest performed commercial printing services for the Company. Payments for these services were approximately $7,000, $25,000 and $40,000 for the periods ended December 31, 1994 and 1995, and June 30, 1996, respectively. Related Party Receivable This balance represents noninterest-bearing advances made to an entity in which certain shareholders of the Company own an interest. 4. LINE OF CREDIT: The Company entered into a financing agreement which provides for a line of credit that permits maximum allowable borrowings of $5 million. Borrowings bear interest at either prime or Euro-rate plus 1-1/2% and are payable upon demand. The maturity date is May 31, 1997, and borrowings are guaranteed by certain shareholders of the Company, for which they will receive a guarantee fee. This fee will be equal to the difference between the 15% accrued under the shareholder notes payable and the rate accrued on borrowings under the line of credit. As of July 17, 1996, $5 million has been borrowed under this agreement. 5. OTHER ASSETS: Other assets consist of the following:
DECEMBER 31, ---------------- JUNE 30, 1994 1995 1996 ------- -------- ----------- (UNAUDITED) Software development costs, net of accumulated amortization of $-0-, $125,542 and $272,761.... $ -- $627,710 $610,553 Organizational and start-up costs, net of accumulated amortization of $5,171, $14,976 and $19,879........................................ 43,855 34,050 29,147 Other assets, net of accumulated amortization of $124, $534 and $739............................ 28,383 55,615 55,410 ------- -------- -------- $72,238 $717,375 $695,110 ======= ======== ========
6. COMMITMENTS: License Agreement The Company has an agreement with a vendor which provides for a software license fee of $25,000 per installation and includes specified prices for various hardware components. This agreement expires October 1999, and payments for license fees under this arrangement were $25,000 and $75,000 for the periods ended December 31, 1994 and 1995, respectively. These fees are included with on-board equipment upon installation of the interactive systems. Royalty Agreements The contracts with the cruise lines provide for specified royalty payments based upon adjusted gross revenue, as defined in the respective agreements. These royalty payments are adjusted upon reaching specified milestones for cumulative revenue generated by the interactive systems installations. Royalty payments of approximately $2,000 and $6,000 are included with selling, general and administrative expenses in the accompanying consolidated statements of operations for the periods ended December 31, 1995, and June 30, 1996, respectively. F-15 ALLIN COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. SUBSEQUENT EVENTS: In connection with the proposed initial public offering (the Offering) by the Company, subsequent to June 30, 1996, the following transactions have occurred or are anticipated to occur: (i) Designation of 40,000 shares of authorized preferred stock as Series A Convertible Redeemable Preferred Stock with a par value of $100 per share. (ii) Receipt of $1.5 million in the form of loans from two shareholders. These loans bear interest at 8%, increasing to 12% if the Offering is not consummated on or before December 31, 1996, and are convertible into an aggregate 15,000 shares of Convertible Redeemable Preferred Stock of the Company. (iii) Conversion of the shareholder loans referred to above into 15,000 shares of Convertible Redeemable Preferred Stock and the issuance of an additional 10,000 shares of Convertible Redeemable Preferred Stock. These shares are entitled to cumulative compounded quarterly dividends, when and as declared by the Board of Directors, of 8%, increasing to 12% if the Offering is not consummated on or before December 31, 1996. Additionally, the 25,000 shares issued are convertible into 203,385 common shares, at the option of the holder, not earlier than six months after the date of the Offering. (iv) A stock split of 2,400 common shares for each common share outstanding effective as the date of the Offering. This split has been reflected retroactively in the accompanying financial statements. (v) Entry into an agreement for the acquisition of all issued and outstanding shares of International Sports Marketing, Inc. (ISM), an entity in which certain shareholders of the Company have an ownership interest. This acquisition is conditioned upon the closing of the Offering and provides for cash payments of $2.4 million upon closing and contingent payments up to $2.4 million based upon future operating income. (vi) Entry into an agreement for the merger of Kent Consulting Group, Inc. (KCG) into a wholly owned subsidiary of the Company. This merger is conditioned upon the closing of the Offering. The consideration includes $2.0 million in cash and $3.2 million in common stock valued at the Offering price at the closing and contingent payments up to $2.8 million based upon future operating income. (vii) Creation of the 1996 Stock Plan which provides up to 266,000 shares for Common Stock to be awarded as stock options, stock appreciation rights, restricted shares and restricted units to officers, other executive employees, consultants and advisors (including non-employee directors) of the Company. As of the closing of the Offering, 26,666 shares of common stock were granted in connection with the acquisition of KCG. Additionally, options to purchase 191,000 shares of common stock at the offering price were granted. 8. PRO FORMA INFORMATION (UNAUDITED): The pro forma adjustments for income taxes included in the accompanying statements of operations are based upon statutory rates in effect for C corporations during the periods presented. Due to uncertainty as to the realizability of the tax benefit attributable to the net operating losses, a valuation allowance has been established that offsets this benefit. The weighted average outstanding shares used to calculate the pro forma earnings per share reflect the capital structure of the Company and give effect to the stock split discussed in Note 7. F-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To International Sports Marketing, Inc.: We have audited the accompanying balance sheets of International Sports Marketing, Inc. (a Pennsylvania corporation) as of December 31, 1994 and 1995, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 International Sports Marketing, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Pittsburgh, Pennsylvania, August 19, 1996 F-17 INTERNATIONAL SPORTS MARKETING, INC. BALANCE SHEETS
DECEMBER 31, ------------------ JUNE 30, 1994 1995 1996 -------- -------- ----------- (UNAUDITED) ASSETS Current assets: Cash.......................................... $436,859 $ 70,636 $ 56,761 Investments................................... -- 395,022 420,426 Accounts receivable........................... 74,448 116,850 90,280 Prepaid expenses.............................. 57,424 212,496 202,805 -------- -------- -------- Total current assets......................... 568,731 795,004 770,272 -------- -------- -------- Equipment, at cost............................. 107,505 159,494 170,114 Less--Accumulated depreciation................ (21,679) (41,844) (54,032) -------- -------- -------- 85,826 117,650 116,082 Long-term receivable........................... 6,145 12,038 27,673 Intangible assets, net of accumulated amortization of $184,412, $275,716 and $309,955, respectively........................ 125,543 34,239 -- -------- -------- -------- $786,245 $958,931 $914,027 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities...... $276,283 $ 88,233 $124,593 Deferred revenues............................. 189,224 408,250 649,625 -------- -------- -------- Total current liabilities.................... 465,507 496,483 774,218 -------- -------- -------- Shareholders' equity: Common stock, par value $1 per share-- Authorized, 1,000 shares; issued and outstanding, 100 and 105 shares, respectively................................. 100 105 105 Additional paid-in capital.................... 99,900 99,900 99,900 Retained earnings............................. 220,738 357,587 38,112 Net unrealized gains on investments........... -- 4,856 1,692 -------- -------- -------- Total shareholders' equity................... 320,738 462,448 139,809 -------- -------- -------- $786,245 $958,931 $914,027 ======== ======== ========
The accompanying notes to financial statements are an integral part of these financial statements. F-18 INTERNATIONAL SPORTS MARKETING, INC. STATEMENTS OF OPERATIONS
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, -------------------------------- --------------------- 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Revenue: Events................. $2,770,993 $5,671,042 $4,807,763 $3,213,640 $1,581,037 Appearances............ 121,942 135,150 46,850 16,500 82,240 Licensing.............. 91,618 135,855 22,902 17,234 107,417 ---------- ---------- ---------- ---------- ---------- 2,984,553 5,942,047 4,877,515 3,247,374 1,770,694 Cost of sales: Event costs............ 1,566,702 3,288,230 2,714,516 1,726,881 1,037,300 Appearance fees........ 96,536 63,800 25,450 8,900 32,267 Licensing costs and expenses.............. 11,267 68,480 6,536 4,724 474 ---------- ---------- ---------- ---------- ---------- Gross profit.......... 1,310,048 2,521,537 2,131,013 1,506,869 700,653 Operating expenses: Payroll and benefit costs................. 451,290 630,439 711,518 393,950 413,114 General and administrative........ 214,237 287,766 338,935 130,791 146,040 Royalty fee............ 132,383 295,250 165,948 116,064 60,000 Rent................... 39,524 69,217 99,485 46,002 55,010 Airfare, lodging and meals................. 73,412 73,096 91,404 36,510 48,629 Advertising and promotional........... 82,563 67,409 68,493 20,371 20,433 Administrative service fee................... 60,000 60,000 60,000 30,000 30,000 Depreciation and amortization.......... 97,313 103,932 111,469 53,810 46,427 ---------- ---------- ---------- ---------- ---------- Operating income (loss)............... 159,326 934,428 483,761 679,371 (119,000) Net investment income (expense).............. 23,507 13,564 28,791 9,795 (495) Other nonoperating income................. -- 7,584 8,299 2,399 20 ---------- ---------- ---------- ---------- ---------- Net income (loss)....... $ 182,833 $ 955,576 $ 520,851 $ 691,565 $ (119,475) ========== ========== ========== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. F-19 INTERNATIONAL SPORTS MARKETING, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK NET UNREALIZED ---------------- PAID-IN RETAINED GAINS ON SHARES PAR VALUE CAPITAL EARNINGS INVESTMENTS ------ --------- ------- --------- -------------- December 31, 1992........... 100 $100 $99,900 $(189,723) $ -- Net income................. -- -- -- 182,833 -- --- ---- ------- --------- ------ December 31, 1993........... 100 100 99,900 (6,890) -- Distributions to shareholders.............. -- -- -- (727,948) -- Net income................. -- -- -- 955,576 -- --- ---- ------- --------- ------ December 31, 1994........... 100 100 99,900 220,738 -- Exercise of options........ 5 5 -- -- -- Unrealized gains on investments............... -- -- -- -- 4,856 Distributions to shareholders.............. -- -- -- (384,002) -- Net income................. -- -- -- 520,851 -- --- ---- ------- --------- ------ December 31, 1995........... 105 105 99,900 357,587 4,856 Unrealized losses on investments (unaudited)... -- -- -- -- (3,164) Distributions to shareholders (unaudited).. -- -- -- (200,000) -- Net loss (unaudited)....... -- -- -- (119,475) -- --- ---- ------- --------- ------ June 30, 1996 (unaudited)... 105 $105 $99,900 $ 38,112 $1,692 === ==== ======= ========= ======
The accompanying notes to financial statements are an integral part of these statements. F-20 INTERNATIONAL SPORTS MARKETING, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------------------------- -------------------------- 1993 1994 1995 1995 1996 --------- --------- --------- ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net income (loss)...... $ 182,833 $ 955,576 $ 520,851 $ 691,565 $ (119,475) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization......... 97,313 103,932 111,469 53,810 46,427 Assumption of Major League Alumni Marketing Program's net liabilities...... (308,150) -- -- -- -- Changes in certain assets and liabilities: Accounts receivable... 115,434 (2,398) (42,402) (594,665) 26,570 Prepaid expenses...... (29,415) (28,009) (155,072) (19,793) 9,691 Long-term receivable.. -- (6,145) (5,893) (5,893) (15,635) Accounts payable and accrued liabilities.. (97,360) 178,302 (188,050) 89,875 36,360 Deferred revenues..... 131,518 57,706 219,026 (210,407) 241,375 --------- --------- --------- ------------ ------------ Net cash flows from operating activities. 92,173 1,258,964 459,929 4,492 225,313 --------- --------- --------- ------------ ------------ Cash flows from investing activities: Capital expenditures... (28,655) (54,817) (51,989) (22,754) (10,620) Investments............ -- -- (390,166) -- (28,568) --------- --------- --------- ------------ ------------ Net cash flows from investing activities. (28,655) (54,817) (442,155) (22,754) (39,188) --------- --------- --------- ------------ ------------ Cash flows from financing activities: Distribution paid to shareholders.......... -- (727,948) (384,002) -- (200,000) Exercise of options.... -- -- 5 -- -- Repayment of shareholder loans payable............... (113,648) (222,052) -- -- -- --------- --------- --------- ------------ ------------ Net cash flows from financing activities.. (113,648) (950,000) (383,997) -- (200,000) --------- --------- --------- ------------ ------------ Net change in cash...... (50,130) 254,147 (366,223) (18,262) (13,875) Cash, beginning of period................. 232,842 182,712 436,859 436,859 70,636 --------- --------- --------- ------------ ------------ Cash, end of period..... $ 182,712 $ 436,859 $ 70,636 $ 418,597 $ 56,761 ========= ========= ========= ============ ============
The accompanying notes to financial statements are an integral part of these statements. F-21 INTERNATIONAL SPORTS MARKETING, INC. NOTES TO FINANCIAL STATEMENTS (ALL INFORMATION FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED.) 1. ORGANIZATION AND NATURE OF OPERATIONS: International Sports Marketing, Inc. (ISM) was organized for the purpose of marketing, licensing and operating sports-related promotions and rights. ISM has arrangements with various organizations that represent former professional athletes. ISM's revenue results primarily from the coordination of various events, including the production of sports-themed premiums and promotions, sales incentives, licensing, games, clinics and personal appearances. The discussion under the heading "Risk Factors" contained in this Registration Statement is incorporated herein by reference. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies affecting the financial statements of ISM: Use of Estimates in the Preparation of Financial Statements 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. Accounts Receivable ISM grants credit to customers based upon management's assessment of their creditworthiness. Sales to sponsors account for virtually all of ISM's receivables as of December 31, 1994 and 1995. Two significant customers individually accounted for 51% and 15% of 1993 sales and 42% and 19% of 1994 sales. One other significant customer accounted for 17% of 1995 sales. Depreciation Depreciation is provided using the straight-line method which allocates the cost of equipment over estimated useful lives ranging from five to ten years. Long-Term Receivable This represents premiums paid under a split-dollar life insurance policy arrangement with a key employee of ISM. This balance is repayable upon termination of the employee or from the proceeds of the insurance policy. Deferred Revenue Revenue received in advance, such as deposits on events and appearances, is deferred and recognized as revenue during the period earned. Stock Options In accordance with an employment agreement, a key employee of ISM exercised options to purchase approximately five shares of common stock. The exercise price was the par value which was deemed to F-22 INTERNATIONAL SPORTS MARKETING, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) approximate fair value as of the date of grant. Accordingly, no compensation expense has been recognized in connection with this transaction. Income Taxes The shareholders of ISM have elected to file under Subchapter S for both state and federal income tax purposes. No provision for income taxes has been reflected in the financial statements as the taxable income or loss is reflected on the individual income tax returns of the shareholders. Upon completion of the transaction discussed in Note 6, ISM's S Corporation status will automatically terminate. Recently Issued Accounting Standards Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), was issued in March 1995 and is effective for fiscal years beginning after December 15, 1995. This statement will be applied prospectively and requires that impairment losses on long-lived assets be recognized when the book value of the asset exceeds its expected undiscounted cash flows. ISM adopted SFAS No. 121 on January 1, 1996, and adoption at that time did not have a material impact on ISM's financial position or results of operations. Unaudited Interim Financial Statements The balance sheet as of June 30, 1996, and the related statements of operations, shareholders' equity and cash flows for the six-month periods ended June 30, 1995 and 1996, are unaudited and are not covered by the report of independent public accountants. However, in the opinion of management, these interim financial statements include all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of ISM for the interim periods and are prepared on the same basis as the audited financial statements. The results of operations and cash flows for the unaudited six-month period ended June 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. Supplemental Disclosure of Cash Flow Information There were no cash payments for interest or taxes during the periods presented. Reclassifications Certain prior year balances have been reclassified to conform to the current year presentation. 3. LICENSE AGREEMENT: ISM has a license agreement with Major League Alumni Marketing, Inc. (MLAM, Inc.), a wholly owned subsidiary of the Major League Baseball Players Alumni Association (the Agreement) dated December 1, 1993, effective January 1, 1993. The Agreement supersedes the Management Agreement dated May 15, 1989, between ISM and MLAM, Inc. Pursuant to the Agreement, the Major League Alumni Marketing Program, a project formed between ISM and MLAM, Inc., was terminated and ISM assumed all of the assets and liabilities of the project. The excess of liabilities over assets assumed is reflected as an intangible asset in the accompanying balance sheets and is being amortized over the initial term of the Agreement on the straight-line basis. This Agreement provides ISM with certain exclusive rights and provides for, among other things, the following: F-23 INTERNATIONAL SPORTS MARKETING, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Royalty Payment ISM is required to make a royalty payment to MLAM, Inc. based upon a specified percentage of its Annual Gross Revenues, as defined, related to the use, exploitation and sublicensing of the rights acquired from MLAM, Inc. As of December 31, 1995, the future minimum commitment under the Agreement is $45,000. Royalties paid to MLAM, Inc. were $132,383, $295,250 and $165,948 for the years ended December 31, 1993, 1994 and 1995, and $60,000 for the six- month period ended June 30, 1996, respectively. Term of the Agreement The Agreement provides for an initial term of 40.5 months and contains automatic renewal options for successive two-year periods until termination. ISM or MLAM, Inc., may terminate the Agreement with a written notification to the other party at least one year prior to the expiration of the then current term. As neither party elected to terminate this Agreement within the notification period, the Agreement has automatically been extended effective May 15, 1996, through December 31, 1998. The Agreement may also be terminated by either party if a material breach of the Agreement occurs which remains unresolved for 60 days following a written notification of the breach to the other party. 4. INVESTMENTS: ISM's investments represent securities classified as available for sale and are stated at market value. These investments consist primarily of debt securities which are actively traded on open markets. Unrealized gains or losses are recorded in shareholders' equity. Realized gains and losses on dispositions are computed by the specific identification method and are included in the accompanying statements of operations. The cost and estimated market value of investments in securities available for sale are summarized below:
DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- (UNAUDITED) Debt securities available for sale, at cost......... $390,166 $418,734 Gross unrealized gains.............................. 4,856 1,692 -------- -------- Estimated market value.............................. $395,022 $420,426 ======== ========
5. RELATED PARTY TRANSACTIONS: The following summarizes related party information. The discussion under the heading "Certain Transactions" contained in this Registration Statement is incorporated herein by reference. Administrative Service Fee Certain shareholders of ISM own an interest in the entity which performs general, administrative and accounting services for ISM. Fees related to these services were $60,000 for each of the years ended December 31, 1993, 1994 and 1995, and $30,000 for the six-month period ended June 30, 1996. Lease Expense ISM leases office space from an entity in which certain shareholders own an indirect interest. Lease expense related to this office space was $39,524, $53,777 and $76,774 for the years ended December 31, 1993, 1994 and 1995, and $39,832 for the six-month period ended June 30, 1996, respectively. Professional Services A shareholder of ISM is a partner in the entity which performs legal services for ISM. These fees amounted to $45,078, $97,831 and $20,499 for the years ended December 31, 1993, 1994 and 1995, and $12,190 for the six-month period ended June 30, 1996, respectively. F-24 INTERNATIONAL SPORTS MARKETING, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 6. SUBSEQUENT EVENT: Effective August 14, 1996, the shareholders of ISM entered into an agreement with Allin Communications Corporation to sell all of the outstanding shares of the Company. The sales price is approximately $2.4 million. The agreement includes a provision whereby the price will be increased in accordance with a specified formula based upon average earnings over a three-year period, as defined. The maximum additional payment would be approximately $2.4 million payable over a three-year period. This sale is conditioned upon the closing of an initial public offering being undertaken by Allin Communications Corporation. F-25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Kent Consulting Group, Inc.: We have audited the accompanying balance sheets of Kent Consulting Group, Inc. (a California corporation) as of December 31, 1994 and 1995, and the related statements of operations, shareholders' equity and cash flows for the year ended March 31, 1994, the nine months ended December 31, 1994, and the year ended December 31, 1995. 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 Kent Consulting Group, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the year ended March 31, 1994, the nine months ended December 31, 1994, and the year ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Pittsburgh, Pennsylvania, August 19, 1996 F-26 KENT CONSULTING GROUP, INC. BALANCE SHEETS
DECEMBER 31, ------------------ JUNE 30, 1994 1995 1996 -------- -------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................. $ 3,613 $ 904 $ 42,303 Accounts receivable........................ 222,630 341,678 645,846 Notes receivable........................... 14,332 42,720 -- Inventory.................................. 20,761 -- -- Deferred income taxes...................... 7,000 -- -- Other assets............................... 1,149 3,757 6,065 -------- -------- ----------- Total current assets...................... 269,485 389,059 694,214 Property and equipment, net................. 131,708 73,786 176,663 Note receivable............................. -- -- 50,000 Shareholder receivable...................... 20,759 -- -- Deferred income taxes....................... -- 56,000 56,000 -------- -------- ----------- $421,952 $518,845 $976,877 ======== ======== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of notes payable........ $108,983 $ 50,417 $ 37,500 Line of credit............................. 165,000 -- -- Shareholder note payable................... -- 79,964 4,964 Accounts payable........................... 131,442 60,805 128,730 Accrued liabilities: Payroll related........................... 10,241 95,628 168,686 Income taxes.............................. -- 42,000 162,000 Other..................................... 6,086 1,637 15,527 Deferred income taxes...................... -- 71,000 121,000 -------- -------- ----------- Total current liabilities................. 421,752 401,451 638,407 Notes payable............................... -- 34,583 2,500 Shareholders' equity: Common stock, no par value per share-- Authorized, 1,500 shares; issued and outstanding, 1,000 shares................ 1,000 1,000 1,000 Retained earnings.......................... (800) 81,811 334,970 -------- -------- ----------- Total shareholders' equity................ 200 82,811 335,970 -------- -------- ----------- $421,952 $518,845 $976,877 ======== ======== ===========
The accompanying notes to financial statements are an integral part of these statements. F-27 KENT CONSULTING GROUP, INC. STATEMENTS OF OPERATIONS
NINE MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, DECEMBER 31, DECEMBER 31, ------------------- 1994 1994 1995 1995 1996 ---------- ------------ ------------ -------- ---------- (UNAUDITED) Revenue................. $1,945,818 $1,467,975 $1,994,791 $764,922 $1,791,886 Cost of revenue......... 1,305,830 800,401 948,279 339,532 1,031,046 ---------- ---------- ---------- -------- ---------- Gross profit.......... 639,988 667,574 1,046,512 425,390 760,840 Selling, general and administrative......... 924,202 503,688 753,069 224,841 335,075 ---------- ---------- ---------- -------- ---------- (Loss) income from operations............. (284,214) 163,886 293,443 200,549 425,765 Interest expense, net... 26,897 24,531 3,832 3,219 2,606 ---------- ---------- ---------- -------- ---------- (Loss) income before income taxes........... (311,111) 139,355 289,611 197,330 423,159 Income taxes............ (74,495) 56,000 57,000 80,000 170,000 ---------- ---------- ---------- -------- ---------- Net (loss) income....... $ (236,616) $ 83,355 $ 232,611 $117,330 $ 253,159 ========== ========== ========== ======== ==========
The accompanying notes to financial statements are an integral part of these statements. F-28 KENT CONSULTING GROUP, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED TOTAL COMMON EARNINGS SHAREHOLDERS' STOCK (DEFICIT) EQUITY -------- --------- ------------- March 31, 1993............................... $123,041 $ 21,427 $144,468 Net loss.................................... -- (236,616) (236,616) -------- -------- -------- March 31, 1994............................... 123,041 (215,189) (92,148) Acquisition and retirement of shares........ (12,766) -- (12,766) Net income.................................. -- 83,355 83,355 Capital contribution........................ (109,275) 131,034 21,759 -------- -------- -------- December 31, 1994............................ 1,000 (800) 200 Net income.................................. -- 232,611 232,611 Distribution to shareholders................ -- (150,000) (150,000) -------- -------- -------- December 31, 1995............................ 1,000 81,811 82,811 Net income (unaudited)...................... -- 253,159 253,159 -------- -------- -------- June 30, 1996 (Unaudited).................... $ 1,000 $334,970 $335,970 ======== ======== ========
The accompanying notes to financial statements are an integral part of these statements. F-29 KENT CONSULTING GROUP, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, DECEMBER 31, DECEMBER 31, ------------------ 1994 1994 1995 1995 1996 ---------- ------------ ------------ -------- -------- (UNAUDITED) Cash flows from operating activities: Net (loss) income..... $(236,616) $ 83,355 $232,611 $117,330 $253,159 Adjustments to reconcile net (loss) income to net cash flows from operating activities-- Depreciation and amortization....... 22,168 12,000 18,417 9,000 25,000 Deferred income taxes.............. (74,495) 56,000 15,000 61,000 50,000 Changes in certain assets and liabilities-- Accounts receivable.. 237,232 41,975 (285,966) (177,087) (304,168) Notes receivable..... 203,757 (14,332) (42,720) (18,172) (7,280) Shareholder receivable.......... -- (20,759) -- -- -- Inventory............ 54,154 23,923 -- -- -- Other assets......... 1,882 325 (3,478) (2,748) (2,308) Accounts payable..... (76,336) (105,216) 60,805 31,352 67,925 Accrued liabilities.. (82,432) 2,105 139,116 70,575 206,948 --------- -------- -------- -------- -------- Net cash flows from operating activities........ 49,314 79,376 133,785 91,250 289,276 --------- -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures, net.................. (2,692) (33,330) (60,069) (31,884) (127,877) --------- -------- -------- -------- -------- Cash flows from financing activities: Proceeds from notes payable.............. 187,000 -- 164,732 84,768 -- Principal payments on notes payable........ (226,575) (58,550) (172,544) (104,943) (120,000) Acquisition and retirement of shares. -- (12,766) -- -- -- Distribution to shareholders......... -- -- (65,000) -- -- Capital contribution.. -- 21,759 -- -- -- --------- -------- -------- -------- -------- Net cash flows from financing activities........ (39,575) (49,557) (72,812) (20,175) (120,000) --------- -------- -------- -------- -------- Net change in cash and cash equivalents 7,047 (3,511) 904 39,191 41,399 Cash and cash equivalents, beginning of period............. 77 7,124 -- -- 904 --------- -------- -------- -------- -------- Cash and cash equivalents, end of period................ $ 7,124 $ 3,613 $ 904 $ 39,191 $ 42,303 ========= ======== ======== ======== ========
The accompanying notes to financial statements are an integral part of these statements. F-30 KENT CONSULTING GROUP, INC. STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, DECEMBER 31, DECEMBER 31, ----------------- 1994 1994 1995 1995 1996 ---------- ------------ ------------ -------- -------- (UNAUDITED) Supplemental disclosure of cash flow information: Cash paid for-- Interest............. $32,000 $24,000 $6,000 $4,000 $6,000 ======= ======= ====== ======== ======== Income taxes......... $18,000 $ -- $1,000 $ -- $1,000 ======= ======= ====== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES: The net liabilities of Vision Network Systems, Inc., the Predecessor, as of December 31, 1994 (reflected as a shareholder receivable on the balance sheet) consist of the following (see Note 2): Cash.......................................................... $ 3,613 Accounts receivable........................................... 222,630 Notes receivable.............................................. 14,332 Inventory..................................................... 20,761 Other assets.................................................. 800 Deferred tax asset............................................ 7,000 Property and equipment, net................................... 131,708 Accounts payable.............................................. (131,442) Accrued liabilities........................................... (16,178) Notes payable/line of credit.................................. (273,983) --------- $ (20,759) =========
During the year ended December 31, 1995, the Company assumed $172,776 of long-term debt from Vision Network Systems, Inc., the Predecessor, and received in exchange the following (see Note 4): Accounts receivable............................................ $ 55,712 Computer equipment............................................. 32,064 Buyout of marketing agreement.................................. 85,000 -------- $172,776 ========
The accompanying notes to financial statements are an integral part of these statements. F-31 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS (ALL INFORMATION FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED) 1. ORGANIZATION AND NATURE OF OPERATIONS: Kent Consulting Group, Inc. (KCG) is engaged in the performance of professional services related to the design and operation of custom business network systems for microcomputers. KCG was incorporated on November 23, 1994, and commenced operations on January 1, 1995. Prior to December 31, 1994, Vision Network Systems, Inc. (VNS or the Predecessor) was engaged in essentially the same business. The shareholders of KCG and VNS are substantially the same. Therefore, due to similarities in the nature of the business, employees, customers and ownership, VNS is deemed to be a predecessor. VNS is currently involved with litigation arising from the conduct of its business. In the opinion of management, based upon its discussion with counsel, the outcome of the matters described below will not have a significant impact on the financial position of VNS. Additionally, these matters will not impact KCG. The matters affecting the Predecessor relate to an alleged usurpation of a division of VNS's business by a former employee. VNS has filed a lawsuit against the former employee who, in turn, has cross-complained against VNS for damages to his reputation. The Predecessor is represented by its insurance carrier in defense of the cross-complaint. Also related to the matter described above, two claims against VNS remain outstanding which were filed by former vendors for amounts due. VNS contends these balances relate to purchases made by the former employee in a capacity where he was not authorized to do so. Accordingly, these claims should be directed to this individual. As a result of the matters discussed above, KCG was formed to continue the business. Subsequent to January 1, 1995, VNS's operations have been limited to completion of projects previously commenced as well as efforts to resolve the outstanding matters. The discussion under the heading "Risk Factors" contained in this Registration Statement is incorporated herein by reference. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies affecting the financial statements of KCG and the Predecessor. Basis of Presentation The accompanying financial statements present the financial position and results of operations and cash flows of KCG and VNS as if they were combined from inception in a manner similar to a pooling of interests. The financial position, results of operations and related disclosures as of and prior to December 31, 1994, represent that of the Predecessor. This information is provided due to the similarities in ownership and operations. The accompanying statements of shareholders' equity reflect the net liabilities of VNS as of December 31, 1994, and the initial capitalization of KCG as a contribution of capital. Comparable information for VNS subsequent to January 1, 1995, has not been provided as that portion of the business was not acquired by the Company and is not included as part of the transaction discussed in Note 9. VNS used a fiscal year-end of March 31. The results of operations for the nine-month period ended December 31, 1994, are provided for comparability. F-32 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Certain assets and liabilities of VNS were acquired and assumed by KCG. The purchase method of accounting was not used as KCG and the Predecessor represent entities under common control. VNS's cost basis in the assets acquired and liabilities assumed has been reflected in the accompanying 1995 financial statements. Therefore, the purchase price in excess of the Predecessor's cost basis has been reflected as a distribution to shareholders in the accompanying statement of shareholders' equity (Note 4). Use of Estimates in the Preparation of Financial Statements 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents KCG considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. Accounts Receivable KCG grants credit to customers based upon management's assessment of their creditworthiness. Three significant customers accounted for approximately 35%, 15% and 10% of 1995 sales, respectively. Trade accounts receivable are due from approximately 30 customers located primarily in the greater San Francisco Bay area. Property and Equipment KCG provides for depreciation on its property and equipment using accelerated methods over estimated useful lives of 5 years. The Predecessor provided for depreciation on its property and equipment using straight-line and accelerated methods over useful lives ranging from 5 to 31.5 years. Expenditures for ordinary maintenance and repairs which do not extend the lives of the applicable assets are charged to expense as incurred, while renewals and betterments that materially extend the lives of the applicable assets are capitalized and depreciated. Financial Instruments Notes payable are reflected at their outstanding face value, excluding unpaid interest. As no ready market exists for these instruments, comparable instruments available from outside KCG are not available. Based upon the nature of these instruments and KCG itself, it is not practicable to estimate the fair value of these notes. All other financial instruments are classified as current and will be utilized within the next operating cycle. Recently Issued Accounting Standards Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), was issued in March 1995 and is effective for fiscal years beginning after December 15, 1995. This statement will be applied prospectively and requires that impairment losses on long-lived assets be recognized when the book value of the asset exceeds its expected undiscounted cash flows. KCG adopted SFAS No. 121 on January 1, 1996, and adoption at that time did not have a material impact on KCG's financial position or results of operations. F-33 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Unaudited Interim Financial Statements The balance sheet as of June 30, 1996, and the related statements of operations, shareholders' equity and cash flows for the six-month periods ended June 30, 1995 and 1996, are unaudited and are not covered by the report of independent public accountants. However, in the opinion of management, these interim financial statements include all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of KCG for the interim periods and are prepared on the same basis as the audited financial statements. The results of operations and cash flows for the unaudited six-month period ended June 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 3. PROPERTY AND EQUIPMENT: Property and equipment is comprised of the following:
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ----------------- ------------- (UNAUDITED) Furniture, fixtures and equipment................... $126,815 $ 92,133 $220,010 Automobile................... 37,556 -- -- Leasehold improvements....... 52,731 -- -- -------- -------- -------- 217,102 92,133 220,010 Accumulated depreciation..... (85,394) (18,347) (43,347) -------- -------- -------- $131,708 $ 73,786 $176,663 ======== ======== ========
4. RELATED PARTY TRANSACTIONS: The following summarizes related party information. The discussion under the heading "Certain Transactions" contained in this Registration Statement is incorporated herein by reference. During the year ended December 31, 1995, KCG leased certain space and an automobile from its shareholder under three agreements. These rental agreements expire at various times through March 1997. Rental payments made under these arrangements were approximately $69,000. The future minimum commitment under these agreements is approximately $90,000. KCG had a marketing commission agreement with VNS under which commissions of $100,000 were paid during the year ended December 31, 1995. This agreement provided for certain rights of VNS to be used by KCG, including customer lists and employment agreements with employees. This agreement was terminated and the related rights were acquired by KCG, effective November 1, 1995, for $150,000, of which $65,000 was paid during the year ended December 31, 1995. The remaining $85,000 in consideration was in the form of a bank loan assumption. Additionally, approximately $88,000 under a separate bank loan was assumed in exchange for certain tangible assets. The assumption of these obligations has been reflected as noncash investing and financing activities in the accompanying statement of cash flows. KCG had notes receivable from VNS and another affiliated entity of approximately $25,000 and $18,000 as of December 31, 1995. KCG had a shareholder note payable of $79,964 and $4,964 as of December 31, 1995, and June 30, 1996, respectively. This note bears interest at prime plus 4%, with monthly principal payments of $6,664 plus interest. This note is secured by the Company's accounts receivable and fixed assets. F-34 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) During the year ended March 31, 1994, and the nine months ended December 31, 1994, VNS leased a building from its principal shareholders. Rental payments made in accordance with the lease agreement were approximately $102,000 and $76,000, respectively. VNS had a note receivable from one of its principal shareholders of approximately $14,000 as of December 31, 1994. This note bears interest at 8%. 5. LINE OF CREDIT: VNS had an agreement with a bank which provided for a $175,000 revolving line of credit. Borrowings under this agreement accrued interest at 4% over the bank's prime rate. These borrowings were secured by substantially all of the assets of VNS, and were personally guaranteed by VNS's principal shareholders. The amount outstanding under this line was $165,000 as of December 31, 1994. 6. NOTES PAYABLE: KCG and VNS had the following long-term debt obligations outstanding:
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 ------------ ------------ ----------- (UNAUDITED) Note payable to a bank, interest at prime plus 4%, monthly principal payments of $4,583 plus interest, maturity August 1997, secured by accounts receivable and general intangibles and guaranteed by KCG's shareholders...................... $ -- $ 85,000 $ 40,000 Note payable to a bank, interest at 10.5%, monthly principal and interest payments of $4,026, maturity June 1997, secured by personal residences of the principal shareholders of VNS........... 90,961 -- -- Note payable to a bank, interest at 9.25%, monthly principal and interest payments of $575, maturity December 1997, secured by automobile............. 18,022 -- -- -------- -------- -------- 108,983 85,000 40,000 Less current maturities.................. (108,983) (50,417) (37,500) -------- -------- -------- $ -- $ 34,583 $ 2,500 ======== ======== ========
Principal installments required under the long-term debt obligations as of December 31, 1995, are summarized as follows: 1996................................................................. $50,417 1997................................................................. 34,583 1998................................................................. -- 1999................................................................. -- 2000................................................................. -- Thereafter........................................................... -- ------- $85,000 =======
F-35 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 7. EMPLOYEE BENEFIT PLANS: KCG provides a 401(k) plan for its employees. The terms of the plan provide for KCG to assume the cost of plan administration. No contributions by KCG are required or have been made to date. 8. INCOME TAXES: Deferred income taxes are provided on all significant temporary differences between tax and financial reporting based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The provision for income taxes represents the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The provision for income taxes includes the following components:
NINE MONTHS YEAR ENDED ENDED YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, 1994 1994 1995 ---------- ------------ ------------ Current taxes-- Federal................................... $ -- $ -- $35,700 State..................................... -- -- 6,300 -------- ------- ------- -- -- 42,000 -------- ------- ------- Deferred taxes-- Federal................................... (63,500) 47,600 12,750 State..................................... (10,995) 8,400 2,250 -------- ------- ------- (74,495) 56,000 15,000 -------- ------- ------- Total...................................... $(74,495) $56,000 $57,000 ======== ======= =======
The effective tax rate for the year ended December 31, 1995, differs from the statutory rates due to the deductibility of the amortization of the intangible assets purchased from VNS. The accompanying financial statements reflect this transaction as a distribution to shareholders. KCG's deferred tax liability results primarily from differences arising from the use of the cash method of accounting for federal and state income tax purposes. Deferred income taxes are comprised of the following:
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ Deferred tax assets: Accruals............................................. $ -- $ 63,000 Net operating loss carryforward...................... 67,000 -- Intangible asset..................................... -- 60,000 Deferred tax liabilities: Accounts receivable.................................. -- (137,000) Other................................................ -- (1,000) Valuation allowance................................... (60,000) -- -------- --------- Net asset (liability)................................. $ 7,000 $ (15,000) ======== =========
VNS recorded a valuation allowance against a portion of the net deferred tax asset. The benefit of the deferred tax asset will be recognized in the years in which it is realized. F-36 KENT CONSULTING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 9. SUBSEQUENT EVENTS: Effective August 16, 1996, KCG and its shareholder entered into an agreement providing for a merger into a wholly owned subsidiary of Allin Communications Corporation (Allin). Consideration related to this transaction is approximately $5.2 million, consisting of $2.0 million in cash and $3.2 million in common stock of Allin. The agreement includes provisions whereby the purchase price will be increased in accordance with a specified formula based upon average earnings over a three-year period, as defined. The maximum additional payment would be approximately $2.8 million. The agreement also provides for grants of $400,000 in common stock of Allin to be made to certain employees of KCG. This merger is conditioned upon the closing of an initial public offering being undertaken by Allin. F-37 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DE- LIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANC- ES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................................................... 3 Risk Factors............................................................... 9 Use of Proceeds............................................................ 14 Dividend Policy............................................................ 14 Dilution................................................................... 15 Capitalization............................................................. 16 Selected Consolidated Financial Data....................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................. 19 Business................................................................... 27 Management................................................................. 41 Principal Stockholders..................................................... 44 Certain Transactions....................................................... 45 Description of Capital Stock............................................... 50 Shares Eligible for Future Sale............................................ 54 Underwriting............................................................... 56 Legal Matters.............................................................. 57 Experts.................................................................... 57 Additional Information..................................................... 57 Index to Financial Statements.............................................. F-1
------------ UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS 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 ALLOT- MENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,000,000 SHARES ALLIN COMMUNICATIONS CORPORATION COMMON STOCK ------------ PROSPECTUS , 1996 ------------ FRIEDMAN, BILLINGS, RAMSEY & CO., INC. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Securities and Exchange Commission filing fee..................... $12,690 National Association of Securities Dealers, Inc. filing fee....... * Printing expenses................................................. * Accounting fees and expenses...................................... * Legal fees and expenses........................................... * Blue Sky fees and expenses........................................ * Transfer agent fees............................................... * Miscellaneous..................................................... * ------- TOTAL......................................................... * =======
- -------- *To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a corporation to indemnify any person who was or is a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 of the DGCL also empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless, and only to the extent that, the Court of Chancery or the court in which such action was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 of the DGCL further provides that, to the extent that a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 of the DGCL shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation is empowered to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145 of the DGCL. II-1 Consistent with the DGCL, the Registrant's Certificate of Incorporation contains a provision eliminating or limiting liability of directors to the Registrant and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful dividends or unlawful stock purchases or redemptions as provided in Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of the Registrant protection against awards of monetary damages resulting from breaches of their duty of care, except as indicated above. The Securities and Exchange Commission has taken the position that the provision will have no effect on claims arising under the federal securities laws. The Registrant's Certificate of Incorporation and By-Laws provide for mandatory indemnification rights to the maximum extent permitted by applicable law, subject to limited exceptions, to any director or officer of the Registrant who, by reason of the fact that he is a director or officer of the Registrant, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director or officer in advance of the final disposition of such proceeding in accordance with the applicable provisions of the DGCL. The Registrant intends to purchase and maintain insurance to protect persons entitled to indemnification pursuant to the Registrant's Certificate of Incorporation and By-laws and the DGCL against expenses, judgments, fines and amounts paid in settlement, to the fullest extent permitted by the DGCL. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On August 16, 1996, in connection with the merger of SeaVision, Inc. with and into a wholly owned subsidiary of the Registrant, the Registrant issued an aggregate of 1,000 shares of its Common Stock. As no public offering was involved, the issuance of such shares was exempt from registration under the Securities Act, including Section 4(2) thereof. On August 16, 1996, the Registrant issued 25,000 shares of its Series A Convertible Redeemable Preferred Stock that is not convertible into Common Stock until at least six months have elapsed from the closing of the Offering. The aggregate consideration paid for such shares was $1,000,000 in cash and the extinguishment of loans in the amount of $1,500,000. As no public offering was involved, the issuance of such shares was exempt from registration under the Securities Act, including Section 4(2) thereof. Concurrently with or immediately following the closing of the Offering, in connection with the closing of the KCG Acquisition, the Registrant will issue to the sole shareholder of KCG $3.2 million in Common Stock valued at the initial public offering price in the Offering. As no public offering is involved, the issuance of such shares will be exempt from registration under the Securities Act, including Section 4(2) thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 1 Form of Underwriting Agreement. 2.1 Stock Purchase Agreement dated August 14, 1996 by and among International Sports Marketing, Inc., Henry Posner, Jr., Thomas D. Wright, Michael J. Fetchko, James C. Roddey, Richard W. Talarico, John F. Hensler and the Registrant.
II-2
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.2 Agreement and Plan of Merger dated August 16, 1996 by and among Kent Consulting Group, Inc., Les Kent and the Registrant. 3(i)(a) Certificate of Incorporation of the Registrant. 3(i)(b) Certificate of Designation of the Registrant relating to Series A Convertible Redeemable Preferred Stock. 3(ii) By-laws of the Registrant. 4 Certificate of Designation of the Registrant relating to Series A Convertible Redeemable Preferred Stock (filed as Exhibit (3)(i)(b)). 5 Opinion of Eckert Seamans Cherin & Mellott (to be filed by amendment). 10.1 Sublease Agreement dated August 1, 1996 between SeaVision, Inc. and Blair Haven Entertainment, Inc. 10.2 Assignment of Intellectual Property Rights dated October 3, 1994 by Brian K. Blair and R. Daniel Foreman in favor of SeaVision, Inc. 10.3 Registration Rights Agreement dated July 23, 1996 by and among the Registrant and certain of its stockholders. 10.4 Registration Rights Agreement dated July 23, 1996 by and among the Registrant and certain of its stockholders. 10.5 Note Conversion Agreement dated July 23, 1996 by and among the Registrant, Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James C. Roddey and Richard W. Talarico. 10.6 License Agreement dated December 1, 1993 between Major League Alumni Marketing, Inc. and Hawthorne Sports Marketing, Inc. 10.7 Line of Credit Note, dated May 31, 1996, made by SeaVision, Inc. in favor of Integra Bank. 10.8 Form of 1996 Stock Plan of the Registrant 10.9 Employment Agreement dated August 1, 1996 by and between the Registrant and Richard W. Talarico. 10.10 Employment Agreement dated August 1, 1996 by and between the Registrant and R. Daniel Foreman. 10.11 Employment Agreement dated August 1, 1996 by and between the Registrant and Brian K. Blair. 10.12 First Amended and Restated Agreement dated June 1, 1996 between SeaVision, Inc. and Celebrity Cruises Inc. (subject to request for confidential treatment) 10.13 Agreement dated February 6, 1996 between SeaVision, Inc. and Carnival Corporation (subject to request for confidential treatment). 10.14 Agreement dated August 8, 1996 by and between SeaVision, Inc. and Norwegian Cruise Line Limited (subject to request for confidential treatment). 11 Computation of Earnings per Share. 21 Subsidiaries of the Registrant. 23.1 Consent of Eckert Seamans Cherin & Mellott (included in its opinion to be filed herewith as Exhibit 5). 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Richard S. Trutanic. 24 Power of Attorney (included in the Signature Page). 27 Financial Data Schedule.
II-3 (b) Financial Statement Schedules. The following financial statement schedule is included in Part II of this Registration Statement and should be read in conjunction with the Financial Statements and notes thereto included elsewhere herein. II. Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling person of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registration of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Richard W. Talarico his true and lawful attorney-in-fact and agent, acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in- fact and agent, acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on August 19, 1996. ALLIN COMMUNICATIONS CORPORATION By: /s/ Richard W. Talarico ------------------------------ Richard W. Talarico Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Richard W. Talarico Chairman of the Board, Chief Executive August 19, 1996 - ------------------------- Officer and Acting Chief Financial Officer Richard W. Talarico (principal executive officer and principal financial and accounting officer) /s/ R. Daniel Foreman President and Director August 19, 1996 - ------------------------- R. Daniel Foreman /s/ Brian K. Blair Chief Operating Officer, August 19, 1996 - ------------------------- Secretary and Director Brian K. Blair /s/ William C. Kavan Director August 19, 1996 - ------------------------- William C. Kavan /s/ James C. Roddey Director August 19, 1996 - ------------------------- James C. Roddey
II-5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Allin Communications Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Allin Communications Corporation (a Delaware corporation) and subsidiaries, included in this registration statement and have issued our report thereon dated August 19, 1996. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II, which is the responsibility of the Company's management, is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material aspects the financial data required to be set forth in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Pittsburgh, Pennsylvania August 19, 1996 S-1 SCHEDULE II ALLIN COMMUNICATIONS CORPORATION VALUATION AND QUALIFYING ACCOUNTS
BALANCE ADDITIONS BALANCE AT CHARGED AT END BEGINNING TO OF OF PERIOD EXPENSES DEDUCTIONS PERIOD --------- --------- ---------- ------- KENT CONSULTING GROUP, INC. Deferred tax asset valuation Year Ended March 31, 1994................ $ -- $60,000 $ -- $60,000 Period Ended December 31, 1994........... 60,000 -- -- 60,000 Year Ended December 31, 1995............. 60,000 -- 60,000 --
S-2 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 1 Form of Underwriting Agreement. 2.1 Stock Purchase Agreement dated August 14, 1996 by and among International Sports Marketing, Inc., Henry Posner, Jr., Thomas D. Wright, Michael J. Fetchko, James C. Roddey, Richard W. Talarico, John F. Hensler and the Registrant. 2.2 Agreement and Plan of Merger dated August 16, 1996 by and among Kent Consulting Group, Inc., Les Kent and Allin Communications Corporation. 3(i)(a) Certificate of Incorporation of the Registrant. 3(i)(b) Certificate of Designation of the Registrant relating to Series A Convertible Redeemable Preferred Stock. 3(ii) By-laws of the Registrant. 4 Certificate of Designation of the Registrant relating to Series A Convertible Redeemable Preferred Stock (filed as Exhibit (3)(i)(b)). 5 Opinion of Eckert Seamans Cherin & Mellott (to be filed by amendment). 10.1 Sublease Agreement dated August 1, 1996 between SeaVision, Inc. and Blair Haven Entertainment, Inc. 10.2 Assignment of Intellectual Property Rights dated October 3, 1994 by Brian K. Blair and R. Daniel Foreman in favor of SeaVision, Inc. 10.3 Registration Rights Agreement dated July 23, 1996 by and among the Registrant and certain of its stockholders. 10.4 Registration Rights Agreement dated July 23, 1996 by and among the Registrant and certain of its stockholders. 10.5 Note Conversion Agreement dated July 23, 1996 by and among the Registrant, Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James C. Roddey and Richard W. Talarico. 10.6 License Agreement dated December 1, 1993 between Major League Alumni Marketing, Inc. and Hawthorne Sports Marketing, Inc. 10.7 Line of Credit Note, dated May 31, 1996, made by SeaVision, Inc. in favor of Integra Bank. 10.8 Form of 1996 Stock Plan of the Registrant. 10.9 Employment Agreement dated August 1, 1996 by and between the Registrant and Richard W. Talarico. 10.10 Employment Agreement dated August 1, 1996 by and between the Registrant and R. Daniel Foreman. 10.11 Employment Agreement dated August 1, 1996 by and between the Registrant and Brian K. Blair. 10.12 First Amended and Restated Agreement dated June 1, 1996 between SeaVision, Inc. and Celebrity Cruises Inc. (subject to request for confidential treatment) 10.13 Agreement dated February 6, 1996 between SeaVision, Inc. and Carnival Corporation (subject to request for confidential treatment).
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 10.14 Agreement dated August 8, 1996 by and between SeaVision, Inc. and Norwegian Cruise Line Limited (subject to request for confidential treatment). 11 Computation of Earnings per Share. 21 Subsidiaries of the Registrant. 23.1 Consent of Eckert Seamans Cherin & Mellott (included in its opinion to be filed herewith as Exhibit 5). 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Richard S. Trutanic. 24 Power of Attorney (included in the Signature Page). 27 Financial Data Schedule.
EX-1 2 FORM OF UNDERWRITING AGREEMENT Exhibit 1 ALLIN COMMUNICATIONS CORPORATION (a Delaware corporation) [ ] Shares of Common Stock ---- (Par Value [ ] Per Share) --- FORM OF UNDERWRITING AGREEMENT ------------------------------ , 1996 --------------- FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INC. as Representatives of the several Underwriters Potomac Tower 1001 Nineteenth Street North Arlington, Virginia 22209 Dear Sirs: Allin Communications Corporation, a corporation organized and existing under the laws of Delaware (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") an aggregate of [ ] shares (the ------ "Firm Shares") of its common stock, par value $.01 per share (the "Common Stock") and, for the sole purpose of covering over-allotments in connection with the sale of the Firm Shares, at the option of the Underwriters, up to an additional [ ] shares (the "Additional Shares") of Common Stock. The Firm ------ Shares and any Additional Shares purchased by the Underwriters are referred to herein as the "Shares". The Shares are more fully described in the Registration Statement referred to below. 1. Representations and Warranties of the Company. The Company --------------------------------------------- represents and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed an amendment or amendments thereto, on Form S-1 (No. 333- ), for the ----------- registration of the Shares under the Securities Act of 1933, as amended (the "Act"). Such registration statement, including the prospectus, financial statements and schedules, exhibits and all other documents filed as a part thereof, as amended at the time of effectiveness of the registration statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A of the Rules and Regulations of the Commission under the Act (the "Regulations"), is herein called the "Registration Statement" and the prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, is herein called the "Prospectus". The term "preliminary prospectus" as used herein means a preliminary prospectus as described in Rule 430 of the Regulations. (b) At the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, when the Prospectus is first filed with the Commission pursuant to Rule 424(b) of the Regulations, when any supplement to or amendment of the Prospectus is filed with the Commission and at the Closing Date and the Additional Closing Date, if any (as hereinafter respectively defined), the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Act and the Regulations and does not or will not contain an untrue statement of a material fact and does not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in light of the circumstances under which they were made, not misleading. When any related preliminary prospectus was first filed with the Commission (whether filed as part of the Registration Statement for the registration of the Shares or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or supplement thereto was first filed with the Commission, such preliminary prospectus and any amendments thereof and supplements thereto complied in all material respects with the applicable provisions of the Act and the Regulations and did not contain an untrue statement of a material fact and did not omit to state any material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related preliminary prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof. -2- (c) Arthur Andersen L.L.P., who have certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the Act and the Regulations. (d) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth in the Registration Statement and the Prospectus, there has been no material adverse change or any development involving a prospective material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet presented in the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which are reflected in the Registration Statement and the Prospectus. (e) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company and this Agreement has been duly and validly executed and delivered by the Company. (f) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, including the issuance, sale and delivery of the Shares to be issued, sold and delivered by the Company hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters. -3- (g) All of the outstanding shares of Common Stock are duly and validly authorized and issued, fully paid and nonassessable and were not issued and are not now in violation of or subject to any preemptive rights. The Shares, when issued, delivered and sold in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights. The Company had, at , 1996, an authorized and -------------- outstanding capitalization as set forth in the Registration Statement and the Prospectus. The Common Stock, the Firm Shares and the Additional Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. (h) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. (i) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is subject or which is pending or, to the knowledge of the Company, contemplated against the Company or any of its subsidiaries which might result in any material adverse change or any development involving a material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Registration Statement and the Prospectus. (j) Neither the Company nor any of its subsidiaries nor any of their respective directors, officers or controlling persons has taken or will take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. -4- (j) The financial statements, including the notes thereto, and supporting schedules included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. (l) Except as described in the Prospectus, no holder of securities of the Company has any rights to the registration of securities of the Company because of the filing of the Registration Statement or otherwise in connection with the sale of the Shares contemplated hereby. (m) Neither the Company nor any of its subsidiaries is, and upon consummation of the transactions contemplated hereby will be, subject to registration as an "investment company" under the Investment Company Act of 1940. (n) Except as disclosed in the Prospectus, there are no business relationships or related party transactions required to be disclosed therein by Item 404 of Regulation S-K of the Regulations. [SUBJECT TO FURTHER MODIFICATION] 2. Purchase, Sale and Delivery of the Shares. ----------------------------------------- (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters and the Underwriters, severally and not jointly, agree to purchase from the Company, at a purchase price per share of $ , the number of Firm Shares set forth opposite the ------- respective names of the Underwriters in Schedule I hereto plus any additional number of Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 9 hereof. (b) Payment of the purchase price for, and delivery of certificates for, the Shares shall be made at the offices of Friedman, Billings, Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, or at such other place as shall be agreed upon by you and the Company, at [10:00 A.M.] on the [third] business day (unless postponed in accordance with the provisions of Section 9 hereof) following the date of the effectiveness of the Registration Statement (or, if the Company has elected to rely upon Rule 430A of the Regulations, the [third] business day after the determination -5- of the initial public offering price of the Shares), or such other time not later than ten business days after such date as shall be agreed upon by you and the Company (such time and date of payment and delivery being herein called the "Closing Date"). Payment shall be made to the Company by [certified or official bank check or checks drawn in New York Clearing House funds or similar next day funds payable to the order of the Company], against delivery to you for the respective accounts of the Underwriters of certificates for the Shares to be purchased by them. Certificates for the Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (c) In addition, the Company hereby grants to the Underwriters the option to purchase up to [ ] Additional Shares at the same purchase price ------- per share to be paid by the Underwriters to the Company for the Firm Shares as set forth in this Section 2, for the sole purpose of covering over-allotments in the sale of Firm Shares by the Underwriters. This option may be exercised at any time, in whole or in part, on or before the thirtieth day following the date of the Prospectus, by written notice by you to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised and the date and time, as reasonably determined by you, when the Additional Shares are to be delivered (such date and time being herein sometimes referred to as the "Additional Closing Date"); provided, however, that the -------- ------- Additional Closing Date shall not be earlier than the Closing Date or earlier than the second full business day after the date on which the option shall have been exercised nor later than the eighth full business day after the date on which the option shall have been exercised (unless such time and date are postponed in accordance with the provisions of Section 9 hereof). Certificates for the Additional Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Additional Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Additional Closing Date. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same ratio to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 9 hereof) bears to [total # of shares to be offered], subject, however, to such adjustments to eliminate any fractional shares as you in your sole discretion shall make. Payment for the Additional Shares shall be made [by certified or official bank check or checks, in New York Clearing House or similar next day funds, payable to the order of the Company] at the offices of Friedman, Billings, -6- Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, or such other location as may be mutually acceptable, upon delivery of the certificates for the Additional Shares to you for the respective accounts of the Underwriters. 3. Offering. Upon your authorization of the release of the Firm -------- Shares, the Underwriters propose to offer the Shares for sale to the public upon the terms set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees ------------------------ with the Underwriters that: (a) If the Registration Statement has not yet been declared effective the Company will use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as possible, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) within the prescribed time period and will provide evidence satisfactory to you of such timely filing. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) (i) when the Registration Statement and any amendments thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the mailing or the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Prospectus, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post- effective amendment thereto or of the initiation, or the threatening, of any proceedings therefor, (v) of the receipt of any comments from the Commission, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus (including the prospectus required to be filed pursuant to Rule 424(b)) that differs from the prospectus on file at the time of the effectiveness of the Registration Statement before or after the effective date of the Registration Statement to which you shall reasonably object in writing after being timely furnished in advance a copy thereof. (b) If at any time when a prospectus relating to the Shares is required to be delivered under the Act any event shall have occurred as a result of -7- which the Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) which will correct such statement or omission and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to you [two] signed copies of the Registration Statement, including exhibits and all amendments thereto, and the Company will promptly deliver to each of the Underwriters such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, as you may reasonably request. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Shares for offering and sale under the securities laws relating to the offering or sale of the Shares of such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earnings statement (in form complying with the provisions of Rule 158 of the Regulations) covering a period of at least twelve consecutive months beginning after the effective date of the Registration Statement. (f) During the period of 360 days from the date of the Prospectus, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Common Stock (or any securities convertible into, exercisable for or exchangeable for Common Stock), and the Company will obtain the undertaking of each of its officers and directors and such of its shareholders as have been heretofore designated by you and listed on Schedule II attached hereto not to engage in any of the aforementioned transactions on their own behalf, other than the Company's sale of Shares hereunder and the Company's issuance of Common Stock upon the exercise of presently outstanding stock options. -8- (g) During a period of three years from the effective date of the Registration Statement, the Company will furnish to you copies of (i) all reports to its shareholders and (ii) all reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange. (h) The Company will apply the proceeds from the sale of the Shares as set forth under "Use of Proceeds" in the Prospectus. (i) The Company will use its best efforts to cause the Shares to be authorized for quotation on the National Association of Securities Dealers Automated Quotation [National Market System]. (j) The Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 of the Regulations. (k) Friedman, Billings, Ramsey & Co. Inc. ("FBR") shall have the right to act as the exclusive financial advisor, placement agent and underwriter to the Company in connection with any debt (other than bank debt) or equity financings and any sale, transfer, merger, consolidation or other similar transaction (a "Sale Transaction") involving all or a substantial portion of the Company during the period ending 18 months after the Closing Date. Any services provided by FBR to the Company pursuant to the foregoing shall be on terms and conditions, and for fees, as are customary and competitive for FBR's provision of those services. (l) If any investor identified to the Company by FBR during the Engagement Period (as defined below) purchases any additional securities of the Company or an affiliate within 12 months following the Closing Date or pursuant to a commitment during the Engagement Period (other than a transaction in which FBR is entitled to a fee as placement agent), the Company shall pay FBR a fee of 7.0% of the aggregate gross proceeds from the sale of such securities. The Engagement Period shall be the period commencing on May 10, 1996 and ending on the earliest to occur of the following: (i) completion of the sale of the Shares or a Sale Transaction in lieu thereof, or (ii) termination of this Agreement by FBR or the Company pursuant to Section ___. (m) If a Sale Transaction is consummated in lieu of the sale of Shares, in consideration of FBR's services on behalf of the Company pursuant to this agreement, the Company agrees to pay FBR a transaction fee equal to 2.0% of the total consideration (the "Total Consideration") paid or payable in such Sale Transaction. Total Consideration shall mean the aggregate value, whether in cash, securities, assumption of (or purchase subject to) debt or liabilities or other property, obligations or services, paid or otherwise assumed in connection with the Sale Transaction. -9- (n) Richard Trutanic will serve on the Board of Directors after closing of the offering. [SUBJECT TO FURTHER MODIFICATION] 5. Payment of Expenses. Whether or not the transactions contemplated ------------------- in this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with (i) preparing, printing, duplicating, filing and distributing the Registration Statement, as originally filed and all amendments thereof (including all exhibits thereto), any preliminary prospectus, the Prospectus and any amendments or supplements thereto (including, without limitation, fees and expenses of the Company's accountants and counsel), the underwriting documents (including this Agreement and the agreement among underwriters and all other documents related to the public offering of the Shares (including those supplied to the Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the qualification of the Shares under state or foreign securities or Blue Sky laws, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters and such counsel's disbursements in relation thereto, (iv) quotation of the Shares on the National Association of Securities Dealers Automated Quotation [National Market System], (v) filing fees of the Commission and the National Association of Securities Dealers, Inc., (vi) the cost of printing certificates representing the Shares and (vii) the cost and charges of any transfer agent or registrar. 6. Conditions of Underwriters' Obligations. The obligations of the --------------------------------------- Underwriters to purchase and pay for the Firm Shares and the Additional Shares, as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the Closing Date for the Firm Shares and the "Additional Closing Date" shall refer to the closing date for the Additional Shares), to the absence from any certificates, opinions, written statements or letters furnished to you or to Hogan & Hartson L.L.P. ("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or omission, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement shall have become effective not later than [5:30 P.M., New York time, on the date of this Agreement] [12:00 P.M., New York time on the date an amendment to the Registration Statement -10- containing the public offering price has been filed with the Commission], or at such later time and date as shall have been consented to in writing by you; if the Company shall have elected to rely upon Rule 430A of the Regulations, the Prospectus shall have been filed with the Commission in a timely fashion in accordance with Section 4(a) hereof; and, at or prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date you shall have received the opinion of Eckert, Seamans, Cherin & Mellot, counsel for the Company, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite corporate authority to own, lease and license its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. All of the issued and outstanding capital stock of each subsidiary of the Company has been duly and validly issued and is fully paid and nonassessable and was not issued in violation of preemptive rights and, is owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, shareholders' agreement, voting trust or other defect of title whatsoever. (ii) The Company has an authorized capital stock as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of Common Stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights. The Shares to be delivered on the Closing Date have been duly and validly authorized and, when delivered by the Company in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable and will not have been issued in violation of or subject to any preemptive rights. The Common Stock, the Firm Shares and the Additional Shares conform to the descriptions thereof contained in the Registration Statement and the Prospectus. -11- (iii) The Shares to be sold under this Agreement to the Underwriters are duly authorized for quotation on the National Association of Securities Dealers Automated Quotation [National Market System]. (iv) This Agreement has been duly and validly authorized, executed and delivered by the Company. (v) There is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or, to the best of such counsel's knowledge, threatened against, or involving the properties or business of, the Company or any of its subsidiaries, which is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been properly disclosed therein. (vi) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such corporations or their respective properties or assets may be bound or (B) violate or conflict with any provision of the certificate of incorporation or by-laws of the Company or any of its subsidiaries, or, to the best knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except for (1) such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act. (vii) The Registration Statement and the Prospectus and any amendments thereof or supplements thereto (other than the financial statements and schedules and other financial data included or incorporated by reference therein, as to which no opinion need be rendered) comply as to -12- form in all material respects with the requirements of the Act and the Regulations. (viii) The statements under the captions ["Risk Factors," "Business -- Regulation," "Business -- Legal Proceedings," "Certain Transactions," "Description of Capital Stock," "Underwriting" and "Shares Eligible for Future Sale"] in the Prospectus, and Items 14 and 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings. (ix) The Registration Statement is effective under the Act and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission and all filings required by Rule 424(b) of the Regulations have been made. (x) Delivery of certificates for the Shares will transfer valid and marketable title thereto to each Underwriter that has purchased such Shares in good faith and such counsel is not aware, after due inquiry, of any adverse claim with respect thereto, and such Shares are free and clear of all liens, encumbrances and claims. (xi) Such counsel has reviewed all contracts, instruments or other documents referred to in the Registration Statement and the Prospectus and such contracts or other documents are fairly described therein, and filed as exhibits thereto as required, and, after due inquiry, such counsel does not know of any documents or contracts of a character required to be so described or filed which have not been so described or filed. (xii) To the best knowledge of such counsel, after due inquiry, no holder of any security of the Company has or will have any right to require registration of any security of the Company by virtue of the transactions contemplated by this Agreement. (xiii) Neither the Company nor any of its subsidiaries is and, upon consummation of the transactions contemplated hereby, will be subject to registration as an "investment company" under the Investment Company Act of 1940, as amended. (xiv) In addition, such opinion shall also contain a statement that such counsel has participated in conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company and the Underwriters at which the contents -13- and the Prospectus and related matters were discussed and, no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement at the time it became effective (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable), or any amendment thereof made prior to the Closing Date as of the date of such amendment, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date (or any amendment thereof or supplement thereto made prior to the Closing Date as of the date of such amendment or supplement) and as of the Closing Date contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules and other financial data included or incorporated by reference therein). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and its subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (c) All proceedings taken in connection with the sale of the Firm Shares and the Additional Shares as herein contemplated shall be satisfactory in form and substance to you and to Underwriters' Counsel, and the Underwriters shall have received from said Underwriters' Counsel a favorable opinion, dated as of the Closing Date with respect to the issuance and sale of the Shares, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Underwriters' Counsel such documents as they request for the purpose of enabling them to pass upon such matters. -14- (d) At the Closing Date you shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date to the effect that (i) the condition set forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of the Closing Date the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change, or any development involving a material adverse change, in the business prospects, properties, operations, condition (financial or otherwise), or results of operations of the Company and its subsidiaries taken as a whole, except in each case as described in or contemplated by the Prospectus. (e) At the time this Agreement is executed and at the Closing Date, you shall have received a letter, from Arthur Andersen, L.L.P., independent public accountants for the Company, dated, respectively, as of the date of this Agreement and as of the Closing Date addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the combined financial statements of the Company, and schedules and notes thereto, included in the Registration Statement and the Prospectus and covered by their opinion therein comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable published rules and regulations of the Commission thereunder; (iii) on the basis of procedures consisting of a reading of the latest available unaudited interim combined financial statements of the Company and its subsidiaries, a reading of the minutes of meetings and consents of the shareholders and boards of directors of the Company and its subsidiaries and the committees of such boards subsequent to [_______], 1996, inquiries of officers and other employees of the Company and its subsidiaries who have responsibility for financial and accounting matters of the Company and its subsidiaries with respect to transactions and events subsequent to [_______], 1996 and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) the unaudited combined financial statements and schedules of the Company presented in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable published rules and regulations of the Commission thereunder or that such unaudited financial statements are not fairly presented in conformity with generally accepted -15- accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and the Prospectus; (B) with respect to the period subsequent to December 31, 1995, there were, as of the date of the most recent available monthly combined financial statements of the Company and its subsidiaries, if any, and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; or (C) that during the period from December 31, 1995 to the date of the most recent available monthly combined financial statements of the Company and its subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; (iv) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and its subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and its subsidiaries or from schedules furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by you set forth in such letter, and found them to be in agreement; and (v) on the basis of a reading of the pro forma combined financial information included in the Registration Statement and the Prospectus, carrying out certain specified procedures that would not necessarily reveal matters of significance with respect to the comments set forth in this clause (v), inquiries of certain officials of the Company who have responsibility for financial and accounting matters and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma combined financial information, nothing came to their attention that caused them to believe that the pro forma combined financial information does not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. (f) Prior to the Closing Date the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. -16- (g) You shall have received from each person who is a director or officer of the Company or such shareholder as have been heretofore designated by you and listed on Schedule II hereto an agreement to the effect that such person will not, directly or indirectly, without your prior written consent, offer, sell, agree to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of an option to purchase or other disposition) of any shares of Common Stock (or any securities convertible into, exercisable for or exchangeable or exercisable for shares of Common Stock) for a period of 360 days after the date of the Prospectus. (h) At the Closing Date, the Shares shall have been approved for quotation on the National Association of Securities Dealers Automated Quotation [National Market System]. [SUBJECT TO FURTHER MODIFICATION] If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be canceled by you at, or at any time prior to, the Closing Date and the obligations of the Underwriters to purchase the Additional Shares may be canceled by you at, or at any time prior to, the Additional Closing Date. Notice of such cancellation shall be given to the Company in writing, or by telephone, telex or telegraph, confirmed in writing. 7. Indemnification --------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be -17- stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the - -------- ------- extent but only to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have including under this Agreement. (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), jointly or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein; provided, -------- however, that in no case shall any Underwriter be liable or responsible for any - ------- amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the last paragraph of the cover page and in the paragraphs under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the registration statement relating to the Shares as originally filed or in any amendment thereof, any related preliminary prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. -18- (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. -------- ------- 8. Contribution. In order to provide for contribution in ------------ circumstances in which the indemnification provided for in Section 7 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) as incurred to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of -19- the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, (i) in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom -20- contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided, however, that such -------- ------- consent was not unreasonably withheld. 9. Default by an Underwriter. ------------------------- (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Shares or Additional Shares hereunder, and if the Firm Shares or Additional Shares with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares or Additional Shares, to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to the respective proportions which the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite the names of the non-defaulting Underwriters. (b) In the event that such default relates to more than 10% of the Firm Shares or Additional Shares, as the case may be, you may in your discretion arrange for yourself or for another party or parties (including any non- defaulting Underwriter or Underwriters who so agree) to purchase such Firm Shares or Additional Shares, as the case may be, to which such default relates on the terms contained herein. In the event that within 5 calendar days after such a default you do not arrange for the purchase of the Firm Shares or Additional Shares, as the case may be, to which such default relates as provided in this Section 9, this Agreement or, in the case of a default with respect to the Additional Shares, the obligations of the Underwriters to purchase and of the Company to sell the Additional Shares shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder. (c) In the event that the Firm Shares or Additional Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Additional Closing Date, as the case may be for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this -21- Agreement shall include any party substituted under this Section 9 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares and Additional Shares. 10. Survival of Representations and Agreements. All representations ------------------------------------------ and warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including the agreements contained in Section 5, the indemnity agreements contained in Section 7 and the contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Shares to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement, including termination pursuant to Section 9 or 11 hereof. 11. Effective Date of Agreement; Termination. ---------------------------------------- (a) This Agreement shall become effective, upon the later of when (i) you and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement. If either the initial public offering price or the purchase price per Share has not been agreed upon prior to 5:00 P.M., Eastern time, on the [third] full business day after the Registration Statement shall have become effective, this Agreement shall thereupon terminate without liability to the Company or the Underwriters except as herein expressly provided. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you notifying the Company. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date or the obligations of the Underwriters to purchase the Additional Shares at any time prior to the Additional Closing Date, as the case may be, if (A) any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company's securities or securities in general; or (B) if trading on the New York or American Stock Exchanges shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the New York or American Stock Exchanges by the New York or American Stock Exchanges or by order of the Commission or any other governmental authority having jurisdiction; or (C) if a banking moratorium has been declared by a state or federal authority or if any new restriction materially adversely affecting the distribution of the Firm Shares or the Additional Shares, as the case may be, shall have become effective; or -22- (D) (i) if the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (ii) if there shall have been such change in political, financial or economic conditions if the effect of any such event in clause (b)(D)(i) or (b)(D)(ii) as in your judgment makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Firm Shares or the Additional Shares, as the case may be, on the terms contemplated by the Prospectus. (c) Any notice of termination pursuant to this Section 11 shall be by telephone, telex, or telegraph, confirmed in writing by letter. (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all out- of-pocket expenses (including the fees and expenses of their counsel), incurred by the Underwriters in connection herewith. 12. Notice. All communications hereunder, except as may be otherwise ------ specifically provided herein, shall be in writing and , if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed in writing, to such Underwriter c/o Friedman, Billings, Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, Attention: _______; if sent to the Company, shall be mailed, delivered, or telegraphed and confirmed in writing to the Company, 300 Greentree Commons, 381 Mansfield Ave., Pittsburgh, Pennsylvania 15220, Attention: Richard Talarico. 13. Parties. This Agreement shall inure solely to the benefit of, ------- and shall be binding upon, the Underwriters and the Company and the controlling persons, directors, officers, employees and agents referred to in Section 7 and 8, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Shares from any of the Underwriters. 14. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Virginia but without regard to principles of conflicts of law. -23- If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, ALLIN COMMUNICATIONS CORPORATION By: -------------------------- Name: Title: Accepted as of the date first above written FRIEDMAN, BILLINGS, RAMSEY & CO., INC. By: ---------------------------- Name: Title: On behalf of themselves and the other Underwriters named in Schedule I hereto. -24- SCHEDULE I Number of Firm Name of Underwriter Shares to be Purchased - ------------------- ---------------------- Friedman, Billings, Ramsey & Co., Inc. Total ........................... [_____________] -25- SCHEDULE II Lock-up Agreements -26- EX-2.1 3 STOCK PURCHASE AGREEMENT Exhibit 2.1 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into this 14th day of August 1996, by and among INTERNATIONAL SPORTS MARKETING, INC., a Pennsylvania corporation ("ISM"), HENRY POSNER, JR., THOMAS D. WRIGHT, MICHAEL J. FETCHKO, JAMES C. RODDEY, RICHARD W. TALARICO and JOHN F. HENSLER (each a "Stockholder" and collectively, the "Stockholders"), who are all of the stockholders of ISM, and ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation ("Buyer"). RECITALS A. The Stockholders own all of the issued and outstanding shares of capital stock of ISM (the "Shares"). B. The Stockholders desire to sell, transfer and assign to Buyer, and Buyer desires to purchase from the Stockholders, all of the Shares, on the terms and conditions hereinafter set forth. COVENANTS In consideration of the mutual representations, warranties and covenants and subject to the conditions herein contained, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.1 Shares. At the Closing (as defined in Section 3.1), each Stockholder shall sell, convey, transfer, assign and deliver to Buyer and Buyer shall purchase from each Stockholder, free and clear of all liens, mortgages, pledges, security interests, claims, assessments, restrictions, encumbrances and charges of every kind (collectively, "Liens"), on the terms and subject to the conditions set forth in this Agreement, the number of Shares set forth opposite the name of such Stockholder on Schedule 4.3. ARTICLE II PURCHASE PRICE 2.1 Purchase Price. As consideration for the Shares, Buyer shall, subject to and upon the terms and conditions set forth in this Agreement, make the following payments. 2.1.1 Cash Payment to be Made at Closing. Buyer shall pay for the Shares for a cash purchase price of Twenty Two Thousand Eight Hundred Dollars ($22,800) per share, for a total aggregate purchase price of Two Million Four Hundred Thousand Dollars ($2,400,000) (the "Cash Payment"). The Cash Payment will be made on the Closing Date by wire transfer of immediately available funds to one or more accounts identified by the Stockholders at least five (5) business days prior to the Closing. 2.1.2 Contingent Earn-out Payments. The Stockholders shall also have a right to receive earn-out payments calculated as follows (the total aggregate amount of earn-out payments not to exceed a maximum of $2,400,000): 2.1.2.1 Interim Earn-out Payment. On or before the fifteenth (15th) business day after the Interim Earn-out Determination and any adjustments thereto have become binding on the parties as provided in this Section 2.1.2 (the "Interim Payment Date"), Buyer shall pay to the Stockholders an aggregate interim earn-out payment ("Interim Earn-out Payment") based on annual Operating Income (as defined in Section 2.1.2.3, and referred to herein as "Operating Income" or "OI"), and calculated as follows: 6 x (1997 OI + 1998 OI) Interim Earn-out Payment = ___________________________ - $2,400,000 3 If the Interim Earn-out Payment calculated in accordance with the foregoing formula is zero or a negative amount, no payment shall be due to the Stockholders. If the Interim Earn-out Payment is a positive amount, one-half of the Interim Earn-out Payment will be paid to the Stockholders, in cash, on or before the Interim Payment Date, such one-half of the Interim Earn-out Payment to be distributed among the Stockholders pro rata in accordance with the ratio which the number of Shares sold by each Stockholder hereunder bears to 105.26315. The other one-half of the Interim Earn-out Payment will be paid by delivery of a promissory note to each Stockholder dated the Interim Payment Date in an original principal amount equal to one-half of the Interim Earn-out Payment multiplied by a fraction, the numerator of which is the number of Shares being sold by the applicable Stockholder hereunder, and the denominator of which is 105.26315 ("Promissory Notes"). Such Promissory Notes shall bear interest at a rate of seven percent (7%) per annum, compounded quarterly, such interest to be due on (a) the fifteenth (15th) business day following the date on which the Final Earn-out Determination and any adjustments thereto have become binding on the parties as provided in this Section 2.1.2 (the "Final Payment Date"), and (b) the first anniversary of the Final Payment Date. One-half of the principal due under the Promissory Notes will be due on the Final Payment Date, and the other one-half of the principal due under the Promissory Notes will be due on the first anniversary of the Final Payment Date. 2.1.2.2 Final Earn-out Payment. On or before the Final Payment Date, Buyer shall pay to the Stockholders the aggregate final earn-out payment ("Final Earn-out Payment"), calculated as follows: -2- 6 x (1997 OI + 1998 OI + 1999 OI) Final Earn-out Payment = _____________________________________ - ($2,400,000 + Interim Earn-out Payment) 3
If the Final Earn-out Payment calculated in accordance with the foregoing formula is zero or a negative amount, no additional payment shall be due to the Stockholders. In addition, if the Final Earn-out Payment is a negative amount, the principal due on each Promissory Note shall be reduced by a positive amount equal to the negative Final Earn-out Payment multiplied by a fraction, the numerator of which is the number of shares being sold by the applicable Stockholder on the date hereof, and the denominator of which is 105.26315 (the "Adjusted Principal Amount"). Interest under each Promissory Note shall be calculated on the Adjusted Principal Amount, as though the original principal amount of the Note had been the Adjusted Principal Amount. Notwithstanding anything else contained herein, the fact that the Adjusted Principal Amount of any Promissory Note is a negative amount, shall not affect the right of the Stockholders to retain the cash portion of the Interim Earn-out Payment previously received by them. If the Final Earn-out Payment calculated in accordance with the foregoing formula is a positive amount, one-half of the Final Earn-out Payment (divided pro rata among the Stockholders in accordance with the ratio which the number of Shares sold by each Stockholder hereunder, bears to 105.26315), will be paid to the Stockholders on or before the Final Payment Date, along with the principal amount and interest then due under the Promissory Notes. The final payments of principal and interest due under the Promissory Notes will be due and payable on the first anniversary of the Final Payment Date. The other one-half of the Final Earn-out Payment will be paid by delivery of a promissory note to each Stockholder dated the Final Payment Date in an original principal amount equal to one-half of the Final Earn-out Payment multiplied by a fraction, the numerator of which is the number of Shares being sold by the applicable Stockholder hereunder and the denominator of which is 105.26315 ("Additional Promissory Notes"). Such Additional Promissory Notes shall bear interest at a rate of seven percent (7%) per annum, compounded quarterly, such interest to be due on (a) the first anniversary of the Final Payment Date and (b) the second anniversary of the Final Payment Date. One-half of the principal due under the Additional Promissory Notes will be due on the first anniversary of the Final Payment Date, and the other one-half of the principal due under the Additional Promissory Notes will be due on the second anniversary of the Final Payment Date. Notwithstanding anything to the contrary contained herein, in no event may the aggregate amount of earn-out payments made to the Stockholders exceed an aggregate of $2,400,000. -3- 2.1.2.3 Operating Income. For purposes of this Agreement, "Operating Income" for each calendar year shall mean the consolidated income (loss) of ISM and its subsidiaries, if any, after deduction for all expenses, charges and reserves of ISM and its subsidiaries for such year (including without limitation profit sharing and bonus expense), but before provision for all Federal, state and local income taxes for such year, determined in accordance with generally accepted accounting principles consistently applied from year to year, and provided that in making such determinations: (i) no income or expense shall be included in respect of any "extraordinary items", as such item is defined in Paragraphs 21 and 22 of APB Opinion No. 9, notwithstanding that such accounting bulletin has been superseded, it being agreed that for purposes of this Agreement APB Opinion No. 9 shall be deemed operative; provided, however, in no case shall the write-off of bad debts be deemed an extraordinary item; (ii) intercompany management charges or overhead charges between Buyer and its Affiliates (the "Buyer Group") and ISM shall not be treated as an expense or other charge; provided, however, that all charges between and among members of the Buyer Group for services requested at rates agreed between the President (or other authorized executives) of such companies shall be treated as an expense; (iii) neither the proceeds from nor any dividends or refunds with respect to, any life insurance policy under which ISM is the named beneficiary or otherwise entitled to recovery, shall be included as income, and the premium expense related thereto shall not be included as an expense; (iv) any write-off or amortization or depreciation shall not be treated as an expense; (v) any write-off of the following intangible assets of ISM shall not be treated as an expense: goodwill, covenants not to compete, client lists and work force; (vi) any losses which give rise to an indemnity payment pursuant to the indemnification provisions of Article XI below and which are fully assumed by one or more of the Stockholders or as to which one or more Stockholders have fully reimbursed (by offset or otherwise) the appropriate Indemnified Parties shall not be treated as an expense, and there shall be excluded from income any amount received by any Indemnified Party pursuant thereto; (vii) gross income shall not include any revenue of ISM received from digital imaging operations; -4- (viii) expenses shall not include expenses relating to digital imaging operations; and (ix) costs and expenses related to ISM personnel engaged in digital imaging operations shall be considered expenses relating to digital imaging operations, to the extent that such costs and expenses are attributable to work performed in connection with digital imaging operations. 2.1.2.4 Accounting Procedures. (i) For each of calendar years 1997, 1998 and 1999, Arthur Andersen & Company, or such other independent accounting firm then auditing the books of Buyer (the "Accountants") shall prepare a report containing an audited consolidated balance sheet of ISM and its subsidiaries, if any, and a related consolidated statement of income for the twelve months then ended, prepared in accordance with generally accepted accounting principles consistently applied, together with a statement setting forth for the period under examination the calculation of the Interim Earn-out Payment or the Final Earn-out Payment, as the case may be (including the calculation of Operating Income) and all other adjustments required to be made to such audited financial statements in order to make the calculations required under this Section 2.1 (the "Interim Earn-out Determination" and the "Final Earn-out Determination" collectively, the "Determinations", and individually a "Determination"). A copy of the Interim Earn-out Determination shall be delivered to the Stockholders not later than March 31, 1999, and a copy of the Final Earn-out Determination shall be delivered to the Stockholders not later than March 31, 2000. (ii) If the Stockholders holding at least 51% of the common stock of ISM outstanding on the date hereof (the "Majority Stockholders") do not agree that any Determination delivered pursuant to clause (i) above correctly states the Interim Earn-out Payment or the Final Earn-out Payment, as applicable, the Majority Stockholders shall promptly (but not later than 60 days after the delivery of such Determination) give written notice to Buyer of any exceptions thereto (in reasonable detail describing the nature of the disagreement asserted). If the Majority Stockholders and Buyer reconcile their differences, the Determination shall be adjusted accordingly and shall thereupon become final and conclusive upon all of the parties hereto and enforceable in a court of law. If the Majority Stockholders and Buyer are unable to reconcile their differences in writing within 20 days after written notice of exceptions is received by Buyer, the items in dispute shall be submitted to the Pittsburgh office of Price Waterhouse or its successors (the "Arbitrator") for final determination, and the Determination shall be deemed adjusted in accordance with the determination of the Arbitrator and shall become final and conclusive -5- upon all of the parties hereto and enforceable in a court of law. The Arbitrator shall consider only the items in dispute and shall be instructed to act within 30 days to resolve all items in dispute. If the Majority Stockholders do not give notice of any exception within 60 days after the delivery of the Determination or if the Majority Stockholders give written notification of their acceptance of the Determination prior to the end of such 60 day period, such Determination shall thereupon become final and conclusive upon all the parties hereto and enforceable in a court of law. (iii) In the event the Arbitrator shall have, at any time during the period it might be called upon to determine a dispute under this Section 2.1.2.4, performed auditing or other services for Buyer (other than as an arbitrator in other dispute proceedings) or the Stockholders, or for any other reason is unable or unwilling to perform the services required of it under this Section, then Buyer and the Majority Stockholders agree to select another accounting firm from among the six largest accounting firms in the United States in terms of gross revenues to perform the services to be performed under this Section 2.1.2.4 by the Arbitrator. If Buyer and the Majority Stockholders fail to select another accounting firm within 15 days after it is determined that the Arbitrator will not perform the services required, either Buyer or the Majority Stockholders may request the American Arbitration Association in New York to appoint an independent firm of certified public accountants of recognized national standing to perform the services required under this Section 2.1.2.4 by the Arbitrator. For purposes of Section 2.1 the term "Arbitrator" shall include such other accounting firm chosen in accordance with this clause (iii). (iv) The Arbitrator shall determine the party (i.e., Buyer or the Majority Stockholders, as the case may be) whose asserted positions before the Arbitrator are in the aggregate further from the aggregate resolutions determined by the Arbitrator, which non- prevailing party shall pay the fees and expenses of the Arbitrator. 2.1.2.5 Examination of Books and Records. The books and records of ISM shall be made available during normal business hours upon reasonable advance notice at the principal office of ISM, to Buyer, the Stockholders and to the Arbitrator (or if applicable, such other accounting firm selected in accordance with Section 2.1.2.4 above.) ARTICLE III CLOSING 3.1 Time and Place of the Closing. Subject to and after the fulfillment or waiver of the conditions set forth in Articles VIII and IX, the closing of the sale of the Shares shall take -6- place at the offices of Eckert Seamans Cherin & Mellott, 600 Grant Street, 42nd Floor, Pittsburgh, Pennsylvania, at 10:00 a.m., no later than five (5) business days following the consummation of the initial public offering of shares of common stock by Buyer (the "Initial Public Offering"), or such other date, time and place as the parties may agree. In this Agreement, such event is referred to as the "Closing" and such date and time are referred to as the "Closing Date." ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ISM AND THE STOCKHOLDERS To induce Buyer to enter into this Agreement and to consummate the transactions contemplated hereunder, ISM and the Stockholders jointly and severally make the following representations and warranties, which representations and warranties shall survive the Closing: 4.1 Organization, Power and Authority; Subsidiaries. ISM is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has all requisite corporate power and authority (i) to own or lease its properties and to carry on its business as it is now being conducted; (ii) to enter into this Agreement; and (iii) to carry out the other transactions and agreements contemplated hereby. ISM is duly qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions set forth on Schedule 4.1, which are all of the jurisdictions in which its business or property is such as to require that it be thus qualified. ISM does not own, directly or indirectly of record or beneficially, or have any right to acquire, any capital stock or equity interest, investment or partnership interest in any corporation, partnership, joint venture, association or other entity, and has no right or ability to control the management of any corporation, partnership, joint venture, association or other entity, whether by agreement or otherwise. 4.2 Due Authorization; Binding Obligation; No Violations; Consents. ISM has full power, authority and capacity to enter into this Agreement and to carry out its obligations hereunder. Each Stockholder has full power, authority and capacity to enter into this Agreement and to carry out his obligations hereunder. The execution, delivery and performance of this Agreement and each of the other agreements, instruments and documents contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of ISM. This Agreement has been duly executed and delivered by ISM and the Stockholders and is a legal, valid and binding obligation of ISM and the Stockholders, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by ISM and the Stockholders does not, and the consummation of the transactions contemplated herein do not and will not (i) violate any provision of the charter or bylaws of ISM; (ii) violate or conflict with any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, -7- judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against ISM, the Stockholders or the Shares; (iii) violate, conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any mortgage, contract, agreement, lease, license, indenture, will, trust or other instrument which is either binding upon or enforceable against ISM, any of the Stockholders, or the Shares; (iv) violate any legally protected right arising in the operation of the business of ISM of any person or entity or give to any person or entity (including in each case any Stockholder), a right or claim against Buyer, ISM or the Shares, (v) result in or require the creation or imposition of any Lien upon or with respect to the Shares or property of ISM; or (vi) except as set forth on Schedule 4.2, require the consent, approval or authorization of, or the registration, recording, filing or qualification with, or notice to, or the taking of any other action in respect of, any governmental authority or any other person or entity (all of which consents have been obtained). 4.3 Capital Structure; Shareholders; Title to Shares. The authorized capital stock of ISM consists solely of 1,000 shares of ISM common stock, $1.00 par value per share, of which 105.26315 shares are issued and outstanding. The Stockholders own all of the Shares. Set forth on Schedule 4.3 is the number of Shares owned by each Stockholder. No options, warrants, convertible debt or other rights to acquire any equity interest in ISM whether upon exchange for or conversion of other securities or otherwise, are outstanding or will be granted and no Shares of ISM will be issued between the date hereof and the Closing Date. All of the Shares are duly authorized, validly issued, fully paid and non-assessable, and have been offered, issued, sold and delivered free of preemptive rights or rights of first refusal and in compliance with applicable federal and state securities laws. No stock appreciation rights, phantom shares, cash performance units or other similar rights have been issued by ISM. Upon the consummation of the Closing, Buyer will have good and marketable title to the Shares, free and clear of all Liens. 4.4 Financial Statements. ISM and the Stockholders previously have furnished to Buyer the following financial statements of ISM, including the notes pertaining thereto (the "Financial Statements"): (a) The audited balance sheets as of December 31, 1993, 1994 and 1995 and the related statements of operations, cash flows and changes in stockholders' equity (including the related notes) for each of the three years ended December 31, 1993, 1994 and 1995; and (b) The balance sheet as of June 30, 1996, as set forth on Schedule 4.4 (the "Last Balance Sheet") and the related consolidated statement of operations (including the notes thereto, if any) for the six months ended June 30, 1996, which are unaudited. -8- The Financial Statements present fairly and are true, correct and complete statements of the financial position of ISM at each of the said balance sheet dates and the results of operations for each of the said periods covered, and they have been prepared in accordance with generally accepted accounting principles consistently applied and have been certified by the Chief Financial Officer of ISM to such effect. The books and records of ISM properly and accurately reflect all transactions, properties, assets and liabilities of ISM. 4.5 Liabilities. ISM has no liability or obligation, either accrued, absolute, contingent or otherwise, except: (i) to the extent reflected in or taken into account in determining net worth in the Last Balance Sheet and not heretofore paid or discharged; (ii) to the extent specifically set forth in Schedule 4.5; or (iii) liabilities incurred since May 31, 1996 and related to the conduct of business activities of ISM in the ordinary course during the period since that date, none of which are material to the business or financial condition of ISM. 4.6 Tax Matters. 4.6.1 ISM has timely filed all tax returns and reports required to be filed by it, including all federal, state, local and foreign tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges, including estimated taxes, which have become due. All tax returns and reports have been prepared in accordance with applicable laws and accurately reflect the taxable income (or other measure of tax) and tax liability of ISM for the applicable period. There is no tax deficiency proposed or threatened against ISM. There are no tax liens upon any property or assets of ISM. ISM has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty or established adequate reserves on its books in respect thereof to cover the amount of such estimated taxes, together with interest and penalties thereon. ISM has delivered to Buyer true and complete copies of all federal and state tax returns filed by ISM in the past three years. ISM has elected "S" Corporation status under applicable federal and Pennsylvania law. 4.6.2 All taxes and other assessments and levies which ISM was required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental authority or are being held by ISM in a separate bank account for such payment. All such withholdings and collections and all other payments due in connection therewith as of the date of the Last Balance Sheet are duly reflected on the Last Balance Sheet. 4.6.3 None of the federal, state or local income tax returns of ISM have been closed by applicable statute (other than returns which were filed over three (3) years ago) or examined by any applicable tax authorities. There are no outstanding agreements or waivers extending the statute of limitations applicable to any federal, state or local income, sales, use or similar tax returns of ISM for any period. -9- 4.7 Real Estate. 4.7.1 ISM does not own any real property or any interest therein except as set forth on Schedule 4.7.1 (the "Owned Properties"). 4.7.2 ISM does not hold any leasehold interest in any real property except as set forth on Schedule 4.7.2 (the "Leasehold Premises"). An accurate and complete copy of each lease agreement with respect to the properties described on Schedule 4.7.2, including all amendments thereto and modifications thereof (collectively, the "Leases") has been delivered to Buyer prior to the date hereof. Schedule 4.7.3 also sets forth a description of the nature and amount of all Liens on ISM's interests in the Leasehold Premises, and to the best knowledge of the ISM and the Stockholders, on the underlying real property and all improvements to and buildings thereon (including any environmental Liens). The Leases are in full force and effect, ISM is not in default or breach under any Lease and no event has occurred which with the passage of time or the giving of notice or both would cause a material breach of or default under any Lease. To the knowledge of ISM, there is no breach or anticipated breach of any Lease by any other party to such Lease. 4.7.3 ISM owns the Owned Properties and has valid leasehold interests in the Leasehold Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever, except for (i) Liens set forth on Schedule 4.7.3, (ii) Liens for real estate taxes not yet due and payable; and (iii) such imperfections of title and encumbrances, if any, as are not material in character, amount or extent and do not detract from the value, or interfere with the present use of such properties or otherwise impair business operations in any respect (collectively, "Permitted Encumbrances"). 4.7.4 The portions of the buildings located on the Leasehold Premises that are used in ISM's business and the buildings located on the Owned Properties are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy ISM's current and reasonably anticipated business activities as conducted thereat. 4.7.5 Each of the Leasehold Premises and Owned Properties: (i) has direct access to public roads or access to public roads by means of an access easement (which access easement is perpetual, in the case of each of the Owned Properties, and for at least the remaining term of the Lease and any renewal periods, in the case of each of the Leasehold Premises), such access being sufficient to satisfy the current normal day-to-day transportation requirements of ISM's business as presently conducted at such parcel; and (ii) is served by all utilities in such quantity and quality as are sufficient to satisfy the current business activities as conducted at such parcel. 4.7.6 ISM has not received notice of (i) any condemnation proceeding with respect to any portion of the Leasehold Premises or Owned Properties or any -10- access thereto, and, to the best knowledge of ISM and the Stockholders, no such proceeding is contemplated by any governmental authority; or (ii) any special assessment which may affect any of the Leasehold Premises or Owned Properties, and, to the best knowledge of the ISM and the Stockholders, no such special assessment is contemplated by any governmental authority. 4.8 Good Title to and Condition of the Assets. 4.8.1 ISM has good and marketable title to all of its properties and assets (other than the Leasehold Premises and personal property which is leased by ISM), whether real, personal or mixed, tangible or intangible, wherever located (collectively, the "Assets"), free and clear of any Liens other than Permitted Encumbrances. 4.8.2 The Fixed Assets (as hereinafter defined) of ISM currently in use or necessary for its business are in good operating condition, normal wear and tear excepted. For purposes of this Agreement, the term "Fixed Assets" means all buildings, machinery, equipment, tools, supplies, leasehold improvements, construction in progress, furniture and fixtures of ISM. 4.8.3 The inventory of ISM (the "Inventory") consists of items of a quality and quantity usable and salable in the ordinary course of ISM's business and, at an aggregate value not less than the aggregate values at which such items are carried on their books. The values of the inventory on the Last Balance Sheet fairly represent the fair market value of such inventory. The inventory as reflected on the Last Balance Sheet does not include any unreasonable accumulation of slow-moving inventory or inventory of below standard quality. All of the inventory of ISM is located on the Owned Premises or the Leased Premises. 4.9 Receivables. The accounts receivable of ISM ("Receivables") are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of ISM. The Receivables reflected on the Last Balance Sheet are collectible in the full amount stated, within sixty (60) days of the Closing Date, net of any allowance for doubtful accounts. For purposes of this Agreement, the term "Receivables" means all receivables of ISM, regardless of where set forth on the balance sheet, including all trade account receivables arising from sales or rental of inventory in the ordinary course of business, notes receivable, and insurance proceeds receivable. 4.10 Licenses and Permits. ISM possesses all licenses and required governmental or official approvals, permits or authorizations for the business and operation of each of ISM, the Owned Properties and each of the Leasehold Premises (collectively, the "Permits"). All Permits are valid and in full force and effect. ISM is in compliance with all requirements of the Permits, and no proceeding is pending or threatened to revoke or amend any of the Permits. Except as set forth on Schedule 4.10, none of the Permits is or will be -11- impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 4.11 Adequacy of the Assets; Relationships with Customers and Suppliers. The Assets constitute, in the aggregate, all of the property necessary for the conduct of the business of ISM in the manner in which and to the extent to which it is currently being conducted. ISM does not know of any written or oral communication, fact, event or action which exists or has occurred prior to the date hereof which indicates that: 4.11.1 any current customer of ISM which accounted for over 1% of the total revenue of ISM for the year ended December 31, 1995, will terminate its business relationship with ISM; or 4.11.2 any current supplier to ISM of items essential to the conduct of its business which items cannot be replaced by ISM at comparable cost to ISM and the loss of which would have an adverse effect on the business or operations of ISM, will terminate its business relationship with ISM. Except as set forth on Schedule 4.11.2, neither ISM nor any of its affiliates, as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the "1933 Act"), has any direct or indirect interest in any customer, supplier or competitor of ISM, or in any person or entity from whom or to whom ISM leases real or personal property, or in any person with whom ISM is doing business. ISM is not restricted by agreement from carrying on its business anywhere in the world. 4.12 Documents of and Information with Respect to ISM. 4.12.1 Schedule 4.12 is an accurate and complete list of the following: (i) each policy of insurance in force with respect to the Assets of ISM and each of the performance or other surety bonds maintained by ISM in the conduct of its business; (ii) each loan, credit agreement, guarantee, security agreement or similar document or instrument to which ISM is a party or by which it is bound; (iii) each lease of personal property to which ISM is a party or by which it is bound, (iv) any other agreement, contract or commitment to which ISM is a party or by which it is bound which involves a future commitment by ISM in excess of $5,000, except for those agreements, contracts, and commitments entered into by ISM in the ordinary course of its business of sports marketing and licensing; (v) the name and current annual salary of each officer or other employee of ISM and the profit sharing, bonus or any other form of compensation (other than salary) paid or payable by ISM to or for the benefit of each such person for the year ended December 31, 1995, and any employment or other agreement of ISM with any of their officers or employees; (vi) the names of the directors of ISM; (vii) the name of each bank in which ISM has an account or safe-deposit box, the name in which the account or box is held, the account number and the names of all persons authorized to draw thereon or to have access thereto; and (viii) a list of powers of attorney granted by or on behalf of ISM. ISM has previously -12- furnished Buyer with an accurate and complete copy of each such agreement, contract or commitment listed in Schedule 4.12. There has not been any breach of or default in any obligation to be performed by ISM under any such instrument or, to the knowledge of ISM, in any obligation to be performed by any other party to such instrument. All of such instruments to which ISM is a party are valid, binding and enforceable against ISM and in full force and effect in accordance with their respective terms. None of such instruments will expire or be terminated or be subject to any modification of terms or conditions upon consummation of the Merger. 4.12.2 ISM carries insurance which is substantially comparable in character and amount to that carried by other companies engaged in similar businesses, with reputable insurers, covering all of its assets, properties and businesses, and has provided all required performance or other surety bonds. All premiums and other payments which have become due under each policy of insurance listed on Schedule 4.12 have been paid in full, all of such policies are in full force and effect and ISM has not received notice from any insurer, agent or broker of the cancellation of, or any increase in premium with respect to, any of such policies or bonds. Except as set forth on Schedule 4.12, ISM has not received any notification from any insurer, agent or broker denying or disputing any claim made by ISM or denying or disputing any coverage for any such claim or the amount of any claim. ISM does not have any claim against any of its insurers under any of such policies pending or anticipated and there has been no occurrence of any kind which could give rise to any such claim. 4.13 Litigation. There are no actions, suits, claims, governmental investigations or arbitration proceedings pending or threatened against or affecting ISM, the Shares, the Assets or the liabilities of ISM or which question the validity or enforceability of this Agreement or any action contemplated herein. There is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which ISM is or was a party or which affect the Shares, the Assets or the liabilities of ISM or any of the transactions contemplated hereby. 4.14 Records. ISM's records are accurate and complete in all material respects and there are no material matters as to which appropriate entries have not been made in such records. A record of all action taken by the Stockholders and the board of directors of ISM and all minutes of their respective meetings are contained in the minute books of ISM and are accurate and complete. The records, books and stock ledgers of ISM contain an accurate and complete record of all issuances, transfers and cancellations of shares of capital stock of ISM. 4.15 No Material Adverse Change. Since the date of the Last Balance Sheet, there has not been (i) any change in the business or properties of ISM or in the financial condition of ISM, other than changes occurring in the ordinary course of business which have not had a Material Adverse Effect; or (ii) any threatened or prospective event or -13- condition of any character whatsoever which could materially adversely affect the Shares or have a Material Adverse Effect. "Material Adverse Effect" when used in this Agreement, shall mean that the fact, event or occurrence being measured in reference to such standard would have a material adverse effect on the business, properties, financial condition or results of operations of ISM. 4.16 Absence of Certain Acts or Events. Since the date of the Last Balance Sheet, ISM has not (i) authorized or issued any capital stock or other securities; (ii) declared or paid any dividend or made any other distribution of or with respect to its capital stock or other securities, or purchased or redeemed any of its capital stock or other securities; (iii) paid any bonus or increased the rate of compensation of any of its employees; (iv) sold or transferred any of its assets other than in the ordinary course of business; (v) made or obligated itself to make capital expenditures aggregating more than $5,000; (vi) incurred any material obligations or liabilities (including any indebtedness) or entered into any material transaction, except for this Agreement, and the transactions contemplated hereby; (vii) suffered any theft, damage, destruction or casualty loss in excess of $5,000; (viii) waived any right of material value; (ix) suffered any extraordinary losses; (x) made or adopted any change in its accounting practice or policies; (xi) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course during the period since June 30, 1996; or (xii) made any loan or advance other than advances to employees in the ordinary course of business not exceeding $5,000 as to all employees in the aggregate. 4.17 Compliance with Laws. 4.17.1 ISM is in compliance with all laws, regulations and orders applicable to it, the Shares or the Assets (including the Internal Revenue Code of 1986, as amended (the "Code") and ERISA, as defined in Section 4.20). ISM has not been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, and to the best knowledge of ISM and the Stockholders, no proceeding with respect to any such violation is contemplated. 4.17.2 Neither ISM, nor any employee of ISM has made any payment of funds in connection with the business of ISM prohibited by law, and no funds have been set aside to be used in connection with the business of ISM for any payment prohibited by law. 4.17.3 ISM is and at all times has been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986 (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of ISM for whom compliance with the Immigration Act by ISM as Employer is required, ISM shall have supplied to Buyer an accurate and complete copy of (i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii) all other records, documents or other papers prepared, procured and/or retained by ISM pursuant to the -14- Immigration Act. ISM has not been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order under the Immigration Act, nor has any action or administrative proceeding been initiated or threatened against ISM by reason of any actual or alleged failure to comply with the Immigration Act. 4.18 Environmental Matters. 4.18.1 ISM has not (i) transported, stored, handled, treated or disposed of, or allowed or arranged for any third parties to transport, store, handle, treat or dispose of, Hazardous Substances or other waste to or at any location other than a site lawfully permitted to receive such Hazardous Substances or other waste for such purposes, nor has it performed, arranged for or allowed by any method or procedure such transportation, storage, treatment or disposal in contravention of any laws or regulations or (ii) stored, handled, treated or disposed of, or allowed or arranged for any third parties to store, handle, treat or dispose of, Hazardous Substances or other waste upon property owned or leased by it, except as permitted by law. For purposes of this Section 4.18, the term "Hazardous Substances" shall mean and include the following: (A) any "Hazardous Substance," "Pollutant" or "Contaminant" as defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Section 9601, et seq., or the regulations promulgated thereunder -- --- ("CERCLA"); (B) any hazardous waste as that term is defined in applicable state or local law; (C) any substance containing petroleum, as that term is defined in Section 9001(8) of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6991(8), or in 40 C.F.R. Section 280.1; or (D) any other substance for which any governmental entity with jurisdiction over the Leasehold Premises or the Owned Properties requires special handling in its generation, handling, use, collection, storage, treatment or disposal. 4.18.2 There has not occurred, nor is there presently occurring, a Release of any Hazardous Substance on, into or beneath the surface of any parcel of the Owned Properties or Leasehold Premises. For purposes of this Section 4.18, the term "Release" shall have the meaning given it in CERCLA. 4.18.3 ISM has not shipped, transported or disposed of, or allowed or arranged, by contract, agreement or otherwise, for any third parties to ship, transport or dispose of, any Hazardous Substance or other waste to or at a site which, pursuant to CERCLA or any similar state law, (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has proposed or is proposing to place on the National Priorities List or its state equivalent. ISM has not received notice, nor does it have knowledge of any facts which could give rise to any notice, that ISM is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA or any other applicable law or regulation. ISM has not submitted and was not required to submit any notice pursuant to Section 103(c) of CERCLA with respect to the Owned -15- Properties or the Leasehold Premises. ISM has not received any written or oral request for information in connection with any federal or state environmental cleanup site. ISM has not been required to and has not undertaken any response or remedial actions or clean-up actions of any kind at the request of any federal, state or local governmental entity, or at the request of any other person or entity. 4.18.4 ISM does not use, and has not used, any Underground Storage Tanks (as defined below). There are not now nor have there ever been any Underground Storage Tanks on the Owned Properties or the Leasehold Premises. For purposes of this Section 4.18, the term "Underground Storage Tanks" shall have the meaning given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.). -- --- 4.18.5 There are no laws, regulations, ordinances, licenses, permits or orders relating to environmental or worker safety matters requiring any work, repairs, construction or capital expenditures with respect to the assets or properties of ISM. There are no violations of environmental law committed by ISM relating to (i) the Owned Properties or the Leasehold Premises or any property or parcel adjacent to any of the foregoing, or (ii) ISM's use of the Owned Properties or Leasehold Premises. 4.18.6 Schedule 4.18.6 identifies (i) all environmental audits, assessments or occupational health studies undertaken by ISM or its agents or, to the knowledge of ISM, undertaken by governmental agencies relating to or affecting ISM or any of the Owned Properties or Leasehold Premises; (ii) the results of any groundwater, soil, air or asbestos monitoring undertaken by ISM or its agents or, to the knowledge of ISM, undertaken by governmental agencies relating to or affecting ISM or any of the Owned Properties or Leasehold Premises; (iii) all written communications between ISM or its representatives, on the one hand, and environmental agencies, on the other hand; and (iv) all citations issued under the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.) relating to or affecting ISM or any of -- --- the Owned Properties or Leasehold Premises. 4.18.7 Schedule 4.7.1 identifies, to the knowledge of ISM and the Stockholders, all prior uses of the Owned Properties. 4.19 Labor Relations. ISM is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the last five (5) years to organize any employees of ISM into one or more collective bargaining units. There is not pending or threatened any labor dispute, strike or work stoppage which affects or which may affect the business of ISM or which may interfere with the continued operation of its business. Neither ISM, nor any agent, representative or employee of ISM has committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is not now pending or threatened any charge or complaint against ISM by or with the National Labor Relations Board or any -16- representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of ISM. Neither ISM nor any Stockholder is aware that any executive or key employee or group of employees has any plans to terminate his, her or their employment with ISM. 4.20 Employee Benefits. 4.20.1 Except as set forth on Schedule 4.20.1, the employees of ISM do not participate (and have not participated in the preceding five calendar years) in any "employee benefit plan", as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), nor in any other retirement, profit-sharing, deferred compensation, bonus, stock option, stock purchase or similar plan, program or arrangement of ISM (any of the foregoing being hereinafter referred to as a "Plan"). Each Plan which is intended to be a qualified plan under section 401(a) of the Code has been determined by the Internal Revenue Service ("IRS") to be qualified under section 401(a) of the Code, each trust related to any such Plan has been determined to be exempt from federal income tax under section 501(a) of the Code and no event has occurred or condition exists which is likely to adversely affect such determinations. With respect to all Plans (whether or not subject to ERISA and whether or not qualified under section 401(a) of the Code), all employer contributions (including any contributions to any trust account or payments due under any life insurance policy) previously declared or otherwise required by law or contract to have been made have been paid and all employer contributions (including any contributions to any trust account or payments due under any life insurance policy) accrued have been paid as required by law or contract. No Prohibited Transaction has occurred with respect to any Plan. For purposes of this Agreement, the term "Prohibited Transaction" means any transaction described in section 406 of ERISA which is not exempt by reason of section 408 of ERISA or the transitional rules set forth in section 414(c) of ERISA, and any transaction described in section 4975(c) of the Code which is not exempt by reason of section 4975(c)(2) or section 4975(d) of the Code or the transactional rules of section 2003(c) of ERISA. 4.20.2 ISM has not terminated and will not terminate before the Closing Date, any plan subject to Title IV of ERISA. ISM has not incurred any termination or withdrawal liability under Title IV of ERISA. 4.20.3 ISM has never contributed to any "multiemployer plan," as defined in section 414(f) of the Code or section 3(37) of ERISA. No Plan has incurred any accumulated funding deficiency, as defined in section 412 of the Code and section 302 of ERISA. 4.20.4 ISM has never (i) failed to make a required installment under section 302(e) of ERISA or (ii) been required to provide security to any employee -17- benefit plan or the Pension Benefit Guaranty Corporation under section 306 or 307 of ERISA. 4.20.5 There are no actions, suits or claims pending (other than routine claims for benefits) or overtly threatened against a Plan or the assets of any Plan. 4.20.6 No Plan which is an "employee welfare benefit plan," as defined in section 3(1) of ERISA, provides employer-paid benefits to retirees or former employees, except for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. 4.20.7 Except as set forth on Schedule 4.20.7, ISM is not obligated to pay any severance benefits to any employee whose employment may be terminated on or after July 1, 1996. 4.21 Computer Programs and Software. All computer programs and software currently being used in the business of ISM (the "Software") are owned by ISM or held under valid license agreements. ISM has not licensed anyone to use any of the Software nor does ISM have knowledge of any infringing use of the Software or claim of infringing use. The Software is sufficient for the conduct of the business of ISM as now operated. 4.22 Brokers. Neither the Stockholders nor ISM has paid or become obligated to pay any fee or commission of any broker, finder or intermediary for or on account of the transactions provided for in this Agreement. 4.23 Intellectual Property. Set forth on Schedule 4.23 is a list of all trade names, assumed names, service marks and trademarks, logos, patents, copyrights, rights and applications therefor and other intellectual property of ISM, including without limitation, trade secrets, technology, know-how, formulae, designs, drawings, computer software, slogans, and operating rights, and all registrations and filings thereof ("Intellectual Property"). ISM holds all Intellectual Property or other intellectual properties which it uses in its business free and clear of all Liens and requires no rights in such properties that it does not have to conduct its business as presently conducted. No proceedings have been instituted or are pending or threatened or, to the knowledge of ISM and the Stockholders, contemplated which assert the invalidity, abuse, misuse or unenforceability of any such rights, and there are no grounds for the same. Except as disclosed in Schedule 4.12 or Schedule 4.23, ISM has not licensed anyone to use any Intellectual Property. Neither ISM nor the Stockholders have knowledge of the infringing use of such proprietary rights by any other person. Neither ISM nor any Stockholder has received a notice of conflict with the asserted rights of others. The conduct of the business of ISM has not infringed any asserted rights of others. 4.24 Business Locations. As of the date hereof, ISM does not have any office or place of business other than as identified on Schedules 4.7.1 and 4.7.2. ISM's principal place of business and its chief executive offices (as such term is used in subsection 9-401 of -18- the Uniform Commercial Code as enacted in the Commonwealth of Pennsylvania as of the date hereof) are indicated on Schedule 4.24, and all locations where ISM's equipment, inventory, chattel paper and books and records are located as of the date hereof are fully identified on Schedules 4.7.1 and 4.7.2. 4.25 Names; Prior Acquisitions. All names under which ISM does business as of the date hereof are identified on Schedule 4.25. Except as set forth on Schedule 4.25, ISM has not changed its name or used any assumed or fictitious name, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office within the last six (6) years. 4.26 Accuracy of Information Furnished by ISM and the Stockholders. No representation, statement or information made or furnished by ISM or the Stockholders to Buyer, including those contained in this Agreement and the other information and statements referred to herein and previously furnished by ISM or the Stockholders pursuant hereto, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained herein or therein not misleading. 4.27 Franchising. ISM is not a franchisor in any franchising relationship and does not have any franchisees (as such terms are defined under federal laws, rules or regulations or the laws, rules or regulations of any state). If and to the extent any activities of ISM may have constituted the offering of a franchise, ISM has fully complied with all applicable laws, rules and regulations with respect thereto, including any registration requirements of any state or other jurisdiction. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER To induce ISM and the Stockholders to enter into this Agreement and to consummate the transactions contemplated hereunder, Buyer makes the following representations and warranties, which representations and warranties shall survive the Closing: 5.1 Organization, Power and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to enter into this Agreement and all other agreements, instruments and documents contemplated hereby and to perform its obligations hereunder and thereunder. 5.2 Due Authorization; Binding Obligation; No Violations. The execution, delivery and performance of this Agreement and all other agreements, instruments and documents contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Buyer. This Agreement has been duly executed and delivered by Buyer and is a valid and binding obligation of Buyer, enforceable -19- against Buyer in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (i) violate any provision of the certificate of incorporation or bylaws of Buyer; (ii) violate any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against Buyer; or (iii) require the consent, approval or authorization of, or the registration, recording, filing or qualification with, or notice to, or the taking of any other action in respect of, any governmental authority or any other person or entity. ARTICLE VI ADDITIONAL COVENANTS OF ISM AND THE STOCKHOLDERS 6.1 Best Efforts. ISM and the Stockholders will use their best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Article VIII to the obligation of Buyer to proceed with the purchase of Shares hereunder. 6.2 Conduct of Business Pending the Closing. From and after the execution and delivery of this Agreement and until the Closing Date, except as otherwise provided by the prior written consent of Buyer: 6.2.1 ISM will conduct its business and operations in the ordinary course of business consistent with past practices, and ISM will use its best efforts to (i) preserve its business organization intact; (ii) keep available to ISM the services of its officers, employees, agents and distributors; and (iii) preserve its relationships with customers, suppliers, lenders, landlords and others having dealings with them. 6.2.2 ISM will maintain all of its properties in good repair, order and condition, reasonable wear and use excepted, and will maintain insurance of such types and in such amounts upon all of its properties and with respect to the conduct of its business as are in effect on the date of this Agreement. 6.2.3 ISM will not (i) authorize or issue any shares of its capital stock (including shares held in the treasury) or any other securities or grant any option, warrant, or other right to acquire same; (ii) declare or pay any dividend or make any distribution on or with respect to its capital stock or other securities or purchase or redeem any of its capital stock or other securities; (iii) pay any bonus or increase the rate of compensation of any of its employees or enter into any new employment agreement or amend any existing employment agreement; (iv) sell or transfer any of its assets other than in the ordinary course of business or grant any Liens thereon; (v) make or obligate itself to make capital expenditures aggregating more than $20,000; (vi) incur any obligations or liabilities or enter into any transaction other than in the ordinary course of business; (vii) amend its certificate of incorporation or bylaws; (viii) waive any right of value; (ix) enter into any -20- material amendment to any Lease or enter into any new lease of real property; (x) incur any indebtedness; (xi) make or adopt any change in its accounting practice or policies; (xii) make any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course during the period from the date hereof; or (xiii) make any loan or advance other than advances to employees in the ordinary course of business which, when aggregated with all such advances made during the period from May 31, 1996 to the date hereof, exceeds $5,000 in the aggregate as to all employees. 6.3 Access to Properties and Records. From and after the execution and delivery of this Agreement, ISM will afford to representatives of Buyer access, during normal business hours and upon reasonable notice, to its premises sufficient to enable Buyer to inspect the Assets or the operation of its business, and ISM will furnish to such representatives during such period all such information relating to the foregoing investigation as Buyer may reasonably request; provided, however, that any furnishing of such information to Buyer and any investigation by Buyer, whether prior to or subsequent to the date hereof, shall not affect the right of Buyer to rely on the representations and warranties made by ISM and the Stockholders in this Agreement. 6.4 No Other Discussions. From the date hereof until December 31, 1996 (the "Termination Date"), ISM, the Stockholders and their respective affiliates, employees, agents or representatives, either alone or together, (i) will not initiate or encourage the initiation by others of discussions or negotiations with third parties or respond to (other than to decline interest in) solicitations by third parties relating to any merger, sale or other disposition of any substantial part of the capital stock or assets of ISM, (ii) will immediately notify Buyer if any third party attempts to initiate any such solicitation, discussion or negotiation with any of their affiliates, employees, agents or representatives, and (iii) will not enter into any agreement with respect thereto with any third party. 6.5 Retention of Shares. The Stockholders will not, prior to the Closing Date, sell, assign, transfer, pledge, encumber or otherwise dispose of any of the Shares (or any interest therein) nor grant any options or similar rights with respect to any of the Shares. ARTICLE VII ADDITIONAL COVENANTS OF BUYER 7.1 Best Efforts. Buyer will use its best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date, all of the conditions set forth in Article IX to the obligation of ISM and the Stockholders to proceed with the sale of Shares hereunder. -21- ARTICLE VIII CONDITIONS TO THE OBLIGATION OF BUYER The obligation of Buyer to proceed with the purchase of the Shares shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 8.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of ISM and the Stockholders contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. ISM and the Stockholders shall have performed and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. ISM and the Stockholders shall have delivered to Buyer a certificate, dated the Closing Date and signed by the President of ISM and each Stockholder, certifying that such representations and warranties were true and correct at and as of the date hereof, and are true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. 8.2 Due Diligence Review. Buyer shall have completed to its reasonable satisfaction a due diligence review of the business and operations of ISM. 8.3 No Material Adverse Changes or Destruction of Property. Between the date hereof and the Closing Date, (i) there shall have been no material adverse change in the condition, financial or otherwise, of ISM, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the ISM, and (iii) none of the properties and assets of ISM shall have been damaged by fire, flood, casualty, act of God or public enemy or other cause, regardless of insurance coverage for such damage, and there shall have been delivered to Buyer a certificate to that effect, dated the Closing Date and signed on behalf of ISM by its President. 8.4 No Adverse Litigation. There shall not be pending or threatened any action, suit, investigation or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the purchase of the Shares or any other transaction contemplated hereby, or which might affect the right of ISM to own, operate in their entirety, or control the Assets, and which, in the reasonable judgment of Buyer, makes it inadvisable to proceed with the transactions contemplated hereby. 8.5 Corporate Action. The directors and Stockholders of ISM shall have taken all corporate action necessary to effect the transactions contemplated hereby, and ISM shall have furnished Buyer with certified copies of resolutions duly adopted by its directors and Stockholders, in form and substance satisfactory to counsel for Buyer, in connection with the foregoing. -22- 8.6 Corporate Certificates. ISM and the Stockholders shall have delivered to Buyer (a) true, correct and complete copies of the articles of incorporation and bylaws of ISM as in effect immediately prior to the Closing and (b) a certificate of good standing of ISM issued by the Secretary of State of the Commonwealth of Pennsylvania and the appropriate officer of each state in which ISM is qualified to do business, in each case dated as of a reasonably recent date. 8.7 Receipt of Necessary Consents. All necessary consents or approvals of third parties to any of the transactions contemplated hereby (including the consents identified on Schedule 4.2), shall have been obtained and shown by written evidence satisfactory to Buyer. The form and substance of such consents shall be reasonably satisfactory to Buyer. 8.8 Delivery of Stock Certificates. ISM and the Stockholders shall have delivered to Buyer stock certificates evidencing the Shares, accompanied by appropriate stock powers duly endorsed. 8.9 Resignations. ISM and the Stockholders shall have delivered to Buyer, duly executed resignations of each of the officers and directors of ISM. 8.10 Completion of Initial Public Offering. The initial public offering of shares of Buyer common stock shall have been consummated. ARTICLE IX CONDITIONS TO OBLIGATIONS OF ISM AND THE STOCKHOLDERS The obligations of ISM and the Stockholders to proceed with the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: 9.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of Buyer contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. Buyer shall have performed and complied in all material respects with all of its respective obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. Buyer shall have delivered to ISM a certificate, dated as of the Closing Date and signed by one of its officers, certifying that such representations and warranties were true and correct at and as of the date hereof, and are true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. -23- 9.2 Delivery of the Cash Payment. Buyer shall have delivered $2,400,000 to the Stockholders. ARTICLE X CERTAIN ACTIONS AFTER THE CLOSING 10.1 Execution of Further Documents. From and after the Closing, upon the reasonable request of Buyer, the former officers of ISM and the Stockholders shall execute, acknowledge and deliver all such further acts, deeds, bills of sale, assignments, transfers, conveyances, powers of attorney and assurances as may be requested to convey and transfer to and vest in Buyer and protect its right, title and interest in all of the Shares, and as may be required or otherwise appropriate to carry out the transactions contemplated by this Agreement. 10.2 Employment of ISM's Employees. 10.2.1 The Stockholders shall use their best efforts to aid Buyer and ISM in retaining such of the employees of ISM as are employed on the Closing Date whom Buyer and ISM desire to retain after the Closing Date. Except with the prior written consent of Buyer, neither the Stockholders nor any affiliate of the Stockholders shall solicit or cause, directly or indirectly, to be solicited, nor attempt to induce, for a period of three years after the Closing Date, any person employed by ISM on the Closing Date or at any time within 180 days prior to the Closing Date unless such person either was not retained by ISM or was terminated by ISM: (i) to refuse to continue his or her employment with ISM or Buyer, (ii) if such employment is continued, to terminate his or her employment with ISM or (iii) to work, directly or indirectly, with or for any of the Stockholders or any of their Affiliates. As used in this Agreement, the term "Affiliate" means, with respect to a specified person, any other person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified and, with respect to any natural person, shall include all persons related to such person by blood or marriage. 10.2.2 Except as set forth on Schedule 4.20.7, neither Buyer nor ISM shall have any obligation to continue to employ any of the persons currently employed by ISM or to continue, or institute any replacement or substitution for, any vacation, severance, incentive, bonus, profit sharing, pension or other employee benefit plan or program of ISM. 10.3 Restrictive Covenants. 10.3.1 To assure that Buyer will realize the value and goodwill inherent in ISM, the Stockholders jointly and severally agree with Buyer that neither the Stockholders nor any of their Affiliates shall: -24- 10.3.1.1 directly or indirectly, for a period of five years following the Closing Date (the "Restricted Period"), engage in or have any interest in any business, firm, person, partnership, corporation, limited liability company, or other entity (as an owner, shareholder, partner, manager, member, employee, agent, security holder, creditor, consultant or otherwise) that engages in any activity that is the same or similar to, or competitive with, any activity engaged in by ISM or any of its Affiliates on the Closing Date, or by ISM or any Affiliate of ISM during the Restricted Period; provided that (a) the prohibition contained in this Section 10.3.1.1 shall not apply to any activity in which ISM permanently ceases to be engaged, and (b) provided that the ownership, beneficially or of record, of less than five percent (5%) of the outstanding shares of any class of stock of any issuer listed on a national securities exchange shall not be a breach of this Agreement. 10.3.1.2 directly or indirectly, at any time following the Closing Date, divulge, communicate, use to the detriment of Buyer or ISM or the Affiliates of either of the foregoing, or for the benefit of any other business, firm, person, partnership, limited liability company or corporation, the confidential information, data, intellectual property or trade secrets of ISM, including but not limited to those items identified on Schedule 4.23, and the business records, financial information and the customer, supplier and personnel information of ISM. 10.3.1.3 directly or indirectly, for a period of five years following the Closing Date: (i) induce any customer of ISM at the Closing Date to patronize any business other than ISM or Buyer similar to any of those described in Section 10.3.1.1; (ii) canvass, solicit or accept from any customer of ISM at the Closing Date any business similar to any of those described in Section 10.3.1.1 other than on behalf of ISM or Buyer; or (iii) request or advise any individual or entity which is a customer of ISM at the Closing Date to withdraw, curtail or cancel any such customer's business with ISM or Buyer. 10.3.1.4 directly or indirectly, for a period of five (5) years following the Closing Date, solicit (or employ or cause to be employed other than by ISM or Buyer) other employees of ISM or any Affiliate or subsidiary of ISM, directly or indirectly, for the purpose of enticing them to leave their employment with ISM or any Affiliate or subsidiary of ISM; 10.3.1.5 request or advise any individual or entity which is a supplier or vendor of ISM at the Closing Date to withdraw, curtail or cancel any such supplier's or vendor's business with ISM or Buyer. 10.3.2 The Stockholders agree and acknowledge that the restrictions contained in Section 10.3.1 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable and necessary in territorial scope and in duration to adequately protect Buyer and ISM after the Closing Date. If, however, any -25- provision of Section 10.3.1, as applied to any party or to any circumstances, is adjudged by a court of competent jurisdiction to be invalid or unenforceable, the same will in no way affect any other provision of Section 10.3 or any other part of this Agreement, the application of such provision in any other circumstances or the validity or enforceability of this Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination will have the power to modify the duration and/or area of such provision, and/or to delete specific words or phrases, and in its modified form such provision will then be enforceable and will be enforced. It is further agreed that a breach or violation of any provision of Section 10.3.1 will result in immediate and irreparable injury to Buyer and ISM and that money damages will be an inadequate remedy. Accordingly, in addition to such damages as Buyer and ISM can demonstrate they have sustained by reason of such breach or violation, and in addition to any other remedy that Buyer or ISM may have, Buyer and ISM shall each be entitled to both temporary and permanent injunctive relief to enforce the specific performance of this Section 10.3. 10.3.3 The period of time during which the Stockholders are prohibited from engaging in certain activities pursuant to the terms of this Section 10.3 shall be extended by the length of time during which any of the Stockholders are in breach of the terms of this Section 10.3. 10.3.4 The provisions of this Section 10.3 are not intended to preclude any Stockholder from being an officer or director of ISM, or an officer, director or shareholder of Buyer or any affiliate of Buyer. ARTICLE XI INDEMNIFICATION 11.1 Agreement by the Stockholders to Indemnify. The Stockholders jointly and severally shall indemnify and hold Buyer and ISM harmless in respect of the aggregate of all Indemnifiable Damages (as herein defined). 11.1.1 "Indemnifiable Damages" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel and paralegal fees and expenses) incurred or suffered by Buyer or ISM, on a pre-tax basis, to the extent (i) resulting from any breach of a representation or warranty of ISM or the Stockholders in or pursuant to Article IV or elsewhere herein; (ii) resulting from any breach of the covenants or agreements of ISM or the Stockholders in this Agreement; or (iii) resulting from any inaccuracy in any certificate delivered pursuant to Sections 8.1 or 8.3. -26- 11.1.2 Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, Buyer shall have the right to be put in the same financial position as it would have been in had each of the representations and warranties of ISM and the Stockholders been true and correct and had each of the covenants of ISM and the Stockholders been performed in full. 11.2 Agreement by Buyer to Indemnify. Buyer shall indemnify and hold harmless the Stockholders in respect of all Losses (as defined below) of the Stockholders. For this purpose, "Losses" of the Stockholders means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel and paralegal fees and expenses) incurred or suffered by the Stockholders, (i) resulting from any breach of a representation or warranty of Buyer contained in Article V or elsewhere herein; (ii) resulting from any default in the performance of any of the covenants or agreements of Buyer in this Agreement; or (iii) resulting from any inaccuracy in any certificate delivered pursuant to Section 9.1. 11.3 Survival. Notwithstanding any investigation at any time made by any party hereto, all representations and warranties contained in this Agreement shall be deemed continuing representations and warranties and shall survive the Closing for a period ending on the earlier to occur of: (a) the expiration of the applicable statute of limitations, or (b) June 30, 2000. Notwithstanding the foregoing, and notwithstanding any investigation at any time made by any party hereto, the representations and warranties contained in Sections 4.3, 4.6 and 4.8.1 shall survive the Closing indefinitely. 11.4 Limitations on Indemnification. Neither the Buyer nor the Stockholders shall be entitled to indemnification hereunder (a) except for amounts which are in the aggregate greater than $25,000, and then only with respect to such excess, or (b) in excess of the sum of the Cash Payment, the Interim Earn-out Payment and the Final Earn-out Payment; provided, however, that the foregoing limitations shall not apply to any claim for indemnification for any liability of the claimant to any third party. ARTICLE XII MISCELLANEOUS 12.1 Transaction Expenses; Brokers' Fees. The Stockholders shall pay all of the legal, accounting and other transaction expenses (including brokers' fees) incurred by the Stockholders or ISM in connection with the transactions contemplated hereby. The Stockholders shall indemnify and hold harmless Buyer and ISM from any such expenses and from the commission, fee or claim of any person, firm or corporation employed or retained or claiming to be employed or retained by ISM or the Stockholders to bring about, or to represent any of them in, the transactions contemplated hereby. -27- 12.2 Amendment and Modification. The parties hereto may amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing. 12.3 Termination. 12.3.1 Anything to the contrary herein notwithstanding, this Agreement may be terminated and the transaction contemplated hereby may be abandoned: (a) by the mutual written consent of Buyer and ISM at any time prior to the Closing Date; (b) by Buyer at any time prior to the Closing Date if there shall be a pending or threatened action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the sale of the Shares to Buyer or any other transaction contemplated hereby, or which might affect the right of Buyer to own, operate in their entirety or control the Shares and the properties and assets of ISM, or to conduct the business of ISM and which, in the reasonable judgment of Buyer, makes it inadvisable to proceed with the transaction contemplated by this Agreement; or (c) by Buyer in the event of the material breach by ISM or the Stockholders of any provision of this Agreement, or by ISM in the event of the material breach by Buyer of any provision of this Agreement, which breach in either case is not remedied by the breaching party within 30 days after receipt of notice thereof from the terminating party. (d) by Buyer, if the IPO is not consummated; and (e) by ISM or Buyer if the Closing has not occurred by December 31, 1996. If this Agreement is terminated pursuant to clause (a), (b), (d) or (e) of this paragraph 12.3.1, no party shall have any liability for any costs, expenses, loss of anticipated profit or any further obligation for breach of warranty or otherwise to any other party to this Agreement. Any termination of this Agreement pursuant to clause (c) of this paragraph 12.3.1 shall be without prejudice to any other rights or remedies of the respective parties. 12.3.2 The risk of any loss to the Assets and all liability with respect to injury and damage occurring in connection therewith shall be the sole responsibility of ISM and the Stockholders until the completion of the Closing. If any material part of the Assets shall be damaged by fire or other casualty prior to the completion of the Closing hereunder, ISM shall so notify Buyer and Buyer shall have the right and option: -28- (a) to terminate this Agreement, without liability to any party hereto; or (b) to proceed with the Closing hereunder, in which event such casualty shall not constitute a breach by ISM or the Stockholders of any representation, warranty or covenant in this Agreement, and Buyer shall be entitled to receive and retain the insurance proceeds arising from such casualty. 12.4 Additional Representations. Each party hereto expressly represents and warrants to all other parties hereto that (a) before executing this Agreement, said party has fully informed itself or himself of the terms, contents, conditions and effects of this Agreement; (b) said party has relied solely and completely upon its or his own judgment in executing this Agreement; (c) said party has had the opportunity to seek and has obtained the advice of counsel before executing this Agreement; (d) said party has acted voluntarily and of its or his own free will in executing this Agreement; and (e) said party is not acting under duress, whether economic or physical, in executing this Agreement. 12.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 12.6 Entire Agreement. This Agreement, including the exhibits and schedules, contains the entire agreement of the parties hereto with respect to the purchase of the Shares and the other transactions contemplated herein, and supersedes all prior understandings and agreements (oral or written) of the parties with respect to the subject matter hereof. The parties expressly represent and warrant that in entering into this Agreement they are not relying on any prior representations made by any other party concerning the terms, conditions or effects of this Agreement which terms, conditions or effects are not expressly set forth herein. Any reference herein to this Agreement shall be deemed to include the schedules and exhibits. 12.7 Interpretation. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be to an article, section, paragraph, clause, schedule or exhibit of this Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules. References to pronouns shall be deemed to include the masculine, feminine and neuter versions thereof. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Agreement. 12.8 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. -29- 12.9 Notices. Any notice, consent, approval, request, acknowledgment, other communication or information to be given or made hereunder to any of the parties by any other party shall be in writing and (a) delivered personally, (b) sent by express delivery service, (c) sent by certified mail, postage prepaid, or (d) sent by facsimile as follows: If to ISM or the Stockholders, addressed to: Mr. John F. Hensler The Hawthorne Group 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Telecopy: (412) 928-7715 with a copy to: Mr. Henry Posner, Jr. The Hawthorne Group 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Telecopy: (412) 928-7715 If to Buyer, addressed to: Mr. Richard W. Talarico SeaVision, Inc. 300 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Telecopy: (412) 928-7715 with a copy to: Mr. Brian K. Blair SeaVision, Inc. One Pinewood Centre 13320 State Route 7, North Lisbon, OH 43920 Telecopy: (330) 385-6176 Any party may change the address to which notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice. Any -30- notice delivered personally shall be deemed to have been given on the date it is so delivered, any notice delivered by express delivery service or certified mail shall be deemed to have been given on the date it is received, and any notice sent by facsimile shall be deemed to have been given on the date it was sent (so long as the sender receives confirmation of transmission and a hard copy of such notice is sent by U.S. mail). 12.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed therein. 12.11 Confidentiality; Publicity. Without the prior written consent of Buyer, neither ISM nor any of the Stockholders will, prior to the Closing Date, disclose the existence of or any term or condition of this Agreement to any person or entity. No press release or other public announcement related to this Agreement or the transactions contemplated hereby will be issued by any party hereto without the prior approval of both Buyer and ISM, except that Buyer is specifically authorized to disclose and discuss this Agreement and the transactions contemplated hereby in a registration statement to be filed with the United States Securities and Exchange Commission in connection with the Initial Public Offering. Buyer or ISM may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with a securities exchange (in which case Buyer will consult with ISM prior to making such disclosure, and ISM will consult with Buyer prior to making such disclosure). 12.12 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the greatest extent possible. 12.13 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior consent of Buyer and ISM. 12.14 No Third-Party Beneficiaries. This Agreement shall inure to the benefit of, be binding upon and be enforceable by and against, the parties hereto and their respective successors, heirs, personal representatives and permitted assigns, and nothing herein expressed or implied shall be construed to give any other person any legal or equitable rights hereunder. -31- IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first above written. INTERNATIONAL SPORTS MARKETING, INC. By: _________________________________________ Name: _______________________________________ Title: ______________________________________ _____________________________________________ Henry Posner, Jr. _____________________________________________ Thomas D. Wright _____________________________________________ Michael J. Fetchko _____________________________________________ James C. Roddey _____________________________________________ Richard W. Talarico _____________________________________________ John F. Hensler ALLIN COMMUNICATIONS CORPORATION By: _________________________________________ Name: _______________________________________ Title: ______________________________________ -32- Pursuant to Regulation S-K, Item 601(b)(2), the following is a list briefly identifying the contents of omitted schedules to this exhibit: (a) 4.1 - Organization, Power and Authority/Foreign Qualifications; (b) 4.2 - Consents; (c) 4.3 - Capital Structure/Shareholders/Title to Shares; (d) 4.5 - Liabilities; (e) 4.7.1 - Owned Properties; (f) 4.7.2 - Leasehold Premises; (g) 4.7.3 - Liens; (h) 4.10 - Licenses and Permits; (i) 4.11.2 - Customers and Suppliers; (j) 4.12 - Insurance/Loans/Personal Property Leases/Other Agreements/Employees/Directors/Bank Information/Powers of Attorney; (k) 4.18.6 - Environmental Audits, Assessments and Occupational Health Studies; (l) 4.20.1 - Employment Agreements and Employee Benefits; (m) 4.20.7 - Severance Benefits; (n) 4.23 - Intellectual Property; (o) 4.24 - Principal Place of Business/Chief Executive Offices; and (p) 4.25 - Names. Registrant agrees to furnish supplementally a copy of these schedules to the Securities Exchange Commission upon request. -33- EX-2.2 4 AGREEMENT AND PLAN OF MERGER Exhibit 2.2 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made and entered into this 16th day of August, 1996, by and among Kent Consulting Group, Inc., a California corporation ("Company"), Les Kent, who is the sole stockholder of Company (the "Stockholder"), Kent Acquisition Corporation, a California corporation ("Merger Sub"), and Allin Communications Corporation, a Delaware corporation ("Parent"). RECITALS: Company and Merger Sub propose to merge pursuant to this Merger Agreement, which provides for the statutory merger of Company with and into Merger Sub, with Merger Sub as the surviving corporation pursuant to the applicable laws of the State of California. Merger Sub is a wholly owned subsidiary of Parent. This Merger Agreement sets forth the representations and warranties made by Company, the Stockholder, Parent and Merger Sub in connection with the Merger, sets forth certain covenants and agreements of the parties, provides conditions to the obligations of the parties and sets forth other provisions relating to the Merger. NOW, THEREFORE, Parent, Merger Sub, Company and the Stockholder, in consideration of the agreements, covenants and conditions contained herein, hereby make the following representations and warranties, give the following covenants and agree as follows: ARTICLE I MERGER 1.1 Merger. On the terms and subject to the conditions contained in this Merger Agreement, on the Closing Date and at the Effective Time (as defined in Sections 3.1 and 1.2, respectively) Company shall be merged with and into Merger Sub, which shall change its name to Company and the separate corporate existence of Company shall thereupon cease. Said merger is referred to herein as the "Merger." Merger Sub shall be the surviving corporation in the Merger and shall be governed by the California General Corporation Law (the "CCL"). The Merger shall have the effects specified in the CCL. From and after the Effective Time, Merger Sub is sometimes referred to herein as the "Surviving Corporation." 1.2 Certificate of Merger. On the Closing Date, the parties hereto shall cause this Agreement and an Officer's Certificate ("Certificate of Merger") meeting the requirements of Section 1103 of the CCL, to be properly executed and filed in accordance with the CCL. The Merger shall be effective, for corporate law purposes, at the time and on the date of the filing of the Certificate of Merger in accordance with the CCL (the "Effective Time"). 1.3 Certificate of Incorporation. The Certificate of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, except that the same shall be amended to change the name of the Surviving Corporation to that of Company. 1.4 Bylaws. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation. 1.5 Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation and will hold office until their successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation or Bylaws of the Surviving Corporation or as otherwise provided by law, or until their earlier death, resignation or removal. 1.6 Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation and will serve until their successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation or Bylaws of the Surviving Corporation or as otherwise provided by law, or until their earlier death, resignation or removal. ARTICLE II MERGER CONSIDERATION 2.1 Conversion of Shares. The manner of converting the shares of the capital stock of Merger Sub and Company upon the Merger shall, by virtue of the Merger and without any action on the part of the holders thereof, be as follows: (a) The shares of Merger Sub common stock which shall be outstanding immediately prior to the Effective Time shall be converted into 100 shares of common stock of the Surviving Corporation. (b) Each of the 1,000 shares of common stock of Company, no par value per share (the "Shares" or "Company Common Stock"), outstanding immediately prior to the Effective Time (the "Converted Shares") shall be converted into the right to receive (i) a number of shares of common stock of Parent ("Parent Common Stock") equal to Three Million Two Hundred Thousand Dollars ($3,200,000) divided by the initial public offering price of the Parent Common Stock, (ii) a cash payment of Two Million Dollars ($2,000,000) and (c) a promissory note in the original principal amount of Two Million Eight Hundred Thousand Dollars ($2,800,000), such original principal amount to be subject to adjustment as provided below (the "Promissory Note"). One-half of the principal of the Promissory Note (as adjusted) shall be due and payable on the fifteenth (15th) day following the Determination Date (as defined in Section 2.3) (the "First Payment Date") and the balance of the principal of such Promissory Note (as adjusted) shall be due and payable on the six-month anniversary of the Determination Date (the "Second Payment Date"). Interest shall accrue on the outstanding adjusted principal balance of the Promissory Note (as finally determined) at a rate of 7% per annum compounded quarterly, and shall be due and payable on the First Payment Date and the Second Payment Date. The principal amount of the Promissory Note shall be adjusted on the Determination Date as follows: Page 2
If the Average Operating The Promissory Note shall be Income ("OI") for calendar year reduced by an amount equal to: 1997, 1998 and 1999 is: ------------------------------- -------------------------------------- 1. Less than $1,862,000, 1. $1,862,000 minus average OI but greater than $1,762,000 2. Less than or equal to 2. 2 x ($1,862,000 minus average OI) $1,762,000, but greater than $1,662,000 3. Less than or equal to 3. 3 x ($1,862,000 minus average OI) $1,662,000, but greater than $1,552,000 4. Less than or equal to 4. 4 x ($1,862,000 minus average OI) $1,552,000, but greater than $1,442,000 5. Less than or equal to 5. 5 x ($1,862,000 minus average OI) $1,442,000 but greater than $1,400,000 6. Less than or equal to 6. 100% (note is cancelled) $1,400,000
Notwithstanding the foregoing, if, prior to the Determination Date, (a) the Company is sold (whether by merger, sale of stock or sale of assets), or (b) Shareholder's employment with the Surviving Corporation is terminated without cause, the Promissory Note shall not be reduced and shall be paid to Shareholder in full at the closing of such sale, or the termination of such employment, as the case may be. (c) All of the Converted Shares, by virtue of the Merger and without any action on the part of the holders thereof, shall no longer be outstanding and shall be cancelled and retired and shall cease to exist, and the holders thereof shall thereafter cease to have any rights with respect to the Converted Shares except to receive the merger consideration as provided in paragraph 2.1(b) above (the "Merger Consideration"). (d) Each share of Company Common Stock, if any, held in the treasury of Company on the Closing Date shall be cancelled and retired and shall cease to exist, and no consideration shall be paid with respect thereto. 2.2 Operating Income. For purposes of this Agreement, "Operating Income" (or "OI") for each calendar year shall mean the consolidated income (loss) of Surviving Corporation and its subsidiaries, if any, after deduction for all expenses (not including interest expenses except for interest expenses which are incurred in connection with an acquisition by Surviving Corporation), charges and reserves of Surviving Corporation and its subsidiaries for such year (including without limitation profit sharing, bonus expense and all compensation paid to Shareholder in his capacity as an employee of Surviving Corporation, including but not limited to, the base salary or incentive bonus paid to Shareholder pursuant to any employment agreement between the Surviving Corporation and Shareholder), but before provision for all Federal, state and local income taxes for such year, determined in accordance with generally accepted Page 3 accounting principles consistently applied from year to year, and provided that in making such determinations: (i) no income or expense shall be included in respect of any "extraordinary items", as such item is defined in Paragraphs 21 and 22 of APB Opinion No. 9, notwithstanding that such accounting bulletin has been superseded, it being agreed that for purposes of this Agreement APB Opinion No. 9 shall be deemed operative; provided, however, in no case shall the write-off of bad debts be deemed an extraordinary item; (ii) intercompany management charges or overhead charges between Parent and its Affiliates (the "Parent Group") and Surviving Corporation shall not be treated as an expense or other charge; provided, however, that all charges between and among members of the Parent Group for services requested at rates agreed between the President (or other authorized executives) of such companies shall be treated as an expense; (iii) neither the proceeds from nor any dividends or refunds with respect to, any life insurance policy under which Surviving Corporation is the named beneficiary or otherwise entitled to recovery, shall be included as income; (iv) any write-off or amortization or depreciation of goodwill or other intangible assets arising out of the merger contemplated hereunder shall not be treated as an expense, except that the amortization of the Marketing Agreement between Surviving Corporation and Vision Network Systems shall be treated as an expense; (v) any write-off of the following intangible assets shall not be treated as an expense: goodwill, covenants not to compete, client lists and work force; and (vi) any losses which give rise to an indemnity payment pursuant to the indemnification provisions of Article XI below and which are fully assumed by the Stockholder or as to which the Stockholder has fully reimbursed (by offset or otherwise) the appropriate Indemnified Parties shall not be treated as an expense, and there shall be excluded from income any amount received by any Indemnified Party pursuant thereto. 2.3 Accounting Procedures. (i) For each of calendar years 1997, 1998 and 1999, Arthur Andersen & Company, or such other independent accounting firm then auditing the books of Surviving Corporation (the "Accountants") shall prepare a report containing an audited consolidated balance sheet of Surviving Corporation and its subsidiaries, if any, and a related consolidated statement of income for the twelve months then ended, prepared in accordance with generally accepted accounting principles consistently applied, together with a statement setting forth for the period under examination the calculation of Operating Income, the average of the Operating Income for each of calendar years 1997, 1998 and 1999 ("Average Operating Income") and all other adjustments required to be made to such audited financial statements in order to make the calculation of Average Operating Income and the Promissory Note adjustment required under this Article II (the "Determination"). A copy of the Determination shall be delivered to the Stockholder not later than March 31, 2000. (ii) If the Stockholder does not agree that the Determination delivered pursuant to clause (i) above correctly states the adjustment to be made to the Promissory Note, the Page 4 Stockholder shall promptly (but not later than 60 days after the delivery of such Determination) give written notice to Parent of any exceptions thereto (in reasonable detail describing the nature of the disagreement asserted). If the Stockholder and Parent reconcile their differences, the Determination shall be adjusted accordingly and shall thereupon become final and conclusive upon all of the parties hereto and enforceable in a court of law. If the Stockholder and Parent are unable to reconcile their differences in writing within 20 days after written notice of exceptions is received by Parent, the items in dispute shall be submitted to the Pittsburgh office of Price Waterhouse or its successors (the "Arbitrator") for final determination, and the Determination shall be deemed adjusted in accordance with the determination of the Arbitrator and shall become final and conclusive upon all of the parties hereto and enforceable in a court of law. The Arbitrator shall consider only the items in dispute and shall be instructed to act within 30 days to resolve all items in dispute. If the Stockholder does not give notice of any exception within 60 days after the delivery of the Determination or if the Stockholder gives written notification of his acceptance of the Determination prior to the end of such 60 day period, such Determination shall thereupon become final and conclusive upon all the parties hereto and enforceable in a court of law. The date on which the notification becomes final and binding on all parties shall be referred to herein as the "Determination Date." (iii) In the event the Arbitrator shall have, at any time during the period it might be called upon to determine a dispute under this Section 2.3, performed auditing or other services for Parent (other than as an arbitrator in other dispute proceedings) or the Stockholder, or for any other reason is unable or unwilling to perform the services required of it under this Section, then Parent and the Stockholder agree to select another accounting firm from among the six largest accounting firms in the United States in terms of gross revenues to perform the services to be performed under this Section 2.3 by the Arbitrator. If Parent and the Stockholder fail to select another accounting firm within 15 days after it is determined that the Arbitrator will not perform the services required, either Parent or the Stockholder may request the American Arbitration Association in New York to appoint an independent firm of certified public accountants of recognized national standing to perform the services required under this Section 2.3 by the Arbitrator. For purposes of Article II the term "Arbitrator" shall include such other accounting firm chosen in accordance with this clause (iii). (iv) The Arbitrator shall determine the party (i.e., Parent or the Stockholder, as the case may be) whose asserted positions before the Arbitrator are in the aggregate further from the aggregate resolutions determined by the Arbitrator, which non-prevailing party shall pay the fees and expenses of the Arbitrator. 2.4 Examination of Books and Records. The books and records of Company and Surviving Corporation shall be made available during normal business hours upon reasonable advance notice at the principal office of Company, to Parent, the Stockholder and to the Arbitrator (or if applicable, such other accounting firm selected in accordance with Section 2.3 above.) 2.5 Covenant of Parent. Unless Parent pays in full the amount then outstanding under the Promissory Note, Parent shall not during the period that the Promissory Note is outstanding, intentionally take any action which it knows or should have known would have a materially adverse effect on Operating Income for any calendar year or on Average Operating Income. Page 5 2.6 Net Income. The Stockholder shall be entitled at the Closing to retain eighty percent (80%) of the Operating Income earned by the Company during the period from June 1, 1996, through the Closing Date. If cash on hand at the Closing is sufficient to pay such amount to Stockholder, such amount shall be paid to Stockholder out of cash on hand at the Closing. If cash on hand at the Closing is not sufficient to pay such amount to Stockholder, then such insufficiency shall be paid to Stockholder by Parent in cash. 2.7 Accounts Receivable. If on the Closing Date, (a) the amount determined by dividing the aggregate outstanding accounts receivable as of the Closing Date by gross sales for the month immediately preceding the Closing Date is greater than (b) the amount determined by dividing the average of the outstanding accounts receivable during the six-month period preceding the Closing Date by the average monthly gross sales for the six-month period preceding the Closing Date, then the cash portion of the Merger Consideration shall be reduced by an amount equal to the difference between the amount determined pursuant to 2.7(a) and the amount determined pursuant to 2.7(b). For purposes of this Section 2.7, any amounts due and owing by Parent or any affiliate of Parent to Company, shall be treated as having been paid, whether or not such amounts have actually been paid. 2.8 Grant of Stock. Parent agrees to make available to key employees of Surviving Corporation, pursuant to and in accordance with Parent's 1996 Stock Plan, a number of shares of Parent Common Stock equal to $400,000 divided by the initial public offering price of the Parent Common Stock. Such shares of Parent Common Stock shall vest in each such key employee on the third anniversary of the Closing Date ("Vesting Date"), provided that such Parent Common Stock shall not vest unless the key employee to whom such Parent Common Stock was granted is still employed by Surviving Corporation on the Vesting Date. ARTICLE III CLOSING 3.1 Time and Place of the Closing. Subject to and after the fulfillment or waiver of the conditions set forth in Articles VIII and IX, the closing of the Merger shall take place at the offices of Eckert Seamans Cherin & Mellott, 600 Grant St., 42nd Floor, Pittsburgh, Pennsylvania, at 10:00 a.m., no later than five (5) business days following of the consummation of the initial public offering of shares of common stock by Parent, or such other date, time and place as the parties may agree. In this Merger Agreement, such event is referred to as the "Closing" and such date and time are referred to as the "Closing Date." ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE STOCKHOLDER To induce Merger Sub and Parent to enter into this Merger Agreement and to consummate the transactions contemplated hereunder, Company and the Stockholder jointly and severally make the following representations and warranties, which representations and warranties shall survive the Closing: Page 6 4.1 Organization, Power and Authority; Subsidiaries. 4.1.1 Company. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has all requisite corporate power and authority (i) to own or lease its properties and to carry on its business as it is now being conducted; (ii) to enter into this Agreement; and (iii) to carry out the other transactions and agreements contemplated hereby. Company is duly qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions set forth on Schedule 4.1, which are all of the jurisdictions in which its business or property is such as to require that it be thus qualified. Company does not own, directly or indirectly of record or beneficially, or have any right to acquire any capital stock or equity interest, investment or partnership interest in any corporation, partnership, joint venture, association or other entity and has no right or ability to control the management of any corporation, partnership, joint venture, association or other entity, whether by agreement or otherwise. 4.1.2 The Stockholder. The Stockholder owns the number of shares of Company Common Stock set forth on Schedule 4.1.2, and all such shares are owned free and clear of all claims, liens, mortgages, pledges, security interests, assessments, restrictions, encumbrances or charges of any kind (collectively, "Liens"). 4.2 Due Authorization; Binding Obligation; No Violations; Consents. Company has full power, authority and capacity to enter into this Merger Agreement and carry out its obligations hereunder. Stockholder has full power, authority and capacity to enter into this Merger Agreement and to carry out his obligations hereunder. The execution, delivery and performance of this Merger Agreement and each of the other agreements, instruments and documents contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Company. This Merger Agreement has been duly executed and delivered by Company and the Stockholder and is a legal, valid and binding obligation of Company and the Stockholder, enforceable in accordance with its terms. The execution, delivery and performance of this Merger Agreement by Company and the Stockholder does not, and the consummation of the transactions contemplated herein do not and will not, (i) violate any provision of the charter or bylaws of Company; (ii) violate or conflict with any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against Company, the Stockholder or the Converted Shares; (iii) violate, conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any mortgage, contract, agreement, lease, license, indenture, will, trust or other instrument which is either binding upon or enforceable against Company, the Stockholder, or the Converted Shares; (iv) violate any legally protected right arising in the operation of the business of Company of any person or entity or give to any person or entity (including in each case any stockholder) a right or claim against Parent, the Surviving Corporation or the Converted Shares, (v) result in or require the creation or imposition of any Lien upon or with respect to the Converted Shares or property of Company; or (vi) except as set forth on Schedule 4.2, require the consent, approval or authorization of, or the registration, recording, filing or qualification with, or notice to, or the taking of any other action in respect of, any governmental authority or any other person or entity (other than the filing of the Certificate of Merger with the Secretary of State of the State of California). Page 7 4.3 Capital Structure; Ownership. The authorized capital stock of Company consists solely of 1,500 shares of Company common stock, no par value per share, of which 1,000 shares are issued and outstanding. Stockholder is the sole shareholder of the Company, and holds all of the issued and outstanding capital stock of the Company. No options, warrants, convertible debt or other rights to acquire any equity interest in Company whether upon exchange for or conversion of other securities or otherwise, are outstanding or will be granted and no Shares will be issued between the date hereof and the Effective Time. All of the outstanding Shares are duly authorized, validly issued, fully paid and non- assessable, and have been offered, issued, sold and delivered free of preemptive rights or rights of first refusal and in compliance with applicable federal and state securities laws. No stock appreciation rights, phantom shares, cash performance units or other similar rights have been issued by Company. At the Effective Time, the Shares shall be free and clear of all Liens. 4.4 Financial Statements. Company and the Stockholder previously have furnished to Parent the following financial statements of Company, including the notes pertaining thereto (the "Financial Statements"): (a) The audited balance sheets as of December 31, 1993, 1994 (for Vision Network Systems) and 1995 (for Company) and the related statements of operations, cash flows and changes in stockholders' equity (including the related notes) for each of the three years ended December 31, 1993, 1994 and 1995; and (b) The balance sheet as of June 30, 1996, as set forth on Schedule 4.4 (the "Last Balance Sheet") and the related consolidated statements of operations, cash flows and changes in stockholders' equity (including the notes thereto, if any) for the six months ended June 30, 1996, which are unaudited. The Financial Statements present fairly and are true, correct and complete statements of the financial position of Company at each of the said balance sheet dates and the results of operations for each of the said periods covered, and they have been prepared in accordance with generally accepted accounting principles consistently applied and have been certified by the Chief Financial Officer of Company to such effect. The books and records of Company properly and accurately reflect all transactions, properties, assets and liabilities of Company. 4.5 Liabilities. Company has no liability or obligation, either accrued, absolute, contingent or otherwise, except: (i) to the extent reflected in or taken into account in determining net worth in the Last Balance Sheet and not heretofore paid or discharged; (ii) to the extent specifically set forth in Schedule 4.5; or (iii) liabilities incurred since June 30, 1996 and related to the conduct of business activities of Company in the ordinary course during the period since that date, none of which are material to the business or financial condition of the Company. 4.6 Tax Matters. 4.6.1 Company has timely filed all tax returns and reports required to be filed by it, including all federal, state, local and foreign tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges, including estimated taxes, which have become due. All tax returns and reports have been prepared in accordance with applicable laws and accurately reflect the taxable income (or other measure of tax) and tax liability of Company for the applicable period. There is no tax deficiency proposed or threatened against Company. There are no tax liens upon any property or assets Page 8 of Company. Company has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty or established adequate reserves on its books in respect thereof to cover the amount of such estimated taxes, together with interest and penalties thereon. Company has delivered to Parent true and complete copies of all federal and state tax returns filed by Company in the past three years. 4.6.2 All taxes and other assessments and levies which Company was required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental authority or are being held by Company in a separate bank account for such payment. All such withholdings and collections and all other payments due in connection therewith as of the date of the Last Balance Sheet are duly reflected on the Last Balance Sheet. 4.6.3 None of the federal, state or local income tax returns of Company have been closed by applicable statute or examined by any applicable tax authorities. There are no outstanding agreements or waivers extending the statute of limitations applicable to any federal, state or local income, sales, use or similar tax returns of Company for any period. 4.7 Real Estate. 4.7.1 Company does not own any real property or any interest therein except as set forth on Schedule 4.7.1 (the "Owned Properties"). 4.7.2 Company does not hold any leasehold interest in any real property except as set forth on Schedule 4.7.2 (the "Leasehold Premises"). An accurate and complete copy of each lease agreement with respect to the properties described on Schedule 4.7.2, including all amendments thereto and modifications thereof (collectively, the "Leases") has been delivered to Parent prior to the date hereof. Schedule 4.7.2 also sets forth a description of the nature and amount of all Liens on Company's interests in the Leasehold Premises, and to the best knowledge of the Company and the Stockholder, on the underlying real property and all improvements to and buildings thereon (including any environmental Liens). The Leases are in full force and effect, Company is not in default or breach under any Lease and no event has occurred which with the passage of time or the giving of notice or both would cause a material breach of or default under any Lease. To the knowledge of Company, there is no breach or anticipated breach of any Lease by any other party to such Lease. 4.7.3 Company owns the Owned Properties and has valid leasehold interests in the Leasehold Premises, free and clear of any Liens, covenants and easements or title defects of any nature whatsoever, except for (i) Liens set forth on Schedule 4.7.3, (ii) Liens for real estate taxes not yet due and payable; and (iii) such imperfections of title and encumbrances, if any, as are not material in character, amount or extent and do not detract from the value, or interfere with the present use of such properties or otherwise impair business operations in any respect (collectively, "Permitted Encumbrances"). 4.7.4 The portions of the buildings located on the Leasehold Premises that are used in Company's business and the buildings located on the Owned Properties are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy Company's current and reasonably anticipated business activities as conducted thereat. Page 9 4.7.5 Each of the Leasehold Premises and Owned Properties: (i) has direct access to public roads or access to public roads by means of an access easement (which access easement is perpetual, in the case of each of the Owned Properties, and for at least the remaining term of the Lease and any renewal periods, in the case of each of the Leasehold Premises), such access being sufficient to satisfy the current normal day-to-day transportation requirements of Company's business as presently conducted at such parcel; and (ii) is served by all utilities in such quantity and quality as are sufficient to satisfy the current business activities as conducted at such parcel. 4.7.6 Company has not received notice of (i) any condemnation proceeding with respect to any portion of the Leasehold Premises or Owned Properties or any access thereto, and, to the best knowledge of Company and the Stockholder, no such proceeding is contemplated by any governmental authority; or (ii) any special assessment which may affect any of the Leasehold Premises or Owned Properties, and, to the best knowledge of the Company, and the Stockholder, no such special assessment is contemplated by any governmental authority. 4.8 Good Title to and Condition of the Assets. 4.8.1 Company has good and marketable title to all of its properties and assets (other than the Leasehold Premises and personal property which is leased by Company), whether real, personal or mixed, tangible or intangible, wherever located (collectively, the "Assets"), free and clear of any Liens other than Permitted Encumbrances. 4.8.2 The Fixed Assets (as hereinafter defined) of Company currently in use or necessary for its business are in good operating condition, normal wear and tear excepted. For purposes of this Merger Agreement, the term "Fixed Assets" means all buildings, machinery, equipment, tools, supplies, leasehold improvements, construction in progress, furniture and fixtures of Company. 4.8.3 The inventory of Company (the "Inventory") consists of items of a quality and quantity usable and salable in the ordinary course of Company's business and, at an aggregate value not less than the aggregate values at which such items are carried on their books. The values of the inventory on the Last Balance Sheet fairly represent the fair market value of such inventory. The inventory as reflected on the Last Balance Sheet does not include any unreasonable accumulation of slow-moving inventory or inventory of below standard quality. All of the inventory of Company is located on the Owned Premises or the Leased Premises. 4.9 Receivables. The accounts receivable of Company ("Receivables") are valid and legally binding, represent bona fide transactions and arose in the ordinary course of business of Company. The Receivables reflected on the Last Balance Sheet are collectible in the full amount stated, within forty-five (45) days of the Closing Date, net of any allowance for doubtful accounts. For purposes of this Merger Agreement, the term "Receivables" means all receivables of Company, regardless of where set forth on the balance sheet, including all trade account receivables arising from sales or rental of inventory in the ordinary course of business, notes receivable, and insurance proceeds receivable. 4.10 Licenses and Permits. Company possesses all licenses and required governmental or official approvals, permits or authorizations for the business and operation of each of Company, the Owned Properties and each of the Leasehold Premises (collectively, the Page 10 "Permits"). All Permits are valid and in full force and effect. Company is in compliance with all requirements of the Permits, and no proceeding is pending or threatened to revoke or amend any of the Permits. Except as set forth on Schedule 4.10, none of the Permits is or will be impaired or in any way affected by the execution and delivery of this Merger Agreement or the consummation of the transactions contemplated hereby. 4.11 Adequacy of the Assets; Relationships with Customers and Suppliers. The Assets constitute, in the aggregate, all of the property necessary for the conduct of the business of Company in the manner in which and to the extent to which it is currently being conducted. Company does not know of any written or oral communication, fact, event or action which exists or has occurred prior to the date hereof which indicates that: 4.11.1 any current customer of Company which accounted for over 10% of the total revenue of Company for the year ended December 31, 1995, will terminate its business relationship with Company; or 4.11.2 any current supplier to Company of items essential to the conduct of its business, which items cannot be replaced by Company at comparable cost to Company and the loss of which would have an adverse effect on the business or operations of Company, will terminate its business relationship with Company. Neither Company nor any of its affiliates, as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the "1933 Act"), has any direct or indirect interest in any customer, supplier or competitor of Company, or in any person or entity from whom or to whom Company leases real or personal property, or in any person with whom Company is doing business. Company is not restricted by agreement from carrying on its business anywhere in the world. 4.12 Documents of and Information with Respect to Company. 4.12.1 Schedule 4.12 is an accurate and complete list of the following: (i) each policy of insurance in force with respect to the Assets of Company and each of the performance or other surety bonds maintained by Company in the conduct of its business; (ii) each loan, credit agreement, guarantee, security agreement or similar document or instrument to which Company is a party or by which it is bound; (iii) each lease of personal property to which Company is a party or by which it is bound; (iv) any other agreement, contract or commitment to which Company is a party or by which it is bound which involves a future commitment by Company in excess of $5,000; (v) the name and current annual salary of each officer or other employee of Company and the profit sharing, bonus or any other form of compensation (other than salary) paid or payable by Company to or for the benefit of each such person for the year ended December 31, 1995, and any employment or other agreement of Company with any of their officers or employees; (vi) the names of the directors of Company; (vii) the name of each bank in which Company has an account or safe-deposit box, the name in which the account or box is held, the account number and the names of all persons authorized to draw thereon or to have access thereto; and (vii) a list of powers of attorney granted by or on behalf of Company. Company has previously furnished Parent with an accurate and complete copy of each such agreement, contract or commitment listed in Schedule 4.12. There has not been any breach of or default in any obligation to be performed by Company under any such instrument or, to the knowledge of Company, in any obligation to be performed by any other party to such instrument. All of such instruments to which Company is a party are valid, binding and enforceable against Company and in full force and effect in accordance with their respective terms. None of such instruments will Page 11 expire or be terminated or be subject to any modification of terms or conditions upon consummation of the Merger. 4.12.2 Company carries insurance which is substantially comparable in character and amount to that carried by other companies engaged in similar businesses, with reputable insurers, covering all of its assets, properties and businesses, and has provided all required performance or other surety bonds. All premiums and other payments which have become due under each policy of insurance listed on Schedule 4.12 have been paid in full, all of such policies are in full force and effect and Company has not received notice from any insurer, agent or broker of the cancellation of, or any increase in premium with respect to, any of such policies or bonds. Except as set forth on Schedule 4.12, Company has not received any notification from any insurer, agent or broker denying or disputing any claim made by Company or denying or disputing any coverage for any such claim or the amount of any claim. Company does not have any claim against any of its insurers under any of such policies pending or anticipated and there has been no occurrence of any kind which could give rise to any such claim. 4.13 Litigation. There are no actions, suits, claims, governmental investigations or arbitration proceedings pending or threatened against or affecting Company, the Converted Shares, the Assets or the liabilities of Company or which question the validity or enforceability of this Merger Agreement or any action contemplated herein. There is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which Company is or was a party or which affect the Converted Shares, the Assets or the liabilities of Company or any of the transactions contemplated hereby. 4.14 Records. Company's records are accurate and complete in all material respects and there are no material matters as to which appropriate entries have not been made in such records. A record of all action taken by the Stockholder and the board of directors of Company and all minutes of their respective meetings are contained in the minute books of Company and are accurate and complete. The record books and stock ledgers of Company contain an accurate and complete record of all issuances, transfers and cancellations of shares of capital stock of Company. 4.15 No Material Adverse Change. Since the date of the Last Balance Sheet, there has not been (i) any change in the business or properties of Company or in the financial condition of Company, other than changes occurring in the ordinary course of business which have not had a Material Adverse Effect; or (ii) any threatened or prospective event or condition of any character whatsoever which could materially adversely affect the Converted Shares or have a Material Adverse Effect. "Material Adverse Effect" when used in this Merger Agreement, shall mean that the fact, event or occurrence being measured in reference to such standard would have a material adverse effect on the business, properties, financial condition or results of operations of the Company. 4.16 Absence of Certain Acts or Events. Since the date of the Last Balance Sheet, Company has not (i) authorized or issued any capital stock or other securities; (ii) declared or paid any dividend or made any other distribution of or with respect to its capital stock or other securities, or purchased or redeemed any of its capital stock or other securities; (iii) paid any bonus or increased the rate of compensation of any of its employees other than in the ordinary course of business; (iv) sold or transferred any of its assets other than in the ordinary course of business; (v) made or obligated itself to make capital expenditures aggregating more than $5,000 Page 12 other than in the ordinary course of business; (vi) incurred any material obligations or liabilities (including any indebtedness) or entered into any material transaction, except for this Merger Agreement, and the transactions contemplated hereby; (vii) suffered any theft, damage, destruction or casualty loss in excess of $5,000; (viii) waived any right of material value; (ix) suffered any extraordinary losses; (x) made or adopted any change in its accounting practice or policies; (xi) made any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course during the period since June 30, 1996; or (xii) made any loan or advance other than advances to employees in the ordinary course of business. 4.17 Compliance with Laws. 4.17.1 Company is in compliance with all laws, regulations and orders applicable to it, the Converted Shares or the Assets (including the Internal Revenue Code of 1986, as amended (the "Code") and ERISA, as defined in Section 4.20). Company has not been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws, and to the best knowledge of Company and the Stockholder, no proceeding with respect to any such violation is contemplated. 4.17.2 Neither Company, nor any employee of Company has made any payment of funds in connection with the business of Company prohibited by law, and no funds have been set aside to be used in connection with the business of Company for any payment prohibited by law. 4.17.3 Company is and at all times has been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986 (the "Immigration Act"). With respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of Company for whom compliance with the Immigration Act by Company as Employer is required, Company shall have supplied to Parent an accurate and complete copy of (i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii) all other records, documents or other papers prepared, procured and/or retained by Company pursuant to the Immigration Act. Company has not been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order under the Immigration Act, nor has any action or administrative proceeding been initiated or threatened against Company by reason of any actual or alleged failure to comply with the Immigration Act. 4.18 Environmental Matters. 4.18.1 Company has not (i) transported, stored, handled, treated or disposed of, or allowed or arranged for any third parties to transport, store, handle, treat or dispose of, Hazardous Substances or other waste to or at any location other than a site lawfully permitted to receive such Hazardous Substances or other waste for such purposes, nor has it performed, arranged for or allowed by any method or procedure such transportation, storage, treatment or disposal in contravention of any laws or regulations or (ii) stored, handled, treated or disposed of, or allowed or arranged for any third parties to store, handle, treat or dispose of, Hazardous Substances or other waste upon property owned or leased by it, except as permitted by law. For purposes of this Section 4.18, the term "Hazardous Substances" shall mean and include the following: (A) any "Hazardous Substance," "Pollutant" or "Contaminant" as defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Section 9601, et seq., -- --- or the regulations promulgated thereunder ("CERCLA"); (B) any hazardous waste as that term is defined in applicable state or local law; (C) any substance containing petroleum, as that term is defined in Section Page 13 9001(8) of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6991(8), or in 40 C.F.R. Section 280.1; or (D) any other substance for which any governmental entity with jurisdiction over the Leasehold Premises or the Owned Properties requires special handling in its generation, handling, use, collection, storage, treatment or disposal. 4.18.2 There has not occurred, nor is there presently occurring, a Release of any Hazardous Substance on, into or beneath the surface of any parcel of the Owned Properties or Leasehold Premises. For purposes of this Section 4.18, the term "Release" shall have the meaning given it in CERCLA. 4.18.3 Company has not shipped, transported or disposed of, or allowed or arranged, by contract, agreement or otherwise, for any third parties to ship, transport or dispose of, any Hazardous Substance or other waste to or at a site which, pursuant to CERCLA or any similar state law, (i) has been placed on the National Priorities List or its state equivalent; or (ii) the Environmental Protection Agency or the relevant state agency has proposed or is proposing to place on the National Priorities List or its state equivalent. Company has not received notice, nor does it have knowledge of any facts which could give rise to any notice, that Company is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA or any other applicable law or regulation. Company has not submitted and was not required to submit any notice pursuant to Section 103(c) of CERCLA with respect to the Owned Properties or the Leasehold Premises. Company has not received any written or oral request for information in connection with any federal or state environmental cleanup site. Company has not been required to and has not undertaken any response or remedial actions or clean-up actions of any kind at the request of any federal, state or local governmental entity, or at the request of any other person or entity. 4.18.4 Company does not use, and has not used, any Underground Storage Tanks (as defined below). There are not now nor have there ever been any Underground Storage Tanks on the Owned Properties or the Leasehold Premises. For purposes of this Section 4.18, the term "Underground Storage Tanks" shall have the meaning given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.). -- --- 4.18.5 There are no laws, regulations, ordinances, licenses, permits or orders relating to environmental or worker safety matters requiring any work, repairs, construction or capital expenditures with respect to the assets or properties of Company. There are no violations of environmental law committed by Company relating to (i) the Owned Properties or the Leasehold Premises or any property or parcel adjacent to any of the foregoing, or (ii) Company's use of the Owned Properties or Leasehold Premises. 4.18.6 Schedule 4.18.6 identifies (i) all environmental audits, assessments or occupational health studies undertaken by Company or its agents or, to the knowledge of Company, undertaken by governmental agencies relating to or affecting Company, or any of the Owned Properties or Leasehold Premises; (ii) the results of any groundwater, soil, air or asbestos monitoring undertaken by Company or its agents or, to the knowledge of Company, undertaken by governmental agencies relating to or affecting Company or any of the Owned Properties or Leasehold Premises; (iii) all written communications between Company or its respective representatives, on the one hand, and environmental agencies, on the other hand; and (iv) all citations issued under the Occupational Safety and Health Act (29 Page 14 U.S.C. Sections 651 et seq.) relating to or affecting Company or any of the -- --- Owned Properties or Leasehold Premises. 4.18.7 Schedule 4.7.1 identifies, to the knowledge of Company and the Stockholder, all prior uses of the Owned Properties. 4.19 Labor Relations. Company is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the last five (5) years to organize any employees of Company into one or more collective bargaining units. There is not pending or threatened any labor dispute, strike or work stoppage which affects or which may affect the business of Company or which may interfere with the continued operation of its business. Neither Company, nor any agent, representative or employee of Company has committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is not now pending or threatened any charge or complaint against Company by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of Company. Neither Company nor any Stockholder is aware that any executive or key employee or group of employees has any plans to terminate his, her or their employment with Company. 4.20 Employee Benefits. The only "employee benefit plan", as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") maintained by the Company is the Kent Consulting Group, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"), and the Company does not, and has not for the five preceding calendar years, sponsored, maintained or contributed to any other "employee benefit plan". With respect to the 401(k) Plan, the Company has complied in all respects with all applicable laws. The Plan has been determined by the Internal Revenue Service ("IRS") to be qualified under section 401(a) of the Code and no event has occurred or condition exists which is likely to adversely affect such determination. With respect to the Plan, all employer contributions (including any contributions to any trust account or payments due under any life insurance policy) previously declared or otherwise required by law or contract to have been made have been paid and all employer contributions (including any contributions to any trust account or payments due under any life insurance policy) accrued have been paid as required by law or contract. 4.21 Computer Programs and Software. All computer programs and software currently being used in the business of Company (the "Software") are owned by Company or held under valid license agreements. Company has not licensed anyone to use any of the Software nor does Company have knowledge of any infringing use of the Software or claim of infringing use. The Software is sufficient for the conduct of the business of Company as now operated. 4.22 Brokers. Neither the Stockholder nor Company has paid or become obligated to pay any fee or commission of any broker, finder or intermediary for or on account of the transactions provided for in this Merger Agreement. 4.23 Intellectual Property. Set forth on Schedule 4.23 is a list of all trade names, assumed names, service marks and trademarks, logos, patents, copyrights, rights and applications therefor and other intellectual property of Company, including without limitation, trade secrets, technology, know-how, formulae, designs, drawings, computer software, slogans, and operating rights, and all registrations and filings thereof ("Intellectual Property"). Company holds all Intellectual Property or other intellectual properties which it uses in its business free and clear of all Liens and requires no rights in such properties that it does not have to conduct Page 15 its business as presently conducted. No proceedings have been instituted or are pending or threatened or, to the knowledge of Company and the Stockholder, contemplated which assert the invalidity, abuse, misuse or unenforceability of any such rights, and there are no grounds for the same. Except as disclosed in Schedule 4.12 or Schedule 4.23, Company has not licensed anyone to use any Intellectual Property. Neither Company nor the Stockholder has knowledge of the infringing use of such proprietary rights by any other person. Neither Company nor any Stockholder has received a notice of conflict with the asserted rights of others. The conduct of the business of Company has not infringed any asserted rights of others. 4.24 Business Locations. As of the date hereof, Company does not have any office or place of business other than as identified on Schedules 4.7.1 and 4.7.2. Company's principal place of business and its chief executive offices (as such term is used in subsection 9-401 of the Uniform Commercial Code as enacted in the State of California as of the date hereof) are indicated on Schedule 4.24, and all locations where Company's equipment, inventory, chattel paper and books and records are located as of the date hereof are fully identified on Schedules 4.7.1 and 4.7.2. 4.25 Names; Prior Acquisitions. All names under which Company does business as of the date hereof are identified on Schedule 4.25. Except as set forth on Schedule 4.25, Company has not changed its name or used any assumed or fictitious name, or been the surviving entity in a merger, acquired any business or changed its principal place of business or chief executive office within the last six (6) years. 4.26 Accuracy of Information Furnished by Company. No representation, statement or information made or furnished by Company or the Stockholder to Merger Sub or Parent, including those contained in this Agreement and the other information and statements referred to herein and previously furnished by Company or the Stockholder pursuant hereto, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained herein or therein not misleading. 4.27 Franchising. Company is not a franchisor in any franchising relationship and does not have any franchisees (as such terms are defined under federal laws, rules or regulations or the laws, rules or regulations of any state). If and to the extent any activities of Company may have constituted the offering of a franchise, Company has fully complied with all applicable laws, rules and regulations with respect thereto, including any registration requirements of any state or other jurisdiction. ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT To induce Company and the Stockholder to enter into this Merger Agreement and to consummate the transactions contemplated hereunder, Merger Sub and Parent jointly and severally make the following representations and warranties, which representations and warranties shall survive the Closing: 5.1 Organization, Power and Authority of Merger Sub and Parent. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each of Merger Sub and Parent has all requisite corporate power and authority to enter into this Merger Agreement and all other agreements, Page 16 instruments and documents contemplated hereby and to perform its obligations hereunder and thereunder. 5.2 Due Authorization; Binding Obligation; No Violations. The execution, delivery and performance of this Merger Agreement and all other agreements, instruments and documents contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Merger Sub and Parent. This Merger Agreement has been duly executed and delivered by Merger Sub and Parent and is a valid and binding obligation of Merger Sub and Parent, enforceable against them in accordance with its terms. Neither the execution and delivery of this Merger Agreement nor the consummation of the transactions contemplated hereby will: (i) violate any provision of the certificate of incorporation or bylaws of Merger Sub or Parent; (ii) violate any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against Merger Sub or Parent; or (iii) require the consent, approval or authorization of, or the registration, recording, filing or qualification with, or notice to, or the taking of any other action in respect of, any governmental authority or any other person or entity (other than the filing of the Certificate of Merger with the Secretary of State of the State of California). 5.3 Reasonable and Adequate Capital. It is the intention of Parent and Merger Sub that the Surviving Corporation shall have an amount of capital which is reasonable in light of the business purposes of the Surviving Corporation, and adequate to enable Surviving Corporation to achieve its business purposes. ARTICLE VI ADDITIONAL COVENANTS OF COMPANY AND THE STOCKHOLDER 6.1 Approval of Company. Company will take all necessary action promptly and in full compliance with the applicable provisions of the CCL to obtain the approval and authorization of the Stockholder of the Merger on the terms and conditions set forth in this Merger Agreement. The Stockholder agrees to vote his shares of Company in favor of the Merger. 6.2 Best Efforts. Company and the Stockholder will use their best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Article VIII to the obligation of Merger Sub and Parent to proceed with the Merger hereunder. 6.3 Conduct of Business Pending the Closing. From and after the execution and delivery of this Merger Agreement and until the Closing Date, except as otherwise provided by the prior written consent of Parent: 6.3.1 Company will conduct its business and operations in the ordinary course of business consistent with past practices, and Company will use its best efforts to (i) preserve its business organization intact; (ii) keep available to Company the services of its officers, employees, agents and distributors; and (iii) preserve its relationships with customers, suppliers, lenders, landlords and others having dealings with them. Page 17 6.3.2 Company will maintain all of its properties in good repair, order and condition, reasonable wear and use excepted, and will maintain insurance of such types and in such amounts upon all of its properties and with respect to the conduct of its business as are in effect on the date of this Merger Agreement. 6.3.3 Company will not (i) authorize or issue any shares of its capital stock (including shares held in the treasury) or any other securities or grant any option, warrant, or other right to acquire same; (ii) declare or pay any dividend or make any distribution on or with respect to its capital stock or other securities or purchase or redeem any of its capital stock or other securities; (iii) pay any bonus or increase the rate of compensation of any of its employees or enter into any new employment agreement or amend any existing employment agreement, other than in the ordinary course of business; (iv) sell or transfer any of its assets other than in the ordinary course of business or grant any Liens thereon; (v) make or obligate itself to make capital expenditures aggregating more than $5,000 other than in the ordinary course of business; (vi) incur any obligations or liabilities or enter into any transaction other than in the ordinary course of business; (vii) amend its certificate of incorporation or bylaws; (viii) waive any right of value; (ix) enter into any material amendment to any Lease or enter into any new lease of real property other than in the ordinary course of business; (x) incur any indebtedness; (xi) make or adopt any change in its accounting practice or policies; (xii) make any adjustment to its books and records other than in respect of the conduct of its business activities in the ordinary course during the period from the date hereof; or (xiii) make any loan or advance other than advances to employees in the ordinary course of business. 6.4 Access to Properties and Records. From and after the execution and delivery of this Merger Agreement, Company will afford to representatives of Parent access, during normal business hours and upon reasonable notice, to its premises sufficient to enable Parent to inspect the Assets or the operation of its business, and Company will furnish to such representatives during such period all such information relating to the foregoing investigation as Parent may reasonably request; provided, however, that any furnishing of such information to Parent or Merger Sub and any investigation by Parent or Merger Sub, whether prior to or subsequent to the date hereof, shall not affect the right of Parent or Merger Sub to rely on the representations and warranties made by Company and the Stockholder in this Merger Agreement. 6.5 No Other Discussions. From the date hereof until December 31, 1996 (the "Termination Date"), Company, the Stockholder and their respective affiliates, employees, agents or representatives, either alone or together, (i) will not initiate or encourage the initiation by others of discussions or negotiations with third parties or respond to (other than to decline interest in) solicitations by third parties relating to any merger, sale or other disposition of any substantial part of the capital stock or assets of Company, (ii) will immediately notify Parent if any third party attempts to initiate any such solicitation, discussion or negotiation with any of their affiliates, employees, agents or representatives, and (iii) will not enter into any agreement with respect thereto with any third party. 6.6 Retention of Company Shares. The Stockholder will not, prior to the Closing Date, sell, assign, transfer, pledge, encumber or otherwise dispose of any of the Shares (or any interest therein) nor grant any options or similar rights with respect to any of the Shares. Page 18 ARTICLE VII ADDITIONAL COVENANTS OF MERGER SUB AND PARENT 7.1 Best Efforts. Merger Sub and Parent will use their best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Article IX to the obligation of Company and the Stockholder to proceed with the Merger hereunder. ARTICLE VIII CONDITIONS TO THE OBLIGATION OF MERGER SUB AND PARENT The obligation of Merger Sub and Parent to proceed with the Merger shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 8.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of Company and the Stockholder contained in this Merger Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. Company and the Stockholder shall have performed and complied with all of their respective obligations required by this Merger Agreement to be performed or complied with at or prior to the Closing Date. Company and the Stockholder shall have delivered to Merger Sub and Parent a certificate, dated the Closing Date and signed by the President of Company and Stockholder, certifying that such representations and warranties were true and correct at and as of the date hereof, and are true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. 8.2 Due Diligence Review. Parent shall have completed to its reasonable satisfaction a due diligence review of the business and operations of Company. 8.3 No Material Adverse Changes or Destruction of Property. Between the date hereof and the Closing Date, (i) there shall have been no material adverse change in the condition, financial or otherwise, of Company, (ii) there shall have been no adverse federal, state or local legislative or regulatory change affecting in any material respect the services, products or business of the Company, and (iii) none of the properties and assets of the Company shall have been damaged by fire, flood, casualty, act of God or public enemy or other cause, regardless of insurance coverage for such damage, and there shall have been delivered to Merger Sub and Parent a certificate to that effect, dated the Closing Date and signed on behalf of Company by its President. 8.4 No Adverse Litigation. There shall not be pending or threatened any action, suit, investigation or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit, invalidate or collect damages arising out of the Merger or any other transaction contemplated hereby, or which might affect the right of the Surviving Corporation to own, operate in their entirety, or control the Assets, and which, in the reasonable judgment of Parent, makes it inadvisable to proceed with the transactions contemplated hereby. 8.5 Corporate Action. The directors and stockholder of Company shall have taken all corporate action necessary to effect the Merger, and Company shall have furnished Merger Sub Page 19 and Parent with certified copies of resolutions duly adopted by its directors and Stockholder, in form and substance satisfactory to counsel for Parent, in connection with the foregoing. 8.6 Corporate Certificates. Company and the Stockholder shall have delivered to Merger Sub and Parent (a) true, correct and complete copies of the articles of incorporation and bylaws of Company as in effect immediately prior to the Merger and (b) a certificate of good standing of Company issued by the Secretary of State of the State of California and each state in which Company is qualified to do business, in each case dated as of a reasonably recent date. 8.7 Receipt of Necessary Consents. All necessary consents or approvals of third parties to any of the transactions contemplated hereby (including the consents identified on Schedule 4.2), shall have been obtained and shown by written evidence satisfactory to Parent. The form and substance of such consents shall be reasonably satisfactory to Parent. 8.8 Execution and Filing of Certificate of Merger. Company shall have executed the Certificate of Merger (and any other documents required to be filed in connection with the Merger) and the Certificate of Merger shall have been filed with the Secretary of State of the State of California in accordance with the CCL. 8.9 Completion of Initial Public Offering. The initial public offering of shares of Parent Common Stock ("IPO") shall have been consummated. 8.10 Employment Agreement. Shareholder shall have executed and delivered an employment agreement in the form attached hereto as Exhibit A ("Employment Agreement"). 8.11 NetRight Agreement. Parent and Shareholder shall have entered into a stock purchase agreement in the form of Exhibit B attached hereto, pursuant to which Parent shall have purchased all of the stock of NetRight for One Dollar ($1.00) (the "NetRight Agreement"). 8.12 Lockup Agreement. Shareholder shall have executed the standard lockup agreement required by Parent's underwriters in connection with the IPO. 8.13 Letter from Jackie McMullen. Jackie McMullen shall have executed and delivered a letter in the form of Exhibit C attached hereto confirming that she has no interest in any of the capital stock of the Company. 8.14 Amendment of Leases. The Company and the applicable lessor or lessors shall have amended each of the following leases to provide that each such lease is terminable on 30 days' notice: (a) that certain Commercial Lease dated March 15, 1995, between Les Kent and Jackie McMullen as lessors, and the Company as lessee, for Suite 203, 60-98th Avenue, Oakland, California, (b) that certain Residential Lease commencing January 1, 1995, between Les Kent and Jackie McMullen as lessor and the Company as lessee, and (c) that certain Lexus Vehicle Lease commencing May 20, 1996 between Jackie McMullen as Lessor and the Company as lessee. In addition, the Commercial Lease referenced in (a) above shall have been amended to reduce the amount of rent payable thereunder from $5,000 per month to $4,000 per month. Page 20 ARTICLE IX CONDITIONS TO OBLIGATIONS OF COMPANY AND THE STOCKHOLDER The obligations of Company and the Stockholder to proceed with the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: 9.1 Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of Merger Sub and Parent contained in this Merger Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. Merger Sub and Parent shall have performed and complied in all material respects with all of their respective obligations required by this Merger Agreement to be performed or complied with at or prior to the Closing Date. Each of Merger Sub and Parent shall have delivered to Company a certificate, dated as of the Closing Date and signed by one of its senior officers, certifying that such representations and warranties were true and correct at and as of the date hereof, and are true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. 9.2 Execution and Filing of Certificate of Merger. Merger Sub shall have executed the Certificate of Merger (and any other documents required to be filed in connection with the Merger) and the Certificate of Merger shall have been filed with the Secretary of State of the State of California in accordance with the CCL. 9.3 Employment Agreement. Surviving Corporation shall have executed and delivered the Employment Agreement. ARTICLE X CERTAIN ACTIONS AFTER THE CLOSING 10.1 Execution of Further Documents. From and after the Closing, upon the reasonable request of Parent, the former officers of Company and the Stockholder shall execute, acknowledge and deliver all such further acts, deeds, bills of sale, assignments, transfers, conveyances, powers of attorney and assurances as may be requested to convey and transfer to and vest in the Surviving Corporation and protect its right, title and interest in all of the Assets, and as may be required or otherwise appropriate to carry out the transactions contemplated by this Merger Agreement. 10.2 Employment of Company's Employees. 10.2.1 The Stockholder shall use his best efforts to aid Parent and the Surviving Corporation in retaining such of the employees of Company as are employed on the Closing Date whom Parent and the Surviving Corporation desire to retain after the Closing Date. Except with the prior written consent of the Surviving Corporation, neither the Stockholder nor any affiliate of the Stockholder shall solicit or cause, directly or indirectly, to be solicited, nor attempt to induce, for a period of three years after the Closing Date, any person employed by Company on the Closing Date or at any time within 180 days prior to the Closing Date (unless such person was either not offered employment by the Surviving Corporation or was terminated by the Surviving Corporation): (i) to refuse an offer of employment from the Surviving Corporation (ii) if such an offer is accepted, to terminate his Page 21 or her employment with the Surviving Corporation or (iii) to work, directly or indirectly, for any person other than Surviving Corporation. As used in this Section 10.2, the term "Affiliate" means, with respect to a specified person, any other person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified and, with respect to any natural person, shall include all persons related to such person by blood or marriage. 10.2.2 The Surviving Corporation shall have no obligation to continue to employ any of the persons currently employed by Company or to continue, or institute any replacement or substitution for, any vacation, severance, incentive, bonus, profit sharing, pension or other employee benefit plan or program of Company. 10.3 Restrictive Covenants. 10.3.1 To assure that Parent will realize the value and goodwill inherent in Company, the Stockholder shall not: 10.3.1.1 directly or indirectly, for a period of five years following the Closing Date (the "Restricted Period"), engage in or have any interest in any business, firm, person, partnership, corporation, limited liability company, or other entity (as an owner, shareholder, partner, manager, member, employee, agent, security holder, creditor, consultant or otherwise) that engages in any activity that is the same or similar to, or competitive with, any activity engaged in by Company or any of its Affiliates on the Closing Date, or by the Surviving Corporation or any Affiliate of the Surviving Corporation during the Restricted Period; provided that (a) the prohibition contained in this Section 10.3.1.1 shall not apply to any activity in which the Surviving Corporation permanently ceases to be engaged, and (b) provided that the ownership, beneficially or of record, of less than five percent (5%) of the outstanding shares of any class of stock of any issuer listed on a national securities exchange shall not be a breach of this Agreement. 10.3.1.2 directly or indirectly, at any time following the Closing Date, divulge, communicate, use to the detriment of Parent or Surviving Corporation or the Affiliates of either of the foregoing, or for the benefit of any other business, firm, person, partnership, limited liability company or corporation, the confidential information, data, intellectual property or trade secrets of Company, including but not limited to those items identified on Schedule 4.23, and the business records, financial information and the customer, supplier and personnel information of Company. 10.3.1.3 directly or indirectly, for a period of five years following the Closing Date: (i) induce any customer of Company at the Closing Date to patronize any business other than the Surviving Corporation or Parent similar to any of those described in Section 10.3.1.1; (ii) canvass, solicit or accept from any customer of Company at the Closing Date any business similar to any of those described in Section 10.3.1.1 other than on behalf of the Surviving Corporation or Parent; or (iii) request or advise any individual or entity which is a customer of Company at the Closing Date to withdraw, curtail or cancel any such customer's business with the Surviving Corporation or Parent. 10.3.1.4 solicit (or employ or cause to be employed other than by the Surviving Corporation or Parent) employees of Company or any Affiliate or subsidiary of Company, directly or indirectly, for the purpose of enticing them to leave their employment with Company or Surviving Corporation, or any Affiliate or subsidiary of either of the foregoing. Page 22 10.3.1.5 request or advise any individual or entity which is a supplier or vendor of Company at the Closing Date to withdraw, curtail or cancel any such supplier's or vendor's business with Company, Surviving Corporation or Parent. 10.3.2 The Stockholder agrees and acknowledges that the restrictions contained in Section 10.3.1 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable and necessary in territorial scope and in duration to adequately protect Parent and the Surviving Corporation after the Closing Date. If, however, any provision of Section 10.3.1, as applied to any party or to any circumstances, is adjudged by a court of competent jurisdiction to be invalid or unenforceable, the same will in no way affect any other provision of Section 10.3 or any other part of this Merger Agreement, the application of such provision in any other circumstances or the validity or enforceability of this Merger Agreement. If any such provision, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination will have the power to modify the duration and/or area of such provision, and/or to delete specific words or phrases, and in its modified form such provision will then be enforceable and will be enforced. It is further agreed that a breach or violation of any provision of Section 10.3.1 will result in immediate and irreparable injury to Parent and the Surviving Corporation and that money damages will be an inadequate remedy. Accordingly, in addition to such damages as Parent and the Surviving Corporation can demonstrate they have sustained by reason of such breach or violation, and in addition to any other remedy that Parent or the Surviving Corporation may have, Parent and the Surviving Corporation shall each be entitled to both temporary and permanent injunctive relief to enforce the specific performance of this Section 10.3. 10.3.3 The period of time during which the Stockholder is prohibited from engaging in certain activities pursuant to the terms of this Section 10.3 shall be extended by the length of time during which the Stockholder is in breach of the terms of this Section 10.3. ARTICLE XI INDEMNIFICATION 11.1 Agreement by the Stockholder to Indemnify. The Stockholder shall indemnify and hold the Surviving Corporation and Parent harmless in respect of the aggregate of all Indemnifiable Damages (as herein defined) of the Surviving Corporation and Parent. 11.1.1 "Indemnifiable Damages" of the Surviving Corporation or Parent means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel and paralegal fees and expenses) incurred or suffered by the Surviving Corporation or Parent, on a pre-tax basis, to the extent (i) resulting from any breach of a representation or warranty of Company or the Stockholder in or pursuant to Article IV or elsewhere herein; (ii) resulting from any breach of the covenants or agreements of Company or the Stockholder in this Merger Agreement; (iii) resulting from any inaccuracy in any certificate delivered pursuant to Sections 8.1 or 8.3, or (iv) relating to Vision Network Systems. 11.1.2 Without limiting the generality of the foregoing, with respect to the measurement of Indemnifiable Damages, each of Merger Sub and Parent shall have the right to be put in the same financial position as it would have been in had each of the Page 23 representations and warranties of Company and the Stockholder been true and correct and had each of the covenants of Company and the Stockholder been performed in full. 11.1.3 Each of the representations and warranties made by Company or the Stockholder in this Merger Agreement or pursuant hereto, shall survive the Closing, notwithstanding any investigation at any time made by or on behalf of Merger Sub, the Surviving Corporation or Parent. 11.2 Agreement by Merger Sub and Parent to Indemnify. Merger Sub and Parent shall indemnify and hold harmless the Stockholder in respect of all Losses (as defined below) of the Stockholder. For this purpose, "Losses" of the Stockholder means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel and paralegal fees and expenses) incurred or suffered by the Stockholder, (i) resulting from any breach of a representation or warranty of Merger Sub or Parent contained in Article V or elsewhere herein; (ii) resulting from any default in the performance of any of the covenants or agreements of Merger Sub or Parent in this Merger Agreement; or (iii) resulting from any inaccuracy in any certificate delivered pursuant to Section 9.1. ARTICLE XII SECURITIES LAW MATTERS The Stockholder, the Surviving Corporation and Parent agree as follows with respect to the sale or other disposition of the Parent Common Stock by the Stockholder after the Closing: 12.1 Disposition of Shares. The Stockholder represents and warrants that the Parent Common Stock is being acquired and will be acquired for his own account and will not be sold or otherwise disposed of except pursuant to (i) an exemption or exclusion from the registration requirements under the 1933 Act, which does not require the filing by Parent with the Securities and Exchange Commission ("Commission") of any registration statement, offering circular or other document, in which case the Stockholder shall first supply to Parent an opinion of counsel (which opinion of counsel shall be satisfactory to Parent) that such exemption or exclusion is available or (ii) a registration statement filed by Parent with the Commission under the 1933 Act. 12.2 Legend. The certificates for the Parent Common Stock received shall bear the following legend: The Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of by the holder without an effective registration statement being filed under and pursuant to said Act or receipt of an opinion of counsel in form and substance satisfactory to the issuer that an exemption from registration is available. and Parent may, unless a registration statement covering such shares is in effect, place stop transfer orders with its transfer agents with respect to such certificates. 12.3 Registration Rights for Parent Common Stock. Parent has entered into a Registration Rights Agreement (the "Registration Rights Agreement") with the holders of its Parent Common Stock, a copy of which has been provided to the Company and the Stockholder, Page 24 pursuant to which Parent has agreed, under certain circumstances, to register under the Securities Act of 1933, as amended, the shares of Parent Common Stock held by such holders. All capitalized terms used in this Section 12.3 and otherwise not defined in this Merger Agreement, have the meanings given to such terms in the Registration Rights Agreement. In the event that one or more Qualified Holders request that Registrable Securities be registered pursuant to Section 2.1(a) or Section 2.1(b) of the Registration Rights Agreement, Parent will deliver to Stockholder a written notice of such event (the "Registration Notice"). Stockholder shall have the right to include its shares of Parent Common Stock in the Registration Statement by delivering to Parent by the date specified in the Registration Notice (which shall be no less than 20 days following the delivery of such Registration Notice) a request to have its shares of Parent Common Stock included in such Registration Statement and a statement as to the number of shares of Parent Common Stock requested to be so included. Parent and Stockholder agree that by requesting inclusion of Parent Common Stock in a Registration Statement in accordance with the preceding paragraph, Stockholder will be bound by the provisions, and entitled to the benefits, of the Registration Rights Agreement applicable to such Registration Statement as if Stockholder were a Qualified Holder of Registrable Securities for the purposes of such Registration Statement; provided, however, that (a) Stockholder will not be considered to be a Qualified Holder under Section 2.1(c)(i)(B) of the Registration Rights Agreement or with respect to any actions to be taken under the Registration Rights Agreement by Majority Holders, and (b) Stockholder's registration rights shall be non-transferable. ARTICLE XIII MISCELLANEOUS 13.1 Transaction Expenses; Brokers' Fees. The Stockholder shall pay all of the legal, accounting and other transaction expenses (including brokers' fees) incurred by the Stockholder or the Company in connection with the Merger and the other transactions contemplated hereby. The Stockholder shall indemnify and hold harmless Parent and the Surviving Corporation from any such expenses and from the commission, fee or claim of any person, firm or corporation employed or retained or claiming to be employed or retained by Company or the Stockholder to bring about, or to represent any of them in, the transactions contemplated hereby. 13.2 Amendment and Modification. The parties hereto may amend, modify and supplement this Merger Agreement in such manner as may be agreed upon by them in writing. 13.3 Termination. 13.3.1 Anything to the contrary herein notwithstanding, this Merger Agreement may be terminated and the transaction contemplated hereby may be abandoned: (a) by the mutual written consent of Company (on behalf of itself and the Stockholder) and Parent (on behalf of itself and Merger Sub) at any time prior to the Closing Date; (b) by Parent at any time prior to the Closing Date if there shall be a pending or threatened action or proceeding by or before any court or other Page 25 governmental body which shall seek to restrain, prohibit or invalidate the Merger or any other transaction contemplated hereby, or which might affect the right of the Surviving Corporation to own, operate in their entirety or control the properties and assets of the Company or to conduct the business of Company and which, in the reasonable judgment of Parent, makes it inadvisable to proceed with the transaction contemplated by this Merger Agreement; (c) by Parent in the event of the material breach by Company or the Stockholder of any provision of this Merger Agreement, or by Company in the event of the material breach by Parent or Merger Sub of any provision of this Merger Agreement, which breach in either case is not remedied by the breaching party within 30 days after receipt of notice thereof from the terminating party; or (d) by Parent if the IPO is not consummated by December 31, 1996. If this Merger Agreement is terminated pursuant to clause (a), (b) or (d) of this paragraph 13.3.1, no party shall have any liability for any costs, expenses, loss of anticipated profit or any further obligation for breach of warranty or otherwise to any other party to this Merger Agreement. Any termination of this Merger Agreement pursuant to clause (c) of this paragraph 13.3.1 shall be without prejudice to any other rights or remedies of the respective parties. 13.3.2 The risk of any loss to the Assets and all liability with respect to injury and damage occurring in connection therewith shall be the sole responsibility of Company and Stockholder until the completion of the Closing. If any material part of the Assets shall be damaged by fire or other casualty prior to the completion of the Closing hereunder, Company shall so notify Parent and Parent shall have the right and option: (a) to terminate this Merger Agreement, without liability to any party hereto; or (b) to proceed with the Closing hereunder, in which event such casualty shall not constitute a breach by Company or the Stockholder of any representation, warranty or covenant in this Merger Agreement, and Parent and the Surviving Corporation shall be entitled to receive and retain the insurance proceeds arising from such casualty. 13.4 Representations. Each party hereto expressly represents and warrants to all other parties hereto that (a) before executing this Merger Agreement, said party has fully informed itself or himself of the terms, contents, conditions and effects of this Merger Agreement; (b) said party has relied solely and completely upon its or his own judgment in executing this Merger Agreement; (c) said party has had the opportunity to seek the advice of counsel before executing this Merger Agreement; (d) said party has acted voluntarily and of its or his own free will in executing this Merger Agreement; (e) said party is not acting under duress, whether economic or physical, in executing this Agreement; and (f) this Merger Agreement is the result of arm's- length negotiations conducted by and among the parties and their counsel. 13.5 Binding Effect. This Merger Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Page 26 13.6 Entire Agreement. This Merger Agreement, including the exhibits and schedules, contains the entire agreement of the parties hereto with respect to the Merger and the other transactions contemplated herein, and supersedes all prior understandings and agreements (oral or written) of the parties with respect to the subject matter hereof. The parties expressly represent and warrant that in entering into this Merger Agreement they are not relying on any prior representations made by any other party concerning the terms, conditions or effects of this Merger Agreement, which terms, conditions or effects are not expressly set forth herein. Any reference herein to this Merger Agreement shall be deemed to include the schedules and exhibits. 13.7 Interpretation. When a reference is made in this Merger Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be to an article, section, paragraph, clause, schedule or exhibit of this Merger Agreement unless otherwise indicated. The headings contained herein and on the schedules are for reference purposes only and shall not affect in any way the meaning or interpretation of this Merger Agreement or the schedules. References to pronouns shall be deemed to include the masculine, feminine and neuter versions thereof. Whenever the words "include," "includes" or "including" are used in this Merger Agreement, they shall be deemed to be followed by the words "without limitation." Time shall be of the essence in this Merger Agreement. 13.8 Execution in Counterparts. This Merger Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 13.9 Notices. Any notice, consent, approval, request, acknowledgment, other communication or information to be given or made hereunder to any of the parties by any other party shall be in writing and (a) delivered personally, (b) sent by express delivery service, (c) sent by certified mail, postage prepaid or (d) sent by facsimile, as follows: If to Company or the Stockholder, addressed to: Mr. Les Kent Kent Consulting Group 2235 Melvin Road Oakland, CA 94602 Telecopy:(510) 635-1601 If to Merger Sub or Parent, addressed to: Allin Communications Corporation 300 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Telecopy: (412) 928-7715 Attention: Mr. Richard W. Talarico Page 27 with a copy to: Bryan D. Rosenberger, Esq. Eckert Seamans Cherin & Mellott 600 Grant Street, 42nd Floor Pittsburgh, PA 15219 Telecopy: (412) 566-6099 Any party may change the address to which notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice. Any notice delivered personally shall be deemed to have been given on the date it is so delivered, any notice delivered by express delivery service or certified mail shall be deemed to have been given on the date it is received, and any notice sent by facsimile shall be deemed to have been given on the date it was sent (so long as the sender receives confirmation of transmission and a hard copy of such notice is sent by U.S. mail). 13.10 Governing Law. Except for compliance with applicable merger laws, as specified herein, this Merger Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed therein. 13.11 Confidentiality; Publicity. Without the prior written consent of Parent, neither Company nor the Stockholder will, prior to the Closing Date, disclose the existence of or any term or condition of this Merger Agreement to any person or entity. No press release or other public announcement related to this Merger Agreement or the transactions contemplated hereby will be issued by Company, Stockholder or any Affiliates of the foregoing without the prior written approval of Parent. No press release or other public announcement related to this Merger Agreement or the transactions contemplated hereby will be issued by Parent without the prior approval of Company, except that Parent may make such public disclosure which it believes in good faith to be required by law or by the terms of any listing agreement with a securities exchange. In addition, Parent is specifically authorized to disclose and discuss this Agreement and the transactions contemplated hereby in a registration statement to be filed with the United States Securities and Exchange Commission in connection with the Initial Public Offering. 13.12 Severability. If any term or other provision of this Merger Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Merger Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Merger Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the greatest extent possible. 13.13 Assignment. Neither this Merger Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Page 28 13.14 No Third-Party Beneficiaries. This Merger Agreement shall inure to the benefit of, be binding upon and be enforceable by and against, the parties hereto and their respective successors, heirs, personal representatives and permitted assigns, and nothing herein expressed or implied shall be construed to give any other person any legal or equitable rights hereunder. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first above written. KENT CONSULTING GROUP, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ----------------------------------------- Les Kent KENT ACQUISITION CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ALLIN COMMUNICATIONS CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Page 29 Pursuant to Regulation S-K, Item 601(b)(2), the following is a list briefly identifying the contents of omitted schedules to this exhibit: (a) 4.1.1 - Qualification in Foreign Jurisdictions; (b) 4.12 - Shareholder Information; (c) 4.2 - Consents; (d) 4.4 - Financial Statements; (e) 4.5 - Liabilities; (f) 4.7.1 - Owned Properties; (g) 4.7.2 - Leasehold Premises; (h) 4.10 - Licenses and Permits; (i) Customer Information; (j) 4.12.1 - Insurance/Loan Agreements/Leases of Personal Property/Significant Agreements/Employees/Directors/Bank Accounts/Powers of Attorney; (k) 4.18.6 - Environmental Issues; (l) 4.18.7 - Prior Use of Owned Properties; (m) 4.23 - Intellectual Property; and (n) 4.25 - Names. Registrant agrees to furnish supplementally a copy of these schedules to the Securities Exchange Commission upon request. Page 30 EX-3.I(A) 5 CERTIFICATE OF INCORPORATION Exhibit 3(i)(a) CERTIFICATE OF INCORPORATION OF ALLIN COMMUNICATIONS CORPORATION The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified, and referred to as the "Delaware General Corporation Law"), hereby certifies that: ARTICLE I Name The name of the corporation is Allin Communications Corporation (the "Company"). ARTICLE II Address of Registered Office; Name of Registered Agent The address of the registered office of the Company in the State of Delaware is 1013 Centre Road, City of Wilmington, Delaware 19805, County of New Castle. The name of the registered agent at that address is Corporation Service Company. ARTICLE III Purpose and Powers The purpose of the Company is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Delaware General Corporation Law. It shall have all powers that may now or hereafter be lawful for a corporation to exercise under the Delaware General Corporation Law. ARTICLE IV Capital Stock Section 4.1. Total Number of Shares of Stock. The total number of shares of stock of all classes that the Company shall have authority to issue is 103,000. The authorized capital stock is divided into 100,000 shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"), and 3,000 shares of Common Stock, $.01 par value per share (the "Common Stock"). Section 4.2 Preferred Stock. (a) The shares of Preferred Stock of the Company may be issued from time to time in one or more classes or series thereof, the shares of each class or series thereof to have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein or in the resolution or resolutions providing for the issuance of such class or series, adopted by the Board of Directors as hereinafter provided. All shares of the same class and series of Preferred Stock will be identical, but shares of different classes or series of Preferred Stock need not be identical or rank equally except as provided by law or herein. (b) Authority is hereby expressly granted to the Board of Directors of the Company, subject to the provisions of this Article IV and to the limitations prescribed by the Delaware General Corporation Law, to authorize the issue of one or more classes, or series thereof, of Preferred Stock and with respect to each such class or series to fix by the resolution or resolutions providing for the issue of such class or series the voting powers, full or limited, if any, of the shares of such class or series and the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each class or series thereof shall include, but not be limited to, the determination or fixing of the following: (i) the maximum number of shares to constitute such class or series, which may subsequently be increased or decreased (but not below the number of shares of that class or series then outstanding) by resolution of the Board of Directors, the distinctive designation thereof and the stated value thereof if different than the par value thereof; (ii) the dividend rate of such class or series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or any other series of any class of stock of the Company, and whether such dividends shall be cumulative or noncumulative; -2- (iii) whether the shares of such class or series shall be subject to redemption by the Company and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption; (iv) the terms and amount of any sinking fund established for the purchase or redemption of the shares of such class or series; (v) whether or not the shares of such class or series shall be convertible into or exchangeable for shares of any other class or classes of any stock or any other series of any class of stock of the Company, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (vi) the extent, if any, to which the holders of shares of such class or series shall be entitled to vote with respect to the election of directors or otherwise; (vii) the restrictions, if any, on the issue or reissue of any additional shares of Preferred Stock; (viii) whether or not the issue of any additional shares of any such class or series or of any other class or series in addition to such class or series shall be subject to restrictions in addition to the restrictions, if any, on the issue of additional shares imposed in the resolution or resolutions fixing the terms of any outstanding class or series of Preferred Stock theretofore issued pursuant to this Section 4.2 and, if subject to additional restrictions, the extent of such additional restrictions; and (ix) the rights of the holders of the shares of such class or series upon the dissolution, liquidation or winding up of, or upon the distribution of assets of, the Company. For purposes of this Section 4.2, the voluntary sale, conveyance, lease, exchange or transfer of all or substantially all the property or assets of the Company or a consolidation or merger of the Company with one or more other corporations (whether or not the Company is the corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. The Board of Directors of the Company is further expressly vested with the authority to make the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of any class or series of Preferred Stock dependent upon facts ascertainable outside this Certificate of Incorporation or of any amendment hereto, or outside the resolutions or resolutions providing for the issuance of such stock adopted by the Board of Directors, provided that the manner in which such facts shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of such class or series of Preferred Stock is clearly and expressly set forth in the resolution or -3- resolutions providing for the issue of such stock adopted by the Board of Directors of the Company. Any specification for a class or series of Preferred Stock of designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, pursuant to this Section 4.2 shall be defined in this Certificate of Incorporation as a "Preferred Stock Designation." (c) Before any dividends shall be declared or paid or any distribution ordered or made upon the Common Stock (other than a dividend payable in Common Stock), the Company shall comply with the dividend and sinking fund provisions, if any, of any resolution or resolutions providing for the issuance of any class or series of Preferred Stock any shares of which shall at the time be outstanding. Subject to the foregoing sentence, the holders of Common Stock shall be entitled, to the exclusion of the holders of Preferred Stock of any and all classes and series, to receive such dividends as from time to time may be declared by the Board of Directors of the Company. Section 4.3 Common Stock. Except as otherwise provided in this Certificate of Incorporation, holders of Common Stock shall be entitled to one vote for each share of Common Stock held by them on each matter on which they are entitled to vote. The holders of Common Stock shall be entitled to participate share for share in any cash dividend which may be declared from time to time on the Common Stock of the Company by the Board of Directors and to receive pro rata the net assets of the Company on dissolution, liquidation or winding up of the Company, in both cases subject to all amounts to which the holders of Preferred Stock are entitled to receive or have set aside. ARTICLE V Incorporator The name and the mailing address of the incorporator are as follows: Name Mailing Address ---- --------------- Eileen R. Sisca c/o Eckert Seamans Cherin & Mellott 600 Grant St., 42nd Floor Pittsburgh, PA 15219 -4- ARTICLE VI Term of Existence Perpetual The Company is to have perpetual existence. ARTICLE VII Board of Directors Section 7.1 Powers of the Board of Directors. The business and affairs of the Company shall be managed by or under the direction of its Board of Directors. In furtherance, and not in limitation, of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to: (a) adopt, amend, alter, change or repeal the Bylaws of the Company, by the affirmative vote of a majority of the whole Board of Directors; provided, -------- however, that the stockholders entitled to vote may prescribe that any Bylaw - ------- adopted by the stockholders may not be amended, altered, changed or repealed by the Board of Directors; and provided, further, that no Bylaws hereafter adopted -------- ------- shall invalidate any prior act of the directors that would have been valid if such new Bylaws had not been adopted; (b) determine the rights, powers, duties, rules and procedures that affect the power of the Board of Directors to manage and direct the business and affairs of the Company, including the power to designate and empower committees of the Board of Directors, to elect, appoint and empower the officers and other agents of the Company, and to determine the time and place of, and the notice requirements for, Board meetings, as well as quorum and voting requirements for, and the manner of taking, Board action; and (c) exercise all such powers and do all such acts as may be exercised or done by the Company, subject to the provisions of the laws of the State of Delaware, this Certificate of Incorporation, and the Bylaws of the Company. Section 7.2 Number of Directors. The number of directors of the Company shall be not less than five (5) or more than twelve (12). The exact number of directors shall be determined within such minimum and maximum by resolution adopted by the directors. Section 7.3 Term. Each director shall serve until his or her successor is elected and qualified or until his or her earlier resignation, retirement, disqualification, removal from office or death. Section 7.4 Removal. The entire Board or any individual director may be removed from office only for cause by the affirmative vote of the holders of a majority of the -5- outstanding shares of capital stock of the Company then entitled to vote at an election of directors. Removal action may be taken at any stockholders' meeting with respect to which notice of such purpose has been given, and a removed director's successor may be elected at the same meeting to serve the unexpired term. Section 7.5 Vacancies. A vacancy occurring on the board, however occurring, whether by increase in the number of directors, death, resignation, retirement, disqualification, removal from office or otherwise, may be filled, until the next election of directors by the stockholders, by the affirmative vote of at least two-third (2/3) of the total number of directors then remaining in office, though they may constitute less than a quorum of the Board. Section 7.6 Election of Directors by Holders of Preferred Stock. Whenever the holders of any one or more classes of Preferred Stock or series thereof issued by the Company shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the number of such directors, and the election, term of office, filling of vacancies and other features of each such directorship, shall be governed by the terms of this Certificate of Incorporation and any Preferred Stock Designation applicable thereto. ARTICLE VIII Indemnification Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact: (a) that he or she is or was a director or officer of the Company, or (b) that he or she, being at the time a director or officer of the Company, is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (collectively, "another enterprise" or "other enterprise"), whether either in case (a) or in case (b) the basis of such proceeding is alleged action or inaction (x) in an official capacity as a director or officer of the Company, or as a director, trustee, officer, employee or agent of such other enterprise, or (y) in any other capacity related to the Company or such other enterprise while so serving as a director, trustee, officer, employee or agent, shall be indemnified and held harmless by the Company to the -6- fullest extent not prohibited by Section 145 of the Delaware General Corporation Law (or any successor provision or provisions) as the same exists or may hereafter be amended (but, in the case of any such amendment, with respect to alleged action or inaction occurring prior to such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior thereto), against any expense, liability or loss (including without limitation attorneys' fees and expenses, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith. The persons indemnified by this Article VIII are hereinafter referred to as "indemnitees." Such indemnification as to such alleged action or inaction shall continue as to an indemnitee who has after such alleged action or inaction ceased to be a director or officer of the Company, or director, officer, employee or agent of such other enterprise, and shall inure to the benefit of the indemnitee's heirs, executors and administrators. Notwithstanding the foregoing, except as may be provided in the Bylaws of the Company or by the Board, the Company shall not indemnify any such indemnitee in connection with a proceeding (or portion thereof) initiated by such indemnitee (but this prohibition shall not apply to a counterclaim, cross-claim or third-party claim brought by the indemnitee in any proceeding) unless such proceeding (or portion thereof) was authorized by the Board. The right to indemnification conferred in this Article VIII: (1) shall be a contract right; (ii) shall not be changed by any amendment of this Certificate of Incorporation to adversely affect any indemnitee with respect to any alleged action or inaction occurring prior to such amendment; and (iii) shall, subject to any requirements imposed by law and the Bylaws of the Company, include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition. Section 8.2 Relationship to Other Rights and Provisions Concerning Indemnification. The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Bylaws of the Company may contain such other provisions concerning indemnification, including provisions specifying reasonable procedures relating to and conditions to the receipt by indemnitees of indemnification, provided that such provisions are not inconsistent with the provisions of this Article VIII. Section 8.3 Agents and Employees. The Company may, to the extent authorized from time to time by the Board, grant rights to indemnification, and to the advancement of expenses, to any employee or agent of the Company (or any person serving at the Company's request as a director, trustee, officer, employee or agent of another enterprise) or to any person who is or was a director, officer, employee or agent of any of the Company's affiliates, predecessor or subsidiary corporations or a constituent corporation absorbed by the Company in a consolidation or merger or who is or was serving at the request of such affiliate, predecessor or subsidiary corporation or of such constituent corporation as a director, officer, employee or agent of another enterprise, in each case as determined by the Board to the fullest extent of the provisions of this Article VIII in cases of the -7- indemnification and advancement of expenses of directors and officers of the Company, or to any lesser extent (or greater extent, if permitted by law) determined by the Board. ARTICLE IX Limitation on Liability of Directors No person shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, provided however, -------- ------- that the foregoing shall not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any amendment, repeal or modification of this Article IX shall not adversely affect any right or protection of a director of the Company existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. ARTICLE X Compromise Whenever a compromise or arrangement is proposed between this Company and its creditors or any class of them and/or this Company and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Company or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Company under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Company under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Company, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Company, as the case may be, agree to any compromise or arrangement and to any reorganization of this Company as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the -8- creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Company, as the case may be, and also on this Company. ARTICLE XI Amendment of Certificate of Incorporation The Company hereby reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the Delaware General Corporation Law, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XII Severability In the event that any of the provisions of this Certificate of Incorporation (including any provision within a single Article, Section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. IN WITNESS WHEREOF, the undersigned executes this Certificate of Incorporation this 23rd day of July, 1996. ALLIN COMMUNICATIONS CORPORATION By: /s/Eileen R. Sisca ------------------- Eileen R. Sisca Incorporator -9- EX-3.I(B) 6 CERTIFICATE OF DESIGNATION Exhibit 3(i)(b) CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF THE SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK OF ALLIN COMMUNICATIONS CORPORATION _____________________________________________ Allin Communications Corporation, a corporation organized and existing by virtue of the laws of the State of Delaware (the "Corporation"), does hereby certify that the following resolutions were duly adopted by the Board of Directors of the Corporation by Unanimous Written Consent dated July 23, 1996. RESOLVED THAT, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), the Board of Directors hereby creates, from the shares of Preferred Stock (the "Preferred Stock") of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of the Preferred Stock designated Series A Convertible Redeemable Preferred Stock, and hereby fixes the voting powers, designations, preferences and relative participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of the shares of such Series as follows: 1. Designation. Forty thousand (40,000) shares of the Preferred Stock ----------- are hereby designated Series A Convertible Redeemable Preferred Stock with a par value of One Hundred Dollars ($100) per share (the "Series A Preferred Stock"). 2. Rank. The Series A Preferred Stock shall rank senior to the Common ---- Stock. 3. Dividends. --------- (a) The holders of shares of Series A Preferred Stock shall be entitled to receive, when and as declared out of funds legally available for the payment of dividends by the Board of Directors, cash dividends on each share of the Series A Preferred Stock (referred to as a "Share") at a rate per annum of 8% of the par value thereof, from and including the date of issuance of such Share to and including the date on which the Redemption Price of such Share is paid. If the Corporation has not consummated an initial public offering of its common stock ("Initial Public Offering") on or before December 31, 1996, the dividend rate provided for in the preceding paragraph of this Section shall increase from 8% to 12% of the par value of a share of Series A Preferred Stock, from and after December 31, 1996. Such dividends, to the extent declared by the Board of Directors, will be payable quarterly in arrears on each October 31, January 31, April 30 and July 31 (hereinafter referred to as "Dividend Payment Dates"). To the extent that dividends are not paid on a particular Dividend Payment Date, all such dividends will accrue and compound on a quarterly basis and will be paid on or before the Redemption Date. (b) So long as any shares of the Series A Preferred Stock are outstanding, the Corporation will not declare or pay or set apart for payment any dividends (other than a dividend in common stock or in any other class of stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation) or make any other distribution on any class of stock of the Corporation ranking junior to the Series A Preferred Stock either as to dividends or upon liquidation (collectively, "Junior Securities") and will not redeem, purchase or otherwise acquire for value, or set apart money for any sinking or other analogous fund for the redemption or purchase of any shares of any Junior Securities (in any such case, a "Junior Payment"), unless all dividends on the Series A Preferred Stock for the Dividend Payment Date immediately prior to or concurrent with the payment with respect to any such dividend, distribution, redemption, purchase or acquisition as to such Junior Securities shall have been paid, or declared and a sum sufficient for the payment thereof set aside by the Corporation separate and apart from its other funds. 4. Liquidation. ----------- (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, before any payment or distribution of the assets of the Corporation (whether capital, surplus or earnings) or proceeds therefrom shall be made to or set apart for the holders of shares of any Junior Securities, the holders of shares of Series A Preferred Stock shall be entitled to receive payment of $100 per share (the "Liquidation Value") held by them, plus an amount equal to all dividends accrued and compounded and unpaid on such shares to the date of such payment. (b) If upon any liquidation, dissolution or winding up of the Corporation, the Corporation's assets to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed will be distributed ratably among such holders based upon the aggregate Liquidation Value of the Series A Preferred Stock held by each such holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than sixty (60) days prior to the payment date stated therein, to each record holder of Series A Preferred Stock. Neither the consolidation nor merger of the Corporation into or with any other corporation or corporations, nor the sale or -2- transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph. 5. Redemption. ---------- (a) Mandatory Redemption. The Corporation shall redeem all outstanding -------------------- shares of Series A Preferred Stock on or before June 30, 2006 (the "Mandatory Redemption Date"). (b) Optional Redemption. At any time after the termination of the ------------------- Conversion Period, and before the Mandatory Redemption Date, the Corporation shall have the right to redeem all or part of the outstanding Shares, by giving written notice thereof to the affected stockholder or stockholders (the "Redemption Notice"). The Redemption Notice shall specify the redemption date which shall be not less than thirty (30) days from the date of the Redemption Notice and the number of shares to be redeemed. If fewer than all of the outstanding Shares are to be redeemed, such Shares shall be redeemed on a pro rata basis among the holders of record of outstanding Shares. (c) Redemption Price. The redemption price for shares of Series A ---------------- Preferred Stock shall be One Hundred Dollars ($100) per Share, plus an amount equal to all accrued and compounded and unpaid dividends to the date of redemption (the "Redemption Price"). (d) Redemption Procedure. Unless default is made in the payment of the -------------------- Redemption Price, all rights of the holders of such Shares as stockholders of the Corporation by reason of the ownership of the respective Shares shall cease at the close of business on the Redemption Date ("Redemption Date"), except the right to receive payment in full of the Redemption Price of such Shares on presentation and surrender of the certificate or certificates for such Shares, and after the Redemption Date such Shares shall not be deemed to be outstanding. In case less than all the Shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed Shares without cost to the holder thereof. At its option, the Corporation may, on or prior to the Redemption Date, deposit an amount equal to the aggregate Redemption Price of the Shares of the Series A Preferred Stock to be redeemed with a bank or trust company (the "Depositary"), having its principal office in the City of Pittsburgh, Commonwealth of Pennsylvania, and designated by the Board of Directors, to be held in trust by the Depositary, for the sole benefit of the holders of the Series A Preferred Stock, for payment to the holders of such Shares then to be redeemed. If such deposit is made and the funds so deposited are made immediately available to the holders of the Shares of the Series A Preferred Stock to be redeemed, the Corporation shall thereupon be released and discharged (subject to the provisions of the next paragraph of this Section) from its obligation to make payment of the Redemption Price of -3- the Shares of Series A Preferred Stock to be redeemed, and the holders of such Shares shall look only to the Depositary for such payment. Any funds deposited with the Depositary as aforesaid with respect to payment of the Redemption Price of Shares of the Series A Preferred Stock remaining unclaimed at the end of five (5) years from and after the Redemption Date in respect of which such funds were deposited, shall be returned to the Corporation forthwith; and thereafter the holders of Shares of the Series A Preferred Stock redeemed on such Redemption Date shall look only to the Corporation for the payment of the Redemption Price thereof. Any interest accrued on any funds deposited with the Depositary shall belong to the Corporation and shall be paid to it by the Depositary from time to time on demand. On or after the Redemption Date, the holders of Shares of Series A Preferred Stock which have been redeemed shall surrender their certificates representing such Shares to the Corporation at its principal place of business or as otherwise notified, and thereupon the Redemption Price of such Shares shall be paid to the order of the holder of record of the Shares represented by such certificate or certificates and each surrendered certificate shall be cancelled, and such Shares shall be retired and shall not be reissued. 6. Voting. Except as otherwise provided by the Delaware General ------ Corporation Law and in this Section, the holders of Series A Preferred Stock shall have no voting rights whatsoever. Without the consent of the holders of at least a majority of the number of shares of Series A Preferred Stock at the time outstanding and eligible to vote, given in person or by proxy, either in writing or at a meeting called for the purpose at which the holders of Series A Preferred Stock shall vote as a class, neither the Certificate of Incorporation nor the Certificate of Designation relating to the Series A Preferred Stock shall be changed, nor shall the Board of Directors take any action, so as to affect adversely the rights and preferences of the Series A Preferred Stock as set forth herein. 7. Conversion. ---------- (a) Conversion Rights. During a period of seven (7) months, ----------------- commencing on the 1st day following the six (6) month anniversary of the consummation of an Initial Public Offering of the Corporation's common stock (the "Conversion Period"), each holder of the Series A Preferred Stock will have the right to convert all (but not less than all) of its Shares of Series A Preferred Stock into common stock of the Corporation. Each share of Series A Preferred Stock held by each holder will be converted into the number of common shares, rounded to the ninth decimal place, determined by dividing 100 by a fraction, the numerator of which is 35.0 million and the denominator of which is the quotient of 1,000 divided by one minus the "Investment Percentage," where the Investment Percentage is a fraction, the numerator of which is the sum of (a) the number of shares of Series A Preferred Stock issued multiplied by 100 plus (b) 3.0 million and the denominator of which is 35.0 million (as adjusted for stock dividends, stock splits, reverse stock splits and any other stock combination or division). Holders of the Series A Preferred Stock who exercise the -4- foregoing conversion right shall have no right to receive any accrued, but unpaid dividends. No fractional shares of common stock shall be issued; instead a cash payment will be made in lieu of the issuance of any fractional shares of common stock. Any shares of Series A Preferred Stock which are not converted to common stock during the Conversion Period will remain outstanding until redeemed by the Corporation. (b) Conversion Procedures. Any holder of Series A Preferred Stock --------------------- wishing to exercise the foregoing conversion right shall give written notice thereof to the Corporation (the "Conversion Notice"). Upon receipt of the Conversion Notice, the Corporation shall set a date for the conversion of the Series A Preferred Stock, which date shall be not more than thirty (30) days from the date of the Conversion Notice (the "Conversion Date"). All rights of a holder of the Series A Preferred Stock as a preferred stockholder of the Corporation by reason of the ownership of Series A Preferred Shares shall cease at the close of business on the Conversion Date, except the right to receive, on presentation and surrender of the certificate or certificates for the Series A Preferred Stock, the shares of common stock into which the Series A Preferred Stock is converted and cash payments, if any, in lieu of fractional shares, as provided for in the preceding paragraph of this Section, and after the Conversion Date such Shares shall not be deemed to be outstanding. From and after the Conversion Date, the holders of the Series A Preferred Stock shall have the rights of common stockholders, including the right to one vote for each share of common stock held by such holder or that such holder is entitled to receive upon presentation and surrender of certificates for shares of Series A Preferred Stock as provided for in the preceding sentence, but such holders shall have no rights as preferred stockholders, including without limitation, the redemption rights described in paragraph 5 hereof. 8. Anti-Dilution. If the Corporation, after the date hereof and before ------------- the end of the Conversion Period, issues common stock or warrants or options exercisable for common stock (other than pursuant to any employee stock option plan or director stock plan approved by the Board of Directors of the Company), and the price per share at which such shares, warrants or options are issued (the "New Share Price") multiplied by the aggregate number of issued and outstanding common shares (determined on a fully diluted basis, but excluding those shares then being issued or which are issuable pursuant to warrants or options then being issued) is less than $35.0 million, then the outstanding shares of Series A Preferred Stock shall become convertible into such aggregate number of shares of common stock equal to a fraction, the numerator of which is the number of outstanding shares of Series A Preferred Stock multiplied by 100 and the denominator of which is the New Share Price. ATTEST: ALLIN COMMUNICATIONS CORPORATION By: - ------------------- -------------------------------- Name Printed: ---------------------- Title: ---------------------------- -5- EX-3.I(I) 7 BYLAWS OF ALLIN COMMUNICATIONS CORPORATION Exhibit 3(ii) BYLAWS OF ALLIN COMMUNICATIONS CORPORATION SECTION I Capital Stock Section 1.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares in the Corporation owned by such holder. If such certificate is countersigned (a) by a transfer agent other than the Corporation or its employee, or, (b) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation, with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. Section 1.2. Record Ownership. A record of the name and address of the holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation's books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by the laws of the State of Delaware. Section 1.3. Transfer of Record Ownership. Transfers of stock shall be made on the books of the Corporation only by direction of the holder of record or such person's attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby, which certificate shall be canceled before the new certificate is issued. Section 1.4. Lost Certificates. Any person claiming a stock certificate in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit as to such person's ownership of the certificate and of the facts which go to prove its loss, theft or destruction. Such person shall also, if required by policies adopted by the Board of Directors, give the Corporation a bond, in such form as may be approved by the Corporation, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of the certificate or the issuance of a new certificate. Section 1.5. Transfer Agents; Registrars; Rules Respecting Certificates. The Board of Directors may appoint, or authorize any officer or officers to appoint one or more transfer agents and one or more registrars. The Board of Directors may make such further rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates of the Corporation. Section 1.6. Record Date. The Board of Directors may fix in advance a future date, not exceeding 60 days (nor, in the case of a stockholders' meeting, less than ten days) preceding the date of any meeting of stockholders, payment of dividend or other distribution, allotment of rights, or change, conversion or exchange of capital stock or for the purpose of any other lawful action, as the record date for determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or to receive any such dividend or other distribution or allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to participate in any such other lawful action, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof, or to receive such dividend or other distribution or allotment of rights, or to exercise such rights, or to participate in any such other lawful action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION II Meetings of Stockholders Section 2.1. Annual. The annual meeting of stockholders for the election of directors and the transaction of such other proper business shall be held within or without the State of Delaware on such date and at such time as shall be designated by the Board of Directors. Section 2.2. Special. Special meetings of stockholders for any purpose or purposes may be called by the Board of Directors, or by the holders of not less than two-thirds of all shares entitled to vote at the meeting. Special meetings may be held at any place, within or without the State of Delaware, as determined by the Board of Directors. The only business which may be conducted at such a meeting, other than procedural matters and matters relating to the conduct of the meeting, shall be the matter or matters described in the notice of the meeting. Section 2.3. Notice. Written notice of each meeting of stockholders, stating the date, time, place and, in the case of a special meeting, the purpose thereof, shall be given as provided by law by the Secretary or an Assistant Secretary of the Corporation not less than ten days nor more than 60 days before such meeting (unless a different time is specified by law) to every stockholder entitled by law to notice of such meeting. Section 2.4. List of Stockholders. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be -2- prepared by the Secretary and shall be open to the examination of any stockholder, for any purpose germane to meeting of stockholders, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified at the place where the meeting is to be held, for at least ten days before the meeting and at the place of the meeting during the whole time of the meeting. Section 2.5. Quorum. The holders of shares of stock entitled to cast a majority of the votes on the matters at issue at a meeting of stockholders, present in person or represented by proxy, shall constitute a quorum, except as otherwise required by the Delaware General Corporation Law. In the event of a lack of a quorum, the chairman of the meeting or a majority in interest of the stockholders present in person or represented by proxy may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be obtained. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called. Section 2.6. Organization and Procedure. (a) The Chairman of the Board, or, in the absence of the Chairman of the Board, the Vice Chairman of the Board, or any other person designated by the Board of Directors, shall preside at meetings of stockholders. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. (b) At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order for the conduct of the meeting, including, without limitation, restricting attendance to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman and making rules governing speeches and debates. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. Section 2.7. Voting. Unless otherwise provided by the Delaware General Corporation Law, each stockholder shall be entitled to one vote, in person or by written proxy, for each share held of record by such stockholder who is entitled to vote generally in the election of directors. All elections for the Board of Directors shall be decided by a plurality of the votes cast and all other questions shall be decided by a majority of the votes cast, except as otherwise required by the Delaware General Corporation Law or as provided for in the Certificate of Incorporation or these Bylaws. Section 2.8. Inspectors. The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, -3- as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated by the Board of Directors as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) shall have the duties prescribed by the Delaware General Corporation Law. Section 2.9. Nominations of Directors. Nominations of candidates for election as directors at any annual meeting of stockholders may be made (i) by, or at the direction of, a majority of the Board of Directors or (ii) by any stockholder of record entitled to vote at such annual meeting. Only persons nominated in accordance with procedures set forth in this Section 2.9 shall be eligible for election as a director at an annual meeting. Nominations, other than those made by, or at the direction of, a majority of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 2.9. To be timely, a stockholder's notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of the scheduled annual meeting, regardless of postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder to be timely must be so delivered or received no later than the close of business on the tenth (10th) day following the earlier of the date on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. Such stockholder's notice shall be set forth (i) as to each person whom the stockholder proposes to nominate as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation's equity securities which are Beneficially Owned (as defined below) by such person on the date of such stockholder notice and (d) and any other information relating to such person that would be required to be disclosed pursuant to Regulation 13D under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in connection with the acquisition of shares, and pursuant to Regulation 14A under the Exchange Act, in connection with the solicitation of proxies with respect to nominees for election as directors, regardless of whether such person is subject to the provisions of such regulations, including, but not limited to, information required to be disclosed by Items 4(b) and 6 of Schedule A of Regulation 14A and information which would be required to be filed on Schedule B of Regulation 14A with the Securities and Exchange Commission (as such Items and Schedules are in effect on the date hereof and such additional information as may be required by those provisions or successor provisions adopted after the date thereof); and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such stockholder and any other stockholder who is a record or Beneficial Owner of any equity securities of the Corporation and who is known by such stockholder to be supporting such nominee(s) and (b) the class and number of shares of the -4- Corporation's equity securities which are Beneficially Owned and owned of record by such stockholder on the date of such stockholder notice and the number of shares of the Corporation's equity securities Beneficially Owned and owned of record by any Person known by such stockholder to be supporting such nominee(s) on the date of such stockholder notice. At the request of a majority of the Board of Directors any person nominated by, or at the direction of, the Board of Directors for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with procedures set forth in this Section 2.9 shall be provided for use at the annual meeting. A majority of the directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Section 2.9. If a majority of the directors determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 2.9 in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five (5) days, from the date such deficiency notice is given to the stockholder, as a majority of the directors shall reasonably determine. If the deficiency is not cured within such period, or if a majority of the directors reasonably determine that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this Section 2.9 in any material respect, then a majority of the directors may reject such stockholder's nomination. The Secretary of the Corporation shall notify a stockholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Section 2.9. Notwithstanding the procedure set forth in this Section 2.9, if the majority of the directors does not make a determination as to the validity of any nominations by a stockholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether a nomination was not made in accordance with the terms of this Section 2.9. If the presiding officer determines that a nomination was not made in accordance with the terms of this Section 2.9, he shall so declare at the annual meeting and the defective nomination shall be disregarded. For the purposes of this Section 2.9 and Section 2.10, a person shall be considered the "Beneficial Owner" of any security (whether or not owned of record): (a) with respect to which such person or any affiliate or associate (as those terms are defined under Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of such person directly or indirectly has or shares (i) voting power, including the power to vote or to direct the voting of such securities and/or (ii) investment power, including the power to dispose of or to direct the disposition of such security; (b) which such person or any affiliate or associate of such person has (i) the right or obligation to acquire (whether such right or obligation is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not -5- in writing) or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (ii) the right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing and whether or not such right is exercisable immediately or only after the passage of time); or (c) which is Beneficially Owned within the meaning of (a) or (b) of this paragraph by any other person with which such first-mentioned person or any of its affiliates or associates has any agreement, arrangement or understanding (whether or not in writing), with respect to (x) acquiring, holding, voting or disposing of such security or any security convertible into or exchangeable or exercisable for such security, or (y) acquiring, holding or disposing of all or substantially all of the assets or businesses of the Corporation or a subsidiary of the Corporation. Section 2.10. New Business. At the annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by, or at the direction of, the majority of the Board of Directors or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 2.10. For the proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponement, deferrals or adjournments of that meeting to a later date, provided however, that if less than seventy (70) days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholder who is the record or Beneficial Owner of any equity security of the Corporation known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation's equity securities which are Beneficially Owned and owned of record by the stockholder giving the notice on the date of such stockholder notice and by any other record or Beneficial Owners of the Corporation's equity securities known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial or other interest of the stockholder in such proposal. A majority of the directors may reject any stockholder proposal not timely made in accordance with the terms of this Section 2.10. If a majority of the directors determine that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 2.10 in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an -6- opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five (5) days from the date such deficiency notice is given to the stockholder, as the majority of the directors shall reasonably determine. If the deficiency is not cured within such period, or if the majority of the directors determines that the additional information provided by the stockholder, together with information previously provided, does not satisfy the requirements of this Section 2.10 in any material respect, then a majority of the directors may reject such stockholder's proposal. The Secretary of the Corporation shall notify a stockholder in writing whether his or her proposal has been made in accordance with the time and information requirements of this Section 2.10. Notwithstanding the procedures set forth in this paragraph, if a majority of the directors does not make a determination as to the validity of any stockholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Section 2.10. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Section 2.10, he or she shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. Section 2.11. Action by Shareholders Without a Meeting. Any action required or permitted to be taken at any meeting of the Shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Action taken pursuant to this paragraph shall be subject to the provisions of Section 228 of the Delaware General Corporation Law. SECTION III Board of Directors Section 3.1. Number and Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. Except as otherwise required by the Certificate of Incorporation, the number of directors constituting the Board of Directors shall be as authorized from time to time exclusively by resolution of the Board of Directors. Section 3.2. Resignation. A director may resign at any time by giving written notice to the Chairman of the Board, to the Chief Executive Officer, or to the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. -7- Section 3.3. Regular Meetings. Regular meetings of the Board of Directors may be held without further notice at such time as shall from time to time be determined by the Board of Directors. A meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before it may be held without notice immediately following the annual meeting of stockholders. Section 3.4. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the Chief Executive Officer, or at the request in writing of one-third of the members of the Board of Directors then in office. Section 3.5. Notice of Special Meetings. Notice of the date, time and place of each special meeting shall be mailed by regular mail to each director at his or her designated address at least six days before the meeting; or sent by overnight courier to each director at his or her designated address at least two days before the meeting (with delivery scheduled to occur no later than the day before the meeting); or given orally by telephone or other means, or by telegraph or telecopy, or by any other means comparable to any of the foregoing, to each director at his designated address at least 24 hours before the meeting; provided, however, that if less than five days' notice is provided and one-third - -------- ------- of the members of the Board of Directors then in office object in writing prior to or at the commencement of the meeting, such meeting shall be postponed until five days after such notice was given pursuant to this sentence (or such shorter period to which a majority of those who objected in writing agree), provided that notice of such postponed meeting shall be given in accordance with this Section 3.5. The notice of the special meeting shall state the general purpose of the meeting, but other routine business may be conducted at the special meeting without such matter being stated in the notice. Section 3.6. Place of Meetings. The Board of Directors may hold their meetings and have an office or offices inside or outside of the State of Delaware. Section 3.7. Telephone Meeting and Participation. Any or all of the directors may participate in a meeting of the Board of Directors or any committee thereof by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. Section 3.8. Action by Directors Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 3.9. Quorum and Adjournment. A majority of the directors then holding office shall constitute a quorum. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Whether or not a quorum is present to conduct a meeting, any meeting of the Board of Directors (including an -8- adjourned meeting) may be adjourned by a majority of the directors present, to reconvene at a specific time and place. It shall not be necessary to give to the directors present at the adjourned meeting notice of the reconvened meeting or of the business to be transacted, other than by announcement at the meeting that was adjourned; provided, however, notice of such reconvened meeting, -------- ------- stating the date, time and place of the reconvened meeting, shall be given to the directors not present at the adjourned meeting in accordance with the requirements of Section 3.5 hereof. Section 3.10. Organization. The Chairman of the Board, or in the absence of the Chairman of the Board, the Vice Chairman of the Board, shall preside at meetings of the Board of Directors; provided that if the Vice Chairman of the Board is also absent, a member of the Board of Directors selected by the members present shall preside at such meetings. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. Section 3.11. Compensation of Directors. Directors shall receive such compensation for their services as the Board of Directors may determine. Any director may serve the Corporation in any other capacity and receive compensation therefor. Section 3.12. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors when a vote on any matter is taken is deemed to have assented to the action taken unless he or she votes against or abstains from the action taken, or unless at the beginning of the meeting or promptly upon arrival the director objects to the holding of the meeting or transacting specified business at the meeting. Any such dissenting votes, abstentions or objections shall be entered in the minutes of the meeting. Section 3.13. Chairman of the Board of Directors and Vice Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and the stockholders. The Chairman of the Board of Directors shall perform such other duties and have such other authority and powers as the Board of Directors may from time to time prescribe. In the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors shall perform the duties and exercise the powers of the Chairman of the Board of Directors. Neither the Chairman of the Board of Directors nor the Vice Chairman of the Board of Directors shall, solely by virtue of holding such titles, be officers of the Company. The Chairman of the Board of Directors and Vice Chairman of the Board of Directors shall be appointed by the Board of Directors and serve at the pleasure of the Board of Directors. -9- SECTION IV Committees Section 4.1. Committees. The Board of Directors may, by resolutions passed by a majority of the members of the Board of Directors, designate members of the Board of Directors to constitute committees which shall in each case consist of such number of directors, and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them. Any such committee may fix its rules of procedure, determine its manner of acting and the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. Unless otherwise provided by the Board of Directors or such committee, the quorum, voting and other procedures shall be the same as those applicable to actions taken by the Board of Directors. A majority of the members of the Board of Directors then in office shall have the power to change the membership of any such committee at any time to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time. SECTION V Officers Section 5.1. Designation. The officers of the Corporation shall be a Chief Executive Officer, a President, a Treasurer and a Secretary, and the Board of Directors may elect or appoint, or provide for the appointment of, one or more Assistant Secretaries and Assistant Treasurers. The Board of Directors may elect or appoint, or provide for the appointment of, such other officers, including one or more Vice Presidents in such gradation as the Board of Directors may determine, or agents as may from time to time appear necessary or advisable in the conduct of the business and affairs of the Corporation. Any number of offices may be held by the same person. Section 5.2. Election Term. At its first meeting after each annual meeting of stockholders, the Board of Directors shall elect the officers or provide for the appointment thereof. Subject to Sections 5.3 and 5.4 hereof, the term of each officer elected by the Board of Directors shall be until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer's successor is chosen and qualified. Section 5.3. Resignation. Any officer may resign at any time by giving written notice to the Chief Executive Officer or the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. -10- Section 5.4. Removal. Any officer may be removed at any time with or without cause by the affirmative vote of a majority of the members of the Board of Directors then in office. Any officer appointed by another officer may be removed with or without cause by such officer or the Chief Executive Officer. Section 5.5. Vacancies. A vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors or, in the case of offices held by officers who may be appointed by other officers, by any officer authorized to appoint such officer. Section 5.6. Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint agents and employees of the Corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Chief Executive Officer. He shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business or which shall be authorized by resolution of the Board of Directors; and except as otherwise provided by law or the Board of Directors, he may authorize the President or any Vice President or other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general he shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time. Section 5.7. President. The President shall be the chief operating officer of the Corporation and shall be responsible for supervising and directing the operation of the Corporation's business, subject to the direction of the Chief Executive Officer and the Board of Directors. He shall have such other duties and powers as may be assigned to or vested in him from time to time by the Board of Directors or Chief Executive Officer. In the absence of the Chief Executive Officer or his inability to act, the President shall perform the duties and exercise the authority of the Chief Executive Officer. Section 5.8. Vice President. Each Vice President shall have such powers and perform such duties as may be provided for herein and as may be assigned by the Chief Executive Officer, the President or the Board of Directors. Section 5.9. Treasurer. The Treasurer shall have charge of all funds of the Corporation and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors. Section 5.10. Secretary. The Secretary shall keep the minutes, and give notices, of all meetings of stockholders and directors and of such committees as directed by the Board of Directors. The Secretary shall have charge of such books and papers as the Board of Directors -11- may require. The Secretary or any Assistant Secretary is authorized to certify copies of extracts from minutes and of documents in the Secretary's charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary or any Assistant Secretary. The Secretary shall perform all acts incident to the office of Secretary, subject to the control of the Board of Directors. Section 5.11. Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall have such powers and perform such duties as usually pertain to their respective offices and as may be assigned by the Board of Directors or an officer designated by the Board of Directors. Section 5.12. Compensation of Officers. The officers of the Corporation shall receive such compensation for their services as the Board of Directors may determine. The Board of Directors may delegate its authority to determine compensation to designated officers of the Corporation. Section 5.13. Execution of Instruments. Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer, the President, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. Section 5.14. Mechanical Endorsements. The Chief Executive Officer, the President, any Vice President or the Secretary may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate. SECTION VI Indemnification Section 6.1. Indemnification Provisions in Certificate of Incorporation. The provisions of this Section VI are intended to supplement Article VI of the Certificate of Incorporation pursuant to Sections 6.2 and 6.3 thereof. To the extent that this Section VI contains any provisions inconsistent with said Article VI, the provisions of the Certificate of Incorporation shall govern. Terms defined in such Article VI shall have the same meaning in this Section VI. Section 6.2. Indemnification of Employees. The Corporation may by resolution of its Board of Directors indemnify and advance expenses to its employees to the same extent as to its directors and officers, as set forth in the Certificate of Incorporation and in this Section VI of the Bylaws of the Corporation. -12- Section 6.3. Undertakings for Advances of Expenses. If and to the extent the Delaware General Corporation Law requires, an advancement by the Corporation of expenses incurred by a indemnitee pursuant to clause (iii) of the last sentence of Section 6.1 of the Certificate of Incorporation (hereinafter an "advancement of expenses") shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under Article VI of the Certificate of Incorporation or otherwise. Section 6.4. Claims for Indemnification. If a claim for indemnification under Section 6.1 of the Certificate of Incorporation is not paid in full by the Corporation within 60 days after it has been received in writing by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses only upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions). Neither the failure of the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions), nor an actual determination by the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct, or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to have or retain such advancement of expenses, under Article VI of the Certificate of Incorporation or this Section VI or otherwise, shall be on the Corporation. Section 6.5. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the Corporation or another enterprise against any expense, liability or loss, whether or not the Corporation would have the -13- power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 6.6. Severability. In the event that any of the provisions of this Section VI (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the fullest extent permitted by law. SECTION VII Miscellaneous Section 7.1. Seal. The Corporation shall have a suitable seal, containing the name of the Corporation. The Secretary shall be in charge of the seal and may authorize one or more duplicate seals to be kept and used by any other officer or person. Section 7.2. Waiver of Notice. Whenever any notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 7.3. Voting of Stock Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. Any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess any may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may from time to time confer like powers upon any other person or persons. Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. -14- SECTION VIII Amendment of Bylaws The Board of Directors, by the affirmative vote of a majority of the whole Board of Directors, shall have power to amend, alter, change, adopt or repeal the Bylaws of the Corporation at any regular or special meeting; provided, however, that the stockholders entitled to vote may prescribe that any - -------- ------- Bylaw adopted by the stockholders may not be amended, altered, changed, or repealed by the Board of Directors. The stockholders entitled to vote also shall have the power to amend, alter, change, adopt or repeal the Bylaws of the Corporation at any annual or special meeting subject to the requirements of the Certificate of Incorporation. -15- EX-10.1 8 SUBLEASE AGREEMENT Exhibit 10.1 SUBLEASE AGREEMENT ------------------ THIS SUBLEASE AGREEMENT made and entered into as of the 1st day of August, 1996, by and between BLAIR HAVEN ENTERTAINMENT, INC., d/b/a COMMERCIAL DOWNLINK, an Ohio corporation (hereinafter called "Sublessor"), and SEAVISION, INC., a Delaware corporation (hereinafter called "Sublessee"). 1. Demise of Premises. For and in consideration of the covenants, ------------------ conditions and agreements hereinafter contained, Sublessor does hereby demise and lease unto Sublessee and Sublessee does hereby accept and take from Sublessor the following described premises (the "Demised Premises"): 4,971 square feet of space on the first floor of that certain building known as One Pinewood Centre, 13320 State Route 7 North, Lisbon, Ohio 44432, together with the right of ingress and egress and the right to park vehicles of Sublessee's employees and visitors in the adjoining parking lot. 2. Term. The term of this Sublease (the "Sublease Term") shall commence ---- upon the 1st day of August, 1996, and shall continue until terminated by either party upon thirty (30) days' notice. 3. Use of Premises. Sublessee shall use and occupy the Demised Premises --------------- for general office purposes and any other lawful purpose. 4. Base Rental. Sublessee covenants, stipulates and agrees to pay to ----------- Sublessor as Base Rental for the Demised Premises the sum of Thirty Seven Hundred and No/100 Dollars ($3,700.00) per month, payable on the first day of each and every month during the term of this Sublease. The parties acknowledge that a portion of the Base Rental amount is to compensate Sublessor for certain administrative services provided by Sublessor for Sublessee, including secretarial services, warehousing and inventory control. 5. Other Costs and Expenses. Sublessee shall be responsible for the cost ------------------------ of any insurance Sublessee desires to maintain on its personal property in the Demised Premises. Sublessor shall be responsible for all other expenses associated with the Demised Premises, including, without limitation, real estate taxes, heating, fuel, gas, electricity, sewerage, rubbish removal and other utility expenses (excluding telephone), fire and hazard insurance and general liability insurance, janitorial services, and all other costs of operation and maintenance of the Demised Premises and the building containing the Demised Premises. 6. Assignment. Sublessee may assign this Sublease or sublet the Demised ---------- Premises or any part thereof without the consent of Sublessor; provided, however, Sublessee shall notify Sublessor not less than thirty (30) days in advance of such assignment or subletting. 7. Removal of Fixtures. Sublessor agrees that Sublessee may remove its ------------------- trade fixtures at the end of the Sublease term or any renewal thereof, provided all rent shall be paid to the end of such term and all damages occasioned by such removal shall be properly repaired by Sublessee. 8. Alterations to the Demised Premises. Sublessor agrees that Sublessee ----------------------------------- may, at its own expense, from time to time during the term hereof, make such alterations, additions and changes, other than structural, in and to the Demised Premises as it finds necessary or convenient for its purposes. Sublessee agrees that all alterations, additions and changes made -2- by it will be done or made in a first-class workmanlike manner, and anything in this Sublease to the contrary notwithstanding, Sublessor and Sublessee agree that Sublessee shall have the right, but no obligation at the end of the term of this Sublease or any extension thereof to remove the same. If Sublessee elects not to remove any such alterations, additions or changes, ownership thereof shall vest in Sublessor upon expiration of this Sublease. 9. Maintenance and Repairs. Sublessor shall be responsible at its cost ----------------------- for all maintenance, repairs and replacements to the Demised Premises, except those required by the negligence or fault of Sublessee. 10. Events of Default. Any one or more of the following shall constitute ----------------- an "Event of Default" under this Sublease: (a) Sublessee shall fail to make payment of any installment of rent or of any other sum provided under this Sublease within ten (10) days after receipt of written notice that it remains due and payable, or (b) Sublessee fails to perform or observe any other covenant of this Sublease within thirty (30) days after Sublessor notifies Sublessee of such failure; provided, however, if such failure cannot be remedied within thirty (30) days, Sublessee will not be in default if it begins such remedy within thirty (30) days and thereafter diligently pursues the same to completion, or (c) Sublessee is adjudicated a bankrupt, or any assignment is made by Sublessee for the benefit of creditors, or a receiver is appointed for Sublessee. 11. Signs. Sublessee may erect such signs upon any part of the exterior of ----- the Demised Premises as are in compliance with all applicable laws and are customarily used by others in similar businesses. -3- 12. Damage to Premises. Sublessor agrees with Sublessee that if the ------------------ Demised Premises shall, during the term of this Sublease, be damaged by fire, explosion, storm, flood or other unavoidable cause, and the damage be so slight as not to affect the occupancy by Sublessee in the normal conduct of its business, then Sublessor shall repair said damage as soon as possible and restore the Demised Premises to the same physical condition as they were prior to said damage. If the Demised Premises shall be damaged as aforesaid to the extent that Sublessee cannot use and enjoy the same in the normal conduct of its business, but repairs may reasonably be made and completed thereon so as to render the Demised Premises suitable for use and occupancy by Sublessee within a period of ninety (90) days from the date of such damage, then and in that event, unless Sublessee notifies Sublessor that it wishes to terminate this Sublease, Sublessor shall promptly make the required repairs within said period and the rent, during the time required for the making of said repairs, shall be proportionately abated so that Sublessee shall not be required to pay to Sublessor that portion of the rent herein reserved which would have been otherwise payable during the period required for such repairs had such damage not occurred. In the event that the Demised Premises shall be totally destroyed by fire, explosion, storm, flood or unavoidable cause, or in the event that they shall be so substantially destroyed that they cannot be repaired and rendered fit for occupancy by Sublessee in its normal course of business within a period of ninety (90) days from the date of such damage, then this Sublease, at the option of either party hereto, may be terminated, and neither party hereto shall, after such termination, be liable hereunder. -4- 13. Quiet Enjoyment. Sublessor covenants that Sublessee shall have and --------------- enjoy, during the term of this Sublease, the quiet and undisturbed possession of the Demised Premises. Sublessee covenants that it will deliver quiet and peaceful possession of the Demised Premises to Sublessor in as good order and repair at the end of the Sublease term as they were at the beginning of said term, reasonable wear and tear excepted. 14. Sublessor's Non-Performance. If Sublessor shall be in default in the --------------------------- performance of any of its obligations hereunder, Sublessee may, but is not obligated to, after ten (10) days' written notice to Sublessor, perform the same for the account of Sublessor, and deduct the cost thereof from rental payments due hereunder. 15. Condemnation. If the whole of the Demised Premises is taken by any ------------ government or public authority under the power of eminent domain, or conveyed in lieu thereof, then the Sublease term will cease from the day possession of the Demised Premises is taken and the rent will be paid up to that day. In the event that less than the whole of the Demised Premises is taken, either party will have the option, to be exercised within thirty (30) days of the date that possession of the part of the Premises is taken, to terminate this Sublease and the rent will be paid up to the date of termination. If neither Sublessor nor Sublessee exercises said option, then this Sublease will continue in full force and effect, except that the rent will be reduced to an amount bearing the same proportion to the rent before such taking or condemnation as the size of the Demised Premises after such taking or condemnation bears to the size of the Demised Premises before such taking or condemnation. -5- Sublessor and Sublessee shall each be entitled to such portion of the compensation award as may be allowed under the laws of the State of Ohio. 16. Sublessor's Access to Premises. Sublessee agrees that it will permit ------------------------------ Sublessor to have free access to the Demised Premises, on reasonable advance, written notice to Sublessee, for the purpose of inspecting the same or making repairs in accordance with the provisions of this Sublease, and also for the purpose of showing the Demised Premises to prospective tenants or purchasers and representatives of governmental agencies, insurance carriers and lending institutions. 17. Estoppel Certificate. At any time, and from time to time, upon the -------------------- written request of either party or any mortgagee, the other party, within ten (10) days of the date of such written request, agrees to execute and deliver to the requesting party and/or such mortgagee, without charge, a written Estoppel Certificate. 18. Notices. All notices required or desired to be given hereunder shall ------- be in writing and shall for the purpose of this Sublease be deemed to have been duly given: (a) To Sublessor at One Pinewood Centre, 13320 State Route 7 North, Lisbon, Ohio 44432, or to such other address as Sublessor may from time to time designate in writing to Sublessee. (b) To Sublessee at 300 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220, or to such other address as Sublessee may from time to time designate in writing to Sublessor. All notices shall be served by hand delivery or by nationally recognized overnight delivery service or by prepaid registered or certified mail and shall be effective on the date -6- of delivery if they are hand delivered or one business day after deposited with the overnight delivery service or three (3) days after posting if mailed. 19. Successors and Assigns. The covenants, agreements and conditions ---------------------- contained in this Sublease shall run with the Demised Premises and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 20. Entire Agreement. This Sublease contains the entire agreement of the ---------------- parties hereto with respect to the letting and hiring of the Demised Premises and may not be amended, modified, released, surrendered or discharged, in whole or in part, except by an instrument in writing signed by all of the parties hereto, their successors or assigns. 21. Captions. The captions of the Paragraphs of this Sublease are used -------- solely for convenience of reference and shall not control or affect the meaning or interpretation of any provision of this Sublease. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound have executed this Sublease Agreement on the day and year first above written. WITNESS: BLAIR HAVEN ENTERTAINMENT, INC., d/b/a COMMERCIAL DOWNLINK __________________________________ By: __________________________________ Title: _______________________________ __________________________________ [Signatures continued on next page.] -7- [Signatures continued from previous page.] WITNESS: SEAVISION, INC. __________________________________ By: __________________________________ Title: _______________________________ __________________________________ -8- EX-10.2 9 ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS Exhibit 10.2 Assignment of Intellectual Property Rights ------------------------------------------ For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Blair Haven Entertainment, Inc., d/b/a Commercial Downlink, an Ohio corporation ("Commercial Downlink"), Brian K. Blair ("Blair") and R. Daniel Foreman ("Foreman"), intending to be legally bound hereby, assigns to SeaVision, Inc., a Delaware corporation ("SeaVision") all of its and his worldwide right, title and interest in and to any and all intellectual property rights (including, but not limited to, patents, copyrights, trademarks, trade secrets, know-how, inventions, technology, processes, formulas, systems, plans, programs, studies and techniques) now owned by Commercial Downlink, Blair or Foreman and which relate to the business of SeaVision. Each of Commercial Downlink, Blair and Foreman further agrees to promptly disclose to SeaVision all technology, processes, formulas, systems, plans, programs, studies, techniques, data, know-how, information, discoveries, inventions and improvements conceived, made, first reduced to practice or developed solely or jointly with others by Commercial Downlink, Blair or Foreman and related to the business of SeaVision (hereinafter "SeaVision Technology"). SeaVision Technology shall be the sole and exclusive property of SeaVision in respect to any and all countries in the world. Each of Commercial Downlink, Blair and Foreman agrees to cooperate with SeaVision to generally do all lawful acts deemed necessary or expedient by SeaVision or its counsel to assist or enable SeaVision to obtain and enforce full benefits from the rights and interests assigned herein. This instrument shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without giving effect to the conflicts of laws provisions thereof). IN WITNESS WHEREOF, the undersigned have executed this Assignment of Intellectual Property Rights on this 3rd day of October, 1994, intending to be legally bound hereby. BLAIR ENTERTAINMENT, INC. d/b/a COMMERCIAL DOWNLINK By: /s/Brian K. Blair ---------------------------------- Name Printed: Brian K. Blair ------------------------ Title: President ------------------------------- /s/Brian K. Blair ------------------------------------- Brian K. Blair /s/R. Daniel Foreman ------------------------------------- R. Daniel Foreman EX-10.3 10 REGISTRATION RIGHTS AGREEMENT Exhibit 10.3 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 23rd day of July, 1996, by and among ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), William C. Kavan ("Kavan"), Mark Kottler ("Kottler") and those persons whose names appear on the signature page hereof (collectively, the "Subscribers," and collectively with Kavan and Kottler, the "Preferred Holders"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently with the execution of this Agreement, Subscribers have agreed to purchase from the Company, and the Company has agreed to sell and issue to Subscribers, shares of Series A Convertible Preferred Stock, par value $100 per share, of the Company (the "Convertible Preferred Stock"); and WHEREAS, the Company has the right to convert certain loans made by Kavan and Kottler in the aggregate principal amount of $1,500,000 and, with respect to which, the Company is a co-obligor, into shares of Convertible Preferred Stock; and WHEREAS, the Convertible Preferred Stock will be issued to the Preferred Holders without registration under the Securities Act of 1933, as amended, and applicable state securities laws, and the Company and the Preferred Holders desire to provide hereunder for compliance therewith and for the possible registration of the shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") issuable upon conversion of the Convertible Preferred Stock. NOW, THEREFORE, in consideration of the premises and the mutual independent covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following ----------- capitalized terms have the meanings set forth below: Applicable Period - In the case of a Shelf Registration Statement, the ----------------- period referred to in Section 2.1(a)(ii), and in the case of any other Registration Statement, nine months or such shorter period as is necessary to complete the distribution of the Registrable Securities covered thereby. Commencement Date - The last date on which the shares of Convertible ----------------- Preferred Stock may be converted into Common Stock. Conversion Shares - The shares of Common Stock issued to Qualified ----------------- Holders upon conversion of shares of Convertible Preferred Stock into shares of Common Stock and any shares of Common Stock issued as a stock dividend or in a stock split or in connection with any other stock combination or division in respect of the Conversion Shares issued upon such conversion. Demand - As defined in Section 2.1(a)(i) hereof. ------ Exchange Act - The Securities Exchange Act of 1934, as amended, or ------------ similar federal statute then in effect, and a reference to a particular section thereof or regulation thereunder shall be deemed to include a reference to the comparable section, if any, of, or regulation, if any, under, any such similar federal statute. Majority Holders - Qualified Holders holding a majority of the ---------------- Registrable Securities included in a Shelf Registration Statement. Notice of Demand - As defined in Section 2.1(a)(i) hereof. ---------------- Person - An individual, partnership, joint venture, corporation, ------ trust, unincorporated organization or government or any department or agency thereof. Piggy-back Registration - A registration of Conversion Shares pursuant ----------------------- to Section 2.1(b) hereof. Qualified Holder - Each Preferred Holder so long as it or he holds any ---------------- of the Conversion Shares held by it or him on the Commencement Date and each Person to whom a Preferred Holder or a Qualified Holder transfers such Conversion Shares. Prospectus - The prospectus included in a Registration Statement, ---------- including any preliminary prospectus, and any such Prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and by all other amendments and supplements to such Prospectus, including post-effective amendments, and in each case including all exhibits thereto and all material incorporated by reference therein. Registrable Securities - Any Conversion Shares issued to, and on the ---------------------- Commencement Date held by, a Qualified Holder. As to any Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration -2- Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement or, if earlier, when the Applicable Period shall have expired with respect to such securities; (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act; (iii) new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force; or (iv) they shall have ceased to be outstanding. Registration Statement - The Shelf Registration Statement, any ---------------------- registration statement registering shares held by Qualified Holders pursuant to Section 2.1(b) hereof and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. SEC - The Securities and Exchange Commission. --- Securities Act - The Securities Act of 1933, as amended, or similar -------------- federal statute then in effect, and a reference to a particular section thereof or regulation thereunder shall be deemed to include a reference to the comparable section, if any, of, or regulation, if any, under, such similar federal statute. Seller - As defined in Section 2.1(g) hereof. ------ Shelf Registration - A registration required to be effected pursuant ------------------ to Section 2.1(a). Shelf Registration Statement - A "shelf" registration statement of the ---------------------------- Company pursuant to the provisions of Section 2.1(a) of this Agreement which covers Registrable Securities and is filed on Form S-3 under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. Underwriter - A person who acts as an underwriter with respect to any ----------- registration of securities pursuant to this Agreement. Underwritten Offering - A sale of securities of the Company to an --------------------- Underwriter or Underwriters for reoffering to the public. -3- ARTICLE II REGISTRATION RIGHTS 2.1 Registration. ------------ (a) Shelf Registration. ------------------ (i) At any time from the Commencement Date until the third anniversary of the Commencement Date, one or more Qualified Holders holding in the aggregate at least the number of Conversion Shares into which 5,000 shares of Convertible Preferred Stock have been converted (as adjusted for stock splits, stock dividends, reverse stock splits or any other combination or division of the Conversion Shares) will be entitled to deliver to the Company, on one occasion, a written notice (a "Demand") requesting a Shelf Registration. Upon receipt of a Demand, the Company will deliver to each Qualified Holder a written notice (the "Notice of Demand") which shall include a copy of the Demand together with a statement to the effect that the Company will include all Registrable Securities in a Shelf Registration pursuant to this Section 2.1(a) unless the Company receives, by a date specified in the Notice of Demand (which shall be no less than 20 days following the delivery of such Notice of Demand), a notice from a Qualified Holder to exclude all or a portion of such Qualified Holder's Registrable Securities from such Shelf Registration. Following receipt of a Demand, the Company shall, as expeditiously as reasonably possible, use its best efforts to effect a Shelf Registration of all Registrable Securities except those which a Qualified Holder has on a timely basis requested to be excluded from such Shelf Registration and those of any Qualified Holder who does not provide information reasonably requested by the Company in connection with the Shelf Registration Statement. The Company may, at its option, include in such Shelf Registration Statement shares held by any shareholder other than the Qualified Holders having rights similar to those contained in this Section 2.1(a). (ii) The Company agrees to use its best efforts to keep the Shelf Registration Statement continuously effective for a period of three years following the date on which such Shelf Registration Statement is initially declared effective or such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration. -4- (iii) On one occasion, the Majority Holders of the Registrable Securities covered by a Shelf Registration Statement may elect to have such Registrable Securities sold in an Underwritten Offering. In such event, the Company shall be entitled to engage an investment banking firm selected by the Company to serve as Underwriter. (b) Piggy-back Registration. ----------------------- (i) If the Company at any time prior to the third anniversary of the Commencement Date proposes to register any of its securities for an Underwritten Offering under the Securities Act (other than pursuant to a Shelf Registration), whether or not for sale for its own account, and if the registration form proposed to be used may be used for the registration of Registrable Securities, the Company will each such time give prompt written notice to all Qualified Holders of its intention to do so. Upon the written request of any such Qualified Holder made within 30 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Qualified Holder), the Company will use its best efforts to cause all such Registrable Securities as to which Qualified Holders requested registration to be registered under the Securities Act (with the securities which the Company at the time proposes to register), so as to permit the sale or other disposition by such Qualified Holders of such Registrable Securities. (ii) No registration effected pursuant to this Section 2.1(b) shall be deemed to have been effected pursuant to Section 2.1(a) hereof. (iii) Notwithstanding anything to the contrary in this Section 2.1(b), the Company shall have the right to discontinue any Piggy-back Registration at any time prior to the effective date of such Piggy- back Registration if the registration of other securities giving rise to such Piggy-back Registration is discontinued; but no such discontinuation shall preclude an immediate or subsequent request for a Shelf Registration. (c) Registration Procedures. If the Company is required by the ----------------------- provisions of this Section 2.1 to use its best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Section, the Company will, as expeditiously as possible: (i) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective during the Applicable Period; in the case of a Shelf Registration Statement, such Registration Statement shall be (A) reasonably acceptable to special counsel for the Qualified Holders and (B) available for the sale of Registrable Securities in accordance with the intended -5- method or methods of distribution of the selling Qualified Holders (subject to the limitation set forth in Section 2.1(a)(iii) hereof); (ii) prepare and file with the SEC such amendments and supplements to such Registration Statement as may be necessary to keep such Registration Statement effective for the Applicable Period and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement during the Applicable Period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement; (iii) furnish to each seller of such Registrable Securities and, in the case of an Underwritten Offering, each Underwriter of the securities being sold by such seller, such number of copies of such Registration Statement, such number of copies of the Prospectus included in such Registration Statement and such other documents as such seller and Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller (including any Prospectus amended or supplemented as set forth in Section 2.1(c)(vi)); (iv) use its best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as any seller and each Underwriter of the securities being sold by such seller shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of such Registrable Securities owned by such seller; provided, the Company shall not for any such purpose be required to (A) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Section 2.1(c)(iv) be obligated to be qualified, (B) subject itself to taxation in any such jurisdiction, (C) to consent to general service of process in any such jurisdictions, or (D) register or qualify such Registrable Securities in more than ten states; (v) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) notify each seller of any such Registrable Securities covered by such Registration Statement (i) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (ii) of receipt of notification with respect to the suspension of the qualification of the Registrable -6- Securities for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose, (iii) at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the Company's becoming aware that the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing (other than a fact relating to such seller), and promptly use its best efforts to prepare a Prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (vii) otherwise use its best efforts to comply with federal and state laws and all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; (viii) use its best efforts (A) to cause all such Registrable Securities covered by such Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (B) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers; (ix) provide a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (x) in the case of an Underwritten Offering, enter into an underwriting agreement in customary form and take such other actions as Majority Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xi) in the case of an Underwritten Offering, use its best efforts to obtain an opinion from the Company's counsel and a "cold comfort" letter from the Company's independent public accountants in customary form and covering -7- such matters of the type customarily covered by such opinions and "cold comfort" letters; (xii) make available for inspection by any seller of such Registrable Securities covered by such Registration Statement, by any Underwriter participating in any disposition to be effected pursuant to such Registration Statement and by any attorney, accountant or other agent retained by any such seller or any such Underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; provided, however, that all such persons shall agree to standard confidentiality provisions regarding all such records, documents and information; and (xiii) permit any holder of Registrable Securities which holder, in the sole and exclusive judgment, exercised in good faith, of such holder, might be deemed to be a controlling person of the Company, to participate in the preparation of such registration or comparable statement. Each Qualified Holder shall be deemed to have agreed by including Registrable Securities in a Registration Statement that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.1(c)(vi) hereof, such Qualified Holder will forthwith discontinue such Qualified Holder's disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Qualified Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.1(c)(vi) hereof and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Qualified Holder's possession of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the Applicable Period shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of any Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.1(c)(vi) hereof. If any Registration Statement, Prospectus or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company, then (whether or not, in the sole and exclusive judgment, exercised in good faith, of such holder, such holder is or might be deemed to be a controlling person of the Company) such holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such holder and presented to the Company in writing, to the effect that the holding of such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the -8- Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar federal or state statute then in force, the deletion of the reference to such holder. Each seller shall provide to the Company in writing information concerning itself required by law to be included in any Registration Statement registering shares held by such seller. (d) Registration Expenses. The Company shall, whether or not any --------------------- Shelf Registration or Piggy-back Registration shall become effective, pay all expenses incident to its performance of or compliance with this Section in connection with a Shelf Registration or Piggy-back Registration, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (subject to the limitation set forth in Section 2.1(c)(iv) hereof), printing expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and all independent public accountants (including the expenses of any audit and/or "cold comfort" letter) and other persons retained by the Company and reasonable fees and disbursements of one counsel or firm of counsel chosen by the Majority Holders, and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (excluding underwriting commissions and discounts). In all cases, any allocation of Company personnel or other general overhead expenses of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business shall be borne by the Company. (e) Indemnification and Contribution. The Company hereby indemnifies, -------------------------------- to the extent permitted by law, each Qualified Holder, its officers and directors, if any, and each Person, if any, who controls such Qualified Holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information respecting such Qualified Holder furnished in writing to the Company by such Qualified Holder expressly for use therein. If the offering pursuant to any Registration Statement provided for under this Section is made through Underwriters, the Company agrees to enter into an underwriting agreement in customary form with such Underwriters and to indemnify such Underwriters, their officers and directors, if any, and each Person, if any, who controls such Underwriters within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities -9- Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information respecting such Underwriters or the participating Qualified Holders furnished in writing to the Company by such Underwriters or the participating Qualified Holders expressly for use therein. In connection with any Registration Statement with respect to Registrable Securities held by a Qualified Holder, each such Qualified Holder will furnish to the Company in writing such information respecting such Qualified Holder as shall be reasonably requested by the Company for use in any such Registration Statement or Prospectus and will indemnify, to the extent permitted by law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the Registration Statement or Prospectus or necessary to make the statements therein not misleading, but only to the extent that such untrue statement is contained in or such omission is from information so furnished in writing by such Qualified Holder expressly for use therein. If the offering pursuant to any such Registration Statement is made through Underwriters, each such Qualified Holder agrees to enter into an underwriting agreement in customary form with such Underwriters, and to indemnify such Underwriters, their officers and directors, if any, and each Person, if any, who controls such Underwriters within the meaning of Section 15 of the Securities Act to the same extent as hereinbefore provided with respect to indemnification by such Qualified Holder of the Company. Any Person entitled to indemnification under the provisions of this Section 2.1(e) shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any such settlement made without its consent (which consent shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any Registration Statement provided for under this Section shall so provide. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, -10- unless in the reasonable judgment of any such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a participating Qualified Holder, its officers, directors or any Person, if any, who controls such Qualified Holder as aforesaid, and shall survive the transfer of such securities by such Qualified Holder. If for any reason the foregoing indemnity is unavailable, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (x) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (y) if the allocation provided by clause (x) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Contributions required to be made by an Underwriter, if any, shall be governed by the terms of the underwriting agreement. Notwithstanding the foregoing, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) Certain Limitations on Registration Rights. ------------------------------------------ (i) In the case of an Underwritten Offering under a Shelf Registration, if the Majority Holders determine to enter into an underwriting agreement in connection therewith, or, in the case of a Piggy-back Registration, if the Company or holders of securities initially requesting or demanding such registration have determined to enter into an underwriting agreement in connection therewith, all Registrable Securities to be included in such registration shall be subject to such underwriting agreement, and no Person may participate in such registration unless such Person agrees to sell such Person's securities on the basis provided in the underwriting arrangements approved by the Company or such holders and completes and/or executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other reasonable documents which must be executed under the terms of such underwriting arrangements. (ii) Notwithstanding anything to the contrary in this Section 2.1, if the Company shall previously have received a request for registration under this or any other registration rights agreement, and if such previous registrations shall not have been withdrawn or abandoned, the Company will not effect any registration of any of its securities under the Securities Act (other than a -11- registration on Form S-4 or S-8 (or any similar form) or other publicly registered offering pursuant to the Securities Act pertaining to the issuance of securities under any benefit plan, employee compensation plan, or employee or director stock purchase plan or in connection with an offer of securities solely to existing security holders) whether or not for sale for its own account, until a period of three months shall have elapsed from the effective date of such previous registration; and the Company shall so provide in any registration rights agreements hereafter entered into with respect to any of its securities. (g) Allocation of Securities Included in Registration Statement. In ----------------------------------------------------------- the case of an Underwritten Offering, if the Company's managing Underwriter shall advise the Company and the Qualified Holders in writing that the inclusion in any registration pursuant to this Section of some or all of the Registrable Securities sought to be registered by the holders requesting such registration creates a substantial risk that the proceeds or price per unit the Sellers (as defined below) will derive from such registration will be reduced or that the number of securities to be registered (including those sought to be registered at the instance of the Company and any other party entitled to participate in such registration as well as those sought to be registered by the Qualified Holders) is too large a number to be reasonably sold, then the number of Registrable Securities sought to be registered by each Seller shall be reduced pro rata in proportion to the number of securities sought to be registered by all Sellers to the extent necessary to reduce the number of securities to be registered to the number recommended by the managing underwriter. For purposes of this Section 2.1(g) the term "Seller" shall mean and include the Company and each holder of securities (including, but not limited to, Registrable Securities) entitled to participate in the subject registration. (h) Limitations on Sale or Distribution of Other Securities. Each ------------------------------------------------------- holder of Registrable Securities shall be deemed to have agreed by the inclusion of Registrable Securities in a Registration Statement not to effect any public sale or distribution, including (if requested by the Underwriter) any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, and to use such holder's best efforts not to effect any public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering) within 7 days before or 90 days (or such other period to which the Underwriters of such offering may consent) after the effective date of any Registration Statement filed by the Company pursuant to this Article II or other agreement providing for registration rights. 2.2 Rule 144. If the Company shall have filed a registration -------- statement pursuant to the requirements of Section 12 of the Exchange Act or a Registration Statement pursuant to the requirements of the Securities Act, the Company covenants that it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including but -12- not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(l) of Rule 144 adopted by the SEC under the Securities Act) and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, will, upon the request of any Qualified Holder, make publicly available such information), and will take such further action as any Qualified Holder may reasonably request, all to the extent required from time to time to enable such Qualified Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Qualified Holder, the Company will deliver to such Qualified Holder a written statement as to whether it has complied with such requirements. ARTICLE III MISCELLANEOUS 3.1 Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Majority Holders; provided, however, that no amendment, modification or -------- ------- supplement or waiver or consent to the departure with respect to the provisions of Sections 2.1(a) or 2.1(e) hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. 3.2 Successors, Assigns and Transferees. This Agreement shall be ----------------------------------- binding upon and shall inure to the benefit of the parties hereto and their respective representatives, administrators, heirs, successors and assigns, as applicable, including, without limitation and without the need for an express assignment, subsequent Qualified Holders. If any successor, assignee or transferee of any Qualified Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be entitled to receive the benefits hereof and shall be conclusively deemed to have agreed to be bound by all of the terms and provisions hereof. 3.3 Notices. All notices and other communications provided for ------- hereunder shall be in writing and shall be sent by first class mail, telex, telecopier or hand delivery: -13- if to the Company, to: Allin Communications Corporation 300 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Attention: Richard W. Talarico FAX: (708) 377-0907 if to a Qualified Holder, to: the most recent address of such Qualified Holder on the books of the Company All such notices and communications shall be deemed to have been given or made (i) when delivered by hand, (ii) two business days after being deposited in the mail, postage prepaid, (iii) when telexed, answer-back received or (iv) when telecopied, receipt acknowledged. 3.4 Descriptive Headings. The headings in this Agreement are for -------------------- convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. 3.5 Severability. In the event that any one or more of the ------------ provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 3.6 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 3.7 Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Delaware, without regard to the conflicts of laws rules thereof. [signatures appear on next page] -14- IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. ALLIN COMMUNICATIONS CORPORATION By: ____________________________________________ Title: _________________________________________ ________________________________________________ William C. Kavan ________________________________________________ Mark Kottler SUBSCRIBERS ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ -15- EX-10.4 11 REGISTRATION RIGHTS AGREEMENT Exhibit 10.4 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 23rd day of July, 1996, by and among ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), and the stockholders of SeaVision, Inc., a Delaware corporation ("SeaVision"), whose names appear on the signature page hereof (collectively, the "Stockholders"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, SeaVision and SeaVision Acquisition Corporation, a Delaware corporation ("SVAC"), have entered into an Agreement and Plan of Merger pursuant to which SeaVision will be merged with and into SVAC (the "Merger") and each outstanding share of SeaVision common stock, will be converted into and exchanged for one share of common stock, par value $0.01 per share, of the Company (the "Common Stock"); and WHEREAS, the Common Stock to be issued in the Merger will be issued without registration under the Securities Act of 1933, as amended, and applicable state securities laws, and the Company and the Stockholders desire to provide hereunder for compliance therewith and for the possible registration of the shares of Common Stock issued upon consummation of the Merger and certain other shares of Common Stock that the Stockholders may acquire. NOW, THEREFORE, in consideration of the premises and the mutual independent covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following capitalized ----------- terms have the meanings set forth below. Applicable Period - In the case of a Shelf Registration Statement, the ----------------- period referred to in Section 2.1(a)(ii), and in the case of any other Registration Statement, nine months or such shorter period as is necessary to complete the distribution of the Registrable Securities covered thereby. Commencement Date - The date which is one year following the Public ----------------- Offering Date. Demand - As defined in Section 2.1(a)(i) hereof. ------ Exchange Act - The Securities Exchange Act of 1934, as amended, or ------------ similar federal statute then in effect, and a reference to a particular section thereof or regulation thereunder shall be deemed to include a reference to the comparable section, if any, of, or regulation, if any, under, any such similar federal statute. Majority Holders - Qualified Holders holding a majority of the ---------------- Registrable Securities included in a Shelf Registration Statement. Notice of Demand - As defined in Section 2.1(a)(i) hereof. ---------------- Person - An individual, partnership, joint venture, corporation, ------ trust, unincorporated organization or government or any department or agency thereof. Piggy-back Registration - A registration of Shares pursuant to Section ----------------------- 2.1(b) hereof. Prospectus - The prospectus included in a Registration Statement, ---------- including any preliminary prospectus, and any such Prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and by all other amendments and supplements to such Prospectus, including post-effective amendments, and in each case including all exhibits thereto and all material incorporated by reference therein. Public Offering Date - The date on which the Company closes an initial -------------------- public offering of Common Stock. Qualified Holder - Each Stockholder so long as it or he holds any of ---------------- the Shares held by it or him on the Public Offering Date and each Person to whom a Stockholder or a Qualified Holder transfers such Shares. Registrable Securities - Any Shares issued to, and on the Commencement ---------------------- Date held by, a Qualified Holder. As to any Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement or, if earlier, when the Applicable Period shall have expired with respect to such securities; (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act; (iii) new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force; or (iv) they shall have ceased to be outstanding. -2- Registration Statement - The Shelf Registration Statement, any ---------------------- registration statement registering Shares held by Qualified Holders pursuant to Section 2.1(b) hereof and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. SEC - The Securities and Exchange Commission. --- Securities Act - The Securities Act of 1933, as amended, or similar -------------- federal statute then in effect, and a reference to a particular section thereof or regulation thereunder shall be deemed to include a reference to the comparable section, if any, of, or regulation, if any, under, such similar federal statute. Seller - As defined in Section 2.1(g) hereof. ------ Shares - The shares of Common Stock to be issued to Qualified Holders ------ upon consummation of the Merger, any shares of Common Stock issued to a Qualified Holder prior to or as of the Public Offering Date and any shares of Common Stock issued as a stock dividend or in a stock split or in connection with any other stock combination or division in respect of the Shares. Shelf Registration - A registration required to be effected pursuant ------------------ to Section 2.1(a). Shelf Registration Statement - A "shelf" registration statement of the ---------------------------- Company pursuant to the provisions of Section 2.1(a) of this Agreement which covers Registrable Securities and is filed on Form S-3 under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. Underwriter - A person who acts as an underwriter with respect to any ----------- registration of securities pursuant to this Agreement. Underwritten Offering - A sale of securities of the Company to an --------------------- Underwriter or Underwriters for reoffering to the public. -3- ARTICLE II REGISTRATION RIGHTS 2.1 Registration. ------------ (a) Shelf Registration. ------------------ (i) At any time from the Commencement Date until the third anniversary of the Commencement Date, one or more Qualified Holders holding in the aggregate at least ten percent of the Shares (as adjusted for stock splits, stock dividends, reverse stock splits or any other combination or division of the Shares) will be entitled to deliver to the Company, on one occasion, a written notice (a "Demand") requesting a Shelf Registration. Upon receipt of a Demand, the Company will deliver to each Qualified Holder a written notice (the "Notice of Demand") which shall include a copy of the Demand together with a statement to the effect that the Company will include all Registrable Securities in a Shelf Registration pursuant to this Section 2.1(a) unless the Company receives, by a date specified in the Notice of Demand (which shall be no less than 20 days following the delivery of such Notice of Demand), a notice from a Qualified Holder to exclude all or a portion of such Qualified Holder's Registrable Securities from such Shelf Registration. Following receipt of a Demand, the Company shall, as expeditiously as reasonably possible, use its best efforts to effect a Shelf Registration of all Registrable Securities except those which a Qualified Holder has on a timely basis requested to be excluded from such Shelf Registration and those of any Qualified Holder who does not provide information reasonably requested by the Company in connection with the Shelf Registration Statement. The Company may, at its option, include in such Shelf Registration Statement shares held by any shareholder other than the Qualified Holders having rights similar to those contained in this Section 2.1(a). (ii) The Company agrees to use its best efforts to keep the Shelf Registration Statement continuously effective for a period of three years following the date on which such Shelf Registration Statement is initially declared effective or such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration. (iii) On one occasion, the Majority Holders of the Registrable Securities covered by a Shelf Registration Statement may elect to have such Registrable -4- Securities sold in an Underwritten Offering. In such event, the Company shall be entitled to engage an investment banking firm selected by the Company to serve as Underwriter. (b) Piggy-back Registration. ----------------------- (i) If the Company at any time prior to the third anniversary of the Commencement Date proposes to register any of its securities for an Underwritten Offering under the Securities Act (other than pursuant to a Shelf Registration), whether or not for sale for its own account, and if the registration form proposed to be used may be used for the registration of Registrable Securities, the Company will each such time give prompt written notice to all Qualified Holders of its intention to do so. Upon the written request of any such Qualified Holder made within 30 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Qualified Holder), the Company will use its best efforts to cause all such Registrable Securities as to which Qualified Holders requested registration to be registered under the Securities Act (with the securities which the Company at the time proposes to register), so as to permit the sale or other disposition by such Qualified Holders of such Registrable Securities. (ii) No registration effected pursuant to this Section 2.1(b) shall be deemed to have been effected pursuant to Section 2.1(a) hereof. (iii) Notwithstanding anything to the contrary in this Section 2.1(b), the Company shall have the right to discontinue any Piggy-back Registration at any time prior to the effective date of such Piggy- back Registration if the registration of other securities giving rise to such Piggy-back Registration is discontinued; but no such discontinuation shall preclude an immediate or subsequent request for a Shelf Registration. (c) Registration Procedures. If the Company is required by the ----------------------- provisions of this Section 2.1 to use its best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Section, the Company will, as expeditiously as possible: (i) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective during the Applicable Period; in the case of a Shelf Registration Statement, such Registration Statement shall be (A) reasonably acceptable to special counsel for the Qualified Holders and (B) available for the sale of Registrable Securities in accordance with the intended method or methods of distribution of the selling Qualified Holders (subject to the limitation set forth in Section 2.1(a)(iii) hereof); -5- (ii) prepare and file with the SEC such amendments and supplements to such Registration Statement as may be necessary to keep such Registration Statement effective for the Applicable Period and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement during the Applicable Period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement; (iii) furnish to each seller of such Registrable Securities and, in the case of an Underwritten Offering, each Underwriter of the securities being sold by such seller, such number of copies of such Registration Statement, such number of copies of the Prospectus included in such Registration Statement and such other documents as such seller and Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller (including any Prospectus amended or supplemented as set forth in Section 2.1(c)(vi)); (iv) use its best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as any seller and each Underwriter of the securities being sold by such seller shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of such Registrable Securities owned by such seller; provided, the Company shall not for any such purpose be required to (A) qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Section 2.1(c)(iv) be obligated to be qualified, (B) subject itself to taxation in any such jurisdiction, (C) to consent to general service of process in any such jurisdictions, or (D) register or qualify such Registrable Securities in more than ten states; (v) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) notify each seller of any such Registrable Securities covered by such Registration Statement (i) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (ii) of receipt of notification with respect to the suspension of the qualification of the Registrable Securities for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose, (iii) at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the Company's becoming aware that -6- the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing (other than a fact relating to such seller), and promptly use its best efforts to prepare a Prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (vii) otherwise use its best efforts to comply with federal and state laws and all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; (viii) use its best efforts (A) to cause all such Registrable Securities covered by such Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (B) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers; (ix) provide a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (x) in the case of an Underwritten Offering, enter into an underwriting agreement in customary form and take such other actions as Majority Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xi) in the case of an Underwritten Offering, use its best efforts to obtain an opinion from the Company's counsel and a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by such opinions and "cold comfort" letters; -7- (xii) make available for inspection by any seller of such Registrable Securities covered by such Registration Statement, by any Underwriter participating in any disposition to be effected pursuant to such Registration Statement and by any attorney, accountant or other agent retained by any such seller or any such Underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; provided, however, that all such persons shall agree to standard confidentiality provisions regarding all such records, documents and information; and (xiii) permit any holder of Registrable Securities which holder, in the sole and exclusive judgment, exercised in good faith, of such holder, might be deemed to be a controlling person of the Company, to participate in the preparation of such registration or comparable statement. Each Qualified Holder shall be deemed to have agreed by including Registrable Securities in a Registration Statement that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.1(c)(vi) hereof, such Qualified Holder will forthwith discontinue such Qualified Holder's disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Qualified Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.1(c)(vi) hereof and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Qualified Holder's possession of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the Applicable Period shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of any Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.1(c)(vi) hereof. If any Registration Statement, Prospectus or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company, then (whether or not, in the sole and exclusive judgment, exercised in good faith, of such holder, such holder is or might be deemed to be a controlling person of the Company) such holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such holder and presented to the Company in writing, to the effect that the holding of such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by -8- the Securities Act or any similar federal or state statute then in force, the deletion of the reference to such holder. Each seller shall provide to the Company in writing information concerning itself required by law to be included in any Registration Statement registering shares held by such seller. (d) Registration Expenses. The Company shall, whether or not any --------------------- Shelf Registration or Piggy-back Registration shall become effective, pay all expenses incident to its performance of or compliance with this Section in connection with a Shelf Registration or Piggy-back Registration, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (subject to the limitation set forth in Section 2.1(c)(iv) hereof), printing expenses, messenger and delivery expenses, fees and disbursements of counsel for the Company and all independent public accountants (including the expenses of any audit and/or "cold comfort" letter) and other persons retained by the Company and reasonable fees and disbursements of one counsel or firm of counsel chosen by the Majority Holders, and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (excluding underwriting commissions and discounts). In all cases, any allocation of Company personnel or other general overhead expenses of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business shall be borne by the Company. (e) Indemnification and Contribution. The Company hereby indemnifies, -------------------------------- to the extent permitted by law, each Qualified Holder, its officers and directors, if any, and each Person, if any, who controls such Qualified Holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information respecting such Qualified Holder furnished in writing to the Company by such Qualified Holder expressly for use therein. If the offering pursuant to any Registration Statement provided for under this Section is made through Underwriters, the Company agrees to enter into an underwriting agreement in customary form with such Underwriters and to indemnify such Underwriters, their officers and directors, if any, and each Person, if any, who controls such Underwriters within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses (under the Securities Act or common law or otherwise), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if the Company shall have furnished any -9- amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses are caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information respecting such Underwriters or the participating Qualified Holders furnished in writing to the Company by such Underwriters or the participating Qualified Holders expressly for use therein. In connection with any Registration Statement with respect to Registrable Securities held by a Qualified Holder, each such Qualified Holder will furnish to the Company in writing such information respecting such Qualified Holder as shall be reasonably requested by the Company for use in any such Registration Statement or Prospectus and will indemnify, to the extent permitted by law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the Registration Statement or Prospectus or necessary to make the statements therein not misleading, but only to the extent that such untrue statement is contained in or such omission is from information so furnished in writing by such Qualified Holder expressly for use therein. If the offering pursuant to any such Registration Statement is made through Underwriters, each such Qualified Holder agrees to enter into an underwriting agreement in customary form with such Underwriters, and to indemnify such Underwriters, their officers and directors, if any, and each Person, if any, who controls such Underwriters within the meaning of Section 15 of the Securities Act to the same extent as hereinbefore provided with respect to indemnification by such Qualified Holder of the Company. Any Person entitled to indemnification under the provisions of this Section 2.1(e) shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, permit such indemnifying party to assume the defense of such claim, with counsel reasonably satisfactory to the indemnified party; and if such defense is so assumed, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party and such indemnifying party shall not be subject to any liability for any such settlement made without its consent (which consent shall not be unreasonably withheld); and any underwriting agreement entered into with respect to any Registration Statement provided for under this Section shall so provide. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or firm of counsel for all parties indemnified by such indemnifying party in respect of such claim, unless in the reasonable judgment of any such indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of -10- any investigation made by or on behalf of a participating Qualified Holder, its officers, directors or any Person, if any, who controls such Qualified Holder as aforesaid, and shall survive the transfer of such securities by such Qualified Holder. If for any reason the foregoing indemnity is unavailable, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (x) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (y) if the allocation provided by clause (x) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Contributions required to be made by an Underwriter, if any, shall be governed by the terms of the underwriting agreement. Notwithstanding the foregoing, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) Certain Limitations on Registration Rights. ------------------------------------------ (i) In the case of an Underwritten Offering under a Shelf Registration, if the Majority Holders determine to enter into an underwriting agreement in connection therewith, or, in the case of a Piggy-back Registration, if the Company or holders of securities initially requesting or demanding such registration have determined to enter into an underwriting agreement in connection therewith, all Registrable Securities to be included in such registration shall be subject to such underwriting agreement, and no Person may participate in such registration unless such Person agrees to sell such Person's securities on the basis provided in the underwriting arrangements approved by the Company or such holders and completes and/or executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other reasonable documents which must be executed under the terms of such underwriting arrangements. (ii) Notwithstanding anything to the contrary in this Section 2.1, if the Company shall previously have received a request for registration under this or any other registration rights agreement, and if such previous registrations shall not have been withdrawn or abandoned, the Company will not effect any registration of any of its securities under the Securities Act (other than a registration on Form S-4 or S-8 (or any similar form) or other publicly registered offering pursuant to the Securities Act pertaining to the issuance of securities under any benefit plan, employee compensation plan, or employee or director -11- stock purchase plan or in connection with an offer of securities solely to existing security holders) whether or not for sale for its own account, until a period of three months shall have elapsed from the effective date of such previous registration; and the Company shall so provide in any registration rights agreements hereafter entered into with respect to any of its securities. (g) Allocation of Securities Included in Registration Statement. In ----------------------------------------------------------- the case of an Underwritten Offering, if the Company's managing Underwriter shall advise the Company and the Qualified Holders in writing that the inclusion in any registration pursuant to this Section of some or all of the Registrable Securities sought to be registered by the holders requesting such registration creates a substantial risk that the proceeds or price per unit the Sellers (as defined below) will derive from such registration will be reduced or that the number of securities to be registered (including those sought to be registered at the instance of the Company and any other party entitled to participate in such registration as well as those sought to be registered by the Qualified Holders) is too large a number to be reasonably sold, then the number of Registrable Securities sought to be registered by each Seller shall be reduced pro rata in proportion to the number of securities sought to be registered by all Sellers to the extent necessary to reduce the number of securities to be registered to the number recommended by the managing underwriter. For purposes of this Section 2.1(g) the term "Seller" shall mean and include the Company and each holder of securities (including, but not limited to, Registrable Securities) entitled to participate in the subject registration. (h) Limitations on Sale or Distribution of Other Securities. Each ------------------------------------------------------- holder of Registrable Securities shall be deemed to have agreed by the inclusion of Registrable Securities in a Registration Statement not to effect any public sale or distribution, including (if requested by the Underwriter) any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, and to use such holder's best efforts not to effect any public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering) within 7 days before or 90 days (or such other period to which the Underwriters of such offering may consent) after the effective date of any Registration Statement filed by the Company pursuant to this Article II or other agreement providing for registration rights. 2.2 Rule 144. If the Company shall have filed a registration -------- statement pursuant to the requirements of Section 12 of the Exchange Act or a Registration Statement pursuant to the requirements of the Securities Act, the Company covenants that it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(l) of Rule 144 adopted by the SEC under the Securities Act) and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such -12- reports, will, upon the request of any Qualified Holder, make publicly available such information), and will take such further action as any Qualified Holder may reasonably request, all to the extent required from time to time to enable such Qualified Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Qualified Holder, the Company will deliver to such Qualified Holder a written statement as to whether it has complied with such requirements. ARTICLE III MISCELLANEOUS 3.1 Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Majority Holders; provided, however, that no amendment, modification or -------- ------- supplement or waiver or consent to the departure with respect to the provisions of Sections 2.1(a) or 2.1(e) hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. 3.2 Successors, Assigns and Transferees. This Agreement shall be ----------------------------------- binding upon and shall inure to the benefit of the parties hereto and their respective representatives, administrators, heirs, successors and assigns, as applicable, including, without limitation and without the need for an express assignment, subsequent Qualified Holders. If any successor, assignee or transferee of any Qualified Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be entitled to receive the benefits hereof and shall be conclusively deemed to have agreed to be bound by all of the terms and provisions hereof. 3.3 Notices. All notices and other communications provided for ------- hereunder shall be in writing and shall be sent by first class mail, telex, telecopier or hand delivery: if to the Company, to: Allin Communications Corporation 300 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Attention: Richard W. Talarico FAX: (708) 377-0907 -13- if to a Qualified Holder, to: the most recent address of such Qualified Holder on the books of the Company All such notices and communications shall be deemed to have been given or made (i) when delivered by hand, (ii) two business days after being deposited in the mail, postage prepaid, (iii) when telexed, answer-back received or (iv) when telecopied, receipt acknowledged. 3.4 Descriptive Headings. The headings in this Agreement are for -------------------- convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. 3.5 Severability. In the event that any one or more of the ------------ provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 3.6 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 3.7 Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Delaware, without regard to the conflicts of laws rules thereof. [signatures appear on next page] -14- IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. ALLIN COMMUNICATIONS CORPORATION By: ---------------------------------- Title: ------------------------------- STOCKHOLDERS ------------------------------------- Henry Posner, Jr. ------------------------------------- Thomas D. Wright ------------------------------------- Terence M. Graunke ------------------------------------- James C. Roddey ------------------------------------- Richard W. Talarico ------------------------------------- Brian K. Blair ------------------------------------- R. Daniel Foreman ------------------------------------- Thomas J. Wiegand (Signatures continued on next page) -15- (Signatures continued from previous page) ------------------------------------- Larry R. Hamilton ------------------------------------- William C. Kavan ------------------------------------- Mark Kottler ------------------------------------- David F. Gould ------------------------------------- Christina Hopper ------------------------------------- Robin Levine -16- EX-10.5 12 NOTE CONVERSION AGREEMENT Exhibit 10.5 NOTE CONVERSION AGREEMENT This Note Conversion Agreement (this "Agreement") is made this 23rd day of July, 1996, by and among SeaVision, Inc., a corporation organized and existing under the laws of the State of Delaware ("SeaVision"), Allin Communications Corporation, a Delaware corporation and a wholly-owned subsidiary of SeaVision ("Allin"), SeaVision Acquisition Corporation, a Delaware corporation, and a wholly-owned subsidiary of Allin ("SAC"), and Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James C. Roddey and Richard W. Talarico (each individually a "Lender", and collectively the "Lenders"). WHEREAS, SeaVision has issued to the Lenders promissory notes (in the form attached hereto as Exhibit A), in the aggregate original principal amount of $6,600,000 (the "Promissory Notes"); and WHEREAS, on May 31, 1996, $3,600,000 of the outstanding principal of the Promissory Notes was repaid to the Lenders, but no accrued and unpaid interest was paid; and WHEREAS, as of the date hereof an aggregate principal balance of $3,000,000 remains outstanding under the Promissory Notes, and $843,271 of interest remains accrued and unpaid; and WHEREAS, pursuant to an Agreement and Plan of Merger of even date herewith, by and among SeaVision, SAC and Allin, SeaVision will merge with and into SAC, with SAC surviving the merger (the "Merger") and changing its name to "SeaVision, Inc." (post-merger SAC will be referred to hereinafter as "New SeaVision"); and WHEREAS, pursuant to the Merger and by operation of law, the Promissory Notes will become the obligation of New SeaVision; and WHEREAS, Allin contemplates undertaking an initial public offering of its common stock ("Initial Public Offering"); and WHEREAS, the parties understand that it is a requirement of the underwriters that the principal amount outstanding under the Promissory Notes be converted into common stock of Allin contemporaneously with the commencement of the Initial Public Offering; and WHEREAS, the parties to this Agreement therefore, wish to modify the Promissory Notes, contingent upon the occurrence of the Merger. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Effective Time. This Agreement shall be effective upon consummation -------------- of the Merger (the "Effective Time"). 2. Additional Obligor. At the Effective Time, Allin shall become a co- ------------------ obligor on the Promissory Notes with the same effect as if Allin had originally executed the Promissory Notes. Without limiting the foregoing, Allin as well as New SeaVision, shall be liable for (a) the payment of all outstanding principal under the Promissory Notes, (b) all interest accrued and unpaid under the Promissory Notes as of the Effective Time, and (c) all interest accruing under the Promissory Notes after the Effective Time. 3. Conversion. Upon the commencement of the Initial Public Offering (the ---------- date on which the Initial Public Offering commences being referred to herein as the "Conversion Date"), the entire principal amount outstanding under the Promissory Notes shall be converted into, and exchanged for, Allin common stock ("Allin Common Stock"), in accordance with the following formula: each $100 of principal will be converted into the number of shares of Allin Common Stock, rounded to the ninth decimal place, determined by dividing 100 by a fraction, the numerator of which is 35.0 million and the denominator of which is the quotient of 1,000 divided by one minus the "Investment Percentage," where the Investment Percentage is a fraction, the numerator of which is the sum of (a) the number of shares of Series A Convertible Redeemable Preferred Stock of Allin issued multiplied by 100 plus (b) 3.0 million and the denominator of which is 35.0 million (as adjusted for stock dividends, stock splits, reverse stock splits and any other stock combination or division). Provided, however, that no such conversion shall be effective unless and until Allin or New SeaVision has paid to the Lenders, in cash, all interest on the Promissory Notes accrued and unpaid as of the Conversion Date. Unless default is made in the payment of the accrued and unpaid interest or in the conversion of all principal under the Promissory Notes into Allin Common Stock (the "Conversion"), all rights of the Lenders as obligees under the Promissory Notes shall cease at the close of business on the Conversion Date, except (a) the right to receive payment in full of all interest owed to such Lender and accrued and unpaid as of the Conversion Date, and (b) the right to receive the amount of shares of Allin Common Stock to which such Lender is entitled pursuant to the formula set forth above. On the Conversion Date, the Lenders shall surrender all of the Promissory Notes then held by them to Allin. Upon receipt by the Lenders of all accrued and unpaid interest, the Conversion shall be effective, the Promissory Notes shall be cancelled, and the Lenders shall be holders of Allin Common Stock in the amounts determined pursuant to this Agreement. Allin shall, on the Conversion Date, issue common stock certificates to the Lenders reflecting the number of shares of Allin Common Stock to which each Lender is entitled pursuant to the terms of this Agreement; provided, however, that the failure of Allin to deliver such certificates shall not affect the rights of the Lenders as holders of Allin Common Stock. 4. All Other Terms Unchanged. Except as specifically set forth in this ------------------------- Agreement, all terms of the Promissory Notes shall remain unchanged, including without -2- limitation, the amounts of principal and accrued interest thereunder, the provisions relating to compounding and accrual of interest, and the maturity dates thereof. 5. Entire Agreement; Amendment. This Agreement, the Formation Agreement --------------------------- (as defined in the Promissory Notes, and as amended), the Promissory Notes, and the other agreements contemplated by the Formation Agreement, represent the entire understanding of the parties with respect to the subject matter hereof. This Agreement shall not be amended, terminated, revoked or supplemented (collectively, "Modified") except in a writing signed by Allin, SeaVision (if to be Modified pre-merger), SAC (if to be Modified pre-merger), New SeaVision (if to be Modified post-merger) and the holders of a majority of the indebtedness held by the Lenders (if to be Modified pre-Conversion), or the holders of a majority of the Allin Common Stock into which the indebtedness is converted (if to be Modified post-Conversion). 6. Governing Law. This Agreement shall be interpreted and construed in ------------- accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflict of laws provisions thereof. 7. Arbitration. Any controversy arising out of or in connection with ----------- this Agreement shall be resolved by arbitration in accordance with the procedure described in paragraph 11(b) of the Formation Agreement. 8. Binding Effect; Assignment; No Third Party Beneficiaries. This -------------------------------------------------------- Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, executors, administrators, successors and assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of Allin, SeaVision (if to be assigned pre-merger), SAC (if to be assigned pre-merger), New SeaVision (if to be assigned post-merger), and the holders of a majority of the outstanding principal held by the Lenders (if to be assigned pre-Conversion) or the holders of a majority of the Allin Common Stock into which the outstanding principal is converted (if to be assigned post- Conversion). This Agreement shall not confer any rights on any person who is not a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Note Conversion Agreement this 23rd day of July, 1996. SEAVISION, INC. By: ---------------------------------- Name Printed: ------------------------ Title: ------------------------------- [Signatures continued on next page] -3- [Signatures continued from preceding page] ALLIN COMMUNICATIONS CORPORATION By: ------------------------------------- Name Printed: --------------------------- Title: ---------------------------------- SEAVISION ACQUISITION CORPORATION By: ------------------------------------- Name Printed: -------------------------- Title: --------------------------------- --------------------------------------- Henry Posner, Jr. --------------------------------------- Thomas D. Wright --------------------------------------- Terence M. Graunke --------------------------------------- James C. Roddey --------------------------------------- Richard W. Talarico -4- EX-10.6 13 LICENSE AGREEMENT Exhibit 10.6 LICENSE AGREEMENT THIS LICENSE AGREEMENT is entered into as of the 1st day of December, 1993, but effective as of January 1, 1993, by and between MAJOR LEAGUE ALUMNI MARKETING, INC., a Virginia corporation (formerly known as Major League Alumni Properties, Inc.) ("MLAM"), and HAWTHORNE SPORTS MARKETING, INC., a Pennsylvania corporation ("Hawthorne"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, MLAM is a wholly-owned subsidiary of Major League Baseball Players Alumni Association, a District of Columbia corporation ("MLBPAA"); and WHEREAS, MLBPAA is the owner of the name "Major League Baseball Players Alumni Association" and the logotypes and trademarks set forth on Schedule I attached hereto (collectively hereinafter referred to as the "Marks"); and WHEREAS, MLAM is a licensee of MLBPAA with respect to the Marks pursuant to a license granted by MLBPAA to MLAM; and WHEREAS, MLAM is authorized to license the use of the Marks by others; and WHEREAS, Hawthorne has experience and expertise in sports marketing and promotions; and WHEREAS, MLAM, MLBPAA, and Hawthorne are parties to various agreements and understandings, some of which date back to May 15, 1989, regarding the Marks and certain other rights, which agreements and understandings are to be terminated upon the execution and delivery of this Agreement retroactive to December 31, 1992; and WHEREAS, MLAM desires to grant to Hawthorne the rights to use and exploit the Marks and the name "Major League Alumni Marketing" worldwide, and Hawthorne desires those rights on the terms and conditions hereinafter provided; NOW, THEREFORE, in consideration of the covenants herein contained, the parties hereto, intending to be legally bound hereby, covenant and agree as follows: 1. Grant of License ---------------- (a) MLAM hereby grants to Hawthorne a license with certain exclusive rights (all as more fully set forth below) and with the right to grant sublicenses to use the Marks and the name "Major League Alumni Marketing" (collectively, the "Rights") during the term of this Agreement anywhere in the world; provided, however, that Hawthorne shall not grant any sublicense for use of the Rights in connection with tobacco or liquor products or any other products or services which a person of reasonable social sensitivities would find objectionable, without the prior written consent of MLAM, which consent shall not be unreasonably withheld. (b) Hawthorne shall be the exclusive licensee of MLAM with respect to the types of programs and projects listed on Exhibit "A" attached hereto, and MLBPAA shall have the right to conduct the types of programs and projects listed on Exhibit B attached hereto, all as more fully set forth in Paragraph 9(a) of this Agreement. (c) Hawthorne acknowledges that MLBPAA is the owner of the Marks, that MLAM has the right to use and sublicense the Marks to Hawthorne, that Hawthorne's use of the Marks is for the sole benefit of MLBPAA and MLAM and, that Hawthorne has no interest in the Marks and will claim no interest therein beyond those rights expressly granted by this Agreement. (d) Upon termination of this Agreement: (i) Hawthorne shall immediately terminate all use of the Marks and materials bearing the Marks, except that Hawthorne and its sublicensees may continue to use the Marks for the purpose of completing or fulfilling commitments or undertakings which extend beyond the term of this Agreement as described in Paragraph 9(c) of this Agreement; and (ii) All Rights granted by MLAM to Hawthorne shall immediately revert to MLAM. 2. Initial Term and Renewals ------------------------- (a) This Agreement shall continue in full force and effect from January 1, 1993 (the "Effective Date") until May 15, 1996. (b) This Agreement shall be automatically renewed until December 31, 1998, unless either party shall deliver to the other written notice of its election not to renew on or before May 15, 1995. (c) This Agreement shall be automatically renewed after December 31, 1998, for successive terms of two years unless either party shall deliver to the other written notice of its election not to renew at least one year prior to the expiration of the then-current term. 3. Royalty ------- (a) During the initial term of this Agreement, Hawthorne shall pay to MLAM or as MLAM may direct an annual royalty (the "Annual Royalty") on the annual gross revenues actually received by Hawthorne in respect of its use, exploitation, and sublicensing of the Rights and from its activities related to former Major League Baseball Players, MLAM and MLBPAA, -2- undertaken during any calendar year during the term hereof commencing on the Effective Date (the "Annual Gross Revenues") as follows:
Annual Gross Revenues Royalty Percentages - ----------------------- ------------------- Years 1 and 2 Year 3 and thereafter* ------------- ---------------------- $0 - $3,000,000 4-1/2% 5% $3,000,000 - $6,000,000 5-1/2% 6% $6,000,000 - $12,000,000 6-1/2% 7% $12,000,000 8% 8%
* unless otherwise agreed by the parties (b) Hawthorne hereby guarantees to pay MLAM a minimum sum of Four Hundred Five Thousand Dollars ($405,000.00) during the initial term of this Agreement which is forty and one half (40 1/2) months. This guaranteed sum shall be paid in monthly installments as provided in subparagraph (c) of this Paragraph and shall be a credit against the Annual Royalty ultimately calculated to be due MLAM. (c) Hawthorne shall pay to MLAM or as MLAM may direct a minimum guaranteed non-refundable royalty of Ten Thousand Dollars ($10,000.00) per month (the "Monthly Advance") retroactive to the Effective Date and continuing until May 15, 1996, as a guaranteed advance against the Annual Royalty ultimately calculated to be due to MLAM. The Monthly Advance shall be prorated for any partial month during the term of this Agreement. Each monthly installment shall be paid on or before the end of the month for which it is due except that the amount of $110,000.00 which is due for the months from the Effective Date to the date of execution of this Agreement shall be paid as follows: (i) $55,000.00 upon the date of execution and delivery of this Agreement; and (ii) $55,000.00 in six equal consecutive monthly installments of $9,166.66 on or before the end of each of the first six months after the date of execution of this Agreement. 4. Hawthorne's Books and Records ----------------------------- (a) Hawthorne shall maintain true and correct books of account containing accurate and complete records of all data necessary for the computation of Annual Gross Revenues (as defined in Section 3(a) of this Agreement). (b) Annually, within 45 days after the end of each calendar year, Hawthorne shall submit a statement to MLAM showing Annual Gross Revenues and the Annual Royalty for such year. If the Annual Royalty then determined hereunder for such year exceeds the total of -3- the Monthly Advances for such year, each such statement shall be accompanied by a payment to MLAM of such excess amount. If the Annual Royalty then determined hereunder for such year is less than or equal to the total of the Monthly Advances for such year, no refund or payment will be required from MLAM to Hawthorne. (c) Hawthorne shall retain, at its expense, Arthur Andersen & Co. or such other international certified public accounting firm reasonably acceptable to MLAM (the "Accountant") to review the books of account maintained by Hawthorne hereunder and to verify that the reports and payments made by Hawthorne to MLAM conform to the requirements of this Agreement. Annually, not later than 120 days after the end of each calendar year, the Accountant shall issue a report to MLAM and Hawthorne regarding its findings and conclusions with respect to such calendar year (the "Annual Verification"). (d) Upon prior written notice of at least five (5) business days, MLAM shall have free and complete access to Hawthorne's books and records, related to Annual Gross Revenues only, during normal business hours, and, if it desires, MLAM may have the books and records related to Annual Gross Revenues audited and examined by auditors, accountants, or attorneys solely for the purpose of verifying the Annual Gross Revenues actually received by Hawthorne. Any such examination shall be at the separate expense of MLAM. (e) In the event that the Annual Verification shows an underpayment or overpayment in the amount paid by Hawthorne to MLAM, within thirty (30) days after receipt by Hawthorne and MLAM of notice of such underpayment or overpayment, Hawthorne shall pay to MLAM the amount by which the Annual Royalty shown to be due pursuant to the Annual Verification exceeds the Annual Royalty actually paid, or MLAM shall pay to Hawthorne the amount by which the Annual Royalty actually paid exceeds the greater of (i) the Annual Royalty shown to be due pursuant to the Annual Verification, or (ii) the total of the guaranteed Monthly Advances for such year. 5. Representations and Warranties of MLAM -------------------------------------- MLAM hereby represents and warrants to Hawthorne as follows: (a) MLAM is a validly existing Virginia corporation. (b) MLAM has the capacity to enter into and perform this Agreement and all transactions contemplated pursuant hereto, and all actions required to be taken to authorize it to enter into and perform this Agreement have been properly taken. (c) The execution and delivery of this Agreement by MLAM and the performance by it of its obligations hereunder will not constitute a breach by it of any other agreement to which it is a party. -4- (d) This Agreement has been duly executed and delivered by MLAM and is valid and binding upon it in accordance with its terms. (e) Except as set forth on Schedule III attached hereto, there are no actions, suits, investigations, litigation or governmental proceedings or, to the knowledge of MLAM, threatened against or affecting MLAM or MLBPAA in any court or before any governmental authority or arbitration board or tribunal that may adversely affect the Rights or the ability of MLAM to perform under this Agreement. (f) MLAM, to the best of its knowledge and belief, is in substantial compliance with all laws, ordinances, governmental rules and regulations to which it is subject, and it has all material licenses, permits, and other governmental authorizations necessary to its operations and the ownership of its properties. (g) MLAM and MLBPAA are the owners of or have the authority to grant the license granted herein with respect to the Rights. The Marks have not yet been registered with the U.S. Patent and Trademark Office but an application for registration of the Marks is now pending in the U.S. Patent and Trademark Office and MLBPAA has enjoyed ten years of the Marks' usage without objection or opposition. 6. Representations and Warranties of Hawthorne ------------------------------------------- Hawthorne hereby represents and warrants to MLAM as follows: (a) Hawthorne is a validly existing Pennsylvania corporation. (b) Hawthorne has the capacity to enter into and perform this Agreement and all transactions contemplated pursuant hereto, and that all actions required to be taken to authorize it to enter into and perform this Agreement have been properly taken. (c) Hawthorne's execution and delivery of this Agreement and the performance by it of its obligations hereunder will not constitute a breach by Hawthorne of any other agreement to which it is a party. (d) This Agreement has been duly executed and delivered by Hawthorne and is valid and binding upon it in accordance with its terms. (e) There are no actions, suits, investigations, litigation, or governmental proceedings pending or, to the knowledge of Hawthorne, threatened against or affecting Hawthorne in any court or before any governmental authority or arbitration board or tribunal that may adversely affect the Rights or the ability of Hawthorne to perform under this Agreement. -5- (f) Hawthorne, to the best of its knowledge and belief, is in substantial compliance with all laws, ordinances, governmental rules and regulations to which it is subject, and it has all material licenses, permits and other governmental authorizations necessary to its operations and ownership of its properties. 7. Hawthorne's Responsibilities ---------------------------- Hawthorne agrees to use its reasonable best efforts to manage and market the Rights in the name of MLAM and Hawthorne so as to achieve maximum economic benefits consistent with sound business practices and judgment in the sports and entertainment industries. Hawthorne further agrees that it shall, at all times, in the management and marketing of such rights, use its reasonable best efforts to act in the best interest of MLAM and MLBPAA. To such end, Hawthorne shall have full authority to take any and all actions regarding the development, exploitation, and marketing of the Rights set forth in Exhibit "A" as it deems appropriate, to negotiate and enter into agreements and arrangements with third parties, including third parties acting in an agency capacity, regarding the use or sublicensing of the Rights, the availability of and personal appearances by former Major League Baseball Players at events, promotions, programs, or otherwise, as determined by Hawthorne, and to determine reasonable compensation arrangements, reasonable expense limitations, and other reasonable terms of or relating in any matter to the development and exploitation of the Rights. 8. MLAM's Responsibilities ----------------------- (a) MLAM shall retain the right from MLBPAA to use and sub-license the Marks referred to in this Agreement. (b) MLAM agrees to use its reasonable best efforts to retain the existing Rights and to assist Hawthorne as appropriate, including obtaining the availability of former Major League Baseball Players to work with and under the management of Hawthorne in connection with Hawthorne's development and exploitation of the Rights set forth in Exhibit "A". 9. Rights and Mutual Cooperation ----------------------------- (a) Hawthorne shall be the exclusive licensing agent of MLAM with respect to the types of programs and projects set forth and described in Exhibit "A" attached hereto and incorporated by reference into this Agreement. Hawthorne hereby acknowledges and agrees that MLBPAA shall retain the rights to conduct the types of programs and projects described on Exhibit "B" attached hereto. To the extent that MLAM, MLBPAA, or Hawthorne desire to undertake a project or program which is not encompassed on Exhibit "A" or Exhibit "B", Hawthorne, MLAM, and MLBPAA agree to confer, without compensation to Hawthorne, and in good faith to reach a decision regarding whether and how any such program or project should be undertaken. The parties, in reaching such decision, shall make the decision based upon the best interests of MLBPAA. -6- (b) MLAM and Hawthorne agree to cooperate with one another regarding marketing activities and opportunities and regarding communications to establish a consistent and consolidated image and to promote the best interests of MLBPAA and the relations between and among MLBPAA, MLAM, and Hawthorne. (c) To the extent that Hawthorne, as a licensing agent of MLAM, with respect to the types of programs and projects described on Exhibit "A", enters into any agreement, commitment, or undertaking with respect to the Rights which extends beyond the term of this Agreement, (i) Hawthorne shall obtain the prior written consent of MLAM to such term, and (ii) MLAM and Hawthorne agree and acknowledge that any such agreement, commitment, or undertaking will be fulfilled and that Hawthorne shall pay to MLAM or as MLAM may direct the Annual Royalty on the Annual Gross Revenues of any such agreement, commitment, or undertaking in accordance with the royalty percentages set forth in Section 3(a) of this Agreement. 10. Hawthorne - Independent Contractor ---------------------------------- (a) Hawthorne shall be, and shall be deemed to be, an independent contractor and not the agent or employee of MLBPAA or MLAM. Neither MLBPAA nor MLAM shall have any authority to supervise the employees, representatives, or subcontractors of Hawthorne; and the marketing and exploiting of the Rights set forth in Exhibit "A" shall be under the supervision and control of Hawthorne. Hawthorne recognizes and acknowledges the goals and objectives of MLAM and MLBPAA as set forth on Schedule IV attached hereto, and agrees that it shall not, in the marketing and exploiting of the rights set forth in Exhibit "A" hereto, or the projects or programs referred to in Paragraph 9 of this License Agreement, engage in any activity or take any action that is likely to be detrimental to MLAM, MLBPAA, or their goals and objectives. (b) Hawthorne, as an independent contractor, shall be free to undertake any marketing and promotional projects and programs, whether or not related to former Major League Baseball Players, MLAM, or MLBPAA and will own any proprietary or intangible rights which it creates or has created. MLBPAA shall retain ownership of the Marks and MLAM shall retain ownership of its name. 11. Prior Agreements and Understandings ----------------------------------- MLBPAA, MLAM, and Hawthorne hereby agree, effective as of the Effective Date, that the agreements, understandings, and instruments listed and described on Schedule II attached hereto are terminated. MLBPAA, MLAM, and Hawthorne also agree to jointly petition the Court of Common Pleas of Allegheny County, Pennsylvania, to vacate the Consent Decree and terminate the Memorandum of Understanding entered in Case No. G. D. 90-18847 by and among MLBPAA, MLAM, Hawthorne, and Robert G. Miller. Furthermore, MLBPAA and MLAM agree to cause Robert G. Miller to join in the Petition to vacate the aforementioned -7- Consent Decree and agree to terminate the Memorandum of Understanding (as such terms are defined on Schedule II). 12. Termination for Breach ---------------------- This Agreement may be terminated by either party if there shall be a material breach by the other party of its obligations hereunder, which breach remains uncured for a period of sixty (60) days following the giving of Written Notice from the non-breaching party to the breaching party specifying such breach. 13. Arbitration of Disputes ----------------------- All disputes, claims, and questions regarding the rights and obligations of Hawthorne and MLAM under the terms of the Agreement shall be submitted to arbitration in Pittsburgh, Pennsylvania, as follows: (i) Either party may make a demand of arbitration by filing such demand, in writing, with the other party. (ii) Each party shall name one arbitrator. (iii) The two arbitrators shall select a third arbitrator. (iv) In default of naming an arbitrator, the Arbitration Committee of the American Arbitration Association shall name an arbitrator. Then the two arbitrators shall select a third arbitrator. (v) Arbitration shall be conducted under the rules and procedures of the American Arbitration Association. (vi) Each party shall pay its own costs and expenses of arbitration. (vii) With respect to any dispute or controversy that is made subject to arbitration under the terms of this Agreement, no suit at law or equity based on such dispute or controversy shall be instituted by either party, except to enforce the award of arbitrators. (viii) The determination and award of a majority of the arbitration shall be final and binding upon the parties and shall be a complete bar to any claims or demands by either party against the other arising out of the controversy or dispute submitted for arbitration. 14. Insurance --------- Hawthorne agrees to maintain or cause to be maintained during the term of this Agreement with a generally accepted insurance carrier Special Event Insurance (comprehensive -8- general liability) with coverage of at least $1,000,000 per occurrence or, in the event such coverage becomes unavailable at reasonable rates, with such other coverage limits as the parties may agree. Hawthorne shall cause MLAM and MLBPAA to be named as additional insureds on all policies of insurance covering the operations of Hawthorne which relate to this Agreement. 15. General ------- (a) By using the terms "guarantees" and "guaranteed" in Articles 3 and 4, the parties are not indicating that any third party is obligated along with Hawthorne to make payments pursuant to the terms of this Agreement. (b) This Agreement shall be binding upon and shall inure to the benefit of each of the parties and their respective successors and permitted assigns. (c) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous negotiations, representations, commitments, and writings. (d) This Agreement may not be amended, released, discharged, rescinded, or abandoned, except by a written agreement duly executed by each of the parties hereto. The failure of any party hereto at any time to enforce any of the provisions of this Agreement will in no way constitute or be construed as a waiver of such provision or of any other provision hereof, nor in any way affect the validity of, or the right thereafter to enforce each and every provision of this Agreement. (e) This Agreement and its validity, construction, administration, and all rights hereunder, will be governed by the laws of the Commonwealth of Virginia without regard to its conflict of laws provisions. (f) The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. (g) Wherever provision is made in this Agreement for the giving, service, or delivery of any notice, statement or other instrument, such notice shall be in writing and shall be deemed to have been duly given, served, and delivered, if delivered by hand, by overnight express delivery service, or by United States registered or certified mail, postage prepaid, return receipt requested, when delivered, or sent by telecopy, addressed as follows: -9- If to Hawthorne: Hawthorne Sports Marketing, Inc. 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Attention: Mr. James C. Roddey Telecopy: (412) 928-7715 with a copy to: Louis J. Moraytis, Esquire Eckert Seamans Cherin & Mellott 42nd Floor, 600 Grant Street Pittsburgh, PA 15219 Telecopy: (412) 566-6099 If to MLAM: Major League Alumni Marketing, Inc. c/o Daniel E. Foster Vice President and Director of Operations Major League Baseball Players Alumni Association 3637 4th Street North - Suite 480 St. Petersburg, FL 33704 Telecopy: (813) 822-6300 with a copy to: Samuel N. Moore, Esquire Springdale Professional Center 5027 Backlick Road Annandale, VA 22003 Telecopy: (703) 941-4075 Each party hereto may change its mailing address by giving to each other party hereto, by hand delivery, overnight express delivery service, United States registered or certified mail, or telecopy, written notice of election to change such address and of such new address. (h) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. (i) The parties shall execute any such further agreements, conveyances, and other documents as may reasonably be requested by the other to preserve or protect its interest under this Agreement or to effectuate the intent of any provision of this Agreement. (j) Neither party hereto may assign or pledge any of its rights or obligations under this Agreement to any third party, by operation of law or otherwise, without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any attempted assignment by either party in violation of the foregoing shall be void and of no effect. -10- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. MAJOR LEAGUE ALUMNI MARKETING, INC. By: /s/Gerald B. Moses ------------------- Gerald B. Moses, Director and Agent HAWTHORNE SPORTS MARKETING, INC. By: /s/James C. Roddey ------------------- James C. Roddey, President -11- Schedule I to License Agreement effective as of January 1, 1993 --------------- Marks ----- Schedule II to License Agreement effective as of January 1, 1993 --------------- 1. That certain Management Agreement dated as of May 15, 1989, by and between MLAM and Hawthorne 2. That certain Letter Agreement dated May 15, 1989, from MLBPAA and by and between MLBPAA and Hawthorne 3. That certain Consent Decree in the Court of Common Pleas of Allegheny County, Pennsylvania, Civil Division, at No. G.D. 90-18847 (the "Consent Decree") by and among MLAM, MLBPAA, Hawthorne, and Robert G. Miller 4. That certain Memorandum of Understanding (the "Memorandum of Understanding") dated March, 1992, by and among MLAM, MLBPAA, Hawthorne, and Robert G. Miller Schedule III to License Agreement effective as of January 1, 1993 --------------- Claims ------ A claim for personal injuries has been filed by Robert Thour against the City of St. Petersburg, Florida, and MLBPAA. The claimant alleges that on or about March 20, 1993, he slipped and fell on debris left on the steps of Al Lang Stadium located in St. Petersburg and that as a result, he suffered personal injuries. MLBPAA sponsored a "Legends of Baseball Game" in the Stadium on the aforementioned date and has referred this claim to its insurance liability carrier. To the best of MLAM's knowledge and belief, this claim will not adversely affect the rights or ability of MLAM to perform under this Agreement. Schedule IV to License Agreement effective as of January 1, 1993 --------------- GOALS AND OBJECTIVES OF MAJOR LEAGUE BASEBALL PLAYERS ALUMNI ASSOCIATION AND ITS WHOLLY-OWNED SUBSIDIARIES, MAJOR LEAGUE ALUMNI MARKETING, INC., AND MAJOR LEAGUE ALUMNI SERVICES CORPORATION -------------------------------------------- The Major League Baseball Players Alumni Association is an independent, multi-purpose national association of former Major League players, established by the former players, composed of them as members and operated by them and for them. It is a charitable, tax-exempt, non-profit corporation under (S)501(c)(3) of the Internal Revenue Code. It owns two corporate subsidiaries, Major League Alumni Marketing, Inc., and Major League Alumni Services Corporation. I. MAJOR LEAGUE BASEBALL PLAYERS ALUMNI ASSOCIATION ------------------------------------------------ (A) Purposes: The purposes for which the Major League Baseball Players Alumni Association was organized are as follows: (1) To promote and encourage the sport of baseball; (2) To assist in charitable work deemed beneficial to the community and the nation; (3) To raise funds to support charities on a local and national basis; (4) To establish a mutually beneficial relationship between former Major League Baseball players and Major League Baseball; (5) To promote a spirit of brotherhood between all former professional baseball players, coaches, managers, trainers, owners, office personnel, and their families; and (6) To engage in work calculated to educate and improve the moral, mental, social, and physical betterment of humankind. (B) Goals and Objectives: (1) To promote baseball and its retired players and coaches, locally, nationally, and internationally; (2) To keep all members informed and updated on changes taking place on the current baseball scene and how such changes apply to the Major League Baseball Players Alumni Association and its members; (3) To raise moneys for local and national charities through golf tournaments and other fund-raising activities: (4) To make significant charitable contributions to baseball organizations such as the Baseball Assistance Team (BAT), Chuck Stevens' Group, and other worthwhile charitable organizations; (5) To establish a "networking" system through its members and various activities to help each other and to assist non-members and other organizations, both charitable and for profit, to learn about the Major League Baseball Players Alumni Association; (6) To form local Alumni Chapters throughout the nation to keep its members involved on a community level to promote baseball, raise funds for charity, and to have a sense of "belonging" after their playing days are over; and (7) To promote camaraderie and friendship among its members through charitable events, entertainment, excursions, and social meetings. II. MAJOR LEAGUE ALUMNI MARKETING ----------------------------- (A) Purpose: The purpose for which Major League Alumni Marketing, Inc., was organized is to transact any and all lawful business, for profit, permitted by law. This Corporation is a "feeder organization" for the Major League Baseball Players Alumni Association. (B) Goals and Objectives: The objectives of this wholly-owned subsidiary are to engage in any lawful business activity, for profit, which is consistent with the goals, objectives, and principles of the Major League Baseball Players Alumni Association for the purpose of "feeding" funds to the Association and to share a portion of its profits with former Major League Baseball players. III. MAJOR LEAGUE ALUMNI SERVICES CORPORATION ---------------------------------------- -2- (A) Purpose: The purpose for which this Corporation was organized is to transact any and all lawful business for which corporations may be incorporated under the laws of the State of Florida. This Corporation is also a wholly-owned subsidiary of Major League Baseball Players Alumni Association and was established to provide services to the Association's members. (B) Goals And Objectives: (1) To originate and administer membership programs and services outside the non-profit framework for the direct benefit of Major League Baseball Players Alumni Association members; (2) To strive to increase retirement pensions for all former Major League Baseball players, even those who are not members of the Major League Baseball Players Alumni Association; (3) To provide affordable health care insurance to Association members; (4) To provide affordable health care insurance for many of the Association's members who cannot otherwise purchase such insurance; and (5) To continually seek out and create services which will be beneficial to the members of the Major League Baseball Players Alumni Association. -3- Exhibit A to License Agreement Effective as of January 1, 1993 --------------- Hawthorne's Exclusive Licensing Rights -------------------------------------- (Except as Set Forth in Exhibit "B") ------------------------------------ A. Sponsorships/Tours (except as set forth on Exhibit "B") 1. Creating and executing events and tours involving the participation of former Major League Baseball Players 2. Local, national, and international opportunities involving paying sponsors and advertisers 3. Examples include but are not limited to baseball exhibition games, autograph and photograph sessions, youth and coaches clinics, baseball memorabilia shows and displays, shopping center and retail store tours, military base tours, and tours in Minor League and Major League Baseball Ballparks 4. Associated merchandising, television broadcasting, and videos B. Wholesale Source of Memorabilia Creating and supplying products which are autographed by former Major League Baseball Players or otherwise distinguished or earmarked so as to constitute memorabilia for retail sale, catalog sale, specialty outlets, television/video shopping, direct mail, etc. C. Corporate and Sales Incentive Programs 1. Creating and executing motivational programs and incentive and award programs involving former Major League Baseball Players for businesses to use with their staffs, clients, vendors, and customers 2. Examples include but are not limited to fantasy camps, spring training trips, golf outings, hunting and fishing trips, speakers, autograph memorabilia, etc. D. Promotions and Premium Fulfillment 1. Creating and executing consumer promotion and consumer premium programs involving former Major League Baseball Players in conjunction with or for consumer products and services 2. Examples include but are not limited to limited edition collectible merchandise and memorabilia, contests and sweepstakes, local events such as clinics, skill contests and retain appearances, customer hospitality, presentations to customers, participation in sales meetings, etc. E. Licensing Properties/rights include MLBPAA name and logo, and the names, images, nicknames, and signatures of former Major League Baseball Players for merchandise and endorsements, as well as any names or logos created for any specific promotions, tours, events, or exhibits, as set forth above -2- Exhibit B to License Agreement Effective as of January 1, 1993 --------------- MLBPAA's Licensing Rights ------------------------- 1. Licensing the name and logo of MLBPAA except for instances involving the paid participation of former Major League Baseball Players. Provided, however, that MLBPAA may pay former Major League Baseball Players to participate in any events referred to or enumerated in paragraphs numbered 2 through 8 on this Exhibit B to License Agreement, effective as of January 1, 1993. 2. Conducting youth baseball clinics 3. Conducting local golf events and a world series of golf championship in association with local charities and conducting events attendant to such local golf events such as card shows, exhibitions, "Old Timer" games, and clinics which are customarily presented along with such local golf events 4. Production of a catalog for apparel with MLBPAA's name and logo and sale of such apparel only to MLBPAA members. 5. Conducting conventions, reunions, and conferences of former Major League Baseball Players or retain or employ a company to conduct such reunions, conventions, or conferences on behalf of MLBPAA 6. Owning and operating memorabilia shops and a baseball museum (but excluding the production and/or distribution of memorabilia) 7. Conducting the Festival of States annually in St. Petersburg, Florida, Ft. Myers, Florida, and three other locations to be named by MLAM or MLBPAA and retaining all rights to television and radio broadcasts associated therewith 8. Conduct or engage in any activity except for those for which Hawthorne has exclusivity pursuant to this License Agreement but only to the extent that it is authorized to do so under the laws of charitable organizations exempt from Federal income taxes under (S)501(c)(3) of the Internal Revenue Code of 1954 as amended EX-10.7 14 LINE OF CREDIT NOTE Exhibit 10.7 LINE OF CREDIT NOTE ------------------- $5,000,000.00 Pittsburgh, Pennsylvania May 31, 1996 FOR VALUE RECEIVED, the undersigned, SEAVISION, INC., a Delaware corporation ("Maker"), having an office at 500 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220, promises to pay to the order of INTEGRA BANK, a Pennsylvania chartered bank ("Lender"), on May 31, 1997, in immediately available funds at the Pittsburgh, Pennsylvania office of Lender at 300 Fourth Avenue, Pittsburgh, Pennsylvania, 15222, or at such other location as the holder hereof may designate from time to time, the lesser of (i) the principal sum of FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00) or (ii) the aggregate unpaid principal amount of all line of credit loans (each a "Loan" and collectively, the "Loans") made by Lender to Maker pursuant to a line of credit established for the benefit of Maker. Maker may request a line of credit loan at any time during the period from the date hereof through December 31, 1996, by giving the Lender the notice required as set forth under Section 1.2 [Loan Requests]. The Lender may make the Loan or Loans requested by the Maker in the Lender's sole discretion. Subject to Section 1.6 [Interest After Default], interest on the Loans shall accrue and be payable by the Maker in accordance with Sections 1.4 [Interest Rate Options] and 1.9 [Payment of Interest]. 1.1 Definitions. When used herein, the following terms shall have the ----------- following meanings: Authorized Persons shall mean collectively and Authorized Person shall ------------------ ----------------- mean separately an officer of the Borrower or an agent of the Borrower who is authorized to borrow hereunder and/or convert Loans from one Interest Rate Option to another Interest Rate Option, which authority shall be set forth in a writing delivered to the Lender on behalf of the board of directors of the Borrower and upon which authority the Lender may conclusively rely until it is amended or canceled by written notice to the Lender from the Borrower. Borrowing Tranche shall mean specified portions of the Loans ----------------- outstanding as follows: (i) any Loans to which either a Euro-Rate Option applies which become subject to the same Interest Rate Option and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Prime Rate Option applies shall constitute one Borrowing Tranche. Business Day shall mean a day on which Lender's offices in Pittsburgh, ------------ Pennsylvania are open for business. Default Rate shall mean the rate or rates determined from time to time ------------ pursuant to Section 1.6. Dollars and the symbol $ shall mean lawful money of the United States ------------------------ of America. Euro-Rate shall mean, with respect to any Loan comprising any --------- Borrowing Tranche to which a Euro-Rate Option applies for any Interest Period, the interest rate per annum determined by the Lender by dividing (the resulting quotient rounded upward to the nearest 1/16th of 1% per annum) (i) the rate of interest determined by the Lender in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the eurodollar rate two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Lender shall give prompt notice to the Maker of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. Euro-Rate Option shall mean the option of the Maker to have Loans bear ---------------- interest at the rate and under the terms and conditions set forth in Section 1.4 (a)(ii). Euro-Rate Reserve Percentage shall mean the maximum percentage ---------------------------- (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Lender which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. Event of Default shall mean any of the Events of Default described in ---------------- Section 1.14. Guarantees shall mean the Guaranty and Suretyship Agreements given by ---------- each of the Guarantors in favor of the Lender with respect to the Loans. Guarantors shall mean Henry Posner, Jr., Thomas D. Wright, Richard W. ---------- Talarico, James C. Roddey and Lyndhurst Associates, a Pennsylvania limited partnership. Indebtedness shall mean all of the Maker's liabilities, obligations ------------ and indebtedness of any and every kind and nature, including, without limitation, obligations for borrowed money and to trade creditors, whether heretofore, now or hereafter owing, due or payable from Maker to any person and howsoever evidenced, created, incurred, acquired or -2- owing, whether primary, secondary, direct, contingent, fixed, matured, liquidated or otherwise. Without in any way limiting the generality of the foregoing, Indebtedness specifically includes (i) all indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (ii) all obligations or liabilities of any person that are secured by any lien upon property owned by a Maker, even though Maker has not assumed or become liable for the payment thereof; (iii) all obligations or liabilities created or arising under any lease of real or personal property or conditional sale or other title retention agreement with respect to property used or acquired by Maker, even though the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; (iv) all unfunded pension fund obligations and liabilities; and (v) deferred taxes. Interest Payment Date shall mean each date specified for the payment --------------------- of interest in Section 1.9. Interest Period shall have the meaning assigned to such term in --------------- Section 1.5. Interest Rate Option shall mean any Euro-Rate Option or the Prime Rate -------------------- Option. Law shall mean any law (including common law), constitution, statute, --- treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Loans shall mean collectively and Loan shall mean separately the line ----- ---- of credit loans made by the Lender to the Maker and evidenced by this Note. Loan Request shall mean a request for Loans made in accordance with ------------ Section 1.2 or a request to select, convert to or renew a Euro-Rate Option in accordance with Section 1.5. Material Adverse Change shall mean any set of circumstances or events ----------------------- which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Note or any Guaranty, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of the Maker or to the prospects of the Maker, (c) impairs materially or could reasonably be expected to impair materially the ability of the Maker to duly and punctually pay or perform its obligations under this Note, or (d) materially impairs or could reasonably be expected to materially impair the ability of the Lender to enforce its legal remedies pursuant to this Agreement or any Guaranty. -3- Month, with respect to an Interest Period under the Euro-Rate Option, ----- shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Euro- Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month. Note shall mean this Line of Credit Note and all amendments, ---- modifications, extensions, renewals and replacements thereof. Person shall mean any individual, sole proprietorship, partnership, ------ joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). Prime Rate shall mean the interest rate per annum announced from time ---------- to time by the Lender at its principal office in Pittsburgh, Pennsylvania as its then prime rate, which rate may not be the lowest rate then being charged commercial borrowers by the Lender. Prime Rate Option shall mean either the option of the Maker to have ----------------- Loans bear interest at the Prime Rate under the terms and conditions set forth in Section 1.4 (a)(i). Scheduled Maturity Date shall mean May 31, 1997. ----------------------- 1.2 Loan Requests. ------------- The Maker may from time to time through one or more of its Authorized Persons (a) prior to December 31, 1996, request the Lender to make a Loan to the Maker, and (b) prior to May 31, 1997 request the Lender to renew or convert the Interest Rate Option applicable to an existing Loan pursuant to Section 1.4 [Interest Rate Options] and Section 1.5 [Interest Periods], in the case of each of (a) and (b), by delivering to the Lender, not later than 10:00 A.M. Pittsburgh time (i) two (2) Business Days prior to the proposed borrowing date with respect to the making of a Loan to which the Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate Option for any Loan; and (ii) one (1) Business Day prior to either the proposed borrowing date with respect to the making of a Loan to which the Prime Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Prime Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit A or a request by telephone immediately confirmed in writing by --------- letter, facsimile or telex in such form (each, a "Loan Request"), it being understood that the Lender may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each such Loan Request shall be irrevocable and shall specify (i) the proposed borrowing date; (ii) the -4- aggregate amount of the proposed Loan which shall be in integral multiples of One Hundred Thousand ($100,000.00) and not less than Three Hundred Thousand Dollars ($300,000.00) for each Loan to which the Euro-Rate Option applies and not less than the lesser of One Hundred Thousand ($ 100,000.00) or the maximum amount available for the Loan to which the Prime Rate Option applies; (iii) whether the Euro-Rate Option or Prime Rate Option shall apply to the proposed Loan, and (iv) in the case of a Loan to which the Euro-Rate Option applies, an appropriate Interest Period, the last day of which shall be a date which precedes Scheduled Maturity Date. Lender shall have no obligation to make a new loan to the Maker hereunder. Provided no Event of Default has occurred and subject to Section 1.7 [Euro-Rate Unascertainable] and the other provisions of this Note, the Lender shall convert the Loans as between the Prime Rate Option and Euro-Rate Option pursuant to the Loan Requests submitted by the Maker. 1.3 Conditions to Loans. ------------------- Notwithstanding the discretionary nature of the Loans and without affecting in any manner the rights of the Lender under this Agreement, it is understood and agreed that the Lender shall not make any Loans until the Lender shall have received the following documents: (a) this Note, duly executed and delivered; (b) the Guarantees, duly executed and delivered; (c) a certificate of the Maker dated the date of this Note and signed by the secretary or an assistant secretary of the Maker, certifying as to (a) the Maker's certificate of incorporation, and (b) certified copies of corporate resolutions authorizing the execution and delivery of this Note; (d) a certificate of Lyndhurst Associates dated the date of this Note and signed by the general partner of such Guarantor, certifying as to (a) Lyndhurst Associates' organizational documents including its certificate of limited partnership and partnership agreement and good standing in the state in which it is organized, and (b) certified copies of partnership resolutions authorizing the execution and delivery of its Guarantee; (e) opinion of Eckert Seamans Cherin & Mellott, counsel for the Maker and Lyndhurst Associates, dated the date of this Note, in form and substance satisfactory to the Lender and as to such other legal matters relevant to the transactions contemplated hereby as the Lender may reasonably request; and -5- (f) such other documents and certificates as to the transactions contemplated by this Note and the Guarantees as the Lender may reasonably request. 1.4 Interest Rate Options. --------------------- Maker shall pay interest in respect of the aggregate outstanding unpaid principal amount of the Loans as selected by it from the Prime Rate Option or the Euro-Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, including without limitation Section 1.2 [Loan Requests], the Maker may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans, provided that there shall not be at any one -------- time outstanding more than three (3) Borrowing Tranches in the aggregate among all the Loans. If at any time the designated rate applicable to any Loan made by the Lender exceeds the Lender's highest lawful rate, the rate of interest on the Loan shall be limited to the Lender's highest lawful rate. (a) The Maker shall have the right to select from the following Interest Rate Options applicable to the Loans: (i) a fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Prime Rate, such interest rate to change automatically from time to time effective as of the effective date of each change in the Prime Rate; or (ii) a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus one and one-half percent (1-1/2%). (b) The Maker may call the Lender on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such indication shall not be binding on the Lender nor affect the rate of interest which thereafter is actually in effect when the election is made. 1.5 Interest Periods. ---------------- At any time when the Maker shall select, convert to or renew a Euro- Rate Option, the Maker shall notify the Lender thereof at least two (2) Business Days prior to the effective date of such Euro-Rate Option by delivering a Loan Request. In the case of the Euro-Rate Option, such notice shall specify an interest period (the "Interest Period") during -6- which such Interest Rate Option shall apply, such Interest Period to be one, two, three, four, five or six Months, provided, that: -------- (a) Any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) Any Interest Period selected to apply to any Loan shall end before the Scheduled Maturity Date; (c) Each Loan with respect to which the Euro-Rate Option applies shall be in integral multiples of One Hundred Thousand ($100,000.00) and not less than Three Hundred Thousand Dollars ($300,000.00); and (d) In the case of the renewal of a Euro-Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day. 1.6 Interest After Default. ---------------------- To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured, all amounts payable by the Maker hereunder, including without limitation principal, interest and the costs and expenses of the Lender required to be reimbursed by the Maker, if not paid when due shall bear interest at a rate per annum equal to the sum of the Prime Rate plus two (2%) per annum (the "Default Rate") from the ------------ time such obligations become due and payable and until paid in full. The Maker acknowledges that such increased rates reflect, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lender is entitled to additional compensation for such risk; and, all such interest shall be payable by the Maker upon demand by the Lender. 1.7 Euro-Rate Unascertainable; Illegality; Increased Costs; etc. ------------------------------------------------------------ (a) If on any date on which a Euro-Rate would otherwise be determined, the Lender shall have determined that (i) adequate and reasonable means do not exist for ascertaining such Euro- Rate, or (ii) a contingency has occurred which materially and adversely affects the secondary market for the London interbank eurodollar market relating to the Euro-Rate, the Lender shall have the rights specified in Subsection (c) below. -7- (b) If at any time the Lender shall have determined that (i) the making, maintenance or funding of any Loan to which a Euro-Rate Option applies has been made impracticable or unlawful by compliance by the Lender in good faith with any Law or any interpretation or application thereof by any governmental authority or with any request or directive of any such governmental authority (whether or not having the force of Law), (ii) such Euro-Rate Option will not adequately and fairly reflect the cost to the Lender of the establishment or maintenance of any such Loan, or (iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan to which a Euro-Rate Option applies are not available to the Lender in the London interbank market, then the Lender shall have the rights specified in Subsection(c) below. (c) In the case of any event specified in subsection (a) or (b) of this Section 1.7, the Lender shall promptly so notify the Maker. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given) the obligation of the Lender to make available the Euro-Rate Option on the Loans shall be suspended until the Lender shall have later notified the Maker of the Lender's determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Lender makes a determination under subsection (a) or (b) and the Maker has previously notified the Lender of its selection of, conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Prime Rate Option otherwise available with respect to such Loans. 1.8 Selection of Interest Rate Options. ---------------------------------- If the Maker fails to select a new Interest Period to apply to any Loans as to which the Euro-Rate Option applies at the expiration of an existing Interest Period applicable to such Loans in accordance with the provisions of Section 1.5 [Interest Periods], the Maker shall be deemed to have converted such Loan to the Prime Rate Option commencing upon the last day of the existing Interest Period. 1.9 Payment of Interest. ------------------- The Maker shall pay all interest accrued on the Loans quarterly on the last Business Day of each June, September, December and March of each year, commencing with a payment on June 28, 1996, with all accrued interest, if not sooner paid, due and payable on the Scheduled Maturity Date. The interest rates provided for in Sections 1.4 -8- [Interest Rate Options] and 1.6 [Interest After Default] shall continue to apply whether or not judgment shall be entered on this Note. 1.10 Indemnification For Prepayment. ------------------------------ The Maker shall indemnify the Lender against all liabilities, losses or expenses, including loss of margin, any loss or expense incurred in liquidation or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by the Lender to fund or maintain the Loans subject to the Euro-Rate Option, which the Lender sustains or incurs as a consequence of the payment, prepayment, conversion or renewal of any of the Loans to which the Euro-Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due.). 1.11 Increased Cost Provisions. ------------------------- (a) If, after the date of execution and delivery of this Note, any enactment, promulgation or adoption of, or change in, any applicable Law or in the interpretation or administration thereof by any court, administrative or governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender or any affiliate of the Lender with any request or directive issued after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency, shall either: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, a request or requirement which affects the manner in which the Lender or any affiliate of the Lender allocates capital resources to the Lender's or any affiliate of the Lender's commitments) affecting or concerning the Lender's obligations under this Note, (ii) subject the Lender or any affiliate of the Lender to any tax or change the Lender's or any affiliate of the Lender's basis of taxation (other than a change in a rate of tax based on the Lender's overall net income) as a result of or in connection with this Note, or (iii) impose on the Lender or any affiliate of the Lender any other condition regarding this Note, and the result of any event referred to in clause (i), (ii) or (iii) of this sentence shall be to increase the direct or indirect cost to the Lender or -9- to reduce the amounts receivable by the Lender hereunder with respect to this Note (which increase in cost or reduction in amounts receivable shall be determined by the Lender's reasonable allocation of such cost increase or reduction in amounts receivable resulting from such event), then within ten (10) Business Days after demand by the Lender, the Maker shall pay to the Lender, from time to time as specified by the Lender, additional amounts that in the aggregate shall be sufficient to compensate the Lender on an after-tax basis for such increased cost or reduction in amounts receivable. A certificate as to such increased cost or reduction in amounts receivable by the Lender as a result of any event mentioned in clause (i), (ii) or (iii) of the immediately preceding sentence submitted by the Lender to the Maker shall, in absence of manifest error, be conclusive and binding for all purposes. (b) If (i) any adoption of or any change in the interpretation or administration of any Law, or (ii) compliance with any rule, regulation, guideline, request or directive of any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally or any court (whether or not having the force of law), or (iii) any change in the force or effectiveness of any of the regulations set forth at 12 C.F.R. Part 208 (Appendix A) and 12 C.F.R. Part 225 (Appendix A) is determined by the Lender to require that the commitments of the Lender hereunder (including, without limitation, commitments and obligations in respect of Liabilities permitted hereunder) be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by the Lender or any corporation controlling the Lender (a "Change in Law"), the ------------- result of which is to reduce the rate of return on the Lender's capital as a consequence of such commitments to a level below that which the Lender could have achieved but for such Change in Law, taking into consideration the Lender's policies with respect to capital adequacy and reserves, by an amount which the Lender deems to be material, the Lender shall deliver to the Maker a statement of the amount necessary to compensate the Lender for the reduction in the rate of return on its capital attributable to such commitments (the "Capital Compensation Amount"). The --------------------------- Lender shall determine the Capital Compensation Amount in good faith, using reasonable attribution and averaging methods. The Lender shall from time to time notify the Makers of the amounts so determined. Such amount shall be due and payable by the Maker to the Lender ten (10) Business Days after such notice is given. As soon as practicable after any Change in Law, the Lender shall submit to the Maker estimates of the Capital Compensation Amounts -10- that would be payable as a function of the Lender's commitments hereunder. (c) All amounts payable pursuant to Sections (a) and (b) of this Section 1.11 shall be additional liabilities hereunder. Any such amount not paid when due shall bear interest from the date due until paid at the Default Rate. 1.12 Reporting Requirements. ---------------------- The Maker shall deliver and cause to be delivered to the Lender the following reports until such time as all Indebtedness of the Maker evidenced by this Note is indefeasibly paid in full: (i) the financial statements of the Maker prepared by the Maker's certified public accountants acceptable to the Lender and provided on or before June 30 of each year; (ii) the financial statements of Lyndhurst Associates and Henry Posner, Jr. prepared on a tax basis by said Guarantors' certified public accountants acceptable to the Lender and provided on or before June 30 of each year; and (iii) the personal financial statement of the Guarantors other than Lyndhurst Associates and Henry Posner, Jr. on or before June 30 of each year. 1.13 Maker Representations: Financial Covenant. ----------------------------------------- (a) The Maker represents that it has the power and has been duly authorized by all requisite action to execute and deliver this Note and to perform its obligations hereunder. This Note and the Guarantees have been duly executed and delivered by the Maker and each Guarantor, respectively, and constitutes the legal, valid and binding obligations of the Maker and each Guarantor, enforceable against the Maker and each Guarantor in accordance with their respective terms, except to the extent that enforceability of any of the terms may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. Neither this Note nor the consummation of the transactions contemplated herein nor the performance by the Maker or the Guarantors of their obligations hereunder or under the Guarantees will (i) violate any Law to which any such party is subject; (ii) conflict with or result in a breach of the Maker's certificate of incorporation or bylaws or Lyndhurst Associates' partnership agreement or certificate of limited partnership or any agreement or instrument to which the Maker or any Guarantor is subject or by which its or his respective properties are bound or (iii) result in the creation or imposition of any lien, security interest or encumbrance on any property of the Maker, or any Guarantor, whether now owned or hereafter acquired. -11- (b) The Maker shall not permit its Adjusted Net Worth (as hereinafter defined) to be less One Dollar ($ 1.00) from and after December 31, 1996. "Adjusted Net Worth" shall mean the Borrower's stockholders' equity (as determined in accordance with generally accepted accounting principles) plus all liabilities of the Borrower subordinated to the Indebtedness evidenced by this Note pursuant to subordination agreements with terms satisfactory to the Lender in its sole discretion. 1.14 Events of Default. ----------------- Maker shall be in default under this Note upon the happening of any of the following Events of Default: (a) default in the payment when due of any installment of interest or other payment required under this Note; (b) any warranty, representation or statement made herein or furnished to Lender by or on behalf of the Maker or a Guarantor proves to have been false or misleading in any material respect when made or furnished: (c) any material default in the performance by the Maker of any condition or covenant contained in this Note or by a Guarantor of any condition or covenant contained in its or his respective Guarantee; (d) the occurrence of a Material Adverse Change; (e) any default in the payment of or event which results in the acceleration of Indebtedness in excess of $500,000 owed to any Person under any note, indenture, contract or undertaking by the Maker or any Guarantor; (f) a judgment shall be entered against the Maker or any Guarantor by a court having jurisdiction of the premises in any amount in excess of $500,000; (g) a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of Maker or any Guarantor in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian trustee, sequestrator (or similar official) of Maker or any Guarantor or for any substantial part of its or his property, or for the winding-up or liquidation of its or his affairs, and such proceeding shall remain -12- undismissed or unstayed and in effect for a period of 60 consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or (h) the Maker or any Guarantor shall commence a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of any of the aforesaid parties of itself or himself or for any substantial part of its or his property, or shall make a general assignment for the benefit of creditors or shall fail generally to pay its or his debts as they become due or shall take any action in furtherance of the foregoing. Upon the occurrence of any of the Events of Default mentioned in clauses (a) through (f) hereof and at any time thereafter as long as any such Event of Default is continuing, Lender may declare all liabilities and obligations of Maker to Lender, including those evidenced by this Note, immediately due and payable and the same shall thereupon become immediately due and payable without any further action on part of Lender, and upon the occurrence of any Event of Default mentioned in clauses (g) or (h) hereof all liabilities and obligations of Maker to Lender, including those evidenced by this Note, shall immediately become due and payable without any action upon the part of Lender. Any notice or other written communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) upon deposit in the United States mail, with proper postage prepaid, (ii) by hand delivery, (iii) by overnight express mail courier, or (iv) by telecopier, and addressed to the party to be notified at the address set forth below or to such other address as each party may designate for itself in writing by like notice. To the Lender: Integra Bank 300 Fourth Avenue Pittsburgh, Pennsylvania 15222 Attn: Paul A. Sakalik Corporate Banking Telecopier: (412) 471-4883 with a copy to: Buchanan Ingersoll Professional Corporation 301 Grant Street, 20th Floor Pittsburgh, Pennsylvania 15219 -13- Attn: Thomas S. Galey, Esquire Telecopier: (412) 562-1041 -14- To the Borrower: SeaVision, Inc. 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, Pennsylvania 15220 Attn: Richard W. Talarico Telecopier: (412) with a copy to: The Hawthorne Group 500 Greentree Commons 381 Mansfield Avenue Pittsburgh, Pennsylvania 15220 Attention: Fred W. Schwarz Telecopier: (412) 928-7715 and Eckert Seamans Cherin & Mellott 600 Grant Street, 42nd Floor Pittsburgh, Pennsylvania 15219 Attn: Louis J. Moraytis, Esquire Telecopier: (412) 566-6099 Maker hereby waives presentment, demand, protest or notice of any kind in connection with this Note. Maker shall pay Lender on demand any reasonable out-of-pocket expenses (including reasonable legal fees) arising out of or in connection with any action or proceeding (including any action or proceeding arising in or related to any insolvency, bankruptcy or reorganization involving or affecting Maker) taken to protect, enforce, determine or assert any right or remedy under this Note and any mortgage or security agreement, including the collateral covered thereby, securing the same. Any attorneys' fees to which the holder hereof may be entitled pursuant to the "confession of judgment" clause below shall be offset by the aggregate amount of the legal fees to which such holder is entitled under the immediately preceding sentence. This Note shall bind Maker and the successors and assigns of Maker, and the benefits hereof shall inure to the benefit of Lender and its successors and assigns. All references herein to "Maker" shall be deemed to apply to Maker and the successors and assigns of Maker and all references herein to "Lender" shall be deemed to apply to Lender and its successors and assigns. -15- This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Pennsylvania without giving effect to the principles of conflict of laws. THE MAKER ACKNOWLEDGES THAT (i) IT HAS READ AND UNDERSTANDS, AFTER CONSULTATION WITH ITS COUNSEL, THAT THE PROVISIONS OF THE FOLLOWING PARAGRAPH COULD ENABLE THE LENDER TO OBTAIN A JUDGMENT AGAINST THE MAKER AND COMMENCE EXECUTION PROCEEDINGS THAT RESULT IN THE SEIZURE OF ASSETS OF THE MAKER IN EITHER CASE, WITHOUT THE MAKER HAVING THE BENEFIT OF PRIOR NOTICE OR A PRIOR HEARING; AND (ii) THE MAKER NEVERTHELESS KNOWINGLY AND VOLUNTARILY AGREES TO SUCH POSSIBLE CONSEQUENCES AND THE PROVISIONS OF THE FOLLOWING PARAGRAPH. MAKER DOES HEREBY EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR MAKER AND, WITH OR WITHOUT ONE OR MORE COMPLAINTS FILED, CONFESS JUDGMENT OR JUDGMENTS AGAINST MAKER IN ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA AT ANY TIME ON OR AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT IN FAVOR OF LENDER, ITS SUCCESSORS AND ASSIGNS, FOR THE UNPAID PRINCIPAL BALANCE OF THIS NOTE AND ALL INTEREST ACCRUED HEREON, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF FIVE PERCENT (5%) FOR COLLECTION OF SUCH SUMS, AND MAKER HEREBY FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS AND WAIVES STAY OF EXECUTION AND STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST MAKER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER OR ITS SUCCESSORS AND ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE. IN WITNESS WHEREOF, Maker, intending to be legally bound, has executed this Note on the day and year first above written with the intention that this Note shall constitute a sealed instrument. ATTEST: SEAVISION, INC. /s/John F. Hensler /s/Richard W. Talarico (SEAL) - ------------------- ------------------------------ Assistant Secretary Richard W. Talarico, President -16- EX-10.8 15 FORM OF 1996 STOCK PLAN Exhibit 10.8 ================================================================================ FORM OF 1996 STOCK PLAN OF ALLIN COMMUNICATIONS CORPORATION Effective _________________, 1996 ================================================================================ 1996 STOCK PLAN OF ALLIN COMMUNICATIONS CORPORATION 1. Purpose ------- Allin Communications Corporation (the "Corporation") desires to attract and retain the best available talent and encourage the highest level of performance by employees and other persons who perform services for the Corporation in order to serve the best interests of the Corporation and its shareholders. By affording eligible persons the opportunity to acquire proprietary interests in the Corporation and by providing them incentives to put forth maximum efforts for the success of the Corporation's business, the 1996 Stock Plan of the Corporation (the "1996 Plan") is expected to contribute to the attainment of those objectives. 2. Scope and Duration ------------------ Awards under the 1996 Plan may be granted in the form of (i) incentive stock options ("incentive stock options") as provided in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) non-qualified stock options ("non-qualified options") (unless otherwise indicated, references in the 1996 Plan to "options" include incentive stock options and non-qualified options), (iii) shares of the common stock, par value $0.01 per share, of the Corporation (the "Common Stock") that are restricted as provided in paragraph 11 ("restricted shares"), (iv) units to acquire shares of Common Stock that are restricted as provided in paragraph 11 ("restricted units") and (v) stock appreciation rights ("rights") or limited stock appreciation rights ("limited rights"). The maximum aggregate number of shares of Common Stock as to which awards may be granted from time to time under the 1996 Plan is 266,000 shares. The shares available may be in whole or in part, authorized but unissued shares or issued shares reacquired by the Corporation, as the Board of Directors of the Corporation (the "Board of Directors") shall from time to time determine. Unless otherwise provided by the Board of Directors, shares covered by expired or terminated options and forfeited restricted shares or restricted units, shares subject to awards that are paid in cash or surrendered upon the exercise of an option, and shares received by the Corporation upon the exercise of an option will not be available for subsequent awards under the 1996 Plan. No incentive stock option shall be granted under the 1996 Plan more than 10 years after ____________, 1996. Otherwise, the Plan will continue until terminated pursuant to paragraph 17. 3. Administration -------------- The 1996 Plan will be administered by the Board of Directors which shall have plenary authority in its discretion, subject to and not inconsistent with the express provisions of the 1996 Plan, (i) to grant options, to determine the purchase price of the shares of Common Stock covered by each option, the term of each option, the persons to whom, and the time or times at which options shall be granted, and the number of shares to be covered by each option; (ii) to designate options as incentive stock options or non-qualified options and to determine which options shall be accompanied by rights and limited rights; (iii) to grant rights and to determine the terms and conditions applicable to such rights; (iv) to grant restricted shares and restricted units and to determine the terms of the restricted period and other conditions applicable to such shares or units, the persons to whom, and the time or times at which, restricted shares or restricted units shall be granted and the number of shares or units to be covered by each grant; (v) to interpret the 1996 Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the 1996 Plan; (vii) to determine the terms and provisions of the option and rights agreements (which need not be identical) and the restricted share and restricted units agreements (which need not be identical) entered into in connection with awards under the 1996 Plan; and (viii) to make all other determinations deemed necessary or advisable for the administration of the 1996 Plan. The Board of Directors may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Board of Directors or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility or authority the Board of Directors or such person may have under the 1996 Plan. The Board of Directors may employ attorneys, consultants, accountants or other persons. The Board of Directors, the Corporation and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors in good faith shall be final and binding upon all persons who have received awards, the Corporation and all other interested persons. No member or agent of the Board of Directors shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the 1996 Plan or awards made thereunder, and all members and agents of the Board of Directors shall be fully indemnified and protected by the Corporation in respect of any such action, determination or interpretation. 4. Eligibility; Factors to be Considered in Granting Awards -------------------------------------------------------- Awards will be limited to (i) officers and other executive employees who are employees of the Corporation or its subsidiaries and (ii) any non-employee advisors or consultants (including non-employee directors) who may provide or who have provided services to the Corporation, its predecessors or its subsidiaries; provided, however, that awards in the form of incentive stock options may be granted only to employees. In determining the persons to whom awards shall be granted and the number of shares or units to be covered by each award, the Board of Directors shall take into account the nature of the employees' duties or the services provided, their past, present and potential contributions to the success of the Corporation and such other factors as it shall deem relevant in connection with accomplishing the purposes of the 1996 Plan. For each year that an individual serves as a director, he or she will receive an immediately exercisable option to acquire 5,000 shares of Common Stock at an exercise price equal to the Fair Market Value (as defined in paragraph 5). Awards may be granted singly, in combination or in tandem and may be made in combination or in tandem with, in replacement of, or as alternatives to, awards or grants under any other employee plan maintained by the Corporation or its present and future subsidiaries. A person to whom an award has been granted shall be referred to as a "participant." An award, other than an award of restricted shares, may provide for the crediting to the account of, or the current -2- payment to, each participant who has such an award of an amount equal to the cash or stock dividends paid by the Corporation upon one share of Common Stock for each restricted unit or share of Common Stock subject to an option or right, included in such award ("Dividend Equivalent"). Dividend Equivalents credited to a participant's account shall not be subject to forfeiture, except as the Board of Directors may otherwise determine in respect of any option or right, and may bear amounts equivalent to interest or cash dividends as the Board of Directors may determine. A participant who has been granted an award or awards under the 1996 Plan may be granted an additional award or awards, subject to such limitations as may be imposed by the Code on the grant of incentive stock options. The Board of Directors, in its sole discretion, may grant to a participant who has been granted an award under the 1996 Plan or any other plan maintained by the Corporation or one of its subsidiaries, or any predecessors or successors thereto, in exchange for the surrender and cancellation of such award, a new award in the same or a different form and containing such terms, including without limitation a price which is different (either higher or lower) than any price provided in the award so surrendered and cancelled, as the Board of Directors may deem appropriate. 5. Option Price ------------ Except as provided in paragraph 4 with respect to certain options granted to directors, the purchase price of the Common Stock covered by each option shall be determined by the Board of Directors. However, in the case of an award made to any other participant in the form of an incentive stock option, the purchase price shall not be less than 100% (or, in the case of an incentive stock option granted to a "10 percent shareholder," as defined in Code section 422, 110%) of the fair market value of the Common Stock on the date the option is granted, which shall be the closing price of the Common Stock as reported on NASDAQ NMS (the "Fair Market Value") for the date on which the option is granted, or if there are no sales on such date, on the next preceding day on which there were sales. Such price shall be subject to adjustment as provided in paragraph 15. The Board of Directors shall determine the date on which an option is granted, provided that such date is consistent with the Code and any -------- applicable rules or regulations thereunder. In the absence of such determination, the date on which the Board of Directors adopts a resolution granting an option shall be considered the date on which such option is granted, provided the participant to whom the option is granted is promptly notified of - -------- the grant and an option agreement is duly executed as of the date of the resolution. The price so determined shall also be applicable in connection with the exercise of any related right or limited right. 6. Term of Options, Units and Rights --------------------------------- The term of each incentive stock option granted under the 1996 Plan shall not be more than 10 (or, in the case of a "10 percent shareholder," as defined in Code section 422, 5) years from the date of grant, as the Board of Directors shall determine, subject to earlier termination as provided in paragraphs 12 and 13. The term of each non-qualified stock option as well as each restricted unit, right or limited right granted under the 1996 Plan shall be such -3- period of time as the Board of Directors shall determine, subject to earlier termination as provided in paragraphs 12 and 13. 7. Exercise of Options; Loans -------------------------- (a) Subject to the provisions of the 1996 Plan and unless otherwise provided in the option agreement, an option granted under the 1996 Plan shall become 100% vested at the earliest of the participant's normal retirement date, the participant's death or total disability (as defined in paragraph 13) or over a five (5) year period commencing with the date of grant at the rate of twenty percent (20%) per year. In its sole discretion, the Board of Directors may, in any case or cases, prescribe different installments. The Board of Directors may also, in its sole discretion, accelerate any option at any time or, in any option agreement, provide for the acceleration of the exercisability of any option based on the occurrence of any event or satisfaction of any condition prescribed by the Board of Directors in its sole discretion. (b) An option may be exercised at any time or from time to time (subject, in the case of an incentive stock option, to such restrictions as may be imposed by the Code), as to any or all full shares as to which the option has become exercisable. (c) The purchase price of the shares as to which an option is exercised shall be paid in full at the time of exercise; payment may be made in cash, which may be paid by check or other instrument acceptable to the Corporation, or, with the consent of the Board of Directors, in shares of the Common Stock, valued at the Fair Market Value on the date of exercise, or if there were no sales on such date, on the next preceding day on which there were sales or (if permitted by the Board of Directors and subject to such terms and conditions as it may determine) by surrender of outstanding awards under the 1996 Plan. In addition, any amount necessary to satisfy applicable federal, state or local tax requirements shall be paid promptly upon notification of the amount due. The Board of Directors may permit such amount to be paid in shares of Common Stock previously owned by the participant, or a portion of the shares of Common Stock that otherwise would be distributed to such participant upon exercise of the option, or a combination of cash and shares of such Common Stock. (d) Except as provided in paragraphs 12 and 13, no option which is an incentive stock option may be exercised at any time unless the holder thereof is then an employee of the Corporation, one of its subsidiaries. For this purpose, "subsidiary" shall include, as under Treasury Regulations Section 1.421-7(h)(3) and (4), Example (3), any corporation that is a subsidiary of the Corporation during the entire portion of the requisite period of employment during which it is the employer of the holder. (e) The Board of Directors, in its sole discretion, may elect, in lieu of delivering all or a portion of the shares of Common Stock as to which an option has been exercised, if the Fair Market Value of the Common Stock exceeds the exercise price of the option (i) to pay the participant in cash or in shares of Common Stock, or a combination of cash and Common Stock, an amount equal to the excess of (A) the Fair Market Value on the exercise date of the shares -4- of Common Stock as to which such option has been exercised, or if there were no sales on such date, on the next preceding day on which there were sales over (B) the option price, or (ii) in the case of an option which is a non-qualified option, to defer payment and to credit the amount of such excess on the Corporation's books for the account of the optionee and either (a) to treat the amount in such account as if it had been invested in the manner from time to time determined by the Board of Directors, with dividends or other income thereon being deemed to have been so reinvested or (b) for the Corporation's convenience, to contribute the amount credited to such account to a trust, which may be revocable by the Corporation, for investment in the manner from time to time determined by the Board of Directors and set forth in the instrument creating such trust. The Board of Directors's election pursuant to this subparagraph shall be made by giving written notice of such election to the participant (or other person exercising the option). Shares of Common Stock paid pursuant to this subparagraph will be valued at the Fair Market Value on the exercise date, or if there were no sales on such date, on the next preceding day on which there were sales. (f) Subject to any terms and conditions that the Board of Directors may determine in respect of the exercise of options involving the surrender of outstanding awards, upon, but not until, the exercise of an option or portion thereof in accordance with (i) the 1996 Plan, (ii) the option agreement and (iii) such rules and regulations as may be established by the Board of Directors, the holder thereof shall have the rights of a shareholder with respect to the shares issued as a result of such exercise. (g) The Corporation may make loans to such option holders as the Board of Directors, in its discretion, may determine (including a holder who is a director or officer of the Corporation) in connection with the exercise of options granted under the 1996 Plan; provided, however, that the Board of -------- ------- Directors shall not authorize the making of any loan where the possession of such discretion or the making of such loan would result in a "modification" (as defined in Section 424 of the Code) of any incentive stock option. Such loans shall be subject to the following terms and conditions and such other terms and conditions as the Board of Directors shall determine not inconsistent with the 1996 Plan. Such loans shall bear interest at such rates as the Board of Directors shall determine from time to time, which rates may be below then current market rates (except in the case of incentive stock options). In no event may any such loan exceed the fair market value, at the date of exercise, of the shares covered by the option, or portion thereof, exercised by the holder. No loan shall have an initial term exceeding five years, but any such loan may be renewable at the discretion of the Board of Directors. When a loan shall have been made, shares of Common Stock having a Fair Market Value at least equal to the principal amount of the loan shall be pledged by the holder to the Corporation as security for payment of the unpaid balance of the loan. Every loan shall comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. -5- 8. Award and Exercise of Rights ---------------------------- (a) A right may be awarded by the Board of Directors in connection with any option granted under the 1996 Plan (a "tandem right"), either at the time the option is granted or thereafter at any time prior to the exercise, termination or expiration of the option. A right may also be awarded separately (a "free-standing right"). Each tandem right shall be subject to the same terms and conditions as the related option and shall be exercisable only to the extent the option is exercisable. The term of each freestanding right granted under the 1996 Plan shall be such period of time as the Board of Directors shall determine. Subject to the provisions of the 1996 Plan and unless otherwise provided in the agreement covering a freestanding right granted under the 1996 Plan, such right shall become 100% vested at the earliest of the participant's normal retirement date, the participant's death or total disability (as defined in paragraph 13) or such period of time from the date of grant as the Board of Directors shall determine. Prior to becoming 100% vested, each freestanding right shall become exercisable at such time and in such manner as the Board of Directors shall determine. The Board of Directors may also, in its sole discretion, accelerate the exercisability of any freestanding right at any time and provide, in the agreement covering a freestanding right, that the right shall become immediately exercisable based on the occurrence of any event or satisfaction of any condition prescribed by the Board of Directors in its sole discretion. (b) A right shall entitle the participant upon exercise in accordance with its terms (subject, in the case of a tandem right, to the surrender of the unexercised portion of the related option or any portion or portions thereof which the participant from time to time determines to surrender for this purpose) to receive, subject to the provisions of the 1996 Plan and such rules and regulations as from time to time may be established by the Board of Directors, a payment having an aggregate value equal to (A) the excess of the fair market value on the exercise date of one share over the option price per share, in the case of a tandem right, or the price per share specified in the terms of the right, in the case of a freestanding right, times (B) the number of shares with respect to which the right shall have been exercised. The payment shall be made in the form of all cash, all shares of Common Stock, or a combination thereof, as elected by the participant; provided, that the Board of -------- Directors shall have sole discretion to consent to or disapprove the election of a participant to receive all or part of a payment in cash (which consent or disapproval may be given at any time after the election to which it relates). The price per share specified in a freestanding right shall be determined by the Board of Directors but in no event shall be less than the average of the daily closing price for the Common Stock as reported on the NASDAQ NMS during a period determined by the Board of Directors in its sole discretion that shall consist of any day on which shares of Common Stock are traded on the NASDAQ NMS (a "Trading Day") or any number of consecutive Trading Days, not exceeding 30, during the period of 30 Trading Days ending on the Trading Day immediately preceding the date the right is granted, provided that, in the absence of a -------- different determination by the Board of Directors, the price per share shall be determined on the basis of a period consisting of 30 Trading Days. Such price shall be subject to adjustment as provided in paragraph 15. The -6- Board of Directors shall determine the date on which a freestanding right is granted. In the absence of such determination, the date on which the Board of Directors adopts a resolution granting such right shall be considered the date of grant, provided the participant is promptly notified of the grant and an agreement is duly executed as of the date of the resolution. If upon exercise of a right the participant is to receive all or a portion of the payment in shares of Common Stock, the number of shares received shall be determined by dividing such portion by the fair market value of a share on the exercise date. The number of shares received may not exceed the number of shares covered by any option or portion thereof surrendered. Cash will be paid in lieu of any fractional share. No payment will be required from the participant upon exercise of a right, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due and prior to or concurrently with delivery of cash or a certificate representing shares. The Board of Directors may permit such amount to be paid in shares of Common Stock previously owned by the participant, or a portion of the shares of Common Stock that otherwise would be distributed to such participant upon exercise of the right, or a combination of cash and shares of such Common Stock. (c) For purposes of this paragraph 8, the fair market value of a share on any particular date shall mean the Fair Market Value of such share on such date, or if there are no sales on such date, on the next preceding day on which there were sales; provided that, in the case of rights that relate to an incentive -------- stock option, not in excess of the maximum amount that would be permissible under Section 422 of the Code and the Treasury Regulations thereunder without disqualifying such option as an incentive stock option under Section 422. (d) Upon exercise of a tandem right, the number of shares subject to exercise under the related option shall automatically be reduced by the number of shares represented by the option or portion thereof surrendered. (e) A right related to an incentive stock option may only be exercised if the fair market value of a share of Common Stock on the exercise date exceeds the option price. (f) Whether payments to participants upon exercise of tandem rights related to non-qualified options or of freestanding rights are made in cash, shares of Common Stock or a combination thereof, the Board of Directors shall have sole discretion as to timing of the payments, whether in one lump sum or in annual installments or otherwise deferred, which deferred payments may in the Board of Directors's sole discretion (i) bear amounts equivalent to interest or cash dividends, (ii) be treated as invested in the manner from time to time determined by the Board of Directors, with dividends or other income thereon being deemed to have been so reinvested, or (iii) for the convenience of the Corporation, contributed to a trust, which may be revocable by the Corporation or subject to the claims of its creditors, for investment in the manner from time to time determined by the Board of Directors and set forth in the instrument creating such trust, all as the Board of Directors shall determine. -7- (g) If a freestanding right is not exercised, or neither a tandem right nor the related option is exercised, before the end of the day on which the right ceases to be exercisable and the fair market value of a share on such date exceeds (i) the option price per share in the case of a tandem right or (ii) the price per share specified in the terms of the right in the case of a freestanding right, such right shall be deemed exercised and a payment in the amount prescribed by subparagraph 8(b), less any applicable taxes, shall be paid to the participant in cash. 9. Award and Exercise of Limited Rights ------------------------------------ (a) A limited right may be awarded by the Board of Directors in connection with any option granted under the 1996 Plan with respect to all or some of the shares of Common Stock covered by such related option. A limited right may be granted either at the time the option is granted or thereafter at any time prior to the exercise, termination or expiration of the option. A limited right may be granted to a participant irrespective of whether such participant is being granted or has been granted a right under paragraph 8 hereof. A limited right may be exercised only during the ninety-day period beginning on the occurrence of an event or condition prescribed by the Board of Directors. In addition, each limited right shall be exercisable only if, and to the extent that, the related option is exercisable and, in the case of a limited right granted in respect of an incentive stock option, only when the fair market value per share of the Common Stock exceeds the option price per share. Upon exercise of a limited right, such related option shall cease to be exercisable to the extent of the shares of Common Stock with respect to which such limited right is exercised. Upon the exercise or termination of a related option, the limited right with respect to such related option shall terminate to the extent of the shares of Common Stock with respect to which the related option was exercised or terminated. (b) Upon the exercise of limited rights, the holder thereof shall receive in cash an amount determined in the same manner as for a right granted under paragraph 8. (c) Notwithstanding any other provision of the 1996 Plan, tandem rights granted pursuant to paragraph 8 may not be exercised to the extent that any limited rights granted with respect to the same option are then exercisable. Upon exercise of the limited right, the number of shares subject to exercise under the related option, and the number of tandem rights related thereto, shall automatically be reduced by the number of shares and rights represented by the limited right exercised. 10. Non-Transferability of Options and Rights ----------------------------------------- Options, rights and limited rights granted under the 1996 Plan shall not be transferable otherwise than by will or the laws of descent and distribution. Options, rights and limited rights may be exercised during the lifetime of the participant only by the participant or by the participant's guardian or legal representative (unless such exercise would disqualify an option as an incentive stock option). -8- 11. Award and Delivery of Restricted Shares or Restricted Units ----------------------------------------------------------- (a) At the time an award of restricted shares or restricted units is made, the Board of Directors shall establish a period of time (the "Restricted Period") applicable to such award. Each award of restricted shares or restricted units may have a different Restricted Period. The Board of Directors may, in its sole discretion, accelerate the Restricted Period or, at the time an award is made, (i) prescribe conditions for the incremental lapse of restrictions during the Restricted Period or (ii) provide for the lapse or termination of restrictions upon the satisfaction of any condition or the occurrence of any event prescribed by the Board of Directors in its sole discretion. The Board of Directors may also, in its sole discretion, shorten or terminate the Restricted Period or waive any conditions for the lapse or termination of restrictions with respect to all or any portion of the restricted shares or restricted units. Notwithstanding the foregoing, all restrictions shall lapse or terminate with respect to all restricted shares or restricted units upon death or total disability (as defined in paragraph 13). (b) Upon the grant of an award of restricted shares, a stock certificate representing a number of shares of Common Stock equal to the number of restricted shares granted to a participant shall be registered in the participant's name but shall be held in custody by the Corporation for the participant's account. The participant shall generally have the rights and privileges of a shareholder as to such restricted shares, including the right to vote such restricted shares, except that, subject to the provisions of paragraph 12, the following restrictions shall apply: (i) the participant shall not be entitled to delivery of the certificate until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board of Directors; (ii) none of the restricted shares may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period and until the satisfaction of any other conditions prescribed by the Board of Directors; and (iii) all of the restricted shares shall be forfeited and all rights of the participant to such restricted shares shall terminate without further obligation on the part of the Corporation unless the participant has remained an employee of or, in the case of a nonemployee participant, continues to perform services for the Corporation or any of its subsidiaries until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board of Directors applicable to such restricted shares. At the discretion of the Board of Directors, cash and stock dividends with respect to the restricted shares may be either currently paid or withheld by the Corporation for the participant's account, and interest may be paid on the amount of cash dividends withheld at a rate and subject to such terms as determined by the Board of Directors. Cash or stock dividends so withheld by the Board of Directors shall not be subject to forfeiture. Upon the forfeiture of any restricted shares, such forfeited restricted shares shall be transferred to the Corporation without further action by the participant. The participant shall have the same rights and privileges, and be subject to the same restrictions, with respect to any shares received pursuant to paragraph 15. (c) Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board of Directors or at such earlier time as provided for in paragraph 12, the restrictions applicable to the restricted shares shall lapse -9- and a stock certificate for the number of shares of Common Stock with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, except any that may be imposed by law, to the participant or the participant's beneficiary or estate, as the case may be. The Corporation shall not be required to deliver any fractional share of Common Stock but will pay, in lieu thereof, the Fair Market Value (determined as of the date the restrictions lapse or next preceding day on which sales are traded) of such fractional share to the participant or the participant's beneficiary or estate, as the case may be. No payment will be required from the participant upon the issuance or delivery of any restricted shares, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due and prior to or concurrently with the issuance or delivery of a certificate representing such shares. The Board of Directors may permit such amount to be paid in (i) shares of Common Stock previously owned by the participant, (ii) a portion of the shares of Common Stock that otherwise would be distributed to such participant upon the lapse of the restrictions applicable to the restricted shares, or (iii) a combination of cash and shares of such Common Stock; provided, however, that the Board of -------- ------- Directors shall have sole discretion to consent to or disapprove of any such election (which consent or disapproval may be given at any time after the election to which it relates). (d) In the case of an award of restricted units, no shares of Common Stock shall be issued at the time the award is made, and the Corporation shall not be required to set aside a fund for the payment of any such awards. The participant will have no rights as a shareholder of the Corporation with respect to restricted units. Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board of Directors or at such earlier time as provided for in paragraph 12, the Corporation shall deliver to the participant or the participant's beneficiary or estate, as the case may be, one share of Common Stock for each restricted unit with respect to which the restrictions have lapsed ("vested unit"), and cash equal to any Dividend Equivalents credited with respect to each such vested unit and any interest thereon; provided, however, that the Board of Directors may, in its sole -------- ------- discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only Common Stock for vested units. If a cash payment is made in lieu of delivering Common Stock, the amount of such cash payment shall be equal to the Fair Market Value for the date on which the Restricted Period lapsed with respect to such vested unit, or if there are no sales on such date, on the next preceding day on which there were sales. No payment will be required from the participant upon the award of any restricted units, the crediting or payment of any Dividend Equivalents, or the delivery of Common Stock or the payment of cash in respect of vested units, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due. The Board of Directors may permit such amount to be paid in (i) shares of Common Stock previously owned by the participant, (ii) a portion of the shares of Common Stock that otherwise would be distributed to such participant in respect of vested units, or (iii) a combination of cash and shares of such Common Stock; provided, however, that the -------- ------- Board of Directors shall have sole discretion to -10- consent to or disapprove of any such election (which consent or disapproval may be given at any time after the election to which it relates). (e) The restricted unit award agreement may permit a participant to request that the payment of vested units (and Dividend Equivalents and the interest thereon with respect to such vested units) be deferred beyond the payment date specified in the agreement. The Board of Directors shall, in its sole discretion, determine whether to permit such deferral and to specify the terms and conditions, which are not inconsistent with the 1996 Plan, to be contained in the agreement. In the event of such deferral, the Board of Directors may determine that interest shall be credited annually on the Dividend Equivalents, at a rate to be determined by the Board of Directors. The Board of Directors may also determine to compound such interest. 12. Termination of Employment ------------------------- (a) If the employment of an employee to whom an option, right or limited right has been granted under the 1996 Plan shall be involuntarily terminated, then except as set forth in paragraph 13, such option, right or limited right may, subject to the provisions of the 1996 Plan, be exercised (to the extent that the employee was entitled to do so at such involuntary termination of his employment) at any time within three months after such involuntary termination, provided, however, that any option, right or limited right held by an employee - -------- ------- whose employment is terminated for cause, as determined by the Board of Directors in its sole discretion, shall forthwith terminate. If the employment of an employee to whom an option, right or limited right has been granted under the 1996 Plan shall terminate for any other reason, then, except as provided in paragraph 13, such option, right or limited right will immediately terminate; provided, however, that in the case of an employee whose termination results from retirement from active employment at or after age 65, such options, rights and limited rights may be exercised within one year after such termination, but in no case later than the date on which the option, right or limited right terminates. (b) Unless otherwise determined by the Board of Directors, if an employee to whom restricted shares or restricted units have been granted ceases to be an employee of the Corporation or of a subsidiary prior to the end of the Restricted Period and the satisfaction of any other conditions prescribed by the Board of Directors for any reason other than death or total disability (as defined in paragraph 13), the employee shall immediately forfeit all restricted shares and restricted units as to which the Restricted Period has not then lapsed. If such employee ceases employment with the Corporation due to such employee's death or total disability (as defined in paragraph 13), then all restrictions relating to the restricted shares or restricted units shall immediately terminate. (c) Awards granted under the 1996 Plan shall not be affected by any change of duties or position so long as the holder continues to be an employee of the Corporation or any of its subsidiaries. Any option, right, limited right, restricted share or restricted unit agreement, or any rules and regulations relating to the 1996 Plan, may contain such provisions as the Board of Directors shall approve with reference to the determination of the date employment terminates -11- and the effect of leaves of absence. Any such rules and regulations with reference to any option agreement shall be consistent with the provisions of the Code and any applicable rules and regulations thereunder. Nothing in the 1996 Plan or in any award granted pursuant to the 1996 Plan shall confer upon any employee any right to continue in the employ of the Corporation or any of its subsidiaries or interfere in any way with the right of the Corporation or any such subsidiary to terminate such employment at any time. (d) Notwithstanding anything else in the 1996 Plan to the contrary, if the corporation employing an individual to whom an option, right, limited right, restricted unit or restricted share has been granted under the 1996 Plan ceases to be a subsidiary of the Corporation, then the Board of Directors may provide that service with such employer or its direct or indirect subsidiaries in any capacity shall be considered employment with the Corporation for purposes of the 1996 Plan. 13. Death or Total Disability of Employee ------------------------------------- If an employee to whom an option, right or limited right has been granted under the 1996 Plan shall die or suffer a "total disability" while employed by the Corporation, one of its subsidiaries, such option, right or limited right may be exercised, to the extent that the employee was entitled to do so at the termination of employment (including by reason of death or total disability), as set forth herein or in option agreement (subject to the restrictions set forth in paragraphs 8 and 9 with respect to persons subject to Section 16(b) of the Exchange Act) by the employee, the legal guardian of the employee (unless such exercise would disqualify an option as an incentive stock option), a legatee or legatees of the employee under the employee's last will, or by the employee's personal representatives or distributees, whichever is applicable, at any time within one year after the date of the employee's death or total disability, but in no case later than the date on which the option, right or limited right terminates. For purposes hereof, "total disability" is defined as a condition which permits the employee to receive full benefits under the Corporation's long term disability plan. If employee is not eligible to participate in such plan or no such plan is then maintained, "total disability" means any physical or mental condition which renders the employee unable to perform his or her duties to the satisfaction of the Board of Directors and which condition may be expected to continue for more than six months in the opinion of a physician selected by the Board of Directors. 14. Awards to Non-employees ----------------------- Any non-employee of the Corporation who receives an award under the 1996 Plan shall be subject to such constraints with respect to exercisability of awards and forfeiture of awards as the Board of Directors, in its sole discretion, may prescribe. 15. Adjustment upon Changes in Capitalization, etc. ---------------------------------------------- Notwithstanding any other provision of the 1996 Plan, the Board of Directors may at any time make or provide for such adjustments to the 1996 Plan, to the number and class of -12- shares available thereunder or to any outstanding options, rights, restricted shares or restricted units as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock other than a normal cash dividend, changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any offer to holders of Common Stock generally relating to the acquisition of their shares, the Board of Directors may make such adjustment as it deems equitable in respect of outstanding options, rights, limited rights and restricted units, including in the Board of Directors's discretion revision of outstanding options, rights, limited rights and restricted units so that they may be exercisable for or payable in the consideration payable in the acquisition transaction. No adjustment shall be made in respect of an incentive stock option if such adjustment would disqualify such option as an incentive stock option under Section 422 of the Code and the Treasury Regulations thereunder. No adjustment shall be made in the minimum number of shares with respect to which an option may be exercised at any time. Any fractional shares resulting from such adjustments to options, rights, limited rights or restricted units shall be eliminated. 16. Effective Date -------------- The 1996 Plan shall be effective as of closing date of the sale of Common Stock pursuant to the initial public offering of such stock, provided that the adoption of the 1996 Plan shall have been approved by the shareholders of the Corporation either before or after the effective date. The Board of Directors may, in its discretion, grant awards under the 1996 Plan, the grant, exercise or payment of which shall be expressly subject to the conditions that, to the extent required at the time of grant, exercise or payment, (i) if the Corporation deems it necessary or desirable, a Registration Statement under the Securities Act of 1933 with respect to such shares shall be effective, (ii) to the extent such awards provide for the delivery of shares of Common Stock of the Corporation, such shares shall have been listed on the NASDAQ NMS, subject to notice of issuance, and (iii) any requisite approval or consent of any governmental authority of any kind having jurisdiction over awards granted under the 1996 Plan shall be obtained. 17. Termination and Amendment ------------------------- The Board of Directors of the Corporation may suspend, terminate, modify or amend the 1996 Plan, provided that any amendment that would increase the aggregate number of shares that may be issued under the 1996 Plan, materially increase the benefits accruing to participants under the 1996 Plan, or materially modify the requirements as to eligibility for participation in the 1996 Plan shall be subject to the approval of the Corporation's shareholders to the extent required by Rule 16b-3, applicable law or any other governing rules or regulations, except that any such increase or modification that may result from adjustments authorized by paragraph 15 does not require such approval. If the 1996 Plan is terminated, the terms of the 1996 Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. In addition, no suspension, termination, modification or amendment of the -13- 1996 Plan may, without the consent of the participant to whom an award shall theretofore have been granted, adversely affect the rights of such participant under such award. 18. Written Agreements ------------------ Each award of options, rights, limited rights, restricted shares or restricted units shall be evidenced by a written agreement, executed by the participant and the Corporation, which shall contain such restrictions, terms and conditions as the Board of Directors may require. 19. Effect on Other Stock Plans --------------------------- The adoption of the 1996 Plan shall have no effect on awards made or to be made pursuant to other stock plans covering employees or non-employees of the Corporation, its subsidiaries, or any predecessors or successors thereto. -14- EX-10.9 16 EMPLOYMENT AGREEMENT Exhibit 10.9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of August, 1996, by and between Allin Communications Corporation, a Delaware corporation ("Employer"), and Richard W. Talarico ("Employee"), a resident of Pennsylvania. W I T N E S E T H: ----------------- WHEREAS, Employer desires to employ Employee on a full-time and exclusive basis and Employee is willing to serve on a full-time and exclusive basis, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and intending to be legally bound hereby, the parties agree as follows: Section 1. Employment. Subject to the terms and conditions of this --------- ---------- Agreement, Employer agrees to employ Employee as Chief Executive Officer of Employer, and Employee accepts such employment. Employee will diligently and faithfully and in conformity with the directions of the Board of Directors of Employer perform the duties of his employment hereunder, devote his best efforts to the performance of said duties, and devote such time to his duties as is necessary for him to perform his obligations hereunder. Section 2. Employment Period. The term of Employee's employment hereunder --------- ----------------- shall begin on August 1, 1996 and shall continue through December 31, 1999 unless sooner terminated in accordance with the terms of this Section 2 ("Employment Period"). The Employment Period shall terminate upon (i) Employee's death or, unless waived by Employer, his disability, either physical or mental (as determined by Employer's physician) which may reasonably be anticipated to render him unable, for a period of at least three (3) months, effectively to perform the obligations, duties and responsibilities of Employee's employment with Employer; or (ii) the termination of Employee's employment by the Board of Directors with cause (as hereinafter defined); or (iii) the passage of ninety (90) days from the date of delivery by either party to the other of his or its election to terminate this Agreement. As used herein, "cause" shall mean (i) dishonest, fraudulent or illegal conduct; (ii) misappropriation of Employer funds; (iii) conviction of a felony; (iv) excessive use of alcohol, (v) use of controlled substances or other addictive behavior; (vi) unethical business conduct; (vii) breach of any statutory or common law duty of loyalty to Employer; and (viii) action by Employee which is prejudicial or injurious to the business or goodwill of Employer or a material breach of this Agreement. Section 3. Employment Compensation and Other Benefits. --------- ------------------------------------------ (a) Salary. For services performed by Employee during the Employment ------ Period, Employer will pay to Employee a salary of One Hundred Fifty Thousand Dollars ($150,000) per annum, payable in equal semi-monthly installments of $6,250, prorated for any partial period of employment. (b) Benefits. During the term of his employment hereunder, Employee will -------- be entitled to the following: (i) payment by Employer of the premiums for medical insurance coverage for himself and his family consistent with programs from time to time in effect for the employees of Employer; (ii) four weeks of paid vacation each year of employment; (iii) such other benefits as are available to other employees of Employer generally. (c) Business Expenses. Employer will reimburse Employee for ----------------- reasonable out-of-pocket expenses incurred by him, in accordance with Employer's policies as in effect from time to time, for entertainment, travel, lodging and similar items in connection with the business of Employer, provided that Employee properly accounts for and promptly submits appropriate supporting documentation with respect to all such expenses. (d) Discretionary Bonus. The Board of Directors of Employer may, on ------------------- an annual basis, in its sole and absolute discretion, award a bonus to Employee. (e) Stock Option Plan. Effective upon the commencement of an initial ----------------- public offering of common stock by Employer, Employee will be entitled to participate in Employer's 1996 Stock Option Plan (the "Stock Option Plan"). Any options granted to Employee pursuant to the Stock Option Plan shall vest upon the earlier to occur of (a) the vesting date provided in the Stock Option Plan, and (b) the date on which (i) the Company sells all or substantially all of its assets, (ii) merges with another entity in a transaction in which the Company is not the surviving corporation, or (iii) any person or group of persons other than the shareholders of SeaVision, Inc. (as existing on the date hereof) holds 50% or more of the common stock of Employer (collectively, a "Change in Control"). (f) Annual Merit Review. Annually, on or before January 15 of each ------------------- year, Employer will conduct an annual review of Employee's performance under this Agreement and, if deemed appropriate, implement adjustments to this Section 3 for such year. -2- (g) Severance Pay. If Employee's employment is terminated by ------------- Employer, during the Employment Period, (a) without cause, or (b) contemporaneously with the occurrence of a Change in Control, Employee shall receive semi-monthly severance payments equal to the semi-monthly base salary payment which Employee was receiving immediately prior to the termination, until the one-year anniversary of the date of termination. Section 4. Conditions of Employment. As conditions of his employment --------- ------------------------ and in consideration of his employment, Employee covenants and agrees as follows: (a) that, during the Employment Period, he will devote his best efforts to the performance of his duties and to the promotion of the business and interests of Employer, and will devote such time to the foregoing as is necessary to enable him to perform his obligations hereunder; (b) that, during the Employment Period, and for a period of two (2) years thereafter, he will not, without the prior written consent of the Board of Directors of Employer, directly or indirectly, as a stockholder (except as a stockholder owning beneficially or of record less than five percent (5%) of the outstanding shares of any class of stock of any issuer listed on a national securities exchange), or as an officer, director, manager, member, employee, partner, joint venturer, proprietor or otherwise, engage in, become interested in, consult with, lend to or borrow from, advise or negotiate for or on behalf of, any business which is of the type in which Employer or any affiliate or subsidiary of Employer engages during the Employment Period; provided that the prohibition contained in this subsection 4(b) shall not apply to any business in which Employer was engaged during the Employment Period if, during the three year period thereafter, Employer permanently ceases to be engaged in such business; (c) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit any customer of Employer or any customer of any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing such customers to do business with anyone other than Employer; (d) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit (or employ or cause to be employed other than by Employer) other employees of Employer or any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing them to leave their employment with Employer or any affiliate or subsidiary of Employer; (e) that, during the Employment Period and for a period of two (2) years thereafter, he will make full and complete disclosure of the existence of this Agreement and the content of this Section 4 to all prospective employers with whom he may discuss possible employment; -3- (f) that, he will refrain from directly or indirectly disclosing, making available or using or causing to be used in any manner whatsoever, any information of Employer of a proprietary or confidential nature (including, without limitation, information regarding inventions, processes, formulas, systems, plans, programs, studies, techniques, "know-how," trade secrets, income or earnings, tax data, customer lists and contracts to which Employer is a party, but excluding any such information which may be in the public domain through proper means) and, upon termination of his employment, such information, to the extent that it has been reduced to writing (including any and all copies thereof), together with all copies of all forms, documents and materials of every kind, whether confidential or otherwise, shall forthwith be returned to the Employer and shall not be retained by Employee or furnished to any third party, either by sample, facsimile or by verbal communication; (g) that, he will refrain from any disparagement, direct or indirect, through innuendo or otherwise, of Employer or any of its employees, agents, officers, directors, shareholders or affiliates; (h) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) participate actively in any other business interests or investments which would conflict with his responsibilities under this Agreement, or (ii) borrow money from, or lend to, customers (except those commercial institutions whose business it is to lend money) or individuals or firms from which Employer or any affiliate or subsidiary of Employer buys services, materials, equipment or supplies, or with whom Employer or any affiliate or subsidiary of Employer does business; (i) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) exchange goods, products or services of Employer in return for goods, products or services of any individual or firm or (ii) accept gifts or favors from any outside organization or agency which, individually or collectively, may cause undue influence in his selection of goods, products or services for Employer; (j) that, after the termination of his employment, he will not secure, or attempt to secure, from any employee or former employee of Employer or any affiliate or subsidiary of Employer, any information relating to Employer or any affiliate or subsidiary of Employer or their business operations; and (k) that he will promptly and voluntarily advise the Board of Directors of Employer of any activities which might result in a conflict of interest with his duties to Employer hereunder, and, further, will make such other and further disclosures as Employer may reasonably request from time to time. -4- Employee represents and warrants to Employer that, notwithstanding the operation of the covenants contained in this Section 4, upon the termination of his employment hereunder, Employee will be able to obtain employment for the purpose of earning a livelihood. Section 5. Injunctive Relief. Because the services to be performed --------- ----------------- by Employee hereunder are of a special, unique, unusual, confidential, extraordinary and intellectual character which character renders such services unique and because Employee will acquire by reason of his employment and association with Employer an extensive knowledge of Employer's trade secrets, customers, procedures, and other confidential information, the parties hereto recognize and acknowledge that, in the event of a breach or threat of breach by Employee of any of the terms and provisions contained in Section 4 or Section 7 of this Agreement, monetary damages alone to Employer would not be an adequate remedy for a breach of any of such terms and provisions. Therefore, it is agreed that in the event of a breach or threat of a breach of any of the provisions of Section 4 or Section 7 of this Agreement by Employee, Employer shall be entitled to an immediate injunction from any court of competent jurisdiction restraining Employee, as well as any third parties including successor employers of Employee whose joinder may be necessary to effect full and complete relief, from committing or continuing to commit a breach of such provisions without the showing or proving of actual damages. Any preliminary injunction or restraining order shall continue in full force and effect until any and all disputes between the parties to such injunction or order regarding this Agreement have been finally resolved. Employee hereby agrees to pay all costs of suit incurred by Employer, including but not limited to reasonable attorneys' fees, in obtaining any such injunction or order. Employee hereby waives any right he may have to require Employer to post a bond or other security with respect to obtaining or continuing any such injunction or temporary restraining order and, further, hereby releases Employer, its officers, directors, employees and agents from and waives any claim for damages against them which he might have with respect to Employer obtaining in good faith any injunction or restraining order pursuant to this Agreement. Section 6. Absence of Restrictions. Employee hereby represents and ---------- ----------------------- warrants that he has full power, authority and legal right to enter into this Agreement and to carry out his obligations and duties hereunder and that the execution, delivery and performance by Employee of this Agreement will not violate or conflict with, or constitute a default under, any agreements or other understandings to which Employee is a party or by which he may be bound or affected, including, but not limited to, any order, judgment or decree of any court or governmental agency. Section 7. Patents and Inventions. Employee will promptly submit to --------- ---------------------- Employer written disclosures of all inventions, improvements, discoveries, technological innovations and new ideas, relating to Employer's business, whether or not patentable (hereinafter called "Inventions"), which are directly or indirectly made, conceived, created or prepared by Employee, alone or jointly with others, during the Employment Period. Worldwide right, title and interest in and to the intellectual property rights (including but not -5- limited to copyrights created in, patents to, or any other form of legal protection as may be obtained or obtainable in the United States of America or any foreign country), relating to all such Inventions that shall be within the existing or contemplated scope of Employer's business at the time such inventions are made or conceived or which result from or are suggested by any work Employee or others may do for or on behalf of Employer, shall belong to Employer. Employee will assign all right, title and interest in and to such intellectual property rights to Employer, and upon the request of Employer, will at any time during the Employment Period and after termination of Employee's employment for any reason, execute all proper papers for use in applying for, obtaining, maintaining and enforcing such copyrights, patents or other legal protection as Employer may desire and will execute and deliver all proper assignments thereof, when so requested, without remuneration but at the expense of Employer. Section 8. General. --------- ------- (a) Interpretation. If the provisions of subsections 4(b), 4(c) or -------------- 4(d) of this Agreement should be held to be invalid, illegal or unenforceable by a court of competent jurisdiction because of the time limitation or geographical area therein provided, such provisions shall nevertheless be effective and enforceable for such period of time and/or such geographical area as may be held to be reasonable by such court. Any provision of this Agreement that is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement, and any such invalidity, illegality or unenforceability shall not, of itself, affect the validity, legality or enforceability of such provision in any other jurisdiction. (b) Notices. In any case where any notice or other communication is ------- to be given or made pursuant to any provision of this Agreement, such notice or communication shall be deemed to be delivered when actually received on the date specified in the return receipt for a notice or communication mailed by registered or certified mail, postage prepaid, addressed as follows: If to Employer: -------------- Allin Technology Corporation c/o SeaVision, Inc. 300 Greentree Commons 381 Mansfield Ave. Pittsburgh, PA 15220 Attention:_______________________ -6- with copies to: Bryan D. Rosenberger, Esq. Eckert Seamans Cherin & Mellott 600 Grant Street, 42nd Floor Pittsburgh, PA 15219 If to Employee: -------------- Richard W. Talarico 1324 Bethel Green Drive Bethel Park, PA 15102 or such other address or addresses as any party may specify by notice to the other party given as herein provided. (c) Headings. The headings in this Agreement are inserted for -------- convenience and identification and in no way describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. (d) No Presumption on Interpretation. Nothing herein shall be -------------------------------- construed more strongly against or more favorably toward either party by reason of either party having drafted this Agreement or any portion hereof. (e) Binding Effect. This Agreement shall be binding upon, and inure -------------- to the benefit of, the parties hereto and their respective heirs, beneficiaries, executors, administrators, personal representatives, successors and permissible assigns. (f) Integration. This Agreement constitutes and contains the entire ----------- Agreement and understanding between the parties with respect to the subject matter hereof and supersedes any and all prior agreements, if any, understandings and negotiations relating thereto. No promise, understanding, representation, inducement, condition or warranty not set forth herein has been made or relied upon by any party hereto. (g) Waivers; Modification. This Agreement, or any provision hereof, --------------------- may be amended, supplemented or modified only by a writing signed by both parties and may be waived only by a writing signed by the party to be bound thereby. A written waiver of any provision shall be valid only in the instance for which given and shall not be deemed to be a continuing waiver or construed as a waiver of any other provisions. (h) Governing Law. This Agreement shall be construed in accordance ------------- with and governed in all respects by the laws of the Commonwealth of Pennsylvania (without giving effect to the conflicts of laws provisions thereof). -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ALLIN COMMUNICATIONS CORPORATION By:________________________________ Name Printed:______________________ Title:_____________________________ WITNESS: _________________________ _________________________________________________ Richard W. Talarico -8- EX-10.10 17 EMPLOYMENT AGREEMENT Exhibit 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of this 1st day of August, 1996, by and between Allin Communications Corporation, a Delaware corporation ("Employer"), and R. Daniel Foreman ("Employee"), a resident of Ohio. W I T N E S E T H: ----------------- WHEREAS, Employer desires to employ Employee on a full-time and exclusive basis and Employee is willing to serve on a full-time and exclusive basis, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and intending to be legally bound hereby, the parties agree as follows: Section 1. Employment. Subject to the terms and conditions of this --------- ---------- Agreement, Employer agrees to employ Employee as President of Employer, and Employee accepts such employment. Employee will diligently and faithfully and in conformity with the directions of the Board of Directors of Employer perform the duties of his employment hereunder, and he will devote his best efforts and attention on a full-time basis to the performance of said duties. Section 2. Employment Period. The term of Employee's employment hereunder --------- ----------------- shall begin on August 1, 1996 and shall continue through December 31, 1999 unless sooner terminated in accordance with the terms of this Section 2 ("Employment Period"). The Employment Period shall terminate upon (i) Employee's death or, unless waived by Employer, his disability, either physical or mental (as determined by Employer's physician) which may reasonably be anticipated to render him unable, for a period of at least three (3) months, effectively to perform the obligations, duties and responsibilities of Employee's employment with Employer; or (ii) the termination of Employee's employment by the Board of Directors with cause (as hereinafter defined); or (iii) the passage of ninety (90) days from the date of delivery by either party to the other of his or its election to terminate this Agreement. As used herein, "cause" shall mean (i) dishonest, fraudulent or illegal conduct; (ii) misappropriation of Employer funds; (iii) conviction of a felony; (iv) excessive use of alcohol, (v) use of controlled substances or other addictive behavior; (vi) unethical business conduct; (vii) breach of any statutory or common law duty of loyalty to Employer; and (viii) action by Employee which is prejudicial or injurious to the business or goodwill of Employer or a material breach of this Agreement. Section 3. Employment Compensation and Other Benefits. --------- ------------------------------------------ (a) Salary. For services performed by Employee during the Employment ------ Period, Employer will pay to Employee a salary of One Hundred Fifty Thousand Dollars ($150,000) per annum, payable in equal semi-monthly installments of $6,250, prorated for any partial period of employment. (b) Benefits. During the term of his employment hereunder, Employee will -------- be entitled to the following: (i) payment by Employer of the premiums for medical insurance coverage for himself and his family consistent with programs from time to time in effect for the employees of Employer; (ii) four weeks of paid vacation each year of employment; (iii) such other benefits as are available to other employees of Employer generally. (c) Business Expenses. Employer will reimburse Employee for ----------------- reasonable out-of-pocket expenses incurred by him, in accordance with Employer's policies as in effect from time to time, for entertainment, travel, lodging and similar items in connection with the business of Employer, provided that Employee properly accounts for and promptly submits appropriate supporting documentation with respect to all such expenses. (d) Discretionary Bonus. The Board of Directors of Employer may, on ------------------- an annual basis, in its sole and absolute discretion, award a bonus to Employee. (e) Stock Option Plan. Effective upon the commencement of an initial ----------------- public offering of common stock by Employer, Employee will be entitled to participate in Employer's 1996 Stock Option Plan (the "Stock Option Plan"). Any options granted to Employee pursuant to the Stock Option Plan shall vest upon the earlier to occur of (a) the vesting date provided in the Stock Option Plan, and (b) the date on which (i) the Company sells all or substantially all of its assets, (ii) merges with another entity in a transaction in which the Company is not the surviving corporation, or (iii) any person or group of persons other than the shareholders of SeaVision, Inc. (as existing on the date hereof) holds 50% or more of the common stock of Employer (collectively, a "Change in Control"). (f) Annual Merit Review. Annually, on or before January 15 of each ------------------- year, Employer will conduct an annual review of Employee's performance under this Agreement and, if deemed appropriate, implement adjustments to this Section 3 for such year. -2- (g) Severance Pay. If Employee's employment is terminated by ------------- Employer, during the Employment Period, (a) without cause, or (b) contemporaneously with the occurrence of a Change in Control, Employee shall receive semi-monthly severance payments equal to the semi-monthly base salary payment which Employee was receiving immediately prior to the termination, until the one-year anniversary of the date of termination. Section 4. Conditions of Employment. As conditions of his employment --------- ------------------------ and in consideration of his employment, Employee covenants and agrees as follows: (a) that, during the Employment Period, he will devote his full time, services and attention and best efforts to the performance of his duties and to the promotion of the business and interests of Employer; (b) that, during the Employment Period, and for a period of two (2) years thereafter, he will not, without the prior written consent of the Board of Directors of Employer, directly or indirectly, as a stockholder (except as a stockholder owning beneficially or of record less than five percent (5%) of the outstanding shares of any class of stock of any issuer listed on a national securities exchange), or as an officer, director, manager, member, employee, partner, joint venturer, proprietor or otherwise, engage in, become interested in, consult with, lend to or borrow from, advise or negotiate for or on behalf of, any business which is of the type in which Employer or any affiliate or subsidiary of Employer engages during the Employment Period; provided that the prohibition contained in this subsection 4(b) shall not apply to any business in which Employer was engaged during the Employment Period if, during the three year period thereafter, Employer permanently ceases to be engaged in such business; (c) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit any customer of Employer or any customer of any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing such customers to do business with anyone other than Employer; (d) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit (or employ or cause to be employed other than by Employer) other employees of Employer or any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing them to leave their employment with Employer or any affiliate or subsidiary of Employer; (e) that, during the Employment Period and for a period of two (2) years thereafter, he will make full and complete disclosure of the existence of this Agreement and the content of this Section 4 to all prospective employers with whom he may discuss possible employment; -3- (f) that, he will refrain from directly or indirectly disclosing, making available or using or causing to be used in any manner whatsoever, any information of Employer of a proprietary or confidential nature (including, without limitation, information regarding inventions, processes, formulas, systems, plans, programs, studies, techniques, "know-how," trade secrets, income or earnings, tax data, customer lists and contracts to which Employer is a party, but excluding any such information which may be in the public domain through proper means) and, upon termination of his employment, such information, to the extent that it has been reduced to writing (including any and all copies thereof), together with all copies of all forms, documents and materials of every kind, whether confidential or otherwise, shall forthwith be returned to the Employer and shall not be retained by Employee or furnished to any third party, either by sample, facsimile or by verbal communication; (g) that, he will refrain from any disparagement, direct or indirect, through innuendo or otherwise, of Employer or any of its employees, agents, officers, directors, shareholders or affiliates; (h) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) participate actively in any other business interests or investments which would conflict with his responsibilities under this Agreement, or (ii) borrow money from, or lend to, customers (except those commercial institutions whose business it is to lend money) or individuals or firms from which Employer or any affiliate or subsidiary of Employer buys services, materials, equipment or supplies, or with whom Employer or any affiliate or subsidiary of Employer does business; (i) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) exchange goods, products or services of Employer in return for goods, products or services of any individual or firm or (ii) accept gifts or favors from any outside organization or agency which, individually or collectively, may cause undue influence in his selection of goods, products or services for Employer; (j) that, after the termination of his employment, he will not secure, or attempt to secure, from any employee or former employee of Employer or any affiliate or subsidiary of Employer, any information relating to Employer or any affiliate or subsidiary of Employer or their business operations; and (k) that he will promptly and voluntarily advise the Board of Directors of Employer of any activities which might result in a conflict of interest with his duties to Employer hereunder, and, further, will make such other and further disclosures as Employer may reasonably request from time to time. -4- Employee represents and warrants to Employer that, notwithstanding the operation of the covenants contained in this Section 4, upon the termination of his employment hereunder, Employee will be able to obtain employment for the purpose of earning a livelihood. Section 5. Injunctive Relief. Because the services to be performed --------- ----------------- by Employee hereunder are of a special, unique, unusual, confidential, extraordinary and intellectual character which character renders such services unique and because Employee will acquire by reason of his employment and association with Employer an extensive knowledge of Employer's trade secrets, customers, procedures, and other confidential information, the parties hereto recognize and acknowledge that, in the event of a breach or threat of breach by Employee of any of the terms and provisions contained in Section 4 or Section 7 of this Agreement, monetary damages alone to Employer would not be an adequate remedy for a breach of any of such terms and provisions. Therefore, it is agreed that in the event of a breach or threat of a breach of any of the provisions of Section 4 or Section 7 of this Agreement by Employee, Employer shall be entitled to an immediate injunction from any court of competent jurisdiction restraining Employee, as well as any third parties including successor employers of Employee whose joinder may be necessary to effect full and complete relief, from committing or continuing to commit a breach of such provisions without the showing or proving of actual damages. Any preliminary injunction or restraining order shall continue in full force and effect until any and all disputes between the parties to such injunction or order regarding this Agreement have been finally resolved. Employee hereby agrees to pay all costs of suit incurred by Employer, including but not limited to reasonable attorneys' fees, in obtaining any such injunction or order. Employee hereby waives any right he may have to require Employer to post a bond or other security with respect to obtaining or continuing any such injunction or temporary restraining order and, further, hereby releases Employer, its officers, directors, employees and agents from and waives any claim for damages against them which he might have with respect to Employer obtaining in good faith any injunction or restraining order pursuant to this Agreement. Section 6. Absence of Restrictions. Employee hereby represents and ---------- ----------------------- warrants that he has full power, authority and legal right to enter into this Agreement and to carry out his obligations and duties hereunder and that the execution, delivery and performance by Employee of this Agreement will not violate or conflict with, or constitute a default under, any agreements or other understandings to which Employee is a party or by which he may be bound or affected, including, but not limited to, any order, judgment or decree of any court or governmental agency. Section 7. Patents and Inventions. Employee will promptly submit to --------- ---------------------- Employer written disclosures of all inventions, improvements, discoveries, technological innovations and new ideas, relating to Employer's business, whether or not patentable (hereinafter called "Inventions"), which are directly or indirectly made, conceived, created or prepared by Employee, alone or jointly with others, during the Employment Period. Worldwide right, title and interest in and to the intellectual property rights (including but not -5- limited to copyrights created in, patents to, or any other form of legal protection as may be obtained or obtainable in the United States of America or any foreign country), relating to all such Inventions that shall be within the existing or contemplated scope of Employer's business at the time such inventions are made or conceived or which result from or are suggested by any work Employee or others may do for or on behalf of Employer, shall belong to Employer. Employee will assign all right, title and interest in and to such intellectual property rights to Employer, and upon the request of Employer, will at any time during the Employment Period and after termination of Employee's employment for any reason, execute all proper papers for use in applying for, obtaining, maintaining and enforcing such copyrights, patents or other legal protection as Employer may desire and will execute and deliver all proper assignments thereof, when so requested, without remuneration but at the expense of Employer. Section 8. General. --------- ------- (a) Interpretation. If the provisions of subsections 4(b), 4(c) or -------------- 4(d) of this Agreement should be held to be invalid, illegal or unenforceable by a court of competent jurisdiction because of the time limitation or geographical area therein provided, such provisions shall nevertheless be effective and enforceable for such period of time and/or such geographical area as may be held to be reasonable by such court. Any provision of this Agreement that is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement, and any such invalidity, illegality or unenforceability shall not, of itself, affect the validity, legality or enforceability of such provision in any other jurisdiction. (b) Notices. In any case where any notice or other communication is ------- to be given or made pursuant to any provision of this Agreement, such notice or communication shall be deemed to be delivered when actually received on the date specified in the return receipt for a notice or communication mailed by registered or certified mail, postage prepaid, addressed as follows: If to Employer: -------------- Allin Technology Corporation c/o SeaVision, Inc. 300 Greentree Commons 381 Mansfield Ave. Pittsburgh, PA 15220 Attention: _____________________ -6- with copies to: Bryan D. Rosenberger, Esq. Eckert Seamans Cherin & Mellott 600 Grant Street, 42nd Floor Pittsburgh, PA 15219 If to Employee: -------------- R. Daniel Foreman 533 Springfield Road Columbiana, OH 44408 or such other address or addresses as any party may specify by notice to the other party given as herein provided. (c) Headings. The headings in this Agreement are inserted for -------- convenience and identification and in no way describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. (d) No Presumption on Interpretation. Nothing herein shall be -------------------------------- construed more strongly against or more favorably toward either party by reason of either party having drafted this Agreement or any portion hereof. (e) Binding Effect. This Agreement shall be binding upon, and inure -------------- to the benefit of, the parties hereto and their respective heirs, beneficiaries, executors, administrators, personal representatives, successors and permissible assigns. (f) Integration. This Agreement constitutes and contains the entire ----------- Agreement and understanding between the parties with respect to the subject matter hereof and supersedes any and all prior agreements, if any, understandings and negotiations relating thereto. No promise, understanding, representation, inducement, condition or warranty not set forth herein has been made or relied upon by any party hereto. (g) Waivers; Modification. This Agreement, or any provision hereof, --------------------- may be amended, supplemented or modified only by a writing signed by both parties and may be waived only by a writing signed by the party to be bound thereby. A written waiver of any provision shall be valid only in the instance for which given and shall not be deemed to be a continuing waiver or construed as a waiver of any other provisions. (h) Governing Law. This Agreement shall be construed in accordance ------------- with and governed in all respects by the laws of the Commonwealth of Pennsylvania (without giving effect to the conflicts of laws provisions thereof). -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ALLIN COMMUNICATIONS CORPORATION By:____________________________________ Name Printed:__________________________ Title:_________________________________ WITNESS: ___________________________ _____________________________________________ R. Daniel Foreman -8- EX-10.11 18 EMPLOYMENT AGREEMENT Exhibit 10.11 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as if this 1st day of August, 1996, by and between Allin Communications Corporation, a Delaware corporation ("Employer"), and Brian K. Blair ("Employee"), a resident of Ohio. W I T N E S E T H: ----------------- WHEREAS, Employer desires to employ Employee on a full-time and exclusive basis and Employee is willing to serve on a full-time and exclusive basis, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained and intending to be legally bound hereby, the parties agree as follows: Section 1. Employment. Subject to the terms and conditions of this --------- ---------- Agreement, Employer agrees to employ Employee as Chief Operating Officer of Employer, and Employee accepts such employment. Employee will diligently and faithfully and in conformity with the directions of the Board of Directors of Employer perform the duties of his employment hereunder, and he will devote his best efforts and attention on a full-time basis to the performance of said duties. Section 2. Employment Period. The term of Employee's employment hereunder --------- ----------------- shall begin on August 1, 1996 and shall continue through December 31, 1999 unless sooner terminated in accordance with the terms of this Section 2 ("Employment Period"). The Employment Period shall terminate upon (i) Employee's death or, unless waived by Employer, his disability, either physical or mental (as determined by Employer's physician) which may reasonably be anticipated to render him unable, for a period of at least three (3) months, effectively to perform the obligations, duties and responsibilities of Employee's employment with Employer; or (ii) the termination of Employee's employment by the Board of Directors with cause (as hereinafter defined); or (iii) the passage of ninety (90) days from the date of delivery by either party to the other of his or its election to terminate this Agreement. As used herein, "cause" shall mean (i) dishonest, fraudulent or illegal conduct; (ii) misappropriation of Employer funds; (iii) conviction of a felony; (iv) excessive use of alcohol, (v) use of controlled substances or other addictive behavior; (vi) unethical business conduct; (vii) breach of any statutory or common law duty of loyalty to Employer; and (viii) action by Employee which is prejudicial or injurious to the business or goodwill of Employer or a material breach of this Agreement. Section 3. Employment Compensation and Other Benefits. --------- ------------------------------------------ (a) Salary. For services performed by Employee during the Employment ------ Period, Employer will pay to Employee a salary of One Hundred Fifty Thousand Dollars ($150,000) per annum, payable in equal semi-monthly installments of $6,250, prorated for any partial period of employment. (b) Benefits. During the term of his employment hereunder, Employee will -------- be entitled to the following: (i) payment by Employer of the premiums for medical insurance coverage for himself and his family consistent with programs from time to time in effect for the employees of Employer; (ii) four weeks of paid vacation each year of employment; (iii) such other benefits as are available to other employees of Employer generally. (c) Business Expenses. Employer will reimburse Employee for ----------------- reasonable out-of-pocket expenses incurred by him, in accordance with Employer's policies as in effect from time to time, for entertainment, travel, lodging and similar items in connection with the business of Employer, provided that Employee properly accounts for and promptly submits appropriate supporting documentation with respect to all such expenses. (d) Discretionary Bonus. The Board of Directors of Employer may, on ------------------- an annual basis, in its sole and absolute discretion, award a bonus to Employee. (e) Stock Option Plan. Effective upon the commencement of an initial ----------------- public offering of common stock by Employer, Employee will be entitled to participate in Employer's 1996 Stock Option Plan (the "Stock Option Plan"). Any options granted to Employee pursuant to the Stock Option Plan shall vest upon the earlier to occur of (a) the vesting date provided in the Stock Option Plan, and (b) the date on which (i) the Company sells all or substantially all of its assets, (ii) merges with another entity in a transaction in which the Company is not the surviving corporation, or (iii) any person or group of persons other than the shareholders of SeaVision, Inc. (as existing on the date hereof) holds 50% or more of the common stock of Employer (collectively, a "Change in Control"). (f) Annual Merit Review. Annually, on or before January 15 of each ------------------- year, Employer will conduct an annual review of Employee's performance under this Agreement and, if deemed appropriate, implement adjustments to this Section 3 for such year. -2- (g) Severance Pay. If Employee's employment is terminated by ------------- Employer, during the Employment Period, (a) without cause, or (b) contemporaneously with the occurrence of a Change in Control, Employee shall receive semi-monthly severance payments equal to the semi-monthly base salary payment which Employee was receiving immediately prior to the termination, until the one-year anniversary of the date of termination. Section 4. Conditions of Employment. As conditions of his employment --------- ------------------------ and in consideration of his employment, Employee covenants and agrees as follows: (a) that, during the Employment Period, he will devote his full time, services and attention and best efforts to the performance of his duties and to the promotion of the business and interests of Employer; (b) that, during the Employment Period, and for a period of two (2) years thereafter, he will not, without the prior written consent of the Board of Directors of Employer, directly or indirectly, as a stockholder (except as a stockholder owning beneficially or of record less than five percent (5%) of the outstanding shares of any class of stock of any issuer listed on a national securities exchange), or as an officer, director, manager, member, employee, partner, joint venturer, proprietor or otherwise, engage in, become interested in, consult with, lend to or borrow from, advise or negotiate for or on behalf of, any business which is of the type in which Employer or any affiliate or subsidiary of Employer engages during the Employment Period; provided that the prohibition contained in this subsection 4(b) shall not apply to any business in which Employer was engaged during the Employment Period if, during the three year period thereafter, Employer permanently ceases to be engaged in such business; (c) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit any customer of Employer or any customer of any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing such customers to do business with anyone other than Employer; (d) that, during the Employment Period, and for a period of two (2) years thereafter, he will not solicit (or employ or cause to be employed other than by Employer) other employees of Employer or any affiliate or subsidiary of Employer, directly or indirectly, for the purpose of enticing them to leave their employment with Employer or any affiliate or subsidiary of Employer; (e) that, during the Employment Period and for a period of two (2) years thereafter, he will make full and complete disclosure of the existence of this Agreement and the content of this Section 4 to all prospective employers with whom he may discuss possible employment; -3- (f) that, he will refrain from directly or indirectly disclosing, making available or using or causing to be used in any manner whatsoever, any information of Employer of a proprietary or confidential nature (including, without limitation, information regarding inventions, processes, formulas, systems, plans, programs, studies, techniques, "know-how," trade secrets, income or earnings, tax data, customer lists and contracts to which Employer is a party, but excluding any such information which may be in the public domain through proper means) and, upon termination of his employment, such information, to the extent that it has been reduced to writing (including any and all copies thereof), together with all copies of all forms, documents and materials of every kind, whether confidential or otherwise, shall forthwith be returned to the Employer and shall not be retained by Employee or furnished to any third party, either by sample, facsimile or by verbal communication; (g) that, he will refrain from any disparagement, direct or indirect, through innuendo or otherwise, of Employer or any of its employees, agents, officers, directors, shareholders or affiliates; (h) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) participate actively in any other business interests or investments which would conflict with his responsibilities under this Agreement, or (ii) borrow money from, or lend to, customers (except those commercial institutions whose business it is to lend money) or individuals or firms from which Employer or any affiliate or subsidiary of Employer buys services, materials, equipment or supplies, or with whom Employer or any affiliate or subsidiary of Employer does business; (i) that, during the Employment Period, he will not, without the prior written consent in each case of the Board of Directors of Employer: (i) exchange goods, products or services of Employer in return for goods, products or services of any individual or firm or (ii) accept gifts or favors from any outside organization or agency which, individually or collectively, may cause undue influence in his selection of goods, products or services for Employer; (j) that, after the termination of his employment, he will not secure, or attempt to secure, from any employee or former employee of Employer or any affiliate or subsidiary of Employer, any information relating to Employer or any affiliate or subsidiary of Employer or their business operations; and (k) that he will promptly and voluntarily advise the Board of Directors of Employer of any activities which might result in a conflict of interest with his duties to Employer hereunder, and, further, will make such other and further disclosures as Employer may reasonably request from time to time. -4- Employee represents and warrants to Employer that, notwithstanding the operation of the covenants contained in this Section 4, upon the termination of his employment hereunder, Employee will be able to obtain employment for the purpose of earning a livelihood. Section 5. Injunctive Relief. Because the services to be performed --------- ----------------- by Employee hereunder are of a special, unique, unusual, confidential, extraordinary and intellectual character which character renders such services unique and because Employee will acquire by reason of his employment and association with Employer an extensive knowledge of Employer's trade secrets, customers, procedures, and other confidential information, the parties hereto recognize and acknowledge that, in the event of a breach or threat of breach by Employee of any of the terms and provisions contained in Section 4 or Section 7 of this Agreement, monetary damages alone to Employer would not be an adequate remedy for a breach of any of such terms and provisions. Therefore, it is agreed that in the event of a breach or threat of a breach of any of the provisions of Section 4 or Section 7 of this Agreement by Employee, Employer shall be entitled to an immediate injunction from any court of competent jurisdiction restraining Employee, as well as any third parties including successor employers of Employee whose joinder may be necessary to effect full and complete relief, from committing or continuing to commit a breach of such provisions without the showing or proving of actual damages. Any preliminary injunction or restraining order shall continue in full force and effect until any and all disputes between the parties to such injunction or order regarding this Agreement have been finally resolved. Employee hereby agrees to pay all costs of suit incurred by Employer, including but not limited to reasonable attorneys' fees, in obtaining any such injunction or order. Employee hereby waives any right he may have to require Employer to post a bond or other security with respect to obtaining or continuing any such injunction or temporary restraining order and, further, hereby releases Employer, its officers, directors, employees and agents from and waives any claim for damages against them which he might have with respect to Employer obtaining in good faith any injunction or restraining order pursuant to this Agreement. Section 6. Absence of Restrictions. Employee hereby represents and ---------- ----------------------- warrants that he has full power, authority and legal right to enter into this Agreement and to carry out his obligations and duties hereunder and that the execution, delivery and performance by Employee of this Agreement will not violate or conflict with, or constitute a default under, any agreements or other understandings to which Employee is a party or by which he may be bound or affected, including, but not limited to, any order, judgment or decree of any court or governmental agency. Section 7. Patents and Inventions. Employee will promptly submit to --------- ---------------------- Employer written disclosures of all inventions, improvements, discoveries, technological innovations and new ideas, relating to Employer's business, whether or not patentable (hereinafter called "Inventions"), which are directly or indirectly made, conceived, created or prepared by Employee, alone or jointly with others, during the Employment Period. Worldwide right, title and interest in and to the intellectual property rights (including but not -5- limited to copyrights created in, patents to, or any other form of legal protection as may be obtained or obtainable in the United States of America or any foreign country), relating to all such Inventions that shall be within the existing or contemplated scope of Employer's business at the time such inventions are made or conceived or which result from or are suggested by any work Employee or others may do for or on behalf of Employer, shall belong to Employer. Employee will assign all right, title and interest in and to such intellectual property rights to Employer, and upon the request of Employer, will at any time during the Employment Period and after termination of Employee's employment for any reason, execute all proper papers for use in applying for, obtaining, maintaining and enforcing such copyrights, patents or other legal protection as Employer may desire and will execute and deliver all proper assignments thereof, when so requested, without remuneration but at the expense of Employer. Section 8. General. --------- ------- (a) Interpretation. If the provisions of subsections 4(b), 4(c) or -------------- 4(d) of this Agreement should be held to be invalid, illegal or unenforceable by a court of competent jurisdiction because of the time limitation or geographical area therein provided, such provisions shall nevertheless be effective and enforceable for such period of time and/or such geographical area as may be held to be reasonable by such court. Any provision of this Agreement that is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement, and any such invalidity, illegality or unenforceability shall not, of itself, affect the validity, legality or enforceability of such provision in any other jurisdiction. (b) Notices. In any case where any notice or other communication is ------- to be given or made pursuant to any provision of this Agreement, such notice or communication shall be deemed to be delivered when actually received on the date specified in the return receipt for a notice or communication mailed by registered or certified mail, postage prepaid, addressed as follows: If to Employer: -------------- Allin Technology Corporation c/o SeaVision, Inc. 300 Greentree Commons 381 Mansfield Ave. Pittsburgh, PA 15220 Attention: ____________________________ -6- with copies to: Bryan D. Rosenberger, Esq. Eckert Seamans Cherin & Mellott 600 Grant Street, 42nd Floor Pittsburgh, PA 15219 If to Employee: -------------- Brian K. Blair 2993 Queens Way East Liverpool, OH 43920 or such other address or addresses as any party may specify by notice to the other party given as herein provided. (c) Headings. The headings in this Agreement are inserted for -------- convenience and identification and in no way describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. (d) No Presumption on Interpretation. Nothing herein shall be -------------------------------- construed more strongly against or more favorably toward either party by reason of either party having drafted this Agreement or any portion hereof. (e) Binding Effect. This Agreement shall be binding upon, and inure -------------- to the benefit of, the parties hereto and their respective heirs, beneficiaries, executors, administrators, personal representatives, successors and permissible assigns. (f) Integration. This Agreement constitutes and contains the entire ----------- Agreement and understanding between the parties with respect to the subject matter hereof and supersedes any and all prior agreements, if any, understandings and negotiations relating thereto. No promise, understanding, representation, inducement, condition or warranty not set forth herein has been made or relied upon by any party hereto. (g) Waivers; Modification. This Agreement, or any provision hereof, --------------------- may be amended, supplemented or modified only by a writing signed by both parties and may be waived only by a writing signed by the party to be bound thereby. A written waiver of any provision shall be valid only in the instance for which given and shall not be deemed to be a continuing waiver or construed as a waiver of any other provisions. (h) Governing Law. This Agreement shall be construed in accordance ------------- with and governed in all respects by the laws of the Commonwealth of Pennsylvania (without giving effect to the conflicts of laws provisions thereof). -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ALLIN COMMUNICATIONS CORPORATION By:_______________________________ Name Printed:_____________________ Title:____________________________ WITNESS: __________________________ ____________________________________________ Brian K. Blair -8- EX-10.12 19 FIRST AMENDED AND RESTATED AGREEMENT Exhibit 10.12 FIRST AMENDED AND RESTATED AGREEMENT THIS FIRST AMENDED AND RESTATED AGREEMENT (this "Agreement"), is made and entered into as of the 1st day of June, 1996, but is effective as of September 1, 1995 (the "Effective Date"), by and between SEAVISION, INC., a Delaware corporation (hereinafter referred to as "SeaVision"), and CELEBRITY CRUISES INC., a Liberian corporation (hereinafter referred to as "Celebrity"). WHEREAS, Celebrity is in the business of offering cruise vacations to its passengers; and WHEREAS, Celebrity desires that its passengers have access to interactive television services on board its vessels; and WHEREAS, Celebrity wishes to earn incremental revenue from such interactive television services; and WHEREAS, the parties previously agreed, pursuant to that certain Agreement dated as of September 1, 1995 (the "Original Agreement"), that SeaVision would provide the aforementioned interactive television services for installation and use aboard the ship m.v. Century (the "Initial Ship") operated by Celebrity; and WHEREAS, since the parties entered into the Original Agreement, SeaVision has installed and commenced operation of the interactive television services on the Initial Ship; and WHEREAS, Celebrity has requested that SeaVision install and operate the interactive television services onboard the ships m.v. Galaxy, m.v. Mercury, m.v. Horizon and m.v. Zenith (collectively, the "Additional Ships"); and WHEREAS, the parties now desire to amend and restate the Original Agreement to provide for their agreements with respect to the Additional Ships; and WHEREAS, for purposes of this Agreement, the Initial Ship and the Additional Ships are sometimes referred to hereinafter collectively as the "Ships" and individually as a "Ship". NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Responsibilities. ---------------- (a) Subject to the terms and conditions hereof, SeaVision hereby agrees to: (i) Provide and, in the case of the Additional Ships, install, at no charge to Celebrity except as otherwise expressly provided in this Agreement, an interactive television system (the "System") on each of the Ships and, in connection therewith, provide the services (the "Services") set forth on Exhibit A attached hereto. SeaVision shall install the System on the Additional Ships pursuant to the implementation schedule set forth on Exhibit B attached hereto. The System installed on the Initial Ship and to be installed by SeaVision on the Additional Ships shall consist of such hardware and software (a listing of which hardware and software shall also be included on Exhibit C attached hereto) as shall be determined and mutually agreed upon by the parties. [Redacted - confidential treatment requested] (ii) Provide all personnel reasonably necessary and appropriate to install and operate the System and provide the Services onboard the Ships. One (1) SeaVision technician (the "Operator") shall be posted to each Ship following such installation on that Ship to run the System on an on-going basis for so long as this Agreement shall be in effect in respect of that Ship. SeaVision hereby acknowledges that the Operators shall at all times be employees of SeaVision, and Celebrity shall serve as SeaVision's paying agent for payment of all salary, payroll taxes and fringe benefits costs in connection with the Operators, and SeaVision shall promptly reimburse Celebrity for all such costs incurred by Celebrity in respect of the Operators; provided, however, that (i) SeaVision shall not be obligated hereunder to reimburse Celebrity for the cost of protection and indemnity insurance provided by Celebrity pursuant to Section 10 of this Agreement [Redacted - confidential treatment requested] SeaVision understands that, while on board any Ship, its personnel will be subject to the authority of the Master of that Ship and the officer(s) designated thereon to oversee the installation and operation of the System and the Services. SeaVision shall use its best -2- efforts to ensure that the Operators will at all times while on board any Ship comply with the operations manual of Celebrity, a copy of which is attached hereto as Exhibit E. (iii) Upgrade the hardware and/or software used in the System, at no cost to Celebrity, at such times and in such manner as is reasonably necessary or appropriate to maintain the System on the Ships and to achieve the mutually agreed technical performance standards set forth on Exhibit F attached hereto; provided, however, that any such upgrade shall be subject to Celebrity's prior approval, which approval shall not unreasonably be withheld, delayed or conditioned by Celebrity. [Redacted - confidential treatment requested] (iv) Furnish certain entertainment programming for passengers' viewing on "free" entertainment channels on and through the System on each Ship for which passengers shall not be charged, all as more fully set forth on Exhibit A attached hereto. (v) [Redacted - confidential treatment requested] (vi) Operate the System on each Additional Ship for a period of at least 120 days from the date of the commencement of the initial voyage of that Additional Ship with passengers following the completion of the installation of the System thereon. For purposes of this Agreement, such 120-day period in respect of any Additional Ship is sometimes referred to as the "Initial 120-Day Period". (b) Subject to the terms and conditions hereof, Celebrity hereby agrees to: (i) Grant SeaVision the exclusive right, for so long as this Agreement is in effect, to develop, install, operate, maintain and improve interactive television services similar in nature or intent to the System and Services located or installed anywhere on any Ship. (ii) Make available (v) each Ship to SeaVision personnel for SeaVision's installation and operation of the System thereon, including but not limited to granting SeaVision personnel [Redacted - confidential treatment requested] and (B) limited access to passenger cabins, (w) all storage and work space necessary on board each Ship for the installation and operation of the System, (x) such personnel as are reasonably necessary or appropriate to assist in the successful installation and operation of the System, including but not limited to appropriate on-board support for and oversight of the installation and operation of the System by a designated officer on each Ship, (y) all -3- necessary systems integration support to allow the System to communicate with other on-board systems, and (z) when any Ship is not under construction, appropriate accommodations on board that Ship for SeaVision personnel who are engaged in installing and/or operating the System on that Ship. It is understood that SeaVision personnel occupying such accommodations will, at all times while on board that Ship, be subject to Celebrity's policies regarding on-board contractors, including those concerning dress, decorum and personal behavior. (iii)Provide SeaVision with copies of the detailed plans, specifications, blueprints and designs which relate to the television studio, video distribution system, radio frequency plant, shipboard information systems and passenger cabin television on each Ship. (iv) [Redacted - confidential treatment requested] (v) Provide any and all reasonable marketing support for the System on-board each Ship. Such marketing support shall include but not be limited to in-cabin collateral material, mention by the Cruise Director during his introductory remarks to passengers on that Ship, prominent coverage in the daily program circulated on that Ship, insertion of promotional materials in passenger documentation, and such other activities of a supporting nature as are acceptable to both parties to this Agreement. All such marketing support activities and material shall be subject to Celebrity's prior approval which shall not unreasonably be withheld, delayed or conditioned. [Redacted - confidential treatment requested] (vi) Work with SeaVision's marketing personnel to develop appropriate and effective means acceptable to Celebrity for testing and gauging passenger reaction to the System on a regular basis during and after the installation of the System on any Ship. Such means shall include but not be limited to on-board questionnaires, on-board focus groups, one-on-one passenger interviews and post-cruise questionnaires. Such activities will be conducted by individuals mutually acceptable to Celebrity and SeaVision, and the results of all such activities shall be made available to Celebrity and SeaVision. The results of all such activities shall constitute Celebrity's proprietary information for purposes of this Agreement. -4- (vii) Use its best efforts in respect of each Ship to cause its on- board concessionaires to work with SeaVision to develop mutually beneficial applications for the System. (viii)Consider requests by SeaVision to provide access to any Ship when that Ship is in port for SeaVision personnel to demonstrate the System to potential advertisers, marketers and clients. In connection with making such demonstrations, SeaVision shall conform to Celebrity's procedures for approving on-board visitors, including but not limited to making advance requests for boarding passes. (ix) Provide each Operator with the following data in electronic form (i.e., diskettes, tapes, or other similar means) with respect to each passenger on-board the applicable Ship, either directly or through that Ship's property management system: name, age, cabin assignment, dining assignment, and on-board account number. In addition thereto, Celebrity shall provide such Operator with the home address and telephone number of each passenger who requests that SeaVision make or arrange for the delivery of any item to that passenger's home. In respect of dining assignment information, the parties understand that such information, as provided by Celebrity to SeaVision, may not be completely accurate, but that SeaVision will be entitled to rely on such information, as provided by Celebrity, in connection with SeaVision's operation of the System. If such data cannot be available prior to the time of departure of each cruise, Celebrity and SeaVision agree to jointly develop an efficient and effective method for collecting such information in the manner prescribed. Such data is only to be used for such purposes and activities as are expressly authorized by Celebrity. (x) Collect all monies paid by passengers in respect of Services provided on or through the System and charged to the respective on-board account of such passengers. (c) Celebrity also has requested that SeaVision install and operate the System on-board the m.v. Meridian. However, because of the advanced age of that ship, the parties have agreed to further evaluate the economic feasibility of that proposed installation and operation. Accordingly, the parties, by mutual agreement, may add the m.v. Meridian to this Agreement as an Additional Ship, whereupon SeaVision shall install and operate the System on-board the m.v. Meridian pursuant to an implementation schedule mutually agreeable to the parties. [Redacted - confidential treatment requested] 2. Operating Term/Renewal/Option. [Redacted - confidential treatment ----------------------------- requested] -5- 3. Revenue-Sharing and Payment Terms. --------------------------------- (a) [Redacted - confidential treatment requested] (i) [Redacted - confidential treatment requested] (ii) [Redacted - confidential treatment requested] (iii) [Redacted - confidential treatment requested] (b) [Redacted - confidential treatment requested] (c) [Redacted - confidential treatment requested] (d) [Redacted - confidential treatment requested] (e) On or before the twenty-first day of each calendar month during any Operating Term of this Agreement, SeaVision shall provide Celebrity with a written report (the form of which shall be mutually agreed upon by the parties) detailing the Adjusted Gross Revenues generated by the System on each Ship on which the System is then installed from cruises completed during the prior calendar month. This report shall govern the determination of fees to be retained by Celebrity and the revenues to be remitted by Celebrity to SeaVision under the terms of this Agreement. SeaVision shall provide any and all hardware and/or software reasonably necessary or appropriate to interface SeaVision's accounting software with the applicable Ship's property management system in order for SeaVision to obtain accurate accounting information for such reports. (f) Celebrity shall remit to SeaVision all Adjusted Gross Revenues generated by the System less Celebrity's share of such Adjusted Gross Revenues as provided in Section 3(a) of this Agreement, and all other amounts due SeaVision as provided in Section 3(d) of this Agreement no more than fifteen (15) days following its receipt of the applicable monthly report from SeaVision. (g) Celebrity shall promptly notify SeaVision of any changes, adjustments or chargebacks (relative to the Adjusted Gross Revenues in respect of any calendar month) of which Celebrity receives notice after it has made a remittance to SeaVision in respect of such calendar month, and together therewith, provide to SeaVision appropriate documentation supporting all such changes, adjustments or chargebacks. In the event properly-supported changes, adjustments or chargebacks result in a reduction of the Adjusted Gross Revenues generated in respect of such calendar month, SeaVision shall, within thirty (30) days of its receipt of the applicable notice and supporting -6- documentation, refund to Celebrity SeaVision's percentage of the aggregate of such changes, adjustments or chargebacks. (h) All advertising and promotional revenues generated by the System on- board any Ship and received by SeaVision, less any amounts payable by SeaVision to any third party in respect thereof, shall be allocated between SeaVision and Celebrity in the same manner and on the same percentages as the Adjusted Gross Revenues are then being allocated between them pursuant to the terms of Section 3(a) of this Agreement. SeaVision shall remit to Celebrity Celebrity's portion of such net advertising and promotional revenues on a calendar month basis not more than fifteen (15) days following the end of each calendar month. 4. Termination. ----------- (a) Celebrity shall have the right to terminate this Agreement in respect of any Ship prior to the Expiration Date applicable to that Ship in the event the System on-board that Ship fails to achieve the technical performance standards set forth in Exhibit F attached hereto. Celebrity may not exercise this right (i) if such technical failure occurs as a result of Celebrity's failure to perform any or all of its obligations under the terms of this Agreement in respect of that Ship; (ii) if such failure is a result of problems encountered with systems and/or operations on-board that Ship other than the System; (iii) prior to the expiration of the applicable Initial 120-Day Period (in respect of any Additional Ship); and (iv) without written notice to SeaVision of its intention to do so and prior to a period of 90 days following such notice in which SeaVision may effect a cure of such failure. Notwithstanding the provisions of the preceding clause (iv), Celebrity shall not be obligated to provide the cure period provided therein more than twice for separate occurrences of the same failure by the System on-board that Ship. In any event in which SeaVision is entitled to or is otherwise granted the cure period provided for in the preceding clause (iv), Seavision shall, within fifteen (15) days following Celebrity's written notice to SeaVision under such clause (iv), provide to Celebrity SeaVision's written response regarding such failure, which response shall set forth SeaVision's assessment of the cause of such failure and SeaVision's plan to rectify such failure. In any event, SeaVision shall make a good faith effort to rectify such failure as promptly as is reasonable under the circumstances and, where appropriate, will implement temporary "work around" solutions until a permanent solution can be implemented. (b) SeaVision shall have the right to terminate this Agreement in respect of any Ship prior to the Expiration Date applicable to that Ship in the event the System fails to achieve the technical performance standards set forth in Exhibit F attached hereto and such failure is the result of problems encountered with -7- systems and/or operations on-board that Ship other than the System or is the result of Celebrity's addition to or replacement of systems and/or operations (whether software, hardware or both) on-board that Ship other than the System and/or the System on-board that Ship fails to achieve the financial performance standards that SeaVision in its sole and absolute discretion shall determine are necessary to warrant its investment in, and its continued operation of, the System on-board that Ship. In the event SeaVision intends to terminate this Agreement in respect of any Ship pursuant to this subsection 4(b), it shall do so in writing to Celebrity no less than thirty (30) days prior to ceasing operations hereunder, which termination notice shall set forth in reasonable detail the reason for SeaVision's election to terminate this Agreement in respect of that Ship. Representatives of SeaVision shall offer to meet with representatives of Celebrity prior to the effectiveness of any such termination. (c) Either party hereto shall have the right to terminate this Agreement, immediately upon written notice to the other party, upon such party being declared insolvent or bankrupt, or making an assignment for the benefit of creditors, or in the event that a receiver is appointed, or any proceeding for appointment of a receiver or to adjudge such party a bankrupt, or to take advantage of the insolvency laws is demanded by, for, or against such party under any provision under the laws of any state or country. (d) Celebrity shall have the right to terminate this Agreement in the event SeaVision defaults in the performance of any material covenant, warranty or agreement made herein (except a failure by the System to achieve certain technical performance standards which is governed by Section 4(a) herein), and such default has not been cured within sixty (60) days after receipt of written notice thereof given by Celebrity to SeaVision. (e) SeaVision shall have the right to terminate this Agreement in the event Celebrity defaults in the performance of any material covenant, warranty or agreement made herein and such default has not been cured within sixty (60) days after receipt of written notice thereof given by SeaVision to Celebrity. (f) Notwithstanding the termination or expiration of this Agreement as provided for in this Section 4 and elsewhere in this Agreement, Celebrity shall continue to owe, and shall promptly pay to SeaVision in accordance with the terms of Section 3 hereof, all amounts set forth in Section 3 that shall have accrued on and prior to the date of such termination or expiration. (g) Subject to the provisions of Section 5, as soon as is practicable after the expiration of this Agreement or any termination of this Agreement in respect of any Ship, SeaVision shall remove the System, including all related hardware and software, and all on-board SeaVision personnel, including without -8- limitation the Operator, from the Ship or Ships affected by the expiration or termination. The parties hereby agree and acknowledge that in accordance with Section 1 hereof, SeaVision will retain title to all components of the System, including all hardware and software installed on board the Ships by SeaVision at any time while this Agreement is in effect, except as otherwise expressly provided in Section 1 hereof. In the event of any such removal, SeaVision shall assure that the television system on the applicable Ship is in operable condition, normal wear and tear of the components thereof excepted. For purposes of the immediately foregoing sentence, SeaVision's obligations are limited to the RF plant, the television sets and the broadcast center of or on the applicable Ship. 5. Celebrity's Right to Purchase. ----------------------------- (a) Anything herein to the contrary notwithstanding, in the event SeaVision elects to terminate this Agreement in respect of any Ship pursuant to Section 4(b), Celebrity shall purchase the hardware furnished by SeaVision for the System on-board that Ship and a non-transferrable license to use the software components of the System (but only on-board that Ship) for an amount equal to [Redacted - confidential treatment requested] Notwithstanding the foregoing, Celebrity's obligations under this Section 5(a) shall be conditioned upon the System then being operational on-board the applicable Ship. (b) At the relevant Expiration Date, Celebrity shall have the right in respect of each Ship to purchase the hardware furnished by SeaVision for the System on-board that Ship and a non-transferrable license to use the software components of the System (but only on-board that Ship) for an amount [Redacted - confidential treatment requested] Celebrity acknowledges and agrees that its rights under this Section 5(b) shall not be exercisable if, prior to the relevant Expiration Date, SeaVision shall have notified Celebrity of proposed terms for a renewal or extension of this Agreement in respect of such Ship and the parties shall have subsequently been unable to agree on terms for such renewal or extension. 6. [Redacted - confidential treatment requested] 7. Confidentiality. --------------- (a) Celebrity acknowledges that the System represents and will continue to represent the valuable, confidential and proprietary property of SeaVision. SeaVision is not by this Agreement conveying to Celebrity any exclusive proprietary or other rights in the System, including, but not limited to, any patent, copyright, trademark, service mark, trade secret, trade name or other intellectual property rights, except that Celebrity will have the limited rights expressly set forth in this Agreement. Accordingly, Celebrity acknowledges that, except as expressly provided for in this Agreement, Celebrity possesses -9- no title or ownership of any System or any portion thereof. Celebrity will keep the System free and clear of all claims, liens and encumbrances. (b) Each party agrees, during the term of this Agreement and thereafter, to maintain the confidential nature of the terms and conditions of this Agreement and of any proprietary information shared with it by the other party. The proprietary information shared with Celebrity by SeaVision shall include, but is not limited to (a) any knowledge gained by Celebrity of the System, including but not limited to knowledge of the type, identity, operation or other characteristics of the System's hardware, operating system software and applications software; (b) SeaVision's marketing and sales strategy; (c) the format and context of any and all SeaVision reports, including those for data management, revenue remittance and marketing surveys; and (d) SeaVision's marketing and advertising client list. Celebrity agrees that it will not create or attempt to create, or permit any third party to create or attempt to create, by reverse engineering or otherwise, the source code for the System(s) or any portion thereof. The provisions of this Section 7 apply to the System as delivered to Celebrity by SeaVision for any Ship or as modified or otherwise enhanced by SeaVision and to any proprietary material and information regarding the System that is given to Celebrity prior to, on or after the date of this Agreement. The proprietary information shared with SeaVision by Celebrity shall include, but is not limited to (a) any knowledge gained by SeaVision of Celebrity's other information systems or operating strategies in respect of any Ship; (b) Celebrity's marketing and sales strategy; (c) Celebrity's marketing and advertising client list, including but not limited to the information provided to SeaVision by Celebrity pursuant to the terms of Subsection 1(b)(ix) hereof; and (d) the results of the activities contemplated in Subsection 1(b)(vi) hereof. Notwithstanding the foregoing, each party may use the other's proprietary information in the internal conduct of its business, subject always to the prohibition herein of disclosure. For example (but not in limitation of the foregoing), [Redacted - confidential treatment requested] and (ii) SeaVision may use the information it gains regarding Celebrity's operations in connection with the enhancement and marketing of SeaVision's products so long as SeaVision does not disclose such information to any third party. [Redacted - confidential treatment requested] (c) Each party acknowledges that its violation of its confidentiality or non-disclosure obligations under this Agreement may cause irreparable damage to the other that cannot be fully remedied by money damages. Accordingly, in the event of any such violation or threatened violation, the injured party will be entitled, in addition to pursuing any other remedy available to it under this Agreement or at law, to obtain injunctive or other equitable relief from any court of competent jurisdiction as may be necessary or appropriate to prevent any further violations thereof. -10- (d) During any Operating Term and for a period of three (3) years thereafter, neither party shall induce or attempt to induce any employee or consultant of the other to terminate his or her employment or consulting relationship with such other party and shall not solicit any such employee or consultant for employment or consulting services. Notwithstanding anything contained in this Agreement to the contrary, the terms of this Section 7(d) shall survive the expiration or termination of this Agreement and remain in full force and effect for a period of three (3) years following such expiration or termination. (e) Each party agrees to notify the other immediately upon the notifying party's becoming aware of or reasonably suspecting the possession, use or knowledge of all or part of any of the other party's proprietary information by any person or entity not authorized by this Agreement to have such possession, use or knowledge. The notifying party will promptly furnish the other party with details of such possession, use or knowledge, will assist in preventing a recurrence thereof and will cooperate with the other party in protecting the other party's rights in the other party's proprietary information. A party's compliance with the terms of this Section 7 will not be construed as any waiver of the other party's right to recover damages or obtain other relief against the notifying party for the notifying party's breach of its confidentiality or non-disclosure obligations under this Agreement or the negligent or intentional harm to the other party's proprietary rights. 8. Right to Inspect Books and Records. SeaVision and Celebrity shall ---------------------------------- keep full and accurate accounts, records, books, journals, ledgers and data (collectively, "Records") with respect to the business done by each party respectively under this Agreement, which Records shall at all times show truthfully, accurately and fully the compliance by each party with its respective obligations under this Agreement. Each party shall have the right, through its designated representatives, at all reasonable times, upon reasonable advance notice, to inspect the Records of the other as necessary to verify the sales, revenues generated and fees collected pursuant to this Agreement. The parties shall retain all Records at all times during any Operating Term of this Agreement, and for at least three (3) years thereafter, and shall make the Records available to the other party during regular business hours, wherever the Records are maintained, within ten (10) days after receipt of demand for inspection from such other party. Both parties shall maintain the confidential nature of any Records so inspected pursuant to and in accordance with the provisions of Section 7 hereof. 9. Insurance/Waiver of Subrogation. ------------------------------- (a) Celebrity hereby warrants, represents and covenants that it has, and shall maintain for the Operating Term of this Agreement, at its sole expense, all insurance coverages necessary and appropriate to fully and adequately insure the System on-board each Ship for one hundred percent (100%) of the insurable value of that System against any loss or damage whatsoever which -11- may occur while that System is present and/or installed on that Ship. The insurance policy(ies) with respect to such coverage shall each name SeaVision as an additional insured, as its interests may appear. SeaVision shall, from time to time at the request of Celebrity or on SeaVision's own initiative, provide to Celebrity then current replacement cost information for insurable components of the System. Celebrity shall not be in breach of this Section 9(a) so long as, within thirty (30) days after the delivery of any such cost information, the insurance then maintained by Celebrity is consistent with such cost information. In the event that SeaVision receives the proceeds of any such insurance as a result of a casualty affecting the System or any portion thereof on-board any Ship, SeaVision shall apply such proceeds to the repair and restoration of the System on-board that Ship to its pre-casualty functionality; provided, however, that SeaVision shall not be obligated to so apply such proceeds or to repair and restore the System if (i) such proceeds cannot reasonably be expected to fund the full and complete repair and restoration of the System on-board that Ship and Celebrity does not agree to fund the shortfall or (ii) the affected Ship suffers damage as a result of the casualty and Celebrity does not, at the request of SeaVision, deliver to SeaVision Celebrity's written assurance that that Ship likewise will be fully repaired and restored and used to provide passenger service substantially equivalent to the service being provided immediately prior to the casualty. The limitations on SeaVision's liability set forth in Section 13 herein shall not apply to a breach by SeaVision of its obligations hereunder to apply insurance proceeds to the repair and restoration of the System. (b) So long as their respective insurers so permit, neither party hereto shall be liable to the other, or to the insurer of the other, claiming by way of subrogation through or under such other party with respect to any loss or damage, in whole or in part, to the System, to the extent that such other party shall be reimbursed out of that party's insurance coverage carried for such other party's protection with respect to such loss or damage. If so permitted, the parties shall each obtain any special endorsements required by their respective insurance carriers to evidence compliance with the waiver and release set forth herein and shall provide a copy thereof to the other party. 10. Protection and Indemnity Cover. Each Operator and each member of ------------------------------ SeaVision's System installation crews shall be included as crewmembers on Celebrity's protection and indemnity cover for such periods of time as the Operator or crewmember, as the case may be, is posted to a Ship. For the sole purpose of establishing liability for any sickness, personal injury or death incurred or suffered by any Operator or any such crewmember which engaged on, or in the service of any Ship Celebrity shall be considered the employer of that Operator or crewmember. -12- 11. Interruption in Performance. Neither Celebrity nor SeaVision shall be --------------------------- liable to the other for any loss, damage or loss of profits arising out of any interruption or cessation of the Services to be provided hereunder when such interruption or cessation is caused by any circumstance beyond the reasonable control of such party. 12. Indemnification. --------------- (a) SeaVision shall indemnify, defend and hold harmless Celebrity and its successors and assigns from and against any and all liabilities, claims, suits, damages, judgments, awards, penalties, losses and other liabilities (including all related reasonable attorneys' fees, costs and expenses in connection therewith) (collectively referred to hereinafter as "Losses") suffered or incurred by Celebrity by reason of, arising out of or in connection with (x) any negligent, willful or intentional act or omission of SeaVision (or an employee, agent or representative of SeaVision) committed or omitted, as the case may be, in the course of SeaVision's performance of the terms of this Agreement or (y) SeaVision's failure to fully perform the terms of this Agreement. (b) At Celebrity's request, SeaVision will defend, at its own expense, any action brought against Celebrity to the extent that such action is based solely on a claim that the System on-board any Ship infringes any patent or copyright or the trade secret or other proprietary right of a third party ("Infringement"), and SeaVision will hold Celebrity harmless from any resulting losses, liabilities, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, provided that Celebrity provides SeaVision with prompt written notice of such actions and SeaVision is given an opportunity to defend and/or settle such action. If an infringement covered by the indemnity provisions set forth herein is established by a court of competent jurisdiction in a final decision from which no appeal is or can be taken or if, in the opinion of SeaVision, any such System or any portion thereof is likely to become the subject of such an infringement claim, then SeaVision, at its option, may: (i) modify the infringing or potentially infringing System to make that System noninfringing while maintaining, in SeaVision's reasonable opinion, the equivalent or better functionality; (ii) obtain, on Celebrity's behalf, the right for Celebrity to continue to use the infringing System in accordance with the terms of this Agreement; or (iii)terminate this Agreement in respect of the infringing System(s). -13- (c) Celebrity shall indemnify, defend and hold harmless SeaVision and its successors and assigns from and against any and all Losses suffered or incurred by SeaVision by reason of, arising out of or in connection with (x) any negligent, willful or intentional act or omission of Celebrity (or an employee, agent or representative of Celebrity) committed or omitted, as the case may be, in the course of Celebrity's performance of the terms of this Agreement or (y) Celebrity's failure to fully perform the terms of this Agreement. 13. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET ----------------------- FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL SEAVISION BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF CELEBRITY'S USE OF OR INABILITY TO USE THE SYSTEM ON-BOARD ANY SHIP OR ANY PORTION THEREOF OR FROM ANY DELAY IN THE SYSTEM ON-BOARD ANY SHIP ACHIEVING THE TECHNICAL PERFORMANCE STANDARDS SET FORTH ON EXHIBIT F ATTACHED HERETO OR FROM ANY DELAY IN THE SYSTEM ON-BOARD ANY SHIP MEETING, OR ANY INABILITY OF THE SYSTEM ON-BOARD ANY SHIP TO MEET, CELEBRITY'S EXPECTATIONS WITH RESPECT TO OPERATIONS OR PERFORMANCE, EVEN IF SEAVISION IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR ANY COSTS INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST PROFITS OR REVENUE, LOSS OF USE OF THE SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY DATA, THE COST OF SUBSTITUTE SOFTWARE, OR CLAIMS BY THIRD PARTIES. IF CELEBRITY TERMINATES THIS AGREEMENT PURSUANT TO THE TERMS OF SECTION 4(A) OR SECTION 4(D) HEREIN, SEAVISION SHALL NOT BE LIABLE FOR ANY OF CELEBRITY'S INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING THEREFROM, BUT SHALL BE LIABLE FOR CELEBRITY'S DIRECT DAMAGES ARISING THEREFROM; [Redacted - confidential treatment requested] 14. Further Assurances of SeaVision's Title. --------------------------------------- (a) Celebrity hereby agrees to execute and deliver to SeaVision, prior to the date that installation of any System on any Ship commences, such UCC-1 financing statements and other documents as SeaVision shall reasonably require for the purpose of evidencing to Celebrity and any third party SeaVision's continued -14- ownership of all components (hardware and software) of the System (such financing statements and other documents to describe all such components). (b) SeaVision shall affix permanent (to the degree reasonably possible), legible and visible labels on each component of the System (hardware only), to the extent that doing so is reasonably possible or practicable, prior to the date that installation of the System on- board the applicable Ship commences. Each such label shall clearly indicate that SeaVision holds title to the component to which that label is affixed. 15. No Grant of Intellectual Property Rights. This Agreement does not and ---------------------------------------- shall not grant to Celebrity any patent, copyright, trademark, trade secret or, except as expressly provided in this Agreement, other intellectual property right or license, express or implied. 16. Public Announcements. The parties shall consult with each other and -------------------- issue a public statement with respect to this Agreement and the System as soon as is practical after the date hereof. During any Operating Term, Celebrity shall include a reference to SeaVision in any and all public announcements or marketing materials referring to interactive television or video entertainment services on-board any Ship. 17. Arbitration. In the event of any dispute or controversy arising out ----------- of or related to this Agreement, the parties will seek to resolve any such controversy first by negotiating with each other in good faith in face-to-face negotiations between the respective principals of each. In the event a resolution is not reached in such manner within thirty (30) days after such negotiations, if any, commence, any remaining dispute or controversy shall be submitted to and settled by arbitration as hereinafter provided. Such arbitration shall be conducted in London in accordance with the Arbitration Acts 1950 and 1989 or any re-enactment or statutory modification thereof then in effect. The party desiring such arbitration shall serve upon the other party written notice of its desire, specifying the issues to be arbitrated and the name of the arbitrator whom it appoints. Within fourteen (14) days after notice of such demand for arbitration, the other party shall in turn appoint an arbitrator and give notice in writing of such appointment to the party demanding arbitration. The two arbitrators so appointed shall select a third arbitrator, or if the two arbitrators are unable to agree upon the third arbitrator within fourteen (14) days after the appointment of the second arbitrator, either of the said two arbitrators may apply to the President of the London Maritime Arbitrators Association to appoint the third arbitrator, and the three arbitrators shall constitute the Arbitration Tribunal. If a party fails to appoint an arbitrator as aforementioned within fourteen (14) days following notice of demand for arbitration by the other party, the party failing to appoint an arbitrator shall be deemed to have accepted as its own arbitrator the arbitrator appointed by the party demanding arbitration and the arbitration shall proceed before this sole arbitrator who alone in such event shall constitute the Arbitration Tribunal. The decision rendered by the Arbitration Tribunal shall be final and binding and the appeal by either party to a court in respect of the arbitration award shall be excluded. The -15- arbitration award shall include which party shall bear the expenses of the arbitration or the proportion of such expenses each party shall bear. 18. Right to Make Agreement. Each of the parties hereto represents and ----------------------- warrants to the other that it has all necessary and appropriate power and authority to execute, deliver and carry out the terms and provisions hereof. 19. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall constitute an original and all of which together shall constitute but one and the same original document. 20. Assignment. Except as set forth herein, either party hereto may ---------- assign this Agreement and its respective rights, interests and obligations hereunder to any third party without the consent of the other party hereto; provided, however, that no such assignment by a party shall relieve that party from any of its liabilities or obligations hereunder. It is expressly understood and agreed that this Agreement and all of SeaVision's interests and rights herein and hereunder may be assigned, pledged, mortgaged and/or hypothecated by SeaVision at its exclusive discretion; provided, however, that in no event will the rights hereunder of any pledgee or mortgagee of SeaVision be any greater than the rights of SeaVision hereunder. 21. Successors. This Agreement shall inure to the benefit of, and be ---------- binding upon, the respective successors and assigns of the parties hereto upon its execution by SeaVision and Celebrity, which execution, for purposes of determining the effectiveness of this Agreement, may be evidenced by facsimile transmission of the signature page of this Agreement. 22. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of England. 23. Severability. If any Section or provision of this Agreement, or any ------------ portion of any Section or provision thereof, shall for any reason be held to be void, illegal or otherwise unenforceable, all other Sections and portions of this Agreement shall nevertheless remain in full force and effect as if such void, illegal or unenforceable portion had never been included herein. 24. Notices. All notices and other communications required or otherwise ------- provided for in this Agreement shall be in writing and sent by registered or certified mail to: -16- If to SeaVision: SeaVision, Inc. 13320 State Route 7 Lisbon, Ohio 44432 Attn: Brian K. Blair If to Celebrity: Celebrity Cruises Inc. c/o Jos. L. Meyer GmbH & Co. Industriegebiet Sud 26871 Papenburg, Germany or to such other place as SeaVision or Celebrity, as the case may be, may from time to time designate in accordance herewith. 25. Entire Agreement; Modification. This Agreement, including the ------------------------------ Exhibits attached hereto, contains the entire agreement of the parties on the subject matter hereof, and supersedes any and all prior agreements, including, without limitation, the Original Agreement, with respect to such subject matter. This Agreement may not be changed, modified or supplemented except by the written agreement of the parties. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. ATTEST: SEAVISION, INC. By: - ---------------------------- --------------------------------- Its: Its: ------------------------ --------------------------------- ATTEST: CELEBRITY CRUISES INC. By: - ---------------------------- --------------------------------- Its: Its: ------------------------ --------------------------------- [Signature page to First Amended and Restated Agreement by and between SeaVision, Inc. and Celebrity Cruises, Inc. dated as of June 1, 1996, but effective as of September 1, 1995] -17- EXHIBIT A Entertainment and Interactive Services to be Provided by SeaVision ------------------------------------------------------------------ "Basic" SeaVision Package: Services Provided at No Charge - --------------------------------------------------------- . In-Cabin Room Service Ordering: Passengers will be able to order Celebrity's full or partial room service menu, including beverages charged to their cabin account, through the System. Orders will be printed out in appropriate pantries and/or galleys for delivery by Celebrity personnel. SeaVision shall provide, as part of the System, printers and/or monitors to be used in such pantries and/or galleys for such purpose. . Shore Excursion Ordering: Passengers will be able to watch a preview video of shore excursions and purchase tickets for shore excursions on and through the System by using their television remote-control. Orders will be printed out in the Shore Excursion Office of the Ship, with tickets in respect thereof to be delivered by Celebrity personnel. The System will provide appropriate inventory control. Celebrity shall be responsible for providing all ticket stock and videos in respect of such shore excursions. Celebrity may choose, at its option, to produce its own videos, retain SeaVision for this purpose and reimburse SeaVision for all its costs incurred in connection with producing the same, or contract with a third party to produce such videos, provided, however, that any videos produced by any such third party shall in all ways meet SeaVision's technical standards for use on the System. Should Celebrity elect to have SeaVision produce the shore excursion videos, SeaVision shall provide Celebrity with detailed cost estimates prior to the initiation of video production. Such estimates will include the cost of pre- production scripting and preparation and the cost of sending crews aboard Celebrity's Ships for taping and post-production editing. . Wine Ordering: Passengers will be able to view a video on the System of all wines in inventory and order their selections with their television remote-controls. Orders will be printed out in the Wine Steward's office or wine cellar, for delivery by Celebrity personnel at the designated meal or to the designated cabin. The video review will include the Chef's or Wine Steward's "Tip of the Day." Cabin accounts will be charged accordingly. . Interface with Celebrity's Property Management System: The System will interface with the Ship's property management system to enable appropriate charges to be applied to passenger accounts. A-1 . Access Control: The System will be designed to provide access via the use of a PIN based upon Celebrity's passenger tracking system. Passengers will be able to limit access to various services, such as gaming and adult programming, by enabling lock-out codes and using password procedures. . Report Generation: The System will generate detailed activity reports, which will be made available to Celebrity for the purposes of revenue payments to SeaVision. SeaVision shall also provide, at Celebrity's request, reports pertaining to passenger usage of the System. . Emergency Broadcast System: In the event of an emergency, the System can be directly controlled either by the Master or the Operator to notify passengers and to provide them with instructions. . Passenger Folio Review - Onboard Account: Each passenger will be able to use the System to review a summary of his onboard account. . Spa Service Ordering: Passengers will be able to view a video for the on-board spa services, obtain information with respect to the hours of operation of the spa and make reservations for spa usage. . Language Options: The various preview, ordering and information services provided on the System will be available in English, French, Spanish, Italian and German. . Passenger Questionnaires: Passengers will be able to access an interactive passenger questionnaire on the System to provide input and reactions to the System. . Television Programming: At a time to be mutually agreed upon by SeaVision and Celebrity, but after the maiden voyage of the Ship, SeaVision will provide Celebrity two (2) channels of programming on and through the System for which Celebrity and its passengers will not be charged. SeaVision will provide two (2) channels of programming on and through the System for the crew of the Ship at no charge to Celebrity or the crew. The content of these channels shall be by mutual agreement, but they may include movies, documentaries, original programming and selections from leading cable television vendors. SeaVision reserves the right to market high-quality advertisements, program-length product videos and corporate endorsements on these channels, subject to mutual agreement with Celebrity. A portion of the Adjusted Gross Revenues generated from any such advertisements, program-length product videos and corporate endorsements will be paid to Celebrity pursuant to and in accordance with the terms of Section 3 of the Agreement. A-2 Revenue-Generating and Pay-Per-View Entertainment - ------------------------------------------------- NOTE: Celebrity will be entitled to a portion of the Adjusted Gross Revenues generated by the following services, pursuant to and in accordance with the terms of Section 3 of the Agreement. . Video-on-Demand: Passengers will be able to purchase movies and other entertainment options such as taped concerts, on demand, using the System and their television remote-control. SeaVision shall determine the fee that will be levied for each such order and charged to such passengers' respective cabin accounts. Subject to Celebrity's approval, adult programming may be offered. . Gaming Options: Passengers will be able to view a casino channel which will promote the on-board casino operations and provide instructions for various casino games and the hours of operation for the on-board casino, as well as the opportunity to play video blackjack and poker on the System. Video slots may be offered on the System at a later date. [Redacted - confidential treatment requested] . Shopping: SeaVision will offer passengers shopping videos and interactive video shopping on and through the System for SeaVision exclusive stores, Celebrity Logo shop and other shopping vendors and suppliers; [Redacted -confidential treatment requested] . Advertising and Promotions: SeaVision shall have the exclusive right to provide access to the System to third parties for the purposes of advertising, promotions and marketing of their companies, products or services which are suitable and consistent with Celebrity's image. However, SeaVision agrees to work with Celebrity and within existing agreements [Redacted - confidential treatment requested] Additional Services (to be provided after the initial implementation of the - ------------------- System on the Ship and upon the mutual agreement of the parties) . Live Cable Television Programming: SeaVision will use its best efforts to provide Celebrity, if Celebrity so elects, live cable television programming such as CNN and ESPN, at Celebrity's expense. . Video-on-Demand to Crew: SeaVision shall have the option to offer to the crew the same video-on-demand services which are offered to the passengers on the same terms and conditions set forth in the Agreement for such services to passengers or on such other terms and conditions as are mutually agreed to by the parties. A-3 . Ship Location Data: Passengers will be able to access a passive application (to be provided by others) which will provide a graphic display of the global position of the Ship, its speed, distance traveled, time remaining to next destination, wind speed, water temperature, time of day, etc. SeaVision will consult with Celebrity regarding the integration of this passive application with the ship's navigational instruments and television distribution system. . Kiosks: SeaVision will cooperate with third party vendors to integrate the System and its applications into on-board common area touch screen kiosks. . Shipboard Directions Module: Passengers will be able to access an interactive application provided by SeaVision which will provide passengers with directions how to locate and move from one shipboard location to another. . Other Options: The parties will work together to develop and make available other potential revenue-generating services and options on the System. . Additional Non-revenue-Generating Services: To the extent that channels on the System are not then being utilized by SeaVision, Celebrity may use such channels to provide additional non-revenue- generating services to its passengers and/or crew; provided, however, in each instance: (i) such services are approved to SeaVision, which approval shall not unreasonably be withheld, delayed or conditioned; (ii) such services are terminable at any time that SeaVision may elect to utilize the applicable channel in connection with its operation of the System; (iii)Celebrity shall provide an operator and any hardware, software and operations staff required for such services; and (iv) Celebrity shall reimburse SeaVision for any additional cost to SeaVision as a result of such services. In addition thereto, the parties will consider the implementation on the System of services providing daily activities information, cabin maintenance and menu viewing. . Additional Language Modules: SeaVision will develop and install additional language modules for German, French, Spanish and Italian. A-4 EXHIBIT B [Redacted - confidential treatment requested] B-1 EXHIBIT C [Redacted - confidential treatment requested] C-2 EXHIBIT D [Redacted - confidential treatment requested] D-1 EXHIBIT E Operations Manual of Celebrity ------------------------------ [Redacted - confidential treatment requested] E-1 EXHIBIT F Technical Performance Standards for the System ---------------------------------------------- [Redacted - confidential treatment requested] F-1 EXHIBIT G [Redacted - confidential treatment requested] G-1 EXHIBIT H [Redacted - confidential treatment requested] H-1 EX-10.13 20 AGREEMENT Exhibit 10.13 AGREEMENT This Agreement, dated as of February 6, 1996, is made by and between SEAVISION, INC., a Delaware corporation (hereinafter referred to as "SeaVision"), and CARNIVAL CORPORATION, a Panamanian corporation (hereinafter referred to as "Carnival"). WHEREAS, Carnival is in the business of offering cruise vacations to its passengers; and WHEREAS, Carnival desires that its passengers have access to interactive television services on board its vessels; and WHEREAS, Carnival wishes to provide passenger services via, and to earn incremental revenue from, such interactive television services; and WHEREAS, SeaVision desires to provide to Carnival, and Carnival desires to obtain from SeaVision, the aforementioned interactive television services for use aboard M/S Imagination (the "Initial Ship") and such other Carnival Cruise Line-brand cruise vessels owned or operated by Carnival or Carnival-owned or Carnival-managed companies as, from time to time, may be designated by Carnival (all such cruise vessels, collectively, the "Ships" and individually, a "Ship"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Responsibilities. ---------------- (a) Subject to the terms and conditions hereof, SeaVision hereby agrees to: (i) Provide, for each Ship designated by Carnival (including without limitation the Initial Ship) at no charge to Carnival, an interactive television system (the "System") consisting of the hardware and software described or listed on Exhibit A attached hereto (collectively, the "System Hardware and Software") and, in connection therewith, provide the services (the "Services") set forth on Exhibit B attached hereto. [Redacted - confidential treatment requested] The installation of the System on the Initial Ship will be in accordance with the implementation schedule attached hereto as Exhibit D (the "Implementation Schedule"). Except as expressly provided otherwise in this Agreement, SeaVision shall at all times retain title to all components of the System, including all System Hardware and Software hereafter installed on any Ship hereunder and any non-customized applications screens. (ii) Provide all personnel reasonably necessary and appropriate to operate the System and provide the Services. One (1) SeaVision technician (the "Operator") will remain on-board each Ship on which the System is then installed and operating to operate the System on an on-going basis for so long as this Agreement shall be in effect with respect to that Ship. SeaVision hereby acknowledges that the Operator shall at all times be an employee of SeaVision. Carnival hereby agrees to serve as SeaVision's paying agent for payment, at the direction of SeaVision, of all salary, payroll taxes and fringe benefits costs in connection with the Operator; provided that SeaVision promptly reimburses Carnival for all such costs incurred by Carnival. SeaVision understands that, while on board any Ship, its personnel will be subject to the authority of the Master of that Ship and the officer(s) designated to oversee the operation of the System and the Services. SeaVision shall use its best efforts to ensure that the Operator will at all times while on board any Ship comply with the operations manual of Carnival, in the form then in effect. (iii) Maintain and upgrade the hardware and/or software used in the System, at no cost to Carnival, at such times and in such manner as is reasonably necessary or appropriate, in SeaVision's sole opinion, to maintain the functionality of the System; provided, however, that such upgrades will require Carnival's consent if such upgrades will require significant modifications to Carnival's on-board hardware or software. The implementation schedule for all SeaVision and Carnival upgrades will be subject to the mutual agreement of the parties. (b) Subject to the terms and conditions hereof, Carnival hereby agrees to: (i) Make available to SeaVision on any Ship upon which the System is installed or is then to be installed, (A) all reasonably necessary storage and workspace for SeaVision's installation, operation and maintenance of the System, including but not limited to granting SeaVision personnel reasonable access to the television studio and video distribution system and limited access to passenger cabins on-board such Ship, (B) such personnel as are reasonably necessary or appropriate to assist in the successful installation, operation and -2- maintenance of the System, including but not limited to appropriate on-board support for, and oversight of, the installation, operation and maintenance of the System by a designated officer on such Ship, (C) all necessary Systems integration support to allow the System to communicate with Carnival's on-board systems, and (D) appropriate accommodations on-board such Ship, if necessary, for SeaVision personnel who are engaged in installing, operating or maintaining the System on such Ship; provided, however, that none of the foregoing activities of SeaVision shall unreasonably interfere with the normal functions of such Ship. It is understood that SeaVision personnel occupying such accommodations will, at all times while on-board such Ship, be subject to Carnival's policies regarding on-board contractors, including those concerning dress, decorum and personal behavior. (ii) [Redacted - confidential treatment requested] (iii) [Redacted - confidential treatment requested] (iv) Provide reasonable marketing support for the System on board each Ship on which the System is then installed. Such marketing support shall include but not be limited to in-cabin collateral material, mention by the Cruise Director during his or her introductory remarks to passengers on the Ship, coverage in the daily program circulated on the Ship and such other activities of a supporting nature as are agreed to by both parties to this Agreement, including, if so agreed, insertion of promotional materials in passenger documentation. (v) Work with SeaVision's marketing personnel to develop appropriate, effective and non-intrusive means for testing and gauging passenger reaction to the System on a regular basis. Such means may include but not be limited to on-board questionnaires, on- board focus groups, one-on-one passenger interviews and post- cruise questionnaires. (vi) Provide reasonable access to each Ship on which the System is then installed, when such Ship is in port, for SeaVision personnel to demonstrate the System to potential advertisers, marketers and clients. In connection with making such demonstrations, SeaVision shall conform to Carnival's procedures for approving on-board visitors, including but not limited to making advance requests for boarding passes. (vii) Use commercially reasonable efforts to cause its on-board concessionaires to work with SeaVision to develop mutually beneficial applications for the System. -3- (viii) Provide the Operator with the following data, if available, in electronic form (i.e., diskettes, tapes or other similar means) with respect to each passenger on-board any Ship on which the System is then installed: name, home address and telephone number, age, cabin assignment, dining assignment and on-board account number. (ix) Use its best efforts to collect all monies paid or payable by passengers in respect of Services provided on or through the System and charged to the respective on-board account of such passengers. 2. Initial Term/Renewal/Extension to Other Ships. --------------------------------------------- (a) [Redacted - confidential treatment requested] (b) Carnival hereby grants to SeaVision the exclusive right, for the term of this Agreement (subject always to Carnival's rights to terminate this Agreement in accordance with its terms) to install, operate and maintain interactive television systems on the Initial Ship. If Carnival elects from time to time for SeaVision to install, operate and maintain any such additional System(s) in accordance herewith, SeaVision and Carnival shall establish a timetable for the related installation(s). All of the terms and conditions of this Agreement shall apply to the parties' respective rights and obligations in respect of such other Ships and Systems installed thereon. Subject to the foregoing proviso, in the event the parties agree that SeaVision will install, operate and maintain any such additional System(s) on one or more Ship(s), the references herein made to a or any Ship and/or the System shall be deemed to include such other Ship(s) and the System(s) installed thereon, with such modifications as are reasonably necessary and appropriate to reflect the individualized System(s) installed on each such Ship. (c) [Redacted - confidential treatment requested] 3. Revenue-Sharing and Payment Terms. --------------------------------- (a) [Redacted - confidential treatment requested] (i) [Redacted - confidential treatment requested] (ii) [Redacted - confidential treatment requested] (iii) [Redacted - confidential treatment requested] (iv) [Redacted - confidential treatment requested] -4- (b) [Redacted - confidential treatment requested] (c) On or before the twenty-first day of each calendar month during the term of this Agreement, SeaVision shall provide Carnival with a written report (the form of which shall be mutually agreed upon by the parties) detailing the Adjusted Net Revenues (and the related deductions from gross revenues) generated by the System on each Ship on which the System is then installed from cruises completed during the prior calendar month. This report shall govern the determination of fees to be retained by Carnival and the revenues to be remitted by Carnival to SeaVision under the terms of this Agreement. SeaVision shall provide any and all hardware and/or software reasonably necessary or appropriate to interface SeaVision's accounting software with the applicable Ship's property management system in order for SeaVision to obtain accurate accounting information for such reports. (d) Within thirty (30) days after Carnival's receipt of any monthly report delivered to Carnival by SeaVision pursuant to the terms of subsection 3(c) herein, Carnival shall remit to SeaVision all Adjusted Net Revenues generated by the System on each Ship during the calendar month applicable to such report, less its share of such Adjusted Net Revenues as provided in this Section 3. (e) Carnival shall promptly notify SeaVision of any changes, adjustments or chargebacks (relative to the Adjusted Net Revenues in respect of any calendar month) of which Carnival receives notice after it has made a remittance to SeaVision in respect of such calendar month, and together therewith, provide to SeaVision appropriate documentation supporting all such changes, adjustments or chargebacks. In the event properly-supported changes, adjustments or chargebacks result in a reduction of the Adjusted Net Revenues generated in respect of such calendar month, SeaVision shall, within thirty (30) days after its receipt of the applicable notice and supporting documentation, refund to Carnival SeaVision's percentage of the aggregate of such changes, adjustments or chargebacks. (f) All advertising and promotional revenues generated by any System and received by SeaVision, less any commissions and fees payable by SeaVision to any third party in respect thereof (subject to Carnival's approval thereof in accordance with the terms of section 3(b) in the case of persons affiliated with SeaVision or its principals), shall be allocated between SeaVision and Carnival in the same manner and on the same percentages as the Adjusted Net Revenues are then being allocated between them pursuant to the terms of subsection 3(a) of this Agreement. SeaVision shall detail such gross revenues and expenses on the applicable monthly report provided to Carnival pursuant to the terms of subsection 3(c) of this Agreement and shall retain its own portion of such net revenues together with Carnival's portion of such retained net revenues to the -5- extent of, and as a credit against, Carnival's payment obligations pursuant to the terms of subsection 3(d) of this Agreement for the applicable calendar month. 4. Confidentiality. --------------- (a) Carnival acknowledges that the System represents and will continue to represent the valuable, confidential and proprietary property of SeaVision. SeaVision is not by this Agreement conveying to Carnival any exclusive proprietary or ownership rights in the System, including, but not limited to, any patent, copyright, trademark, service mark, trade secret, trade name or other intellectual property rights, except that Carnival will have the limited rights expressly set forth in this Agreement. Accordingly, Carnival acknowledges that, except as expressly provided for in this Agreement, Carnival possesses no title or ownership of any System or any portion thereof. Carnival will keep the System free and clear of all claims, liens and encumbrances by or through Carnival. (b) Each party agrees, during the term of this Agreement and thereafter, to maintain the confidential nature of the terms and conditions of this Agreement and of any proprietary information shared with it by the other party or obtained by a party from the other party's books, records or computer systems. The proprietary information shared with Carnival by SeaVision shall include, but is not limited to (i) any knowledge gained by Carnival of the System, including but not limited to knowledge of the type, identity, operation or other characteristics of the System's hardware, operating system software and applications software; (ii) SeaVision's marketing and sales materials; (iii) the content of any and all SeaVision reports, including those for data management, revenue remittance and marketing surveys; and (iv) SeaVision's marketing and advertising client list. The proprietary information shared with SeaVision by Carnival shall include, but not be limited to, Carnival's customer lists and passenger information, on-board revenue and expense data, the content of any Carnival reports, and Carnival's business arrangements with concessionaires. Carnival agrees that it will not create or attempt to create, or permit any third party to create or attempt to create, by reverse engineering or otherwise, the source code for the System(s) or any portion thereof. The provisions of this Section 4 apply to the System as delivered to Carnival by SeaVision or as modified or otherwise enhanced by SeaVision and to any proprietary material and information regarding the System that is given to Carnival prior to, on or after the date of this Agreement. Notwithstanding the foregoing, each party may use the other's proprietary information in the internal conduct of its business, subject always to the prohibition herein of disclosure. Notwithstanding anything contained in this Agreement to the -6- contrary, the terms of this subsection 4(b) shall survive the expiration or termination of this Agreement. (c) Each party acknowledges that its violation of its confidentiality or non-disclosure obligations under this Agreement may cause irreparable damage to the other that cannot be fully remedied by money damages. Accordingly, in the event of any such violation or threatened violation, the injured party will be entitled, in addition to pursuing any other remedy available to it under this Agreement or at law, to obtain injunctive or other equitable relief from any court of competent jurisdiction as may be necessary or appropriate to prevent any further violations thereof. (d) During the Initial Term, any extensions thereof, and for a period of three (3) years after the expiration or any termination of this Agreement, neither party shall induce or attempt to induce any employee or consultant of the other to terminate his or her employment or consulting relationship with such other party and shall not solicit any such employee or consultant for employment or consulting services. (e) Each party agrees to notify the other immediately upon the notifying party's becoming aware of or reasonably suspecting the possession, use or knowledge of all or part of any of the other party's proprietary information by any person or entity not authorized by this Agreement to have such possession, use or knowledge. The notifying party will promptly furnish the other party with details of such possession, use or knowledge, will assist in preventing a recurrence thereof and will cooperate with the other party in protecting the other party's rights in the other party's proprietary information. A party's compliance with the terms of this Section 4 will not be construed as any waiver of the other party's right to recover damages or obtain other relief against the notifying party for the notifying party's breach of its confidentiality or non-disclosure obligations under this Agreement or the negligent or intentional harm to the other party's proprietary rights. 5. Termination. ----------- (a) [Redacted - confidential treatment requested] (b) [Redacted - confidential treatment requested] (c) SeaVision shall have the right to terminate this Agreement in whole or with respect to any individual Ships prior to the then effective expiration date of the term hereof in the event any System installed by SeaVision aboard any such Ship fails to achieve the financial performance standards that SeaVision shall determine are necessary to warrant its investment in that System. Such -7- determination and termination may occur in respect of all Systems and Ships or on a Ship-by-Ship basis. In the event SeaVision intends to terminate this Agreement pursuant to this subsection 5(c), in whole or in respect of individual Ships and Systems, it shall do so in writing to Carnival no less than six (6) calendar months prior to ceasing operations hereunder or thereon, as the case may be. (d) Either party hereto shall have the right to terminate this Agreement immediately upon written notice to the other party upon such party being declared insolvent or bankrupt, or making an assignment for the benefit of creditors, or in the event that a receiver is appointed, or any proceeding for appointment of a receiver or to adjudge such party a bankrupt, or to take advantage of the insolvency laws is demanded by, for, or against such party under any provision under the laws of any state or country. (e) Carnival shall have the right to terminate this Agreement prior to the then effective expiration date of the term hereof in the event SeaVision defaults in the performance of any covenant, warranty or agreement made herein or if any System fails to achieve the technical performance standards set forth in Exhibit E attached hereto (the "Technical Performance Standards") and such default or failure has not been cured within ninety (90) days after receipt of written notice thereof given by Carnival to SeaVision (except that the foregoing cure period shall not be applicable if SeaVision fails to install the System on the Initial Ship in accordance with the Implementation Schedule). (f) SeaVision shall have the right to terminate this Agreement prior to the then effective expiration date of the term hereof in the event Carnival defaults in the performance of any covenant, warranty or agreement made herein and such default has not been cured within ninety (90) days after receipt of written notice thereof given by SeaVision to Carnival. (g) Notwithstanding the termination or expiration of this Agreement as provided for in this Section 5 and elsewhere in this Agreement, each party shall continue to owe, and shall promptly pay to the other in accordance with the terms of Section 3 hereof, all amounts set forth in Section 3 that shall have accrued on and prior to the date of such termination or expiration. (h) As soon as is practicable after the expiration or any whole or partial termination of this Agreement, but in any event within thirty (30) days thereafter, SeaVision shall, without unduly interfering with the normal functions of any of the Ships, remove from all Ships affected by such expiration or termination, all Systems, including all System Hardware and Software (as the same may have been replaced or supplemented since the date hereof), and all on-board SeaVision personnel. The parties hereby agree and -8- acknowledge that in accordance with Section 1 hereof, SeaVision will retain title to any and all such System Hardware and Software installed on board any Ship by SeaVision (x) at all times while this Agreement is in effect as well as (y) in the event SeaVision chooses not to continue operating the System installed thereon. Notwithstanding the foregoing, if SeaVision elects to terminate this Agreement in respect of any Ship pursuant to the terms of subsection 5(c) above or if SeaVision defaults under this Agreement and Carnival exercises its resulting rights under subsection 5(e) herein, Carnival shall have the right to purchase all SeaVision hardware installed by SeaVision on that Ship and to obtain a nontransferable license to use (but only on that Ship) the SeaVision software installed by SeaVision on that Ship [Redacted -confidential treatment requested] If SeaVision elects to terminate this Agreement in whole pursuant to the terms of subsection 5(c) above, Carnival shall have the right, in addition to the foregoing purchase and license rights, to purchase such hardware and license such software from SeaVision, for a period of one (1) year thereafter, to enable Carnival to install the System on other Ships, [Redacted - confidential treatment requested] At Carnival's request, SeaVision shall provide support services for such purchased hardware and licensed software upon reasonable terms and conditions to be mutually agreed upon by the parties. 6. Right to Inspect Books & Records. SeaVision and Carnival shall keep -------------------------------- full and accurate accounts, records, books, journals, ledgers and data (collectively, "Records") with respect to the business done by each party respectively under this Agreement, which Records shall at all times show truthfully, accurately and fully the compliance by each party with its respective obligations under this Agreement. Each party shall have the right, through its designated representatives, at all reasonable times, upon reasonable advance notice, to inspect the Records of the other as necessary to verify the sales, revenues generated, third party payments and fees collected pursuant to this Agreement. The parties shall retain all Records at all times during the term of this Agreement and any and all extensions or renewals thereof, and for at least three (3) years thereafter, and shall make the Records available to the other party during regular business hours, wherever the Records are maintained, within ten (10) days after receipt of demand for inspection from such other party. Both parties shall maintain the confidential nature of any Records so inspected pursuant to and in accordance with the provisions of Section 4 hereof. 7. Insurance/Waiver of Subrogation. ------------------------------- (a) Carnival hereby warrants, represents and covenants that it has, and shall maintain for the term of this Agreement and any successive operating term or renewal hereof, at its sole expense, hull and machinery insurance in accordance with American Institute Hull Clauses (June 2, 1977) to cover the System for the value of [Redacted - confidential treatment requested] against any loss or damage whatsoever which may occur while that System is -9- present and/or installed on that Ship. The insurance policy(ies) with respect to such coverage shall each name SeaVision as an additional insured, as its interests may appear and contain a waiver of subrogation against SeaVision. (b) Carnival hereby agrees to provide, at its own cost and expense, maritime workers compensation insurance for each System Operator and for each member of SeaVision's System installation crews for such periods of time as such Operator or crewmember, as the case may be, is posted to a Ship. (c) Hull and Machinery Insurance. ---------------------------- (i) In the event that SeaVision or its personnel cause any loss or damage covered by this insurance, or which would have been covered by this insurance but for a commercially reasonable deductible [Redacted -confidential treatment requested] in the insurance policy, SeaVision agrees to reimburse Carnival for the amount of the deductible applicable in such loss or damage. (ii) Neither Carnival, the owner of the Ship, nor the underwriters of the insurance shall have any further right of recovery or subrogation in excess of said deductible against SeaVision on account of loss or damage to the extent covered by such insurance, and the policies of insurance shall be endorsed to reflect this limitation and waiver. (d) Protection And Indemnity Insurance. SeaVision agrees to obtain and ---------------------------------- maintain, at its own expense, insurance to defend and cover its liability, if any, for: (i) Maintenance and cure as well as personal injury or death claims asserted by SeaVision's employees or their estates; (ii) Claims of passengers or other third parties arising out of or in connection with SeaVision's operations or the actions of SeaVision's employees; and (iii) Repatriation, loss of personal effects and other costs to employees (including, without limitation, burial costs) in the event of death, casualty or termination of a voyage. Such insurance shall be in form, in amounts, with carriers and on terms reasonably satisfactory to Carnival's Manager of Insurance; shall name Carnival as an additional insured subject to the misdirected arrow clause. SeaVision shall provide Carnival's Manager of Insurance with a Certificate of Insurance evidencing such coverage. -10- (e) Certificates. On or before the commencement of the term of this ------------ Agreement, Carnival shall, upon SeaVision's written request, provide to SeaVision certificates of insurance evidencing the coverages required pursuant to Sections 7(a), 7(b) and 7(c), and SeaVision shall, upon Carnival's written request, provide to Carnival certificates of insurance evidencing the coverages required pursuant to Section 7(d). 8. Interruption in Performance. Neither Carnival nor SeaVision shall be --------------------------- liable to the other for any loss, damage or loss of profits arising out of any interruption or cessation of the Services to be provided hereunder when such interruption or cessation is caused by a force majeure. For purposes of this Agreement, force majeure shall be any event caused by acts of God, fire, storm or other natural catastrophe, war, labor disruption, change in governmental laws or regulations, and other causes that are unavoidable or beyond the affected party's control. 9. Trademarks. ---------- (a) Nonexclusive License. Carnival hereby represents that it is the owner -------------------- of the trademarks, service marks, tradenames, logos, design marks, names, and designs described on Exhibit F attached hereto, as may be amended in writing by Carnival from time to time hereafter, and such other logos and marks as may be utilized by Carnival anywhere in the world of which SeaVision shall hereafter have received written notice from Carnival (collectively, the "Carnival Marks"). Carnival hereby grants to SeaVision, and SeaVision hereby accepts, for the term of this Agreement, a limited, nonexclusive worldwide license to use the Carnival Marks on and in connection with the design, production and display of video screens for use on the System and the manufacture, promotion and sale of the merchandise (other than perfumes) to be sold via interactive shopping on and through the System (the "Merchandise") in respect to SeaVision's performance hereunder. (b) Restrictions on Assignment of License. SeaVision shall not sell, ------------------------------------- assign or transfer the license granted hereunder without Carnival's express written consent authorized by a duly elected corporate officer of Carnival. (c) Submission of Newly Designed Marks. ---------------------------------- (i) SeaVision shall submit to Carnival (as set forth in subsection 9(c)(ii) of this Agreement) for approval prior to use, all artwork or photostats of artwork, indicating colors and processes of manufacture, of newly designed and not previously approved uses of the Carnival Marks. Carnival shall have the right, in its sole and absolute discretion, to forbid the use thereof. Samples of literature, advertising, catalogs and packaging relating to the souvenirs will be provided on a timely basis -11- by SeaVision to Carnival following printing or production. When using the Carnival Marks, SeaVision agrees to undertake to comply with the requirements of all laws pertaining to trademarks, including marking requirements. Before using any of the Carnival Marks, SeaVision shall inform Carnival of the nature and quality of the souvenirs and shall thereafter promptly furnish samples thereof to Carnival. (ii) Prior to placing any orders for the manufacture of Merchandise on which newly designed and not previously approved uses of the Carnival Mark(s) are intended to be imprinted, SeaVision shall submit for approval the name, address, phone number and telefax number of each manufacturer therefor and, if the manufacturer is satisfactory to Carnival, SeaVision shall subsequently submit to Carnival the artwork, styles, designs, contents, workmanship and quality of such merchandise, in the form requested by Carnival, to the attention of Peter DeMilio or his or her designee in Carnival's Marketing Department, 3655 N.W. 87 Avenue, Miami, Florida 33178. (iii) All materials and information submitted pursuant to this Section 9(c) shall be deemed automatically approved if notification of rejection is not received by SeaVision within forty-five (45) days after Carnival's receipt of such materials and/or information. (d) [Redacted - confidential treatment requested] (e) Use of Marks, Etc. ------------------ (i) SeaVision shall cause to appear with each use of the Carnival Mark(s) such trademark notice symbols and/or copyright and trade dress notices as shall be instructed in writing by Carnival. Upon receipt of any such instruction by SeaVision, SeaVision agrees to follow Carnival's written policy, as may be amended from time to time, regarding the proper usage of the Carnival Marks on printed material and on goods and merchandise. (ii) SeaVision will in no way represent that it has any right, title and/or interest in and to the Carnival Marks, except as expressly granted under the terms of this Agreement, nor shall SeaVision contest Carnival's title register and the registrations of the Carnival Marks, nor shall SeaVision acquire any rights in the Carnival Marks by virtue of any use it may make thereof. -12- (iii) SeaVision agrees that Carnival is and will be the owner of all goodwill that may in the future attach to the Carnival Marks as a result of SeaVision's use thereof. (iv) SeaVision further agrees that it shall not at any time register or apply to register the Carnival Mark(s) or any trademark, logo, slogan or design confusingly similar thereto anywhere in the world. Upon termination of this Agreement, SeaVision agrees to cease all use of the Carnival Marks or any confusingly similar trademarks or trade names; and SeaVision shall at no time adopt for use any trademarks or trade names confusingly similar to any of the Carnival Marks. (f) Infringements. Carnival shall have the sole right to determine ------------- whether or not any action shall be taken on account of any infringement or imitation of any Carnival Mark; and SeaVision shall reasonably cooperate with Carnival and at Carnival's cost and expense in protecting and defending the Carnival Marks and the Merchandise bearing the Carnival Marks. With respect to infringements of the Carnival Marks, Carnival shall be entitled to receive and retain all amounts awarded as damages, profits or otherwise in connection with such suits. (g) Termination of License. The license in the Carnival Marks granted ---------------------- hereunder shall terminate upon the expiration, suspension or the termination of this Agreement by either party and in accordance with the provisions herein, provided, however, that SeaVision shall thereafter be entitled to sell any inventory of Merchandise on hand or theretofore ordered by SeaVision. (h) Merchandise Bearing the Carnival Marks. Articles of merchandise -------------------------------------- bearing the Carnival Mark(s) may become available to Carnival from time to time from other licensees and sublicensees of Carnival. Carnival may advise SeaVision of such situations, and SeaVision will consider whether or not to purchase, supply and sell such articles of merchandise in its inventory of stock to be sold on the System under the terms and conditions of this Agreement. 10. Matters Relating to SeaVision Employees. --------------------------------------- (a) SeaVision's Obligations. ----------------------- (i) SeaVision's status under this Agreement is solely that of a independent contractor, and SeaVision at all times has the obligation and right to control all of the employees engaged by SeaVision to perform its obligations hereunder, and such persons are solely the responsibility of SeaVision. As between any such employee and SeaVision, SeaVision hereby acknowledges that it is solely responsible for the payment of all -13- wages, vacation pay, benefits and repatriation expenses to each of its employees. (ii) SeaVision may in its sole discretion, at its own expense and without interfering with Carnival's operations, replace its employees or transfer them between the Ships. (b) Responsibility for Payment of Certain Expenses. Except as otherwise ---------------------------------------------- expressly provided in this Agreement (including, without limitation, in subsection 7(c) herein), SeaVision is solely responsible for the payment of any medical and subsistence expenses or damages to SeaVision's employees arising from accident or illness. Except as provided in subsection 10(g)(ii), SeaVision shall indemnify Carnival for any such expenses or damages incurred by Carnival. (c) No Maritime Liens. SeaVision's employees do not have maritime liens ----------------- on a Ship for any payments due to them in connection with their services for SeaVision. (d) Jones Act. SeaVision's employees are not entitled to assert claims --------- against Carnival under Jones Act, 46 U.S.C. 688. (e) Employee Contracts. In each of its written contracts with its ------------------ employees who will serve on any Ship, SeaVision will insert the following notice: "Your employer is a concessionaire of Carnival Corporation, the owner of the Ship. You are subject to the control of your employer. You are also subject to the authority of the Master for purposes of health, safety and discipline. In your dealings with passengers you will refer to yourself as a member of the interactive television system team. However, your employer is solely responsible for you, and neither the Ship nor Carnival Corporation, is obligated to you for any payments. You are required to comply with the terms of any agreement and/or policy now existing, or hereafter entered into or adopted by Carnival Corporation, with respect to the carrying on board the Ship and/or use on board the Ship of any narcotics or other controlled substances that Carnival Corporation may deem necessary or desirable in view of the laws, regulations and policies of any governmental jurisdiction -14- including, without limitation, the zero tolerance policy of the government of the United States of America." (f) Ship's Articles. --------------- (i) SeaVision irrevocably appoints the Master of a Ship as its agent with the power of overall supervision of SeaVision's employees on board the Ship for purposes of health, safety, and discipline. The Master may delegate this supervisory power to the Ship's Staff, Captain and/or Purser. (ii) Only for purposes of health, safety and discipline and to facilitate compliance with the immigration laws applicable in a Ship's base port and other ports of call, SeaVision's employees will sign on ship's articles; but such adherence to ship's articles will not in any way detract from or modify the SeaVision's status as an independent contractor, and its relationship or its right and obligation to control its employees, as described in Sections 10(a) through 10(d), above. Carnival agrees to make all arrangements for SeaVision's employees to sign on and off ship's articles. (g) Health and Documentation. ------------------------ (i) SeaVision will employ on-board the Ship only persons who are of good moral character as well as good health, who hold valid passports, visas, and all other permit required by any governmental authority having jurisdiction, in order that they may enter and leave the base port and other ports where the Ship may call. Carnival agrees to arrange for all on-board immigration formalities and to accept responsibility for safekeeping of all passports or other immigration documents turned over to it by SeaVision's employees. (ii) SeaVision will at its own expense arrange for each of its employees to receive and pass a complete medical examination including a chest x-ray and blood test, immediately prior to serving on-board a Ship and periodically thereafter. The report of such examination shall be forwarded to the Ship's doctor indicating that the employee is medically fit for service on- board the Ship in accordance with standards established by Carnival and applicable to its own crew. (h) Grooming. SeaVision's employees will at all times keep themselves -------- neatly groomed, well spoken, and suitably attired in SeaVision uniforms. -15- (i) Removal. In his/her discretion, the Master of a Ship may require, ------- when he/she determines it necessary in his/her sole discretion to preserve health, safety or discipline on board the Ship, that any employee of SeaVision remove himself/herself and his/her belongings from a Ship at any time when the Ship is in port, and all repatriation expenses, if any, will be for SeaVision's account. SeaVision shall be entitled to appeal such removal by referring the matter to Carnival for final determination, which determination shall be made in good faith. (j) Medical Care. At SeaVision's request, and except as otherwise ------------ provided in Section 10(g)(ii), Carnival will furnish without charge, regular and reasonable on-board medical care by a Ship's doctor, as well as medicines, for illness and injury suffered by SeaVision's personnel while aboard the Ship. (k) Prohibited Items. SeaVision's personnel are not permitted: ---------------- (a) To carry or consume aboard a Ship any firearms or weapons, narcotics, or other drugs which are prohibited in the Ship's ports, except pursuant to a program of medical care under the direct supervision of the Ship's doctor; (b) To consume alcoholic beverages aboard a Ship to the point of intoxication or to the point where, during the subsequent performance of their duties, such consumption could become apparent to the passengers; (c) To board a Ship in an intoxicated state without the consent of the Master; (d) To engage in gambling aboard a Ship in the Ship's casino or amongst themselves, or engage in any other illegal activity; (e) To sell any merchandise to passengers (except in the course of their duties), or to purchase merchandise from the interactive system for resale. 11. SeaVision's Other General Obligations. ------------------------------------- (a) Safe Stowage. Subject to the approval of the Master of the Ship, ------------ which approval shall not be unreasonably withheld or delayed, SeaVision will safely stow for sea and will maintain such safe stowage for sea of all of the System Hardware and Software and its other property, as well as all property belonging to Carnival which SeaVision uses to perform its obligations hereunder. -16- (b) Unseaworthiness. SeaVision will not knowingly or recklessly create an --------------- unseaworthy condition in the performance of its obligations hereunder. (c) Careful Operations. SeaVision will care for the property of a Ship ------------------ utilized by SeaVision in performance of its obligations hereunder in a careful, efficient and businesslike manner. (d) Compliance with Laws. SeaVision will comply with all laws and -------------------- regulations (including but not limited to tax laws and regulations) of all governmental authorities having jurisdiction, relating to gambling, immigration, repatriation and its operations hereunder. Carnival shall likewise reasonably assist and fully cooperate with SeaVision so as to enable SeaVision to comply with such laws and regulations and shall assist SeaVision to obtain any required licenses, permits, approvals and consents. (e) Damaged Property. Each party will, at its own expense, repair or ---------------- replace the other party's property which is damaged by the negligent acts of such other party's employees, over and above normal wear and tear. 12. Cruise Scheduling. Sailing and other cruise periods shall be ----------------- scheduled at the sole discretion of Carnival, who will promptly furnish SeaVision with an initial cruise and overhaul schedule of the Ships as well as all changes to a previously delivered schedule within ten (10) days after such schedule is established or changed. If notice as required herein is given by Carnival to SeaVision, then SeaVision shall have no claim against Carnival for any loss or damage arising from delay, lay up or schedule change of a Ship. 13. Photographs. SeaVision shall not circulate any photographs of its ----------- operations aboard a Ship for promotional purposes without the prior written consent of the persons who are the subject of the photographs and the prior written or oral consent of Carnival, which consent shall not be unreasonably withheld or delayed. 14. [Redacted - confidential treatment requested] (a) [Redacted - confidential treatment requested] (i) [Redacted - confidential treatment requested] (ii) [Redacted - confidential treatment requested] -17- 15. General Average and Salvage. --------------------------- (a) General Average. General Average shall be adjusted at New York --------------- according to York-Antwerp Rules 1974, and as to matters not therein contained, according to the law and usages of the Port of New York. In case a general average statement be required, the same shall be adjusted by an Adjuster to be selected and appointed by Carnival and said Adjuster shall attend to the settlement and collection of the average, subject to the customary charges. Notwithstanding anything herein to the contrary, the property of SeaVision shall not be required to contribute to general average adjustment and shall not be subject to any lien for general average adjustment. (b) Salvage. In the event of accident, danger, casualty, damage or ------- disaster before or after commencement of a voyage resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequences of which, the Ship is not responsible, by statute or contract or otherwise, SeaVision shall only be required to contribute with the Ship to pay salvage in respect to SeaVision's property; and SeaVision shall not be required to contribute to pay salvage awarded with respect to any other property. (c) Earned Salvage. SeaVision shall not be entitled to participate in -------------- earned salvage. 16. Both to Blame Collision Clause. If a Ship comes into collision with ------------------------------ another ship as a result of the negligence of the other ship, and consequences of which Carnival is not responsible to SeaVision, by statute or contract or otherwise, SeaVision shall indemnify Carnival against all loss or liability of the other ship or her owners insofar as such loss or liability represents loss of or damage to or any claim whatsoever of SeaVision, paid or payable by the other ship or her owners to SeaVision and set off, recouped or recovered by the other ship or her owners as part of their claim against the Ship or Carnival. The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than or in addition to, the colliding ships or objects are at fault in respect of collision or contact. 17. Termination by Withdrawal or Requisition. ---------------------------------------- (a) [Redacted - confidential treatment requested] -18- (b) Requisition of a Ship. If any Ship is requisitioned by any government --------------------- (including, but not limited to, the United States of America) for title or use and the requisition remains in effect for thirty (30) calendar days, then this Agreement shall be suspended, but not terminated for the duration of any such requisition. Carnival shall have no liability to SeaVision in regards to the requisition. 18. Indemnification. --------------- (a) SeaVision shall indemnify, defend and hold harmless Carnival and its successors and assigns from and against any and all liabilities, claims, suits, damages, judgments, awards, penalties, losses and other liabilities (including all related reasonable attorneys' fees, costs and expenses in connection therewith) (collectively referred to hereinafter as "Losses") suffered or incurred by Carnival by reason of, arising out of or in connection with (x) any grossly negligent, willful or intentional act or omission of SeaVision (or an employee, agent or representative of SeaVision) committed or omitted, as the case may be, in the course of SeaVision's performance of the terms of this Agreement, (y) SeaVision's failure to fully perform the terms of this Agreement or (z) any infringement or alleged infringement of the Carnival Marks by reason of the sale or delivery by the manufacturer (used by SeaVision) of the merchandise on which the Carnival Marks have been imprinted due to SeaVision's negligent failure to comply with Section 9(d) above, or SeaVision's negligence to use its best efforts to ensure and accept delivery of merchandise ordered by SeaVision on which the Carnival Mark(s) have been imprinted, except as otherwise provided herein. (b) Carnival shall indemnify, defend and hold harmless SeaVision and its successors and assigns from and against any and all Losses suffered or incurred by SeaVision by reason of, arising out of or in connection with (x) any grossly negligent, willful or intentional act or omission of Carnival (or an employee, agent or representative of Carnival) committed or omitted, as the case may be, in the course of Carnival's performance of the terms of this Agreement, (y) Carnival's failure to fully perform the terms of this Agreement or (z) SeaVision's use of the Carnival Marks or any of them in accordance with the terms of this Agreement. 19. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET ----------------------- FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED -19- WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL SEAVISION BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF CARNIVAL'S USE OF OR INABILITY TO USE THE SYSTEM OR ANY PORTION THEREOF OR FROM ANY DELAY IN THE SYSTEM ACHIEVING THE TECHNICAL PERFORMANCE STANDARDS OR FROM ANY DELAY IN THE SYSTEM MEETING, OR ANY INABILITY OF THE SYSTEM TO MEET, CARNIVAL'S EXPECTATIONS WITH RESPECT TO OPERATIONS OR PERFORMANCE, EVEN IF SEAVISION IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. [Redacted - confidential treatment requested] IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR ANY COSTS INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST PROFITS OR REVENUE, LOSS OF USE OF THE SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY DATA, THE COST OF SUBSTITUTE SOFTWARE, OR CLAIMS BY THIRD PARTIES. 20. [Redacted - confidential treatment requested] 21. Further Assurances of SeaVision's Title. --------------------------------------- (a) Carnival hereby agrees to execute and deliver to SeaVision, upon the reasonable request of SeaVision from time to time, such UCC-1 financing statements and other documents as SeaVision shall reasonably require for the purpose of evidencing to Carnival and any third party SeaVision's continued ownership of all components (hardware and software) of any System (such financing statements and other documents to describe all such components and to be in the form required by applicable law). (b) SeaVision may affix permanent (to the degree reasonably possible), legible and visible labels on each component of the System (hardware only), to the extent that doing so is reasonably possible or practicable. Each such label may clearly indicate that SeaVision holds title to the component to which that label is affixed. 22. No Grant of Intellectual Property Rights. Except as expressly set ---------------------------------------- forth herein, this Agreement does not and shall not grant to Carnival any patent, copyright, trademark, trade secret or other intellectual property right or license, express or implied. 23. Public Announcements. The parties shall consult with each other and -------------------- issue a public statement with respect to this Agreement as soon as is practical after the date hereof. During the term of this Agreement, Carnival shall include a reference to SeaVision in any -20- and all public announcements or marketing materials referring to interactive television services on-board the Ships. 24. Arbitration. In the event of any dispute or controversy arising out ----------- of or related to this Agreement, the parties will seek to resolve any such controversy first by negotiating with each other in good faith in face-to-face negotiations between the respective principals of each. In the event a resolution is not reached in such manner within thirty (30) days after such negotiations, if any, commence, any remaining dispute or controversy shall be submitted to binding arbitration under the auspices of and in accordance with the then-prevailing Commercial Arbitration Rules of the American Arbitration Association, and any such arbitration shall be conducted in Miami, Florida. The costs and expenses of arbitration, including, without limitation, attorneys' fees, shall be borne ultimately as the arbitrator(s) direct. The parties hereby consent to the jurisdiction of any arbitration held in said locale in accordance and in connection herewith and hereby consent to comply with the decision and any award therein made. The arbitration award may be enforced by any court of competent authority in the same manner as a judgment by a court of law and/or equity. 25. Right to Make Agreement. Each of the parties hereto represents and ----------------------- warrants to the other that it has all necessary and appropriate power and authority to execute, deliver and carry out the terms and provisions hereof and that its execution, delivery and performance thereof will not constitute a default by it under any other agreement to which it is a party. 26. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall constitute an original and all of which together shall constitute but one and the same original document. 27. Assignment. Either party hereto may assign this Agreement and its ---------- respective rights, interests and obligations hereunder to any third party without the consent of the other party hereto; provided, however, that (i) no such assignment by a party shall relieve that party of any of its liabilities or obligations hereunder and (ii) SeaVision may not assign this Agreement or any of its rights or obligations hereunder to any cruise line competitor of Carnival. It is expressly understood and agreed that, except as provided to the contrary in the preceding sentence, this Agreement and all of SeaVision's interests and rights herein and hereunder may be assigned, pledged, mortgaged and/or hypothecated by SeaVision at its exclusive discretion. 28. Successors. This Agreement shall inure to the benefit of, and be ---------- binding upon, the respective successors and assigns of the parties hereto. 29. Effectiveness. This Agreement shall be effective upon its execution ------------- by an authorized representative of each party hereto, which execution may for all purposes be evidenced by facsimile transmission of a counterpart signature page of this Agreement. -21- 30. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Florida, without regard to its principles of conflicts of laws. 31. Severability. If any Section or provision of this Agreement, or any ------------ portion of any Section or provision thereof, shall for any reason be held to be void, illegal or otherwise unenforceable, all other Sections and portions of this Agreement shall nevertheless remain in full force and effect as if such void, illegal or unenforceable portion had never been included herein. 32. Notices. All notices and other communications required or otherwise ------- provided for in this Agreement shall be in writing and sent by registered or certified mail to: If to SeaVision: SeaVision, Inc. 13320 State Route 7 Lisbon, Ohio 44432 Attn: Brian K. Blair If to Carnival: Carnival Corporation Carnival Place 3655 N.W. 87th Avenue Miami, FL 33178 Attn: Brendan Corrigan or to such other place as SeaVision or Carnival, as the case may be, may from time to time designate in accordance herewith. 33. Entire Agreement; Modification. This Agreement, including the ------------------------------ Exhibits attached hereto, contains the entire agreement of the parties on the subject matter hereof, and supersedes any and all prior agreements, if any, with respect to such subject matter. This Agreement may not be changed, modified or supplemented except by the written agreement of the parties. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. ATTEST: SEAVISION, INC. _______________________ By:_____________________________ Its:___________________ Its:____________________________ -22- ATTEST/WITNESS: CARNIVAL CORPORATION _______________________ By:_____________________________ Its:___________________ Its:____________________________ -23- EXHIBIT A Hardware and Software Components of the System ---------------------------------------------- [Redacted - confidential treatment requested] -24- EXHIBIT B I. Entertainment and Interactive Services to be Provided by SeaVision ------------------------------------------------------------------ "Basic" SeaVision Package: Services Provided at No Charge - --------------------------------------------------------- . Language Options: The various preview, ordering and information services provided on the System will be available in English, French, Spanish, Italian, Portuguese and German. . In-Cabin Room Service Ordering: Passengers will be able to order Carnival's standard room service menu, including beverages charged to their cabin account, through the System. Orders will be printed out in appropriate pantries and/or galleys for delivery by Carnival personnel. SeaVision shall provide, as part of the System, printers and/or monitors to be used in such pantries and/or galleys for such purpose. . Shore Excursion Ordering: Passengers will be able to watch videos of shore excursions and purchase tickets for shore excursions on and through the System by using their television remote-control. Orders will be printed out in the Shore Excursion Office of the applicable Ship, with tickets in respect thereof to be delivered by Carnival personnel. The System will provide appropriate inventory control or will interface with Carnival's inventory control system. . Wine Ordering: Passengers will be able to view a wine menu on the System and order their selection with their television remote- controls. Orders will be printed out in the Wine Steward's office or wine cellar, for delivery by Carnival personnel at the designated meal. Cabin accounts will be charged accordingly. . Passenger Folio Review: Each passenger will be able to use the System to review a summary of their on-board account. Carnival shall be responsible for providing all ticket stock, videos and photographs for shore excursions and wine ordering. Carnival may choose, at its option, to produce its own videos and photographs, retain SeaVision for this purpose and reimburse SeaVision for all its costs incurred in connection with producing the same, or contract with a third party to produce such videos and/or photographs, provided, however, that any videos and photographs produced by any such third party shall in all ways meet SeaVision's technical standards for use on the System. If Carnival elects to have SeaVision produce any such videos or photographs, SeaVision shall provide Carnival with detailed -25- cost estimates prior to the initiation of video and photograph production, and such estimates shall be subject to Carnival's written approval. Such estimates will include the cost of pre-production scripting and preparation and the cost of sending crews aboard Carnival's Ships for taping, photographing and post-production editing. Carnival shall pay these costs directly to SeaVision as a vendor. [Redacted - confidential treatment requested] Carnival shall make its library of videos and photographs for shore excursions used in connection with the Initial Ship available to SeaVision for SeaVision's use in connection with the conduct of its business. SeaVision shall make its library of videos and photographs for shore excursions available to Carnival for Carnival's use on the System in connection with the conduct of its business. . Interface with Carnival's Property Management System: Each System will interface with the applicable Ship's property management system to enable appropriate charges to be applied to passenger accounts. Carnival shall undertake at its own cost any programming necessary to allow the applicable Ship's property management system to effectively interface with the System. . Access Control: The System will be designed to limit access to only those persons who are adult passengers or who are minors under adult supervision. Passengers will be able to limit access to various services, such as gaming and adult programming, by enabling lock-out codes and using password procedures, all of which shall be subject to Carnival's approval which shall not unreasonably be withheld, delayed or conditioned. . Report Generation: The System will generate detailed activity reports, which will be made available to Carnival for the purposes of revenue payments to SeaVision. The format of the reports shall be mutually agreed upon by Carnival and SeaVision. SeaVision shall also provide, at Carnival's request, reports pertaining to passenger usage of the System. Services to be Provided at No Charge, but Contingent Upon Carnival Providing the - -------------------------------------------------------------------------------- Appropriate Content - ------------------- . Ports of Call and Shopping Information: Passengers will be able to use the System to obtain information regarding on-board shopping, ports of call and shopping at ports of call. . Cruise Information: Passengers will be able to use the System to view cruise information about Carnival cruises and to request additional on-board cruise information. . Gaming Tutorial: Passengers will be able to use the System to view in- cabin gaming and casino video tutorials. -26- . Ship Position and Weather Information: Passengers will be able to use the System to obtain information regarding the Ship's position throughout the cruise and to obtain weather information. . Safety Instructions: Passengers will be able to view general safety instruction videos on the System. . Emergency Broadcast Messages: Designated members of the Ship's crew will be able to use the System to deliver emergency broadcast messages to all televisions connected to the System. . Passenger Evaluations: Designated members of the Ship's crew will be able to use the System to collect information from passengers regarding passenger evaluation of various activities and services. . CARNIVAL CAPERS: Passengers will be able to view CARNIVAL CAPERS from any television connected to the System, with dynamic updating of CARNIVAL CAPERS by the Ship's staff at any time. Revenue-Generating and Pay-Per-View Entertainment - ------------------------------------------------- NOTE: Carnival will be entitled to a portion of the Adjusted Gross Revenues generated by the following services, pursuant to and in accordance with the terms of Section 3 of the Agreement. . Video-on-Demand: Passengers will be able to purchase movies and other entertainment options such as taped concerts, on demand, using the System and their television remote-control. SeaVision shall determine the fee [Redacted - confidential treatment requested] that will be levied for each such order and charged to such passengers' respective cabin accounts. Subject to Carnival's approval, adult programming may be offered. . Gaming Options: Passengers will be able to play video slots, poker and blackjack on the System, when permissible under applicable laws. The payoff percentages shall be the same as those paid by Carnival in its on-board casinos. Any additional games that SeaVision may desire to provide on the System, or changes to the rules of existing games, shall be subject to the parties' mutual agreement. Any changes to the rules of existing games must be approved by Carnival. SeaVision will determine the value of each individual credit that passengers may purchase and charge to their cabin accounts. Credits may be redeemed at a location designated by Carnival. -27- . Shopping: SeaVision will offer passengers shopping videos and interactive video shopping on and through the System. [Redacted - confidential treatment requested] . Advertising and Promotions: SeaVision shall have the exclusive right to provide access to the System to third parties for the purposes of advertising, promotions and marketing of their companies, products or services. Carnival shall retain the right to approve such third party advertisers as will be given access to the System and the manner in which any such advertising is presented. Carnival shall designate the individual responsible for granting such approvals on its behalf, and such individual shall provide SeaVision with general guidelines for advertising and marketing activities and the procedure SeaVision shall follow in submitting advertising and marketing proposals for Carnival's consideration. Carnival shall notify SeaVision of its approval or denial of an advertising or marketing proposal within 30 days after SeaVision's written submission thereof. In the event Carnival fails to notify SeaVision of its decision within that period, it shall be deemed to have approved that written submission. Carnival will be entitled to a portion of the Adjusted Gross Revenues generated by such advertising and marketing promotions on the System, pursuant to and in accordance with the terms of Section 3 of the Agreement. Miscellaneous Optional Services (To be offered - ---------------------------------------------- only upon the mutual agreement of the parties) - ---------------------------------------------- . Digital Photography: Passengers will be able to view in their cabins personal photographs taken by the on-board photo concessionaire. The System will display the photographs allowing the passengers to purchase a variety of sizes and poses. This service can include, subject to Carnival approval, kiosk-based applications which will provide an entertaining and easy-to-use graphical, touch screen interface to purchase "instant" photographs with a wide variety of backgrounds and in various sizes. Allocation of the digital photography revenues, less cost of materials, will be determined by the mutual agreement of the parties as a condition to this service being provided. . Services Reservations: Passengers will be able to place reservations for on-board personal services and functions. . Electronic Messenger: Electronic messages will be able to be sent to individual passengers or to designated groups of passengers. . Tutorial Video: Passengers will be able to view a System tutorial video. -28- . Cabin Maintenance: The crew of the Ship will be able to centrally log cabin maintenance requirements. . Kiosks: Upon terms and subject to conditions to be agreed upon by the parties. -29- EXHIBIT C SeaVision Production Services Charges ------------------------------------- Field Production Video . Shore Excursions [Redacted - confidential treatment requested] Gaming Demonstrations Health Spa Promotional Piece Shopping Items (shooting in studio) . Passenger Questionnaire Intro by CEO Post Production Video . Editing [Redacted - confidential treatment requested] MPEG Process Tape Stock/Beta SP Post Production Audio . Studio Time [Redacted - confidential treatment requested] . Voice Over Talent for Shopping, Shore Ex. Editing Music Background Copywriting WAV Formatting MPEG Audio Formatting Tape Stock/DAT Screen Production . Static Screen Animation Screen Foreign Language Translation . Language Translations [Redacted - confidential treatment requested] Voice Over Talent Studio Time Screen Translations -30- [Redacted - confidential treatment requested] -31- EXHIBIT D Implementation Schedule ----------------------- [Redacted - confidential treatment requested] -32- EXHIBIT E Technical Performance Standards of the System --------------------------------------------- [Redacted - confidential treatment requested] -33- EXHIBIT F Carnival Marks -------------- [Redacted - confidential treatment requested] -34- EX-10.14 21 AGREEMENT Exhibit 10.14 AGREEMENT This Agreement, dated as of August 12, 1996, is made by and between SEAVISION, INC., a Delaware corporation (hereinafter referred to as "SeaVision"), and NORWEGIAN CRUISE LINE LIMITED, a Bermuda corporation (hereinafter referred to as "NCL"). WHEREAS, NCL is in the business of offering cruise vacations to its passengers; and WHEREAS, NCL desires that its passengers have access to interactive television and video entertainment services on board its vessels; and WHEREAS, NCL wishes to earn incremental revenue from such interactive television and video entertainment services; and WHEREAS, SeaVision desires to provide to NCL, and NCL desires to obtain from SeaVision, the aforementioned interactive television and video entertainment services for use aboard the ship M/S Dreamward (the "Initial Ship") and such other cruise vessels owned or operated by NCL as, from time to time, may be designated by NCL (all such cruise vessels, collectively, the "Ships" and, individually, a "Ship"); and WHEREAS, NCL has requested that SeaVision provide such interactive television services onboard the Ship S/S Norway; and WHEREAS, SeaVision heretofore has installed on the Initial Ship the hardware and software described or listed on Exhibit A attached hereto (collectively, the "Installed Hardware and Software"); NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Responsibilities. ---------------- (a) Subject to the terms and conditions hereof, SeaVision hereby agrees to: (i) Provide, for each Ship designated by NCL (including without limitation the Initial Ship) at no charge to NCL, an interactive television system (the "System") consisting of the hardware and software described or listed on Exhibit A attached hereto (collectively, the "System Hardware and Software") and, in connection therewith, provide the services (the "Services") set forth on Exhibit B attached hereto. [Redacted -confidential treatment requested] NCL hereby acknowledges and agrees that the System Hardware and certain of the interactive modules of the Software are installed on the Initial Ship and, as of the date of this Agreement, the Hardware and such installed modules of the Software are performing satisfactorily. Notwithstanding anything contained herein or in any other provision of this Agreement that might be construed to the contrary [Redacted - confidential treatment requested] SeaVision shall at all times retain title to all components of the System, including all System Hardware and Software or other hardware or software hereafter installed by Sea Vision on any Ship hereunder. (ii) Provide all personnel reasonably necessary and appropriate to operate the System and provide the Services. One (1) SeaVision technician (the "Manager") will remain on-board each Ship on which the System is then installed and operating to operate the System on an on-going basis and to fulfill the responsibilities of the on-board television coordinator (as described on Exhibit C attached hereto) for so long as this Agreement shall be in effect with respect to that Ship. SeaVision hereby acknowledges that the Manager shall at all times be an employee of SeaVision. NCL hereby agrees to serve as SeaVision's paying agent for payment, at the direction of SeaVision, of all salary, payroll taxes and fringe benefits costs in connection with the Manager; provided that SeaVision promptly reimburses NCL for all such costs incurred by NCL. SeaVision understands that, while on-board any Ship, its personnel will be subject to the authority of the Master of that Ship and the officer(s) designated to oversee the operation of the System and the Services. SeaVision agrees that its employees will be considered seamen and will attend and participate in boat drills held onboard each of the respective Ships as requested by the Ship's master and officers. All such employees shall attend Coast Guard inspections and, if required by NCL, will earn life boat efficiency certificates. SeaVision shall employ onboard the Ships only those persons medically fit for service onboard the vessels in accordance with standards established by NCL and who have agreed to abide by the orders of the masters and officers for service onboard the Ships. It shall be the sole responsibility of SeaVision to absorb and pay the costs of pre-employment physical examinations and to employ persons who have valid passports, visas and all other permits required by any governmental authority in order that they might enter and leave the ports of call of the Ship on which they are employed. Annual physicals shall be required of SeaVision's shipboard employees. (iii) Upgrade the hardware and/or software used in the System, at no cost to NCL, at such times and in such manner as is reasonably necessary or -2- appropriate, to maintain the System on the Ship, subject always, in the case of hardware upgrades only, to the consent of NCL, which consent shall not unreasonably be withheld, and to the constraints placed thereon by the space available on-board any Ship for the installation of such hardware. (b) Subject to the terms and conditions hereof, NCL hereby agrees to: (i) Make available to SeaVision in respect of any Ship upon which the System is then installed or is then to be installed (a) that Ship to the extent necessary for SeaVision's operation and maintenance of the System, including but not limited to granting SeaVision personnel unlimited access to the television studio and video distribution system on board that Ship, (b) such personnel as are reasonably necessary or appropriate to support SeaVision's successful operation and maintenance of the System, including but not limited to appropriate on-board support for and oversight of the operation and maintenance of the System by a designated officer on that Ship, provided, however, that (i) SeaVision shall at all times be primarily responsible for the operation and maintenance of the System, and (ii) NCL shall not be obligated hereunder to make available NCL's personnel if and to the extent that the result thereof would be the interference with that personnel's ability to perform his or her other employment duties owing to NCL, (c) all necessary systems integration support to allow the System to communicate with NCL's on-board systems, and [Redacted -confidential treatment requested] It is understood that SeaVision personnel occupying such accommodations will, at all times while on-board such Ship, be subject to NCL's policies regarding on-board contractors, including those concerning dress, decorum and personal behavior. (ii) [Redacted - confidential treatment requested] (iii) Provide marketing support for the System on-board each Ship on which the System is then installed, which support shall be consistent with the type and level of such support being provided by NCL as of the date hereof on-board the Initial Ship. In addition thereto, the parties shall engage in such other activities of a supporting nature as are acceptable to both parties to this Agreement, and upon terms acceptable to both parties to this Agreement. (iv) Work with SeaVision's marketing personnel to develop appropriate and effective means for testing and gauging passenger reaction to the System on a regular basis. Such means shall include but not be limited -3- to on-board questionnaires, on-board focus groups, one-on-one passenger interviews and post-cruise questionnaires. SeaVision shall retain the right to designate the individuals who will conduct these activities, subject to the approval of such individuals by NCL. If SeaVision marketing personnel are not available (or cannot reasonably be accommodated) on a Ship, the Manager on that Ship may assume these responsibilities. (v) Provide access to each Ship when such Ship is in port, for SeaVision personnel to demonstrate the System to potential advertisers, marketers and clients. In connection with making such demonstrations, SeaVision shall conform to NCL's procedures for approving on-board visitors, including but not limited to making advance requests for boarding passes. (vi) Use commercially reasonable efforts to cause its on-board concessionaires to work with SeaVision to develop mutually beneficial applications for the System. (vii) Provide the Manager with the following data, if available, in electronic form (i.e., diskettes, tapes or other similar means) with respect to each passenger on-board any Ship on which the System is then installed: name, home address and telephone number, age, cabin assignment, dining assignment and on-board account number. (viii) Collect all monies paid or payable by passengers in respect of Services provided on or through the System and charged to the respective on-board account of such passengers. (ix) Provide without change limited and reasonable on-board medical care as needed for minor illnesses and injuries to the extent such treatment can be provided on-board the Ship. NCL shall not be responsible hereunder for on-shore continuing or follow-up treatment. 2. Term/Extension to Other Ships. ----------------------------- (a) Unless sooner terminated in accordance with the terms of this Agreement, the term of this Agreement (the "Term") shall commence on the date first written above [Redacted - confidential treatment requested] (b) NCL hereby grants to SeaVision the exclusive right, for the Term of this Agreement, to install, operate and maintain all in-cabin interactive television systems and any kiosk-based interactive television systems connected to such in-cabin systems on the M/S Dreamward and the S/S Norway. -4- (c) [Redacted - confidential treatment requested] 3. Revenue-Sharing and Payment Terms. --------------------------------- (a) [Redacted - confidential treatment requested] (b) [Redacted - confidential treatment requested] (c) [Redacted - confidential treatment requested] -5- (i) [Redacted - confidential treatment requested] (ii) [Redacted - confidential treatment requested] (iii) [Redacted - confidential treatment requested] (d) [Redacted - confidential treatment requested] (e) On or before the twenty-first day of each calendar month during the Term of this Agreement, SeaVision shall provide NCL with a written report detailing the Adjusted Gross Revenues generated by the System on each Ship on which the System is then installed from cruises completed during the prior calendar month. This report shall govern the determination of fees to be retained by NCL and the revenues to be remitted by NCL to SeaVision under the terms of this Agreement. SeaVision shall provide any and all hardware and/or software reasonably necessary or appropriate to interface SeaVision's accounting software with the Ship's property management system in order for SeaVision to obtain accurate accounting information for such reports. (f) Within ten (10) days after NCL's receipt of any monthly report delivered to NCL by SeaVision pursuant to the terms of subsection 3(e) herein, NCL shall remit to SeaVision all Adjusted Gross Revenues generated by the System on the Ship during the calendar month applicable to such report, less its share of such Adjusted Gross Revenues as provided in this Section 3. (g) NCL shall promptly notify SeaVision of any changes, adjustments or chargebacks (relative to the Adjusted Gross Revenues in respect of any calendar month) of which NCL receives notice after it has made a remittance to SeaVision in respect of such calendar month, and together therewith, provide to SeaVision appropriate documentation supporting all such changes, adjustments or chargebacks. In the event properly-supported changes, adjustments or chargebacks result in a reduction of the Adjusted Gross Revenues generated in respect of such calendar month, SeaVision shall, within thirty (30) days after its receipt of the applicable notice and supporting documentation, refund to NCL SeaVision's percentage of the aggregate of such changes, adjustments or chargebacks. 4. Confidentiality. --------------- (a) NCL acknowledges that the System represents and will continue to represent the valuable, confidential and proprietary property of SeaVision. SeaVision is not by this Agreement conveying to NCL any exclusive proprietary or ownership rights in the System, including, but not limited, to any patent, copyright, trademark, service mark, trade secret, trade name or other -6- intellectual property rights, except that NCL will have the limited rights expressly set forth in this Agreement. Accordingly, NCL acknowledges that, except as expressly provided for in this Agreement, NCL possesses no title to or ownership of any System or any portion thereof. NCL will keep the System free and clear of all claims, liens and encumbrances resulting from actions or omissions of NCL. (b) Each party agrees, during the Term of this Agreement and thereafter, to maintain the confidential nature of the terms and conditions of this Agreement and of any proprietary information shared by the other with it. In the case of SeaVision's proprietary information, such proprietary information shall include, but is not limited to (i) any knowledge gained by NCL of SeaVision's proprietary application software or the configuration of the System; (ii) SeaVision's marketing and sales materials; (iii) the format of any and all SeaVision reports, including those for data management, revenue remittance and marketing surveys, to the extent protected by copyright law; and (iv) SeaVision's marketing and advertising client list. In the case of NCL's proprietary information, such proprietary information shall include, but is not limited to, the data provided by NCL to SeaVision pursuant to the terms of subsection 1(b)(vii) hereof, except for any such data in respect of; any passenger who purchases merchandise from SeaVision through the System, which data shall not be NCL's proprietary information. Notwithstanding anything contained in this Agreement to the contrary, the terms of this Section 4(b) shall survive the expiration or termination of this Agreement. (c) Each party acknowledges that its violation of its confidentiality or non-disclosure obligations under this Agreement may cause irreparable damage to the other that cannot be fully remedied by money damages. Accordingly, in the event of any such violation or threatened violation, the injured party will be entitled, in addition to pursuing any other remedy available to it under this Agreement or at law, to obtain injunctive or other equitable relief from any court of competent jurisdiction as may be necessary or appropriate to prevent any further violations thereof. (d) Each party agrees to notify the other immediately upon the notifying party's becoming aware of or reasonably suspecting the possession, use or knowledge of all or part of any of the other party's proprietary information by any person or entity not authorized by this Agreement to have such possession, use or knowledge. The notifying party will promptly furnish the other party with details of such possession, use or knowledge, will assist in preventing a recurrence thereof and will cooperate with the other party in protecting the other party's rights in the other party's proprietary information. A party's compliance with the terms of this Section 4 will not be construed as any waiver of the other party's right to recover damages or obtain other relief -7- against the notifying party for the notifying party's breach of its confidentiality or non-disclosure obligations under this Agreement or the negligent or intentional harm to the other party's proprietary rights. 5. Termination. ----------- (a) NCL shall have the right to terminate this Agreement prior to the Expiration Date in the event the System fails to achieve the technical performance standards set forth in Exhibit D attached hereto. NCL may not exercise this right (i) if such technical failure occurs as a result of NCL's failure to perform any or all of its obligations under the terms of this Agreement; and (ii) without written notice to SeaVision of its intention to do so and prior to a period of 90 days following such notice in which SeaVision may effect a cure of such failure. In respect of any notice hereunder by NCL of its intention to terminate this Agreement as a result of any System deficiency which served as the basis for any prior such termination notice, NCL shall be obligated, in the case of the second such notice, to extend to SeaVision a thirty-day cure period rather than a ninety-day cure period and NCL shall not be obligated, in the case of the third or any subsequent notice, to extend to SeaVision any cure period whatsoever. SeaVision shall, within fifteen (15) days following NCL's written notice to SeaVision under such clause (iii), above, provide to NCL SeaVision's written response regarding such failure, which response shall set forth SeaVision's assessment of the cause of such failure and SeaVision's plan to rectify such failure. In any event, SeaVision shall make a good faith effort to rectify such failure as promptly as is reasonable under the circumstances and, where appropriate, will implement temporary "work around" solutions until a permanent solution can be implemented. (b) SeaVision shall have the right to terminate this Agreement in whole or in part prior to the Expiration Date in the event the System fails to achieve the financial performance standards that SeaVision shall determine are necessary to warrant its investment in the System. In the event SeaVision intends to terminate this Agreement pursuant to this subsection 5(b), it shall do so in writing to NCL no less than one hundred twenty (120) days prior to ceasing operations hereunder or thereon, as the case may be. (c) Either party hereto shall have the right to terminate this Agreement immediately upon written notice to the other party upon such party being declared insolvent or bankrupt, or making an assignment for the benefit of creditors, or in the event that a receiver is appointed, or any proceeding for appointment of a receiver or to adjudge such party a bankrupt, or to take advantage of the insolvency laws is demanded by, for, or against such party under any provision under the laws of any state or country. -8- (d) NCL shall have the right to terminate this Agreement prior to the Expiration Date in the event SeaVision defaults in the performance of any covenant, warranty or agreement made herein (except a failure by the System to achieve certain technical performance standards which is governed by subsection 5(a) herein), and such default has not been cured within thirty (30) days after receipt of written notice thereof given by NCL to SeaVision. (e) SeaVision shall have the right to terminate this Agreement prior to the Expiration Date in the event NCL defaults in the performance of any covenant, warranty or agreement made herein and such default has not been cured within thirty (30) days after receipt of written notice thereof given by SeaVision to NCL. (f) Notwithstanding the termination or expiration of this Agreement as provided for in this Section 5 and elsewhere in this Agreement, NCL shall continue to owe, and shall promptly pay to SeaVision in accordance with the terms of Section 3 hereof, all amounts set forth in Section 3 that shall have accrued on and prior to the date of such termination or expiration. (g) As soon as is practicable after the expiration or any termination of all or part of this Agreement or any renewal operating term thereof, SeaVision shall remove the System, including all hardware and software, and all on-board SeaVision personnel from the Ship. The parties hereby agree and acknowledge that in accordance with Section 1 hereof, SeaVision will retain title to any and all hardware and software installed on board the Ship by SeaVision (x) at all times while this Agreement or any renewal operating term thereof is in effect as well as (y) in the event SeaVision chooses not to continue operating the System installed thereon. Notwithstanding the foregoing, if SeaVision elects to terminate this Agreement for any of the reasons set forth above, NCL shall have the right to (i) purchase all SeaVision hardware (but not software) installed by SeaVision on any Ship, [Redacted -confidential treatment requested] 6. Right to Inspect Books & Records. SeaVision and NCL shall keep full -------------------------------- and accurate accounts, records, books, journals, ledgers and data (collectively, "Records") with respect to the business done by each party respectively under this Agreement, which Records shall at all times show truthfully, accurately and fully the compliance by each party with its respective obligations under this Agreement. Each party shall have the right, through its designated representatives, at all reasonable times, upon reasonable advance notice, to inspect the Records of the other as necessary to verify the sales, revenues generated and fees collected pursuant to this Agreement. The parties shall retain all Records at all times during the Term of this Agreement and any and all extensions or renewals thereof, and for at least three (3) years thereafter, and shall make the Records available to the other party during regular business hours, wherever the Records are maintained, within ten (10) days after -9- receipt of demand for inspection from such other party. Both parties shall maintain the confidential nature of any Records so inspected pursuant to and in accordance with the provisions of Section 4 hereof. 7. Insurance/Waiver of Subrogation. ------------------------------- (a) So long as their respective insurers so permit, neither party hereto shall be liable to the other, or to the insurer of the other, claiming by way of subrogation through or under such other party with respect to any loss or damage, in whole or in part, to the System on any Ship, to the extent that such other party shall be reimbursed out of that party's insurance coverage carried for such other party's protection with respect to such loss or damage. If so permitted, the parties shall each obtain any special endorsements required by their respective insurance carriers to evidence compliance with the waiver and release set forth herein and shall provide a copy thereof to the other party. (b) SeaVision hereby warrants, represents and covenants that, consistently during the Term and at its sole expense, each Manager and each member of SeaVision's System installation crews shall be included on SeaVision's protection and indemnity cover and shall be covered by general medical insurance maintained by SeaVision, in each case for such periods of time as the Manager or such crew member is posted to a Ship. 8. Interruption in Performance. Neither NCL nor SeaVision shall be --------------------------- liable to the other for any loss, damage or loss of profits arising out of any interruption or cessation of the Services to be provided hereunder when such interruption or cessation is caused by any circumstance beyond the reasonable control of such party. 9. Indemnification. --------------- (a) SeaVision shall indemnify, defend and hold harmless NCL and its successors and assigns from and against any and all liabilities, claims, suits, damages, judgments, awards, penalties, losses and other liabilities (including all related reasonable attorneys' fees, costs and expenses in connection therewith) (collectively referred to hereinafter as "Losses") suffered or incurred by NCL by reason of, arising out of or in connection with (i) any negligent, willful or intentional act or omission of SeaVision (or an employee, agent or representative of SeaVision) committed or omitted, as the case may be, in the course of SeaVision's performance of the terms of this Agreement or (ii) SeaVision's failure to fully perform the terms of this Agreement. (b) NCL shall indemnify, defend and hold harmless SeaVision and its successors and assigns from and against any and all Losses suffered or incurred by SeaVision by reason of, arising out of or in connection with (i) any negligent, -10- willful or intentional act or omission of NCL (or an employee, agent or representative of NCL) committed or omitted, as the case may be, in the course of NCL's performance of the terms of this Agreement or (ii) NCL's failure to fully perform the terms of this Agreement. 10. Further Assurances of SeaVision's Title. --------------------------------------- (a) NCL hereby agrees to execute and deliver to SeaVision, upon the request of SeaVision from time to time, such UCC-1 financing statements and other documents as SeaVision shall reasonably require for the purpose of evidencing to NCL and any third party SeaVision's continued ownership of all components (hardware and software) of the System (such financing statements and other documents to describe all such components and to be in the form required by applicable law). (b) SeaVision may affix permanent (to the degree reasonably possible), legible and visible labels on each component of the System (hardware only), to the extent that doing so is reasonably possible or practicable. Each such label may clearly indicate that SeaVision holds title to the component to which that label is affixed. 11. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET ----------------------- FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF NCL'S USE OF OR INABILITY TO USE THE SYSTEM OR ANY PORTION THEREOF OR FROM ANY DELAY IN THE SYSTEM ACHIEVING THE TECHNICAL PERFORMANCE STANDARDS OR FROM ANY DELAY IN THE SYSTEM MEETING, OR ANY INABILITY OF THE SYSTEM TO MEET, EITHER PARTY'S EXPECTATIONS WITH RESPECT TO OPERATIONS OR PERFORMANCE, EVEN IF SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. [Redacted - confidential treatment requested] IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR ANY COSTS INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST PROFITS OR REVENUE, LOSS OF USE OF THE SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY DATA, THE COST OF SUBSTITUTE SOFTWARE, OR CLAIMS BY THIRD PARTIES. 12. [Redacted - confidential treatment requested] -11- 13. Public Announcements. The parties shall consult with each other and -------------------- issue a public statement with respect to this Agreement as soon as is practical after the date hereof. During the term of this Agreement, NCL shall include a reference to SeaVision in any and all public announcements or marketing materials referring to interactive television services on-board the Ships. 14. Right to Make Agreement. Each of the parties hereto represents and ----------------------- warrants to the other that it has all necessary and appropriate power and authority to execute, deliver and carry out the terms and provisions hereof. 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall constitute an original and all of which together shall constitute but one and the same original document. 16. Assignment. Either party hereto may assign this Agreement and its ---------- respective rights, interests and obligations hereunder to any third party without the consent of the other party hereto; provided, however, that no such assignment by a party shall relieve that party of any of its liabilities or obligations hereunder. It is expressly understood and agreed that this Agreement and all of SeaVision's interests and rights herein and hereunder may be assigned, pledged, mortgaged and/or hypothecated by SeaVision at its exclusive discretion to any third party purchasing all or substantially all of SeaVision's assets, provided that such assignee agrees in writing to assume all of SeaVision's obligations under this Agreement. 17. Successors. This Agreement shall inure to the benefit of, and be ---------- binding upon, the respective successors and assigns of the parties hereto. 18. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Florida, without regard to its principles of conflicts of laws. 19. Severability. If any Section or provision of this Agreement, or any ------------ portion of any Section or provision thereof, shall for any reason be held to be void, illegal or otherwise unenforceable, all other Sections and portions of this Agreement shall nevertheless remain in full force and effect as if such void, illegal or unenforceable portion had never been included herein. 20. Notices. All notices and other communications required or otherwise ------- provided for in this Agreement shall be in writing and sent by registered or certified mail to: If to SeaVision: SeaVision, Inc. 200 Greentree Commons 381 Mansfield Avenue Pittsburgh, PA 15220 Attn: Brian K. Blair -12- If to NCL: Norwegian Cruise Line Limited 2 Alhambra Plaza Coral Gables, Florida 33134 Attn: Robert Walters or to such other place as SeaVision or NCL, as the case may be, may from time to time designate in accordance herewith. 21. Entire Agreement; Modification. This Agreement, including the ------------------------------ Exhibits attached hereto, contains the entire agreement of the parties on the subject matter hereof, and supersedes any and all prior agreements, if any, with respect to such subject matter. This Agreement may not be changed, modified or supplemented except by the written agreement of the parties. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. ATTEST: SEAVISION, INC. By: - ----------------------- --------------------------------- Its: Its: ------------------- -------------------------------- ATTEST/WITNESS: NORWEGIAN CRUISE LINE LIMITED By: - ----------------------- --------------------------------- Its: Its: ------------------- -------------------------------- [Signature page to Agreement dated as of August 12, 1996 by and between SeaVision, Inc. and Norwegian Cruise Line Limited] -13- EXHIBIT A [Redacted - confidential treatment requested] -14- EXHIBIT B I. Entertainment and Interactive Services to be Provided by SeaVision ------------------------------------------------------------------ "Basic" SeaVision Package: Services Provided at No Charge - --------------------------------------------------------- . In-Cabin Room Service Ordering: Passengers will be able to order NCL's standard room service menu, including beverages charged to their cabin account, through the System. Orders will be printed out in appropriate pantries and/or galleys for delivery by NCL personnel. SeaVision shall provide, as part of the System, printers and/or monitors to be used in such pantries and/or galleys for such purpose. . Shore Excursion Ordering: Passengers will be able to watch videos of shore excursions and purchase tickets for shore excursions on and through the System by using their television remote-control. Orders will be printed out in the Shore Excursion Office of the Ship, with tickets in respect thereof to be delivered by NCL personnel. The System will provide appropriate inventory control. . Wine Ordering: Passengers will be able to view a wine menu on the System and order their selection with their television remote- controls. Orders will be printed out in the Wine Steward's office or wine cellar, for delivery by NCL personnel at the designated meal. Cabin accounts will be charged accordingly. NCL shall be responsible for providing all ticket stock, videos and photographs for shore excursions and wine ordering. NCL may choose, at its option, to produce its own videos and photographs, retain SeaVision for this purpose and reimburse SeaVision for all its costs incurred in connection with producing the same, or contract with a third party to produce such videos and/or photographs, provided, however, that any videos and photographs produced by any such third party shall in all ways meet SeaVision's technical standards for use on the System. If NCL elects to have SeaVision produce any such videos or photographs, SeaVision shall provide NCL with detailed cost estimates prior to the initiation of video and photograph production. Such estimates will include the cost of pre-production scripting and preparation and the cost of sending crews aboard NCL's Ships for taping, photographing and post-production editing. NCL shall pay these costs directly to SeaVision as a vendor. Each party shall make its library of videos and photographs for shore excursions available to the other for the other's use in connection with the conduct of its business. -15- . Interface with NCL's Property Management System: The System will interface with the Ship's property management system to enable appropriate charges to be applied to passenger accounts. . Access Control: The System will be designed to limit access to only those persons who are adult passengers or who are minors under adult supervision. Passengers will be able to limit access to various services, such as gaming and adult programming, by enabling lock-out codes and using password procedures. . Report Generation: The System will generate detailed activity reports, which will be made available to NCL for the purposes of revenue payments to SeaVision. SeaVision shall also provide, at NCL's request, reports pertaining to passenger usage of the System. . Passenger Folio Review-On-board Account: Each passenger will be able to use the System to review a summary of his or her account. SeaVision shall provide the interfaces to NCL's on-board systems necessary to provide such review; provided that NCL shall reasonably cooperate with the development of such interfaces. . Transaction Fee: In consideration of SeaVision's provisions of certain services on the System at no charge, NCL agrees to consider the implementation of a transaction fee of not more than $1.00 per transaction initially for passengers utilizing the System for shore excursions, room service, wine ordering and other non-revenue generating passenger services. Any such transaction fees will be included in the Adjusted Gross Revenue generated by the System. Revenue-Generating and Pay-Per-View Entertainment - ------------------------------------------------- NOTE: NCL will be entitled to a portion of the Adjusted Gross Revenues generated by the following services, pursuant to and in accordance with the terms of Section 3 of the Agreement. . Video-on-Demand: Passengers will be able to purchase movies and other entertainment options such as taped concerts, on demand, using the System and their television remote-control. SeaVision shall determine the fee that will be levied for each such order and charged to such passengers' respective cabin accounts. Subject to NCL's approval, adult programming may be offered. . Gaming Options: Passengers will be able to play video slots, poker and blackjack on the System. Any additional games that SeaVision may desire to provide on the System shall be subject to the parties' mutual agreement. SeaVision will determine the value of each individual credit that passengers -16- may purchase and charge to their cabin accounts. Credits may be redeemed at a location designated by NCL. . Shopping: SeaVision will offer passengers shopping videos and interactive video shopping on and through the System. NCL will retain the right to approve the items offered for sale and the vendors providing those items. In the event NCL elects to offer its own items for sale on and through the System, NCL shall pay all related production costs incurred by SeaVision directly to SeaVision as a vendor and SeaVision will be entitled to a share of the Adjusted Gross Revenues generated therefrom pursuant to and in accordance with the terms of Section 3 of the Agreement. Access to the System by concessionaires on board the Ship, including but not limited to the on-board shops, casino, beauty salon and spa, and photographer, will be by mutual agreement between SeaVision and those vendors. NCL will be entitled to a portion of the Adjusted Gross Revenues generated by any fees paid by such purveyors, pursuant to and in accordance with the terms of Section 3 of the Agreement. . Advertising and Promotions: SeaVision shall have the exclusive right to provide access to the System to third parties for the purposes of advertising, promotions and marketing of their companies, products or services. NCL shall retain the right to approve such third party advertisers as will be given access to the System and the manner in which any such advertising is presented. NCL shall designate the individual responsible for granting such approvals on its behalf, and such individual shall provide SeaVision with general guidelines for advertising and marketing activities and the procedure SeaVision shall follow in submitting advertising and marketing proposals for NCL's consideration. NCL shall not unreasonably withhold its approval of advertising and marketing proposals with respect to the System. NCL shall notify SeaVision of its approval or denial of an advertising or marketing proposal within 14 days after SeaVision's written submission thereof. In the event NCL fails to notify SeaVision of its decision within that period, it shall be deemed to have approved that written submission. NCL will be entitled to a portion of the Adjusted Gross Revenues generated by such advertising and marketing promotions on the System, pursuant to and in accordance with the terms of Section 3 of the Agreement. Miscellaneous Optional Services (to be offered only upon mutual agreement of the - ------------------------------- parties) . Digital Photography: Passengers will be able to view in their cabins personal photographs taken by the on-board photo concessionaire. The system will display the photographs allowing the passengers to purchase a variety of sizes and poses. This service can include, subject to NCL approval, kiosk-based -17- applications which will provide an entertaining and easy-to-use graphical, touch screen interface to purchase "instant" photographs with a wide variety of backgrounds and in various sizes. Revenues from photographs purchased over the System, less cost of materials, will be included in Adjusted Gross Revenues. -18- EXHIBIT C On-board Television Coordinator Responsibilities ------------------------------------------------ [to be provided by NCL] -19- EXHIBIT D Technical Performance Standards of the System --------------------------------------------- [Redacted - confidential treatment requested] -20- EX-11 22 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 ALLIN COMMUNICATIONS CORPORATION Calculation of Net Loss Per Common Share (In thousands, except per share data)
Six months Period ended December 31, ended ---------------------------- June 30, 1994 1995 1996 ----------- ------------- ------------- Net loss per share $ (612) $ (2,168) $ (2,190) =========== ============= ============= Net loss per common share $ (0.26) $ (0.90) $ (0.91) =========== ============= ============= Weighted average common shares outstanding during the period (1) 2,400 2,400 2,400
(1) The weighted average common shares outstanding has been retroactively restated for the effect of the 2400 for 1 stock split. EX-21 23 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of the Registrant Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- SeaVision, Inc. Delaware PhotoWave, Inc. Delaware International Sports Marketing, Inc.* Pennsylvania Kent Acquisition Corporation** California * To be acquired by the Registrant and renamed SportsWave, Inc. immediately following the consummation of the initial public offering of common stock of the Registrant. This entity will also do business as International Sports Marketing. ** To be renamed Kent Consulting Group, Inc. following the merger of the currently existing Kent Consulting Group, Inc. with and into Kent Acquisition Corporation, which merger is to occur immediately following the consummation of the initial public offering of common stock of the Registrant. EX-23.2 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this Registration Statement. /s/ Arthur Andersen LLP ----------------------- Pittsburgh, Pennsylvania August 19, 1996 EX-23.3 25 CONSENT OF RICHARD S. TRUTANIC Exhibit 23.3 CONSENT OF RICHARD S. TRUTANIC ------------------------------ I consent to being named as about to become a director under the captions "Management -- Executive Officers and Directors" and "Principal Stockholders" in the Registration Statement (Form S-1) dated August 19, 1996 of Allin Communications Corporation, the related Prospectus and any amendments thereto. Arlington, Virginia August 19, 1996 /s/ Richard S. Trutanic -------------------------------- EX-27 26 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 AND THE PERIODS ENDED DECEMBER 31, 1994 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMEMTS. 6-MOS 6-MOS 7-MOS YEAR DEC-31-1995 DEC-31-1996 DEC-31-1994 DEC-31-1995 JAN-01-1995 JAN-01-1996 JUN-08-1994 JAN-01-1995 JUN-30-1995 JUN-30-1996 DEC-31-1994 DEC-31-1995 0 571,961 32,852 192,995 0 0 0 0 0 79,730 0 42,692 0 0 0 0 0 0 0 0 0 729,457 58,520 244,452 0 2,841,458 16,404 1,544,553 0 339,951 1,093 153,648 0 3,926,074 146,069 2,352,732 0 5,085,989 1,600 1,737,285 0 0 0 0 0 0 0 0 0 0 0 0 0 27,000 2,000 2,000 0 (4,994,199) (611,611) (2,779,691) 0 3,926,074 146,069 2,352,732 0 163,000 0 44,413 0 163,000 0 44,413 0 40,045 0 10,000 707,331 1,914,846 587,531 1,843,435 0 0 0 0 0 0 0 0 105,311 437,662 24,080 369,058 (812,642) (2,189,508) (611,611) (2,168,008) 0 0 0 0 (812,642) (2,189,508) (611,611) (2,168,008) 0 0 0 0 0 0 0 0 0 0 0 0 (812,642) (2,189,508) (611,611) (2,168,008) (.34) (.91) (.25) (.90) (.34) (.91) (.25) (.90)
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