-----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, T4HlC2GRnTkI+yofXNL03ebTh/CRgGd0IE9FdbhPJST7GuJ1MBpFOhYGenwpzcDL i6t3YRak+qHw0nsBsKlbdA== 0001072613-02-000514.txt : 20020415 0001072613-02-000514.hdr.sgml : 20020415 ACCESSION NUMBER: 0001072613-02-000514 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOCATEPLUS HOLDINGS CORP CENTRAL INDEX KEY: 0001160084 IRS NUMBER: 043332304 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-85154 FILM NUMBER: 02592050 BUSINESS ADDRESS: STREET 1: 100 CUMMINGS CENTER STREET 2: SUITE 235M CITY: BEVERLY STATE: MA ZIP: 01915 BUSINESS PHONE: 978-921-2727 MAIL ADDRESS: STREET 1: 100 CUMMINGS CENTER STREET 2: SUITE 235M CITY: BEVERLY STATE: MA ZIP: 01915 SB-2 1 formsb-2_10945.txt FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2002 REGISTRATION NO. 333-________ ================================================================================ ------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- LocatePLUS Holdings Corporation ------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 7379 -------- ---- (State or Other Jurisdiction of (Primary Standard Industrial Incorporation or Organization) Classification Code Number) 04-3332304 ---------- (I.R.S. Employer Identification Number) 100 Cummings Center Suite 235M Beverly, Massachusetts 01915 (978) 921-2727 -------------- (Address and telephone number of principal executive offices and principal place of business) ------------------ Jon R. Latorella President and Chief Executive Officer LocatePLUS Holdings Corporation 100 Cummings Center Suite 235M Beverly, Massachusetts 01915 (978) 921-2727 -------------- (Name, Address, and Telephone Number of Agent for Service) ------------------ Copy to: Michael A. Hickey, Esq. Kirkpatrick & Lockhart LLP 75 State Street Boston, Massachusetts 02109 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If 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 number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------------------------------- CALCULATION OF REGISTRATION FEE
=============================================== ==================== ================== ====================== =============== PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES REGISTERED AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION REGISTERED PER SHARE(1) PRICE(1) FEE - ----------------------------------------------- -------------------- ------------------ ---------------------- --------------- Units, each consisting of 10,000,000 $0.30 $3,000,000 $276 (i) one share of Class B Non-Voting 10,000,000 - - - Common Stock; and (ii) one warrant to purchase one 10,000,000 - - - share of Class A Voting Common Stock Shares of Class A Voting Common Stock 10,000,000(2) $0.50 $5,000,000 $460 issuable upon exercise of warrants underlying Units =============================================== ==================== ================== ====================== ===============
(1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2) Pursuant to Rule 416, there are also being registered such additional shares of Class A Voting Common Stock as may be issuable pursuant to the anti-dilution provisions of the warrants. ---------------------------------------- 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 that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ---------------------------------------- - -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED MARCH 28, 2002 LPHC [LOGO] LocatePLUS Holdings Corporation 10,000,000 UNITS $0.30 PER UNIT We are a business-to-business and business-to-government provider of public information via our proprietary data integration solutions. We are offering for sale up to 10,000,000 Units. Each Unit consists of one share of our Class B Non-voting Common Stock and a warrant to purchase one share of our Class A Voting Common Stock for $0.50, which we refer to as a "public warrant." The Units will trade as a single security until 185 days after the consummation of this offering (unless, with respect to a Unit, the public warrant is exercised, in which case the Class B Non-voting Common Stock and Class A Voting Common Stock purchased upon exercise will trade separately). The public warrants will be exercisable for a period of one year from the date of consummation of this offering. --------------------- INVESTING IN THESE UNITS INVOLVES SIGNIFICANT RISKS. YOU SHOULD CAREFULLY REVIEW THE SECTION OF THIS PROSPECTUS TITLED "RISK FACTORS", WHICH BEGINS ON PAGE 4, BEFORE YOU MAKE AN INVESTMENT DECISION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES AUTHORITY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR THEIR OFFER OR SALE, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Our underwriter will sell our Units on a minimum/maximum "best efforts" basis and will receive a commission with respect to those sales. This offering will end on [10 days from the effective date of the Registration Statement]. Investments in our Units will be placed into escrow with our transfer agent, Transfer Online, Inc., until a minimum of $500,000 in subscriptions is received. If a minimum of $500,000 in subscriptions is not received by [10 days from the effective date of the Registration Statement], subscriptions will be returned without interest or deduction. If a minimum of $500,000 in subscriptions is received by [10 days from the effective date of the Registration Statement], we will close upon those funds, and issue the Units purchased, no later than [13 days from the effective date of the Registration Statement].
================================ =========================== ==================================== ==================== PUBLIC OFFERING PRICE UNDERWRITING COMMISSIONS PROCEEDS TO US - -------------------------------- --------------------------- ------------------------------------ -------------------- Per Unit....................... $0.30 $0.021 $0.279 - -------------------------------- --------------------------- ------------------------------------ -------------------- Total if minimum sold.......... $500,000 $35,000 $465,000 - -------------------------------- --------------------------- ------------------------------------ -------------------- Total if maximum sold.......... $3,000,000 $210,000 $2,790,000 ================================ =========================== ==================================== ====================
OFTRING & COMPANY, INC. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. This prospectus is dated March 28, 2002. TABLE OF CONTENTS ----------------- Prospectus Summary .............................. 1 Risk Factors .................................... 4 Forward-Looking Statements ...................... 14 Use of Proceeds ................................. 14 Determination of Offering Price ................. 15 Dividend Policy ................................. 15 Capitalization .................................. 15 Dilution ........................................ 17 Selected Consolidated Financial Data ............ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations ... 20 Business ........................................ 27 Executive Officers and Directors ................ 33 Organization Within the Past Five Years ......... 39 Certain Transactions ............................ 40 Principal Stockholders .......................... 42 Description of Capital Stock .................... 44 Plan of Distribution ............................ 46 Shares Eligible for Future Sale ................. 47 Transfer Agent and Registrar .................... 48 Legal Matters ................................... 48 Experts ......................................... 48 Additional Information .......................... 48 Index to Financial Statements ................... F-1 * * * IMPORTANT NOTICES ----------------- Until [90 days from the date of effectiveness], all dealers effecting transactions in these securities may be required to deliver a prospectus. This is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters. Please read this prospectus carefully. It describes our business, products and services, and financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision. You should rely only on the information contained in this prospectus. The information contained in this prospectus is accurate only as of its date, regardless of the time this prospectus is delivered or that the Units are sold. In this prospectus, the terms "the Company," "we," "us," and "our" refer to LocatePLUS Holdings Corporation, a Delaware corporation. Unless otherwise indicated, we use the term "common stock" to refer collectively to our Class A Voting Common Stock and our Class B Non-voting Common Stock. We are offering to sell our Units and seeking offers to buy our Units only in jurisdictions where such offers and sales are permitted. We have registered the trademark LOCATEPLUS.COM(R) with the United States Patent and Trademark Office. We maintain the trademarks LOCATEPLUS(TM) and WORLDWIDE INFORMATION(TM) as proprietary trademarks for our products. The trademark RIM BLACKBERRY(R) is a registered trademark of Research in Motion Limited, with which we have no affiliation. * * * PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION IN THIS PROSPECTUS REGARDING US (INCLUDING THE RISKS ASSOCIATED WITH PURCHASING OUR UNITS). OUR COMPANY ----------- We are a business-to-business and business-to-government provider of public information via our proprietary data integration solutions. Since 1996, we have sold a CD-ROM-based product, which we refer to as Worldwide Information(TM), that enables pre-screened users to search certain motor vehicle records and drivers' license information in multiple states through a dynamic search engine, using complete or partial information. Since March 1, 2000, we have maintained a database that is accessible through the Internet, known as LocatePLUS(TM). Our LocatePLUS(TM) database currently contains searchable and cross-referenced public information about individuals throughout the United States, including individuals' names, addresses, dates of birth, bankruptcies, social security numbers, prior residences and probable acquaintances and, in certain circumstances, real estate holdings, liens, judgments, drivers' license information and motor vehicle records. Information in our LocatePLUS(TM) database is integrated in a manner that allows users to access it rapidly and efficiently. We recently developed another version of our LocatePLUS(TM) database that is accessible through the use of certain wireless devices manufactured by third parties, such as personal digital assistants and the RIM Blackberry(R). We refer to this new product as LocatePLUS Pocket(TM). We have not yet realized any revenue from LocatePLUS Pocket(TM). We are currently testing a pre-production or "beta" version of LocatePLUS Pocket(TM), and we anticipate that the commercial launch of LocatePLUS Pocket(TM) will take place in the first half of 2002. Our products are primarily marketed and sold to federal, state and local government agencies (including law enforcement agencies), private investigators, human resource professionals and the legal profession. Our products are used in: o crime and terrorism prevention and investigation; o detection of criminal and civil fraud; o "skip tracking" (I.E., the location of debtors and individuals in violation of parole or bail restrictions); and o background checks. As of December 31, 2001, there were 4,185 pre-screened users of our LocatePLUS(TM) database and approximately 2,700 pre-screened purchasers of our Worldwide Information(TM) CD-ROM product. HOW TO CONTACT US ----------------- Our executive offices are located at 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915. Our phone number is (978) 921-2727. Our website is HTTP://WWW.LOCATEPLUS.COM. Information on our website is not intended to be incorporated into this prospectus. 1 THE OFFERING ------------ Securities offered.............. 10,000,000 Units for $0.30 per Unit. Each Unit consists of one share of our Class B Non-voting Common Stock and a public warrant to purchase one share of our Class A Voting Common Stock for $0.50. The public warrant will be exercisable for a period of one year from the date of the consummation of this offering. The Units will trade as a single security, and each public warrant will not detach from the share of Class B Non-voting Common Stock to which it is attached, until 185 days from the date of consummation of this offering (unless the public warrant is exercised, in which case the Class B Non-voting Common Stock and Class A Voting Common Stock so purchased will trade separately upon exercise). Use of proceeds................. The proceeds from this offering will be used to launch LocatePLUS(TM) Pocket, to acquire additional datasets for our LocatePLUS(TM) product and for working capital. We have not determined the specific allocation of the anticipated proceeds among these planned uses. Investment process.............. We are offering Units on a "best efforts" minimum/maximum basis through our underwriter. Subscriptions for our Units will be deposited into escrow with our transfer agent, Transfer Online, Inc., until a minimum of $500,000 of subscriptions have been received. In the event that we do not receive a minimum of $500,000 in such subscriptions by [ten days after the effective date of this registration statement], escrowed funds will be released to subscribers without interest or deduction. In the event that a minimum of $500,000 in subscriptions is received by Transfer Online by [ten days after the effective date of this registration statement], we will close on those funds and issue the Units purchased no later than [thirteen days after the effective date of this registration statement]. 2 The following table outlines our capital stock immediately following the consummation of this offering, assuming the maximum number of Units are sold in this offering: Units offered for sale................................... 10,000,000 Class A Voting Common Stock outstanding after this offering......................................... 54,666,793(1)(2) Class B Non-voting Common Stock outstanding after this offering.................................... 66,640,726(3) - -------------- (1) Includes shares issued in connection with the mandatory conversion of certain convertible promissory notes (and accrued interest) into 1,558,213 shares of Class A Voting Common Stock upon the consummation of this offering. (2) Assuming no exercise or conversion of: o warrants to purchase up to 10,798,633 shares of Class A Voting Common Stock (including 10,000,000 public warrants offered hereby); o options to purchase up to 14,995,000 shares of Class A Voting Common Stock under our equity compensation plan; or o debt convertible into 44,444 shares of Class A Voting Common Stock at the election of one debtholder. (3) Assuming no exercise or conversion of warrants and options to purchase 3,728,477 shares of Class B Non-voting Common Stock. SUMMARY OF CERTAIN RISK FACTORS ------------------------------- There are a variety of risks associated with an investment in LocatePLUS Holdings Corporation. These risks include the following, each of which (as well as other risks) are described in detail in the section titled "Risk Factors", beginning on page 4. You should closely review that section before purchasing any of our securities. o We have incurred significant net losses since our inception. We incurred net losses of approximately $5.8 million in 2000 and $4.4 million in 2001. Our accumulated deficit as of December 31, 2001 was approximately $14.3 million. To achieve profitability, we will need to generate substantially more revenue than we have in prior years, of which we can give no assurance. o Our industry is intensely competitive and we expect competition to continue to increase from both existing competitors and new market entrants. Many of the companies that currently compete with us, as well as other companies with whom we may compete in the future, are national or international in scope and have far greater resources than we do. o There has been no public market for our securities and there can be no assurance that a public trading market for our securities will develop or, if developed, will be sustained. Although we hope that our securities will be quoted on the Over the Counter Bulletin Board, there can be no assurance that a regular trading market will develop for our securities, or, if developed, that it will be sustained. o Future and existing government regulations may restrict our ability to use certain forms of person-specific data, and any such restrictions could limit the effectiveness and attractiveness of our products, which could have a material adverse effect on our business and operations. 3 RISK FACTORS ANY INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND ALL OF THE INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO PURCHASE ANY OF OUR SECURITIES. YOU SHOULD ASSUME THAT, EVEN IF NOT SPECIFICALLY STATED WITHIN THIS PROSPECTUS, IF ANY OF THE FOLLOWING RISKS ACTUALLY MATERIALIZE, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF FUTURE OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN SUCH CASE, THE VALUE OF OUR SECURITIES COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. WE HAVE NOT ATTEMPTED TO RANK THE FOLLOWING RISKS IN ORDER OF THEIR LIKELIHOOD. RISKS RELATED TO OUR BUSINESS ----------------------------- WE HAVE A LIMITED OPERATING HISTORY, AND WE ARE SUBJECT TO THE RISKS ENCOUNTERED BY EARLY-STAGE COMPANIES. We began producing our CD-ROM product, Worldwide Information(TM), in 1996. Our Internet product, LocatePLUS(TM), was launched in March 2000. Accordingly, we have a limited operating history, particularly with respect to our LocatePLUS(TM) product, and our business prospects must be considered in light of the risks and uncertainties to which companies in new and rapidly evolving markets such as ours are exposed. These risks include, but are not limited to, the following: o Our products and services may fail to attract or retain customers. o Intense competition and rapid technological change in our industry could adversely affect the market's acceptance of our products. o We may be unable to develop or maintain commercial relationships and alliances necessary to commercialize our products. o Our target market may demand technological and support resources that may not be available to us. WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND CANNOT ASSURE YOU THAT WE WILL ACHIEVE PROFITABILITY. We have incurred significant net losses since our inception. We incurred net losses of approximately $5.8 million in 2000 and $4.3 million in 2001. Our accumulated deficit as of December 31, 2001 was approximately $14.4 million. We anticipate that we will increase our sales and marketing, product development and general and administrative expenses during 2002 and for the foreseeable future. To achieve profitability, we will need to generate substantially more revenue than we have in prior years. Even if we ultimately achieve profitability, we may not be able to sustain or increase our profitability. If our revenue grows more slowly than we anticipate, or if our operating expenses exceed our expectations, our operating results will be adversely affected. OUR RIGHT TO USE CERTAIN OF THIRD PARTY DATA MAY BE SUBJECT TO TERMINATION BY OUR DATA PROVIDERS. We obtain our data from three major third-party data providers as well as over 20 ancillary sources. We are currently in default with respect to agreements that we have with two of our major providers. Under the terms of two of these agreements, the data providers may terminate our right to use their data in their sole discretion and without any recourse to us. If either of these agreements is terminated, there can be no assurance that we would be able to obtain and integrate replacement data on a timely basis. Although we believe that we could obtain alternate data in the event that we are no longer permitted to use these providers' data, we can give no assurance that any such termination will not disrupt our business. Any such disruption could aversely effect our financial condition and the price of our securities. 4 A SIGNIFICANT PORTION OF OUR ASSETS CONSIST OF AN AMOUNT DUE TO US FROM A THIRD PARTY. As of December 31, 2001, $1 million was due to us from an unaffiliated, privately-held leasing company. Of the $1 million owed to us by that leasing company, an aggregate of $750,000 was repaid in January and February 2002, and we anticipate that the balance will be repaid in April 2002, although we cannot guarantee the timing of this repayment or that this amount will be repaid at all. In the event that this amount is not repaid, our business operations would be materially harmed. WE MAY HAVE INADEQUATE CASH RESOURCES AVAILABLE TO US TO FUND OUR OPERATIONS. As of December 31, 2001, we had cash, cash equivalents and a note receivable totaling approximately $1.9 million, of which approximately $900,000 consisted of bank deposits with three banks and $1 million was due to us from an unaffiliated, privately-held leasing company (of which $750,000 was subsequently repaid). From January 1, 2002 to February 13, 2002, we raised approximately $1.2 million through a private placement of our equity securities. We intend to use those funds on an "as needed" basis to fund any shortfall in our operations. If we do not raise any funds from this offering and if we do not reduce our planned growth in expenditures, we anticipate that we would need to raise additional capital by the end of 2002. There can be no guarantee that such capital would be available to us, or, if it is available to us, that it would be on terms favorable to us. Under such circumstances, and in the event that we are unable to raise additional capital, we may be required to discontinue some or all of our operations, to reduce the development of some or all of our products, or to reduce our workforce, all of which could materially adversely effect us. THE INITIAL PUBLIC OFFERING PRICE OF OUR UNITS MAY NOT ACCURATELY REFLECT THEIR FUTURE MARKET PERFORMANCE. We unilaterally determined the initial public offering price of the Units. This offering price may not be indicative of future market performance and may bear no relationship to the price at which our Units, or the underlying Class B Non-voting Common Stock or public warrants, will trade (if our securities are traded at all). OUR FUTURE QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD ADVERSELY AFFECT THE PRICE OF OUR SECURITIES. We expect that our future quarterly operating results will fluctuate significantly. Accordingly, you should not rely on quarter-to-quarter comparisons of our historical results as an indication of our future performance. If our quarterly operating results do not meet the expectations of our investors, the market price of our securities will most likely decline. Our future quarterly results may fluctuate as a result of many factors, some of which are outside our control, including: o the timing, introduction and commercialization of our new products and services (including the integration of additional datasets into our databases); o increased unemployment in the United States, which may result in reduced use of our products by human resources personnel; o the potential costs of protecting our intellectual property rights; o the operating costs and capital expenditures related to the expansion of our business operations and infrastructure, including the retention of key personnel, the addition of new employees and the acquisition and integration of new datasets; o the introduction of similar or substitute databases by our competitors; o legal and regulatory developments that may adversely affect our ability to collect or disseminate data; and o the timing and establishment of our marketing and channel partnership arrangements. WE HAVE LIMITED PRODUCT OFFERINGS, AND IF DEMAND FOR THESE PRODUCTS DECLINES OR FAILS TO DEVELOP AS WE EXPECT, OUR NET REVENUE WILL DECLINE. We derive the majority of our current consolidated net revenue from a limited number of products. Specifically, in the year ended December 31, 2001, we derived all of our recurring revenue from our CD-ROM-based Worldwide Information(TM) and Internet-based LocatePLUS(TM) products. We have recently developed a "wireless" version of our LocatePLUS(TM) product, but we have not yet realized any revenue from that product. We expect that revenue from our Internet-based and CD-ROM-based products will continue to account for most of our total revenue for the foreseeable future. As a result, continued and widespread market acceptance of our existing products is critical to our future success. We cannot assure you that our current products will achieve market acceptance at the rate at which we expect. If our products are not accepted by the market, our business and financial condition would be adversely affected. 5 WE OBTAIN DATA FROM A VARIETY OF SOURCES. IF WE ARE UNABLE TO OBTAIN NECESSARY DATA, OUR BUSINESS WOULD BE ADVERSELY AFFECTED. Our datasets consist of publicly available data, which we have organized and integrated to allow our pre-screened users to rapidly search and evaluate. We license or otherwise obtain our data from three primary sources as well as over twenty ancillary sources. Our sources include both private and government data providers, including federal, state and local government agencies. From time to time, certain sources of publicly available data, such as state motor vehicle registries, have refused to release data to us. As a result, we have, on occasion, been forced to obtain such data through the exercise of our rights under the Freedom of Information Act. Such efforts can be costly and time consuming, and we cannot guarantee that we will be able to successfully acquire such data on a consistent basis. From time to time, we may also be required to license or purchase additional data to expand our product offerings or maintain our databases. We cannot assure you that such third-party licenses will be available to us on commercially reasonable terms, or at all. Our inability to maintain or obtain any third-party license required to sell or develop our products or product enhancements could require us to obtain substitute, possibly less current data, which could adversely affect our business, financial condition and results of operations. THE GROWTH OF DEMAND FOR OUR PRODUCTS MAY BE LIMITED. We have not conducted any market study with respect to the demand for our products. Thus, there can be no assurance that our past growth and product acceptance will continue at levels sufficient to permit achievement of our long term business objectives and projections. IF WE CANNOT INTEGRATE, UPDATE AND IMPROVE OUR PRODUCTS, OUR BUSINESS COULD BE ADVERSELY AFFECTED. We must continuously update our databases so that we may provide datasets to customers that are accurate and current. We must also integrate additional datasets for our products to remain competitive. Integration and updates are time consuming and often require extensive resources, as we often obtain public documents in a form that is not suitable for use in any of our products. For example, we often receive "raw data" on electronic tape media from state motor vehicle licensing agencies that must be modified so that it can be searched rapidly based upon partial information. We can give no assurance that we will have adequate resources to update our datasets or to integrate new datasets. If we are unable to update our datasets or integrate new datasets, our products are likely to be less desirable to our target market than those of our competitors, and our sales and financial condition would be adversely affected. Our ability to remain competitive will depend in part on our ability to: o obtain updated information; o enhance and improve the functionality of the products and services we offer; and o develop and introduce new products to meet changing customer needs and preferences and to integrate new technologies. We cannot assure you that we will be successful in responding to these market challenges in a timely and cost-effective manner. If we are unable to integrate new technologies effectively or respond to these changing needs, our business could be adversely affected. 6 THE MARKET FOR DATABASE PRODUCTS AND SERVICES IS HIGHLY COMPETITIVE. Our industry is intensely competitive and we expect competition to continue to increase from both existing competitors and new market entrants. Many of the companies that currently compete with us, as well as other companies with whom we may compete in the future, are national or international in scope and have greater resources than we do. Those resources could enable those companies to initiate price cuts or take other measures in an effort to gain market share in our target markets. We may have inadequate resources to compete against such businesses. For example, our LocatePLUS(TM)product competes with products offered by: o Accurinet; o ChoicePoint; o Confi-chek.com; o FlatRateInfo.com; and o Lexis-Nexis. We cannot assure you that we will be able to compete successfully against these or other current and future participants in our markets or against alternative technologies, nor can we assure you that the competitive pressures that we face will not adversely effect our business, operating results and financial condition. WE FACE RISKS ASSOCIATED WITH OUR STRATEGIC ALLIANCES. To date, we have entered into one "channel partner" (distribution) agreement. From time to time, we anticipate that we will enter into additional "channel partner" arrangements and similar strategic alliances through which we will license access to our databases to third parties in exchange for royalties. We can give no assurance that we will be able to identify and secure appropriate channel partners or that any channel partner arrangements will be profitable. If we are unable to enter into appropriate channel partner arrangements, use of our database may not grow sufficiently to meet our business objectives, and our business, financial condition and operating results may be adversely affected. TO INCREASE OUR REVENUE, WE MUST INCREASE OUR SALES FORCE, FOR WHICH WE CAN GIVE NO ASSURANCE. To date, we have sold our products primarily through our approximately eleven person direct sales and tele-sales force. Our future revenue growth will depend in large part on recruiting and training additional direct sales and tele-sales personnel and expanding our distribution channels. We may experience difficulty recruiting qualified sales and support personnel and establishing third-party distribution relationships. We may not be able to successfully expand our tele-sales force or other distribution channels, and any such expansion, if achieved, may not result in increased revenue or profits. WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, AND WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT MAY ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION. Our success depends on our proprietary technologies. We rely on trade secret rights, confidentiality agreements and procedures and licensing arrangements to establish and protect our proprietary rights. We do not have patents issued or pending on any of our technologies. As a result, we face risks associated with our intellectual property positions, including: o the potential need to engage in costly legal proceedings to enforce our intellectual property rights; 7 o the possibility that third parties will be able to compete against us without infringing our intellectual property rights; and o the possibility that our products may infringe upon the intellectual property rights of third parties. Our business could be adversely affected if we fail to protect our intellectual property rights adequately, if there are changes in applicable intellectual property laws that are adverse to our interests or if we become involved in litigation relating to our intellectual property rights. OUR MARKET IS INCREASINGLY COMPETITIVE, AND, AS A RESULT, WE ANTICIPATE CHALLENGES MAY ARISE TO OUR INTELLECTUAL PROPERTY POSITIONS. As more companies enter our marketplace and develop competing intellectual property rights, it is increasingly likely that claims will arise which assert that some of our technologies infringe upon other parties' intellectual property rights. These claims could subject us to costly litigation, divert management resources and result in the loss of our intellectual property rights. These claims may also require us to pay significant damages, cease development of products or services, terminate our use of infringing products or technologies or require us to develop non-infringing technologies. In these circumstances, continued use of our intellectual property rights may require that we obtain licenses to the intellectual property that is the subject of the alleged infringement, and we might not be able to obtain these licenses on commercially reasonable terms, if at all. OUR EFFORTS TO RESTRICT ACCESS TO OUR INTELLECTUAL PROPERTY MAY BE INEFFECTIVE, AND THE RESULTING LOSS OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS. As part of our confidentiality procedures, we have entered into non-disclosure agreements with certain of our customers, employees, consultants and strategic partners. We generally attempt to control access to and distribution of our technologies, datasets and other proprietary information. Despite these procedures, third parties could attempt to copy or otherwise obtain and make unauthorized use of our technologies or independently develop similar technologies. If this were to occur, our business would be adversely affected. WE MAY BE UNABLE TO PREVENT THIRD PARTIES FROM DEVELOPING INTERNET SITES, ACQUIRING DOMAIN NAMES OR USING TRADEMARKS SIMILAR TO OURS. The data that we provide to users consists of publicly available information. As a result, we are unable to preclude others from developing equivalent databases. We have registered several domain names, including LOCATEPLUS.COM and WORLDWIDEINFORMATION.COM. As new domain name extensions (E.G., ".biz" and ".info") become available, we anticipate that we will not acquire all of the other extensions for these addresses. We may be unable to prevent third parties from acquiring domain names or other trademarks that are similar to, infringe upon or otherwise decrease the value of our trademarks. We know of at least one competitor that has a corporate and domain name similar to ours. We believe that these similarities may cause confusion on the part of potential customers, and this confusion may harm our business, financial condition, and results of operations. We have sent a "cease and desist" letter to this competitor, but have received no response to date. If our efforts do not result in a favorable resolution, we may be required to file a lawsuit to protect our interests. We can give no assurance that any such lawsuit, if commenced, would result in a conclusion that is favorable to us. WE FACE SIGNIFICANT SECURITY RISKS RELATED TO OUR ELECTRONIC TRANSMISSION OF CONFIDENTIAL INFORMATION. We rely on encryption and other technologies to provide system security and to effect secure 8 transmission of confidential information, such as credit card numbers. We license these technologies from third parties. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the security measures used by us to protect customer transaction data. If any compromise of our security were to occur, it could have a material adverse effect on our reputation and business. A party who is able to circumvent our security measures could misappropriate our proprietary information or cause interruptions in our operations and damage to our reputation and customers' willingness to use our products. We may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches. WE FACE RISKS RELATED TO THE PROCESSING OF CREDIT CARDS. Because we offer services over the Internet and accept credit card information without a signature, our credit card charges may be subject to dispute. If a customer disputes the validity of a credit card charge, that transaction may be charged back to us. Substantial charge backs could disrupt our business and result in a loss of credit card processing rights, which would significantly harm our business, financial condition and results of operations. OUR PRODUCTS MAY HAVE UNKNOWN DEFECTS WHICH COULD HAVE ADVERSE EFFECTS ON OUR CUSTOMER RELATIONS AND FINANCIAL RESULTS. Datasets as complex as those that we develop may contain undetected defects or errors. For example, our products may contain unknown defects due to errors in the data that we purchase from our data providers. Despite testing, defects or errors may occur in our existing or new products, which could make them less attractive to our target markets. As a result, defects and errors in our datasets could result in loss of revenue or market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation and an adverse effect on our business, financial condition and results of operation. DEFECTS OR ERRORS COULD RESULT IN PRODUCT LIABILITY CLAIMS. Our datasets may contain errors that may give rise to claims against us. We disclaim all warranties on the data we include in our products. However, our disclaimers may not be enforced. In such an event, or if liabilities arise that are not contractually limited or adequately covered by our insurance, our business could be adversely affected. WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR PLANNED GROWTH. As of December 31, 2001, we had 31 employees. We intend to expand our customer base and develop new products. To manage our anticipated growth, we must continue to improve our operational and financial systems and expand, train, retain and manage our employee base. Because of the registration of our securities, we will be subject to additional reporting and disclosure obligations, and we anticipate that we will hire additional finance and administrative personnel to address these obligations. In addition, the anticipated growth of our business will place a significant strain on our existing managerial and financial resources. If we cannot manage our growth effectively, we may not be able to successfully coordinate the activities of our technical, accounting and marketing staffs and our business could be adversely affected. 9 IF WE ARE NOT ABLE TO HIRE, INTEGRATE OR RETAIN QUALIFIED PERSONNEL, OUR FUTURE FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED. Our revenue for 2001 was approximately $1.4 million, an increase of approximately $820,000 from the prior year. The recent growth in our business has resulted in an increase in the responsibilities of our personnel. Several of our personnel are presently serving in more than one capacity. In addition, we expect that we will need to hire additional employees during 2002. Competition for experienced and qualified personnel in our market is intense. We may not be able to retain our current key employees, or attract, integrate or retain other qualified personnel in the future. If we do not succeed in attracting new personnel or in integrating, retaining and motivating our current personnel, our business could be adversely affected. CERTAIN OF OUR DIRECTORS AND OFFICERS WILL PERSONALLY BENEFIT FROM THE USE OF THE PROCEEDS OF THIS OFFERING. We may use a portion of the proceeds from this offering in conjunction with a planned increase in the compensation that we will pay to our President and Chief Executive Officer, Jon R. Latorella. We may also use certain of the proceeds from this offering to pay bonuses to Mr. Latorella and Robert A. Goddard, our Chief Financial Officer, to make tax payments in connection with certain loan arrangements that we have with them. Those loan arrangements are described in greater detail in the section of this prospectus titled "Certain Transactions," beginning on page 40. WE DEPEND ON OUR KEY EMPLOYEES FOR OUR FUTURE SUCCESS. Our success depends to a significant extent on the performance and continued service of our senior management. We have no employment agreements with any of our employees. The loss of the services of any of our senior management or any of our other key employees could adversely affect our business. THERE IS NO ASSURANCE THAT WE WILL PAY DIVIDENDS IN THE FUTURE. We have never declared or paid a cash dividend. At this time, we do not anticipate paying any dividends in the future. We are under no legal or contractual obligation to declare or to pay dividends, and the timing and amount of any future dividends and distributions is at the discretion of our Board of Directors and will depend, among other things, on our future after-tax earnings, operations, capital requirements, borrowing capacity, financial condition and general business conditions. We plan to retain any earnings for use in the operation of our business. You should not purchase our securities on the expectation of future dividends. RISKS RELATED TO OUR INDUSTRY ----------------------------- EXISTING GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS MAY LIMIT OUR ABILITY TO ACQUIRE OR DISSEMINATE DATA. ANY SUCH REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Much of the data we provide is subject to regulation by the Federal Trade Commission under the Federal Fair Credit Reporting Act and Title V of the Financial Services Modernization Act (which is also referred to as the "Gramm-Leach-Bliley Act"), and to a lesser extent, by various other federal, state and local regulatory authorities pursuant to a variety of laws. These laws and regulations are designed to protect individuals from the misuse of their personal information. We have not engaged counsel to review our activity in light of these laws and regulations, although 10 we believe that our activities do not violate any law specifically applicable to the dissemination of data concerning individuals. Our belief is based upon our compliance with the "best practices" of the Individual Reference Services Group (which we refer to as the "IRSG"), a background information industry trade group of which we are a member. In the event that compliance with the IRSG's policies is inadequate to comply with the requirements of applicable law, we may be in violation of laws governing the dissemination of data. In such a case, we may be subject to enforcement action by regulatory agencies and claims against us by individuals (to the extent such laws permit private rights of action). Any such claims could significantly disrupt our business and operations. We do not currently maintain liability insurance to cover such claims. FUTURE GOVERNMENT REGULATION MAY FURTHER LIMIT OUR ABILITY TO PROVIDE MEANINGFUL DATA TO CUSTOMERS. Future laws or regulations that further restrict the use of personal or public record information could disrupt our business and could cause us to lose revenue. For example, if laws were enacted that restricted our use of Social Security numbers, our ability to conduct our business would be adversely affected. If we are unable to respond to regulatory or industry standards effectively, our business, financial condition and results of operation would be adversely affected. Our future success will depend, in part, on our ability to enhance and improve the responsiveness, functionality and features of our products and services in accordance with newly-imposed regulatory or industry standards, of which we can give no assurance. WE COULD FACE LIABILITY BASED ON THE NATURE OF OUR SERVICES AND THE CONTENT OF THE MATERIALS THAT WE PROVIDE. We may face potential liability from individuals, government agencies or businesses for defamation, invasion of privacy, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the data contained in our products. Although we carry a limited amount of general liability insurance, our insurance may not cover claims of these types and may not be adequate to indemnify us for liability that may be imposed. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of our insurance coverage, could adversely affect our reputation, business, financial condition or results of operations. RISKS ASSOCIATED WITH AN INVESTMENT IN OUR SECURITIES ----------------------------------------------------- OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER CONTROLS A MAJORITY OF OUR VOTING SECURITIES, AND THEREFORE CAN UNILATERALLY APPROVE CERTAIN TRANSACTIONS AND MATTERS PRESENTED TO OUR STOCKHOLDERS. Jon R. Latorella, our President and Chief Executive Officer, controls a majority of our voting securities and will be able to elect the Board of Directors and to individually control all matters requiring stockholder approval. In addition to electing the Board of Directors, stockholders must approve, among other things: o mergers or consolidations; o sales of all or substantially all of our assets; and o amendments to our Second Amended and Restated Certificate of Incorporation. This concentration of ownership may delay, deter or prevent transactions that would result in a change of control, which in turn could reduce the value of our securities. 11 WE HAVE A LARGE NUMBER OF SECURITIES THAT WILL BE AVAILABLE FOR RESALE IMMEDIATELY AFTER OR SHORTLY FOLLOWING THIS OFFERING. SALES OF THESE SECURITIES COULD CAUSE THE PRICE OF OUR SECURITIES, IF PUBLICLY TRADED, TO DECLINE. Sales of a large number of shares of our securities in the public markets after this offering, or the potential for such sales, could decrease the trading price of our securities and could impair our ability to raise capital through future sales of our securities. Immediately following the consummation of this offering, and assuming no exercise of warrants, options or other convertible securities, we will have 54,666,793 shares of Class A Voting Common Stock issued and outstanding (including 1,558,213 shares which will be issued upon the conversion of certain debt and accrued interest upon the consummation of this offering) and 66,640,726 shares of Class B Non-voting Common Stock issued and outstanding. Except to the extent the shares of common stock are held by our "affiliates," as defined under the Securities and Exchange Commission's Rule 144, we anticipate that all of those shares will be freely available for public resale within 30 days after the consummation of this offering, either as a result of the Securities and Exchange Commission's Rule 144(k) or as a result of our planned registrations of those issued and outstanding securities through separate resale registration statements. For more information on this matter, you should review the section of this prospectus titled Shares Eligible for Future Sale, beginning on page 47. IN ADDITION TO THE PUBLIC WARRANTS, WE HAVE ISSUED A SUBSTANTIAL NUMBER OF RESTRICTED WARRANTS AND OTHER CONVERTIBLE SECURITIES. OUR WARRANTS AND CONVERTIBLE SECURITIES MAY CAUSE THE TRADING PRICE OF OUR SECURITIES TO DECLINE, AND MAY DISRUPT OUR ABILITY TO RAISE CAPITAL FROM OTHER SOURCES. After completion of this offering and assuming it is fully subscribed, there will be 10,798,633 shares of Class A Voting Common Stock subject to purchase pursuant to warrants (consisting of 10,000,000 public warrants and 798,633 restricted warrants). We will also have 44,444 shares of Class A Voting Common Stock subject to purchase pursuant to a convertible promissory note. We have reserved 14,995,000 shares of our Class A Voting Common Stock for issuance pursuant to our equity compensation plan. After completion of this offering, there will also be 3,658,477 shares of Class B Non-voting Common Stock subject to purchase pursuant to restricted warrants. While these convertible securities are outstanding, the holders will have the opportunity to profit from a rise in the price of our securities with a resulting dilution in the interest of our other security holders. Our ability to obtain additional financing during the period these convertible securities are outstanding may be adversely affected and their existence may have an effect on the price of our securities. The holders of the convertible securities are likely to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital by a new offering of securities on terms more favorable to us than those available under convertible securities being exercised. WE MAY SELL ADDITIONAL SHARES IN THE FUTURE, WHICH COULD CAUSE THE PRICE OF OUR SECURITIES, IF PUBLICLY TRADED, TO DECLINE. We currently have 150,000,000 shares of Class A Voting Common Stock and 250,000,000 shares of Class B Non-voting Common Stock authorized. As a result, we have substantial amounts of authorized but unissued capital stock. Our Second Amended and Restated Certificate of Incorporation and applicable provisions of Delaware law provide that we may issue authorized capital at the approval of our Board of Directors, and no stockholder vote or other form of stockholder approval is required for us to issue such capital. Consequently, we could issue shares of either class of our common stock after this offering in connection with future financings or acquisitions or in conjunction with equity compensation arrangements. The offering prices in connection with those future issuances could be less than the offering price in this offering. Any future issuances of any of our securities could cause the trading price of our securities, if publicly traded, to decline. 12 YOU MAY NOT BE ABLE TO EXERCISE YOUR PUBLIC WARRANTS IF WE DO NOT MAINTAIN AN EFFECTIVE REGISTRATION STATEMENT. We are required to use commercially reasonable efforts to maintain a registration statement relating to the offer and sale of the Class A Voting Common Stock underlying the public warrants, and to qualify these public warrants and the underlying Class A Voting Common Stock for sale in jurisdictions in which their holders reside unless an exemption from such registration or qualification is available. If such registration is not maintained, the holders of the public warrants included in the Units may not be able to exercise them. THERE HAS NEVER BEEN A MARKET FOR OUR SECURITIES, AND WE CANNOT GUARANTEE THAT A MARKET FOR OUR SECURITIES WILL DEVELOP. There has been no public market for our securities and there can be no assurance that a public trading market for our securities will develop or, if developed, will be sustained. We have entered into preliminary discussions with a prospective market maker for quotation of our securities on the Over the Counter Bulletin Board (which we refer to as the "OTC Bulletin Board"), but we can be no assurance that our securities will be so quoted, or that a regular trading market will develop for our securities, or, if a market does develop, that it will be sustained. EVEN IF WE ARE QUOTED ON THE OTC BULLETIN BOARD, THE OTC BULLETIN BOARD MAY NOT PROVIDE LIQUIDITY FOR OUR INVESTORS. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASDAQ Stock Market or national or regional exchanges. Securities traded on the OTC Bulletin Board are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The Securities and Exchange Commission's order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTC Bulletin Board. Quotes for stocks included on the OTC Bulletin Board are not listed in newspapers. Therefore, prices for securities traded solely on the OTC Bulletin Board may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price. WE DO NOT HAVE SIGNIFICANT FINANCIAL REPORTING EXPERIENCE, WHICH MAY LEAD TO DELAYS IN FILING REQUIRED REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION AND SUSPENSION OF QUOTATION OF OUR SECURITIES, IF THEY BECOME QUALIFIED FOR QUOTATION ON THE OTC BULLETIN BOARD, WHICH WILL MAKE IT MORE DIFFICULT FOR YOU TO SELL YOUR SECURITIES. The OTC Bulletin Board limits quotations to securities of issuers that are current in their reports filed with the Securities and Exchange Commission. These limitations may be impediments to our quotation on the OTC Bulletin Board. Because we do not have significant financial reporting experience, we may experience delays in filing required reports with the Securities and Exchange Commission following the effectiveness of the registration statement to which this prospectus is a part. Because issuers whose securities are qualified for quotation on the OTC Bulletin Board are required to file these reports with the Securities and Exchange Commission in a timely manner, the failure to do so may result in a suspension of trading or delisting from the OTC Bulletin Board if our stock does become qualified for quotation on the OTC Bulletin Board. INVESTORS MUST CONTACT A BROKER-DEALER TO TRADE OTC BULLETIN BOARD SECURITIES. INVESTORS DO NOT HAVE DIRECT ACCESS TO THE OTC BULLETIN BOARD SERVICE. Because there are no automated systems for negotiating trades on the OTC Bulletin Board, they are conducted via telephone. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders - an order to buy or sell a specific number of shares at the current market price - it is possible for 13 the price of a stock to go up or down significantly during the lapse of time between placing a market order and its execution. WE ANTICIPATE THAT THERE WILL NOT BE MORE THAN ONE MARKET MAKER, IF ANY, FOR OUR SECURITIES FOR THE FORESEEABLE FUTURE. In the event that our securities are quoted on the OTC Bulletin Board, we anticipate that we will not have more than one market maker for our securities. As a result, in the event that this market maker ceases to make a market for our securities for any reason, our investors may have no public market for their securities. "PENNY STOCK" RULES MAY MAKE BUYING OR SELLING OUR SECURITIES DIFFICULT. Trading in our securities will be subject to the "penny stock" rules for the foreseeable future. The Securities and Exchange Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser's written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities. * * * FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. USE OF PROCEEDS Assuming that we sell all of the Units that we are offering, we anticipate that we will receive net cash proceeds of approximately $2,630,000 after deduction of underwriting commissions, fees and offering expenses. In the event that the minimum number of Units is sold under this offering, we will receive net proceeds of approximately $305,000 after deduction of underwriting commissions, fees and offering expenses. 14 We intend to use the proceeds of this offering to launch LocatePLUS Pocket(TM), to acquire additional datasets for integration into our LocatePLUS(TM) product and for working capital. We have not specifically allocated the anticipated proceeds of this offering among these expected uses. We will retain broad discretion in the allocation and use of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short-term, investment grade, interest-bearing securities. DETERMINATION OF OFFERING PRICE Since none of our securities are listed or quoted on any exchange or quotation system and since our underwriter is selling shares on a "best efforts" basis, the offering price of our Units was unilaterally determined solely by our Board of Directors. The facts we considered in determining that offering price were: o our financial condition and prospects; o our limited operating history; o the general condition of the securities market; o our underwriter's informal prediction of demand for securities such as the Units; and o recent sales of our securities in private placements. The offering price is not an indication of and is not based upon the actual value of the Company. The offering price bears no relationship to our book value, assets or earnings or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of our securities. DIVIDEND POLICY We have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the future. We are under no legal or contractual obligation to declare or to pay dividends, and the timing and amount of any future cash dividends and distributions is at the discretion of our Board of Directors and will depend, among other things, on our future after-tax earnings, operations, capital requirements, borrowing capacity, financial condition and general business conditions. We plan to retain any earnings for use in the operation of our business and to fund future growth. You should not purchase our Units on the expectation of future dividends. CAPITALIZATION The following table sets forth our capitalization as of December 31, 2001, on: o an actual basis; and o a PRO FORMA as adjusted basis to give effect to the conversion of our outstanding mandatorily convertible debt and accrued interest into 1,511,825 shares of Class A Voting Common Stock, the issuance of 1,666,666 Units (the minimum that may be sold by us in this offering) and the issuance of 10,000,000 Units (the maximum number that may be sold by us in this offering) at an offering price of $0.30 per share and after deducting underwriting commissions and estimated offering expenses of approximately $160,000. 15 You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the related notes included elsewhere in this prospectus.
DECEMBER 31, 2001 (IN THOUSANDS) PRO FORMA ACTUAL AS ADJUSTED ------ ----------- (ASSUMES MINIMUM) (ASSUMES MAXIMUM) DEBT: Current portion of convertible debt and capital lease obligations ..................... $ 149 $ 149 $ 149 ======== ======== ======== Capital lease obligations, net of current portion ................................... $ 173 $ 173 $ 173 Mandatorily convertible debt ........................... 363 -- -- -------- -------- -------- Total long-term debt 536 173 173 STOCKHOLDERS' EQUITY: Common Stock, par value $0.01 per share: Class A Voting Common Stock, 150,000,000 shares authorized; 53,108,580, 54,620,405, and 54,620,405 shares issued and outstanding, respectively............................ 531 546 546 Class B Non-voting Common Stock, 250,000,000 shares authorized; 48,527,054, 50,193,720, 58,527,054 shares issued and outstanding, respectively......................................... 485 502 585 Additional paid-in capital ............................. 14,214 14,829 16,511 Warrants ............................................... 548 660 1,220 Common stock subscriptions receivable (4) (4) (4) Accumulated deficit .................................... (14,286) (14,377) (14,377) -------- -------- -------- TOTAL STOCKHOLDERS' EQUITY ............................. 1,488 2,156 4,481 -------- -------- -------- TOTAL CAPITALIZATION ................................... $ 2,173 $ 2,478 $ 4,803 ======== ======== ========
16 DILUTION ASSUMING MAXIMUM NUMBER OF UNITS SOLD As of December 31, 2001, without taking into account any changes in our net tangible book value subsequent to that date other than to give effect to the conversion of certain convertible debt and accrued interest into 1,511,825 shares of Class A Voting Common Stock and assuming the sale of 10,000,000 Units in the offering (the maximum number of Units that we are offering for sale) at the offering price of $0.30 per Unit, less the estimated offering expenses including underwriting commissions, the PRO FORMA as adjusted net tangible book value of each of the assumed outstanding shares of common stock would have been $0.04. This would have resulted in dilution of $0.26 to new investors purchasing Units in the offering. At the same time, our current stockholders would have realized an increase in PRO FORMA net tangible book value of $0.02 after the offering without further cost or risk to themselves. The following table illustrates this per share dilution, assuming 10,000,000 Units are sold: Initial public offering price, per Unit............................... $0.30 PRO FORMA net tangible book value per share before the initial public offering.................................... $0.02 Increase in PRO FORMA as adjusted net tangible book value per share attributable to investors in the offering................... $0.02 PRO FORMA as adjusted net tangible book value per share after the offering.................................................... $0.04 Dilution per share to new investors................................... $0.26 ASSUMING MINIMUM NUMBER OF UNITS SOLD As of December 31, 2001, without taking into account any changes in our net tangible book value subsequent to that date other than to give effect to the conversion of certain convertible debt and accrued interest into 1,511,825 shares of Class A Voting Common Stock and assuming the sale of 1,666,667 Units in the offering (the minimum number of Units that we may sell and receive any proceeds from this offering) at the offering price of $0.30 per Unit, less the estimated offering expenses including underwriting commissions, the PRO FORMA as adjusted net tangible book value of each of the assumed outstanding shares of common stock would have been $0.02. This would have resulted in dilution of $0.28 to new investors purchasing Units in the offering. At the same time, our current stockholders would have realized no change in the PRO FORMA net tangible book value. The following table illustrates this per share dilution, assuming 1,666,667 Units are sold: Initial public offering price, per Unit............................... $0.30 PRO FORMA net tangible book value per share before the initial public offering.................................... $0.02 Increase in PRO FORMA as adjusted net tangible book value per share attributable to investors in the offering................... $0.00 PRO FORMA as adjusted net tangible book value per share after the offering.................................................... $0.02 Dilution per share to new investors................................... $0.28 17 SELECTED CONSOLIDATED FINANCIAL DATA You should read the selected financial data set forth on the following page in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. The statement of operations data set forth below for the years ended December 31, 2000 and 2001 and the balance sheet data as of December 31, 2000 and 2001 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma balance sheet data has been prepared assuming the conversion of certain outstanding mandatorily convertible debt into common stock as of December 31, 2000 pursuant to this offering. These historical results are not necessarily indicative of results to be expected for any future period. See Note 14 in the Notes to the Consolidated Financial Statements for a description of the computation of net loss per share and the number of shares used in the per share calculation. 18
STATEMENTS OF OPERATIONS DATA: YEAR ENDED DECEMBER 31, ----------------------------------- 2000 2001 ------------ ------------ REVENUES: Licenses $ 490,480 $ 268,701 Services 98,632 752,109 Engineering services -- 388,187 ------------ ------------ Total revenues 589,112 1,408,997 COSTS AND EXPENSES: Costs of revenues: Licenses 169,782 96,561 Services 1,293,297 986,240 Engineering services -- 49,347 Selling and marketing 1,010,621 799,486 General and administrative 3,439,251 3,317,128 ------------ ------------ Total operating expenses 5,912,951 5,248,762 ------------ ------------ OPERATING LOSS (5,323,839) (3,839,765) OTHER INCOME (EXPENSE): Interest income 19,605 67,768 Interest expense, (43,110) (590,970) Loss on investment (500,000) -- Other income, net 13,902 6,712 ------------ ------------ Net loss $ (5,833,442) $ (4,356,255) ============ ============ BASIC AND DILUTED NET LOSS PER SHARE $ (0.11) $ (0.04) SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER SHARE 51,916,934 99,613,673
PRO FORMA AS ADJUSTED BALANCE SHEET DATA: AS OF DECEMBER 31, DECEMBER 31, 2000 2001 2001 ----------- ----------- ----------- (UNAUDITED) Cash and equivalents $ -- $ 915,864 $ 915,864 Total current assets 174,082 2,264,301 2,264,301 Total assets 2,126,113 3,970,531 3,970,531 Total current liabilities 2,058,071 1,947,982 1,947,982 Mandatorily convertible debt 310,975 362,838 -- Total stockholders' equity (deficit) $ (425,870) $ 1,487,092 $ 1,849,930
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TOGETHER WITH "SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS BECAUSE OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE PRESENTED IN THE SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 4 AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW We are a business-to-business and business-to-government provider of public information via our proprietary data integration solutions. Since 1996, we have sold a CD-ROM-based product, which we refer to as Worldwide Information(TM), that enables users to search certain motor vehicle records and driver's license information in multiple states through a dynamic search engine, using complete or partial information. Since March 1, 2000, we have maintained a database that is accessible through the Internet, known as LocatePLUS(TM). Our LocatePLUS(TM) product contains searchable and cross-referenced public information on individuals throughout the United States, including individuals' names, addresses, dates of birth, Social Security numbers, prior residences, and, in certain circumstances, real estate holdings, recorded bankruptcies, liens, judgments, drivers' license information and motor vehicle records. We anticipate that the majority of our future revenues will be derived from our LocatePLUS(TM) product. We distribute our content both directly (through the Internet in the case of our LocatePLUS(TM) product and through the mail in the case of our Worldwide Information(TM) CD-ROM) and through "channel partner" arrangements, by which third party database providers obtain access to our databases in consideration for a royalty. We have executed one channel partner agreement to date, which was entered into in 2001. However, that channel partnership did not generate any revenue until January 2002 and, as of this date, revenue generated from this channel partnership has not been material. We anticipate that we will into additional "channel partner" agreements in the future. We currently anticipate that revenue from channel partner arrangements will constitute a material portion of our revenue in 2002, and will continue to do so in the foreseeable future. In 2001, we entered into an arrangement with a third party database provider, pursuant to which we provided certain engineering services relating to the integration and assimilation of public data. We believe that revenue from engineering services is not likely to constitute a material portion of our future revenue. Although our products consist primarily of publicly available - and therefore non-proprietary - information, we integrate data in our products in a proprietary manner that allows users to access data rapidly and efficiently. In addition, our LocatePLUS(TM) product utilizes proprietary methodologies to "tie" data associated with a given individual to a single background report, even though the sources of data with respect to a given individual may be incomplete or contain only partial information with respect to that individual. Investors should not use our past results as a basis to predict our future performance. We have incurred significant net losses since our inception. We incurred net losses of approximately $5.8 million in 2000 and $4.4 million in 2001. Our accumulated deficit as of December 31, 2001 was approximately $14.4 million. We anticipate that we will increase our sales and marketing, product development and general and administrative expenses during 2002 and for the foreseeable future. To achieve profitability, we will need to generate significantly more revenue than we have in prior years. Even if we ultimately do achieve profitability, we may not be able to sustain or increase our profitability. If our revenue increases more slowly than we anticipate, or if our operating expenses exceed our expectations, our operating results will be harmed. 20 Information in our Worldwide Information(TM) product is updated and released either quarterly or twice a year. Revenue associated with our Worldwide Information(TM) product is recognized upon delivery to the customer of a CD-ROM, provided that no significant obligations remain, evidence of the arrangement exists, the subscription fee is fixed or determinable and collectibility is reasonably assured. In the case of our LocatePLUS(TM) product, we charge a "per click" fee to customers, which varies based upon on the type and quantity of information requested. Revenue from our LocatePLUS(TM) product is recognized when requested information is downloaded, there is evidence of an arrangement, the fee is fixed or determinable, and collectability is reasonably assured. We charge our fees to customers' credit cards (in the case of approximately 75% of our current customer base) or invoice customers for such fees on a monthly basis (in the case of approximately 25% of our current customer base). Our costs of revenue consist primarily of payments to obtain data and software maintenance expenses, which consist primarily of payroll and related expenses for information technology personnel, Internet access and hosting charges, and expenses relating to Web content and design. We license or otherwise obtain our data from three primary sources, as well as over twenty other ancillary sources (including both private and government sources). In March 1999, we entered into a data acquisition agreement to acquire information related to real property. This agreement expires on June 30, 2002. In July 1999, we entered into a three year data acquisition agreement to acquire credit file header information. This agreement may be cancelled by the data provider upon 90 days' notice, with or without cause. In August 1999, we entered into a one year data acquisition agreement to acquire bankruptcy, liens, and judgments information. This agreement was renewable for successive periods of one year unless terminated upon 90 days' prior written notice. This agreement was followed by a new agreement relating to bankruptcy, liens, and judgments information, which we entered into on November 27, 2001. This new agreement has a one year term with automatic one year successive renewal periods unless terminated by either party prior to renewal. Payments under these agreements are based on monthly minimum payments and monthly usage. For more information on this, you should review the subsection of this section titled "Commitments and Contingencies," beginning on page 24. In 2000 and 2001, we recorded $640,000 and $648,500, respectively, in costs related to these agreements, of which $337,000 was accrued but not paid, in violation of the provisions of certain of these agreements. Our use of data under one of these agreements may be subject to termination as a result of this failure to pay. In the event that any of our primary sources of data were no longer available to us, we believe that we would be able to integrate alternate sources of data without significant disruption to our business or operations, as we believe there are currently a number of equivalent providers of such data. 21 Our selling and marketing expenses consist of salaries and commissions paid to sales representatives for the products that we offer, as well as direct mail advertising campaigns and magazine and Internet banner advertisements. General and administrative expenses consist of payroll and related expenses for non-sales, non-research and development and executive and administrative personnel, facilities expenses, insurance, professional services expenses, travel and other miscellaneous expenses. Interest income and expense primarily consists of earnings on our cash and cash equivalents. Interest expense is attributable to convertible notes issued in the year ended December 31, 2001. At December 31, 2001, we had notes payable (current and long-term) totaling $372,838. Of this amount, $362,838 will mandatorily convert into shares of our Class A Voting Common Stock upon the consummation of this offering. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 REVENUE. Revenue from licenses of our Worldwide Information(TM) CD-ROM product decreased to $268,701 for the year ended December 31, 2001 from $490,480 for the year ended December 31, 2000, a decrease of 45%. We believe this decrease was the result of our re-direction of sales efforts toward our Internet-based product, LocatePLUS(TM). We launched our LocatePLUS(TM) product in March 2000. Service revenue from our Internet-based product, LocatePLUS(TM), increased to $752,109 for the year ended December 31, 2001 as compared to $98,632 for the year ended December 31, 2000, an increase of 662%. This increase is attributable to an increase in customers and usage. We also realized $388,187 of revenue during the year ended December 31, 2001 from certain database engineering services that we provided to a third party. We recognized no engineering service revenue during fiscal year ended December 31, 2000, and we do not anticipate that we will recognize material engineering service revenue in the future. COST OF LICENSE REVENUE. For the year ended December 31, 2001, our cost of revenue for licenses of Worldwide Information(TM) was $96,561, as compared to $169,782, for the year ended December 31, 2000, a decrease of 43%. This decrease is primarily attributable to cost cutting measures initiated in early 2001, including reducing our payroll costs. We anticipate that our cost of license revenue will increase in 2002 because we plan to update our Worldwide Information(TM) database to reflect changes in certain states' motor vehicle and drivers license data and to develop a DVD-ROM version of our Worldwide Information product. COST OF SERVICE REVENUE. For the year ended December 31, 2001, our cost of service revenue associated with LocatePLUS(TM) was $986,240, as compared to $1,293,297 for the year ended December 31, 2000, a decrease of 24%. This decrease is primarily attributable to cost-cutting measures, including payroll cost reductions. We are currently negotiating with certain of these vendors to re-establish modified versions of those data contracts. We anticipate that a substantial portion of the proceeds of this offering will be used to acquire additional data to enhance our LocatePLUS(TM) product, and we expect that we will increase our cost of service revenue in the future. 22 COST OF ENGINEERING REVENUE. For the year ended December 31, 2001, our cost of engineering revenue was $49,347. Cost of engineering revenue consisted of salary and expenses allocated to an engineering project for a third party. We had no engineering revenue, and no corresponding cost of engineering revenue, in 2000. SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the year ended December 31, 2001 were $799,486, as compared to $1,010,621 for the year ended December 31, 2000, a decrease of approximately 20%. This reduction in expenses is attributable primarily to reduced payroll costs. We plan to expand our sales force and advertising efforts during 2002 as we attempt to increase our customer base and sales volume. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased to $3,317,128 for the year ended December 31, 2001, from $3,439,251 for the year ended December 31, 2000, a decrease of 4%. We expect general and administrative expenses to increase as we begin to hire additional personnel and incur additional costs to manage the anticipated growth of our business and the costs associated with being a publicly held company. INTEREST INCOME (EXPENSE). Interest expense substantially increased to $590,970 for the year ended December 31, 2001, from $43,110 for the year ended December 31, 2000, an increase of 1,270%. This increase is attributable to approximately $130,000 in increased interest on borrowings, an increase of approximately $127,000 in interest expense relating to warrants issued with certain convertible debt, and an increase of approximately $294,000 in interest expense relating to the beneficial conversion features of this convertible debt. LOSS ON INVESTMENT. During 2000, we entered into a series of agreements with IntelliCorp, Ltd., an unaffiliated Ohio-based database provider. Under the terms of those agreements, we loaned $500,000 in cash in exchange for certain promissory notes convertible into ownership interests in IntelliCorp at IntelliCorp's discretion. We recorded a bad debt reserve for the full amount of that investment during 2000. INCOME TAXES As of December 31, 2001, we had net operating loss carryforwards for federal and state income tax purposes of approximately $1.2 million, which expire through 2021. We have provided a full valuation allowance on this deferred tax asset because of the uncertainty relating to our ability to use these losses. Changes in the ownership of our common stock also may limit our use of these carryforwards. 23 LIQUIDITY AND CAPITAL RESOURCES From our incorporation in 1996 through December 31, 2001, we raised approximately $13.5 million through a series of private placements of equity and convertible debt to fund marketing and sales efforts and develop our products and services. During 2001, our financing activities provided approximately $5.3 million of cash, principally through the issuance of convertible debt and Class B Non-voting Common Stock. As of December 31, 2001, our cash and investments totaled $1,915,864. From January 1, 2002 through February 13, 2002, we raised approximately $1.2 million through sales of our Class B Non-voting Common Stock. During 2001, we used approximately $3.1 million in operating activities, principally to fund our net losses. Also during 2001, we loaned $1.0 million to an unaffiliated leasing company. As of the date of this prospectus, $750,000 of this note has been repaid. The financial statements included in this prospectus have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have incurred an accumulated deficit of approximately $14.3 million through December 31, 2001 and used approximately $3.1 million of cash in operations during 2001. We believe that additional financing will be required during 2002 to fund our planned operations. As contemplated in this prospectus, our plans include raising additional funds in 2002. There is no assurance that we will obtain the financing to provide the resources necessary for us to continue our planned operations through 2002. There can be no assurance that such financing will be available to us, on favorable terms, or at all. In the event that our operations are not profitable or do not generate sufficient cash to fund our business, or if we fail to obtain additional financing, we will have to substantially reduce our level of operations. These circumstances raise substantial doubt about our ability to continue as a going concern. The financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty. COMMITMENTS AND CONTINGENCIES OPERATING LEASES We lease office space and equipment under various operating lease agreements that terminate on various dates through 2005. Future minimum payments under our non-cancelable operating leases total $1,560,041. CAPITAL LEASES During the year ended 2000, we entered into certain long-term equipment lease agreements. These agreements are classified as capital leases and expire in 2005. Future minimum lease payments under our non-cancelable capital leases total $413,302. LICENSE AGREEMENTS We have entered into various data acquisition agreements under which we are required to make minimum payments totaling $785,000 through 2004. 24 LOAN DEFAULT In consideration for a $10,000 loan made to us on March 9, 2001, we issued a convertible promissory note. This convertible promissory note bears interest at the rate of 12% per annum. The note matured on September 9, 2001. We have continued to make interest payments under this note as they have come due. We are currently in default with respect to the payment of the principal of this loan. This note is currently convertible into 44,444 shares of our Class A Voting Common Stock at the election of the holder. LEGAL PROCEEDINGS We are from time to time subject to legal proceedings and claims that arise in the normal course of our business. There are currently no pending or known actions for which the amount of ultimate liability could have a material adverse effect on our financial position or results of operations. CRITICAL ACCOUNTING POLICIES We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this section, where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements included elsewhere in this prospectus. Note that our preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. Our accounting policies that are the most important to the portrayal of our financial condition and results, and which require the highest degree of management judgment relate to revenue recognition and the provision for uncollectible accounts receivable. We estimate the likelihood of customer payment based principally on a customer's credit history and our general credit experience. To the extent our estimates differ materially from actual results, the timing and amount of revenues recognized or bad debt expense may be materially misstated during a reporting period. RELATED PARTY TRANSACTIONS CONSULTING SERVICES Certain members of our Board of Directors have performed consulting services for us. Expenses relating to these services amounted to $223,795 and $303,892 in 2000 and 2001, respectively, and were recorded as part of general and administrative expenses. In 2001, we granted options to purchase 119,104 shares of Class A Voting Common Stock for services rendered as a consultant to a former member of our Board of Directors. We recorded an expense of $21,645 associated with these options. In 2002, we issued a warrant to purchase 1,177,680 shares of Class B Non-voting Common Stock for consulting services rendered by the former member of our Board of Directors. In 2001, we granted options to purchase 38,067 shares of Class A Voting Common Stock and warrants to purchase 324,581 shares of Class B Non-voting Common Stock in consideration for services rendered by a member of the Board of Directors. We recorded expenses of $6,918 and $44,277, respectively, associated with these options and warrants. NON-EMPLOYEE DIRECTORS STOCK OPTION POLICY On February 1, 2002, and pursuant to our Non-employee Directors' Stock Option Policy, we granted warrants to purchase a total of 70,000 shares of Class B Non-voting Common Stock, with an exercise price of $0.15 per share, to two of our Directors. LOAN FROM DIRECTOR During 2001, we issued convertible notes with detachable warrants to two members of our Board of Directors in exchange for an aggregate of $215,000 in cash. Consulting expenses in 2001 include $74,900 related to the exchange of convertible debt into equity securities by a member of the Company's Board of Directors. USE OF OUR ASSETS Certain of our executives are allowed use of company cars for both business and personal purposes. These cars have been capitalized as assets of the Company, totaling $115,278 as of December 31, 2001. NOTES RECEIVABLE FROM RELATED PARTIES During 2000, we loaned $400,000 in cash, and received, in exchange, promissory notes from two officers. The notes bear interest at an annual rate equal to the 90-day Treasury Bill Rate (1.7% at December 31, 2001). The principal and accrued interest are due and payable in one lump sum on January 3, 2010, unless, prior to that date, we have inadequate funds to satisfy our obligations as they generally become due, in which case the principal and accrued interest would be immediately due and payable. We do not intend to make a call on these notes in the foreseeable future and, therefore, the notes are classified as long-term assets. In the event of a change of control, as defined in these notes, or in the event that, as of January 3, 2003, the applicable officer is (i) employed by us; (ii) an independent contractor for us; or (iii) a member of our Board of Directors, then with respect to that officer's note, the note shall be canceled without further action by any party. In the event that a note is canceled pursuant to the conditions described above, we agreed to pay to the applicable officer, no later than two months after the end of the officer's applicable tax year in which such cancellation occurs, an amount in cash sufficient to fulfill the officer's tax liability attributable to the cancellation of the note. We are amortizing the principal balance of these notes on a monthly basis through January 3, 2003. Through December 31, 2001, we recorded $256,944 of compensation expense. Additionally, we have accrued approximately $138,000 through December 31, 2001 relating to an estimate of the officers' tax liability expected to be reimbursed by us. 25 INTELLICORP In 2001, we entered into a Channel Partnership (license and distribution) Agreement with IntelliCorp, that provided for IntelliCorp to license certain data from us in consideration for a royalty equal to 50% of the revenue that IntelliCorp realizes from the sale of our data. No royalties were recognized under this agreement in 2001. In January 2002, we amended the Channel Partnership Agreement to increase the royalty rate to 75% of the revenue realized by IntelliCorp on sales of our data, to terminate IntelliCorp's conversion right with respect to our loan to IntelliCorp, and to cease interest accrual on our loan to IntelliCorp as of February 1, 2002. As of that date, interest receivable of $76,280 was due but not recorded as income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible Assets," which became effective for us on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses significant issues relating to the implementation of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and develops a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. Had we implemented the above accounting pronouncements in the current period, our financial position and results of operations would not have been effected. * * * 26 BUSINESS OVERVIEW We are a business-to-business and business-to-government provider of public information via our proprietary data integration solutions. Since 1996, we have sold a CD-ROM-based product, which we refer to as Worldwide Information(TM), that enables users to search certain motor vehicle records and drivers' license information in multiple states. Since March 1, 2000, we have maintained a database that is accessible through the Internet, known as LocatePLUS(TM). Our LocatePLUS(TM) product contains searchable and cross-referenced public information on individuals throughout the United States, including individuals' names, addresses, dates of birth, Social Security numbers, prior residences, and, in certain circumstances, real estate holdings, recorded bankruptcies, liens, judgments, drivers' license information and motor vehicle records. INDUSTRY BACKGROUND We are a background information provider. Users of background information have historically included law enforcement, other government agencies, law firms, investigation companies, private investigators and insurance companies. Information is used by those entities for various activities ranging from legal discovery to employment screening to the detection of fraud and the prevention of crime and terrorism. Additional users, such as large businesses, have increasingly availed themselves of background information services in connection with their hiring practices and other business decisions. The business market for online public information was $1.5 billion to $2.0 billion in 1998 and is expected to reach $4.0 billion by 2003, according to Argus Research. A considerable amount of background information about individuals in the United States is publicly available. Examples of such public data include: o names and addresses o property ownership o aliases o bankruptcies o nationwide court records o certain criminal records The sources of these types of public data, however, are often fragmented and geographically dispersed. In addition, the reliability of this information and the data provided by various sources may not be consistent. In this environment, businesses and government agencies that wish to use public information are faced with the time-consuming, costly and difficult task of gathering data from numerous locations and sources, verifying the information acquired and organizing it into a useful format. While services and technologies have developed to enable remote access to information sources, there has historically been few comprehensive access points for information available about individuals. Traditional sources of information, including credit reporting services and other database services, make available only limited types of information for specific purposes, such as verifying credit worthiness. Such services may also be limited by applicable law to specified uses and users. Almost none of those sources are integrated in a manner that allows easy and rapid access to data. BUSINESS STRATEGY Our business plan is to provide an entire suite of information products and services for professionals in law enforcement agencies, human resources, law firms, insurance underwriting, fraud investigation, private equity funds, corporate securities, private investigation and financial institutions. We 27 believe that we will be able to compete with comparable services based upon the pricing of our services and based upon certain technical advantages incorporated in our systems (such as our data integration methodologies and our hyper-linked and wireless LocatePLUS(TM) reports). OUR TARGET MARKET AND SCREENING OF USERS Our products are marketed and sold to federal, state and local government agencies (including law enforcement agencies), private investigators, human resource professionals and the legal profession. Our products are used in: o crime and terrorism investigation (such as in conjunction with federal and state investigations in the aftermath of the September 11th terrorist attacks and recent bio-terror incidents); o detection of fraud; o "skip tracking" (i.e., the location of debtors and individuals in violation of parole or bail restrictions); o background checks; o legal due diligence; and o risk management. Our products are generally marketed and sold only to pre-screened business and government end users. We do not sell products or services to the general public due to the liability that may arise from the release of personal information to the public. Before obtaining access to our LocatePLUS(TM) database or our Worldwide Information(TM) product, we generally require commercial customers to provide background information about their business need for data and about themselves, such as business licenses, bar cards or private investigator licenses. Individuals involved in law enforcement must provide evidence of their authority. In an attempt to prevent the misuse of our date, we have adopted a three tier security schema. ======= ============================= ========================================== LEVEL INDUSTRY USERS SAMPLE DATASETS AVAILABLE TO USERS ======= ============================= ========================================== Names, Addresses and Phone Numbers I General Business Past Residences, Neighbors and Affiliates Real Property ======= ============================= ========================================== Private Investigators Level I Data, plus: II Insurance Liens and Judgments Attorneys/Law Firms Drivers' Records Government Certain Motor Vehicle Records Corporate Security ======= ============================= ========================================== Level I and II Data, plus: Comprehensive Criminal Records III Law Enforcement Restricted Motor Vehicle Records Certain Credit Reporting Data ======= ============================= ========================================== 28 We are a member of the Individual Reference Services Group (which we refer to as the "IRSG"), a background information industry trade group. The IRSG has adopted a series of principles, which it has deemed industry "best practices" designed to ensure individual privacy while allowing access to needed data by authorized users. We believe that we currently comply with the IRSG's principles, based on a 2001 audit conducted by the IRSG. LOCATEPLUS(TM) We launched our LocatePLUS(TM) Internet site in March 2000. Our LocatePLUS(TM) database contains searchable and cross-referenced public information on individuals throughout the United States. Information is presented in a dynamic, hyper-linked fashion, permitting users to rapidly identify and obtain personal information relating to individuals and their associated residences, possible acquaintances, and a variety of other types of data. Our LocatePLUS(TM) database consists of approximately 5 billion individual data entries. According to our estimates, we have data entries relating to approximately 205 million adult individuals in the United States (or approximately 98% of the adult population of the United States based on the 2000 United States Census). As of December 31, 2001, there were 4,185 pre-screened users of our LocatePLUS(TM) database. Datasets currently integrated in our LocatePLUS(TM) product include nationwide records relating to: o names and addresses o real estate records o aliases o prior residences o dates of birth o recorded bankruptcies o Social Security numbers o liens o driver's license information o motor vehicle records o residential address information o certain death records (including dates of residence) o phone numbers o vessel registrations We intend to continue integration of datasets into our LocatePLUS(TM) product, including: o certain criminal arrest, conviction o certain professional and incarceration records licenses o certain hunting and fishing licenses o certain fingerprint files o certain facial image files o Federal Aviation Administration records o certain gun licenses We can currently give no assurance as to the timing of integration of such datasets, however, or whether these new datasets will be integrated with our LocatePLUS(TM) product at all. We believe that one of the significant advantages of our LocatePLUS(TM) product, in comparison with many products with which we compete, is the ability of LocatePLUS(TM) to "tie" data associated with a given individual to produce a single report. Our LocatePLUS(TM) system uses a proprietary methodology to associate data in a manner that generally results in a matching of data entries across diverse data sources, allowing users to obtain a single, comprehensive data report about an individual, even when there is no single element that ties data entries together (such as a Social Security number). This comprehensive data report is itself linked to other data potentially relevant to a business or government agency researching an individual, such as names and addresses of possible acquaintances, relatives and neighbors of that individual. 29 LOCATEPLUS POCKET(TM) We recently developed a version of our LocatePLUS(TM) product that is accessible through wireless personal digital assistants and devices such as the RIM Blackberry(R), which we refer to as LocatePLUS Pocket(TM). We expect to market this wireless LocatePLUS(TM) product primarily to law enforcement agencies. We cannot currently estimate revenues from this wireless product, as market acceptance of our product will depend on a variety of factors outside our control, including the availability of competing products and the resources available to law enforcement agencies. We expect that these devices will be marketed and sold on a subscription fee basis, permitting unlimited access to our LocatePLUS(TM) database for a flat monthly fee provided that that the user agrees to a fixed term commitment. WORLDWIDE INFORMATION(TM) Since 1996, we have produced CD-ROM products that enable users to quickly search motor vehicle records in multiple states through a dynamic search engine, known as Worldwide Information(TM). Our Worldwide Information(TM) product enables users to search certain motor vehicle records and drivers' license information in multiple states through a dynamic search engine. Unlike many competing products, our Worldwide Information(TM) product enables users to rapidly identify vehicles or drivers using complete or partial search criteria. We believe that this ability to search partial data is a valuable tool in circumstances in which incomplete information is available, as is often the case in criminal investigations. Unlike data provided by Internet-based services, searches on our CD-ROM product are confidential and unavailable to any person other than the user of our CD-ROM product. We believe that the confidential nature of this CD-ROM product makes it particularly attractive to law enforcement agencies, which must often conduct criminal investigations in strict secrecy. As of December 31, 2001, there were approximately 2,700 pre-screened purchasers of our Worldwide Information(TM) CD-ROM product. We currently expect to expand our Worldwide Information(TM) product to include data from additional states, and to develop a DVD-ROM-based version of this product, although we can give no assurance as to the timing of such product launches or whether such products will be developed at all. We expect that a DVD-ROM-based version of this product, if developed, would permit multi-state Worldwide Information(TM) databases to reside on a single medium. SOURCES OF OUR DATA Our operations depend upon information derived from a wide variety of automated and manual sources. External sources of data include public records information companies, governmental authorities and on-line search systems. We license or otherwise obtain our data from three primary sources, as well as over twenty other ancillary sources (including both private and government sources). In March 1999, we entered into a data acquisition agreement to acquire information related to real property. This agreement expires on June 30, 2002. In July 1999, we entered into a three year data acquisition agreement to acquire credit file header information. This agreement is terminable by the data provider at the data provider's discretion, with or without cause. 30 In August 1999, we entered into a one year data acquisition agreement to acquire bankruptcy, liens and judgments information. That agreement included a provision that caused it to be automatically renewable unless 90 days' prior notice was given. We entered into a new agreement with this data provider on November 27, 2001. That agreement has a one year term with automatic one year renewal periods unless terminated by either party prior to renewal. Payments under these agreements are based on monthly minimum payments and monthly usage. In 2000 and 2001, we recorded $640,000 and $648,500, respectively, in costs related to these agreements, including an aggregate of approximately $337,000 that we have accrued but not paid in violation of certain of these agreements. Our use of data under one of these agreements may be subject to termination as a result of this failure to pay. In the event that any of our primary sources of data were to cease to be available to us, we believe that we would be able to integrate alternate sources of data without significant disruption to our business or operations, as our management has identified a number of alternate sources for our data. We may be subject to business disruptions, however, as a result of any such termination. Any such disruption could have a material adverse effect on our business and financial condition. REGULATORY RESTRICTIONS ON OUR BUSINESS Both federal and state law regulates the sale of data. Recently, consumer advocates and federal regulators have voiced concerns regarding public access to, or commercial use of, personal information. As a result, increased pressure has been placed upon federal and state legislators to regulate the dissemination or commercial use of personal information. One recent legislative enactment that has had an effect on our business was the Financial Services Modernization Act of 2000, also known as the "Gramm-Leach-Bliley Act". Among other things, this law restricts the collection, use, and transfer of certain data that includes "credit header" information, which had historically functioned as the backbone of our data resources. Implementation of this law's restrictions by the Federal Trade Commission significantly effected the availability of certain data for our database, but we have subsequently developed datasets that function independently of "credit header" information. Although we have not engaged counsel to review this matter or the conduct of our operations generally, we believe that our operations are currently unaffected by the Gramm-Leach-Bliley Act or any law specifically applicable to the dissemination of data concerning individuals. Our belief is based upon our compliance with the "best practices" of the IRSG. Any further restriction on our use of personal information, however, could limit the usefulness and have a material adverse affect on our operations, our products, including our LocatePLUS(TM) product. Federal and state law prohibits us from selling data relating to minors. Our products have been designed to prevent the dissemination of such data. DISTRIBUTION OF OUR PRODUCTS We distribute our content both directly (though the Internet in the case of our LocatePLUS(TM) product and through the mail in the case of our Worldwide Information(TM) CD-ROM) and through "channel partner" arrangements, by which third parties access our databases in consideration for a royalty. We also, from time to time, provide certain consulting services to third party database providers on the integration and assimilation of public data. To date, our efforts to license data have resulted in a single Channel Partnership Agreement that we have with IntelliCorp, Ltd., an Ohio-based database company. Under the terms of our Channel Partnership Agreement with IntelliCorp, we will share certain data with IntelliCorp and receive a royalty with respect to that data. We have not yet realized any material revenue from this relationship. This agreement is expected to terminate in August 2003, but may be extended or canceled prior to that date under certain limited conditions. COMPETITION Current competitors for our LocatePLUS(TM) product include Accurinet, ChoicePoint, Confi-chek.com, FlatRateInfo.com, and Lexis-Nexis. Many of the companies that currently compete with this product, as well as other companies with whom we may compete in the future, are national or international in scope and have greater resources than we do. Those resources could enable those companies to initiate price cuts or take other measures in an effort to gain market share in our target markets. Our Worldwide Information(TM) product primarily competes with the registries of motor vehicles of various states that sell their data to screened users. These state agencies generally provide data in "raw form" without the search capabilities that we provide in our Worldwide Information(TM) product. FACILITIES LocatePLUS Holdings Corporation and our wholly owned subsidiary, LocatePLUS Corporation, are presently headquartered in Beverly, Massachusetts, where we lease approximately 32,000 square feet. 31 The lease on that facility expires on February 28, 2005, and our annual lease obligation is approximately $480,000. Our wholly owned subsidiary, Worldwide Information, Inc., is presently located in Byfield, Massachusetts where it leases approximately 2,700 square feet. The lease on the Byfield facility expires on March 1, 2003 and the current annual rent is approximately $25,000. We also lease a storage facility in Georgetown, Massachusetts pursuant to a month-to-month lease, with current monthly rent of $500. We believe that our facilities are sufficient for our projected needs. INTELLECTUAL PROPERTY Publicly available data concerning individuals is generally non-proprietary. As a result, our intellectual property consists largely of certain trade secrets and know-how associated with the integration of databases and our ability to link diverse datasets. We rely on a combination of confidentiality agreements, restrictions on access to our proprietary systems, and contractual provisions (such as in our user agreements) to protect our intellectual property. We have registered LOCATEPLUS.COM(R) as a trademark with the United States Patent and Trademark Office for our Internet site. We maintain LOCATEPLUS(TM) and WORLDWIDE INFORMATION(TM) as unregistered trademarks relating to our products. We may, from time to time, claim certain other rights under trademark law, however, we currently have no other marks registered or pending with the United States Patent and Trademark Office or the equivalent agency of any other country. Patent protection is generally not available for compilations of data (such as our products), and therefore we have no patents on any of our products, and we currently do not anticipate any patents issuing with respect to any of our products. Similarly, rights under United States copyright law do not extend to mere compilations of data, although we may have certain rights under United States copyright law with respect to the organization, integration and presentation of our data. EMPLOYEES As of December 31, 2001, we had approximately 30 employees. We believe that our relations with our employees are good. LEGAL PROCEEDINGS We are not currently involved in any material legal proceedings, although claims may arise from time to time in the conduct of our operations. There can be no assurance at this time that any claims that may arise in connection with the conduct of our business will not materially adversely effect our business or operations, or divert our critical resources. 32 EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth specific information regarding our executive officers and directors. EXECUTIVE OFFICERS AND DIRECTORS AGE POSITIONS - -------------------------------- --- --------- Jon R. Latorella 38 Chairman of the Board, President and Chief Executive Officer Robert A. Goddard 50 Chief Financial Officer, Treasurer and Secretary Sonia P. Bejjani 32 Director, President-Worldwide Information, Inc. John P. Houlihan 56 Director Thomas Garlock 45 Director Steven W. Silva 39 Vice President of Business Development JON R. LATORELLA co-founded our business in 1991 and has been our Chief Executive Officer since we commenced our activities. Mr. Latorella is also the Chairman of our Board of Directors. Before founding our business, Mr. Latorella served as a consultant to various local and state law enforcement agencies. Mr. Latorella holds a Bachelor of Science/Bachelor of Arts from the University of Massachusetts, which he received in 1994. ROBERT A. GODDARD has been our Chief Financial Officer since October 1999. Before joining us, Mr. Goddard was employed with ChannelHealth.com as Vice President-Finance and Administration. From 1997 to 1999, Mr. Goddard was employed by Wang Healthcare Information Systems. In 1997, Mr. Goddard filed for bankruptcy protection in connection with the termination of his marriage. Mr. Goddard received a Bachelor of Science in Business Administration/Finance from Northeastern University in 1974 and graduated from the Corporate Financial Management Program at the Harvard University Graduate School of Business in 1988. SONIA P. BEJJANI co-founded our business in 1991 and has been a member of our Board of Directors and employed by us in various capacities since we commenced our activities. For the five years ending August 1, 2001, Ms. Bejjani was our Vice President - Sales and Customer Service. Since August 1, 2001, Ms. Bejjani has been the President of Worldwide Information, Inc., our wholly-owned subsidiary. JOHN P. HOULIHAN has been President and owner of Zalkin, Inc., a worldwide exporter of used clothing with offices in Council Bluffs, Iowa and Brownsville, Texas, since 1979. Before that, Mr. Houlihan owned Goodrich Dairy, a chain of 47 retail stores, and Riekes Equipment, a material handling and forklift company. Mr. Houlihan holds a Bachelor of Arts from Creighton University, which he received in 1968, and a Juris Doctorate from Creighton University, which he received in 1971. Mr. Houlihan joined our Board of Directors in January 2001. THOMAS GARLOCK has provided organizational and merger and acquisition consulting services to technology companies in the computer hardware/software and wireless telecommunications industry since 1980. Mr. Garlock has been the principal in a variety of communications license-based ventures that have developed cellular telephone systems in 55 "metropolitan statistical areas" in the United States. He is the co-founder and Chairman of In Sync Interactive Corporation, the nation's largest owner of interactive video data service licenses issued by the Federal Communications Commission. In October 2001, In Sync filed for bankruptcy protection with respect to 29 of its 42 subsidiaries. Mr. Garlock attended Kent State University, the University of California at Los Angeles, and the Otis Parsons School of Design. Mr. Garlock joined our Board of Directors in October 1996. STEVEN W. SILVA has been our Vice President of Business Development since January 2002. Mr. Silva was employed with SuperWings Inc., a developer of mobile field service management applications, as its Vice President of Business Development and Marketing from 2000 to 2002 . During 2000, Mr. Silva was 33 the Vice President of Strategic Marketing at ZipLink Inc., a provider of wholesale Internet connectivity solutions, where he was responsible for marketing, product management, business development and strategic alliances. From 1997 to 2000, Mr. Silva worked for eZenia! Inc., a provider of real time collaboration solutions, where he held worked as its Director of Technical Business Development. From 1990 to 1997, Mr. Silva also held channel sales and marketing positions with PictureTel Corporation, a provider of visual collaboration systems. Mr. Silva holds a Bachelor of Science in Business Administration/Economics from Salem State College, which he received in 1985. We do not have any employment agreements with any of our employees. BOARD OF DIRECTORS We currently have four members of our Board of Directors, who are elected to annual terms and until their successors are elected and qualified. Executive officers are appointed by the Board of Directors on an annual basis and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors, officers or key employees. Our Board of Directors currently has two committees, the Compensation Committee and the Audit Committee. AUDIT COMMITTEE The Audit Committee of the Board of Directors approves the selection of our independent auditors and interacts with our independent accountants to discuss questions about our financial reporting. In addition, the Audit Committee reviews the independence of our auditors, the scope and results of our audit and our annual operating results. The Audit Committee also considers the adequacy of our internal accounting procedures and reports to the Board of Directors with respect to our other auditing and accounting matters. The Audit Committee also reviews the fees to be paid to and the performance of our independent accountants. Currently, the members of the Audit Committee are Messrs. Garlock and Houlihan. COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors reviews and recommends to the Board of Directors the salaries, benefits and stock option grants of all employees, consultants, directors and other individuals compensated by us. The Compensation Committee also administers our equity compensation plan and other employee benefits plans that we may adopt from time to time. Currently, the members of the Compensation Committee are Messrs. Garlock and Houlihan. DIRECTORS' COMPENSATION On February 1, 2002, we adopted a Non-employee Director Stock Option Policy under the terms of our equity compensation plan. Under the Non-employee Director Stock Option Policy, we will make annual grants (beginning on the date of adoption of the policy) to our non-employee directors of warrants to purchase 35,000 shares of our Class B Non-voting Common Stock as compensation for service on our Board of Directors (and any committees). Each of these warrants will have an exercise price that is equal to the fair market value of our Class B Non-voting Common Stock as of the date of grant. No separate compensation is provided to directors for service on either of our two committees. We will also reimburse our directors for out-of-pocket costs associated with their activities on the Board of Directors. Pursuant to this policy, on February 1, 2002, we granted warrants to purchase 35,000 shares of Class B Non-voting Common Stock with an exercise price of $0.15 per share to each of Messrs. Garlock and Houlihan. 34 Directors who are also employees of LocatePLUS Holdings Corporation or any of its subsidiaries (currently, Mr. Latorella and Ms. Bejjani) are not paid any compensation for their service as directors. BENEFIT PLANS EQUITY COMPENSATION PLAN On November 16, 1999, our Board of Directors ratified and adopted an Incentive and Non-Qualified Stock Option Plan, which we refer to as our "equity compensation plan". The equity compensation plan set aside 15,000,000 shares of our Class A Voting Common Stock (then referred to as our "Common Stock") for issuance pursuant to the exercise of incentive and non-qualified stock options to be awarded to our employees, officers and directors at the recommendation of the equity compensation plan's administrator and subject to the approval of our Board of Directors. We strongly believe in the concept of each employee having some form of equity participation as an incentive toward excellence in individual performance and our furthered success. In June 2000, our equity compensation plan was amended and restated to provide greater flexibility to the equity compensation plan's administrator in the granting of various forms of equity compensation. As of December 31, 2001, 7,950,000 incentive stock options and 2,652,716 non-qualified stock options were outstanding under the equity compensation plan. The weighted average exercise price of all options granted under the equity compensation plan was $0.20 per share as of December 31, 2001. As of December 31, 2001, one option to purchase 5,000 shares of Class A Voting Common Stock had been exercised. In March 2002, Messrs. Garlock and Houlihan, the members of our Compensation Committee, were appointed co-administrators of the equity compensation plan. EQUITY COMPENSATION PLAN INFORMATION The following table reflects equity compensation granted or issued by us as of December 31, 2001, to employees and non-employees (such as directors, consultants, advisors, vendors, customers, suppliers and lenders) in exchange for consideration in the form of goods or services.
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE NUMBER OF SECURITIES ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING REMAINING AVAILABLE FOR OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND FUTURE ISSUANCE UNDER WARRANTS AND RIGHTS RIGHTS EQUITY COMPENSATION PLANS(1) ------------------- --------------------- ---------------------------- EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS: Class A Voting Common Stock 10,602,716 $0.20 4,392,284 - ------------------------------- ---------------------------- --------------------------- ----------------------------- Class B Non-voting Common Stock 0 - - EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS: Class A Voting Common Stock 763,500 $0.20 N/A - ------------------------------- ---------------------------- --------------------------- ----------------------------- Class B Non-voting Common Stock 2,550,797 $0.14 N/A TOTAL: Class A Voting Common Stock 11,366,216 $0.20 N/A - ------------------------------- ---------------------------- --------------------------- ----------------------------- Class B Non-voting Common Stock 2,480,797 $0.15 N/A
(1) Excludes securities reflected in column titled "Number of securities to be issued upon exercise of outstanding options, warrants and rights". 35 401(K) We sponsor a defined contribution plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers substantially all of our employees. We may make discretionary matching contributions up to 1% of annual employee contributions. Our contributions vest ratably over a six-year period. We pay the administrative expenses of this plan. * * * 36 SUMMARY COMPENSATION TABLE The following table sets forth, for 2001, 2000 and 1999 certain compensation paid by us, including salary, bonuses and certain other compensation, to our Chief Executive Officer and all other executive officers whose annual compensation for the years ended December 31, 2001, 2000 and 1999 exceeded $100,000.
SECURITIES ALL OTHER NAME AND SALARY BONUS UNDERLYING OPTIONS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) (#) ($) - -------------------------------- ---------- ---------------- ------------------ ------------------- ------------------ JON R. LATORELLA 2001 48,850(1) - - 13,200(3) President and 2000 127,462 275,000(2) - 13,200(3) Chief Executive Officer 1999 156,000 - 190,000(4) - ROBERT A. GODDARD 2001 123,802 - - 8,079(5) Chief Financial Officer, 2000 125,000 125,000(2) - 6,384(5) Treasurer and Secretary 1999(6) 31,635 - 1,000,000(7) 11,064(8)
(1) Mr. Latorella elected to reduce his annual salary to $50,000 in January 2001. On February 1, 2002, the Compensation Committee of the Board of Directors voted to increase Mr. Latorella's salary to $250,000 per annum upon the commencement of trading of our securities on the OTC Bulletin Board. (2) On January 3, 2000 the Board of Directors approved, and we made, a term loan to Mr. Latorella in the amount of $275,000, and a loan to Mr. Goddard in the amount of $125,000. These loans were intended to provide a bonus to Mr. Latorella and Mr. Goddard for services rendered in conjunction with the development and launch of our LocatePLUS(TM) product. These loans were evidenced by promissory notes, pursuant to which interest on each loan is computed at an annual rate equal to the 90-day Treasury Bill Rate. The principal and accrued interest on these notes are due and payable in one lump sum on January 3, 2010, unless we have inadequate funds to satisfy our obligations as they generally become due, in which case the principal and accrued interest will be immediately due and payable. We do not intend to make a call on these notes in the foreseeable future. In the event of a change of control of LocatePLUS Holdings Corporation (E.G., a sale of all or substantially all of our assets or a transaction or series of transactions in which more than 50% of our voting equity is sold or otherwise transferred) or in the event that, as of January 3, 2003, Mr. Latorella or Mr. Goddard, as applicable, is (i) still employed by us; (ii) an independent contractor for us; or (iii) a member of our Board of Directors, then the obligations and debt evidenced by the notes shall be immediately and without further action by any party be canceled. In the event that either or both notes are canceled pursuant to the above clauses, we will make a tax equalization payment to Mr. Latorella and/or Mr. Goddard, as applicable. Because Mr. Latorella currently controls a majority of our voting stock, we currently anticipate that his loan will be canceled in 2003. (3) Mr. Latorella and his family are allowed use of two company cars, the value of which is approximately $1,100 per month to Mr. Latorella. (4) Mr. Latorella was granted a fully vested incentive stock option to purchase 190,000 shares of Class A Voting Common Stock on November 16, 1999, with an exercise price of $0.22 per share. This option expires on November 16, 2004. (5) Mr. Goddard receives a monthly automobile allowance of $523 and a fuel allowance as part of his compensation. (6) Mr. Goddard began employment with us on October 25, 1999. (7) Mr. Goddard was issued an option to purchase 1,000,000 shares of Class A Voting Common Stock on November 16, 1999, with an exercise price of $0.20 per share. This option is fully vested, and it expires on November 16, 2009. (8) Mr. Goddard received a $10,000 signing bonus, and an aggregate of $1,064 in automobile allowances for November and December 1999. 37 ADVISORY BOARD On December 2, 1999, our Board of Directors authorized the formation of an Advisory Board that will provide ongoing advice and consultation to the Board of Directors to enhance the development and operation of our LocatePLUS(TM) product. The Advisory Board will consist of up to eight members (none of which will be employees or directors) selected by the Board of Directors based on each candidate's experience, accomplishments and national recognition in the fields encompassed by our target markets. Compensation for members of our advisory board consists of expense reimbursement and a grant of a fully vested non-qualified stock option or immediately exercisable warrant as set forth below. The Advisory Board meets informally from time to time with management. DALE C. JENKINS, JR. On December 2, 1999, we appointed Dale C. Jenkins, Jr., as the first member of our Advisory Board. In 1999, Mr. Jenkins was appointed to the position of Special Assistant for Law Enforcement and Public Safety to the Chancellor of Higher Education of the Commonwealth of Massachusetts. Mr. Jenkins was also appointed to the Advisory Board of the U.S. Commission on Civil Rights and the Massachusetts Governor's Crime Watch Committee and was a consultant to the U.S. Department of Justice. In addition, Mr. Jenkins directed the Lead Advanced Security Team for Presidents Ronald Reagan and George H. W. Bush and acted as Deputy Director of Inaugural Security for then President-Elect George H. W. Bush. On November 17, 1999, our Board of Directors granted a ten-year option to Mr. Jenkins to purchase 25,000 shares of our Class A Voting Common Stock with an exercise price of $0.20 per share as compensation for his services on the Advisory Board. JAMES A. CORRY On July 20, 2000, our Board of Directors appointed James A. Corry as the second member of our Advisory Board. Since July 2001, Mr. Corry has been the Chief Operating Officer of Abel Telecom, Inc., based in Scottsdale, Arizona. Prior to that, Mr. Corry was a criminal investigation and security expert for the United States Secret Service. During his more than twenty years with that agency, Mr. Corry worked on security issues globally, conducting criminal and fraud investigations and managing the security of political personnel, including President George H. W. Bush. On June 1, 2001, the Board of Directors issued to Mr. Corry a ten-year option to purchase 25,000 shares of our Class A Voting Common Stock with an exercise price of $0.20 per share as compensation for his services on the Advisory Board. WILLIAM H. SHAHEEN On October 1, 2001, our Board of Directors appointed William H. Shaheen to our Advisory Board. Mr. Shaheen is currently the Managing Partner of the law firm of Shaheen and Cohen, with offices in Concord and Dover, New Hampshire. Mr. Shaheen served as U.S. Attorney for the District of New Hampshire from 1976 to 1981. In 1981, he was appointed a New Hampshire District Court Judge in Durham, New Hampshire. Mr. Shaheen resigned his judgeship in 1997 upon the election of his wife as Governor of the State of New Hampshire. On October 12, 2001, Mr. Shaheen received a ten-year warrant to purchase 25,000 shares of our Class B Non-voting Common Stock, with an exercise price of $0.20 for his services on the Advisory Board. DAVID G. DUCHESNEAU On October 1, 2001, our Board of Directors also appointed David G. Duchesneau to our Advisory Board. From 1991 to the present, Mr. Duchesneau has been General Manager of Standa, Inc., a full service private investigative agency and consulting firm. From 1971 to 1991, Mr. Duchesneau was the Commander and Senior Officer of the Organized Crime Unit and Fugitive Apprehensive Unit of the New Hampshire State Police. On October 12, 2001, Mr. Duchesneau was issued a ten-year warrant to purchase 25,000 shares of our Class B Non-voting Common Stock, with an exercise price of $0.20 per share in consideration for his services on the Advisory Board. 38 CHARLES LYONS On November 20, 2001, our Board of Director appointed Charles Lyons to the Board of Directors. Mr. Lyons is the Superintendent Director of the Shawsheen Valley Technical School District located in Billerica, Massachusetts. He is also the Chairman of the Arlington, Massachusetts Board of Selectmen. On that date, our Board of Directors granted a ten-year warrant to Mr. Lyons to purchase 12,500 shares of our Class B Non-voting Common Stock with an exercise price of $0.20 per share as compensation for his services on the Advisory Board. ORGANIZATION WITHIN THE PAST FIVE YEARS We were incorporated in Massachusetts in 1996 as Worldwide Information, Inc. In July 1999, we reincorporated in Delaware to take advantage of certain favorable corporate excise tax rates relative to Massachusetts and Delaware's well-established corporate law. As part of that re-incorporation, we changed our name to LocatePLUS.com, Inc. On August 1, 2001, we changed our name from LocatePLUS.com, Inc. to LocatePLUS Holdings Corporation as part of a corporate restructuring. In conjunction with that corporate restructuring, we created two wholly-owned subsidiaries, LocatePLUS Corporation, a Delaware corporation, and Worldwide Information, Inc., a Delaware corporation. We capitalized LocatePLUS Corporation with all of our Internet-based LocatePLUS(TM) business, in consideration for all of its equity, 100 shares of common stock, par value $0.01. We capitalized Worldwide Information, Inc. with all of our CD-ROM-based Worldwide Information(TM) business, in consideration for all of its equity, 100 shares of common stock, par value $0.01. We created these subsidiaries for two primary reasons: o We wished to isolate any potential liabilities in one of our products (such as claims associated with errors or omissions in our databases, as described in the section above titled "Risk Factors" beginning on page 4) in a manner that would reduce the impact of any such liabilities on our other product line. There are no claims pending relating to errors or omissions in either of our two product lines, nor does management currently anticipate any such claims. However, as disclosed above, claims associated with defects in our databases may arise from time to time. o We wished to administratively separate the operations associated with our LocatePLUS(TM) product from our Worldwide Information(TM) product. Operations associated with our Worldwide Information(TM) product have historically been conducted through our Byfield, Massachusetts office. Operations associated with our LocatePLUS(TM) product have been conducted through our Beverly, Massachusetts office. Although each of these products is marketed to similar users, the acquisition and integration of data for and the operation of these two products differs significantly. LocatePLUS Holdings Corporation provides certain administrative and executive functions on behalf of each of the two subsidiaries, such as management of payroll and other accounts payable. We presently hold all of the equity of each subsidiary, and we account for each subsidiary on a consolidated basis. No options, warrants or similar rights to acquire equity in either subsidiary currently exists, nor do we anticipate any such rights being created in the future. We have no present intention of selling or otherwise disposing of either subsidiary. 39 CERTAIN TRANSACTIONS JON R. LATORELLA On January 3, 2000, the Board of Directors approved, and we made, a term loan to Mr. Latorella for $275,000. This loan was intended to provide a bonus to Mr. Latorella for services rendered in conjunction with the development and launch of our LocatePLUS(TM) product. The loan was evidenced by a promissory note, pursuant to which interest on the loan is computed at an annual rate equal to the 90-day Treasury Bill Rate. The principal and accrued interest on this note are due and payable in one lump sum on January 3, 2010, unless we have inadequate funds to satisfy our obligations as they generally become due, in which case the principal and accrued interest will be immediately due and payable. We do not intend to make a call on these notes in the foreseeable future. In the event of a change of control of LocatePLUS Holdings Corporation (E.G., a sale of all or substantially all of our assets or a transaction or series of transactions in which more than 50% of our voting equity is sold or otherwise transferred) or in the event that, as of January 3, 2003, Mr. Latorella is: o still employed by us; or o an independent contractor for us; or o a member of our Board of Directors, then the obligations and debt evidenced by the notes shall be immediately and without further action by either party canceled. In the event that the note is canceled pursuant to the above clauses, we will make a tax equalization payment to Mr. Latorella. This loan is being accounted for by us as compensation expense over its term. Because Mr. Latorella currently controls a majority of our voting stock, we currently anticipate that this loan will be cancelled in 2003. Mr. Latorella elected to reduce his annual salary to $50,000 in January 2001. On February 1, 2002, the Compensation Committee of the Board of Directors voted to increase Mr. Latorella's salary to $250,000 per annum upon the commencement of trading of our securities on the OTC Bulletin Board. Mr. Latorella was granted a fully vested incentive stock option to purchase 190,000 shares of Class A Voting Common Stock on November 16, 1999, with an exercise price of $0.22 per share in consideration for his services rendered. This option expires on November 16, 2004. ROBERT A. GODDARD On January 3, 2000, the Board of Directors approved, and we made, a term loan to Mr. Goddard for $125,000. This loan was intended to provide a bonus to Mr. Goddard for services rendered in conjunction with the development and launch of the LocatePLUS(TM) product. The loan was evidenced by a promissory note, pursuant to which interest on the loan is computed at an annual rate equal to the 90-day Treasury Bill Rate. The principal and accrued interest on this note are due and payable in one lump sum on January 3, 2010, unless we have inadequate funds to satisfy our obligations as they generally become due, in which case the principal and accrued interest will be immediately due and payable. We do not intend to make a call on these notes in the foreseeable future. In the event of a change of control of LocatePLUS Holdings Corporation (E.G., a sale of all or substantially all of our assets or a transaction or series of transactions in which more than 50% of our voting equity is sold or otherwise transferred) or in the event that, as of January 3, 2003, Mr. Goddard is: o still employed by us; or o an independent contractor for us; or o a member of our Board of Directors, 40 then the obligations and debt evidenced by the notes shall be immediately and without further action by either party be canceled. In the event that the note is canceled pursuant to the above clauses, we will make a tax equalization payment to Mr. Goddard. Mr. Goddard was issued an option to purchase 1,000,000 shares of Class A Voting Common Stock on November 16, 1999, with an exercise price of $0.20 per share in conjunction with our retention of him. This option is fully vested, and it expires on November 16, 2009. THOMAS GARLOCK We paid Mr. Garlock $228,992 in 2001, $223,795 in 2000 and $178,395 in 1999 for services rendered as a consultant. We have no formal agreement with Mr. Garlock with respect to Mr. Garlock's consulting services. Mr. Garlock was also issued options under our equity compensation plan to purchase an aggregate of 874,179 shares of Class A Voting Stock (with an exercise price of $0.20), of which options to purchase 836,112 were granted in November 1999, and options to purchase 38,067 were granted in June 2001, in consideration for his services on our Board of Directors. In consideration for consulting services rendered for us, we also issued warrants to purchase 324,581 shares of our Class B Non-voting Common Stock to Mr. Garlock on December 31, 2001. These ten-year warrants have an exercise price of $0.15 per share. On February 1, 2002, Mr. Garlock was issued an option to purchase 35,000 shares of our Class B Non-voting Common Stock for $0.15 per share pursuant to our Non-employee Directors Stock Option Policy. JOHN HOULIHAN On March 7, 2001, we borrowed $15,000 from Mr. Houlihan pursuant to a promissory note providing for an interest rate of 12% per annum. The interest on this loan was repaid on April 26, 2001. On that date, the principal on this loan was exchanged for 150,000 shares of Class B Non-voting Common Stock. In conjunction with this note, we also issued to Mr. Houlihan a warrant to purchase shares of our capital stock. This warrant currently permits Mr. Houlihan to purchase 75,000 shares of our Class A Voting Common Stock for $0.20 per share. On February 1, 2002, Mr. Houlihan was issued an option to purchase 35,000 shares of our Class B Non-voting Common Stock for $0.15 per share pursuant to our Non-employee Directors Stock Option Policy. GREGORY LINDAE Mr. Gregory Lindae, a former member of our Board of Directors who resigned on April 12, 2001, and his wholly-owned corporation, Castlerock Ventures, has provided certain consulting services for us from time to time. We had no formal agreement with respect to the payment of these amounts. In 1999, Mr. Lindae was paid $4,310 and Castlerock Ventures was paid $39,300. In 2000, we employed Mr. Lindae, and he was paid $85,000 for his services. Mr. Lindae ceased his services as an employee in December 2000. On November 11, 1999, we issued a non-qualified stock option to purchase 445,736 shares of our Class A Voting Common Stock under our equity compensation plan to Mr. Lindae for services as a member of our Board of Directors. This option had an exercise price of $0.20 per share. In January 2001, in exchange for a loan from Mr. Lindae in the amount of $200,000, we issued a convertible secured promissory note to him. The interest rate on this note was 18% per annum for the first thirty days, and changed to 25% per annum, compounded quarterly. On September 10, 2001, this note and its associated accrued interest was exchanged for 2,999,600 shares of Class B Non-voting Common Stock. In connection with this loan, we also issued to Mr. Lindae a ten year warrant, which as modified by our agreement with Mr. Lindae, allows him to purchase 500,000 shares of our Class B Non-voting Common Stock for $0.10 per share. In June 2001, we granted options to Mr. Lindae to purchase 119,104 shares of our Class A Voting Common Stock for $0.20 per share for services rendered as a consultant. On January 31, 2002, we issued a ten-year warrant to Mr. Lindae to purchase 1,177,680 shares of our Class B Non-voting Common Stock for $0.15 per share for consulting services rendered by him. 41 PRINCIPAL STOCKHOLDERS As of December 31, 2001, we had 53,108,580 shares of Class A Voting Common Stock and 48,527,054 shares of Class B Non-voting Common Stock issued and outstanding. The table on the following page sets forth certain information known to us with respect to the beneficial ownership of our Class A Voting Common Stock and Class B Non-voting Common Stock on December 31, 2001, and on a PRO FORMA basis, by: o each of our directors; o each of our executive officers; o each person known to us to beneficially own more than 5% of either class of our common stock; and o all of our directors and executive officers as a group. The PRO FORMA post-offering presentation assumes that: o the maximum number of Units are sold in this offering; o all public warrants issued as part of the Units are exercised (resulting in the issuance of 10,000,000 shares of our Class A Voting Common Stock); and o the conversion of certain mandatorily convertible debt upon the consummation of this offering into shares of Class A Voting Common Stock. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock underlying options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after the effective date of the offering are deemed outstanding, while such shares are not deemed outstanding for computing percentage ownership of any other person. For the purpose of this table, "Class A Stock" refers to our Class A Voting Common Stock and "Class B Stock" refers to our Class B Non-voting Common Stock. To our knowledge, except as indicated in the footnotes to this table, each stockholder identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as beneficially owned by such stockholder. In the table, all options are fully vested, and all warrants are immediately exercisable, unless otherwise noted. Each of our directors and executive officers can be contacted at 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915. 42
CLASS A VOTING COMMON STOCK CLASS B NON-VOTING COMMON STOCK --------------------------------------------- ----------------------------------------------- PERCENTAGE OF SHARES PERCENTAGE OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED ------------------ ------------------ NUMBER OF SHARES PRO FORMA NUMBER OF SHARES PRO FORMA BENEFICIALLY BEFORE POST BENEFICIALLY BEFORE POST BENEFICIAL OWNER OWNED OFFERING OFFERING OWNED OFFERING OFFERING - ---------------- ----- -------- -------- ----- -------- -------- DIRECTORS JON R. LATORELLA 27,690,500(1) 52.0% 42.7% - * * SONIA P. BEJJANI 2,000,000(2) 3.6% 3.0% - * * THOMAS GARLOCK 1,417,024(3) 2.6% 2.2% 324,581(4) * * JOHN P. HOULIHAN 550,000(5) 1.0% * 1,625,000(6) 3.4% 2.8% OFFICERS ROBERT A. GODDARD 1,000,000(7) 1.9% 1.5% - * * 5% STOCKHOLDERS GREGORY LINDAE 700,000(8) 1.3% 1.0% 5,122,320(9) 10.5% 8.7% P.O. Box 9062 Truckee, CA 96162 All directors and 32,657,524(10) 58.0% 49.2% 1,949,581(11) 4.0% 3.3% executive officers as a group (5 persons)
- --------------------------- * Less than one percent of outstanding shares. Less than one percent of outstanding shares. (1) Includes 190,000 shares issuable upon exercise of a fully vested stock option, with an exercise price of $0.22 per share. (2) Consists of the vested portion (2,000,000 shares) of an option to purchase 2,500,000 shares with an exercise price of $0.20 per share. The balance of that option will vest on January 3, 2003, assuming Ms. Bejjani is still employed by us on that date. (3) Includes 433,476 shares held by the Kenai River Trust, over which Mr. Garlock has voting and dispositional authority. Includes 874,179 shares issuable upon exercise of fully vested stock options, with a weighted average exercise price of $0.20 per share. (4) Consists of 324,581 shares issuable upon exercise of immediately exercisable warrants with an exercise price of $0.15 per share. Does not include options to purchase 35,000 shares with an exercise price of $0.15 per share pursuant to an option granted on under our Non-employee Directors Stock Option Policy on February 1, 2002. (5) Includes 75,000 shares held by the Houlihan Trust, over which Mr. Houlihan has voting and dispositional authority. Also includes 75,000 shares of issuable upon exercise of certain currently exercisable warrants with an exercise price of $0.20 per share. (6) Does not include options to purchase 35,000 shares with an exercise price of $0.15 per share granted under our Non-employee Directors Stock Option Policy on February 1, 2002. (7) Includes 1,000,000 shares issuable upon exercise of a fully vested stock option with an exercise price of $0.20 per share. (8) Includes shares issuable upon the exercise of fully vested options to purchase 564,840 shares with an exercise price of $0.20 per share. Does not include 531,511 shares pledged to Mr. Lindae by a stockholder of the Company in connection with a loan by Mr. Lindae to that stockholder. (9) Includes shares issuable upon the exercise of immediately exercisable warrants to purchase 500,000 shares with an exercise price of $0.10 per share. Does not include options to purchase 35,000 shares with an exercise price of $0.15 per share granted under our Non-employee Directors Stock Option Policy on February 1, 2002. (10) Includes 4,139,179 shares issuable upon the exercise of convertible securities. (11) Includes 324,581 shares issuable upon the exercise of warrants. 43 DESCRIPTION OF CAPITAL STOCK The authorized capital of LocatePLUS Holdings Corporation consists of: o 150,000,000 shares of Class A Voting Common Stock; and o 250,000,000 shares of Class B Non-voting Common Stock. The following description of our capital stock does not purport to be complete and is governed by and qualified by our Second Amended and Restated Certificate of Incorporation (which we refer to as our "Charter") and By-laws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. UNITS Each Unit consists of one share of Class B Non-voting Common Stock (described below) and one public warrant to purchase a share of our Class A Voting Common Stock (also described below). The Class B Non-voting Common Stock and public warrants will trade only as a Unit for 185 days following this offering (unless the public warrant is exercised, in which case the underlying Class B Non-voting Common Stock and Class A Voting Common Stock so purchased will trade separately upon exercise). COMMON STOCK As of December 31, 2001, there were 53,108,580 shares of Class A Voting Common Stock and 48,527,054 shares of Class B Non-Voting Common Stock, issued and outstanding. The holders of both classes of our common stock are entitled to receive ratably dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of both classes of our common stock are entitled to share ratably in all assets remaining after payment of liabilities. Neither class of our common stock has any preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to either class of our common stock. CLASS A VOTING COMMON STOCK Shares of Class A Voting Common Stock are entitled to one vote per share held of record on all matters submitted to a vote of stockholders. Holders of Class A Voting Common Stock do not have cumulative voting rights, and, therefore, the holder of a majority of the shares of Class A Voting Common Stock (currently, Mr. Latorella) may elect all of our directors standing for election. CLASS B NON-VOTING COMMON STOCK Shares of Class B Non-voting Common Stock have no voting rights, but are otherwise identical to the shares of Class A Voting Common Stock. PUBLIC WARRANTS GENERAL Each public warrant entitles the holder to purchase one share of our Class A Voting Common Stock for $0.50 per share. The exercise price is subject to adjustment upon the occurrence of certain events as provided in the public warrant certificate and as summarized below. Our public warrants may be exercised at any time after the consummation of this offering and ending on the 44 one year anniversary date of the closing of this offering, which is its expiration date. Those of our public warrants which have not previously been exercised will expire on the expiration date. A public warrant holder will not be deemed to be a holder of the underlying shares of our Class A Voting Common Stock for any purpose until the public warrant has been properly exercised. EXERCISE A public warrant holder may exercise our public warrants only if an appropriate registration statement is then in effect with the Securities and Exchange Commission and if the shares of Class A Voting Common Stock underlying our public warrants are qualified for sale under the securities laws of the state in which the holder resides. We will use commercially reasonable efforts to maintain the registration of the Class A Voting Common Stock underlying the warrants until the expiration date of the public warrants and to qualify for sale the shares of Class A Voting Common Stock in each U.S. jurisdiction in which our public warrant holders reside. Our public warrants may be exercised by delivering to our Transfer Agent the applicable public warrant certificate on or prior to the expiration date, with the form on the reverse side of the certificate executed as indicated, accompanied by payment of the full exercise price for the number of public warrants being exercised plus payment of any taxes required by the holder's jurisdiction. Fractional shares of Class A Voting Common Stock will not be issued upon exercise of our public warrants. ADJUSTMENTS OF EXERCISE PRICE If we effect any stock split or stock combination with respect to our Class A Voting Common Stock, the exercise price in effect immediately prior to such stock split or combination will be proportionately reduced or increased, as the case may be. Any adjustment of the exercise price will also result in an adjustment of the number of shares purchasable upon exercise of a public warrant. CONVERTIBLE NOTES WITH DETACHABLE RESTRICTED WARRANTS From September 2000 to January 2001, we sold $312,000 in convertible notes and restricted warrants in a private placement. We refer to these securities as our "Bridge Notes and Warrants". These convertible notes Bridge Notes bear interest at 14% per annum and will be due and payable on September 25, 2005, unless converted into shares of our Class A Voting Common Stock prior to that date (as described below). The Bridge Warrants are detachable from the Bridge Notes, and permit the holders to purchase an aggregate of 156,000 shares of our Class A Voting Common Stock under limited conditions (described below). Under the terms of these Bridge Notes, the principal and interest of each promissory note will automatically convert into shares of our Class A Voting Common Stock at the rate of $0.24 per share upon the consummation of this offering (which is 80% of the fair market value of our Class A Voting Common Stock as of the date of conversion of the Bridge Notes, as determined by our Board of Directors with reference to this offering). Each Bridge Warrant will become exercisable for a 20-day period beginning on the effective date of conversion of the Bridge Notes (i.e., the consummation of this offering); thereafter, the Bridge Warrants will expire by their terms. The exercise price of the Bridge Warrants will be $0.24 per share, although the Bridge Warrants include "net issuance" provisions permitting a holder to exchange a portion of the warrant for shares of Class A Voting Common Stock in lieu of payment of the warrant's cash exercise price. RESTRICTED WARRANTS We have issued restricted warrants to purchase an aggregate of 642,633 shares of our Class A Voting Common Stock, for which the weighted average exercise price of these warrants is $0.20 per share. We have also issued restricted warrants to purchase an aggregate of 3,728,477 shares of our Class B Non-voting Common Stock, for which the weighted average exercise price of these warrants is $0.14 per share. These restricted warrants include "net issuance" provisions, permitting a holder to exchange a portion of the warrants for shares of the underlying security in lieu of payment of a cash exercise price. CONVERTIBLE NOTE In consideration for a $10,000 loan made to us on March 9, 2001, we issued a convertible promissory note. This convertible promissory note bears interest at the rate of 12% per annum. This note matured on September 9, 2001. We have continued to make interest payments under this note. We are currently in default with respect to the payment of this loan. This note is convertible into 44,444 shares of our Class A Voting Common Stock at the election of the holder. 45 LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION Our Charter provides that members of our Board of Directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability: o for any breach of the director's duty of loyalty to the corporation or its stockholders; o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; o under Section 174 of the General Corporation Law of the State of Delaware (relating to distributions by insolvent corporations); or o for any transaction from which the director derived an improper personal benefit. Our Charter also provides that if the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of members of our Board of Directors will be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Our Charter and By-laws also provide that we may indemnify our directors and officers to the fullest extent permitted by Delaware law. A right of indemnification shall continue as to a person who has ceased to be a director or officer and will inure to the benefit of the heirs and personal representatives of such a person. The indemnification provided by our Charter and By-laws will not be deemed exclusive of any other rights that may be provided now or in the future under any provision currently in effect or hereafter adopted by our Charter, By-laws, by any agreement, by vote of our stockholders, by resolution of our directors, by provision of law or otherwise. We have also secured directors' and officers' liability insurance on behalf of our directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons in accordance with the provisions contained in our Charter and By-laws, Delaware law or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and we will follow the court's determination. PLAN OF DISTRIBUTION We are registering 10,000,000 Units for sale through our underwriter on a minimum/maximum "best efforts" basis at an offering price of $0.30 per Unit. Subscriptions for our Class A Voting Common Stock will be deposited into escrow with our transfer agent, Transfer Online, Inc., until a minimum of $500,000 (1,666,667 Units) of subscriptions have been 46 received. In the event that we do not receive a minimum of $500,000 in subscriptions by [ten days after the effective date of this registration statement], subscribed funds will be released to subscribers without interest or deduction. In the event that a minimum of $500,000 in acceptable subscriptions is received by Transfer Online by [ten days after the effective date of this registration statement], then, no later than [thirteen days after the effective date of this registration statement], we will close on those funds in a single closing, and issue the Units purchased. Our underwriter reserves the right to reject any subscription, in whole or in part. In the event that our offering is oversubscribed, we anticipate that our underwriter will accept subscriptions based upon the date in which funds are received by our transfer agent. In consideration for our underwriters' services, our underwriter will receive an underwriting commission of 7%, or $0.021 per share of Class A Voting Common Stock sold by them. In the event that our underwriter does not sell the minimum number of Units required by this offering, our underwriter will receive no commission or remuneration from us, other than certain allocated expenses, totaling less than $3,000 which we have advanced to them. Our underwriter will receive no commission for purchases by any of our employees. SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering and assuming the full subscription of this offering, we will have Units consisting of 10,000,000 shares of Class B Non-voting Common Stock and warrants to purchase 10,000,000 shares of our Class A Voting Common Stock registered under the Securities Act of 1933. Promptly after the completion of this offering, we intend to register 56,640,726 shares of Class B Non-voting Common Stock and up to 28,218,130 shares of Class A Voting Common Stock, all of which are currently issued and outstanding shares owned by our stockholders. We also anticipate that we will file a registration statement with respect to 2,410,290 shares of Class A Voting Common Stock underlying issued convertible securities (including shares issuable upon the conversion of certain mandatorily convertible debt and accrued interest which will convert into shares of Class A Voting Common Stock upon the consummation of this offering, shares underlying a certain convertible promissory note and shares underlying certain issued warrants) and 3,728,477 shares of Class B Non-voting Common Stock underlying certain issued warrants. We also anticipate that we will register 15,000,000 shares of Class A Voting Common Stock issued or issuable under our equity compensation plan through a registration on Form S-8. Upon the conclusion of the public offering and assuming that the maximum number of Units are sold in the offering, we will have 54,666,793 shares of Class A Voting Common Stock issued and outstanding (including shares issued in connection with the mandatory conversion of certain convertible promissory notes (and accrued interest) into 1,558,213 shares of Class A Voting Common Stock upon the consummation of this offering, but assuming no exercise or conversion of warrants to purchase up to 10,798,633 shares, up to 14,995,000 shares subject to purchase pursuant our equity compensation plan or a convertible promissory note to purchase 44,444 shares) and 66,640,726 shares of Class B Non-voting Common Stock (assuming no exercise or conversion of warrants and options to purchase 3,728,477 shares of Class B Non-voting Common Stock). Of the Class A Voting Common Stock and Class B Non-voting Common Stock, all of the issued and outstanding shares will be freely tradable (either as a result of the Securities Exchange Commission's Rule 144(k) or due to our registration of such securities), except to the extent that such securities are held by "affiliates," as defined by the SEC. As of the date of this prospectus, our affiliates hold 28,518,618 47 shares of Class A Voting Common Stock and 2,325,000 shares of our Class B Non-voting Common Stock. In general, under Rule 144, as currently in effect, after the date of this prospectus, a person (or persons whose shares are aggregated) who has beneficially owned shares of our common stock for at least one year, including any person who is deemed to be our affiliate, will be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: o 1% of the number of shares of such class of common stock then outstanding, which will equal approximately 546,668 shares (in the case of Class A Voting Common Stock) and 583,073 shares (in the case of Class B Non-voting Common Stock, assuming the minimum number of Units are sold in this offering) immediately after the offering; or o the average weekly trading volume of our Common Stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also governed by other requirements regarding the manner of sale, notice filing and the availability of current public information about us. Under Rule 144(k), however, a person who is not, and for the three months prior to the sale of such shares has not been, an affiliate of the company will be free to sell "restricted securities" (E.G., shares issued in a private placement) which have been held for at least two years without regard to the limitations described above. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our securities is Transfer Online, Inc. Transfer Online's address is 227 SW Pine Street, Suite 300, Portland, Oregon 97204. LEGAL MATTERS The validity of the Units offered by this prospectus will be passed upon for us by Kirkpatrick & Lockhart LLP. EXPERTS The financial statements as of December 31, 2000 and 2001 and for each of the years in the period ended December 31, 2001 included in this Prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern as described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION We filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act of 1933 for the shares of Common Stock in the offering, of which this prospectus is a part. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and the Units, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full 48 text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the site is WWW.SEC.GOV. 49 LOCATEPLUS HOLDINGS CORPORATION INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 2000 and 2001 F-3 Consolidated Statements of Operations for the years ended F-4 December 31, 2000 and 2001 Consolidated Statements of Stockholders' Equity (Deficit) for the F-5 years ended December 31, 2000 and 2001 Consolidated Statements of Cash Flows for the years ended F-6 December 31, 2000 and 2001 Notes to Consolidated Financial Statements F-7 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of LocatePLUS Holdings Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of LocatePLUS Holdings Corporation and its subsidiaries at December 31, 2000 and 2001 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance as to 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, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1, the Company's losses from operations and limited capital resources raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Boston, Massachusetts February 13, 2002 F-2 LOCATEPLUS HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS
PRO FORMA DECEMBER 31, 2001 DECEMBER 31, (UNAUDITED) 2000 2001 (NOTE 2) ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ -- $ 915,864 $ 915,864 Accounts receivable, less allowance for doubtful accounts of $34,740 and $8,900 in 2000 and 2001, respectively 91,159 153,590 153,590 Prepaid expenses and other current assets 82,923 194,847 194,847 Note receivable -- 1,000,000 1,000,000 ------------ ------------ ------------ Total current assets 174,082 2,264,301 2,264,301 Property and equipment, net 1,543,253 1,414,938 1,414,938 Security deposits 132,389 148,236 148,236 Notes receivable - related parties, net 276,389 143,056 143,056 ------------ ------------ ------------ Total assets $ 2,126,113 $ 3,970,531 $ 3,970,531 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Cash overdraft $ 16,395 $ -- $ -- Accounts payable 1,226,582 1,061,336 1,061,336 Accrued expenses 326,075 467,392 467,392 Deferred revenue 319,193 270,004 270,004 Current portion of capital lease obligation 169,826 139,250 139,250 Convertible debt -- 10,000 10,000 ------------ ------------ ------------ Total current liabilities 2,058,071 1,947,982 1,947,982 Capital lease obligations, net of current portion 182,937 172,619 172,619 Mandatorily convertible debt 310,975 362,838 -- ------------ ------------ ------------ Total liabilities 2,551,983 2,483,434 2,120,601 ------------ ------------ ------------ Commitments and contingencies Stockholders' equity (deficit): Class A common stock, $0.01 par value; 150,000,000 shares authorized; 53,108,580 shares issued and outstanding at December 31, 2000 and 2001, and 54,620,405 issued and outstanding pro forma 531,086 531,086 546,204 Class B common stock, $0.01 par value, 250,000,000 shares authorized; 48,527,054 shares issued and outstanding at December 31, 2001 -- 485,270 485,270 Additional paid-in capital 8,846,452 14,213,637 14,652,066 Warrants 126,732 547,994 547,994 Common stock subscriptions receivable -- (4,500) (4,500) Accumulated deficit (9,930,140) (14,286,395) (14,377,105) ------------ ------------ ------------ Total stockholders' equity (deficit) (425,870) 1,487,092 1,849,930 ------------ ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 2,126,113 $ 3,970,531 $ 3,970,531 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements
F-3 LOCATEPLUS HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 2001 ------------ ------------ Revenues: Licenses $ 490,480 $ 268,701 Services 98,632 752,109 Engineering services -- 388,187 ------------ ------------ Total revenues 589,112 1,408,997 Costs and expenses: Costs of revenues: Licenses 169,782 96,561 Services 1,293,297 986,240 Engineering services -- 49,347 Selling and marketing 1,010,621 799,486 General and administrative 3,439,251 3,317,128 ------------ ------------ Total operating expenses 5,912,951 5,248,762 ------------ ------------ Operating loss (5,323,839) (3,839,765) Other income (expense): Interest income 19,605 67,768 Interest expense (43,110) (590,970) Loss on investment (500,000) -- Other income, net 13,902 6,712 ------------ ------------ Net loss $ (5,833,442) $ (4,356,255) ============ ============ Basic and diluted net loss per share $ (0.11) $ (0.04) Shares used in computing basic and diluted net loss per share 51,916,934 99,613,673 The accompanying notes are an integral part of these consolidated financial statements.
F-4 LOCATEPLUS HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001
CLASS A CLASS B ADDITIONAL COMMON STOCK COMMON STOCK PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS ------ ------ ------ ------ ------- -------- Balance at December 31, 1999 49,681,080 $496,811 $5,669,855 Payment of stock subscription receivable Issuance of common stock at $1.00 per share, net of issuance costs of $212,628 3,422,500 34,225 3,175,647 Issuance of common stock upon exercise of stock options at $0.20 per share 5,000 50 950 Issuance of warrants to purchase common stock in exchange for services $126,732 Net loss ---------- -------- ---------- -------- ----------- ------- Balance at December 31, 2000 53,108,580 531,086 8,846,452 126,732 Issuance of common stock at $0.10 per 30,209,121 $302,091 2,717,071 share, net of issuance costs of $1,750 Issuance of common stock in exchange for services 75,000 750 6,750 Issuance of common stock at $0.15 per 12,307,836 123,078 1,700,472 share, net of issuance costs of $22,558 Issuance of detachable warrants to purchase common stock in conjunction with convertible debt 126,541 Beneficial conversion feature on convertible debt 293,912 Issuance of options to purchase common stock in exchange for services 101,488 Issuance of warrants to purchase common stock in exchange for services 294,721 Exchange of convertible notes payable to related 2,996,000 29,960 269,640 party plus accrued interest at $0.075 per share Exchange of convertible notes payable plus accrued interest at $0.10 per share 2,672,430 26,724 240,519 Exchange of convertible notes payable at $0.15 per share 266,667 2,667 37,333 Net loss ---------- -------- ---------- -------- ----------- -------- Balance at December 31, 2001 53,108,580 $531,086 48,527,054 $485,270 $14,213,637 $547,994 ========== ======== ========== ======== =========== ========
COMMON STOCK TOTAL SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS' RECEIVABLE DEFICIT EQUITY (DEFICIT) ---------- ------- ---------------- Balance at December 31, 1999 $(679,001) $(4,096,698) $1,390,967 Payment of stock subscription receivable 679,001 679,001 Issuance of common stock at $1.00 per share, net of issuance costs of $212,628 3,209,872 Issuance of common stock upon exercise of stock options at $0.20 per share 1,000 Issuance of warrants to purchase common stock in exchange for services 126,732 Net loss (5,833,442) (5,833,442) ------ ------------ ---------- Balance at December 31, 2000 -- (9,930,140) (425,870) Issuance of common stock at $0.10 per share, net of issuance costs of $1,750 (4,500) 3,014,662 Issuance of common stock in exchange for services 7,500 Issuance of common stock at $0.15 per 1,823,550 share, net of issuance costs of $22,558 Issuance of detachable warrants to purchase common stock in conjunction with convertible debt 126,541 Beneficial conversion feature on convertible debt 293,912 Issuance of options to purchase common stock in exchange for services 101,488 Issuance of warrants to purchase common stock in exchange for services 294,721 Exchange of convertible notes payable plus accrued interest to related party at $0.075 per share 299,600 Exchange of convertible notes payable plus accrued interst at $0.10 per share 267,243 Exchange of convertible notes payable at $0.15 per share 40,000 Net loss (4,356,255) (4,356,255) ------- ------------ ---------- Balance at December 31, 2001 $(4,500) $(14,286,395) $1,487,092 ======= ============ ========== The accompanying notes are an integral part of these consolidated financial statements.
F-5 LOCATEPLUS HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(5,833,442) $(4,356,255) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment 318,797 421,542 Provision for doubtful accounts 41,587 -- Interest on convertible debt converted into common stock -- 26,943 Interest expense related to warrants issued with convertible debt -- 126,541 Interest expense related to beneficial conversion features -- 293,912 Interest expense recorded on mandatorily convertible debt 4,975 45,863 Loss on disposal of property and equipment 6,610 4,940 Amortization of notes receivable from related parties 123,611 133,333 Expense recorded upon exchange of convertible notes payable to a related party -- 74,900 Expense recorded for fair value of common stock issued for services -- 7,500 Expense recorded for fair value of options and warrants issued for services 126,732 396,209 Loss on investment 500,000 -- Changes in assets and liabilities: Accounts receivable (34,052) (62,431) Prepaid expenses and other assets (82,923) (111,924) Accounts payable 633,148 (165,246) Accrued expenses 256,236 141,317 Notes receivable - related parties (400,000) -- Deferred revenue 46,396 (49,189) Security deposits (57,887) (15,847) ----------- ----------- Net cash used in operating activities (4,350,212) (3,087,892) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of note receivable -- (1,000,000) Purchases of property and equipment (986,987) (310,167) Proceeds from sale of property and equipment 3,900 12,000 Investment in notes receivable (500,000) -- ----------- ----------- Net cash used in investing activities (1,483,087) (1,298,167) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of cash overdraft -- (16,395) Cash overdraft 16,395 -- Repayment of convertible debt -- (30,000) Proceeds from issuance of convertible debt 306,000 551,000 Payments of obligations under capital lease (170,547) (40,894) Proceeds from issuance of common stock and collection of stock subscriptions receivable, net of issuance costs 3,889,873 4,838,212 ----------- ----------- Net cash provided by financing activities 4,041,721 5,301,923 ----------- ----------- Net (decrease) increase in cash and cash equivalents (1,791,578) 915,864 Cash and cash equivalents, beginning of year 1,791,578 -- ----------- ----------- Cash and cash equivalents, end of year $ -- $ 915,864 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest $ 38,135 $ 97,711 Supplemental disclosure of non-cash investing and financing activities: Acquisition of property and equipment under capital leases $ 496,249 Exchange of convertible debt into common stock $ 505,000 Relative fair value of detachable warrants issued in conjunction with convertible debt 126,541 Value ascribed to beneficial conversion features on convertible debt 293,912 Issuance of common stock for subscription receiveable 4,500 The accompanying notes are an integral part of these consolidated financial statements.
F-6 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION LocatePLUS Holdings Corporation (the "Company") was initially incorporated in Massachusetts in 1996 as Worldwide Information, Inc. In July 1999, the Company reincorporated in Delaware and changed its name to LocatePLUS.com, Inc. On August 1, 2001, the Company changed its name from LocatePLUS.com, Inc. to LocatePLUS Holdings Corporation as part of a corporate restructuring. As part of the restructuring, the Company created two wholly-owned subsidiaries, LocatePLUS Corporation and Worldwide Information, Inc. The restructuring was completed by commonly-controlled entities and, accordingly, was accounted for based on historical cost. All intercompany accounts are eliminated in consolidation. The Company provides access to public information such as bankruptcies, real estate transactions and motor vehicles and drivers' licenses to commercial, private sector and law enforcement entities in the United States. In 1999 and prior periods, this information was delivered to customers on compact disks. In March 2000, the Company began providing information through the Internet. LIQUIDITY AND OPERATIONS The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred an accumulated deficit of approximately $14.3 million through December 31, 2001 and used approximately $3.1 million of cash in operations during fiscal 2001. The Company raised approximately $1,200,000 of equity (see Note 17) from January 1, 2002 through February 13, 2002; however, management believes that additional financing will be required during 2002 to fund the Company's planned operations. Management's plans include raising additional funds in 2002. There is no assurance that the Company will obtain the financing to provide the resources necessary for the Company to continue its planned operations through fiscal 2002. In the event the Company's operations are not profitable or do not generate sufficient cash to fund the business, or if the Company fails to obtain additional financing, management will have to substantially reduce its level of operations. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less at date of purchase to be cash equivalents. At December 31, 2001, total cash equivalents consisting of money market funds at a major financial institution, were approximately $890,000. NOTE RECEIVABLE At December 31, 2001, note receivable consisted solely of a promissory note due on May 31, 2002 (see Note 17). CONCENTRATION OF RISK Financial instruments that subject the Company to credit risk consist of cash equivalents, accounts receivable, note receivable, and the note receivable-related parties. The risk with respect to cash equivalents is minimized by the Company's policies in which such investments are only placed with highly rated counterparties with relatively short maturities. The note receivable is placed with an unrated counterparty with a twelve-month maturity (see Note 17). Consequently, the carrying F-7 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements value of cash equivalents and note receivable approximates their fair value based on the short-term maturities of these instruments. The risk with respect to accounts receivable is minimized by the large number of customers comprising the Company's customer base, none of which are individually significant, and by their dispersion across many geographical regions. The Company generally does not require collateral, but evaluations of customers' credit and financial condition are performed periodically. The notes receivable-related parties are being amortized to expense assuming they will be forgiven in 2003 (see Note 3). PROPERTY AND EQUIPMENT Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When assets are retired or disposed, the assets and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income. Repairs and maintenance are expensed as incurred. INCOME TAXES The Company accounts for income taxes using the liability method under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A deferred tax asset is established for the expected future benefit of net operating loss and credit carryforwards. A valuation reserve against net deferred tax assets is required if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. REVENUE RECOGNITION The Company currently licenses information contained on compact disks or provides information online through its website. The information contained on compact disks is updated and released either quarterly or biannually. Revenue is recognized upon delivery to the customer of a compact disk, provided that no significant obligations remain, evidence of the arrangement exists, the fees are fixed or determinable, and collectability is reasonably assured. Upon purchase of multiple compact disks, revenue is deferred until shipment of the compact disks. The revenue related to these multiple disks is recognized upon shipment of a disk and is allocated based on the number of compact disks to which the customer is entitled. Online subscription enables customers to obtain information through Internet access. The fee charged to customers varies based on the type of information requested. Revenue is recognized when the information requested is downloaded, there is evidence of an arrangement, the fee is fixed or determinable, and collectibility is reasonably assured. Engineering services relates to software development and integration services provided to a third party database provider with whom the Company was to have an arrangement whereby the Company provided to the third party access to the Company's database. This arrangement was not consummated and the third party paid the Company for software development services through the date of termination. COSTS OF REVENUES AND SOFTWARE DEVELOPMENT COSTS Costs of license revenues consist primarily of payments relating to data acquisition, materials and costs associated with compilation of compact disks, such as labor. Costs of services revenues consist primarily of payments under license agreements related to data acquisition, software development and maintenance costs and costs associated with delivery of such service that include labor and depreciation. F-8 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements Software development costs are generally charged to operations as incurred, as they relate to ongoing maintenance of data and the Company's website. The Company evaluates for capitalization certain software development costs in accordance with the American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Costs incurred for the Company's own personnel and outside consultants who are directly associated with software developed for internal use may be capitalized. Costs eligible for capitalization under SOP 98-1 have been immaterial to date. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation to employees and directors under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. Accordingly, compensation expense is recorded for stock-based compensation issued to employees and directors in fixed amounts, to the extent the fixed exercise prices are less than the fair market value of the Company's common stock at the date of grant. The Company provides the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation to non-employees is accounted for under the provisions of SFAS 123. EARNINGS PER SHARE Basic earnings per share is based upon the weighted average number of common shares outstanding during each period (see Note 14). Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume the issuance of potential common shares that have an anti-dilutive effect. PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED) The pro forma net loss per share gives effect to the mandatory conversion of all outstanding mandatorily convertible debt into shares of Class A Voting Common Stock as if the conversion had occurred upon issuance of the debt. Pro forma net loss per common share is computed based upon the weighted average number of common shares and common equivalent shares (using the treasury stock method) outstanding (see Note 14). Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. In the computation of pro forma net loss per share, interest related to the mandatorily convertible debt is not included in determining net loss. PRO FORMA BALANCE SHEET (UNAUDITED) Upon the closing of the Company's initial public offering and pursuant to the contractual agreements with the mandatorily convertible debt holders, all the outstanding mandatorily convertible debt plus accrued interest will be converted into Class A Voting Common Stock. The unaudited pro forma presentation of the balance sheet has been prepared assuming the conversion of the outstanding mandatorily convertible debt into common stock as of December 31, 2001 pursuant to the initial public offering of the Company's common stock contemplated in this prospectus. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to amounts and timing of revenue recognition and provisions for doubtful accounts. Actual results could differ from those estimates. F-9 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements COMPREHENSIVE LOSS Comprehensive loss is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distribution to owners. Comprehensive loss does not differ from net loss for the years ended December 31, 2000 and 2001. RECENT PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible Assets," which is effective for the Company on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. SFAS 142 also requires a company to complete a transitional goodwill impairment test within six months from the date of adoption. In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses significant issues relating to the implementation of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and develops a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. Had the Company implemented the above accounting pronouncements in the current period, the financial position and results of operations would not have been affected. 3. NOTES RECEIVABLE - RELATED PARTIES During 2000, the Company issued cash loans of $400,000 and received in exchange, promissory notes from certain officers. The notes bear interest at an annual rate equal to the 90-day Treasury Bill Rate (1.7% at December 31, 2001). The principal and accrued interest are due and payable in one lump sum on January 3, 2010, unless the Company has inadequate funds to satisfy its obligations as they generally become due, in which case the principal and accrued interest would be immediately due and payable. The Company, however, does not intend to make a call on these notes in the foreseeable future and, therefore, the notes are classified as long-term assets. In the event of a change of control, as defined in the agreements to the notes, or in the event that, as of January 3, 2003, the officers are (i) still employed by the Company; (ii) an independent contractor of the Company; or (iii) a member of the Company's Board of Directors, then the obligations and debt evidenced by the notes shall be canceled without further action by any party. In the event that the note is canceled pursuant to the conditions noted above, the Company agrees to pay to the officers, no later than two months after the end of the officer's applicable tax year in which such cancellation occurs, an amount in cash, sufficient to fulfill the officer's tax liability attributable to the cancellation of the notes. The principal is being expensed by the Company on a monthly basis through January 3, 2003. Through December 31, 2001, the Company recorded $256,944 of such compensation expense; the Company has not recorded any interest income relating to these notes. Additionally, the Company has accrued approximately $138,000 through F-10 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements December 31, 2001 relating to an estimate of the officers' tax liability expected to be reimbursed by the Company. 4. INVESTMENT During 2000, the Company entered into certain agreements, as amended, with a third party ("IntelliCorp") under which the Company invested a total of $500,000 in cash in exchange for contingently convertible promissory notes. As of December 31, 2000, the Company reserved all amounts owed to it by IntelliCorp. On January 22, 2002 both parties agreed to the repayment of the $500,000 through an addendum to the Channel Partner Agreement signed in August 2001 between the parties. The addendum provides for a 75:25 sharing of revenues received by the third party resulting from this Channel Partner Agreement in favor of the Company. One third of proceeds remitted to the Company under this arrangement will be treated as repayment of the $500,000 plus accrued interest and the balance will be recorded as revenue. On full repayment of the $500,000 plus accrued interest, the revenue sharing arrangement will change to a 50:50 basis. Interest on the note ceased to accrue on January 21, 2002 in accordance with the arrangement. As of that date, interest receivable of $76,280 was due but not recorded as income. 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31:
ESTIMATED USEFUL LIFE (IN YEARS) 2000 2001 ---------- ----------- ----------- Equipment 3-5 $ 868,238 $ 1,091,353 Vehicles 5 82,526 115,278 Software 3 127,990 152,990 Furniture and fixtures 7 382,978 388,493 Leasehold improvements 5 516,207 516,892 ----------- ----------- 1,977,939 2,265,006 Less accumulated depreciation and amortization (434,686) (850,068) ----------- ----------- Property and equipment, net $ 1,543,253 $ 1,414,938 =========== ===========
The carrying value of assets under capital leases was $479,145, net of amortization of $72,745 and $482,173, net of amortization of $203,953 as of December 31, 2000 and 2001, respectively. Depreciation and amortization expense was $318,797 and $421,542 for the years ended December 31, 2000 and 2001, respectively. Amortization expense on the equipment under capital lease was $72,745 and $131,208 for the years ended December 31, 2000 and 2001, respectively. 6. ACCRUED EXPENSES Accrued expenses consist of the following at December 31: F-11 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements
2000 2001 ----------- ----------- Payroll and related taxes $ 154,418 216,454 Sales tax 40,893 44,974 Accounting, legal and professional fees 35,000 117,625 Other 95,764 88,339 ----------- ----------- Total $ 326,075 467,392 =========== ===========
7. LICENSE AGREEMENTS The Company sources its data from three primary sources and has entered into various license agreements with the related data providers. In March 1999 the Company entered into a data acquisition agreement to acquire information related to real property. The agreement is for three years. In July 1999, the Company entered into a data acquisition agreement to acquire credit file header information. The term of the agreement is five years, after which time either party may terminate the agreement upon 90 days' prior written notice. During the initial five-year term the data provider may terminate the agreement for any reason. In August 1999 the Company entered into a data acquisition agreement to acquire bankruptcy liens and judgments information. The initial term of the agreement was for one year and was automatically renewable for subsequent periods of one year thereafter unless terminated upon 90 days' prior written notice. This agreement was amended on November 27, 2001, resulting in a one year term with automatic one year renewals unless terminated by either party prior to renewal. Payments under these agreements are based on minimum monthly payments and monthly usage (see Note 10). In 2000 and 2001 the Company recorded $640,000 and $648,500, respectively, in costs related to these agreements. 8. CONVERTIBLE DEBT AND NOTE PAYABLE MANDATORILY CONVERTIBLE DEBT During October, November and December 2000 and January 2001, the Company issued convertible subordinated notes with detachable warrants to purchase 156,000 shares of the Company's Class A Voting Common Stock for proceeds of $312,000 in cash. The notes pay interest at a rate of 14% per year, compounded semiannually on the unpaid balance of the principal amount until paid in full or converted. All outstanding principal and accrued unpaid interest shall be due and payable on the first to occur of: the fifth-year anniversary on various dates during 2005 and 2006, or the occurrence of an event of default as defined in the agreements to the notes. F-12 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements The notes are not convertible at the discretion of the holder. The entire outstanding principal amount of the notes and any accrued unpaid interest shall automatically convert into shares of the Class A Voting Common Stock of the Company, upon the first to occur of: (i) the Company's initial public offering; (ii) the closing of at least a $5 million equity investment in the Company in an offering subsequent to the issuance of the convertible debt; or (iii) a transaction involving a change of control of the Company. The conversion price shall be equal to: (i) 80% of the per share value of the common stock as determined by the Board of Directors of the Company, in good faith; or (ii) 80% of the value of the consideration offered to each shareholder for each share of the Company's common stock in the event of a change of control transaction, in which all or substantially all of the common stock of the Company is acquired or transferred. The warrants will remain outstanding indefinitely until 20 days after the occurrence of any of the above conversion events which triggers exercisability; the warrants are then exercisable for a period of 20 days after the occurrence of one of the events that cause the conversion of the notes. The exercise price of the warrant will equal the conversion price described above. The Company allocated the investment proceeds among the note and warrants based on their relative fair values. The relative fair value of the warrants was deemed to be immaterial at the date of issuance based on the contingent right to exercise the warrants and the low probability of exercise, and the pricing of the subordinated notes relative to a stand-alone debt instrument. Additionally, should the debt be settled in stock as a result of the occurrence of one of the specified events, the value of the common shares issued at the settlement date in excess of the carrying value of the debt will be recorded as interest expense upon settlement. CONVERTIBLE NOTE PAYABLE TO RELATED PARTIES In January 2001, the Company issued a convertible note with a detachable warrant to a member of the Company's Board of Directors in exchange for $200,000 in cash. The interest rate was 18% per annum for the first thirty days, and increased thereafter to 25% per annum compounded quarterly. The Company was obligated to pay the balance in full a maximum of six months from the January 2001 execution date or, earlier, in the event of a $1 million private placement, sale or change in control . The principal and interest were convertible at the option of the holder into shares of Class A Voting Common Stock at the lower of 75% of the per share value as determined in the above-mentioned private placement, sale of substantially all of the assets of the Company, or change in control of the Company, or $0.15 per share. The detachable warrant was for the purchase of 500,000 shares of Class A Voting Common Stock at a price per share to be determined upon the above-mentioned private placement. The warrant had a term of ten years and became exercisable upon the above-mentioned private placement. The Company allocated the investment proceeds to the debt and warrant based on their relative fair values. The relative fair value of the warrant was determined to be $62,608 which was recorded as debt discount, a reduction of the carrying amount of the debt. This amount was amortized to interest expense over the term of the debt. The fair value of the warrant was based on the Black-Scholes model. The Black-Scholes calculation incorporated the following assumptions: 0% dividend yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life and an underlying Class A Voting Common Stock value of $0.20 per share. Additionally, based upon the accounting conversion price, the notes contained an embedded beneficial conversion feature to which the Company ascribed a value of $129,274 and recorded the amount as a reduction of the carrying amount of the debt and a corresponding increase to additional paid-in capital. This amount was amortized to interest expense over the term of the debt. F-13 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements On August 1, 2001, the note, having a carrying value of $200,000, plus accrued interest of $24,700 was exchanged for 2,996,000 shares of Class B Non-voting Common Stock. Upon exchange, the difference between the fair value of the Class B Non-voting Common Stock issued and the carrying value of the debt including accrued interest was $74,900 which has been recorded as general and administrative expense (see Note 9). Additionally, on August 1, 2001, the detachable warrant was modified to allow the holder to purchase 500,000 shares of Class B Non-voting Common Stock at $0.10 per share. In March 2001, the Company issued a convertible note with a detachable warrant to a member of the Company's Board of Directors in exchange for $15,000 in cash. The interest rate was 12% per annum with interest payments due and payable on March 31, June 30 and September 30. The Company was obligated to pay the balance in full a maximum of six months from the March 2001 execution date or, earlier, in the event of a $1 million private placement, sale or change in control . The principal and interest were convertible at the option of the holder into shares of Class A Voting Common Stock at the lower of 75% of the per share value as determined in the above-mentioned private placement, sale or change in control, or $0.20 per share. The detachable warrant was for the purchase of 75,000 shares of Class A Voting Common Stock at $0.20 per share. The warrant has a term of ten years and became exercisable upon the above-mentioned private placement, sale, or change in control. The Company allocated the investment proceeds to the debt and warrant based on their relative fair values. The relative fair value of the warrant was determined to be $7,148 which was recorded as debt discount, a reduction of the carrying amount of the debt. This amount was amortized to interest expense over the term of the debt. The fair value of the warrant was based on the Black-Scholes model. The Black-Scholes calculation incorporated the following assumptions: 0% dividend yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life and an underlying Class A Voting Common Stock value of $0.20 per share. Additionally, based upon the accounting conversion price, the notes contained an embedded beneficial conversion feature to which the Company ascribed a value of $7,852 and recorded the amount as a reduction of the carrying amount of the debt and a corresponding increase to additional paid-in capital. This amount was amortized to interest expense over the term of the debt. In April 2001, the note, having a carrying value of $15,000, was exchanged for 150,000 shares of Class B Non-voting Common Stock. CONVERTIBLE NOTES PAYABLE In February 2001, the Company issued convertible notes with detachable warrants in exchange for $100,000 in cash. The notes had six-month terms and bore interest at a rate of 18% per year with interest payments due and payable on March 31, June 30 and September 30. The notes were convertible at the option of the holder into shares of Class A Voting Common Stock of the Company. The principal and interest were convertible at the lower of 75% of the per share value based on financing of at least $1 million, a sale of substantially all of the assets of the Company, or a change in control of the Company, or $0.15 per share. The detachable warrants were for the purchase of 200,000 shares of the Company's Class A Voting Common Stock at $0.20 per share. The warrants had a term of ten years and became exercisable upon the above- mentioned private placement. F-14 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements In March and April 2001, the Company issued convertible notes with detachable warrants in exchange for $200,000 in cash. The notes had six-month terms and bore interest at rates ranging from 12% to 18% per year with interest payments due and payable on March 31, June 30 and September 30. The notes were convertible at the option of the holder into shares of Class A Voting Common Stock of the Company. The principal and interest were convertible at the lower of 75% of the per share value based on financing of at least $1 million, a sale of substantially all of the assets of the Company, or a change in control of the Company, or $0.20 per share. The detachable warrants were for the purchase of 195,000 shares of the Company's Class A Voting Common Stock at $0.20 per share. The warrants had a term of ten years and became exercisable upon the above- mentioned private placement, or sale. The Company allocated the investment proceeds to the debt and warrants based on their relative fair values. The relative fair value of the warrants was determined to be $56,786 which was recorded as debt discount, a reduction of the carrying amount of the debt. This amount was to be amortized to interest expense over the term of the debt; however, upon settlement the remaining balance was immediately amortized. The fair value of the warrants was based on the Black-Scholes model. The Black-Scholes calculation incorporated the following assumptions: 0% dividend yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life and an underlying Class A Voting Common Stock value of $0.20 per share. Additionally, based upon the accounting conversion price, the notes contained an embedded beneficial conversion feature to which the Company ascribed a value of $156,786 on the issue date, which was recorded as a reduction of the carrying amount of the debt and a corresponding increase to additional paid-in capital. This amount was to be amortized to interest expense over the term of the debt remaining on the recording date; however, upon settlement the remaining balance would be immediately amortized. In April 2001, $10,000 of these notes were repaid and $240,000 of the notes plus accrued interest of $2,243 were exchanged for 2,422,430 shares of Class B Non-voting Common Stock. In September and December 2001, $40,000 of the notes were exchanged for 266,667 shares of Class B Non-voting Common Stock. At December 31, 2001, $10,000 of these notes remain outstanding. NOTE PAYABLE In March 31, 2001 the Company issued a note in exchange for $30,000 in cash. The note plus accrued interest was payable on April 30, 2001. On April 27, 2001, the Company repaid $20,000 of the principal plus accrued interest of $6,000, and the remaining unpaid principal of $10,000 was settled by the issuance by the Company of 100,000 shares of Class B Non-voting Common Stock. 9. RELATED PARTY TRANSACTIONS Certain members of the Company's Board of Directors have performed consulting services for the Company. Expenses relating to these services amounted to $223,795 and $303,892 in 2000 and 2001, respectively, and were recorded as part of general and administrative expenses. The 2001 amount includes expenses of $74,900 related to the exchange of debt issued to a member of the Company's Board of Directors (see Note 8). In 2001, the Company granted options to purchase 119,104 shares of Class A Voting Common Stock at $0.20 per share for services rendered as a consultant to a former Board member. The Company recorded an expense of $21,645 associated with the options. In 2002, the Company granted a warrant to purchase 1,177,680 shares of Class B Non-voting Common Stock at $0.15 per share for consulting services rendered by the former Board member (see Note 17). In 2001, the Company granted options to purchase 38,067 shares of Class A Voting Common Stock at $0.20 per share and warrants to purchase 324, 581 shares of Class B Non-voting Common Stock at $0.15 per share in consideration for services rendered by a member of the Company's Board of Directors. The Company recorded expenses of $6,918 and $44,277, respectively, associated with these options and warrants. F-15 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements During 2001, the Company issued convertible notes with detachable warrants to two members of the Company's Board of Directors in exchange for $215,000 (see Note 8). Certain executives of the Company are allowed use of company cars for both business and personal purposes. These cars have been capitalized as assets of the Company totaling $115,278 as of December 31, 2001. 10. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases office space and equipment under various operating lease agreements which terminate on various dates through 2005. Rent expense amounted to $392,167 and $493,701 for 2000 and 2001, respectively. Future minimum payments under noncancelable operating leases are as follows: YEAR ENDING DECEMBER 31, 2002 $ 507,220 2003 490,436 2004 482,044 2005 80,341 ----------- Total $1,560,041 ========== CAPITAL LEASES During 2000, the Company entered into certain long-term equipment lease agreements, which included three leaseback transactions. These agreements are classified as capital leases and expire in 2005. Future minimum lease payments under noncancelable capital leases are as follows: YEAR ENDING DECEMBER 31, 2002 $ 193,200 2003 112,385 2004 60,724 2005 46,993 --------- 413,302 Less: amounts representing interest (101,433) --------- Present value of future minimum lease payments 311,869 Less: amounts due within one year (139,250) --------- Long-term portion $ 172,619 ========= LICENSE AGREEMENTS The Company entered into data acquisition agreements under which the Company is required to make minimum payments as follows: F-16 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements YEAR ENDING DECEMBER 31, 2002 $ 410,000 2003 250,000 2004 125,000 --------- $ 785,000 ========= The Company's operations depend upon information that includes public records. If material changes were to occur in federal or state laws regulating or prohibiting the distribution of public records, particularly credit header records, the Company's financial condition and results of operations could be materially affected. In the event that such a termination occurred, management believes it can acquire replacement data from other sources; however, such termination may have an adverse effect on the Company's results. LEGAL PROCEEDINGS The Company is from time to time subject to legal proceedings and claims which arise in the normal course of its business. There are no pending or known actions for which the amount of ultimate liability could have a material adverse effect on the Company's financial position or results of operations. 11. INCOME TAXES Deferred tax assets consist of the following at December 31: 2000 2001 ----------- ----------- Net operating loss carryforwards $ 3,072,000 $ 4,524,000 Depreciation and amortization 59,000 229,000 Bad debt reserve 30,000 14,000 Investment loss 201,000 201,000 Capitalized research and development 402,000 359,000 Other 25,000 16,000 ----------- ----------- Gross deferred tax assets 3,789,000 5,343,000 Valuation allowance (3,789,000) (5,343,000) ----------- ----------- $ -- $ -- =========== =========== The Company has provided a valuation allowance for the full amount of the deferred tax assets since realization of these future benefits is not sufficiently assured. As the Company achieves profitability, these deferred tax assets may be available to offset future income tax liabilities and expenses. At December 31, 2001, the Company had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $1,235,000. The federal and state net operating loss carryforwards expire through 2021. Certain substantial changes in the Company's ownership may occur. As a result, under the provisions of the Internal Revenue Code, the amount of net operating loss carryforwards available annually to offset future taxable income may be limited. The amount of this annual limitation is F-17 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements determined based upon the Company's value prior to the ownership changes taking place. Subsequent ownership changes could further affect the limitation in future years. A reconciliation between the amount of reported tax expense and the amount computed using the U.S. federal statutory rate of 34% is as follows: 2000 2001 ----------- ----------- Income tax benefit at statutory rate $(1,983,000) $(1,481,000) State tax benefit, net (364,000) (242,000) Interest and other 8,000 169,000 ----------- ----------- (2,339,000) (1,554,000) Increase in valuation allowance 2,339,000 1,554,000 ----------- ----------- $ -- $ -- =========== =========== 12. COMMON STOCK DESCRIPTION OF COMMON STOCK On March 23, 2001, the Company amended its articles of incorporation wherein it renamed all the authorized 150,000,000 shares of common stock, par value $0.01 per share, Class A Voting Common Stock and authorized the issuance of 250,000,000 shares of Class B Non-voting Common Stock. Each Class A Voting Common stockholder is entitled to one vote for each share held on all matters submitted to a vote of stockholders. The holders of both classes of common stock are entitled to dividends on a pro rata basis, when-and-if declared by the Company's Board of Directors. Through December 31, 2001, no dividends have been declared or paid. As of December 31, 2001, a total of 15,758,500 shares of Class A Voting Common Stock have been reserved for issuance upon exercise of outstanding stock option and warrant agreements. As of December 31, 2001, 2,480,797 shares of Class B Non-voting Common Stock were reserved for issuance upon exercise of outstanding warrant agreements. STOCK OPTIONS AND WARRANTS In November 2000 and April 2001, the Company issued warrants to purchase 138,663 and 137,500 shares of its Class A Voting Common Stock at a price of $1.00 and $0.20 per share, respectively, in consideration for services rendered by third parties. The warrants fully vested on the date of grant and will expire on various dates through April 2011. The Company recorded general and administrative expense of $126,732 and $25,057, respectively, associated with these warrants. In October 2001, the Company canceled the warrants issued in November 2000 and issued warrants to purchase 138,663 shares of Class B Non-voting Common Stock, for an exercise price of $0.15 per share. The Company recorded expense of $18,851 related to these warrants. Also during 2001, the Company issued options to purchase 460,171 shares of Class A Voting Common Stock at $0.20 per share and warrants to purchase 1,779,634 shares of Class B Non-Voting Common Stock at $0.15 and $0.20 per share to third parties in exchange for services. The Company recorded expense of $90,945 and $242,450, respectively, associated with these options and warrants. F-18 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements In 2000 and 2001, the Company also issued warrants to purchase 156,000 shares of its Class A Voting Common Stock in conjunction with the issuance of $312,000 of convertible debt (see Note 8). During 2001, the Company issued warrants to purchase 970,000 shares of the Company's Class A Voting Common Stock in conjunction with the issuance of $545,000 of convertible debt (see Note 8). During 2001, the Company issued options to purchase 57,922 shares of Class A Voting Common Stock and warrants to purchase 62,500 shares of Class B Non-voting Common Stock to members of the Company's advisory board. The exercise price was $0.20 per share, the term was ten years, and these options and warrants were exercisable immediately upon issuance. The Company determined the fair value of the options and warrants to be $10,543 and $8,363, respectively, and recorded the amounts as compensation expense on the date of issuance. As of December 31, 2001, each of these options and warrants was outstanding. During 2000 and 2001, the Company has issued a total of 291,633 and 5,191,297 options and warrants outside the stock option plan (see Note 13). 13. STOCK OPTION PLAN On November 16, 1999, the Board of Directors approved the Incentive and Non-Qualified Stock Option Plan (the "Plan") as amended. Under the terms of the Plan, the Company is authorized to grant incentive and nonqualified stock options to purchase shares of common stock to its employees, officers and directors, and consultants or advisors. The Board of Directors administers the Plan. A maximum of 15,000,000 shares of Class A Voting Common Stock has been approved for issuance under the Plan of which 4,392,284 are available for grant at December 31, 2001. The Board of Directors determines the exercise price and vesting period of the options at the date of grant. The exercise price for incentive stock options shall not be less than 100% of the fair market value of the Company's stock on the date of grant. The option exercise period will not exceed ten years from the date of grant. If a grantee owns stock representing more than 10% of the outstanding shares on the date such an incentive option is granted, the price shall be at least 110% of fair market value and the maximum term of the options will be five years. F-19 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements The following table presents activity under the Plan for the years ended December 31, 2000 and 2001: WEIGHTED AVERAGE EXERCISE SHARES PRICE Outstanding at December 31, 1999 6,694,623 $ 0.20 Exercised (5,000) 0.20 Canceled (110,000) 0.20 ---------- Outstanding at December 31, 2000 6,579,623 0.20 Issued 4,148,093 0.20 Canceled (125,000) 0.20 ---------- Outstanding at December 31, 2001 10,602,716 0.20 ========== The estimated weighted average fair value at the date of grant for stock options issued to employees during 2001 was $0.06. No options were granted during 2000. The following table summarizes information relating to options outstanding at December 31, 2001:
OPTIONS OPTIONS OUTSTANDING EXERCISABLE WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE $0.20 - $0.22 10,522,716 8.49 $ 0.20 6,857,473 $ 0.20 $0.30 80,000 9.01 $ 0.30 80,000 $ 0.30 ---------- --------- 10,602,716 8.49 $ 0.20 6,937,473 $ 0.20 ========== =========
For purposes of providing pro forma disclosures, the fair value for options was estimated at the date of grant using the minimum value option pricing method with the following weighted average assumptions: 2001 Expected life (years) 5 Average risk-free interest rate 5.5% Volatility 0.00% Dividend yield 0.00% F-20 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements Had the Company determined compensation expense for the Plan in accordance with the fair value methodology prescribed by SFAS 123, the Company's pro forma net loss and loss per share would have been:
YEAR ENDED DECEMBER 31 ---------------------------- 2000 2001 ----------- ----------- Net loss - reported $(5,833,442) $(4,356,255) Amortization of stock compensation expense (8,697) (77,785) ----------- ----------- Pro forma net loss $(5,842,139) $(4,434,040) =========== =========== Pro forma net loss per share - basic and diluted $ (0.11) $ (0.04)
For purposes of this disclosure, the estimated fair value of the options is amortized to expense over the options' vesting periods. The effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years since the pro forma expense includes only one year of option grants. F-21 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements 14. HISTORICAL AND PRO FORMA NET LOSS PER SHARE The computations of basic and diluted loss per common share are based upon the weighted average number of common shares outstanding. Potential common shares from the exercise of stock options and warrants are antidilutive for all periods presented and were not included in the computations of diluted net loss per share.
YEAR ENDED DECEMBER 31, --------------------------------------- Historical: 2000 2001 ------------ ------------ Net loss $ (5,833,442) $ (4,356,255) Weighted average of common shares used in net loss per share - basic and diluted 51,916,934 99,613,673 Net loss per share - basic and diluted $ (0.11) $ (0.04) Pro forma (unaudited) Historical net loss $ (4,356,255) Interest on mandatorily convertible debt 45,863 ------------ Pro forma net loss $ (4,310,392) ============ Weighted average number of common shares 99,613,673 Weighted average number of common shares upon conversion of mandatorily convertible debt 1,300,000 ------------ Total weighted average number of common shares used in computing pro forma net loss per share 100,913,673 ============ Pro forma net loss per share - basic and diluted $ (0.04)
15. DEFINED CONTRIBUTION PLAN The Company sponsors a defined contribution plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers substantially all employees. The Company may make discretionary matching contributions up to 1% of employee contributions. Company contributions vest ratably over a six-year period. The Company pays administrative expenses to the plan, which approximate $1,000 each year. Company matching contributions amounted to $2,329 and $4,469 in 2000 and 2001, respectively. 16. SEGMENT INFORMATION The Company has two reportable segments which management operates as distinct sales F-22 LocatePLUS Holdings Corporation Notes to Consolidated Financial Statements organizations; these two segments are segregated by the nature of products and services provided. The Company measures and evaluates its two reportable segments based on revenues and costs of revenues. The licenses segment provides information on motor vehicles and drivers' licenses, contained on compact disks. The services segment provides information on individuals throughout the United States of America through the Company's website. No material operating costs, other than costs of revenues, and assets and liabilities relate to the product segment. 2000 2001 ---------- ---------- Revenues: Licenses $ 490,480 $ 268,701 Services 98,632 752,109 ---------- ---------- Total revenues 589,112 1,020,810 ---------- ---------- Costs of revenues: Licenses 169,782 96,561 Services 1,293,297 986,240 ---------- ---------- Total costs of revenues $1,463,079 $1,082,801 ========== ========== 17. SUBSEQUENT EVENTS On January 22, 2002, the Company amended its Channel Partner Agreement with Intellicorp to provide for the future repayment of the fiscal 2000 investment in Intellicorp (see Note 4). On January 31, 2002, the Company granted options to purchase 1,777,680 shares of Class B Non-voting Common Stock to a former board member (see Note 9). On January 4, 2002 and February 1 and 5, 2002, the Company sold portions of the note receivable back to the issuer resulting in total proceeds of $750,000. Those proceeds were subsequently deposited in the Company's primary operating cash account. The remaining note receivable approximates $250,000. From January 1, 2002 through February 13, 2002, the Company issued 8,113,672 shares of Class B Non-voting Common Stock resulting in net proceeds of $1,198,576, net of issuance costs of $18,475. On February 1, 2002, the Company issued warrants to purchase a total of 70,000 shares of Class B Non-voting Common Stock to two directors of the Company pursuant to the non-employee director stock option policy. F-23 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant 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 against the Registrant by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. We estimate that the approximate expenses in connection with this Registration Statement will be as follows: SEC registration fee.................... $ 736 Legal fees and expenses................. 80,000 Accounting fees and expenses............ 55,000 Miscellaneous........................... 24,000 -------- Total................................... $159,736 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. From March 1999 to December 1999, the Registrant sold 7,447,752 shares of Common Stock (now referred to as Class A Voting Common Stock) to 178 accredited investors for $0.20 per share. The Registrant undertook no general solicitation with respect to those offers and sales. The Registrant also inadvertently sold shares in this offering to four sophisticated non-accredited investors. Of the four, one received financial information with respect to the Company in compliance with Rule 502(b) at the time of sale. The remaining three were offered, and rejected, rescission of their investment after the presentation of financial information meeting the requirements of Rule 502(b). The offer and sale of these securities were exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act and Rules 506 and 508 promulgated thereunder. From November 1999 to June 2001, the Registrant granted options to purchase 11,142,716 shares its Common Stock (now referred to as Class A Voting Common Stock) to 43 employees and consultants to the Registrant under the terms of the Registrant's Incentive and Non-qualified Stock Option Plan. These options have varying exercise prices. Of these options to purchase 11,142,716 shares, an option to purchase 5,000 shares of Common Stock was exercised by one employee. The offer and sale of these securities exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rule 701 promulgated under the Securities Act. II-1 From December 1999 to February 2000, the Registrant sold 3,000,000 shares of Common Stock (now referred to as Class A Voting Common Stock) to 120 accredited investors for $1.00 per share. The offer and sale of these securities were exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rules 506 promulgated under the Securities Act, as the Registrant has received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. From March 2000 to September 2000, the Registrant sold 3,000,000 shares of Common Stock for $1.00 per share (now known as Class A Voting Common Stock) to 96 accredited investors. The offer and sale of these securities were exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rule 506 promulgated under the Securities Act, as the Registrant received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. From October 2000 through January 2001, the Registrant issued a total of $312,000 in convertible promissory notes with detachable restricted warrants to 9 accredited investors. The offer and sale of these securities were exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rule 506 promulgated under the Securities Act, as the Registrant has received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. In January 2001, the Registrant issued $200,000 in the form of a convertible promissory note with a detachable warrant to one investor, then a member of the Registrant's Board of Directors. The offer and sale of that security was exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rules 506 promulgated under the Securities Act. In February and March 2001, the Registrant issued $345,000 in six-month convertible term promissory notes to 11 accredited investors. The offer and sale of these securities were exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act. The offer and sale of that security was exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rules 506 promulgated under the Securities Act, as the Registrant has received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. In April 2001, the Registrant made a non-transferable rights offering to its accredited stockholders to sell three shares of the Registrant's Class B Non-voting Common Stock for $0.10 per share for each share of Class A Voting Common Stock held by each stockholder. Pursuant to that offer, the Registrant sold approximately 31.6 million shares of Class B Non-voting Common Stock to 270 of its stockholders. The offer and sale of that security was exempt from registration under the Securities Act under the provisions of Section 4(2) of the Securities Act and Rules 506 promulgated under the Securities Act, as the Registrant received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. II-2 At various times from November 17, 2000 to March 12, 2002, the Registrant issued warrants to purchase an aggregate of 311,296 shares of Class A Voting Common Stock to 9 consultants and members of the Registrant's Board of Advisors in consideration for services rendered. The Registrant believes these issuances were exempt from registration under the Securities Act under Section 4(2) of the Securities Act. From August 2001 to January 2002, the Registrant issued warrants to purchase an aggregate of 311,296 shares of Class A Voting Common Stock to 16 consultants and members of the Registrant's Board of Advisors in consideration for services rendered. The Registrant believes these issuances were exempt from registration under the Securities Act under Section 4(2) of the Securities Act. From September 2001 through February 13, 2002, the Registrant sold 20,421,510 shares of Class B Non-voting Common Stock to 175 accredited investors (of which 82 were existing stockholders) for $0.15 per share. The offer and sale of these securities were exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act and Rules 506 promulgated under the Securities Act, as the Registrant received representations from all offerees that they were accredited investors at the time of the offer and sale and no general solicitation was undertaken. ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 1.1 Underwriting Agreement between LocatePLUS Holdings Corporation and Oftring & Company, Inc., dated March 15, 2002. 3.1 Second Amended and Restated Certificate of Incorporation of LocatePLUS Holdings Corporation, as filed with the Secretary of State of the State of Delaware on March 19, 2002. 3.2 By-Laws of LocatePLUS Holdings Corporation. 4.1 Warrant and Unit Agreement by and between LocatePLUS Holdings Corporation and Transfer Online, Inc., dated March 22, 2002. 4.2 Form of Warrant Certificate. 4.3 Form of Unit Certificate.* 4.4 Form of Class A Voting Common Stock Certificate.* 4.5 Form of Class B Non-voting Common Stock Certificate.* 4.6 Form of Restricted Warrant Agreement (Warrant to Purchase Shares of Class A Voting Common Stock). 4.7 Form of Restricted Warrant Agreement (Warrant to Purchase Shares of Class B Non-voting Common Stock).* 4.8 Form of Convertible Subordinated Promissory Note ("Bridge Note"). 4.9 Form of Detachable Warrant Agreement ("Bridge Warrant"). 4.10 $10,000 Convertible Promissory Note, dated March 9, 2001. 5.1 Opinion of Kirkpatrick & Lockhart LLP.* 10.1 Master Lease Agreement between Cummings Properties, Inc. and Worldwide Information, Inc., dated November 20, 1999. 10.2 Database License Agreement between Worldwide Information, Inc. and TransUnion Corporation, undated.* 10.3 Database License Agreement between LocatePLUS.com, Inc. and Hogan Information Services Co., dated November 27, 2001.* 10.4 License Agreement between Worldwide Information, Inc. and First American Real Estate Solutions, LLC, dated March 31, 1999.* 10.5 Channel Partner Agreement between LocatePLUS Holdings Corporation and Intellicorp LTD, dated September 1, 2001. 10.6 Letter Agreement between LocatePLUS Holdings Corporation and Intellicorp LTD, dated December 19, 2001. 10.7 Secured Note, dated June 1, 2001. 21.1 Subsidiaries of LocatePLUS Holdings Corporation. 23.1 Consent of Kirkpatrick & Lockhart LLP. 23.2 Consent of PricewaterhouseCoopers LLP. 99.1 Escrow Agreement by and between Transfer Online, Inc. and LocatePLUS Holdings Corporation dated March 18, 2002.* ----------------------- * To be filed by amendment. ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes to: (1) For determining any liability under the Securities Act, treat the information omitted from this 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 under Rule 424(b)(1), or (4) or 497(h) under II-3 the Securities Act of 1933 as part of this registration statement as of the time the Securities and Exchange Commission declared it effective. (2) For determining any liability under the Securities Act of 1933, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in this registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. The undersigned Registrant hereby undertakes with respect to the securities being offered and sold in the offering: (1) To file, during any period in which it offers or sells securities, a post- effective amendment to this Registration Statement to: (A) Include any prospectus required by Section 10(a)(3) of the Securities Act; (B) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (C) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act of 1933, treat each post- effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by director, officer or controlling person relating to the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the Commonwealth of Massachusetts, on March 28, 2002. LOCATEPLUS HOLDINGS CORPORATION (REGISTRANT) By: /s/ Jon R. Latorella ------------------------------------ Chairman, President and Chief Executive Officer Each person whose signature appears below appoints Jon R. Latorella as his or her attorney-in-fact, with full power of substitution and re-substitution, to sign any and all amendments (including post-effective amendments) to this Registration Statement on Form SB-2 of LocatePlus.com Holdings Corporation Inc., and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all the said attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act, this registration statement was signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Jon R. Latorella Chairman of the Board, President March 28, 2002 - --------------------------------- and Chief Executive Officer Jon R. Latorella /s/ Robert A. Goddard Chief Financial Officer, March 28, 2002 - --------------------------------- Treasurer and Secretary Robert A. Goddard (Chief Accounting Officer) /s/ Sonia P. Bejjani Director, March 28, 2002 - --------------------------------- President, Worldwide Information, Inc. Sonia P. Bejjani /s/ John P. Houlihan Director March 28, 2002 - --------------------------------- John P. Houlihan /s/ Thomas W. Garlock Director March 28, 2002 - --------------------------------- Thomas W. Garlock
II-5 EX-1.1 3 ex1-1_10945.txt UNDERWRITING AGREEMENT EXHIBIT 1.1 ----------- [LOCATEPLUS HOLDINGS CORPORATION LETTERHEAD] March 15, 2002 Oftring & Company, Inc. 588 Main Street Worcester, Massachusetts 01601-6440 Dear Sirs: LocatePLUS Holdings Corporation, a Delaware corporation (collectively, the "Company") proposes to sell to Oftring & Company, Inc. and its agents (the "Underwriter") for distribution, and the Underwriter proposes to purchase and to distribute on a minimum/maximum "best efforts" basis, up to 10,000,000 units (the "Units"). Each Unit will consist of one share of the Company's Class B Non-voting Common Stock and a one year warrant to purchase one share of the Company's Class A Voting Stock for $0.50. 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company will prepare and file with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively called the "Act"), a registration statement (including a preliminary prospectus) relating to the Units, which is anticipated to be amended from time to time. Such registration statement, as amended from time to time, is referred to in this Agreement as the "Registration Statement", and the prospectus included in the Registration Statement, as amended from time to time, is referred to in this agreement as the "Prospectus". 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, (I) the Company agrees to issue and sell up to 10,000,000 Units to the Underwriter for distribution and (II) the Underwriter agrees to use its best efforts to offer and sell such Units to the public for a purchase price of $0.30 per Unit, in compliance with all applicable federal, state and local laws and the rules of any self-regulatory authority to which the Underwriter is a member (the "Offering"). 3. TERMS OF PUBLIC OFFERING. The Company and the Underwriter agree that the Offering shall be conducted on a minimum/maximum basis, and that a minimum of 1,666,667 Units (the "Minimum Offering") must be sold by the Company to the Underwriter by 5:00 p.m. (Boston time) on that date that is ten days from the effective date of the Registration Statement (the "Closing Date"). In the event that the Minimum Offering is not sold to the Underwriter by the Closing Date, the Underwriter acknowledges and agrees that the Offering will be terminated and this Agreement will be of no further force or effect (except as provided in Section 12 of this Agreement). Oftring & Company, Inc. Page 2 4. COMMISSION; DELIVERY AND PAYMENT. If at least the Minimum Offering is sold in the Offering, the Underwriter shall be entitled to an underwriting commission equal to 7% of the aggregate purchase price of the Units sold; provided, however, that no underwriting commission shall be paid to the Underwriter for Units distributed to the purchasers identified on Exhibit A, as the same may be amended by mutual agreement of the Company and you. The payment for the Units shall be made on the first business day following the Closing Date (the "Settlement Date"). Certificates for the Units shall be registered in such names and issued on the Settlement Date in such denominations as you shall request in writing. 5. AGREEMENTS OF THE COMPANY. The Company agrees with you: (a) to use its best efforts to cause the Registration Statement to become effective at the earliest possible time; (b) to advise you promptly and, if requested by you, to confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment to it becomes effective, (ii) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Units for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, and (iv) of the happening of any event which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading; (c) to furnish to you a copy of the registration statement as first filed with the Commission and of each amendment to it, including all exhibits other than exhibits incorporated by reference; (d) not to file any amendment or supplement to the Registration Statement, whether before or after the time when it becomes effective, or to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object in writing; (e) promptly after the Registration Statement becomes effective, and from time to time thereafter as a prospectus is required by law to be delivered in connection with sales by an underwriter or a dealer, to furnish to you as many copies of the Prospectus (and of any amendment or supplement to it) as you may reasonably request; (f) if during the period before you have distributed all the Units you acquire from the Company any event shall occur as a result of which, in the judgment of the Company it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with any law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with law; Oftring & Company, Inc. Page 3 (g) prior to any public offering of the Units, to cooperate with you and in connection with the registration or qualification of the Units for offer and sale by any underwriter or dealer under the securities or Blue Sky laws of such jurisdictions as you may reasonably request, and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that the Company shall not be required to register or qualify as a foreign corporation or to take any action which would subject it to the service of process in suits, other than as to matters and transactions relating to the offer and sale of the Units, in any jurisdiction where it is not now so subject; (h) to pay all costs, expenses, fees and taxes incident to (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including financial statements and exhibits), each preliminary prospectus and all amendments and supplements to any of them, (ii) the printing and delivery of the Prospectus and all amendments or supplements to it, (iii) the printing and delivery of this agreement, the Underwriter's Questionnaire and Power of Attorney, Blue Sky Memoranda and all other agreements, memoranda, correspondence and other documents printed and delivered in connection with the offering of the Units, (iv) the registration or qualification of the Units for offer and sale under the securities or Blue Sky laws of the several states, and (V) the performance by the Company of its other obligations under this agreement; (i) to use its best efforts to do and perform all things required or necessary to be done and performed under this agreement by the Company prior to the Settlement Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Units. 6. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter hereby represents and warrants to the Company that, upon the execution, delivery and performance of this Agreement by the Underwriter will not violate any statute, rule, order, consent, agreement or other arrangement of any federal, state or local government or the rule, consent, order or agreement of any self-regulatory authority. 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to you that the execution, delivery and performance of this Agreement by the Company will not violate any statute, rule, order, consent, agreement or other arrangement of any federal, state or local government or the rule, consent, order or agreement of any self-regulatory authority. The Company further represents and warrants to the you that, at the time the Registration Statement becomes effective the Registration Statement and any amendments thereto will comply in all material respects with the provisions of the Act and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus and any supplements thereto will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this Section 1 shall not apply to statements or omissions in the Registration Statement or Prospectus (or any supplement or amendment to them) based upon information provided to the Company by you for use therein. 8. INDEMNIFICATION AND CONTRIBUTION. Oftring & Company, Inc. Page 4 (a) The Company agrees to indemnify and hold harmless you and each person, if any, who controls you within the meaning of either Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by the Underwriter expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to the Prospectus shall not inure to the benefit of any underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Units, or any person controlling such underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Units to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) The Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the stockholders, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities caused by (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information provided by the Underwriter to the Company, and from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if the person asserting such losses, claims, damages or liabilities purchased Units from such underwriter and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Units to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability; or (ii) for actual or alleged violations by the Underwriter (either by itself or by its employees or agents) of any provision of the Act, the Exchange Act, the securities or consumer protection laws of any state, or the rules of any self-regulatory authority to which the Underwriter is a member incurred or alleged to be incurred in conjunction with the purchase of the Units from the Company or the distribution of such Units, except to the extent the same are caused solely by an action or failure to act by the Company, the stockholders, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company. Oftring & Company, Inc. Page 5 (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to paragraphs (a) or (b) of this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. However, the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8 and will not relieve it from any liability to the extent it is not materially prejudiced as a result of such failure. In case any such action is brought against any indemnified party, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation unless the indemnifying party does not so assume the defense thereof if given the opportunity to do so. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party or any officers, directors or controlling persons of the indemnifying party and the indemnified party and representation of all such parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the reasonable fees and expenses of more than one separate law firm for the Underwriter and all persons, if any, who control the Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act and (b) the reasonable fees and expenses of more than one separate law firm for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section. It is further understood that, in any case, the indemnifying party shall, in addition to the separate law firm described above, be responsible for any fees and expenses of local counsel necessary in connection with any such proceedings and shall pay all legal fees and expenses promptly as they are incurred. In the case of any such separate law firm for the Underwriter and such control persons of the Underwriter, such law firm shall be designated in writing by you. In the case of any such separate law firm for the Company, and such directors, officers and control persons of the Company, such law firm shall be designated in writing by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnity the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability arising out of such proceeding. Oftring & Company, Inc. Page 6 (d) If the indemnification provided for in paragraphs (a) or (b) of this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under any such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Underwriter from the offering of the Units or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Underwriter in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriter shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus, bear to the aggregate public offering price of the Units. The relative fault of the Company and the Underwriter shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriter was treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution hereunder from any person who was not guilty of such fraudulent misrepresentation. 9. CONDITIONS OF COMPANY'S OBLIGATIONS. The several obligations of the Company to sell the Units under this agreement are subject to the conditions that the Registration Statement shall have become effective not later than June 30, 2002, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or shall be pending or contemplated by the Commission. 10. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriter to purchase the Units under this agreement are subject to the truth and accuracy of all of the representations and warranties of the Company contained in this Agreement. 11. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. (a) This agreement shall become effective when notification of the effectiveness of the Registration Statement has been released by the Commission. Oftring & Company, Inc. Page 7 (b) This agreement may be terminated at any time prior to the Closing Date by you by written notice to the Company if any of the following has occurred: (i) any outbreak of hostilities or other national or international calamity or crisis or drastic change in the economic conditions if the effect of such outbreak, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make the offering or delivery of the Units impracticable, (ii) suspension of quotation of securities on the NASD Over the Counter Bulletin Board, (iii) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or will materially and adversely affect the business or the operations of the Company, (iv) the declaration of a banking moratorium by either federal or Commonwealth of Massachusetts authorities, (v) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States, or (vi) any of the conditions in Section 2 shall not have been fulfilled when and as required by this agreement to be fulfilled. (c) If this agreement shall not become effective pursuant to the provisions of this Section 11 or shall be terminated pursuant to this Section 11 or Section 10, the Company shall then be under no liability hereunder the Underwriter. (d) The Company shall not in such event be liable to the Underwriter for damages on account of loss of anticipated profits or revenues arising out of the transactions contemplated by this agreement. 12. MISCELLANEOUS. (a) Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, at 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915, Attn: Robert A. Goddard, CFO & Treasurer, with a required copy to Kirkpatrick & Lockhart LLP, 75 State Street, Boston, Massachusetts 02109, Attn: Michael A. Hickey; and (ii) if to you, to 588 Main Street, Worcester, Massachusetts 01601-6440, Attn: Robert Oftring, or in any case to such other address as the person to be notified may have requested in writing. (b) Except as set forth in Section 11 hereof, the respective indemnities, contribution agreements, representations, warranties, and other statements of the Company, its officers and directors and of the Underwriter set forth in or made pursuant to this agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Units, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any underwriter or by or on behalf of the Company, its officers or directors or any controlling person of the Company, (ii) acceptance of the Units and payment for them hereunder; and (iii) termination of this agreement. (c) Except as otherwise expressly provided, this agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriter, any controlling persons referred to herein, and their respective successors and assigns, all as and to the extent provided in this agreement, and no other person shall acquire or have any right under or by virtue of this agreement. The term "successors and assigns" shall not include a purchaser of any of the Units from the Underwriter merely because of such purchase. Oftring & Company, Inc. Page 8 (d) You represent and warrant that you have been authorized to enter into this agreement and to act in the manner provided in this agreement. This is the entire agreement between the parties, and it may only be amended by a written agreement signed by both the Company and you. This agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. * * * [Signature page follows.] This agreement may be signed in various counterparts that together shall constitute one and the same instrument. Please confirm that the foregoing correctly sets forth the agreement among the Company and the Underwriter. Very truly yours, LOCATEPLUS HOLDING CORPORATION By: /s/ Robert A. Goddard ---------------------------------- Robert A. Goddard Chief Financial Officer & Treasurer Agreed, as of March 15, 2002. OFTRING & COMPANY, INC. By: /s/ Robert Oftring -------------------------------- EXHIBIT A PURCHASERS EXEMPT FROM UNDERWRITING COMMISSION ---------------------------------------------- 1. All employees of LocatePLUS Holdings Corporation as of the effective date. EX-3.1 4 ex3-1_10945.txt CERTIFICATE OF INCORPORATION EXHIBIT 3.1 ----------- SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF LOCATEPLUS HOLDINGS CORPORATION (ORIGINALLY INCORPORATED JUNE 11, 1999 IN THE NAME OF "LOCATEPLUS.COM, INC." AND SUBSEQUENTLY AMENDED, INTER ALIA, TO CHANGE THE NAME OF THE CORPORATION TO "LOCATEPLUS HOLDINGS CORPORATION" PURSUANT TO A RESOLUTION OF THE BOARD OF DIRECTORS ON JUNE 21, 2001) * * * (ADOPTED PURSUANT TO SS.SS.242, 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) * * * FIRST: The name of the Corporation is LocatePLUS Holdings Corporation (the "Corporation"). SECOND: The registered office of the Corporation in the State of Delaware is 1201 Market Street, Suite 1600, Wilmington, New Castle County, Delaware 19801. The registered agent at such address is PHS Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is Four Hundred Million (400,000,000) shares consisting of One Hundred Fifty Million (150,000,000) shares of Class A Voting Common Stock with a par value of $0.01 per share (the "Class A Voting Common Stock"), and Two Hundred Fifty Million (250,000,000) shares of Class B Non-voting Common Stock with a par value of $0.01 per share (the "Class B Non-voting Common Stock"). The Class A Voting Common Stock will vote on the basis of one vote per share on all matters to be voted on by the Corporation's stockholders. The Class B Non-voting Common Stock will be identical to the Class A Voting Common Stock except that it will have no voting rights on any matter. FIFTH: Without any other action on the part of the Corporation or any other person, on January 24, 2000 (the "Filing Date"), on which a Certificate of Amendment to the Certificate of Incorporation was filed with the Secretary of State of the State of Delaware, every share of Class A Voting Common Stock then outstanding was automatically converted into 5 shares of Class A Voting Common Stock. Following the Filing Date, (I) new stock certificates representing four shares of Class A Common Stock for every one share of Class A Voting Common Stock held by the Corporation's stockholders of record as of the Filing Date (the "Stockholders") were issued to the Stockholders by the Corporation and (II) all of the stock certificates representing outstanding shares of Class A Voting Common Stock immediately prior to the Filing Date were recognized as evidencing outstanding Class A Voting Common Stock. SIXTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation and for further definition, limitation and regulation of the powers of the Corporation and of its Directors and stockholders: SECTION 1. The business and affairs of the Corporation will be managed by or under the directions of a Board of Directors. SECTION 2. The Directors will have the power to make, amend, or repeal the By-laws of the Corporation. SECTION 3. The number of Directors will be as from time to time fixed by, or determined in the manner provided in, the By-laws of the Corporation. Election of Directors need not be by written ballot unless the By-laws so provide. SECTION 4. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the statutes of Delaware, this Certificate of Incorporation, and any By-laws; PROVIDED, HOWEVER, that no By-laws hereafter adopted shall invalidate any prior act of the Directors which would have been valid if such By-laws had not been adopted. SECTION 5. The election of the directors of the Corporation need not be by written ballot unless the bylaws of the Corporation shall so provide. SEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (I) for any breach of the director's duty of loyalty to the corporation or its stockholders, (II) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (III) under Section 174 of the General Corporation Law of the State of Delaware, or (IV) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the filing of the Certificate of Incorporation of which this article is a part to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. The Corporation shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of the General Corporation Law of the State of Delaware, as amended from time to time, each person that such Sections grant the Corporation the power to indemnify. EIGHTH: The Corporation reserves the right to amend or repeal any provision contained in this Second Amended and Restated Certificate of Incorporation, in the manner prescribed by statute and consistent with the By-laws of the Corporation, and all rights conferred upon stockholders herein are granted subject to this reservation. 2 I, THE UNDERSIGNED, being duly authorized, do hereby make this Second Amended and Restated Certificate of Incorporation, hereby declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand on March 19, 2002. By: /s/ Jon R. Latorella --------------------------- Jon R. Latorella, President 3 EX-3.2 5 ex3-2_10945.txt BYLAWS EXHIBIT 3.2 ----------- BYLAWS OF LOCATEPLUS HOLDINGS CORPORATION (A DELAWARE CORPORATION) BYLAWS OF LOCATEPLUS HOLDINGS CORPORATION (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. (Del. Code Ann., tit. 8, ss. 131). SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, ss. 122(8)) ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, ss. 122(3)) ARTICLE III STOCKHOLDERS' MEETINGS SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law ("DGCL"). (Del. Code Ann., tit. 8, ss. 211(a)) SECTION 5. ANNUAL MEETING. (A) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (I) pursuant to the corporation's notice of meeting of stockholders; (II) by or at 1 the direction of the Board of Directors; or (III) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. (Del. Code Ann., tit. 8, ss. 211(b)). (B) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (I) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (II) such other business must be a proper matter for stockholder action under the DGCL, (III) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (IV) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection 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 "1934 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 desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (I) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (II) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (III) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of 2 a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). (C) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 100 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (D) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (E) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act. SECTION 6. SPECIAL MEETINGS. (A) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (II) the Chief Executive Officer, or (III) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (IV) by the holders of shares entitled to cast not less than 10% of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. (B) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than 35 nor more than 120 days after the date of the 3 receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour and purpose or purposes of the meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, ss.ss. 222, 229) SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, ss. 216) SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the 4 chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 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. (Del. Code Ann., tit. 8, ss. 222(c)) SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three years from its date of creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8, ss.ss. 211(e), 212(b)) SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (A) if only one (1) votes, his act binds all; (B) if more than one votes, the act of the majority so voting binds all; (C) if more than one votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, ss. 217(b)) SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any examination of any stockholder during the time of the meeting as provided by law produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8, ss. 219) SECTION 13. ACTION WITHOUT MEETING. (A) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any 5 action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (Del. Code Ann., tit. 8, ss. 228) (B) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered to the corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. (Del. Code Ann., tit. 8, ss. 228) (C) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL. (D) An electronic mail or electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, PROVIDED that any such electronic mail or electronic transmission sets forth or is delivered with information from which the corporation can determine (I) that the electronic mail or electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (II) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic mail or electronic transmission. The date on which such electronic mail or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. Notwithstanding the foregoing limitations on delivery, consents given by electronic mail or electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. (Del. Code Ann., tit. 8 ss. 228(d)) 6 SECTION 14. ORGANIZATION. (A) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (B) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors of the corporation shall be five; PROVIDED, HOWEVER, that the Board of Directors have the authority to increase or decrease the number of the Directors of the corporation (but not to fewer than the number of Directors then in office). Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient. (Del. Code Ann., tit. 8, ss.ss. 141(b), 211(b), (c)) SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, ss. 141(a)) SECTION 17. TERM OF DIRECTORS. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 7 SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (Del. Code Ann., tit. 8, ss. 223(a), (b)). SECTION 19. RESIGNATION. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, ss.ss. 141(b), 223(d)) SECTION 20. REMOVAL. (A) Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation, entitled to vote generally at an election of directors. SECTION 21. MEETINGS (A) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(g)) (B) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President, the Secretary, or any two directors. (Del. Code Ann., tit. 8, ss. 141(g)) 8 (C) MEETINGS BY ELECTRONIC COMMUNICATIONS EQUIPMENT. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, ss. 141(i)) (D) NOTICE OF SPECIAL MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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. (Del. Code Ann., tit. 8, ss. 229) (E) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, ss. 229) SECTION 22. QUORUM AND VOTING. (A) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, ss. 141(b)) (B) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, ss. 141(b)) SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. (Del. Code Ann., tit. 8, ss. 141(f)) 9 SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, ss. 141(h)) SECTION 25. COMMITTEES. (A) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee to consist of one or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the 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 affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (I) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (II) adopting, amending or repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, ss. 141(c)) (B) OTHER COMMITTEES. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, ss. 141(c)) (C) TERM. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock, the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they 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. (Del. Code Ann., tit. 8, ss.141(c)) (D) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special 10 meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special 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. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, ss.ss. 141(c), 229) SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, ss.ss. 122(5), 142(a), (b)) SECTION 28. TENURE AND DUTIES OF OFFICERS. (A) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(b), (e)) (B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall 11 have the powers and duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, ss. 142(a)) (C) DUTIES OF PRESIDENT. The President, if he is a Director of the corporation, shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (E) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. 12 SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. (Del. Code Ann., tit. 8, ss. 142(b)) SECTION 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, 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 liable for any purpose or for any amount. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158). SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. (Del. Code Ann., tit. 8, ss. 123) ARTICLE VII SHARES OF STOCK SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate 13 signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. (Del. Code Ann., tit. 8, ss. 158) SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner's legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, ss. 167) SECTION 36. TRANSFERS. (A) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, ss. 201, tit. 6, ss. 8- 401(1)) (B) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. (Del. Code Ann., tit. 8, ss. 160 (a)) SECTION 37. FIXING RECORD DATES. (A) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record 14 date shall, subject to applicable law, not be more than 60 nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, 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. 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. (B) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (C) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, ss. 213) SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, ss.ss. 213(a), 219) 15 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. (Del. Code Ann., tit. 8, ss.ss. 170, 173) SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, ss. 171) 16 ARTICLE X FISCAL YEAR SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. (A) DIRECTORS AND OFFICERS. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; PROVIDED, HOWEVER, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, PROVIDED, FURTHER, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (I) such indemnification is expressly required to be made by law, (II) the proceeding was authorized by the Board of Directors of the corporation, (III) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (B) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine. (C) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, 17 administrative or investigative, if a determination is reasonably and promptly made (I) a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (III) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (D) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (I) the claim for indemnification or advances is denied, in whole or in part, or (II) no disposition of such claim is made within 90 days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation. (E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, 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 office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law. 18 (F) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. (G) INSURANCE. To the fullest extent permitted by the DGCL, or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (H) AMENDMENTS. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (I) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under applicable law. (J) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. 19 (5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XII NOTICES SECTION 44. NOTICES. (A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8, ss. 222) (B) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or as provided for in Section 21 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, ss. 222) (D) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (E) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. 20 ARTICLE XIII AMENDMENTS SECTION 45. AMENDMENTS. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the corporation. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; PROVIDED, HOWEVER, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation. ARTICLE XIV LOANS TO OFFICERS SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. (Del. Code Ann., tit. 8, ss.143) 21 EX-4.1 6 ex4-1_10945.txt WARRANT AND UNIT AGREEMENT EXHIBIT 4.1 ----------- WARRANT AND UNIT AGREEMENT LocatePLUS Holdings Corporation, 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915 (the "Company"), and Transfer Online, Inc. 227 SW Pine Street, Suite 300, Portland, Oregon 97204 (the "Transfer Agent"), agree as follows: 1. PURPOSE. The Company proposes to publicly offer and issue in an initial public offering (the "Offering") 10,000,000 units (the "Units"). Each Unit will entitle the registered holder of a Unit (a "Unit Holder") to: (I) one (1) share of the Company's Class B Non-voting Common Stock, par value $0.01; and (II) one (1) warrant to purchase of one (1) share of the Company's Class A Voting Common Stock, par value $0.01 (the "Warrant"). 2. WARRANTS. Each Warrant will entitle the registered holder of a Warrant (a "Warrant Holder") to purchase from the Company one (1) share of Class A Voting Common Stock for $0.50 (the "Exercise Price"). A Warrant Holder may exercise all or any number of Warrants resulting in the purchase of a whole number of shares of Class A Voting Common Stock. 3. EXERCISE PERIOD. The Warrants may be exercised at any time during the period commencing on the closing date of the Offering (the "Offering Date") and ending at the close of business on the first (1st) anniversary date of the Offering Date (the "Expiration Date"), except as changed by Section 15 of this Agreement. 4. NON-DETACHABILITY. A Warrant Certificate (as defined below) may not be detached from a certificate for a share of Class B Non-voting Common Stock (a "Share Certificate") contained in a Unit for at least one hundred and eighty-five (185) days following the Offering Date. Until such time, a Warrant Certificate may be split up, combined, exchanged or transferred on the books of the Transfer Agent only together with the Share Certificate. 5. CERTIFICATES. The Warrant certificates shall be in registered form only and shall be substantially in the form set forth in EXHIBIT A attached to this Agreement (a "Warrant Certificate"). The Unit certificates shall be in registered form only and shall be substantially in the form set forth in EXHIBIT B attached to this Agreement (a "Unit Certificate"). Warrant and Unit Certificates shall be signed by, or shall bear the facsimile signature of, the Chief Executive Officer, President or a Vice President of the Company and the Secretary or an Assistant Secretary of the Company. If any person, whose facsimile signature has been placed upon any Warrant or Unit Certificate, shall have ceased to be such officer before such Warrant or Unit Certificate is countersigned, issued and delivered, such Warrant or Unit Certificate shall be countersigned, issued and delivered with the same effect as if such person had not ceased to be such officer. Any Warrant or Unit Certificate may be signed by, or made to bear the facsimile signature of, any person who at the actual date of the preparation of such Warrant or Unit Certificate shall be a proper officer of the Company to sign such Warrant or Unit Certificate, even though such person was not such an officer upon the date of this Agreement. 6. ISSUANCE OF NEW CERTIFICATES. Notwithstanding any of the provisions of this Agreement or the several Warrant or Unit Certificates to the contrary, the Company may, at its option, issue new Warrant or Unit Certificates in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Exercise Price or the number or kind of shares purchasable under the several Warrant or Unit Certificates made in accordance with the provisions of this Agreement. 7. COUNTERSIGNING. Warrant and Unit Certificates shall be manually countersigned by the Transfer Agent and shall not be valid for any purpose unless so countersigned. The Transfer Agent hereby is authorized to countersign and deliver to, or in accordance with the instructions of, any Warrant or Unit Holder any Warrant or Unit Certificate, respectively, which is properly issued. 8. REGISTRATION OF TRANSFER AND EXCHANGES. The Transfer Agent will keep or cause to be kept books for registration of ownership or transfer of Warrant and Unit Certificates issued hereunder. Such registers shall show the names and addresses of the respective holders of the Warrant and Unit Certificates and the number of Warrants and Units evidenced by each such Warrant or Unit Certificate. Subject to the provisions of Section 4, the Transfer Agent shall from time to time register the transfer of any outstanding Warrant or Unit Certificate upon records maintained by the Transfer Agent for such purpose upon surrender of such Warrant or Unit Certificate to the Transfer Agent for transfer, accompanied by appropriate instruments of transfer in form satisfactory to the Company and the Transfer Agent and duly executed by the Warrant or Unit Holder or a duly authorized attorney. Upon any such registration of transfer, a new Warrant or Unit Certificate shall be issued in the name of and to the transferee and the surrendered Warrant or Unit Certificate shall be cancelled. 9. EXERCISE OF WARRANTS. (A) Any one Warrant or any multiple of one Warrant evidenced by any Warrant Certificate may be exercised on or after the Offering Date and on or before the Expiration Date. A Warrant shall be exercised by the Warrant Holder by surrendering to the Transfer Agent the Warrant Certificate evidencing such Warrant with the exercise form on the reverse of such Warrant Certificate duly completed and executed and delivering to the Transfer Agent, by good check or bank draft payable to the order of the Company, the Exercise Price for each share of Class A Voting Common Stock to be purchased. No fractional warrant may be exercised, but will be redeemed for cash equal to the current market value of such fractional warrant, as defined in Section 18 of this Warrant and Unit Agreement. (B) Upon receipt of a Warrant Certificate with the exercise form thereon duly executed together with payment in full of the Exercise Price (and an amount equal to any applicable taxes or government charges) for the shares of Class A Voting Common Stock for which Warrants are then being exercised, the Transfer Agent shall requisition from any transfer agent for the shares of Class A Voting Common Stock, and upon receipt shall make delivery of, certificates evidencing the total number of whole shares of Class A Voting Common Stock for which Warrants are then being exercised in such names and denominations as are required for delivery to, or in accordance with the instructions of, the 2 Warrant Holder. Such certificates for the shares of Class A Voting Common Stock shall be deemed to be issued, and the person to whom such shares of Class A Voting Common Stock are issued of record shall be deemed to have become a holder of record of such shares of Class A Voting Common Stock, as of the date of the surrender of such Warrant Certificate and payment of the Exercise Price (and an amount equal to any applicable taxes or government charges), whichever shall last occur, provided that if the books of the Company with respect to the shares of Class A Voting Common Stock shall be deemed to be closed, the person to whom such shares of Class A Voting Common Stock are issued of record shall be deemed to have become a record holder of such shares of Class A Voting Common Stock as of the date on which such books shall next be open (whether before, on or after the Expiration Date). The Company covenants and agrees that it shall not cause its stock transfer books to be closed for a period of more than twenty (20) consecutive business days except upon consolidation, merger, sale of all of its assets, dissolution or liquidation or as otherwise provided by law. (C) In addition, if it is required by law and upon instruction by the Company, the Transfer Agent will deliver to each Warrant Holder a prospectus that complies with the provisions of Section 5 of the Securities Act, as amended, and the Company agrees to supply the Transfer Agent with a sufficient number of prospectuses to effectuate that purpose. (D) Any Warrant Certificate or Certificates may be exchanged at the option of the holder thereof for another Warrant Certificate or Certificates of different denominations, of like tenor and representing in the aggregate the same number of Warrants, upon surrender of such Warrant Certificate or Certificates, with the Form of Assignment duly filled in and executed, to the Transfer Agent, at any time or from time-to-time after the close of business on the date hereof and prior to the close of business on the Expiration Date. The Transfer Agent shall promptly cancel the surrendered Warrant Certificate or Certificates and deliver the new Warrant Certificate or Certificates pursuant to the provisions of this Section. (E) If less than all the Warrants evidenced by a Warrant Certificate are exercised upon a single occasion, a new Warrant Certificate for the balance of the Warrants not so exercised shall be issued and delivered to, or in accordance with, transfer instructions properly given by the Warrant Holder until the Expiration Date. (F) All Warrant Certificates surrendered upon exercise of the Warrants shall be cancelled. (G) Upon the exercise or conversion of any Warrant, the Transfer Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all moneys received by the Transfer Agent for the purchase of securities or other property through the exercise of such Warrants. (H) Expenses incurred by the Transfer Agent while acting in the capacity as Transfer Agent, in accordance with this Agreement, will be paid by the Company. A detailed accounting statement relating to the number of shares exercised, names of registered Warrant Holder(s) and the net amount of exercise funds remitted will be given to the Company with the payment of each exercise amount. 3 10. TAXES. The Company will pay all taxes attributable to the initial issuance of shares of Class A Voting Common Stock upon exercise of Warrants. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in any issue of Warrant or Unit Certificates or in the issue of any certificates of shares of Class A Voting Common Stock in the name other than that of the Warrant or Unit Holder upon the exercise of any Warrant or Unit, as the case may be. 11. MUTILATED OR MISSING CERTIFICATES. If any Warrant or Unit Certificate is mutilated, lost, stolen or destroyed, the Company and the Transfer Agent may, on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant or Unit Certificate, include the surrender thereof), and upon receipt of evidence satisfactory to the Company and the Transfer Agent of such mutilation, loss, theft or destruction, issue a substitute Warrant or Unit Certificate, respectively, of like denomination or tenor as the Warrant or Unit Certificate so mutilated, lost, stolen or destroyed. Applicants for substitute Warrant or Unit Certificates shall comply with such other reasonable regulations and pay any reasonable charges as the Company or the Transfer Agent may prescribe. 12. SUBSEQUENT ISSUE OF CERTIFICATES. Subsequent to their original issuance, no Warrant or Unit Certificates shall be reissued except: (I) such Certificates issued upon transfer thereof in accordance with Section 8 hereof; (II) such Certificates issued upon any combination, split-up or exchange of Warrant or Unit Certificates pursuant to Section 8 hereof; (III) such Certificates issued in replacement of mutilated, destroyed, lost or stolen Warrant or Unit Certificates pursuant to Section 11 hereof; (IV) Warrant Certificates issued upon the partial exercise of Warrant Certificates pursuant to Section 9 hereof; and (V) Warrant Certificates issued to reflect any adjustment or change in the Exercise Price or the number or kind of shares purchasable thereunder pursuant to Section 6 hereof. The Transfer Agent is hereby irrevocably authorized to countersign and deliver, in accordance with the provisions of said Sections 6, 8, 9 and 11, the new Warrant or Unit Certificates, as the case may be, required for purposes thereof, and the Company, whenever required by the Transfer Agent, will supply the Transfer Agent with Warrant and Unit Certificates duly executed on behalf of the Company for such purposes. 13. RESERVATION OF SHARES. For the purpose of enabling the Company to satisfy all obligations to issue shares of Class A Voting Common Stock upon exercise of Warrants, the Company will at all times reserve and keep available free from preemptive rights, out of the aggregate of its authorized but unissued shares of Class A Voting Common Stock, the full number of shares of Class A Voting Common Stock which may be issued upon the exercise of the Warrants. The Company covenants all shares of Class A Voting Common Stock which shall be so issuable, will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens, charges and security interests with respect to the issue thereof. 14. GOVERNMENTAL RESTRICTIONS. If any shares of Class A Voting Common Stock issuable upon the exercise of Warrants require registration or approval of any governmental authority, the Company will use commercially reasonable efforts to secure such registration or approval and, to the extent practicable, take action in 4 anticipation of and prior to the exercise of the Warrants necessary to permit a public offering of the securities underlying the Warrants during the term of this Agreement; provided that in no event shall such shares of Class A Voting Common Stock be issued, and the Company shall have the authority to suspend the exercise of all Warrants, until such registration or approval shall have been obtained; but all Warrants, the exercise of which is requested during any such suspension, shall be exercisable at the Exercise Price. If any such period of suspension continues past the Expiration Date, all Warrants, the exercise of which have been requested on or prior to the Expiration Date, shall be exercisable upon the removal of such suspension until the close of business on the business day immediately following the expiration of such suspension. 15. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND EXERCISE PRICE. The number and kind of securities or other property purchasable upon exercise of a Warrant shall be subject to adjustment from time to time upon the occurrence, after the date hereof, of any of the following events: (A) In case the Company shall (I) pay a dividend in, or make a distribution of, shares of capital stock on its outstanding Class A Voting Common Stock, (II) subdivide its outstanding shares of Class A Voting Common Stock into a greater number of such shares or (III) combine its outstanding shares of Class A Voting Common Stock into a smaller number of such shares, the total number of shares of Class A Voting Common Stock purchasable upon the exercise of each Warrant outstanding immediately prior thereto shall be adjusted so that the holder of any Warrant Certificate thereafter surrendered for exercise shall be entitled to receive at the same aggregate Exercise Price the number of shares of capital stock (of one or more classes) which such holder would have owned or have been entitled to receive immediately following the happening of any of the events described above had such Warrant been exercised in full immediately prior to the record date with respect to such event. Any adjustment made pursuant to this subsection shall, in the case of a stock dividend or distribution, become effective as of the record date therefor and, in the case of a subdivision or combination, be made as of the effective date thereof. If, as a result of an adjustment made pursuant to this subsection, the holder of any Warrant Certificate thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company, (whose determination shall be conclusive and shall be evidenced by a Board resolution filed with the Transfer Agent) shall determine the allocation of the adjusted Exercise Price between or among shares of such classes of capital stock. (B) In the event of a capital reorganization or a reclassification of the Class A Voting Common Stock (except as provided in subsection (a) above or subsection (e) below), any Warrant Holder, upon exercise of Warrants, shall be entitled to receive, in substitution for the Class A Voting Common Stock to which he would have become entitled upon exercise immediately prior to such reorganization or reclassification, the shares (of any class or classes) or other securities or property of the Company (or cash) that he would have been entitled to receive at the same aggregate Exercise Price upon such reorganization or reclassification if such Warrants had been exercised immediately prior to the record date with respect to such event; and in any such case, appropriate provision (as determined by the Board of Directors of the Company, whose determination shall be conclusive and shall be evidenced by a certified Board resolution filed with the Transfer 5 Agent) shall be made for the application of this Section with respect to the rights and interests thereafter of the Warrant Holders (including but not limited to the allocation of the Exercise Price between or among shares of classes of capital stock), to the end that this Section (including the adjustments of the number of shares of Class A Voting Common Stock or other securities purchasable and the Exercise Price thereof) shall thereafter be reflected, as nearly as reasonably practicable, in all subsequent exercises of the Warrants for any shares or securities or other property (or cash) thereafter deliverable upon the exercise of the Warrants. (C) Whenever the number of shares of Class A Voting Common Stock or other securities purchasable upon exercise of a Warrant is adjusted as provided in this Section, the Company will promptly file with the Transfer Agent a certificate signed by the Chief Executive Officer, the President or a Vice President of the Company and by the Secretary or an Assistant Secretary of the Company setting forth the number and kind of securities or other property purchasable upon exercise of a Warrant, as so adjusted, stating that such adjustments in the number or kind of shares or other securities or property conform to the requirements of this Section, and setting forth a brief statement of the facts accounting for such adjustments. Promptly after receipt of such certificate, the Company, or the Transfer Agent at the Company's request, will deliver, by first-class, postage prepaid mail, a brief summary thereof (to be supplied by the Company) to the registered holders of the outstanding Warrant Certificates; provided, however, that failure to file or to give any notice required under this subsection, or any defect therein, shall not affect the legality or validity of any such adjustments under this Section; and provided, further, that, where appropriate, such notice may be given in advance and included as part of the notice required to be given pursuant to Section 17 hereof. (D) In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Class A Voting Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the corporation formed by such consolidation or merger or the corporation which shall have acquired such assets, as the case may be, shall execute and deliver to the Transfer Agent a supplemental warrant agreement providing that the holder of each Warrant then outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, solely the kind and amount of shares of stock and other securities and property (or cash) receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Class A Voting Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section. The above provision of this subsection shall similarly apply to successive consolidations, mergers, sales or transfers. The Transfer Agent shall not have any responsibility to determine the correctness of any provision contained in any such supplemental warrant agreement relating to either the kind or amount of shares of stock or securities or property (or cash) purchasable by holders of Warrant Certificates upon the exercise of their Warrants after any such consolidation, merger, sale or transfer or of any adjustment to be made with respect thereto, but subject to the provisions of 22 hereof, may accept as conclusive evidence of the 6 correctness of any such provisions, and shall be protected in relying upon, a certificate of a firm of independent certified public accountants (who may be the accountants regularly employed by the Company) with respect thereto. (E) Irrespective of any adjustments in the number or kind of shares issuable upon exercise of Warrants, Warrant Certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrant Certificates initially issuable pursuant to this Agreement. (F) The Company may retain a firm of independent public accountants of recognized standing, which may be the firm regularly retained by the Company, selected by the Board of Directors of the Company, and not disapproved by the Transfer Agent, to make any computation required under this Section, and a certificate signed by such firm shall, in the absence of fraud or gross negligence, be conclusive evidence of the correctness of any computation made under this Section. (G) For the purpose of this Section, the term "Common Stock" shall mean (I) the Class A Voting Common Stock or (II) any other class of stock resulting from successive changes or reclassifications of such Class A Voting Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time as a result of an adjustment made pursuant to this Section, the holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of capital stock of the Company other than shares of Class A Voting Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Class A Voting Common Stock contained in this Section, and all other provisions of this Agreement, with respect to the Class A Voting Common Stock, shall apply on like terms to any such other shares. (H) The Company may, from time to time and to the extent permitted by law, reduce the exercise price of the Warrants by any amount for a period of not less than twenty (20) days. If the Company so reduces the exercise price of the Warrants, it will give not less than fifteen (15) days' notice of such decrease, which notice may be in the form of a press release, and shall take such other steps as may be required under applicable law in connection with any offers or sales of securities at the reduced price. 16. REDUCTION OF EXERCISE PRICE BELOW PAR VALUE. Before taking any action that would cause an adjustment pursuant to Section 15 hereof reducing the portion of the Exercise Price required to purchase one share of capital stock below the then par value (if any) of a share of such capital stock, the Company will use its best efforts to take any corporate action which, in the opinion of its counsel, may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such capital stock. 17. NOTICE TO WARRANT HOLDERS. In case the Company after the date hereof shall propose (I) to offer to the holders of Class A Voting Common Stock, generally, rights to subscribe to or purchase any additional shares of any class of its capital stock, any 7 evidences of its indebtedness or assets, or any other rights or options or (II) to effect any reclassification of the Class A Voting Common Stock (other than a reclassification involving merely the subdivision or combination of outstanding shares of Class A Voting Common Stock) or any capital reorganization, or any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or any sale, transfer or other disposition of its property and assets substantially as an entirety, or the liquidation, voluntary or involuntary dissolution or winding-up of the Company, then, in each such case, the Company shall file with the Transfer Agent and the Company, or the Transfer Agent on its behalf, shall mail (by first-class, postage prepaid mail) to all registered holders of the Warrant Certificates notice of such proposed action, which notice shall specify the date on which the books of the Company shall close or a record be taken for such offer of rights or options, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up shall take place or commence, as the case may be, and which shall also specify any record date for determination of holders of Class A Voting Common Stock entitled to vote thereon or participate therein and shall set forth such facts with respect thereto as shall be reasonably necessary to indicate any adjustments in the Exercise Price and the number or kind of shares or other securities purchasable upon exercise of Warrants which will be required as a result of such action. Such notice shall be filed and mailed in the case of any action covered by clause (i) above, at least ten (10) days prior to the record date for determining holders of the Class A Voting Common Stock for purposes of such action or, if a record is not to be taken, the date as of which the holders of shares of Class A Voting Common Stock of record are to be entitled to such offering; and, in the case of any action covered by clause (ii) above, at least twenty (20) days prior to the earlier of the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up is expected to become effective and the date on which it is expected that holders of shares of Class A Voting Common Stock of record on such date shall be entitled to exchange their shares for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up. Failure to give any such notice or any defect therein shall not affect the legality or validity of any transaction listed in this Section. 18. NO FRACTIONAL WARRANTS, UNITS OR SHARES. The Company shall not be required to issue fractions of Warrants or shares of Class A Voting Common Stock upon the separation of the Units into shares of Class A Voting Common Stock and Warrants, any adjustments as described in Section 15 or otherwise. 19. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have any rights of a shareholder of the Company, either at law or equity, and the rights of the Warrant Holders, as such, are limited to those rights expressly provided in this Agreement or in the Warrant Certificates. The Company and the Transfer Agent may treat the registered Warrant Holder in respect of any Warrant Certificates as the absolute owner thereof for all purposes notwithstanding any notice to the contrary. 20. RIGHT OF ACTION. All rights of action in respect to this Agreement are vested in the respective registered holders of the Warrant and Unit Certificates; and any registered holder of any Warrant or Unit Certificate, without the consent of the Transfer 8 Agent or of any other holder of a Warrant or Unit Certificate, may, in his own behalf for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, his right to exercise the Warrants evidenced by such Warrant Certificate, for the purchase of shares of the Class A Voting Common Stock in the manner provided in the Warrant Certificate and in this Agreement. 21. AGREEMENT OF WARRANT AND UNIT HOLDERS. Every holder of a Warrant or Unit Certificate by accepting the same consents and agrees with the Company, the Transfer Agent and with every other holder of a Warrant or Unit Certificate, respectively, that: (A) The Warrant and Unit Certificates are transferable on the registry books of the Transfer Agent only upon the terms and conditions set forth in this Agreement; and (B) The Company and the Transfer Agent may deem and treat the person in whose name the Warrant or Unit Certificate is registered as the absolute owner of the Warrant or Unit, as the case may be, (notwithstanding any notation of ownership or other writing thereon made by anyone other than the Company or the Transfer Agent) for all purposes whatever and neither the Company nor the Transfer Agent shall be affected by any notice to the contrary. 22. TRANSFER AGENT. The Company hereby appoints the Transfer Agent to act as the agent of the Company and the Transfer Agent hereby accepts such appointment upon the following terms and conditions by all of which the Company and every Warrant and Unit Holder, by acceptance of his Warrants or Units, shall be bound: (A) Statements contained in this Agreement and in the Warrant and Unit Certificates shall be taken as statements of the Company. The Transfer Agent assumes no responsibility for the correctness of any of the same except such as describes the Transfer Agent or for action taken or to be taken by the Transfer Agent. (B) The Transfer Agent shall not be responsible for any failure of the Company to comply with any of the Company's covenants contained in this Agreement or in the Warrant or Unit Certificates. (C) The Transfer Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Transfer Agent shall incur no liability or responsibility to the Company or to any Warrant or Unit Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Transfer Agent shall have exercised reasonable care in the selection and continued employment of such counsel. (D) The Transfer Agent shall incur no liability or responsibility to the Company or to any Warrant or Unit Holder for any action taken in reliance upon any notice, resolution, waiver, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. 9 (E) The Company agrees to pay to the Transfer Agent reasonable compensation for all services rendered by the Transfer Agent in the execution of this Agreement, to reimburse the Transfer Agent for all expenses, taxes and governmental charges and all other charges of any kind or nature incurred by the Transfer Agent in the execution of this Agreement and to indemnify the Transfer Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, arising from the Transfer Agent's engagement under this Agreement except as a result of the Transfer Agent's negligence, bad faith or willful misconduct. (F) The Transfer Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Warrant or Unit Holders shall furnish the Transfer Agent with reasonable security and indemnity for any costs and expenses which may be incurred in connection with such action, suit or legal proceeding, but this provision shall not affect the power of the Transfer Agent to take such action as the Transfer Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants or Units may be enforced by the Transfer Agent without the possession of any of the Warrant or Unit Certificates or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Transfer Agent shall be brought in its name as Transfer Agent, and any recovery of judgment shall be for the ratable benefit of the Warrant or Unit Holders as their respective rights or interest may appear. (G) The Transfer Agent and any shareholder, director, officer or employee of the Transfer Agent may buy, sell or deal in any of the Warrants, Units or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Transfer Agent under this Agreement. Nothing herein shall preclude the Transfer Agent from acting in any other capacity for the Company or for any other legal entity. 23. SUCCESSOR TRANSFER AGENT. Any legal entity into which the Transfer Agent may be merged or converted or with which it may be consolidated, or any legal entity resulting from any merger, conversion or consolidation to which the Transfer Agent shall be a party, or any legal entity succeeding to the corporate trust business of the Transfer Agent, shall be the successor to the Transfer Agent hereunder without the execution or filing of any paper or any further act of a party or the parties hereto provided such legal entity is eligible to be appointed under Section 24 below. In any such event or if the name of the Transfer Agent is changed, the Transfer Agent or such successor may adopt the countersignature of the original Transfer Agent and may countersign such Warrant or Unit Certificates either in the name of the predecessor Transfer Agent or in the name of the successor Transfer Agent. 24. CHANGE OF TRANSFER AGENT. The Transfer Agent may resign or be discharged by the Company from its duties under this Agreement by the Transfer Agent or the Company, as the case may be, giving notice in writing to the other, and by giving a date when such resignation or discharge shall take effect, which notice shall be sent at least thirty (30) days prior to the date so specified. If the Transfer Agent shall resign, be 10 discharged or shall otherwise become incapable of acting, the Company shall appoint a successor to the Transfer Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Transfer Agent or by any Warrant or Unit Holder or after discharging the Transfer Agent, then the Company agrees to perform the duties of the Transfer Agent hereunder until a successor Transfer Agent is appointed. Any successor Transfer Agent shall be a bank or a trust company, in good standing, organized under the laws of any state of the United States of America, having a combined capital and surplus of at least $4,000,000 at the time of its appointment as Transfer Agent. After appointment, the successor Transfer Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Transfer Agent without further act or deed, and the former Transfer Agent shall deliver and transfer to the successor Transfer Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for effecting the delivery or transfer. Failure to give any notice provided for in this Section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Transfer Agent or the appointment of the successor Transfer Agent, as the case may be. 25. NOTICES. Any notice or demand authorized by this Agreement to be given or made by the Transfer Agent or by any Warrant or Unit Holder to or on the Company shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Company with the Transfer Agent), as follows: LocatePLUS Holdings Corporation 100 Cummings Center Suite 235M Beverly, Massachusetts 01915 Any notice or demand authorized by this Agreement to be given or made by any Warrant or Unit Holder or by the Company to or on the Transfer Agent shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Transfer Agent with the Company), as follows: Transfer Online, Inc. 227 SW Pine Street Suite 300 Portland, Oregon 97204 Any distribution, notice or demand required or authorized by this Agreement to be given or made by the Company or the Transfer Agent to or on the Warrant or Unit Holders shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed to the Warrant or Unit Holders at their last known addresses as they shall appear on the registration books for the Warrant or Unit Certificates maintained by the Transfer Agent. 26. SUPPLEMENTS AND AMENDMENTS. The Company and the Transfer Agent may from time to time supplement or amend this Agreement without the approval of any Warrant or Unit Holders in order to cure any ambiguity or to correct or supplement any 11 provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Transfer Agent may deem necessary or desirable. 27. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Transfer Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 28. TERMINATION. This Agreement shall terminate at the close of business on the Expiration Date or such earlier date upon which all Warrants have been exercised; provided, however, that if exercise of the Warrants is suspended pursuant to Section 14 and such suspension continues past the Expiration Date, this Agreement shall terminate at the close of business on the business day immediately following expiration of such suspension. The provisions of Section 22 shall survive such termination. 29. GOVERNING LAW. This Agreement and each Warrant and Unit Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be construed in accordance with the laws of said State. 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give any person or corporation other than the Company, the Transfer Agent and the Warrant and Unit Holders any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company, the Transfer Agent and the Warrant and Unit Holders. 31. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. 32. INTEGRATION. As of the date hereof, this Agreement contains the entire and only agreement, understanding, representation, condition, warranty or covenant between the parties hereto with respect to the matters herein, supersedes any and all other agreements between the parties hereto relating to such matters, and may be modified or amended only by a written agreement signed by both parties hereto pursuant to the authority granted by Section 26. 33. DESCRIPTIVE HEADINGS. The descriptive headings of the Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. [SIGNATURE PAGE FOLLOWS] 12 Date: March 22, 2002 LOCATEPLUS HOLDINGS CORPORATION By: /s/ Jon Latorella -------------------------------------- Its President and Chief Executive Officer SEAL ATTEST: Robert A. Goddard - ---------------------------- Its Secretary TRANSFER ONLINE, INC. By: /s/ Lori Livingston -------------------------------------- Its President SEAL 13 EX-4.2 7 ex4-2_10945.txt WARRANTS TO PURCHASE COMMON STOCK EXHIBIT 4.2 ----------- VOID AFTER 5:00 P.M. EASTERN TIME ON [__________], 2003 WARRANTS TO PURCHASE CLASS A VOTING COMMON STOCK WP-[_____] [_________] Warrants LOCATEPLUS HOLDINGS CORPORATION CUSIP ______________ THIS CERTIFIES THAT _______________________________________________] or registered assigns, is the registered holder of the number of Warrants (the "Warrants") set forth above. Each Warrant entitles the holder thereof to purchase from LocatePLUS Holdings Corporation, a corporation incorporated under the laws of the state of Delaware (the "Company"), subject to the terms and conditions set forth hereinafter and in the Warrant and Unit Agreement hereinafter more fully described (the "Warrant Agreement"), at any time on or before the close of business on __________, 2003 (the "Expiration Date"), one fully paid and non-assessable share of Class A Voting Common Stock of the Company (the "Class A Common Stock") upon presentation and surrender of this Warrant Certificate, with the instructions for the registration and delivery of Class A Common Stock filled in, at the stock transfer office in Portland, Oregon of Transfer Online, Inc., Warrant Agent of the Company (the "Warrant Agent") or of its successor warrant agent or, if there be no successor warrant agent, at the corporate offices of the Company, and upon payment of the Exercise Price (as defined in the Warrant Agreement) and any applicable taxes paid either in cash, or by certified or official bank check, payable in lawful money of the United States of America to the order of the Company. Each Warrant initially entitles the holder to purchase one share of Class A Common Stock initially for $0.50. The number and kind of securities or other property for which the Warrants are exercisable are subject to further adjustment in certain events, such as mergers, splits, stock dividends, recapitalizations and the like, to prevent dilution. All Warrants not theretofore exercised will expire on _________, 2003. This Warrant Certificate is subject to all of the terms, provisions and conditions of the Warrant Agreement, dated as of March __, 2002, between the Company and the Warrant Agent, to all of which terms, provisions and conditions the registered holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is incorporated herein by reference and made a part hereof and reference is made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities of the Warrant Agent, the Company and the holders of the Warrant Certificates. Copies of the Warrant Agreement are available for inspection at the stock transfer office of the Warrant Agent or may be obtained upon written request addressed to the Company at LocatePLUS Holdings Corporation, 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915, Attention: Chief Financial Officer. The Company shall not be required upon the exercise of the Warrants evidenced by this Warrant Certificate to issue fractions of Warrants, Class A Common Stock or other securities, but shall make adjustment therefor in cash on the basis of the current market value of any fractional interest as provided in the Warrant Agreement. In certain cases, the sale of securities by the Company upon exercise of Warrants would violate the securities laws of the United States, certain states thereof or other jurisdictions. The Company has agreed to use all commercially reasonable efforts to cause a registration statement to continue to be effective during the term of the Warrants with respect to such sales under the Securities Act of 1933, as amended, and to take such action under the laws of various states as may be required to cause the sale of securities upon exercise to be lawful, unless an exemption from registration is available. However, the Company will not be required to honor the exercise of Warrants if, in the opinion of the Board of Directors, upon advice of counsel, the sale of securities upon such exercise would be unlawful. In certain cases, the Company may, but is not required to, purchase Warrants submitted for exercise for a cash price equal to the difference between the market price of the securities obtainable upon such exercise and the exercise price of such Warrants. This Warrant Certificate, with or without other Warrant Certificates, upon surrender to the Warrant Agent, any successor warrant agent or, in the absence of any successor warrant agent, at the corporate offices of the Company, may be exchanged for another Warrant Certificate or Certificates evidencing in the aggregate the same number of Warrants as the Warrant Certificate or Certificates so surrendered. If the Warrants evidenced by this Warrant Certificate shall be exercised in part, the holder hereof shall be entitled to receive upon surrender hereof another Warrant Certificate or Certificates evidencing the number of Warrants not so exercised. No holder of this Warrant Certificate, as such, shall be entitled to vote, receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose whatever, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon the holder of this Warrant Certificate, 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 give or withhold consent to any corporate action (whether upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any merger, recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, conveyance or otherwise) or to receive notice of meetings or other actions affecting stockholders (except as provided in the Warrant Agreement) or to receive dividends or subscription rights or otherwise until the Warrants evidenced by this Warrant Certificate shall have been exercised and the Common Stock purchasable upon the exercise thereof shall have become deliverable as provided in the Warrant Agreement. If this Warrant Certificate shall be surrendered for exercise within any period during which the transfer books for the Company's Class A Common Stock or other class of stock purchasable upon the exercise of the Warrants evidenced by this Warrant Certificate are closed for any purpose, the Company shall not be required to make delivery of certificates for shares purchasable upon such transfer until the date of the reopening of said transfer books. 2 Every holder of this Warrant Certificate by accepting the same consents and agrees with the Company, the Warrant Agent, and with every other holder of a Warrant Certificate that: (a) This Warrant Certificate is transferable on the registry books of the Warrant Agent only upon the terms and conditions set forth in the Warrant Agreement; and (b) The Company and the Warrant Agent may deem and treat the person in whose name this Warrant Certificate is registered as the absolute owner hereof (notwithstanding any notation of ownership or other writing thereon made by anyone other than the Company or the Warrant Agent) for all purposes whatever and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. The Company shall not be required to issue or deliver any certificate for shares of Common Stock or other securities upon the exercise of Warrants evidenced by this Warrant Certificate until any tax which may be payable in respect thereof by the holder of this Warrant Certificate pursuant to the Warrant Agreement shall have been paid, such tax being payable by the holder of this Warrant Certificate at the time of surrender. This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. WITNESS the facsimile signatures of the proper officers of the Company and its corporate seal. Dated: ______________, 2002 LOCATEPLUS HOLDINGS CORPORATION By: ________________________________ Jon R. Latorella President and Chief Executive Officer Attest: ____________________________ Secretary Countersigned TRANSFER ONLINE, INC. By: ________________________________ Authorized Officer 3 FORM OF ELECTION TO PURCHASE (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE THE WARRANTS IN WHOLE OR IN PART) To: LOCATEPLUS HOLDINGS CORPORATION The undersigned Registered Holder ------------------------------------- (Please insert Social Security or other identification number of Registered Holder) hereby irrevocably elects to exercise the right of purchase represented by the within this Warrant Certificate for, and to purchase thereunder, _______________ shares of Common Stock provided for therein and tenders payment herewith to the order of LocatePLUS Holdings Corporation in the amount of $________________. The undersigned requests that certificates for such shares of Common Stock be issued as follows: Name:_______________________________________________________________ Address:____________________________________________________________ Deliver to:_________________________________________________________ Address:____________________________________________________________ and if said number of Warrants being exercised shall not be all the Warrants evidenced by this Warrant Certificate, that a new Certificate for the balance of such Warrants as well as the shares of Common Stock represented by this Warrant Certificate be registered in the name of, and delivered to, the Registered Holder at the address stated below: Address:_____________________________________________________________ Dated:_____________, _______ Signature ------------------------------------------ (Signature must conform in all respects to the name of Registered Holder as specified in the case of this Warrant Certificate in every particular, without alteration or any change whatever.) Signature Guaranteed: - ------------------------------------------ The signature should be guaranteed by an eligible institution (Banks, Stockbrokers, Savings and Loan Association and Credit Union with membership in an approved signature Medallion Program), pursuant to S.E.C. Rule 17Ad-15. 4 FORM OF ASSIGNMENT (TO BE SIGNED ONLY UPON ASSIGNMENT) FOR VALUE RECEIVED, the undersigned Registered Holder ------------------------ (Please insert Social Security or other identification number of Registered Holder) hereby sells, assigns and transfers unto - -------------------------------------------------------------------- - -------------------------------------------------------------------- - -------------------------------------------------------------------- (Please Print Name and Address including Zip Code) Warrants evidenced by the within Warrant Certificate, and irrevocably constitutes and appoints - -------------------------------------------------------------------- Attorney to transfer this Warrant Certificate on the books of LocatePLUS Holdings Corporation with the full power of substitution in the premises. Dated:__________________, ________ Signature: - ---------------------------------- (Signature must conform in all respects to the name of Registered Holder as specified on the face of this Unit Certificate in every particular, without alteration or any change whatsoever, and the signature must be guaranteed in the usual manner.) Signature Guaranteed: - ---------------------------------- The signature should be guaranteed by an eligible institution (Banks, Stockbrokers, Savings and Loan Association and Credit Union with membership in an approved signature Medallion Program), pursuant to S.E.C. Rule 17Ad-15. 5 EX-4.6 8 ex4-6_10945.txt FORM OF WARRANT CERTIFICATE EXHIBIT 4.6 ----------- NEITHER THIS WARRANT NOR THE SHARES OF CLASS A VOTING COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Void after 5:00 p.m. Eastern Standard Time, on [___________], 20[__] WARRANT TO PURCHASE SHARES OF CLASS A VOTING COMMON STOCK OF LOCATEPLUS HOLDINGS CORPORATION FOR VALUE RECEIVED, LOCATEPLUS HOLDINGS CORPORATION (the "Company"), a Delaware corporation, hereby certifies that [____________] or his permitted assigns, is entitled to purchase from the Company, at any time or from time to time commencing on the date hereof, and prior to 5:00 P.M., Eastern Standard Time, on [____________], a total of [____________] fully paid and non-assessable shares of the Class A Voting Common Stock, par value $.01 per share, of the Company for an aggregate purchase price of $[____________]. Such warrants will be exercisable for a period of ten years at an exercise price of $[____________] per share. (Hereinafter, (I) said Class A Voting Common Stock, together with any other equity securities which may be issued by the Company with respect thereto or in substitution therefor, is referred to as the "Common Stock", (II) the shares of the Common Stock purchasable hereunder are referred to as the "Warrant Shares", (III) the aggregate purchase price payable hereunder for the Warrant Shares is referred to as the "Aggregate Warrant Price", (IV) the price payable hereunder for each of the Warrant Shares is referred to as the "Per Share Warrant Price", (V) this Warrant, and all warrants hereafter issued in exchange or substitution for this Warrant are referred to as the "Warrant" and (VI) the holder of this Warrant is referred to as the "Holder".) The Per Share Warrant Price is subject to adjustment as hereinafter provided. 1. EXERCISE OF WARRANT. (a) CASH EXERCISE. This Warrant may be exercised, in whole at any time or in part from time to time, commencing on the date hereof and prior to 5:00 P.M., Eastern Standard Time, on [____________] (the "Expiration Date"), by the Holder of this Warrant by the surrender of this Warrant (with the subscription form at the end hereof duly executed) at the address set forth in Subsection 9(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part. Payment for Warrant Shares shall be made by certified or official bank check payable to the order of the Company. If this Warrant is exercised in part, this Warrant must be exercised for a minimum of 100 shares of the Common Stock, and the Holder is entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender of this Warrant, the Company will (i) issue a certificate or certificates in the name of the Holder for the largest number of whole shares of the Common Stock to which the Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of any fractional share of the Common Stock to which the Holder shall be entitled, cash equal to the fair value of such fractional share (determined in such reasonable manner as the Board of Directors of the Company shall determine), and (ii) deliver the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of the Warrant. (b) NET ISSUANCE. In addition to the rights set forth in Section 1(a) hereof, the Holder shall have the right (the "Conversion Right") to require the Company to convert this Warrant, in whole or in part, at any time prior to the Expiration Date into shares of Common Stock as provided for in this Section 1(b). At the sole option of the Holder, upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any Purchase Price) that number of shares of Common Stock equal to the quotient obtained by dividing (X) the difference between (I) the Fair Market Value of the number of shares of Common Stock for which this Warrant may be exercised, minus (II) the Aggregate Warrant Price; by (Y) the Fair Market Value of one share of Common Stock immediately prior to the exercise of the Conversion Right. This warrant shall automatically be deemed to be exercised in full pursuant to the provisions of this Section 1(b) hereof, without any further action on behalf of the Holder immediately prior to the Expiration Date if not exercised before such date. (c) FAIR MARKET VALUE. For the purpose of this Section 1, the "Fair Market Value" a share of Common Stock as of a particular date (the "Determination Date") shall mean: (i) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, then Fair Market Value shall mean the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date; (ii) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System but is traded in the over-the-counter market, then Fair Market Value shall mean the closing bid and asked prices reported for the last business day immediately preceding the Determination Date; (iii) If the Determination Date is the date on which the Company's Common Stock is first sold to the public by the Company is a firm commitment public offering under the Securities Act of 1933, as amended (the "1933 Act"), then Fair Market Value shall mean the initial public offering price (before deducting commissions, discounts or expenses) at which the Common Stock is sold in such offering; and (iv) If the Determination Date is none of the foregoing clauses (i), (ii), and (iii), then Fair Market Value will be determined by the Company's Board of Directors, acting in good faith. 2. RESERVATION OF WARRANT SHARES. The Company agrees that, prior to the expiration of this Warrant, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Common Stock as from time to time shall be receivable upon the exercise of this Warrant. -2- 3. ANTI-DILUTION PROVISIONS. (a) If, at any time or from time to time after the date of this Warrant, the Company shall distribute to the holders of the Common Stock (I) securities, other than shares of the Common Stock, or (II) property, other than cash, without payment therefor, with respect to the Common Stock, then, and in each such case, the Holder, upon the exercise of this Warrant, shall be entitled to receive the securities and properties which the Holder would hold on the date of such exercise if, on the date of this Warrant, the Holder had been the holder of record of the number of shares of the Common Stock subscribed for upon such exercise and, during the period from the date of this Warrant to and including the date of such exercise, had retained such shares and the securities and properties receivable by the Holder during such period. Notice of each such distribution shall be forthwith mailed to the Holder. (b) In case the Company shall hereafter (I) pay a dividend or make a distribution on its capital stock in shares of Common Stock, (II) subdivide its outstanding shares of Common Stock into a greater number of shares, (III) combine its outstanding shares of Common Stock into a smaller number of shares or (IV) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Per Share Warrant Price in effect immediately prior to such action shall be adjusted so that if the Holder surrendered this Warrant for exercise immediately thereafter, the Holder would be entitled to receive the number of shares of Common Stock or other capital stock of the Company which he would have owned immediately following such action had such Warrant been exercised immediately prior thereto. An adjustment made pursuant to this subsection (b) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection (b), the Holder of this Warrant shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of this Warrant promptly after such adjustment) shall determine the allocation of the adjusted Per Share Warrant Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. (c) In case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the Holder shall have the right thereafter to convert this Warrant into the kind and amount of securities, cash or other property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale or conveyance had such Warrant been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this Section 3 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of this Warrant. The above provisions of this subsection (c) shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. Notice of any such consolidation, merger, statutory exchange, sale or -3- conveyance and of said provisions so proposed to be made, shall be mailed to the Holder not less than 30 days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. (d) Whenever the Per Share Warrant Price is adjusted as provided in this Section 3 and upon any modification of the rights of the Holder of this Warrant in accordance with this Section 3, the Company shall promptly prepare a certificate of an officer of the Company, setting forth the Per Share Warrant Price and the number of Warrant Shares after such adjustment or modification, a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause a copy of such certificate to be mailed to the Holder. (e) If the Board of Directors of the Company shall declare any dividend or other distribution in cash with respect to the Common Stock, other than out of earned surplus, the Company shall mail notice thereof to the Holder not less than 15 days prior to the record date fixed for determining shareholders entitled to participate in such dividend or other distribution. 4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the Common Stock represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, at the time of such delivery, be validly issued and outstanding, fully paid and non-assessable, and not subject to preemptive rights, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. The Company further covenants and agrees that it will pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes that may be payable in respect of the issue of any Warrant Share or certificate therefor. 5. TRANSFER. (a) SECURITIES LAWS. Neither this Warrant nor the Warrant Shares issuable upon the exercise hereof have been registered under the Securities Act of 1933, as amended (the "Securities Act") or under any state securities laws and unless so registered may not be transferred, sold, pledged, hypothecated or otherwise disposed of unless an exemption from such registration is available. In the event Holder desires to transfer this Warrant or any of the Warrant Shares issued, the Holder must give the Company prior written notice of such proposed transfer including the name and address of the proposed transferee. Such transfer may be made only either (I) upon publication by the Securities and Exchange Commission (the "Commission") of a ruling, interpretation, opinion or "no action letter" based upon facts presented to said Commission, or (II) upon receipt by the Company of an opinion of counsel to the Company in either case to the effect that the proposed transfer will not violate the provisions of the Securities Act, the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated under either such act, or in the case of clause (ii) above, to the effect that the Warrant or Warrant Shares to be sold or transferred has been registered under the Securities Act of 1933, as amended, and that there is in effect a current prospectus meeting the requirements of Subsection 10(a) of the Securities Act, which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Warrant or Warrant Stock to be sold or transferred. -4- (b) CONDITIONS TO TRANSFER. Prior to any such proposed transfer, and as a condition thereto, if such transfer is not made pursuant to an effective registration statement under the Securities Act, the Holder will, if requested by the Company, deliver to the Company (I) an investment covenant signed by the proposed transferee, (ii) an agreement by such transferee to the impression of the restrictive investment legend set forth herein on the certificate or certificates representing the securities acquired by such transferee, (III) an agreement by such transferee that the Company may place a "stop transfer order" with its transfer agent or registrar, and (IV) an agreement by the transferee to indemnify the Company to the same extent as set forth in the next succeeding paragraph. (c) INDEMNITY. The Holder acknowledges that the Holder understands the meaning and legal consequences of this Section 5, and the Holder hereby agrees to indemnify and hold harmless the Company, its representatives and each officer and director thereof from and against any and all loss, damage or liability (including all attorneys' fees and costs incurred in enforcing this indemnity provision) due to or arising out of (A) the inaccuracy of any representation or the breach of any warranty of the Holder contained in, or any other breach of, this Warrant, (B) any transfer of the Warrant or any of the Warrant Shares in violation of the Securities Act, the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated under either of such acts, (C) any transfer of the Warrant or any of the Warrant Shares not in accordance with this Warrant or (D) any untrue statement or omission to state any material fact in connection with the investment representations or with respect to the facts and representations supplied by the Holder to counsel to the Company upon which its opinion as to a proposed transfer shall have been based. (d) TRANSFER. Except as restricted hereby, this Warrant and the Warrant Shares issued may be transferred by the Holder in whole or in part at any time or from time to time. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with assignment documentation duly executed and funds sufficient to pay any transfer tax, and upon compliance with the foregoing provisions, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment, and this Warrant shall promptly be cancelled. Any assignment, transfer, pledge, hypothecation or other disposition of this Warrant attempted contrary to the provisions of this Warrant, or any levy of execution, attachment or other process attempted upon the Warrant, shall be null and void and without effect. (e) LEGEND AND STOP TRANSFER ORDERS. Unless the Warrant Shares have been registered under the Securities Act, upon exercise of any part of the Warrant and the issuance of any of the shares of Warrant Shares, the Company shall instruct its transfer agent to enter stop transfer orders with respect to such shares, and all certificates representing Warrant Shares shall bear on the face thereof substantially the following legend, insofar as is consistent with Delaware law: THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT OR AN OPINION OF COUNSEL TO THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. -5- 6. "PIGGY-BACK" REGISTRATIONS. If at any time the Company shall determine to register any of its securities under the Securities Act (including pursuant to a demand of any stockholder of the Company exercising registration rights), other than on Form S-8 or Form S-4 or their then equivalents, it shall send to each Holder of the Common Stock or Warrant Shares (the "Registrable Shares"), including each Holder who has the right to acquire Registrable Shares, written notice of such determination and, if within 45 days after receipt of such notice, such Holder shall so request in writing, the Company shall use its best efforts to include in such registration statement all or any part of the Registrable Shares such Holder requests to be registered therein, except that if, in connection with any offering involving an underwriting of Common Stock to be issued by the Company, the managing underwriter shall impose a limitation on the number of shares of such Common Stock which may be included in any such registration statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, and such limitation is imposed pro rata with respect to all securities whose holders have a contractual, incidental ("piggy-back") right to include such securities in the registration statement and as to which inclusion has been requested pursuant to such right, then the Company shall be obligated to include in such registration statement only such limited portion (which may be none) of the Registrable Shares with respect to which such Holder has requested inclusion hereunder. 7. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein, this Warrant does not confer upon the Holder any right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 9. COMMUNICATION. No notice or other communication under this Warrant shall be effective unless the same is in writing and is mailed by first-class mail, postage prepaid, addressed to: (a) the Company at 100 Cummings Center, Suite 235M, Beverly, MA 01915 or such other address as the Company has designated in writing to the Holder, or (b) the Holder at _________________________________________, or such other address as the Holder has designated in writing to the Company. 10. HEADINGS. The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof. -6- 11. APPLICABLE LAW. This Warrant shall be governed by and construed in accordance with the law of the State of Delaware without giving effect to the principles of conflicts of law thereof. IN WITNESS WHEREOF, LocatePLUS Holdings Corporation, has caused this Warrant to be signed by its ____________________________ and its corporate seal to be hereunto affixed and attested by its _________________ this [____________]. ATTEST: __________________________________ By:_______________________________ ________________________________ (name) (name) Title: Title: [Corporate Seal] -7- SUBSCRIPTION The undersigned, , pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for the purchase of shares of the Class A Voting Common Stock of LocatePLUS Holdings Corporation covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated: Signature___________________________ ------------------- Address ___________________________ ___________________________ -8- ASSIGNMENT FOR VALUE RECEIVED hereby sells, assigns and transfers unto ______ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ______________________________, attorney, to transfer said Warrant on the books of LocatePLUS Holdings Corporation Dated: Signature___________________________ ------------------- Address ___________________________ ___________________________ -9- PARTIAL ASSIGNMENT FOR VALUE RECEIVED hereby assigns and transfers unto _________ the right to purchase shares of the Class A Voting Common Stock of LocatePLUS Holdings Corporation by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced hereby, and does irrevocably constitute and appoint _____________________, attorney, to transfer that part of said Warrant on the books of ____________________. Dated: Signature___________________________ ------------------- Address ___________________________ ___________________________ -10- EX-4.8 9 ex4-8_10945.txt CONVERTIBLE SUBORDINATED PROMISSORY NOTE EXHIBIT 4.8 ----------- THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL OF THE HOLDER SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) SUCH TRANSFER WOULD BE IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS. THERE IS NO AND THERE IS NOT EXPECTED TO BE A PUBLIC MARKET FOR THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. LOCATEPLUS.COM, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $[_________] BEVERLY, MASSACHUSETTS [_______________] LocatePLUS.com, Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to [________________] and Investigations or his assigns the principal sum of [________________]($[________________]), together with interest compounding semi-annually on each January 1 and July 1 from the date hereof on the unpaid balance of such principal amount from time to time outstanding at the rate of 14% per annum until paid in full or converted as provided herein. Subject to the provisions of Section 4 below, all outstanding principal and accrued unpaid interest under this Note shall be due and payable on the first to occur of: (I) September 27, 2005, (II) conversion according to the terms hereof, and (III) the occurrence of an Event of Default (as defined in Section 3 below) (the first to occur of (i), (ii) and (iii), is referred to herein as the "Maturity Date"). SECTION 1. CONVERSION. (A) AUTOMATIC CONVERSION. The entire outstanding principal amount of this Note and any accrued unpaid interest hereon shall automatically be converted into fully paid and non-assessable shares of the Common Stock, par value $0.01, of the Company upon the first to occur (the "Conversion Date") of: (I) LocatePLUS.com's initial public offering of securities registered on Form S-1 or its then equivalent; (II) the closing of at least a $5 million equity investment in the Company in an offering subsequent to the Company's Note and Warrant Offering that commenced on September 27, 2000; or (III) a transaction involving a "Change of Control" of the Company. For the purposes of this Note, a "Change of Control" transaction shall mean (1) a transaction in which any individual, entity or group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") acquires beneficial ownership of any capital stock of the Company if, after such acquisition, such individual, entity or group beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) more than 50% of either (X) the then-outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock"), or (Y) the combined voting power of the then-outstanding securities of the Company generally entitled to vote (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that for the purposes of this clause (1), no acquisition by any person, entity, or group pursuant to a Business Combination, as defined below, which complies with clauses (x) and (y) of clause (2) below will constitute a Change of Control; or (2) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately after such Business Combination, each of the following is satisfied: (X) all or substantially all of the individuals or entities who were beneficial owners of the Outstanding Company Stock and Outstanding Company Voting Securities immediately prior to that Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of the Company's Common Stock and the combined voting power of the then-outstanding securities generally entitled to vote, respectively, of the resulting or acquiring entity in the Business Combination (which shall include, without limitation, an entity that as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring entity is referred to herein as the "Acquiring Entity"), in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination (it being understood that for purposes of the determination of whether or not such voting power of the then-outstanding securities is owned, directly or indirectly, in substantially the same proportions as the ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, any securities transferred pursuant to transfers by a security holder which is an entity to a wholly-owned subsidiary of that entity, or by a security holder which is a closely held partnership PRO RATA to the partners of such partnership, or transfers by a limited liability company PRO RATA to the members of such limited liability company shall be disregarded, and (Y) no person or entity (excluding the Acquiring Entity or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Entity) beneficially owns, directly or indirectly, more than 50% of the then-outstanding equity of the Acquiring Entity, or of the combined voting power of the then-outstanding securities of such corporation generally entitled to vote (except to the extent that such ownership existed prior to the Business Combination). (IV) Upon conversion of this Note, the Holder shall be entitled to a number of shares of LocatePLUS.com, Inc. Common Stock as may be determined as set forth below: (A) If the conversion is triggered by clauses (i) or (ii), above, then the per share Conversion Price shall be 80% of the per share offering price of Common Stock in that offering (if the offering consists primarily of Common Stock), or (if the offering does not consist primarily of Common Stock), the Conversion Price shall be the 80% of the per share value of the Common Stock as determined by the Board of Directors of the Company, in good faith, with reference to such offering price. -2- (B) If the conversion is triggered by clause (iii), above, in a transaction in which all or substantially all of the Common Stock of the Company is acquired or transferred as a result of a merger or tender offer, the consideration for which consists of cash and/or readily marketable, unrestricted securities, then the per share Conversion Price will be 80% of the value of the consideration offered to each stockholder for each share of the Company's Common Stock. (C) If the conversion is triggered by clause (iii), above, in a change of control transaction other than as set forth in paragraph (B), above, then the per share Conversion Price shall be 80% of the implied per share value of Common Stock of such transaction, as determined by the Board of Directors in good faith taking into account the transaction, the nature of the consideration, the relative liquidity of the consideration, and other similar factors regularly used in the valuation of illiquid investments. (B) FRACTIONAL SHARES. No fractional shares of capital stock of the Company shall be issued upon conversion of this Note. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the amount that would have been applied to the purchase of such fractional share but for the application of the preceding sentence. (C) MECHANICS OF CONVERSION. The Company shall use its best efforts to cause notice of conversion to be mailed to the registered holder of this Note, at such holder's address appearing in the records of the Company, at least five business days prior to the Conversion Date. Upon notice by the Company and on or before the Conversion Date, the holder shall surrender this Note for conversion at the place designated in such notice. If required by the Company, the Note surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of surrender in form satisfactory to the Company duly executed by the registered holder. The Company shall, as soon as practicable after the Conversion Date, issue and deliver to such holder of this Note, a certificate or certificates for the number of shares of the capital stock of the Company to which such holder shall be entitled, together with cash in lieu of any fraction of a share. Immediately upon the Conversion Date (whether or not this Note is surrendered), this Note shall no longer be deemed to be outstanding and all rights with respect to this Note shall immediately cease and terminate on such Conversion Date, except only the right of the holder to receive the shares of the capital stock of the Company to which he is entitled as a result of the conversion on the Conversion Date. 2. RESTRICTIONS ON TRANSFER. The shares of the capital stock of the Company into which the Note may be converted, shall not be assigned, sold, pledged, transferred or otherwise disposed of except in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. 3. DEFAULT. This Note and all amounts due hereunder shall become immediately due and payable in cash without notice or demand, at any time, upon the occurrence and during the continuation of any of the following events of default (individually, "an Event of Default" and collectively, "Events of Default"): -3- (A) Default in the payment when due of any principal or interest under this Note; (B) The liquidation, termination of existence, dissolution or the appointment of a receiver or custodian for the Company or any part of its property if such appointment is not terminated or dismissed within thirty days; (C) The institution against the Company of any proceedings under the United States Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally, which proceeding is not dismissed within thirty days of filing; or (D) The institution by the Company of any proceedings under the United States Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally or the making by the Company or any endorser or guarantor of this Note of a composition of an assignment or trust mortgage for the benefit of creditors. Upon the occurrence of an Event of Default, the holder shall have then, or at any time thereafter, all of the rights and remedies afforded by the Uniform Commercial Code as from time to time in effect in the State of Delaware. 4. SUBORDINATION. The indebtedness evidenced by this Note is subordinate and junior to the prior payment in full of the principal of (and premium, if any) and interest on all Senior Indebtedness. "Senior Indebtedness" means the principal of (and premium, if any) and interest on all indebtedness of the Company for money borrowed from banks and other institutional lenders, whether outstanding on the date hereof or hereafter arising. Nothing contained in this Section 4 shall limit or impair the conversion of this Note in accordance with Section 1 hereof. Anything herein to the contrary notwithstanding, the Company covenants and agrees, and any holder hereof by its acceptance hereof covenants and agrees, expressly for the benefit of the present and future holders of the Senior Indebtedness, that until the Senior Indebtedness shall have been paid in full, the holder hereof will not take, demand or receive, and the Company will not make, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any payment of the whole or any part hereof, except that the holder hereof shall be entitled to receive payments of interest and principal on the Maturity Date unless and until (if ever) the holder of any Senior Indebtedness shall have given notice to the holder hereof (a "Standstill Notice") that (I) the Company is in default in respect of any payment of principal of, interest on, or other amount due in connection with any Senior Indebtedness, or (II) an event has occurred and is continuing or a condition exists which entitles any holder of the Senior Indebtedness to declare the same to be due and payable prior to its express maturity date, PROVIDED that the Company may make, and the holder hereof may take, demand, receive, enforce and collect such payments of principal and interest after the period ending on the first to occur of (A) the date such event or condition is waived or cured, and (B) with respect to a non-payment default, one hundred and eighty days after the date the Standstill Notice shall have been given to the holder hereof, UNLESS there shall then exist a payment default in respect of the Senior Indebtedness in which case the Company shall not make and the holder shall not accept, any payment hereunder until such payment default has been cured. Each holder hereof, by its acceptance of this Note, hereby agrees that the holder of the Senior Indebtedness may, at any time and from time to time, without notice to the holder of this Note, without releasing or impairing the subordination contained herein, change the manner, place or terms of payment, or change or extend the time for payment of or renew or alter, the Senior Indebtedness, or amend or supplement in any manner the agreements, instruments or documents relating to, evidencing or securing the Senior Indebtedness, or release any person liable in -4- any manner for the payment or collection of the Senior Indebtedness or exercise or refrain from exercising any rights in respect of the Senior Indebtedness or apply any monies or other property received to the Senior Indebtedness or accept or release any security for the Senior Indebtedness. Upon the liquidation, dissolution or other winding up of the Company or any sale of the Company, receivership, insolvency, reorganization or bankruptcy proceedings, assignment for the benefit of creditors, arrangement or the commencement of any proceeding for the benefit of creditors, against the Company for any relief under any bankruptcy, reorganization or insolvency laws or any other law of the relief of debtors or the readjustment of indebtedness or other event or condition described in this Section 4, then and in any such event, any payment of principal, interest or premium on this Note which but for the subordination provisions of this Note would otherwise be payable or deliverable to the holder hereof shall instead be paid over or delivered to the holder of the Senior Indebtedness (if more than one holder, in accordance with any agreements among the holder of such Senior Indebtedness) for application as a payment or prepayment on account of the Senior Indebtedness, and the holder hereof shall not receive any payment therefrom unless and until all Senior Indebtedness shall have been fully paid and satisfied or the holder of such Senior Indebtedness shall have otherwise consented. If any holder hereof shall receive any payment in respect of this Note in violation of the preceding, such holder, by its acceptance hereof, hereby agrees to hold such payment in trust for the PRO RATA benefit of the holder of the Senior Indebtedness and to pay over such amount in the form received, except for the endorsement without recourse or warranty of the holder hereof where appropriate, to the holder of the Senior Indebtedness for application on account of the Senior Indebtedness. THE SUBORDINATION PROVISIONS HEREOF ARE AND ARE INTENDED TO BE SOLELY FOR THE PURPOSE OF DEFINING THE RELATIVE RIGHTS OF THE HOLDER HEREOF AND THE HOLDER OF THE SENIOR INDEBTEDNESS AND NOTHING CONTAINED HEREIN IS INTENDED TO OR SHALL IMPAIR, AS BETWEEN THE COMPANY, ITS CREDITORS AND THE HOLDER OF THIS NOTE, THE OBLIGATION OF THE COMPANY, WHICH IS UNCONDITIONAL AND ABSOLUTE, TO PAY TO THE HOLDER OF THIS NOTE THE PRINCIPAL OF, AND INTEREST ON, THIS NOTE AS AND WHEN THE SAME SHALL BECOME DUE AND PAYABLE IN ACCORDANCE WITH THE TERMS HEREOF, OR IS INTENDED TO OR SHALL AFFECT THE RELATIVE RIGHTS OF THE HOLDER OF THIS NOTE AND CREDITORS OF THE COMPANY (OTHER THAN THE HOLDER OF THE SENIOR INDEBTEDNESS), NOR SHALL ANYTHING HEREIN PREVENT THE HOLDER HEREOF FROM EXERCISING ALL RIGHTS AND REMEDIES UNDER THIS NOTE IN THE EVENT OF DEFAULT HEREUNDER, SUBJECT TO THE RIGHT OF THE HOLDER OF THE SENIOR INDEBTEDNESS TO RECEIVE PRIOR PAYMENT IN FULL OF SUCH SENIOR INDEBTEDNESS. Notwithstanding the foregoing, the holder of this Note shall not commence any action for the payment of any principal, interest or other amount due hereunder unless (I) any Senior Indebtedness shall have been accelerated, or (II) the Company has become subject to an insolvency, reorganization or bankruptcy proceeding, receivership proceeding, assignment for the benefit of creditors or other like proceeding. The holder hereof acknowledges that his, her or its intention is that the rights of the holder hereof to payments of principal and interest on this Note shall be junior and subordinate to the rights of the holder of any present or future Senior Indebtedness, and the holder hereof hereby agrees to confirm the foregoing and to execute any and all such documents as may be reasonably requested by the holder of any Senior Indebtedness from time to time. 5. INVESTMENT INTENT. The holder of this Note, by acceptance hereof, warrants and represents that this Note and any security issuable upon conversion hereof, has been and will be acquired for investment only and not with a view to, or for sale in connection with, a distribution thereof and not with a view to their resale, and that this Note and any security issuable upon conversion hereof has been and will be acquired for the holder's own account and not with a view to their division among others, and that no other person has any direct or indirect beneficial interest in this Note or any security issuable upon conversion hereof. -5- 6. NOTICES. All notices given hereunder shall be in writing and delivered in person, by recognized courier service, or by postage prepaid certified or registered mail, return receipt requested. All notices intended for the holder hereof shall be addressed to it as its last address as it shall then appear on the books of the Company. All notices intended for the Company shall be addressed to it at 100 Cummings Center, Suite 235-M, Beverly, Massachusetts 01915. Said addresses may be changed by notice in accordance with this Section 6. 7. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of Delaware. 8. GENERAL. (A) SUCCESSORS AND ASSIGNS. This Note, and the obligations and rights of the Company hereunder, shall be binding upon and inure to the benefit of the Company, the holder of this Note, and their respective heirs, successors and permitted assigns. (B) RECOURSE. Recourse under this Note shall be to the general unsecured assets of the Company only, and in no event to the officers, directors or stockholders of the Company. (C) CHANGES. Changes in or additions to this Note may be made or compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holder of this Note. (D) RIGHTS RESERVED. No provisions of this Note and no right or option granted or conferred herein shall in any way limit, affect or abridge the exercise by the Company of any of its corporate rights or powers, including without limitation, its corporate right and power to issue securities, recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or merge with or into another corporation, or transfer or encumber all or any part of its property or assets. IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed instrument on the date first above written. LOCATEPLUS.COM, INC. By: ------------------------------------- Jon Latorella President and Chief Executive Officer By: ------------------------------------- Robert Goddard Treasurer, Secretary and Chief Financial Officer TRACKING NUMBER [________________]. -6- EX-4.9 10 ex4-9_10945.txt WARRANT TO PURCHASE COMMON STOCK EXHIBIT 4.9 ----------- NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK FOR WHICH IT IS EXERCISABLE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE OR FOREIGN SECURITIES LAWS (THE "OTHER LAWS"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THEY ARE REGISTERED OR QUALIFIED OR THE COMPANY RECEIVES FROM THE HOLDER HEREOF AN OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISTRIBUTION IS EXEMPT FROM THE APPLICABLE REGISTRATION AND QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND THE OTHER LAWS. TRACKING NUMBER [________________] [________________] LOCATEPLUS.COM, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, [__________] (the "Holder") is entitled to subscribe for and purchase [________________] shares of Common Stock, $0.01 par value per share ("Shares") of LocatePLUS.com, Inc. (the "Company"), a Delaware corporation, commencing on the Commencement Date (as defined below) and terminating at 5:00 p.m. on the date that is 20 days after the Commencement Date. The Exercise Price per Share is set forth in Section 2 of this instrument. SECTION 1. EXERCISE. The "Commencement Date" shall be the first to occur of: (I) LocatePLUS.com, Inc.'s initial public offering of securities on Form S-1 or its then equivalent; (II) the closing of at least a $5 million equity investment in the Company in an offering subsequent to the Company's Note and Warrant Offering that commenced on September 27, 2000; or (III) a transaction involving a "Change of Control" of the Company. For the purposes of this Warrant, a "Change of Control" transaction shall mean (1) a transaction in which any individual, entity or group (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") acquires beneficial ownership of any capital stock of the Company if, after such acquisition, such individual, entity or group beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) more than 50% of either (X) the then-outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock"), or (Y) the combined voting power of the then-outstanding securities of the Company generally entitled to vote (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that for the purposes of this clause (1), no acquisition by any person, entity, or group pursuant to a Business Combination, as defined below, which complies with clauses (x) and (y) of clause (2) below will constitute a Change of Control; or (2) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately after such Business Combination, each of the following is satisfied: (X) all or substantially all of the individuals or entities who were beneficial owners of the Outstanding Company Stock and Outstanding Company Voting Securities immediately prior to that Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of the Company's Common Stock and the combined voting power of the then-outstanding securities generally entitled to vote, respectively, of the resulting or acquiring entity in the Business Combination (which shall include, without limitation, an entity that as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring entity is referred to herein as the "Acquiring Entity"), in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination (it being understood that for purposes of the determination of whether or not such voting power of the then-outstanding securities is owned, directly or indirectly, in substantially the same proportions as the ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, any securities transferred pursuant to transfers by a security holder which is an entity to a wholly-owned subsidiary of that entity, or by a security holder which is a closely held partnership pro rata to the partners of such partnership, or transfers by a limited liability company pro rata to the members of such limited liability company shall be disregarded, and (Y) no person or entity (excluding the Acquiring Entity or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Entity) beneficially owns, directly or indirectly, more than 50% of the then-outstanding equity of the Acquiring Entity, or of the combined voting power of the then-outstanding securities of such corporation generally entitled to vote (except to the extent that such ownership existed prior to the Business Combination). SECTION 2. EXERCISE PRICE. The Warrant entitles the Holder to purchase shares (as set forth in the preamble to this Warrant) of the Company's Common Stock at a price per share equal to the "Exercise Price", as set forth below: (I) If the Exercise is triggered by clauses (i) or (ii) of Section 1 above, then the per share Exercise Price shall be 80% of the per share offering price of Common Stock in that offering (if the offering consists primarily of Common Stock), or (if the offering does not consist primarily of Common Stock), the Exercise Price shall be the 80% of the per share value of the Common Stock as determined by the Board of Directors of the Company, in good faith, with reference to such offering price. (II) If the Exercise is triggered by clause (iii) of Section 1 above, in a transaction in which all or substantially all of the Common Stock of the Company is acquired or transferred as a result of a merger or tender offer, the consideration for which consists of cash and/or readily marketable, unrestricted securities, then the per share Exercise Price will be 80% of the value of the consideration offered to each stockholder for each share of the Company's Common Stock. (III) If the Exercise is triggered by clause (iii) of Section 1 above, in a change of control transaction other than as set forth in Section 2(ii), above, then the per share Exercise Price shall be 80% of the implied per share value of Common Stock of such transaction, as determined by the Board of Directors in good faith taking into account the transaction, the nature of the consideration, the relative liquidity of the consideration, and other similar factors regularly used in the valuation of illiquid investments. 2 SECTION 3. METHOD OF EXERCISE; PAYMENT; CASHLESS EXERCISE. 3.1 CASH EXERCISE. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as EXHIBIT 1, duly executed) at the principal executive office of the Company and by the payment to the Company, by bank check or wire transfer, of an amount equal to the then applicable Exercise Price multiplied by the number of Shares then being purchased (the "Aggregate Exercise Price"). 3.2 CASHLESS EXERCISE. In lieu of and in full satisfaction of the cash payment set forth in Section 3.1, the Holder may elect to receive from the Company that lesser number of shares of Common Stock that would be held by the Holder in the event that he partially or fully exercised this warrant and immediately paid the Aggregate Exercise Price in shares of the Company's Common Stock so issued by delivery of the notice of exercise form attached as Exhibit 1. 3.3 ISSUANCE. All Shares issued pursuant to the terms of this Section 3 will, upon issuance, be fully paid and non-assessable. The Company agrees that the Shares so purchased shall be deemed to be issued to the Holder hereof immediately prior to the Commencement Date. Any unexercised portion of this Warrant shall be deemed to be irrevocably forfeited. If any exercise under this Section 3 would create a fractional Share, or a right to acquire a fractional Share, such fractional Share shall be disregarded and the number of Shares issuable upon exercise shall be rounded to the nearest whole number. 4. COMPLIANCE WITH SECURITIES LAWS. The Holder of this Warrant, including the assigns of each Holder of this Warrant by acceptance hereof, agrees that this Warrant and the securities to be issued upon exercise hereof are being acquired for investment for such Holder's own account and not with a view toward distribution thereof, and that it will not offer, sell or otherwise dispose of this Warrant or any securities issued upon its exercise unless this Warrant or such securities have been registered or qualified, as the case may be, under the Securities Act of 1933, as amended, and applicable state and foreign securities laws or (I) registration or qualification under state and foreign securities laws is not required and (II) an opinion of counsel satisfactory to the Company is furnished to the Company to the effect that registration under the Securities Act of 1933, as amended, is not required. The Holder of this Warrant, including the assigns of each Holder of this Warrant, by acceptance hereof, represents and warrants that he, she, or it is an "accredited investor" as that term is defined by Rule 501 under the Securities Act of 1933, as amended. 5. TRANSFERABILITY AND EXCHANGE OF WARRANT. 5.1 TRANSFERABILITY. Subject to compliance with applicable securities laws, this Warrant and all rights hereunder are transferable at the principal office of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed, together with a written assignment of this Warrant duly executed by the holder hereof or its duly authorized attorney. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the holder hereof as the owner for all purposes. 3 5.2 EXCHANGE. Subject to compliance with the terms hereof including Section 5.1, this Warrant and all rights hereunder are transferable, in whole or in part, at the principal executive office of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. The last Holder of this Warrant as registered on the books of the Company may be treated by the Company and all persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant or to transfer this Warrant on the books of the Company, any notice to the contrary notwithstanding, unless and until such Holder seeks to transfer registered ownership of this Warrant on the books of the Company and such transfer is effected. 6. NOTICE OF COMMENCEMENT DATE. No later than the Commencement Date, the Company shall give notice of the event triggering the Commencement Date and the applicable Exercise Price. Such notice shall be in writing, and sent by FedEx to the Holder's address set forth below, (and, if such addresses are given below for the Holder, by facsimile and by e-mail). 7. MISCELLANEOUS. 7.1 ADJUSTMENTS. No Holder shall be entitled to vote or receive distributions or be deemed the holder of securities of the Company which may at any time be issuable upon its exercise 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 give or withhold consent to any action (whether upon any recapitalization, issuance of additional equity, reclassification of equity, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive distributions or otherwise until the Warrant shall have been exercised and the securities purchasable upon such exercise shall have become deliverable, as provided herein, PROVIDED, HOWEVER, that in the event that a dividend, distribution or stock split is called with respect to the Common Stock of the Company, then (in the case of a stock split) the number of shares for which this Warrant may be exercised shall be similarly adjusted and (in the case of a dividend or distribution) such property (including, if applicable, shares of Common Stock, shall be set aside for the Holder by the Company pending the Holder's exercise of this Warrant. 7.2 REPLACEMENT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 7.3 NO IMPAIRMENT. The Company will not, by amendment of its charter or by-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions in this Warrant. 7.4 GOVERNING LAW. This Warrant shall be governed by and construed under the internal domestic laws of the State of Delaware. 4 IN WITNESS WHEREOF, this Warrant is executed as of this _____________. LOCATEPLUS.COM, INC. By: ------------------------------------- Jon Latorella President and Chief Executive Officer By: ------------------------------------- Robert Goddard Treasurer, Secretary and Chief Financial Officer ACCEPTED AND AGREED ___________________ HOLDER'S ADDRESS 5 NOTICE OF EXERCISE To the Board of Directors of LocatePLUS.com, Inc. 1. The undersigned hereby elects to purchase __________________ shares of LocatePLUS.com, Inc. Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in full of the Warrant Price of such Shares, or agrees to exercise the warrant in a cashless exercise, resulting in the delivery to the Holder of _____________ shares. 2. The undersigned represents that the aforesaid Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, except in compliance with the Securities Act of 1933, as amended. Name of Holder: ----------------------- -------------------------------------- (Signature) Title (if applicable): ---------------- EX-4.10 11 ex4-10_10945.txt CONVERTIBLE TERM PROMISSORY NOTE EXHIBIT 4.10 ------------ THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL OF THE HOLDER SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) SUCH TRANSFER WOULD BE IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS. THERE IS NO AND THERE IS NOT EXPECTED TO BE A PUBLIC MARKET FOR THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF. LOCATEPLUS.COM, INC. CONVERTIBLE TERM PROMISSORY NOTE MARCH 09, 2001 US $10,000.00 BEVERLY, MASSACHUSETTS SECTION 1. TERMS OF NOTE: WARRANT. ---------------------- 1.1 NOTE. In consideration of the wire transfer to an account designated by LocatePLUS.com, Inc. (the "Company"), which the Company hereby acknowledges, and for other value received, the Company hereby promises to pay Marcia Margiotta, or her assigns (the "Holder"), the principal sum of Ten Thousand Dollars ($10,000.00) (the "Principal"), together with interest (as defined herein) on the unpaid balance (the "Indebtedness"). The Principal shall be due and payable at the Maturity (as defined herein), with payments of interest only on the Interest Installment Dates (as defined herein), unless all or the applicable fraction of the Indebtedness is converted into shares of Common Stock at the option of the Holder as set forth in Section 3. 1.2 WARRANT. In further consideration of the above referenced wire transfer and advancement of funds, the Company hereby agrees to issue the Warrant (as defined herein). SECTION 2. DEFINITIONS. ----------- The following underlined terms shall have the corresponding meanings set forth below. "Bankruptcy Code" means 11 U.S.C. Section 101 et seq. "Change of Control" means a merger, consolidation, or share exchange or series of such transactions, the result of which causes the holders of the Company's equity on a fully diluted basis immediately prior to such transaction or transactions to hold less than 50% of the resulting or surviving entity's equity on a fully diluted basis after such transaction or transactions. "Common Stock" means shares of the Common Stock, par value $0.01, of LocatePLUS.com, Inc. "Company" includes LocatePlus.com, Inc., a Delaware corporation, and its successors. "Conversion" shall mean a conversion of all or a part of this Note into shares of Common Stock as set forth in Section 3. "Conversion Date" shall mean the date as of which the Holder gives notice to the Company of his election to convert this Note into Common Stock as set forth in Section 3. "Financing" means a $1,000,000 or greater equity or equity-equivalent financing of the Company by a third party. "Interest" means 12% per annum compound interest. "Interest Installment Dates" means March 31st, June 30th, September 30th, and December 31st of each year. "Maturity" means the first to occur of (i) 90 days from the execution of a term sheet relating to a Financing; provided that such Financing provides for the prompt payment of this Note as a use of proceeds from such Financing; (ii) 45 days from the execution of definitive documents relating to a Sale or a Change of Control; provided that such transaction or series of transactions include as a condition to closing the prompt payment of this Note; or (iii) the six month anniversary from the date of this Note. "Sale" means a sale of all or substantially all of the assets of the Company. "Warrant" refers to the right to a ten year detachable warrant to purchase 5,000 shares of the Company's Common Stock, which is exercisable in the event of a Financing or a sale, with an exercise price equal to $0.20 per share of the Common Stock. SECTION 3. CONVERSION. ---------- 3.1 ELECTIVE CONVERSION. At any time and from time to time, the Holder, at his option, may convert this Note (including both Principal and Interest installments) into Common Stock at the lower of (i) 75% of the fair market value of the Common Stock or Preferred Stock, as applicable, as determined with reference to s Sale, Change of Control, or Financing, or (ii) $0.20 per share, by notice to the Company as set forth herein. 2 3.2 FRACTIONAL SHARES. No fractional shares of Capital Stock of the Company shall be issued upon conversion of this Note. In lieu of any fractional shares to which the Holder be would otherwise be entitled, the Company shall pay cash equal to the amount that would have been applied to the purchase of such fractional share but for the application of the preceding sentence. 3.3 MECHANICS OF CONVERSION. On or before the Conversion Date, the Holder shall surrender this Note for conversion at the price designated by the Company. In the event this Note is converted in part, a replacement not shall be issued therefore,. If required by the Company, the Note surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of surrender in form satisfactory to the Company duly executed by the registered Holder. The Company shall, as soon as practicable after the Conversion Date, issue and deliver to such Holder a certificate or certificates for the number of shares of the Common Stock to which such Holder shall be entitled, together with cash in lieu of any fraction of a share. Immediately upon the Conversion Date (whether or not this Note is surrendered), this Note shall no longer be deemed to be outstanding and all rights with respect to this Note shall immediately cease and terminate on such Conversion Date, except only the right of the Holder to receive the shares of Common Stock to which he is entitled as a result of the conversion on the Conversion Date. SECTION 4. DEFAULT. ------- This Note and all amounts due hereunder shall become immediately due and payable in cash without notice or demand, at any time, upon the occurrence and during the continuation of any of the following events of default (individually, an "Event of Default" and collectively, "Events of Default"): (a) default in the payment when due of any principal or interest under this Note; (b) the liquidation, termination of existence, dissolution or the appointment of a receiver or custodian for the Company or any part of its property if such appointment is not terminated or dismissed within thirty days; (c) the institution against the Company of any proceedings under the Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally, which proceeding is not dismissed within thirty days of filing; or (d) the institution by the Company of any proceedings under the Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other similar law affecting the rights of creditors generally or the making by the Company of a composition of an assignment or trust mortgage for the benefit of creditors. Upon the occurrence of an Event of Default, the full indebtedness of this Note shall be immediately due and payable, and Holder shall have then, or at any time thereafter, all of the rights and remedies afforded by the Uniform Commercial Code as from time to time in effect in the Commonwealth of Massachusetts. 3 SECTION 5. SECURITIES LAW RESTRICTIONS ON TRANSFER OF COMMON STOCK. -------------------------------------------------------- The shares of the capital stock of the Company into which the Note may be converted shall not be assigned, sold, pledged, transferred or otherwise disposed of except in compliance with the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. SECTION 6. INVESTMENT INTENT. ------------------ The Holder, by acceptance hereof, warrants and represents that (i) this Note and any security issuable upon conversion hereof, has been and will be acquired for investment only and not with a view to, or for sale in connection with, a distribution thereof and not with a view to their resale, (ii) the Holder is an accredited investor as that term is defined by the Securities Act of 1933, as amended, and the regulations promulgated thereunder; and (iii) that this Note and any security issuable upon conversion hereof has been and will be acquired for the Holder's own account and not with a view to their division among others, and that no other person has any direct or indirect beneficial interest in this Note or any security issuable upon conversion hereof. SECTION 7. NOTICES. -------- All notices given hereunder shall be in writing and delivered in person, by recognized courier service, by postage prepaid certified or registered mail, return receipt requested, or by e-mail with confirmation of receipt and display. All notices intended for the Holder hereof shall be addressed to him as his last address as it shall then appear on the books of the Company. Al notices intended for the Company shall be addressed to it at 100 Cummings Center, Suite 235-M, Beverly, Massachusetts 01915. Said addresses may be changed by notice in accordance with this Section 7. SECTION 8. GOVERNING LAW. -------------- This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, and the parties agree to the exclusive jurisdiction and venue of federal and state courts sitting in Suffolk County, Massachusetts. SECTION 9. GENERAL ------ 9.1 Successors and Assigns. This Note, and the obligations and rights of the Company hereunder, shall be binding upon and inure to the benefit of the Company, the Holder, and their respective heirs, successors and permitted assigns. 9.2 RECOURSE. Recourse under this Note shall be to the general unsecured assets of the Company only, and in no event to the officers, directors or stockholders of the Company. 9.3 CHANGES. Changes in or additions to this Note may be made or compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder. 4 9.4 RIGHTS RESERVED. No provisions of this Note and no right or option granted or conferred herein shall in any way limit, affect or abridge the exercise by the corporate right and power to issue securities, recapitalize, amend its Certificate of Incorporation, reorganize, consolidate or merge with or into another corporation, or transfer or encumber all or any part of its property or assets. 9.5 EXPENSES. The Costs and expenses in enforcement and collection of this Note (including reasonable attorneys' fees), if any, shall be borne by the Company. [SIGNATURE PAGE FOLLOWS] 6 In witness whereof, this Note has been executed and delivered as a sealed instrument on the date first above written. LOCATEPLUS.COM, INC. By: /s/ Jon Latorella ------------------------------------- Jon Latorella President and Chief Executive Officer Accepted and Agreed: /s/ Marcia Margiotta - -------------------- Signature 6 EX-10.1 12 ex10-1_10945.txt STANDARD LEASE AND AMENDMENTS EXHIBIT 10.1 ------------ CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM COMMERCIAL LEASE In consideration of the covenants herein contained, Cummings Properties Management, Inc., hereinafter called LESSOR, does hereby lease to Worldwide Information, Inc. (a MA Corp.), 64 Central Street, Georgetown, MA 01833 hereinafter called LESSEE, the following described premises, hereinafter called the leased premises, (including 15.4% common area) at 400 Cummings Center, Suite 450C, Beverly, MA 01915. T0 HAVE AND HOLD the leased premises for a term of five (5) years commencing at noon on August 11, 1997 and ending at noon on July 30, 2002 unless sooner terminated as herein provided. LESSOR and LESSEE now covenant and agree that the following terms and conditions shall govern this lease during the term hereof and for such further time as LESSEE shall hold the leased premises. 1. RENT. LESSEE shall pay to LESSOR base rent at the rate of thirty seven thousand ninety-two (37,092,00) U.S. dollars per year, drawn on a U.S, bank, payable in advance in monthly Installments of $3,091.00 - on the first day of each calendar month in advance, the first monthly payment to be made upon LESSEE'S execution of this lease, including payment in advance of appropriate fractions of a monthly payment for any portion of a month at the commencement or end of said lease term. All payments shaft be made to LESSOR or agent at 200 West Cummings Park, Woburn, Massachusetts 01801, or at such other place as LESSOR shall from time to time in writing designate. If the "Cost of Living" has Increased as shown by the Consumer Price Index (Boston, Massachusetts, all items, all urban consumers), U.S. Bureau of Labor Statistics, the amount of base rent due during each calendar year of this lease and any extensions thereof shall be annually adjusted In proportlonto any increase in the Index. All such adjustments shall take place with the rent due on January 1 of each year during the lease term, The base month from which to determine the amount of each increase in the index shall be January 1997, which figure shall be compared with the figure for November 1997, and each November thereafter to determine the percentage increase (if any) in the base rent to be paid during the following calendar year. In the event that the Consumer Price index as presently computed is discontinued as a measure of "Cost of Living" changes, any adjustment shall then be made on the basis of a comparable index then in general use. 2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the amount of six thousand one hundred (6,100.00) dollars upon the execution of this lease by LESSEE, which shall be held as security for LESSEE's performance as herein provided and refunded to LESSEE without Interest at the end of this lease, subject to LESSEE's satisfactory compliance with the conditions hereof. LESSEE may not apply the security deposit to payment of the last month's rent. In the event of any default or breach of this lease by LESSEE, LESSOR shall immediately apply the security deposit first to any unamortized improvements completed for LESSEE's occupancy, then to offset any outstanding invoice or other payment due to LESSOR, with the balance applied to outstanding rent. If all or any portion of the security deposit is applied to cure a default or breach during the term of the lease, LESSEE shall be responsible for restoring said deposit forthwith, and failure to do so shall be considered a substantial default under the lease. LESSEE'S failure to remit the full security deposit or any portion thereof when due shall also constitute a substantial lease default. 3. USE OF PREMISES. LESSEE shall use the leased premises only for the purpose of executive and administrative offices. 4, ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a proportionate share (based on square footage leased by LESSEE as compared with the total leaseable square footage of the building of which the leased premises are a part) of any increase in the real estate taxes levied against the land and building of which the leased premises are a part (hereinafter called the building), whether such increase is caused by an increase in the tax rate, or the assessment on the property, or a change in the method of determining real estate taxes. LESSEE shall make payment within thirty (30) days of written notice from LESSOR that such increased taxes are payable, and any additional rent shall be prorated should the lease terminate before the end of any tax year. The base from which to determine the amount of any increase in taxes shall be the rate and the assessment in effect as of July 1, 1997. In the event that the building was not assessed as a completed structure as of the aforementioned date, then the base assessment shall be as of the first date when the building is assessed as a completed structure. 5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard specifications to heat the leased premises in season and to cool all office areas between May 1 and November 1. LESSEE shall pay all charges for utilities used on the leased premises, including electricity, gas, oil, water and sewer. LESSEE shall pay the utility provider or LESSOR, as applicable, for all such utility charges as determined either by separate meters serving the leased premises or as, a proportionate share of the utility charges for the building if not separately metered. LESSEE shall also pay LESSOR a proportionate share of any other fees and charges relating in any way to utility use at the building, No plumbing, construction or electrical work of any type shall be done without LESSOR's prior written approval and LESSEE obtaining the appropriate municipal permit. 6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation, activity or work shall be conducted in the leased premises or use made thereof which may be unlawful, improper, noisy, offensive, or contrary to any applicable statute, regulation, ordinance or bylaw. LESSEE shall keep all employees working in the leased premises covered by Worker's Compensation Insurance and shall obtain any licenses and permits necessary for LESSEE's occupancy. LESSEE shall be responsible for causing the leased premises and any alterations by LESSEE which are allowed hereunder to be in full compliance with any, applicable statute, regulation, ordinance or bylaw. 7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the leased premises, or of the property of which they are a part, be substantially damaged by fire or other casualty, or be taken by eminent domain, LESSOR may elect to terminate this lease. When such fire, casualty, or taking renders the leased premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, and LESSEE may elect to terminate this lease if: (a) LESSOR fails to give written notice within thirty (30) days of intention to restore the leased premises, or (b) LESSOR falls to restore the leased premises to a condition substantially suitable for their intended use within ninety (90) days of said fee, casualty or taking. LESSOR reserves all rights for damages or injury to the leased premises for any taking by eminent domain, except for damage to LESSEE's property or equipment, 8. FIRE INSURANCE, LESSEE shall not permit any use of the leased premises which will adversely affect or make voidable any insurance on the property of which the leased premises are a part, or on the contents of said property, or which shall be contrary to any law or regulation from time to time established by the Insurance Services Office (or successor), local Fire Department, LESSOR'S insurer, or any similar body. LESSEE shall on demand reimburse LESSOR, and all other tenants, all extra insurance premiums caused by LESSEE's use of the leased premises. LESSEE shall not vacate the leased premises or permit same to be unoccupied other than during LESSEE's customary non-business days or hours. 9. MAINTENANCE OF PREMISES. LESSOR will be responsible for all structural maintenance of the leased premises and for the normal daytime maintenance of all space heating and cooling equipment, sprinklers, doors, locks, plumbing, and electrical wiring, but specifically excluding damage caused by the careless, malicious, willful, or negligent acts of LESSEE or others, chemical, water or corrosion damage from any source, and maintenance of any non "building standard" leasehold improvements. LESSEE agrees to maintain at its expense all other aspects of the leased premises in the same condition as they are at the commencement of the term or as they may be put in during the term of this lease, normal wear and tear and damage by fire or other casualty only excepted, and whenever necessary, to replace light bulbs, plate glass and other glass therein, acknowledging that the leased promises are now in good order and the light bulbs and glass whole. LESSEE will properly control or vent all solvents, degreasers, smoke, odors, etc. and shall not cause the area surrounding the leased premises to be in anything other than a neat and clean condition, depositing all waste in appropriate receptacles. LESSEE shall be solely responsible for any damage to plumbing equipment, sanitary lines, or any other portion of the building which results from the discharge or use of any acid or corrosive substance by LESSEE. LESSEE shall not permit the leased premises to be overloaded, damaged, stripped or defaced, nor suffer any waste, and will not keep animals within the leased premises. If the leased premises includes any wooden mezzanine type space, the floor capacity of such space is suitable only for office use, light storage or assembly work. LESSEE will protect any carpet with plastic or masonite chair pads under any rolling chairs. Unless heat is provided at LESSOR'S expense, LESSEE shall maintain sufficient heat to prevent freezing of pipes or other damage. Any increase in air conditioning equipment or electrical capacity, or any installation and/or maintenance of equipment which is necessitated by some specific aspect of LESSEE'S use of the leased premises shall be at LESSEE'S expense. All maintenance provided by LESSOR shall be during LESSOR's normal business hours. 10. ALTERATIONS. LESSEE shall not make structural alterations or additions of any kind to the leased premises, but may make nonstructural alterations provided LESSOR consents thereto in writing. All such allowed alterations shall be at LESSEE's expense and shall conform with LESSOR'S construction specifications. If LESSOR or LESSOR's agent provides any services or maintenance for LESSEE in connection with such alterations or otherwise under this lease, any just invoice will be promptly paid. LESSEE shall not permit any mechanics liens, or similar liens, to remain upon the leased premises in connection with work of any character performed or claimed to have been performed at the direction of LESSEE and shall cause any such lien to be released or removed forthwith without cost to LESSOR. Any alterations or additions shall become part of the leased premises and the property of LESSOR. Any alterations completed by LESSOR shall be LESSOR's "building standard" unless noted otherwise. LESSOR shall have the right at any time to change the arrangement of parking areas, stairs, walkways or other common areas of the building. 11. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet or allow any other firm or individual to occupy the whole or any part of the leased premises without LESSOR's prior written consent. Notwithstanding such assignment or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for the payment of all rent and for the full performance of the covenants and conditions of this lease. LESSEE shall pay LESSOR promptly for legal and administrative expenses incurred by LESSOR in connection with any consent requested hereunder by LESSEE. 12. SUBORDINATION. This lease shall be subject and subordinate to any and all mortgages and other instruments In the nature of a mortgage, now or at any time hereafter, and LESSEE shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this lease to said mortgages or other such instruments in the nature of a mortgage. 13. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time enter to view the leased premises, to make repairs and alterations as LESSOR should elect to do for the leased premises, the common areas or any other portions of the building, to make repairs which LESSEE is required but has failed to do, and to show the leased premises to others. 14. SNOW REMOVAL. The plowing of snow from all roadways and unobstructed parking areas shall be at the sole expense of LESSOR. The control of snow and ice on all walkways, stairs and loading areas serving the leased premises and all other areas not readily accessible to plows shall be the sole responsibility of LESSOR. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and OWNER harmless from any and all claims by LESSEE's agents, representatives, employees, callers or invitees for damage or personal injury resulting in any way from snow or ice on any areas serving the leased premises. 15. ACCESS AND PARKING. LESSEE shall have the right without additional charge to use parking facilities provided for the leased premises in common with others entitled to the use thereof. Said parking areas plus any stairs, walkways, elevators or other common areas shall in all cases be considered a part of the leased premises when they are used by LESSEE or LESSEE's employees, agents, callers or invitees. LESSEE will not obstruct in any manner any portion of the building or the walkways or approaches to the building, and will conform to all rules and regulations now or hereafter made by LESSOR for parking, and for the care, use, or alteration of the building, its facilities and approaches. LESSEE further warrants that LESSEE will not permit any employee or visitor to violate this or any other covenant or obligation of LESSEE. No unattended parking will be permitted between 7:00 PM and 7:00 AM without LESSOR's prior written approval, and from December 1 through March 31 annually such parking shall be permitted only in those areas specifically designated for assigned overnight parking. Unregistered or disabled vehicles, or storage trailers of any type, may not be parked at any time. LESSOR may tow, at LESSEE's sole risk and expense, any misparked vehicle belonging to LESSEE or LESSEE's agents, employees, invitees or callers, at any time. LESSOR shall not be responsible for providing any security services for the leased premises. 16. LIABILITY. LESSEE shall be solely responsible as between LESSOR and LESSEE for deaths or personal injuries to all parsons whomsoever occurring in or on the leased premises (including any common areas that are considered part of the leased premises hereunder) from whatever cause arising, and damage to property to whomsoever belonging arising out of the use, control, condition or occupation of the leased premises by LESSEE; and LESSEE agrees to indemnify and save harmless LESSOR and OWNER from any and all liability, including but not limited to costs, expenses, damages, causes of action, claims, judgements and attorney's fees caused by or in any way growing out of any matters aforesaid, except for death, personal injuries or property damage directly resulting from the sole negligence of LESSOR. 17. INSURANCE. LESSEE will secure and carry at its own expense a commercial general liability policy insuring LESSEE, LESSOR and OWNER against any claims based on bodily injury (including death) or property damage arising out of the condition of the leased premises (including any common areas that are considered part of the leased premises hereunder) or their use by LESSEE, such policy to insure LESSEE, LESSOR and OWNER against any claim up to One Million (1,000,000) Dollars in the case of any one accident involving bodily injury (including death), and up to One Million (1,000,000) Dollars against any claim or damage to property. LESSOR and OWNER shall be included in any such policy as additional insureds using ISO Form CG 20 26 11 85 or some other form approved by LESSOR. LESSEE will file with LESSOR prior to occupancy certificates and any applicable riders or endorsements showing that such Insurance is in force, and thereafter will file renewal certificates prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be cancelled without at least ten (10) days prior written notice to each insured. In the event LESSEE shall fail to provide or maintain such insurance at any time during the term of this lease, then LESSOR may elect to contract for such insurance at LESSEE's expense. 18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to erect, signage for the leased premises in accordance with LESSOR's building standards far style, size, location, etc. LESSEE shall obtain the prior written consent of LESSOR before erecting any sign on the leased premises, which consent shall include approval as to size, wording, design and location. LESSOR may remove and dispose of any sign not approved, erected or displayed in conformance with this lease. 19. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has dealt with no broker* or third person with respect to this lease, and LESSEE agrees to indemnify LESSOR against any brokerage claims arising by virtue of this lease. LESSOR warrants and represents to LESSEE that LESSOR has employed no exclusive broker or agent in connection with the letting of the leased premises. *except Cynthia Carney of Carney and Company 20. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any assignment for the benefit of creditors, trust mortgage, receivership, or any other insolvency proceeding shall be made or instituted with respect to LESSEE or LESSEE's property; (b) LESSEE shall default in the observance or performance of any of LESSEE'S covenants, agreements, or obligations hereunder, other than substantial mandatory payments as provided below, and such default shall not be corrected within ten (10) days after written notice thereof; or (c) LESSEE vacates the leased premises, then LESSOR shall have the right thereafter, while such default continues and without demand or further notice, to re-enter and take possession of the leased premises, to declare the term of this lease ended, and to remove LESSEE's effects, without being guilty of any manner of trespass, and without prejudice to any remedies which might be otherwise used for arrears of rent or other default or breach of the lease, If LESSEE shall default in the payment of the security deposit, rent, taxes, substantial invoice from LESSOR or LESS0R's agent for goods and/or services or other sum herein specified, and such default shall continue for ten (10) days after written notice thereof, and, because both parties agree that nonpayment of said sums when due is a substantial breach of the lease, and, because the payment of rent in monthly installments is for the sole benefit and convenience of LESSEE, then in addition to the foregoing remedies the entire balance of rent which is due hereunder shall become immediately due and payable as liquidated damages. LESSOR, without being under any obligation to do so and without thereby waiving any default, may remedy same for the account and at the expense of LESSEE. If LESSOR pays or incurs any obligations for the payment of money in connection therewith, such sums paid or obligations incurred plus interest and costs, shall be paid to LESSOR by LESSEE as additional rent. Any sums received by LESSOR from or on behalf of LESSEE at any time shall be applied first to any unamortized improvements completed for LESSEE's occupancy, then to offset any outstanding invoice or other payment due to LESSOR, with the balance applied to outstanding rent. LESSEE agrees to pay reasonable attorney's fees and/or administrative costs incurred by LESSOR in enforcing any or all obligations of LESSEE under this lease at any time. LESSEE shall pay LESSOR interest at the rate of eighteen (18) percent per annum on any payment from LESSEE to LESSOR which is past due. 21. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises or to the occupancy thereof shall be deemed duly served when left at the leased premises addressed to LESSEE, or served by constable or sent to the leased premises by certified mail, return receipt requested, postage prepaid, addressed to LESSEE. Any notice from LESSEE to LESSOR relating to the leased premises or to the occupancy thereof shall be deemed duly served when served by constable, or delivered to LESSOR by certified mail, return receipt requested, postage prepaid, addressed to LESSOR at 200 West Cummings Park, Woburn, MA 01801 or at LESSOR's last designated address. No oral notice or representation shall have any force or affect. Time is of the essence in service of any notice. 22. OCCUPANCY. In the event that LESSEE takes possession of said leased premises prior to the start of said term, LESSEE will perform and observe all of LESSEE's covenants from the date upon which LESSEE takes possession except the obligation for the payment of extra rent for any period of less than one month. LESSEE shall not remove LESSEE's goods or property from the leased premises other than in the ordinary and usual course of business, without having first paid and satisfied LESSOR for all rent which may become due during the entire term of this lease. LESSOR shall have the right to relocate LESSEE to another facility upon prior written notice to LESSEE and on terms comparable to those herein. In the event that LESSEE continues to occupy or control all or any part of the leased premises after the agreed termination of this lease without the written permission of LESSOR, then LESSEE shall be liable to LESSOR for any and all loss, damages or expenses incurred by LESSOR, and all other terms of this lease shall continue to apply except that rent shall be due in full monthly installments at a rate of one hundred fifty (150) percent of that which would otherwise be due under this lease, it being understood between the parties that such extended occupancy is as a tenant at sufferance and is solely for the benefit and convenience of LESSEE and as such has greater rental value. LESSEE's control or occupancy of all or any part of the leased premises beyond noon on the last day of any monthly rental period shall constitute LESSEE's occupancy for an entire additional month, and increased rent as provided in this section shall be due and payable immediately in advance. LESSOR's acceptance of any payments from LESSEE during such extended occupancy shall not alter LESSEE's status as a tenant at sufferance. 23. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution against fire and agrees to provide and maintain approved, labeled fire extinguishers, emergency lighting equipment, and exit signs and complete any other modifications within the leased premises as required or recommended by the Insurance Services Office (or successor organization), OSHA, the local Fire Department, or any similar body 24. OUTSIDE AREA. No goods, equipment, or things of any type or description shall be held or stored outside the leased premises at any time without prior written consent from LESSOR. Any goods, equipment or things left outside the leased premises without LESSOR's prior written consent shall be deemed abandoned and may be removed at LESSEE's expense without notice by LESSOR, LESSEE's shall have a building standard size dumpster in a location approved by LESSOR, provided and serviced at LESSEE's expense by whichever disposal firm may from time to time be designated by LESSOR, unless a shared dumpster or compactor is provided by LESSOR, in which case LESSEE shall pay its proportionate share of any costs associated therewith, 25. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as not to interfere in any way with the use and enjoyment of other portions of the same or neighboring buildings by others by reason of odors, smoke, smells, noise, pets, accumulation of garbage or trash, vermin or other pests, or otherwise, and will at its expense employ a professional pest control service if necessary. LESSEE agrees to maintain efficient and effective devices for preventing damage to heating equipment from solvents, degreasers, cutting oils, propellants, etc. which may be present at the leased premises. No hazardous materials or wastes shall be stored, disposed of, or allowed to remain at the leased premises at any time, and LESSEE shall be solely responsible for any and all corrosion or other damage associated with the use, storage and/or disposal of same by LESSEE. 26. RESPONSIBILITY. Neither LESSOR nor OWNER shall be held liable to anyone for loss or damage caused in any way by the use, leakage, seepage or escape of water from any source, or for the cessation of any service rendered customarily to said premises or buildings, or agreed to by the terms of this lease, due to any accident, the making of repairs, alterations or improvements, labor difficulties, weather conditions, mechanical breakdowns, trouble or scarcity in obtaining fuel, electricity, service or supplies from the sources from which they are usually obtained for said building, or any cause beyond LESSOR's immediate control. 27. SURRENDER. LESSEE shall at the termination of this lease remove all of LESSEE's goods and effects from the leased premises. LESSEE shall deliver to LESSOR the leased premises and all keys and locks thereto, all fixtures and equipment connected therewith, and all alterations, additions and improvements made to or upon the leased premises, whether completed by LESSEE, LESSOR or others, including but not limited to any offices, partitions, window blinds, floor coverings (including computer floors), plumbing and plumbing fixtures, air conditioning equipment and ductwork of any type, exhaust fans or heaters, water coolers, burglar alarms, telephone wiring, telephone equipment, air or gas distribution piping, compressors, overhead cranes, hoists, trolleys or conveyors, counters, shelving or signs attached to walls or floors, all electrical work, including but not limited to lighting fixtures of any type, wiring, conduit, EMT, transformers, distribution panels, bus ducts, raceways, outlets and disconnects, and furnishings or equipment which have been bolted, welded, nailed, screwed, glued or otherwise attached to any wall, floor or ceiling, or which have been directly wired to any portion of the electrical system or which have been plumbed to the water supply, drainage or venting systems serving the leased premises. LESSEE shall deliver the leased premises sanitized from any chemical or other contaminants, and broom clean and in the same condition as they were at the commencement of this lease or any prior lease between the parties for the leased premises, or as they were modified during said term with LESSOR's written consent, reasonable wear and tear and damage by fire or other casualty only excepted. In the event LESSES's failure to remove any of LESSEE'S property from the leased premises upon termination of the lease. LESSOR is hereby authorized, without liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and store any such property at LESSEE'S expense, or to retain same under LESSOR's control, or to sell at public or private sale (without notice), any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such abandoned property. In no case shall the leased premises be deemed surrendered to LESSOR until the termination date provided herein or such other date as may be specified in a written agreement between the parties, notwithstanding the delivery of any keys to LESSOR. 28. GENERAL. Unenforceability of any provision of this lease shall not affect or render invalid or unenforcable any other provision hereof. (b) The obligations of this lease shall run with the land, and this lease shall be binding upon or and inure to the benefit of the parties hereto and their respective successors and assigns, except that LESSOR and OWNER shall be liable only for obligations occurring while lessor, owner, or master lessee of the premises. (c) Any action or proceeding arising out of the subject matter of this lease shall be brought by LESSEE within one year after the cause of action has occurred and only in a court of the Commonwealth of Massachusetts. (d) If LESSOR is acting under or as agent for any trust or corporation, the obligations of LESSOR shall be binding upon the trust or corporation, but not upon any trustee, officer, director, shareholder, or beneficiary of the trust or corporation individually. (e) If LESSOR is not the OWNER of the leased promises, LESSOR represents that said OWNER has agreed to be bound by the terms of this lease unless LESSEE is in default hereof. (f) This lease is made and delivered in the Commonwealth of Massachusetts, and shall be interpreted, construed, and enforced in accordance with the laws thereof. (g) This lease was the result of negotiations between parties of equal bargaining strength, and when executed by both parties shall constitute the entire agreement between said parties. No other oral or written representation shall have any effect hereon, and this agreement may not be altered, extended or amended except by written agreement attached hereto or as otherwise provided herein. (h) Notwithstanding any other statements herein, LESSOR makes no warranty, express or implied, concerning the suitability of the leased premises for LESSEE's intended use. (i) LESSEE agrees that if LESSOR does not deliver possession of the leased premises as herein provided for any reason, LESSOR shall not be liable for any damages to LESSEE for such failure, but LESSOR agrees to use reasonable efforts to deliver possession to LESSEE at the earliest possible date, and a proportionate abatement of rent for such time as LESSEE may be deprived of possession of said leased premises shall be LESSEE's sole remedy. (j) Neither the submission of this lease form, nor the prospective acceptance of the security deposit and/or rent shall constitute a reservation of or option for the leased premises, or an offer to lease, it being expressly understood and agreed that this lease shall not bind either party in any manner whatsoever until it has been executed by both parties. (k) LESSEE shall not be entitled to exercise any option contained herein if LESSEE is in default of any terms or conditions hereof. (l) The headings in this lease are for convenience only and shall not be considered part of the terms hereof. (m) No endorsement by LESSEE on any check shall bind LESSOR in any way. 29. SECURITY AGREEMENT. LESSEE hereby grants LESSOR a continuing security interest in all existing or hereafter acquired property of LESSEE which is in the leased premises to secure the payment of rent, the cost of leasehold improvements, and the performance of any other obligations of LESSEE under this lease. Default in the payment or performance of any of LESSEE's obligations hereunder is a default under this security agreement, and shall entitle LESSOR to immediately exercise all of the rights and remedies of a secured party under the Uniform Commercial Code. LESSEE also agrees to execute a UCC-1 Financing Statement and any other financing agreement required by LESSOR in connection with this security interest. 30. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or of any breach of any covenant, condition or duty of LESSEE shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. IF LESSEE is several persons, several corporations or a partnership, LESSEE's obligations are joint or partnership and also several. Unless repugnant to the context, "LESSOR" and "LESSEE" mean the person or persons, natural or corporate, named above as LESSOR and as LESSEE respectively, and their respective heirs, executors, administrators, successors and assigns. 31. AUTOMATIC FIVE-YEAR EXTENSIONS. This lease, including all terms, conditions, escalations, etc. shall be automatically extended for additional successive periods of five (5) years each unless LESSOR or LESSEE shall serve written notice, either party to the other, of either party's desire not to so extend the lease. The time for serving such written notice shall be not more than twelve (12) months or less than six (6) months prior to the expiration of the then current lease period. Time is of the essence. 32. ADDITIONAL PROVISIONS. (Continued on attached rider(s) if necessary.) 32a. *LESSOR, at LESSOR's cost, shall modify the leased premises according to a mutually agreed upon plan attached hereto before or about the time LESSEE takes possession of the leased premises. See Attached Rider IN WITNESS WHEREOF, LESSOR and LESSEE have hereunto set their hands and common seals and intend to be legally bound hereby this 11th day of July, 1997. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ WS Cummings ----------------------------------- President LESSEE: WORLDWIDE INFORMATION INC. By: /s/ Jon Latorella ----------------------------------- Jon Latorella GUARANTY IN CONSIDERATION of the making of the above lease by Cummings Properties Management, Inc. with Worldwide Information, Inc. at the request of the undersigned and in reliance on this guaranty, the undersigned (GUARANTOR) hereby personally guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of all terms, conditions, covenants and agreements of the lease, any amendments thereto and any extensions or assignments thereof, and the undersigned promises to pay all expenses, including reasonable attorney's fees, incurred by LESSOR in enforcing all obligations of LESSEE under the lease or incurred by LESSOR in enforcing this guaranty. LESSOR's consent to any assignments, subleases, amendments and extensions by LESSEE or to any compromise or release of LESSEE's liability hereunder, with or without notice to the undersigned, or LESSOR's failure to notify the undersigned of any default and/or reinstatement of the lease by LESSEE, shall not relieve the undersigned from liability as GUARANTOR. IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set his/her/its hand and common seal intending to be legally bound hereby this 17th day of June, 1997. /s/ Jon Latorella RIDER TO LEASE (CUMMINGS CENTER) The following special provisions are incorporated into and made a part of the attached lease, A. MANAGEMENT RESPONSIBILITIES. LESSOR warrants and represents that in executing this lease, it is acting as the managing agent of Beverly Commerce Park, Inc. ("OWNER"), the owner of the property of which the leased premises are a part, known as Cummings Center ("the Property"), and is authorized to execute this lease in that capacity. B. IMPROVEMENTS. LESSEE hereby grants LESSOR access to the leased premises to perform such alterations or improvements as LESSOR elects, including without limitation the installation of new windows, new electrical equipment, new heating equipment and/or new cooling equipment. Any such work shall be performed in accordance with LESSOR's standard construction specifications and with LESSOR's standard interior finishes, and unless otherwise provided shall be at LESSOR's sole expense. LESSEE agrees to promptly move any equipment, furniture, furnishings, inventory and other property as requested by LESSOR to enable LESSOR to perform said work, and LESSEE further agrees to indemnify and hold harmless LESSOR and LESSOR'S agents, contractors, employees and representatives for any damage arising out of said work. C. CONSTRUCTION PRECAUTIONS. LESSEE acknowledges that both asbestos containing material and presumed asbestos containing material are present at the Property both in thermal system insulation end in surfacing material, such as wall panels, floor tile and other building components. LESSEE agrees not to disturb such materials without prior written notice to LESSOR and full compliance with all applicable laws, and to take all precautions required under training, work practice or other applicable regulations in connection with any construction activity that is permitted under this lease. D. UTILITY CHARGES. In connection with LESSEE's charges for heat and electricity pursuant to Section 5 above, if the premises have a separate electric meter, LESSEE shall pay both charges that are separately metered at the leased premises and a proportionate share of the charges for operating the central boiler, chiller and corridor lighting serving the building. E. ELECTRIC SERVICE. LESSEE hereby agrees that in the event its average electricity use at the leased premises is expected to exceed 200 kW per month during the term of this lease, it will not self-generate, co-generate, or use a supplier of electrical distribution service other than Massachusetts Electric Company at the leased premises during the term of this LEASE or any extension(s) hereof. F. ADDITIONAL RENT. Notwithstanding the provisions of Section 4 above, LESSEE's proportionate share of any increase in real estate taxes shall be based on square footage leased by LESSEE as compared with the total leasable square footage of the Property of which the leased premises are a part, and not the building. Any such increase shall otherwise be paid in full accordance with the terms of Section 4. G. ACTIVITY AND USE RESTRICTION. The following activities and uses are expressly prohibited at the Property: residential uses (except for facilities for adult congregate care/assisted living, senior housing, nursing home uses and other adult residential facilities in certain designated areas of the Property); child care, day care or public or private elementary or secondary schools; a public park, playground or playing field, or other activities involving more than casual contact with the ground; cultivation of out-of-doors fruits and vegetables destined for human consumption; and fishing or swimming in the ponds and other waterways on or adjacent to the Property. In addition, implementation of a health and safety plan is required for construction, utilities maintenance and other intrusive activities, which are likely to involve extensive exposure to or contact with subsurface soils at the Property. A Notice of Activity and Use Limitation providing further information has been recorded at the Essex South Registry of Deeds. H. SNOW REMOVAL. Notwithstanding any statement hereinabove to the contrary, LESSOR and not LESSEE shall arrange and pay for snow removal services on all common walkways serving the leased premises. I. JURY TRIAL. LESSOR and LESSEE hereby waive any and all rights to a jury trial in any summary process or eviction proceeding in any way arising out of the lease. J. PROPERTY SURVEILLANCE. LESSEE acknowledges that LESSOR may at any time be conducting ongoing surveillance of the Property by means of surveillance staff and remote television monitoring cameras in order to help reduce vandalism and/or other damage to the Property. Notwithstanding this surveillance, LESSEE acknowledges and agrees that, as provided in section 15 above, LESSOR is not thereby providing any security service for LESSEE and its employees, agents, invitees, contractors and representatives. K. * At any one time during the initial term of this lease, LESSEE may request larger similar space of approximately 4,000 square feet. LESSEE shall give LESSOR written notice of such requirement for larger space and shall then execute LESSOR'S then current standard form lease for such larger space in the same or other buildings of LESSOR at LESSOR's then current published rates within 3 business days of LESSOR's notification to LESSEE that said larger space will be available. If LESSOR does not offer such larger similar space within six MONTHS after receipt of written notice from LESSEE, then LESSEE shall have the option to terminate the unexpired portion of this lease, without penalty, and without any further obligation, either party to the other, after the expiration of the six month delivery period, by serving LESSOR with 30 days written notice to that effect within 30 days after expiration of the delivery period. Cancellation of the lease shall be LESSEE's exclusive remedy for any failure by LESSOR to offer such larger similar space or any breach by LESSOR of the provisions of this paragraph. Time is of the essence. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ W.S. Cummings ---------------------- President Date: 7/11/97 ------- LESSEE: WORLDWIDE INFORMATION INC. By: /s/ Jon R. Latorella ---------------------- CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM AMENDMENT TO LEASE # 1 In connection with a lease currently in effect between the parties at 400 Cummings Center, Suite 450C, Beverly, Massachusetts, executed on June 17, 1997 and terminating July 30, 2002, and in consideration of the mutual benefits to be derived herefrom Cummings Properties Management, Inc., LESSOR, and Worldwide Information, Inc., LESSEE, hereby agree to amend said lease as follows: 1. LESSOR, at LESSOR's sole cost and expense, will complete alteration and improvements within Suite 450C in accordance with the mutually agreed upon plan attached hereto. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $555.00 annually, from a total of $37,092.00 to a new annual total of $37,647.00 or $3,137.25 per month. Annual base rent for purposes of computing any future escalations thereon shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s) In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 28th day of July, 1997. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ W.S. Cummings ---------------------- LESSEE: WORLDWIDE INFORMATION, INC. By: /s/ Jon Latorella ---------------------- CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM AMENDMENT TO LEASE #2 In connection with a lease currently in effect between the parties at 100 Cummings Center, Suite 450C, Beverly, Massachusetts, executed on June 17, 1997 and terminating July 30, 2002, and in consideration of the mutual benefits to be derived herefrom Cummings Properties Management, Inc., LESSOR, and Worldwide Information, Inc., LESSEE, hereby agree to amend said lease as follows: 1. *The size of the leased premises is hereby increased by approximately 1,248 square feet (including 15.4% common area), from approximately 3,104 square feet (including 15.4% common area) to a new total of approximately 4,352 square feet (including 15.4% common area) with the addition of suite 447C. 2. LESSOR, at LESSOR's cost, shall modify Suite 447C according to a mutually agreed upon plan attached hereto before or about the time LESSEE takes possession of Suite 447C. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $14,913.00 annually, from a total of $38,023.47 to a new annual total of $52,936.47 or $4,411.37 per month. Annual base rent for purposes of computing any future escalations thereon shall be $52,412.34. This amendment shall be effective May 1, 1998 and shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s). In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 3rd day of April, 1998. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ W.S. Cummings ---------------------- LESSEE: WORLDWIDE INFORMATION, INC. By: /s/ Jon Latorella ---------------------- CUMMINGS PROPERTIES MANAGEMENT, INC. STANDARD FORM AMENDMENT TO LEASE #3 In connection with a lease currently in effect between the parties at 100 Cummings Center, Suites 450C and 447C, Beverly, Massachusetts, executed on July 11, 1997 and terminating July 30, 2002, and in consideration of the mutual benefits to be derived herefrom Cummings Properties Management, Inc., LESSOR, and Worldwide Information, Inc., LESSEE, hereby agree to amend said lease as follows: 1. LESSOR, at LESSOR's cost, shall modify Suite 447C according to the attached Additional Work Authorization forms dated 4/1/98 and 4/7/98 before or about the time LESSEE takes possession of Suite 447C. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $355.68 annually, from a total of $52,936.47 to a new annual total of $53,292.15 or $4,441.01 per month. Annual base rent for purposes of computing any future escalations thereon shall be $52,764.50. This amendment shall be effective May 1, 1998 and shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s). In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 6th day of May, 1998. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ W.S. Cummings ---------------------- LESSEE: WORLDWIDE INFORMATION, INC. By: /s/ Jon Latorella ---------------------- CUMMINGS PROPERTIES, LLC STANDARD FORM AMENDMENT TO LEASE #4 In connection with a lease currently in effect between the parties at Suites 450C and 447C Cummings Center, Beverly, Massachusetts, executed on July 11, 1997 and terminating July 30, 2002, and in consideration of the mutual benefits to be derived herefrom Cummings Properties Management, Inc., LESSOR, and Worldwide Information, Inc., LESSEE, hereby agree to amend said lease as follows: 1. *The size of the leased premises is hereby increased by approximately 323 square feet (including 15.4% common area), from approximately 4,352 square feet (including 15.4% common area) to a new total of approximately 4,675 square feet (including 15.4% common area) with the addition of Suite 349D. 2. *The Security Deposit is hereby increased by $400.00 from $6,100.00 to a new total of $6,500.00. LESSEE shall pay this increase upon LESSEE's execution of this amendment. 3. *LESSOR represents that Cummings Properties, LLC has succeeded to all interests of Cummings Properties Management, Inc. as LESSOR. This amendment shall not bind either party in any manner until it has been executed by both parties. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $2,890.85 annually, from a total of $54,505.73 to a new annual total of $57,396.58 or $4,783.05 per month. Annual base rent for purposes of computing any future escalations thereon shall be $55,563.00. This amendment shall be effective October 15, 1999 and shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s). In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 20th day of October, 1999. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ Douglas Stephens ---------------------- Executive Vice President LESSEE: WORLDWIDE INFORMATION, INC. By: /s/ Jon Latorella ---------------------- CUMMINGS PROPERTIES, LLC STANDARD FORM LEASE ASSIGNMENT In connection with a lease currently in effect between the parties at 235M Cummings Center, Beverly, Massachusetts, executed on July 11, 1997 and terminating February 28, 2005, and in consideration of one dollar ($1.00) and other mutual benefits to be derived hereform, Cummings Properties, LLC, LESSOR, and Worldwide Information Inc., LESSEE, hereby agree to amend this lease as follows: 1. LESSEE hereby assigns to LocatePlus.com, Inc. (a DE Corp.) (ASSIGNED) all LESSEE's right, title and interest in and to the lease effective December 1, 1999. 2. LESSOR, as provided in the lease, hereby approves this assignment to ASSIGNEE. LESSOR acknowledges receipt of $350 towards its expenses in connection with this consent, and LESSEE shall, upon LESSEE's execution of this Lease Assignment, pay any additional charges that may be due. 3. ASSIGNEE hereby agrees to accept this assignment in accordance with the lease and agrees to comply with all covenants, conditions and terms as fully as if, for purposes hereof, ASSIGNEE were LESSEE under the lease. Any references to LESSEE in the lease and any amendments thereto shall denote ASSIGNEE as well, unless the context does not permit such an interpretation. 4. Notwithstanding the foregoing, however, in the event of any default by ASSIGNEE, LESSEE shall continue to remain liable to LESSOR, as provided in Section 11 of the lease, for the payment of all rent and for the full performance of all covenants and conditions to the lease and any amendments and extensions thereof. 5. LESSEE hereby transfers to ASSIGNEE all LESSEE's right, title and interest in the $74,500 security deposit previously paid by LESSEE to LESSOR, and LESSOR shall have no further responsibility to LESSEE with respect thereto. 6. THIS PARAGRAPH DOES NOT APPLY. 7. LESSOR agrees to refund the security deposit of $74,500 to ASSIGNEE at the end of the lease term in accordance with Section 2 of the lease, subject to satisfactory compliance with the conditions of the lease by LESSEE and ASSIGNEE. 8. ASSIGNEE shall, upon its execution of this Lease Assignment, supply LESSOR with a certificate of insurance in the amount of $1,000,000.00 naming LESSOR and the owner of the building (OWNER) as additional insured. LESSOR and OWNER shall be included as additional insured using standard endorsement ISO Form CG 20.25.11.85 or another similar form specifically approved in advance by LESSOR. 9. Any notices from LESSOR to LESSEE shall be served at 235M Cummings Center and otherwise in accordance with Section 21 of the lease. Any notices from LESSOR to ASSIGNEE shall be served at the leased premises and otherwise in accordance with Section 21 of the lease. In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 4th day of April, 1999. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ Douglas Stephens ---------------------- Executive Vice President LESSEE: WORLDWIDE INFORMATION, INC. By: /s/ Robert A. Goddard, CFO -------------------------- ASSIGNEE: LOCATEPLUS.COM, INC. By: /s/ Robert A. Goddard, CFO -------------------------- CUMMINGS PROPERTIES, LLC STANDARD FORM AMENDMENT TO LEASE # 5 In connection with a lease currently in effect between the parties at 450C, 447C and 349D Cummings Center, Beverly, Massachusetts, executed on July 11, 1997 and terminating July 30, 2002, and in consideration of the mutual benefits to be derived herefrom Cummings Properties, LLC, LESSOR, and LocatePlus.com, Inc. (a Delaware Corp.) f/k/a Worldwide Information, Inc., LESSEE, hereby agree to amend said lease as follows: 1. *The location of the leased premises is hereby changed from 450C, 447C and 349D Cummings Center to 235M Cummings Center. As a result of this relocation, the size of the leased premises is hereby increased by approximately 27,375 square feet (including 15.4% common area), from approximately 4,675 square feet (including 15.4% common area) to a new total of approximately 32,050 square feet (including 15.49% common area). LESSEE shall vacate 450C, 447C and 349D Cummings Center on or before the effective date hereof, and any extended occupancy of said earlier facility beyond the effective date shall be governed by Section 22 of the lease. LESSEE shall upon vacating be responsible for any damage to said earlier facility in accordance with the lease, and shall promptly pay any just invoice thereof. Time is of the essence. 2. *The security deposit is hereby increased by $68,000.00 from $6,500.00 to a new total of $74,500.00. LESSEE shall pay this increase upon LESSEE's execution of this amendment. 3. *The current lease term is hereby extended for an additional term of two (2) years and seven (7) months and shall now terminate at noon on February 28, 2005. 4. *LESSOR, at LESSOR's cost, shall modify 235M Cummings Center according to a mutually agreed upon plan attached hereto before or about the time LESSEE takes possession of 235M Cummings Center. 5. The parties acknowledge and agree that approximately 3,032 square feet (including 15.4% common area) at 239P Cummings Center as shown on the attached plan are presently under lease from a third party whose lease terminates on or about September 30, 2004. Upon full execution of this amendment and full payment of the security deposit increase, LESSOR will use reasonable efforts to obtain possession of said premises from the existing tenant prior to the termination of its lease. In the event that LESSOR fails for any reason to deliver possession of said premises by the commencement date of this amendment, LESSEE may deduct $3,524.70 from each monthly rental payment (to be apportioned for any partial month's occupancy following delivery of possession) until such time as LESSOR delivers possession of said premises to LESSEE. This rent deduction shall be LESSEE's sole remedy for any delay in delivery of said premises. 6. The parties acknowledge and agree that approximately 1,488 square feet (including 15.4% common area) at 239P Cummings Center as shown on the attached plan are presently under lease to a third party whose lease terminates on or about September 30, 2004. Upon full execution of this amendment and full payment of the security deposit increase, LESSOR will use reasonable efforts to obtain possession of said premises from the existing tenant prior to the termination of the lease. In the event that LESSOR fails for any reason to deliver possession of said premises by the commencement date of this amendment, LESSEE may deduct $1,729.80 from each monthly rental payment (to be apportioned for any partial month's occupancy following delivery of possession) until such time as LESSOR delivers possession of said premises to LESSEE. This rent deduction shall be LESSEE's sole remedy for any delay in delivery of said premises. 7 *Provided LESSEE is not then in default of this lease or in arrears of any rent or invoice payments, LESSEE shall have a one-time option to cancel this lease, for any reason or no reason at all, effective February 28, 2003 by serving LESSOR with written notice to that effect on or before August 30, 2002, along with a simultaneous payment of $192,300.00 as a lease termination fee LESSEE shall also remain responsible for all damages to the leased premises in accordance with the lease and for rent and all other charges due under the lease, including without limitation utility charges and real estate tax increases, though the revised lease termination date. Time is of the essence. 8. *Paragraph K of the Rider to Lease is hereby deleted and of no further force or effect. This amendment shall not bind either party in any manner until it has been executed by both parties. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $387,700.15 annually, from a total of $59,396.85 to a new annual total of $447,097.00 or $37,258.08 per month. Annual base rent for purposes of computing any future escalations thereon shall be $418,238.54. This amendment shall be effective March 1, 2000 and shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s). In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 29th day of September, 1999. LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. By: /s/ Douglas Stephens ---------------------- Executive Vice President LESSEE: ROBERT A. GODDARD, CFO By: /s/ Robert A. Goddard, CFO & Treasurer ---------------------- CUMMINGS PROPERTIES, LLC STANDARD FORM AMENDMENT TO LEASE #6 In connection with a lease currently in effect between the parties at 235M Cummings Center, Beverly, Massachusetts, executed on July 11, 1997 and terminating February 28, 2005, and in consideration of the mutual benefits to be derived herefrom Cummings Properties, LLC LESSOR, and LocatePlus.com, Inc., LESSEE, hereby agree to amend said lease as follows: 1. The size of the leased premises is hereby increased by approximately 31 square feet (including 15,4% common area), from approximately 32,050 square feet (including 15.4% common area) to a new total of approximately 32,081 square feet (including 15.4% common area), as a result of remeasuring the leased premises. 2. LESSOR shall complete alterations and improvements within the leased premises in accordance with the attached Additional Work Authorization dated January 24, 2000. LESSEE agrees to pay $73,893.00 upon LESSEE's execution of this amendment as partial payment toward this work. The remainder, including interest at 10.75%, shall be included in the increased rent herein below. 3. Section 7 of Amendment to Lease #5 is hereby deleted and replaced with the following: Provided LESSEE is not then in default of this lease or in arrears of any rent or invoice payments, LESSEE shall have a onetime option to cancel this lease, for any reason or no reason at all, effective February 28, 2003 by serving LESSOR with written notice to that effect on or before August 30, 2002, along with a simultaneous payment of $227,359.66 as a lease termination fee. LESSEE shall also remain responsible for all damages to the leased premises ill accordance with the lease and for rent and all other charges due under the lease, including without limitation utility charges and real estate tax increases, through the revised lease termination date. Time is of the essence. This amendment shall not bind either party in any manner until it has been executed by both parties. All other terms, conditions and covenants of the present lease shall continue to apply except that adjusted base rent shall be increased by $19,896.65 annually, from a total of $447,097.00 to a now annual total of $466,985.65 or $38.915.47 per month Annual base rent for purposes of computing any future escalations thereon shall be $436,843.45. This amendment shall be effective March 1, 2000 and shall continue through the balance of the lease and any extensions thereof unless further modified by written amendment(s). In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common seals this 24th day of February, 2000. LESSOR: CUMMINGS PROPERTIES, LLC By: /s/ Douglas Stephens ---------------------- Executive Vice President LESSEE: LOCATEPLUS.COM, INC. By: /s/ Robert A. Goddard, CFO -------------------------- EX-10.5 13 ex10-5_10945.txt CHANNEL PARTNER AGREEMENT EXHIBIT 10.5 ------------ [LOGO] LOCATEPLUS.com CHANNEL PARTNER AGREEMENT This CHANNEL PARTNER AGREEMENT (this "Agreement") is entered into as of September 1st , 2001, by and between Intellicorp LTD ("Intellicorp"), an Ohio Limited Partnership , with a principal place of business at 6001 Cochran Rd, Suite 200, Solon, Ohio 44139, and LocatePLUS Holdings Corporation, a Delaware corporation, with its principal place of business at 100 Cummings Center, Suite 235M, Beverly, MA 01915 ("LocatePLUS(R)"). B A C K G R O U N D LocatePLUS(R) is in the business of developing, integrating and licensing certain data content for and to third parties. Intellicorp wishes LocatePLUS(R) to develop specific content for Intellicorp and to license that content to Intellicorp, LocatePLUS(R) is interested in developing and licensing such website content to Intellicorp under the terms and conditions set forth in this Agreement. Intellicorp mission is to provide their customers with end-to-end wireless solutions that will lead to increased customer satisfaction and revenue, while providing a dynamic wireless platform that will grow as technology and requirements change. LocatePLUS(R) wishes to have wirelessly enabled specific content with the Intellicorp technology for the sole purpose that LocatePLUS(R) can resell to its customer base. Intellicorp is interested in developing and licensing such technology to LocatePLUS(R) under the terms and conditions set forth in this Agreement. NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING, FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, AND THE MUTUAL COVENANTS AND AGREEMENTS SET FORTH HEREIN, THE PARTIES AGREE AS FOLLOWS: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the meanings given to such terms elsewhere in this Agreement or as set forth below: (a) "Intellicorp Content" means the materials, if any, provided to LocatePLUS(R)by Intellicorp from time to time to be incorporated into the Licensed Data Content. (b) "Error" means any failure of the Licensed Data Content to meet the Specifications. (c) "Licensed Data Content" means all works of authorship and other materials and intellectual property, including, without limitation, proprietary data content, text, graphics, images, illustrations, still photography, animation, sound, music, and motion videography, and software (including hypertext markup language (HTML) and extensible markup language (XML)) developed or provided by LocatePLUS(R) pursuant to this Agreement. (d) "Licensed Technology" means all works of authorship and other materials and intellectual property, including, without limitation, proprietary data content, text, graphics, images, illustrations, still photography, animation, sound, music, and motion videography, and software (including hypertext markup language (HTML) and extensible markup language (XML)) developed or provided by Intellicorp pursuant to this Agreement (e) "Source Materials" means all documentation, notes, and other materials provided to LocatePLUS(R) by Intellicorp for use in developing the Licensed Data Content. (f) "Specifications" means Intellicorp requirements for the Licensed Data Content as set forth on EXHIBIT A, as the same may be amended by agreement of the parties from time to time. (g) "Website" means Intellicorp Internet website for which the Licensed Data Content is being developed and on which the Licensed Data Content will be presented through links to LocatePLUS(R)'s data repository more specifically described in the Specifications. (h) "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, but shall not include any internal costs of either party (such as salary, overhead, ETC.). Adverse Consequences shall be net of any available insurance proceeds and any tax benefit. ARTICLE 2 DELIVERY OF THE LICENSED DATA CONTENT LOCATEPLUS(R) - ------------- 2.1 DATA DELIVERY. Pursuant to the terms of this Agreement, LocatePLUS(R) shall provide Licensed Data Content in accordance with the Specifications and deliver Licensed Data Content pursuant to the terms of this Agreement. LocatePLUS(R) agrees to provide access to its database for the purposes of this Agreement; PROVIDED, HOWEVER, that LocatePLUS(R) makes no representation that such access will be uninterrupted or Error-free. 2.2 EDITORIAL CONTROL. LocatePLUS(R)shall have complete editorial control and responsibility over the Licensed Data Content, subject to its compliance with the terms of this Agreement. 2.3 USE OF LICENSED DATA CONTENT. Intellicorp shall have no obligation to LocatePLUS(R) to use or display the Licensed Data Content, in whole or in part. For the duration of this Agreement, Intellicorp shall have the right to display the Licensed Data Content through a link to LocatePLUS(R)'s data repository in any manner it chooses, PROVIDED that such display is consistent with the provisions of Section 3.5 of this Agreement. INTELLICORP - ----------- 2.4 DATA DELIVERY. Pursuant to the terms of this Agreement, Intellicorp shall provide Licensed Technology in accordance with the Specifications and deliver Licensed Technology pursuant to the terms of this Agreement. Intellicorp agrees to provide access to its Technology for the purposes of this Agreement; PROVIDED, HOWEVER, that Intellicorp makes no representation that such access will be uninterrupted or Error-free. 2.5 TECHNOLOGY CONTROL. Intellicorp shall have complete technology control and responsibility over the Wireless Licensed Data Content, subject to its compliance with the terms of this Agreement. 2.6 USE OF LICENSED TECHNOLOGY. LocatePLUS(R) shall have no obligation to Intellicorp to use the Licensed Technology, in whole or in part. For the duration of this Agreement, LocatePLUS(R) shall have the right to demonstrate the Licensed Technology through any wireless device deemed acceptable by Intellicorp in any manner it chooses, PROVIDED that such demonstration is consistent with the provisions of Section 3.5 of this Agreement. 2 ARTICLE 3 PROPRIETARY RIGHTS AND LICENSE 3.1A OWNERSHIP RIGHTS. Intellicorp acknowledges and agrees that the Licensed Data Content is and shall remain the property of LocatePLUS(R) or LocatePLUS(R)'s licensors or assigns. Except as otherwise provided in this Agreement, LocatePLUS(R) is the owner of all right, title and interest to all intellectual property rights constituting the Licensed Data Content including, but not limited to, copyrights, trademarks, trade names, patents and trade secrets (collectively, the "Intellectual Property Rights"). 3.1B OWNERSHIP RIGHTS. LocatePLUS(R) acknowledges and agrees that the Licensed Technology is and shall remain the property of Intellicorp or Intellicorp's licensors or assigns. Except as otherwise provided in this Agreement, Intellicorp is the owner of all right, title and interest to all intellectual property rights constituting the Licensed Technology including, but not limited to, copyrights, trademarks, trade names, patents and trade secrets (collectively, the "Intellectual Property Rights"). 3.2 LOCATEPLUS(R) RESTRICTED LICENSE GRANT; DERIVATIVE WORKS; PRIVACY COMPLIANCE (a) Subject to the terms of this Agreement, LocatePLUS(R) hereby grants to Intellicorp (for its benefit and for the benefit of its agents and/or customers), a non-exclusive, worldwide right and license, to use, reproduce, publicly and privately display, publicly and privately perform, modify, transmit and distribute the Licensed Data Content, in whole or in part, or copies thereof, in any form and format, including, but not limited to, on and in connection with the Web Site and through e-mail messages ("Permitted Uses"); PROVIDED, that no bulk duplication of the Licensed Data Content will not be deemed a "Permitted Use" for the purpose of this Agreement. (b) Any derivative works based on the Licensed Data Content developed or prepared by or through Intellicorp in accordance with Section 3.2(a) shall be owned solely by LocatePLUS(R) and LocatePLUS(R) shall retain all rights in such derivative works, including copyright and all other intellectual property rights; PROVIDED, HOWEVER, that LocatePLUS(R) hereby grants to Intellicorp for Intellicorp benefit and for the benefit of its agents and/or customers, for the duration of this Agreement, the worldwide, non-exclusive, paid-up right and license, to (I) use, reproduce, publicly and privately display, publicly and privately perform, modify, transmit and distribute the Licensed Data Content, in whole or in part, or copies thereof, in any form and format on and in connection with the Permitted Uses; (II) prepare derivative works therefrom for use on and in connection with the Permitted Uses; and (III) authorize others to do any or all of the foregoing in conjunction with Intellicorp business. (c) Notwithstanding the foregoing, neither Intellicorp nor its affiliates or end users shall use any of the Licensed Data Content in violation of any federal, state, local or foreign law, ordinance, or directive, including but not limited to the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the European Union Privacy Directive. Intellicorp agrees to establish such procedural safeguards to ensure compliance with the provisions of this Section 3.2(c) as LocatePLUS(R) may request, in its sole discretion, from time to time. 3.3 INTELLICORP RESTRICTED LICENSE GRANT; DERIVATIVE WORKS; PRIVACY COMPLIANCE (a) Intellicorp grants to LocatePLUS(R) a nonexclusive, worldwide license to use, reproduce and modify the Intellicorp Content and the Source Materials for the sole purpose of developing the Licensed Data Content in accordance with the terms of this Agreement. Except for the foregoing, Intellicorp shall retain all right, title and interest in and to the Intellicorp Content and Source Materials, including copyright and all other intellectual property rights. LocatePLUS(R) shall have no rights to copy, use, reproduce, display, perform, modify or transfer the Intellicorp Content or Source Materials or any derivative works thereof unless expressly provided for herein or authorized by advance written authorization from Intellicorp. (b) Any derivative works based on the Licensed Technology or Content developed or prepared by or through LocatePLUS(R) in accordance with Section 3 3.3(a) shall be owned solely by Intellicorp and Intellicorp shall retain all rights in such derivative works, including copyright and all other intellectual property rights; PROVIDED, HOWEVER, that Intellicorp hereby grants to LocatePLUS(R) for LocatePLUS(R) benefit and for the benefit of its agents and/or customers, for the duration of this Agreement, the worldwide, non-exclusive, paid-up right and license, to (I) use, reproduce, publicly and privately display, publicly and privately perform, modify, transmit and distribute the Licensed Technology or Content, in whole or in part, or copies thereof, in any form and format on and in connection with the Permitted Uses; (II) prepare derivative works therefore for use on and in connection with the Permitted Uses; and (III) authorize others to do any or all of the foregoing in conjunction with LocatePLUS(R) business. (c) Notwithstanding the foregoing, neither LocatePLUS(R) nor its affiliates or end users shall use any of the Licensed Technology or Content in violation of any federal, state, local or foreign law, ordinance, or directive, including but not limited to the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the European Union Privacy Directive. Intellicorp agrees to establish such procedural safeguards to ensure compliance with the provisions of this Section 3.3(c) as Intellicorp may request, in its sole discretion, from time to time. 3.4 WEBSITE LINKAGES. During the term of this Agreement and subject to its terms, LocatePLUS(R)grants to Intellicorp a license to link to LocatePLUS(R)'s data repository to obtain the Licensed Data Content. 3.5 WIRELESS ACCESS. N/A 3.6 PROMOTION, BRANDING AND USE OF TRADEMARKS. Each of the parties hereby licenses the other the right to use such party's name, logo, and trademarks for the purpose of this Agreement and its promotion. Further, Intellicorp and LocatePLUS(R) shall use its best efforts to market and advertise mutually each others product or service to existing and future customer base using both Intellicorp and LocatePLUS(R) full marketing resources and will provide 24 hour support for the LocatePLUS(R)/Intellicorp integrated system 365 days per year via toll free in-bound telephone lines. 3.7 ATTRIBUTION. Intellicorp shall indicate LocatePLUS(R)'s ownership of the Licensed Data Content by displaying LocatePLUS(R)'s copyright notice as may be requested by LocatePLUS(R) from time to time. 3.8 EXCLUSIVITY. Neither party shall be bound to the other party by an exclusive or semi-exclusive license to exchange data or products. Specifically, it is recognized that both the LocatePLUS(R) and Intellicorp have other existing or potential "Channel Partners" and relationships that it shall continue or develop subsequent to this Agreement. No such Channel Partners or similar relationships shall be affected by the Agreement. 3.9 DISCLOSURE. Each of the parties recognizes the strategic importance of the announcement of a "Channel Partner Agreement" and both parties agree to work together on any press release or announcement relating to this Agreement. 4 ARTICLE 4 PAYMENT 4.1 REVENUE SHARING. Intellicorp agrees to pay a royalty (the "Revenue Share") for the Licensed Data Content equal to 50% of all of Intellicorp revenue arising from the Licensed Data Content, after Intellicorp cost, discounts or promotional items; PROVIDED, HOWEVER, that no Revenue Share shall be due to LocatePLUS(R) arising from sales or licenses of data that do not include access to the Licensed Data Content. Intellicorp agrees that it shall keep true and correct books of account with respect to all revenue in accordance with generally accepted accounting principles, consistently applied. LocatePLUS(R) agrees to pay a royalty (the "Revenue Share") for the Licensed Technology or Content equal to 50% of all of LocatePLUS(R) revenue arising from the Licensed Technology or Content, after discounts or promotional items; PROVIDED, HOWEVER, that no Revenue Share shall be due to Intellicorp arising from sales or licenses of data that do not include access to the Licensed Technology or Content. LocatePLUS(R) agrees that it shall keep true and correct books of account with respect to all revenue in accordance with generally accepted accounting principles, consistently applied. 4.2 TAXES. Mutually each party shall be responsible for the payment of all sales, use and similar taxes, if any for their respected revenue or service. 4.3 EXPENSES. LocatePLUS(R) shall bear all "data" related expenses arising from the performance of its obligations under this Agreement; PROVIDED, HOWEVER, that LocatePLUS(R) and Intellicorp shall share equally the expenses relating to establishing and maintaining data lines between them. 4.4 PAYMENT. Each party shall pay the Revenue Share due for each month no later than the tenth day of the following month, without requirement of an invoice or demand.. 4.5 AUDIT RIGHT. Each party may, from time to time, during each other's customary business hours and in a manner that will not be unduly burdensome to the other party review the books and records for the sole purpose of determining each party's compliance with this Article. No more than once per year, the respective party may request an audit of the other party's financial records to determine compliance with this Article by a Certified Public Accountant of the requesting party selection; PROVIDED that the costs of such audit will be borne by the requesting party; PROVIDED FURTHER, HOWEVER, that the costs of such audit will be borne by the other party in the event that the audit determines that the fees due under this Article (including the Revenue Share) have been knowingly understated by the other party by 10% or more. All information and data obtained for such reviews or audits shall be maintained in strict confidence bythe requesting party, will be used solely for the express purpose set forth in this Agreement, and will not be disclosed to third-parties except as may be so ordered by a court of competent jurisdiction. 4.6 ADDITIONAL PRODUCT OFFERINGS. Each party acknowledges that the initial product offering will not be fully and totally comprehensive and, that it (the product) will initially be offered at a discount to entice customers to purchase the product. Thereafter, the parties agree that additional features, content, and/or functionality will result in an additional charge to existing customers as well as to prospective future customers. The same revenue and royalty sharing arrangement shall still be in effect as prices increase to the customer base, hence revenue, and on the same 50:50 split as noted above. 5 ARTICLE 5 CONFIDENTIALITY 5.1 CONFIDENTIAL INFORMATION. "Confidential Information" means all trade secret, competitive, confidential, technical, business and economic information or data owned and/or developed by a party to this Agreement, whether or not the same is labeled or marked as "proprietary," "confidential," or the like. Confidential Information will not include information that (I) a party can verify that it had in its possession prior to disclosure of such information under this Agreement; (II) is furnished to a party by a third-party as a matter of right without restriction and which was not received directly or indirectly from a party to this Agreement; (III) becomes part of the public domain by publication or otherwise through no fault of a party to this Agreement or any of such party's agents; (IV) is approved, in writing, for release or disclosure by the disclosing party; or (V) is disclosed by reason of order of a court of competent jurisdiction. 5.2 RETURN OF CONFIDENTIAL INFORMATION. Upon termination of this Agreement for any reason, each party's Confidential Information will be immediately returned to that party. 5.3 PUBLICITY. Both parties to this Agreement shall work closely together in promoting their respective products and shall seek written permission from the other party before the release of details or other activities surrounding and encompassing the obligations contained within this Agreement. 6 ARTICLE 6 WARRANTIES AND REPRESENTATIONS 6.1 WARRANTIES AND REPRESENTATIONS OF LOCATEPLUS(R). As a material inducement to Intellicorp to enter into this Agreement, LocatePLUS(R) represents, warrants and covenants to Intellicorp as follows: (a) LocatePLUS(R) has the full power to enter into this Agreement and perform the services provided for herein, and that such ability is not limited or restricted by any agreements or understandings between LocatePLUS(R) and other persons or companies. (b) LocatePLUS(R) has the ability to perform and continue to perform its obligations under this Agreement, that no legal proceedings have been threatened or brought against LocatePLUS(R) that could threaten performance of this Agreement and that entering into this Agreement is not prohibited by any contract, applicable law, governmental regulation, or order by any court of competent jurisdiction. (c) The Licensed Data Content is provided "as is." LocatePLUS(R) makes no warranty, unless otherwise agreed upon that all Errors have been or can be eliminated from the Licensed Data Content, and LocatePLUS(R) will in no event be responsible for losses of any kind resulting from the use of the Licensed Data Content or derivative works thereof, including, without limitation, any liability for business expense, machine downtime, or damages caused to Intellicorp or any of its customers by any Error, deficiency, defect, or malfunction. LocatePLUS(R) will not be responsible for any adverse consequences resulting from any interruption of the Licensed Data Content; PROVIDED that such interruption is not the result of the intentional misconduct or gross negligence of LocatePLUS(R). EXCEPT AS SPECIFICALLY SET FORTH HEREIN, LOCATEPLUS(R) DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATING TO THE LICENSED DATA CONTENT AND ANY DERIVATIVE WORKS THEREOF OR ANY USE THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY WHATSOEVER AS TO THE FITNESS FOR A PARTICULAR PURPOSE OF, THE MERCHANTABILITY OF, OR THE NON-INFRINGEMENT BY THE LICENSED DATA CONTENT OR ANY DERIVATIVE WORKS THEREOF OF ANY THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS. 6.2 WARRANTIES AND REPRESENTATIONS OF INTELLICORP. As a material inducement to LocatePLUS(R) enter into this Agreement, Intellicorp represents, warrants and covenants to Intellicorp as follows: (a) Intellicorp has the full power to enter into this Agreement and perform the services provided for herein, and that such ability is not limited or restricted by any agreements or understandings between Intellicorp and other persons or companies. (b) Intellicorp has the ability to perform and continue to perform its obligations under this Agreement, that no legal proceedings have been threatened or brought against Intellicorp that could threaten performance of this Agreement and that entering into this Agreement is not prohibited by any contract, applicable law, governmental regulation, or order by any court of competent jurisdiction. (c) The Licensed Technology and or Content is provided "as is". Intellicorp makes no warranty, unless otherwise agreed upon that all Errors have been or can be eliminated from the Licensed Technology and or Content, and Intellicorp will in no event be responsible for losses of any kind resulting from the use of the Licensed Technology and or Content or derivative works thereof, including, without limitation, any liability for business expense, machine downtime, or damages caused to LocatePLUS(R) or any of its customers by any Error, deficiency, defect, or malfunction. Intellicorp will not be responsible for any adverse consequences resulting from any interruption of the Licensed Technology and or Content; PROVIDED that such interruption is not the result of the intentional misconduct or gross negligence of Intellicorp. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, INTELLICORP DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATING TO THE LICENSED TECHNOLOGY AND OR CONTENT AND ANY DERIVATIVE WORKS THEREOF OR ANY USE THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY WHATSOEVER AS TO THE FITNESS FOR A PARTICULAR PURPOSE OF, THE MERCHANTABILITY OF, OR THE NON-INFRINGEMENT BY THE LICENSED TECHNOLOGY AND OR CONTENT OR ANY DERIVATIVE WORKS THEREOF OF ANY THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS 7 ARTICLE 7 TERM AND TERMINATION 7.1 TERM. This Agreement will become effective on the date set forth on the signature page and will be in effect for a period of (2) two years (the "Term"), unless terminated sooner by either party in accordance with this Article. The Term may be extended only by written agreement signed by both parties. 7.2 TERMINATION. Notwithstanding Section 7.1 above, this Agreement may be terminated at any time by either party upon 180 days' written notice to the other party; PROVIDED, HOWEVER, that either party may terminate this Agreement upon a material breach of this Agreement's terms by the other party upon 30 days notice and the opportunity to cure such breach; PROVIDED FURTHER that no such cure period need be provided in the case of breaches of the provisions of Article 3. 7.3 EFFECT OF TERMINATION. Upon the effective date of termination (I) LocatePLUS(R) shall immediately cease to provide the Licensed Data Content; (II) Intellicorp shall immediately cease to provide the Licensed Technology or Content; (III) each party shall return to the other or destroy, at the other party's instruction, all of the other party's Confidential Information; and (IV) both parties shall promptly discontinue all use of the other's trademarks, logos and names, including in promotional and marketing materials and on the Website. ARTICLE 8 MUTUAL INDEMNIFICATION 8.1 MUTUAL INDEMNIFICATION. Each of the parties (the "Indemnifying Party") agrees to indemnify and hold the other (the "Indemnified Party") harmless from and against any claims, damages, demands, or actions arising out of or relating to breaches of the provisions of Sections 3, 4, 5, 6, and 7 of this Agreement. 8.2 MATTERS INVOLVING THIRD PARTIES. (a) If a third party makes any claim or demand on an Indemnified Party with respect to any matter which may give rise to a claim for indemnification under Section 8.1 (a "Third Party Claim"), then the Indemnified Party shall promptly notify the Indemnifying Party thereof in writing; PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (b) The Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within fifteen days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, and (B) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (c) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8.2(b) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party unless the Indemnified Party chooses to exercise its rights under Section 8.2(d), below, to assume all defense and liability for such Third Party Claim, and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party, unless any such judgment or settlement requires only the payment of money and no injunctive or other equitable relief. 8 (d) In the event any of the conditions in Section 8.2(c) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), and (B) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including attorneys' fees and expenses). (e) In the event all of the conditions of Section 8.2(c) above are and remain satisfied, if (A) the Third Party Claim seeks an injunction or other equitable relief, or (B) settlement of, or an adverse judgment with respect to, the Third Party Claim is, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice adverse to the continuing business interests of the Indemnified Party, then the Indemnified Party, in its sole discretion and at its sole expense, may assume the defense of such Third Party Claim by giving written notice of its intention to do so as part of the notice to be given by the Indemnified Party pursuant to Section 8.2(c) above. ARTICLE 9 DISPUTE RESOLUTION 9.1 EXECUTIVE MANAGEMENT. All disputes shall initially be referred jointly to a representative designated by each party, which may, but need not, be the "Designated Person" as defined in Section 10.2. If the designated representative(s) are unable to resolve the dispute within seven business days after referral of the matter to them, the parties shall submit the dispute to a senior executive from each party for resolution. 9.2 BINDING ARBITRATION AND JURY TRIAL WAIVER. Any dispute with respect to this Agreement which is not resolved within ten days after referral to the parties' senior executives in accordance with Section 9.1, shall at any time thereafter at the initiation of either party, be submitted to arbitration which shall be the exclusive means for resolving any such disputes. Such arbitration shall be held in the Boston, Massachusetts and shall be conducted by the American Arbitration Association in accordance with its Arbitration Rules and Procedures then in effect. The arbitrators will be selected from a panel of retired judges and will have familiarity with dispute resolution in the information technology industry. Any costs associated with the arbitration shall be borne by the non-prevailing party. All decisions of the arbitrators shall be binding on both parties. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, AND IRREVOCABLY WAIVE THEIR RIGHT TO A TRIAL BY JURY AND AGREE THAT IF THE FOREGOING BINDING ARBITRATION PROVISION IS DETERMINED FOR ANY REASON TO BE UNENFORCEABLE OR INAPPLICABLE TO A PARTICULAR DISPUTE, THEN SUCH DISPUTE SHALL BE DECIDED SOLELY BY A JUDGE, WITHOUT THE USE OF A JURY, SITTING IN A COURT OF COMPETENT JURISDICTION. This binding arbitration and jury trial waiver provision shall survive termination of this Agreement. Nothing in this Agreement will prevent either party from applying for injunctive relief in any court of competent jurisdiction. 9 ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 NOTICES. For purposes of all notices and other communications required or permitted to be given hereunder, the addresses of the parties hereto shall be as indicated below. All notices shall be in writing and shall be deemed to have been duly given if sent by facsimile, the receipt of which is confirmed by return facsimile, or sent by first class registered or certified mail or its equivalent, return receipt requested, addressed to the parties at their addresses set forth below: IF TO LOCATEPLUS(R). COM, INC., TO: WITH A MANDATORY COPY TO: LocatePLUS(R).com, Inc. Kirkpatrick & Lockhart LLP 100 Cummings Center, Suite 235M 75 State Street Beverly, Massachusetts 01915 Boston, Massachusetts 02109 Attention: Robert A. Goddard, CFO Attention: Jeffrey P. Donohue IF TO INTELLICORP, TO: Intellicorp Systems, Inc. 6001 Cochran Rd., Suite 200 Solon, OH 44139 Attention: Chad Salahshour 10.2 DESIGNATED PERSON. The parties agree that all materials exchanged between them for formal approval shall be communicated between a single designated person at each party, or a single alternate designated person at each party (in either case, the "Designated Person"). Neither party shall have any obligation to consider for approval or respond to materials submitted other than through the Designated Persons. Each party shall have the right to change its Designated Person from time to time and to so notify the other in writing of such change. The initial Designated Person for Intellicorp is Steve Silva and for LocatePLUS(R) is Robert Goddard. 10.3 GOVERNING LAW. The laws of the Commonwealth of Massachusetts shall govern the validity, construction, and performance of this Agreement without giving effect to its conflicts of laws provisions. 10.4 ENTIRE AGREEMENT. This Agreement, including the attached Schedules which are incorporated herein by reference, contains the entire understanding and agreement of the parties with respect to the subject mater contained herein, supersedes all prior oral or written understandings and agreements relating thereto except as expressly otherwise provided, and may not be altered, modified or waived in whole or in part, except in writing, signed by duly authorized representatives of both of the parties. 10.5 SEVERABILITY. If any provision of this Agreement shall be held by a court of competent jurisdiction to be contrary to any law, the remaining provisions shall remain in full force and effect as if said provision never existed. 10.6 ASSIGNMENT. Neither party may sell, transfer, sublicense, hypothecate or assign its rights and duties under this Agreement without the written consent of the other party. No rights of either party hereunder shall devolve by operation of law or otherwise upon any receiver, liquidator, trustee, or other party. This Agreement shall inure to the benefit of both parties, their successors and assigns. 10.7 WAIVER AND AMENDMENTS. No waiver, amendment, or modification of any provision of this Agreement shall be effective unless consented to by both parties in writing. No failure or delay by either party in exercising any rights, powers, or remedies under this Agreement shall operate as a waiver of any such right, power, or remedy. 10 10.8 SURVIVAL. Sections 5, 8, 9 and 10 will survive the expiration or termination of this Agreement for any reason. 10.9 USER DATA. All individual customer information and data provided to customers of Intellicorp or otherwise collected by LocatePLUS(R) relating to user activity on the Intellicorp Website shall be owned solely by Intellicorp LocatePLUS(R) agrees to use such information only as required by relevant law or as authorized under this Agreement and shall not disclose, sell, license, or otherwise transfer any such information to any third party or use any such confidential information for the transmission of "junk mail," "spam," or any other unsolicited mass distribution of information. * * * THE PARTIES HERETO AS OF THE DATE FIRST ABOVE WRITTEN EXECUTE IN WITNESS WHEREOF, THIS AGREEMENT. INTELLICORP SYSTEMS, INC. LOCATEPLUS HOLDINGS CORPORATION By: /s/ Chad Salashour By: /s/ Robert A. Goddard ------------------ --------------------- Name: Chad Salahshour Name: Robert A. Goddard Title: Managing Member Title: CFO & Treasurer 11 SCHEDULE A SPECIFICATIONS AND DELIVERY SCHEDULE I. LICENSED DATA CONTENT SPECIFICATIONS A GENERAL DESCRIPTION OF THE "LICENSED DATA CONTENT." LocatePLUS(R) will provide Intellicorp with internet-delivered comprehensive background data, including but not limited to: address history reports; civil court actions; bankruptcies; liens and judgments; real property records; professional licenses; and controlled substance issuer licenser records, when integrated. (Collectively, the "Data"). LocatePLUS(R) will add supplemental data sets in the future, including but not limited to: ======================================================== FUTURE DATABASE INTEGRATIONS ======================================================== Criminal, Arrest, and Conviction Records ======================================================== Motor Vehicle Records ======================================================== Corporate and Uniform Commercial Code Filings ======================================================== Death Records ======================================================== Driver's License Records ======================================================== IRS Enrolled Agents and Tax Practitioners ======================================================== Professional Licenses ======================================================== Firearms and Explosives Licensing ======================================================== DEA Controlled Substance Licensing ======================================================== Fictitious Business Name Filings ======================================================== Regional Consumer Licenses ======================================================== Via an XML stream, LocatePLUS(R) will be able to provide the following reports you offer immediately upon contract signature and XML setup delivery and site design: 12 SCHEDULE B PAYMENT SCHEDULE In establishing the communications linkage between the LocatePLUS(R) and Intellicorp, certain "upfront" engineering expenses will occur. As such, the LocatePLUS(R) agrees to establish the linkage between the two parties. In conjunction with the execution of this Agreement, Intellicorp shall agree to provide all necessary support and expenses pertaining to their end of the "linkage" as described herein. LocatePLUS(R) shall bear its expenses for its end of the "linkage" as described herein. On a monthly basis, the LocatePLUS(R) shall provide Intellicorp with a detailed report of activity and usage of the data by users of Intellicorp. In conjunction with that report, Intellicorp shall supply the LocatePLUS(R) with the charges and pricing in effect for that current month for access to the LocatePLUS(R)'s data. LocatePLUS(R)'s Finance Department shall compute the usage for the month and implied revenue received by Intellicorp and submit to Intellicorp an invoice that shall be paid and satisfied as per the terms set forth herein. LocatePLUS(R) will allow Intellicorp, Inc free of charge usage of the database for demonstration purposes of the Licensed Data Content. 13 EX-10.6 14 ex10-6_10945.txt LETTER AGREEMENT EXHIBIT 10.6 ------------ [LOCATEPLUS HOLDINGS CORPORATION LETTERHEAD] December 19, 2001 IntelliCorp Ltd. 6001 Cochran Road Suite 200 Solon, Ohio 44139 Attn: Chad Salahshour, Managing Member RE: SECURITIES PURCHASE AGREEMENT, AS AMENDED CHANNEL PARTNERSHIP AGREEMENT ----------------------------- Dear Chad: Reference is hereby made to a certain Securities Purchase Agreement, dated March 22, 2000, and amended as of July 25, 2001 (the "Securities Purchase Agreement"), by and between LocatePLUS Holdings Corporation (formerly known as LocatePLUS.com, Inc.) ("LocatePLUS"), IntelliCorp Ltd., an Ohio limited liability company ("IntelliCorp") and the members and equity owners of IntelliCorp (the "IntelliCorp members"). Reference is also hereby made to a certain Channel Partnership Agreement, dated as of September 1, 2001, by and between LocatePLUS and IntelliCorp (the "Channel Partnership Agreement"). Pursuant to the Securities Purchase Agreement, LocatePLUS has loaned a total of $500,000 to IntelliCorp in two installments, with interest bearing on that principal amount at the rate of 8.75% (later adjusted by operation of the loan documents to 11.75%). As of the date of this letter, the aggregate due under both loans is $586,833 (the "debt"). LocatePLUS and IntelliCorp agree that the debt will continue to accrue interest at the rate of 11.75% per annum. Pursuant to the Channel Partnership Agreement, LocatePLUS has licensed certain data to IntelliCorp for integration with IntelliCorp's data and sale to IntelliCorp's customers. Under the terms of the Channel Partnership Agreement, IntelliCorp agreed to pay a royalty equal to 50% of the revenue that IntelliCorp realizes on sales of data provided by LocatePLUS. LocatePLUS and IntelliCorp, for itself and on behalf of the IntelliCorp members, agree as follows: o IntelliCorp acknowledges the debt as due, valid and outstanding, and agrees to repay the debt as set forth in this letter. o IntelliCorp and LocatePLUS agree that (I) royalty payable to LocatePLUS shall be increased to equal 75% of the revenue realized by IntelliCorp on sales of LocatePLUS-licensed data (such 25% increase being the "Excess Royalty Payment"), (II) payments of the Excess Royalty Payment shall be credited toward repayment of debt; and (III) upon the repayment of the debt in full, the Excess Royalty Payment shall cease. o LocatePLUS will waive any demand for repayment of the debt inconsistent with the terms of this letter, PROVIDED that IntelliCorp (I) continues to license data from LocatePLUS in the ordinary course of its business; and (II) continues as a going concern. o IntelliCorp, for itself and on behalf of the IntelliCorp members, hereby forever waives and releases any claims with respect to any breach of the Securities Purchase Agreement on the part of LocatePLUS, specifically including but not limited to LocatePLUS's refusal to make additional loans to IntelliCorp in excess of amounts previously loaned. This letter agreement, when countersigned by IntelliCorp, will be a binding agreement with respect to each of the parties identified in this letter, interpreted under the laws of the Commonwealth of Massachusetts, notwithstanding any provision of Massachusetts law that would provide otherwise. Each of LocatePLUS and IntelliCorp represents and warrants that its execution of this letter is duly authorized by such party (and, in the case of IntelliCorp, on behalf of the IntelliCorp members), and each of LocatePLUS and IntelliCorp will indemnify the other for any breaches of this representation and warranty, or in the event that such party suffers adverse consequences as a result of a breach of the terms of this letter agreement. This letter agreement is the entire agreement between the parties, and may be amended only by a writing signed by both LocatePLUS and IntelliCorp. If this is acceptable to you, please sign at the indicated location and return a copy to me by fax. The offer contained in this letter will expire if we do not receive the fax by 5:00 p.m. on December 21, 2001. Very truly yours, LOCATEPLUS HOLDINGS CORPORATION By: /s/ Jon R. Latorella ------------------------------------- Jon R. Latorella President and Chief Executive Officer * * * ACCEPTED AND AGREED: INTELLICORP LTD. By: /s/ Chad Salahshour ------------------------- Chad Salahshour Managing Member EX-10.7 15 ex10-7_10945.txt SECURED NOTE EXHIBIT 10.7 ------------ SECURED NOTE June 1, 2001 Beverly, Massachusetts 01852 Andover Secure Resources PMB 144 301 Newbury Street, Danvers, MA 01923 - ---------------------------------------------------------------- ----- 1. BORROWER'S PROMISE TO PAY In return for a loan received, Andover Secure Resources of 301 Newbury Street, Danvers, MA 01923 (PMB 144) promise to pay in U.S. Dollars the sum of one million and 00/100 ($1,000,000.00) dollars (this amount is called "principal"), plus interest at the rate cited below, to the order of the Lender. The Lender is LocatePlus Holdings Corporation of 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915. It is understood that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Note Holder". 2. INTEREST Interest will be charged on unpaid principal only on a monthly basis until the full amount of principal has been paid. Borrower will pay interest at a yearly rate of 10.000%. The interest rate required by this Section 2 is the rate Borrower will pay both before and after any default described in Section 6(B) of this Note. 3. PAYMENTS (A) TIME AND PLACE OF PAYMENTS Principal and interest payments shall be due on May 31, 2002. Borrower will make payments at 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915 or other place designated by the Lender in writing. (B) AMOUNT OF PAYMENT Payment shall be one million one hundred thousand ($1,100,000.00) U.S. Dollars at the due date unless Noteholder accelerates pursuant to default or pursuant to paragraph 4 below. 4. NOTEHOLDER'S RIGHT TO DEMAND AND REDEEM Upon 30 days written Notice to Borrower, the Noteholder may call for payment of the outstanding principal and interest on this Note in its entirety. The Borrower shall on or before the 30th day after written receipt of such Notice pay to the Noteholder the entirety of the principal and accumulated monthly interest reduced by one (1) percent of the outstanding principal. Borrower may make a full prepayment or partial prepayments without paying any prepayment charge. The Noteholder will use prepayments to reduce the amount of principal that owed under this Note. If Borrower makes a partial prepayment, there will be no changes in the due date of the Note. 5. LOAN CHARGES If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (i) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (ii) any sums already collected from me which exceed permitted limits will be refunded to me. The Noteholder may choose to make this refund by reducing the principal owed under this Note or by making a direct payment to Borrower. If a refund reduces principal, the reduction will be treated as a partial prepayment. 6. BORROWER'S FAILURE TO PAY AS REQUIRED (A) LATE CHARGE FOR OVERDUE PAYMENTS If the Noteholder has not received the full amount of any payment by the end of fifteen (15) calendar days after the date it is due, by the terms of this Note or paragraph 4 herein, the Borrower will pay a late charge to the Noteholder. The amount of the charge will be 3.000% of overdue payment of principal and interest. Borrower will pay this late charge promptly but only once on such late payment. (B) DEFAULT If Borrower does not pay the full amount due on May 31, 2002, Borrower will be in Default. (C) NOTICE OF DEFAULT If the Borrower is in Default, the Noteholder may send a written notice that demand is made for payment of the overdue amount by a certain date. The Noteholder may require payment immediately of the full amount of principal that has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is delivered or mailed by the Noteholder to Borrower. (D) NO WAIVER BY NOTEHOLDER Even if, at a time when Borrower is in default, the Noteholder does not require Borrower to pay immediately in full as described above, the Noteholder will still have the right to do so if Borrower is in default at a later time. (E) PAYMENT OF NOTEHOLDER'S COSTS AND EXPENSES If the Noteholder has required payment immediately in full as described above, the Noteholder will have the right to be paid back by Borrower for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. These expenses include, for example, reasonable attorneys' fees. 7. GIVING OF NOTICES Unless applicable law requires a different method, any notice that must be given to Borrower under this Note will be given by delivering it or by mailing it by first class mail to Borrower at the Property Address above or at a different address if given to the Noteholder in writing by certified mail. Any notice that must be given to the Noteholder under this Note will be given by mailing it by first class mail to the Noteholder at the address stated in Section 3(A) above or at a different address if given a notice of that different address. 8. OBLIGATIONS OF PERSONS UNDER THIS NOTE If more than one person or entity signs this Note, each person or entity is fully and personally obligated to keep all of the promises made in this Note including the promise to pay the full amount owed. Any person or entity who is a guarantor, surety or endorser of this Note is also obligated to do these things. Any person or entity who takes over these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also obligated to keep all of the promises made in this Note. The Noteholder may enforce its rights under this Note against each person individually or against all persons or entities together. This means that means that any person or entity signing may be required to pay all of the amounts owed under this Note. 9. WAIVERS Borrower and any other person or entity who has obligations under this Note waives the rights of presentment and notice of dishonor. "Presentment" means the right to require the Noteholder to demand payment of amounts due. "Notices of dishonor" means the right to require the Noteholder to give notice to other persons or entities that amounts due have not been paid. 10. UNIFORM SECURED NOTE This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the protections given to the Noteholder under this Note, a Mortgage, Deed of Trust or Security Deed (the "Security Instrument"), dated the same date as this Note, protects the Noteholder from possible losses which might result if Borrower does not keep the promises which made in this Note. That Security Instrument describes how and under what conditions Borrower may be required to make immediate payment in full of all amounts Borrower owes under this Note. Some of those conditions are described as follows: TRANSFER OF THE PROPERTY OR A BENEFICIAL INTEREST IN BORROWER. If all of any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may, at its option, require immediate payment in full if all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument. If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower. WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED Dated: June 1, 2001 BORROWER Authorized Representative Andover Secure Resources /s/ Timothy J. Rodden - --------------------------------- Print Name of Borrower EX-21.1 16 ex21-1_10945.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 ------------ LocatePLUS Holdings Corporation, a Delaware corporation Worldwide Information, Inc., a Delaware corporation EX-23.1 17 ex23-1_10945.txt CONSENT OF KIRKPATRICK & LOCKHART LLP EXHIBIT 23.1 ------------ CONSENT OF KIRKPATRICK & LOCKHART LLP We hereby consent to the reference to Kirkpatrick & Lockhart LLP under the heading titled "Legal Matters" in the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on March 28, 2002 by LocatePLUS Holdings Corporation. /s/ Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP EX-23.2 18 ex23-2_10945.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.2 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in this Registration Statement on Form SB-2 of our report dated February 13, 2002 relating to the consolidated financial statements of LocatePLUS Holdings Corporation, which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----