-----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, JyoZKDonYZgJy9aWiYxMHoIJxoHi/t9/v5/IatbNyTnDy6q4DN2ywfwkH6bGSuXm QDtP8pbLstFdvsQDkaIWoA== 0000932214-01-500038.txt : 20010516 0000932214-01-500038.hdr.sgml : 20010516 ACCESSION NUMBER: 0000932214-01-500038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIRECT INSITE CORP CENTRAL INDEX KEY: 0000879703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 112895590 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20660 FILM NUMBER: 1639066 BUSINESS ADDRESS: STREET 1: 80 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5162441500 MAIL ADDRESS: STREET 1: 80 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER CONCEPTS CORP /DE DATE OF NAME CHANGE: 19930328 10-Q 1 di10q3-01live.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File No. 0 - 20660 DIRECT INSITE CORP. (Exact name of registrant as specified in its charter) Delaware 11-2895590 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Orville Drive, Bohemia, N.Y. 11716 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (631) 244-1500 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of $.0001 par value stock outstanding as of May 14, 2001 was: 1,538,796 DIRECT INSITE CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations and Comprehensive Income For the Three Months Ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows For the Three Months ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 DIRECT INSITE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 (In thousands, except share data)
March 31, December 31, 2001 2000 --------- ------------ (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 2,523 $ 10,851 Accounts receivable, net of allowance for sales returns and doubtful accounts of $31 and $70 in 2001 and 2000, respectively 672 260 Prepaid expenses and other current assets 371 451 Investment in NetWolves Corporation 5,625 4,922 -------- -------- Total current assets 9,191 16,484 Property and equipment, net 1,247 1,140 Other assets 1,102 629 -------- -------- $ 11,540 $ 18,253 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 1,667 $ 1,715 Restructuring costs payable, current portion 515 1,526 Convertible debentures, net of discount of $305 in 2000 - 2,695 Income taxes payable 39 855 -------- -------- Total current liabilities 2,221 6,791 Restructuring costs payable, long-term 754 924 -------- -------- Total liabilities 2,975 7,715 -------- -------- Commitments and contingencies Shareholders' equity Common stock, $.0001 par value; 150,000,000 shares authorized; 1,449,834 shares issued in 2001 and 2000; and 1,425,462 shares outstanding in 2001 and 2000 - - Additional paid-in capital 102,911 103,569 Unearned compensation (82) (115) Accumulated deficit (91,553) (89,502) Accumulated other comprehensive loss (2,383) (3,086) -------- -------- 8,893 10,866 Common stock in treasury, at cost - 24,372 shares (328) (328) -------- -------- Total shareholders' equity 8,565 10,538 -------- -------- $ 11,540 $ 18,253 ======== ======== See notes to condensed consolidated financial statements.
3 DIRECT INSITE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (In thousands, except per share data)
Three Months Ended ---------------------- March 31, --------- 2001 2000 --------- --------- Revenue $ 517 $ 526 Cost of revenue 89 105 -------- -------- Gross margin 428 421 -------- -------- Operating expenses Research and development 556 2,987 Sales and marketing 505 3,436 General and administrative 830 3,170 Amortization and depreciation 238 209 Non-recurring restructuring charge - 14,813 -------- -------- 2,129 24,615 -------- -------- Operating loss (1,701) (24,194) Other income (expenses) Gain on sale of Softworks - 47,813 Gain on sale of ComputerCOP assets held for sale - 8,534 Interest (expense) income, net (317) 332 -------- -------- (Loss) income before provision for income taxes (2,018) 32,485 Provision for income taxes (33) (12,812) -------- -------- Net (loss) income $ (2,051) $ 19,673 ======== ======== Other comprehensive income (loss) Unrealized gain (loss) on marketable Securities 704 (5,625) Comprehensive (loss) income $ (1,347) $ 14,048 ======== ======== Basic net (loss) income per share $ (1.44) $ 14.38 ======== ======== Diluted net (loss) income per share $ (1.44) $ 13.92 ======== ======== Basic weighted average common shares outstanding 1,425 1,368 ======== ======== Diluted weighted average common shares outstanding 1,425 1,413 ======== ======== See notes to condensed condolidated financial statements.
4 DIRECT INSITE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------- 2001 2000 --------- --------- (In thousands) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash flows from operating activities Net (loss) income $ (2,051) $ 19,673 Adjustments to reconcile net (loss) income to net cash used in operating activities Depreciation and amortization Property and equipment 243 212 Other 1 1 Non-cash interest charge pertaining to the discount on convertible debentures and loss on prepayment 346 - Provision for doubtful accounts 8 - Deferred income taxes - 9,197 Common stock and options issued for services 33 2,522 Common stock issued for settlement of restructuring charges - 1,180 NetWolves common stock issued for services and for settlement of restructuring charges - 2,000 Gain on sale of Softworks and ComputerCOP - (56,347) Changes in operating assets and liabilities Accounts receivable (420) (17) Prepaid expenses and other current assets 79 144 Other assets 27 (26) Accounts payable and accrued expenses 4 (1,648) Restructuring costs payable (1,181) 11,015 Income taxes payable (816) 3,600 Deferred revenue - (10) -------- -------- Net cash used in operating activities (3,727) (8,504) -------- -------- Cash flows from investing activities Proceeds from the sale of Softworks stock (net of $3,157 expenses) - 48,301 Cash utilized in the ComputerCOP/NetWolves transaction (including $1,819 of expenses) - (22,319) Investment in NetWolves Corporation - (4,500) Investment in non-marketable securities (500) Capital expenditures (350) (405) Repayment of officers' loans, net - 899 -------- -------- Net cash (used in) provided by investing activities (850) 21,976 -------- -------- Cash flows from financing activities Repayments of convertible debentures (3,751) - -------- -------- Net (decrease) increase in cash and cash equivalents (8,328) 13,472 Cash and cash equivalents, beginning of period 10,851 1,852 -------- -------- Cash and cash equivalents, end of period $ 2,523 $ 15,324 ======== ======== See notes to condensed consolidated financial statements.
5 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 1 Interim financial information The condensed consolidated balance sheet as of March 31, 2001, and the condensed consolidated statements of operations and comprehensive income and cash flows for the three months ended March 31, 2001 and 2000, have been prepared by the Company without audit. These interim financial statements include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the financial statements for the above periods. The results of operations for the three months ended March 31, 2001, are not necessarily indicative of results that may be expected for any other interim periods or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2000. The accounting policies used in preparing the condensed consolidated financial statements are consistent with those described in the December 31, 2000 consolidated financial statements. 2 The Company At the Company's special meeting of stockholders held on May 4th, 2001, the Company's shareholders granted the Board of Directors authority to effect a reverse stock split in a ratio of one-for-fifteen. On that date, the Board of Directors declared a one-for-fifteen reverse stock split effective for shareholders of record as of the close of business on May 7th, 2001. (See Note 4) At the annual shareholders' meeting held in August 2000, the shareholders elected to change the corporate name to Direct Insite Corp. (formerly Computer Concepts Corp.) to better reflect the initiation of new business strategies. Direct Insite Corp. and subsidiaries (the "Company") operate primarily as an Application Service Provider (generally referred to as an ASP, also referred to as the Server Farm) providing high volume data processing and analysis tools for their customers. The Company's core technology, d.b.Express, is a management information tool providing targeted access through the mining of large volumes of transactional data. This service presently is being marketed solely for telecommunications analysis. The Server Farm permits end users the ability to visually access and analyze information through the Internet. Data can be visually presented using the Company's patented data visualization technology. Additionally, in the fourth quarter 2000, the Company entered into a license agreement that will enable it to add to its suite of products and services, a complete Electronic Bill Presentment and Payment ("EBPP"), as well as an Internet Customer Care ("ICC") tool set. In 2000, Company began offering a new consulting service, "Telecommunications Solutions" (also marketed under the name Global Telecommunications Services or GTS). The primary function of the consulting service is to create cost savings for its customers through effectively negotiating their telecommunications and network service provider contracts as well as reviewing both past and future communication expenditures to assure compliance. The Company is combining this service with its Server Farm to create a unique, powerful detailed customer profile. This new, enhanced profile will allow customers to efficiently optimize all telecommunications contract compliance, establish traffic metrics, monitor invoice accuracy and rate compliance as well as support complex invoicing and reporting requirements, exception reporting and electronic invoicing, all via the Internet. To date, revenue from this service has been insignificant. The most significant portion of the Company's operations had historically been conducted through one of its subsidiaries, Softworks, Inc. ("Softworks"). Through Softworks, the Company developed, marketed and supported systems management software products for corporate mainframe data centers. Softworks was wholly owned by the Company through June 29, 1998, and majority owned through March 31, 1999. On January 27, 2000, the Company sold its remaining interest to EMC Corporation for approximately $61 million in cash, before expenses (Note 8). 6 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 In June 1998, the Company completed an acquisition of software (and related sales and marketing rights) which is designed to provide non computer literate individuals (e.g. parents, guardians, schools, etc.) the ability to identify threats as well as objectionable material that may be viewed by users (e.g. children) of a computer on the Internet The Company formed a wholly owned subsidiary and marketed the acquired technology under the trade name, ComputerCOP. On February 14, 2000, the Company sold ComputerCOP Corp. to NetWolves Corporation ("Netwolves"). (See Note 8). During the period ended March 31, 2001, the Company adopted SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the condensed consolidated balance sheets and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. Implementation of SFAS No. 133 did not have any material impact on the financial statements of the Company. 3 Restructuring The restructuring charge includes costs directly related to the Company's plan. EITF No. 94-3 and SEC Staff Accounting Bulletin No. 100 provide specific requirements as to appropriate recognition of costs associated with employee termination benefits and other exit costs. Employee termination costs are recognized when details of the severance arrangements are communicated to affected employees (all 53 employees were actually terminated in March 2000). Other exit costs (such as contractual obligations) that are not associated with or that do not benefit activities that will be continued are recognized at the date of commitment to an exit plan subject to certain conditions. Other costs directly related to the restructuring that are not eligible for recognition at the commitment date are expensed as incurred. The activity in the restructuring accrual for the three months ended March 31, 2001 is summarized below:
Officer/director Employee retirement Consulting Operating terminations packages contracts leases Other Total ------------ ----------------- ----------- --------- ----- ----- Restructuring accrual, as of December 31, 2000 $ 32,000 $ 558,000 $1,113,000 $217,000 $530,000 $2,450,000 Cash expenditures, three months ended March 31, 2001 (15,000) (522,000) (136,000) (28,000) (480,000) (1,181,000) ---------- ---------- ---------- ---------- ---------- ---------- Restructuring accrual, March 31, 2001 $ 17,000 36,000 $ 977,000 $189,000 $ 50,000 $1,269,000 ========== ========== ========== ========== ========== ==========
Of the total outstanding liability of $1,269,000, $754,000, is payable after one year. 4 Shareholders' equity At the Company's special meeting of stockholders held on May 4th, 2001, the Company's shareholders granted the Board of Directors authority to effect a reverse stock split in a ratio of one-for-fifteen. On that date, the Board of Directors declared a one-for-fifteen reverse stock split effective for 7 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 shareholders of record as of the close of business on May 7th, 2001. Holders of the common stock have the right to payment in cash for partial shares. Common stock, treasury stock and additional paid-in capital as of March 31, 2001 and December 31, 2000 have been restated to reflect this split. Par value and authorized shares remain unchanged at $0.0001 and 150,000,000 shares, respectively. All references to the number of common shares and per share amounts elsewhere in the condensed consolidated financial statements and related footnotes have also been restated to reflect the effect of the split for the periods presented. 5 Legal matters In March, 1995, an action was originally commenced against the Company and a number of defendants (Barbara Merkens v. Aval Guarantee Ltd., Walter Mennel, J. Forror, A. Faehndreich-Braun, T&M Consulting AG, M. Schmidt, E.G. Baltruschat and Computer Concepts Corp.; United States District Court, Eastern District of New York). In early 1997, after a change in counsel, the plaintiff amended the complaint for a second time, now naming as defendants only the Company and three of its officers. The second amended complaint alleges that certain third parties, unrelated to the Company, transferred certificates representing 66,667 shares of the Company's common stock to the plaintiff. The complaint further alleges that such shares were endorsed in blank by the third parties and became bearer securities, which were negotiated to the plaintiff by physical delivery. The certificates had not been legally acquired from the Company and the Company had reported the certificates to the Securities and Exchange Commission as stolen certificates. Plaintiff has requested validation of the transfer of the certificates and is seeking damages of an unspecified amount, consisting of alleged diminution in market value of the subject shares from 1994 through the date of any judgment in the plaintiff's favor. The Company denied plaintiff's allegations and filed a motion for summary judgment. On or about November 8, 1999, the motion for summary judgment was granted in favor of the Company and its officers. However, the plaintiff filed an appeal, which was contested by the Company. Since that time the parties agreed to settle the matter. Under the terms of the tentative settlement agreement the Company would issue 16,667 shares of its common stock. The tentative settlement has been remanded to the district court, which is required to review the fairness of the settlement agreement pursuant to the Securities Act of 1933,as amended. The Company believes this settlement is likely to be accepted by the district court. Accordingly, during the fourth quarter of 2000 the Company accrued $80,000 to cover the value of the shares to be issued plus estimated legal fees. During 1999, the Company and certain officers received notification that they had been named as defendants in a class action (case # CV 99 1046, Kassouf, et al v. Computer Concepts Corp., Daniel DelGiorno, Sr. and Daniel DelGiorno Jr., U.S. District Court, Eastern District of New York) alleging violations of certain securities laws with respect to the content of certain Company announcements. On January 30, 2001, the Court entered a judgment dismissing the suit. The time to file an appeal has expired. In August of 1999, the Company and its directors were served with a complaint filed in the Chancery Court of Delaware, New Castle County Claude Nadef v. Daniel DelGiorno, et al and Computer Concepts Corp. as Nominal Defendant; C.A. No. 17376-NC). This is a derivative action, which is action brought by the plaintiff on behalf of the Company, in which the Company, for technical reasons, is named as a nominal defendant along with the real defendants in interest, Daniel DelGiorno, Sr., Daniel DelGiorno, Jr., Russell Pellicano, Augustin Medina, all former members of the Company's Board of Directors. The plaintiffs alleges that the individual defendants breached their respective fiduciary duties to the Company by awarding excess compensation and are requesting a judgment in favor of the Company for such excess compensation. An answer to the complaint was interposed, denying the material allegations of the Complaint. Document discovery has commenced, although no depositions are scheduled. The Company and defendants have denied the allegations and are vigorously defending the matter; however, the Company is unable to predict the outcome of this claim and, accordingly, no adjustments have been made in the consolidated financial statements in regard to this matter. 8 \ DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 6 Reclassifications Certain reclassifications have been made to the condensed consolidated financial statements shown for the prior period in order to have it conform to the current period's classifications. 7 Segment information The Company and its subsidiaries previously operated in two separate business segments, computer software and professional services. With the sale of Softworks and ComputerCOP (Note 8) and the completion of its major professional services contract, commencing in the quarter ended March 31, 2000, the Company began operating in one business segment. Major customer For the three months ended March 31, 2001 and 2000, the Company had one major customer with revenue of $467,000 and $412,000 (90.3% and 78.3% of total revenue, respectively). 8 Dispositions ComputerCOP Corp. ---------------- During February 2000, the Company sold ComputerCOP Corp., a wholly owned subsidiary with assets consisting primarily of $20.5 million dollars and the technology acquired pursuant to an Asset Purchase and Sale Agreement with Internet Tracking & Security Ventures, LLC ("ITSV") to NetWolves in exchange for 1,775,000 shares of NetWolves common stock. Additionally, the Company purchased 225,000 shares from certain NetWolves shareholders for $4.5 million dollars. The sale resulted in a pre-tax gain of $8,534,000, net of $2,572,000 of expenses, recorded in the first quarter of 2000 At March 31, 2001, the Company owns 1,875,000 shares of NetWolves common stock with a quoted market value $5,625,000 ($3.00 per share). The unrealized loss as of March 31, 2001 was $31,875,000, of which, $29,737,000 was recorded as a charge to operations in 2000 and $2,138,000 has been recorded as a charge to "accumulated other comprehensive loss." Softworks, Inc. -------------- Prior to June 30, 1998, Softworks was a wholly owned subsidiary of the Company with 14,083,000 shares of common stock outstanding. Pursuant to a series of transactions including an initial public offering of Softworks in August, 1998, and a second public offering in June, 1999, the Company's ownership in Softworks was reduced to 35%. Pursuant to a tender offer the Company sold its remaining 35% interest in Softworks (a total of 6,145,767 shares) to EMC Corporation and its subsidiary ("EMC") for $10.00 per share. The transaction, which was completed on January , 2000, provided aggregate cash proceeds of $61,458,000 and resulted in a pre- tax gain of $47,813,000, net of $3,316,000 of expenses, recorded in the first quarter of 2000. 9 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 9 Income taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of assets and liabilities, using enacted tax rates. SFAS No.109 requires that the net deferred tax asset be adjusted by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. As a result of the Company's sale of its remaining interest in Softworks in January 2000 and the sale of its ComputerCOP technology in February 2000 (Note 8), the Company recognized a taxable gain in the first quarter of 2000 and utilized all of its then estimated available net operating loss carryforwards. The tax provision for the three months ended March 31, 2000 was $12,812,000, which consisted of deferred tax expense of $9,197,000 and current tax expense of $3,615,000. The Company's tax provision for the three months ended March 31, 2001, consists of current tax expense of $33,000. 10 Earnings per share For the three months ended March 31, 2001, outstanding stock options, warrants and other potential stock issuances have not been considered in the computation of diluted earnings per share amounts since the effect of their inclusion would be antidilutive. For the three months ended March 31, 2000, the Company's dilutive instruments are "in the money" stock options with various exercise dates and prices. The Company uses the treasury stock method to calculate the effect that the conversion of the stock options would have on earnings per share ("EPS"). The following table sets forth the computation of basic and diluted EPS:
Three months ended March 31, --------------------------- 2001 2000 ---- ---- (in thousands, except per share data) Numerator: Net income (loss) $ (2,051) $ 19,673 ========= ========= Denominator: Weighted average shares outstanding (Denominator for basic EPS) 1,425 1,368 Effect of dilutive securities Stock options N/A 45 --------- --------- Denominator for diluted EPS 1,425 1,413 ========= ========= Basic net income (loss) per share $ (1.44) $ 14.38 Diluted net income (loss) per share $ (1.44) $ 13.92
10 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 11 Convertible Debentures On September 27, 2000, the Company entered into an agreement to sell an aggregate principal amount of $3,000,000 of Convertible Debentures (the "Debentures") bearing interest at a rate of 6% per annum, due September 27, 2002. The Company sold the full amount of $3,000,000 of Debentures in 2000. The Debentures were convertible into shares of the Company's common stock beginning February 25, 2001, subject to certain limitations. The Company had the right, exercisable at any time, to prepay all or any portion of the outstanding principal amount of the Debentures for which conversion notices had not previously been delivered. On January 30, 2001, the Company exercised its prepayment rights and paid the Holders $3,700,000, plus accrued interest. The Debentures originally had a minimum assured discount of 18% from the fair value of the Company's common stock, as defined. In connection with that discount, the Company recorded debt discount of $658,000 upon receipt of $3,000,000 in funds and was amortizing the discount over the period the Debentures were issued to the date they first became convertible. As a result of the prepayment, the discount, which was originally credited to additional paid-in-capital, was reversed in the first quarter 2001, resulting in a loss of $185,000. The Company recorded total interest charges of $751,000 ($353,000 in 2000 and $398,000 in 2001, including the $185,000 loss). 12 Investments In Non-Marketable Securities In February 2001, the Company made an equity investment of $500,000 in Voyant. Voyant is a privately held company, and accordingly, the investment is reflected on the Company's balance sheet as a non- marketable security, which is included in other assets - long term. The Company's Chairman is also the Chairman of Voyant. 13 Subsequent Event In May, 2001, the Company and Platinum Communications, Inc. ("Platinum") completed a merger under an Agreement and Plan of Merger ("Merger Agreement"). Under the Merger Agreement, a newly formed wholly owned subsidiary of the Company acquired all of the outstanding common stock of Platinum. Platinum markets proprietary back office software solutions either as a license or as an Application Service Provider to the telecommunications sector. The former shareholders of Platinum received an aggregate of $50,000, and 113,334 shares, (valued at $233,000), of which 46,667 are subject to various performance provisions, which if not achieved would result in the return of a portion or all of the 46,667 shares. In addition, two key employees of Platinum have entered into three year employment agreements with the Company, with an aggregate base compensation of $300,000 per annum and options to purchase an aggregate of 20,000 shares of the Company's common stock vesting over three years, with an exercise price of $2.06, the fair market value on the date of the grant. Further, as part of their employment agreements, the two key employees can, based upon achieving certain revenue thresholds, earn up to an aggregate of a maximum of $1,000,000 in employee incentive bonuses. The acquisition will be accounted for as a purchase and, accordingly, assets and liabilities will be fair valued at the date of acquisition and the results of operations will be included in the consolidated financial statements of the Company, commencing that date. Management of the Company has determined that Platinum is not a significant subsidiary, as defined. As such, and no financial information is required to be presented. 11 DIRECT INSITE CORP. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Forward looking statements All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company's' management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, fluctuations in future operating results, technological changes or difficulties, management of future growth, the risk of errors or failures in the Company's software products, dependence on proprietary technology, competitive factors, risks associated with potential acquisitions, the ability to recruit personnel and the dependence on key personnel. Such statements reflect the current views of management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. Overview Direct Insite Corp. and subsidiaries (the "Company") operate primarily as an Application Service Provider (generally referred to as an ASP, also referred to as the Server Farm) providing high volume data processing and analysis tools for their customers. The Company's core technology, d.b.Express, is a management information tool providing targeted access through the mining of large volumes of transactional data. This service presently is being marketed solely for telecommunications analysis. The Server Farm permits end users the ability to visually access and analyze information through the Internet. Data can be visually presented using the Company's patented data visualization technology. Additionally, in the fourth quarter 2000, the Company entered into a license agreement that will enable it to add to its suite of products and services, a complete Electronic Bill Presentment and Payment ("EBPP"), as well as an Internet Customer Care ("ICC") tool set. In 2000, Company began offering a new consulting service, "Telecommunications Solutions" (also marketed under the name Global Telecommunications Services or GTS). The primary function of the consulting service is to create cost savings for its customers through effectively negotiating their telecommunications and network service provider contracts as well as reviewing both past and future communication expenditures to assure compliance. The Company is combining this service with its Server Farm to create a unique, powerful detailed customer profile. This new, enhanced profile will allow customers to efficiently optimize all telecommunications contract compliance, establish traffic metrics, monitor invoice accuracy and rate compliance as well as support complex invoicing and reporting requirements, exception reporting and electronic invoicing, all via the Internet. This new service continues to meet resistance in the marketplace. To date, revenue from this service has been insignificant. In the first quarter of 2000, the Company's Board of Directors approved and the Company announced a restructuring plan that it believes will streamline the Company's operations and reduce overhead. As a result, the Company recorded a non-recurring restructuring charge of $15,176,000 in the year 2000. In February 2000 the Company sold its subsidiary, ComputerCOP Corp. to NetWolves for 1,775,000 shares of NetWolves common stock. The most significant portion of the Company's operations had historically been conducted through one of its subsidiaries, Softworks. Through Softworks, the Company developed, marketed and supported systems management software products for corporate mainframe data centers. Softworks was wholly owned by the Company through June 29, 1998, and majority owned through March 31, 1999. On January 27, 2000, the Company sold its remaining interest to EMC Corporation. 13 DIRECT INSITE CORP. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Results of operations During the first three months of 2001 and 2000, the Company's primary source of revenue was generated from the Server Farm. At present, the Server Farm technology has been developed to provide services solely for telecommunications analysis. Presently the Company is providing data analysis and reporting services for International Business Machines Corporation's ("IBM") telecommunications customers. IBM is currently the Company's largest customer with revenue of $467,000 and $412,000 for the three months ended March 31, 2001 and 2000, respectively. As part of an expanded agreement, the Company is scheduled to provide outsourcing services to assist IBM with certain tasks related to EBPP. The Company will supply processing services, application development, consulting and integration / implementation services to support electronic invoice presentation on behalf of IBM. As part of this expanded agreement, the Company is currently in the process of establishing a redundant facility within an IBM co-location center. The purpose of which is to ensure virtual zero down time. Additionally, the Company is presently determining costs and other barriers to possibly enter and attract new specific markets / applications. Server Farm revenue increased $37,000, or 8%, to $517,000 from $480,000 when comparing the three months ended March 31, 2001 to March 31, 2000. Included in of revenue for the three month period ended March 31, 2000, is $46,000 related to ComputerCOP, which was sold during the first quarter of 2000. (See Note 8). For the three month period ended March 31, 2001, total revenue decreased $9,000 when compared to the same time period in 2000. For the three months ended March 31, 2001, the cost of revenue was solely attributable to the Server Farm. It consisted primarily of the direct labor associated with processing call detail records, Internet connectivity costs and various overhead allocations of rent, utilities and telephones. For the three months ended March 31, 2000, in addition to Server Farm costs, the Company also incurred cost of revenue of $11,000 relating to ComputerCOP. While revenue related to the Server Farm for the three-month period ended March 31, 2001 increased $37,000 when compared to the three months ended March 31, 2000, costs as a percentage of revenue decreased to 11.4 % from 16.3%. The Company believes that the cost of revenue associated with the Server Farm revenue is not directly proportional. As such, as revenue increases, costs, as a percentage of revenue, should decrease. The depreciation of the Server Farm's hardware is included in "Amortization and depreciation." Overall, when comparing the three-month periods ended March 31, 2001 and March 31, 2000, the Company reduced its research and development expenses by $2,431,000. Research and development expenses consist primarily of salaries and related costs (benefits, travel, training) for developers, sales application engineers, quality control / quality assurance and documentation personnel. It also includes, consultants as well as applicable overhead allocations. During the three months ended March 31, 2000 it also included costs associated with the development of the multi-media display station. Pursuant to the restructuring plan put in place during March 2000, the Company ceased development of the multi-media display station. As a result, there are no expenses attributable to this project in the first quarter of 2001, thereby creating a reduction of $1,793,000 when compared the three months ended March 31, 2000. With respect to the Server Farm, the Company continues to upgrade improve and enhance the underlying technology associated with this offering. Further, it anticipates releasing a new version of the d.b.Express? technology in 2001. It should be noted that when comparing the three-month periods ended March 31, 2001 and 2000, the Company reduced its development costs associated to the Server Farm by $638,000. 14 DIRECT INSITE CORP. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Sales and marketing expenses decreased $2,931,000 to $505,000 for the three-month period ended March 31, 2001, when compared to $3,436,000 for the three month period ended March 31, 2000. Sales and marketing expenses include salaries and related costs, commissions, travel, facilities, communications costs and promotional expenses for the Company's direct sales organization and marketing staff. Major factors for this decrease was again a result of the restructure plan, which included $1,126,000 related to consultants' fees, and $796,000 as a result of reduced staffing levels. An approximate $103,000 reduction was the result of decreased advertising and promotional costs. Additional reductions of approximately $210,000 were a result of the sale ComputerCOP in the first quarter 2000. Further, there was a reduction of expenses of $597,000 as a result of a contractual arrangement wherein the Company no longer is responsible for the marketing efforts relating to the multi-media display station. These reductions were offset by $81,000 of expenses attributable to the Company's new consulting service. General and administrative expenses include administrative and executive salaries and related benefits, legal, accounting and other professional fees as well as general corporate overhead. Expenses decreased $2,340,000 to $830,000 for the three-month period ended March 31, 2001, when compared to the three-month period ended March 31, 2000. Major factors contributing to this decrease include, among other things, staff reductions ($1,253,000), reduced legal expenses ($489,000) and the reduction in the retention of financial consultants ($306,000). Management believes the costs saving measures it had put in place during 2000, in addition to the effects of the 2000 restructuring plan, should, for other than expenses that vary with sales volume, continue for the foreseeable future. Amortization and depreciation expenses increased $29,000 when comparing the three-month period ended March 31, 2001 and March 31, 2000. The increase is primarily attributable to the purchase of property and equipment acquired during the first quarter of 2001. Gain on sale of Softworks of $47,813,000 during the quarter ended March 31, 2000 represents the gain associated with a tender offering for the purchase of Softworks common stock made by EMC Corporation, which was completed on January 27, 2000. See Note 8. Gain on sale of ComputerCOP assets held for sale of $8,534,000 during the quarter ended March 31, 2000 represents the gain associated with an agreement dated February 10, 2000 for the sale of the ComputerCOP subsidiary to NetWolves Corporation. See Note 8. The Company's tax provision for the three months ended March 31, 2001 was $33,000. As a result of the Company's sale of its remaining interest in Softworks in January 2000 and the sale of its ComputerCOP technology in February 2000, the Company recognized a taxable gain in the first quarter of 2000 and utilized all of its then estimated available net operating loss carryforwards. The tax provision for the three months ended March 31, 2000 was $12,812,000, which consisted of deferred tax expense of $9,197,000 and current tax expense of $3,615,000. 15 DIRECT INSITE CORP. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Financial Condition and Liquidity For the three-month period ended March 31, 2001, the Company continued to incur operating losses. The Company used substantial amounts of cash in operating activities during the three months ended March 31, 2001. However, as a result of the cost saving measures implemented as part of the restructure plan put in effect in March, 2000, the Company has seen substantial reductions in its operating costs and use of funds when compared to prior periods. The Company continues to finance its operations from cash generated from the sale of Softworks. In late December 2000, the Company received $10,000,000, which was being held in escrow by EMC Corp as a condition to the sale in January, 2000 of the Company's shares of Softworks. As discussed in Note 11, the Company, during the period September through December 2000, sold $3,000,000 of 6% Convertible Debentures, which was settled with a payment of $3,751,000 in January, 2001. As discussed previously, in the first quarter of 2000, the Company's Board of Directors approved and the Company implemented a restructuring plan that streamlined the Company's operations and overhead structure. (See Note 3) As detailed in the Condensed Consolidated Statement of Cash Flows, during the three month period ended March 31, 2001, the Company utilized $3,727,000 in operating activities, which includes, among other items, a net loss of $2,051,000, $1,181,000 paid toward the restructuring and income taxes paid of $816,000, During the three months ended March 31, 2001, the Company, as a condition to a recently expanded service agreement with its major customer, commenced the establishment of a co-location facility by purchasing $350,000 of additional data processing and Internet connectivity equipment. In February 2001, the Company made an equity investment of $500,000 in Voyant Corp. ("Voyant"). (See Note 12) The Company's cash balance as of May 4, 2001, is approximately $1,944,000. Management's current short-term plan is primarily focused on achieving operating profit by successfully marketing innovative software products and services that capitalize on the Company's patented technologies. To achieve its goals, the Company restructured its operations in March, 2000, which reduced its operating expenses, while continuing to market the Server Farm. Additionally, the Company is continuing to market its new consulting service. The Company is continually reviewing its long-term business strategy. 16 As discussed in Note 13 to these Condensed Consolidated Financial Statements, the Company recently completed the acquisition of Platinum Communications, Inc., a provider of business-to-business infrastructure software for customer management, billing and operations for telecommunications, Internet and next generation communications service providers. Platinum's products provide an integrated solution based on a singular database strategy serving all order entry, workflow management, provisioning, rating and billing requirements for communications service providers. The acquisition should provide the Company with complementary technology for dbExpress-TM, the existing high volume data visualization, analysis and EBP&P toolset currently being marketed to the telecommunications industry. The Company believes this acquisition will allow it to capitalize on the growing trend for outsource services within the communications sector. Further, the acquisition broadens the product offering and completes the foundation of our current market strategy, that is to focus on the telecommunications market and expand our product / service offerings, specifically aimed at becoming a leading full service provider for all back office system functionality. Lastly, the Company intends to market its existing visual data analysis and EBP&P product offerings to Platinum's established clients, as well as through their distribution channels. Management believes that its plan will ultimately enable the Company to achieve positive cash flows from operations. Until such time, the Company believes that its present cash on hand and the liquidation of a portion of its investment in Netwolves should provide adequate funding through at least December 31,2001. The Company is deemed to be an Affiliate of NetWolves. As such, there are certain restrictions pursuant to regulations of the Securities and Exchange Commission that limit the amount of shares that the Company may sell in the open market in a 90-day period. Should the Company be required to liquidate shares in excess of the permitted quantities, the Company may need to sell a portion of its investment in private transactions. Private transactions would likely result in sales at a discount to the quoted market price. At March 31, 2001, the quoted market value of the 1,875,000 shares of NetWolves common stock was $5,625,000 ($3.000 per share). On May 14, 2001, the quoted market value of the NetWolves common stock was $5,418,750 ($2.89 per share). 17 DIRECT INSITE CORP. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 NetWolves is an innovator of firewall, security and all-in-one internet access device systems, which is a trend in the internet industry due to the enhanced functuality offered to end users. Their primary product is marketed under the trade name, FoxBox. In addition to the FoxBox appliances, NetWolves has patent pending "Mother System" technology that offers worldwide twenty-four hours a day, seven days a week, real-time monitoring and management of a complete network from one or many locations. In April 2000, the Company entered into a contractual arrangement with an unrelated third party, whereby the Company transferred all of its in-process research and development technology related to the multi-media display station for the rights to 50% of the future profits (as defined), if any, from the third party's operation or sale of this technology. The third party agreed to utilize its contacts in the industry and also agreed to fund all future costs associated with the continued development and marketing of the display station. There can be no assurances that the Company will recognize any proceeds from this transaction. 18 DIRECT INSITE CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Item 1. Legal Proceedings See Note 5 to the Financial Statements. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders A Special Shareholders Meeting was held on May 4, 2001 to approve a proposal to grant the Board of Directors authority to amend the Certificate of Incorporation to authorize a one-for-fifteen reverse stock split of the common stock. The results of the vote are: For - 18,349,923; Against - 2,165,245; Abstain - 89,636 Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K. Exhibits -------- 10.1 Agreement and Plan of Merger dated as of May 10, 2001 by and among Platinum Acquisition Corp., Direct Insite Corp, Platinum Communications, Inc., Kevin Ford and Ken Tanoury. 10.2 Employment Agreement dated as of May 10, 2001 between Platinum Acquisition Corp. and Kevin Ford. 10.3 Employment Agreement dated as of May 10, 2001 between Platinum Acquisition Corp. and Ken Tanoury. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIRECT INSITE CORP. /s/ James Cannavino - -------------------------- James Cannavino Chairman and Director May 14, 2001 /s/ George Aronson - -------------------------- George Aronson Chief Financial Officer May 14, 2001 20 EX-10.1 2 diex10-1platacq.txt AGREEMENT AND PLAN OF MERGER by and among Platinum Acquisition Corp. and its sole stockholder, Direct Insite Corp. and Platinum Communications, Inc. and its shareholders, Kevin Ford and Ken Tanoury May 10, 2001 TABLE OF CONTENTS PAGE ---- 1. The Merger 1 1.1 The Merger 1 1.2 Effect of the Merger 1 1.3 Consummation of the Merger 2 1.4 Charter; Bylaws; Directors and Officers 2 1.5 The Closing 2 1.6 Further Assurances 2 2. Conversion of Shares 2 2.1 Conversion of Shares 2 2.2 Stock Options, Warrants, Treasury Shares, Etc 2 2.3 Surrender and Exchange of Shares; Payment of Merger Consideration 3 2.4 The Earn-Out Shares 3 2.5 Closing of Stock Transfer Book 5 2.6 Voting and Dividend Rights 6 3. Representations and Warranties of the Shareholders and the Company 6 3.1 Organization 6 3.2 Capitalization 6 3.3 Authorization; Validity of Agreement 7 3.4 No Violations; Consents and Approvals 7 3.5 Company Financial Statements 8 3.6 No Material Adverse Change 8 3.7 No Undisclosed Liabilities 8 3.8 Litigation; Compliance with Law; Licenses and Permits 9 3.9 Employee Benefit Plans; ERISA 9 3.10 Real Property 10 3.11 Intellectual Property; Computer Software 11 3.12 Tangible Personal Property; Capital Budget 12 3.13 Material Contracts 12 3.14 Taxes 13 3.15 Affiliated Party Transactions 16 3.16 Environmental Matters 16 3.17 No Brokers 18 3.18 Accounts Receivable and Accounts Payable 18 3.19 Inventories 18 3.20 Product Claims 18 3.21 Warranties and Returns 18 3.22 Assets Utilized in the Business 19 3.23 Insurance 19 3.24 Delivery of Documents; Corporate Records 19 3.25 Customers, Suppliers and Distributors 19 TABLE OF CONTENTS (Cont'd) 3.26 Labor Matters 19 3.27 Bank Accounts 20 3.28 Directors, Officers and Certain Employees 20 3.29 No Misstatements or Omissions 20 3.30 Investment Undertaking 20 3.31 Conduct of Business 20 3.32 Notice of Developments 22 3.33 Equipment and Other Assets 22 3.34 Repayment of Certain Obligations to the Company 22 4. Representations and Warranties of the Buyer and Direct Insite 23 4.1 Organization of the Buyer Group 23 4.2 Authorization; Validity of Agreement 23 4.3 No Violations; Consents and Approvals 24 4.4 Litigation 24 4.5 Compliance with Law; Licenses and Permits 24 4.6 Capital Structure 25 4.7 Valid Issuance of Shares, Etc 25 4.8 Direct Insite Form 10-K and Financial Statements 25 4.9 No Misstatements or Omissions 25 4.10 Conduct of Business 26 5. Other Agreements of the Parties 26 5.1 Tax Returns; Taxes 26 5.2 Non-Disclosure of Confidential Information 26 5.3 No Solicitation of Employees, Suppliers or Customers 27 5.4 Non-Competition 27 5.5 Other Actions 27 5.6 Employment Agreements 28 5.7 Accounts Receivables 28 5.8 Company Financial Statements 28 5.9 Direct Insite SEC Filings 28 6. Conditions Precedent to the Closing. 29 6.1 Conditions Precedent to the Buyer Group's Obligations to Close 29 6.2 Conditions Precedent to the Seller Group's Obligations to Close 29 7. Documents to be Delivered at the Closing 30 7.1 Deliveries of the Seller Group 30 7.2 Deliveries of the Buyer 30 8. Termination 31 9. Indemnification 31 9.1 Survival of Representations and Warranties of the Seller Group 31 9.2 Survival of Representations and Warranties of the Buyer Group 32 TABLE OF CONTENTS (Cont'd) 9.3 Determination of Damages Without Regard to "Materiality" or "Knowledge" Qualifications 32 9.4 Indemnification by the Shareholders 33 9.5 Indemnification by the Buyer Group 33 9.6 Indemnification Procedures. 33 9.7 Limitations on Indemnification by the Shareholders. 35 9.8 Right to Set-Off 35 10. Miscellaneous 35 10.1 Transaction Fees and Expenses 35 10.2 Notices 36 10.3 Amendment 37 10.4 Waiver 37 10.5 Governing Law 37 10.6 Jurisdiction 37 10.7 Remedies 37 10.8 Severability 37 10.9 Further Assurances 38 10.10 Assignment 38 10.11 Binding Effect 38 10.12 No Third Party Beneficiaries 38 10.13 Entire Agreement 38 10.14 Headings 38 10.15 Counterparts 38 Schedules --------- Schedule 3.2(a)(i) Stock Ownership and Percentage Participation Schedule 3.2(a)(ii) Rights, Agreements and Interests in connection with Company Shares Schedule 3.4(b) Required Consents Schedule 3.5(a) Financial Statements of the Company Schedule 3.7(a) Liabilities Incurred since December 31, 2000 Schedule 3.8(a) Litigation Schedule 3.8(b) Violations of Law Schedule 3.9(a) Employee Benefit Plans Schedule 3.9(b) Employee Benefit Plans subject to Title IV of ERISA Schedule 3.10(b) Leased Property Schedule 3.11(a) Intellectual Property Schedule 3.11(b) Licenses Schedule 3.12(a) Title to Tangible Personal Property Schedule 3.12(b) Fixed Assets Ledger Schedule 3.12(c) Capital Budget Schedule 3.13 Material Contracts Schedule 3.14(a) Taxes Schedule 3.15 Affiliated Party Transactions Schedule 3.16 Environmental Matters Schedule 3.19 Inventories Schedule 3.20 Service and Product Liability Claims Schedule 3.21 Warranties and Returns Policies; Product Failures or Defects Schedule 3.22 Liens Schedule 3.23 Insurance Schedule 3.25 Customers; Suppliers and Distributors Schedule 3.27 Bank Accounts Schedule 3.28 Directors, Officers and Certain Employees Schedule 3.31(c) Dividends and Distributions by the Company Schedule 3.31(e) Permitted Benefits Schedule 3.31(f) Permitted Transactions Schedule 3.31(m) Permitted Expenditures Schedule 4.4 Buyer Group Litigation Exhibits -------- Exhibit 1.3 Form of Articles of Merger (Texas) Exhibit 5.6A Form of Kevin Ford Employment Agreement Exhibit 5.6B Form of Ken Tanoury Employment Agreement AGREEMENT AND PLAN OF MERGER Dated May 10, 2001 The parties to this Agreement and Plan of Merger (this "Agreement") are Platinum Acquisition Corp., a Texas corporation (the "Buyer") and a wholly-owned subsidiary of Direct Insite Corp., a Delaware corporation ("Direct Insite"), on the one hand, and Platinum Communications, Inc., a Texas corporation (the "Company"), Kevin Ford and Ken Tanoury, as the shareholders of the Company (each, a "Shareholder" and, collectively, the "Shareholders"), on the other hand. The Buyer and Direct Insite are hereinafter referred to collectively as the "Buyer Group" while the Company and the Shareholders are referred to collectively as the "Seller Group." This Agreement contemplates a transaction in which the Company will merge with and into the Buyer with the result that the Buyer will continue as the surviving corporation and the separate existence of the Company shall cease. As a result of the Merger, on the Closing Date (as hereinafter defined) the outstanding shares of the capital stock of the Company shall be converted into the right to receive: (i) an aggregate of 66,667 shares (the "Direct Insite Shares") of Direct Insite common stock, par value $.0001 per share ("Direct Insite Common Stock"), (ii) the Cash Consideration (as defined in section 2.3(b)), and (iii) an aggregate of an additional 46,667 shares of Direct Insite Common Stock (the "Earn-Out Shares"), subject to section 2.3(c). The parties hereto intend that this merger transaction be a tax-free reorganization under Section 368 of the Code (as hereinafter defined) and intend that this Agreement be a "plan of reorganization" within the meaning of the regulations promulgated under such Section of the Code. The Board of Directors of the Buyer and the Board of Directors of the Company have each determined that the Merger is in the best interests of their respective shareholders, as the case may be, and have each duly adopted resolutions approving this Agreement and the transactions contemplated hereby. In accordance with the foregoing, the Buyer desires to merge with the Company and the Company desires to merge with and into the Buyer, upon and subject to the terms and conditions set forth below. It is therefore agreed as follows: 1. The Merger. 1.1 The Merger. Subject to the terms and conditions of this Agreement, upon the Closing (as hereinafter defined), in accordance with this Agreement, the terms and conditions set forth herein and in accordance with the Texas Business Corporation Act (the "TBCA"), Direct Insite and the Shareholders shall cause the Company to be merged with and into the Buyer (the "Merger") such that the Buyer shall be the surviving corporation. 1.2 Effect of the Merger. The Merger shall have the effects set forth in the TBCA. Without limiting the generality of the foregoing, and subject thereto, upon the Closing all the assets, properties, rights, privileges, powers and franchises of the Company shall vest in the Buyer and, subject to section 3.34, all debts, liabilities and duties of the Company shall become the debts, liabilities and duties of the Buyer. 1 1.3 Consummation of the Merger. The Merger shall become effective upon the filing with the Secretary of State of Texas of properly executed articles of merger and other documents in the form of Exhibit 1.3 (the "Articles of Merger") on the Closing Date. The Merger shall be effective when the Articles of Merger have been filed. 1.4 Charter; Bylaws; Directors and Officers. The Articles of Incorporation of the Buyer from and after the Closing shall be the Articles of Incorporation of the Buyer immediately prior to the Closing unless amended pursuant to the Articles of Merger and thereafter amended in accordance with the provisions thereof and as provided by the TBCA. The Bylaws of the Buyer from and after the Closing shall be the Bylaws of the Buyer as in effect immediately prior to the Closing. The initial directors and officers of the Buyer on and after the Closing shall be the directors and officers, respectively, of the Buyer immediately prior to the Closing, in each case until their respective successors are duly elected and qualified. 1.5 The Closing. The consummation of the Merger and the other transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Buyer Group's counsel in New York, New York at 10:00 a.m., local time, on such date and such time as may be designated by the Buyer Group to the Seller Group on not fewer than five (5) days written notice. The date on which the Closing occurs is referred to as the "Closing Date." 1.6 Further Assurances. On and after the Closing Date, each of the parties to this Agreement shall from time to time, at the request of any of the other parties, promptly execute such instruments and take such other actions as the requesting party may reasonably request to vest, perform or confirm, of record or otherwise, in the Buyer, its respective rights, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of the Company, or otherwise to evidence or implement the transactions contemplated by this Agreement. 2. Conversion of Shares. 2.1 Conversion of Shares. By virtue of the Merger and without any action on the part of the Shareholders, at the Closing, all of the outstanding shares of common stock (the "Company Shares") of the Company, $.01 par value (the "Company Common Stock"), shall be converted into the right to receive (i) the Direct Insite Shares, (ii) the Cash Consideration, and (iii) the Earn-Out Shares, subject to section 2.3(c). 2.2 Stock Options, Warrants, Treasury Shares, Etc. Immediately prior to the Closing, the Company shall cause each outstanding stock option, warrant or other right to purchase any capital stock of the Company, whether or not then exercisable or vested, to be canceled, and no capital stock of Direct Insite, cash or other consideration shall be paid or delivered in exchange therefor. Any shares of the Company Common Stock held in the treasury of the Company shall be canceled and retired and no cash, securities or other consideration shall be paid in respect of such shares. 2 2.3 Surrender and Exchange of Shares; Payment of Merger Consideration (a) At the Closing, the Shareholders shall deliver certificates representing all issued and outstanding Company Shares to Direct Insite. The Shareholders shall be entitled, upon such surrender, to receive in exchange therefor, in the respective amounts set forth on Schedule 3.2(a)(i), without cost to them, the Direct Insite Shares, Cash Consideration and Earn- Out Shares into which the Company Shares represented by the certificate or certificates so surrendered shall have been converted as provided in section 2.1 hereof, and the certificate or certificates so surrendered in exchange for such consideration shall forthwith be canceled by Direct Insite. (b) At the Closing, upon the surrender for cancellation of the certificates representing the Company Shares pursuant to section 2.3(a) above, Direct Insite shall deliver the following: (i) certificate(s) representing the Direct Insite Shares, free and clear of all liens and encumbrances, claims, mortgages, pledges and security interests of any kind (collectively, "Liens"), registered in the names of the Shareholders as set forth on Schedule 3.2(a)(i), which certificates, notwithstanding anything to the contrary contained herein, at the Closing shall be deposited into escrow in accordance with section 2.3(c) hereof; and (ii) $50,000 in cash (the "Cash Consideration"), which shall be paid to the Shareholders at the Closing in proportion to their ownership of the Company Shares immediately prior thereto; and (iii) certificate(s) representing the Earn-Out Shares, free and clear of all Liens, registered in the names of the Shareholders as set forth on Schedule 3.2(a)(i), which certificates, notwithstanding anything to the contrary contained herein, at the Closing shall be deposited into escrow in accordance with section 2.3(c) hereof. (c) All of the Direct Insite Shares and Earn-Out Shares at the Closing shall be deposited into escrow by Direct Insite by delivery to Jenkens & Gilchrist Parker Chapin LLP, as escrow agent, to be held by such escrow agent in accordance with the terms of the escrow agreement dated the Closing Date (the "Escrow Agreement") among such escrow agent, the Shareholders, Direct Insite and the Buyer. 2.4 The Earn-Out Shares. (a) Subject to the terms of the Escrow Agreement, which in the event of any conflict with the terms hereof shall control, the Earn-Out Shares shall be subject to release from escrow as follows: (i) In accordance with generally accepted accounting principles, on or before April 16, 2002, Direct Insite shall determine the consolidated gross revenue of Direct Insite and the Buyer for the period from the Closing Date through December 31, 2001, which gross revenue for all purposes hereof 3 shall include all revenue during such period derived from the Buyer's account management system software (as acquired in the Merger). Subject to the procedures with respect to such determination as set forth in section 2.4(b) below, promptly following the final such determination of such gross revenue for such period, one-third of the Earn-Out Shares (which shall include interim cash dividends, the Earn-Out Shares and any and all shares of Direct Insite Common Stock or other securities, property or monies issued as a result of any stock split, stock dividend, subdivision, reclassification, combination, exchange, recapitalization, spin-off, split-off, merger, consolidation or other similar transaction with respect to such shares ("Additional Property")) shall be released (A) to the Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the event that such gross revenue equals or exceeds $2,500,000, or (B) to the Buyer or Direct Insite, as they shall instruct, in the event that such gross revenue is less than $2,500,000; (ii) In accordance with generally accepted accounting principles, on or before April 16, 2003, Direct Insite shall determine the consolidated gross revenue of Direct Insite and the Buyer for the full year ending December 31, 2002. Subject to the procedures with respect to such determination as set forth in section 2.4(b) below, promptly following the final such determination of such gross revenue for such year, one- half of the Earn-Out Shares (which shall include the Earn-Out Shares and any Additional Property with respect to such shares) not previously released in accordance herewith or with the Escrow Agreement shall be released (A) to the Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the event that such gross revenue equals or exceeds $7,500,000, or (B) to the Buyer or Direct Insite, as they shall instruct, in the event that such gross revenue is less than $7,500,000; (iii) In accordance with generally accepted accounting principles, on or before April 16, 2004, Direct Insite shall determine the consolidated gross revenue of Direct Insite and the Buyer for the full year ending December 31, 2003. Subject to the procedures with respect to such determination as set forth in section 2.4(b) below, promptly following the final such determination of such gross revenue for such year, all of the Earn-Out Shares (which shall include the Earn-Out Shares and any Additional Property with respect to such shares) not previously released in accordance herewith or with the Escrow Agreement shall be released (A) to the Shareholders in the proportion set forth in Schedule 3.2(a)(i) in the event that such gross revenue equals or exceeds $10,000,000, or (B) to the Buyer or Direct Insite, as they shall instruct, in the event that such gross revenue is less than $10,000,000; and (iv) Notwithstanding anything to the contrary contained herein, in the event that and upon the final closing of (i) a merger of Direct Insite with an unaffiliated third party in which Direct Insite is not the surviving entity and in which the holders of the combined voting power of Direct Insite immediately prior to such closing represents not more than 30% of the combined voting power of such surviving entity immediately following such closing, or (ii) a sale by Direct Insite of all or substantially all of its assets to an unaffiliated third party, then all of the Earn-Out Shares remaining in escrow on the date of such closing pursuant to section 2.3 shall be released to the Shareholders in the proportion set forth in Schedule 3.2(a)(i), it being further agreed that in any event a management buy-out or similar "going-private" transaction shall not be deemed a transaction covered by either clause (i) or (ii) of this paragraph. 4 (b) In each case as contemplated by section 2.4(a) above, Direct Insite shall deliver to the Shareholders in writing Direct Insite's determination of the consolidated gross revenue figure as prepared by Direct Insite (the "Revenue Determination"). The Shareholders shall have twenty-five (25) days after receipt of the Revenue Determination (the "Revenue Dispute Period") to dispute the amount or the method of calculation of the amount reflected therein (a "Revenue Dispute"). If the Shareholders do not give written notice signed by both Shareholders of a Revenue Dispute to Direct Insite within the Revenue Dispute Period, the Revenue Determination shall be deemed to have been accepted by the Shareholders in the form in which it was delivered by Direct Insite. In the event that the Shareholders do not agree with the amount or the method of calculation of the Revenue Determination, the Shareholders shall give Direct Insite written notice signed by both Shareholders (a "Revenue Dispute Notice") within the Revenue Dispute Period, setting forth in detail the basis of his/their disagreement, and Direct Insite and the Shareholders shall, within ten (10) days after receipt by Direct Insite of such Revenue Dispute Notice, attempt to resolve such Revenue Dispute and agree in writing upon the final determination of gross revenue. In connection with the review by the Shareholders of the Revenue Determination, Direct Insite shall use its best efforts to make its workpapers of the Buyer's statements of income and cash flows for the applicable 12-month period then ended available to the Shareholders and both of the Shareholders shall sign any customary waivers requested by Direct Insite. In the event that the Shareholders and Direct Insite are unable to resolve any such Revenue Dispute within the ten (10) day resolution period, then a non "Big- Five" accounting firm which has not in the past provided any services to either Direct Insite, the Company or any affiliate thereof, selected by Direct Insite and reasonably acceptable to the Shareholders (the "Appraiser") shall be employed as appraiser hereunder to settle such Revenue Dispute as soon as reasonably practicable in which case (x) each party shall furnish to the Appraiser such workpapers and other documents and information as the Appraiser may request, (y) each party and its accountants shall be afforded reasonable opportunity to present such material relating to the disputed issues as it may wish to the Appraiser and to discuss the disputed issues with it, (z) the Appraiser shall render its determination(s) in writing by notice to the parties, which determination(s) shall be final and binding on the Shareholders and Direct Insite (the "Appraiser's Revenue Determination"). The Shareholders, on one hand, and Direct Insite, on the other hand, shall bear the fees and expenses of the Appraiser for the services of the Appraiser in proportion to the difference between the determination of gross revenue as submitted to the Appraiser by the Shareholders and the Appraiser's Revenue Determination, calculated as follows: (i) the Shareholders jointly shall bear the portion of such fees and expenses equal to a fraction, the numerator of which is equal to the excess of the determination of gross revenue as submitted to the Appraiser by the Shareholders over the Appraiser's Revenue Determination, and the denominator of which is the excess of the determination of gross revenue as submitted to the Appraiser by the Shareholders and the Revenue Determination as submitted to the Appraiser by Direct Insite and (ii) Direct Insite shall bear the remaining portion of such fees and expenses; provided, however, that in the event the fraction set forth in the preceding clause (i) is less than zero, such fraction shall be deemed to equal zero, and in the event that the fraction set forth in the preceding clause (i) is greater than one, such fraction shall be deemed to equal one. 2.5 Closing of Stock Transfer Book. On and after the date of this Agreement there shall be no transfers on the stock transfer books of the Company of shares of capital stock of the Company that were issued and outstanding immediately prior to the date hereof. 5 2.6 Voting and Dividend Rights. (a) Subject to the terms of the Escrow Agreement, all voting rights with respect to Direct Insite Shares and Earn-Out Shares (including all Direct Insite Common Stock issued as Additional Property) held in escrow pursuant to the terms of the Escrow Agreement may be exercised by the respective Shareholders during the period that such shares are so held in escrow. (b) Subject to the terms of the Escrow Agreement, all Additional Property issued with respect to Direct Insite Shares and Earn-Out Shares held in escrow pursuant to the terms of the Escrow Agreement shall be deemed to have been paid or made to the respective Shareholders for income tax purposes. 3. Representations and Warranties of the Shareholders and the Company. Each Shareholder, severally in the proportion that he owns the Company Shares immediately prior to the Closing (subject to the limitations on indemnification set forth in section 9.7), and the Company, jointly and severally with the Shareholders, represent and warrant to the Buyer and Direct Insite as follows: 3.1 Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted in the State of Texas, which is the only state in which a qualification or licensing to conduct its business is required, except those states in which the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not have or be reasonably expected to have a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of the Company or the Buyer either before or following the transactions contemplated hereby (a "Material Adverse Effect on the Company"). The Company has delivered to the Buyer Group true, correct and complete copies of the Company's Articles of Incorporation and Bylaws, as in effect immediately prior to Closing. 3.2 Capitalization. (a) The authorized capital stock of the Company consists of 75,000 shares of Company Common Stock. The Company Shares are the only shares of capital stock of the Company that are issued and outstanding, and all of the Company Shares are owned of record and beneficially by the Shareholders as set forth on Schedule 3.2(a)(i), free and clear of any Liens. All of the Company Shares are duly authorized, validly issued, fully paid and non- assessable. Except as set forth on Schedule 3.2(a)(ii), there are no (i) options, warrants, calls, preemptive rights, subscriptions or other rights, convertible securities, agreements or commitments of any character obligating, now or in the future, the Company or the Shareholders to issue, transfer or sell any shares of capital stock, options, warrants, calls or other equity interest of any kind whatsoever in the Company or securities convertible into or exchangeable for such shares or equity interests, (ii) contractual obligations of the Company to repurchase, redeem or otherwise acquire any capital stock or equity interest of the Company or (iii) voting trusts, proxies or similar agreements to which the Company or any of the Shareholders is a party with respect to the voting of the capital stock of the Company. 6 (b) The Company does not own any outstanding shares of capital stock (or other equity interests of entities other than corporations) of any partnership, joint venture, trust, corporation, limited liability company or other entity (each, an "Entity"). 3.3 Authorization; Validity of Agreement. Each of the Shareholders and the Company has the requisite capacity or corporate power and authority, as the case may be, to execute, deliver and perform this Agreement and each of the other agreements, instruments, documents and certificates to be executed and delivered by the Company or the Shareholders, as the case may be, pursuant to this Agreement, including but not limited to any item referred to in Article 7 (collectively, with this Agreement, the "Transaction Documents"), to which the Company or the Shareholders, as the case may be, are party, and to assume and perform its or their obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each of the Shareholders and the Company of this Agreement and the other Transaction Documents to which the Company or any Shareholder is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Company and the shareholders of the Company to the extent legally required, and no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation of the transactions contemplated hereby and thereby. Each of this Agreement and the other Transaction Documents has been duly executed and delivered by the Company and the Shareholders, as applicable, and is a valid and binding obligation of the Company and the Shareholders that are parties thereto, enforceable against each of them in accordance with their respective terms, except that such enforcement may be limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally, (ii) equitable rules or principles affecting the enforcement of obligations generally, whether at law or in equity, or (iii) the exercise of the discretionary powers of any court before which may be brought any proceeding seeking equitable remedies, including without limitation specific performance and injunctive relief. 3.4 No Violations; Consents and Approvals. (a) The execution, delivery and performance of each of this Agreement and the other Transaction Documents by the Company and the Shareholders party thereto, do not, and the consummation by them of the transactions contemplated hereby and thereby will not: (i) violate any provision of the Articles of Incorporation or Bylaws of the Company, or (ii) violate any Law (as defined in section 3.8(b)) applicable to the Shareholders or the Company or any of their respective properties or assets, except with respect to clause (ii) such violations as would not individually or in the aggregate have or be reasonably expected to have a Material Adverse Effect on the Company. (b) No filing or registration with, notification to, or authorization, consent or approval of, any legislative or executive agency or department or other regulatory service, authority or agency or any court, arbitration panel or other tribunal or judicial authority of any foreign, provincial, United States federal, state, county, municipal or other local jurisdiction, political entity, body, organization, subdivision or branch (each, a "Governmental Entity") or any other individual or other entity (each, a "Person") is required in connection with the execution, delivery and performance of this Agreement or any of the other Transaction Documents by the Company or the Shareholders or the 7 consummation by the Company or the Shareholders of the transactions contemplated hereby and thereby, except for such consents, approvals, orders, authorizations, notifications, notices, estoppel certificates, releases, registrations, ratifications, declarations, filings, waivers, exemptions or variances (individually, a "Consent" and collectively, "Consents") with respect to any License (as defined in section 3.8(c)) or Law as are set forth on Schedule 3.4(b) hereof (the "Required Consents") and except for those Consents whose failure to be obtained individually or in the aggregate would not have or be reasonably expected to have a Material Adverse Effect on the Company. 3.5 Company Financial Statements. (a) Attached to Schedule 3.5(a) is the balance sheet of the Company as of December 31, 2000 (the "Year-End Balance Sheet"), together with the related statements of income and retained earnings and statements of cash flows for the year ended December 31, 2000, a balance sheet (the "Pre-Closing Balance Sheet") of the Company as of a date not earlier than ten days prior to the date hereof and a detailed schedule of accounts receivable and accounts payable as of the date of the Pre-Closing Balance Sheet, including the aging thereto (collectively, the "Company Financial Statements"). (b) The Company Financial Statements have been derived from, and agree with, the books and records of the Company and fairly present the financial position of the Company as of the respective dates thereof and the results of operations of the Company for the respective periods set forth therein. The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied ("GAAP"), as of the dates and for the periods involved, except to the extent that the Pre-Closing Balance Sheet omits footnotes and is subject to normal year-end adjustments. 3.6 No Material Adverse Change. Since December 31, 2000, (i) no event, condition or circumstance has occurred that could, or could be reasonably likely to, have a Material Adverse Effect on the Company, other than events, conditions or circumstances solely attributable to general economic conditions; and (ii) the Company has not taken, nor have the Shareholders permitted to be taken, any action that if taken or permitted to be taken after the date hereof would constitute a violation or breach of or would otherwise be inconsistent with any of the provisions set forth in section 3.31(a) through (p). 3.7 No Undisclosed Liabilities. (a) The Company does not have, and as of the Closing will not have, any liabilities (whether accrued, contingent, known, or otherwise) other than those that (i) are set forth or reserved against on the Year-End Balance Sheet; or (ii) were incurred since December 31, 2000 in the ordinary course of business, none of which, individually or in the aggregate, is material to the Company's business, operations, condition or prospects, all of which are set forth on Schedule 3.7(a). 8 (b) The accounts payable of the Company set forth in the Year-End Balance Sheet or arising subsequent thereto are the result of bona fide transactions in the ordinary course of business. 3.8 Litigation; Compliance with Law; Licenses and Permits. (a) Except as set forth in Schedule 3.8(a), there is no claim, suit, action, or proceeding (each, a "Proceeding") pending, nor is there, to Seller Group's best knowledge, any Proceeding threatened or any investigation, that involves or affects the Company, by or before any Governmental Entity or any other Person. (b) Except as set forth on Schedule 3.8(b) and except where the failure to so comply individually or in the aggregate would not have or be reasonably expected to have a Material Adverse Effect on the Company, the Company has, and on the Closing Date will have, complied in with all applicable criminal, civil or common laws, statutes, ordinances, orders, codes, rules, regulations, policies, guidance documents, writs, judgments, decrees, injunctions, or agreements of any Governmental Entity (collectively, "Laws"), including but not limited to Laws relating to Taxes (as defined in section 3.14(b)), zoning, building codes, antitrust, occupational safety and health, industrial hygiene, environmental protection, water, ground or air pollution, the generation, handling, treatment, storage or disposal of Hazardous Substances (as defined in section 3.16(k)), consumer product safety, product liability, hiring, wages, hours, employee benefit plans and programs, collective bargaining and the payment of withholding and social security taxes. Since January 1, 1998, no member of the Seller Group has received any notice of any violation of any Law except as set forth on Schedule 3.8(b). (c) The Company has every license, permit, certification, qualification or franchise issued by any Governmental Entity (each, a "License"), and every Consent by or on behalf of any Person that is not a party to this Agreement, in each case which the Seller Group believes necessary for the Company to conduct its business as presently conducted. All such Licenses and Consents are in full force and effect and neither the Company nor the Shareholders has received notice of any pending cancellation or suspension of any thereof nor, to the knowledge of the Shareholders, is any cancellation or suspension thereof threatened. The applicability and validity of each such License and Consent will not be adversely affected by the consummation of the transactions contemplated by this Agreement, except where any inapplicability or invalidity would not have or be reasonably expected to have a Material Adverse Effect on the Company. 3.9 Employee Benefit Plans; ERISA (a) Schedule 3.9(a) lists each "employee benefit plan" (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")), and all other material employee benefit (including, without limitation, any non-qualified plans), bonus, deferred compensation, incentive, stock option (or other equity-based), severance, change-in- control, medical insurance and fringe benefit plans maintained for the benefit of, or contributed to by the Company or any trade or business, whether or not incorporated (an "ERISA Affiliate"), that would be deemed a "single employer" within the meaning of Section 4001 of ERISA, 9 for the benefit of any employee or former employee of the Company (the "Plans"). The Seller Group has heretofore delivered to the Buyer Group, true, correct and complete copies of each of the Plans, including all amendments to date. (b) Each of the Plans that is subject to ERISA complies with ERISA and the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code") and has been administered in accordance with ERISA and, where applicable, the Code. Each of the Plans intended to be "qualified" within the meaning of Code Section 401(a) has received a timely determination letter from the Internal Revenue Service that it is so qualified and neither Shareholder nor the Company knows of any facts or circumstances that would materially adversely affect such qualification. Except as set forth in Schedule 3.9(b), none of the Plans is subject to Title IV of ERISA. No "reportable event," as such term is defined in Section 4043(b) of ERISA, has occurred with respect to any Plan. There are no pending or, to the knowledge of any Shareholder or the Company, threatened claims (other than routine claims for benefits), actions, suits or proceedings by, on behalf of or against any of the Plans or any trusts related thereto. (c) No Plan provides benefits including, without limitation, death or medical benefits (whether or not insured), with respect to any employees or former employees of the Company beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law, (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA, or (iii) benefits the full cost of which is borne by the current or former employee (or his or her beneficiary). (d) With respect to each Plan, neither the Company, the Shareholders nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is defined in Section 4975 or Section 406 of ERISA) that would subject the Company, or the Buyer Group to any taxes, penalties or other liabilities resulting from prohibited transactions under Code Section 4975 or Sections 409 or 502(i) of ERISA. (e) The Company has complied with the notice and continuation of coverage requirements of Code Section 4980B and the regulations thereunder with respect to each plan that is, or was during any taxable year of the Company for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 4980B(g) of ERISA. (f) No Plan has incurred an "Accumulated Funding Deficiency" (as defined in Section 302(a) of ERISA or Code Section 412(a)), whether or not waived. (g) Neither the Company, the Shareholders nor any ERISA Affiliate has incurred or would incur a "withdrawal" or "partial withdrawal," as defined in Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result in a withdrawal liability of the Company or any ERISA Affiliate under such Plan. 3.10 Real Property. (a) The Company does not have any ownership interest in any real property. 10 (b) Schedule 3.10(b) contains a true, correct and complete list of all the leases, subleases, licenses and other agreements under which the Company uses or occupies or has the right to use or occupy, now or in the future, any real property (such land, buildings and other improvements being herein called collectively, the "Leased Property"), and all leases, subleases and other agreements under which the Company gives another Person the right to use or occupy, now or in the future, the Leased Property. All agreements set forth on Schedule 3.10(b) are hereinafter called collectively, the "Real Property Contracts." The Shareholders have heretofore delivered to the Buyer Group true and correct copies of all Real Property Contracts. Each Real Property Contract is in full force and effect, all rent and other sums and charges payable by or to the Company thereunder are current, no written notice of default or termination under any Real Property Contract is outstanding, no termination event or condition or default which has remained uncured beyond applicable cure periods on the part of the Company or any other Person exists under any Real Property Contract, and no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition. The Company has a valid and enforceable leasehold interest in the Leased Property, subject to no Liens or Title Defects which interfere with the operation of the Company's business. No Affiliate (as defined in section 3.15) of the Company is the owner of, or has any ownership, economic or similar interest in, any lease, sublease, license or other agreement concerning the Leased Property. None of the Real Property Contracts have been amended, modified or extended as of the date hereof. The Company maintains actual and exclusive possession of the Real Property. 3.11 Intellectual Property; Computer Software. (a) Schedule 3.11(a) lists all items of intellectual property including, without limitation, trademarks, trade names, service marks, service names, mark registrations, logos, assumed names, copyrights, copyright registrations, patents, know-how and all applications therefor that are owned by the Shareholders, the Company or any other Person and used by the Company in the operations of its business, (collectively, "Intellectual Property"), and there are no pending or threatened claims by any Person relating to the Company's use of any Intellectual Property. Except as set forth in Schedule 3.11(a), the Company has such rights of ownership (free and clear of all Liens) of, or such rights by license, lease or other agreement to use (free and clear of all Liens) the Intellectual Property as are necessary to permit the Company to conduct its business and the Company is not obligated to pay any royalty or similar fee to any Person in connection with the Company's use or license of any of the Intellectual Property. (b) Except as set forth on Schedule 3.11(b), the Company has such rights of ownership (free and clear of all Liens) of, or such rights by license, lease or other agreement to use (free and clear of all Liens), the computer software programs including, without limitation, application software that are used by the Company and that are material to the conduct of its business as currently conducted, as are necessary to permit the conduct of its business as currently conducted. None of the Company's ownership rights or rights to use any of the computer programs referred to above will be adversely affected by any of the transactions contemplated hereby. 11 3.12 Tangible Personal Property; Capital Budget. (a) Except as set forth on Schedule 3.12(a), the Company has good title to all tangible personal property used in its business or located on its premises free and clear of all Liens. (b) All material items of machinery, equipment, tooling and other tangible personal property owned or leased by the Company and used in the conduct of its business (other than items of inventory) are listed in the detailed fixed assets ledger of the Company attached to Schedule 3.12(b) (collectively, the "Personal Property"). The Personal Property conforms in all material respects to all requirements of applicable Laws, except as individually or in the aggregate would not have or be reasonably expected to have a Material Adverse Effect on the Company. All of the items of machinery and equipment included within the Personal Property are fully operational and operating in the ordinary course of the Company's business, as applicable, are in good operating condition and in a good state of maintenance and repair, are adequate for use in the conduct of the Company's business as previously conducted and as proposed to be conducted on an efficient and profitable basis. (c) Schedule 3.12(c) includes a true, correct and complete capital budget for the fiscal year ending December 31, 2001. Except as set forth on Schedule 3.12(c), no capital expenditures are contemplated by the Company. 3.13 Material Contracts. (a) Schedule 3.13 sets forth a true, complete and correct list of every note, bond, mortgage, indenture, guarantee, other evidence of indebtedness, license, lease, option, contract, undertaking, understanding, covenant, agreement or other instrument or document (each, a "Contract") to which the Company is a party or by which any of its properties or assets may be bound or otherwise subject that: (i) provides for aggregate future payments by the Company or to the Company of more than $10,000 and has an unexpired term exceeding three (3) months and may not be canceled upon thirty (30) days notice without any liability, penalty or premium (excluding purchase orders and invoices arising in the ordinary course of business); (ii) was entered into by the Company with either of the Shareholders, or an officer, director or significant employee of the Company; (iii) is a collective bargaining or similar agreement; (iv) guarantees or indemnifies or otherwise causes the Company to be liable or otherwise responsible for the obligations or liabilities of another or provides for a material charitable contribution by the Company; (v) involves an agreement with any bank, finance company or similar organization; (vi) restricts the Company from engaging in any business or activity anywhere in the world; (vii) is an employment agreement, consulting agreement or similar arrangement with any employee of the Company; (viii) is a lease of real property; or (ix) is otherwise material to the rights, properties, assets, business or operations of the Company (the foregoing, collectively, "Material Contracts"). The Seller Group has heretofore provided true, complete and correct copies of all Material Contracts to the Buyer. (b) Except as set forth in Schedule 3.13: (i) each of the Material Contracts is in full force and effect, (ii) there is not, and there has not been, claimed or alleged by any Person with respect to any Material Contract, 12 any existing default, or event that with notice or lapse of time or both would constitute a default or event of default, on the part of the Company, or to the knowledge of the Company, on the part of any other party thereto and (iii) no Consent from, or notice to, any Governmental Entity or other Person is required in order to maintain in full force and effect any of the Material Contracts, other than such Consents that have been obtained and are unconditional and in full force and effect and such notices that have been duly given and copies of such Consents have been delivered to the Buyer Group. (c) Each of the Contracts to which the Company is a party and that is not listed on Schedule 3.13 does not involve the payment by the Company or to the Company of more than $10,000 (excluding purchase orders received from customers in the ordinary course for the sale of products at standard prices, or purchase orders given to suppliers in the ordinary course of business for the purchase of products at standard prices) and is not otherwise material, individually or together with one or more Contracts, to the Company or its business. 3.14 Taxes. (a) Except as set forth in Schedule 3.14(a): (1) the Company has (A) duly and timely filed or caused to be filed with the appropriate Tax Authority each Tax Return that is required to be filed by or on behalf of the Company or that includes or relates to the Company, its income, sales, assets or business, which Tax Return is true, correct and complete, (B) duly and timely paid in full or caused to be paid in full, all Taxes due and payable on or prior to the date hereof, and (C) properly accrued on the books and records of the Company (including, but not limited to, the Year-End Balance Sheet) in accordance with generally accepted accounting principles a provision for the payment of all Taxes due or claimed to be due or for which the Company otherwise is or may be liable; (2) the Company has not requested an extension of time within which to file any Tax Return in respect of any Tax period which has not since been filed; (3) the Company has complied in all respects with all applicable laws relating to the payment, collection or withholding of any Tax, and the remittance thereof to any and all Tax Authorities, including, but not limited to, Code Sections 1441, 1442, 1445 and 3402; (4) there is no lien for Taxes upon any asset or property of the Company (except for any statutory lien for any Tax not yet due); (5) the Company does not have, and is not expected to have, any liability in respect of any Tax as a transferee or successor of any Person (including, but not limited to, any liability arising under Treas. Reg. Sec. 1.1502-6), and the Company is not, and never has been, a party to any Tax allocation, Tax indemnification or Tax sharing contract or agreement; (6) all Taxes assessed or proposed to be assessed, if any, with respect to the Company's income, sales, assets or business, or for which the Company is or may be liable have been paid; 13 (7) any assessment, deficiency or adjustment related to or in connection with any Tax for which the Company is or may be liable or with respect to the Company's income, sales, assets or business that is or was required to be reported to any Tax Authority has been so reported, and any additional Taxes owed with respect thereto have been paid; (8) no Tax Proceeding has ever occurred or is pending, proposed, or threatened with respect to any Tax, the payment, collection or withholding of any Tax or any Tax Return filed by or on behalf of the Company; (9) the statute of limitations for any Tax Proceeding or the assessment or collection of any Tax for which the Company is or may be liable or with respect to the Company's income, sales, assets or business has never been extended or waived; (10) there is no outstanding subpoena or request for information or documents from any Tax Authority with respect to any Tax for which the Company is or may be liable or with respect to the Company's income, sales, assets or business; (11) the Company has never entered into any agreement with any Tax Authority (including, but not limited to, any closing agreement within the meaning of Code Section 7121 or any analogous provision of applicable law or any agreement relating to transfer or intercompany pricing) or requested or received a private letter or other ruling from any Tax Authority relating to any Tax for which the Company is or may be liable or with respect to the Company's income, sales, assets or business; (12) the Company is not a party to any contract, agreement or other arrangement that could result, alone or in conjunction with any other contract, agreement or other arrangement, in the payment of any amount that would not be deductible by reason of Code Sections 162, 280G or 404 or any similar provision of applicable law; (13) the Company is not a "consenting corporation" within the meaning of Code Section 341(f) or any similar provision of applicable law and has not agreed to have Code Section 341(f)(2) apply to any disposition of a subsection (f) asset (as such term is defined in Code Section 341(f)(4)) owned by the Company; (14) the Company does not have any "tax-exempt use property" within the meaning of Code Section 168(g) or Code Section 168(h) or any similar provision of applicable law with respect to the Company, its income, sales, assets or business; (15) none of the assets of the Company is required to be treated as being owned by any other person pursuant to any provision of applicable law, including, but not limited to, the "safe harbor" leasing provisions of Code Section 168(f)(8) as in effect prior to the repeal of those "safe harbor" leasing provisions; (16) the Company is not, nor has it been, a "United States real property holding corporation" within the meaning of Code Section 897(c)(2) at any time during the applicable period referred to in Code Section 897(c)(1)(A)(ii); 14 (17) no election under Code Section 338 or any similar provision of applicable law has been made or required to be made by or with respect to the Company (or a subsidiary, if any, of the Company); (18) the Company (i) has not adjusted or changed or received any request, demand, or proposal from a Tax Authority to adjust or change any accounting method, (ii) is not required to include in income any adjustment pursuant to Code Section 481(a) (or any similar provision of applicable law) by reason of a change in accounting method, and (iii) has neither deferred any income to a period after the Closing Date that has economically accrued or is otherwise attributable to a period prior to the Closing Date nor accelerated any deductions into a period ending on or before the Closing Date that will or may economically accrue after the Closing Date; (19) there is no power of attorney in effect relating to any Tax for which the Company is or may be liable or with respect to the Company's income, sales, assets or business; (20) no jurisdiction where the Company does not file a Tax Return has made or threatened to make a claim that the Company is required to file a Tax Return for such jurisdiction; (21) the Company and the Shareholders, to the extent permitted by Law, have closed (or taken all action necessary to permit the Company or the Buyer Group to close) each Tax Period that begins prior to the Closing Date as of the close of day immediately preceding the Closing Date or on the Closing Date; and (22) Schedule 3.14 sets forth a list of all elections currently in effect (or made within the five most recent Tax periods ending on or prior to the Closing Date) with respect to any Tax or Tax Return. (b) For purposes of this Agreement, (1) "Tax" means any tax, charge, fee, levy, deficiency or other assessment of whatever kind or nature including, without limitation, any net income, gross income, profits, gross receipts, excise, real or personal property, sales, ad valorem, withholding, social security, retirement, excise, employment, unemployment, minimum, estimated, severance, stamp, property, occupation, environmental, windfall profits, use, service, net worth, payroll, franchise, license, gains, customs, transfer, recording and other tax, duty, fee, assessment or charge of any kind whatsoever, imposed by any Tax Authority, including any liability therefor as a transferee (including without limitation under Code Section 6901 or any similar provision of applicable law), as a result of Treas. Reg. Sec.1.1502-6 or any similar provision of applicable law, or as a result of any tax sharing or similar agreement, together with any interest, penalties or additions to tax relating thereto. (2) "Tax Authority" means any branch, office, department, agency, instrumentality, court, tribunal, officer, employee, designee, representative, or other Person that is acting for, on behalf or as a part of any foreign or domestic government (or any political subdivision thereof) that is engaged in or has any power, duty, responsibility or 15 obligation relating to the legislation, promulgation, interpretation, enforcement, regulation, monitoring, supervision or collection of or any other activity relating to any Tax or Tax Return. (3) "Tax Proceeding" means any audit, examination, review, reassessment, litigation or other administrative or judicial proceeding relating to any Tax for which the Company is (or is asserted to be) or may be liable, the collection, payment or withholding of any Tax, or any Tax Return filed by or on behalf of the Company. (4) "Tax Return" means any return, election, declaration, report, schedule, information return, document, information, opinion, statement, or any amendment to any of the foregoing (including without limitation any consolidated, combined or unitary return) submitted or required to be submitted to any Tax Authority. (5) "Treas. Reg." means any temporary, proposed or final regulation promulgated under the Code. 3.15 Affiliated Party Transactions. Except for (i) obligations arising under this Agreement and other documents to be signed at the Closing, and (ii) as set forth on Schedule 3.15 hereto, as of the Closing Date neither the Company nor any of its affiliates, nor the Shareholders or any of their respective affiliates or immediate family (collectively, the "Affiliates"), will have, directly or indirectly, any obligation to or cause of action or claim against the Company. 3.16 Environmental Matters. Except as set forth on Schedule 3.16: (a) The Company is in compliance with, and its business has been conducted in compliance with, all Environmental Laws (as defined below) and Environmental Permits (as defined below); (b) No Site (as defined below) is a treatment, storage or disposal facility, as defined in and regulated under the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq., is on or ever was listed or is proposed for listing on the National Priorities List pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sec. 9601 et seq., or on any similar state list of sites requiring investigation or cleanup; (c) None of the Shareholders nor the Company has received any notice that remains pending or outstanding with respect to its business or any Site from any Governmental Entity or Person alleging that the Company is not in compliance with any Environmental Law; (d) There has been no Release (as defined below) caused by the acts or omissions of the Company or the Shareholders, or its or their agents, employees or representatives, of a Hazardous Substance (as defined below) at, from, in, to, on or under any Site that would require any corrective action at such Site and no Hazardous Substances are present in, on, about or migrating to or from any Site that could give rise to an Environmental Claim (as defined below) against the Company; (e) There are no pending or outstanding notices, orders or other directives by any Governmental Entity that require or may require the Company to conduct or 16 pay for any investigation, remediation or cleanup of any Site resulting from acts or omissions of the Company or the Shareholders, or its or their agents, employees or representatives, and there have been no corrective actions required of the Company by any Governmental Entity at any Site in the past; (f) The Company has obtained and holds all necessary Environmental Permits, and those Environmental Permits will remain in full force and effect after the consummation of the transactions contemplated hereby, subject to any notices, modifications or amendments required to be filed with the appropriate Governmental Entity to reflect the change in ownership or control and the payment of any fees required in connection with such filings, all of which required filings and fees are identified on Schedule 3.16.; (g) There are no past or pending, or to the knowledge of the Shareholders or the Company, threatened, Environmental Claims against the Company, and neither the Company nor any Shareholder is aware of any facts or circumstances that could be expected to form the basis for any Environmental Claim against the Company that individually or in the aggregate would have or be expected to have a Material Adverse Effect on the Company; and (h) As used herein, (i) "Environment" means all air, surface water, groundwater, or land, including land surface or subsurface, including all fish, wildlife, biota and all other natural resources; (ii) "Environmental Claim" means any and all administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings or other communications (written or oral), whether criminal or civil (collectively, "Claims"), pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Entity, Person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential: (A) violation of or liability under any Environmental Law, (B) violation of any Environmental Permit, or (C) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the Environment, of any Hazardous Substances at any location, including, but not limited to, any off-Site location to which Hazardous Substances or materials containing Hazardous Substances were sent by the Company for handling, storage, treatment, or disposal; (iii) "Environmental Law" means any and all Laws relating to the protection of the Environment, worker health and safety, and/or governing the handling, use, generation, treatment, storage, transportation, disposal, manufacture, distribution, formulation, packaging, labeling, or Release of Hazardous Substances and the state analogies thereto, all as of the Closing Date, and any common law doctrine, including, but not limited to, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, Release, or exposure to a Hazardous Substance; (iv) "Environmental Permit" means any Licenses or Consents required by any Governmental Entity under or in connection with any Environmental Law; (v) "Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum products, petroleum by- products, radioactive materials, asbestos or asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and any other chemicals, materials, substances or wastes in any amount or concentration which are now included in the definition of "hazardous substances," "hazardous materials," "hazardous wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "pollutants," "regulated substances," "solid wastes," or "contaminants" or words of similar import, under any Environmental Law; (vi) "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous Substance into the Environment; and (vii) "Site" means any of the real properties currently or previously owned, leased, used or operated by the Company, any predecessors of the Company or any entities previously owned by the Company, including all soil, subsoil, surface waters and groundwater thereat. 3.17 No Brokers. Neither the Company nor the Shareholders has employed, or otherwise engaged, any broker or finder or incurred any liability for any brokerage or investment banking fees, commissions, finders' fees or other similar fees in connection with the transactions contemplated by this Agreement. 3.18 Accounts Receivable and Accounts Payable. All accounts receivable and all accounts payable of the Company have arisen from bona fide transactions in the ordinary course of the Company's business consistent with past practice and established in the ordinary course of such Company's business consistent with past practice. Each of the accounts receivable of the Company either has been or will be collected in full, without any set-off, within one hundred twenty (120) days after the day on which it first becomes due and payable. The Company has since December 31, 2000 collected and will collect the accounts receivable in the ordinary course of its business consistent with past practice and has not and will not accelerate or otherwise alter its collection practices. Since December 31, 2000, the Company has not and will not delay or alter in any way the payment by the Company under any of its accounts payable in a way inconsistent with its ordinary course of business. 3.19 Inventories. As reflected on the Company Financial Statements, the inventories of the Company's business have been valued at the lower of cost (on the first-in, first-out method) or market in accordance with GAAP, consistently applied, and the value of obsolete materials and materials of below standard quality has been written down in accordance with GAAP, consistently applied. Except as reflected in the Year-End Balance Sheet referred to in section 3.5, the inventories of the Company's business contain no material amount of items not salable or usable within six months from the date thereof at normal profit margins consistent with historical sales practices. Except as set forth in Schedule 3.19, the Company is not under any liability or obligation with respect to the return of inventory or merchandise in the possession of wholesalers, distributors, retailers or other customers. 3.20 Product Claims. No product liability claim is pending, or to the best knowledge of the Shareholders or the Company, threatened, against the Company or against any other party with respect to the products of the Company's business. Schedule 3.20 lists all service and product liability claims seeking damages in excess of $5,000 asserted against the Company (or in respect of which any member of the Seller Group has received notice) with respect to the products of the Company's business or the Company during the last three (3) years. Claims not listed on Schedule 3.20 do not aggregate more than $10,000. 3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the practices and policies followed by the Company with respect to warranties and returns of any products manufactured or sold by it, whether such practices are oral or in writing or are deemed to be legally enforceable. Except as set forth on Schedule 3.21, there is not presently, nor has there been since December 31, 18 1997, any failure or defect in any product sold by the Company that has required, or that may require, a general recall or replacement campaign or similar action with respect to such product or a reformulation or change of such product, nor has there been any acceptance of material quantities of returned or defective goods of the Company. 3.22 Assets Utilized in the Business. The assets, properties and rights owned, leased or licensed by the Company and used in connection with the Company's business and that will be owned, leased or licensed by the Company as of the Closing, and all the agreements to which any Shareholder or the Company is a party relating to the Company's business, constitute all of the properties, assets and agreements necessary to the Company in connection with the operation and conduct by the Company of its business as presently and as proposed to be conducted. Except as set forth on Schedule 3.22, as a result of the Merger and upon the Closing the Buyer will obtain good title to all of such assets, properties and rights, free and clear of all Liens. 3.23 Insurance. Schedule 3.23 contains a complete and correct list of all policies of insurance of any kind or nature covering the Company, including any policies of life, fire, theft, casualty, product liability, workmen's compensation, business interruption, employee fidelity and other casualty and liability insurance. All such policies (i) are sufficient for compliance with all material requirements of law and of all applicable material agreements; and (ii) are valid, outstanding and enforceable policies. Complete and correct copies of such policies have been furnished to the Buyer Group. All such insurance policies or comparable coverage shall be continued in full force and effect through the Closing Date. Since December 31, 1997, the Company has not been denied any insurance coverage which it has requested. 3.24 Delivery of Documents; Corporate Records. The Seller Group has heretofore delivered or made available to the Buyer Group true, correct and complete copies of all documents, instruments, agreements and records referred to in this Article 3 or in the Schedules to this Agreement and copies of the minute and stock record books of the Company. The minute and stock record books of the Company are, for all material purposes, true, correct and complete copies of the records of all meetings and consents in lieu of a meeting of the Board of Directors (and all committees thereof) and the shareholders of the Company since the date of its incorporation. 3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i) the sales of the Company for the fiscal year ended December 31, 2000 and the sales of the Company for the three months ended March 31, 2001; (ii) the ten customers with the highest dollar volume of purchases from the Company during each of those periods indicating the approximate total sales to each of those customers; and (iii) the ten largest suppliers and the ten largest distributors of the Company during each of those periods. Except as set forth on Schedule 3.25, there has not been any adverse change in the business relationship of the Company with any such customer, supplier or distributor, and neither the Shareholder or the Company is aware of any threatened loss of any such customer, supplier or distributor. 3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or other labor troubles pending or threatened with respect to the employees of the Company; no representation questions exist; there is no collective bargaining agreement binding on the Company and there is no agreement which restricts the Company from relocating or closing any or all of its businesses or operations; there are no grievances asserted that might have an adverse effect upon the Company's business, or the financial condition or prospects of the Company, nor is there pending any arbitration proceeding arising out of or under any labor union agreement; the Company has not experienced any work stoppage during the last five (5) years. 3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all banks, depositories and other financial institutions in which the Company has an account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. 3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a complete and correct list of the names, current annual salary, bonus and title, for each director and officer and each other employee of the Company who is a party to an employment agreement with the Company or who received annual compensation during the Company's most recently ended fiscal year, or who is entitled to receive compensation, on an annualized basis, whether or not paid to date, in excess of $30,000. Neither the Company nor either of the Shareholders is aware of any employee in the Company's senior management who intends to terminate his or her employment relationship with the Company, either as a result of the transactions contemplated hereby or otherwise. 3.29 No Misstatements or Omissions. No representation or warranty by the Shareholders or the Company contained in this Agreement and no statement contained in any certificate, list, Schedule, Exhibit or other instrument specified or referred to in this Agreement, whether heretofore furnished to the Buyer Group or hereafter furnished to the Buyer Group pursuant to this Agreement on the part of any member of the Seller Group contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 3.30 Investment Undertaking. Each Shareholder confirms that the shares of Direct Insite Common Stock to be issued to him pursuant to this Agreement will be "restricted securities" within the meaning of Rule 144 of the General Rules and Regulations under the Securities Act of 1933 ("Rule 144"). Each Shareholder is acquiring such shares for his own account and not with a view to their distribution within the meaning of section 2(11) of the Securities Act of 1933. Each Shareholder understands that such shares issued hereunder may not be disposed of for a period of at least one year (and possibly two years) pursuant to Rule 144. Each Shareholder understands that he must bear the economic risk of the investment indefinitely because such shares may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act of 1933 and applicable state securities laws or an exemption from registration is available. Each Shareholder is a sophisticated investor who either (i) has such knowledge and experience in financial and business matters such that he is capable of evaluating the merits and risks of this investment in the securities being acquired hereunder, or (ii) has obtained independent professional financial advice sufficient to enable him to evaluate the merits and risks of this investment in the securities being acquired hereunder. 3.31 Conduct of Business. Since December 31, 2000, the Company has conducted its business in the ordinary course, consistent with past practice, and in such a manner that would not result in a Material Adverse Effect. Without 20 limiting the generality of and in addition to the foregoing, prior to the Closing Date, none of the Shareholders nor the Company has, except as the Buyer may have otherwise consented to in writing, permitted the Company to: (a) amend its Articles of Incorporation or Bylaws; (b) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or any other securities; (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distributions (whether in cash, stock or property or any combination thereof) to the Shareholders or otherwise in respect of its capital stock or redeem or otherwise acquire any of its securities, or make any payments or distributions to the Shareholders, the Affiliates, or any Person (other than institutional bank lenders) to which the Company had, prior to Closing, any liability (other than trade accounts payable incurred in the ordinary course of business, subject to the provisions of Article 5) or any officer or director of the Company, except, as more fully described in Schedule 3.31(c), employment compensation to the Shareholders in annualized amounts not exceeding such payments made or accrued by the Company in the year ended December 31, 2000. (d) (i) incur or assume any indebtedness other than trade payables incurred in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for any obligations of any other Person; or (iii) make any loans, advances or capital contributions to, or investments in, any other Person (other than loans or advances to employees in the ordinary course of business in accordance with past practices); (e) except as set forth on Schedule 3.31(e), enter into, adopt or amend any bonus, profit sharing, compensation, severance, termination, stock option, stock appreciation right, restricted stock, performance unit, pension, retirement, deferred compensation, employment, severance or other employee benefit agreements, trusts, plans, funds or other arrangements of or for the benefit or welfare of any employee, or increase in any manner the compensation or fringe benefits of any employee or paid any benefit not required by any existing plan and arrangement (including, without limitation, the granting of stock options, stock appreciation rights, shares of restricted stock or performance units); (f) except as set forth on Schedule 3.31(f), acquire, sell, lease, transfer or dispose of any of its properties or assets except in the ordinary course of business and consistent with past practice or entered into any material commitment or transaction; (g) except as may be required by law, take any action to terminate or materially amend any of its employee benefit plans with respect to or for the benefit of employees; (h) modify any policy or procedure with respect to credit to customers or collection of receivables; 21 (i) pay, discharge or satisfy before it was due any claim or liability of the Company or fail to pay any such item in a timely manner, in each case given the Company's prior practices; (j) cancel any debts or waive any claims or rights of substantial value; (k) except to the extent required by applicable law, change any accounting principle or method or make any election for purposes of foreign, federal, state or local income Taxes; (l) take or suffer any action that would result in the creation, or consent to the imposition, of any Lien on any of the properties or assets of the Company; (m) except as set forth in Schedule 3.31(m), make or incur any capital expenditure, lease or commitment for additions to property, plant, equipment or other capital assets in excess of $10,000; (n) except in the ordinary course of business consistent with past practice, amend, waive, surrender or terminate or agree to the amendment, waiver, surrender or termination of any Material Contract, License or Consent. (o) except in the ordinary course of business consistent with past practice, exercise any right or option under or extended or renewed any Material Contract; or (p) enter into any Contract to do, or take, or agree in writing or otherwise to take or consent to, any of the foregoing actions. 3.32 Notice of Developments. Prior to the Closing Date, the Seller Group shall promptly notify the Buyer Group, and vice versa, in writing of: (i) all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement that could result in any material breach of a representation or warranty or covenant of the Seller Group or the Buyer Group, as the case may be, in this Agreement or which could have the effect of making any representation or warranty of the Seller Group or the Buyer Group, as the case may be, in this Agreement untrue or incorrect in any material respect, and (ii) all other material developments affecting the business, financial condition, operations, results of operations, customer or supplier relations, employee relations, projections or prospects of the Company or Direct Insite, as the case may be. 3.33 Equipment and Other Assets. The Shareholders have, and have caused Affiliates and other Persons affiliated with them to, contribute to the Company all assets (including, without limitation, all equipment, intellectual property, real estate or other assets) owned by any of them that are or have been used by the Company. Any consideration received in connection with such transactions shall reduce by the same amount the Cash Consideration. 3.34 Repayment of Certain Obligations to the Company. The Shareholders have paid in full, and have caused their respective Affiliates and other Persons affiliated with them to pay in full, to the Company the outstanding amount of all obligations, if any, of the Shareholders and such Persons (including, 22 without limitation, an amount equal to all outstanding principal and interest on all indebtedness of the Shareholders or such Persons) to the Company and all claims, if any, of the Company against the Shareholders and Affiliates, in full satisfaction thereof. 4. Representations and Warranties of the Buyer and Direct Insite. Each of the Buyer and Direct Insite, jointly and severally, represent and warrant to the Shareholders and the Company as follows: 4.1 Organization of the Buyer Group. Each of the Buyer and Direct Insite is a corporation duly incorporated, validly existing and in good standing under the laws of its respective states of organization or incorporation and has the requisite corporate power and authority to carry on its business as now being conducted, except, as to subsidiaries, for those states in which the failure to be so incorporated, existing or in good standing individually or in the aggregate would not have or be reasonably expected to have a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of Direct Insite either before or following the transactions contemplated hereby (a "Material Adverse Effect on Direct Insite"). Each of the Buyer and Direct Insite is duly qualified or licensed to do business and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not have a Material Adverse Effect on Direct Insite. The Buyer Group has heretofore delivered to the Seller Group true and correct copies of the Articles of Incorporation and Certificate of Incorporation and Bylaws of each of the Buyer and Direct Insite as currently in effect. 4.2 Authorization; Validity of Agreement. Each of the Buyer and Direct Insite has the requisite corporate power and authority to execute, deliver and perform this Agreement and each other agreement executed or to be executed by each of the Buyer or Direct Insite pursuant to the terms of this Agreement (collectively, the "Buyer Acquisition Agreements") and to assume and perform its or their obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each of the Buyer and Direct Insite of this Agreement and the other Buyer Acquisition Agreements to which the Buyer or Direct Insite is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Buyer and Direct Insite and, where necessary, the shareholders of the Buyer and Direct Insite, and no other corporate proceedings on the part of the Buyer and Direct Insite are necessary to authorize the execution, delivery and performance of this Agreement and the other Buyer Acquisition Agreements by the Buyer and Direct Insite, as the case may be, and the consummation of the transactions contemplated hereby and thereby. Each of this Agreement and each Buyer Acquisition Agreement has been duly executed and delivered by the Buyer and Direct Insite, as the case may be, and is a valid and binding obligation of the Buyer and Direct Insite, enforceable against each of them in accordance with their respective terms, except that such enforcement may be limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally, (ii) equitable rules or principles affecting the enforcement of obligations generally, whether at law or in equity, or (iii) the exercise of the discretionary powers of any court before which may be brought any proceeding seeking equitable remedies, including without limitation specific performance and injunctive relief. 23 4.3 No Violations; Consents and Approvals. (a) The execution, delivery and performance of this Agreement and the Buyer Acquisition Agreements by each of the Buyer or Direct Insite, as the case may be, do not, and the consummation by each of the Buyer and Direct Insite of the transactions contemplated hereby and thereby will not, (i) violate any provision of the Articles of Incorporation or Certificate of Incorporation or Bylaws of the Buyer or Direct Insite, as the case may be, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any material Contract to which the Buyer or Direct Insite is a party or by which the Buyer or Direct Insite or any of their respective properties or assets may be bound or otherwise subject or (iii) violate any order, writ, judgment, injunction, decree, law, statute, rule or regulation applicable to the Buyer or Direct Insite or any of their respective properties or assets. (b) No filing or registration with, notification to, or authorization, consent or approval of, any Governmental Entity or any other Person is required in connection with the execution, delivery and performance of this Agreement or the Buyer Acquisition Agreements by each of the Buyer and Direct Insite, as the case may be, or the consummation by the Buyer or Direct Insite of the transactions contemplated hereby and thereby. 4.4 Litigation. Except as set forth on Schedule 4.4, there is no Proceeding pending nor, to the knowledge of the Buyer or Direct Insite, is there any investigation or Proceeding threatened, that involves or affects the Buyer or Direct Insite, by or before any Governmental Entity or any other Person that if adversely determined would be reasonably likely to have a Material Adverse Effect on Direct Insite. 4.5 Compliance with Law; Licenses and Permits. (a) The Buyer Group has, and on the Closing Date will have, complied with all applicable Laws, including but not limited to Laws relating to Taxes, zoning, building codes, antitrust, occupational safety and health, industrial hygiene, environmental protection, water, ground or air pollution, the generation, handling, treatment, storage or disposal of Hazardous Substances, consumer product safety, product liability, hiring, wages, hours, employee benefit plans and programs, collective bargaining and the payment of withholding and social security taxes, except where the failure to so comply individually or in the aggregate would not have or be reasonably expected to have a Material Adverse Effect on Direct Insite. Neither the Buyer nor Direct Insite has received any notice of any material violation of any Law, except for such notices relating to violations that would not be reasonably likely to have a Material Adverse Effect on Direct Insite. (b) To the knowledge of the Buyer Group: (i) Direct Insite has every License, and every Consent by or on behalf of any Person that is not a party to this Agreement, required for it to conduct its business as presently conducted and (ii) all such Licenses and Consents are in full force and effect and neither Buyer nor Direct Insite has received notice of any pending cancellation or suspension of any thereof nor is any cancellation or suspension thereof 24 threatened, except where the failure of any such statement in items (i) or (ii) of this section 4.5(b) to be true relates to a fact or circumstance that would not be reasonably likely to have a Material Adverse Effect on Direct Insite, taken as a whole. The applicability and validity of each such License and Consent will not be adversely affected by the consummation of the transactions contemplated by this Agreement, except where any inapplicability or invalidity would not have or be reasonably expected to have a Material Adverse Effect on Direct Insite. 4.6 Capital Structure. The authorized capital stock of Direct Insite consists of 150,000,000 shares of Direct Insite Common Stock. As of the date hereof, there were outstanding 1,425,462 (after giving effect to the reverse stock split of Direct Insite Common Stock on May 8, 2001, but prior to the issuances of shares of Direct Insite Common Stock contemplated hereby). 4.7 Valid Issuance of Shares, Etc. Each of the Direct Insite Shares to be issued in the Merger pursuant to the terms of section 2.3(b) will, upon such issuance, be duly authorized, validly issued, fully paid and non-assessable and owned of record by the Shareholder, free and clear of preemptive rights and all Liens other than Liens that may result from acts of the Shareholder. 4.8 Direct Insite Form 10-K and Financial Statements. (a) Direct Insite has made available to the Shareholders true and complete copies of (i) its Annual Report on Form 10-K for the year ended December 31, 2000 (the "Form 10-K"), as filed with the Commission, and (ii) its proxy statement (the "Proxy Statement") relating to its most recent annual meeting of its stockholders. As of their respective filing dates, the Form 10-K and Proxy Statement (including, without limitation, any financial statements or schedules or other information included or incorporated by reference therein) complied as to form and content, in all material respects, with the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934, as the case may be, and the rules and regulations promulgated thereunder, and did 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, in light of the circumstances under which they were made, not misleading. The financial statements of Direct Insite for the year ended December 31, 2000 included in the Form 10-K were prepared in accordance with GAAP (as in effect from time to time) applied on a consistent basis and (except as may be indicated therein or in the notes thereto) present fairly the consolidated financial position, consolidated results of operations and consolidated cash flows of Direct Insite and its subsidiaries as of and for the year ended December 31, 2000. 4.9 No Misstatements or Omissions. No representation or warranty by the Buyer or Direct Insite contained in this Agreement and no statement contained in any certificate, list, Schedule, Exhibit or other instrument specified or referred to in this Agreement, whether heretofore furnished to the Seller Group or hereafter furnished to the Seller Group pursuant to this Agreement on the part of the Buyer or Direct Insite Group contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 25 4.10 Conduct of Business. Since December 31, 2000, the Buyer and Direct Insite have conducted their respective businesses in the ordinary course, consistent with past practice, and in such a manner that would not result in a Material Adverse Effect. 5. Other Agreements of the Parties. 5.1 Tax Returns; Taxes. (a) The Shareholders acknowledge that on and after the Closing Date the Company shall cease to exist as a result of the Merger and, accordingly, any Tax Return relating to the Company referred to in section 3.14 that was not required to be filed prior to the Closing Date shall be filed or caused to be filed by the Shareholders after the Closing Date, subject to approval of the Buyer Group. The Shareholders agree to prepare and file, at their expense, such Tax Returns, including without limitation income tax returns with respect to the periods ended on the Closing Date; provided that such Tax Returns shall be subject to approval by the Buyer Group prior to filing following reasonable opportunity of the Buyer Group to review such Tax Returns. (b) After the Closing Date, the Buyer Group and the Shareholders shall each make available to the other, upon reasonable request, all information, records or other documents relating to any Tax and shall preserve all such information, records or other documents until the date that is six (6) months after the expiration of the statute of limitations applicable to the Tax. In addition, the Buyer Group and the Shareholders shall cooperate with each other upon request in connection with all matters relating to the preparation of any Tax Returns and in connection with any Tax Proceeding. Any investigation, review, comment or discussion by the Buyer Group related to or in connection with the payment of Taxes, the preparation of Tax Returns or drafts of Tax Returns, the filing of Tax Returns, any Tax Proceeding or any provision of this section 5.1 shall not affect the indemnity provisions of Article 9 or limit the scope of such provisions (including but not limited to section 9.1) in any way, or affect any other representations, warranties or obligations of the Seller Group. Each party shall bear its own costs and expenses in complying with the provisions of this section 5.1(b). (c) After the Closing Date, the Shareholders shall duly and timely file with the applicable Taxing Authority all Tax Returns required to be filed by them in connection with the transactions contemplated by this Agreement (including without limitation, all Tax Returns relating to any stock transfer Tax or any documentary stamp Tax). 5.2 Non-Disclosure of Confidential Information. (a) From and after the Closing Date, no member of the Seller Group shall divulge, communicate, use to the detriment of the Buyer Group or for the benefit of any other Person, or misuse in any way, any confidential information or trade secrets relating to the Company including, without limitation, personnel information, secret processes, know-how, customer lists or other technical data. (b) From and after the Closing Date, no member of the Buyer Group shall divulge, communicate, use to the detriment of the Shareholders or for the 26 benefit of any other Person, or misuse in any way, any confidential information or trade secrets relating to the Shareholders, including, without limitation, personnel information, secret processes, know-how, customer lists or other technical data. 5.3 No Solicitation of Employees, Suppliers or Customers. The Shareholders shall not, and shall not permit any of their respective Affiliates to, from and after the Closing Date and for a period of two years thereafter, directly or indirectly, for itself or on behalf of any other Person, employ, engage or retain any Person who, at any time during the then-preceding 12- month period, shall have been an employee of the Buyer, or contact any supplier, customer or employee of the Buyer for the purpose of soliciting or diverting any such supplier, customer or employee from the Buyer. 5.4 Non-Competition. (a) Until the second anniversary of the Closing Date, neither Shareholder shall, and neither Shareholder shall permit any of his Affiliates to, anywhere in North America or Europe, directly or indirectly, alone or in association with any other Person, firm, corporation or other business organization, (i) acquire or own in any manner, any interest in any Person that is engaged in any facet of the business of the Company, (ii) engaged in any facet of the business of the Company or compete in any way with the business of the Company, (iii) be employed in any capacity by, serve as an employee of, or consultant or advisor to, or otherwise participate in the management or operation of, any Person that (x) engages in any facet of the business of the Company, or (y) competes with the business of the Company in any way; provided, however, that notwithstanding the foregoing, the Shareholders and their respective Affiliates (collectively and not individually) may own up to two percent (2%) of the voting securities of any publicly- traded Company. (b) The parties hereto intend that the covenant contained in section 5.4(a) shall be construed as a series of separate covenants, one for each state or country specified. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in section 5.4(a) above. If in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in section 5.4(a) unenforceable covenant shall be deemed reduced in scope or, if necessary, eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforce. (c) The Shareholders acknowledge that the provisions of this section 5.4, and the period of time, geographic area and scope and type of restrictions on its activities set forth herein, are reasonable and necessary for the protection of the Buyer Group and are an essential inducement to the Buyer Group's entering into the Transaction Documents to which it is a party and consummating the transactions contemplated thereby. 5.5 Other Actions. Each of the parties hereto shall use all reasonable efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be done, all things, and (iii) execute and deliver all such documents, instruments and other papers, as in each case may be necessary, proper or advisable under applicable Laws, or reasonably required in order to carry out the terms and 27 provisions of this Agreement and to consummate and make effective the transactions contemplated hereby. 5.6 Employment Agreements. At the Closing, each of the Shareholders shall enter into an employment and non-competition agreement with Direct Insite, in the form attached hereto as Exhibit 5.6A for Mr. Ford (the "Ford Employment Agreement") and Exhibit 5.6B for Mr. Tanoury (the "Tanoury Employment Agreement" and, with the Ford Employment Agreement, the "Employment Agreements"). 5.7 Accounts Receivables. After the Closing, it shall be the Buyer's responsibility to collect the Company's accounts receivable. The Shareholders shall permit the Buyer to collect, in the name of the Company, all of the Company's accounts receivable and to endorse with the name of the Company for deposit in the Buyer's account any checks or drafts received in payment thereof. The Shareholders shall take any and all steps reasonably requested by the Buyer, at the Buyer's expense, to effectuate the intent of the preceding sentence. The Shareholders shall promptly turn over to the Buyer any cash, checks or other property that he may receive after the Closing in respect of any of the Company's receivable. 5.8 Company Financial Statements. (a) At any time after the Closing, the Buyer may cause to be prepared audited balance sheets, income statement, statements of cash flow and statements of changes in stockholders' equity prepared in accordance with GAAP, for the Company's business for the fiscal year ended December 31, 2000 and for the period commencing on May 1, 1999 and ended on the Closing Date. The Shareholders shall fully assist and cooperate with the Buyer in the preparation of such financial statements and shall use his best efforts to cause others to so assist the Buyer. (b) The Shareholders shall provide the Buyer and its agents, including the Buyer's auditors, full access to the books and records, work papers and other documents of the Company that is required in connection with the preparation by the Buyer of any other financial statements for any fiscal periods the Buyer deems necessary which take into account the operations and financial condition of the Company's business. In preparing the Buyer's financial statements, the Buyer's auditors shall consult with the Company's independent accountants and any consultants designated by the Shareholders ("Company Accountants"). The Shareholders shall use their best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable in order to expeditiously complete the Buyer's financial statements which may be related to the Company's business for the fiscal periods desired by the Buyer. 5.9 Direct Insite SEC Filings. Following the Closing, Direct Insite shall use its reasonable efforts to file on a timely basis all reports required to be filed by it under the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and regulations adopted by the Securities and Exchange Commission thereunder to the extent required to enable the holders of the Direct Insite Shares to sell such Shares pursuant to Rule 144 (as such Rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. 28 6. Conditions Precedent to the Closing. 6.1 Conditions Precedent to the Buyer Group's Obligations to Close. The obligation of the Buyer and Direct Insite to enter into this Agreement and to consummate the transactions contemplated hereby is subject to the satisfaction prior to or on the Closing Date of each of the following conditions; provided, however, the Buyer or Direct Insite shall have the right to waive all or any part of each such condition and to close the transactions contemplated hereby without, however, releasing the Shareholders or the Company from any covenant, obligation, agreement or condition contained herein or from any liability for any loss or damage sustained by the Buyer or Direct Insite by reason of the breach by the Shareholders or the Company of any covenant, obligation, agreement or condition contained herein or by reason of any misrepresentation made by the Shareholders or the Company: (a) The Buyer Group shall have received, each in form and substance reasonably satisfactory to each member of the Buyer Group, all Required Consents and any other Consent from any Governmental Entity or other Person that is required for the consummation of the transactions contemplated hereby and for the Buyer to own and operate the assets and business of the Company. (b) The form and substance of all certificates, consents, instruments, and other documents delivered to the Buyer Group under this Agreement shall be satisfactory in all reasonable respects to the Buyer Group and its counsel. (c) The Shareholders and/or the Company shall have delivered to the Buyer Group each of the items required to be delivered pursuant to section 7.1. (d) No Law shall be in effect that prohibits any party hereto from consummating the transactions contemplated hereby. (e) There shall be no order, decree or injunction of a court of competent jurisdiction or other Governmental Entity that prevents the consummation of the transactions contemplated by this Agreement or Proceeding that threatens to prevent such transactions. (f) The Buyer Group shall have received from the Shareholders at the Closing a certificate of non-foreign status (the "Certificate of Non-Foreign Status") in the form required by Code Section 1445 and the regulations thereunder, signed by both of the Shareholders under penalties of perjury. 6.2 Conditions Precedent to the Seller Group's Obligations to Close. The obligations of the Shareholders and the Company to consummate the transactions contemplated hereby is subject to the satisfaction prior to or on the Closing Date of each of the following conditions; provided, however, that the Seller Group shall have the right to waive all or any part of each such condition, and to close the transactions contemplated hereby without, however, releasing the Buyer or Direct Insite from any covenant, obligation, agreement or condition contained herein or from any liability for any loss or damage sustained by the Seller Group by reason of the breach by the Buyer or Direct Insite of any covenant, obligation, agreement or condition contained herein, or by reason of any misrepresentation made by the Buyer or Direct Insite: 29 (a) The form and substance of all certificates, consents, instruments and other documents delivered to the Seller Group under this Agreement shall be satisfactory in all reasonable respects to the Seller Group and its counsel; (b) The Buyer Group shall have delivered to the Seller Group each of the items required to be delivered pursuant to section 7.2; (c) No Law shall be in effect that prohibits any party hereto from consummating the transactions contemplated hereby; and (d) There shall be no order, decree or injunction of a court of competent jurisdiction or other Governmental Entity that prevents the consummation of the transactions contemplated by this Agreement or Proceeding that threatens to prevent such transactions. 7. Documents to be Delivered at the Closing. 7.1 Deliveries of the Seller Group. At the Closing, the Company shall, and the Shareholders shall cause the Company to, deliver the following items to the Buyer Group: (a) The Required Consents; (b) The Employment Agreements referred to in section 5.6 duly executed by the respective Shareholders; (c) The Escrow Agreement duly executed by the Company and the Shareholders; (d) Stock certificates representing the Company Shares, duly indorsed in blank or accompanied by stock transfer powers and with all requisite stock transfer tax stamps attached; (e) A certificate duly executed by the secretary of the Company, attesting, with respect to the Company, the resolutions duly and validly adopted by the Board of Directors of the Company evidencing the authorization of its execution and delivery of this Agreement and the other Transaction Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby, as to its Articles of Incorporation and Bylaws, and as to the incumbency of each of its executive officers; (f) A certificate with respect to the Company from the Secretary of State of the State of Texas attesting as to its valid existence as of a date recent to the Closing Date; (g) The Articles of Merger; and (h) The Certificate of Non-Foreign Status. 7.2 Deliveries of the Buyer. At the Closing, the Buyer shall and Direct Insite shall cause the Buyer to deliver the following items: 30 (a) A certificate of the secretary of each of the Buyer and Direct Insite certifying the resolutions duly and validly adopted by the Buyer Group evidencing the authorization of their execution and delivery of this Agreement and the other Transaction Documents to which the members of the Buyer Group are parties and the consummation of the transactions contemplated hereby and thereby, and the names and signatures of the officers of each member of the Buyer Group authorized to sign this Agreement and the other Transaction Documents to be delivered hereunder; (b) The Cash Consideration required to be delivered pursuant to section 2.3(b)(ii), to be delivered into escrow pursuant to section 2.3(c); (c) The Direct Insite Shares required to be delivered pursuant to section 2.3(b)(i), to be delivered into escrow pursuant to section 2.3(c); (d) The Earn-Out Shares required to be delivered pursuant to section 2.3(b)(iii), to be delivered into escrow pursuant to section 2.3(c); (e) The Employment Agreements referred to in section 5.6 duly executed by an officer of Direct Insite; (f) The Escrow Agreement duly executed by Direct Insite; (g) Evidence reasonably satisfactory to the Seller Group of the listing as of the Closing Date of the Direct Insite Common Stock on Nasdaq; (h) A certificate with respect to each of Direct Insite and the Buyer from the Secretary of State of the State of Delaware and Texas, respectively, as to their respective valid existence as of a date recent to the Closing Date; and (i) A certificate of an authorized officer of Direct Insite certifying as to the number of issued and outstanding shares of Direct Insite Common Stock immediately prior to the Closing Date. 8. Termination. [Intentionally Omitted]. 9. Indemnification. 9.1 Survival of Representations and Warranties of the Seller Group. At the Closing, the Buyer Group shall, without waiving any of its rights hereunder, advise the Shareholders if the Buyer Group has actual knowledge of (i) any material breach of any of the representations and warranties of the Company and the Shareholders herein and (ii) any situation in existence prior to the Closing which would result in the payment of Damages by the Shareholders or the Company. Notwithstanding any right of the Buyer or Direct Insite to fully investigate the affairs of the Company and the Shareholders and notwithstanding any knowledge of facts determined or determinable by the Buyer or Direct Insite pursuant to such investigation or right of investigation, the Buyer and Direct Insite have the right to rely fully upon the representations and warranties of the Shareholders 31 and the Company contained in this Agreement or in any other Transaction Document. All such representations and warranties shall survive the execution and delivery of this Agreement and the Closing hereunder and shall thereafter continue in full force and effect until the second anniversary of the Closing Date, and the Shareholders' liability in respect of any breach of any such representation or warranty shall terminate on the second anniversary of the Closing Date, except for liability with respect to which notice shall have been given on or prior to such date to the party against which such claim is asserted pursuant to section 9.6. Notwithstanding the foregoing, the representations and warranties contained in sections 3.2(a), 3.3, 3.9, 3.12, 3.14 and 3.16 shall survive the Closing, and the Shareholders' liability in respect of any breach thereof shall continue, in the case of sections 3.2 and 3.12, in perpetuity, in the case of section 3.16, until the date of the expiration of the statute of limitation applicable to any liability relating thereto, which liability shall remain an obligation of the party against whom such claim is asserted, and, in the case of sections 3.9 and 3.14, until the date that is six (6) months after the expiration of the statute of limitation applicable to any liability relating thereto, which liability shall remain an obligation of the party against whom such claim is asserted. 9.2 Survival of Representations and Warranties of the Buyer Group. At the Closing, the Shareholders shall, without waiving any of their rights hereunder, advise the Buyer Group if the Shareholders have actual knowledge of any material breach of any of the representations and warranties of the Buyer Group herein. The Shareholders and the Company have the right to rely fully upon the representations and warranties of the Buyer and Direct Insite contained in this Agreement or in any other Transaction Document. All such representations and warranties shall survive the execution and delivery of this Agreement and the Closing hereunder and shall thereafter continue in full force and effect until the second anniversary of the Closing Date and the Buyer's and Direct Insite's liability in respect of any breach of any such representation or warranty shall terminate on the second anniversary of the Closing Date, except for liability with respect to which notice shall have been given on or prior to such date to the party against which such claim is asserted pursuant to section 9.6. 9.3 Determination of Damages Without Regard to "Materiality" or "Knowledge" Qualifications. (a) Certain representations and warranties contained in this Agreement and in certain agreements, documents and instruments executed and delivered in connection with this Agreement include either (or both) a Materiality Qualification (as defined below) or a Knowledge Qualification (as defined below). Notwithstanding any such qualification, it is the intention of the parties that the only purpose of the Materiality Qualifications and the Knowledge Qualifications is to determine whether the representations and warranties contained in this Agreement are true and correct for purposes of the parties' condition to consummate the transactions contemplated at the Closing. Accordingly, Damages recoverable under this section 9 shall be determined as though no Materiality Qualification and no Knowledge Qualification were contained in or applied with respect to any representation or warranty contained in this Agreement. (b) As used herein: 32 (1) the term "Materiality Qualification" means any term, expression, word or combination thereof that qualifies a representation, warranty or other statement made with respect to "materiality," "in all material respects," or insofar as any misstatement of such representation, warranty or other statement would result in or reflect a "Material Adverse Effect," or words or terms of similar import, and (2) the term "Knowledge Qualification" means any term, expression, word or combination thereof that qualifies a representation, warranty or other statement made with respect to the "knowledge" of the party making the representation, warranty or other statement. 9.4 Indemnification by the Shareholders. Each Shareholder, severally in proportion to his ownership of the Company Shares immediately prior to the Closing, shall indemnify and defend the Buyer and Direct Insite and each of its respective officers, directors, employees, shareholders, agents, advisors or representatives (each, a "Buyer Indemnitee") against, and hold each Buyer Indemnitee harmless from, any loss, liability, obligation, deficiency, damage, Tax or expense including, without limitation, interest, penalties, reasonable attorneys' and consultants' fees and disbursements (collectively, "Damages"), that any Buyer Indemnitee may suffer or incur based upon, arising out of, relating to or in connection with any of the following: (a) Any breach of any representation or warranty made by the Shareholders or the Company contained in this Agreement or in any other Transaction Document or in respect of any claim made based upon facts that would constitute any such breach; (b) The Shareholders' or the Company's failure to perform or to comply with any covenant or condition required to be performed or complied with by the Shareholders or the Company contained in this Agreement or in any other Transaction Document; or 9.5 Indemnification by the Buyer Group. The Buyer and Direct Insite, jointly and severally, shall indemnify and defend the Shareholders and their agents, advisors or representatives (each, a "Shareholder Indemnitee") against, and hold each Shareholder Indemnitee harmless from, any Damages that the Shareholder Indemnitee may suffer or incur arising from, related to or in connection with any of the following: (a) any breach of any representation or warranty made by the Buyer or Direct Insite contained in this Agreement or in any other Transaction Document or in respect of any claim made based upon facts alleged that would constitute any such breach; or (b) the Buyer's or Direct Insite's failure to perform or to comply with any covenant or condition required to be performed or complied with by the Buyer Group contained in this Agreement or in any other Transaction Document. 9.6 Indemnification Procedures. (a) Promptly after notice to an indemnified party of any claim or the commencement of any Proceeding, including any Proceeding by a third party, involving any Damages referred to in sections 9.4 or 9.5, such indemnified party shall, if a claim for indemnification in respect thereof is to be made against 33 an indemnifying party pursuant to this Article 9, give written notice to the latter of the commencement of such claim or Proceeding, setting forth in reasonable detail the nature thereof and the basis upon which such party seeks indemnification hereunder. (b) (1) In the case of any such Proceeding by a third party against an indemnified party, the indemnifying party shall, upon notice as provided above, assume the defense thereof, with counsel reasonably satisfactory to the indemnified party, and, after notice from the indemnifying party to the indemnified party of its assumption of the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof (but the indemnified party shall have the right, but not the obligation, to participate at its own cost and expense in such defense by counsel of its own choice) or for any amounts paid or foregone by the indemnified party as a result of the settlement or compromise thereof (without the written consent of the indemnifying party). (2) anything in section 9.6(b)(1) notwithstanding, if both the indemnifying party and the indemnified party are named as parties or subject to such Proceeding and either such party determines upon advice of counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the other party or that a material conflict of interest between such parties may exist in respect of such Proceeding, then the indemnifying party may decline to assume the defense on behalf of the indemnified party or the indemnified party may retain the defense on its own behalf, and, in either such case, after notice to such effect is duly given hereunder to the other party, the indemnifying party shall be relieved of its obligation to assume the defense on behalf of the indemnified party, but shall be required to pay any legal or other expenses including, without limitation, reasonable attorneys' fees and disbursements, incurred by the indemnified party in such defense. If a Proceeding shall be commenced against more than one Buyer Indemnitee (a "Multi-Buyer Indemnitee Proceeding"), each Shareholder, severally in proportion to his ownership of the Company Shares immediately prior to the Closing, shall be responsible for the legal and other expenses which are actually incurred in connection with the representation of all Buyer Indemnitees who are named as defendants in such a Multi-Buyer Indemnitee Proceeding only to the extent the Buyer Indemnitees are represented in such a Multi-Buyer Indemnitee Proceeding by a single legal counsel. (c) If the indemnifying party assumes the defense of any such Proceeding, the indemnified party shall cooperate fully with the indemnifying party and shall appear and give testimony, produce documents and other tangible evidence, allow the indemnifying party access to the books and records of the indemnified party and otherwise assist the indemnifying party in conducting such defense. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement or compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or Proceeding. Provided that proper notice is duly given, if the indemnifying party shall fail promptly and diligently to assume the defense thereof, then the indemnified party may respond to, contest and defend against such Proceeding (but the indemnifying party shall have the right to participate at its own cost and expense in such defense by counsel of its own choice) and may make in good faith any compromise or settlement with respect thereto, and recover from the indemnifying party the entire cost and expense thereof 34 including, without limitation, reasonable attorneys' fees and disbursements and all amounts paid or foregone as a result of such Proceeding, or the settlement or compromise thereof. The indemnification required hereunder shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills or invoices are received or loss, liability, obligation, damage or expense is actually suffered or incurred. 9.7 Limitations on Indemnification by the Shareholders. (a) Anything herein to the contrary notwithstanding, no Shareholder shall have any liability with respect to Damages that result from breaches of representations or warranties set forth in this Agreement (other then the representations and warranties contained in sections 3.2(a), 3.3 and 3.14) for and to the extent that the aggregate amount of such Damages exceeds the aggregate value of the consideration received by such Shareholder in connection with the Merger plus any bonus (but excluding base salary) earned by such Shareholder pursuant to section 3(c) of his Employment Agreement. (b) The limitations set forth in paragraph (a) of this section 9.7 shall not limit or reduce the Shareholders' obligations to indemnify the Buyer or Direct Insite in respect of Damages that result from actual or claimed breaches of the representations and warranties contained in sections 3.2(a), 3.3 and 3.14. (c) Limitations on Indemnification by the Buyer Group. The Buyer and Direct Insite shall have indemnification obligations pursuant to section 9.5 respecting Damages that result from breaches of representations or warranties set forth in this Agreement only if and only to the extent that the aggregate of all Damages resulting from such breaches shall exceed $25,000. Anything herein to the contrary notwithstanding, the Buyer and Direct Insite shall have no liability with respect to Damages that result from breaches of representations or warranties set forth in this Agreement, for and to the extent that the aggregate amount of such Damages exceeds the aggregate value of the consideration received by the Shareholders in the Merger. (d) Limitation on Remedies. The remedies set forth in this Article Nine shall constitute the exclusive remedies for breaches of representations and warranties set forth in this Merger Agreement, except that the foregoing shall not limit any remedies that may be available for claims of fraud. 9.8 Right to Set-Off. The Buyer and Direct Insite shall have the right to set-off the amount of any and all Damages for which a Shareholder is liable to the Buyer or Direct Insite hereunder against any sums payable to such Shareholder pursuant to section 3(c) of such Shareholder's Employment Agreement. 10. Miscellaneous 10.1 Transaction Fees and Expenses. The Buyer and Direct Insite shall bear such costs, fees and expenses as may be incurred by them in connection with this Agreement and the transactions contemplated hereby and, up to an aggregate amount of $10,000, one-half of the costs, fees and expenses as may be incurred by the Shareholders in connection with this Agreement and the transactions 35 contemplated hereby. The Shareholders shall bear the balance of all of such costs, fees and expenses. 10.2 Notices. Any notice, demand, request or other communication which is required, called for or contemplated to be given or made hereunder to or upon any party hereto shall be deemed to have been duly given or made for all purposes if (a) in writing and sent by (i) messenger or a recognized national overnight courier service for next day delivery with receipt therefor, or (ii) certified or registered mail, postage paid, return receipt requested, or (b) sent by facsimile transmission with a written copy thereof sent on the same day by postage paid first-class mail or (c) by personal delivery to such party at the following address: if to the Buyer Group, to: Direct Insite Corp. 80 Orville Drive Bohemia, NY 11716 Attention: Warren Wright Facsimile No.: (631) 563-8085 with a copy to: Jenkens & Gilchrist Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Attention: Gary J. Simon Facsimile No.: (212) 704-6288 if to the Seller Group, to: Mr. Kevin Ford 5580 Peterson Suite 240 Dallas, Texas 75240 Facsimile No.: (972) 774-8811 with a copy to: Fulbright & Jaworski LLP 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Attention: David E. Morrison Facsimile No.: (214) 855-8200 or such other address as either party hereto may at any time, or from time to time, direct by notice given to the other party in accordance with this section. The date of giving or making of any such notice or demand shall be, in the case of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five 36 (5) business days after such notice or demand is sent, and, in the case of clause (b), the business day next following the date such notice or demand is sent. 10.3 Amendment. Except as otherwise provided herein, no amendment of this Agreement shall be valid or effective unless in writing and signed by or on behalf of the party against whom the same is sought to be enforced. 10.4 Waiver. No course of dealing of any party hereto, no omission, failure or delay on the part of any party hereto in asserting or exercising any right hereunder, and no partial or single exercise of any right hereunder by any party hereto shall constitute or operate as a waiver of any such right or any other right hereunder. No waiver of any provision hereof shall be effective unless in writing and signed by or on behalf of the party to be charged therewith. No waiver of any provision hereof shall be deemed or construed as a continuing waiver, as a waiver in respect of any other or subsequent breach or default of such provision, or as a waiver of any other provision hereof unless expressly so stated in writing and signed by or on behalf of the party to be charged therewith. 10.5 Governing Law. This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws of the State of New York. 10.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents and submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York in connection with any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, waives any objection to venue in such District (unless such court lacks jurisdiction with respect to such Proceeding, in which case, each of the parties hereto irrevocably consents to the jurisdiction of the courts of the State of New York, County of New York, in connection with such Proceeding) and waives any objection to venue in the State of New York, and agrees that service of any summons, complaint, notice or other process relating to such Proceeding may be effected in the manner provided by clause (a) of section 10.2. 10.7 Remedies. In the event of any actual or prospective breach or default by any party hereto, the other parties shall be entitled to equitable relief, including remedies in the nature of rescission, injunction and specific performance. All remedies hereunder are cumulative and not exclusive. Nothing contained herein and no election of any particular remedy shall be deemed to prohibit or limit any party from pursuing, or be deemed a waiver of the right to pursue, any other remedy or relief available now or hereafter existing at law or in equity (whether by statute or otherwise) for such actual or prospective breach or default, including the recovery of damages. 10.8 Severability. The provisions hereof are severable and if any provision of this Agreement shall be determined to be legally invalid, inoperative or unenforceable in any respect by a court of competent jurisdiction, then the remaining provisions hereof shall not be affected, but shall, subject to the discretion of such court, remain in full force and effect, and any such invalid, inoperative or unenforceable provision shall be deemed, without any further action on the part of the parties hereto, amended and limited to the extent necessary to render such provision valid, operative and enforceable; provided, however, that nothing herein shall be construed as allowing a court to change the Merger Consideration provided for in section 2.3. 37 10.9 Further Assurances. Each party hereto covenants and agrees promptly to execute, deliver, file or record such agreements, instruments, certificates and other documents and to perform such other and further acts as the other party hereto may reasonably request or as may otherwise be necessary or proper to consummate and perfect the transactions contemplated hereby. 10.10 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, their heirs and their respective successors and permitted assignees. Permitted assignees of the rights hereunder of the Buyer or Direct Insite shall include any Person controlling, controlled by or under common control of the Buyer or Direct Insite. Permitted assignees of the Shareholders' rights hereunder shall include any Affiliate (as defined in section 3.15 hereof). Neither the Buyer or Direct Insite nor the Shareholders may assign any of their obligations hereunder without the consent of the other party. Except for the permitted assignees, neither party shall have the right to assign any rights hereunder without the consent of the other party. 10.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. 10.12 No Third Party Beneficiaries. Nothing contained in this Agreement, whether express or implied, is intended, or shall be deemed, to create or confer any right, interest or remedy for the benefit of any Person other than as otherwise provided in this Agreement. 10.13 Entire Agreement. This Agreement, together with the Exhibits, Schedules, certificates and other documentation referred to herein or required to be delivered pursuant to the terms hereof, contains the terms of the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all prior agreements, commitments, understandings, discussions, negotiations or arrangements of any nature relating thereto. 10.14 Headings. The headings contained in this Agreement are included for convenience and reference purposes only and shall be given no effect in the construction or interpretation of this Agreement. 10.15 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [The remainder of this page is intentionally left blank; the next succeeding page is a signature page] 38 DIRECT INSITE CORP. By:/s/____________________________ Name: Warren Wright Title: Chief Executive Officer PLATINUM ACQUISITION CORP. By: /s/___________________________ Name: Warren Wright Title: Chief Executive Officer PLATINUM COMMUNICATIONS, INC. By: /s/___________________________ Name: Kevin Ford Title: Chief Executive Officer /s/_______________________________ Kevin Ford, shareholder of Platinum Communications, Inc. /s/ _______________________________ Ken Tanoury, shareholder of Platinum Communications, Inc. 39 EX-10.2 3 diex10-2fordea.txt EMPLOYMENT AGREEMENT May 10, 2001 The parties to this agreement are Platinum Acquisition Corp., a Texas corporation (the "Company"), and Kevin Ford (the "Executive"). W I T N E S S E T H: The Executive is an executive officer of Platinum Communications, Inc., a Texas corporation ("Platinum"). Pursuant to the Agreement and Plan of Merger among Direct Insite Corp., a Delaware corporation ("Direct Insite"), the Company, Platinum, the Executive and Ken Tanoury (the "Merger Agreement"), Platinum will merge with and into the Company. As contemplated by, and as a condition to the closing pursuant to, the Merger Agreement, the Company and the Executive have agreed upon the terms of Executive's employment with the Company. It is therefore agreed as follows: 1. Employment. Effective upon the Closing (as defined in the Merger Agreement), the Company shall employ the Executive, and the Executive hereby accepts such employment by the Company, for the period commencing on such Closing and ending on the third anniversary of the date of such Closing, unless extended or earlier terminated as set forth herein (the "Term"). 2. Positions and Duties. The Executive shall be President -- Billing Services of the Company and shall have responsibility for the billing services operations of the Company consistent with those responsibilities at Platinum prior to the closing of the transactions contemplated by the Merger Agreement. The Executive shall perform his duties pursuant to this section 2 consistent with the directives of the Chief Executive Officer and Board of Directors of the Company, in the best interests of the Company and Direct Insite, to the best of the Executive's ability and in a diligent manner. The Executive shall devote his full skills and efforts and his entire business time during normal office hours to the performance of those duties and to the furtherance of the interests of the Company and Direct Insite. All of such duties and responsibilities shall be subject to policies, guidelines and procedures as may be specified by the Board of Directors of the Company from time to time. All of the Executive's duties hereunder shall be performed in the offices of the Company as currently or in the future located within the Dallas area and he shall not be required to relocate outside the Dallas area; provided that he shall travel from time to time as may be reasonably required in the performance of such duties, and that in the event that such current offices are substantially reduced in size and scope, then the Executive will commute to an alternative location as reasonably requested by the Company at the Company's reasonable expense. 3. Remuneration. (a) The Executive shall receive a base salary of $175,000 per annum, payable in accordance with the Company's customary practice. (b) In addition to the bonus referred to in section 3(c) below, the Executive shall be entitled to receive bonuses in the sole discretion of the Board of Directors of the Company. (c) The Executive shall earn, in addition to any other compensation pursuant to this Agreement, a bonus with respect to the period from the date of Closing through April 30, 2002 (the "Bonus Period") in an aggregate amount of up to $765,000 (the "Maximum Bonus") as follows: (i) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that both (A) the cash receipts of the Company during the Bonus Period received pursuant to the Company's written agreement with Vitcom Corporation ("Vitcom") in payment under ordinary and arms-length practices for products and/or services actually rendered to Vitcom during the Bonus Period shall equal or exceed $350,000, and (B) the cash receipts of the Company during the Bonus Period from customers of the Company who were not customers of the Company, Platinum or Direct Insite prior to the date hereof (excluding any and all cash receipts from International Business Machines Corporation and its affiliates ("IBM"), and including only such cash receipts from Vitcom to the extent the amount thereof exceeds the aggregate cash receipts of the Company, Platinum and Direct Insite from Vitcom during the one-year period ending on the date hereof) in payment under ordinary and arms-length practices for products and/or services actually rendered during the Bonus Period shall equal or exceed $500,000; and (ii) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that the consolidated gross revenue (excluding any and all revenue associated with the processing of data traffic as contemplated by the Statement of Work of March 2001 with IBM) of Direct Insite (including the Company) during the Bonus Period shall equal or exceed $6.2 million, determined in accordance with Section 3(d) below; and (iii) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that either (A) the consolidated gross revenue (excluding any and all revenue associated with the processing of data traffic as contemplated by the Statement of Work of March 2001 with IBM) of Direct Insite (including the Company) during the Bonus Period shall equal or exceed $7.2 million, determined in accordance with Section 3(d) below, or (B) during the Bonus Period Direct Insite or any of its subsidiaries enters into an arms-length, binding and enforceable contract with IBM with respect to the provision to IBM of billing and rating products and/or services; provided, however, that in the event that one-third of the Maximum Bonus is earned pursuant to this clause (iii) as a result of the satisfaction of clause (B) above, then (x) such one-third of the Maximum Bonus shall not be payable hereunder unless and until a like amount of cash receipts are received by Direct Insite under such contract, and (y) in the event that the portions of the Maximum Bonus contemplated by clauses (i) and (ii) above also are 2 earned, the Company shall pay to the Executive, and the Executive shall have earned hereunder, at the same time such one-third of the Maximum Bonus is paid, an additional bonus (in excess of the Maximum Bonus) in the amount of $50,000; and (iv) Notwithstanding anything to the contrary herein, (A) in no event shall the amount payable pursuant to this Section 3(c) exceed the Maximum Bonus, except as provided in clause (y) of clause (iii) above, and (B) neither Direct Insite nor any of its subsidiaries shall be required to devote any extraordinary expense or resources of a "business development" nature to facilitate the achievement of any of the bonus thresholds referred to in this Section 3(c), it being agreed that such achievements are to be accomplished principally through the efforts of the Executive. (d) For purposes of Section 3(c), the consolidated gross revenue of Direct Insite shall be that amount as determined under and in accordance with the terms and provisions of Section 2.4(b) of the Merger Agreement. (e) Pursuant to the existing or any subsequent stock option plan (the "Plan") of Direct Insite, promptly following the Closing under the Merger Agreement, the Executive shall receive options (the "Options") to purchase 12,000 shares of the common stock of Direct Insite. The Options shall be non-qualified stock options, exercisable at a price no greater than the fair market value of such common stock on the date the Options are granted. The Options shall vest and become exercisable with respect to one-third of the shares covered thereby on each of the three successive anniversaries of the date hereof during the term hereof in accordance with the terms and provisions of the Plan, as may be amended from time to time, and shall otherwise be subject to the terms and conditions of a stock option contract relating thereto in the form generally used for stock option grants by Direct Insite. Notwithstanding any other term or provision of this Agreement to the contrary, the Executive understands and agrees that upon or after the Executive's termination of employment hereunder for any reason, the Options shall only be exercisable if and to the extent that they had become exercisable before such termination and shall remain exercisable only to the extent provided by the Plan. (f) Direct Insite, by its signature below, guarantees performance by Direct Insite of the Company's payment obligations under this section 3. 4. Benefits; Expenses. During the Term, the Executive (i) shall be entitled to such health, medical, insurance and fringe benefits as are available generally to similar-level employees of the Company (or their counterparts at Direct Insite); and (ii) shall be reimbursed for all reasonable and necessary expenses incurred in connection with the business of the Company, upon the submission of appropriate documentation with respect thereto. 5. Continuation, Termination, Death and Disability. (a) The Term may be extended beyond the initial period set forth in section 1 hereof as mutually agreed upon by the Company and the Executive. (b) The Company may terminate this agreement and the Executive's employment hereunder at any time for "Cause", which shall mean (i) the commission of fraud 3 or embezzlement on the part of the Executive, (ii) a breach by the Executive of section 6 of this agreement, (iii) the conviction of the Executive of, or the pleading by the Executive of guilty or no contest to, (x) any felony or (y) any crime involving moral turpitude on his part and/or (iv) a material failure by the Executive to discharge his duties, responsibilities and obligations under this agreement after the Executive shall have been notified in writing of such failure and shall have had a reasonable time to cure the same. In the event of the termination during the Term by the Company of the Executive's employment hereunder for Cause, the Executive shall be entitled to receive his base salary accrued but not paid through the date of termination; provided that, in the event that such termination is made pursuant to the terms of clause (iv) above, then the Executive also shall be entitled to any bonus earned in accordance with the provisions of Section 3(c) hereof with respect to the year in which such termination occurs up to a maximum amount of $212,500. (c) In the event of the death or disability (as determined in accordance with the disability insurance policy then in place and applicable to the Executive or, in the absence of any such policy, as determined in the opinion of a duly licensed physician selected by the Company and reasonably acceptable to the Executive that because of physical or mental illness, the Executive has become substantially unable to perform the duties and responsibilities required of him hereunder for a period of six months) of the Executive during the Term, the Executive's employment shall terminate as of the date of death or the date of notice from the Company to the Executive terminating his employment due to his disability and the Executive's estate or the Executive, as the case may be, shall be entitled to receive all base salary accrued but not paid through the date of death or disability, as the case may be, plus his pro rata portion of any bonus earned in accordance with the provisions of Section 3(c) hereof (such pro-ration to be based on the portion of the Bonus Period elapsed upon such termination). 6. Confidentiality; Nonsolicitation; Noncompetition. (a) The Executive acknowledges the time and expense incurred by Direct Insite and the Company and their respective predecessors and affiliates in connection with developing proprietary and confidential information in connection with their business and operations. The Executive agrees that he will not divulge, communicate, use to the detriment of Direct Insite or the Company or any of their subsidiaries or affiliates (collectively the "Companies") or for the benefit of any other person, firm or entity, or misappropriate in any way, any confidential information or trade secrets relating to the Companies or any of their businesses including, without limitation, business strategies, operating plans, acquisition strategies (including the identities of (and any other information concerning) possible acquisition candidates), pro forma financial information, market analyses, acquisition terms and conditions, personnel information, trade processes, manufacturing methods, know-how, customer lists and relationships, supplier lists, or other non-public proprietary and confidential information relating to the Companies; provided that the following will not constitute such confidential information or trade secrets for purposes of this agreement: (a) information which is or becomes generally available to the public other than as a result of its disclosure, directly or indirectly, by the Executive, and (b) information which is required to be and actually is disclosed by the Company solely as required by law. (b) From and after the date hereof and until two years after the termination of the Executive's employment hereunder, the Executive shall not, directly or indirectly, for himself or on behalf of any other person, firm or entity, employ, engage or retain any person who at any time during the 4 then-preceding 12-month period shall have been an employee of any of the Companies or contact any supplier, customer or employee of any of the Companies for the purpose of soliciting or diverting any such supplier, customer or employee from the Companies or otherwise interfering with the business relationship of the Companies with any of the foregoing. (c) From and after the date hereof and until two years after the termination of the Executive's employment hereunder, the Executive shall not, directly or indirectly, engage in, or serve as a principal, partner, joint venturer, member, manager, trustee, agent, stockholder, director, officer or employee of, or consultant or advisor to, or in any other capacity, or in any manner own, control, manage, operate, or otherwise participate, invest, or have any interest in, or be connected with, any person, firm or entity that engages in, directly or indirectly, any activity that is competitive with any business of the Companies as then conducted in the United States or Europe within 500 miles of any facility of the Companies or of any material customer of the Companies; provided, however, that, notwithstanding the foregoing, the Executive may own up to 2% of the voting securities of any publicly-traded company. (d) The Executive acknowledges that his employment hereunder and agreements herein (including the agreements of this section 6) are reasonable and necessary for the protection of the Companies and are an essential inducement to the Company's and Direct Insite's entering into the Merger Agreement and related agreements. Accordingly, the Executive shall be bound by the provisions hereof (including the provisions of this section 6) to the maximum extent permitted by law, it being the intent and spirit of the parties that the foregoing shall be fully enforceable. However, the parties further agree that, if any of the provisions hereof shall for any reason be held to be excessively broad as to duration, geographical scope, property or subject matter, such provision shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall herein pertain. (e) The Executive acknowledges that the services to be rendered under the provisions of this agreement are of a unique nature and that it would be difficult or impossible to replace such services and that by reason thereof the Executive agrees and consents that if he violates the provisions of this section 6, the Company, in addition to any other rights and remedies available under this agreement or otherwise, shall be entitled to an injunction to be issued or specific enforcement to be required (without the necessity of any bond) restricting the Executive from committing or continuing any such violation. 7. Amendment and Modification. This agreement may not be amended, modified or changed except in a writing signed by the party against whom such amendment, modification or change is sought to be enforced. 8. Waiver of Compliance; Consents. Except as otherwise provided in this agreement, any failure of either of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this agreement requires or permits consent by or on behalf of a party, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this section 8. 5 9. Notices. Any notice, demand, request or other communication which is required, called for or contemplated to be given or made hereunder to or upon any party hereto shall be deemed to have been duly given or made for all purposes if (a) in writing and sent by (i) messenger or a recognized national overnight courier service for next day delivery with receipt therefor or (ii) certified or registered mail, postage paid, return receipt requested, (b) sent by facsimile transmission with a written copy thereof sent on the same day by postage paid first-class mail or (c) by personal delivery to such party at the following address: (a) If to the Company, to: Direct Insite Corp. 80 Orville Drive Bohemia, NY 11716 Attention: Warren Wright Facsimile No.: (631) 563-8085 with a copy to: Jenkens & Gilchrist Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Attention: Gary J. Simon Facsimile No.: (212) 704-6288 (b) If to the Executive, to: The address set forth beneath his signature hereto. with a copy to: Fulbright & Jaworski LLP 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Attention: David E. Morrison Facsimile No. 214-855-8200 10. Binding Effect. This agreement shall be binding upon and inure to the benefit of the Executive and his heirs and legal representatives and the Company and Direct Insite to the extent expressly provided herein and their respective successors and assigns. Successors of the Company or Direct Insite, respectively, shall include, without limitation, any person acquiring, directly or indirectly, all or substantially all of the assets of the Company or Direct Insite, respectively, whether by merger, consolidation, purchase, lease or otherwise, and such successor shall thereof be deemed "the Company" or "Direct Insite," as the case may be, for the purposes hereof. 11. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 6 12. Entire Agreement. This agreement constitutes the entire agreement and understanding of the parties hereto with respect to the matters set forth herein and supersedes all prior agreements and understandings between the parties with respect to those matters. There are no promises, representations, warranties, covenants or undertakings other than those set forth herein. PLATINUM ACQUISITION CORP. By: /s/______________________________ Name: Title: /s/______________________________ Kevin Ford Address: ______________________________ ______________________________ ______________________________ Telecopier No.: (___) ___-____ AGREED AS TO SECTION 3(f): DIRECT INSITE CORP. By: /s/______________________ Name: Title: 7 EX-10.3 4 diex10-3tanea.txt EMPLOYMENT AGREEMENT May 10, 2001 The parties to this agreement are Platinum Acquisition Corp., a Texas corporation (the "Company"), and Ken Tanoury (the "Executive"). W I T N E S S E T H: The Executive is an executive officer of Platinum Communications, Inc., a Texas corporation ("Platinum"). Pursuant to the Agreement and Plan of Merger among Direct Insite Corp., a Delaware corporation ("Direct Insite"), the Company, Platinum, the Executive and Ken Tanoury (the "Merger Agreement"), Platinum will merge with and into the Company. As contemplated by, and as a condition to the closing pursuant to, the Merger Agreement, the Company and the Executive have agreed upon the terms of Executive's employment with the Company. It is therefore agreed as follows: 1. Employment. Effective upon the Closing (as defined in the Merger Agreement), the Company shall employ the Executive, and the Executive hereby accepts such employment by the Company, for the period commencing on such Closing and ending on the third anniversary of the date of such Closing, unless extended or earlier terminated as set forth herein (the "Term"). 2. Positions and Duties. The Executive shall be Vice President -- Sales of the Company and shall have responsibility for the sales of the Company consistent with those responsibilities at Platinum prior to the closing of the transactions contemplated by the Merger Agreement. The Executive shall perform his duties pursuant to this section 2 consistent with the directives of the Chief Executive Officer and Board of Directors of the Company, in the best interests of the Company and Direct Insite, to the best of the Executive's ability and in a diligent manner. The Executive shall devote his full skills and efforts and his entire business time during normal office hours to the performance of those duties and to the furtherance of the interests of the Company and Direct Insite. All of such duties and responsibilities shall be subject to policies, guidelines and procedures as may be specified by the Board of Directors of the Company from time to time. All of the Executive's duties hereunder shall be performed in the offices of the Company as currently or in the future located within the Dallas area and he shall not be required to relocate outside the Dallas area; provided that he shall travel from time to time as may be reasonably required in the performance of such duties, and that in the event that such current offices are substantially reduced in size and scope, then the Executive will commute to an alternative location as reasonably requested by the Company at the Company's reasonable expense. 3. Remuneration. (a) The Executive shall receive a base salary of $125,000 per annum, payable in accordance with the Company's customary practice. (b) In addition to the bonus referred to in section 3(c) below, the Executive shall be entitled to receive bonuses in the sole discretion of the Board of Directors of the Company. (c) The Executive shall earn, in addition to any other compensation pursuant to this Agreement, a bonus with respect to the period from the date of Closing through April 30, 2002 (the "Bonus Period") in an aggregate amount of up to $135,000 (the "Maximum Bonus") as follows: (i) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that both (A) the cash receipts of the Company during the Bonus Period received pursuant to the Company's written agreement with Vitcom Corporation ("Vitcom") in payment under ordinary and arms-length practices for products and/or services actually rendered to Vitcom during the Bonus Period shall equal or exceed $350,000, and (B) the cash receipts of the Company during the Bonus Period from customers of the Company who were not customers of the Company, Platinum or Direct Insite prior to the date hereof (excluding any and all cash receipts from International Business Machines Corporation and its affiliates ("IBM"), and including only such cash receipts from Vitcom to the extent the amount thereof exceeds the aggregate cash receipts of the Company, Platinum and Direct Insite from Vitcom during the one-year period ending o the date hereof) in payment under ordinary and arms-length practices for products and/or services actually rendered during the Bonus Period shall equal or exceed $500,000; and (ii) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that the consolidated gross revenue (excluding any and all revenue associated with the processing of data traffic as contemplated by the Statement of Work of March 2001 with IBM) of Direct Insite (including the Company) during the Bonus Period shall equal or exceed $6.2 million, determined in accordance with Section 3(d) below; and (iii) The Company shall pay to the Executive, and the Executive shall have earned hereunder, an amount equal to one-third of the Maximum Bonus in the event that either (A) the consolidated gross revenue (excluding any and all revenue associated with the processing of data traffic as contemplated by the Statement of Work of March 2001 with IBM) of Direct Insite (including the Company) during the Bonus Period shall equal or exceed $7.2 million, determined in accordance with Section 3(d) below, or (B) during the Bonus Period Direct Insite or any of its subsidiaries enters into an arms-length, binding and enforceable contract with IBM with respect to the 2 provision to IBM of billing and rating products and/or services; provided, however, that in the event that one-third of the Maximum Bonus is earned pursuant to this clause (iii) as a result of the satisfaction of clause (B) above, then (x) such one-third of the Maximum Bonus shall not be payable hereunder unless and until a like amount of cash receipts are received by Direct Insite under such contract, and (y) in the event that the portions of the Maximum Bonus contemplated by clauses (i) and (ii) above also are earned, the Company shall pay to the Executive, and the Executive shall have earned hereunder, at the same time such one-third of the Maximum Bonus is paid, an additional bonus (in excess of the Maximum Bonus) in the amount of $50,000; and (iv) Notwithstanding anything to the contrary herein, (A) in no event shall the amount payable pursuant to this Section 3(c) exceed the Maximum Bonus, except as provided in clause (y) of clause (iii) above, and (B) neither Direct Insite nor any of its subsidiaries shall be required to devote any extraordinary expense or resources of a "business development" nature to facilitate the achievement of any of the bonus thresholds referred to in this Section 3(c), it being agreed that such achievements are to be accomplished principally through the efforts of the Executive. (d) For purposes of Section 3(c), the consolidated gross revenue of Direct Insite shall be that amount as determined under and in accordance with the terms and provisions of Section 2.4(b) of the Merger Agreement. (e) Pursuant to the existing or any subsequent stock option plan (the "Plan") of Direct Insite, promptly following the Closing under the Merger Agreement, the Executive shall receive options (the "Options") to purchase 8,000 shares of the common stock of Direct Insite. The Options shall be non-qualified stock options, exercisable at a price no greater than the fair market value of such common stock on the date the Options are granted. The Options shall vest and become exercisable with respect to one-third of the shares covered thereby on each of the three successive anniversaries of the date hereof during the term hereof in accordance with the terms and provisions of the Plan, as may be amended from time to time, and shall otherwise be subject to the terms and conditions of a stock option contract relating thereto in the form generally used for stock option grants by Direct Insite. Notwithstanding any other term or provision of this Agreement to the contrary, the Executive understands and agrees that upon or after the Executive's termination of employment hereunder for any reason, the Options shall only be exercisable if and to the extent that they had become exercisable before such termination and shall remain exercisable only to the extent provided by the Plan. (f) Direct Insite, by its signature below, guarantees performance by Direct Insite of the Company's payment obligations under this section 3. 4. Benefits; Expenses. During the Term, the Executive (i) shall be entitled to such health, medical, insurance and fringe benefits as are available generally to similar-level employees of the Company (or their counterparts at Direct Insite); and (ii) shall be reimbursed for all reasonable and necessary expenses incurred in connection with the business of the Company, upon the submission of appropriate documentation with respect thereto. 3 5. Continuation, Termination, Death and Disability. (a) The Term may be extended beyond the initial period set forth in section 1 hereof as mutually agreed upon by the Company and the Executive. (b) The Company may terminate this agreement and the Executive's employment hereunder at any time for "Cause", which shall mean (i) the commission of fraud or embezzlement on the part of the Executive, (ii) a breach by the Executive of section 6 of this agreement, (iii) the conviction of the Executive of, or the pleading by the Executive of guilty or no contest to, (x) any felony or (y) any crime involving moral turpitude on his part and/or (iv) a material failure by the Executive to discharge his duties, responsibilities and obligations under this agreement after the Executive shall have been notified in writing of such failure and shall have had a reasonable time to cure the same. In the event of the termination during the Term by the Company of the Executive's employment hereunder for Cause, the Executive shall be entitled to receive his base salary accrued but not paid through the date of termination; provided that, in the event that such termination is made pursuant to the terms of clause (iv) above, then the Executive also shall be entitled to any bonus earned in accordance with the provisions of Section 3(c) hereof with respect to the year in which such termination occurs up to a maximum amount of $37,500. (c) In the event of the death or disability (as determined in accordance with the disability insurance policy then in place and applicable to the Executive or, in the absence of any such policy, as determined in the opinion of a duly licensed physician selected by the Company and reasonably acceptable to the Executive that because of physical or mental illness, the Executive has become substantially unable to perform the duties and responsibilities required of him hereunder for a period of six months) of the Executive during the Term, the Executive's employment shall terminate as of the date of death or the date of notice from the Company to the Executive terminating his employment due to his disability and the Executive's estate or the Executive, as the case may be, shall be entitled to receive all base salary accrued but not paid through the date of death or disability, as the case may be, plus his pro rata portion of any bonus earned in accordance with the provisions of Section 3(c) hereof (such pro-ration to be based on the portion of the Bonus Period elapsed upon such termination). 6. Confidentiality; Nonsolicitation; Noncompetition. (a) The Executive acknowledges the time and expense incurred by Direct Insite and the Company and their respective predecessors and affiliates in connection with developing proprietary and confidential information in connection with their business and operations. The Executive agrees that he will not divulge, communicate, use to the detriment of Direct Insite or the Company or any of their subsidiaries or affiliates (collectively the "Companies") or for the benefit of any other person, firm or entity, or misappropriate in any way, any confidential information or trade secrets relating to the Companies or any of their businesses including, without limitation, business strategies, operating plans, acquisition strategies (including the identities of (and any other information concerning) possible acquisition candidates), pro forma financial information, market analyses, acquisition terms and conditions, personnel information, trade processes, manufacturing methods, know-how, customer lists and relationships, supplier lists, or other non-public proprietary and confidential information relating to the Companies; provided that the following will not constitute such confidential information or trade 4 secrets for purposes of this agreement: (a) information which is or becomes generally available to the public other than as a result of its disclosure, directly or indirectly, by the Executive, and (b) information which is required to be and actually is disclosed by the Company solely as required by law. (b) From and after the date hereof and until two years after the termination of the Executive's employment hereunder, the Executive shall not, directly or indirectly, for himself or on behalf of any other person, firm or entity, employ, engage or retain any person who at any time during the then-preceding 12-month period shall have been an employee of any of the Companies or contact any supplier, customer or employee of any of the Companies for the purpose of soliciting or diverting any such supplier, customer or employee from the Companies or otherwise interfering with the business relationship of the Companies with any of the foregoing. (c) From and after the date hereof and until two years after the termination of the Executive's employment hereunder, the Executive shall not, directly or indirectly, engage in, or serve as a principal, partner, joint venturer, member, manager, trustee, agent, stockholder, director, officer or employee of, or consultant or advisor to, or in any other capacity, or in any manner own, control, manage, operate, or otherwise participate, invest, or have any interest in, or be connected with, any person, firm or entity that engages in, directly or indirectly, any activity that is competitive with any business of the Companies as then conducted in the United States or Europe within 500 miles of any facility of the Companies or of any material customer of the Companies; provided, however, that, notwithstanding the foregoing, the Executive may own up to 2% of the voting securities of any publicly-traded company. (d) The Executive acknowledges that his employment hereunder and agreements herein (including the agreements of this section 6) are reasonable and necessary for the protection of the Companies and are an essential inducement to the Company's and Direct Insite's entering into the Merger Agreement and related agreements. Accordingly, the Executive shall be bound by the provisions hereof (including the provisions of this section 6) to the maximum extent permitted by law, it being the intent and spirit of the parties that the foregoing shall be fully enforceable. However, the parties further agree that, if any of the provisions hereof shall for any reason be held to be excessively broad as to duration, geographical scope, property or subject matter, such provision shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall herein pertain. (e) The Executive acknowledges that the services to be rendered under the provisions of this agreement are of a unique nature and that it would be difficult or impossible to replace such services and that by reason thereof the Executive agrees and consents that if he violates the provisions of this section 6, the Company, in addition to any other rights and remedies available under this agreement or otherwise, shall be entitled to an injunction to be issued or specific enforcement to be required (without the necessity of any bond) restricting the Executive from committing or continuing any such violation. 7. Amendment and Modification. This agreement may not be amended, modified or changed except in a writing signed by the party against whom such amendment, modification or change is sought to be enforced. 5 8. Waiver of Compliance; Consents. Except as otherwise provided in this agreement, any failure of either of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this agreement requires or permits consent by or on behalf of a party, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this section 8. 9. Notices. Any notice, demand, request or other communication which is required, called for or contemplated to be given or made hereunder to or upon any party hereto shall be deemed to have been duly given or made for all purposes if (a) in writing and sent by (i) messenger or a recognized national overnight courier service for next day delivery with receipt therefor or (ii) certified or registered mail, postage paid, return receipt requested, (b) sent by facsimile transmission with a written copy thereof sent on the same day by postage paid first-class mail or (c) by personal delivery to such party at the following address: (a) If to the Company, to: Direct Insite Corp. 80 Orville Drive Bohemia, NY 11716 Attention: Warren Wright Facsimile No.: (631) 563-8085 with a copy to: Jenkens & Gilchrist Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Attention: Gary J. Simon Facsimile No.: (212) 704-6288 (b) If to the Executive, to: The address set forth beneath his signature hereto. with a copy to: Fulbright & Jaworski LLP 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201-2784 Attention: David E. Morrison Facsimile No. 214-855-8200 6 10. Binding Effect. This agreement shall be binding upon and inure to the benefit of the Executive and his heirs and legal representatives and the Company and Direct Insite to the extent expressly provided herein and their respective successors and assigns. Successors of the Company or Direct Insite, respectively, shall include, without limitation, any person acquiring, directly or indirectly, all or substantially all of the assets of the Company or Direct Insite, respectively, whether by merger, consolidation, purchase, lease or otherwise, and such successor shall thereof be deemed "the Company" or "Direct Insite," as the case may be, for the purposes hereof. 11. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 12. Entire Agreement. This agreement constitutes the entire agreement and understanding of the parties hereto with respect to the matters set forth herein and supersedes all prior agreements and understandings between the parties with respect to those matters. There are no promises, representations, warranties, covenants or undertakings other than those set forth herein. PLATINUM ACQUISITION CORP. By: /s/____________________________ Name: Title: /s/_____________________________ Ken Tanoury Address: __________________________________ __________________________________ __________________________________ Telecopier No.: (___) ___-____ AGREED AS TO SECTION 3(f): DIRECT INSITE CORP. By: /s/______________________ Name: Title: 7 -----END PRIVACY-ENHANCED MESSAGE-----