-----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, SYfa3McQco0GIdWF2bnM3GydTbBFlsDlmkBv4bSh+6fBytlQloGyv3QTGuRKPx/z pJXzcw4GuM/mIsm368sa8g== 0000950116-98-000575.txt : 19980312 0000950116-98-000575.hdr.sgml : 19980312 ACCESSION NUMBER: 0000950116-98-000575 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19980311 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBS INTERACTIVE INC CENTRAL INDEX KEY: 0001057257 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133817344 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-47741 FILM NUMBER: 98563672 BUSINESS ADDRESS: STREET 1: 2 RIDGEDALE AVE STREET 2: STE 350 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 BUSINESS PHONE: 9732852600 MAIL ADDRESS: STREET 1: 2 RIDGEDALE AVE STREET 2: STE 350 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 SB-2 1 As filed with the Securities and Exchange Commission on March 11, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- IBS INTERACTIVE, INC. (Name of small business issuer in its charter) Delaware 7379 13-3817344 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Identification No.) Number) 2 Ridgedale Avenue, Suite 350 Cedar Knolls, New Jersey 07927 (973) 285-2600 (973) 285-4777 (fax) (Address and telephone number of principal executive offices and principal place of business) NICHOLAS R. LOGLISCI, JR. President and Chief Operating Officer IBS Interactive, Inc. 2 Ridgedale Avenue, Suite 350 Cedar Knolls, New Jersey 07927 (973) 285-2600 (973) 285-4777 (fax) (Address and telephone number of principal executive offices and principal place of businss) Please send a copy of all communications to: JOHN T. CAPETTA, ESQ. ROBERT J. MITTMAN, ESQ. Kelley Drye & Warren LLP Tenzer Greenblatt LLP Two Stamford Plaza 405 Lexington Avenue 281 Tresser Boulevard New York, New York 10174 Stamford, Connecticut 06901 (212) 885-5000 (203) 324-1400 (212) 885-5001 (fax) (203) 351-8115 (fax) Approximate date of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Secur-ities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the offering. [ ] _____ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------------------------ The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ CALCULATION OF REGISTRATION FEE
========================================================================================================== Proposed Proposed Maximum Maximum Offering Aggregate Title of Each Class of Amount to be Price Per Offering Amount of Securities Being Registered Registered Share(1) Price(1) Registration Fee (1) - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 1,150,000 shares (2) $ 6.00 $6,900,000 $ 2,035 - ---------------------------------------------------------------------------------------------------------- Underwriter's Warrants(3) 100,000 shares $ .001 $ 100 --(4) - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, underlying Underwriter's Warrants 100,000 shares $ 6.60 $ 660,000 194.70 - ---------------------------------------------------------------------------------------------------------- Total $ 2,229.70 ==========================================================================================================
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) of the Securities Act. (2) Includes 150,000 shares underlying the Underwriter's over-allotment option. (3) Represents warrants to be issued to the Underwriter. Pursuant to Rule 416, there are also being registered hereby such additional indeterminate number of shares of Common Stock as may become issuable by reason of the anti-dilution provisions set forth in the Underwriter's Warrants. (4) None pursuant to Section 457(g). IBS INTERACTIVE, INC. CROSS-REFERENCE SHEET
Form SB-2 Item Number and Caption Heading in Prospectus - --------------------------------- --------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus ........... Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus ........................ Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors ....... Prospectus Summary; Risk Factors 4. Use of Proceeds ............................ Use of Proceeds 5. Determination of Offering Price ............ Risk Factors; Underwriting 6. Dilution ................................... Dilution; Risk Factors 7. Selling Security Holders ................... Not Applicable 8. Plan of Distribution ....................... Outside Front Cover Page of Prospectus; Underwriting 9. Legal Proceedings .......................... Business 10. Directors, Executive Officers, Promoters and Control Persons......................... Risk Factors; Management 11. Security Ownership of Certain Beneficial Owners and Management....................... Principal Stockholders 12. Description of Securities .................. Description of Securities 13. Interests of Named Experts and Counsel ..... Legal Matters; Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................. Description of Securities 15. Organization Within Last Five Years ........ Business; Certain Transactions 16. Description of Business .................... Business 17. Management's Discussion and Analysis or Management's Discussion and Analysis of Financial Plan of operation........................... Condition and Results of Operations 18. Description of Property .................... Prospectus Summary; Risk Factors; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business 19. Certain Relationships and Related Transactions ............................... Certain Transactions 20. Market for Common Equity and Related Risk Factors; Dilution; Management; Shares Eligible for Stockholder Matters ........................ Future Sale 21. Executive Compensation ..................... Management 22. Financial Statements ....................... Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................. Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PRELIMINARY PROSPECTUS DATED MARCH 11, 1998 SUBJECT TO COMPLETION 1,000,000 Shares IBS INTERACTIVE, INC. Common Stock Prior to this offering, there has been no public market for the Common Stock and there can be no assurance that any such market will develop. It is anticipated that the Common Stock will be quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbol IBSX. For a discussion of the factors considered in determining the initial public offering price, see "Underwriting." ------------------------- THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 6. ------------------------- 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 Underwriting Proceeds to Discounts and to Public Commissions(1) Company(2) - -------------------------------------------------------------------------------- Per Share ......... $ 6.00 $ .60 $ 5.40 - -------------------------------------------------------------------------------- Total(3) .......... $6,000,000 $600,000 $5,400,000 ================================================================================ (1) In addition, the Company has agreed to pay to the Underwriter a 3% nonaccountable expense allowance, to sell to the Underwriter warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock and has granted to the Underwriter a right of first refusal with respect to future financings. The Company has also agreed to indemnify the Underwriter against certain liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $665,000, including the Underwriter's nonaccountable expense allowance in the amount of $180,000 ($207,000 if the Underwriter's over-allotment option is exercised in full). (3) The Company has granted to the Underwriter an option, exercisable within 45 days from the date of this Prospectus, to purchase up to an additional 150,000 shares of Common Stock on the same terms set forth above, solely for the purpose of covering over-allotments, if any. If the Underwriter's over-allotment option is exercised in full, the total price to public, underwriting discounts and commissions, and proceeds to Company will be $6,900,000, $690,000 and $6,210,000, respectively. See "Underwriting." ------------------------- The shares of Common Stock are being offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify the offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the shares will be made against payment therefor at the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019, on or about , 1998. ---------------- Whale Securities Co., L.P. The date of this Prospectus is , 1998. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. SUCH ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Except as otherwise indicated, the information in this Prospectus (i) gives effect to each of an approximate 1,029-for-1 stock split effected in March 1998 and the issuance upon the consummation of this offering of 25,000 shares of Common Stock upon conversion of $150,000 of indebtedness (the "Debt Conversion") and (ii) assumes no exercise of the Underwriter's over-allotment option to purchase up to 150,000 additional shares of Common Stock. See "Underwriting" and Note 7 to Notes to Financial Statements. The Company IBS Interactive, Inc. (the "Company") provides a broad range of computer networking, programming, applications development and Internet services primarily to businesses and organizations, including governmental and not-for-profit entities. The Company has adopted a business model that includes Systems Integration; Programming and Applications Development; and Internet services. These services are designed to permit clients to outsource a variety of business needs such as computer networking, programming, maintenance and technical support. The Company believes that by combining computer consulting and Internet related services, it is positioned to capitalize on increasing demand by businesses and organizations for comprehensive, cost-effective information technology solutions. The Systems Integration services offered by the Company include systems consulting, analysis and design; implementation and integration; and maintenance. The Company's Programming and Applications Development services consist primarily of custom programming for Internet and Intranet applications, including distance learning and on-line trading applications and Web-site development and maintenance. Internet services offered by the Company include dedicated leased line and frame relay connections, Web hosting, dial-up access and electronic mail services. For the year ended December 31, 1997, Systems Integration, Programming and Applications Development and Internet services accounted for approximately 55%, 9% and 36%, respectively, of the Company's revenues. The Company's principal marketing efforts are focused on large businesses and organizations with systems development and maintenance needs. The Company's clients during the year ended December 31, 1997 included Aetna U.S. Healthcare Inc. ("Aetna"); Mobil Oil Corporation ("Mobil"); Black & Decker Corp.; TRW, Inc.; Bell Atlantic Corporation ("Bell Atlantic"); Unilever; Scientific Applications International Corporation; the City of Fairfax, Virginia; certain agencies of the U.S. Department of Defense; and The Archdiocese of New York (Catholic Healthcare Network). The Company's telecommunications network is comprised of a secure network operations center ("NOC") in Cedar Knolls, New Jersey, leased high-speed data lines and nine points-of-presence ("POPs") serving the northern New Jersey and New York City metropolitan area. The proximity of a POP to subscribers enables subscribers in the area in which a POP is located to access the Internet through a local telephone call. The Company currently supports 56k and ISDN technologies at each of its POPs. The Company has approximately 3,200 dial-up subscribers as of the date of this Prospectus. For the year ended December 31, 1997, dial-up access services accounted for approximately 15% of the Company's revenues. The Company commenced operations in June 1995 as an Internet service provider offering Web-site hosting services. Since April 1996, the Company has acquired Interactive Networks, Inc. ("Interactive Networks"), Mordor International ("Mordor") and AllNet Technology Services, Inc. ("AllNet"), each an Internet service provider principally offering dial-up access services. The Company began to provide Systems Integration and Programming and Applications Development services in April 1996 and has increasingly emphasized such services. In January 1998, the Company acquired Entelechy, Inc. ("Entelechy"), a 3 provider of programming and applications development services, including distance learning and on-line trading applications. During the twelve months following the consummation of this offering, the Company will seek to continue to expand its operations through internal growth and acquisitions. The Company believes that worldwide competition and rapid technological advancements, coupled with a trend by businesses to outsource non-core business functions, have created increased demand for computer consulting and Internet related services. The Company's strategy is to capitalize on such increasing demand by (i) pursuing opportunities to expand its existing service offerings, the scope of its operations and client base through selective acquisitions of systems integrators, programmers, applications developers and Internet service providers; (ii) expanding the capacity and geographic scope of its network through the establishment or acquisition of additional POPs and network upgrades; (iii) hiring and retaining additional qualified network engineering, programming and technical personnel; and (iv) expanding its marketing and sales efforts through enhanced cross-marketing of its service offerings. There can be no assurance that the Company will be able to successfully implement this strategy or otherwise expand its operations. The Company was incorporated under the name Internet Broadcasting System, Inc. in February 1995 under the laws of the State of Delaware. The Company's principal executive offices are located at 2 Ridgedale Avenue, Suite 350, Cedar Knolls, New Jersey 07927, and its telephone number is (973) 285-2600. The Company maintains a Web-site at http://www.interactive.net. Information contained in the Company's Web-site does not constitute a part of this Prospectus. The Offering Common Stock offered..... 1,000,000 shares Common Stock to be outstanding after the offering(1)... 2,582,570 shares Use of Proceeds.......... The Company intends to use the net proceeds of this offering for potential acquisitions; network expansion and upgrade; sales and marketing; repayment of indebtedness; and the balance for working capital and general corporate purposes. See "Use of Proceeds." Risk Factors............. The shares offered hereby are speculative and involve a high degree of risk and immediate and substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors" at page 6 and "Dilution." Nasdaq SmallCap Market Symbol........... IBSX - ------------- (1) Does not include (i) 100,000 shares reserved for issuance upon exercise of the Underwriter's Warrants; (ii) 41,164 shares reserved for issuance upon exercise of warrants (the "Warrants") issued in connection with a private financing consummated in October 1997 (the "1997 Financing"); (iii) 109,599 shares reserved for issuance in connection with the acquisition of Entelechy in January 1998; (iv) 60,000 shares reserved for issuance upon exercise of options granted under the Company's 1998 Stock Option Plan (the "1998 Stock Option Plan"); and (v) 290,000 shares reserved for issuance upon the exercise of options available for future grant under the 1998 Stock Option Plan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management--1998 Stock Option Plan," "Description of Securities--Warrants" and "Underwriting." 4 Summary Financial Information The following summary financial information for the years ended December 31, 1996 and 1997 and balance sheet data (actual) as of December 31, 1997 has been derived from audited financial statements of the Company and should be read in conjunction with "Management's Discussion and Analysis of Results of Operations" and the financial statements, including the notes thereto, contained elsewhere in this Prospectus.
Year Ended December 31, ----------------------------- 1996 1997 ------------- ------------- Statement of Operations Data(1): Revenues ................................................ $1,023,000 $2,741,000 Cost of services ........................................ 650,000 1,099,000 Gross profit ............................................ 373,000 1,642,000 Net income (loss) ....................................... (251,000) 198,000 Net income (loss) per share - basic and diluted ......... (.20) .14 Weighted average number of shares outstanding - diluted ................................................ 1,269,358 1,430,659
December 31, 1997 -------------------------------------------------- Actual Pro Forma(2) As Adjusted(3) ------------ -------------- ------------------ Balance Sheet Data: Working capital .............. $ 567,000 $ 442,000 $ 5,065,000 Total assets ................. 2,451,000 3,318,000 7,705,000 Total liabilities ............ 1,312,000 1,508,000 1,031,000 Stockholders' equity ......... 1,139,000 1,810,000 6,674,000(4)
- ------------- (1) Includes the results of operations of (i) Interactive Networks since the beginning of the periods presented, (ii) Mordor subsequent to May 31, 1996, and (iii) AllNet subsequent to March 1, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 to Notes to Financial Statements. (2) Gives effect to the acquisition of Entelechy in January 1998 including the issuance of 124,006 shares of Common Stock in connection therewith. (3) Gives effect to (i) the Debt Conversion and (ii) the sale of the shares offered hereby and the anticipated application of the estimated net proceeds therefrom. See "Use of Proceeds," "Management Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." (4) Gives effect to a non-recurring charge of $35,000 ($21,000, net of tax benefit) relating to the 1997 Financing which will be incurred upon consummation of this offering. See Note 6 to Notes to Financial Statements. 5 RISK FACTORS The shares offered hereby are speculative and involve a high degree of risk. Each prospective investor should carefully consider the following risk factors before making an investment decision. Limited Operating History. The Company commenced operations in June 1995 as an Internet service provider and began to offer systems integration, programming and applications services in April 1996. Accordingly, the Company has a limited operating history upon which an evaluation of its prospects and performance can be made. The Company's prospects must be considered in light of the risks, uncertainties, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business enterprise in a rapidly evolving industry characterized by intense competition and an increasing and substantial number of new market entrants and technologies and services. The Company is subject to the risks associated with an evolving business and the management of both internal and acquisition based growth. See "Business." Prior Operating Losses; Lack of Substantial Profitability; Future Operating Results. The Company incurred losses of $39,000 and $251,000, respectively, for the period from inception (February 28, 1995) to December 31, 1995 and the year ended December 31, 1996 and has an accumulated deficit at December 31, 1997 of $85,000. The Company achieved only limited profitability for the year ended December 31, 1997 despite generating steadily increasing levels of revenues. The Company's operating expenses have increased and will continue to increase significantly in connection with any expansion activities undertaken by the Company, including those relating to acquisitions, network development and marketing. Accordingly, the Company's future profitability will depend on corresponding increases in revenues from operations. The Company's expense levels are based in part on the Company's expectations concerning future revenues and are fixed to a large extent. Any decline in demand for the Company's services or increases in the Company's expenses which are not offset by corresponding increases in revenue could have a material adverse effect on the Company. The Company expects to incur a non-recurring charge of $35,000 relating to the 1997 Financing upon the consummation of this offering, and charges of approximately $205,000, $224,000, $224,000 and $19,000 relating to the Entelechy acquisition in each of the years ending December 31, 1998, 1999, 2000 and 2001, respectively. There can be no assurance that the Company's recent rate of revenue growth will continue or that the Company's future operations will be profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Financial Statements. Dependence on Aetna; Non-Recurring Revenues. The Company is dependent on a limited number of clients for a substantial portion of its revenues. For the year ended December 31, 1997, the Company's largest clients, Aetna (which engaged the Company in October 1997) and Mobil accounted for approximately 54.2% and 5.2%, respectively, of the Company's revenues. Revenues derived from the Company's consulting contracts are generally non-recurring in nature. The Company's contract with Aetna provides for the Company to render services pursuant to purchase orders, each of which constitutes a separate contractual commitment by Aetna. The last purchase order issued relates to work to be performed through April 1998. Non-renewal or termination of the Company's contract with Aetna or the failure by Aetna to issue additional purchase orders under the existing contract would have a material adverse effect on the Company. There can be no assurance that the Company will obtain additional contracts for projects similar in scope to those previously obtained from Aetna or any other client, that the Company will be able to retain existing clients or attract new clients or that the Company will not remain largely dependent on a limited client base which may continue to account for a substantial portion of the Company's revenues. In addition, the Company generally will be subject to delays in client funding; lengthy client review processes for awarding contracts; nonrenewal; delay, termination, reduction or modification of contracts in the event of changes in client policies or as a result of budgetary constraints; and increased or unexpected costs resulting in losses in the event of "fixed-price" contracts. See "Business -- Clients." Subscriber Attrition. The Company's operating results may be affected by dial-up subscriber attrition rates. Subscribers may discontinue service without penalty at any time, and there can be no assurance that subscribers will continue to purchase services from the Company or that the Company will not be subject to subscriber attrition. Historically, the Company has not retained data enabling it to accurately compute subscriber attrition levels. Significant levels of subscriber attrition in the future could have a material adverse effect on the Company's operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 6 Limited Number of POPs; Geographic Concentration; Uncertainty of Network Expansion. The Company currently has nine POPs in operation in the northern New Jersey and New York City metropolitan areas. Consequently, the results achieved to date by the Company may not be indicative of the prospects or market acceptance of a larger number of POPs in wider and more geographically dispersed areas. The process of acquiring existing POPs or identifying suitable sites and establishing additional POPs can be lengthy. There can be no assurance that the Company will be successful in acquiring existing POPs or identifying suitable sites and establishing additional POPs. Failure to obtain and install telephone lines and network equipment on a timely and cost-effective basis could materially delay the Company's plans with respect to the establishment of additional POPs in target markets. The Company has relatively limited experience in establishing POPs and has limited financial, technical and other resources. There can be no assurance that the Company will be able, for financial or other reasons, to successfully expand its network of POPs or that any expansion will not be subject to unforeseen delays and costs. See "Business -- Network Infrastructure." Emerging and Evolving Markets; Uncertainty of Market Acceptance; Limited Marketing, Service and Support Capabilities. The markets for the Company's services are relatively new and evolving and are characterized by consolidating trends. As a result, the ultimate level of demand for the Company's services is subject to a high degree of uncertainty. Any significant decline in demand for computer networking services or in the computer industry generally or in particular market segments could have a material adverse effect on the Company's business and prospects. The Company's success will be largely dependent upon its ability to continually attract and retain additional clients and subscribers and replace terminating clients and subscribers. Achieving significant market acceptance will require substantial efforts and expenditures to create enhanced awareness of the services offered by the Company. The successful implementation of the Company's business plans will also require the Company to expand client service and support capabilities to satisfy increasingly sophisticated client requirements. The Company currently has limited marketing experience and limited marketing, service, client support and other resources. To date, the Company has relied principally on the efforts of its executive officers to market its services. There can be no assurance that the Company will be able to successfully expand its marketing activities, client service or support capabilities, or that the Company's efforts will result in continued market acceptance for the Company's services. See "Business - -- Sales and Marketing." Competition. The markets for the Company's services are highly competitive. There are no substantial barriers to entry and the Company expects that competition will intensify in the future. The Company believes that its ability to compete successfully will be significantly affected by the availability of highly skilled engineers, programmers and technicians; continuing referrals by clients; the geographic scope of the Company's network; and industry and general economic trends. The Company competes with numerous large companies that have substantially greater market presence and financial, technical, marketing and other resources than the Company, including (i) large information technology consulting and service providers and application software firms such as Andersen Consulting, Cambridge Technology Partners, Electronic Data Systems Corporation and American Management Systems; (ii) international, national, regional and commercial Internet service providers such as Performance Systems International, Inc., Digex, Inc. and UUNET Technologies, Inc.; ("UUNET"); (iii) established on-line services companies such as America Online, Inc., and Prodigy Service Company; (iv) computer hardware and software and other technology companies such as IBM and Microsoft Corp.; (v) national long distance carriers such as AT&T Corp., MCI Communications Corp. and Sprint Corp. and regional telephone companies, including Bell Atlantic, and cable operators; and (vi) major accounting firms. Many of these competitors have announced plans to expand their service offerings and increase their focus on markets relating to computer networking and Internet related services. As a result, competition is expected to intensify for highly skilled network engineers, programmers and technicians. There can be no assurance that competitors will not develop or offer services that provide performance, price or other advantages over those offered by the Company, that the Company will be able to attract, hire or retain highly skilled network engineers, programmers and technicians or that the Company will have the financial resources, technical expertise or marketing and support capabilities to compete successfully. See "Business -- Competition." Rapid Technological Change. The markets for the Company's services are characterized by rapid technological change, changes in client requirements and preferences, frequent new product and service introductions embodying new processes and technologies and evolving industry standards and practices that could render the Company's existing practices and methodologies obsolete or less attractive to existing and prospective clients. 7 The Company's success will depend on its ability to improve existing and develop new services and solutions that address the increasingly sophisticated and varied needs of its current and prospective clients, and respond to technological advances, emerging industry standards and practices and competitive service offerings. There can be no assurance that the Company will be successful in responding quickly, cost-effectively and sufficiently to these developments. The Company's dial-up access service is also subject to fundamental changes in the manner in which Internet access services are delivered. Currently, the Internet is accessed primarily by computers and telephone lines. To the extent that the Internet becomes increasingly accessible by screen-based telephones, television or other consumer electronic devices which change the way Internet access is routinely provided, the Company may be required to acquire or develop new technology or modify its existing technology to accommodate these developments. The pursuit of these technological advances may require substantial time and expense, and there can be no assurance that the Company will succeed in adapting its Internet access service to alternate access devices and conduits. See "Business -- Competition." Capacity Constraints; System Failure and Security Risks. The Company's operations will depend upon the capacity, reliability and security of its network infrastructure. The Company currently has limited network capacity and will be required to continually expand its network infrastructure to accommodate significant numbers of users and increasing amounts of information. Expansion of the Company's network infrastructure will require significant financial, operational and management resources. There can be no assurance that the Company will be able to expand its network infrastructure to meet potential demand on a timely basis, at a commercially reasonable cost, or at all. Failure by the Company to expand its network infrastructure on a timely basis would have a material adverse effect on the Company. The Company's operations will also be dependent on the Company's ability to protect its computer equipment against damage from fire, power loss, telecommunications failures and similar events. The Company currently does not maintain redundant capacity. The Company's network infrastructure will be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with the Company's computer systems. Computer viruses or problems caused by third parties could lead to material interruptions, delays or cessation in service. Inappropriate use of the Internet by third parties could also potentially jeopardize the security of confidential information stored in computer systems. Security and privacy concerns may limit the Company's ability to develop a significant subscriber base. See "Business -- Network Infrastructure." Dependence on Third-Party Suppliers and Manufacturers; Possible Service Interruptions and Equipment Failures. The Company is dependent on Bell Atlantic and WorldCom, Inc. ("WorldCom") to provide leased telecommunications lines on a cost-effective and continuous basis, and on UUNET to provide Internet access. As is customary in the industry, the Company has not entered into interconnect agreements with these suppliers. Increases in rates charged by such suppliers could adversely affect the Company's operating margins. Failure to obtain continuing access to such networks resulting in material business interruptions would also have an adverse effect on the Company. The Company also is dependent on third-party manufacturers of hardware components. Except for a limited number of non-exclusive reseller agreements with certain suppliers, the Company has not entered into agreements with any equipment manufacturer. Failure by manufacturers to deliver quality equipment on a timely basis or any inability to obtain alternative sources of supply, could materially adversely affect the Company's business and limit the Company's ability to expand its network. In addition, the Company's operations require that its POPs and its third-party telecommunications networks operate on a continuous basis. It is possible that the Company's POPs and third-party telecommunications networks may from time to time experience service interruptions or equipment failures. Service interruptions and equipment failures resulting in material delays would adversely affect client and subscriber confidence as well as the Company's business operations and reputation. See "Business -- Network Infrastructure." Risks Associated with Expansion and Acquisitions. The Company intends to use a portion of the proceeds of this offering to expand its operations through internal growth and acquisitions. The Company plans to establish or acquire additional POPs, upgrade and expand its network capacity, attract additional clients and subscribers, expand its work force and its presence in selected geographic markets. Such growth is expected to place a significant strain on its management, administration, operational, financial and other resources. To successfully manage growth, the Company will be required to continue to implement and improve its administrative, operating and financial systems, train and manage its employees, monitor operations, control costs and maintain effective quality controls. The Company has limited experience in effectuating rapid expansion and in managing 8 operations which are geographically dispersed, and there can be no assurance that the Company will be able to successfully expand its operations or manage growth. The Company intends to pursue opportunities by making selective acquisitions of systems integraters, programmers, applications developers and Internet service providers. While the Company regularly evaluates possible acquisition opportunities, as of the date of this Prospectus, the Company has no plans, agreements, commitments, understandings or arrangements with respect to any such acquisition. There can be no assurance that the Company will ultimately effect any acquisition, that it will be able to successfully integrate into its operations any personnel, businesses, clients or subscribers which it may acquire, that the Company will not incur significant charges related to an acquisition, goodwill amortization expense or write-offs associated with attrition of newly acquired subscribers or clients or be able to retain acquired key personnel. See "Use of Proceeds" and "Business -- Strategy." Recruitment and Retention of Qualified Personnel. The Company's business is labor intensive. The Company's success will depend upon its ability to identify, hire, train and retain professional engineers, programmers and technicians who can provide the strategy, technology and creative skills required by clients. Qualified professionals are in high demand and are likely to remain a limited resource for the foreseeable future. The Company is currently dependent on the services of temporary personnel to satisfy increased client requirements. The Company competes intensely for qualified personnel with other companies, and there can be no assurance that the Company will be able to attract or retain other highly qualified engineers, programmers and technical personnel in the future. Failure to attract and retain qualified professionals in sufficient numbers would severely limit the Company's ability to complete existing projects and expand its operations. See "Business." Dependence on Offering Proceeds to Implement Proposed Expansion; Possible Need for Additional Financing. The Company's business is capital intensive. The Company is dependent on and intends to use a substantial portion of the proceeds of this offering to implement its expansion plans. Based on proposed plans and assumptions relating to its operations, the Company believes that the proceeds of this offering, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change, its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow prove to be insufficient to implement its business plans, the Company may be required to seek additional financing or curtail its expansion activities. There can be no assurance that the proceeds of this offering will be sufficient to permit the Company to implement its business plans, that any assumptions relating to the implementation of such plans will prove to be accurate or that any additional financing would be available to the Company on commercially reasonable terms, or at all. The inability to obtain additional financing, if required, would have a material adverse effect on the Company. The Company may determine to seek additional debt or equity financing to fund the cost of continuing expansion. To the extent that the Company finances an acquisition with equity securities, the issuance of such equity securities would result in dilution to the interests of the Company's stockholders. Additionally, if the Company incurs indebtedness or issues debt securities in connection with any acquisition, the Company will be subject to risks that interest rates may fluctuate and cash flow may be insufficient for the payment of principal and interest on any such indebtedness. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Possible Fluctuations in Operating Results; Lengthy Sales Cycle. The Company's operating results may fluctuate significantly from period to period as a result of the length of the Company's sales cycle, as well as from client budgeting cycles; the introduction of new products and services by competitors; the timing of expenditures; pricing changes in the industry; technical difficulties; and general economic conditions. The Company's business is generally subject to lengthy sales cycles, which requires the Company to make expenditures and use significant resources prior to receipt of corresponding revenues. Historically, the Company's revenues have been higher in the fourth quarter as a result of client budgeting and expenditures cycles. There can be no assurance that the foregoing factors will not result in significant fluctuations in future operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Outstanding Accounts Receivable, Credit and Collection Risks. The Company's accounts receivable, less allowance for doubtful accounts, at December 31, 1997, were $1,636,000, compared to $310,000 at December 31, 1996. Of such 1997 receivables, approximately 93% were due from Aetna, all of which were collected in January 1998. At December 31, 1997, the Company's allowance for doubtful accounts was $66,000, which the 9 Company believes is adequate for the size and nature of its receivables. Delays in collection or uncollectibility of accounts receivable could have an adverse effect on the Company and could require the Company to increase its allowance for doubtful accounts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Government Regulation; Potential Liability for Content. Recently enacted federal, state and local legislation aimed at limiting the use of the Internet to transmit certain content and materials could result in significant liability to Internet service providers. These types of legislative actions present the potential for increased scrutiny and attempts to impose liability upon Internet service providers for information disseminated through their networks. The adoption or strict enforcement of any such laws or regulations may limit the growth of the Internet, which could decrease demand for the Company's services and increase the Company's cost of doing business. Additionally, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain. As a result, it is possible that the adoption of new legislation or regulation or the application to the Internet of existing laws and regulations relating to property ownership, libel and personal privacy could have a material adverse effect on the Company. Changes in the regulatory environment relating to Internet access, including regulatory changes which directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition from local and regional telephone companies or others, could also have a material adverse effect on the Company. See "Business." Limited Intellectual Property Protection. The Company relies on a combination of copyright and trademark laws, trade secrets and nondisclosure agreements to protect its proprietary information. The Company currently has no registered copyrights or patents or patent applications pending. It may be possible for unauthorized third parties to copy aspects of, or otherwise obtain and use, the Company's proprietary information without authorization. In addition, there can be no assurance that any confidentiality agreements between the Company and its employees or any agreements with its customers will provide meaningful protection for the Company's proprietary information in the event of any unauthorized use or disclosure of such proprietary information. The majority of the Company's current agreements with its clients contain provisions granting to the client intellectual property rights to certain of the Company's work product, including customized programming that is created during the course of a project. The Company anticipates that agreements with future clients may contain similar provisions. Other existing agreements to which the Company is a party are, and future agreements may be, silent as to the ownership of such rights. To the extent that the ownership of such intellectual property rights is expressly granted to a client or is ambiguous, the Company's ability to reuse or resell such rights will or may be limited. See "Business -- Intellectual Property." Potential Liability to Clients. The Company's consulting engagements often involve development, implementation and maintenance of applications that are critical to the operations of its clients' businesses. The Company's failure or inability to meet a client's expectations in the performance of its services could harm the Company's business reputation or result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure or inability. In addition, in the course of performing services, the Company's personnel often gain access to technologies and content which include confidential or proprietary client information. Although the Company has implemented policies to prevent such client information from being disclosed to unauthorized parties or used inappropriately, any such unauthorized disclosure or use could result in a claim for substantial damages. The Company attempts to limit contractually its damages arising from negligent acts, errors, mistakes or omissions in rendering services and, although the Company maintains general liability insurance coverage in the amount of $1,000,000, including coverage for errors and omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims. The successful assertion of one or more large claims against the Company that are uninsured, exceed available insurance coverage or result in changes to the Company's insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirements, would adversely affect the Company. See "Business -- Insurance." Dependence on Key Personnel. The success of the Company will be dependent on the personal efforts of Nicholas R. Loglisci, Jr., its President and Chief Operating Officer; Clark D. Frederick, its Chief Technical Officer; Frank R. Altieri, Jr., its Chief Information Officer and other key personnel. The loss of the services of any of such individuals could have a material adverse effect on the Company. Prior to the consummation of this offering, the Company intends to obtain "key-man" insurance on the life of each of Messrs. Loglisci, Frederick and Altieri in the amount of $3,000,000. See "Management." 10 Personal Guarantees. Certain of the Company's equipment leases have been personally guaranteed by each of Messrs. Loglisci, Frederick and Altieri. Additionally, the Company's bank indebtedness has been personally guaranteed by each of Messrs. Loglisci and Altieri. At December 31, 1997, the aggregate obligations of the Company personally guaranteed by these executive officers amounted to $117,000. None of these individuals nor any other person has any obligation to make personal guarantees available to the Company in the future and it is expected that such persons will not personally guarantee obligations of the Company following the consummation of this offering. There can be no assurance that the absence of such personal guarantees will not adversely affect the Company's ability to borrow funds or lease equipment in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." Broad Discretion in Application of Proceeds; Allocation of Proceeds to Repay Indebtedness; Benefits to Related Parties. Approximately $1,328,000 (28.0%) of the estimated net proceeds of this offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. The Company also intends to use $307,000 of the net proceeds of this offering to repay outstanding indebtedness, including indebtedness owing to Steven Loglisci, Nicholas R. Loglisci, Sr., Frank R. Altieri, Sr., each a member of the family of an executive officer of the Company, and Barrett Wissman, a nominee for director of the Company, in the amount of $28,750, $10,000, $50,000 and $25,000, respectively. Additionally, a portion of the proceeds of this offering allocated to working capital may be used to pay the salaries of executive officers (which is anticipated to approximate $395,000 during the twelve months following this offering) to the extent cash flow from operations is insufficient for such purpose. See "Use of Proceeds" and "Certain Transactions." Control by Current Stockholders. Upon consummation of this offering, the Company's current stockholders will beneficially own, in the aggregate, approximately 63% of the outstanding shares of Common Stock. Accordingly, such persons, acting together, will be in a position to control the Company, elect all of the Company's directors, change the Company's authorized capital or cause the dissolution, merger or sale of the assets of the Company, and generally direct the affairs of the Company. See "Management" and "Principal Stockholders." Potential Conflicts of Interest. The Company has entered into certain transactions or arrangements with its affiliates, including borrowings and personal guarantees made on behalf of the Company, which could result in conflicts of interest. Although the Company believes that all such transactions or arrangements were on terms no less favorable to the Company than could have been obtained from unaffiliated third parties, there can be no assurance that conflicts of interest will not arise with respect to future transactions or arrangements or that such conflicts will be resolved in a manner favorable to the Company. Any such future transactions will be approved by a majority of the independent and disinterested members of the Board of Directors and, to the extent deemed necessary or appropriate by the Board of Directors, the Company will obtain fairness opinions or stockholder approval in connection with any such transactions. See "Certain Transactions." No Dividends. To date, the Company has not paid any dividends on its Common Stock and does not expect to declare or pay dividends on the Common Stock in the foreseeable future. See "Dividend Policy." Limitation on Liability. The Company's Restated Certificate of Incorporation (the "Restated Certificate") includes provisions to limit, to the full extent permitted by Delaware General Corporation Law (the "DGCL"), the personal liability of directors of the Company for monetary damages arising from a breach of their fiduciary duties as directors. As a result of such provisions in the Restated Certificate, stockholders may be unable to recover damages against the directors of the Company for actions taken by them which constitute negligence, gross negligence or a violation of certain of their fiduciary duties, which may reduce the likelihood of stockholders instituting derivative litigation against directors and may discourage or deter stockholders from suing directors for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its stockholders. See "Management -- Indemnification of Directors and Officers." Immediate and Substantial Dilution. This offering involves an immediate and substantial dilution of $3.71 per share (61.8%) between the net tangible book value per share after the offering and the initial public offering price per share. See "Dilution." Authorized Preferred Stock. The Restated Certificate authorizes the Company's Board of Directors to issue one million shares of "blank check" preferred stock, par value $.01 per share (the "Preferred Stock"), and to fix 11 the rights, preferences, privileges and restrictions, including voting rights, of such shares of Preferred Stock, without further stockholder approval. The rights of the holders of Common Stock will be subject to and may be adversely affected by the rights of holders of any Preferred Stock that may be issued in the future. The ability to issue Preferred Stock without stockholder approval could have the effect of making it more difficult for a third party to acquire a majority of the voting stock of the Company thereby delaying, deferring or preventing a change in control of the Company. See "Description of Securities." Shares Eligible for Future Sale; Registration Rights. Upon consummation of this offering, the Company will have 2,582,570 shares of Common Stock outstanding, of which the 1,000,000 shares of Common Stock offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares purchased by an "affiliate of the Company" (in general, a person who has a controlling position with regard to the Company), which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. All of the remaining 1,582,570 shares of Common Stock which will be outstanding upon the consummation of this offering are "restricted securities," as that term is defined under Rule 144. Subject to the contractual restrictions described below, 1,458,564 shares of Common Stock will be eligible for sale pursuant to Rule 144 commencing 90 days following the date of this Prospectus and 124,006 shares will become eligible for sale pursuant to Rule 144 on January 31, 1999. The holders of 1,222,056 of such shares (and holders of 41,164 shares issuable upon the exercise of the Warrants) have agreed not to sell or otherwise dispose of such shares for a period of twelve months from the date of this Prospectus without the Underwriter's prior written consent. The Company has granted certain "piggy-back" registration rights to the holders of 298,439 shares of Common Stock (including 41,164 shares issuable upon the exercise of Warrants), and certain demand and "piggy-back" registration rights to the Underwriter with respect to the securities issuable upon exercise of the Underwriter's Warrants. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or even the availability of such shares for sale will have on the market prices prevailing from time to time. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's future ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale" and "Underwriting." No Assurance of Public Market; Arbitrary Determination of Offering Price; Possible Volatility of Market Price of Common Stock; Underwriter's Potential Influence on the Market. Prior to this offering, there has been no public trading market for the Common Stock. There can be no assurance that a regular trading market for the Common Stock will develop after this offering or that, if developed, it will be sustained. Moreover, the initial public offering price of the Common Stock has been determined by negotiations between the Company and the Underwriter and, as a result, such initial public offering price has been arbitrarily determined and may not bear any relationship to the assets, book value or potential earnings of the Company or any other recognized criteria of value and may not be indicative of the prices that may prevail in the future in the public market. The market price of the Common Stock following this offering may be highly volatile. Factors such as the Company's operating results, announcements by the Company or its competitors and new products and services affecting the computer networking and Internet industry may have a significant impact on the market price of the Company's securities. In addition, in recent years, the stock market has experienced a high level of price and volume volatility and the market price for the stock of many companies have experienced wide price fluctuations which have not necessarily been related to the operating performance of such companies. Although it has no obligation to do so, the Underwriter intends to make a market in the Common Stock and may otherwise effect transactions in the Common Stock. If the Underwriter makes a market in the Common Stock, such activities may exert a dominating influence on the market and such activity may be discontinued at any time. The prices and liquidity of the Common Stock may be significantly affected to the extent, if any, that the Underwriter participates in such market. See "Underwriting." Possible Delisting of Common Stock from Nasdaq SmallCap Market; Risks Relating to Low-Priced Stocks. It is currently anticipated that the Common Stock will be eligible for quotation on the Nasdaq SmallCap Market upon the completion of this offering. For the Common Stock to remain eligible for continued quotation on the Nasdaq SmallCap Market, the Company must maintain net tangible assets in the minimum amount of $2,000,000, a market value of the public float in the minimum amount of $1,000,000, two market makers and a minimum bid price of $1.00 per share. Failure to meet these maintenance criteria may result in the delisting 12 of the Common Stock from the Nasdaq SmallCap Market, and trading, if any, in the Common Stock would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Common Stock. In addition, if the Common Stock were to become delisted from quotation on the Nasdaq SmallCap Market and the trading price of the Common Stock were to fall below $5.00 per share on the date the Common Stock was delisted, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could materially adversely effect the market price and severely limit liquidity of the Common Stock and the ability of purchasers in this offering to sell Common Stock in the secondary market. Potential Litigation. A former employee has threatened to institute legal action against the Company for breach of contract and wrongful termination on the basis of racial and gender discrimination and is seeking salary and attorney's fees aggregating $20,000. Additionally, certain persons have threatened to institute legal action against the Company for unspecified damages and expenses in connection with the Company's termination of service to an Internet subscriber. There can be no assurance that these matters will be resolved in a manner favorable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Legal Proceedings." 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares offered hereby are estimated to be approximately $4,735,000 ($5,518,000 if the Underwriter's over-allotment option is exercised in full). The Company intends to use the net proceeds during the twelve months following this offering approximately as follows:
Approximate Approximate Percentage Application of Proceeds Dollar Amount of Net Proceeds - ----------------------------------------------------------- --------------- ----------------------- Potential acquisitions(1) ................................. $ 2,000,000 42.2% Network expansion and upgrade(2) .......................... 600,000 12.7 Sales and marketing(3) .................................... 500,000 10.6 Repayment of indebtedness(4) .............................. 307,000 6.5 Working capital and general corporate purposes(5) ......... 1,328,000 28.0 ----------- ----- Total .......................................... ......... $ 4,735,000 100.0% =========== =====
- ------------ (1) Represents estimated expenditures to acquire systems integrators, programmers, applications developers and Internet service providers which the Company believes will enhance its prospects. As of the date of this Prospectus, the Company has no plans, agreements, commitments, understandings or arrangements with respect to any acquisition. See "Business -- Strategy." (2) Represents anticipated expenditures associated with (i) the acquisition of additional computer hardware and software used to support network infrastructure, including backup and redundant capacity, (ii) the establishment of additional POPs in selected geographic locations and (iii) salaries of three additional technical support personnel. See "Business -- Network Infrastructure." (3) Includes costs associated with increased print and radio advertising and the salaries for up to four additional marketing and sales personnel, including a Director of Marketing. See "Business -- Sales and Marketing." (4) Includes the repayment of (i) $200,000 principal amount of unsecured promissory notes (the "1997 Notes") issued in October 1997, together with accrued interest at the rate of 8% per annum, payable on the earlier of (a) the consummation of this offering, (b) a private placement of securities resulting in net proceeds to the Company in the minimum amount of $1,000,000 or (c) October 31, 1999; and (ii) $95,000 outstanding principal amount of unsecured promissory notes (the "1995 Notes") issued in August 1995, together with accrued interest at the rate of 6% per annum, payable on July 31, 1998. The proceeds of the 1997 Notes were used for working capital and general corporate purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." (5) Working capital may be used, among other things, to pay salaries of the Company's executive officers (which is anticipated to be approximately $395,000 during the twelve months following this offering), rent, telecommunications expenses, trade payables, consulting and professional fees and other expenses. If the Underwriter exercises the over-allotment option in full, the Company will realize additional net proceeds of $783,000, which will be added to working capital. See "Underwriting." The allocation of the net proceeds set forth above represents the Company's best estimates based on proposed plans and assumptions relating to its operations and growth strategy and general economic conditions. The Company believes that the proceeds of this offering, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change (due to changes in market conditions, competitive factors or new opportunities that may become available in the future), its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow prove to be insufficient to implement its business plans (due to unanticipated expenses, technical difficulties or otherwise), the Company may be required to reallocate the proceeds among the categories set forth above, use proceeds for other purposes, seek additional financing or curtail its expansion activities. There can be no assurance that the proceeds of this offering will be sufficient to permit the Company to implement its business plans, that any assumptions relating to the implementation of such plans will prove to be accurate or that any additional financing would be available to the Company on commercially reasonable terms, or at all. 14 Proceeds not immediately required for the purposes described above will be invested principally in short-term United States Government securities, short-term certificates of deposit, money market funds or other short-term interest bearing investments. 15 DILUTION The difference between the initial public offering price per share and the net tangible book value per share of Common Stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. At December 31, 1997, the Company had a net tangible book value of $1,059,000, or $.74 per share ($.62 per share after giving effect to the issuance of 124,006 shares of Common Stock in connection with the Entelechy acquisition in January 1998). After giving effect to (i) the Debt Conversion and (ii) the sale by the Company of the 1,000,000 shares offered hereby and after deducting estimated underwriting discounts and expenses of the offering, the net tangible book value of the Company at December 31, 1997 would have been $5,917,000, or $2.29 per share, representing an immediate increase in net tangible book value of $1.67 per share to the existing stockholders and an immediate dilution of $3.71 (61.8%) per share to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per share basis: Initial public offering price ..................... $ 6.00 Net tangible book value before offering ......... $ .62 Increase attributable to new investors. ......... 1.67 ------ Net tangible book value after offering ............ 2.29 ------ Dilution to new investors. ........................ $ 3.71 ======
The following table sets forth with respect to the Company's existing stockholders (giving effect to the Entelechy acquisition and the Debt Conversion) and new investors, a comparison of the number of shares of Common Stock acquired from the Company, the percentage ownership of such shares, the total consideration paid, the percentage of total consideration paid and the average price per share.
Average Price Shares Purchased Total Consideration per Share ----------------------- -------------------------- -------------- Number Percent Amount Percent ----------- --------- ------------- ---------- Existing Stockholders ......... 1,582,570 61.3% $1,327,000 18.1% $ .84 New Investors ................. 1,000,000 38.7 6,000,000 81.9 6.00 --------- ----- ---------- ----- Total ........................ 2,582,570 100.0% $7,327,000 100.0% ========= ===== ========== =====
The above table assumes no exercise of the Underwriter's over-allotment option. If such option is exercised in full, it is estimated that the new investors will have paid $6,900,000 for 1,150,000 shares offered by the Company, representing approximately 83.9% of the total consideration, for 42.1% of the total number of shares of Common Stock outstanding. In addition, the above table does not give effect to the shares issuable upon exercise of the Warrants. The Warrants represent the right to purchase 41,164 shares of Common Stock at an exercise price of $4.20 per share. To the extent the Warrants are fully exercised, the dilution to new investors will be reduced by $.03 per share. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management--1998 Stock Option Plan," "Description of Securities--Warrants" and "Underwriting." 16 DIVIDEND POLICY Since its inception, the Company has not declared or paid any dividends on the Common Stock and does not in the foreseeable future expect to declare or pay any cash or other dividends on the Common Stock. The future declaration and payment of dividends is within the discretion of the Board of Directors and will depend upon the Company's earnings, if any, its capital requirements, financial condition, the terms of then existing indebtedness, general economic conditions and such other factors as are considered relevant by the Board of Directors. CAPITALIZATION The following table sets forth the short-term indebtedness and the capitalization of the Company as of December 31, 1997 on (i) an actual basis, (ii) a pro forma basis giving effect to the issuance of 124,006 shares of Common Stock in connection with the acquisition of Entelechy in January 1998 and (iii) an as adjusted basis giving effect to the Debt Conversion and the sale by the Company of 1,000,000 shares offered hereby and the anticipated application of the estimated net proceeds therefrom. See "Use of Proceeds," "Description of Securities" and Financial Statements.
At December 31, 1997 ---------------------------------------------------- Actual Pro Forma As Adjusted -------------- ------------- ------------------- Debt and capital leases including current maturities ............... $ 413,000 $ 563,000 $ 106,000 ========== ========== =========== Stockholders' equity(1): Preferred Stock, par value $.01 per share, 1,000,000 shares authorized; no shares issued or outstanding, actual or as adjusted ........................................................ $ -- $ -- $ -- Common Stock, par value $.01 per share, 11,000,000 shares authorized; 1,433,536 shares issued and outstanding, actual; 1,557,542 shares issued and outstanding, pro forma; 2,582,570 shares issued and outstanding, as adjusted(2) ......... 14,000 16,000 26,000 Additional paid-in capital ......................................... 1,217,000 1,886,000 6,761,000 Unearned compensation .............................................. (7,000) (7,000) (7,000) Accumulated deficit ................................................ (85,000) (85,000) (106,000)(3) ---------- ---------- ----------- Total Stockholders' Equity ........................................ 1,139,000 1,810,000 6,674,000 ---------- ---------- ----------- Total Capitalization ............................................ $1,552,000 $2,373,000 $ 6,780,000 ========== ========== ===========
- ------------ (1) Gives effect to an increase in the Company's authorized capital stock effected in March 1998. See Note 7 to Notes to Financial Statements. (2) Does not include (i) 100,000 shares reserved for issuance upon exercise of the Underwriter's Warrants; (ii) 109,599 shares reserved for issuance in connection with the acquisition of Entelechy in January 1998; (iii) 41,164 shares reserved for issuance upon exercise of the Warrants; (iv) 60,000 shares reserved for issuance upon exercise of options granted under the 1998 Stock Option Plan; and (v) 290,000 shares reserved for issuance upon exercise of options available for future grant under the 1998 Stock Option Plan. See "Management Discussion and Analysis and Results of Operations," "Management -- 1998 Stock Option Plan," "Description of Securities -- Warrants" and "Underwriting." (3) Gives effect to a non-recurring charge of $35,000 ($21,000, net of tax benefit) relating to the 1997 Financing which will be incurred upon consummation of this offering. See Note 6 to Notes to Financial Statements. 17 SELECTED FINANCIAL DATA The selected financial data is derived from the audited financial statements of the Company, and should be read in conjunction with such financial statements, including the notes thereto, contained elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended December 31, ----------------------------- 1996 1997 ------------- ------------- Statement of Operations Data(1): Revenues ........................................................ $1,023,000 $2,741,000 Cost of services ................................................ 650,000 1,099,000 Gross profit .................................................... 373,000 1,642,000 Operating expenses: Selling, general and administrative ............................ 670,000 1,296,000 Amortization of intangible assets .............................. 1,000 12,000 Operating income (loss) ......................................... (298,000) 334,000 Net income (loss) ............................................... (251,000) 198,000 Net income (loss) per share - basic and diluted ................. (.20) .14 Weighted average number of shares outstanding - diluted ......... 1,269,358 1,430,659 December 31, -------------------------------- 1996 1997 ----------- --------------- Balance Sheet Data: Working capital ................................................. $ 393,000 $ 567,000 Total assets .................................................... 935,000 2,451,000 Total liabilities ............................................... 214,000 1,312,000 Stockholders' equity ............................................ 721,000 1,139,000
- ------------ (1) Includes the results of operations of (i) Interactive Networks since the beginning of the periods presented, (ii) Mordor subsequent to May 31, 1996, and (iii) AllNet subsequent to March 1, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 to Notes to Financial Statements. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company provides a broad range of computer networking, programming, applications development and Internet services primarily to businesses and organizations, including governmental and not-for-profit entities. The Company's revenues are derived principally from consulting fees earned in connection with the performance of systems integration services, recurring monthly Internet connectivity fees and consulting fees earned in connection with programming and applications development services. The Company recognizes revenue as services are provided to its clients and subscribers. Deferred revenue in the amount of $238,000 at December 31, 1997 related to unearned consulting fees. These fees were recognized in full as of January 31, 1998. See Note 2 to Notes to Financial Statements. The Company commenced operations in June 1995 as an Internet service provider offering Web-site hosting services. Since April 1996, the Company has acquired Interactive Networks, Mordor and AllNet, each an Internet service provider principally offering dial-up access services. The Company began to provide Systems Integration and Programming and Applications Development services in April 1996 and has increasingly emphasized such services. In January 1998, the Company acquired Entelechy, a provider of programming and applications development services, including distance learning and on-line trading applications. The Company's consulting services generally produce higher profit margins than the Company's Internet services. For the year ended December 31, 1997, Systems Integration, Programming and Applications Development and Internet services accounted for approximately 55%, 9% and 36%, respectively, of the Company's revenues. The Company has achieved only limited profitability for the year ended December 31, 1997. Operating expenses have increased and will continue to increase significantly in connection with any expansion activities undertaken by the Company, including those relating to acquisitions, network development and marketing. Accordingly, the Company's future profitability will depend on corresponding increases in revenues from operations. The Company's expense levels are based in part on its expectations concerning future revenues and are fixed to a large extent. Any decline in demand for the Company's services or increases in expenses which are not offset by corresponding increases in revenues could have a material adverse effect on the Company. The Company expects to incur a non-recurring charge of $35,000 relating to the 1997 Financing upon the consummation of this offering, and charges of approximately $205,000, $224,000, $224,000 and $19,000 relating to the acquisition of Entelechy in each of the years ending December 31, 1998, 1999, 2000 and 2001, respectively. See Notes 6 and 14 to Notes to Financial Statements. The Company anticipates that growth in its client and subscriber base will increase operating costs (including expenses relating to network infrastructure and client support) and will require the Company to hire additional network engineers, programmers and technical personnel. The Company currently has 46 full-time employees. The Company has entered into employment agreements with eighteen of its employees, including its executive officers, which provide for aggregate salaries of $1,113,000 during the year ending December 31, 1998. See Note 9 to Notes to Financial Statements. During the twelve months following this offering, the Company anticipates that it will use a portion of the proceeds of this offering to hire up to four additional employees to market and sell the Company's services. The Company also intends to hire up to three additional technical and support personnel. Acquisitions In April 1996, the Company acquired all of the outstanding capital stock of Interactive in consideration of the issuance of 317,991 shares of Common Stock. At the time of the combination, Interactive had approximately 400 dial-up subscribers, two POPs in northern New Jersey and one POP in New York City. The combination has been accounted for as a pooling of interests. Accordingly, the Company's financial statements have been restated to include the results of operations and financial position of Interactive Networks. 19 In May 1996, the Company acquired all the assets of Mordor in consideration of a $20,000 cash payment. At the time of the acquisition, Mordor had approximately 400 dial-up subscribers and network equipment valued at $15,000. The acquisition was accounted for as a purchase. In March 1997, the Company acquired substantially all of the assets of AllNet in consideration of (i) a $75,000 cash payment and (ii) the issuance of 13,378 shares of Common Stock. At the time of the acquisition, AllNet had approximately 1,000 dial-up subscribers and five POPs in the northern New Jersey area. AllNet's computer and network equipment was valued at $75,000. The acquisition was accounted for as a purchase. In January 1998, the Company acquired all of the issued and outstanding capital stock of Entelechy in consideration of the issuance of an aggregate of 233,605 shares of Common Stock, of which 124,006 shares were issued at the closing and 109,599 shares are to be issued ratably on each of the first, second and third anniversary of the acquisition closing date, provided, that, the former Entelechy stockholders to whom such shares are issuable remain employees of the Company on each respective anniversary. The Company expects to incur charges of approximately $205,000, $224,000, $224,000 and $19,000 relating to the issuance of such Common Stock in each of the years ending December 31, 1998, 1999, 2000 and 2001, respectively. The acquisition was accounted for as a purchase. See Note 14 to Notes to Financial Statements. In January 1998, the Company acquired substantially all of the assets of JDT WebwerX LLC (consisting primarily of computer equipment and intangible assets) in consideration of a $35,000 cash payment. See Note 14 to Notes to Financial Statements. Results of Operations The following table sets forth, for the periods indicated, the percentage of the Company's revenues represented by certain items reflected in the Company's income statement data:
Years Ended December 31, ------------------------ 1996 1997 ----------- ----------- Revenues ............................................ 100.0% 100.0% Cost of services .................................... 63.5 40.1 Gross Profit ........................................ 36.5 59.9 Selling, general and administrative expense ......... 65.5 47.3 Amortization expense ................................ -- .5 Operating income (loss) ............................. (29.0) 12.1 Interest and other expenses ......................... 1.0 1.8 Income (loss) before income taxes ................... (30.0) 10.3 Income tax (provision) benefit ...................... 5.7 ( 3.0) Net income (loss) ................................... (24.3)% 7.3%
Year Ended December 31, 1996 compared to Year Ended December 31, 1997 Revenues. Revenues increased by $1,718,000, or 168%, from $1,023,000 for the year ended December 31, 1996 to $2,741,000 for the year ended December 31, 1997, principally as a result of services rendered to Aetna since October 1997. The fees for such services accounted for 54.2% of the Company's revenues for 1997. The increase in revenues was also attributable in part to an increase in the number of clients utilizing the Company's systems integration and programming and applications development services. Additionally, the continued expansion of the Company's network infrastructure during 1997 resulted in additional Internet access subscribers and related revenue. 20 Cost of Services. Cost of services consists primarily of expenses relating to the operation of the network, including telecommunications and Internet access costs, costs associated with monitoring network traffic and quality and providing technical support to clients and subscribers, cost of equipment and applications sold to clients and subscribers, salaries and expenses of engineering, programming and technical personnel and fees paid to outside consultants. Cost of services increased by $449,000, or 69%, from $650,000 for 1996 to $1,099,000 for 1997. This is a result principally of increases in salaries and expenses paid to engineering, programming and technical personnel whose services are billed by the Company to clients and which are directly related to the provision of services offered. Additionally, the Company incurred increased telecommunications and Internet access costs due to expansion of the Company's network and an increase in the number of Internet access subscribers. The Company expects that these costs will continue to increase in the future to the extent the Company offers additional consulting services and its network expands. Selling, general and administrative. Selling, general and administrative expenses consist primarily of salaries and costs associated with marketing literature, advertising, direct mailings and the Company's management, accounting, finance and administrative functions. Selling, general and administrative expenses increased by $626,000, or 93.4%, from $670,000 in 1996 to $1,296,000 for 1997. This increase is primarily attributable to the hiring of additional personnel whose salaries, in whole or in part, are not directly allocable to hours billed for services rendered to clients and additional costs incurred in connection with expanded administrative functions. The Company expects to incur charges in the amount of approximately $205,000, $224,000, $224,000 and $19,000 in each of the years ending December 31, 1998, 1999, 2000 and 2001, respectively, in connection with the acquisition of Entelechy. Amortization of Intangible Assets. Amortization of intangible assets increased by $11,000, or 1,100%, from $1,000 for 1996 to $12,000 for 1997. This increase is primarily attributable to the amortization of intangible assets, including customer lists and goodwill, acquired by the Company in connection with its purchase of Mordor and AllNet which were consummated in May 1996 and April 1997, respectively. Interest. Interest expense consists of interest on indebtedness and capital leases and financing charges in connection with the 1997 Financing. Interest expense increased by $26,000, or 236%, from $11,000 for 1996 to $37,000 for 1997. This increase was principally attributable to expenses incurred in connection with the 1997 Financing. The Company will incur additional interest expense in the aggregate amount of $35,000 relating to the 1997 Financing, upon the consummation of this offering. Net Income. As a result of the foregoing, the Company achieved net income of $198,000 for the year ended December 31, 1997 compared to a net loss of $251,000 for the year ended December 31, 1996. Liquidity and Capital Resources The Company's primary cash requirements have been to fund expenses in connection with providing consulting services to clients and Internet access to subscribers. The Company has historically satisfied its working capital requirements principally through the issuance of debt and equity securities and borrowings. At December 31, 1997, the Company had working capital of $567,000, compared to working capital of $393,000 at December 31, 1996. The Company received net proceeds of $200,000 in connection with the issuance and sale of the 1997 Notes and Warrants to purchase an aggregate of 41,164 shares of Common Stock at an exercise price of $4.20 per share. The 1997 Notes bear interest at the rate of 8% per annum and are due on the earliest to occur of (a) the consummation of this offering, (b) a private placement of securities resulting in net proceeds to the Company in a minimum amount of $1,000,000, or (c) October 31, 1999. The proceeds of the 1997 Notes were used for working capital and general corporate purposes. The Company intends to use a portion of the net proceeds of this offering to repay the entire principal amount of and interest accrued on the 1997 Notes. See "Certain Transactions" and Note 6 to Notes to Financial Statements. In January 1997, the Company completed a private placement commenced in 1996 (the "1996 Financing") pursuant to which it received net proceeds in the amount of $1,000,000 in connection with the issuance and sale of an aggregate of 257,275 shares of Common Stock. See "Certain Transactions." 21 During the period from May to August 1995, the Company received net proceeds in the amount of $100,000 in connection with the issuance and sale of 41,164 shares of Common Stock and the 1995 Notes ($95,000 of which are currently outstanding). The Company intends to use a portion of the net proceeds of this offering to repay the entire principal amount of and interest accrued on the remaining outstanding 1995 Notes. See "Certain Transactions." Net cash used in operating activities decreased from $406,000 for 1996 to $78,000 for 1997. This change was primarily attributable to the increased operational activity undertaken by the Company in 1997 which resulted in net income in the amount of $198,000, increases in accounts payable in the amount of $440,000 and increases in deferred revenue in the amount of $238,000, offset by increases in accounts receivable in the amount of $1,064,000. Net cash used in investing activities decreased from $360,000 for 1996 to $229,000 for 1997. The change was attributable, in part, to a decrease in capital expenditures in 1997 as compared to 1996 when the Company established its NOC and network. The change was also a result of increases in acquisitions of equipment during 1997 in the amount of $70,000 relating principally to assets acquired in connection with the Company's purchase of the assets of AllNet. Net cash provided by financing activities decreased from $907,000 for 1996 to $223,000 for 1997. This change is primarily attributable to the net proceeds of $927,000 received in connection with the 1996 Financing as compared to the net proceeds of $200,000, received in connection with the 1997 Financing. At December 31, 1997, the Company had outstanding indebtedness owing to Interchange State Bank in the amount of $12,000. This debt bears interest at the rate of 10% per annum, is due and payable in December 1998 and is secured by a lien on substantially all the assets of the Company and the personal guarantees of Messrs. Loglisci and Altieri. The Company has not allocated any proceeds of this offering to repay such indebtedness. See "Certain Transactions." At December 31, 1997, the Company had obligations pursuant to capital lease obligations in the aggregate amount of $105,000. These capital lease obligations are secured by the personal guarantees of Messrs. Loglisci, Frederick and Altieri and, in addition, certain of these capital lease agreements are secured by the equipment which is the subject of the capital lease. See "Certain Transactions." In connection with the acquisition of Entelechy in January 1998, the Company assumed debt in the principal amount of $150,000 which will automatically convert into 25,000 shares of Common Stock upon the consummation of this offering. The Company believes that the proceeds of this offering, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change (due to changes in market conditions, competitive factors or new opportunities that may become available in the future), its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow prove to be insufficient to implement its business plans (due to unanticipated expenses, technical difficulties or otherwise), the Company may be required to seek additional financing or curtail its expansion activities. There can be no assurance that the proceeds of this offering will be sufficient to permit the Company to implement its business plans, that any assumptions relating to the implementation of such plans will prove to be accurate or that any additional financing would be available to the Company on commercially reasonable terms, or at all. Fluctuations in Operating Results The Company's operating results may fluctuate significantly from period to period as a result of the length of the Company's sales cycle, as well as from client budgeting cycles; the introduction of new products and services by competitors; the timing of expenditures; pricing changes in the industry; technical difficulties; and general economic conditions. The Company's business is generally subject to lengthy sales cycles, which requires the Company to make expenditures and use significant resources prior to receipt of corresponding revenues. Historically, the Company's revenues have been higher in the fourth quarter as a result of client budgeting and expenditure cycles. Inflation Inflation has not had a significant impact on the Company's results of operations. 22 Year 2000 Issue The Company has assessed the potential issues associated with the year 2000 and believes that its cost to address such issues will not be material. The Company also believes that the costs or consequences of an incomplete or untimely resolution would not result in the occurrence of a material event or uncertainty reasonably likely to have a material adverse effect on the Company. 23 BUSINESS Overview The Company provides a broad range of computer networking, programming, applications development and Internet services primarily to businesses and organizations, including governmental and not-for-profit entities. The Company has adopted a business model that includes Systems Integration; Programming and Applications Development; and Internet services. These services are designed to permit clients to outsource a variety of business needs such as computer networking, programming, maintenance and technical support. The Company believes that by combining computer consulting and Internet related services, it is positioned to capitalize on increasing demand by businesses and organizations for comprehensive, cost-effective information technology solutions. The Systems Integration services offered by the Company include systems consulting, analysis and design; implementation and integration; and maintenance. The Company's Programming and Applications Development services consist primarily of custom programming for Internet and Intranet applications, including distance learning and on-line trading applications, and Web-site development and maintenance. Internet services offered by the Company include dedicated leased line and frame relay connections, Web hosting, dial-up access and electronic mail services. For the year ended December 31, 1997, Systems Integration, Programming and Applications Development and Internet services accounted for approximately 55%, 9% and 36%, respectively, of the Company's revenues. The Company's principal marketing efforts are focused on large businesses and organizations with systems development and maintenance needs. The Company's clients during the year ended December 31, 1997 included Aetna; Mobil; Black & Decker Corp.; TRW, Inc.; Bell Atlantic; Unilever; Scientific Applications International Corporation; the City of Fairfax, Virginia; certain agencies of the U.S. Department of Defense; and The Archdiocese of New York (Catholic Healthcare Network). The Company's telecommunications network is comprised of a secure NOC in Cedar Knolls, New Jersey, leased high-speed data lines and nine POPs serving the northern New Jersey and New York City metropolitan area. The proximity of a POP to subscribers enables subscribers in the area in which a POP is located to access the Internet through a local telephone call. The Company currently supports 56k and ISDN technologies at each of its POPs. The Company has approximately 3,200 dial-up subscribers as of the date of this Prospectus. For the year ended December 31, 1997, dial-up access services accounted for approximately 15% of the Company's revenues. The Company commenced operations in June 1995 as an Internet service provider offering Web-site hosting services. Since April 1996, the Company has acquired Interactive Networks, Mordor and AllNet, each an Internet service provider principally offering dial-up access services. The Company began to provide Systems Integration and Programming and Applications Development services in April 1996 and has increasingly emphasized such services. In January 1998, the Company acquired Entelechy, a provider of programming and applications development services, including distance learning and on-line trading applications. During the twelve months following the consummation of this offering, the Company will seek to continue to expand its operations through internal growth and acquisitions. Strategy The Company believes that worldwide competition and rapid technological advancements, coupled with a trend to outsource non-core business functions, have created increased demand for computer consulting and Internet related services. The Company's strategy is to capitalize on such increasing demand by (i) pursuing opportunities to expand its existing service offerings, the scope of its operations and client base through selective acquisitions of systems integrators, programmers, applications developers and Internet service providers; (ii) expanding the capacity and geographic scope of its network through the establishment or acquisition of additional POPs and network upgrades; (iii) hiring and retaining additional qualified network engineering, programming and technical personnel; and (iv) expanding its marketing and sales efforts through enhanced cross-marketing of its service offerings. There can be no assurance that the Company will be able to successfully implement this strategy or otherwise expand its operations. 24 Pursue opportunities to expand its service offerings, the scope of its operations and client base through selective acquisitions of systems integrators, programmers, application developers and Internet service providers. The Company intends to continue to seek to acquire systems integrators, programmers, applications developers and Internet service providers. The Company believes that it may most effectively increase the services it offers, expand the scope of its knowledge base to include new networking protocols, endeavor to maintain its existing systems engineering capabilities at the highest possible levels and acquire significant numbers of new Internet access subscribers through selective acquisitions. The Company also believes that the selective acquisitions are an effective way to hire the additional qualified network engineers, programmers and technical personnel that are necessary to meet the needs of its new and existing clients and subscribers. Expand the capacity and geographic scope of the Company's network through the establishment or acquisition of additional POPs and network upgrades. The Company believes that the continued development and geographic expansion of its network through the establishment or acquisition of additional POPs and network upgrades is among the most effective methods of acquiring clients in new geographic markets. The Company believes that the establishment or acquisition of additional POPs within the mid-Atlantic and northeastern United States may increase both the Company's subscriber base and market awareness of the broad range of services offered by the Company. The Company further believes that ongoing network upgrades may enhance the Company's ability to offer its subscribers fast, robust and reliable Internet services. Hire and retain additional qualified network engineering, programming and technical personnel. The Company relies upon qualified network engineering and programming personnel to offer its services, and upon such personnel's ability to provide timely and consistently high-quality, cost-effective services to the Company's clients. To meet the needs of its increasingly large and sophisticated base of clients, the Company must hire and retain additional personnel. The Company routinely recruits personnel who have significant technical knowledge, and offers such personnel ongoing professional training. Additionally, in connection with the commencement of new projects, the Company routinely hires temporary employees to satisfy increased demand for personnel. The Company believes that the utilization of temporary employees provides it with an opportunity to evaluate the skills and knowledge of such persons and maximize the utilization of its resources by determining that long term demand for additional personnel is sufficient prior to hiring such persons as permanent employees. Expand its marketing and sales efforts through enhanced cross marketing of its service offerings. The Company believes that the goodwill it has established with its existing clients and subscribers provides it with enhanced opportunities to cross market the broad range of services offered by the Company. The Company intends to continue expanding its services to be better able to offer to its existing and prospective clients and subscribers the increasing array of computer networking, programming, applications development and Internet services which are becoming available. Industry Overview The computer networking, Internet and information technology industries are dynamic and rapidly changing. Both business and consumer use of computer networks and the Internet are growing quickly and hardware and software companies are increasingly creating new applications and technologies to more fully and easily exploit the potential opportunities created by the Internet. This evolving landscape provides opportunities for enterprises to develop platforms and specialized services to take advantage of new markets and clients. The Company believes that the utilization of Internet and Intranet technology by businesses and organizations has resulted in significant changes in computing environments as such entities move from SNA, mainframes and dedicated lines to TCP/IP, Web servers and the Internet and virtual private networks. The Company believes that the migration from one model to another creates increased opportunities for outsourcing service providers such as the Company. Internet Services. Use of on-line services is expected to grow dramatically through the year 2000 and beyond. Business and organizational use of the Internet is expected to rise significantly as a result of the availability of on-line services that fully exploit the Internet's commercial applications and growth in consumer usage. Notwithstanding the growth in usage of on-line services, consolidation in the Internet services providers market is also anticipated as smaller Internet service providers are acquired by medium- to larger-size Internet service 25 providers and other related companies offering Internet access services. An industry source has predicted that worldwide revenue for commercial Internet access services, exclusive of hosting, security and global planning will have reached $1.5 billion in 1997 and will exceed $15 billion by the year 2000. Systems Integration. The market for systems integration design and consulting services is growing simultaneously with the growth of on-line services. An industry source has predicted that the market for Internet software and hardware, on-premises equipment and services will grow from $2.7 billion in 1995 to approximately $20 billion by the year 2000. An Intranet is a network that is virtually identical to the Internet, except that access to such network is private and not available to users outside the network. Intranets are commonly used by enterprises to allow personnel better access to proprietary information and to allow collaborative work-sharing among users at different or remote locations. An industry source projects that the number of Intranet users will increase 74% from 18 million currently to 133 million users in 2001. As Intranet applications become more complex, systems integrators are expected to play a critical role in resolving system wide issues including those related to the integration of legacy databases and systems and enterprise business processes. Programming and Applications Development. The Company believes that the market for programming and applications development is also growing in connection with the growth in computer networking and Internet services. New programming and applications have assisted and exploited the growth of Internet and Intranet usage. The four key areas of Internet software and applications development are: (i) browser software enabling the retrieval of information or use of communication service, (ii) server software allowing enhancement and retrieval of information as well as uses of communication services, (iii) development/authoring tools to provide better products for both creators/authors and programmers, and (iv) back-end process and database companies that are able to meet the demands for classification and distribution of information. Company Services Systems Integration The Company provides broad range systems integration services, including network planning, design, implementation, operations, optimization, consulting and training. Network Planning. Network planning focuses on providing clients with strategic and tactical reviews of their current network operations and future network requirements. Network planning services provided by the Company encompass a number of critical planning elements including: (i) defining client business requirements; (ii) developing strategic information architectures; (iii) performing network baseline audits; (iv) preparing capacity plans for the physical network, logical transport and services; (v) selecting preferred technologies; and (vi) conducting network security audits and planning. Network Design. Network design includes services that assist in the design of physical, logical and operational information infrastructures. These services involve detailing the network specifications and implementation tactics necessary to achieve clients' business objectives. To accomplish this task, the Company generates a set of work papers that identify the specific technologies to be used and the manner in which such technologies will be configured and implemented. These work papers also provide an analysis of the manner in which new technology will be integrated with the client's existing hardware and software and the manner in which such integrated components will be managed on an ongoing basis. Examples of network design services offered by the Company include: (i) life-cycle planning; (ii) developing future technology integration plans; (iii) defining functional requirements; (iv) developing multi-vendor integration plans; (v) preparing technical design documentation; (vi) developing engineering specifications and documents; (vii) preparing specifications in connection with requests for proposals or other make/buy criteria; and (viii) providing detailed component purchasing lists. Network Implementation. Network implementation includes high value-added network services such as IP addressing and router configuration, as well as traditional system integrator functions such as hardware and software installation and procurement. To serve its clients' networking needs, the Company maintains affiliation and reseller arrangements with various hardware and software vendors, including Hewlett Packard Co., Cisco Systems, and MicroAge, Inc. The Company customizes an implementation plan for each client, which may include the following activities: (i) project management; (ii) integrating new hardware and software products and systems; (iii) building network operations and management centers; (iv) re-configuring and upgrading network elements, systems and facilities; and (v) implementing installation documentation, conformance testing and compliance certification. 26 Network Operations. Network operations includes ongoing tasks necessary to keep the client's network fully operational. The Company provides network operations services to a range of clients, including those with client/server networks running both Internet (TCP/IP) and workgroup (Novell and Microsoft) protocols intermingled with existing (SNA) networks. The Company performs specific operations activities in accordance with individual client requirements only after analyzing the client's existing operating practices. Examples of network operation activities undertaken by the Company include: (i) network administration, including management of user accounts, service levels, and client administrative practices; (ii) network utilization analysis, involving ongoing measurement of network activity against established network baselines; (iii) ongoing management of documentation, including physical assets, policies and procedures; (iv) network trouble shooting, involving fault detection, isolation, repair and restoration; (v) alarm management, including setting alarm levels, cross-correlation, problem diagnosis and dispatch of service resources; (vi) network backup, including design and supervision of backup processes and policies and exercise of disaster recovery procedures; and (vii) routine moves, additions, and changes to network elements, infrastructure and services. Network Optimization. Network optimization involves maximizing a client's rate of return on network investments through such means as reduction of operating costs and increases in network utilization. Optimization is closely related to each of the other phases of network development. Optimization services may be long term in nature, address issues such as cost containment and utilization and are often designed to optimize local area network infrastructures. Network optimization services offered by the Company can also be packaged as discrete projects, designed to present alternatives for optimization of workgroup, departmental, building or campus network investments. Additionally, the Company can provide assistance to clients in optimizing "logical" networks, by addressing a protocol, service or application operating in the larger context of the client's network. Examples of network optimization services provided by the Company include: (i) recommendations for efficient allocation of bandwidth; (ii) network traffic analysis, identification of bottlenecks and recommendations for change; (iii) network process re-engineering; and (iv) knowledge transfer to client operations personnel on topics such as basic practices, or operations of network management tools and stations. Consulting. Consulting consists of providing businesses and organizations with detailed reports and recommendations regarding any or all aspects of their network operations, from a review of the entire network to an audit of a particular protocol. Consulting services provided by the Company are closely related to network optimization and include: (i) security audits and protocol recommendations; (ii) disaster recovery plan audit and protocol recommendations; (iii) network programming and applications; (iv) network cost audits; and (v) strategic plan development. Training. Training services are provided to businesses and organizations seeking information and guidance with respect to the manner in which such entities may effectively utilize computer networks, the Internet and other information technology prior to the time such businesses make investments of capital, time and/or personnel. The Company also offers customized educational programs that are designed to provide an opportunity for an entity to conceptualize and determine how computer networks and the Internet can best be utilized to serve the entity's needs. Additionally, the Company assists organizations that need technical support in establishing and maintaining internal network operations. Training services offered by the Company include: (i) Internet strategy development; (ii) basic Internet consulting; (iii) one-on-one Internet training for executives; and (iv) group training for non-computer professionals. Programming and Applications Development Programming for Intranet and Internet applications requires knowledge of several different programming languages. These include PERL scripting and UNIX, Windows NT, C++, JAVA, HTML and customized database and applications programming. The Company maintains a full range of network and applications programming expertise to: (i) ensure that clients' networks and applications are specifically tailored to meet their requirements; (ii) develop and maintain clients' Web-sites; (iii) provide clients with technical assistance; (iv) provide consulting services; and (v) ensure the secure and continuous running of the Company's Internet hosting and access networks. Examples of programming and applications development services provided by the Company include customized applications development, web-site development and maintenance and chat room hosting and development. Customized Applications Development. Customized application development includes services such as: Oracle and Microsoft Access database development of full-featured "shopping cart" style on-line catalogs to 27 enhance Web-sites and Intranets; and Distance Learning and on-line trading applications development. Distance Learning applications allow businesses and organizations to distribute course material, administer training evaluations, and manage employee-student status from a single (or multiple) location via the Internet or an Intranet. Distance Learning also allows for a globally deployed, instantaneously up-datable, training management system. Distance Learning applications development incorporates the latest technologies in Internet programming development, including integration of desk-top virtual reality, streaming audio/video segments and database applications that track employee-student status and performance. On-line trading applications allow a brokerage client to review stock quotations and account positions, manage portfolios and place trade orders through the brokerage's Web-site. Web-Site Development and Maintenance. Web-site development involves the design and development of a client's Web-site production. Working with clients and outside graphic designers and programmers, the Company designs, creates and maintains multi-media, interactive Web-sites for its clients, using the latest applications and development tools, such as Oracle and Cold Fusion. Chat-Room Hosting and Development. "Chat" allows geographically disbursed people to conduct meetings and hold forums on-line via the Internet. The "chat" hosting and development services provided by the Company include both public "chat-rooms," which allow anyone with access to the Internet to participate in the discussion, and private "chat-rooms," to which access is limited by security protocols. Private "chat-rooms" are routinely used by businesses and organizations to conduct private, secure meetings via the Internet or Intranets. Internet Services The Company provides a broad range of Internet services, including T-3 and T-1 service, dedicated leased lines, dial-up services and hosting services. Internet Access. The Internet access options offered by the Company to its subscribers include: (i) 56 kbps, T-1 and T-3 service; (ii) integrated services digital networks (ISDN); (iii) dedicated modems for SLIP/PPP access; and (iv) dial-up accounts. The Company's high-speed, digital communications network provides business and consumer subscribers with direct access to the full range of Internet applications and resources, including global electronic mail, the Web, USENET news groups, chat-rooms and file transfer protocols. Hosting. Internet hosting is a multi-media Internet service that permits clients to have a continued presence on the Web directly through the Company's high-speed servers and a T-3 telecommunications line. Hosting services provided by the Company include virtual hosting and co-location. Virtual hosting allows a client's Web-site (which may be hosted on either a UNIX or NT server platform) to be connected to the Internet via the Company's NOC. Co-location permits a client's Internet content to be hosted on a dedicated server located at the Company's NOC which server is either owned by or leased by the Company to the client. Co-location at the Company eliminates or substantially reduces the capital investments a client would otherwise be required to make to purchase and manage necessary hardware, software and network operations and eliminates certain of the client's security concerns associated with connection of the client's private network(s) to a Web server. Network Infrastructure The Company facilitates access to the Internet by means of a regional telecommunications network consisting of high-speed dedicated telecommunications links (including a T-3 and multiple T-1 links), computer hardware and software, one physical and eight virtual POPs in locations throughout the northern New Jersey and New York City metropolitan area, and the NOC which securely houses the Company's backend server and is the point of interconnectivity of the Company's T-3 line and T-1 lines which are leased from Bell Atlantic and WorldCom. The Company's POPs, external interconnect links and NOC are interconnected by a robust, router-based TCP/IP network which includes interconnection of POPs via a T-1 rate facility. Physical local loop connectivity is provided over fault tolerant SONET fiber facilities and diverse-route conventional facilities. The Company maintains one high-bandwidth path to the Internet with UUNet. Each physical POP includes network access server (dial-access terminal server) hardware, a router and leased-line interface equipment. The virtual POPs are 28 local telephone numbers (outside of the local calling area of the physical POPs) through which calls are aggregated by a local exchange carrier or other service provider prior to transfer to the Company via a dedicated trunk route. For clients located in geographic areas not serviced by either a physical or virtual POP, the Company provides worldwide remote access to its network through Ipass, a consortium of regional Internet service providers. The availability of Ipass remote access permits the Company to provide high quality worldwide Internet access to its clients while permitting it to benefit from the economies of scale attributable to a regional network. The Company operates numerous application specific server systems to provide assist-functionality for client applications and to support Web-site hosting and other business services. The Company has made and expects to continue to make significant investments in its computing hardware which includes Pentium PC and BSDI UNIX servers (running Windows NT and BSDI UNIX). To efficiently and effectively serve its clients and subscribers, the Company utilizes two types of operating systems. The Internet Services network (dial-access consumer, e-mail, news and consumer Web) utilizes UNIX for its scalability and security features, while business clients are served through either of UNIX or Microsoft-based technologies. The Company is currently dependent upon Bell Atlantic and WorldCom to provide leased telecommunication lines on a cost-effective and continuous basis and on UUNET to provide Internet access. In accordance with industry custom, the Company does not maintain interconnect agreements with these suppliers. The temporary discontinuation or termination of service to the Company by any of these suppliers, would result in interruptions in the Company's provision of service to its clients which would adversely affect its business. The Company expects to use a portion of the proceeds of this offering to purchase additional software to upgrade its network and network component management capabilities. Such software will enhance the Company's ability to monitor its routers, switches and other network and server components, and provide "real time" identification of service outages and delays. Certain other software purchases will allow the Company to analyze its network functionality from the viewpoint of a subscriber, measuring such factors as the ability to dial-in without blockage, speed and reliability of authentification, and availability and adequacy of the servers and connectivity. By testing these factors objectively and quantitatively, the Company believes that it will be better able to monitor the adequacy of its existing service and provide proactive trending reports for use in planning future system expansion. Technical Support The Company believes that reliable technical support is critical to retaining existing and attracting new clients and subscribers. Currently, the Company provides (i) live telephone assistance, (ii) e-mail-based assistance, (iii) help sites and Internet guide files on the Company's Web-site, and (iv) printed reference material. The Company intends to use a portion of the proceeds of this offering to enhance its monitoring of the network by increasing staffing at its NOC and making technical personnel available to its clients and subscribers 24 hours a day, seven days a week. Sales and Marketing The Company's sales and marketing strategy is driven by the Company's ability to offer its clients comprehensive computer consulting and Internet related services ranging from Internet access, Web-site development and hosting to computer networking, systems consultation, integration and management. The Company's marketing efforts are primarily focused on large- and medium-sized businesses and organizations, and to a lesser extent, on small businesses and consumers. The Company utilizes both direct and third-party distribution channels to market its services. The Company plans to increase its print and radio advertising and enlarge its sales staff in existing and new geographic markets. The Company also intends to hire a Director of Marketing, whose responsibilities will include overseeing and developing existing and new marketing strategies. The Company intends to use a portion of the proceeds of this offering to effectuate such plans. The Company currently employs two full-time sales people, with one assigned to the northern New Jersey and New York City metropolitan area and one assigned to the Washington, D.C. metropolitan area. The Company believes that the technical knowledge of its executive officers and network engineers enhance the efforts of its sales staff and enables the Company to develop sales proposals meeting the specific needs and budgets of its prospective clients. The Company also conducts sales and marketing activities from an office maintained by the Company in Huntsville, Alabama. 29 The Company's marketing efforts principally involve print, radio and direct mailing in areas within the geographic scope of the Company's network. The Company believes that its ability to expand its print, radio and targeted direct mailings, will be important factors in its ability to continue to expand its business and compete effectively. The Company also generates sales leads through referrals from clients, responses to request for proposals, referrals from other computer consulting businesses and Internet service providers, the Company's own Web-site and associated links and industry seminars and trade shows. In addition, the Company believes it has significant opportunities to cross-sell its various services to its existing client base. As a result of the continued extension of services offered by the Company, including systems integration and programming and applications development, the Company has been able to offer its clients a wider range of solutions and capitalize on opportunities which it previously outsourced. Utilizing a portion of the proceeds of this offering, the Company intends to implement marketing and advertising campaigns that focus on the Company's broad range of computer consulting and Internet related services which the Company believes enables it to provide turnkey solutions for its clients. Clients The Company's clients during the year ended December 31, 1997 included Aetna; Mobil; Black & Decker Corp.; TRW, Inc.; Bell Atlantic; Unilever; SAIC; the City of Fairfax, Virginia; certain units of the U.S. Department of Defense and The Archdiocese of New York (Catholic Healthcare Network). As of the date of this Prospectus, the Company has in excess of 3,200 dial-up subscribers, the majority of which are consumers, in the northern New Jersey and New York City metropolitan area. The Company is dependent on a limited number of clients for a substantial portion of its revenues. For the year ended December 31, 1997, the Company's largest clients, Aetna (which engaged the Company in October 1997) and Mobil, accounted for approximately 54.2% and 5.2%, respectively, of the Company's revenues. Revenues derived from the Company's consulting contracts are generally non-recurring in nature. The Company's contract with Aetna provides for the Company to render services pursuant to purchase orders, each of which constitutes a separate contractual commitment by Aetna. The last purchase order issued relates to work to be performed through April 1998. Non-renewal or termination of the Company's contract with Aetna or the failure by Aetna to issue additional purchase orders to the Company under the existing contract would have a material adverse effect on the Company. There can be no assurance that the Company will obtain additional contracts for projects similar in scope to those previously obtained, that the Company will be able to retain existing clients or attract new clients or that the Company will not remain largely dependent on a limited client base which may continue to account for a substantial portion of the Company's revenues. Competition The markets for the Company's services are highly competitive. The Company believes that competition in the systems integration and programming and applications development consulting market is based upon quality of service, responsiveness to client demands, the number and availability of qualified engineers and programmers, price, project management capability, technical expertise, size and reputation. Additionally, the Company further believes that competition in the Internet services market is primarily based upon quality of service; access to local POPs; range of services; technical support; and experience. The Company competes with numerous large companies that have substantially greater market presence and financial, technical, marketing and other resources than the Company, including (i) large information technology consulting and service providers and application software firms such as Andersen Consulting, Cambridge Technology Partners, Electronic Data Systems Corporation and American Management Systems; (ii) international, national, regional and commercial Internet service providers such as Performance Systems International, Inc., Digex, Inc. and UUNET; (iii) established on-line services companies such as America Online, Inc. and Prodigy Service Company; (iv) computer hardware and software and other technology companies such as IBM and Microsoft Corp.; (v) national long distance carriers such as AT&T Corp., MCI Communications Corp. and Sprint Corp. and regional telephone companies, including Bell Atlantic, and cable operators; and (vi) major accounting 30 firms. Many of the Company's competitors have announced plans to expand their service offerings and increase their focus on the computer networking and Internet related services' markets. As a result, competition is expected to intensify for highly skilled network engineers, programmers and technicians. As a result of increased competition, the Company also expects to encounter significant pricing pressure, which in turn could result in significant reductions in the average selling price of the Company's services. There can be no assurance that the Company will be able to offset the effects of any such price reductions through an increase in the number of clients, higher revenue from enhanced services, cost reductions, or otherwise. In addition, the Company believes that continuing consolidation in the Internet services market could result in increased price and other competition in the industry. Increased price or other competition could make it difficult for the Company to gain additional market share and could have a material adverse effect on the Company. There can be no assurance that the Company will be able to compete successfully. Employees As of March 10, 1998, the Company had 46 full-time employees, including four executive officers, four programmers, 26 network engineers and technicians, six persons devoted exclusively to providing technical support to clients, two persons dedicated to sales and marketing activities and four administrative personnel. In connection with the anticipated expansion of its operations and network and the growth of its client and subscriber base, the Company expects to use a portion of the proceeds of this offering to hire additional network engineers, programmers and technical personnel to enable the Company to more effectively monitor the network by physically staffing its NOC 24 hours a day, seven days a week and better respond to client demands for service and technical support. Such skilled personnel are currently in high demand. There can be no assurance that the Company will be able to successfully recruit, hire and retain such personnel. None of the Company's employees are represented by a labor union and the Company is not a party to any collective bargaining agreement. The Company believes that its employee relations are good. To maximize the utilization of its resources and evaluate the skills and knowledge of certain prospective employees, the Company routinely hires temporary personnel to satisfy increased demand for personnel in connection with the commencement of new projects. As of March 10, 1998, the Company had 16 temporary employees in its service. Properties The Company serves its clients through its corporate headquarters and NOC, each located in Cedar Knolls, New Jersey, and its regional offices located in Fairfax, Virginia, and Huntsville, Alabama, as well as its network of nine POPs located throughout the northern New Jersey and New York City metropolitan area. The Company's corporate headquarters and NOC are located in a 9,830 square foot leased facility in Cedar Knolls, New Jersey. The lease extends through March 31, 2003 and provides for monthly rental payments in the current amount of $7,962 which amount will increase, commencing in April 1998, to $12,954 during the remaining lease term, subject to increase in proportion to facility operating costs. The Company's Huntsville office is located in a 1,800 square foot facility pursuant to a lease which extends through December 31, 2001. The monthly rental payment for such space is $1,500 which amount is paid through the rendering by the Company of services to the lessor. The Company believes that the terms of the lease are no less favorable than those that could have been obtained from an unaffiliated third party. The Company's regional office in Fairfax is located in a 170 square foot leased facility. The lease, originally for a one-year term, expires May 1998. The monthly rental payment under the Fairfax lease is $275. The Company does not expect to renew this lease upon its expiration or seek other space in the Fairfax area. In addition to its office space, the Company currently leases the site at which its physical POP is located. In consideration of space to locate its physical POP, the Company provides Internet access services to the lessor. The Company believes that it would be readily able to locate other space in which to house its corporate headquarters and NOC, regional offices and its physical POP if any leased space currently being utilized were to become unavailable. 31 Legal Proceedings In January 1998, the Company became aware of a threatened suit for breach of contract and wrongful termination on the basis of race and gender discrimination in connection with its dismissal of an employee in December 1997. The claimant has asserted that she is entitled to the full amount of compensation payable under a two year employment agreement between the claimant and the Company. The employment agreement has a two-year term and provides for the payment by the Company of an annual salary in the amount of $38,000. The claimant is seeking an amount equivalent to six months salary, plus attorneys' fees of $1,000, aggregating $20,000 in settlement of the matter. There can be no assurance that this matter will be resolved in a manner favorable to the Company. In February 1998, the Company became aware of a threatened suit for damages and expenses allegedly incurred by an individual and other persons and/or companies that the individual claims to represent resulting from the Company's termination of a subscriber's Internet access service. The claimant also alleges that the Company's termination of service was a violation of the claimant's civil rights. The claimant seeks an unspecified amount of expenses and damages. There can be no assurance that this matter will be resolved in a manner favorable to the Company. 32 MANAGEMENT Executive Officers and Directors The directors and executive officers of the Company are as follows:
Name Age Position ---- ---- -------- Nicholas R. Loglisci, Jr. .......... 36 President, Chief Operating Officer and Director Clark D. Frederick ................. 35 Chief Technical Officer and Director Frank R. Altieri, Jr. .............. 31 Chief Information Officer and Director Brian W. Seidman ................... 35 General Counsel and Secretary Jeffrey E. Brenner ................. 50 Chief Financial Officer John J. Brighton ................... 55 Director Susan Holloway Torricelli .......... 42 Director Barrett N. Wissman ................. 35 Director
Nicholas R. Loglisci. Mr. Loglisci, a founder of the Company, has served as the Company's President and Chief Operating Officer and as a director since the Company's inception in February 1995. Prior to founding the Company, Mr. Loglisci was employed by Allen Telecom Group from June 1994 to June 1995 as the New York Metropolitan Area Sales Manager. From November 1990 to June 1994, Mr. Loglisci was employed in a variety of sales, marketing and management positions with Motorola, Inc. Prior to his corporate experience, Mr. Loglisci served as an officer in the U.S. Army from May 1985 to July 1990. Mr. Loglisci is a graduate of both the U.S. Army's Airborne and Ranger schools. Mr. Loglisci holds a B.S. in Engineering from the United States Military Academy and an M.B.A. from New York University's Stern School of Business. Clark D. Frederick. Mr. Frederick, a founder of the Company, has served as the Company's Chief Technical Officer and as a director since the Company's inception. Prior to founding the Company, Mr. Frederick was employed from June 1991 to April 1995 by Bell Atlantic where he was responsible for designing and managing Bell Atlantic's first Center for Networked Multimedia. Mr. Frederick was also responsible for managing Bell Atlantic's Business Development Task Force and coordinating research activities for video dial tone and Internet access technologies. Prior to his corporate experience, Mr. Frederick served as an officer in the U.S. Army from May 1985 to June 1991. Mr. Frederick holds a B.S. in Aerospace Engineering from the United States Military Academy and a Masters in Information Systems from the University of Southern California. Frank R. Altieri, Jr. Mr. Altieri has been Chief Information Officer and a director of the Company since joining the Company in April 1996. From 1993 to 1996, Mr. Altieri was the President of Interactive Networks, an Internet service provider which was acquired by the Company in April 1996. From 1989 to 1993, Mr. Altieri served as the Management Information Systems Director for Nutronic Circuit Co., Inc. Brian W. Seidman. Mr. Seidman has served as the General Counsel and Secretary, and was a director of the Company from inception to February 1998. From February 1994 to present, Mr. Seidman has also been of counsel to the law firm of Seidman, Silverman and Seidman. From March 1993 to January 1994, Mr. Seidman served as counsel to the New York State Senate Transportation Committee. During 1992, Mr. Seidman served as a legislative assistant to U.S. Representative Ron Wyden and also served as counsel to the U.S. House of Representatives Small Business Committee Subcommittee on Regulation Business, Opportunity and Technology. From November 1989 to December 1991 Mr. Seidman was associated with the law firm of Cahill, Gordon and Reindel and from October 1988 to November 1989 Mr. Seidman was associated with the law firm of Cadwalader, Wickersham and Taft. Mr. Seidman holds a Bachelor of Arts in Political Science from Colgate University, summa cum laude, and a J.D. from the Harvard Law School. Jeffrey E. Brenner. Mr. Brenner has been the Chief Financial Officer of the Company since March 1998. From January 1985 to March 1998, Mr. Brenner has served as a Senior Vice President and Chief Financial 33 Officer of Database America Companies, Inc., a corporation providing direct marketing, information and computer services. Prior to joining Database America Companies, Inc., Mr. Brenner served as Director of Financial Administration from 1981 to 1985 and as Controller from 1974 to 1980 of Automatic Data Processing (ADP). Mr. Brenner holds a B.B.A. in Finance and Marketing from George Washington University. John J. Brighton. Mr. Brighton has agreed to become a director of the Company upon the consummation of this offering. Since October 1997, Mr. Brighton has served as Chief Information Officer, Information Technology of Aetna. From July 1996 to October 1997, Mr. Brighton served as the Co-Chief Information Officer, Information Technology of Aetna. Prior to the merger of Aetna and U.S. Healthcare, Inc., Mr. Brighton served from 1994 to 1996 as Chief Information Officer of U.S. Healthcare, Inc. From September 1984 to November 1994, Mr. Brighton served as the Vice President-Information Processing of Bell Atlantic. Mr. Brighton holds a B.S. in Business Administration from Seton Hall University and an M.B.A. from St. John's University. Susan Holloway Torricelli. Ms. Torricelli has agreed to become a director of the Company upon the consummation of this offering. Since 1988, Ms. Torricelli has been the President of the Susan Holloway Torricelli Company, a consulting firm providing development and financial management, governmental affairs, media relations and special event consulting services. Ms. Torricelli holds a B.A. in English and Spanish from the University of Oklahoma. Barrett N. Wissman. Mr. Wissman has agreed to become a director of the Company upon the consummation of this offering. Since January, 1993, Mr. Wissman has served as a Managing Director of the general partner of HW Partners, an investment firm. From 1987 to December 1992, Mr. Wissman served as Chief Executive Officer of Athena Products Corporation, an international manufacturer of chemicals and household consumer products. Mr. Wissman holds a B.S. in Economics and Political Science from Yale University, cum laude, and an M.A. from Southern Methodist University. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Executive officers are elected by the Board of Directors to hold office for such term as may be prescribed by the Board of Directors. The Company has agreed, for a period of five years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company or, at the Underwriter's option, as a non-voting adviser to the Company's Board of Directors. The Company's officers, directors and principal stockholders have agreed to vote their shares of Common Stock in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. Committees Prior to the date of this Prospectus, the Board of Directors intends to establish a Compensation Committee and Audit Committee. The Compensation Committee will be responsible for reviewing the compensation for all officers and directors of the Company and reviewing general policy matters relating to the compensation and benefits of all employees. The Committee will also administer the 1998 Stock Option Plan. The Audit Committee will be responsible for recommending to the Board of Directors the annual engagement of a firm of independent accountants and for reviewing with the independent accountants the scope and results of audits, the internal accounting controls of the Company and audit practices and professional services rendered to the Company by the independent accountants. Directors' Compensation Directors who are officers or employees of the Company receive no additional compensation for service as members of the Board of Directors or committees thereof. Directors are reimbursed for their reasonable expenses in connection with attendance at meetings of the Board of Directors. All directors who are not employees of the Company (the "Eligible Directors") are eligible to participate in the 1998 Stock Option Plan. Upon the consummation of this offering and subsequently upon the initial election of an Eligible Director, such directors will be granted an option to purchase 10,000 shares of Common Stock (the "Initial Options"). The Initial Options will become exercisable in full on the first anniversary of the date of grant. In addition, immediately after the annual 34 meeting of stockholders of the Company, each Eligible Director elected or reelected at such meeting will receive an option to purchase 3,000 shares of Common Stock (the "Annual Options"). The Initial Options and Annual Options have a term of ten years and an exercise price payable in cash or shares of Common Stock. The exercise price for the Initial Options granted on the date of consummation of this offering will be equal to the initial public offering price of the shares offered hereby. The exercise price of additional Initial Options and the Additional Options granted after the Common Stock is quoted on Nasdaq will be equal to the market price of the Common Stock on the date of grant. Outside directors will receive such additional compensation for their service as the Board of Directors may determine from time to time. Executive Compensation The following table sets forth the aggregate compensation paid to the Company's President and Chief Operating Officer, Chief Technical Officer and Chief Information Officer for the year ended 1997. During 1997, none of the Company's executive officers received compensation, including bonuses, in excess of $100,000. Summary Compensation Table
Annual Compensation ------------------------------------------- Other Name and Principal Position Year Salary Bonus Compensation(1) - -------------------------------------- ------ ---------- ----------- ---------------- Nicholas R. Loglisci, Jr. ............ 1997 $53,000 $ 15,000 $3,600 President and Chief Operating Officer Clark D. Frederick ................... 1997 $53,000 $ 15,000 $3,600 Chief Technical Officer Frank R. Altieri, Jr. ................ 1997 $53,000 $ 15,000 $3,600 Chief Information Officer
- ------------ (1) Represents payment of automobile allowances. Employment Agreements In March 1998, the Company entered into four-year employment agreements with each of Messrs. Loglisci, Frederick and Altieri, pursuant to which Mr. Loglisci is employed as the Company's President and Chief Operating Officer, Mr. Frederick is employed as the Company's Chief Technical Officer and Mr. Altieri is employed as the Company's Chief Information Officer. Pursuant to the employment agreements, each executive is entitled to compensation consisting of an annual base salary in the amount of $90,000 and a bonus based on the achievement of certain performance criteria, including the profitability of the Company. Each executive is also subject to certain non-competition, confidentiality and disclosure of invention obligations. In March 1998, the Company entered into a four-year employment agreement with Mr. Brenner pursuant to which Mr. Brenner is employed as the Company's Chief Financial Officer. Pursuant to the employment agreement, Mr. Brenner is entitled to compensation (subject to annual review) consisting of an initial annual base salary in the amount of $125,000, a bonus based on the achievement of certain performance criteria, including profitability of the Company, and a monthly automobile allowance. On the date Mr. Brenner entered into the employment agreement, the Company granted to Mr. Brenner options to purchase 60,000 shares of Common Stock at an exercise price equal to the initial public offering price of the shares sold in this offering. In the event Mr. Brenner's employment is terminated for any reason, Mr. Brenner will be entitled to receive compensation accrued and unpaid as of the date of termination. In the event Mr. Brenner is terminated by the Company for other than cause, or there is a change in control of the Company, the Company will be required to pay Mr. Brenner his annual base salary for a period of one year after termination and options then held by Mr. Brenner will automatically vest and become exercisable. Mr. Brenner is also subject to certain obligations of non-competition, confidentiality and disclosure of inventions imposed upon him pursuant to the employment agreement. 1998 Equity Incentive Option Plan In March 1998, the directors and stockholders of the Company approved the 1998 Stock Option Plan, pursuant to which employees of the Company are eligible to receive incentive stock options and officers, directors, employees and consultants of the Company are eligible to receive non-qualified stock options to purchase up to an aggregate of 350,000 shares of Common Stock. 35 With respect to incentive stock options, the 1998 Stock Option Plan provides that the exercise price of each such option must be at least equal to 100% of the fair market value of the Common Stock on the date of grant (110% in the case of stockholders who, at the time the option is granted, own more than 10% of the outstanding Common Stock), and requires that all such options have an expiration date not later than that date which is one day before the tenth anniversary of the date of the grant (or the fifth anniversary of the date of grant in the case of 10% stockholders). However, with certain limited exceptions, in the event that the option holder ceases to be employed by the Company, or engages in or is involved with any business similar to that of the Company, such option holder's incentive options immediately terminate. Pursuant to the provisions of the 1998 Stock Option Plan, the aggregate fair market value, determined as of the date(s) of grant, for which incentive stock options are first exercisable by an option holder during any one calendar year cannot exceed $100,000. With respect to non-qualified stock options, the 1998 Stock Option Plan requires that the exercise price of all such options be at least equal to 100% of the fair market value of the Common Stock on the date such option is granted and requires that all such options have an expiration date not later than that date which is one day before the tenth anniversary of the date of the grant of such option. Except for the options to purchase 60,000 shares granted to Mr. Brenner, no options have been granted under the 1998 Stock Option Plan. Limitation of Liability and Indemnification Section 145 of the DGCL contains provisions entitling the Company's directors and officers to indemnification from judgments, fines, amounts paid in settlement and reasonable expenses (including attorney's fees) as the result of an action or proceeding in which they may be involved by reason of having been a director or officer of the Company. In its Restated Certificate of Incorporation, the Company has included a provision that limits, to the fullest extent now or hereafter permitted by the DGCL, the personal liability of its directors to the Company or its stockholders for monetary damages arising from a breach of their fiduciary duties as directors, Under the DGCL as currently in effect, this provision limits a director's liability except where such director (i) breaches his duty of loyalty to the Company or its stockholders, (ii) fails to act in good faith or engages in intentional misconduct or a knowing violation of law, (iii) authorizes payment of an unlawful dividend or stock purchase or redemption as provided in Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This provision does not prevent the Company or its stockholders from seeking equitable remedies, such as injunctive relief or rescission. If equitable remedies are found not to be available to stockholders in any particular case, stockholders may not have any effective remedy against actions taken by directors that constitute negligence or gross negligence. The Restated Certificate of Incorporation also includes provisions to the effect that (subject to certain exceptions) the Company shall, to the maximum extent permitted from time to time under the DGCL, indemnify, and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under the DGCL, as it may from time to time be in effect. In addition, the Bylaws require the Company to indemnify, to the fullest extent permitted by law, any director, officer, employee or agent of the Company for acts which such person reasonably believes are not in violation of the Company's corporate purposes as set forth in the Restated Certificate of Incorporation. At present, the DGCL provides that, in order to be entitled to indemnification, an individual must have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the Company's best interests. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or other persons controlling the Company pursuant to the foregoing provisions, the Company has been advised that in the opinion of the Securities and Exchange Commission (the "Commission"), such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 36 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to the Company, as of the date of this Prospectus and as adjusted to reflect the sale by the Company of 1,000,000 shares offered hereby, with respect to the beneficial ownership of shares of Common Stock by (i) each person who is known by the Company to be the beneficial owner of more than five percent of the outstanding shares of Common Stock, (ii) each director or person who has agreed to become a director of the Company and (iii) all executive officers and directors of the Company as a group.
Number of Shares of Percentage of Outstanding Shares of Common Stock Beneficially Owned Name and Address Common Stock ----------------------------------- of Beneficial Owner(1) Beneficially Owned(2) Before Offering After Offering - ---------------------- ----------------------- ----------------- --------------- Nicholas R. Loglisci, Jr. ............... 312,846 20.1 12.2 Clark D. Frederick(3) ................... 312,846 20.1 12.2 Frank R. Altieri, Jr. ................... 312,846 20.1 12.2 Brian W. Seidman(4) ..................... 78,211 5.0 3.0 Jeffrey E. Brenner ...................... -- -- -- John J. Brighton ........................ -- -- -- Barrett N. Wissman (5) .................. 10,291 * * Susan Holloway Torricelli ............... -- -- -- All directors and executive officers as a group (8 persons) ...................... 1,027,040 65.3% 39.6%
- ------------ * Less than 1%. (1) Unless otherwise indicated, the address of each beneficial owner is 2 Ridgedale Avenue, Suite 350, Cedar Knolls, New Jersey 07927. (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that the warrants, options or convertible securities that are held by such person (but not those held by any other person) and which are exercisable or convertible within 60 days of the date of this Prospectus, have been exercised. (3) Mr. Frederick and Carla Frederick own these shares of Common Stock as joint tenants. (4) Consists of shares of Common Stock owned of record by Sycamore Equities, Inc. Mr. Seidman is the President and sole stockholder of Sycamore Equities, Inc. The address of each of Sycamore Equities, Inc. and Mr. Seidman is 600 Third Avenue, New York, New York 10016. (5) Represents shares of Common Stock issuable upon exercise of Warrants beneficially owned by Mr. Wissman. Mr. Wissman's address is 1601 Elm Street, Suite 4000, Dallas, Texas 75201. 37 CERTAIN TRANSACTIONS In connection with the Company's acquisition of Interactive Networks in April 1996, the Company issued 312,846 shares of Common Stock to Frank R. Altieri, Jr., Chief Information Officer and a director of the Company, and 5,146 shares of Common Stock to his father, Frank R. Altieri, Sr., in exchange for all of the issued and outstanding capital stock of Interactive Networks. Also in connection with the Company's acquisition of Interactive Networks, certain bank indebtedness was personally guaranteed by Messrs. Altieri and Loglisci. At December 31, 1997, the outstanding amount of such indebtedness was $12,000. Messrs. Loglisci, Altieri and Frederick are personal guarantors of the obligations of the Company arising under certain equipment lease agreements. The original aggregate amount of guaranteed capital lease obligations was $186,965. At December 31, 1997, the aggregate amount of guaranteed capital lease obligations was $105,000. In connection with the 1995 Financing, Nicholas R. Loglisci, Sr., the father of Nicholas R. Loglisci, Jr., and Steven Loglisci, the brother of Nicholas R. Loglisci, Jr., each purchased $10,000 principal amount of the 1995 Notes and 4,116 shares of Common Stock. The Company intends to use a portion of the proceeds of this offering to repay all the outstanding indebtedness arising under the 1995 Notes, including the 1995 Notes held by Mr. Loglisci, Sr. and Mr. Steven Loglisci. In connection with the 1996 Financing, Mr. Loglisci, Sr., Mr. Steven Loglisci, Terri Frederick, the sister of Clark D. Frederick, Jeanne Frederick, the sister of Clark D. Frederick, Patsy and Jennifer Loglisci, the uncle and aunt of Nicholas R. Loglisci, Jr., Joseph Altieri, the brother of Frank R. Altieri, Jr. and Gloria and Irving Seidman, the parents of Brian W. Seidman, purchased 3,087; 25,727; 1,029; 1,029; 2,572; 1,029 and 2,058 shares of Common Stock, respectively, at a price of $3.88 per share. In connection with the 1997 Financing, Mr. Steven Loglisci, Mr. Frank R. Altieri, Sr., and Barrett N. Wissman purchased 1997 Notes in the original principal amount of $18,750, $25,000 and $50,000, respectively, and received Warrants to purchase 3,895, 5,145 and 10,291 shares of Common Stock, respectively, at an exercise price of $4.20 per share. The Company intends to use a portion of the proceeds of this offering to repay the 1997 Notes, including the 1997 Notes held by Mr. Steven Loglisci, Mr. Altieri, Sr. and Mr. Wissman. To facilitate the acquisition of certain computer equipment, Messrs. Loglisci, Frederick and Altieri periodically advanced personal funds to the Company. Funds advanced to the Company by Messrs. Loglisci, Frederick and Altieri amounted to $43,105, $272,212 and $5,300, respectively, during the year ended December 31, 1996 and $46,054, $349,874 and $7,750, respectively, during the year ended December 31, 1997. The advanced funds were repaid to each of the executives without interest. Each of Messrs. Loglisci, Frederick and Altieri have advised the Company that he does not intend to make advances to the Company subsequent to the consummation of this offering. Since the inception of the Company, Sycamore Equities, Inc., a company wholly-owned by Brian W. Seidman, General Counsel and Secretary of the Company, has rendered management consulting services to the Company. The fees incurred by the Company for such services were $16,000 and $14,000 during the years ended December 31, 1996 and 1997, respectively. Any future transactions between the Company and its officers will be on terms no less favorable than could be obtained from unaffiliated third parties and approved by a majority of the independent and disinterested members of the Board of Directors. 38 DESCRIPTION OF SECURITIES The authorized capital of the Company consists of 12,000,000 shares, of which 11,000,000 shares are Common Stock, and 1,000,000 shares are designated as Preferred Stock. As of the date of this Prospectus, 1,557,570 shares of Common Stock are currently issued and outstanding and no shares of Preferred Stock have been issued or are outstanding. The Common Stock is held of record by 54 stockholders. Upon consummation of this offering, there will be 2,582,570 shares of Common Stock outstanding and no shares of Preferred Stock outstanding. Preferred Stock The Board of Directors is authorized, without further action by the stockholders, to issue 1,000,000 shares of Preferred Stock from time to time in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices and liquidation preferences and the number of shares constituting and the designation of any such series. The rights and terms relating to any new series of Preferred Stock could adversely affect the voting power or other rights of the holders of Common Stock. Additionally, such Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Common Stock The holders of Common Stock are entitled to one vote for each share held of record in the election of directors and with respect to all other matters to be voted on by stockholders. Holders of shares of Common Stock do not have cumulative voting rights. Therefore, the holders of more than 50% of such shares voting for the election of directors can elect all of the directors. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of legally available funds. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining available for distribution after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. The rights of the holders of Common Stock are subject to any rights that may be fixed for holders of Preferred Stock, when and if any Preferred Stock is issued. All of the shares of Common Stock currently outstanding are duly authorized, validly issued, fully paid and non-assessable. Warrants There are currently outstanding 41,164 Warrants, each to purchase one share of Common Stock at an exercise price of $4.20 per share. The Warrants were issued in October 1997 in connection with the 1997 Financing. The Warrants, which expire on October 31, 2000, are currently exercisable. The investors in the 1997 Financing have been granted certain registration rights relating to the shares of Common Stock issuable upon exercise of the Warrants. See "-- Registration Rights." Registration Rights The holders of 257,275 shares of Common Stock issued in connection with the 1996 Financing (the "Registrable Shares") are currently entitled to certain piggyback rights with respect to the registration of such shares under the Securities Act. Holders of 228,460 of such shares have waived their registration rights in connection with this offer and no holder of such shares is participating in this offering. Additionally, following the consummation of this offering, the holders of 41,164 shares of Common Stock issuable upon exercise of the Warrants will be entitled to piggyback rights with respect to the registration of such shares under the Securities Act. Whenever the Company proposes to register any of its securities under the Securities Act for its own account or for the account of other security holders, the Company shall be required to promptly notify the holders of each of the Registrable Shares and the Warrant Shares of the proposed registration and include all Registrable Shares and Warrant Shares which such holders may request to be included in such registration, subject to 39 certain limitations (a "Piggyback Registration"). The holders of the Registrable Shares and the Warrants have agreed not to request registration of sell or otherwise dispose of the Registrable Shares or the shares of Common Stock issuable upon exercise of the Warrants for a period of 12 months following the date of this Prospectus. In connection with this offering, the Company has agreed to grant to the Underwriter certain demand and piggyback registration rights in connection with the 100,000 shares of Common Stock issuable upon exercise of the Underwriter's Warrants. See "Underwriting." Transfer Agent and Registrar The transfer agent and registrar for the Common Stock is Continental Stock Transfer & Trust Company, whose address is Two Broadway, New York, New York 10004. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of this offering, the Company will have 2,582,570 shares of Common Stock issued and outstanding of which the 1,000,000 shares offered hereby will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by an "affiliate of the Company" (in general, a person who has a controlling position with regard to the Company), which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. All of the remaining 1,582,570 shares of Common Stock which will be outstanding upon the consummation of this offering are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act. Subject to the contractual restrictions described below, 1,458,564 shares of Common Stock will be eligible for sale pursuant to Rule 144 commencing 90 days following the date of this Prospectus and 124,006 shares will become eligible for sale pursuant to Rule 144 on January 31, 1999. The holders of 1,222,056 of such shares (and holders of 41,164 shares issuable upon the exercise of the Warrants) have agreed not to (i) sell or otherwise dispose of such shares or (ii) exercise any rights held by such holders to cause the Company to register any shares of Common Stock for sale pursuant to the Securities Act, in each case, for a period of twelve months from the date of this Prospectus without the Underwriter's prior written consent. In general, under Rule 144, as currently in effect, any person (or persons whose shares are aggregated), including an affiliate of the Company who, has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three month period, such number of shares that does not exceed the greater of 1% of the then outstanding shares of the issuer's common stock or the average weekly trading volume during the four calendar weeks preceding such sale, provided, that, certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. A person who is not an affiliate, has not been an affiliate within three months prior to sale and has beneficially owned the restricted securities for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. Prior to this offering, there has been no public market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of Common Stock or the availability of such shares for sale will have on the market price prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. 40 UNDERWRITING Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase the 1,000,000 shares of Common Stock offered hereby from the Company. The Underwriter is committed to purchase and pay for all of the shares of Common Stock offered hereby if any of such securities are purchased. The shares of Common Stock are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriter may allow certain dealers who are member of the National Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess of $. per share, of which not in excess of $. per share may be reallowed to other dealers who are members of the NASD. The Company has granted to the Underwriter an option, exercisable for 45 days following the date of this Prospectus, to purchase up to 150,000 additional shares at the public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The Underwriter may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the shares offered hereby. The Company has agreed to pay to the Underwriter a non-accountable expense allowance equal to 3% of the gross proceeds derived from the sale of the shares offered hereby, including any securities sold pursuant to the Underwriter's over-allotment option, $50,000 of which has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the shares offered hereby for sale under the laws of such states as the Underwriter may designate, including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to sell to the Underwriter and its designees, for an aggregate of $100, warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common stock at an exercise price of $6.60 per share (110% of the public offering price per share). The Underwriter's Warrants may not be sold, transferred, assigned or hypothecated for one year following the date of this Prospectus, except to the offices and partners of the Underwriter and members of the selling group, and are exercisable at any time and from time to time, in whole or in part, during the five-year period following the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected, since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants, the underlying shares of Common Stock or the underlying warrants, or the shares of Common Stock issuable upon exercise of such underlying warrants, may be deemed additional underwriting compensation. The Underwriter's Warrants contain a cashless exercise provision. Subject to certain limitations and exclusions, the Company has agreed that, upon the request of the holders of the majority of the Underwriter's Warrants, the Company will (at its own expense), on one occasion during the Warrant Exercise term, register the Underwriter's Warrants and the securities underlying the Underwriter's Warrants under the Securities Act and that it will include the Underwriter's Warrants and all such underlying securities in any appropriate registration statement which is filed by the Company under the Securities Act during the seven years following the date of this Prospectus. The Company and its principal stockholders have granted the Underwriter a right of first refusal to underwrite or place any public or private sale of debt or equity securities of the Company, including securities sold pursuant to Rule 144. 41 The Company has agreed, for a period of five years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company or, at the Underwriter's option, as a non-voting adviser to the Company's Board of Directors. The Company's officers, directors and principal stockholders have agreed to vote their shares of Common Stock in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. All of the Company's officers, directors and securityholders have agreed not to sell or otherwise dispose of any of their securities for a period of twelve months from the date of this Prospectus without the Underwriter's prior written consent. The Underwriter has informed the Company that it does not expect sales of the securities offered hereby to discretionary accounts to exceed 1% of the shares offered hereby. The Company has agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act. Prior to this offering there has been no public market for the Common Stock. Accordingly, the initial public offering price of the Common Stock will be determined by negotiation between the Company and the Underwriter and may not necessarily be related to the Company's asset value, net worth or other established criteria of value. Factors to be considered in determining such price include the Company's financial condition and prospects, an assessment of the Company's management, market prices of similar securities of comparable publicly-traded companies, certain financial and operating information of companies engaged in activities similar to those of the Company and the general condition of the securities market. In order to facilitate the offering, the Underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriter may over-allot in connection with the offering, creating a short position in the Common Stock for its own account. In addition, to cover over-allotments or to stabilize the price of the Common stock, the Underwriter may bid for, and purchase, shares of Common Stock in the open market. The Underwriter may also reclaim selling concessions allowed to a dealer for distributing the Common Stock in the offering, if the Underwriter repurchases previously distributed Common Stock in transactions to cover short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriter is not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS Certain legal matters with respect to the validity of the securities offered hereby will be passed upon for the Company by Kelley Drye & Warren LLP, New York, New York and Stamford, Connecticut. Tenzer Greenblatt LLP, New York, New York, has acted as counsel for the Underwriter in connection with this offering. EXPERTS The 1997 financial statements included in this Prospectus and in the Registration Statement on Form SB-2 filed by the Company with the Commission (together with all amendments thereto, the "Registration Statement") have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the period set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. The 1996 financial statements included in this Prospectus and in the Registration Statement have been audited by Milgrom, Galuskin, Balmuth & Company, Certified Public Accountants, P.C. to the extent and for the period set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. 42 AVAILABLE INFORMATION As of the effective date of the Registration Statement of which this Prospectus forms a part, the Company will become subject to the reporting requirements of the Exchange Act and in accordance therewith, will file reports, proxy statements and other information with the Commission. The Company intends to furnish its stockholders with annual reports containing audited financial statements and such other periodic reports as the Company deems appropriate or as may be required by law. The Company has filed with the Commission the Registration Statement with respect to the securities offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits filed therewith, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Shares offered hereby, reference is hereby made to the Registration Statement and to the exhibits filed therewith. Statements contained in this Prospectus regarding the content of any contract or other document referred to are not necessarily complete and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement is hereby qualified in its entirety by such reference. The Registration Statement, including all exhibits thereto, may be inspected without charge at the principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon the payment of prescribed fees. Additionally, the Commission maintains a site on the World Wide Web at http://www.sec.gov. The Registration Statement, including all exhibits and schedules thereto, and such other reports and information filed by the Company with the Commission may be accessed electronically by means of the Commission's Web-site. 43 INDEX TO FINANCIAL STATEMENTS
Page ----- Reports of Independent Certified Public Accountants .............................. F-2 Balance Sheets as of December 31, 1996 and 1997 .................................. F-4 Statements of Operations for the years ended December 31, 1996 and 1997 .......... F-5 Statements of Cash Flows for the years ended December 31, 1996 and 1997 .......... F-6 Statements of Stockholders' Equity for the years ended December 31, 1996 and 1997 F-7 Notes to Financial Statements .................................................... F-8
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors IBS Interactive, Inc. We have audited the accompanying balance sheet of IBS Interactive, Inc. (formerly known as Internet Broadcasting System, Inc.) as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IBS Interactive, Inc. as of December 31, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. BDO Seidman, LLP Woodbridge, New Jersey February 27, 1998 (March 10, 1998 as to the last paragraph of Note 14) F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors IBS Interactive, Inc. We have audited the accompanying balance sheet of IBS Interactive, Inc. (formerly known as Internet Broadcasting System, Inc.) as of December 31, 1996 and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IBS Interactive, Inc. as of December 31, 1996 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Milgrom, Galuskin, Balmuth & Company Certified Public Accountants, P.C. Edison, New Jersey March 31, 1997 (March 10, 1998 as to the last paragraph of Note 14) F-3 IBS INTERACTIVE, INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1997
December 31, ------------------------------- 1996 1997 ------------- --------------- ASSETS Current Assets: Cash ................................................................... $ 179,000 $ 95,000 Accounts receivable (net of allowance for doubtful accounts of $6,000 in 1996 and $66,000 in 1997)................................ 310,000 1,636,000 Prepaid expenses ....................................................... 3,000 -- Deferred tax asset ..................................................... 1,000 50,000 ---------- ----------- Total Current Assets ................................................. 493,000 1,781,000 Property and equipment, net ............................................. 364,000 518,000 Intangible assets ....................................................... 6,000 56,000 Deferred tax asset ...................................................... 72,000 -- Deferred offering costs ................................................. -- 45,000 Other assets ............................................................ -- 51,000 ---------- ----------- TOTAL ASSETS ............................................................ $ 935,000 $ 2,451,000 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: 1997 Notes ............................................................. $ -- $ 200,000 Notes payable, current portion ......................................... 11,000 107,000 Capital lease obligation, current portion .............................. 4,000 42,000 Accounts payable ....................................................... 33,000 145,000 Accrued salaries and related expenses .................................. -- 71,000 Accrued project costs .................................................. 29,000 305,000 Deferred revenue ....................................................... -- 238,000 Accrued interest payable ............................................... 6,000 14,000 Income taxes payable ................................................... -- 25,000 Other current liabilities .............................................. 17,000 67,000 ---------- ----------- Total Current Liabilities ............................................ 100,000 1,214,000 Notes payable, less current portion ..................................... 107,000 -- Long term capital lease obligation ...................................... 7,000 64,000 Deferred tax liabilities ................................................ -- 34,000 ---------- ----------- Total Liabilities ....................................................... 214,000 1,312,000 ---------- ----------- Commitments and contingencies (Note 9) Stockholders' Equity: Preferred Stock -- $.01 par value; authorized 1,000,000 shares, none issued and outstanding .......................................... -- -- Common Stock -- $.01 par value; authorized 11,000,000 shares, issued and outstanding 1,415,013 shares -- 1996 and 1,433,536 shares -- 1997 14,000 14,000 Additional paid in capital ............................................. 1,091,000 1,217,000 Common Stock -- subscription receivable ................................ (54,000) -- Unearned compensation .................................................. (47,000) (7,000) Accumulated deficit .................................................... (283,000) (85,000) ---------- ----------- Total Stockholders' Equity ............................................. 721,000 1,139,000 ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 935,000 $ 2,451,000 ========== ===========
See accompanying notes to financial statements. F-4 IBS INTERACTIVE, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
December 31, ----------------------------- 1996 1997 ------------- ------------- Revenues .............................................. $1,023,000 $2,741,000 Cost of Services ...................................... 650,000 1,099,000 ---------- ---------- Gross Profit .......................................... 373,000 1,642,000 Operating Expenses: Selling, general and administrative .................. 670,000 1,296,000 Amortization of intangible assets .................... 1,000 12,000 ---------- ---------- 671,000 1,308,000 ---------- ---------- Operating income (loss) ............................... (298,000) 334,000 Interest expense ..................................... 11,000 37,000 Other expense, net ................................... 1,000 15,000 ---------- ---------- Income (loss) before income taxes ..................... (310,000) 282,000 Income tax benefit (provision) ........................ 59,000 (84,000) ---------- ---------- Net income (loss) ..................................... $ (251,000) $ 198,000 ========== ========== Earnings (loss) per share Basic and Diluted .................................... $ (.20) $ .14 ========== ========== Weighted average number of common stock and equivalents Basic ................................................ 1,269,358 1,425,857 ========== ========== Diluted .............................................. 1,269,358 1,430,659 ========== ==========
See accompanying notes to financial statements. F-5 IBS INTERACTIVE, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
December 31, -------------------------------- 1996 1997 -------------- --------------- Cash Flows from Operating Activities: Net income (loss) ...................................... $ (251,000) $ 198,000 Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: Depreciation and amortization .......................... 105,000 184,000 Non cash interest expense .............................. -- 24,000 Bad debt provisions .................................... 21,000 60,000 Non cash compensation .................................. 33,000 40,000 Deferred taxes ......................................... (59,000) 57,000 Changes in operating assets and liabilities: Accounts receivable .................................... (322,000) (1,386,000) Prepaid expenses ....................................... 5,000 3,000 Other assets ........................................... -- (16,000) Accounts payable and accrued expenses .................. 48,000 488,000 Deferred revenue ....................................... -- 238,000 Income taxes payable ................................... -- 25,000 Other .................................................. 14,000 7,000 ---------- ------------ Net Cash Used in Operating Activities ................ (406,000) (78,000) ---------- ------------ Cash Flows from Investing Activities: Capital expenditures -- property and equipment ......... (355,000) (154,000) Assets acquisitions .................................... (5,000) (75,000) ---------- ------------ Net Cash Used in Investing Activities ................ (360,000) (229,000) ---------- ------------ Cash Flows from Financing Activities: Repayments of notes payable ............................ (15,000) (11,000) Repayment of stockholder loans ......................... (2,000) -- Issuance of 1997 Notes ................................. -- 200,000 Sales of common stock .................................. 927,000 74,000 Deferred offering costs ................................ -- (25,000) Payments of capital lease obligations .................. (3,000) (15,000) ---------- ------------ Net Cash Provided by Financing Activities ............ 907,000 223,000 ---------- ------------ Net increase (decrease) in Cash ......................... 141,000 (84,000) Cash, at Beginning of Year .............................. 38,000 179,000 ---------- ------------ Cash, at End of Year .................................... $ 179,000 $ 95,000 ========== ============
See accompanying notes to financial statements. F-6 IBS INTERACTIVE, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
Common Stock ------------------------ Number Additional of Paid in Shares Amount Capital ------------ ---------- -------------- Balance -- January 1, 1996 ............. 823,280 $ 8,000 $ 2,000 Shares issued for cash, February 1996 ......................... 1,029 -- 1,000 Shares issued for compensation ......... 20,582 -- 80,000 Shares issued in connection with pooling of interests, April 1996 ...... 317,992 3,000 31,000 Shares issued in connection with Private Placement ..................... 252,130 3,000 977,000 Amortization of shares issued as compensation .......................... -- -- -- Net loss ............................... -- -- -- ------- -------- ----------- Balance -- December 31, 1996 ........... 1,415,013 14,000 1,091,000 Shares issued in connection with acquisitions .......................... 13,378 -- 52,000 Payment of common stock subscription receivable ............... -- -- -- Amortization of shares issued as compensation .......................... -- -- -- Shares issued in connection with Private Placement ................ 5,145 -- 20,000 Issuance of warrants associated with 1997 Notes ............................ -- -- 54,000 Net income ............................. Balance -- December 31, 1997 ........... 1,433,536 $ 14,000 $ 1,217,000 ========= ======== =========== Total Unearned Subscription Accumulated Stockholders' Compensation Receivable Deficit Equity -------------- -------------- ------------- -------------- Balance -- January 1, 1996 ............. $ -- $ -- $ (39,000) $ (29,000) Shares issued for cash, February 1996 ......................... -- -- -- 1,000 Shares issued for compensation ......... (80,000) -- -- -- Shares issued in connection with pooling of interests, April 1996 ...... -- -- 7,000 41,000 Shares issued in connection with Private Placement ..................... -- (54,000) -- 926,000 Amortization of shares issued as compensation .......................... 33,000 -- -- 33,000 Net loss ............................... -- -- (251,000) (251,000) --------- ---------- ---------- ----------- Balance -- December 31, 1996 ........... (47,000) (54,000) (283,000) 721,000 Shares issued in connection with acquisitions .......................... -- -- -- 52,000 Payment of common stock subscription receivable ............... -- 54,000 -- 54,000 Amortization of shares issued as compensation .......................... 40,000 -- -- 40,000 Shares issued in connection with Private Placement ................ -- -- -- 20,000 Issuance of warrants associated with 1997 Notes ............................ -- -- -- 54,000 Net income ............................. 198,000 198,000 ---------- ----------- Balance -- December 31, 1997 ........... $ (7,000) $ -- $ (85,000) $ 1,139,000 ========= ========== ========== ===========
See accompanying notes to financial statements. F-7 IBS Interactive, Inc. Notes to Financial Statements NOTE 1 -- BACKGROUND IBS Interactive, Inc. (the "Company") provides a broad range of computer networking, programming, applications development and Internet services primarily to businesses and organizations, including governmental and not-for-profit entities. The Company was incorporated under the name Internet Broadcasting System, Inc. and changed its name to IBS Interactive, Inc. on February 27, 1998. The Company, a Delaware corporation, has its main administrative office in New Jersey with regional offices in Virginia and Alabama (see Note 14). The Company contemplates filing a registration statement with the Securities and Exchange Commission in March 1998 relating to an initial public offering of 1,000,000 shares of its common stock. Certain prior year amounts have been reclassified to conform to the current year's presentation. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Revenue is recognized as services are provided to clients and subscribers. In the event that there are significant performance obligations yet to be fulfilled on consulting projects, revenue recognition is deferred until such conditions are removed. For the years ended December 31, 1996 and 1997, the Company recognized revenues of $0 and $252,000, respectively, on projects in process. Such unbilled amounts are included in accounts receivable, net, at December 31, 1997. Stock Based Compensation With respect to common stock issued to employees, the Company follows the provisions of APB Opinion No. 25 Accounting for Stock Issued to Employees in accounting and measuring compensation expense related to employee stock grants. Warrants The fair values ascribed to the warrants that were granted in connection with the 1997 Notes (see Note 6) are capitalized and amortized, as interest expense, over the expected life of the underlying debt. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Valuation allowances are established against deferred tax assets when management concludes that the realization of such deferred tax assets cannot be considered more likely than not. Financial Instruments and Concentrations Financial instruments which potentially subject the Company to credit risk consist primarily of a concentration of unsecured trade accounts receivables. At December 31, 1996, two customers accounted for 61% and 13%, respectively, of total net accounts receivable. At December 31, 1997 a single customer accounted for 93% of total net accounts receivable. F-8 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued) The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains allowances for potential credit losses and such losses have been within management's expectations. The Company maintains cash balances at a single bank. Accounts at the bank are insured by an agency of the Federal government up to $100,000. The Company maintains substantially all of the fixed assets utilized in providing Internet access to clients at one location. Sources of Supplies and Vendors The Company relies on two telephone companies to provide data communications services and one company to provide Internet access services to customers. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption or termination of these services could have an adverse effect on operating results. Although the Company attempts to maintain multiple vendors for required product, its modems, terminal servers, and high-performance routers, which are important components of its network, are each currently acquired from limited sources. In addition, some of the Company's suppliers have limited resources and production capacity. If the suppliers are unable to meet the Company's needs as it builds out its network infrastructure, then delays and increased costs in the expansion of the Company's network infrastructure could result, which could have an adverse effect on operating results. Property and Equipment Property and equipment, largely comprising network equipment, is depreciated over a three year life using the straight line method. Long-Lived Assets The Company has adopted SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of. In accordance with SFAS No. 121, the carrying values of long-lived assets are periodically reviewed by the Company and impairments would be recognized if the expected future operating non-discounted cash flows derived from an asset were less than its carrying value. Intangible Assets Intangible assets are composed primarily of customer lists and other intangibles arising from various acquisitions. Such values are amortized over five year lives. Deferred Offering Costs Costs incurred in connection with the Company's contemplated initial public offering of its common stock have been capitalized. Such costs will be charged to stockholders' equity upon successful completion of the offering or charged to operations if the offering is not completed. Estimated Fair Values of Financial Instruments The carrying amounts reported in the balance sheets for accounts receivable, accounts payable, accrued liabilities and notes payable approximate fair value because of the immediate or short-term maturity of these financial instruments. F-9 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (Continued) Earnings (Loss) Per Share In 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes the dilutive effects of options. Basic earnings per share has been computed using the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is very similar to the fully diluted earnings per share. The Company's diluted earnings (loss) per share includes the effect, if any, of unissued shares underlying warrants, computed using the treasury stock method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Many of the Company's estimates and assumptions used in the financial statements relate to the Company's ability to deliver state of the art technical services, which are subject to competitive market and technology changes. It is reasonably possible that changes may occur in the near term that would affect management's estimates with respect to the values of intangibles and fixed assets. Effects of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued two new disclosure standards. SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. SFAS Nos. 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the relatively recent issuance of these standards, management has been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of these standards. NOTE 3 -- BUSINESS COMBINATIONS (ALSO SEE NOTE 14) Interactive Networks, Inc. On April 7, 1996, the Company acquired Interactive Networks, Inc. ("Interactive Networks"), a local Internet service provider, in a business combination accounted for as a pooling of interests, through an exchange of 317,992 shares of the Company's common stock for all of the issued and outstanding shares of Interactive Networks. Accordingly, the accompanying 1996 financial statements are based on the assumption that the Company and Interactive Networks were combined for the full year. F-10 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 3 -- BUSINESS COMBINATIONS (ALSO SEE NOTE 14) -- (Continued) Summarized results of operations of the Company and Interactive Networks for the period from January 1, 1996 through April 7, 1996, the date of the business combination, are as follows: Company Interactive Networks ------------- --------------------- Net Sales ........... $ 29,000 $ 53,000 Net (Loss) .......... $ (30,000) $ (2,000) Mordor International On May 31, 1996, the Company acquired substantially all the assets of Mordor International ("Mordor"), an Internet service provider, in a business combination accounted for as a purchase. The purchase price of $20,000 was allocated to equipment and intangible assets. The results of operations of Mordor are included in the accompanying financial statements from the acquisition date forward. With respect to this acquisition, the results of operations from January 1, 1996 through the acquisition date were not material and accordingly, pro forma operating results are not presented. AllNet Technology Services, Inc. On March 1, 1997, the Company acquired certain assets of AllNet Technology Services, Inc. ("AllNet"), an Internet service provider, in exchange for $75,000 of cash and 13,378 shares of Company common stock in a business combination accounted for as a purchase. The fair value of the shares issued in connection with the acquisition approximated $52,000 and was based, in part, on the fair market value of shares sold in the Company's 1996 private placement of common stock (see Note 7). Of the total purchase price of $127,000, $65,000 was allocated to equipment and the balance was assigned to various intangible assets. The results of operations of AllNet are included in the accompanying financial statements from the acquisition date forward. With respect to this acquisition, the results of operations from January 1, 1997 through the acquisition date were not material and accordingly, pro forma operating results are not presented. NOTE 4 -- PROPERTY AND EQUIPMENT Major classes of property and equipment, net, consist of the following: December 31, ----------------------------- 1996 1997 ------------- ------------- Network equipment ...................... $ 485,000 $ 807,000 Office equipment and fixtures .......... 15,000 17,000 ---------- ---------- 500,000 824,000 Less: accumulated depreciation ......... (136,000) (306,000) ---------- ---------- $ 364,000 $ 518,000 ========== ========== At December 31, 1996 and 1997, equipment subject to capital leases, less accumulated depreciation, amounted to $12,000 and $104,000, respectively. Depreciation expense for the years ended December 31, 1996 and 1997 amounted to $105,000 and $170,000, respectively, which includes depreciation of equipment subject to capital lease agreements of $2,000 and $19,000, respectively. F-11 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 5 -- INTANGIBLE ASSETS Intangible assets, net, are comprised of the following: December 31, -------------------------- 1996 1997 ----------- ------------ Customer List .......................... $ 5,000 $ 67,000 Organizational Costs ................... 2,000 2,000 -------- --------- 7,000 69,000 Less: accumulated amortization ......... (1,000) (13,000) -------- --------- $ 6,000 $ 56,000 ======== ========= Amortization expense was $1,000 and $12,000 for the years ended December 31, 1996 and 1997, respectively. NOTE 6 -- BORROWINGS 1997 Notes On October 31, 1997, the Company entered into a series of 1997 financing agreements with eight individual investors (collectively, the "1997 Notes"). The 1997 Notes bear interest at the rate of 8% and are payable in full on the earlier of: (a) the closing of the Company's contemplated initial public offering of common stock, (b) the closing of a private placement of the Company's equity securities that result in net proceeds to the Company of at least $1 million, or (c) October 1999. Due to the Company's contemplated initial public offering (see Note 14), such debt has been classified as current in the accompanying December 31, 1997 balance sheet. The loan agreement relating to the 1997 Notes imposes limitations on the Company's ability to sell, transfer, dispose or exchange assets, and requires the Company to comply with certain operational and financial covenants. At December 31, 1997 the Company was in compliance with such covenants. The outstanding principal balance of the 1997 Notes amounted to $200,000 at December 31, 1997. In connection with the issuance of the 1997 Notes, investors also received warrants to purchase up to 41,164 shares of the Company's common stock at an exercise price of $4.20 per share through October 2000 (see Note 7). The Company has capitalized the fair value ascribed to the warrant ($54,000), which includes a value reflective of the excess of the expected initial public offering price over the exercise price, and is amortizing such amount over the expected life of the 1997 Notes. Interest expense for the year ended December 31, 1997, including the amortization of the value ascribed to warrants, totaled $22,000. The effective interest rate on the 1997 Notes, which includes the amortization of the value of the warrants, approximates 68% per annum. Other Debt In 1995, the Company issued three-year promissory notes in the original aggregate principal amount of $100,000 of which notes with an aggregate original principal amount of $95,000 remained outstanding at December 31, 1996 and 1997. These notes bear interest at a rate of 6% and are payable in July 1998. Interest expense for each of the years ended December 31, 1996 and 1997 amounted to $6,000. Bank borrowings assumed in connection with the acquisition of Interactive Networks bear interest at the rate of 10% and are payable in December 1998. Outstanding borrowings assumed from Interactive Networks amounted to $23,000 and $12,000 as of December 31, 1996 and 1997. Such borrowings are secured by the Company's assets. Interest expense for each of the years ended December 31, 1996 and 1997 amounted to $2,000. F-12 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 6 -- BORROWINGS -- (Continued) Capital Leases The Company leases certain equipment in the normal course of operations which are accounted for as capital leases. Outstanding obligations at December 31, 1996 and 1997 totaled $11,000 and $105,000, respectively. Interest expense related to such agreements was $2,000 and $7,000 for the years ended December 31, 1996 and 1997, respectively. Guarantees Certain executive officers, who are also stockholders of the Company, have provided, at no cost to the Company, personal guarantees of certain obligations of the Company. The amount of obligations subject to these guarantees totaled $117,000 at December 31, 1997. The value ascribed to such guarantees is not considered material. Debt and Lease Maturities At December 31, 1997, aggregate required principal payments, including the present value of amounts owed under capital leases, are as follows: Year Ended December 31, Amount - -------------------------------- 1998 ......................... $349,000 1999 ......................... 43,000 2000 ......................... 21,000 -------- Total ...................... $413,000 ======== NOTE 7 -- STOCKHOLDERS' EQUITY Capital Stock At December 31, 1997, 41,164 shares of common stock were reserved for the exercise of warrants. Private Placement During 1996 and 1997 the Company sold 252,130 and 5,145 shares of common stock for net proceeds of approximately $926,000 and $20,000 respectively. At December 31, 1996, a subscription receivable of $54,000 was owed to the Company. Such amount was received in January 1997. Warrants As discussed in Note 6, the 1997 Note investors also received warrants to purchase up to 41,164 shares of the Company's common stock. The 1997 Note investors may exercise the warrants at any time until October 31, 2000 at an exercise price of $4.20 per share. At the option of the 1997 Note investors, the warrant exercise price may be paid through: (a) cash payments, (b) the conversion of the unpaid principal and interest on the 1997 Notes, or (c) a combination of (a) and (b). Stock Award In February 1996, the Company entered into an employment agreement with an individual which provided for compensation that included the issuance of 20,582 shares of common stock to be issued ratably over a two year period. Compensation expense associated with such shares (computed using the per share price of the 1996 private placement) was $33,000 and $40,000 for the years ended December 31, 1996 and 1997, respectively. At December 31, 1997, the related unearned compensation was $7,000. F-13 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 8 -- TAXES (Provisions) benefits for Federal and state income taxes consist of the following:
Year ended December 31, --------------------------- 1996 1997 ----------- ------------- Current Federal ...................................... $ -- $ (21,000) State ........................................ -- (6,000) -------- ---------- -- (27,000) Deferred Federal ...................................... 37,000 (29,000) State ........................................ 22,000 (28,000) -------- ---------- 59,000 (57,000) -------- ---------- Total income tax benefit (provision) ......... $ 59,000 $ (84,000) ======== ==========
Differences between the Federal statutory rate and the Company's effective tax rate are as follows: Year Ended December 31, ----------------------------- 1996 1997 ------------ -------------- Statutory rate .................. $ 105,000 $ (96,000) State taxes, net ................ 22,000 (20,000) Non-deductible expenses ......... (1,000) (31,000) Valuation allowance ............. (76,000) 76,000 Other, net ...................... 9,000 (13,000) --------- ---------- $ 59,000 $ (84,000) ========= ========== Deferred tax assets (liabilities) arise from the following temporary differences and are classified as follows:
December 31, -------------------------- 1996 1997 ----------- ------------ Deferred Tax Asset, Current: Accounts receivable allowances .............. $ 1,000 $ 26,000 Net operating loss carryforwards ............ -- 2,000 Other assets ................................ -- 20,000 Other, net .................................. -- 2,000 --------- -------- $ 1,000 $ 50,000 ========= ======== Deferred Tax Asset (Liabilities), Non-Current: Net operating loss carryforwards ........... $ 145,000 $ -- Other assets ............................... 3,000 -- Property and equipment ..................... -- (34,000) Valuation allowance ........................ (76,000) -- --------- -------- $ 72,000 ($ 34,000) ========= ========
NOTE 9 -- COMMITMENTS AND CONTINGENCIES Legal Matters The Company is currently evaluating the status of certain threatened legal claims. Management presently believes that the disposition of such claims, which have been recently alleged, will not, individually or in the aggregate, have a material adverse effect on the Company's financial position, results of operations and liquidity. F-14 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 9 -- COMMITMENTS AND CONTINGENCIES -- (Continued) Operating Leases The Company leases facilities and equipment under operating leases and subleases expiring through December 2002. Some of the leases have renewal options and most contain provisions for passing through certain incremental costs. Future net minimum annual rental payments under noncancelable leases are as follows: 1998 $140,000 1999 155,000 2000 155,000 2001 155,000 2002 and thereafter 310,000 -------- Total minimum lease payments ........... $915,000 ======== Total rental expense for the years ended December 31, 1996 and 1997 was approximately $18,000 and $49,000, respectively. Employment Agreements The Company has entered into employment contracts with certain officers and employees which provide for minimum annual salaries to be paid over specified terms. Future commitments for such payments which includes amounts for employment contracts executed through February 27, 1998, are as follows: Year Ended December 31, Amount - ------------------------- ------------- 1998 .................. $1,113,000 1999 .................. 983,000 2000 .................. 625,000 2001 .................. 240,000 2002 .................. 131,000 ---------- Total ............... $3,092,000 ========== NOTE 10 -- RELATED PARTY TRANSACTIONS At December 31, 1996 and 1997, the Company's stockholders held promissory notes issued in 1995 by the Company in the aggregate principal amount of $95,000. These notes bear interest at the rate of 6% per annum. Interest expense for each of the years ended December 31, 1996 and 1997 amounted to $6,000. Certain relatives of the Company's executive officers are also 1997 Note investors. The terms of such borrowings are comparable with those afforded to other investors (see Note 6). Outstanding balances at December 31, 1997 amounted to $43,750. An entity whose stockholder is also a stockholder of the Company provides management consulting services to the Company. Fees for such services amounted to $16,000 and $14,000 for the years ended December 31, 1996 and 1997, respectively. NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes are as follows: 1996 1997 --------- --------- Interest .............. $5,000 $7,000 Income Taxes .......... -- 2,000 In 1996, the Company acquired fixed assets of approximately $34,000, financed through incurring liabilities. In 1997, the Company acquired certain assets through the issuance of common stock valued at $52,000. In 1997, the Company acquired $95,000 of equipment subject to capital lease obligations. F-15 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 12 -- MAJOR CLIENTS OF THE COMPANY One client generated 54% of the Company's revenues for the year ended December 31, 1997. One consulting project for this same client generated 45% of the Company's revenues in the year ended December 31, 1997. Two clients generated 29% and 15% of the Company's revenues for the year ended December 31, 1996. NOTE 13 -- SEGMENT INFORMATION The Company's major businesses are Systems Integration and Programming and Applications Development and Internet Services. Financial information for the Company's segments are as follows:
Systems Integration and Programming Year Ended and Applications Internet December 31, 1996 Development Services - ---------------------------------------------- ------------------ -------------- Revenues .................................. $ 438,000 $ 585,000 Cost of Services .......................... 347,000 303,000 ---------- ---------- Gross Profit .............................. 91,000 282,000 Selling, General & Administrative ......... 281,000 389,000 Amortization of intangible assets ......... -- 1,000 ---------- ---------- Operating Income (Loss) ................... $ (190,000) $ (108,000) ========== ========== Allocated Assets .......................... $ 382,000 $ 553,000 ========== ========== Year Ended December 31, 1997 - ----------------------------------------------- Revenues .................................. $1,750,000 $ 991,000 Cost of services .......................... 208,000 891,000 ---------- ---------- Gross Profit .............................. 1,542,000 100,000 Selling, General & Administrative ......... 515,000 781,000 Amortization of intangible assets ......... -- 12,000 ---------- ---------- Operating Income (Loss) ................... $1,027,000 $ (693,000) ========== ========== Allocated Assets .......................... $1,706,000 $ 745,000 ========== ==========
NOTE 14 -- SUBSEQUENT EVENTS Acquisitions In January 1998, the Company acquired certain assets of JDT WebwerX LLC, a business providing programming and applications development and Internet access services in exchange for $35,000 of cash. On January 31, 1998, the Company acquired all of the issued and outstanding capital stock of Entelechy, Inc. ("Entelechy"), in exchange for 233,605 shares of Company common stock in a business combination accounted for as a purchase. The Company issued 124,006 shares at closing, and will issue a total of 109,599 shares ( the "Contingent Shares") ratably on each of the first, second and third anniversary of the acquisition closing date. The issuance of such shares is contingent upon the former Entelechy stockholders, to whom such shares are issuable, remaining in the continuous employ of the Company. The purchase price of Entelechy will be established based upon the value of shares issued at closing. The Company's final determination of the Entelechy purchase price is subject to the completion of various valuations, analyses and closing adjustments. The values ascribed to the Contingent Shares (assuming that the former Entelechy stockholders remain employees of the Company) will result in a charge to operations as such shares are earned through the Company's year ending December 31, 2001. The Company estimates that the charges to operations will approximate $205,000, $224,000, $224,000 and $19,000 in the years ending December 31, 1998, 1999, 2000 and 2001, respectively. F-16 IBS Interactive, Inc. Notes to Financial Statements -- (Continued) NOTE 14 -- SUBSEQUENT EVENTS -- (Continued) Entelechy had an outstanding note of $150,000 to a relative of one of Entelechy's principals. The note does not bear interest and is automatically convertible into 25,000 shares of the Company's common stock, upon the consummation of the Company's contemplated initial public offering. The following summarized, unaudited pro forma information for the year ended December 31, 1997 assumes that the acquisition of Entelechy had occurred on January 1, 1997: Unaudited ------------- Net Revenues ................ $3,067,000 Operating Loss .............. (62,000) Net Loss .................... $ (100,000) ========== Loss per Share: Basic and Diluted .......... $ (.06) ========== The pro forma operating results reflect estimated pro forma adjustments for the amortization of intangibles ($151,000) and compensation expense ($224,000) related to the issuance of the Contingent Shares over a one year period. Pro forma results of operations information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated at the beginning of 1997, or of future results of the combined companies. Capital Stock On March 10, 1998, the Company effected a 1,029-for-1 stock split. All share and per share data have been restated for all periods presented to reflect the split. On March 10, 1998 the Company's Board of Directors approved an increase in the number of shares of authorized capital stock to 12,000,000, of which 1,000,000 shares were designated as "blank check" preferred stock and 11,000,000 shares were designated as common stock. On March 10, 1998 the Board of Directors approved the Company's 1998 Stock Option Plan. Under the terms of this plan, the Company has reserved 350,000 shares of common stock for future grants. F-17 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with this offering and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which such offer or solicitation is not authorized or is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. ----------------------------------- TABLE OF CONTENTS Page ----- Prospectus Summary ..................................... 3 Risk Factors ........................................... 6 Use of Proceeds ........................................ 14 Dilution ............................................... 16 Dividend Policy ........................................ 17 Capitalization ......................................... 17 Selected Financial Data ................................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................... 19 Business ............................................... 24 Management ............................................. 33 Principal Stockholders ................................. 37 Certain Transactions ................................... 38 Description of Securities .............................. 39 Shares Eligible for Future Sale ........................ 40 Underwriting ........................................... 41 Legal Matters .......................................... 42 Experts ................................................ 42 Available Information .................................. 43 Index to Financial Statements .......................... F-1 ----------------------------------- Until _____________, 1998 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ 1,000,000 Shares IBS INTERACTIVE, INC. Common Stock ---------------------------------------- Prospectus ---------------------------------------- Whale Securities Co., L.P. , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. As permitted by Section 145 of the Delaware General Corporation Law ("DGL"), the Company's Certificate of Incorporation (the "Certificate") provides that to the fullest extent permitted by the DGL no Director shall be personally liable to the Company or any stockholder for monetary damages for breach of fiduciary duty as a Director, except for liability: (i) arising from payment of dividends or approval of a stock purchase in violation of Section 174 of the DGL; (ii) for any breach of the duty of loyalty to the Company or its stockholders; (iii) for acts or omissions not in good faith or which involve intentional misconduct of a knowing violation of law; or (iv) for any action from which the Director derived an improper personal benefit. While the Certificate provides protection from awards for monetary damages for breaches of the duty of care, it does not eliminate the Director's duty of care. Accordingly, the Certificate will not affect the availability of equitable remedies, such as an injunction, based on a Director's breach of the duty of care. The provisions of the Certificate described above apply to officers of the Company only if they are Directors of the Company and are acting in their capacity as Directors, and does not apply to officers of the Company who are not Directors. In addition, the Company's By-Laws provide that the Company shall indemnify its officers and Directors, employees and agents, to the fullest extent permitted by the DGL. Under the GCL, directors and officers as well as employees and individuals may be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation as a derivative action) if they acted in good faith and in a manner they 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 their conduct was unlawful. Reference is made to Section ___ of the form of Underwriting Agreement (to be filed as Exhibit 1.1 to this Registration Statement) for the respective agreement of each of the Company and the Underwriter to indemnify each other against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act") and to provide contribution in circumstances where indemnification is unavailable. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN SUCH ACT AND IS THEREFORE UNENFORCEABLE. Item 25. Other Expenses of Issuance and Distribution. The expenses in connection with the issuance and distribution of the securities being registered hereby will be borne by the Company. Securities and Exchange Commission Registration Fee .............. $ 2,230 NASD Filing Fee .................................................. 1,256 Transfer Agent and Registrar Fee ................................. ** NASDAQ SmallCap Listing Fee ...................................... 6,000 Boston Stock Exchange Listing Fee ................................ 7,500 Printing and Engraving Costs* .................................... 100,000 Legal Fees and Expenses* ......................................... 150,000 Accounting Fees and Expenses* .................................... 150,000 Blue Sky Filing Fees and Expenses (including legal fees) ......... ** Miscellaneous .................................................... ** --------- Total ........................................................... $485,000 =========
- ------------ * Estimated ** To be filed by amendment II-1 Item 26. Recent Sales of Unregistered Securities. Described below are all securities (giving effect to an approximate 1,029-to-1 split of the Common Stock effective in March 1998) which have been issued by the Company since February 28, 1995 (the date of the Company's inception) in transactions not involving public offerings. There were no underwriting discounts or commissions paid in connection with the issuance of any such securities. Since its inception in February 1995, Registrant has issued securities in transactions not involving public offerings, as follows: (a) May 1, 1995 - In connection with the initial capitalization of the Company, in reliance upon Securities Act ss.4(2), the Company issued 312,846 shares of Common Stock to each of Nicholas R. Loglisci, Jr., President, Chief Operating Officer and Director, and Clark D. Frederick, Chief Technical Officer and Director and Carla Frederick, as joint tenants; 78,211 shares to Sycamore Equities Inc., an entity wholly-owned by Brian W. Seidman, General Counsel, Secretary and former Director; and 78,211 shares to Steven Loglisci, an accredited investor resulting in net proceeds to the Company in the amount of $10,000. (b) August 1995 - 41,160 shares of Common Stock to 9 sophisticated investors, in reliance upon Securities Act ss.4(2) in connection with an offer of 20 units, each unit consisting of 2,058 shares of Common Stock and a promissory note in the original principal amount of $5,000, totaling $100,000. (c) February 1996 - 1,029 shares of Common Stock, in reliance upon Securities Act ss.4(2), to an accredited investor. (d) March 9, 1996 - in reliance upon Securities Act ss.4(2), 317,992 shares of Common Stock exchanged for all of the issued and outstanding common stock of Interactive Networks, Inc. (e) From May 1996 to January 1997 - 257,275 shares of Common Stock, totaling $1,000,000 to 12 accredited and 19 sophisticated investors in reliance upon Securities Act ss.4(2). (f) February 26, 1996 - an award of 20,582 shares of restricted Common Stock in reliance upon Rule 701 of the Securities Act. (g) July 18, 1997 - 13,378 shares of Common Stock issued, in reliance upon Securities Act ss.4(2), to two sophisticated investors in connection with the purchase by the Company of substantially all the assets of AllNet Technology Services, Inc. (h) October 31, 1997 - warrants to purchase 41,164 shares of Common Stock, issued in reliance upon Securities Act ss.4(2), to eight accredited investors in connection with the issuance to such investors of promissory notes made by the Company in the aggregate original principal amount of $200,000. No brokers or underwriters were included in any of the above issuances. All certificates for the shares of Common Stock so issued bear restrictive legends. All certificates for the shares of Common Stock so issued bear restrictive legends. II-2 Item 27. Exhibits. The following is a list of all Exhibits filed as a part of this Registration Statement.
Exhibit Number Exhibit - -------- ------- 1.1 Form of Underwriting Agreement.* 1.2 Form of Underwriter's Warrant Agreement.* 3.1 Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-Laws of the Company. 4.1 Specimen form of certificate evidencing the shares of Common Stock of the Company.* 4.6 See Exhibit numbers 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Amended and Restated By-Laws of the Company defining the rights of the holders of Common Stock. 5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such firm) as to the validity of the securities being offered.* 10.1 Form of 6% Promissory Note, dated as of June 30, 1995 made by the Company. 10.2 Form of Registration Rights Agreement, dated as of May 6, 1997 between the Company and the holders of certain shares of Common Stock. 10.3 Form of 8% Promissory Note, dated as of October 31, 1997. 10.4 Form of Warrant to Purchase Shares of Stock, dated as of October 31, 1997. 10.5 Employment Agreement, dated as of March __, 1998, between the Company and Nicholas R. Loglisci, Jr.*+ 10.6 Employment Agreement, dated as of March __, 1998, between the Company and Clark D. Fre- derick.*+ 10.7 Employment Agreement, dated as of March __, 1998, between the Company and Frank Altieri, Jr.*+ 10.8 Employment Agreement, dated as of March __, 1998 between the Company and Jeffrey Bren- ner.*+ 10.9 Stock Purchase Agreement, dated as of April 1, 1996, between the Company and Interactive Networks, Inc. 10.10 Asset Purchase Agreement, dated as of May 31, 1996, between the Company and Chris Mauritz. 10.11 Asset Purchase Agreement, dated as of March 1, 1997, between the Company and AllNet Tech- nology Services, Inc. 10.12 Stock Purchase Agreement, dated as of January 31, 1998, between the Company and Entelechy, Inc. and the stockholders of Entelechy, Inc. named therein. 10.13 Asset Purchase Agreement, dated as of January 1, 1998, between the Company and JDT WebwerX LLC, as amended. 10.14 IBS Interactive, Inc. 1998 Stock Option Plan.*+ 10.15 Restricted Stock Agreement, dated as of February 26, 1996 between the Company and Andrew Murren.*+ 10.16 Commercial Sublease, dated as of May 5, 1997, between the Company and Information Systems & Communications, Inc., in connection with the Company's premises in Fairfax, Virginia. 10.17 Second Lease Modification Agreement, dated as of March 3, 1998, by and among the Company and EI, 2 Ridgedale Avenue, Inc. and Hanover Park for Industry, in connection with the Com- pany's premises in Cedar Knolls, New Jersey. 10.18 Letter Agreement, dated as of October 21, 1997 between the Company and EI Realty in connec- tion with the Company's premises in Cedar Knolls, New Jersey. 10.19 Lease Agreement, dated as of May 1, 1997 by and between the Company and Iron Investment Corp. and Hanover Park for Industry, in connection with the Company's premises in Cedar Knolls, New Jersey. 10.20 Network Services Contract, dated as of December 27, 1996, between the Company and the Catholic Healthcare Network. 10.21 Professional Service Agreement Consulting, dated as of October 23, 1997, between Aetna Life Insurance Company and the Company. 10.22 Lease Agreement, dated as of January 31, 1998, between the Company and R&G International, in connection with the Company's premises in Huntsville, Alabama.
II-3
Exhibit Number Exhibit - -------- ------------------------------------------------------------------------------------ 23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1). 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Milgrom, Galuskin, Balmuth & Company, Certified Public Accountants, P.C. 23.4 Consent of John J. Brighton 23.5 Consent of Barrett N. Wissman 23.6 Consent of Susan Holloway Torricelli 24.1 Power of Attorney (included on page II-5). 27.1 Financial Data Schedule.
- ------------ * To be filed by amendment. + Management contract or compensatory plan or arrangement. Item 28. Undertakings. The Registrant will provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that, in the opinion of the Securities and Exchange Commission (the "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 Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 of 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. For the purpose of determining any liability under the Securities Act, each such post-effective amendment 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. For purposes of determining any liability under the Securities Act, the Registrant hereby undertakes (i) to treat 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 Rule 497(h) under the Securities Act as part of this Registration Statement as of the time it was declared effective, and (ii) to treat each post-effective amendment that contains a form of prospectus as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the Town of Cedar Knolls, New Jersey, on March 11, 1998. IBS INTERACTIVE, INC. By: /s/ Nicholas R. Loglisci, Jr. ------------------------------ Nicholas R. Loglisci, Jr. President and Chief Operating Officer POWER OF ATTORNEY IBS Interactive, Inc., a Delaware corporation, and each person whose signature appears below constitutes and appoints Nicholas R. Loglisci, Jr. and Clark D. Frederick, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact, or substitute, may lawfully do or cause to be done by virtue hereof. In accordance with 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/ Nicholas R. Loglisci, Jr. President and Chief Operating Officer March 11, 1998 ----------------------- (Principal Executive Officer and Principal Nicholas R. Loglisci, Jr. Financial and Accounting Officer) Director /s/ Clark D. Frederick Chief Technical Officer and Director March 11, 1998 ----------------------- Clark D. Frederick /s/ Frank R. Altieri, Jr. Chief Information Officer and Director March 11, 1998 ----------------------- Frank R. Altieri, Jr.
II-5 EXHIBIT INDEX
Exhibit Number Exhibit Page - -------- ------- ----- 1.1 Form of Underwriting Agreement.* 1.2 Form of Underwriter's Warrant Agreement.* 3.1 Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-Laws of the Company. 4.1 Specimen form of certificate evidencing the shares of Common Stock of the Company.* 4.6 See Exhibit numbers 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Amended and Restated By-Laws of the Company defining the rights of the holders of Common Stock. 5.1 Opinion of Kelley Drye & Warren LLP (including the consent of such firm) as to the validity of the securities being offered.* 10.1 Form of 6% Promissory Note, dated as of June 30, 1995 made by the Company. 10.2 Form of Registration Rights Agreement, dated as of May 6, 1997 between the Company and the holders of certain shares of Common Stock. 10.3 Form of 8% Promissory Note, dated as of October 31, 1997. 10.4 Form of Warrant to Purchase Shares of Stock, dated as of October 31, 1997. 10.5 Employment Agreement, dated as of March __, 1998, between the Company and Nicholas R. Loglisci, Jr.*+ 10.6 Employment Agreement, dated as of March __, 1998, between the Company and Clark D. Frederick.*+ 10.7 Employment Agreement, dated as of March __, 1998, between the Company and Frank Altieri, Jr.*+ 10.8 Employment Agreement, dated as of March __, 1998 between the Company and Jeffrey Brenner.*+ 10.9 Stock Purchase Agreement, dated as of April 1, 1996, between the Company and Interactive Networks, Inc. 10.10 Asset Purchase Agreement, dated as of May 31, 1996, between the Company and Mordor International. 10.11 Asset Purchase Agreement, dated as of March 1, 1997, between the Company and AllNet Technologies, Inc. 10.12 Stock Purchase Agreement, dated as of January 31, 1998, between the Company and Entelechy, Inc. 10.13 Asset Purchase Agreement, dated as of January 1, 1998, between the Company and JDT WebwerX LLC, as amended. 10.14 IBS Interactive, Inc. 1998 Stock Option Plan.*+ 10.15 Restricted Stock Agreement, dated as of February 26, 1996 between the Company and Andrew Murren.*+ 10.16 Commercial Sublease, dated as of May 5, 1997, between the Company and Information Systems & Communications, Inc., in connection with the Company's premises in Fairfax, Virginia. 10.17 Second Lease Modification Agreement, dated as of March 3, 1998, by and among the Company and EI, 2 Ridgedale Avenue, Inc. and Hanover Park for Industry, in connection with the Company's premises in Cedar Knolls, New Jersey. 10.18 Letter Agreement, dated as of October 21, 1997 between the Company and EI Realty in connection with the Company's premises in Cedar Knolls, New Jersey. 10.19 Lease Agreement, dated as of May 1, 1997 by and between the Company and Iron Investment Corp. and Hanover Park for Industry, in connection with the Company's premises in Cedar Knolls, New Jersey. 10.20 Network Services Contract, dated as of December 27, 1996, between the Company and the Catholic Healthcare Network. 10.21 Professional Service Agreement Consulting, dated as of October 23, 1997, between Aetna Life Insurance Company and the Company. 10.22 Lease Agreement, dated as of January 31, 1998, between the Company and R&G International, in connection with the Company's premises in Huntsville, Alabama. 23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1). 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Milgrom, Galuskin, Balmuth & Company, Certified Public Accountants, P.C. 23.4 Consent of John J. Brighton 23.5 Consent of Barrett N. Wissman 23.6 Consent of Susan Holloway Torricelli 24.1 Power of Attorney (included on page II-5). 27.1 Financial Data Schedule.
- ------------ * To be filed by amendment. + Management contract or compensatory plan or arrangement. EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF INTERNET BROADCASTING SYSTEM, INC. It is hereby certified that: 1. The name of the corporation, under which it was originally incorporated, is Internet Broadcasting System, Inc. (the "Corporation"). The original Certificate of Incorporation of the Corporation (as subsequently amended, the "Certificate") was filed with the Office of the Secretary of State of the State of Delaware on February 28, 1995. The Certificate was amended and an Amendment to the Certificate was filed with the Office of the Secretary of State of the State of Delaware on April 9, 1996. The Certificate, was further amended and an Amendment to the Certificate was filed with the Office of the Secretary of State of the State of Delaware on July 18, 1997. 2. The Certificate is hereby restated and further amended as follows: (i) to change the name of the Corporation to IBS Interactive, Inc.; (ii) to increase the total number of shares of capital stock that the Corporation shall have the authority to issue from Three Thousand (3,000) shares to Twelve Million (12,000,000) shares, of which Eleven Million (11,000,000) shares shall be Common Stock, par value $.01 per share and One Million (1,000,000) shares shall be designated preferred stock; (iii) to provide for a 1,029.1-to-1 split of the Corporation's currently issued and outstanding Common Stock, no par value (the "Old Common Stock"); (iv) to fix the rights, powers and designations of the Common Stock; and (v) to affirmatively provide, pursuant to Section 228 of the General Corporation Law of the State of Delaware (the "Delaware Corporation Law"), that action by holders of the Corporation's capital stock may only be taken at a duly held meeting of stockholders. 3. Except for (i) the inclusion of the foregoing amendments, and (ii) the renumbering of the Certificate, there are no discrepancies between the provisions of the Certificate as heretofore amended and supplemented and the provisions of the said single instrument hereinafter set forth. 4. The amendments to and restatement of the Certificate as the Restated Certificate of Incorporation (the "Restated Certificate") have been duly adopted by the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the Delaware Corporation Law. The text of the Certificate is restated with the amendments described above, effective as of 10:00 a.m. on March 10, 1998 to read as follows: FIRST: The name of the corporation is IBS Interactive, Inc. (the "Corporation"). SECOND: The name and address of the Corporation's registered office in the State of Delaware is The Prentice Hall Corporation System, Inc. located at 1013 Centre Road, City of Wilmington, County of New Castle. THIRD: The nature of the business and the purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Delaware Corporation Law. FOURTH: The Corporation shall have the authority to issue two (2) classes of capital stock, to be designated respectively "Preferred Stock" and "Common Stock." The total number of shares of capital stock that the Corporation shall have the authority to issue is Twelve Million (12,000,000). The total number of shares of preferred stock, par value $.01 per share (the "Preferred Stock"), that the Corporation shall have authority to issue is One Million (1,000,000). The total number of shares of Common Stock, par value $.01 per share (the "Common Stock"), that the Corporation shall have authority to issue is Eleven Million (11,000,000). Upon the filing of this Restated Certificate, the shares of Old Common Stock shall be changed so that every one (1) share of Old Common Stock will automatically, and without any action on the part of the holder thereof, be converted into 1,029.1 shares of Common Stock, provided, however, that no fractional shares shall be issued pursuant to such conversion and no payment shall be made for any fractional shares. The Preferred Stock shall consist of One Million (1,000,000) shares. The following is a statement fixing certain of the designations and the powers, voting rights, preferences and relative, participating, optional and other rights of the Preferred Stock, and the qualifications, limitations or restrictions thereof, and of the authority with respect thereto expressly granted to the Board of Directors of the Corporation to fix any such provisions not fixed by this Restated Certificate. A. PREFERRED STOCK The Board of Directors is hereby expressly vested with the authority to adopt a resolution or resolutions providing for the issue of authorized but unissued shares of Preferred Stock, which shares may be issued from time to time, in one or more series and in such amounts as may be determined by the Board of Directors in such resolution or resolutions. The powers, voting rights, designations, preferences and relative, participating, optional or other special rights, if any, of each series of Preferred Stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights (collectively, the "Series Terms"), shall be such as are stated and expressed in the resolution or resolutions providing for the issue of such series of Preferred Stock (the "Series Term Resolution") adopted by the Board of Directors. The powers of the Board of Directors with respect to the Series Terms of a particular series (any of which powers may by resolution of the Board of 2 Directors be specifically delegated to one or more of its committees, except as prohibited by the Delaware Corporation Law) shall include, but not be limited to, determination of the following: (1) The number of shares constituting that series and the distinctive designation of that series; (2) The dividend rate on the shares of that series, whether such dividends, if any, shall be cumulative, and, if so, the date or dates from which dividends payable on such shares shall accumulate, and the relative rights of priority, if any, of payment of dividends on shares of that series; (3) Whether that series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (4) Whether that series shall have conversion privileges with respect to shares of any other class or classes of stock or of any other series of any class of stock, and, if so, the terms and conditions of such conversion upon the occurrence of such events as the Board of Directors shall determine; (5) Whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the relative rights of priority of the shares of such series, if any, of redemption, the date or dates upon or after which the shares of such series shall be redeemable, provisions regarding redemption notices, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (6) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (7) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (8) The conditions or restrictions upon the creation of indebtedness of the Corporation or upon the issuance of additional Preferred Stock or other capital stock ranking on a parity therewith, or prior thereto, with respect to dividends or distribution of assets upon liquidation; (9) The conditions or restrictions with respect to the issuance of, payment of dividends upon, or the making of other distributions to, or the acquisition or redemption of, shares ranking junior to the Preferred Stock or to any series thereof with respect to dividends or distribution of assets upon liquidation; and (10) Any other designation, preference, power and right and any qualification, limitation or restriction thereon as may be fixed by resolution or resolutions of the Board of Directors or by the Delaware Corporation Law. 3 Any of the Series Terms, including voting rights, of any series may be made dependent upon facts ascertainable outside this Restated Certificate and the Series Terms Resolution, provided that the manner in which such facts shall operate upon such Series Terms is clearly and expressly set forth in this Restated Certificate or in the Series Terms Resolution. B. COMMON STOCK The Common Stock shall consist of Eleven Million (11,000,000) shares. The powers, preferences and rights, and the qualifications, limitations and restrictions of the Common Stock are as follows: 1. Voting. A holder of shares of Common Stock shall be entitled to one (1) vote for each share held. Each share of Common Stock is vested with all of the same rights and powers in all respects, including, without limitation, dividend and liquidation rights. Whenever the Corporation shall issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of such amended certificate shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of Section 242(b)(2) of the Delaware Corporation Law shall otherwise require, provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. 2. Dividends. When and as dividends are declared thereon, whether payable in cash, property or securities of the Corporation, holders of Common Stock will be entitled to share in such dividends ratably according to the number of shares of Common Stock held by such holder, subject to the rights of the holders of shares of any series of Preferred Stock set forth in any Series Terms Resolution. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for the payment of the debts and other liabilities of the Corporation and the payment or setting aside for payment of any preferential amount due to the holders of shares of any series of Preferred Stock, the holders of Common Stock shall be entitled to share, ratably according to the number of shares of Common Stock held by such holders, in the remaining assets of the Corporation available for distribution to its stockholders, subject to the rights of the holders of any shares of any class of stock or series ranking on parity with the Common Stock as to payment or distribution in such event. FIFTH: In furtherance and not in limitation of the powers conferred by the Delaware Corporation Law, the Corporation's Amended and Restated By-laws, as such Amended and Restated By-Laws, may be from time to time be further amended, modified or supplemented (as so amended, modified or supplemented, the "By-Laws"), may be modified, altered, amended or repealed by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors. 4 The powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of a Board of Directors. The number of directors may be increased or decreased by the Board of Directors from time to time as provided in the By-laws. SIXTH: Election of directors of the Corporation need not be by ballot unless the By-laws of the Corporation shall so provide. SEVENTH: No director of the Corporation shall have personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, that nothing in this Article EIGHTH shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. In the event the Delaware Corporation Law is amended after the date hereof so as to authorize corporate action further eliminating or limiting the liability of directors of the Corporation, the liability of the directors shall thereupon be eliminated or limited to the maximum extent permitted by the Delaware Corporation Law, as so amended from time to time. Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director existing at the time of such repeal or modification. EIGHTH: The Corporation shall, to the fullest extent permitted by Section 145 of the Delaware Corporation Law, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under Section 145 from and against any and all expense, liability, or other matter referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other right to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate, in any manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, Internet Broadcasting System, Inc. has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer this 9th day of March, 1998. /s/ Nicholas R. Loglisci, Jr. ------------------------------------- Nicholas R. Loglisci, Jr. President and Chief Executive Officer EX-3 3 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF IBS INTERACTIVE, INC. (formerly known as Internet Broadcasting System, Inc.) As Amended March 9, 1998 ARTICLE I Stockholders SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors or if no date and time are so fixed, at 10:00 a.m. on the first Friday in June of each year at the principal executive office of the Corporation at 10:00 a.m. SECTION 2. Special Meetings. Except as otherwise provided by statute or in the Corporation's Restated Certificate of Incorporation, as such certificate of incorporation may be from time to time hereafter modified, amended or supplemented (the "Restated Certificate"), a special meeting of the stockholders of the Corporation may be called at any time by the Board of Directors or the President. Any special meeting of the stockholders shall be held on such date, at such time and at such place within or without the State of Delaware as the Board of Directors or the officer calling the meeting may designate. SECTION 3. Notice of Meetings. Written notice of each meeting of the stockholders, which shall state the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which it is called, shall be given, not less than ten (10) nor more than sixty (60) days before the date of such meeting, either personally or by mail, to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, directed to the stockholder at the address of such stockholder as it appears on the records of the Corporation. Whenever notice is required to be given, a written waiver thereof signed by the stockholder entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder 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. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If, at any meeting of stockholders, action is proposed to be taken which would, if taken, entitle stockholders to perfect appraisal rights with respect to their shares of the Corporation's capital stock, the notice of meeting shall include a statement to that effect and such notice shall comply with the requirements specified in Section 262 of the General Corporation Law of the State of Delaware. SECTION 4. Quorum. At any meeting of the stockholders, the holders of a majority in number of the total outstanding shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes, unless the representation of a larger number of shares shall be required by law, by the Restated Certificate or by these By-Laws, in which case the representation of the number of shares so required shall constitute a quorum; provided, that, at 2 any meeting of the stockholders at which the holders of any class of stock of the Corporation shall be entitled to vote separately as a class, the holders of a majority in number of the total outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum for purposes of such class vote unless the representation of a larger number of shares of such class shall be required by law, by the Restated Certificate or by these By-Laws. SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in person or represented at any meeting of the stockholders, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting may adjourn from time to time; provided, however, that if the holders of any class of stock of the Corporation are entitled to vote separately as a class upon any matter at such meeting, any adjournment of the meeting in respect of action by such class upon such matter shall be determined by the holders of a majority of the shares of such class present in person or represented by proxy and entitled to vote at such meeting. At the adjourned meeting, the stockholders or the holders of any class of stock entitled to vote separately as a class, as the case may be, may transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 6. Organization. At each meeting of the stockholders, the Chief Operating Officer of the Corporation, or such officer's absence or inability to act, the President of the Corporation, or in such officer's absence or inability to act, a Vice President shall call all meetings of the stockholders to order, and shall act as chairman of such meetings. In the absence of each of the Chief Operating Officer, the President and each of the Vice Presidents, the holders of a majority in number of the shares 3 of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman. The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; but in the absence of the Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 7. Voting. Except as otherwise provided in the Restated Certificate or by law, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. Except as otherwise provided by law, every proxy shall be revocable at the pleasure of the stockholder executing it. No such proxy shall be voted or acted upon after three years from its date unless the proxy provides for a longer period. Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting or by such stockholder's proxy if there can be such proxy, and shall state the number of shares voted. Except as otherwise provided by law or by the Restated Certificate, Directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the stockholders entitled to vote in the election and, whenever any corporate action other than the election of Directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon. 4 Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. SECTION 8. List of Stockholders. It shall be the duty of the Secretary of the Corporation to prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open, 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 the ten (10) days next preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 9. Inspectors. The Board of Directors, in advance of any meeting of stockholders, shall appoint one or more inspectors to act at such meeting or any adjournment thereof and to make a written report thereon. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall ascertain the number of shares of each kind, class or series of stock outstanding and the voting 5 power of each, determine the number of shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. No Director or nominee for the office of Director shall act as an inspector of an election of Directors. Inspectors need not be stockholders. SECTION 10. Business Brought Before an Annual Meeting. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the meeting of stockholders. To be properly brought before an annual meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder who was a stockholder of record at the time of giving of the notice provided for in this section, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 10. For business 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 and such business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be delivered to or mailed and received by the Corporation's Secretary at the principal executive offices of the Corporation, not less than one hundred twenty (120) days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in 6 the event that the date of the annual meeting of stockholders is changed by more than thirty (30) days from such anniversary date, notice by the stockholder to be timely must be so received no later than the close of business on the tenth (10) day following the day on which notice of the date of the meeting was mailed. A stockholder's notice to the Corporation's Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business sought to be brought before the meeting; (c) the name and address, as such appear on the Corporation's books, of the stockholder proposing such nominee or business and any other stockholders known by such stockholder to be supporting such nominee or proposal; (d) the class and number of shares of the Corporation which, on the date of such stockholder's notice, are beneficially owned by such stockholder and by any other stockholders known by such stockholder to be supporting such nominee or proposal; and (e) any material interest of the stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at an annual meeting of stockholders except in accordance with the procedures set forth in this Section 10. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the 7 provisions of this Section 10 and if the chairman should so determine, the chairman shall so declare at the meeting and any such business not properly brought before such meeting shall not be transacted. ARTICLE II Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute, the Restated Certificate or these By-laws directed or required to be done by the stockholders. SECTION 2. Number and Qualifications. The Board of Directors shall consist of not less than three (3) nor more than nine (9) Directors. Directors need not be stockholders. The Board of Directors, by the affirmative vote of a majority of the entire Board of Directors, may increase the number of Directors to a number not exceeding fifteen (15). Vacancies occurring by reason of any such increase shall be filled in accordance with Section 4 of this Article II. The Board of Directors, by the vote of a majority of the entire Board of Directors, may decrease the number of Directors to a number not less than three (3) but any such decrease shall not affect the term of office of any Director. SECTION 3. Classes, Election and Term of Office. Except for Directors elected to fill vacancies, all Directors shall be elected at the annual meeting of stockholders and shall be nominated in accordance with the provisions of Section 5 of this Article. Directors elected to fill vacancies shall be appointed and elected in accordance with the provisions of Section 4 of this Article. At each meeting of stockholders for the election of Directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of Directors to be elected, shall be the Directors. Each Director shall hold office until his successor is elected and qualified, or until his 8 earlier resignation by written notice to the Secretary of the Corporation, or until his removal from office. SECTION 4. Removal, Vacancies and Additional Directors. The stockholders may, by the affirmative vote of the holders of at least a majority of the issued and outstanding shares of the Corporation's capital stock entitled to vote with respect to the election of Directors, at any special meeting, the notice of which shall state that it is called for that purpose, remove, with or without cause, any Director and fill the vacancy in accordance with these By-laws; provided, however, that whenever any Director shall have been elected by the holders of any class of stock of the Corporation voting separately as a class pursuant to statute or the provisions of the Restated Certificate, such Director may be removed and the vacancy filled only by the holders of that class of stock voting separately as a class. Vacancies caused by any removal, or any vacancy caused by the death or resignation of any Director or for any other reason, and any newly created directorship resulting from any increase in the authorized number of Directors, shall be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, and if there shall be no Directors then in office, such vacancy or newly created directorship shall be filled by holders of at least a majority of the shares of the Corporation's capital stock entitled to vote with respect to the election of Directors, and any Director so elected to fill such vacancy or any newly created directorship shall hold office for a term that shall expire at the first annual meeting of stockholders following such appointment or until the earlier resignation or removal of the Director. When one (1) or more Directors shall resign from the Board of Directors effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or 9 vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office until the first annual meeting of stockholders following such appointment or until the earlier resignation or removal of the Director. SECTION 5. Nominations. (a) Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in these By-laws, who is entitled to vote for the election of Directors at the meeting and who shall have complied with each of the notice procedures set forth in Article I, Section 10 and all applicable requirements of the Exchange Act and the Rules and Regulations promulgated thereunder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director 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. (b) No person shall be eligible to serve as a Director of the Corporation unless nominated in accordance with the procedures set forth in these By-laws. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By-laws, and if the chairman should so declare, the defective nomination shall be disregarded. SECTION 6. Place of Meeting. The Board of Directors may hold its meetings in such place or places in or outside the State of Delaware as the Board of Directors may from time to time determine or as specified in the notice of any such meeting. 10 SECTION 7. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting of stockholders shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place, within or without the State of Delaware, which shall be specified in a notice thereof given as hereinafter provided in Section 10 of this Article II. SECTION 8. Regular Meetings. Regular meetings of the Board of Directors shall be held monthly at the principal executive office of the Corporation, or at such other place as the Board of Directors may determine. No notice shall be required for any regular meeting of the Board of Directors held at the principal executive office of the Corporation. A copy of every resolution fixing or changing the time or place of regular meetings shall be delivered to every Director at least five (5) days before the first meeting held pursuant thereto. SECTION 9. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the President, or by any two (2) of the Directors then in office. SECTION 10. Notice of Meetings. Notice of the day, hour and place of holding of each special meeting (and each annual or regular meeting for which notice shall be required) shall be given by mailing the same at least five (5) days before the meeting or by causing the same to be transmitted by telegraph, cable or wireless at least one (1) day before the meeting to each Director. Unless otherwise indicated in the notice thereof, any and all business other than an amendment of these By-Laws may be transacted at any special meeting, and an amendment of these By-Laws may be acted upon if the notice of the meeting shall have stated that the amendment of these By-Laws is one (1) of the purposes of the meeting. At any meeting at which every Director shall be present, even 11 though without any notice, any business may be transacted, including the amendment of these By-Laws. A written waiver of notice, signed by a Director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting, except when the Director 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 11. Quorum. Subject to the provisions of Section 4 of this Article II, a majority of the members of the Board of Directors in office (but in no case less than one-third of the total number of Directors) shall constitute a quorum for the transaction of business and the vote of the majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board of Directors there is less than a quorum present, a majority of those present may adjourn the meeting from time to time. Notice of the time and place of any such adjourned meeting shall be given to the Directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other Directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The Directors shall act only as a board and the individual Directors shall have no power as such. SECTION 12. Organization. At all meetings of the Board of Directors, a chairman shall be elected from the Directors present to preside at such meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the Directors. In the absence of the Secretary, the Chairman may appoint any person to act as secretary of the meeting. 12 SECTION 13. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one (1) or more committees, each committee to consist of one (1) or more of the Directors of the Corporation. The Board of Directors may designate one (1) or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by resolution passed by a majority of the whole Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and the affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; except that no such committee shall have the power or authority in reference to amending the Restated Certificate, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or an amendment to these By-Laws; and unless such resolution, these By-Laws, or the Restated Certificate expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep written minutes of its proceedings and shall report such minutes to the Board of Directors when required. SECTION 14. Conference Telephone Meetings. Unless otherwise restricted by the Restated Certificate or by these By-Laws, the members of the Board of 13 Directors or any committee designated by the Board, may participate in a meeting of the Board of Directors or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and such participation shall constitute presence in person at such meeting. SECTION 15. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Restated Certificate or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, as the case may be. SECTION 16. Compensation. The amount, if any, that each Director shall be entitled to receive as compensation for such Director's services as such shall be fixed from time to time by resolution of the Board of Directors. Directors, who are not employees of the Corporation, shall be entitled to receive reimbursement from the Corporation for reasonable travel expenses in connection with their attendance at any meeting of the Board of Directors. ARTICLE III Officers SECTION 1. Officers. The officers of the Corporation shall be a President, a Chief Operating Officer, a Chief Technical Officer, a Chief Information Officer, a Chief Financial Officer, one (1) or more Vice Presidents, a General Counsel, and a Secretary, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 10 of this Article III. The President, the Chief Operating Officer, the Chief Technical Officer, the Chief Information Officer, one (1) or more Vice Presidents, and the Secretary 14 shall be elected by the Board of Directors at its first meeting after each annual meeting of the stockholders. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person. All officers, agents and employees of the Corporation shall be subject to removal, with or without cause, at any time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. All agents and employees other than officers elected by the Board of Directors shall also be subject to removal, with or without cause, at any time by the officers appointing them. Any vacancy caused by the death of any officer, such officer's resignation, his removal, or otherwise, may be filled by the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors for the unexpired portion of the term of office which shall be vacant. In addition to the powers and duties of the officers of the Corporation as set forth in these By-Laws, each officer shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors. SECTION 2. Powers and Duties of the Chief Operating Officer. The Chief Operating Officer, subject to the control of the Board of Directors, shall have general responsibility for the business and affairs of the Corporation. In the absence of the Chairman of the Board, the Chief Operating Officer shall preside at all meetings of each of the stockholders and the Board of Directors and he shall have such 15 other powers and duties as may be assigned to or required of such officer from time to time by the Board of Directors or these By-Laws. SECTION 3. Powers and Duties of the President. Unless otherwise determined by the Board of Directors, the President, subject to the control of the Board of Directors, shall perform all duties and services incident to the office of President. In the absence of the Chairman of the Board and the Chief Operating Officer, the President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors. In addition, the President shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors. SECTION 4. Powers and Duties of the Chief Technical Officer. The Chief Technical Officer shall perform all duties incident to the office of Chief Technical Officer and shall have such powers and perform such other duties as may from time to time be assigned to such office by these By-Laws or by the Board of Directors. SECTION 5. Powers and Duties of the Chief Information Officer. The Chief Information Officer shall perform all duties incident to the office of Chief Information Officer and shall have such powers and perform such other duties as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors. SECTION 6. Powers and Duties of the General Counsel. The General Counsel shall perform all duties incident to the office of General Counsel and shall have such powers and perform such other duties as may from time to time be assigned to such office by these By-Laws or by the Board of Directors, the Chief Operating Officer or the President. SECTION 7. Powers and Duties of the Chief Financial Officer. The Chief Financial Officer shall have responsibility for all financial and accounting matters, including supervisory responsibilities for any Treasurer and any Assistant Treasurer of the Corporation, shall perform all duties incident to the office of Chief Financial Officer and shall have such powers and perform such other duties as may from 16 time to time be assigned to such office by these By-Laws or by the Board of Directors, the Chief Operating Officer or the President. SECTION 8. Powers and Duties of the Vice Presidents. Each Vice President shall perform all duties incident to the office of Vice President and shall have such powers and perform such other duties as may from time to time be assigned to such office by these By-Laws or by the Board of Directors, the Chief Operating Officer or the President. SECTION 9. Powers and Duties of the Secretary. The Secretary shall: (i) keep minutes of all meetings of the Board of Directors and minutes of all meetings of the stockholders in books provided for that purpose; (ii) attend to the giving or serving of all notices of the Corporation; (iii) have custody of the corporate seal of the Corporation and shall affix the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (iv) have charge of the stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors, Chief Operating Officer or the President shall direct; (v) cause the books, reports, statements, certificates and other documents and records required by law to be kept and filed to be properly kept and filed all of which shall at all reasonable times be open to the examination of any Director, upon application, at the office of the Corporation during business hours; (vi) perform all duties incident to the office of Secretary; and (vii) have such other powers and 17 perform such other duties as may from time to time be assigned to the Secretary by these By-Laws or the Board of Directors, the Chief Operating Officer or the President. SECTION 10. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be Directors), including a Treasurer, a Controller, and one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the Board of Directors may deem advisable, and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors, the Chief Operating Officer or the President. The Board of Directors may from time to time by 18 resolution delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Assistant Secretaries any of the powers or duties herein assigned to the Secretary. SECTION 11. Giving of Bond by Officers. All officers of the Corporation, if required to do so by the Board of Directors, shall furnish bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board of Directors shall require. SECTION 12. Voting Upon Stocks. Unless otherwise ordered by the Board of Directors, the Chief Operating Officer, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meetings of stockholders of any corporation in which the Corporation may hold stock, and at any such meetings shall possess and may exercise, in person or by proxy, any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may from time to time, by resolution, confer like powers upon any other person or persons. SECTION 13. Compensation of Officers. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors or a committee thereof; provided, however, that the Board of Directors or a committee thereof may delegate to the Chief Operating Officer the power to fix the compensation of all other officers. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that such officer is or was a Director of the Corporation, but any such officer who shall also be a Director (except in the event there is only one (1) Director of the Corporation) shall not have any vote in the determination of the compensation to be paid to him. 19 ARTICLE IV Stock-Seal-Fiscal Year SECTION 1. Certificates Representing Shares of Stock. The certificates representing shares of stock of the Corporation shall be in such form, not inconsistent with the Restated Certificate, as shall be approved by the Board of Directors. All certificates certifying the kind, class or series and number of shares of the Corporation's capital stock owned by such holder shall be signed by the Chairman of the Board, Chief Operating Officer, President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be valid unless so signed. Any or all of the signatures on the certificate may be a facsimile. In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers of the Corporation. All certificates representing shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the Corporation. Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be cancelled, and no new certificates shall be issued until former certificates for the same number of shares have been surrendered and cancelled. 20 SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning a certificate representing shares of stock of the Corporation alleges that it has been lost, stolen or destroyed, he shall file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place and circumstances of the loss, theft or destruction, and, if required by the Board of Directors, a bond of indemnity or other indemnification sufficient in the opinion of the Board of Directors to indemnify the Corporation and its agents against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate in replacement therefor. Thereupon the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen or destroyed. Anything herein to the contrary notwithstanding, the Corporation in its absolute discretion may refuse to issue any new certificate, except pursuant to judicial proceedings under the laws of the State of Delaware. SECTION 3. Transfer of Shares; Registered Stockholders. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder of record liable for calls and assessments and the Corporation 21 shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof. Whenever any transfers of shares shall be made for collateral security and not absolutely, and both the transferor and transferee request the Corporation to do so, such fact shall be stated in the entry of the transfer. SECTION 4. Regulations. The Board of Directors shall have power and authority to make such rules and regulations not inconsistent with these By-Laws as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. The Board of Directors may appoint or authorize any officer or officers to appoint, one (1) or more transfer agents and one (1) or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to (i) notice of or to vote at any meeting of stockholders or any adjournment thereof, (ii) receive payment of any dividend or other distribution or allotment of any rights, (iii) exercise any rights in respect of any change, conversion or exchange of stock or (iv) for the purpose of any other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which shall (i) not be more than sixty (60) nor less than ten (10) days before the date of such meeting, (ii) not be more than ten (10) days after the date upon which the resolution fixing the record date for consent to corporate action in writing is adopted by the Board of Directors and (iii) not be more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and the record date for 22 determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Dividends. Subject to the provisions of the Restated Certificate, the Board of Directors shall have power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law. Any dividends declared upon the stock of the Corporation shall be payable subject to the provisions of the Restated Certificate on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable seal, which shall be circular in form, bear the name of the Corporation and shall include the words and numbers "Corporate Seal", "Delaware" and the year of incorporation. The seal shall be kept in the custody of the Secretary. A duplicate seal may be kept and be used by any officer of the Corporation designated by the Board, the Chief Operating Officer or the President. SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. ARTICLE V Miscellaneous Provisions SECTION 1. Execution of Contracts. Except as otherwise required by statute, the Restated Certificate or these By-Laws, any contract or other instrument may be executed and delivered in the name and on behalf of the 23 Corporation by each of the President, the Chief Operating Officer, the Chief Financial Officer, the Chief Technical Officer and the Chief Information Officer, or by such officer or officers (including any assistant officer) of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board of Directors may determine. Unless authorized by the Board of Directors or expressly permitted by these By-Laws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it peculiarly liable for any purpose or to any amount. SECTION 2. Checks, Notes, etc. All checks, drafts, bills of exchange, acceptances, notes or other obligations or orders for the payment of money out of the funds of the Corporation shall be signed and, if so required by the Board of Directors, countersigned by such officers of the Corporation and/or other persons as shall from time to time be designated by the Board of Directors or pursuant to authority delegated by the Board of Directors. Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depositary by the Chief Financial Officer and/or such other officers or persons as shall from time to time be designated by the Chief Financial Officer. SECTION 3. Loans. No loans and no renewals of loans for more than Two Hundred Fifty Thousand Dollars ($250,000) shall be contracted on behalf of the Corporation except as authorized by the Board of Directors. When authorized so to do, any officer or agent of the Corporation may effect loans and advances for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness 24 of the Corporation. When authorized so to do, any officer or agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same. Such authority may be general or confined to specific instances. SECTION 4. Offices Outside of Delaware. The registered office and registered agent of the Corporation will be as specified in the Restated Certificate. Except as otherwise required by the laws of the State of Delaware, the Corporation may have an office or offices and keep its books, documents and papers outside of the State of Delaware at such place or places as from time to time may be determined by the Board of Directors, the Chief Operating Officer or the President. SECTION 5. Indemnification of Directors, Officers and Employees. The Corporation shall, to the fullest extent permitted by applicable law from time to time in effect, indemnify any and all persons who may serve or who have served at any time as Directors or officers of the Corporation, or who at the request of the Corporation may serve or at any time have served as directors or officers of another corporation (including subsidiaries of the Corporation) or of any partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, from and against any and all of the expenses, liabilities or other matters referred to in or covered by said law. Such indemnification shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may also indemnify any and all other persons whom it shall have power to indemnify under any applicable law from time to time in effect to the extent authorized by the Board of Directors 25 and permitted by law. The indemnification provided by this Section 5 shall not be deemed exclusive of any other rights to which any person may be entitled under any provision of the Restated Certificate, these By-Laws, agreement, vote of stockholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. For purposes of this Section 5, the term "Corporation" shall include constituent corporations referred to in Subsection (h) of the Section 145 of the General Corporation Law of the State of Delaware (or any similar provision of applicable law at the time in effect). SECTION 6. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any person who is or was a Director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against any such expense, liability or loss asserted against it or such person and incurred by it or such person, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. SECTION 7. Voting as Stockholder. Unless otherwise determined by resolution of the Board of Directors, the Chief Operating Officer, President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without 26 a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. SECTION 8. Construction. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Restated Certificate as in effect from time to time, the provisions of such Restated Certificate shall be controlling. ARTICLE VI Amendments These By-Laws and any amendment thereof may be altered, amended or repealed, or new By-Laws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of all of the members of the Board, provided, that in the case of any special meeting at which all of the members of the Board are not present, the notice of such meeting shall have stated that the amendment of these By-Laws was one of the purposes of the meeting. These By-Laws and any amendment thereof, including the By-Laws adopted by the Board of Directors, may be altered, amended or repealed and other By-Laws may be adopted by the holders of a majority of the total outstanding stock of the Corporation entitled to vote at any annual meeting or at any special meeting, provided, that in the case of any special meeting, notice of such proposed alteration, amendment, repeal or adoption is included in the notice of the meeting and further provided, that any alteration, modification or repeal to each of Article I, Sections 2, 3 and 10 and Article II, Sections 4 and 5 of these By-Laws shall require the affirmative vote of holders of at least 67% of the issued and outstanding shares of the Corporation's capital stock entitled to vote thereon. 27 ARTICLE VII Severability The provisions of these By-Laws shall be separable each from any and all other provisions of these By-Laws, and if any such provision shall be adjudged to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, or the powers granted to this Corporation by the Restated Certificate or these By-Laws. 28 EX-10 4 EXHIBIT 10.1 INTERNET BROADCASTING SYSTEM, INC. (A Delaware Corporation) Form of 6% PROMISSORY NOTES DUE JULY 31, 1998 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. Principal Amount: $5,000.00 Note #__ Holder: August 1, 1995 FOR VALUE RECEIVED, Internet Broadcasting System, Inc., a Delaware corporation (the "Company"), the principal office of which is located at 8 Warwick Road, Morristown, NJ 07960, hereby promises to pay to the order of the holder named above, the principal amount set forth above, together with interest thereon on each anniversary of the date hereof of each calendar year (each an "Interest Payment Date") on the terms and conditions hereinafter set forth. The principal hereof and any interest accrued and unpaid since the most recent Interest Payment Date shall be due and payable three years from the date hereof. Payment for all amounts due hereunder shall be made by mail to the registered address of the Holder. This Note is issued in connection with the private offering of securities described in a certain Subscription Agreement between the Company and the Holder or the Holder's predecessor, accepted by the Company as of August 1, 1995 (the "Subscription Agreement"), and is one of a series of similar notes issued or to be issued by the Company having a maturity date of July 31, 1998 and having an aggregate principal amount of up to $100,000 (collectively, the "Notes"). 1. Certain Definitions. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: (i) "Company" includes any corporation which shall succeed to or assume the obligations of the Company under this Note; (ii) "Holder," when the context refers to the original holder of this Note. 2. Interest. The Company shall pay interest from date hereof on the principal amount of this Note outstanding, at the rate of six percent (6%) per annum. Interest shall be computed on the basis of the actual number of days elapsed over a year of three hundred sixty (360) days. 3. Events of Default. If any of the events specified in this Section 3 shall occur, the Holder of this Note may, so long as such condition exists, declare the entire principal and unpaid accrued interest thereon immediately due and payable, by notice in writing to the Company, provided that the Company has received notices of acceleration from the holders of at least a majority of the aggregate principal amount of the Notes then outstanding; (i) The Company shall fail to make a payment of the principal of or accrued interest on this Note when due and payable, which failure has not been remedied within thirty (30) days of such default; (ii) (a) The Company shall commence any proceeding or other action relating to it in bankruptcy or seek reorganization, arrangement, readjustment of its debts, receivership, dissolution, liquidation, winding-up, composition or any other relief under any bankruptcy law, or under any other insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (b) the Company shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (c) the Company applies for, or consents or acquiesces to, the appointment of a receiver, conservator, trustee or similar officer for it or for all or substantially all of its property; or (d) the Company makes a general assignment for the benefit of creditors; (iii) (A) The commencement of any proceedings or the taking of any other action against the Company in bankruptcy or seeking reorganization, arrangement, readjustment of its debts, liquidation, dissolution, arrangement, composition, readjustment of debt or any other relief under any bankruptcy law or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for one hundred twenty (120) days undismissed, unbonded or undischarged; or (B) the appointment of a receiver, conservator, trustee or similar officer for the Company or for all or substantially all of its property and the continuance of any such events for one hundred twenty (120) days undismissed, unbonded or undischarged; or (C) the issuance of a warrant of attachment, execution or similar process against substantially all of the property of the Company and the continuance of such event for one hundred twenty (120) days undismissed, unbonded and undischarged; (iv) The Company shall fail to perform any obligation of the Company contained in the Subscription Agreement; (v) The Company shall fail to perform or comply with any of its covenants set forth in this Note; or (vi) The Company or any of its subsidiaries shall fail to make any required payment (regardless of the amount of such required payment) of principal or interest with respect to any of its indebtedness for borrowed money or for the deferred purchase price for property or services in excess of $500,000.00 as a result of which the maturity of such indebtedness has been accelerated under the terms thereof and such acceleration has not been received by the holder of such debt within thirty (30) days after such acceleration; or Any of the events specified in Section 3 shall be individually referred to herein as an "Event of Default." 4. Prepayment. (a) At any time or from time to time, the Company may, upon ten (10) days prior written notice to the Holder, prepay in whole or in part, the principal sum, plus accrued and unpaid interest to date of payment, of this Note. 5. Covenants of the Company. (a) Corporate Existence; Licenses. The Company shall do, or cause to be done, all things necessary to maintain and preserve the corporate existence, license, permits and authorizations of itself unless the failure to do such thing would not have a material adverse effect on the Company. (b) Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, within one hundred twenty (120) days of the date due, all taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made. (c) Maintenance of Properties; Insurance; Compliance with Law. (i) The Company shall cause all properties and assets to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be necessary for the proper conduct of its business. (ii) The Company shall maintain such insurance as may be required by law and such other insurance to such extent and against such hazards and liabilities, as is necessary to adequately protect it against risks to which the Company's businesses expose it. (iii) The Company shall, and shall cause each of its subsidiaries to, keep proper books and records of accounts reflecting all financial transactions of the Company or its subsidiary, as the case may be, all in accordance with GAAP, consistently applied. (iv) The Company shall comply with all statutes, laws, ordinances, or governmental (federal, state, local and foreign, as the case may be) rules and regulations ("Laws") to which it is subject, where the failure to so comply would have an adverse effect on the Company and its subsidiaries; provided, that nothing herein shall prevent the Company from contesting the validity or the application of a Law. 6. Assignment. This Note and the rights and obligations of the parties hereunder may not be assigned or transferred by either party hereto without the prior written consent of the non-assigning party, and then in any event subject to the restrictions on transfer described in Section 8 below. The rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successor, permitted assigns, heirs, administrators and permitted transferees of the parties. 7. Waiver and Amendment. Any provision of this Note may be amended, waived or modified and any Event of Default and the right to accelerate upon the occurrence of same may be waived, upon the written consent of the Company and holders of at least a two-thirds majority of the aggregate principal amount of the Notes then outstanding (excluding for purposes or determining whether such two-thirds majority exists, the aggregate principal amount of Notes then held or at any time previously held by an officer or director of the Company). 8. Transfer of this Note. With respect to any offer, sale or other disposition of this Note, the Holder will give written notice to the Company prior thereto, describing in detail the circumstances surrounding the proposed disposition, together with a written opinion of such Holder's counsel, reasonably satisfactory to the Company, that such offer, sale or other distribution will not require registration or qualification (under any federal or state law then in effect). Promptly upon receiving such written notice and reasonably satisfactory opinion, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 8 that the opinion of counsel for the Holder is not reasonably satisfactory to the Company shall so notify the Holder promptly after such determination has been made. 9. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be given by personal delivery or mailed by registered or certified mail, postage prepaid, if to the Company, at its principal executive offices, and if to the Holder, to the address furnished to the Company by the Holder. Any Holder hereto may by notice so given change its address for future notice hereunder. Any notice, request or other communication shall conclusively be deemed to have been given when personally delivered or five (5) days after it has been deposited in the mail in the manner set forth above, as the case may be. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, excluding that body of law relating to conflict of laws. 11. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first above written. INTERNET BROADCASTING SYSTEM, INC. By: _______________________________________ Nick Loglisci, Jr. President EX-10.2 5 EXHIBIT 10.2 FORM OF REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement (the "Agreement") by and between Internet Broadcasting System, Inc., a corporation organized under the laws of the state of Delaware (the "Company"), with its principal place of business at 175 Park Avenue, Madison, New Jersey 07940, and the party executing this Agreement on the signature page hereof (the "Holder"), with an address as set forth on the signature page hereof. Reference is made to the Confidential Private Placement Memorandum dated May 6, 1996 (including all financial statements and exhibits contained therein and any amendments or supplements thereto, the "Memorandum") of the Company. All capitalized terms used but not defined herein shall have the same meanings given to them in the Memorandum. WHEREAS, the Holder has purchased on the date hereof that number of shares of the Company's Common Stock as set forth on the signature page hereof (the "Shares") pursuant to the Memorandum; and WHEREAS, as an additional inducement to the Holder to purchase the Shares, the Company has granted to the Holder certain registration rights with respect to the Shares as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions. For the purposes of this Agreement: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Securities Act"), or any comparable law of any other jurisdiction, and the declaration or ordering of effectiveness of such registration statement or document. (b) The term "Registrable Securities" means the Shares and any additional shares of Common Stock issued as a dividend or other distribution with respect to the Shares, excluding, however, any Registrable Securities sold by a person in a transaction in which its rights under this Agreement are not assigned. SECTION 2. Piggyback Registration. (a) If (but without any obligation to do so) the Company proposes to register any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in connection with a merger, an acquisition or an offering of securities under any employee benefit plan or stock option plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give the Holder written notice of such registration at least 30 days prior to such registration. Upon the written request of the Holder given within twenty (20) days after mailing of such notice by the Company, the Company shall, subject to the consent of the Company's underwriter for such public offering, use its best efforts to cause to be registered under the Securities Act as part of such Company registration, all of the Registrable Securities that the Holder has requested to be registered. (b) Notwithstanding any provision of Section 2(a) to the contrary, if the registration of which the Company gives notice pursuant to Section 2(a) is for an underwritten offering, and if the underwriter determines that marketing factors require exclusion or a limitation of the number of shares to be underwritten, or determines that any other limitation is advisable, the underwriter may exclude or otherwise limit the number of Registrable Securities to be included in the registration and underwriting. The Company shall so advise the Holder, and the number of shares included in such registration and underwriting, if any, shall be allocated among the Holder and any other selling stockholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested to be registered by the Holder and any other selling stockholders, or otherwise as the underwriter shall advise. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If the Holder disapproves of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn from such underwriting shall also be withdrawn from such registration. (c) Notwithstanding the provisions of Section 2(a), the Company shall have the right at any time after it shall have given written notice pursuant to Section 2(a) (irrespective of whether a written request for inclusion of any Registrable Securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof. (d) The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registration pursuant to this Section 2 for the Holder, including (without limitation) all registration, filing, qualification, attorneys', printers' and accounting fees relating or apportionable thereto; provided, however, that the following expenses shall be borne by the Holder: (i) all out-of-pocket expenses incurred by the Holder, including all expenses, fees and disbursements of any counsel retained by the Holder, all underwriting discounts and commissions, all transfer taxes and all expenses of any audits resulting from the Company's inability to use in the registration statement any financial statements by reason of such registration of the Registrable Securities held by the Holder; and (ii) any additional registration and qualification fees and expenses that result from the inclusion of the Registrable Securities held by the Holder. SECTION 3. Obligations of the Company. In connection with any registration effected pursuant to Section 2, the Company shall, as expeditiously as reasonably possible: (a) Subject to Section 2(b), 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 effective. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such registration statement. (c) Furnish to the Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Registrable Securities owned by it. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holder to enable the Holder to consummate the disposition in such jurisdictions of such securities, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. The Holder, if participating in such underwriting, shall also enter into and perform its obligations under such an agreement. (f) Notify the Holder holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as 2 then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of the Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Agreement, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holder requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent public accountants of the Company, in form and substance as is customarily given by independent public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holder requesting registration of Registrable Securities. SECTION 4. Obligations of Selling Holder. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of the selling Holder that the Holder shall furnish to the Company in writing on a timely basis such information with respect to the Holder, the Registrable Securities held, and the intended method of disposition of such securities as shall be required to effect the registration of the Holder's Registrable Securities. The Company shall have no obligation with respect to this Agreement if in the reasonable opinion of counsel to the Company or the underwriters, the failure of the Holder to provide the information required by this Section 4 impairs or may impair the viability of the offering or the legality of the registration statement or the underlying offering. (b) The Holder holding Registrable Securities included in a registration statement will not (until further notice) effect sales thereof after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a registration statement or prospectus. (c) At the end of the period during which the Company keeps the registration statement current and effective, the Holder holding Registrable Securities included in the registration statement shall discontinue sales of Registrable Securities pursuant to such registration statement upon receipt of notice from the Company of its intention to remove from registration the Registrable Securities covered by such registration statement which remain unsold, and the Holder shall notify the Company of the number of Registrable Securities registered which remain unsold immediately upon receipt of such notice from the Company. SECTION 5. Indemnification. In the event any of the Holder's Registrable Securities are included in a registration statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless the Holder requesting to join in such registration, any underwriter (as defined in the Securities Act) for the Holder and each person, if any, who controls the Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (together with any similar act or law executed under the laws of a foreign country referred to herein as the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other foreign, federal, provincial or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements made therein not misleading, or (ii) any violation by the Company of the Securities Act, the 1934 Act, any provincial or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any provincial or state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and the Company will pay to the Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, 3 liability, or action; provided, however, that the indemnity agreement contained in this Section 5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by the Holder, underwriter or controlling person or a Violation which arises out of any untrue statement or omission made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement becomes effective or in the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) if such prospectus was not furnished to the person or entity asserting the Violation at or prior to the time such furnishing is required by the Securities Act. This indemnification shall not be deemed to relieve any underwriter of any of its due diligence obligations. (b) To the extent permitted by law, the Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other selling shareholder selling securities in such registration statement and any controlling person of any such underwriter or selling shareholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the 1934 Act or other foreign, federal, provincial or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with information furnished by the Holder in connection with such registration; and the Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 5(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further that in no event shall any indemnity under this Section 5(b) exceed the gross proceeds from the offering received by the Holder. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 5, but omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 5. (d) The obligations of the Company and the Holder under this Section 5 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement. SECTION 6. Miscellaneous. (a) The rights of the Holder hereunder may be assigned by the Holder to a transferee or assignee of the Holder's Registrable Securities provided the Company is, prior to or simultaneously with such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or 4 assignee is restricted under the Securities Act. For the purposes hereof, such transferee shall be deemed to be a "Holder." (b) All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the antecedent may require. (c) Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or upon receipt when sent by registered mail, return receipt requested, addressed to the other party at the address of such party set forth in this Agreement, or to such other address furnished by notice given in accordance with this Section 6(c). (d) Failure of the Company or the Holder to exercise any right or remedy under this Agreement or delay by the Company or the Holder in exercising same, will not operate as a waiver thereof. No waiver by the Company or the Holder will be effective unless and until it is in writing and signed by the Company and the Holder. (e) This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of Delaware, without giving effect to its conflicts of law rules or principles. This Agreement and the rights, powers and duties set forth herein shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, estates, legal representatives, successors and assigns. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability or any other provision hereof. (f) This Agreement and the documents referred to herein shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. (g) The section titles and headings contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. (h) This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute the same Agreement. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the ___ day of _____________, 1996. INTERNET BROADCASTING SYSTEM, INC. By _______________________________ Name: Title: HOLDER By _______________________________ Name: Title: Number of Shares of Common Stock Purchased by Holder Pursuant to Memorandum: _____________________ Address of Holder: ______________________________________________ ______________________________________________ ______________________________________________ Telephone:______________________________________________ Facsimile:______________________________________________ EX-10 6 EXHIBIT 10.3 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF. INTERNET BROADCASTING SYSTEM, INC. Form of Promissory Note $________ October 31, 1997 Madison, New Jersey FOR VALUE RECEIVED, the undersigned, Internet Broadcasting System, Inc., a corporation duly incorporated and validly existing under the laws of the State of Delaware (the "Company"), hereby promises to pay to the order of _______, an individual residing at ________ in the State of _________ (the "Holder") or his registered assigns, at the principal office of the Holder or such other place as the Holder and the Company may from time to time agree, in lawful money of the United States of America, the principal sum of _______ ($______) Dollars with interest thereon at a rate of 8% per annum from the date of this Note, computed on the basis of a 360-day year, with the principal sum and all accrued interest due and payable in full on the earliest to occur of: (i) the closing of an initial public offering of the Company's Common Stock, no par value, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission; (ii) the closing of a private placement of the Company's equity securities resulting in net proceeds to the Company in a minimum amount of $1,000,000; or (iii) October 31, 1999. This Note has been executed and delivered pursuant to a Bridge Financing Agreement dated as of October 31, 1997 among the Company, the Holder and the respective Lenders identified therein (the "Bridge Financing Agreement") and evidences a loan made by the Holder pursuant to the Bridge Financing Agreement. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Bridge Financing Agreement. Reference is made to the Bridge Financing Agreement for a description of additional rights of the Holder and duties of the Company hereunder and thereunder and the Bridge Financing Agreement is incorporated by reference herein as if herein set forth in full. This Note may be prepaid at any time in whole or in part without premium or penalty. -1- The occurrence of any one or more of the following events, which event shall not be cured within 30 days of written notice of such event delivered by the Holder to the Company shall constitute an "Event of Default" hereunder: (1) the sale, transfer, disposition or exchange of all or substantially all of the Company's assets, except in the ordinary course of business; (2) failure of the Company to pay, when due, the principal amount of this Note together with all accrued interest; (3) failure by the Company to perform in any material respect any covenant or agreement contained in this Note or any document executed in connection with this Note and any other Transaction Document or any representation or warranty by the Company contained therein shall have been inaccurate in a material respect when made; (4) an assignment by the Company for the benefit of creditors; (5) the involuntary filing of any petition or the commencement of any proceeding against the Company for any relief under any bankruptcy or insolvency law, or any law relating to the relief of debtors or readjustment of indebtedness, or for the appointment of a receiver, trustee, custodian or liquidator of the Company or a substantial part of its assets and such petition or proceeding shall not have been dismissed within 60 days of the filing or commencement thereof; (6) the insolvency or written admission or inability of the Company to pay its debts as such debts become due; (7) the dissolution, liquidation or winding up of the affairs of the Company; or (8) the occurrence of an Event of Default under any Note issued to any other Lender pursuant to the Bridge Financing Agreement. Upon and during the continuation of an Event of Default, the Holder may, at such Holder's option, by written notice delivered to the Company in the manner set forth in the Bridge Financing Agreement, declare all indebtedness evidenced hereby to be immediately due and payable and upon delivery of such notice, all such indebtedness shall become immediately due and payable, provided, however, that upon occurrence of an event described above in clauses (6), (7) and (8), all indebtedness evidenced hereby shall automatically and without notice become immediately due and payable. Any payments made under this Note shall be applied first to the interest accrued on the principal amount of this Note and finally to the payment of principal of this Note. Except as otherwise provided herein, the Company waives presentment, demand for payment, notice of dishonor, and any or all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this Note and consents to any -2- extensions of time, renewals, waivers or modifications that may be granted or consented to by the Holder in respect of the time of payment or any other provisions of this Note. The failure by the Holder at any time to exercise any of such Holder's rights or options hereunder shall not be construed as a wavier thereof, nor shall such failure preclude the Holder from exercising such rights or options at a later date. If any sum due hereunder shall be due and payable on a Saturday, Sunday or public holiday under the laws of the State of New York, such sum shall be paid on the next succeeding business day and, and in such case, due and payable. The Company shall pay all applicable documentary stamp or other taxes and other governmental charges in connection with the issuance of this Note. This Note shall be binding upon the Company and its successors and assigns. THE VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE LAWS, RULES OR PRINCIPLES OF THE STATE OF NEW YORK REGARDING CONFLICTS OF LAWS). THE COMPANY AGREES THAT ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE MAY BE COMMENCED AND PROSECUTED IN A COURT OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK. THE COMPANY CONSENTS AND SUBMITS TO THE EXCLUSIVE PERSONAL JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK IN RESPECT OF ANY SUCH PROCEEDING. THE COMPANY CONSENTS TO SERVICE OF PROCESS UPON IT WITH RESPECT TO ANY SUCH PROCEEDING BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, AND BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAWS AND RULES. THE COMPANY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING IN ANY COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH PROCEEDING IN ANY COURT IN THE STATE OF NEW YORK HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -3- Wherever possible, each provision hereof shall be interpreted in such a manner as to be effective and valid under applicable law; provided, however, that if any provision hereof shall be finally determined by a court of competent jurisdiction to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions hereof. INTERNET BROADCASTING SYSTEM, INC. By: _____________________________________ Name: Nicholas R. Loglisci, Jr. Title: President EX-10 7 EXHIBIT 10.4 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID SECURITIES ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF. INTERNET BROADCASTING SYSTEM, INC. FORM OF WARRANT TO PURCHASE SHARES OF STOCK Date of Grant: October 31, 1997 THIS CERTIFIES THAT, for value received, _______ or registered assigns (the "Holder") is entitled to subscribe for and purchase from INTERNET BROADCASTING SYSTEM, INC., a Delaware corporation (the "Company"), up to ____ (___) shares (the "Shares") of the fully paid and nonassessable Common Stock, as defined below, at a price per share equal to $____ (the "Warrant Price"), subject to adjustment and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized Common Stock, no par value. This Warrant is one of one or more warrants (the "Warrants") of the same form and having the same terms as this Warrant. The Warrants have been issued to each lender providing financing to the Company pursuant to the Bridge Financing Agreement dated as of October 31, 1997 among the Company, and the Lenders identified herein (the "Bridge Financing Agreement"). 1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time commencing on the Date of Grant and ending on 5:00 p.m. New York City time on October 31, 2000. 2. Method of Exercise; Payment; Issuance of New Warrant. To exercise this Warrant, in whole or in part, Holder shall deliver to Company at the Company's principal office, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of Shares to be purchased, (ii) payment of Warrant Price for such Shares and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A-1. Payment of the Warrant Price shall be made at the option of the Holder by (i) certified or official bank check, (ii) by the surrender of that portion of a Promissory Note issued by Company pursuant to the Bridge Financing Agreement (a "Promissory Note") equal to the portion of the Warrant Price to be paid by such surrender, or (iii) any combination thereof. For purposes of making payment of the Warrant Price, a -1- Promissory Note shall have a value equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of surrender in respect of payment of the Warrant Price. In determining the amount of a Promissory Note surrendered, accrued interest shall first be applied against the Warrant Price, and then principal. If a Holder surrenders a Promissory Note having an aggregate value which exceeds the aggregate Warrant Price, such surrendered value equal to the integral multiple of $500, which is next higher than such aggregate Warrant Price shall be applied to the payment of the Warrant Price and Company shall pay the Holder an amount in cash equal to the excess (if any) of such integral multiple over the Warrant Price, and a new Promissory Note shall be issued in the principal amount equal to the portion of the principal amount of such original Promissory Note not applied to the Warrant Price and not paid in cash to the Holder. The person or persons in whose name(s) any certificate(s) representing Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date upon which this Warrant is exercised for such Shares. In the event of any exercise of the rights represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder as soon as possible and in any event within thirty days after receipt of such notice and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all preemptive rights, taxes, liens and charges with respect to the issue thereof; provided, that, the Company shall not be required to pay any transfer taxes with respect to the issuance of Shares in any name other than that of the registered Holder. During the period within which the rights represented by this Warrant may be exercised, the Company will have authorized and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Warrant Price and Number of Shares. The number and kind of securities purchasable initially upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 4.1 Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding Common Stock, the number of Shares issuable upon exercise of this Warrant immediately before the subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to time combines the outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately before the combination shall be proportionately -2- decreased. Any adjustment under this Section 4.1 shall become effective at the close of business on the date the subdivision or combination becomes effective. 4.2 Adjustment for Issuance of Additional Shares of Capital Stock. In the event that the Company shall (i) issue or distribute (for no consideration or at a price per share less than the Current Market Price (as defined below) per share on the date of such issuance or distribution) shares of any class of capital stock of the Company (such shares being hereafter referred to as "Capital Stock") (excluding an issuance or distribution of Common Stock described in Section 4.1) or (ii) issue or distribute rights, warrants, options or convertible or exchangeable securities entitling the holder thereof to subscribe for, purchase, convert into or exchange for Capital Stock at a price per share less than the Current Market Price per share of such Capital Stock on the date of such issuance or distribution, then, in each such case, at the earliest of (A) the date the Company enters into a firm contract for such issuance or distribution, (B) the record date for the determination of persons entitled to receive any such Capital Stock or any such rights, warrants, options or convertible or exchangeable securities or (C) the date of actual issuance or distribution of any such Capital Stock or any such rights, warrants, options or convertible or exchangeable securities, the Warrant Price shall be reduced by multiplying the Warrant Price in effect immediately prior to such earliest date by: (x) if such Capital Stock is Common Stock, a fraction the numerator of which is the number of shares of Common Stock outstanding on such earliest date plus the number of shares of Common Stock which could be purchased at the Current Market Price per share of Common Stock on the date of such issuance or distribution with the aggregate consideration (based on the Fair Market Value thereof) received or receivable by the Company either (A) in connection with such issuance or distribution or (B) upon the conversion, exchange, purchase or subscription of all such rights, warrants, options or convertible or exchangeable securities (the "Aggregate Consideration"), and the denominator of which is the number of shares of Common Stock outstanding on such earliest date plus the number of shares of Common Stock to be so issued or distributed or to be issued upon the conversion, exchange, purchase or subscription of all such rights, warrants, options or convertible or exchangeable securities; or (y) if such Capital Stock is other than Common Stock, a fraction the numerator of which is the Current Market Price per share of Common Stock on such earliest date minus an amount equal to (A) the difference between (1) the Current Market Price per share of such Capital Stock multiplied by the number of shares of such Capital Stock to be so issued and (2) the Aggregate Consideration, divided by (B) the number of shares of Common Stock outstanding on such date, and the denominator of which is the Current Market Price per share of Common Stock on such earliest date. Such adjustment shall be made successively whenever any such Capital Stock, rights, warrants, options or convertible or exchangeable securities are so issued or distributed. In determining whether any rights, warrants, options or convertible or exchangeable securities entitle the holders thereof to subscribe for, purchase, convert into or exchange for shares of such Capital Stock at less -3- than such Current Market Price, there shall be taken into account the Fair Market Value of any consideration received or receivable by the Company for such rights, warrants, options or convertible or exchangeable securities (including upon exercise thereof.) If any right, warrant, option or convertible or exchangeable securities, the issuance of which resulted in an adjustment in the Warrant Price pursuant to this Section 4.2, shall expire and shall not have been exercised, the Warrant Price shall immediately upon such expiration be recomputed to the Warrant Price which would have been in effect if such right, warrant, option or convertible or exchangeable securities had never been distributed or issued. Notwithstanding anything contained in this paragraph to the contrary, the issuance of Capital Stock upon the exercise of such rights, warrants or options or the conversion or exchange of such convertible or exchangeable securities will not cause an adjustment in the Warrant Price if no such adjustment would have been required at the time such right, warrant, option or convertible or exchangeable security was issued or distributed; provided, however, that, if the consideration payable upon such exercise, conversion or exchange and/or the Capital Stock receivable thereupon are changed after the time of the issuance or distribution of such right, warrant, option or convertible or exchangeable security, then such change shall be deemed to be the expiration thereof without having been exercised and the issuance or distribution of new options, rights, warrants or convertible or exchangeable securities. Notwithstanding anything contained in this Agreement to the contrary, options, rights or warrants issued or distributed by the Company, including options, rights or warrants distributed prior to the date of this Agreement, to holders of Common Stock generally which, until the occurrence of a specified event or events (a "Trigger Event"), (i) are deemed to be transferred with Common Stock, (ii) are not exercisable and (iii) are also issued on a pro rata basis with respect to future issuances of Common Stock, shall be deemed not to have been issued or distributed for purposes of this Section 4.2 (and no adjustment to the Warrant Price under this Section 4.2 will be required) until the occurrence of the earliest Trigger Event. Upon the occurrence of a Trigger Event, such options, rights or warrants shall continue to be deemed not to have been issued or distributed for purposes of this Section 4.2 (and no adjustment to the Warrant Price under this Section 4.2 will be required) if and for so long as each Holder who thereafter exercises such Holder's Warrants shall be entitled to receive upon such exercise, in addition to the shares of Common Stock issuable upon such conversion, a number of such options, rights or warrants, as the case may be, equal to the number of options, rights or warrants to which a holder of the number of shares of Common Stock equal to the number of shares of Common Stock issuable upon exercise of such Holder's Warrants is entitled to receive at the time of such exercise in accordance with the terms and provisions of and applicable to such options, rights or warrants. Upon the expiration of any such options, rights or warrants or at such time, if any, as a Holder is not entitled to receive such options, rights or warrants upon exercise of such Holder's Warrants, an adjustment (if any is required) to the Warrant Price shall be made in accordance with this Section 4.2 with respect to the issuance of all such options, rights and warrants as of the date of issuance thereof, but subject to the provisions of the preceding paragraph. If any such option, right or warrant, including any such options, rights or warrants distributed prior to the date of this Agreement, are subject to events, upon the occurrence of which such options, rights or warrants become exercisable to purchase different securities, evidences of indebtedness, cash, properties or other assets or different amounts thereof, then, subject to the preceding provisions of this paragraph, the date of the occurrence of any and each -4- such event shall be deemed to be the date of distribution and record date with respect to new options, rights or warrants with such new purchase rights (and a termination or expiration of the existing options, rights or warrants without exercise thereof). In addition, in the event of any distribution (or deemed distribution) of options, rights or warrants, or any Trigger Event or other event of the type described in the preceding sentence, that required (or would have required but for the provisions of Section 4.10) an adjustment to the Warrant Price under this Section 4.2 and such options, rights or warrants shall thereafter have been redeemed or repurchased without having been exercised, then the Warrant Price shall be adjusted upon such redemption or repurchase to give effect to such distribution, Trigger Event or other event, as the case may be, as though it had instead been a cash distribution, equal on a per share basis to the result of the aggregate redemption or repurchase price received by holders of such options, rights or warrants divided by the number of shares of Common Stock outstanding as of the date of such repurchase or redemption, made to holders of Common Stock generally as of the date of such redemption or repurchase. 4.3 Adjustments for Other Property Distributions. If the Company shall pay or distribute, as a dividend or otherwise, generally to holders of Common Stock or any class or series of Capital Stock which is convertible into or exercisable or exchangeable for Common Stock any assets, properties or rights (including, without limitation, evidences of indebtedness of the Company, any subsidiary or any other person or entity, cash or Capital Stock or other securities of the Company, any subsidiary or any other person or entity, but excluding payments and distributions as described in Section 4.1 or 4.6, dividends and distributions in connection with the liquidation, dissolution or winding up of the Company in its entirety and distributions consisting solely of cash described in Section 4.4, then in each such case the Warrant Price shall be reduced by multiplying the Warrant Price in effect immediately prior to the date of such payment or distribution by a fraction, the numerator of which is the Current Market Price per share of Common Stock on the record date for the determination of stockholders entitled to receive such payment or distribution less the Fair Market Value per share on such record date of the assets, properties or rights so paid or distributed and the denominator shall be the Current Market Price per share of Common Stock on such record date. For purposes of this Section 4.3, such Fair Market Value per share shall equal the aggregate Fair Market Value on such record date of the assets, properties or rights to paid or distributed divided by the number of shares of Common Stock outstanding on such record date. Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. 4.4 Cash Distributions. If the Company shall, by dividend or otherwise, make a distribution (other than in connection with the liquidation, dissolution or winding up of the Company in its entirety), generally to holders of Common Stock or any class or series of Capital Stock which is convertible into or exercisable or exchangeable for Common Stock, consisting solely of cash where (x) the sum of (i) the aggregate amount of such cash plus (ii) the aggregate amount of all cash so distributed (by dividend or otherwise) to such holders within the 12-month period ending on the record date for determining stockholders entitled to receive such distribution with respect to which no adjustment has been made to the Warrant Price pursuant to this Section 4.4 exceeds (y) 10% of the result of the multiplication of (1) the Current Market Price per share of Common Stock on such record date times (2) the number of shares of Common Stock outstanding on such record date, then the -5- Warrant Price shall be reduced, effective immediately prior to the opening of business on the day following such record date, by multiplying the Warrant Price in effect immediately prior to the close of business on the day prior to such record date by a fraction, the numerator of which is the Current Market Price per share of Common Stock on such record date less the aggregate amount of cash per share so distributed and the denominator of which is such Current Market Price; provided, however, that, if the aggregate amount of cash per share is equal to or greater than such Current Market Price, then, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion (with respect to each share of Common Stock issued upon such conversion and in addition to the Common Stock issuable upon conversion) the aggregate amount of cash per share such Holder would have received had such Holder's Warrants been exercised immediately prior to such record date. In no event shall the Warrant Price be increased pursuant to this Section 4.4; provided, however, that if such distribution is not so made, the Warrant Price shall be adjusted to be the Warrant Price which would have been in effect if such distribution had not been declared. For purposes of this paragraph of this Section 4.4, such aggregate amount of cash per share shall equal such sum divided by the number of shares of Common Stock outstanding on such record date. 4.5 Adjustment for Reclassification, Exchange and Substitution. If the Common Stock issuable upon the exercise of this Warrant is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 4), then and in any such event the Holder shall have the right thereafter to exercise this Warrant into the kind and amount of stock and other securities receivable upon such recapitalization, reclassification or other change, by holders of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. 4.6 Reorganizations, Mergers, Consolidations or Sale of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 4) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case (except to the extent any cash or property is received in such transaction), appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the Holder after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 4 (including adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. -6- 4.7 Current Market Price; Fair Market Value. For purposes of this Warrant, "Current Market Price" means, when used with respect to any security as of any date, the last sale price, regular way, of such security as reported for consolidated transactions on the New York Stock Exchange or, if such security is not listed or admitted to trading on the New York Stock Exchange, as reported for consolidated transactions with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if such security is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices, regular way, as reported on the Nasdaq National Market, or, if such security is not listed or admitted to trading on the Nasdaq National Market, as reported on the Nasdaq SmallCap Market, or if such security is not listed or admitted to trading on any national securities exchange or the Nasdaq National Market or the Nasdaq SmallCap Market, the average of the high bid and low asked prices of such security in the over-the-counter market as reported by the NASD Automated Quotations System or such other system then in use or, if such security is not quoted by any such organization, the average of the closing bid and asked prices of such security furnished by a New York Stock Exchange member firm selected by the Company. If such security is not quoted by any such organization and no such New York Stock Exchange member firm is able to provide such prices, the Current Market Price of such security shall be the Fair Market Value thereof. For purposes of this Warrant, "Fair Market Value" means, at any date as to any asset, property or right (including without limitation, capital stock or any person, evidences of indebtedness or other securities, but excluding cash), the fair market value of such item as determined in good faith by the Board of Directors, whose determination shall be conclusive; provided, however, that, if there is a Current Market Price for such item on such date, "Fair Market Value" means such Current Market Price (without giving effect to the last sentence of the definition thereof). 4.8 Other Adjustments to Warrant Price. Anything in this Section 4 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Warrant Price, in addition to those required by this Section 4, as it in its discretion shall determine to be advisable. 4.9 Notice of Capital Changes. If at any time the Company shall offer for subscription pro rata to the holders of shares of Common Stock any additional shares of stock of any class, other rights or any equity security of any kind, or there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with any other corporation (other than a wholly-owned subsidiary of the Company) or effect any transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or sale of all or substantially all of its assets to another company or there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of said cases, the Company shall give the Holder written notice, by registered or certified mail, postage prepaid, of the date on which (i) a record shall be taken for such subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify -7- the date as of which the holders of record of shares of Common Stock shall participate in such subscription rights, or shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less than 20 days prior to the record date in respect thereto. 4.10 Adjustment of Warrant Price. No adjustment of the Warrant Price shall be made if the amount of said adjustment shall be less than ten cents ($0.10) per Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least ten cents ($0.10) per Share. 4.11 Adjustment in Number of Securities. Upon each adjustment of the Warrant Price, the number of Shares issuable upon exercise at the adjusted Warrant Price of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Warrant Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Warrant Price. 5. Notice of Adjustments. Whenever the Warrant Price or the number of Shares issuable upon exercise of the Warrant hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall prepare a certificate signed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be provided to the Holder in the manner set forth in Section 12. 6. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Current Market Price of such Shares then in effect as determined in good faith by the Company's Board of Directors. 7. Compliance with the Act; Disposition of Warrant or Shares of Common Stock. 7.1 Compliance with the Act. The Holder, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Act. Upon exercise of this Warrant, the Holder shall confirm in writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale. This Warrant and all Shares issued upon exercise of this Warrant (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form: -8- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF. 7.2 Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, the Holder agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Holder's counsel, reasonably acceptable to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification under the Securities Act and all applicable state securities laws. Promptly upon receiving such written notice and reasonably satisfactory opinion, the Company shall notify the Holder that the Holder may sell or otherwise dispose of this Warrant or such Shares, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7.2, that the opinion of counsel for the Holder is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly after such determination has been made. Each certificate representing this Warrant or the Shares so transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the aforesaid opinion of counsel for the holder, such counsel states such legend is not required. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. 8. Rights as Stockholders; Information. No Holder, as such, shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised as provided herein. Notwithstanding the foregoing, the Company will transmit to the Holder such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the stockholders. 9. Registration Rights. The Company covenants and agrees as follows: 9.1 Piggyback Registration. (a) If at any time after the Company's initial public offering of equity securities pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission (the -9- "Commission") the Company proposes to register any of its securities for offer and sale under the Securities Act other than pursuant to Form S-4, Form S-8 or any successor form of limited purpose, it will give written notice to that effect by registered mail, at least 15 days prior to the filing of the relevant registration statement, to the Holder. If the Holder notifies the Company within 30 days after receipt of any such notice of its desire to include any of its Shares in such registration statement, the Company shall afford the Holder the opportunity to have such Shares registered under such registration statement, subject to the provisions of Section 9.2. (b) Notwithstanding the provisions of Section 9.1(a), the Company shall have the right at any time after it shall have given such written notice (irrespective of whether a written request for inclusion of any Shares shall have been made) to elect not to file any such registration statement or to withdraw the same after the filing but prior to the effective date thereof. 9.2 Priority on Registration Rights. If the registration described in Section 9.1 relates to an underwritten offering, in whole or in part, and the managing underwriter(s) advises the Company in writing that the inclusion of all of the Shares proposed to be included in such registration would interfere with the successful marketing of the securities proposed to be registered for the account of the Company, then the securities to be included in such registration shall be included in the following order: (i) first, the securities proposed to be included in such registration for the account of the Company; (ii) second, the securities proposed to be included in such registration for the account of the Holder, each other person who is a lender pursuant to the Bridge Financing Agreement or his registered assigns (a "Lender") who has requested Shares be included in such registration and each party to that certain Registration Rights Agreement between the Company and the party named therein (the "Investor") entered into in connection with a private placement of Common Stock pursuant to the Company's Confidential Private Placement Memorandum dated May 6, 1996 who has requested that shares of Common Stock such Investor owns or is entitled to acquire be included in such registration (on a pro rata basis based on the amount of securities proposed to be included in such registration for the account of each Lender and each Investor); and (iii) third, securities of all other security holders of the Company entitled to be included in such registration (on a pro rata basis among the holders requesting such registration based upon the amount of securities requested to be registered). 9.3 Covenants of the Company With Respect to Registration. -10- (a) In connection with any registration under Section 9.1, the Company shall furnish to the Holder such number of prospectuses related thereto as the Holder shall reasonably request. (b) If, after any registration statement described in Section 9.1 becomes effective, the Company advises the Holder that the Company considers it appropriate for the registration statement to be amended, the Holder shall suspend any further sales of registered Shares until the Company advises the Holder that the registration statement has been amended. (c) The Company shall pay all costs, fees and expenses in connection with all registration statements filed pursuant to Section 9.1 (excluding fees and expenses of the Holder's counsel and underwriting discounts or selling commissions and transfer, income and other taxes applicable to the registered Shares), including, without limitation, the Company's legal and accounting fees, printing expenses and blue sky fees and expenses. (d) The Company will take all necessary action which may be required in qualifying or registering the Shares included in a registration statement described in Section 9.1 for offering and sale under the securities or blue sky laws of such states as may be reasonably requested by the Holder. (e) The Company shall furnish to the Holder a signed counterpart, addressed to the Holder, of (i) an opinion of counsel to the Company, dated the effective date of any registration statement described in Section 9.1 (and, if the registration effected hereby relates to an underwritten offering, an opinion dated the date of the closing under the relevant underwriting agreement) and (ii) if and to the extent permitted by Statement of Auditing Standards No. 72, a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the relevant underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (f) The Company shall, as soon as practicable after the effective date of any registration statement described in Section 9.1 and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) complying with Section 10(a) of the Securities Act and covering a period of at least 12 consecutive months beginning after the effective date of such registration statement. (g) The Company shall deliver promptly to the Holder copies of all correspondence between the Commission and the Company or its counsel or independent public accountants and all memoranda relating to discussions with the Commission or its staff with respect to any registration -11- statement described in Section 9.1 and shall permit the Holder to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from such registration statement as it deems reasonably necessary to comply with applicable securities laws or the rules of any applicable securities exchange or market. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as the Holder shall reasonably request. (h) Notwithstanding the foregoing provisions of this Section 9.3, no registration rights shall be extended pursuant to this Section 9 with respect to any Shares (i) which have been sold pursuant to and in accordance with an effective registration statement, (ii) sold in accordance with Rule 144 under the Securities Act or (iii) eligible for sale under Rule 144(k) under the Securities Act. 9.4 Indemnification. (a) The Company agrees to indemnify and hold harmless the Holder and any person controlling the Holder within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for, from and against any and all losses, claims, damages, expenses and liabilities, joint or several (and actions, proceedings, suits and litigation in respect thereof), whatsoever (including, but not limited to, reasonable counsel fees and disbursements and any and all other expenses whatsoever reasonably incurred in investigating, preparing or defending against any action, proceeding, suit or litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which the Holder or any such controlling person may become subject under the Securities Act, the Exchange Act, any other statute, at common law or otherwise or under the laws of foreign countries insofar as such losses, claims, damages, expenses or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus contemplated by Section 9 (as from time to time amended and supplemented) or arise out of or are based upon the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein (with respect to any prospectus in the light of the circumstances under which they were made) not misleading provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement, or any prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder specifically for inclusion therein and provided, further, that the Company shall not be liable to any such Holder under the indemnity agreement in this subsection (a) (i) with respect to any prospectus to the extent that any such loss, liability, claim, damage or expense of such Holder arises out of a sale of Shares by such Holder to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the prospectus if the Company has previously furnished copies thereof to such Holder a reasonable time in advance and the loss, liability, claim, damage or expense of such Holder results from an untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the prospectus which was corrected in the prospectus or (ii) to the extent that any -12- such loss, claim, damage, expense or liability arises out of or is based upon any action or failure to act by such Holder that is found in a final judicial determination (or a settlement tantamount thereto) to constitute bad faith, willful misconduct or gross negligence on the part of such Holder. The indemnity agreement in this Section 9.4(a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) The Holder agrees to indemnify and hold harmless the Company, each of its directors, each of its officers and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act for, from and against any and all losses, claims, damages, expenses and liabilities, joint or several (and actions, proceedings, suits and litigation in respect thereof), whatsoever (including, but not limited to, reasonable counsel fees and disbursements and any and all other expenses whatsoever reasonably incurred in investigating, preparing or defending against any action, proceeding, suit or litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which they may become subject under the Act, the Exchange Act, any other statute, at common law or otherwise or under the laws of foreign countries insofar as such losses, claims, damages, expenses or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus contemplated by Section 9 (as from time to time amended and supplemented) or arise out of or are based upon the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which the were made, not misleading, to the extent (but only to the extent) that such statements or omissions are made in conformity with the Holder's written information furnished by or on behalf of the Holder expressly for use therein. The indemnity agreement in this Section 9.4(b) shall be in addition to any liability which the Holder may have at common law or otherwise. (c) Promptly, and in any event within 30 days, after receipt by an indemnified party of notice of the commencement of any action, suit, proceeding or litigation, the indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under this Section 9.4, notify the indemnifying party in writing of such commencement (but the failure to notify an indemnifying party shall not relieve it from any liability which it may have under Section 9.4(a) or 9.4(b) except to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). In case any such action, suit, proceeding or litigation is brought against an indemnified party and it notifies the 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 an indemnified party, to assume the defense thereof with counsel reasonably satisfactory to an indemnified party, which may be the same counsel as counsel to the indemnifying party. Notwithstanding the foregoing, the indemnified party shall have the right to employ its own counsel in any such case but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense thereof at the expense of the indemnifying party, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall -13- not have the right to direct the defense thereof on behalf of the indemnified party), in any of which events such fees and expenses of one additional counsel (in addition to any local counsel) shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from its or their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this Section 9 to the contrary notwithstanding, the 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. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this Section 9, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this Section 9 provide for indemnification in such case or (ii) contribution under the Act may be required on the part of any indemnified party, then the indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions, suits, proceedings or litigation in respect thereof) (A) 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 hand, from the offering of securities to which such losses, claims, damages, expenses or liabilities relate or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (A) above but also the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Holder and other indemnified parties described in Section 9.4(a), on the other hand, shall be deemed to be in the same proportion as the total net proceeds from such offering (before deducting expenses) received by each of them. Relative fault (insofar as it relates to such a statement or omission) shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities referred to above in this Section 9.4(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing or defending any related action, suit, proceeding or litigation. Notwithstanding the provisions of this Section 9.4(d), the Holder shall not be required to contribute any amount in excess of the amount received (without duplication) by the Holder and other indemnified parties described in Section 9.4(a) in connection with such offering. 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 -14- misrepresentation. The contribution agreement set forth above shall be in addition to any liabilities which any contributing party may have at common law or otherwise. 9.5 Rights and Obligations Survive Exercise and Expiration of Warrant. The rights and obligations of the Company and the Holder set forth in this Section 9 shall survive the exercise and expiration of this Warrant. 9.6 Cooperation by Holders Participating in an Underwritten Registration. No Holder may participate hereunder in any underwritten registration unless such Holder (i) agrees to sell such Holder's Shares on the basis provided in any underwriting arrangements approved by the Company and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that, no Holder including Shares in such underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such Holder, such Holder's beneficial ownership of Shares and such Holder's intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriter with respect thereto, except as otherwise provided in Section 9 hereof. 9.7 Lock-Up. For a period of twelve (12) months following the date a registration statement relating to the initial public offering of the Company's equity securities is declared effective by the Commission and for a period of 90 days following the date any subsequent registration statement relating to the Company's equity securities is declared effective by the Commission (such respective periods, the "Lock-up Period") the Holder agrees, upon request of the Company or the underwriters managing an underwritten offering of the Company's securities, to, not directly or indirectly, offer, sell (including by effecting any short sale), loan, hypothecate, pledge, grant any option for the sale of, acquire any option to dispose of, transfer or gift (except for estate planning or charitable transfers or other private sales, provided the transferees agree to be bound by the same restrictions on transfer), or otherwise dispose of any Shares without obtaining the prior written consent of the Company or such underwriters. The Holder acknowledges and agrees that in order to enforce the covenants contained in this Section 9.7, the Company will impose stop-transfer instructions with respect to the Shares until the end of such Lock-up Period for transfers other than those exceptions described above. 10. Representations and Warranties. The Company represents and warrants to the Holder as follows: 10.1 This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms. 10.2 The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. -15- 10.3 The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation, as amended, or the Company's By-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and, except for consents that have already been obtained by the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person. 11. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder or the Company shall be in writing and shall be deemed to be given when telecopied (with written confirmation), personally delivered, or when sent by nationally recognized courier service or registered mail, return receipt requested, to the Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant. 13. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets, and all of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise, and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder. 14. Lost Warrants or Stock Certificates. The Company covenants to the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 15. Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 16. Governing Law; Submission to Jurisdiction. THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT GIVING EFFECT TO THE RULES OF SAID STATE GOVERNING THE CONFLICTS OF LAWS. THE PARTIES HERETO AGREE THAT ANY ACTION, PROCEEDING OR CLAIM AGAINST IT ARISING OUT OF, OR RELATING IN ANY WAY TO, THIS AGREEMENT SHALL BE BROUGHT -16- AND ENFORCED IN A COURT OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND IRREVOCABLY SUBMITS TO SUCH JURISDICTION, WHICH JURISDICTION SHALL BE EXCLUSIVE. THE PARTIES HERETO IRREVOCABLY WAIVE ANY OBJECTION TO SUCH EXCLUSIVE JURISDICTION OR SUCH FORUM AS AN INCONVENIENT FORUM. ANY SUCH PROCESS OR SUMMONS TO BE SERVED UPON ANY OF THE PARTIES HERETO (AT THE OPTION OF THE PARTY HERETO BRINGING SUCH ACTION, PROCEEDING OR CLAIM) MAY BE SERVED BY TRANSMITTING A COPY THEREOF, BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, ADDRESSED TO IT AT THE ADDRESS SET FORTH IN THIS AGREEMENT OR IN A SUBSEQUENT NOTICE DELIVERED IN THE MANNER SET FORTH HEREIN. SUCH MAILING SHALL BE DEEMED PERSONAL SERVICE AND SHALL BE LEGAL AND BINDING UPON THE PARTY SO SERVED IN ANY ACTION, PROCEEDING OR CLAIM. THE PARTIES HERETO AGREE THAT THE PREVAILING PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ALL OF ITS REASONABLE LEGAL COSTS AND EXPENSES RELATING TO SUCH ACTION OR PROCEEDING AND/OR INCURRED IN CONNECTION WITH THE PREPARATION THEREFOR. INTERNET BROADCASTING SYSTEM, INC. By: --------------------------------- Nicholas R. Loglisci, Jr. President Address for Notices 2 Ridgedale Avenue, Suite 350 Cedar Knolls, New Jersey 07927 Telecopy No.: (973) 285-4777 Attention: President -17- EX-10.9 8 EXHIBIT 10.9 STOCK PURCHASE AGREEMENT AGREEMENT made as of April 1, 1996 between Interactive Networks, Inc., 250 East 17Th Street, Paterson, New Jersey 07524, (the "Company"), Frank Altieri, Jr., and Frank Altieri, Sr., (collectively, the "Selling Shareholders") and Internet Broadcasting System, Inc. (d/b/a IBS Interactive, Inc.) a Delaware Corporation with its main office located at 175 Park Ave., Madison, New Jersey 07960 ("Purchaser"). Recitals Whereas, the Selling Shareholders own all of the issued and outstanding share of the capital stock of the Company. Whereas, Purchaser desires to purchase from the Selling Shareholders, and the Seller Shareholders desire to sell to Purchaser, in an exchange of shares, all of their issued and outstanding capital stock of the Company; It is therefore agreed that 1. As consideration for all of the issued and outstanding capital stock of the Company IBS shall issue to the Selling Shareholders three hundred and nine (309) shares of IBS common stock, no par value (the "IBS Share"). 2. Contemporaneously with the execution of this Agreement by all of the parties hereto, IBS shall issue the IBS Shares to the Selling Shareholders, and the Selling Shareholders shall assign all of their respective Company capital stock to IBS. 3. The parties respectively represent and warrant that, all action on the part of the Company and IBS, and their respective officers, directors and stockholders, and the Selling Shareholders, necessary for the authorization of this Agreement, the performance of all of the respective obligations of the Company, IBS and the Selling Shareholders hereunder, and the exchange and delivery of the Selling Shareholder's shares and the IBS Shares, has been or will be taken. This Agreement, when executed and delivered, will be the valid and binding obligation of, respectively, the Company, IBS and each of the Selling Shareholders, enforceable in accordance with its terms. INTERNET BROADCASTING SYSTEM, INC. INTERACTIVE NETWORKS, INC. (d/b/a IBS INTERACTIVE, INC.) By: /s/ Nicholas Loglisci, Jr. By: /s/ Frank Altieri, Jr. ----------------------------- --------------------------- Nicholas Loglisci, Jr. Frank Altieri, Jr. President President /s/ Frank Altieri, Sr. ------------------------------ Frank Altieri, Sr. EX-10.10 9 EXHIBIT 10.10 ASSET PURCHASE AGREEMENT AGREEMENT made as of May 31,1996, between Chris Mauritz, of 121 Grand Street, Unit 1, Jersey City, New Jersey 07302 ("Seller"), and Internet Broadcasting System, Inc., a Delaware Corporation ("Purchaser") with its main office located at 175 Park Avenue, Madison, New Jersey 07940. Recitals Seller owns and operates an Internet access business (the "Business") in Jersey City, New Jersey under the trade name of Mordor International. Purchaser desires to purchase from Seller the Business, as a going concern, exclusive of cash and accounts receivable and free of any obligations for accounts payable or other liabilities of Seller. It is therefore agreed: 1. SALE OF BUSINESS. Seller shall sell to Purchaser and Purchaser shall purchase and acquire the Business owned and operated by Seller at 121 Grand Street, Unit 1, Jersey City, New Jersey 07302, as a going concern. Such sale shall include the following: the goodwill of the exclusive right to use the trade name Mordor International; all furniture, fixtures, supplies, and equipment now used in the Business, with such changes that occur, up to the date of closing, in the normal course of business operation; all records, book of account, customers' lists and correspondence, files, research data, drawings, and work in process at the date of closing; and, all contracts with the clients of the Business (collectively, the "Transferred Assets"). 2. EXCLUSIONS. This sale does not include any cash on hand or in banks at the dat of closing. This sale does not include any accounts receivable due the Business at the date of closing, or accounts receivable paid after that date for Internet access services for periods before the date of closing (collectively, the "Excluded Assets"). For the purpose of this agreement, "Internet access provided before the date of closing" includes Internet access and other services provided to a client before he date of closing. 3. COLLECTION OF ACCOUNTS RECEIVABLE. All checks or other proceeds received by Purchaser in payment of accounts receivable due the Business at the date of closing and in payment of accounts receivable for Internet access services provided prior to the date of shall be timely turned over to Seller in the form in which they are received. Seller may endorse the name of Mordor International on all such checks and other proceeds, and shall deposit them in a bank account maintained in his own name. Seller covenants that funds in this bank account will first be used to pay all accounts payable and other liabilities incurred by the by the Business up to the date of closing, including liabilities foror in connection with Internet access before the date of closing. 4. OBLIGATIONS OF SELLER. All accounts payable and other liabilities incurred by the Business up to the date of closing, including liabilities for or in connection with the provision of Internet access services before the date of closing, shall be paid by Seller, who shall indemnify and hold the Purchaser harmless against all such accounts payable and other liabilities. Unless specifically provided in this agreement, Purchaser is not acquiring, directly or indirectly, any of Seller's liabilities, and no such assumption shall accrue to Purchaser by operation of law or otherwise. 5. CONTRACTS. Purchaser acknowledges that Seller has made no representations with respect to contracts, arrangements the Business's clients ("Contracts"). Purchaser assumes the risk that all such Contracts may be cancelled at will and without notice, by the Business's clients. Seller makes no representation that any Contracts are assignable. Nevertheless, Seller undertakes, before, the date of closing, to notify all the Business's present clients of the change in ownership and to urge them to continue to the Internet access and other services offered by Seller. 6. PURCHASE PRICE. The purchase price for all the assets referred to tin paragraph 1 is $20,000.00, attributable as follows: $15,000.00 to the physical assets listed in Appendix A attached to and made a part hereof; $5,000.00 to the agency's goodwill, trade name, and other intangible assets; and the Employment Agreement and exhibit A attache and made a part of such Employment Agreement (collectively the "Employment Agreement"). Upon signing of the Employment Agreement at the closing, the sum $20,000.00 shall be paid upon closing, in cash or by certified check. 7. CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this agreement and the date of closing, Seller shall: conduct the Business in the same manner in which it has previously been conducted; not increase the compensation payable to any employee or any employee benefits; use his best efforts to preserve the organizational efficiency of the Business, and continue to maintain the standards of work achieved by the agency. The covenants set forth in this paragraph shall not survive the closing. 8. REPRESENTATIONS OF SELLER. Seller represents and warrants to Purchaser: a) The assets to be transferred to Purchaser under this agreement, whether tangible or intangible, shall be at the time of transfer, free of all liens, security interest, claims, and encumbrances. b) Seller is not in breach or default of any contract, lease, or arrangement to be assigned under this agreement, and Seller shall duly perform such contracts, leases, and arrangements until closing. c) Seller has not assigned or licensed any interest in the trade name Mordor International and has all right and title to use such trade name. d) There are no outstanding agreements with any labor unions, or any pension or retirement plans or programs for the benefit of employees. e) There are no written or oral employment agreements with any employee which are not terminable at will without penalty, and salaries and wages are not in arrears. f) Seller has and shall continue to make current and timely payment of federal and New Jersey employee withholding taxes, New Jersey sales taxes, and all other taxes than income taxes, which are due or may become due by reason of the operation of the Business to be transferred. g) There are no actions or proceedings pending or threatened against Seller or the Business. h) Seller has not engaged a broker for the sale of the Business, and no broker is involved in this transaction. i) Neither Seller nor Business is insolvent, and neither will be rendered insolvent by this sale. j) All of Seller's furniture, fixtures and equipment are in good operating condition and repair. k) Seller has complied with applicable federal, state, and local laws in any way related to the conduct and operation of the Business. The representations and warranties in this paragraph shall survive closing. 9. COVENANT OF PURCHASER. Purchaser shall indemnify and hold Seller harmless from any liability on those Contracts referred to in paragraph 5, which have been initiated by Seller and which are continued by Purchaser for any period of time after the closing. 10. CLOSING. The closing shall take place at the office of Purchaser, 175 Park Avenue, Madison, New Jersey on Friday, May 31, 1996, at 11:30 A.M. Upon the payment of the portion of the purchase price due Seller, he shall execute and deliver a bill of sale and other instruments of transfer, covering all the assets referred to in paragraph 1. Al such instruments shall contain the usual covenants and warranties, and all other provisions that are necessary, in the opinion of Purchaser's counsel to convey to Purchaser title to all such assets, free and clear of all liens, security interests, and encumbrances. 11. INDEMNIFICATION BY SELLER. Seller shall indemnify and hold Purchaser harmless of and from all liabilities, losses, or damages arising out of any misrepresentation, breach of warranty, or nonfulfillment of any provision of this agreement, including, but not limited to, any error or omission in any statement delivered to Purchaser or any claim, liability, or obligation of Seller including, but not limited to the obligations imposed on Seller under paragraph 4. The indemnification shall in no event exceed the purchase price as set forth in this agreement. 12. BINDING EFFECT. This agreement shall be binding upon and inure to the benefit of both the parties hereto and their respective heirs, successors, and assigns. 13. NON-WAIVER. No delay or failure by either party to exercise any right hereunder, and no partial or single exercise of any right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 14. HEADINGS. Headings in this agreement are for convenience only and shall not be used to interpret or construe its provisions. 15. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York. 16. COUNTERPARTS. This agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. TIME OF ESSENCE. Time is of the essence of this agreement. 18. ENTIRE AGREEMENT. This agreement, the Bill of Sale, and the Employment Agreement supersede all prior agreements and constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. 19. NOTICES. All notices hereunder shall be in writing and delivered personally or mailed by certified mail, postage prepaid, addressed to the respective parties at their last known address. In witness where of the parties have signed this agreement. Chris Mauritz D/B/A/ Mordor International /s/ Chris Mauritz ----------------------------------- Chris Mauritz Date: 06/01/96 ----------------------------- Internet Broadcasting System, Inc. By: /s/ Nicholas Loglisci, Jr. ------------------------------- Nicholas Loglisci, Jr. President Date: 06/01/96 ----------------------------- EX-10.11 10 EXHIBIT 10.11 ASSET PURCHASE AGREEMENT AGREEMENT made as of March 1, 1997 between AllNet Technology Services, Inc., 6 Sierra Drive, Califon, New Jersey 07830 ("Seller"), and Internet Broadcasting System, Inc. (d/b/a IBS Interactive, Inc.), a Delaware Corporation with its main office located at 175 Park Avenue, Madison, New Jersey 07490 ("Purchaser"). Recitals Seller owns and operates an Internet access business (the "Business") in New Jersey. Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Business, as a going concern, exclusive of cash and accounts receivable and free of any obligations for accounts payable or other liabilities of Seller. It is therefore agreed: 1. SALE OF BUSINESS. Seller shall sell to Purchaser and Purchaser shall purchase and acquire the Business owned and operated by Seller at 6 Sierra Drive, Califon, New Jersey 07830, as a going concern. Such sale shall include the following: the goodwill of the Business; the exclusive right to use the trade name AllNet Technology Services; the equipment of the Business as set forth in Schedule A attached hereto and made a part hereof; all records, book of account, customers' lists and correspondence, files, research data, drawings, and work in process at the date of closing; and all contracts with the clients of the Business (collectively, the "Transferred Assets") 2. EXCLUSIONS. This sale does not include any cash on hand or in banks at the date of closing. This sale does not include any accounts receivable due the Business at the date of closing, or accounts receivable paid after the date for internet access services for periods before the date of closing (collectively, the "Excluded Assets") . For the purpose of this Agreement, "Internet access provided before the date of closing" includes Internet access and other services provided to a client before the date of closing. 3. COLLECTION OF ACCOUNTS RECEIVABLE. All checks or other proceeds received, after closing, by Purchaser in payment of accounts receivable due the Business at the date of closing and in payment of accounts receivable for Internet access services provided prior to the date of closing shall be immediately turned over to Seller in the form in which they are received. Any checks received by Purchaser shall be first applied to Seller's accounts receivables. Seller may endorse the name of Seller on all such checks and other proceeds, and shall deposit them in a bank account maintained in his own name. 4. OBLIGATIONS OF SELLER. All accounts payable and other liabilities incurred by the Business up to the date of closing, including liabilities for or in connection with the provision of Internet access services before the date of closing, shall be paid by Seller, who shall indemnify and hold the Purchaser harmless against all such accounts payable and other liabilities. Unless specifically provided in this Agreement, Purchaser is not acquiring, directly or indirectly, any of Seller's liabilities, and no such assumption shall accrue to Purchaser by operation of law or otherwise. Purchaser is, however, undertaking the responsibility to service the clients on the customer list and to pay, from the date of closing forward, all costs associated with same, including but not limited to the cybernex and Bell Atlantic charges. 5. CONTRACTS. Purchaser acknowledges that Seller has made no representations with respect to contracts or other arrangements with the Business's clients ("Contracts"). Purchaser assumes the risk that all such Contracts may be cancelled at will, and without notice, by the Business's clients. Seller makes no representation that any Contracts are assignable. Nevertheless, Seller undertakes, before the date of closing, to notify all the Business's present clients of the change in ownership and to urge them to continue to use the Internet access and other services offered by Seller. 6. PURCHASE PRICE. The purchase price for all the assets referred to in paragraph 1 is $127,000.00 consisting of $75,000 in cash and thirteen (13) shares of the common stock of Purchaser with a value of $4,000 per share (due and payable to Seller as set forth in Schedule B attached hereto and made a part hereof), attributable as follows: sixty five thousand dollars ($65,000) to the physical assets, and sixty two thousand dollars ($62,000) to Seller's goodwill, trade name, and other intangible assets. 7. NON-COMPETITION AGREEMENT. As a condition to this sale, Michael Gallo and Lawrence Galante agree to execute the non-competition agreements contained in Schedules C and D attached hereto and deliver same at closing. 8. CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement and the date of closing, Seller shall: conduct the Business in the same manner in which it has previously been conducted; not increase the compensation payable to any employee or any employee benefits; use its best efforts to preserve the organizational efficiency of the Business; and continue to maintain the standards of work achieved by Seller. The covenants set forth in this paragraph shall not survive the closing. 2 9. REPRESENTATIONS OF SELLER. Seller represents and warrants to Purchaser: a) The assets to be transferred to Purchaser under this Agreement, whether tangible or intangible, shall be at the time of transfer, free of all liens, security interests, claims, and encumbrances. b) To the best of Seller's knowledge Seller is not in breach or default of any contract, lease, or arrangement to be assigned under this Agreement, and Seller shall duly perform such contracts, leases, and arrangements until closing. c) Seller has not assigned or licensed any interest in the name AllNet Technology Services, Inc. and has all right and title to use such name. d) There are no outstanding agreements with any labor unions, or any pension or retirement plans or programs for the benefit of employees. e) There are no written or oral employment agreements with any employee which are not terminable at will without penalty, and salaries and wages are not in arrears. f) Seller has and shall continue to make current and timely payment of federal and New Jersey employee withholding taxes, New Jersey sales taxes, and all other taxes, other than income taxes, which are due or may become due by reason of the operation of the Business to be transferred. g) To the best of Seller's knowledge, there are no actions or proceedings pending or threatened against Seller or the Business. h) Seller has not engaged a broker for the sale of the Business, and no broker is involved in this transaction. i) Neither Seller nor the Business is insolvent, and neither will be rendered insolvent by this sale. j) To the best of Seller's knowledge, all of Seller's equipment set forth in Schedule A are in good operating condition and repair. k) To the best of Seller's knowledge it has complied with federal, state, and local laws in any and all ways related to the conduct and operation of the Business. 1) No special consents are required to carry out the transaction contemplated by this Agreement. 3 m) A prior principal of Seller, Norman Brandinger, agreed in writing, a copy of which was provided to Purchaser, that he would never solicit any of Seller's customers or make use of its proprietary material or trade secrets. The representations and warranties in this paragraph shall survive closing. 10. COVENANT OF PURCHASER. Purchaser shall indemnify and hold Seller harmless from any liability on those Contracts referred to in Paragraph 5, which have been initiated by Seller and which are continued by Purchaser for any period of time after the closing. If the operation continues, past the date of closing, at 77 Sandpiper Drive, Hackettstown, New Jersey, the Purchaser shall be responsible for the utility charges plus rent as set forth in a certain agreement between Allnet and Norman Brandinger dated December 31, 1996. If applicable, Purchaser shall pay Seller such sum due and Seller shall pay Brandinger. If Purchaser continues to use the following equipment past April 1, 1997, then they shall pay a monthly rental of $250.00 per month in advance. The equipment is: 1 router, a CSU4, an Ethernet switch, and all other equipment in place at 77 Sandpiper, that is not listed on Schedule A. 11. CLOSING. The closing shall take place at the office of Purchaser, 175 Park Avenue, Madison, New Jersey on Friday, February 28, 1997 at 11:30 A.M. Contemporaneously with the payment of the portion of the purchase price due Seller, delivery of the stock certificates, delivery of a Security Agreement and UCC-l, Seller shall execute and deliver a bill of sale and corporate resolution covering all the assets set forth in Schedule A and Lawrence J. Galante and Michael S. Gallo shall each respectively execute the non-competition agreements set forth as Schedules C and D hereto. All such instruments shall be subject to the provisions hereof and shall be in the form agreed to and which are attached hereto and made a part thereof as Schedule E (Bill of Sale), Schedule F-l and F-2 (corporate resolutions of Seller and Purchaser), Schedule G (Security Agreement) and Schedule H (UCC-l). 12. INDEMNIFICATION BY SELLER. Seller shall indemnify and hold Purchaser hamless of and from all liabilities, losses or damages arising out of any misrepresentation, breach of warranty, or nonfulfillment of any provision of this Agreement, including, but not limited to, any error or omission in any statement delivered to Purchaser or any claim, liability, or obligation of Seller including, but not limited to the obligations imposed on Seller under Paragraph 4. The indemnification shall in no event exceed the purchase price as set forth in this Agreement. 4 13. TAX SETOFF. In lieu of an escrow being held pursuant to N.J.S.A. 54:32B-221 the Purchaser shall have the right to set off the amount of any State of New Jersey tax obligation for which they may be held responsible as a result of purchaser's failure to file the 10 day notice prior to closing. Purchaser shall first advise Seller of any claims for taxes due which are Seller's responsibility. If Seller fails to pay same within a reasonable time, Purchaser may then pay such New Jersey Taxes on Seller's behalf and set off such payment against.the installment payments due herein. 14. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of both the parties hereto and their respective heirs, successors and assigns. 15. NON-WAIVER. No delay or failure by either party to exercise any right hereunder, and no partial or single exercise of any such right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 16. HEADINGS. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19. ENTIRE AGREEMENT. This Agreement and Schedules A thru H attached hereto and made a part hereof and the Bill of Sale supersede all prior agreements and constitute the entire Agreement between the parties hereto with respect to the subject matter hereof. 20. NOTICES. All notices hereunder shall be in writing and delivered personally or mailed by certified mail, postage prepaid, addressed to the respective parties at their last known addresses. IN WITNESS whereof the parties have signed this Agreement. ALLNET TECHNOLOGY SERVICES, INC. ATTEST: /s/ Michael Gallo BY: /s/ Lawrence J. Galante - -------------------------- -------------------------------- Secretary Lawrence J. Galante, President ATTEST: INTERNET BROADCASTING SYSTEM, INC. (D/b/a IBS INTERACTIVE, INC.) /s/ Brian Seidman BY: /s/ Nicholas Loglisci, Jr. - -------------------------- -------------------------------- Secretary Nicholas Loglisci, Jr. President DATED: March 1, 1997 5 EX-10.12 11 EXHIBIT 10.12 STOCK PURCHASE AGREEMENT AGREEMENT made as of January 31, 1998 between Entelechy, Inc., 2800 South Memorial Parkway, Suite 101, Huntsville, Alabama 35802, (the "Company"), William Uemura, Thomas Adams, Tim Kielpinski, Sang J. Han, Frederick D. Chase, III, Albert Chase, Dave Nilsen and Redha Rejab (collectively, the "Selling Shareholders") and Internet Broadcasting System, Inc. (d/b/a IBS Interactive, Inc.) a Delaware Corporation with its main office located at 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927 ("Purchaser"). Recitals Whereas, the Selling Shareholders own all of the issued and outstanding shares of the capital stock of the Company, Whereas, Purchaser desires to purchase from the Selling Shareholders, and the Seller Shareholders desire to sell to Purchaser, in an exchange of shares, all of their issued and outstanding capital stock of the Company: It is therefore agreed that: 1. As consideration for all of the issued and outstanding capital stock of the Company, IBS shall issue to the Selling Shareholders two hundred and twenty seven (227) shares of IBS common stock, no par value (the "IBS Shares") as follows: a. Contemporaneously with the execution of this Agreement by all of the parties hereto, IBS will issue and deliver 120.5 IBS Shares as directed by the Selling Shareholders, and the Selling Shareholders shall assign and deliver to IBS the respective certificates representing their ownership of all of the issued and outstanding common stock of the Company. b. The remainder of the IBS Shares (approximately forty seven percent (47%)) shall be transferred to those Selling Shareholders who enter into employment agreements with IBS pro-rata over a three (3) year period as more fully set forth in such employees' respective employment agreements with IBS. For a period of three (3) years from the date set forth above, on each anniversary thereof, one twelfth of the remaining 106.5 (pre-IPO shares) IBS shares (the "Reserved Shares") to be exchanged in the transaction contemplated hereby shall be issued by IBS to each respective Selling Shareholder, if any, who has entered into an employment agreement with IBS, and who has been and is employed by IBS continuously through such anniversary date pursuant to such employment agreement. In the event that such Selling Shareholder has not been in the continuous full time employment of IBS at any time from the date first set forth above through any such anniversary date, such Selling Shareholder shall have no right to receive, and lBS shall have no obligation or duty to issue, any Reserved Shares or other capital stock of IBS on such anniversary date to such Selling Shareholder 2. The Selling Shareholders each agrees that their lBS Shares, including the Reserved Shares, will be subject to the same dilution as lBS' existing shareholders in the event of any public or private offerings by lBS of any of its securities in the future. 3. The parties respectively represent and warrant that, all action on the part of the Company and lBS, and their respective officers, directors and stockholders, and the Selling Shareholders, necessary for the authorization of this Agreement, the performance of all of the respective obligations of the Company, lBS and the Selling Shareholders hereunder, and the exchange and delivery of the Selling Shareholder's shares and the IBS Shares, has been or will be taken. This Agreement, when executed and delivered, will be the valid and binding obligation of, respectively, the Company, lBS and each of the Selling Shareholders, enforceable in accordance with its terms INTERNET BROADCASTING SYSTEM, INC. (d/b/a IBS INTERACTIVE, INC.) By: /s/ Nicholas Loglisci, Jr. ---------------------------------- Nicholas Loglisci, Jr., President ENTELECHY, INC. By: /s/ William Uemura ----------------------------------- William Uemura Title: President /s/ William Uemura ----------------------------------- William Uemura /s/ Thomas Adams ----------------------------------- Thomas Adams /s/ Sang J. Han ----------------------------------- Sang J. Han /s/ Tim Kielpinski ----------------------------------- Tim Kielpinski /s/ Frederick D. Chase, III ----------------------------------- Frederick D. Chase, III /s/ Albert Chase ----------------------------------- Albert Chase /s/ Dave Nilsen ----------------------------------- Dave Nilsen /s/ Redha Rajab ----------------------------------- Redha Rajab EX-10 12 EXHIBIT 10.13 ASSET PURCHASE AGREEMENT AGREEMENT made as of January 1, 1998 between JDT WebwerX LLC, 168 Monmouth Road, Oakhurst, New Jersey 07755 ("Seller"), and Internet Broadcasting System, Inc. (d/b/a IBS Interactive, Inc.) a Delaware Corporation with its main office located at 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927 ("Purchaser"). Recitals Seller owns and operates an applications development and Internet access business (the "Business") in New Jersey. Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Business, as a going concern, exclusive of cash and accounts receivable and free of any obligations for accounts payable or other liabilities of Seller. It is therefore agreed: 1. Sale of business. Seller shall sell to Purchaser and Purchaser shall purchase and acquire the Business owned and operated by Seller at 168 Monmouth Road, Oakhurst, New Jersey 07755, as a going concern. Such sale shall include the following: the goodwill of the Business; the exclusive right to use the trade name JDT; the equipment of the Business as set forth in Schedule A attached hereto and made a part hereof; all records, book of account, customers' lists and correspondence, files, research data, drawings, and work in process at the date of closing; and, all contracts with the clients of the Business (collectively, the "Transferred Assets"). 2. Exclusions. This sale does not include any cash on hand or in banks at the date of closing. This sale does not include any accounts receivable due the Business at the date of closing, or accounts receivable paid after that date for Internet access services for periods before the date of closing (collectively, the "Excluded Assets"). For the purpose of this Agreement, "Internet access provided before the date of closing" includes Internet access and other services provided to a client before January 1, 1998 (the "Closing Date"). 3. Collection of accounts receivable. All checks or other proceeds received by Purchaser in payment of accounts receivable due the Business at the date of closing and in payment of accounts receivable for Internet access services provided prior to the date of closing shall be timely turned over to Seller in the form in which they are received. Seller may endorse the name of Seller on all such checks and other proceeds, and shall deposit them in a bank account maintained in its own name. Seller covenants that funds in this bank account will first be used to pay all accounts payable and other liabilities incurred by the Business up to the date of closing, including liabilities for or in connection with Internet access before the date of closing. 4. Obligations of Seller. All accounts payable and other liabilities incurred by the Business up to the date of closing, including liabilities for or in connection with the provision of Internet access services before the date of closing, shall be paid by Seller, who shall indemnify and hold the Purchaser harmless against all such accounts payable and other liabilities. Unless specifically provided in this Agreement, Purchaser is not acquiring, directly or indirectly, any of Seller's liabilities, and no such assumption shall accrue to Purchaser by operation of law or otherwise. 5. Contracts. Purchaser acknowledges that Seller has made no representations with respect to contracts or other arrangements with the Business's clients ("Contracts"). Purchaser assumes the risk that all such Contracts may be canceled at will, and without notice, by the Business's clients. Seller makes no representation that any Contracts are assignable. Nevertheless, Seller undertakes, before the date of closing, to notify all the Business's present clients of the change in ownership and to urge them to continue to use the Internet access and other services offered by Seller. 6. Purchase price. The purchase price for all the assets referred to in paragraph 1 is $35,000.00 consisting of $25,000 in cash and two (2) share of the common stock of Purchaser with a value of $5,000 per share (due and payable to Seller as set forth in Schedule B attached hereto and made a part hereof), attributable as follows: seven thousand dollars ($7,000) to the physical assets, and twenty-eight thousand dollars ($28,000) to Sellers goodwill, trade name, and other intangible assets. 7. Conduct of Business Pending Closing. Between the date of this Agreement and the date of closing, Seller shall: conduct the Business in the same manner in which it has previously been conducted; not increase the compensation payable to any employee or any employee benefits; use its best efforts to preserve the organizational efficiency of the Business; and continue to maintain the standards of work achieved by Seller. The covenants set forth in this paragraph shall not survive the closing. 8. Representations of Seller. Seller represents and warrants to Purchaser: a) The assets to be transferred to Purchaser under this Agreement, whether tangible or intangible, shall be at the time of transfer, free of all liens, security interests, claims, and encumbrances. b) Seller is not in breach or default of any contract, lease, or arrangement to be assigned under this Agreement, and Seller shall duly perform such contracts, leases, and arrangements until closing. c) Seller has not assigned or licensed any interest in the trade name AllNet Technology Services, Inc. and has all right and title to use such trade name. d) There are no outstanding agreements with any labor unions, or any pension or retirement plans or programs for the benefit of employees. e) There are no written or oral employment agreements with any employee which are not terminable at will without penalty, and salaries and wages are not in arrears. f) Seller has and shall continue to make current and timely payment of federal and New Jersey employee withholding taxes, New Jersey sales taxes, and all other taxes, other than income taxes, which are due or may become due by reason of the operation of the Business to be transferred. g) There are no actions or proceedings pending or threatened against Seller or the Business. h) Seller has not engaged a broker for the sale of the Business, and no broker is involved in this transaction. i) Neither Seller nor the Business is insolvent, and neither will be rendered insolvent by this sale. j) All of Seller's equipment set forth in Schedule A is in good operating condition and repair. k) Seller has complied with applicable federal, state, and local laws in any and all ways related to the conduct and operation of the Business. l) No special consents are required to carry out the transaction contemplated by this Agreement. The representations and warranties in this paragraph shall survive closing. 9. Covenant of Purchaser. Purchaser shall indemnify and hold Seller harmless from any liability on those Contracts referred to in paragraph 5, which have been initiated by Seller and which are continued by Purchaser for any period of time after the closing. 10. Closing. The closing shall take place at the office of Purchaser, 2 Ridgedale Avenue, Cedar Knolls, New Jersey on Tuesday, January 27, 1998. Upon the payment of the portion of the purchase price due Seller, Seller shall execute and deliver a bill of sale and other instruments of transfer, covering all the assets set forth in Schedule A. All such instruments shall contain the usual covenants and warranties, and all other provisions that are necessary, in the opinion of Purchaser's counsel, to convey to Purchaser title to all such assets, free and clear of all liens, security interests, and encumbrances. 11. Indemnification by Seller. Seller shall indemnify and hold Purchaser harmless of and from all liabilities, losses, or damages arising out of any misrepresentation, breach of warranty, or nonfulfillment of any provision of this Agreement, including, but not limited to, any error or omission in any statement delivered to Purchaser or any claim, liability, or obligation of Seller including, but not limited to the obligations imposed on Seller under paragraph 4. The indemnification shall in no event exceed the purchase price as set forth in this Agreement. 12. Binding effect. This Agreement shall be binding upon and inure to the benefit of both the parties hereto and their respective heirs, successors, and assigns. 13. Non-waiver. No delay or failure by either party to exercise any right hereunder, and no partial or single exercise of any such right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 14. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 15. Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. Time of essence. Time is of the essence of this Agreement. 18. Entire agreement. This Agreement and Schedules A and B attached hereto and made a part hereof and the Bill of Sale supersede all prior agreements and constitute the entire agreement between the parties hereto with respect to the subject matter hereof. 19. Notices. All notices hereunder shall be in writing and delivered personally or mailed by certified mail, postage prepaid, addressed to the respective parties at their last known addresses. In witness whereof the parties have signed this Agreement. JDT WEBWERX LLC By: /s/ Doug Trolian 01/27/98 -------------------------- -------- Doug Trolian Date Title: By: /s/ Torquato Tasso 01/27/98 -------------------------- -------- Torquato Tasso Date Title: INTERNET BROADCASTING SYSTEM, INC. (D/b/a IBS INTERACTIVE, INC.) By: /s/ Nicholas Loglisci, Jr. 01/27/98 -------------------------- -------- Nicholas Loglisci, Jr. Date President Amendment to JDT WebWerX, LLC Asset Purchase Agreement Each of IBS Interactive, Inc. ("IBS"), JDT WebWerX, LLC ("JDT"), Doug Trolian and Torquato Tasso each agree as follows: Section 6. Purchase Price of the Asset Purchase Agreement dated as of January 1, 1998, is hereby amended to read as follows: The purchase price for all the assets referred to in paragraph 1 is $35,000 (due and payable to Seller as set forth in Schedule B attached hereto and made a part hereof), attributable as follows: seven thousand dollars ($7,000) to the physical assets, and twenty eight thousand dollars ($28,000) to Seller's goodwill, trade name, and other intangible assets. Schedule B to the Asset Purchase Agreement is hereby amended to read as follows: Provided that Seller is not in breach of the terms of the Agreement, Purchaser shall pay to Seller an aggregate amount of thirty five thousand dollars ($35,000) in cash as follows: contemporaneously with the execution of this Agreement by the parties and the Bill of Sale by Seller, Purchaser shall pay to Seller nine thousand dollars ($9,000). Thereafter, Purchaser shall pay to Seller twenty six thousand dollars ($26,000) upon the effective date of the registration of Purchaser's public offering (estimated to be April 1998) /s/ Doug Trolian ----------------------------------------------- Doug Trolian, individually and on behalf of JDT /s/ Torquato Tasso ----------------------------------------------- Torquato Tasso, individually and on behalf of JDT INTERNET BROADCASTING SYSTEM, INC. By: /s/ Nicholas Loglisci ----------------------------------------------- Nicholas Loglisci, President EX-10.16 13 EXHIBIT 10.16 COMMERCIAL SUBLEASE This Commercial Sublease ("Agreement") is entered into as of the May 5, 1997 between Information Systems & Communications, Inc, a Commonwealth of Virginia Corporation, with its principal place of business at 11240 Waples Mill Drive, Suite 101 ("Sublessor") and Internet Brocasting System, Inc., a Delaware Corporation with its principal place of business at 175 Park Avenue, Madison, New Jersey 07840, ("Sublessee"). GENERAL The Sublessor wishes to Sublease the Premises (defined below) to the Sublessee; and the Sublessee wishes to Lease those Premises from the Sublessor. In consideration for the mutual promises, covenants, and Agreements made below, the parties, intending to be legally bound, agree as follows: DEFINITIONS For purposes of this Agreement, the following terms will have the indicated definitions: "AGREEMENT." This Agreement is by and between the Sublessor and the Sublessee. "PREMISES." The office situated in the county of Fairfax, Commonwealth of Virginia, described as 11240 Waples Mill Road, Suite 101, and having an area of approximately 170 rentable square feet. See Exhibit A for a map of the Premises. "MASTER LEASE." The Lease between the Sublessor and Aeromaritime Investment Company ("Lessor") dated June 19, 1996 and expiring June 30, 2001 whereby the Sublessor (as the Lessee) Leased from the Lessor the Premises. AGREEMENT 1. RELATIONSHIP OF THE PARTIES. It is acknowledged that the Sublessor is a Lessee of the Lessor. Although no privity of contract exists between the Sublessee and the Lessor, the Sublessee acknowledges that, where appropriate, the Sublessor will look to and require the Lessor to provide services, as appropriate under this Agreement. The Sublessor assumes no liability for any willful misconduct, gross negligence or negligence 2 of the Lessor and the Sublessor covenants only to deliver such services as are provided in this Agreement. The Sublessee's sole remedy for the Sublessor's failure to deliver such services is rescession. The Sublessee further agrees to observe and follow all rules and regulations promulgated by the Lessor. 2. TERM AND RENT. The Sublessor demises the above Premises, commencing May 5, 1996, and terminating on May 4,1998. Both parties agree that this is in no way a month to month Lease. The Lessee shall pay to the Sublessor as rent for the Premises, without demand, deduction, or rights of off-set, the following sums: equal monthly Installments of $266.38, during months one through six of the Sublease term, $275.73, during months seven through twelve of the Sublease term. Each monthly installment payable in advance on the fifth day of each month for that month's rental, during the term of this Lease. All rental payments should be made out to the Sublessor and sent to it at the address stated above. 3. LATE CHARGES. The Sublessee hereby acknowledges that late payment by the Sublessee to the Sublessor of rent or other sums due under this Agreement will cause the Sub lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges that may be imposed upon the Sublessor by the Lessor. Accordingly, if any installment of rent or of a sum due from the Sublessee shall not be received by the Sublessor or the Sublessor's designees by 12:00 noon on the tenth (10th) day of each month of the term, then the Sublessee shall pay to the Sublessor a late charge equal to (5%) of such overdue amount. The parties hereby agree that such late charges represent a fair and reasonable estimate of the cost that the Sub lessor will incur by reason of the late payment by the Sublessee. Acceptance of such late charges by the Sublessor shall in no event constitute a waiver of the Sublessee's default with respect to such overdue amount, nor prevent the Sublessor from exercising any of the other rights and remedies granted under this Agreement. 4. USE 4.1 USES PERMITTED. The Sublessee shall use and occupy the Premises for General Office purposes. The Premises shall be for no other purpose. The Sublessor represents that the Premises may lawfully be used for such purpose. 4.2 USES PROHIBITED 4.2.1 The Sublessee shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein that will increase the existing rate or affect any fire or other insurance upon the building or any of its contents, or cause a cancellation of any insurance policy covering said building or any part of it or any of its contents, nor shall the Sublessee sell or permit to be kept used or sold in or about said Premises any articles or substances, inflammable or otherwise, that may be prohibited by a standard form policy of fire insurance. 3 4.2.2 The Sublessee shall not do or permit anything to be done in or about the Premises that will in any way obstruct or interfere with the rights of other Sublessee's of the building or injure or annoy them or use or allow the Premises to be used for any unlawful or objectionable purpose. 4.2.3 The Sublessee shall not use the Premises or permit anything to be done in or about the Premises that will in any way conflict with any law now in force or that may hereafter be enacted. The Sublessee shall at its cost promptly comply with all laws now in force or that may be in force hereafter and with the requirements of any board of fire underwriters or other similar body relating to the Sub lessee's improvements or acts. 4.3 LIENS. The Sublessee shall keep the Premises and the property in which the Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by the Sublessee. The Sublessor may require the Sublessee to provide the Sublessor, at the Sublessee's cost, a lien and completion bond in an amount equal to one and one-half (1 1/2) times the estimated cost of any improvements, additions, or alterations by the Sublessee, to insure the Sub lessor against liability for the mechanic's and material men's liens and to insure completion for the work. 5. REPAIRS AND MAINTENANCE. By taking possession of the Premises, the Sublessee shall be deemed to have accepted the Premises as being in good sanitary order, condition and repair. The Sublessee shall at the Sublessee's cost, keep the Premises and every part of it in good condition and repair except for damages beyond the control of the Sublessee and ordinary wear and tear. The Sublessee shall upon the expiration or sooner termination of this Lease surrender the Premises to the Sublessor in good condition, ordinary wear and tear and damage from causes beyond the reasonable control of the Sublessee excepted. Unless specifically provided in an addendum to this Lease, the Sublessor shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part of it and the parties hereto affirm that the Sublessor has made no representations to the Sub lessee respecting the condition of the Premises and the building except as specifically set forth in this Agreement. Despite the above provisions, the Sublessor shall repair and maintain or cause to be repaired and maintained the structural portions of the building, including the standard plumbing, air conditioning, heating and electrical Systems furnished by the Sublessor, unless such maintenance and repairs are caused in part or in whole by the act, neglect, fault or omission of any duty by the Sublessee, its agents, employees or invitees, in which case the Sublessee shall pay to the Sublessor the reasonable cost of such maintenance and repairs. The Sublessee shall give the Sublessor written notice of any required repairs or maintenance. The Sublessor shall hot be liable for any failure to repair or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice. Any repairs or maintenance to supplemental cooling equipment required for the Sublessee's special needs are the responsibility of the Sub les see. Except as specifically stated in this Agreement, there shall be no abatement of rent and no liability of the Sublessor by reason of any injury to or interference with the Sublessee's business arising from making of any repairs, 4 alterations or improvements to any portion of the building or the Premises or to fixtures) appurtenances and equipment. The Sublessee waives the right to make repairs at the Sublessor's expense under any law, statute or ordinance now or hereafter in effect. 6. ALTERATIONS. The Sublessee shall not, without first obtaining the written consent of the Lessor, make any alterations, additions, or improvements, in, to or about the Premises. Any such alterations, additions or improvements, including, but not limited to, wall covering, paneling and built-in cabinet work, but excepting movable furniture and trade fixtures, shall become a part of the realty, shall belong to the Sublessor and for the Lessor and shall be surrendered with the Premises at expiration or termination of the Lease. If the Sublessor consents to any such alterations, additions or improvements by the Sublessee, they shall be made by the Sublessee at the Sublessee's cost, and any contractor or person selected by the Sublessee to perform the work shall first be approved of, in writing, by the Sublessor. Upon expiration, or sooner termination of the term, the Sublessee shall, upon written demand by the Sublessor, promptly remove any alterations, additions or improvements made by the Sub lessee and designated by the Sub lessor to be removed. Such removal and repair of any damage to the Premises caused by such removal shall be at the Sublessee's cost. 7. ORDINANCES AND STATUTES. The Sublessee shall comply with all statutes, ordinances and requirements of all municipal, state and federal authorities now in force, or that may hereafter be in force, pertaining to the Premises, occasioned by or affecting the use by the Lessee. 8. ASSIGNMENT AND SUBLETTING. The Sublessee shall not assign this Lease or sublet any portion of the Premises without prior written consent of the Sublessor, which shall not be unreasonably withheld unless it is based upon refusal by the Lessor to give consent, in the Lessor's sole judgment. Any such assignment or subletting without consent shall be void and, at the option of the Lessor, may terminate this Lease. 9. SERVICE AND UTILITIES 9.1 SUBLESSOR'S OBLIGATIONS. The Sublessor agrees to furnish to the Premises during reasonable hours of generally recognized business days to be determined by the Sublessor, and subject to the Rules and Regulations of the building, electricity for normal lighting and fractional horsepower office machines, heat and air conditioning required in the Sublessor's judgment for the comfortable use and occupancy of the Premises, janitorial, window washing and elevator service. The Sublessor shall also maintain and keep lighted the common stairs, galleries, entries and toilet rooms in the building. The Sublessor shall not be liable for and the Sublessee shall not be entitled to any reduction of rental by reason of the Sublessor's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of the Sublessor. 5 9.2 SUBLESSEE'S OBLIGATION. The Sublessee shall pay for, prior to delinquency, all telephone and all other materials and services, not expressly required to be paid by the Sublessor, that may be furnished to or used in, on or about the Premises during the term of this Lease. The Sublessee will not, without the prior written consent of the Sublessor and subject to any conditions the Sublessor may impose, use any apparatus or device in the Premises that will in any way increase the amount of electricity or water usually furnished for use of the Premises as a general office space. If the Sublessee shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as general office space, the Sublessee shall first procure the consent of the Sub lessor. Wherever heat generating machines or equipment are used in the Premises that affect the temperature otherwise maintained by the air conditioning system, the Sublessor reserves the right to install supplementary air conditioning units in the Premises and the cost, including the cost of installation, operation and maintenance, shall be paid by the Sublessee to the Sublessor upon demand by the Sublessor. The Sublessor shall not be liable for the Sublessor's failure to furnish any of the foregoing when such failure is caused by any cause beyond the reasonable control of the Sublessor. The Sublessor shall not be liable under any circumstances for loss of or injury to property, however occurring, in connection with failure to furnish any of the foregoing. 10. ENTRY AND INSPECTION. The Sublessor and the Lessor reserve the right to enter the Premises at any time to inspect the Premises, to provide any service for which the Sublessor is obligated, to submit the Premises to prospective purchasers or Sublessee's, to post notices of non-responsibility, and to alter, improve, maintain or repair the Premises or any portion of the building of which the Premises are a part of that the Sublessor deems necessary or desirable, all without abatement of rent. The Sublessor may erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, but shall not block entrance to the Premises and not interfere with the Sublessee's business, except as reasonably required for the particular activity by the Sublessor. The Sublessor shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, interference with quiet enjoyment, or other damage arising out of the Sublessor's entry on the Premises as provided in this section, except damage, if any, resulting from the negligence or willful misconduct of the Sublessor or Its authorized representative. The Sub lessor shall retain a key to unlock all doors into, within, and about the Premises, excluding the Sublessee's vaults, safes and files. In an emergency, the Sublessor shall have the right to use any means that the Sublessor deems reasonably necessary to obtain entry to the Premises, without liability to the Sublessee, except for any failure to exercise due care for the Sublessee's property. Any such entry to the Premises by the Sublessor shall not be construed or deemed to be forcible or unlawful entry into or a detained of the Premises or an eviction of the Sublessee from the Premises or any portion thereof. 11. POSSESSION. If the Lessor is unable to deliver possession of the Premises at the commencement, the Lessor shall not be liable for any damage caused, nor shall this Lease be void or voidable, but the Lessee shall not be liable for any rent until possession is delivered. The Sublessee may terminate this Lease if possession is nol delivered within 60 days of the commencement of the term of this Agreement. 6 12. INDEMNIFICATION OF SUBLESSOR. The Sublessee shall hold the Sublessor and the Lessor harmless from any claims arising from the Sublessee's use of the Premises or from any activity permitted by the Sublessee in or about the Premises, and any claims arising from any breach or default in the Sub lessee's performance of any obligation under the terms of this Lease. If any action or proceeding is brought by reason of any such claim in which the Sublessor or the Lessor is named as a party, the Sublessee shall defend the Sub lessor and the Lessor therein at the Sublessee's expense by counsel reasonably satisfactory to the Sublessor and the Lessor. The Sublessor and its agents shall not be liable for any damage to property entrusted to the employees of the building, nor for loss or damage to any property by theft or damage, nor from any injury to or damage to persons or property resulting from any cause whatsoever, unless caused by or due to the negligence or willful misconduct of the Sublessor, Its agents or employees. The Sublessor shall not be liable for any latent defect in the Premises or in the building of which they are a part. The Sublessee shall give prompt notice to the Sublessor in case of fire or accidents in the Premises or in the building or of alleged defects in the building, fixtures or equipment. 13. INSURANCE 13.1 COVERAGE. The Sublessee shall assume the risk of damage to any fixtures, goods, inventory, merchandise, equipment, furniture and Leasehold improvements, and the Sublessor shall not be liable for injury to the Sublessee's business or any loss of income relative to such damage. The Sublessee shall, at all times during the term of this Lease, and at its own cost, procure and continue in force the following insurance coverage: 13.1.1 Comprehensive public liability insurance, insuring the Sublessor and the Sublessee and the Lessor against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. 13.2 INSURANCE POLICIES. The limits of said insurance policies shall not, however, limit the liability of the Sublessee under this Agreement. The Sublessee may carry said insurance under a blanket policy, providing, however, said insurance by the Sublessee shall name the Sublessor and the Lessor as additional insureds. If the Sublessee shall fail to procure and maintain said insurance, the Sublessor may, but shall not be required to, procure and maintain same, but at the expense of the Sublessee. Insurance required under this Agreement shall be in companies that rate B+ or better in "Best's Insurance Guide." The Sublessee shall deliver to the Sublessor prior to occupancy of the Premises copies of the policies of insurance required, or certificates evidencing the existence and amounts of such insurance with loss payable clauses, satisfactory to the Sublessor and naming the Sublessor as an additional named insured. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to the Sublessor. The minimum acceptable amount of comprehensive liability insurance is $1,000,000 against claims in any occurrence, and property damage insurance in an amount of not less than $100,000 per occurrence, or combined single limit of $1,000,000 comprehensive liability and property damage insurance. 7 13.3 WAIVER OF SUBROGATION. As long as their respective insurers so permit, the Sublessor and the Sublessee each hereby waive any and all rights of recovery against the other for any loss or damage occasioned to such waiving party or its property of others under its control to the extent that such loss or damage is insured against under any fire or extended coverage insurance policy that either may have in force at the time of such loss or damage. Each party shall obtain any special endorsement, if required by their insurer, to evidence compliance with this waiver. 14. EMINENT DOMAIN. If more than twenty-five percent (2S%) of the Premises is taken or appropriated by any public or quasi-public authority under the powers of eminent domain, either party shall have the right at its option to terminate this Lease. If less than twenty-five percent (25%) of the Premises is taken (or neither party elects to terminate as above, provided if more than twenty-five percent (25%) is taken), the Lease shall continue, but the rental thereafter to be paid shall be equitably reduced. if any part of the building of which the Premises are a part is so taken or appropriated, whether or not any part of the Premises is involved, the Sublessor shall be entitled to the entire award and compensation for the taking that is paid or made by the public or quasi-public agency, and the Sublessee shall have no claim against said award. 15. DESTRUCTION OF PREMISES. In the event of a partial destruction of the Premises during the term of this Agreement, from any cause, the Lessor shall forthwith repair the same, provided that such repairs can be made within sixty (60) days under existing governmental rules and regulations, but such partial destruction shall not terminate this Lease, except that the Lessee shall be entitled to a proportionate reduction of rent while such repairs are being made, based upon the extent to which the making of such repairs shall interfere with the business of the Lessee on the Premises. If such repairs cannot be made within sixty (60) days, the Lessor, at his option, may make the same within a reasonable time, this Lease continuing in effect with the rent proportionately abated as aforesaid, and in the event that the Lessor shall not elect to make such repairs that cannot be made within sixty (60) days, this Lease maybe terminated at the option of either party. In the event that the building in which the demised Premises may be situated is destroyed to an extent or not less than one-third of the replacement costs thereof, the Lessor may elect to terminate this Lease whether the demised Premises be injured or not. A total destruction of the building in which the premises may be situated shall terminate this Lease. 16. SUBLESSOR'S REMEDIES ON DEFAULT 16.1 If the Sublessee defaults in the payment of rent, or any additional rent, or defaults in the performance of any of the other covenants or conditions of this Agreement, the Sublessor may give the Sublessee notice of such default and if the Lessee does not cure any such default within three (3) business days, after the giving of such notice (or if such other default is of such a nature that it cannot be completely cured within such period, if the Lessee does not commence such curing within such three (3) business days and thereafter proceed with reasonable diligence and in good faith to cure such default), then 8 the Lessor may terminate this Lease not less than thirty (30) calendar days' notice to the Lessee. On the date specified in such notice the term of this Lease shall terminate, and the Lessee shall then quit and surrender the Premises to the Lessor, but the Lessee shall remain liable as hereinafter provided. If this Lease shall have been so terminated by the Lessor, the Lessor may at any time thereafter resume possession of the Premises by any lawful means and remove the Lessee or other occupants and their effects. No failure to enforce any term shall be deemed a waiver. 16.2 The making by the Sublessee of any general assignment or general arrangement for the benefit of creditors; the filing by or against the Sublessee of a petition to have the Sublessee adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against the Sublessee, same is dismissed within sixty (60) days; the appointment of a trustee or receiver to take possession of substantially all the Sublessee's assets located at the Premises or of the Sublessee's interest in this Lease, where possession is not restored to the Sublessee within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of the Sublessee's assets located at the Premises or of the Sublessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. 17. SECURITY DEPOSIT. The Sublessee shall deposit with the Lessor the sum of $266.38 as security for the performance of the Lessee's obligations under this Lease, including without limitation the surrender of possession of the Premises to the Lessor as provided in this Agreement. The Sublessee will pay $266.38 to the Sublessor at the time of signing this Agreement. If the Sublessor applies any part of the deposit to cure any default of the Sublessee, the Sublessee shall on demand deposit with the Sublessor the amount so applied so that the Sub lessor shall have the full deposit on hand at all times during the term of this Lease. 18. TAXES. The Sublessee shall pay before delinquency, all taxes levied or assessed and become payable during the term of this Agreement upon all the Sublessee's Leasehold improvements, equipment, furniture, fixtures and personal property located in the Premises, except that which has been paid for by the Sublessor or the Lessor and is the standard of that building. Should the Commonwealth of Virginia Constitution be changed in a way that results in a higher or lower tax on the Premises than the annual increases now a matter of law, any such increase shall be passed through to the Sublessee on a prorated basis. The Sublessee shall pay to the Sublessor its share of such taxes, if any, within thirty days after delivery to the Sub lessee by the Sublessor of a statement in writing setting forth the amount of such taxes. 19. COMMON AREA EXPENSES. The Sublessee agrees to pay his pro-rata share of maintenance, taxes and insurance for the common area. 20. ATTORNEY FEES. In case suit should be brought for recovery of the Premises, or for any sum due under this Agreement, or because of any act that may arise out of the 9 possession of the Premises, by either party, the prevailing party shah be entitled to all costs incurred in connection with such action, including a reasonable attorney's fee. 21. WAIVER. No failure of the Sublessor to enforce any term of this Agreement shall be deemed to be a waiver. 22. NOTICES. Any notice that either party may or is required to give, shall be given by mailing the same, postage prepaid, to the Sublessee at the Premises, or the Sublessor at the address shown above, or at such other places as may be designated by the parties from time to time. 23. HEIRS, ASSIGNS, SUCCESSORS. This Lease is binding upon and inures to the benefit of the heirs, assigns and successors in interest to the parties. 24. SUBORDINATION. This Lease is and shall be subordinated to all existing and future liens and encumbrances against the property. 25. RULES AND REGULATIONS. The Sublessee shall faithfully observe and comply with the rules and regulations attached as Exhibit B to this Lease, as well as such rules and regulations that the Sub lessor or the Lessor shall from time to time promulgate. The Sublessor reserves the right from time to time to make all reasonable modifications to those rules that shall be binding to the Sublessee upon delivery of a copy of them to the Sublessee. The Sublessor shall not be responsible to the Sublessee for the nonperformance of any of said rules by any other Sublessee. 26. STATEMENT TO LENDER. The Sublessee shall at any time and from time to time, upon not less than ten (10) days prior written notice from the Sublessor, execute, acknowledge, and deliver to the Sublessor a statement in writing, (1) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modifications and certifying that this Lease as so modified, is in full force and effect), and the date to which the rental and other charges are paid in advance, if any, and (2) acknowledging that there are not, to the Sublessee's knowledge, any uncured defaults on the part of the Sublessor under this Agreement, or specifying such defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. 27. PARKING. The Sublessee shall have the right to use, in common with other tenants or occupants of the building, parking facilities, provided by the Sublessor for tenants of 11240 Waples Mill Road, Fairfax, Virginia 22030, subject to the rules and regulations established by the Sublessor. 28. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of the Sublessee's corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws 10 of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. 29. LENDER REQUIREMENTS. Upon request of the Sublessor, the Sublessee will, in writing, subordinate its rights under this Agreement to the lien of any mortgage, or deed of trust to any bank, insurance company or other lending institution, now or hereafter in force against the land and building of which the Premises are a part, and to all advances made or hereafter to be made upon the security thereof If any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Sublessor covering the Premises, the Sublessee shall recognize such purchaser as the Sublessor under this Lease. 30. NAME. The Sublessee shall not use the name of the development on which the Premises are situated for any purpose other than as an address of the business to be conducted by the Sublessee in the Premises, unless written authorization is obtained from Sublessor. 31. SEVERABILITY. If any provision of this Agreement is found invalid or unenforceable under judicial decree or decision, the remainder shall remain valid and enforceable according to its terms. Without limiting the previous, it is expressly understood and agreed that each and every provision of this Agreement that provides for a limitation of liability, disclaimer of warranties, or exclusion of damages is intended by the parties to be severable and independent of any other provision and to be enforced as such. Further, it is expressly understood and agreed that if any remedy under this Agreement is determined to have failed of its essential purpose, all other limitations of liability and exclusion of damages set forth in this section shall remain in full force and effect. 32. GOVERNING LAW. This Agreement shall be governed by the laws of the Commonwealth of Virginia applicable to Agreements made and fully performed in the Commonwealth of Virginia by Commonwealth of Virginia residents. 33. TOXICS. The Sublessor and the Sublessee acknowledge that they have been advised that numerous federal, state, and / or local laws, ordinances and regulations ("Laws") affect the existence and removal, storage, disposal, leakage of contamination by materials designated as hazardous or toxic ("Toxics"). Many materials, some utilized in everyday business activities and property maintenance, are designated as hazardous or toxic. Some of the Laws require that Toxics be removed or cleaned up without regard to whether the party required to pay for the "clean up" caused the contamination, owned the property at the time of the contamination occurred or even knew about the contamination. Some items, such as asbestos or PCB's, that were legal when installed, are now classified as Toxics, and are subject to removal requirements. Civil lawsuits for darn ages resulting from Toxics may be filed by third parties in certain circumstances. 11 34. SIGNS. The Sublessor at no cost to the Sublessee shall design and construct signs to reflect the multi-tenant nature of the building. The Sublessee will be given a pro rata share of any major exterior sign. 35. ENTIRE AGREEMENT. The parties acknowledge that this Agreement expresses the entire understanding and Agreement, and that there have been no warranties, representations, covenants or understandings made by either party to the other except such as are expressly set forth in this section. The parties further acknowledge that this Agreement supersedes, terminates and otherwise renders null and void any and all prior Agreements or contracts, whether written or oral, entered into between the Sublessee and the Sublessor with respect to the matters expressly set forth in this Agreement. We have carefully reviewed this contract and agree to and accept its terms and conditions. We are executing this Agreement as of the day and year first written above. Sublessee Sublessor /s/ Nick Loglisci /s/ Elizabeth R. Fowles - ----------------------------- --------------------------------------- By By Nick Loglisci Elizabeth R. Fowles - ----------------------------- --------------------------------------- Name Name President and G.M. President/CEO EX-10 14 EXHIBIT 10.17 SECOND LEASE MODIFICATION AGREEMENT THIS SECOND LEASE MODIFICATION AGREEMENT (the "Second Modification Agreement") is made this 3rd day of March, 1998 by and among EI 2 RIDGEDALE AVENUE, INC. (as successor in interest to Iron Investments Corp.), a New Jersey corporation, and HANOVER PARK FOR INDUSTRY, a New Jersey general partnership, both having an address at 115 Evergreen Place, East Orange, New Jersey 07018 (collectively, the "Landlord"), and INTERNET BROADCASTING SYSTEM, INC., a Delaware corporation having an address at 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927 (the "Tenant"). W I T N E S S E T H WHEREAS, pursuant to a certain lease Agreement dated as of May 1, 1997, (the "Lease"), the Landlord did lease to the Tenant, and the Tenant did lease and accept from the landlord, certain premises consisting of 3,100 square feet of space (the "Original Premises") located on the third floor of the building commonly known as 2 Ridgedale Avenue, Cedar Knolls, New Jersey (the "Building"), as more particularly shown on Exhibit "A" annexed hereto; WHEREAS, pursuant to a certain Lease Modification Agreement and Expansion Agreement dated November 26, 1997 (the "First Modification Agreement"), the Landlord did lease to the Tenant, and the Tenant did lease from the Landlord, certain additional premises located on the third floor of the building subject to the ability of the Landlord to recapture such premises; WHEREAS, the Landlord has recaptured such additional Premises; WHEREAS, the Tenant and the Landlord desire to terminate the First Modification Agreement in its entirety and to amend the Lease as hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, the parties hereto hereby agree as follows: 1. Capitalized Terms Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Lease. 2. Termination of First Modification Agreement The First Modification Agreement is hereby terminated in its entirety. 3. Expansion Premises (a) Together with the nonexclusive right to use those portions of the Building intended for the common use of all of its occupants, the Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord the following additional space at the Building (collectively, the "Additional Premises") comprised as follows: Premises consisting of 6,730 square feet of gross rentable space located on the third floor of the Building, as more particularly shown on Exhibit "A" annexed hereto. (b) Except as otherwise specifically set forth herein, the lease of the Additional Premises shall be subject to and in accordance with the terms of the Lease. Any default occurring under the Lease with respect to the Original Premises or the Additional Premises shall also constitute a default with respect to all premises governed by the Lease and the Landlord shall be entitled to exercise all remedies available under the Lease with respect to such defaults. 2 4. Expansion Lease Term (a) Subject to possible postponement as set forth in Paragraph 6 below, the lease commencement date for the Additional Premises shall be April 1, 1998 (the "Expanded Commencement Date"). (b) Subject to possible postponement as set forth in Paragraph 6 below, the lease expiration date of the lease term for the Original Premises is hereby amended to be, and the term of lease for the Additional Premises shall expire on March 31, 2003 (the "Expanded Expiration Date"). 5. Rental (a) For the period from and including the Expanded Commencement Date through and including the Expanded Expiration Date, the Tenant covenants and agrees to pay to the Landlord a Base Rental for the Original Premises and the Expansion Premises (collectively, the "Expanded Premises") of Seven Hundred Seventy-Seven Thousand Two Hundred Seventy-Three and 20/100 ($777,273.20) Dollars. Such Base Rental shall be payable in monthly installments of Twelve Thousand Nine Hundred Fifty Four and 55/100 ($12,954.55) Dollars commencing on the Expanded Commencement Date and continuing thereafter on the first day of each succeeding calendar month. (b) In addition to the Base Rental for the Expanded Premises, the Tenant shall also pay Additional Rent for the Expanded Premises. For the purposes of determining the Tenant's share of the Operating Increases with respect to the Expanded Premises pursuant to Paragraph 20 of the Lease, the "Base Year" shall be calendar year 1998 and the "Lessee's Proportionate Share" shall be 14.04% (i.e., 9,830 total rentable square feet divided by 70,000). 3 (c) The Tenant's obligation to pay Base Rent and Additional Rent with respect to the Original Premises for periods through and including the Expanded Commencement Date shall continue in accordance with the terms of the Lease. 6. Landlord's Work (a) Except as set forth in Paragraph 6 (b) below, the Landlord shall deliver the Expanded Premises to the Tenant on the Expanded Commencement Date in its "as is, where is" condition and the Landlord shall not be obligated to perform any space improvements or other work thereto. The Landlord shall not be obligated to perform any space improvements or other work with respect to the Original Premises. (b) Notwithstanding anything to the contrary contained herein, prior to the Expanded Commencement Date, the Landlord, at its sole cost and expense, shall arrange for the performance of such space improvement work as is necessary for the Expanded Premises to substantially comply with the specifications set forth in Exhibit A annexed hereto (the "Landlord's Work"). All Landlord's Work shall be completed in accordance with the building standard for the Building, a copy of which is annexed hereto as Exhibit "B". (c) The Landlord shall not be responsible for any delay in the completion of the Landlord's Work by reason of the occurrence of any cause or causes beyond the Landlord's reasonable control, which shall include, but not be limited to, labor disputes, civil commotion, acts of governmental authority or inability to comply with governmental regulations or controls, fire or other casualty, inability to obtain any building material, acts of God or other unusual causes beyond the Landlord's reasonable control ("Event of Force Majeure"). In the event that any portion of the Landlord's Work with respect to the Additional Premises has not been completed on or before the Expanded Commencement Date as the result of any Event of Force Majeure and the Tenant cannot as a result thereof lawfully occupy the Additional Premises, the Expanded Commencement Date shall be delayed until such date upon which the Tenant can lawfully occupy the Additional Premises. In the event that the Additional Premises shall not be available for lawful occupancy on or prior to the Expanded Commencement Date other than as a result of an Event of Force Majeure, the 4 Tenant's sole remedy hereunder for such delay shall be the right to terminate the Lease with respect to the Additional Premises if such space is not made available for lawful occupancy within fifteen (15) days following the Tenant's written notice to the Landlord of its intention to so terminate, such notice not to be given on or before the Expanded Commencement Date. Any delay in the completion of the Landlord's work resulting from changes in the Landlord's Work hereafter requested by the Tenant shall not effect the Expanded Commencement Date and the Tenant's obligations to pay Rent with respect to the Expanded Premises regardless of the period of such delay. (d) In the event of any delay in the Expanded Commencement Date, the Expanded Expiration Date shall also be delayed by a like number of days. If as a result of any delay, the Expanded Commencement Date occurs on a day other than the first day of a calendar month, the first and last monthly Base Rental installments with respect to the Expanded Premises shall be pro rated based upon the number of days in such month that the Lease is in effect with respect to the Expanded Premises. (e) On the Expanded Commencement Date, as a condition to the Tenants right to take possession of the Additional Premises, the Tenant shall pay to the Landlord the amount of Ten Thousand ($10,000) Dollars on account of a portion of the costs incurred by the Landlord in connection with the Landlord's work. 5 7. Tenant's Work The Tenant, at its sole cost and expense, shall perform the electrical work at the Additional Premises as set forth in Paragraph 3.A. of the January 29, 1998 memorandum of the minutes of the January 27, 1998 construction meeting. Any delay in the completion of this work shall be the Tenant's responsibility and shall not delay the Expanded Commencement Date. 8. Expansion Security Deposits Simultaneously with the execution and delivery hereof, the Tenant shall deliver to the Landlord additional security for the Additional Premises in the amount of Eighteen Thousand Eight Hundred Four and 94/100 ($18,804.94) Dollars (the Landlord acknowledges that as of February 24, 1998, it has already received $8,720 of the additional security and that the balance now due is $10,084.94). On the third anniversary date of the Expanded Commencement Date, the Landlord shall return to the Tenant one-half of such additional security but only if the Tenant is not then and has not been in default of any of its obligations under the Lease with respect to the Expanded Premises. Except as provided in the immediately preceding sentence, such additional security amounts shall be used, applied and retained by the Landlord in accordance with Paragraph 37 of the Lease. 9. Parking Commencing as of the Expanded Commencement Date, the Landlord shall provide forty-nine (49) automobile parking spaces for the non-exclusive use of the Tenant in common with the other tenants of the Building. 10. Continuing Effect of Lease Except as expressly modified hereby, all of the provisions of the Lease shall remain unchanged and continue in full force and effect and be 6 applicable to both the Original Premises and the Additional Premises. In the event that any term or provision of this Second Modification Agreement shall conflict with any term of provision of the Lease, the term or provision of this Second Modification Agreement shall govern and control. 11. Miscellaneous (a) This Second Modification Agreement contains the entire agreement and understanding between the parties with respect to the Expanded Premises and the extension of the term of lease with respect to the Original Premises. There are no oral understandings, terms or conditions, and neither party has relied upon any representation, express or implied, not contained in this Second Modification Agreement. All prior understandings, terms or conditions with respect to the Expanded Premises and the extension of the lease term with respect to the Original Premises are hereby deemed merged into this Second Modification Agreement. This Second Modification cannot be changed or supplemented other than in a writing signed by both parties. (b) This Second Modification Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 7 IN WITNESS WHEREOF, the parties hereto have duly executed this Lease on the day and year first above written. WITNESS/ATTEST: LANDLORD: EI 2 RIDGEDALE AVENUE, INC. (as successor in interest to Iron Investments Corp.) By: /s/ L. Abdullah By: /s/ Michael Suppa ----------------- ----------------------------------- Michael V. Suppa Senior Vice President HANOVER PARK FOR INDUSTRY By: /s/ L. Abdullah By: /s/ Michael V. Suppa ----------------- ----------------------------------- Michael V. Suppa Authorized Agent TENANT: INTERNET BROADCASTING SYSTEM, INC. By: /s/ L. Adbullah By: /s/ Nick Loglisci, Jr. ----------------- ----------------------------------- Name: Nick Loglisci, Jr. Title: President - ----------------------------- --------------------------------------- Title Title 8 EX-10.18 15 EXHIBIT 10.18 EI REALTY 21 OCTOBER 1997 RR9999-19 Mr. Frank Altieri IBS Interactive 2 Ridgedale Avenue Cedar Knolls, NJ 07927 RE: 2 RIDGEDALE AVENUE CEDAR KNOLLS, NJ Dear Frank: Pursuant to our telephone conversation this day, I have had the opportunity to have a discussion with the ownership of 2 Ridgedale Avenue, Cedar Knolls, NJ. Accordingly, we are pleased to submit this revised expansion proposal for a Lease Modification and Extension Agreement for your consideration. The terms and conditions are listed below: EXPANSION PREMISES: 3,270 SF. CURRENT DEMISED PREMISES: 3,100 SF. AGGREGATE RENTABLE SPACE: 6,370 SF. TERM: FIVE (5) YEARS TO COMMENCE 1 JANUARY 1998. CONCESSION: IBS IS TO OCCUPY THE EXPANSION PREMISES (3,270 SF) DURING THE MONTH OF DECEMBER 1997 AT NO CHARGE (FREE RENT). RENTAL RATE: YEARS 1-5 $15.00 PSF, PLUS TENANT ELECTRIC. NET EFFECTIVE RENTAL RATE: $14.87 PSF, PLUS TENANT ELECTRIC. TENANT IMPROVEMENTS: THE LANDLORD WILL PROVIDE IBS INTERACTIVE (IBS) WITH AN ALLOWANCE OF $10.00 PER USABLE SQUARE FOOT TO BE USED FOR THE EXPANSION PREMISES TENANT IMPROVEMENTS TO BE PERFORMED BY EI ASSOCIATES. EI REALTY 21 October 1997 RR9999-19 Mr. Frank Altieri Page -2- It has been a pleasure having IBS as a tenant these past three (3) months. I hope the above is responsive to your request for growth and look forward to a long and continued relationship Please signify your acceptance of the above by executing and returning one (1) copy of this letter to our office, via fax (201) 672-1784. Upon receipt of same, we will prepare a Lease Modification and Extension Agreement reflecting the above-stated terms. Please note that we must be in receipt of an executed Modification and Extension Agreement on or before 25 October 1997 in order to accommodate your desired 1 December 1997 occupancy of the expansion premises. Very truly yours, EI REALTY Martin B. Okin Leasing Manager MBO/la AGREED AND ACCEPTED /s/ Frank Altieri 10/21/97 - -------------------------- ----------------- IBS INTERACTIVE DATE EX-10.19 16 EXHIBIT 10.19 IRON INVESMENT CORP. AND HANOVER PARK FOR INDUSTRY (Lessor) TO INTERNET BROADCASTING SYSTEM, INC. (Lessee) DATED: 1 MAY 1997 PREMISES: 3,100 square Feet INDEX OF ARTICLES ARTICLE PAGE 23. Quiet Enjoyment 18 24. Holdover Tenancy 18 25. Estoppel Certificate, Recordation, Memorandum 18 26. Insurance 19 27. Right to Inspect and Repair 20 28. Surrender 21 29. Electrical Service 21 30. Rules and Regulations 22 31. Entire Agreement 22 32. No Waiver of Covenants or Conditions 22 33. Notices 22 34. Broker's or Finder's Fee 23 35. Governing Law 23 36. Binding Effect 24 37. Security Deposit 24 38. Environmental Representation 24 INDEX OF EXHIBITS EXHIBIT PAGE A - Floor Plan of Demised Premises 1 B - Cleaning Standard 13 C - Rules and Regulations 21 LEASE AGREEMENT THIS LEASE AGREEMENT made as of the 1st day of May 1997 by and between IRON INVESTMENT CORP., a corporation of the State of New Jersey, and HANOVER PARK FOR INDUSTRY, a partnership doing business as a Joint Venture having a place of business at 115 Evergreen Place, East Orange, New Jersey 07018 (hereinafter called Lessor or Landlord); and INTERNET BROADCASTING SYSTEM, INC., a Delaware corporation (hereinafter called Lessee or Tenant). W I T N E S S E T H T H A T : The Lessor and Lessee, for and in consideration of the rents, covenants and mutual agreements herein contained, covenant and agree as follows: 1. PREMISES 1.1 The Lessor hereby leases to the Lessee and the Lessee hereby hires and takes from the Lessor 3,100 square feet of gross rentable space located on the third floor of the building commonly known as Midlantic Bank Building, located at 2 Ridgedale Avenue, Cedar Knolls, New Jersey (the "Building") as more particularly shown on the Floor Plan, a copy of which is annexed hereto as Exhibit A (hereinafter referred to as the "Demised Premises"), together with the non-exclusive right to use those portions of the Building intended for the common use of the occupants of the Building. 2. TERM 2.1 The term of the Lease shall commence on the 1st day of May 1997 (the "Commencement Date") and shall continue in effect for five (5) years and three (3) months and shall expire on the 31st day of July 2002. - 1 - 3. LESSOR'S WORK 3.1 The facilities, material and work to be furnished, installed and performed in the Demised Premises by the Lessor are referred to as the "Lessor's Work". The Lessor's Work is shown on the Floor Plan annexed hereto as Exhibit A. The Floor Plan established the configuration, general arrangement and allocation of space and the partition layout of the Demised Premises. 3.2 The Lessor shall deliver the Demised Premises "As Is". The Lessor shall steam clean carpet and remove debris. 3.3 The Lessor shall not be responsible for any delay resulting from further changes in the Lessor's Work required by Lessee. 4. USE OF DEMISED PREMISES 4.1 The Lessee shall use and occupy the Demised Premises only and for no other purpose than general office use and all other uses incidental thereto. 5. RENTAL 5.l The Lessee covenants and agrees to pay the Lessor as rental for the Demised Premises, a basic minimum aggregate rental of TWO HUNDRED THIRTEEN THOUSAND, ONE HUNDRED TWENTY FIVE 00/100 213,125.00) DOLLARS subject to Paragraph 15.5 hereof. 5.1.1 During the period commencing on the Commencement Date and expiring on the 31st day of July 1997 the Lessee shall not be required to pay rent. 5.1.2 During the period commencing 1 August 1997 and expiring 31 July 2002 the Lessee shall pay to the Lessor a minimum annual rental of FORTY TWO THOUSAND, SIX HUNDRED TWENTY FIVE AND 00/100 ($42,625.00) DOLLARS ($13.75 per square foot of rentable space) to be paid to the Lessor in equal monthly installments of THREE THOUSAND FIVE HUNDRED FIFTY TWO AND 08/100 ($3,552.08) DOLLARS, in advance, commencing on the first day of August 1997 and continuing on the first day of each and every month thereafter, through and including the month of July 2002. 5.1.3 The Lessee shall also pay to Lessor all additional rental as is provided for in Article 20 hereof. The Lessee shall also pay to the Lessor all additional rental which shall become due and owing to Lessor under the provisions of Article 29 hereof. - 2 - 5.2 Lessee shall pay the minimum annual rental and all additional rent required to be paid under the terms of the Lease at Lessor's above stated address, or at such other place as Lessor may designate in writing, without notice or demand and without setoff, deduction or abatement. 6. MAINTENANCE OR PREMISES BY LESSEE 6.1 The Lessee shall not injure, overload or deface the Demised Premises or otherwise commit any act of waste with respect to the Demised Premises. The Lessee shall be responsible for all injury or damage of any kind or character to the Demised Premises, including the windows, floors, walls and ceilings caused by Lessee or anyone using or occupying the Demised Premises by, through or under the Lessee. Lessee shall give Lessor prompt written notice of any accidents to, or defects in the structural systems, building systems and facilities located in the Demised Premises. 6.2 Lessor, at its cost and expense, shall make all necessary repairs to the Demised Premises, except where the repairs have been necessary by the carelessness or improper conduct of Lessee or Lessee's agents, servants, visitors, invitees or licensees, in which event Lessor shall make the repair but Lessee shall pay to Lessor, as additional rent, on demand, the cost thereof. 7. ACTIVITIES INCREASING FIRE INSURANCE RATES Lessee shall not do or suffer anything to be done on the Premises which will increase the standard rate of fire insurance on the Building. If by reason of the failure of the Lessee to comply with the provisions of this paragraph the fire insurance rate be higher than it otherwise would be, the Lessee shall reimburse the Lessor, as additional monthly rent, for that part of all fire insurance premiums thereafter paid by the Lessor which shall have been charged because of such failure of the Lessee. 8. SUBORDINATION OF LEASE 8.1 This Lease and all rights of Lessee hereunder are and shall be subject and subordinate in all respects to all ground leases, overriding leases and underlying leases of the Land and/or the Building now or hereafter existing, to any mortgages which may now or hereafter affect the Land and/or the Building and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings, to each and every advance made or hereafter to be made under such mortgages and to all renewals, modifications, replacements and extensions of such leases and such mortgages and - 3 - any consolidations thereof provided that any renewals, modifications, replacements, extensions and/or consolidation of any such leases and/or mortgages shall not materially increase Lessee's obligations or materially decrease Lessee's rights under this Lease. This Article shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Lessee shall promptly execute and deliver any instrument that Lessor, the Lessor of any such underlying lease or the holder of any such mortgage or any of their respective successors in interest may reasonably request to evidence such subordination, provided such instrument does not increase Lessee's obligations or decrease Lessee's rights under this Lease. The leases to which this Lease is, at the time referred to, subject and subordinate pursuant to this Article are hereinafter sometimes called superior leases and the mortgages to which this Lease is, at the time referred to, subject and subordinate is hereinafter sometimes called superior mortgages, and the Lessor of a superior lease or its successor in interest at the time referred to is sometimes hereinafter called a "Superior Lessor". 8.2 If the Superior Lessor of a superior lease or the holder of a superior mortgage shall succeed to the rights of the Lessor under this Lease, whether through possession or foreclosure action then such party so succeeding to Lessor's rights (herein sometimes called "Successor Lessor") shall accept Lessee's attornment, and Lessee shall attorn to and recognize such Successor Lessor as Tenant's Lessor under this Lease, and shall promptly execute and deliver any instrument that such Successor Lessor may reasonably request to evidence such attornment, provided such instrument does not increase Lessee's obligations or decrease Lessee's rights under this Lease. Upon such attornment, this Lease shall continue in full force and effect as, or as if it were, a direct lease between the successor Lessor and Lessee upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Lessor shall not be: (1) liable for any act or omission of any prior Lessor (including the Lessor); or (ii) subject to any offsets or defenses which the Lessee might have against any prior Lessor (including the Lessor); or (iii) bound by any rent or additional rent which the Lessee might have paid for more than the current month to any prior Lessor (including the Lessor); or (iv) bound by any amendment or modification of the Lease made without its consent; or (v) bound to return security deposited under the Lease (if any) unless the same shall actually come into possession of the Successor Lessor. - 4 - 9. ABANDONMENT Lessee shall not, without first providing not less than thirty (30) days prior written notice to the Lessor, allow the Premises to become vacant for more than 60 days, or deserted. 10. SUBLETTING AND ASSIGNMENT 10.1 The Lessee may assign this entire Lease or sublet the entire Demised Premises to any financially responsible party, subject, however, to all of the provisions of this Article. 10.2 For the purposes of this Lease, any transfer of less than 49% of the ownership interests in the Lessee (considered on an aggregate basis from the current ownership structure of the Lessee) shall not be deemed to be an assignment requiring the consent of the Lessor. 10.3 In the event that the Lessee desires to sublet all or a portion of the Demised Premises or assign the Lease to any other party other than as provided in Article 10.2, hereof, the terms and conditions of such sublease or assignment shall be communicated to the Lessor in writing no later than 45 days prior to the effective date of any such sublease or assignment, and no later than 15 days thereafter, the Lessor shall have the option, exercisable in writing, to the Lessee, to recapture the Demised Premises. 10.4 In the event that the Lessor elects not to recapture the Demised Premises as herein above provided, the Lessee may nevertheless assign this Lease or sublet the Demised Premises subject to the Lessor's prior written consent, which consent shall not unreasonably be withheld, on the basis of the following terms and conditions: (i) It is agreed that any assignment or sublease of any kind executed by the Lessee from time to time, or the acceptance of rent from such assignee or sublessee, shall not affect the obligation and liability of the Lessee hereunder, and in no event and under no circumstances shall same release or discharge the Lessee from its obligation as Lessee under this Lease and the Lessee shall be and remain liable for the observance of all of the covenants and provisions of this Lease, including but not limited to the payment of Base Rent and additional rent reserved herein through the entire term of this Lease. The acceptance, in and of itself, of any such rent from any sublessee and/or assignee shall not be deemed a waiver of this covenant, or release the - 5 - Lessee from its obligation hereunder. (ii) The Lessee herewith guarantees to Lessor the prompt payment of all Base Rent, including any additional rent which shall become due and owing to Lessor from any assignee and the full performance by said assignee of all the covenants, conditions, terms and obligations of the within Lease. The Lessee further warrants to Lessor that if any assignee shall. fail to pay any installment of rent when due, Lessor, upon receipt of ten (10) days written notice thereof from Lessor, shall pay and satisfy all of the arrearages in rent. (iii) The assignee or sublessee shall actually take occupancy of the Demised Premises. 11. DAMAGE OR DESTRUCTION If during the term of this Lease or any renewal or extension thereof the Demised Premises shall be totally or substantially destroyed by fire or any other cause, this Lease shall cease and become null and void from the date of such destruction and the Lessee shall immediately surrender the Demised Premises to the Lessor and shall pay rent only to the time of such destruction. If the Demised Premises shall be partially damaged by fire or any other cause so as to be capable of being repaired within a reasonable time, but no more than one hundred twenty (120) days from the date of such damage, the Lessor shall have the option to repair the same, provided, however, that Lessor has notified Lessee of its election to repair the Demised Premises within forty-five (45) days after the date of the damage. Notwithstanding the foregoing, in the event the demised premises are partially damaged and the damages is such that Lessee cannot reasonably conduct its business, Lessee shall have the right to terminate this Lease. During the time that repairs are being made, the rent payable shall be reduced by a just and fair proportion according to the extent that the Lessee is deprived of the use of the Demised Premises. If repairs are not completed within one hundred twenty (120) days from the date of such damages, this Lease shall cease and become null and void, and no further rent shall thereafter be due or payable. 12. INDEMNIFICATION IN FAVOR OF LESSOR 12.1 The Lessee shall indemnify and save harmless the Lessor from and against any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations arising from - 6 - any condition of the Demised Premises arising from any breach or default on the part of the Lessee in the performance of any covenant or agreement on the part of the Lessee to be performed pursuant to the terms of this Lease or arising from any act of negligence of the Lessee, and from and against all reasonable costs, counsel fees, expenses and liabilities incurred as a result of any such claim or proceeding brought thereon. 13. NO VIOLATIONS OR REQUIREMENTS OF CERTIFICATE OF OCCUPANCY OR LAWS 13.1 Neither Lessee nor its agents, servants or invitees shall permit anything to be done in or on the Demised Premises in whole or in part which would in any way violate requirements of any present or future Certificate of occupancy or render void or voidable any insurance in force with respect to said Demised Premises. Lessee shall not use, occupy nor permit the Demised Premises to be used in any manner which may violate any applicable present or future laws, regulations, ordinances or other requirements of the Federal, State or Municipal Governments or of any department, subdivision, bureau or offices thereof or of any other agency having jurisdiction of the premises nor shall Lessor violate any rules, orders or regulations of the Board of Fire Underwriters, Fire Rating bureau or such other agency as may exercise control over insurance of the Demised Premises. 13.2 Lessee may, in good faith, and at its own expense, contest the validity of any such laws, regulations, ordinances or requirements and pending the determination of such contest may postpone compliance therewith, provided the Lessee indemnities and secures Lessor against any costs, losses or damages of any nature whatsoever, except the Lessee shall not be permitted to postpone compliance with such laws, regulations, ordinances, or requirements as might hold the Lessor up to disrepute or cause it to suffer any time or penalty or prosecution as a disorderly person or for any crime, nor shall any action of the Lessee be permitted which would result in the Demised Premises or any part thereof being condemned or required to be vacated. l3.3 In the event that the Lessee is in any way in default under this section, the Lessor in addition to any other relief to which it maybe entitled under this Lease, or by law may, but shall not be under any duty to, enter the premises and take such reasonable action as will eliminate Lessee's default and Lessee shall, upon receipt of bill, invoice, or other demand, forthwith pay the reasonable cost of such action taken by the Lessor. - 7 - 13.4 If any future law, regulation, ordinance, certificate of occupancy, or other requirements of law will render the operation of an internet service provider business at the demised premises substantially impossible, the Lessee shall be entitled to terminate this Lease upon not less than forty-five (45) days prior written notice to the Lessor. 14. EMINENT DOMAIN 14.1 Should the Demised Premises be wholly taken for public use or condemned, or should any portion of the Demised Premises be taken or condemned to such an extent as would make it impossible for the Lessee to use the Demised Premises for its intended use, then this Lease shall be null and void and the rent shall be apportioned to the date of such taking. 14.2 Should a portion of the Demised premises be taken for public use or condemned and such taking or condemnation does not prevent Lessee from using the remaining Demised Premises for the life of this Lease for their intended use, then this Lease shall continue in full force and effect and the rent shall thereafter be apportioned and proportionately reduced from the date of such taking or condemnation on the basis of the respective area of the Demised Premises so taken or condemned. 14.3 All compensation and damages of any type whatsoever resulting from any negotiated settlement or award for any taking of the Demised Premises, whole or partial shall belong to and be the property of Lessor except as hereinafter provided. Lessee's share in any condemnation award shall be limited to an award made separately for Lessee's fixtures and equipment. 15. DEFAULTS AND REMEDIES 15.1 The Lessee shall be in default under this Lease upon the occurrence of any of the following mentioned events, in which case the Lessor may avail itself of any or all remedies provided for in this Article: (i) If the Lessee is delinquent in the due and punctual payment of any installment of the minimum annual rental which shall become due and owing to Lessor under this Lease hereof for the space of twenty-five (25)days after such rent shall become due and payable. (ii) If the Lessee is delinquent in the payment of Lessee's Proportionate Share of Operating Expenses imposed upon Lessee - 8 - under Article 20 hereof for a period of thirty (30) days after written notice from the Lessor to Lessee that Lessee's Proportionate Share is due and payable. (iii) If the Lessee allows the Demised Premises to become vacant for more than 30 days coupled with nonpayment of rent, or if the Sublessee allows the Demised Premises to be used for a purpose other than the use permitted under this Lease. (iv) if the Lessee suffers, allows or causes any construction lien or any other lien of record (the "Lien") to be imposed against the Demised Premises or the Building of which the Demised Premises are a part and the said Lien is not discharged of record or bonded by a reputable surety authorized to do business in the State of New Jersey within thirty (30) days from the date of filing. (v) If the Lessee shall in any way violate any law, regulation or ordinance materially affecting the Demised Premises or the use thereof and such violation is not cured within thirty (30) days from the date of written notice from Lessor to Lessee of such violation other than as set forth in Section 13.2 hereof. (vi) If the Lessee is delinquent in the performance of or compliance with any of the other material covenants, agreements and conditions contained in this Lease for a period of thirty (30) days after written notice thereof from the Lessor to Lessee. (vii) If the Lessee shall make an assignment for the benefit of its creditors. (viii) If any petition shall be filed by or against Lessee in any court, whether or not pursuant to any statute of the United States or of any state, in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings and with respect to a petition filed against Lessee the same is not dismissed within sixty (60) days thereafter. (ix) If, in any proceedings, a receiver or trustee be appointed for all or any portion of Lessee's Property and with respect to a petition filed against Lessee the same is not dismissed within sixty (60) days thereafter. 15.2 Upon the occurrence of an event of default, the Lessor, at any time thereafter, may give written notice to the Lessee -9- specifying such event of default and stating that this Lease shall expire on the date specified in such notice, which date shall be at least ten (10) days from the Lessee's receipt of such notice, and if Lessee does not cure the default within such 10 day period, or if such default is not curable within such ten (10) day period, Lessee has not commenced to cure such default and continued to diligently pursue cure until completion, then upon the date specified in such notice this Lease and all rights of the Lessee hereunder shall terminate. 15.3 Upon the expiration of this Lease, pursuant to Article 15.2 hereof, the Lessee shall peacefully surrender the Demised Premises to the Lessor and the Lessor upon or at any time after such expiration may, without further notice, re-enter the Demised Premises and repossess it by summary proceedings, or ejectment and may dispossess the Lessee and remove the Lessee and all other persons and property from the Demised Premises and may have, hold and enjoy the Demised Premises and the right to receive all rental income therefrom. 15.4 In any case where Lessor has recovered possession or the Demised Premises by reason of Lessee's default, Lessor may, at Lessor's option, occupy the Demised Premises or cause the Demised Premises to be redecorated, altered, divided, consolidated with other adjoining premises, or otherwise changed or prepared for reletting, and may relet the Demised Premises or any part thereof or otherwise, for a term or terms to expire prior to, at the same time as, or subsequent to, the original expiration date of the Lease, and receive the rent therefor. Rent so received shall be applied first to the payment of such reasonable expenses as Lessor may have incurred in connection with the recovery of the reletting, including brokerage and reasonable attorney's fees, and to the costs and expenses of performance of the other covenants of Lessee as herein provided and then to the payment of the liquidated and agreed damages, which shall become due and payable under Article 15.5 hereof. 15.5 No such expiration of this Lease pursuant to Article 15.2 hereof or entry by the Lessor or its agents shall relieve the Lessee of its liability and obligations under this Lease and such liability and obligations shall survive any such expiration. In the event that Lessor shall terminate this Lease, as herein provided, Lessee agrees immediately to make a lump sum payment to the Lessor as liquidated and agreed damages for the Lessee's default in an amount equal to eight (8) months basic minimum aggregate rental (the "Liquidated Damages") or the balance of payments due, whichever is less. In the event the Lessor shall thereafter relet the premises, the Lessor shall immediately notify Lessee of same and Lessee shall thereupon be entitled to repayment or credit from - 10 - Lessor for all net rental actually collected, less any expenses incurred by the Lessor, but such entitlement shall not excuse Lessee from its obligation to make immediate payment of the aforesaid Liquidated Damages. 15.6 Lessor shall use reasonable and prudent efforts to relet the Demised Premises so as to minimize and mitigate the Liquidated Damages. If the Lessor shall thereafter relet the Demised Premises, the Lessee shall be entitled to a credit from the Lessor against the Liquidated Damages provided for in paragraph 15.5, for all rental collected, less any expenses incurred by the Lessor with respect to the reletting, including cost of retrofit and tenant finish work, brokerage fees and legal expenses. If Lessor elects pursuant hereto, actually to occupy and use the Demised Premises or any part thereof during any part of the balance of the term as originally fixed or since extended, there shall be allowed against the Lessee's obligations for rent or damages as herein defined, during the period of Lessor's occupancy the reasonable value of such occupancy, not to exceed in any event, the minimum annual owing for each remaining year of the term of the Lease and the Additional Rent herein reserved and such occupancy shall not be construed as a release of Lessee's liability hereunder. 15.7 Lessor's remedies hereunder are in addition to any remedy allowed by law. 15.8 In the event that the either party is required to file suit to enforce its rights this Lease, the prevailing party shall be entitled to recover reasonable counsel fees together with all costs. 16. RIGHT OF RE-ENTRY Notwithstanding anything in this Lease to the contrary provided, in case of default in any of the covenants hereof, or if the premises become vacant and Tenant stops paying rent, the Lessor may re-enter by means of summary proceedings or any other method prescribed by law, with or without notice of any intention to do so, and resume possession and re-let the premises in its own name, without terminating this Lease or in any manner affecting the obligation of the Lessee to pay the rent herein covenanted to be paid, in which event, however, there shall be credited to the account of the Lessee the amount received from re-letting, after deducting the expenses of such summary or other proceedings, including legal fees, as may be necessary in order that Lessor regain possession under this provision, as well as the expense incurred in re-letting the premises, and repairing and redecorating if any, and the execution of a new lease for the same premises - 11 - shall not terminate the Lessee's liability or obligations hereunder, which shall in any event remain in full force and effect for the full term of this Lease, and a Lessee who has once vacated may not re-enter without the written consent of the Lessor or its agents; and no act or thing done by the Lessor or its agents during the term hereby granted shall be deemed an acceptance or surrender of said premises and no agreement to accept a surrender of said premises shall be valid, unless the same be made in writing and personally subscribed by an officer of the Lessor and the Lessor further reserves the right to rent the premises for a longer period of time than fixed in this Lease without releasing the Lessee from any liability. The Lessee hereby expressly waives any and all right of redemption in the event the Lessee shall be dispossessed by judgment or warrant of any court or judge. Lessee waives and will waive all right to trial by jury in any summary proceeding hereafter instituted by the Lessor against the Lessee in respect of the Demised Premises or in any action brought to recover rent or damages hereunder. 17. ALTERATIONS AND CHANGES 17.1 The Lessee shall not make any alterations or changes to the Demised Premises without the prior written consent of the Lessor. Any alterations or changes which are approved by the Lessor shall be subject to all of the following conditions: 17.1.1 No change or alteration shall at any time be made which shall impair the structural soundness of the Demised Premises or the Building in which the Demised Premises are located or the architectural decor of the said Building. 17.1.2 No change or alteration shall be undertaken until the Lessee shall have procured and paid for all required municipal and other governmental permits and authorizations. 17.1.3 All work done in connection with any changes or alterations shall be done in a good and workmanlike manner and in compliance with all building and zoning laws and with all other laws, ordinances, orders, rules, regulations and requirements of all Federal, State and Municipal Jurisdictional Agencies. l7.1.4 Before proceeding with any change or alteration which it is estimated will cost more than Twenty-Five Hundred ($2,500) Dollars, the Lessee shall submit to the Lessor the plans and specifications for the work to be done, for Lessor's approval, which shall not be unreasonably withheld. - 12 - 17.1.5 Lessor, at its option, may as a condition for granting its consent to any alteration or change which Lessee requests and which requires Lessor's consent, and, simultaneously with such consent, condition the consent upon Lessee's removal of the alteration or change at the end, or sooner termination of the Term, and the restoration of the Demised Premises to its existing condition as of the original date of occupancy less ordinary wear and tear. 17.2 In addition to the foregoing, Lessor also reserves the right to impose such other reasonable conditions as it deems necessary and proper. 18. PARKING SPACES The Lessor shall provide in such parking area or areas as the Lessor shall designate five (5) automobile parking spaces for each full one thousand square feet of rentable space within the Demised Premises, for the nonexclusive use of the Lessee in common with other tenants of the Building. 19. LESSOR'S SERVICES 19.1 The Lessor shall provide the following services to the Lessee: 19.1.1 Maintain and service the heating, ventilating, air conditioning, plumbing, lighting and electrical Systems (hereinafter called the "Systems") as may be required for comfortable occupancy of the Demised premises during the regular hours, but not before 8:30 a.m. or after 5:30 p.m. of Business Days, which term is used herein to mean all days (except Saturdays, Sundays or days observed by the Federal or the State Government as legal holidays) throughout the year. 19.1.2 Heat and air conditioning for the Demised Premises during customary daytime hours of Business Days. 19.1.3 Public elevator service, by elevator serving the floor on which the Demised Premises are situated during regular hours of Business Days. 19.1.4 Furnish adequate hot and cold water for portions of the common areas of the Building for drinking and lavatory purposes as may be required by Lessee and for Lessee's kitchen to be installed by Landlord. If the Lessee uses water for any other purpose, the Lessor, at Lessee's expense, shall install - 13 - meters to measure Lessee's consumption of cold water and/or hot water for such other purposes, as the case may be. The Lessee shall pay for the quantities of cold water and hot water shown on such meters, at Lessor's cost thereof, on the rendition of Lessor's bills therefor. 19.1.5 Maintain a listing on the Building Directory and a sign adjacent to the entrance to the demised premises of the name of Lessee. 19.1.6 Provide and install initial and replacement fluorescent tubes, starters and ballasts. 19.1.7 Keep and maintain all portions of the land on which the Building is constructed (the "Land") including all parking areas and the sidewalks, curbs and passageways adjoining the parking areas in a clean and orderly condition, free of dirt, rubbish, snow, ice and unlawful obstructions. 19.1.8 Provide maintenance and care of landscaped area. 19.1.9 The Lessor, at its expense, shall keep, maintain and repair the Building and its fixtures, appurtenances, structural systems, systems and facilities serving the Demised Premises, in good working order, condition and repair and shall make all repairs, structural and otherwise, interior and exterior, as and when needed in or about the Demised Premises, except for those repairs and replacements for which the Lessee is responsible pursuant to any other provision of this Lease. 19.1.l0 Provide interior janitorial maintenance and trash removal in accordance with Lessor's cleaning standard, annexed hereto as Exhibit B. 19.1.11 Keep the parking areas and the common areas of the Building well and sufficiently lighted during Business Days. 19.1.12 Provide electrical service in accordance with the provisions of Article 29 hereof, at the sole cost of Lessee. 19.2 The Lessor reserves the right, without any liability to the Lessee, except as otherwise expressly provided in this Lease, to stop service of any of the heating, ventilating, air conditioning, electric, sanitary, elevator or other Building Systems serving the Demised Premises, or the rendition of any of the other services required of the Lessor under this Lease, whenever and for so long as may be necessary, by reason of accidents, emergencies, strikes, or the making of repairs or changes which the Lessor is required by this Lease or by law to - 14 - make, or in good faith deems necessary, by reason of difficulty in securing proper supplies of fuel, water, electricity, labor or supplies, or by reason of any other cause beyond Lessor's reasonable control. Except in the case of an emergency Lessor shall give reasonable notice of the stoppage of any service and Lessor shall in any event proceed with due diligence to make all necessary repairs or required changes. No such stoppage shall justify, or be grounds for, reduction or withholding of or setoff against the Rent or Additional Rent provided for in this Agreement. Except that if such stoppage (i) relates to telephone and/or electric service, (ii) substantially prevents the Lessee from conducting its business in the ordinary course at the Demised Premises, (iii) is within the Lessor's reasonable control and (iv) continues for a period in excess of five (5) continuous days, then the Lessee shall not be obligated to pay rent for the period of such stoppage. 20. ADJUSTMENT OF RENT 20.1 For all purposes of this Lease: 20.1.1 "Base Year" shall mean the Calendar Year commencing 1 January 1998 and ending 31 December 1998. 20.1.2 "Operational Year" shall mean the Year commencing 1 January 1999 and ending 31 December 1999 and each year thereafter. 20.1.3 "Operating Expenses" shall mean any and all reasonable increases in land rents required to be paid by the Lessor and all increases in expenses incurred by the Lessor in connection with the management including reasonable management fees (which increases for land rents and management fees shall not exceed 105% of the increases in such items for the prior Operational Year) operation, repair, maintenance, upkeep, cleaning and landscaping, hereinafter collectively the servicing of: (i) the Building in which the Demised Premises are a part and the heating air conditioning, ventilating, plumbing, electrical and elevator systems contained therein, and (ii) the Land upon which the said Building is located, and such expenses shall include, but not be limited to, the following Operating Expenses: (i) Wages, salaries or other compensation and payroll taxes, Federal and State unemployment taxes thereon, Social Security taxes and workmen's compensation insurance premiums for all those employees of the Lessor servicing the Building - 15 - and the Land who work on the premises. (ii) Cost of all service, maintenance and repair contracts with independent contractors and suppliers for the servicing of the Building and the Land. (iii) Normal servicing costs and replacement of parts (including installation thereof) necessary to maintain all building systems paid for by the Lessor in connection with the servicing of the Building and the Land, provided, however, that Lessee shall not be liable for the cost of capital improvements and replacements to the Building and the Land. (iv) Premiums and other charges incurred by the Lessor with respect to the following insurance on the Building: (a) Fire and extended coverage insurance. (b) Public liability insurance; (c) Such other insurance as the Lessor may obtain for the Building. (v) Cost of all water and sewer rents and all utility services furnished to the Building, including the cost of fuel or other energy for heating the Building and for electricity or other power required in connection with the operation of the common areas of the Building and the Land, not otherwise required to be paid by the Lessee. (vi) Real Estate Taxes, special and extraordinary assessments and municipal levies and assessments against the Land and Building of which the Demised Premises are a part. 20.1.4 Lessee's Proportionate Share shall mean a fraction of which the numerator is the rentable area of the Demised (3,100 square feet) and the denominator is the total rentable area of the Building above grade (70,000 square feet), which may be expressed as a percentage. Lessee's proportionate Share is 4.42%. 20.2 As soon as is practicable following the commencement of each Operational Year, the Lessor shall furnish the Lessee with a written preliminary statement of estimated Operating Expenses for the then current Operational Year (Preliminary Statement). If the Preliminary Statement shall disclose that the estimated operating Expenses for the then current unexpired Operational Year shall be in excess of such expenses incurred by Lessor during the Base Year, - 16 - then the Lessee shall pay the Lessor as additional rental for the then current Operational Year an amount equal to Lessee's Proportionate Share of the amount by which the estimated Operating Expenses for such Operational Year are greater than the Operational Expenses for the Base Year. Any increase in rental shall be effective as of the first day of the then current Operational Year. The amount of an increase in the rental for the Operational Year shall be divided into twelve (12) equal monthly installments. On the first day of the month immediately following the furnishing by Lessor to Lessee of the Preliminary Statement, Lessee shall pay Lessor the number of monthly installments that shall have elapsed from the commencement of the then current Operational Year in question up to and including the first day of such month. Thereafter, on the first day of each successive month of the then current lease year Lessee shall pay Lessor in addition to its regular monthly rent equal installments of the said additional rent for the remainder of the then current Operational Year. As soon as is practicable following the expiration of each operational Year, the Lessor shall furnish Lessee with a written final statement of actual operating Expenses incurred by the Lessor during each such expired Operational Year (Final Statement) . If the Final Statement shall disclose that the actual Operating Expenses for the expired Operational Year shall be more or less than such expenses for the Base Year as shown on the Preliminary Statement, then there shall be an appropriate adjustment. If the adjustment shall be in favor of Lessor, Lessee shall pay the additional amount owing within thirty (30) days of receipt of such Final Statement. If the adjustment shall be in favor of Lessee, then Lessor shall refund the overpayment to Lessee within the same thirty (30) days period. If the term of the Lease shall expire prior to the expiration of the then current Operational Year, the Lessee shall nevertheless remain liable for Lessee's proportionate Share of all Operating Expenses for the prorata Operational Year as determined by the Final Statement. 20.3 Every Preliminary Statement given by the Lessor pursuant to the provisions of this Article shall not be conclusive and binding upon the Lessee and shall be subject to the final statement. Every Final Statement given by the Lessor pursuant to the provisions of this Article shall be conclusive and binding upon the Lessee unless within ninety (90) days of receipt thereof the Lessee shall notify the Lessor that it disputes the correctness of the Statement, specifying the particular respect in which the Statement is claimed to be incorrect. In the event the Lessee shall dispute the computation of the Operating Expenses, Lessee shall have the right to audit the operating expenses and to contest same. - 17 - 20.4 For all purposes hereunder the amount of the Operating Expenses shall be determined in accordance with generally accepted accounting principles consistently applied. 21. LATE CHARGE Anything in this Lease to the contrary notwithstanding, unless Lessor expressly waives the same, Lessee shall pay a. "Late Charge" of six (6%) percent of any installment of rent or additional rent paid more than ten (10) days after the due date thereof, to cover the additional expense involved in handling delinquent payments. 22. RIGHT TO SHOW PREMISE Lessor may show the Demised Premises to prospective tenants, purchasers and mortgagees, at any time during the six months prior to termination of this Lease at any time during business hours on reasonable notice to Lessee. 23. QUIET ENJOYMENT Lessor covenants that if, and so long as, Lessee pays the basic Rent, and any Additional Rent as herein provided, and performs all of the Lessee's other obligations hereunder, Lessor shall do nothing to affect Lessee's right to peaceably and quietly have, hold and enjoy the Demised Premises for the term herein mentioned, subject nevertheless to the conditions of this Lease. 24. HOLDOVER TENANT If Lessee holds possession of the Demised premises after the term thereof shall expire, Lessee shall become a tenant from month to month of the subject premises under the provisions herein provided, but, during the first two (2) months of such holdover, at a monthly basic rental of one hundred fifty (150%) percent of the basic rent for the last month of the term or any renewal term, and during each month after the first two months at a monthly basic rental of two hundred (200%)percent of the basic rent for the last month of the term or the renewal term payable in advance on the first day of each month, and such tenancy shall continue until terminated by Lessor upon thirty (30) days written notice to Lessee, or until Lessee shall have given to Lessor a written notice, at least thirty (30) days prior to the intended date of termination, of intent to terminate such tenancy. - 18 - 25. ESTOPPEL CERTIFICATE, RECORDATION, MEMORANDUM 25.1 Each party agrees, at any time and from time to time, as requested by the other party, upon not less than ten (10) days prior notice, to execute and deliver to the other a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect, as modified, and stating the modifications), certifying the dates to which the basic rental and additional rental have been paid, and stating whether or not, to the best knowledge of the signer, the other party is in default in the performance of any of its obligations under this Lease, and if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by others with whom the party requesting such certificate may be dealing. 25.2 The parties hereto shall cause the within Lease to be executed in recordable form and the Lessor if required by the holder of any superior mortgage, shall have the right to record the within Lease or a counterpart hereof. 25.3 At the request of the Lessor, the Lessee shall also promptly execute, acknowledge and deliver a memorandum with respect to this Lease sufficient for recording. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provisions of this Lease. 26. INSURANCE 26.1 Lessor, at its sole cost and expense, shall keep the Building insured during the term of this Lease, against loss or damage by fire and against loss or damage by other risks now or hereafter embraced by "Extended Coverage," so-called, in amounts sufficient to prevent Lessor from becoming a co-insurer under the terms of the applicable policy, but in any event "full replacement cost," being the cost of replacing the Buildings, exclusive of the cost of excavations, foundations and footings. All policies of insurance with respect to fire or casualty loss shall provide that the proceeds thereof shall be payable to or inure to the benefit of the Lessor and, if the Lessor so requires, also be payable to the holder of any first mortgage to which this Lease shall be subordinate. 26.2 The Lessee shall, at the Lessee's sole cost and expense, but for the mutual benefit of the Lessor and the Lessee, maintain general public liability insurance against claims for - 19 - personal injury, death or property damage occurring upon, in or about the Demised Premises, such insurance to afford protection to the limit of not less than $1,000,000.00 in respect to injury or death to a single person and to the limit of not less than $1,000,000.00 in respect to any one accident, and to the limit of not less than $1,000,000.00 in respect to property damage. 26.2.1 All policies of insurance shall provide that the proceeds thereof shall be payable to or inure to the benefit of the Lessor and the Lessee and, if the Lessor so requires, also be payable to the holder of any first mortgage to which this Lease shall become subordinate. All policies of insurance shall, to the extent obtainable, provide that any loss shall be payable notwithstanding any act of negligence of the Lessee which might otherwise result in a forfeiture of said insurance. 26.2.2 All policies of insurance shall be written with companies reasonably satisfactory to the Lessor and authorized to do business in the State of New Jersey and shall name the Lessee and the Lessor as the insured as their respective interests may appear. policies evidencing the coverage required in this Article shall be delivered to the Lessor, together with evidence of the payment of the premium therefore, not less than five (5) days prior to the commencement of the term hereof. Each policy issued by the insurer shall contain an agreement by the insurer that such policy shall not be cancelled without at least thirty (30) days prior written notice to Lessor. Subject to the approval of the applicable insurer all such policies for Lessor and Lessee shall provide for waiver of subrogation in regard. to any covered property loss. 27. RIGHT TO INSPECT AND REPAIR Lessor may enter the premises upon 24 hour advance notice to Lessee (except that no notice need be given in case of emergency) for the purpose of inspection or the making of such repairs, replacement, or additions, in, to, on and about the Demised Premises as Lessor deems necessary or desirable, provided, however, that except in the case of emergency such entry and repair shall not materially interfere with Lessee's use of the Demised Premises. Lessee shall have no claims or cause of action against Lessor by reason thereof. In no event shall Lessee have any claims against Lessor for interruption to Lessee's business, however occurring, except for in the case of Lessor's sole negligence. - 20 - 28. SURRENDER 28.1 Upon the termination of this Lease or upon any re-entry by the Lessor upon the Demised Premises, the Lessee shall quit and surrender the Demised Premises to the Lessor in good order, condition and repair, except for ordinary wear and tear and such casualty loss as is covered by Lessor's fire and extended coverage insurance. 28.2 The Lessee shall prior to or upon the termination of this Lease remove from the Demised Premises all fixtures, partitions, equipment, personal property and any other improvements installed by the Lessee thereon (Lessee Improvements) without injury to the Demised Premises. Any Lessee Improvements not removed by the Lessee shall be considered abandoned by Lessee and shall become the property of the Lessor. The Lessee shall not be required to remove any improvements to the Demised Premises installed by the Lessor prior to the commencement of the term. In the event the Lessee shall fail to remove any of the Lessee Improvements within the time prescribed, the Lessee shall be liable for such costs or damages as the Lessor shall sustain, including specifically cost of removing the Lessee Improvements and any damages resulting from the inability of Lessor to relet the Demised premises. 29. ELECTRICAL SERVICE 29.1 The Lessee shall pay Lessor for the entire cost of electricity used by Lessee in the Demised Premises. The cost thereof shall be determined by the usage shown on the electricity meter serving that portion of the Building of which the Demised Premises are a part. The Lessee shall pay its portion of the entire usage as disclosed by the meter, on a prorata basis to be determined by a fraction, the numerator of which is the total amount of rentable space occupied by the Lessee and the denominator of which is the total amount of rental space serviced by the meter. Payment shall be due on a monthly' basis within thirty (30) days after receipt of a Statement from the Lessor showing the Lessee's share of the cost of electrical usage for the monthly period in question. The Lessee shall not install any electrical equipment which, in the reasonable judgment of the Lessor, overloads the lines in the Demised premises or in the Building in which the Demised Premises are located. The Lessee shall, at' its own cost and expense, promptly make whatever changes are necessary to remedy such condition and to comply with all requirements of the Lessor and any Jurisdictional Requirements. Total electric charges payable hereunder shall not exceed $1.25 per square foot per annum. - 21 - 30. RULES AND REGULATIONS The Lessee and its employees and agents shall faithfully observe and comply with the Rules and Regulations annexed hereto as Exhibit C and such reasonable changes therein (whether by modification, elimination or addition) as the Lessor at any time or times hereafter may make and communicate in writing to the Lessee, which do not unreasonably affect the conduct of Lessee's business in the Demised Premises; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Rules and Regulations as originally promulgated or as changed, the provisions of this Lease shall control. 31. ENTIRE AGREEMENT This Lease contains the entire agreement and understanding between the parties. There are no oral understanding, terms or conditions, and neither party has relied upon any representation, expressed or implied, not contained in this Lease. All prior understandings, terms or conditions are deemed merged in this Lease. This Lease cannot be changed or supplemented orally. 32. NO WAIVER OF COVENANTS OR CONDITIONS/LESSOR' CONSENT The failure of either party to insist on strict performance of any covenant or condition hereof, or to exercise any option herein contained, shall not be construed as a waiver of such covenant or condition or option in any other instance. Whenever in this Lease, Lessor's consent is required, said consent shall not be unreasonably withheld, delayed or conditioned. 33. NOTICES Any notices by either party to the other shall be in writing and shall be deemed to have been duly given only if delivered personally or sent by registered mail or certified mail in a postpaid envelope addressed as follows: If to the Lessor, to: Iron Investment Corp. and Hanover Park for Industry 115 Evergreen Place East Orange, New Jersey 07018 - 22 - Attention: Michael V. Suppa, Authorized Agent If to the Lessee, to: Internet Broadcasting System, Inc. 2 Ridgedale Avenue Cedar Knolls, NJ 07927 Attention: Clark D. Frederick, President with a copy to: Brian W. Seidman, Esq. Seidman, Silverman & Seidman, P.C. 600 Third Avenue New York, NY 10016 Either party may, by notice as aforesaid, designate a different address for notices. Notice shall be deemed to have been duly given, if delivered personally, on delivery thereof, and if mailed, upon the date of mailing. 34. BROKER'S OR FINDER'S FEE Landlord and Tenant represent one to the other that neither party authorized or engaged the services of a real estate broker in connection with the initiation, negotiation and consummation of the within Lease transaction. Each party agrees to indemnify, defend and save the other harmless from any and all claims with respect to real estate brokerage commissions which may be alleged to have been occasioned by a broker, other than the Authorized Broker acting on behalf of the indemnifying party. 35 GOVERNING LAW This Agreement shall be construed in accordance with, and shall be governed in all respects by, the laws of the State of New Jersey. - 23 - 36. BINDING EFFECT This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors and permissible assigns. 37. SECURITY DEPOSIT The Lessee has deposited with the Lessor the sum of $7,104.17 as security for the full and faithful performance by Lessee of the terms of this Lease. In the event that the Lessee defaults in respect to any of the terms, provisions, covenants and conditions of this Lease, including but not limited to payment of any Basic Rental due under Article 5 or any Additional Rental due under Article 20, the Lessor may use, apply or retain the whole or any part of the security so deposited for the payment of any such rentals in default or for any other sum, which the Lessor may expend or be required to expend by reason of the Lessee's default, including, any damages or deficiencies in the re-letting of the Demised Premises, whether such damages or deficiencies accrued before or after summary proceedings or other re-entry by the Lessor. In the event that the Lessee shall comply with all of the terms of this Lease, the security shall be returned to the Lessee after the date fixed as the end of the Lease and after the surrender of the Demised Premises to the Lessor. In the event of a sale, or lease of the Building of which the Demised Premises are a part, the Lessor shall have the right to transfer the security to the vendee or other successor in interest to the interest of the Lessor and the Lessor shall thereupon be released from all liability for the return of such security. The Lessee shall look solely to the new Lessor for the return of such security. Lessee shall not assign or encumber the money deposited as security and neither the Lessor nor its successors or assigns shall be bound by any such assignment or encumbrance. No holder of a superior mortgage to which this Lease is subordinate shall be responsible in connection with the security deposit hereunder, by way of credit or payment of any rentals or otherwise, unless such holder of a superior mortgage actually shall have received the security deposited hereunder. 38. ENVIRONMENTAL REPRESENTATION 38.1 To the best of the Lessor's knowledge, neither the Building of which the Demised Premises are a part nor the Land upon which the Building has been constructed, have been used for the storage, treatment, transportation, manufacturing, refinement, protection, disposal or handling of "hazardous substances" or "hazardous waste" as such terms are defined in the New Jersey - 24 - Industrial Site Recovery Act ("ISRA") nor has the Building or the Land been used, owned or operated as an "industrial establishment" as such term is defined in ISRA. 38.2 Lessor shall indemnify and save harmless Lessee, its successors and assigns from and against any loss, liability, damage or expense incurred by Lessee arising out of: (i) the breach on the part of Lessor of its representations above made; (ii) the violation by Lessor of any environmental laws or regulations including but not limited to ISRA. - 25 - IN WITNESS WHEREOF, the parties hereto have interchangeably set their hands and seals or caused these presents to be signed by its proper corporate officers and caused its corporate seal to be affixed hereto, the day and year first above written WITNESS: IRON INVESTMENT CORP. Lessor /s/ L/ Abdullah By: /s/ Guy P. Cipriano - ---------------------------- -------------------------------- Guy P. Cipriano Executive Vice President WITNESS HANOVER PARK FOR INDUSTRY Lessor /s/ L. Abduallah By: /s/ Michael V. Suppa - --------------------------- -------------------------------- Michael V. Suppa Authorized Agent WITNESS: INTERNET BROADCASTING SYSTEM, INC. Lessee /s/ Frank Altieri By: /s/ Clark D. Frederick - ---------------------------- --------------------------------- Clark D. Frederick President Affix Corporate Seal - 26 - EX-10.20 17 EXHIBIT 10.20 NETWORK SERVICES CONTRACT Between IBS INTERACTIVE, INC. and THE CATHOLIC HEALTHCARE NETWORK THIS CONTRACT (the "Contract") is entered into as of by and between IBS Interactive, Inc. ("IBS"), located at 175 Park Ave., Madison, New Jersey 07940. and The Catholic Healthcare Network, ("Customer"), a company located at 1011 1st Ave. - Suite 1150, NY, NY 10022. NOW, THEREFORE, the parties agree as follows: Article I. STATEMENT OF WORK A. IBS will provide the Services (the "Services") which will be dedicated communications links to the Internet, computer hardware and co-location of the Customers servers. B. Variations from the aforesaid Statement of Work shall be subject to written approval by IBS and the Customer. Article II. DURATION OF CONTRACT This Contract shall be effective upon the signing of the Contract by Customer and IBS (the "Effective Date"). This Contract shall continue in effect, unless sooner terminated as provided in this Contract, for a period of 2 year(s) after the Effective Date. This Contract may be renewed upon the mutual written agreement or the parties hereto. Article III. ESTIMATED COST AND PAYMENT A. IBS will invoice Customer for the One-Time Costs listed in Appendix A upon the execution of this Contract. IBS will invoice Customer monthly for the Monthly Costs listed in Appendix A. B. Payments shall be submitted to: IBS Interactive, Inc. 175 Park Avenue Madison, NJ 07940 The invoices shall be paid within thirty (30) days of receipt by Customer. IBS shall give Customer written notice of any payment not made within such thirty (30) days period and Customer shall have an additional five (5) day period from receipt of such notice to make payment without penalty. Subsequent to the aforementioned five (5) day period, a service charge equal to one and one-half percent (1.5%) of the invoiced amount shall be assessed monthly for all over due payments stated on subsequent invoices. Article IV. PROJECT DIRECTORS -------------------- is hereby designated as the Customer Project Director for this Contract. Frank Altieri Jr., is hereby designated as the IBS Project Director for this Contract. Article V. CHANGES This Contract, including the attached Appendix A, may only be amended with the prior written consent of both of the parties hereto. Article VI. PUBLICATION The Customer hereby permits IBS to publicly disclose that Customer utilizes IBS' services. All other terms of this agreement are confidential and shall not be disclosed by the parties hereto not by their agents or employees except as is necessary in the ordinary course of business solely for the implementation of this Contract where required by law. Article VII ASSIGNMENT Neither this Contract nor any rights or obligations under this Contract, in whole or in part, shall be assigned or otherwise transferred by either party without the other party's prior written consent. In the event a proposed assignment is approved, the successor party to this Contract shall expressly assume in writing the obligation to perform in accordance with the terms and conditions of this Contract. Article VIII. TERMINATION A. This Contract may be terminated by either party upon sixty (60) days prior written notice to the other party. Written notice of termination must be sent by the terminating party, together with a copy of this Contract, to the address of the non-terminating party listed above. B. Notwithstanding sub-section (A) hereof, IBS shall have the right to immediately terminate this Contract in the event of Customer's breach of any of its representations or warranties as set forth in Article X below. C. Notwithstanding sub-section (A) hereof, IBS may terminate this Contract upon five days prior written notice in the event that Customer fails to make payments in accordance with Article III of this Agreement. D. In the event of termination by IBS, IBS shall promptly refund a pro-rata share of the Monthly Cost (as defined in Appendix A) to the Customer unless the termination is pursuant to either Article VIII(B) or Article VIII(C) in which case IBS shall not be required to refund a pro-rata share of the Monthly Cost to Customer. In the event of a termination by Customer, IBS shall not be required to refund a pro-rata share of the Monthly Cost to Customer unless the Service down time is caused by a war, acts of God, strikes or other labor disturbances, national emergency, action of a primary telephone common carrier, the fault of Customer or any causes of like or different kind beyond the control of IBS. The pro-rata share of the Monthly Cost shall be: Number of days in month remaining after termination --------------------------------------------------- Monthly Cost x Number of days in month of termination In the event of termination, Customer retains all rights to any of Customer's documents located on an IBS system. Article IX. CUSTOMER'S INDEMNITY Customer shall indemnify and hold harmless IBS from and against any and all liabilities, claims, costs, assessments, fees or expenses of any kind, including without limitation defense costs and attorneys' fees arising from or related in any way to (I) any claim which, if proved, would breach any warranty or representation of Customer under Article X of this Contract and (ii) any and all Third Party Claims (as defined below). Article X. REPRESENTATIONS AND WARRANTIES Sellers Representations IBS hereby represents with respect to the Service provided pursuant to this Contract that IBS will employ adequate personnel to perform and deliver the Service. CUSTOMER REPRESENTATION A. Customer represents that neither Customer, its agents nor employees shall utilize the Service for: 1. illegal purposes. 2. transmission of threatening, obscene, or harassing materials; or 3. interference with or disruption of network users, services or equipment. For the purposes of this contract, disruptions include, but are not limited to, disruption of unsolicited advertising, propagation of computer worm and viruses, and using the network to make unauthorized entry to any other machine accessible via the network. It is assumed that the information and resources accessible on or through the Service are private to the individuals and organizations which own or hold rights to those resources and information, unless specifically stated otherwise by the owners or holders of those rights. It is therefore not acceptable for an individual to use the Service to access information or resources unless permission to do so has been granted by the owners or holders of rights to those resources or information. B. Customer represents and warrants to IBS: 1. That the name which it has requested IBS to register, or the name that Customer has registered, on its behalf with the Internet Network Information Center (Inter NIC) does not and will not infringe or conflict with any trademark. tradename service mark or any proprietary right of any third party; and 2. That Customer will not use the Service in any way or engage in any conduct which will (whether intentionally or not) infringe on any copyright. trademark, service mark, tradename, patent. trade secret or other intellectual property or proprietary right or right of publicity or privacy of, or libel, slander, defame or disparage, any third party ("Third Party Claims"), or create risk of liability for IBS with respect to any Third Party Claims or cause IBS to become a party to any action or proceeding involving Third Party Claims. Article XI. DISCLAIMER OF WARRANTIES IBS EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESSED OR IMPLIED RELATING TO THE SERVICE INCLUDING, WITHOUT LIMITATION, ITS ACCURACY, RELIABILITY, COMPREHENSIVENESS, COMMERCIAL VALUE, MERCHANTABILITY, FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE. Article XII. LIMITATION OF LIABILITY NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IBS SHALL NOT BE LIABLE OR RESPONSIBLE FOR MISUSE OF SERVICE BY CUSTOMER, ITS AGENTS, ITS EMPLOYEES AND/OR ITS CLIENTS OR FOR CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES, AND ITS LIABILITY FOR ANY AND ALL PURPOSES SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID TO AND RECEIVED BY IBS PURSUANT TO THIS CONTRACT. Article XIII. FORCE MAJEURE IBS or its contracts shall be excused from failures or delays in furnishing equipment or Services hereunder to the extent that such failure or delay arises either in whole or in part from any cause reasonably beyond its control. Article XIV. GOVERNING LAW This Contract shall be governed by the laws of the State of New York. Article XV. SOLE AGREEMENT This Contract supersedes any and all prior oral representations and/or understandings, and/or all written correspondence, understandings and/or agreements and contains the entire understanding and agreement between the parties. Article XVI. SEVERABILITY All provisions or this Contract shall be severable and no such provision shall be affected by the invalidity of any other such provision to the extent that such invalidity does not also render such other provision invalid. In the event or the invalidity of any provision of this Contract, this Contract shall be interpreted and enforced as if all provisions thereby rendered invalid were not contained herein. If any provision of this Contract shall be susceptible of two interpretations, one of which would render the provision invalid and the other of which would Cause the provision to be valid, such provision shall be deemed to have the meaning which would cause it to be valid. Article XVII. WAIVER The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of such right or any other right herein. Article XVIII. SIGNATORIES The respective signatories to this Contract hereby represent and warrant that they have the authority to execute this Contract and bind the parties hereto. Article XIX. HEADINGS The headings used in this Contract will be used only for purpose of reference and shall not be deemed to govern, limit, modify or in any other manner affect the scope. meaning or intent of the provisions of this Contract or be given legal effect whatsoever. BY THEIR SIGNATURES BELOW, the undersigned parties to this Contract have 'greed to the terms and conditions provided above INTERNET BROADCASTING SYSTEM, INC. THE CATHOLIC HEALTHCARE NETWORK By: /s/ Nicholas Loglisci, Jr. By: /s/ Richard Seglet ------------------------------ --------------------------- Nicholas Loglisci, Jr. General Manager Date: 12/27/96 Date: EX-10 18 EXHIBIT 10.21 AGREEMENT NO.: 6346 PROFESSIONAL SERVICE AGREEMENT CONSULTING BETWEEN AETNA LIFE INSURANCE COMPANY AND IBS INTERACTIVE, INC. This Agreement is entered into as of October 23rd, 1997 by Aetna Life Insurance Company ("Aetna"), with its principal place of business located at 151 Farmington Avenue, Hartford, CT 06156, and IBS Interactive, Inc. ("Supplier") with its principal place of business located at 2 Ridgedale Avenue, Cedar Knolls, NJ 07927. 1.0 SERVICES 1.01 Subject to the terms and provisions of this Agreement, Supplier agrees to perform for Aetna, and Aetna agrees to purchase from Supplier, professional services ("Services"). 1.02 The nature and extent of such Services and of each work assignment ("Assignment") in the performance of such Services shall be specified in countersigned schedules ("Schedule") each of which shall, upon such countersignature, become a part of this Agreement. Each Schedule shall be subject to the terms of this Agreement except to the extent, if any, modified in such Schedule. Each Schedule shall name an "Aetna Coordinator" who shall be responsible for the direction of the Assignment. 2.0 TERM OF AGREEMENT 2.01 This Agreement shall continue in effect until terminated as provided herein. The term defined in each Schedule shall be the term for the Schedule only. 3.0 FEES/PAYMENT OF SERVICES/TAXES 3.01 Supplier shall submit itemized invoices of charges based upon the Fee and Payment Dates specified in the Schedule. 3.02 Conditioned upon Aetna's prior receipt of this Agreement executed in the original by both parties, payments shall be made net thirty (30) days after the receipt of correct invoice and shall reference the Aetna Purchase Order which Aetna shall supply to Supplier and be addressed as follows: Aetna Life Insurance Company 151 Farmington Avenue Hartford, Connecticut 06156 Attn: Aetna Coordinator (named in Schedule) 3.03 Any individuals and/or consultants retained or employed by Supplier to provide Services under this Agreement ("Supplier Employee(s) shall not be employees of Aetna for any purpose, including, without limitation, federal, state and local taxes, including the Federal Insurance Contribution Act and the Federal Unemployment Tax, and all insurance coverage, unemployment compensation, and workers' compensation benefits, Supplier represents and warrants that Supplier shall, with respect to any Supplier Employee providing Services under this Agreement, withhold and pay all applicable federal, state, and local employment taxes and assessments, including the Federal Insurance Contribution Act and the Federal Unemployment Tax, and that Supplier shall provide all applicable insurance coverage, unemployment compensation, and workers' compensation benefits. Supplier agrees to indemnify and hold Aetna harmless from any and all liabilities, complaints, demands, damages, losses, causes of action, or suits of any kind or nature whatsoever, including court costs and attorney fees, arising out of the breach of these representations and warranties by Supplier. 3.04 The Fee established in any Schedule is all inclusive and Supplier shall not receive any further compensation for travel or other expenses unless such compensation is defined in the Schedule. 3.05 On each invoice to Aetna, Supplier shall itemize separately any and all taxes required to be collected or paid by Supplier that are expressly applicable to the Services provided under this Agreement. Aetna shall be responsible for any sales, use, and excise taxes applicable to the Services but not for any taxes based upon Supplier's net income. 3.06 Supplier agrees that Aetna shall have the right to bring any action, when Aetna deems appropriate, to contest any assessment of taxes which Aetna must pay under this Agreement or to obtain a refund of such taxes, either in its own name or in the name of Supplier, provided that Aetna shall conduct such contest in good faith and use due diligence. Supplier agrees to provide Aetna with full cooperation with respect to any such action. 4.0 TERMINATION 4.01 In the event Supplier or a Supplier Employee refuses or is unable to perform the Service contemplated in the manner set forth by this Agreement and a respective Schedule for reasons other than Aetna's breach or a force majeure event, that Schedule may be terminated by Aetna without advance notice. 4.02 Except as otherwise specified in this Section 4 or in the Schedule for a specific Assignment, termination of this Agreement or any Schedule by either party shall only be upon ten (10) days' prior written notice. 4.03 In the event of any termination, Aetna agrees to pay Supplier for actual work performed up to the termination date, in accordance with the provisions of Section 3.0, so long as any such work actually performed meets the requirements and specifications otherwise set forth in this Agreement and applicable Schedule. 5.0 CONFIDENTIAL INFORMATION 5.01 For the purpose of this Agreement, Confidential Information includes all information which is considered proprietary to Aetna, or any of its affiliated companies, including, but not limited to, information or materials related to the business affairs or procedures of Aetna and its affiliated companies, or to the design, programs, flow charts, and documentation of Aetna's data processing applications system and software, whether or not owned by Aetna. 5.02 Should Aetna disclose to Supplier or a Supplier Employee, or should Supplier or such Supplier Employee learn of Confidential Information, Supplier agrees that neither Supplier nor its Supplier Employee shall, at any time, during or after the term of this Agreement, disclose such information to any individual, company, or other entity or agency, nor use such Confidential Information for Supplier's own advantage other than in performance of this or any subsequent similar agreement with Aetna. 5.03 Information shall not be deemed to be Confidential Information, and Supplier shall have no obligation with respect to any such information which: a. is or falls into the public domain through no wrongful act of Supplier; or b. is rightfully received from a third party without restriction and without breach of this Agreement; or c. is approved for release by written authorization of an officer of Aetna; or d. is disclosed pursuant to the requirements of a governmental agency or operation of law; or e. is already in Supplier's possession as evidenced by its records and is not the subject of a separate non-disclosure agreement. 5.04 It is expressly agreed by Supplier and Supplier Employees that the provisions of this Section 5 shall survive the termination, for any reason, of the Schedule for any Assignment under this Agreement, and this Agreement itself, and shall be binding on Supplier, its successors, and assigns for the benefit of Aetna and its affiliated companies and their successors and assigns. 5.05 Each Supplier Employee retained or employed by Supplier to provide Services under this Agreement shall execute, prior to providing such Services, a non-disclosure agreement in the form of Exhibit A attached hereto. 6.0 NON-PROSELYTIZING 6.01 Both parties recognize that each party and their affiliated companies have made substantial efforts and incurred substantial expense to recruit, employ, and train personnel with whom each party and/or its employees may have contact. The Supplier shall not, without Aetna's prior written consent, actively recruit and employ any person who is or was employed by Aetna and/or any of its affiliated companies, so long as this Agreement is in effect and for a period of one year following its termination. Aetna shall not, without informing the Supplier, actively recruit and employ a Supplier Employee identified on a Schedule, during the term of such identifying Schedule and for a period of one (1) year following termination of such identifying Schedule. 6.02 The following activities will not constitute "active recruitment": a. a party receives an unsolicited resume for the employee or Supplier Employee, either directly from the employee or Supplier Employee, or from an employment agency or recruiter, and thereafter interviews or negotiates employment with such employee or Supplier Employee. Resumes shall be unsolicited unless a party specifically identifies a particular employee or Supplier Employee by name in its request for resumes; or b. a party places a recruiting advertisement directed at the general public, and thereafter interviews or negotiates employment with an employee or Supplier Employee responding to such advertisement; or c. a party discusses employment with an employee or Supplier Employee prior to the effective date of this Agreement arid thereafter interviews or negotiates employment with such employee or Supplier Employee. An affidavit by such employee or Supplier Employee to the effect that employment was actually discussed on a certain date prior to the effective date shall be conclusive proof of this fact. 6.03 In the event of a breach of the covenant contained in Section 6.01 above, the injured party shall have the right to take any one or more of the following actions, concurrently or successively: a. immediately terminate this Agreement and/or any Schedule upon written notice; b. seek an injunction against further violations of this Section; damages. c. pursue whatever other remedies are available at law or in equity, including suit for 6.04 In the event that this Agreement or any Schedule with Supplier is terminated under this provision, Aetna shall be obligated to pay Supplier only for work actually expended, as provided in Section 3.0. 6.05 In the event of dissolution or cessation of the business of Supplier or if Supplier is in default of this Agreement, Supplier waives all rights in this Section 6.0, and Supplier allows Aetna to actively recruit and employ Supplier Employees. 7.0 STANDARD OF WORK/ASSIGNMENT OF PERSONNEL/PERFORMANCE 7.01 Supplier agrees to render its Services hereunder in accordance with high professional standards. 7.02 The Supplier Employee who shall perform Service defined in a Schedule subject to this Agreement shall be assigned solely to Aetna for the term of the Schedule unless otherwise defined in the Schedule or unless prior written approval has been obtained with the Aetna Coordinator. 7.03 Aetna reserves the right to approve or disapprove, for any reason, any Supplier Employee assigned pursuant to this Section 7.0. 7.04 Aetna reserves the right to request the removal of any person from this Agreement or schedule if such person is not, in Aetna's sole opinion, beneficial to the needs defined by the Aetna Coordinator. 7.05 If Supplier is retained under a Schedule to provide any type of survey, study or plan, Supplier shall not limit the strategy, methodology, or recommendation contained in said survey, study, or plan to a Supplier-provided implementation. In the event Supplier shall recommend either itself or a related entity as part of a subsequent study, solution, or implementation, it shall also submit to Aetna a fully-developed alternative recommendation in which neither the Supplier or any related entity is a participant. 8.0 INSURANCE, ACCIDENTS, INJURIES, LIABILITIES 8.01 Supplier shall indemnify and hold Aetna harmless from any and all claims, costs, expenses, damages, and liabilities for damage or injury to persons or property arising out of or related to the Services provided, except when such damage or injury was solely caused by the gross negligence of Aetna, its employees, or representatives. 8.02 Each party shall be liable for any loss, damage, cost, or expense that it may sustain or incur by reason of or arising from any accident or injury to its personnel or employees while on the premises of the other. 8.03 Supplier agrees, at is expense and during the term of this Agreement, to procure and maintain at a minimum the following insurance: a. Workers' compensation and employer's liability insurance sufficient to meet statutory liability limits in the state wherein the work is to be performed or with minimum limits of $100,000, whichever is greater; b. General liability, on the comprehensive form of policy, including bodily injury and property damage coverage, with minimum limits of $500,000 per occurrence; c. Automobile liability insurance, on the comprehensive form of policy, with bodily injury and property damage liability coverage with regard to all automobiles used in the performance of this Agreement with minimum limits of $l00,000 per person and $300,000 per occurrence for property damage; and d. If aircraft is used in connection with the performance of the Agreement, aircraft public and passenger liability insurance with minimum limits of $100,000 per person and $300,000 per accident for bodily injury other than passenger liability, and $100,000 per accident for property damage. Required coverage for passenger liability bodily injury shall be a minimum of $100,000 per passenger and an aggregate total equal to the greater of either the number of seats or the number of passengers. e. Such other insurance which Aetna may require from time to time as will furnish reasonable protection against claims which may arise from Services under this Agreement whether such Services be by the Supplier or the Supplier Employees or anyone directly or indirectly employed by either of them. 8.04 Upon Aetna's request, the Supplier shall furnish to Aetna a certificate or written statement evidencing issuance of the above required insurance. The policies of required insurance shall contain an endorsement to the effect that cancellation or any material change in the policies adversely affecting the interest of Aetna in such insurance shall not be effective sooner than thirty (30) days after written notice is received by Aetna. 8.05 In the event the Supplier fails to furnish such requested certificates or written statements or to continue to maintain such insurance during the term of this Agreement, Aetna shall have the right to withhold any or all payments under this Agreement so long as the Supplier has not complied with the requirements of this Section 8. 8.06 Paragraphs 8.01 and 8.02 shall survive this Agreement, even if this Agreement is terminated. 9.0 WARRANTY/INDEMNIFICATION 9.01 Supplier hereby represents and warrants that the Services performed and/or materials produced by Supplier will not violate any proprietary rights of any third party, including, without limitation, confidential relationships, patent, trademark, and copyright rights. Supplier hereby separately agrees to indemnify and hold Aetna harmless from any loss, claim, damage, cost, or expense of any kind, including reasonable attorney's fees to which Aetna may be subjected by virtue of a breach of the foregoing warranty. 9.02 Supplier hereby represents and warrants that it has all the right, title, and interest in the Services and any materials produced by Supplier and/or any Supplier Employee(s) assigned pursuant to this Agreement. Supplier hereby separately agrees to indemnify and hold Aetna harmless from any loss, claim, damage, cost, or expense of any kind, including reasonable attorney's fees to which Aetna may be subjected by virtue of a breach of the foregoing warranty. 10.0 LIMITED WARRANTY/LIMITATION OF DAMAGES 10.01 EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, SUPPLIER MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 10.02 EXCEPT FOR SUPPLIER'S BREACH OF SECTION 5.0 OR OF A THIRD PARTY NON-DISCLOSURE AGREEMENT AND EXCEPT FOR SUPPLIER'S OBLIGATIONS TO INDEMNIFY AETNA HEREUNDER, NEITHER AETNA NOR SUPPLIER SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, REGARDLESS OF WHETHER IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 11.0 YEAR 2000 WARRANTY 11.01 Supplier covenants and warrants that all products and services will correctly and properly perform all calculations and functions, including without limitation, collating sequences, time and date stamping transactions, time synchronization, file dating, and aging routines, if any, based upon dates equal to and beyond the year 2000 ("Year 2000 Compliance"). 11.02 Supplier covenants and warrants that its facilities, production processes, equipment, and business systems are or will be Year 2000 Compliant such that there will be no disruption in services to Aetna in the Year 2000 and beyond. Supplier agrees to allow Aetna to inspect Suppliers facilities, production processes, equipment, and business systems from time to time to verity and document Supplier's compliance with this warranty. 11.03 Supplier's failure to perform with regard to Year 2000 Compliance shall constitute a material breach of this Agreement. In the event Supplier is unable to cure the breach to Aetna's sole satisfaction, Supplier shall be liable to Aetna for any and all damages arising from Supplier's failure to cure. 11.04 Supplier shall at its own expense indemnify, defend, settle, and hold harmless Aetna and its officers, agents, employees, customers, and all persons claiming under Aetna, from and against any and all claims, actions, injunctions, damages, losses, liabilities, costs, and expenses (including legal fees, costs, and expenses) arising in any way out of any claim, suit, proceeding, or allegation that is the result of the Supplier's failure to comply with the terms of this provision. Aetna agrees to send Supplier written notice of any such claim, suit, proceeding, or allegation promptly after Aetna receives written notice of the same. 11.05 Paragraphs 11.01, 11.02, 11.03 and 11.04 shall survive this Agreement, even if this Agreement is terminated. 12.0 OWNERSHIP OF MATERIALS 12.01 Except as otherwise noted, Aetna shall own all technical notes, tangible and intangible property, and work products required to be delivered and/or produced or created by Supplier in connection with its work under this Agreement. Supplier acknowledges that any copyrightable works prepared by Supplier as work under this Agreement shall be deemed works for hire for Aetna under the copyright laws of the United States, it being the intent of this Agreement to vest full and exclusive ownership rights in Aetna, including but not limited to the exclusive right to copy and prepare derivative works. Supplier agrees to execute any documents reasonably requested by Aetna to fully vest such rights in Aetna. 12.02 Aetna acknowledges that Supplier may use methods, concepts, techniques, program organization, and data base structuring techniques that have been previously developed by Supplier or are from the public domain and that Supplier may continue to use such for its own purposes. To the extent that Supplier may include in the work product any pre-existing Supplier code sequences or other protected Supplier materials, Supplier agrees that Aetna shall be deemed to have an unrestricted right to use and authorize others to use such code and other proprietary materials of Supplier included in the work product. 12.03 In addition to the foregoing, Supplier shall promptly disclose to Aetna all inventions, discoveries, and improvements conceived or made by Supplier during the period of retention by Aetna and related to the business or activities of Aetna. Consistent with the provisions of the applicable state statutes relating to employment and assignment of inventions, Supplier shall assign all interests in said inventions, discoveries, and improvements to Aetna or its nominee, and execute all patent applications, assignments, or other related instruments which Aetna shall deem necessary to apply for and attain Letters Patent of the United States or any foreign country or to protect Aetna's or its nominee's interests therein. These obligations shall continue beyond the term of this Agreement with respect to inventions, discoveries, and improvements conceived or made by Supplier during the period of its retention by Aetna, and shall be binding upon Supplier's assigns, executors, administrators, and other legal representatives. 12.04 Aetna shall pay reasonable compensation to Supplier for Supplier's time spent in assisting Aetna in securing, defending, or enforcing any patent or copyright. 13.0 OTHER PROVISIONS 13.01 Supplier warrants that the Supplier Employee assigned pursuant to a Schedule is free, as of the date of the Schedule, and will be free as of the date of commencement of the Services to be provided hereunder, of any contractual obligation that would prevent the Supplier Employee from entering this Agreement or otherwise prevent the Supplier Employee from providing the Services contracted for herein. 13.02 It is understood and agreed that Supplier Employee is retained by Aetna only for the purpose of and to the extend set forth in the Schedule subject to this Agreement and that his/her relation to Aetna and/or Aetna's affiliates shall be only that of an independent contractor. 13.03 Nothing in this Agreement shall make either party the agent or employee of the other for any purpose whatsoever. 13.04 Neither party shall use the name, trade name, servicemarks, trademarks, trade dress, or logo of the other in publicity releases, advertising, or similar activities without the prior written consent of the other. 13.05 Supplier agrees that its Supplier Employee(s) will at all times comply with the security and safety regulations in effect upon Aetna's premises and maintain security of materials belonging to Aetna. 13.06 Any notice required or permitted under this Agreement shall be in writing except where otherwise expressly stated in this Agreement and shall be effective when delivered in person or sent by registered or certified United States mail; return receipt requested, proper postage prepaid, and properly addressed to the other party at the address given above or a more recent address of which the sending party has received written notice. All notices to Aetna shall be sent to the attention of the Head of Purchasing. 13.07 In the event that any one or more of the provisions contained in this Agreement shall for any reason be held to be unenforceable in any respect under any federal or state law, such unenforceability shall not affect any other provision but shall then be construed as if such unenforceable provision or provisions have never been contained herein. 13.08 This Agreement shall be governed and interpreted by the laws of the State of Connecticut. 13.09 Headings used in this Agreement are for reference purposes only and shall not be deemed a part of this Agreement. 13.10 If a controversy should arise out of this Agreement or the claimed breach thereof, the individuals executing this Agreement on behalf of each party, or their respective successors, will attempt to resolve the matter. In the event that the parties are unable to resolve the dispute through informal discussion, they will participate in mediation in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. In the event that the dispute is not resolved through mediation, the parties will submit the dispute to arbitration and attempt to agree upon rules and procedures for the arbitration. If the parties are unable to agree upon such rules and procedures, the arbitration will be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Venue shall lie in Hartford, Connecticut. 13.11 This Agreement and the Schedule subject to this Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all previous oral and written proposals, negotiations, representations, commitments, and other communications between the parties. This Agreement may not be released, discharged, changed, or modified except by an instrument in writing signed by duly authorized representatives of both parties. 13.12 Neither party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or interruption of service resulting directly or indirectly from acts of God, civil or military authority, acts of the public enemy, war, riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements or any other cause beyond the reasonable control of such party. 13.13 Neither party may assign its rights or delegate its obligations under this Agreement without the prior written consent of the other party, and such consent shall not be unreasonably withheld, except however, Aetna may assign its rights and obligations under this Agreement to a parent or subsidiary, or in the event of merger or sale of a business unit or of majority stock ownership without Supplier's consent, provided that the assuming party agrees to assume its obligations under this Agreement and has adequate assets and resources to meet its obligations hereunder. In any event, Aetna shall provide Supplier with prompt written notice of such assignment. Any attempted assignment not in accordance with this Agreement shall be null and void. Accepted and Agreed to: Aetna Life Insurance Company IBS Interactive, Inc. By /s/ Elizabeth A. Sage By: /s/ Clark D. Frederick -------------------------- --------------------------- (Authorized Signature) (Authorized Signature) Name: Elizabeth A. Sage Name: Clark D. Frederick -------------------------- --------------------------- (Print Name) (Print Name) Title: Head of N & DS Title: Chief Technical Officer -------------------------- --------------------------- Date: 27 Oct. 1997 Date: 23 Oct. 1997 -------------------------- --------------------------- EX-10 19 EXHIBIT 10.22 LEASE AGREEMENT THIS LEASE AGREEMENT (the "Agreement") is made this 31st day of January, 1998 by R&G International, an Alabama corporation, having an address at 8200 South Memorial Parkway, Huntsville, AL 35802 (the "landlord"), and IBS Interactive, a Delaware corporation having an address at 8200 South Memorial Parkway, Huntsville, AL 35802 (the "tenant"). WITNESSETH: WHEREAS, the Landlord leases to the Tenant, and the Tenant accepts from the landlord, certain premises consisting of approximately 1800 square feet of space (the "Premises") located on the first floor of the building commonly known as 8200 South Memorial Parkway, Huntsville, AL (the "Building"). Other matters as are hereinafter set forth, all in accordance with an subject to the terms and condition hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, the parties hereto hereby agree as follows: 1. Lease Term. The Lease shall extend for a period of approximately three years following the Agreement Date. 2. Rental. The Tenant agrees to pay to the Landlord a basic minimum rental for the Premises for the three (3) year term of the lease thereof in the equivalent amount of One Thousand Five Hundred Dollars ($1,500.00) per month in computer services, commencing on the Agreement Date. The computer services which will be provided in exchange for rental payment for the premises include Internet Web Site monitoring and consulting, e-mail accounts and maintenance on the Huntsville mail server, and basic computer hardware troubleshooting. 3. Miscellaneous. a) This Agreement contains the entire agreement and understanding between the parties with respect to the Premises and the Lease. There are no oral understandings, terms or conditions, and neither party has relied upon any representation, express or implied, not contained herein. All prior understandings, terms or conditions with respect to the Premises and the Lease are hereby deemed merged into this Agreement. This Agreement cannot be changed or supplemented other than in a writing signed by both parties. b) This Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written. WITNESS/ATTEST: LANDLORD: R & G International, Inc. By: /s/ Candy L. Humphries By: /s/ Larry Brannan -------------------------- -------------------------------- Larry Brannan Secretary/Treasurer R & G International By: By: /s/ Nick Loglisci -------------------------- -------------------------------- Nick Loglisci President IBS Interactive EX-23 20 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IBS Interactive, Inc. Cedar Knolls, New Jersey We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated February 27, 1998 (March 10, 1998 as to the last paragraph of Note 14) relating to the financial statements of IBS Interactive, Inc., which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP Woodbridge, New Jersey March 10, 1998 EX-23 21 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IBS Interactive, Inc. Cedar Knolls, New Jersey We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 31, 1997 (March 10, 1998 as to the last paragraph of Note 14) relating to the financial statements of IBS Interactive, Inc., which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ Milgrom, Galuskin, Balmuth and Company Certified Public Accountants, P.C. Milgrom, Galuskin, Balmuth and Company Certified Public Accountants, P.C. Edison, New Jersey March 10, 1998 EX-23 22 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form SB-2 of IBS Interactive, Inc. (the "Company") as a person about to become a director of the Company. Dated: March 9, 1998 /s/ John J. Brighton --------------------------- John J. Brighton EX-23 23 EXHIBIT 23.5 EXHIBIT 23.5 CONSENT Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form SB-2 of IBS Interactive, Inc. (the "Company") as a person about to become a director of the Company. Dated: March 10, 1998 /s/ Barrett N. Wissman --------------------------- Barrett N. Wissman EX-23 24 EXHIBIT 23.6 EXHIBIT 23.6 CONSENT Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form SB-2 of IBS Interactive, Inc. (the "Company") as a person about to become a director of the Company. Dated: March 9, 1998 /s/ Susan Holloway Torricelli --------------------------- Susan Holloway Torricelli EX-27 25 FINANCIAL DATA SCHEDULE
5 0001057257 IBS INTERACTIVE, INC. U.S. 1,000 3-MOS DEC-31-1997 DEC-31-1997 1 95 0 1,702 (66) 0 50 824 (306) 2,451 1,214 0 0 0 14 1,125 2,451 2,741 2,741 1,099 1,308 15 0 37 282 84 0 0 0 0 198 .14 .14
-----END PRIVACY-ENHANCED MESSAGE-----