As filed with the Securities and Exchange Commission on August 13, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Delaware 511210 87-0564911
------------------------------- ---------------------------- -------------------
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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Mr. J.P. McCormick, Chief Financial Officer
Activeworlds.com, Inc.
95 Parker Street
Newburyport, MA 01950
(978) 499-0222
(Name, address and telephone number of agent for service)
Please send a copy of all communications to:
John A. Kostrubanic, Esq. Asher S. Levitsky P.C. Pepe & Hazard, LLP Esanu Katsky Korins & Siger, LLP 150 Federal Street, 28th Floor 605 Third Avenue Boston, MA 02110-1745 New York, NY 10158 (617) 695-9090 (212) 953-6000 Fax: (617) 695-9255 Fax: (212) 953-6899 |
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Amount Proposed Proposed Amount of
Class of Securities to be Registered Maximum Maximum Registration
To be Registered Offering Price(1) Aggregate Fee
Per Unit
Units each consisting
of one share of
common stock and one
series B redeemable common
stock purchase warrant(2): 1,380,000 $8.00 $11,040,000 $3070.00
Common stock(3) 1,380,000
Underwriter's unit
purchase option(4)
Units issuable upon
exercise of the
Underwriter's unit
purchase option(5) 120,000 $1,152,000 $ 309.00
Common stock(6) 120,000
Totals..........................................................................................$3379.00
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(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 (a) promulgated under the Securities Act of 1933, as amended, based on a price of $8.00 per unit. The price of the common stock on the Over-the-Counter Bulletin Board on August 9, 1999 was $4 5/8.
(2) Includes 180,000 units issuable upon exercise of the underwriter's over-allotments option (the "Over-allotment Option").
(3) Represents shares of common stock issuable upon exercise of the Series B common stock purchase warrants (the "warrants") offered hereby, including warrants issuable upon exercise of the Over-Allotment Option.
(4) The unit purchase option entitles the underwriter to purchase 120,000 units at 120% of the initial public offering price per unit.
(5) Each unit consists of one share of common stock and one warrant.
(6) Represents shares of common stock issuable upon execise of the warrants issued pursuant to the underwriter's unit purchase option.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.
CROSS REFERENCE SHEET
Form SB-2 Item Numbers and Caption Heading in Prospectus
---------------------------------- ------------------------
1. Front of the Registration Statement
and Outside Front Cover of Prospectus.................... Cover Page of Form SB-2 and of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors....................... Prospectus Summary and Risk Factors
4. Use of Proceeds............................................ Use of Proceeds
5. Determination of Offering Price............................ Cover Page of Prospectus, Risk Factors and
Underwriting
6. Dilution................................................... Dilution
7. Selling Security Holders................................... Not applicable
8. Plan of Distribution....................................... Cover Page of Prospectus and Underwriting
9. Legal Proceedings.......................................... Not Applicable
10. Directors, Promoters, Executive Officers, Promoters
and Control Persons...................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................................... Principal Stockholders
12. Description of Securities.................................. Description of Securities
13. Interest of Named Experts and Counsel...................... Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................................. Not Applicable
15. Organization Within Last Five Years........................ Related Party Transactions
16. Description of Business.................................... Risk Factors and Business
17. Management's Discussion and Analysis or
Plan of Operation........................................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property.................................... Business
19. Certain Relationships and Related Transactions............. Related Party Transactions
20. Market for Common Equity and Related
Stockholder Matters...................................... Market for Common Stock
21. Executive Compensation..................................... Management
22. Financial Statements....................................... Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................... Not Applicable
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The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 13, 1999
1,200,000 Units
ACTIVEWORLDS.COM, INC.
This is an offering of 1,200,000 of our units. For each unit you purchase you will receive one share of our common stock and a Series B redeemable common stock purchase warrant to purchase one share of our common stock at $ per share. You will not be able to sell or transfer the shares of common stock and warrants that comprise the units separately until , 2000 without the consent of HD Brous & Co., Inc., our underwriter. You may exercise the warrants during the period commencing , 2000, and ending , 2004, or earlier with the consent of our underwriter. We have the right to redeem the warrants under certain conditions. For more information concerning the units and the warrants, see "Description of Securities" in this prospectus.
No public market currently exists for our units or warrants.
Our common stock is traded on the Over-the-Counter Bulletin Board under the symbol AWLD. We have applied for the listing of our common stock and units on the Nasdaq SmallCap Market. The warrants will not be listed on any exchange or market until they may be separately traded. At that time, we will apply for the listing of the warrants on the Nasdaq SmallCap Market.
The initial offering price of the units may not reflect the market price after the offering.
Investing in the units involves a high degree of risk. Please see the "Risk Factors" beginning on page 9.
Per Unit Total
-------- -----
Public Offering Price............................... $8.00 $9,600,000
Underwriting Discounts.............................. $0.80 $ 960,000
Proceeds to Activeworlds.com........................ $7.20 $8,640,000
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We have granted the underwriter a 45-day option to purchase up to 180,000 additional units on the same terms and conditions as set forth above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The underwriter expects to deliver the units to purchasers on or about __________, 1999.
HD Brous & Co., Inc.
The date of this prospectus is ___________, 1999
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We have not authorized anyone to provide you with information which differs from this prospectus. We are offering to sell, and seeking offers to buy, units only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.
We intend to furnish our stockholders with annual reports containing audited financial statements, and we will make available to our stockholders such other information as we deem appropriate.
The underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of the units. If the underwriter engages in such activities, it may discontinue them at any time.
Until ____________, 1999, all dealers selling shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
The information in this prospectus includes statistical data regarding the Internet industry and the market for three-dimensional technology. We obtained this data from industry publications and reports which we believe to be reliable sources; however, we cannot guarantee the accuracy and completeness of this information. We have not independently verified the data or sought the consent of the organizations to refer to their reports in this prospectus.
In order to make it easier for you to understand this prospectus, we have defined several of the terms that are used in this prospectus.
E-Commerce. The term "e-commerce" refers to electronic commerce or the business of buying and selling goods and services on the Internet.
Activeworlds.com. The terms "Activeworlds.com," "we," or "our" refer to Activeworlds.com, Inc., a Delaware corporation, which is offering the units for sale to the public. Unless otherwise clear from the context, these terms also refer to us, together with our wholly-owned subsidiary, Activeworlds, Inc., which was formerly known as Circle of Fire Studios, Inc.
You. The terms "you" or "your" refers to the reader of this prospectus.
"Active Worlds," "Activeworlds.com" and "AlphaWorld" are our trademarks and service marks. All other trademarks, service marks or trade names referred to in this prospectus are the property of their owners.
This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully. Unless otherwise indicated, all information contained in this prospectus assumes that the underwriter will not exercise its over-allotment option. This prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.
OUR BUSINESS
Activeworlds.com, Inc. provides computer software products and on-line services that permit users to enter, move about and interact with others in a computer-generated, three-dimensional virtual environment using the Internet. Unlike a two-dimensional environment, which permits movement on a computer screen only along flat horizontal and vertical axes (up, down, left and right), a three-dimensional virtual environment enables users to move in three dimensions by allowing them the added capability of appearing to move forward, backward or in other directions. In the virtual worlds created in our three-dimensional environment, users are also able to create objects and structures which other users can see and move about in real time.
We serve what we believe is an emerging market for three-dimensional Internet interactive technologies and applications. We host hundreds of virtual worlds in our three-dimensional environment. A world is a defined segment of our environment. In addition to our own worlds, we have been engaged by other companies to develop worlds for them, and we have granted them a license for our technology. We have also licensed our technology to clients who create their own worlds.
Our most popular world is AlphaWorld, which consists of virtual real estate on which users can create virtual structures using items from our library of more than 3,000 computer objects and textures. As of June 30, 1999, users had placed more than 30 million building blocks on AlphaWorld. Other worlds are based on specific themes or commercial applications, which are selected either by us or by our licensees. These other worlds include:
o Atlantis, which has an underwater theme and permits the construction of structures appropriate to this environment.
o @mart, which is a virtual shopping mall.
o Movie and entertainment worlds, such as The 13th Floor and Godzilla, which we created for Centropolis Studios, a division of Columbia pictures. These worlds reproduce selected aspects of the movies.
o Educational worlds, such as the University of Colorado's virtual computer, which is a three-dimensional representation of the inside of a computer and used as part of the course material for the university's business school.
o Business worlds, such as Earthweb's e-learning expo world. We created this world for Earthweb to provide interactive on-line training in various subjects, including information technology (IT) training.
o Game worlds, such as awbingo, which we developed to use artificial intelligence capabilities for bingo games.
Our technology consists of Active Worlds 2.2, which is our proprietary three-dimensional browser, and a line of server and authoring tools. The authoring tools are used by us and our licensees to create worlds to meet defined criteria. Our server tools include:
o Uniservers, which permit the creation of three-dimensional worlds, the communication of physical characteristics of three-dimensional objects and the location of structures and users throughout the environment, the transmission of messages and the transfer of information and files. Uniservers can serve a large number of worlds.
o Galaxervers, which are similar to uniservers, but which serve only one world.
o World Servers, which house the data base for one world and communicate with all users in that world and with the uniserver or galaxerver which supports the world.
In addition to offering our users the ability to create worlds on our primary uniserver, we license uniservers and galaxervers to others and grant our licensees the right to use our technology to establish their own three-dimensional world independent of our primary uniserver.
We have licensed uniservers to The Boeing Company, Carlsberg, A.S., Centropolis Studios, Philips Multimedia, NASA and an agency of the United States Government. Our world licensees include Scandinavia Online, A.S., the Canadian Ministry of Education, the University of Colorado, the University of London, Telecom PTT Switzerland and the Amsterdam Stock Exchange.
To date, substantially all of our revenue has been generated from registration fees paid by our citizens, the sale of our servers, licensing of software, and, to a lesser extent, contract software development.
The Active Worlds universe includes a virtual shopping mall, called @mart. As of July 31, 1999, there were approximately 100 vendors located within @mart offering various products and services, including books, compact disks, clothing, tickets and computer products. Our revenue from goods and services sold through @mart has not been significant.
Our goal is to be the leader in three-dimensional Internet virtual environments and interactive communication. We believe that by continually enhancing our technology, developing new applications for the three-dimensional Internet market and implementing an extensive marketing effort, we will be able to achieve this goal.
We believe that the market for three-dimensional interactive Internet technologies is growing due to both an increasing demand for interpersonal interaction between Internet users and an expanding interest in Internet-based applications generally. We believe that Active Worlds' robust architecture, ease of use, speed, reliability and scalability have attracted users worldwide. We believe that three-dimensional Internet applications provide enhanced richness that will be of interest to users developing Internet-based advertising, distance learning, training, entertainment, e-commerce, chat and other on-line activities. As three-dimensional Internet technology becomes more accepted, we believe that a market will develop for our technology for business, commercial, education, entertainment and leisure-time applications.
About Activeworlds.com
Activeworlds.com, Inc. is a Delaware corporation and was incorporated on September 5, 1995 under the name Vanguard Enterprises, Inc. In January 1999:
o We acquired all of the issued and outstanding stock of Circle of Fire Studios, Inc., a Nevada corporation, in exchange for 8,084,816 shares of our common stock.
o We effected a one-for-two reverse split of our common stock.
o We sold 2,000,000 shares of our common stock in an offering pursuant to a private placement.
o We changed our corporate name to Activeworlds.com, Inc., and we changed the name of our subsidiary from Circle of Fire Studios, Inc. to Activeworlds, Inc.
o Our sole business became the business of Circle of Fire Studios, which is described in this prospectus. The former business of Vanguard Enterprises, which was the marketing of hair care products on cable television, was discontinued in 1996.
The transaction by which we acquired the stock of Circle of Fire Studios is referred to as the "Circle of Fire Acquisition."
Our address is 95 Parker Street, Newburyport, Massachusetts 01950. Our telephone number is (978) 499-0222. Our website address is www.activeworlds.com. Information contained on our website is not a part of this registration statement.
THE OFFERING
Securities Offered 1,200,000 units, each unit consisting
of one share of common stock and
a series B warrant to purchase one share of
common stock. If you purchase units, you
will not be able to trade the common stock
and warrants that comprise your units
separately until one year from the date of
this prospectus or an earlier date if agreed
to by the underwriter. See "Description of
Securities."
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Description of the Warrants
Exercise price: Each of the warrants will entitle you
to purchase one share of common stock at the
price of $ per share, subject to
adjustment.
Exercise period: Unless we redeem the warrants, you
may exercise the warrants at any time during
the period commencing , 2000, or earlier
with the consent of the underwriter, until
, 2004.
Redemption: Commencing , 2000, we may redeem the
warrants at a price of $.10 per warrant if
the closing price of our common stock for
each day of a 20 trading day period ending
not earlier than three trading days prior to
the date the warrants are called for
redemption is at least 150% of the exercise
price of the warrants. For more information,
see "Description of Securities -- Series B
Redeemable Common Stock Purchase Warrants."
Common Stock Outstanding
Prior to this offering: 11,010,096 shares
After this offering: 12,210,096 shares
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The number of shares of common stock outstanding prior to and after this offering does not include 3,526,090 shares of common stock which we may issue as follows: 1,000,000 shares issuable upon exercise of stock options which are either outstanding or which we may grant pursuant to our 1999 stock option plan, 726,090 shares of common stock issuable upon exercise of outstanding warrants, 1,200,000 shares issuable upon exercise of the warrants included in the units offered by this prospectus, 360,000 shares issuable pursuant to the units issuable upon exercise of the underwriter's over-allotment option and the underlying warrants and 240,000 shares issuable upon exercise of the underwriter's unit purchase option and the underlying warrants.
The 1,200,000 shares of common stock which are a part of the units offered by this prospectus can not be separately sold or transferred until , 2000, or an earlier date if agreed to by our underwriter.
Risk Factors An investment in our units involves a high
degree of risk. You should not consider purchasing
our units unless you can afford to lose your entire
investment. See "Risk Factors" for important factors
you should consider.
Use of Proceeds The net proceeds of this offering will be
used for working capital and other corporate
purposes, including marketing and research and
development.
Market Symbols:
Common Stock: AWLD (OTC Bulletin Board).
Units: AWLDU (Proposed)
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We have applied for the listing of our common stock and units on the Nasdaq SmallCap Market, effective on the date of this prospectus. We intend to apply for a trading symbol for the warrants at the time the warrants become separately traded.
SUMMARY FINANCIAL INFORMATION
Statement of Operations Data:
Three Months Ended March 31,
---------------------------- Year Ended January 17, 1997
1999 1998 December 31, 1998 (inception) to December 31, 1997
------ ------- ------------------- ---------------------------------
Revenue $95,946 $75,975 $576,163 $419,130
(Loss) from operations (308,525) (40,669) (69,533) (324,943)
(Loss) before
extraordinary item (136,615) (40,363) (88,142) (613,280)
Net income (loss) (136,615) (40,363) (9,081) (613,280)
Net income (loss) per
share:
Basic (.013) (.005) (.001) (.076)
Diluted (.013) (.005) (.001) (.076)
Common stock
outstanding:
Basic 10,467,261 8,084,816 8,084,816 8,084,816
Diluted 10,467,261 8,084,816 8,084,816 8,084,816
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Balance Sheet Data:
March 31, 1999
--------------
As Adjusted(1) Actual December 31, 1998
-------------- ------ -----------------
Current assets 9,064,917 624,917 148,847
Working capital 8,791,919 351,919 (410,934)
Short-term debt ---- ---- 54,753
Accumulated deficit (758,976) (758,976) (622,361)
Stockholders'equity (deficiency) 9,171,747 731,747 (231,638)
Net tangible book value per share .75 .033 (.054)
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(1) Adjusted to give effect to (a) our sale of private placement units in June 1999 and (b) our receipt of the net proceeds of this offering, less expenses, of $8,440,000.
RISK FACTORS
An investment in our units involves a high degree of risk, and you should only consider purchasing our units if you can afford to sustain the loss of your entire investment. You should carefully consider the risks described below and the other information before deciding to purchase any units.
We have not generated significant revenue, and we have never generated profits. We have not been profitable since our organization. For the three months ended March 31, 1999, we had a net loss of $136,615, or $.013 per share (basic and diluted) on revenue of $95,946, and for the year ended December 31, 1998, we had a net loss of $9,081 on revenue of $576,163. Our net loss for 1998 reflects an extraordinary gain of $79,061, which resulted from our eliminating debt related to a litigation settlement. Our loss before the extraordinary gain was $88,142. We believe that we will continue to incur losses. We expect to continue to incur significant operating expenses, and we cannot assure you that we will ever generate sufficient revenue to enable us to operate profitably. If we do not generate sufficient revenue or if our operating expenses exceed our expectations, the results of our operations and our financial condition will be materially and adversely affected.
Our revenue from advertising and e-commerce has been nominal. Substantially all of our revenue has been generated from registration fees of citizens, the sale of our servers, licensing of software and, to a lesser extent, contract software development. We believe that our long-term success is dependent upon our ability to generate revenue from the licensing of our technology and from advertising and e-commence. Our revenue from these sources has been nominal, and we may never be able to generate significant revenue from either of these sources. In order to attract advertisers to our website we must be able to demonstrate that we have a substantial base of users who use our website frequently and for sustained periods of time. We believe that our present user base is not sufficient to attract any significant advertising revenue.
We need additional cash to fund our operations. Our present cash requirements include the development and implementation of a marketing program directed at both potential users and licensees of our technology and the enhancement of our technology. At June 30, 1999, we had cash of approximately $1,100,000. Our principal sources of working capital were two private placements. The first was a $1,000,000 private placement completed in January 1999, from which we received net proceeds of approximately $940,000. We used $275,000 of the net proceeds to settle pending litigation. The second was a $900,000 private placement completed in June 1999, from which we received net proceeds of approximately $780,000. Although we believe that the net proceeds from this offering will be sufficient to satisfy our working capital requirements for the next twelve months, we may need additional funding during the next twelve months. We cannot assure you that additional funding will be available when we require it. If we are unable to obtain any required funding, our business will be adversely affected. Furthermore, if financing is available, the terms of the financing may result in significant dilution to our stockholders.
We may not be able to market our technology for business and other commercial applications and this would adversely affect our profitability. We intend to market our technology for business, educational, entertainment, leisure-time and other commercial applications, and we believe that in order for us to operate profitably, we will need to be successful in licensing our technology for these purposes. If we are unable develop a successful licensing program, our business will be materially and adversely affected.
We do not have a sufficiently large user base to attract advertisers. More than 800,000 persons have downloaded our browser and visited our three-dimensional environment. We have approximately 20,000 paying citizens of Active Worlds. We do not believe that this user base is sufficient to attract significant advertising revenue. We believe that, in order to attract advertisers to our website, we must make the website attractive to the categories of persons sought by the advertisers. In order to attract this type of usage, we must both market the website to potential users with the demographic makeup sought by our prospective advertisers, and we must offer our users content to induce them to become regular users of the website. We can not give any assurance that we will be successful in developing a user base acceptable to advertisers.
Our proposed marketing programs may not attract sufficient additional visitors to our website. Although we plan to develop and implement aggressive marketing campaigns online and using traditional media to promote our website, our marketing program may not be successful. If these efforts are unsuccessful, we will face difficult and costly choices in deciding whether and how to redirect our marketing efforts. The failure of our marketing campaign would impair our ability to generate revenue from advertising, user fees and other revenue sources.
We may fail to establish an effective internal sales organization to attract either advertising or licensing revenue. Our present marketing effort is dependent upon outside marketing and advertising agencies to develop advertising opportunities. We believe that our ability to generate revenues from advertising and from the licensing of our technology will depend on our ability to establish an aggressive and effective internal sales organization. Our ability to increase our sales force involves a number of risks and uncertainties, including competition and the length of time for new sales employees to become productive. If we do not develop an effective internal sales force, our business will be materially and adversely affected.
We face difficulties encountered by early stage companies in new and rapidly evolving industries. We have a limited operating history, and we face risks and difficulties frequently encountered by early stage companies in new and rapidly evolving industries, including the Internet advertising market. These risks include our failure to:
o attract a larger audience to our website;
o increase awareness of the Active Worlds name and strengthen user loyalty;
o provide content necessary to retain user interest;
o maintain and develop relationships with strategic partners to increase use and visibility of Active Worlds;
o implement a licensing program for our technology;
o attract advertisers from a variety of industries;
o respond effectively to competitive pressures;
o develop and upgrade our technology; and
o attract, retain and motivate qualified personnel.
Our future revenue from e-commerce is uncertain. Our long-term success depends on both widespread market acceptance of electronic commerce or "e-commerce" and our ability to generate commissions or fees from sales of products through e-commerce. A number of factors could prevent acceptance of e-commerce, including the following:
o Businesses that sell goods and services on the Internet may not be willing to pay adequate commissions or fees to us.
o E-commerce is at an early stage, and consumers may be unwilling to buy from on-line vendors rather than customary sources, including stores and catalogues.
o Increased government regulation or taxation may adversely affect the popularity of e-commerce.
o The lack of adequate telecommunication service could result in slower response times.
o Adverse publicity and consumer concern about security and privacy could limit the use of e-commerce.
Our growth is placing a significant strain on our resources. We are currently experiencing a period of expansion. We have incurred a substantial increase in expenses in hiring and training new employees. In order to implement our business plan, we must continue to grow significantly. This growth will strain our personnel, management systems and resources. To manage our growth, we must implement operational and financial systems and controls and recruit, train and manage new employees, including executive and middle management personnel. We cannot be certain that we will be able to integrate new executives and other employees into our organization effectively. If we do not manage our growth effectively, our business, results of operations and financial condition could be materially and adversely affected.
Our inability to measure demographics of our users may hinder our ability to generate advertising revenue. In order to attract advertisers we must demonstrate that persons in the market targeted by our desired advertisers are frequent users of our website. Thus, to attract advertisers, we must show the number of visits to our website, the frequency and duration of the visits and the demographics of those who visit the website most frequently and stay for the longest time. If we cannot provide this information with a reasonable degree of accuracy, we will not be attractive to advertisers. Websites typically place a tracking program, known as a cookie, on a user's hard drive without the user's knowledge or consent. These programs automatically collect data on anyone visiting a website. Website operators use cookies for a variety of purposes, including the collection of data derived from users' Internet activity. Most currently available web browsers allow users to elect to remove cookies at any time or to prevent this type of information from being stored on their hard drives. In addition, some commentators, privacy advocates and governmental bodies have suggested limiting or eliminating the use of cookies. Any reduction or limitation in the use of cookies could limit the effectiveness of our sales and marketing efforts.
The Internet has not been accepted as an advertising and commercial medium. Our future growth is dependent upon the growth of the Internet as a medium for information, communications and commerce. The Internet is relatively new and its use is rapidly evolving. Our business will be adversely affected if Internet usage does not continue to grow. Internet usage may be inhibited for a number of reasons including:
o The Internet infrastructure may not be able to support the demands placed on it, and its performance and reliability may decline as usage grows.
o There may be inconsistent quality of service.
o Users may have concerns with respect to the security of Internet transactions, particularly the possibility of theft of credit card and other personal information.
o Users may have privacy concerns because personal information which they provide on websites may be sold to third parties without the users' knowledge or consent.
o Advertisers may not accept the Internet as an advertising medium or the Internet may not prove to be as significant a medium to advertisers as anticipated.
o Viruses, which are software programs which may impair the users ability to use their computers, may be transmitted on the Internet.
We require additional management, middle management and technical personnel. Our business is dependent on continued services of our senior management and other key personnel, particularly, Richard F. Noll, our president and chief executive officer, J.P. McCormick, our chairman of the board and chief financial officer, and Roland Vilett, our lead computer programmer and software developer. However, in order to implement an expanded marketing and research and development program, we must hire additional management and middle management and technical personnel. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees. We have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. There is significant competition for qualified employees in the computer programming and Internet industries. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business will be adversely affected.
We could face liability for information contained on and communications made through our website. We may be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we publish on our website. These types of claims have been brought, sometimes successfully, against on-line services as well as other print publications in the past. Based on links we provide to other websites, we could also be subject to claims based upon on-line content we do not control that is accessible from our website. Claims may also be based on statements made and actions taken as a result of participation in our chat rooms or as a result of materials posted by citizens on news groups at our website. These claims could result in substantial costs and a diversion of our management's attention and resources, regardless of whether we are successful. Our insurance, which covers commercial general liability, may not adequately protect us against these types of claims.
We may incur product liability for products sold over the Internet. Consumers may sue us if products that we sell online or which are purchased through our website are defective or injure the user. This type of claim could require us to spend significant time and money in litigation or to pay significant damages. As a result, any legal claims, whether or not successful, could seriously damage our reputation and our business.
Because of our small size, we may have difficulty in competing with major computer, software and Internet companies. All aspects of the Internet market are new, rapidly evolving and intensely competitive, and we expect competition to intensify in the future. Barriers to entry are low, and current and new competitors can easily launch new websites at a relatively low cost using commercially-available software. Our present competitors include nationally-known companies, including Microsoft, that have expertise in computer and Internet technology, and a number of other small companies, including those that serve specialty markets. Other major companies have the financial and technical ability to compete aggressively in the market for three-dimensional software products on the Internet. Many, if not all, of these companies have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets and significantly greater financial, marketing, technical and other resources than we have. Competitive pressures created by any one of these companies, or by our competitors collectively, could have a material adverse effect on our business, results of operations and financial condition, and we can give no assurance that we will be able to compete successfully against current and future competitors.
We may be unable to respond to the rapid technological change in our industry. The computer and Internet industries are characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. The recent growth of the Internet and intense competition in our industry make these market characteristics more pronounced. Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of our services. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new products and services. In addition, any enhancements must meet the requirements of our current and prospective users and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructures to adapt to these changes. The failure to offer the most current technologies could have a material adverse effect upon our business. Furthermore, if three-dimensional Internet standards evolve in a manner which is incompatible with out technology, we may not be able to market our technology.
We cannot insure that we can provide our users with a secure environment. Our website is vulnerable to physical or electronic break-ins, viruses or other problems that affect websites and Internet communication and commerce generally. As e-commerce becomes more prevalent, our customers may become more concerned about security. Although we believe that we can implement reasonable security precautions, security systems can and are sometimes circumvented. The circumvention of our security measures may result in the misappropriation of proprietary information, such as credit card information, or interruptions of our operations. Any security breaches could damage our reputation and expose us to a risk of loss or liability. We may be required to make significant investments in our efforts to protect against and to remedy security breaches. Our failure to address security concerns adequately could materially and adversely affect our business, financial condition and operating results.
Government regulation and legal uncertainties could add additional costs to doing business on the Internet. There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. However, laws and regulations may be adopted in the future that address issues such as user privacy, pricing and the characteristics and quality of products and services. For example, the Telecommunications Act of 1996 sought to prohibit transmitting various types of information and content over the Internet. Several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and on-line service providers in a manner similar to long distance telephone carriers and to impose access fees on those companies. This could increase the cost of transmitting data over the Internet. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership, libel and personal privacy are applicable to the Internet. Any new laws or regulations relating to the Internet or any new interpretations of existing laws could adversely affect our business.
Infringement of our intellectual property rights could harm our business. We have no patents on our software products and the application for registration of our copyright for our source code is pending. We rely on our copyrights and nondisclosure agreements with our employees and others to whom we have provided technical proprietary information. We also rely on licensed software products in our operations. However, we cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. Any infringement or misappropriation could have a material adverse effect on our future financial results.
We could be subject to possible infringement actions based upon content licensed from others. Any claims for infringement, with or without merit, could subject us to costly litigation and the diversion of our financial resources and technical and management personnel. If these claims are successful, we may be required to modify our software, change our trademarks, alter the content, pay financial damages or obtain licenses from others.
Our systems may fail or experience a slow down and our users depend upon others for access to our website. Substantially all of our communications hardware and some of our other computer hardware operations are located at our headquarters in Newburyport, Massachusetts, and while we constantly backup data on external tape drives we do not have a back-up computer system. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events could damage these systems. Any of these occurrences could adversely affect our business. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems. Furthermore, if the response time of our website is slow for some reason, users could abandon our website.
If our computer systems and software products are not year 2000 compliant, our business could suffer. Many currently installed computer systems and software products only accept two digits to identify the year in any date. Thus, the year 2000 will appear as "00," which the system might consider to be the year 1900 rather than the year 2000. Although we believe that our proprietary software is Year 2000 compliant, other software used in our business, including our telecommunications system, whether developed by us or provided by our suppliers or used by users of our three-dimensional environment, may not be Year 2000 compliant. The failure of our software or the software of third parties to be Year 2000 compliant could result in system failures, delays or miscalculations causing disruption to our operations and could result in the inability of users to access our website and we could incur significant expense in correcting any software or other problems resulting from this failure.
We have broad discretion as to the use of the proceeds from this offering. The net proceeds of this offering are allocated to working capital purposes, including marketing, research and development. Management will have
broad discretion with respect to the expenditure of the net proceeds of this offering. If you purchase units in this offering, you will be entrusting your funds to our management, upon whose judgment you must depend, with only limited information concerning our specific plans or intentions. Furthermore, circumstances may change which may result in a reallocation of our intended use of proceeds.
We may make acquisitions following completion of this offering. Following this offering, we may make acquisitions of other businesses. Although we anticipate that any business we acquire will be related directly or indirectly to our present business, it is possible that we may make acquisitions in one or more unrelated businesses. Any acquisition may be made using a portion of the net proceeds of this offering or with our securities or a combination of cash and securities. At present, we are not engaged in formal or informal discussions with respect to any acquisition. However, if we make an acquisition, we may not seek stockholder approval or provide stockholders with any information concerning the acquisition prior to the execution of an acquisition agreement.
Future acquisitions may disrupt or otherwise have a negative impact on our business. If we make any acquisitions, we may have difficulty in integrating the business and personnel with our business, which could impair our employee and client relations and our business generally.
Seasonal patterns may adversely affect our business. Our revenue is not presently seasonal. If a significant portion of revenue is generated from advertising and e-commerce, our business may become subject to seasonal business patterns typical of the advertising and retail sales industries. A disproportionate percentage of revenue from advertising and retail sales typically is generated in the fourth and second quarters of the year. To the extent that our business is dependent upon advertising and e-commerce revenue, our business may be subject to the same fluctuations. In addition, traffic levels on our website are typically lower during the summer and year-end vacation and holiday periods. These fluctuations could make it difficult to maintain an appropriate amount of staff which could have an adverse impact upon our business.
We are controlled by our management. Mr. Richard F. Noll, our president and chief executive officer, and Mr. J.P. McCormick, our chairman of the board and chief financial officer, own approximately 68% of our outstanding common stock and have the power to elect all of our directors and approve any corporate action.
Our common stock has been and is likely to be highly volatile. Our common stock is quoted on the OTC Electronic Bulletin Board. However, until January 1999, there was no significant trading activity in our stock, and a regular and established market may never be developed or maintained. There can also be no assurance as to the depth or liquidity of any market for the units or common stock or the prices at which holders may be able to sell units or common stock. The market price of our common stock has been, and is likely to continue to be, highly volatile as the stock market in general, and the market for Internet-related and technology companies in particular, has been highly volatile. Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to volatility. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. Litigation could result in substantial costs and a diversion of management's attention and resources. We cannot assure you that our stock will trade at the same levels as other Internet stocks or that Internet stocks in general will sustain their current market prices. Factors that could cause volatility may include actual or anticipated fluctuations in our quarterly operating results, announcements of technological innovations, changes in financial estimates by securities analysts, conditions or trends in the Internet industry and changes in the market valuations of other Internet companies.
The offering price of our units and the terms of the warrants were arbitrarily determined. The initial public offering price of the units was determined by negotiations between us and the underwriter and does not necessarily relate to our book value, net worth, financial condition or other established criteria of value. There is presently no market for our units. We have applied for the listing of our common stock and units on the Nasdaq SmallCap Market. However, this listing does not mean that an active market in our securities will develop or be maintained. If you purchase units in this offering, you may have difficulties in selling the units if you desire to do so.
The underwriter may be a dominating influence on the market for our units. A significant number of the units may be sold to customers of the underwriter. These customers may subsequently sell their units to and purchase units from the underwriter. Although it has no obligation to do so, the underwriter may become a market maker and otherwise effect transactions in the units or our common stock, and, if it participates in making a market, it may be a dominating influence in the trading of our securities. The prices and the liquidity of the units and common stock may be significantly affected by the degree, if any, of the participation of the underwriter in these markets, should a market develop.
Our stock price may be affected by shares of common stock becoming available for public sale. We estimate that the public float for our common stock consists of approximately 2,500,000 shares of common stock. This number includes shares which were issued in private placements and may be sold without limitation on volume under Rule 144. The shares of common stock issued as part of the units may not be sold or otherwise transferred except as part of a unit for one year from the date of this prospectus, or earlier in the discretion of the underwriter. Most of the remaining shares of common stock will become eligible for sale under Rule 144 in January 2000. Our officers, directors and 5% stockholders have agreed not to sell their shares publicly without the consent of the underwriter until this time. Following January 2000, there will be a substantial number of shares that will be available for sale publicly which could adversely affect the market price of our common stock and could impair our ability to raise capital though the sale of additional equity securities.
The board of directors could issue preferred stock that affects the rights of the holders of common stock. Our certificate of incorporation gives the board of directors the right to determine the designations, rights, preferences and privileges of the holders of one or more series of preferred stock. Accordingly, the board of directors is empowered, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. The preferred stock could be used to discourage, delay or prevent a change of control. The possible impact on takeover attempts could adversely affect the price of the units, common stock and warrants. Although we have no present intention to issue any shares of preferred stock or to create any additional series of preferred stock, we may issue shares of preferred stock in the future. In addition, the issuance of preferred stock with multiple voting rights may violate the rules of Nasdaq and, if our common stock is listed on the Nasdaq SmallCap Market, we may lose our listing. We cannot issue shares of preferred stock for two years from the date of this prospectus without the consent of the underwriter.
Our certificate of incorporation and bylaws limit the liability of management. Our certificate of incorporation limits the liability of our officers and directors and our bylaws provide for indemnification by us of our officers and directors to the full extent permitted by Delaware corporate law. Our certificate of incorporation provides that our directors shall have no personal liability to us or our stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. These provisions substantially limit the stockholders' ability to hold directors liable for breaches of fiduciary duty. These provisions to not affect liability under securities laws.
Dilution. If you purchase units you will immediately incur a dilution of $7.19 per share, or 90%, from the initial public offering price of the units, without allocating any value to the warrants. See "Dilution".
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among other things, our expectations with the development of our business and the market for three-dimensional technology for the Internet. In addition to these statements, trend analysis and other information including words such as "seek," "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions are forward looking statements. These statements maybe found in the sections of this prospectus entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Some or all of the results anticipated by the forward-looking statements will not occur as a result of various factors including, but not limited to, all of the risks discussed in "Risk Factors" and elsewhere in this prospectus.
DILUTION
The net tangible book value of our common stock at March 31, 1999 was approximately ($.013) per share, after giving pro forma effect to the sale by us in June 1999 of an aggregate of 158,400 shares of our common stock in a private placement. All share and per share information included in this prospectus has been restated to reflect a one-for-two reverse split effective in January 1999. Net tangible book value represents the amount of our tangible assets reduced by the amount of our liabilities. Without taking into effect any change in our net tangible book value after March 31, 1999 other than as a result of the sale of the 1,200,000 shares of common stock included in the units, after deducting fees and other estimated expenses of the offering and ascribing no value to the warrants, our net tangible book value as of March 31, 1999, would have been approximately $ 0.81 per share. This amount represents an immediate increase in net tangible book value per share of approximately $0.82 to the present stockholders and an immediate dilution per share of approximately $7.19 to the purchasers of the Units. The dilution represents the difference between the offering price per unit and the net tangible book value per share after the offering.
The following table illustrates the dilution of one share of common stock as of March 31, 1999:
Offering price per share of common stock $8.00 Net tangible book value per share at March 31, 1999 (pro forma) [$.013] Increase per share attributable to sale of the Units offered hereby $0.82 Pro forma net tangible book value per share after Offering $0.81 Dilution to public investors [$7.19] |
If the underwriter exercises the over-allotment option in full, the pro forma net tangible book value would be $0.64 per share of common stock, resulting in an increase in the net tangible book value per share of $0.65 and dilution to the public investors of $7.36 per share.
MARKET FOR COMMON STOCK; DIVIDENDS
Our common stock has been traded on the Over-the-Counter Bulletin Board under the symbol AWLD since January 22, 1999. From January 13, 1996 until January 21, 1999, our common stock was traded on the Over-the-Counter Bulletin Board under the symbol VANG. During that period, our business was the business of Vanguard Enterprises.
The high and low closing prices for our common stock since January 1, 1997 are as set forth below.
Period High Low ------ ---- ---- 1999: First Quarter (January 15 through January 21) $4.00 $0.50 First Quarter (from January 22) $9.25 $4.00 Second Quarter $8.375 $4.625 Third Quarter (through August 9) $5.125 $3.4375 |
The National Quotation Bureau, Inc. advised us that there was no trading in the stock during the period from January 1, 1997 until January 14, 1999.
The closing price for the common stock on August 9, 1999 was $ 4 5/8 per share. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions and have been restated to reflect the one-for-two reverse split effective January 1999.
As of July 31, 1999, we believe that there were approximately beneficial holders of our common stock.
We have paid no dividends on our common stock since inception, and we do not expect to pay any dividends for the foreseeable future.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 1,200,000 units in this offering will be approximately $8.2 million, based on an estimated initial public offering price per unit of $8.00 per unit. Net proceeds are determined after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.
We intend to use the net proceeds for working capital and other corporate purposes. These uses include the development and implementation of a marketing program and an expanded research and development program to enhance our three-dimensional environment. In connection with the enhancement of our website, we may purchase content for the website from third parties, and we may purchase or lease capital equipment. However, we do not anticipate that the cost of the capital equipment, whether purchased or leased, will represent a significant portion of the proceeds of this offering.
We may use a portion of the net proceeds to acquire other businesses. Although we are not contemplating any specific acquisitions at this time, we expect that acquisition candidates may include other companies that would help us expand our business in the area of the three-dimensional Internet environments. As of the date of this prospectus, we cannot specify with certainty how we will use the remaining net proceeds.
To the extent that the underwriter exercises its over-allotment option, the net proceeds from the sale of these additional shares will be used for working capital and for acquisitions.
The above allocations represent our best estimate based upon our current plans. Our management will have broad discretion in allocating the proceeds to be applied for working capital and general corporate purposes. The amounts actually expended by us on any particular use of proceeds may vary significantly depending on a number of factors, including future revenue growth, the cash generated or used by our operations and the progress of our marketing efforts. We reserve the right to reallocate the net proceeds of this offering among the various categories set forth above as we, in our sole discretion, deem necessary or advisable.
We believe the net proceeds of this offering will be sufficient to fund our plan of operations for at least the next twelve months, although it is possible that we may require additional funds during the next twelve months.
Pending application of the net proceeds as described above, we intend to invest the net proceeds in short-term, interest-bearing investment grade securities, money market accounts, certificates of deposit, or direct or guaranteed obligations of the United States government.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999, and as adjusted to reflect our receipt of the net proceeds from the June 1999 private placement and the proceeds from the sale of the 1,200,000 units offered hereby.
March 31, 1999
Actual As Adjusted
-------- -----------
Stockholders' equity
Preferred stock, par value $.001 per share, 500,000 shares authorized, none
issued or outstanding
Common stock, par value $.001 per share, 50,000,000 shares authorized, 10,850 12,390
10,849,816 shares issued and outstanding at March 31, 1999, 12,390,096 shares
issued and outstanding, as adjusted
Additional paid-in capital 1,486,373 6,784,835
Note receivable for shares issued (6,500) (6,500)
Accumulated deficit (758,976) (758,976)
Total stockholders' equity 731,747 6,019,359
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The number of shares of common stock outstanding at March 31, 1999 and as adjusted does not include 3,526,090 shares of common stock which we may issue as follows: 1,000,000 shares issuable upon exercise of stock options which are either outstanding or which we may grant pursuant to our 1999 stock option plan, 726,090 shares of common stock issuable upon exercise of outstanding warrants, 1,200,000 shares issuable upon exercise of the warrants included in the units offered by this prospectus, 360,000 shares issuable pursuant to the units issuable upon exercise of the underwriter's over-allotment option and the underlying warrants and 240,000 shares issuable upon exercise of the underwriter's unit purchase option and the underlying warrants.
For information relating to our long-term lease obligations, see "Business -- Property" and Notes 3 and 11 of Notes to Consolidated Financial Statements.
SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to the three months ended March 31, 1999 and 1998, the year ended December 31, 1998 and the period from January 17, 1997 (inception) to December 31, 1997. The selected financial data has been derived from the financial statements, which appear elsewhere in this prospectus. The unaudited financial data for the interim periods reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the data for these periods. The results of operations for the interim periods are not necessarily indicative of operating results for the entire year. This data should be read in conjunction with our financial statements, including the related notes, which are included elsewhere in this prospectus.
Statement of Operations Data:
Three Months Ended March 31,
---------------------------- January 17, 1997
Year Ended (inception) to
1999 1998 December 31, 1998 December 31, 1997
---- ---- ----------------- -------------------
Revenue $95,946 $75,975 $576,163 $419,130
(Loss) from operations (308,525) (40,669) (69,533) (324,943)
(Loss) before extraordinary item (136,615) (40,363) (88,142) (613,280)
Extraordinary gain - 79,061 -
-
Net income (loss) (136,615) (40,363) (9,081) (613,280)
Net income (loss) per share:
Basic (.013) (.005) (.011) (.076)
Diluted (.013) (.005) (.011) (.076)
Common stock outstanding:
Basic 10,467,261 8,084,816 8,084,816 8,084,816
Diluted 10,467,261 8,084,816 8,084,816 8,084,816
Balance Sheet Data:
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March 31, 1999 December 31, 1998 December 31, 1997
-------------- ----------------- -----------------
Current assets 624,917 148,847 46,908
Working capital 351,919 (410,934) (634,487)
Short-term debt - 54,753 74,853
Accumulated deficit (758,976) (622,361) (613,280)
Stockholders' equity (deficiency) 731,747 (231,638) (395,865)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1999 and 1998
Revenue for the three months ended March 31, 1999 increased 26.2% from the same period in 1998, from $76,000 in the 1998 period to $96,000 in the 1999 period. This increase principally reflected an increase in revenue from registration fees from our citizens. These annual fees are recognized ratably over a one-year period. There was no significant revenue from licenses of our uniserver or galaxerver software during the first quarter of either 1999 or 1998. Our largest source of revenue is the annual $19.95 registration fee, which is paid by citizens.
Our selling, general and administrative expenses in the March 1999 quarter increased approximately 385% from $73,000 in the March 1998 quarter to $354,000 in the March 1999 quarter. This increase in selling, general and administrative expenses results principally from approximately $80,000 of legal and accounting expenses and the payment of the due diligence expenses we incurred in connection with the Circle of Fire Acquisition and the related private placement, as well as additional expenses resulting from our status as a public company. The increase in selling, general and administrative expenses also reflected an increase in executive compensation and increased payroll expenses generally as we increased our staff. Prior to 1999, we did not pay any compensation to Mr. J.P. McCormick, our chairman, and Mr. Richard F. Noll, our president. However, we accrued compensation to each of them at the annual rate of $50,000 in 1998. Since we had no obligation to pay this compensation, the amount of the compensation is treated as an increase to additional paid-in capital. Since January 1, 1999, we paid each of Messrs. McCormick and Noll a salary at the annual rate of $140,000.
Research and development expenses in the March 1999 quarter increased 18.3% from $43,000 in the March 1998 quarter to $51,000 in the March 1999 quarter. This increase reflected an expansion of our research and development activities to enhance our technology and the development effort relating to our new browser, which was introduced in the spring of 1999.
Interest income of $4,000 in the March 1999 quarter resulted from the investment of proceeds of our January 1999 private placement. We have a net operating loss carryforward in the amount of $107,977 which may be used to reduce the amount of income taxes which may be payable in the future should we recognize a profit.
As a result of the foregoing, we sustained a net loss of $137,000, or $.013 per share (basic and diluted) for the quarter ended March 31, 1999, as compared with a net loss of $40,000, or $.005 per share (basic and diluted) for the quarter ended March 31, 1998.
Year Ended December 31, 1998 compared with the period January 17, 1997 to December 31, 1997
Revenue for the year ended December 31, 1998 increased 37.5% from $419,000 in 1997 to $576,000 in 1998. We refer to the period from January 17, 1997 (the date of our inception) to December 31, 1997 as 1997. This increase in revenue reflected increased license revenue from our software and increased revenue from registration fees from our citizens. Revenue for 1997 included $250,000 generated from an agreement with Philips Multimedia, pursuant to which Philips Multimedia bought a one-year license to use our source code and our uniserver software and a noncommercial research license to use our software.
Selling, general and administrative expenses increased 65.5%, from $293,000 to $486,000. Since we were organized in 1997, we had a smaller staff during most of 1997.
Research and development expenses declined $291,000, or 64.5%, from $451,000 in 1997 to $160,000 in 1998. In 1997, we paid $300,000 to obtain the rights to the Active Worlds technology, to the extent it had been developed at that time. This payment was treated as research and development in 1997. Our research and development expenses, other than this payment, were relatively constant in both years and related principally to the development of our Active Worlds technology to its present stage.
During 1997, we incurred a $500,000 expense as the result of the settlement of an action commenced against us by two former employee-stockholders. As a result of the settlement of subsequent litigation relating to our obligations under the earlier settlement agreement, the two former employee-stockholders accepted a reduction in the amount due to them. The reduction in the payments due by us is reflected as an extraordinary gain in 1998 from the extinguishment of debt relating the prior litigation settlement.
As a result of the foregoing, we generated loss before extraordinary item of $88,142, or $.011 per share (basic and diluted) for 1998, as compared with a loss of $613,000 or $.076 per share (basic and diluted) for 1997. As a result of the $79,000 extraordinary gain resulting from the extinguishment of debt related to the litigation settlement, our net loss for 1998 was $9,000, or $.001 per share (basic and diluted).
Financial Condition
At March 31, 1999, we had working capital of $352,000, which included cash of $588,000. The working capital reflected the remaining cash from the January 1999 private placement, from which we received net proceeds of $940,000. As a result of the June 1999 private placement, from which we received net proceeds of $780,000, at July 31, 1999, we had cash of approximately $1,100,000.
We used the net proceeds from both private placements for working capital, including a payment of $275,000 to settle litigation.
Our principal cash requirements are for working capital, principally to develop and implement an expanded marketing plan and research and development.
We believe that the net proceeds from the sale of the units will be sufficient to meet our cash requirements for the twelve months following this offering, although it is possible that we may need additional funds during that twelve month period.
Year 2000 Compliance
The year 2000 problem is the inability of some software, hardware and systems to determine the correct century commencing on January 1, 2000. For example, software with date-sensitive functions that are not Year 2000 compliant may not be able to determine whether "00" means 1900 or 2000, which may result in computer failures or the failure of the computer to produce accurate information. Our business, operating results and financial position could be materially and adversely affected if our computer systems and third party suppliers are not Year 2000 compliant.
We have conducted an internal assessment of all material information technology and non-information technology systems at our headquarters for Year 2000 compliance and believe that all of our systems are Year 2000 compliant. The only outside vendor upon which we rely, other than utility companies and similar business, is the company which provides us with access to the Internet and houses our website. This company has informed us that its system is Year 2000 compliant.
Through June 30, 1999, we have not incurred any material costs in identifying or evaluating Year 2000 compliance issues. Most of our expenses have related to, and are expected to continue to relate to, the upgrades or replacements, when necessary, of software or hardware, as well as costs associated with time spent by our employees in the evaluation process and Year 2000 compliance matters generally. These expenses are included in our capital expenditures budget and are not expected to be material to our financial position or results of operations. However, our business could be hurt and if these expenses are higher than we presently anticipate.
We cannot assure you that we will not discover Year 2000 compliance problems in our systems that will require substantial revisions or replacements. In the event that the operational facilities that support our business, or our web-hosting facilities, are not Year 2000 compliant, we may be unable to provide our users and licensees with access to our website. Our inability to fix or replace third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs and other business interruptions, any of which could have a material and adverse effect on our business, results of operations and financial condition. Moreover, the failure to adequately address Year 2000 compliance issues in our software, hardware or systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies and others outside our control will be Year 2000-compliant. The failure by these entities to be Year 2000-compliant could result in a systemic failure beyond our control, including, for example, a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our users, decrease the use of the Internet or prevent users from accessing our services, any of which would have a material and adverse effect on our business, results of operations and financial condition.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Reporting Comprehensive Income (SFAS No. 130), which establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 offers alternatives for presentation of disclosures required by the standard. The adoption of SFAS No. 130 had no impact on our results of operations, financial position or cash flows, as the amount of comprehensive loss is the same as the net loss for all periods presented.
In June 1997, the FASB issued Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), which establishes standards for reporting information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 had no impact on our results of operations, financial position or cash flows.
In February 1998, the FASB issued Employers' Disclosures about Pension and Other Post Retirement Benefits (SFAS No. 132), which revises employers' disclosures about pension and other post-retirement benefit plans. SFAS No. 132 does not change the measurement or recognition of those plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 132 will not have an impact on our results of operations, financial position or cash flows since we do not have any pension or post retirement benefit plans.
In June 1998, the FASB issued Accounting for Derivatives and Hedging Activities (SFAS 133) which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. As we do not currently engage or plan to engage in derivative or hedging activities, there will be no impact to our results of operations, financial position or cash flows upon the adoption of this standard.
BUSINESS
Our Business
We develop and license software products for use on the Internet which:
o enable us to create three-dimensional virtual environments, which we call worlds, to which any visitor to our website can obtain access;
o permit licensees to create their own worlds, on which they can control the content and access; and
o allow visitors to our website to enter, move about in and interact with others in a computer-generated, three-dimensional virtual environment.
We also offer our licensees technical services to assist them in the development of their world or to develop their world for them.
Unlike a two-dimensional environment which permits movement on a computer screen only along horizontal and vertical axes (up, down, left and right), a three-dimensional virtual environment also enables users to move forward and backward.
We generally grant our licensees a non-exclusive right to use our uniserver or galaxerver software, which comes with the right to receive any upgrades for a one-year period. Our galaxerver is similar to our uniserver but, unlike the uniserver, which can support a large number of worlds, the galaxerver only supports one world. Our licensees can use our software to develop their own worlds or they can engage us to develop their worlds for them or assist them in the development of their world. Our browser enables our licensees to create unique three-dimensional objects for use in their worlds and to impose limitations on both the nature of the structures which may be created and the users who may either visit the world or create structures on the world.
Those licensees whose worlds are supported by our uniserver can place restrictions on those persons who may have access to their worlds or they may permit any users to visit their world. For example, a university licensee could restrict access to its world to its students. Our licensees may name their worlds and control the content of their worlds. We do not constantly monitor the content of worlds created by our licensees, but we do have access to all worlds which reside on our uniserver and monitor the worlds from time to time. As of July 31, 1999, there were approximately 1,000 worlds supported by our uniserver, of which 10 worlds are our worlds and the remaining worlds have been created by our users or licensees. Approximately 600 of these worlds are running at any one time.
The Market for Three-Dimensional Technology
The substantial growth of the Internet is well known. The growth of the Internet has been accompanied by a range of applications designed to facilitate both business and personal communications. We believe the three-dimensional multi-user Internet market is a rapidly growing market and a natural evolution of the development of Internet communities. At present, a typical website uses two-dimensional web pages and book-style interfaces, which require the visitor to click to turn pages of a virtual book. We believe that the next stages of development will include three-dimensional interactive environments, which permit visitors to move about in the environment and interact with other users.
We believe that three-dimensional technology has a wide variety of applications, including the following:
o The entertainment industry, which can use three-dimensional technology to offer virtual settings that allow the user to interact with both the environment and other visitors. We have recently created virtual worlds for Godzilla and The 13th Floor. For The 13th Floor, we created a virtual world that was used to launch a virtual premiere of the movie which was attended by the virtual renditions of stars of the movie and other well-known actors.
o The education industry, which can use three-dimensional technology as part of course material. The University of Colorado used our technology to develop a world which shows a three-dimensional representation of the inside of a computer. This world is used as part of the university's course material. We are dedicating a uniserver to worlds which are to be developed for schools and universities.
o Distance learning, which can use the technology for training purposes. We created for Earthweb a world to provide on-line training, including information technology training.
o E commerce, which can use our technology to develop and implement an electronic storefront in which visitors can interact and move about in a manner similar to a retail store.
o Three-dimensional communities, such as our Alpha World, the most popular world served by our uniserver. We have developed these communities, in which citizens and tourists can build structures, move about and communicate with each other. The presence of any visitor is shown by his or her physical representation known as an avatar. For more information concerning our worlds, see "Business -- The Activeworlds Worlds."
o Chat rooms, in which thousands of users can interact and chat with each in the same shared virtual space. The chat rooms can be part of a three-dimensional community or can be in separate worlds dedicated solely to chat. In addition to the text messages common to two-dimensional chat room, the three-dimensional capability permits visitors to see, move around, and interact with another visitor through their avatars. The three-dimensional capabilities include the ability of a citizen to develop an avatar with his or her picture.
The Activeworlds Worlds
A world is a defined segment of our virtual environment. On our uniserver, we maintain our own worlds as well as worlds that are developed by our licensees or by us pursuant to agreements with our licensees. The licensee may restrict access to its world. Visitors can obtain access to our worlds by visiting our website, www.activeworlds.com, downloading our browser at no charge, and using the browser to visit one or more worlds that are maintained on our uniserver. Our licensees may develop their worlds which are independent of our uniserver.
Once in one of our worlds, users can create virtual three-dimensional structures, such as buildings, using our library of more than 3,000 computer objects and textures. The design and texture of each world reflects the theme of that world. The theme of a world is reflected in the particular type of building objects that visitors can use to create structures. Thus, for example, Mars world and Atlantis have themes and building materials that are consistent with our vision of a world on Mars and an undersea world. Similarly, the user's avatar, which is user's physical representation in the world, may vary from world to world.
Any person who downloads our browser can visit our worlds and the worlds of our licensees that permit access. A visitor may be a citizen, who pays an annual fee, which is presently $19.95, or a tourist, who does not make any payment. Any user can create a three-dimensional structure in our worlds, the structures created by citizens are permanent. While we have the ability and right to take down a structure created by a citizen who lets his or her citizenship lapse, it has not been our practice to do so. If a tourist constructs a structure in one of our worlds, a citizen can claim the space on which the tourist's structure is situated and construct his or her own structures. Our uniserver identifies those structures that are constructed by citizens and those that are constructed by tourists. All users can add picture, sound, music and information to their virtual structures through direct links to anywhere on the Internet.
We operate one uniserver, which currently has a base of over 800,000 users. This Uniserver receives more than 1,000,000 hits per day, with each hit representing an incidence of access to one of our 10 company created worlds such as downloading of building objects. Our primary method of delivering our browser 2.2 is through the Internet. We are currently experiencing more than 1,000 new downloads of our browser through the Internet each day.
When a user visits any of our worlds, his or her presence is immediately indicated by a graphic representation, which we call an avatar, and the user is greeted by his or her screen name. Citizens can create avatars from a range of formats, while the avatar of a tourist is limited to two forms which identify the visitor as a tourist. The avatar's position is shown on the world which the user is visiting. Other users in the same section of the world can see and converse with any user who is in the area at the same time. At present, communication is made through text messages which appear on each visitor's screen. Our server identifies, by screen name, each person within the area of vision. The avatars can be viewed from different angles and positions, including a view from above or from the eyes of user's avatar.
Our worlds are under constant development by both citizens and tourists. By creating an object on an empty piece of land, a visitor can stake a claim to cyberspace. Our library of thousands of building objects contains the necessary materials for constructing a home, store, convention center, car, maze or any other kind of building or structure. Citizens, but not tourists, can customize their buildings with signs of all shapes and sizes. Visitors have placed more than 30 million virtual objects and structures in AlphaWorld, our most popular world, and they have created virtual towns and cities, complete with traffic signs, community artwork and parkland, in which visitors (through their avatars) can stroll, explore and interact with other users. In one of these structures, users have created a portrait gallery in which citizens have placed pictures of themselves and others.
Citizens also have the ability to construct a transport, which, when touched, moves a visitor to another destination in the same world, a different world or another location on the Internet. We call the ability to transport users in this manner teleporting.
Our worlds can have a commercial and non-commercial theme. Our most popular world is AlphaWorld, a community which consists of virtual real estate on which visitors can create virtual structures from our library of more than 3,000 computer objects and textures. As of June 30, 1999, users had placed more than 30 million building blocks on AlphaWorld. Other worlds are based on specific themes or commercial applications, which are selected either by us or by our licensees. These other worlds include:
o Atlantis, which has an underwater theme and permits the construction of structures appropriate to this environment.
o @mart, which is a virtual shopping mall.
o Movie and entertainment worlds, such as The 13th Floor and Godzilla, which we created for Centropolis Studios, a division of Columbia pictures. These worlds reproduce selected aspects of the movies.
o Educational worlds, such as the University of Colorado's virtual computer, which is a three-dimensional representation of the inside of a computer and is used as part of the course material for the university's business school.
o Business worlds, such as Earthweb's e-learning expo world. We created this world for Earthweb to provide interactive on-line training in various subjects, including information technology (IT) training.
o Game worlds, such as awbingo, which we developed to use artificial intelligence capabilities for games such as bingo.
Our Objective
Our objective is to be the industry leader in three dimensional Internet technology platforms by:
o Enhancing and further developing the Active Worlds software and technology.
o Providing services to three-dimensional Internet virtual environments.
o Providing businesses with the ability to develop one or more unique worlds either for their internal use or for visits by the general public.
o Affording advertisers with the ability to offer three-dimensional Internet interactive advertising.
o Developing three-dimensional e-commerce solutions for businesses seeking to sell goods and services throughout the Internet.
o Offering users a community in which they can create virtual structures, move about and communicate with other users.
Our Strategy
We intend to seek to meet our objective by:
Marketing our technology to businesses
As three-dimensional Internet technology becomes more accepted, we intend to market licenses to our uniserver and galaxerver software and our technical services to businesses. In order to achieve this goal, we intend to expand substantially our marketing effort directed at these businesses. As part of this marketing effort, we will seek to develop strategic relationships with businesses to develop commercial applications aimed at specific market segments. These relationships could take a number of forms and may involve the grant of an exclusive license for a specific market or application. These relationships may also involve a revenue-sharing arrangement and may provide us with additional development revenue.
As part of this strategy, we are expanding our educational programs to include a new uniserver dedicated to education. We are designing this universe, which we call Eduverse, to enable schools, universities and non-profit educational groups to explore the potential of learning through three-dimensional worlds based on our technology.
Expanding our user base
We intend to develop a marketing program aimed at potential visitors to our website by seeking to create awareness of the Activeworlds.com name and website by promoting the website through traditional advertising media. In this connection, we intend to create additional worlds and provide more content on the website. We believe that in order to generate revenue from advertising and e-commerce on our website, we must increase the number of members who visit the website and remain on the website for an extended period. We believe that more than 800,000 users have accessed our website and that in a typical day there are more than 1,000,000 hits to the website. We consider a user to have accessed our website if the user has downloaded our browser and used the browser to visit the website. We do not believe that this number is sufficiently large to attract advertisers and e-commerce vendors to our website. Accordingly, we believe that increasing our user base is critical to our ability to generate revenue from advertising and e-commerce.
Marketing our website as a site for advertising and e-commerce
We intend to make our worlds attractive locations for both advertising and e-commerce. We have developed a virtual mall, @mart, at which more than 100 companies have virtual stores. We intend to expand our effort to attract e-commerce and advertising to our three-dimensional environment by seeking to increase the number of virtual malls located at @mart and well as market separate worlds dedicated to products and services offered by one company.
We believe that we can make our worlds more attractive to advertising and e-commerce by:
o Increasing our user base to show sufficient interest in our worlds.
o Demonstrating the benefits which three-dimensional can offer both
advertisers and e-commerce vendors, both in terms of visual effects and
technological advantages.
o Implementing an extensive advertising campaign, using print, radio and
television and the Internet.
o Implementing an extensive public relations effort involving speaking tours
with various news agencies.
Our Technology
The key element to our three-dimensional environment is our proprietary uniserver software which permits:
o the creation of three-dimensional worlds;
o the communication of physical characteristics of three-dimensional objects
in each world, so that a visitor to any world served by the uniserver can
see the structures in the world, move about in the world and create new
structures;
o the users to locate structures and other users throughout the world,
o the transmission of messages among users to the world, and
o the transfer of information and files between any place on the Internet and
a specific location on a world.
The uniserver can operate on Unix, Linux or Windows 95, 98 or NT platforms. Our galaxerver is similar to the uniserver except that unlike the uniserver, which supports a large number of worlds, the galaxerver only supports one world.
We developed our proprietary three-dimensional browser, Active Worlds Browser 2.2, which can be downloaded without charge. Users cannot access our three-dimensional environment without the browser. The browser is a Windows 98/NT-based software product which allows users to:
o experience shared multi-user, multimedia and three-dimensional environments in any of the worlds which are publicly accessible in our universe.
o develop and build virtual structures in our worlds.
o access and display picture, sound or music files from anywhere on the Internet.
o converse with other users by text-based chat, which can be directed to everyone who is currently visiting the world or through private conversations through messaging to a specific user.
o interface and integrate with two-dimensional Internet browsers, by permitting the three-dimensional window for Active Worlds to run side by side with a two-dimensional web page, which enables users to use all Internet-based technologies, including ActiveX and Java.
o move between worlds in our universe and websites outside our universe.
o automatically update our software.
o visit @mart, our three-dimensional virtual mall, which is designed to resemble a modern shopping mall where a variety of vendors offer both traditional and Internet products and services.
o register for citizen status.
Our platform offers true color graphics, with 16 million colors, frame rates which could be in the range of 10 to 20 frames a second and 16 bit sounds. Using the browser, a visitor can see and interact with other visitors and the virtual environment. Our platform can accommodate thousands of simultaneous users.
Using our software, servers and authoring tools, users can communicate, play games, conduct business and otherwise interact "face-to-face" in our shared three-dimensional worlds on the Internet.
Marketing and Sales
Since Active Worlds is an Internet-based platform, the potential market for our products is global. Our present marketing effort is directed at:
o Businesses and educational institutions, to which we are seeking to license our technology and assist them to develop three-dimensional applications to meet their specific needs.
o Users, who we are trying to attract to our website by providing interesting content and access to our technology.
o Advertisers, to whom we are trying to demonstrate a user base which meets their demographic requirements.
In seeking to address the needs of businesses and educational institutions, we license our uniserver and galaxerver technology to others to allow our licensees to establish their own three-dimensional universe, which can be either on our uniserver or independent of our uniserver.
We have recently commenced a marketing program aimed at educational and non-profit institutions through Eduverse. We intend to operate a separate universe using a uniserver which is dedicated to this purpose. Our program is designed to enable schools, universities and non-profit educational groups to explore the potential of learning through a three-dimensional world based on our technology.
We have licensed uniservers to The Boeing Company, Carlsberg, A.S., Centropolis Studios, Philips Multimedia, NASA and an agency of the United States Government, among others. Some of our world server licensees include Scandinavia Online, A.S., the Canadian Ministry of Education, the University of Colorado, the University of London, Telecom PTT Switzerland and the Amsterdam Stock Exchange.
We presently rely on third party marketing and advertising agencies to market our website and our other services. In addition, we distribute a monthly newsletter, which we deliver by e-mail. This newsletter describes developments in our program.
We use third parties to market our software and related products in the United Kingdom, Scandinavia, Spain, Germany, France, Korea, Brazil and Russia. Our international distributors have developed foreign language versions of our browser and have performed limited marketing. At the present, the revenue from software sold through these distributors has not been significant.
We have marketing arrangements with two companies, neither of which has generated significant revenue to date. In March 1997, we entered into an agreement with Scandinavia Online SA, the largest Internet service provider in Scandinavia, pursuant to which we gave Scandinavia Online a five-year exclusive distribution right to our browser in Scandinavia. Scandinavia Online has recently assigned distribution rights to Kilos AS, a Scandinavian-based company. Scandinavia Online is a holder of shares of our common stock.
In April 1998, we entered into an agreement with The Tech Museum in San Jose, California, to sell them our products and services which resulted in the development of the first stage of its Internet Cafe project focusing on the Active Worlds platform. The Museum dedicated a whole section comprised of twelve computers to showcase Active Worlds as a computer technology advance.
To date, substantially all of our revenue has been generated from registration fees paid by our citizens, the sale of our servers, licensing of our software, and, to a lesser extent, contract software development.
E-commerce Applications
Our universe includes our virtual shopping mall, called @mart. As of May 31, 1999, there were approximately 100 vendors offering products and services, which included books, compact disks, clothes, tickets and computer products. Approximately half of these vendors operate through affiliated merchant programs and we receive a small percentage of any revenue derived from sales made through our @mart link. The other vendors have no obligation to make any payment to us, and they do not pay a fee to us at this time, athough we may charge a fee to all vendors if we believe it would be justified by the level of business at @mart. To date, our revenue from goods and services sold through @mart has not been significant.
Competition
All aspects of the Internet market are new, rapidly evolving and intensely competitive, and we expect competition to intensify in the future. Barriers to entry are low, and current and new competitors can easily launch new websites at a relatively low cost using commercially-available software. Our present competitors include nationally-known companies, including Microsoft, that have expertise in computer and Internet technology, and a number of other small companies, including those that serve specialty markets. Other major companies have the financial and technical ability to compete aggressively in the market for three-dimensional software products on the Internet. Many, if not all, of these companies have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets and significantly greater financial, marketing, technical and other resources than we have. Competitive pressures created by any one of these companies, or by our competitors collectively, could have a material adverse effect on our business, results of operations and financial condition, and we can give no assurance that we will be able to compete successfully against current and future competitors.
In addition, other major software developers have the capability both to develop three-dimensional software products, to market their products through strong distribution channels and to package their software with other popular products. To the extent that a significant market develops for three-dimensional software, we anticipate that major software, computer and Internet companies will develop competitive products. All of these companies are better known than we are, and they have significantly greater resources. In addition, competitive products may be under development by major software, computer and Internet company of which we are unaware.
We believe that the market for three-dimensional interactive Internet technologies is growing due to an increasing demand for interpersonal interaction between Internet users, along with an exploding interest in Internet-based applications generally. We also believe that the three-dimensional aspects of our environment is a departure from most Internet applications, which are two-dimensional and is a more aesthetically pleasing manner of using the Internet. We believe that Active Worlds' robust architecture, ease of use, speed, reliability and scalability have attracted and will continue to attract users worldwide.
Companies, in addition to Microsoft, which offer three-dimensional Internet technology include Blaxxun (formerly Black Sun Interactive), OZ Interactive, Electric Communities (which merged with Onlive Technologies and The Palace) and Platinum Technology.
We believe that these companies are the main industry participants that offer any products or services similar to our products or services. The three-dimensional industry, still in emergence, is ripe for a leader like us to set the three-dimensional Internet virtual standard and capture the majority market share. As an emerging market, it is possible that business may standardize on a technology which is not compatible with our technology. If we cannot offer products that meet this standard, whether imposed by a government agency or resulting from commercial preferences, our business will suffer.
We believe that, at present, we may have a competitive advantage over our competition in four fundamental areas:
o We use world wide web standards for the three-dimensional components that make up our technology, and our technology permits the integration of standard Internet protocols.
o We believe that our browser has smarter architecture and a more robust engine than our competitors. The software upgrades itself automatically upon entrance into the environment, making the upgrade process seamless.
o Users can integrate a two-dimensional browser within our browser to provide a simultaneous two-dimensional and three-dimensional Internet experience.
o Each environment is unique and multimedia enriched, offering the user an almost unlimited combination of audio, video and graphical content options.
Significant Customers
During each of 1998 and 1997, only one client accounted for 5% or more of our revenue. During 1998, our largest customer was The Tech Museum in San Jose, which purchased a special browser for $48,000, or 8.3% of revenue. In 1997, our largest customer was Philips Multimedia, which generated revenue of $250,000, or 59.6% of revenue. Revenue from Philips Multimedia was generated from a one-year license to use our source code, a uniserver and a noncommercial research license. We also assisted Philips Multimedia on its development of a website that provides an aerial view of Alpha World.
Intellectual Property
All of our software was either developed by us or acquired from a third party. We do not have any patents on any of our software. We have applied for registration of copyright for portions of our software code. As of the date of this prospectus, the copyright had not been granted. We are developing and upgrading our software on an ongoing basis. Accordingly, even if the present
copyright applications are granted, we may not have registered copyrights for the most recent versions of our software. We rely upon confidentially agreements signed by our employees. We have applied to the United States Patent and Trademark Office for registration of Active Worlds and our AW design as trademarks and service marks.
In March 1997, we purchased preliminary versions of the Active Worlds software and AlphaWorld content, as it existed at that time, including all object code, source code and documentation, from Worlds, Inc. We subsequently performed substantial modifications to the acquired software. We hold a worldwide non-exclusive license from Worlds, Inc. to use the software known as Life Forms, and any object code, source code and related documentation, to the extent that any Life Forms software is included in Active Worlds and AlphaWorld software.
Government Regulations
We believe that no government approval is necessary for our principal products or services and that there are no government regulations which currently have a material effect on our operations. As Internet commerce evolves, we expect that federal and state agencies may adopt legislation and regulations covering issues such as user privacy, pricing, content and quality of products and services. Although many of these regulations may not apply to our business directly, we expect the future legislation and regulation could expose companies involved in e-commerce and the sale of advertising over the Internet to liability which could limit the growth of Internet commerce generally. We could face exposure to liability resulting from allegations of defamation, breach of privacy or inappropriate usage of e-mail by visitors to our website. In addition, regulations which increase the cost of Internet access may have an effect on the use of the Internet.
Research and Development
We spent approximately $160,000 on research and development in 1998 and approximately $451,000 in 1997. The research and development expenses for 1997 included $300,000 paid for an early version of the activeworlds technology. The balance of our research and development expenditures have been used to our technology. All of our research and development has been sponsored and paid for by us.
Future Acquisition Strategies
Following this offering, we may use a portion of the proceeds to acquire other companies. In addition, we may enter into joint ventures or other relationships, including joint marketing agreements, which we believe would further our growth. Although we anticipate that any acquisitions will be related to three-dimensional Internet technology, we may acquire companies in unrelated businesses. We may not generate net income from any future acquisition or agreement. We have not identified any particular business that we may acquire in the future, and we may not be able to make any acquisitions.
Employees
As of July 31, 1999, we had ten full-time employees, including our two officers, and one part-time employee. None of our employees are represented by a labor union, and we believe that our employee relations are good.
Property
We lease approximately 4,500 square feet of office space at 95 Parker Street, Newburyport, Massachusetts 01950, pursuant to a lease which expires on February 28, 2002. Our present monthly rent is $2,625, which is subject to standard escalation provisions. Our office facilities are adequate for our meet our current needs, and we believe that, if additional space is required, we will be able to obtain it on reasonable terms.
MANAGEMENT
Directors and Executive Officers
The following table names our directors and executive officers and their age.
Name Age Position
---- ---- --------
Richard F. Noll 34 President, chief executive officer and director
J.P. McCormick 39 Chairman, chief financial officer, secretary,
treasurer and director
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Richard F. Noll, our founder, has been president, chief executive officer and a director of us and our predecessor, Circle of Fire Studios since its organization in January 1997. From August 1995 until December 1996, Mr. Noll operated the business of Circle of Fire Studios, Inc. as a sole proprietorship. For more than five years prior to August 1995 he was an independent artist and designer. Mr. Noll attended Massachusetts College of Art and majored in the Fine Arts.
J.P. McCormick has been chairman of the board, chief financial officer and a director of us and Circle of Fire Studios, Inc. since May 1997. He has been our treasurer since May, 1997 and our secretary since July, 1997. From 1987 until May 1997 he was the president of a company which owned and operated two staffing franchises for Norrell Corp. Mr. McCormick is a graduate of Kent State University, Ohio.
Directors are elected for a period of one year and thereafter serve until the next annual meeting at which their successors are duly elected by the stockholders. Officers serve at the will of the Board of Directors. Except as noted herein, there are currently no arrangements or understandings regarding the length of time each director is to serve in such a capacity. There is no immediate family relationship between or among any of the Directors or executive officers.
We have granted the underwriter the right, during the five-year period following the date of this prospectus, to designate one member to our board of directors or an advisor to the board. As of the date of this prospectus, the underwriter has not designated any person for this position.
Our board of directors does not have any committees. We intend to create two committees -- an audit committee and a compensation committee. At least a majority of the audit committee and all members of the compensation committee are to be independent directors. The audit committee will review the scope of our audit, recommend to the board the engagement of our independent auditors, review the financial statements and review any transactions between us and any of our officers, directors or other related parties. Our compensation committee will evaluate our compensation policies, approve executive compensation and executive employment contracts and administer our stock option plan.
Executive Compensation
The following table sets forth information regarding compensation earned during our last three completed fiscal years by our president and chief executive officer, and our chief financial officer, including the period during which these individuals acted in these capacities for Circle of Fire Studios, Inc. In 1998 and 1997, none of our officers received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Name and
Principal Annual Compensation
--------------------------------
Position Year Salary Bonus Other
-------- ---- ------ ----- -----
Richard F. Noll, 1998 -- -- --
president and 1997 -- -- --
chief executive
officer
J.P. McCormick, 1998 -- -- --
chief financial 1997 -- -- --
officer
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No stock options or other equity incentives were granted to either Richard Noll or J.P. McCormick in 1998 or 1997.
During 1998 and 1997, neither Mr. Noll or Mr. McCormick received any compensation from us. However, for financial statement purposes, we accrued compensation at the rate of $50,000 for each of them in 1998 and $30,000 for each of them in 1997. Since we have no obligation to pay them the amount accrued, the amount of the compensation was treated as additional paid-in capital.
In January 1999, we entered into three-year employment agreements with Messrs. Noll and McCormick, pursuant to which they received an annual salary of $57,000. Pursuant to restated employment agreements dated June 1999, their annual salaries were increased, retroactively to January 21, 1999, to $140,000. The agreements also provided for the grant to each of them of incentive stock options to purchase 14,000 shares of common stock at $.55 per share, which was 110% of the price at which common stock was sold by us in the January 1999 private placement. These options were granted in January 1999. The agreements also provide that Messrs. Noll and McCormick will be eligible to participate in a bonus pool of not more than 10% of our income before income taxes. The amount of the bonus pool and the allocation of the bonus pool among our senior executive officers will be determined by our compensation committee. The agreements also provide Messrs. Noll and McCormick with a $4,200 annual automobile allowance.
Stock Option Plan
In January 1999, we adopted a stock option plan, pursuant to which we are authorized to grant options to purchase up to 1,000,000 shares of common stock to our key employees, officers, directors, consultants, and other agents
and advisors. Awards under the Plan may be either nonqualified stock options or incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended, restricted stock awards, deferred stock awards, stock appreciation rights and other stock-based awards, as described in the plan.
The plan is administered by a committee of our board of directors, which will determine who will receive awards, the number of awards to be granted and the specific terms of each grant, including vesting schedules, subject to the provisions of our plan. If a committee is not appointed, the board of directors performs the functions of the committee.
We cannot grant stock options under the plan unless the exercise price it at least equal to the fair market value of our common stock on the date of grant. However, if the option holder owns more than 10% of our outstanding stock, the exercise price of any incentive stock option granted to him or her must be at least 110% of the fair market value on the date of grant.
Through June 30, 1999 we have granted options under the plan to purchase an aggregate of 584,023 shares of common stock at exercise prices ranging from $.43 to $.55. These options include options to purchase 14,000 shares of common stock at $.55 per share, which we granted to each of Messrs. Richard F. Noll and J.P. McCormick.
RELATED PARTY TRANSACTIONS
In connection with the organization of Circle of Fire Studios in January 1997, Mr. Richard F. Noll, our president and chief executive officer, transferred his interest in the Circle of Fire Studios sole proprietorship to Circle of Fire Studios in exchange for shares of its common stock, which, as a result of the Circle of Fire Acquisition became 3,849,463 shares of our common stock. In May 1997, when he joined us, Mr. McCormick purchased shares of Circle of Fire Studios common stock for which he paid $5,000. In May 1997, Associate Corporate Services, Ltd., a corporation of which Mr. McCormick was the president, purchased shares of Circle of Fire Studios for $50,000. The shares of Circle of Fire Studios common stock issued to Mr. McCormick and Associate Corporate Services became, in the aggregate, 3,849,463 shares of common stock. Messrs. Noll and McCormick have transferred a portion of their shares to family members and related parties.
During 1997 and 1998, Mr. McCormick lent Circle of Fire approximately $200,000. This amount has been repaid in full with interest at 8% per annum.
1999 PRIVATE PLACEMENTS
In January 1999, we sold 2,000,000 shares of common stock for $.50 per share to unaffiliated investors, from which we received net proceeds of $940,000. The proceeds from this sale were used for working capital and other corporate purposes, including payments due in connection with the settlement of litigation.
In June 1999, we sold nine private placement units at $100,000 per unit to two accredited investors. Each private placement unit consisted of 17,600 shares of our common stock and a Series A redeemable common stock purchase warrant to purchase 20,000 shares of common stock at $5.70 per share. The warrants also provides the holders with cashless exercise rights. We received net proceeds of approximately $780,000 from this sale. We used the proceeds from this sale for working capital and other corporate purposes, including expenses relating to this offering. In connection with this private placement, we engaged HD Brous & Co., Inc., our underwriter, as exclusive placement agent. We paid HD Brous a fee of $90,000 and a non-accountable expense allowance of $27,000. We also issued HD Brous a warrant to purchase one placement agent's unit for $90,000. A placement agent's unit consists of 15,840 shares of our common stock and a Series A common stock purchase warrant to purchase 18,000 shares of our common stock at $5.70. The warrant we issued to HD Brous may terminate on the date of this prospectus of this offering. In connection with the private placement, we and our officers, directors and 5% stockholders gave HD Brous a three-year right of first refusal with respect to public and private sales of our securities, including sales pursuant to Rule 144 of the Commission pursuant to the Securities Act.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 31, 1999, as to the beneficial ownership of each director, each officer named in the Summary Compensation Table and each person known by us to own at least 5% of the outstanding shares of our common stock.
Percentage of Shares
Name and Address of Amount and Nature of --------------------------------------
Beneficial Owner(1) Beneficial Ownership(2) Prior to Offering After Offering
------------------- ----------------------- ------------------ --------------
Richard F. Noll(3) 3,807,975
J.P. McCormick(4) 3,734,219
All officers and directors as a
group (two persons)(3),(4) 7,542,194 68.5%
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(1) The address of each person named is 95 Parker Street, Newburyport, MA 01950.
(2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock subject to options or warrants are deemed to be currently exercisable if they are convertible or exercisable within 60 days of the date as to which information is provided. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned.
(3) Includes (a) 24,526 shares of common stock owned by Mr. Noll's wife, as to which Mr. Noll disclaims beneficial interest and (b) 14,000 shares of common stock issuable upon exercise of outstanding options held by Mr. Noll.
(4) Includes 14,000 of common stock issuable upon exercise of outstanding options held by Mr. McCormick.
DESCRIPTION OF SECURITIES
Capital Stock
We are authorized to issue 500,000 shares of preferred stock, par value $.001 per share, and 50,000,000 shares of common stock, par value $.001 per share. Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders and share in dividends which the board of directors, in its discretion, may declare from funds legally available. In the event of liquidation, each outstanding share of common stock entitles its holder to participate ratably in the assets remaining after payment of liabilities and any preferences due to holders of preferred stock. At July 31, 1999, there were 11,010,096 shares of common stock outstanding.
Stockholders have no preemptive or other rights to subscribe for or purchase additional shares of any class of stock or of any of our other securities, and there are no redemption or sinking fund provisions with regard to the common stock. All outstanding shares of common stock are, and those issuable as part of the units or upon exercise of the warrants will be, when issued as provided in this prospectus, validly issued, fully paid, and nonassessable. Stockholders do not have cumulative voting rights.
Our board of directors is authorized to issue, from time to time and without further stockholder action, up to 500,000 shares of preferred stock in one or more distinct series. The board of directors is authorized to fix the following rights and preferences, among others, for each series:
o The rate of dividends and whether these dividends shall be cumulative.
o The price at and the terms and conditions on which shares may be redeemed.
o The amount payable upon shares in the event of voluntary or involuntary
liquidation.
o Whether or not a sinking fund shall be provided for the redemption or
purchase of shares.
o The terms and conditions on which shares may be converted.
o Whether, and in what proportion to any other series or class, a series
shall have voting rights other than required by law, and, if voting rights
are granted, the number of voting rights per share.
We have no plans, agreements or understandings with respect to the designation of any series or the issuance of any shares of preferred stock. We have agreed with the underwriter that we will not create any series of preferred stock or issue any shares of preferred stock without the consent of the underwriter for two years from the date of this prospectus.
Units
Each unit consists of one share of common stock and one Series B redeemable common stock purchase warrant. The common stock and warrants comprising the units are not separately transferable prior to one year from the date of this prospectus, except with the consent of the underwriter.
Series B Redeemable Common Stock Purchase Warrants
Unless previously redeemed by us, the holder of the warrants are entitled, upon payment of the exercise price of $ per share, to purchase one share of common stock during the period commencing one year from the date of this Prospectus, or earlier at the election of the underwriter, and ending five years from the date of this prospectus. You may only exercise the warrants if a current prospectus under the Securities Act relating to the shares of common stock issuable upon exercise of the warrants is then in effect, and such securities are qualified for sale or exempt from qualification under the applicable securities laws of the state in which you reside.
Commencing one year from the date of this prospectus, or earlier with the consent of the underwriter, the warrants are subject to redemption by the Company, at a price of $.10 per warrant, (i) if the underlying common stock is listed on the Nasdaq System or the American or New York Stock Exchange, (ii) if at such time there is a current and effective registration statement covering the warrants and the shares of common stock issuable upon the exercise of the warrants and (iii) if the closing price per share of common stock is at least 150% of the exercise price for at least 20 consecutive trading days ending not
earlier than three days prior to the date on which the warrants are called for redemption. The warrants may not be called for redemption prior to the date the warrants become exercisable. Holders of the warrants will automatically forfeit their rights to exercise their warrants unless the warrants are exercised before the close of business on the business day immediately prior to the date set for redemption. If we redeem the warrants, we must redeem all of the outstanding warrants.
In order for us to redeem the warrants, we must give the holders of the warrants notice of redemption by first class mail, postage prepaid, within five business days, or such later date which the Underwriter may consent, after the warrants are called for redemption, but no earlier than 60 and no later than the 30 days before the date fixed for redemption. The notice of redemption shall specify the redemption price, the date fixed for redemption, the place where the warrant certificates shall be delivered and the redemption price paid. The notice shall also advise the warrant holders that their right to exercise the warrants shall terminate at 5:00 p.m., New York City time, on the business day immediately preceding the date fixed for redemption.
The warrants may be exercised upon surrender of the warrant certificate(s) on or prior to 5:00 p.m., New York City time, on the expiration date of the warrants or, if the warrants are called for redemption, the day prior to the redemption date at the offices of the Company's warrant agent with the form of an Election to Purchase on the reverse side of the certificate(s) filled out and executed as indicated, accompanied by payment of the full exercise price for the number of shares of common stock for which the warrants are being exercised.
The warrants contain provisions that protect the holders thereof against dilution by adjustment of the exercise price, and the number of shares in certain specified events, such as stock dividends, stock splits, mergers, sale of substantially all of our assets, and for other similar events.
We are not required to issue fractional shares of common stock. We will pay cash in lieu of fractional shares, based upon the current market value of such fractional shares at the date of exercise. A holder of warrants will not possess any rights as a stockholder unless and until he or she exercises the warrants.
In the event of any merger, consolidation, sale or lease of substantially all of our assets or reorganization whereby we are not the surviving corporation, we may provide in the agreement relating to the transaction that each warrant shall be converted into such securities of the surviving or acquiring corporation or other entity as has a value equal to the value of the warrants, which shall not exceed the amount by which the consideration to be received per share of common stock exceeds the exercise price of the warrant. The value of the warrants and securities being issued in exchange therefor are to be determined by our board of directors. In the event that, in such a transaction, the value of the consideration to be received per share of common stock is not greater than the exercise price of the warrants, the warrants shall terminate and no consideration will be paid with respect to the warrants.
Although the warrants have a fixed exercise price and a formula for adjustments in certain events and have a fixed expiration date, it is possible that in the future we may wish to reduce the exercise price or extend the exercise period of the warrants. We have no plans to reduce such price or extend the exercise period of the warrants. Any such change would be effected pursuant to a post-effective amendment to the registration statement of which this prospectus is a part or a new registration statement, and no warrants with amended terms may be exercised unless and until such post-effective amendment or new registration statement has been declared effective by the SEC.
The warrants are issued pursuant to a warrant agreement between us and American Stock Transfer & Trust Company, as warrant agent.
Other Options and Warrants
In connection with the June 1999 private placement of private placement units, we issued series A redeemable common stock purchase warrants to purchase 180,000 shares of common stock at an exercise price of $5.70 per share. These warrants are exercisable until June 30, 2004 and give the holders certain cashless exercise rights. These rights give the holders the ability to receive from us the number of shares of common stock that equals the appreciation in the value of the warrant with no cash payment by the holder. We have the right to redeem the warrants commencing in June 2001 if the price of our common stock is $8.55 per share, subject to adjustment, and the shares of common stock issuable upon exercise of the warrants are registered with the SEC.
In connection with this private placement, we issued to the underwriter, in its capacity as exclusive placement agent, a warrant entitling the holder to purchase, for $90,000, a placement agent's unit consisting of 15,840 shares of common stock and a series A redeemable common stock purchase warrant to purchase 18,000 shares of our common stock. The warrant issued to the underwriter may terminate on the date of this prospectus.
In consideration for its serving as a public relations firm for us, we issued warrants to purchase up to 250,000 shares of our common stock to Strategic Growth International, Inc. at a price of $3.80 per share. These warrants are exercisable until April 1, 2004.
Dividend Policy
We presently intend to retain future earnings, if any, in order to provide funds for use in the operation and expansion of our business and accordingly we do not anticipate paying cash dividends on our common stock in the foreseeable future.
Shares Eligible for Future Sale
After this offering, there will be 12,388,216 shares of common stock outstanding, of which 8,575,096 shares are restricted securities and are not eligible for sale. All except 7,769,548 of these shares will become subject for sale in January 2000, subject to volume limitations of Rule 144. All except 251,880 of these shares will become subject for sale six months from the date of this prospectus, subject to volume limitations of Rule 144. Shares of common stock included as part of the units may not be traded except as part of the units. These shares of common stock will become separately tradable commencing one year from the date of this prospectus or earlier at the election of the underwriter.
Rule 144 permits the sale of restricted securities, subject to the Rule 144 volume limitations, one year after the date of issuance or the date the share are acquired from one of our affiliates. Pursuant to the Rule 144 volume limitations, a holder of restricted securities held for one year may sell in any three month period the greater of 1% of the outstanding Common Stock or the average weekly trading volume. A person who is not an affiliate of the Company and who has held restricted securities for two years may sell such securities without regard to the Rule 144 volume limitations. Our officers, directors and 5% stockholders have agreed not to publicly sell their shares during the six month period starting with the date of this prospectus, without the prior consent of the underwriter.
We cannot predict the effect, if any, that the issuance of shares of common stock upon exercise of options or warrants or the registration of such shares will have on the market for and market price of the common stock.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. That section provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or affiliate or associate of such person who is an interested stockholder for a period of three years from the date that such person became an interested stockholder unless the transaction resulting in a person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder (excluding certain employee stock ownership plans) or on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the
holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. An "interested stockholder" is defined as any person that is the owner of 15% or more of the outstanding voting stock of the corporation or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder.
These provisions could have the effect of delaying, deferring or
preventing a change of control. Our stockholders, by adopting an amendment to
our certificate of incorporation or bylaws, may elect not to be governed by
Section 203, effective twelve months after adoption. Neither our certificate of
incorporation nor our bylaws currently excludes us from the restrictions imposed
by Section 203.
Transfer Agent and Warrant Agent
The transfer agent for the common stock and the Warrant Agent for the warrants is Interwest Transfer Company, P.O. Box 17136, Salt Lake City, Utah 84117.
UNDERWRITING
Our underwriter, HD Brous & Co., Inc., has agreed, on the terms and subject to the conditions of the underwriting agreement, to purchase from us, and we have agreed to sell to the underwriter, 1,200,000 units. The underwriter is committed to purchase and pay for all of the units offered on a "firm commitment" basis if it purchases any units.
The underwriter has advised us that it proposes to offer the units to the public at the initial public offering prices set forth on the cover page of this prospectus. The underwriter may allow to certain dealers, who are members of the National Association of Securities Dealers, Inc., concessions not exceeding $___ per unit, of which not more than $___ per unit may be reallowed to other dealers who are members of the National Association of Securities Dealers. After the offering, the offering price, the concession and the reallowance may be changed.
We have granted an option to the underwriter, exercisable during the 45-day period from the date of this prospectus, to purchase up to a maximum of 180,000 additional units at the public offering price set forth on the cover page of this prospectus, less the underwriting discount, for the sole purpose of covering over-allotments of the shares.
We have agreed to pay to the underwriter a non-accountable expense allowance of 3% of the aggregate public offering price of all units sold, including any units sold pursuant to the underwriter's over-allotment option. We have paid the underwriter $25,000 to date.
The underwriting agreement also provides for us to pay the underwriter a fee in the event that the underwriter introduces us to a party which enters into a business combination or other business transaction with us.
All of our officers, directors and 5% stockholders have agreed not to sell (including any short sale or sale against the box) publicly or otherwise transfer, subject to certain exceptions for transfers to related parties, any of their securities during the six month period commencing with the date of this prospectus, without the written consent of the underwriter. We have also agreed that, during the six month period commencing with the date of this prospectus, we will not, without the consent of the underwriter, publicly sell or register any securities pursuant to the Securities Act without the consent of the underwriter, except that such restrictions do not apply to our registration of stock issuable pursuant to our present stock option plans on a Form S-8 registration statement. We have also agreed with the underwriter that we will not create any series of preferred stock or issue any shares of preferred stock without the consent of the underwriter for two years from the date of this prospectus.
The underwriting agreement provides for reciprocal indemnification between us and the underwriter against certain liabilities in connection with the registration statement, including liabilities under the Securities Act.
In connection with this offering, we have agreed to sell to the underwriter, for nominal consideration, a unit purchase option to purchase from us up to 120,000 units at an exercise price equal to 120% of the offering price of the units being sold in this offering. The units to be issued upon the exercise of this unit purchase option are identical to the units being sold pursuant to this prospectus. The warrants issuable upon exercise of these units are identical to the warrants included in the units we are selling pursuant to this prospectus. The unit purchase option is exercisable for a five year period commencing on the date of this prospectus. During the one-year period commencing on the date of this prospectus, the unit purchase options may not be sold, transferred, assigned or hypothecated, except to the officers of the underwriter or to other underwriters and selling group members or officers, partners or members thereof, all of which shall be bound by such restrictions. The holders of the unit purchase options have no voting, dividend or other rights as our stockholders with respect to securities issuable upon exercise of the unit purchase options until the unit purchase options or the underlying warrants, as the case may be, are exercised. The holders of the unit purchase options have been given the opportunity to profit from a rise in the market for our securities at a nominal cost, with a resulting dilution in the interests of stockholders. The holders of the unit purchase options can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain equity capital, if then needed, by a new equity offering on terms more favorable to us than those provided by the unit purchase options. Such facts may adversely affect the terms on which the company could obtain additional financing. Any profit received by the underwriter on the sale of the unit purchase options or the securities issuable upon exercise of the unit purchase options may be deemed additional underwriting compensation.
We have agreed during the a five year period following the effective date of this prospectus to, on up to two occasions, register the unit purchase option or the units issuable upon the exercise of the unit purchase option upon the request of the underwriter. We are required to file the first such registration statement at our expense. We have agreed to cooperate with the holders of the unit purchase options in filing a second registration at the expense of the holders of the unit purchase options or underlying securities.
In addition, for seven years following the effective date of this prospectus we are required to give advance notice to the holders of the unit purchase option or underlying securities of our intention to file a registration statement (except a registration statement filed on Form S-4 or S-8), and in such case, the holder of the unit purchase option and underlying securities shall have the right to require us to include the underlying securities in such registration statement at our expense
In June 1999, we engaged the underwriter to serve as the exclusive placement agent for the sale of nine private placement units at $100,000 per unit. Each private placement unit consisted of 17,600 shares of our common stock and a Series A common stock purchase warrants to purchase 20,000 shares of common stock at $5.70 per share. We paid the underwriter a fee of $90,000 and a non-accountable expense allowance of $27,000. We also issued to the underwriter a warrant to purchase one placement agent's unit for $90,000. A placement agent's unit consists of 15,840 shares of our common stock and a Series A common stock purchase warrant to purchase 18,000 shares of our common stock at $5.70 per share. Such warrant will terminate upon the completion of this offering. In connection with the private placement, we and our officers, directors and 5% stockholders gave the underwriter a three-year right of first refusal with respect to public and private sales of our securities, including sales pursuant to Rule 144 of the Commission pursuant to the Securities Act.
The underwriting agreement provides that, during the five-year period following the date of this prospectus, the underwriter will have the right to designate one member to our board of directors or an advisor to the board. The underwriting agreement also requires us to maintain $1,000,000 of key man life insurance on the lives of Messrs. Richard F. Noll and J.P. McCormick during their respective terms of employment with us.
Prior to this offering, there has been no public market for the units or warrants
The underwriter has informed us that sales to any account over which the underwriter exercises discretionary authority will not exceed 1% of this offering.
LEGAL MATTERS
The legality of the units offered by this prospectus will be passed upon for us by Pepe & Hazard, LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the underwriter by Esanu Katsky Korins & Siger, LLP, New York, New York.
EXPERTS
Our consolidated financial statements at December 31, 1998 and for the year ended December 31, 1998 and the period from January 17, 1997 (inception) to December 31, 1997 appearing in this prospectus have been audited by Pannell Kerr Forster PC, independent auditors, as set forth in their report appearing elsewhere in this prospectus, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We will file annual, quarterly, and other reports, proxy statements and other information with the Securities and Exchange Commission. These reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC, at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a website that contains all information filed by us. The address of the SEC website is www.sec.gov.
This prospectus constitutes a part of a registration statement on Form SB-2 filed by us with the SEC under the Securities Act with respect to the units offered by this prospectus. This prospectus does not contain all the information which is in the registration statement. Certain parts of the registration statement are omitted as allowed by the rules and regulations of the SEC. Please refer to the registration statement and to the exhibits in the registration statement for further information with respect to us and the units offered in this prospectus. Copies of the registration statement are on file at the offices of the SEC and may be obtained upon payment of the prescribed fee or may be examined without charge at the public reference facilities of the SEC described above. Statements contained in this prospectus concerning the provisions of documents are necessarily summaries of the material provision of such documents, and each statement is qualified in its entirety by reference to the copy of the applicable document filed with the SEC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Consolidated Balance Sheet - March 31, 1999 (Unaudited) and December 31, 1998 F-3
Consolidated Statement of Operations for the Three Months Ended March 31, 1999
and 1998 (Unaudited), Year Ended December 31, 1998 and the Period January 17, 1997
(Date of Inception) to December 31, 1997 F-5
Consolidated Statement of Changes in Stockholders' Equity (Deficiency) for the
Period January 17, 1997 (Date of Inception) to December 31, 1997, the Year Ended
December 31, 1998 and the Three Months Ended March 31, 1999 (Unaudited) F-6
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999
and 1998 (Unaudited), Year Ended December 31, 1998 and the Period January 17, 1997
(Date of Inception) to December 31, 1997 F-7
Notes to Consolidated Financial Statements F-9
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Independent Auditors' Report
To the Stockholders
Activeworlds.com, Inc.
We have audited the accompanying consolidated balance sheet of Activeworlds.com, Inc., as of December 31, 1998, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and cash flows for the year ended December 31, 1998 and the period January 17, 1997 (date of inception) to December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Activeworlds.com, Inc. at December 31, 1998, and the consolidated results of their operations and their cash flows for the year ended December 31, 1998 and the period January 17, 1997 (date of inception) to December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Pannell Kerr Forster, P.C.
July 30, 1999
Boston, MA
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ACTIVEWORLDS.COM, INC.
Consolidated Balance Sheet
March 31, December 31,
1999 1998
----------------- ---------------
(Unaudited)
Assets
Current assets
Cash $ 588,048 $ 86,520
Accounts receivable, trade - net of allowance for doubtful accounts of $18,000
at both dates 26,378 51,836
Advances to officer/stockholder 10,491 10,491
------------ -----------
Total current assets 624,917 148,847
------------ -----------
Property and equipment
Leasehold improvements 20,000 -
Equipment 41,680 23,034
------------ -----------
61,680 23,034
Less: accumulated depreciation 15,456 9,987
------------ -----------
Property and equipment, net 46,224 13,047
------------ -----------
Other assets
Deferred income taxes 329,888 162,308
Organization expense - net of accumulated amortization of $1,805 and $1,580 3,716 3,941
------------ -----------
Total other assets 333,604 166,249
------------ -----------
Total assets $ 1,004,745 $ 328,143
------------ -----------
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See notes to consolidated financial statements
ACTIVEWORLDS.COM, INC.
Consolidated Balance Sheet (Continued)
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Accounts payable $ 74,530 $ 60,200
Accrued liabilities 53,872 20,488
8% note payable to officer/stockholder - 54,753
Accrued litigation settlement - 275,000
Deferred revenue 139,596 144,340
Customer deposit 5,000 5,000
------------ -----------
Total current liabilities 272,998 559,781
------------ -----------
Commitments and contingencies
Stockholders' equity (deficiency)
Preferred stock, $.001 par value, 500,000 shares authorized, no shares issued or
outstanding - -
Common stock, $.001 par value, 50,000,000 shares authorized, 10,849,816 shares
issued and outstanding at March 31, 1999, and 8,584,816 shares issued and
outstanding at December 31, 1998 10,850 8,585
Additional paid-in capital 1,486,373 382,138
Note receivable for shares issued (6,500) -
Accumulated deficit (758,976) (622,361)
------------ -----------
Total stockholders' equity (deficiency) 731,747 (231,638)
------------ -----------
Total liabilities and stockholders' equity (deficiency) $ 1,004,745 $ 328,143
------------ -----------
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See notes to consolidated financial statements
ACTIVEWORLDS.COM, INC.
Consolidated Statement of Operations
Period January 17,
1997 (date of
Year Ended inception) to
Three Months Ended March 31 December 31, December 31,
1999 1998 1998 1997
---------- ---------- ----------- ----------------
(Unaudited) (Unaudited)
Revenues $ 95,946 $ 75,975 $ 576,163 $ 419,130
------------ ----------- ---------- ------------
Operating expenses
Selling, general and administrative expenses 353,626 73,464 485,710 293,494
Research and development expenses 50,845 43,180 159,986 450,579
------------ ----------- ---------- ------------
Total operating expenses 404,471 116,644 645,696 744,073
------------ ----------- ---------- ------------
(Loss) from operations (308,525) (40,669) (69,533) (324,943)
Litigation settlement - - - (500,000)
Interest income 4,330 - - -
------------ ----------- ---------- ------------
(Loss) before (provision for) benefit from income taxes
and extraordinary item (304,195) (40,669) (69,533) (824,943)
(Provision for) benefit from income taxes 167,580 306 (18,609) 211,663
------------ ----------- ---------- ------------
(Loss) before extraordinary item (136,615) (40,363) (88,142) (613,280)
Extraordinary item
Gain on extinguishment of debt related to litigation
settlement, net of tax effect of $30,746 - - 79,061 -
------------ ----------- ---------- ------------
Net (loss) $ (136,615) $ (40,363) $ (9,081) $ (613,280)
------------ ----------- ---------- ------------
(Loss) per share of common stock
(Loss) before extraordinary item $(.013) $(.005) $(.011) $(.076)
Extraordinary item - - .010 -
------- ------- ------- -------
Net (loss) $(.013) $(.005) $(.001) $(.076)
------- ------ ------ -------
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See notes to consolidated financial statements
ACTIVEWORLDS.COM, INC.
Consolidated Statement of Changes in Stockholders' Equity (Deficiency) Period January 17, 1997 (date of inception) to December 31, 1997, Year Ended December 31, 1998 and the Three Months Ended March 31, 1999 (Unaudited)
Preferred Stock Common Stock
------------------------ ------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
Balances at January 17, 1997 (date of inception),
as restated (note 1) - $ - 8,084,816 $ 8,085
Stockholder/employee contributions
Issuance of stock options recognized as compensation
Net (loss) for period
----------- ----------- ----------- -----------
Balances at December 31, 1997, as restated - - 8,084,816 8,085
Issuance of common stock in connection with acquisition
of net assets of Vanguard (note 1) 500,000 500
Stockholder/employee contributions
Issuance of stock options recognized as compensation
Net (loss) for year
----------- ----------- ----------- -----------
Balances at December 31, 1998 - - 8,584,816 8,585
Issuance of common stock 2,200,000 2,200
Issuance of common stock for note receivable 65,000 65
Net (loss) for period
----------- ----------- ----------- -----------
Balances at March 31, 1999 (unaudited) - $ - 10,849,816 $ 10,850
----------- ----------- ----------- -----------
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Note Total
Additional Receivable Stockholders'
Paid-In Accumulated for Shares Equity
Capital Deficit Issued (Deficiency)
----------- ----------- ------------ --------------
Balances at January 17, 1997 (date of inception),
as restated (note 1) $ 118,915 $ 127,000
Stockholder/employee contributions 74,165 74,165
Issuance of stock options recognized as compensation 16,250 16,250
Net (loss) for period $ (613,280) (613,280)
----------- ----------- -----------
Balances at December 31, 1997, as restated 209,330 (613,280) (395,865)
Issuance of common stock in connection with acquisition
of net assets of Vanguard (note 1) 983 1,483
Stockholder/employee contributions 168,575 168,575
Issuance of stock options recognized as compensation 3,250 3,250
Net (loss) for year (9,081) (9,081)
----------- ----------- -----------
Balances at December 31, 1998 382,138 (622,361) (231,638)
Issuance of common stock 1,097,800 1,100,000
Issuance of common stock for note receivable 6,435 $ (6,500) --
Net (loss) for period (136,615) (136,615)
----------- ----------- -------- -----------
Balances at March 31, 1999 (unaudited) $ 1,486,373 $ (758,976) $ (6,500) $ 731,747
----------- ----------- -------- -----------
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See notes to consolidated financial statements
ACTIVEWORLDS.COM, INC.
Consolidated Statement of Cash Flows
,
Period January 17
1997 (date of
Three Months Ended March 31 Year Ended inception) to
-------------------------- December 31, December 31,
1999 1998 1998 1997
----------- ----------- ------------- ------------------
(Unaudited) (Unaudited)
Operating activities
Net (loss) $ (136,615) $ (40,363) $ (9,081) $ (613,280)
Adjustment to reconcile net (loss) to net cash provided
(used) by operating activities
Depreciation and amortization 5,694 1,875 7,526 4,167
Abandoned improvements - 9,661 9,661 -
Common stock issued for services 100,000 8,140 32,575 5,165
Options issued for services - 800 3,250 16,250
Officers'/employee's compensation waived and contributed
to additional paid-in capital - 34,000 136,000 69,000
Gain on extinguishment of debt related to
litigation settlement - - (109,807) -
Deferred income tax expense (benefit) (167,580) (306) 49,355 (211,663)
Cash received in acquisition of Vanguard - - 477 -
Changes in operating assets and liabilities which provided
(used) cash
Accounts receivable 25,458 28,174 (23,662) (28,174)
Advances to officer/stockholder - - (10,491) -
Accounts payable 14,330 (26,280) (37,136) 40,547
Accrued liabilities (241,616) (24,440) 20,492 441,595
Customer deposit - - 5,000 -
Deferred revenue (4,744) 19,185 19,940 124,400
---------- --------- ---------- -----------
Net cash provided (used) by operating activities (405,073) 10,446 94,099 (151,993)
---------- --------- ---------- -----------
Investing activities
Organization costs - - - (4,515)
Purchases of equipment and leasehold improvements (38,646) - (6,213) (26,611)
---------- --------- ---------- ------------
Net cash (used) by investing activities (38,646) - (6,213) (31,126)
---------- --------- ---------- -----------
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See notes to consolidated financial statements
ACTIVEWORLDS.COM, INC.
Consolidated Statement of Cash Flows (Continued)
Period January 17,
1997 (date of
Three Months Ended March 31 Year Ended inception) to
--------------------------- December 31, December 31,
1999 1998 1998 1997
---------- --------- ----------- -------------
(Unaudited) (Unaudited)
Financing activities
Proceeds from sale of stock 1,000,000 - - 127,000
Proceeds from 8% note payable to officer/stockholder - - - 108,850
Payments on 8% note payable to officer/stockholder (54,753) - (20,100) (33,997)
----------- ---------- ---------- ----------
Net cash provided (used) by financing activities 945,247 - (20,100) 201,853
----------- ---------- ---------- ----------
Net increase in cash 501,528 10,446 67,786 18,734
Cash at beginning of period 86,520 18,734 18,734 -
----------- ---------- ---------- ----------
Cash at end of period $ 588,048 $ 29,180 $ 86,520 $ 18,734
----------- ---------- ---------- ----------
Supplemental disclosure information
Cash paid for interest during the period $ 547 $ - $ 6,075 $ 4,003
----------- ---------- ---------- ----------
Cash paid for income taxes during the period $ - $ - $ - $ -
----------- ---------- ---------- ----------
Supplemental schedule of noncash investing activities
Officers'/employee's compensation waived and contributed
to additional paid-in capital $ 34,000 $ 136,000 $ 69,000
-------- --------- --------
Shares issued for note receivable $ 6,500
-----------
Noncash assets acquired in acquisition of Vanguard $ 1,006
----------
|
See notes to consolidated financial statements
Activeworlds.com, Inc.
Notes to Consolidated Financial Statements
Note 1 - Organization and basis of presentation
On January 22, 1999, Activeworlds.com, Inc., a Delaware corporation then known as Vanguard Enterprises, Inc. ("Company"), acquired all of the issued and outstanding common stock of Circle of Fire Studios, Inc., a Nevada corporation ("Circle of Fire"), in exchange for 8,084,816 shares of its common stock (the "1999 Acquisition") pursuant to an Agreement and Plan of Reorganization with Circle of Fire. As part of the 1999 Acquisition, outstanding options to acquire common stock of Circle of Fire were exchanged for options to purchase 639,535 shares of the Company's common stock. At the time of the 1999 Acquisition, Vanguard has no significant operations.
Circle of Fire is accounted for as the acquiring party and the surviving accounting entity because the former stockholders of Circle of Fire received approximately 94% of the voting rights in the combined corporation. The shares issued by Vanguard pursuant to the 1999 Acquisition have been accounted for as if those shares had been issued upon the organization of Circle of Fire. The outstanding capital stock of Vanguard immediately prior to the 1999 Acquisition, has been accounted for as shares issued by Circle of Fire to acquire the net assets of Vanguard as of December 31, 1998.
Because Circle of Fire is the accounting survivor, the financial statements presented for all periods are those of Circle of Fire. All intercompany accounts and transactions are eliminated in consolidation.
The 1999 Acquisition is being accounted for as if it had taken place on December 31, 1998. The consolidated balance sheet at December 31, 1998 reflects the consolidated balance sheets of Vanguard and Circle of Fire at that date, and the results of operations and cash flows for the year ended December 31, 1998 and the period January 17, 1997 (date of inception) to December 31, 1997 reflect the operations of Circle of Fire. The financial statements are presented as those of Activeworlds.com, Inc.
Immediately prior to the 1999 Acquisition, Vanguard effected a one-for-two reverse split in its outstanding common stock, with no change in the par value per share. In connection with the 1999 Acquisition, Vanguard also issued 200,000 shares of common stock to an investment banker and sold 2,000,000 shares of common stock at $.50 per share in private placement.
All share and per share information in these financial statements reflect (a) the consummation of the 1999 Acquisition whereby shares and options issued by Circle of Fire were exchanged for shares of the Company's common stock and options to purchase shares of the Company's common stock, and (b) the one-for-two reverse split.
Unless the context indicates otherwise, references in these financial statements to the "Company" includes the operations of Circle of Fire prior to the date of the 1999 Acquisition. References to "Vanguard" relate to the operations of Vanguard Enterprises, Inc. prior to the date of the 1999 Acquisition.
The outstanding Circle of Fire common stock at the time of the 1999 Acquisition was held principally by officers.
The unaudited consolidated financial statements included herein have been prepared based upon prescribed guidance of the Securities and Exchange Commission. As such, they do not include all disclosures required by generally accepted accounting principles, and should be read in conjunction with the audited consolidated statements as of and for the year ended December 31, 1998 and for the period January 17, 1997 (date of inception) to December 31, 1997, all included herein. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal and recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented when read in conjunction with the audited consolidated financial statements included herein and related notes thereto. The results of operations for the respective three-month periods ended March 31, 1999 and March 31, 1998 are not necessarily indicative of the results that should be expected for a full fiscal year.
Note 2 - Summary of significant accounting policies
A. Nature of operations
Circle of Fire commenced operations on January 17, 1997. It is a leading 3D Internet company, with a line of client, server, and authoring tools for Internet virtual environments utilizing the Company's unique Active Worlds(TM) 3D platform.
B. Depreciation and amortization
Equipment is depreciated using accelerated methods. The estimated life of depreciable equipment is five years. Depreciation expense totaled $6,623 and $3,490 for 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, respectively. Depreciation expense for the three months ended March 31, 1999 and 1998 (unaudited) totaled $5,469 and $1,524, respectively.
Organization expense is amortized over five years on a straight-line basis.
C. Income taxes
The Company reports income for tax purposes on the cash basis. Deferred taxes reflected on the consolidated financial statements result from temporary differences and net operating loss carryforward.
D. Accounting estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
E. Revenue
Memberships are recognized as revenue ratably of the periods the membership is in effect. Advances on royalties from licensing agreements are recognized over the period the royalties are earned. Sales of uniservers, galaxervers, and worlds are recognized at the time of sale.
F. Selling, general and administrative expenses
Selling, general and administrative expenses for the year
ended December 31, 1998 and the period January 17, 1997 (date
of inception) to December 31, 1997 includes the value of
services rendered by the Company's chief executive officer and
chief financial officer, who received no compensation during
either of such periods, and a key employee who received stock
options during such period in lieu of compensation. (See note
4.) The value of the services is also reflected as additional
paid-in capital. The value of services by the chief executive
and financial officer was $100,000 in the aggregate for 1998
and $60,000 in the aggregate for the period January 17, 1997
(date of inception) to December 31, 1997. The value of the
services by the employee, which is equal to the value of the
options granted to the employee, was $36,000 for 1998 and
$9,000 for the period January 17, 1997 to December 31, 1997.
G. Research and development of software
Research and development costs are expensed as incurred. During the period January 17, 1997 (date of inception) to December 31, 1997, the Company expensed the $300,000 paid to obtain the rights to Active Worlds' technology (to the extent it had been developed).
H. (Loss) per share of common stock
(Loss) per share of common stock is computed by dividing net
(loss) by the weighted-average number of common shares
outstanding for the period. See also note 10.
Note 3 - Operating lease
Through April, 1999 the Company leased office facilities in Newburyport, Massachusetts under a tenant-at-will lease agreement requiring sixty day notice of vacancy. Rental expense was $9,354 and $17,729 for 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, respectively. The Company moved to other facilities in April, 1999.
Reference is made to note 11E.
Note 4 - Stock options
During 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, the Company granted nonqualified stock options to its employees and independent contractors. The options expire five years from issuance or upon termination of employment and other specified events. The table below sets forth information as to options granted during such period.
December 31, 1998
----------------------------
Weighted
Average
Shares Exercise
Subject to Price per
Options Share
----------- -----------
Outstanding at beginning of year 302,326 $ .237
Granted during the year 337,209 .430
Exercised during the year - -
Expired during the year - -
Outstanding at end of year 639,535 .340
Exercisable at end of year 581,395 .331
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The foregoing options were granted by Circle of Fire and exchanged for options to purchase the Company's common stock pursuant to the 1999 Acquisition. (See note 1.)
Statement of Financial Accounting Standards No. 123 ("SFAS 123") allows the Company to account for stock-based compensation, including options, granted to employees under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") and disclose in a footnote the pro forma effect on net (loss) as if the fair value accounting method of SFAS 123 were used.
The value of the options was estimated to be $.129 per option. The methodology used in estimating the fair value of the stock options is the Minimum Value Method adjusted for facts and circumstances of the stock option agreements. Significant assumptions included a risk free interest rate of 6% and an expected life of two years.
Accordingly, under APBO 25, no compensation was recognized in the consolidated financial statements for the value of the stock options issued to employees with an exercise price in excess of the estimated fair value of the Company stock. In situations where the fair value of the stock options was considered compensation, compensation expense was recorded with recognition of options outstanding recorded as additional paid-in capital in the stockholders' equity (deficiency) section of the balance sheet. Compensation costs recognized for stock options were $3,250 and $16,250 for 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, respectively.
The exercise prices of the options consist of 488,372 options exercisable at $.430 and 151,163 exercisable at $.043. The stock options expire five years from issuance or upon termination of employment or other specified events.
Note 5 - Litigation settlement
In July 1997, the Company entered into an agreement with two former employee-stockholders settling certain claims by those individuals against the Company. Pursuant to a settlement agreement, the Company paid $10,000 and issued its non-interest bearing notes for an aggregate of $490,000, of which $384,807 was outstanding at December 31, 1998. As a result of litigation concerning the parties' rights under the settlement agreement, in January 1999, the Company entered into an agreement with the two former employee-stockholders pursuant to which its obligations under the notes were reduced to $275,000, which amount has been paid. Accordingly, a partial extinguishment of debt was recorded at December 31, 1998 in the amount of $109,807 representing the difference between the recorded liability and the amount of the settlement in January, 1999 and is reflected on the 1998 consolidated statement of operations as an extraordinary item. The tax effect of the extinguishment of the debt for the year ended December 31, 1998, was $30,746.
Note 6 - Deferred revenue
Deferred revenue consists of the following:
December 31,
March 31, 1999 1998
-------------- -------------
(Unaudited)
Deferred memberships $ 100,596 $ 96,340
Advances on royalties 39,000 48,000
----------- ----------
$ 139,596 $ 144,340
----------- ----------
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Note 7 - Related party transactions
In 1997, an officer/stockholder provided $108,850 of working capital funds to the Company. The unsecured loan payable bears interest at 8% and is due on demand. Payments are made on the loan as funds become available. The outstanding principal balance at December 31, 1998 was $54,753. Amounts paid to the officer/stockholder during 1998 and the period January 17, 1997 (date of inception) to December 31, 1997 totaled $26,000 (including interest expense of $5,900) and $38,000 (including interest expense of $4,003), respectively.
An officer/stockholder of the Company is also a member of the board of directors of a company which purchased a uniserver in the amount of $35,000 in 1998.
An officer/stockholder of the Company has received advances from the Company during 1998. Advances to the officer/stockholder at December 31, 1998 totaled $10,491.
Reference is also made to notes 2F and 11.
Note 8 - Pro forma information (unaudited)
Pro Forma Compensation:
The Company issued 116,279 stock options for common stock to an employee. The fair value of these stock options has been estimated at $.129 per share. During the period from June 1, 1997 to May 31, 1998, 58,140 of the stock options vested. The vesting period for the remaining 58,139 stock options is June 1, 1998 to May 31, 1999. SFAS 123 allows the Company to account for stock-based compensation arrangements under the provisions of APBO 25. Accordingly, the proforma compensation for the stock options is $7,500 and $-0- for 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, respectively.
Period January
17, 1997 (date
Year Ended of inception) to
December 31, December 31,
1998 1997
------------ -----------------
Proforma information
(Loss) before (provision for) benefit from income
taxes and extraordinary item, per statement of $ (69,533) (824,943)
operations
Proforma adjustment for fair value of stock options (7,500) -
-------------- --------------
Proforma (loss) before (provision for)
benefit from income taxes and extraordinary (77,033) (824,943)
item
Proforma (provision for) benefit from income taxes (18,609) 211,663
--------------- --------------
Proforma (loss) before extraordinary item (95,642) (613,280)
Gain on extinguishment of debt related to litigation
settlement, net of tax effect of $30,746 79,061 -
-------------- --------------
Proforma net (loss) $ (16,581) $ (613,280)
-------------- --------------
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Note 9 - Income taxes
At December 31, 1998, the Company has a net operating loss carryforward of $107,977 that may be used to offset future taxable income. If not used, the carryforward will expire with the year 2017. The temporary difference for income tax reporting on a cash basis results in additional losses of $471,694.
The deferred income tax expense (benefit) was $49,355 and $(211,663) for 1998 and the period January 17, 1997 (date of inception) to December 31, 1997, respectively. The deferred income tax (benefit) for the three months ended March 31, 1999 and 1998 (unaudited) was $(167,580) and $(306), respectively.
The tax effect of each type of temporary difference and carryforward is reflected in the following table:
December 31,
March 31, 1999 1998
-------------- -------------
(Unaudited)
Net operating loss carryforward $ 348,127 $ 33,192
Accrual basis versus cash basis tax reporting 123,142 198,676
-------------- -------------
Deferred tax asset before valuation allowance 471,269 231,868
Valuation allowance 141,381 69,560
-------------- -------------
Net deferred tax asset $ 329,888 $ 162,308
-------------- -------------
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The effective combined Federal and State tax rate used in the calculation of the deferred tax asset was 40% for both periods.
The operating loss carryforward is available to reduce Federal and State taxable income and income taxes, respectively, in future years, if any. The realizability of deferred taxes is not assured as it depends upon future taxable income. However, there can be no assurance that the Company will ever realize any future cash flows or benefits from these losses.
Permanent book/tax differences result from the value of the services of two officers and an employee which was accrued for financial statement purposes but which is not deductible for income tax purposes. These permanent book/tax differences are not reflected in the net deferred tax asset.
Note 10 - (Loss) per share of common stock
The following table sets forth the number of shares on which the
(loss) per share has been calculated:
Weighted
Period Number of Shares
---------------------------------------------- ---------------
Period January 17, 1997 (date of inception) to
December 31, 1997 8,084,816
Year ended December 31, 1998 8,084,816
Three months ended (unaudited)
March 31, 1998 8,084,816
March 31, 1999 10,467,261
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Diluted (loss) per share has not been presented since the effect of including the stock options outstanding during the respective periods (note 4) would be antidilutive.
Note 11 - Subsequent events
A. Private placement offering
In June, 1999, the Company sold nine private placement units at $100,000 per unit. Each private placement unit consisted of 17,600 shares of common stock and a five-year warrant to purchase 20,000 shares of common stock at $5.70 per share. The price of the units reflects a price of $5.682 per share, with no value being allocated to the warrants. In connection with this private placement, the Company paid the placement agent $117,000. The Company also issued the placement agent a warrant to purchase one placement agent's unit for $90,000. A placement agent's unit consists of 15,840 shares of common stock and a warrant to purchase 18,000 shares of common stock at $5.70 per share. The warrants may be redeemed commencing in June 2001 if the price of the common stock is at least 150% of the exercise price. The warrants also give the holders cashless exercise rights. This warrant may terminate by its terms on the effective date of a registered offering of securities by the Company under certain circumstances.
B. Employment contracts
Effective January 21, 1999, the Company entered into three-year employment agreements with the Company's president and chief financial officer. Under the agreements annual compensation for each is $140,000. Additionally, the president and chief financial officer each were granted options to purchase up to 14,000 shares of the Company's common stock at an exercise price of $.55 per share. The agreements also provide for the president and chief financial officer to be eligible to participate in a bonus pool of not more than 10% of the Company's income before taxes, in excess of $750,000. A compensation committee will have sole discretion as to the allocation of the bonus pool among the senior executives.
Each agreement contains a provision whereby if the Company breaches the provisions of the agreement, if the employee terminates the agreement for "good reason" or if the Company terminates the employee other than for cause (as defined in the agreement), the employee shall be entitled to payment equal to the lesser of (a) one year's salary and bonus for the period of employment prior to calendar year in which termination occurred; or (b) the salary due for the balance of the term plus a pro rata portion of the bonus paid to the Employee for the previous year.
C. Issuance of options
In April 1999 the Company entered into an agreement with a marketing firm for it to provide advertising services. Under the agreement, stock options were issued in lieu of payment for services. The contract was cancelled in July 1999. At the time of cancellation, 250,000 stock options had been issued for advertising services.
The Company issued 12,250 options for services rendered by a contractor through June 30, 1999. The value of the services was $12,250.
In May 1999, the Company issued to an investment banking firm a warrant to purchase 250,000 shares of common stock at $5.70 per share. The warrant was issued in consideration of the waiver by the investment banking firm of registration and other rights the Company had granted in connection with its services as investment banker for the 1999 Acquisition.
D. Issuance of common stock
The Company issued 1,880 shares of common stock for purchases of furniture with a value of $8,500 in 1999.
E. Office lease obligation
In March, 1999 the Company entered into a lease for office space at 95 Parker Street with a 3 year term. The annual minimum rental payments under the lease will be approximately $31,500.
The future minimum rental payment under the lease for the five years succeeding December 31, 1998 are as follows:
Year Ending
December 31 Amount
------------- ----------
1999 $ 26,250
2000 31,500
2001 31,500
2002 5,250
2003 -
-----------
Total 94,500
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TABLE OF CONTENTS
Prospectus Summary
Our Business
The Offering
Summary Financial Information
Risk Factors
Forward-Looking Statements
Dilution
Market for Common Stock; Dividends
Use of Proceeds
Capitalization
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Related Party Transactions
1999 Private Placements
Principal Stockholders
Description of Securities
Underwriting
Legal Matters
Experts
Additional Information
Index to Financial Statements
Until _________, 1999 (25 days from the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions
[ACTIVEWORLDS.COM,
INC. LOGO]
1,200,000 Units
ACTIVEWORLDS.COM, INC.
Consisting of
1,200,000 Shares of Common Stock and
Series B Redeemable
Common Stock Purchase Warrants
to Purchase 1,200,000 shares
of Common Stock
HD BROUS & CO., INC.
____________, 1999
PART II
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law and our Bylaws (Exhibit 3.6) provide us with broad power to indemnify our directors and officers.
Reference is made to Paragraph 7 of the Underwriting Agreement (Exhibit 1.1) with respect to indemnification of the us and the Underwriter.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, offices or controlling persons of the registrant, pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities being registered, excluding the Representative's nonaccountable expense allowance, all of which expenses will be paid by the Registrant:
SEC registration fee $ 3,379.00
NASD registration fee
Nasdaq listing fee 10,000.00
Printing and engraving ,000.00*
Accountants' fees and expenses ,000.00*
Legal fees and expenses ,000.00*
Transfer agent's and warrant agent's fees and expenses 5,000.00*
Blue Sky fees and expenses 60,000.00*
Representative's non-accountable expense allowance ,000.00
Miscellaneous
xx,xxx.xx*
------------
Total $xxx,000.00*
============
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* Estimated
II-1
Item 26. Recent Sales of Unregistered Securities
During the past three years, we sold the following securities pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended. All information reflects a one-for-two reverse split in our common stock, which was effective on January 21, 1999.
1. In September of 1995, the founders of Vanguard (which became us) were issued 450,000 shares of common stock in consideration of the amount of $25,000. The sale of these shares was exempt from the registration provisions of the Securities Act pursuant to Section 4(2). In January 1996, Vanguard completed a public offering of 50,000 shares of our common stock in consideration of the amount of $10,000. The sale of these shares was exempt from the registration requirements of the Securities Act pursuant to Rule 504.
2. On January 21, 1999, we issued to the former stockholders of Circle of Fire Studios, Inc. an aggregate of 8,149,816 shares of common stock in exchange for their shares of Circle of Fire Studios common stock. As part of the acquisition, options to purchase shares of Circle of Fire Studios common stock were exchanged for options to purchase 639,535 shares of our common stock. The issuance of these shares and options was exempt from the registration requirements of the Securities Act pursuant to Section 4(2). We also issued 200,000 shares of common stock to Baytree Capital Associates, LLC, for investment banking services relating to this acquisition.
3. In January 1999, we sold 2,000,000 shares of common stock in a private placement for $.50 per share. The sale of these shares was exempt from the registration requirements of the Securities Act pursuant to Rule 504.
4. Pursuant to an April 1999 agreement, we granted to a marketing firm stock options to purchase 250,000 shares of common stock at $ 3.80 per share, in consideration of advertising services of undetermined value. The issuance of the options was exempt from registration pursuant to Section 4(2) of the Securities Act.
5. Over the period running from January through June 1999, we granted options to purchase 12,250 shares of common stock at $8.75 per share to a contractor for services performed over such period and valued at approximately $12,250. The issuance of the options was exempt from registration pursuant to Section 4(2) of the Securities Act.
6. In April 1999, we issued 1,880 shares of common stock as payment for furniture valued at $8,500. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act.
7. In May 1999, we issued to Baytree Capital Associates, LLP, a warrant to purchase 250,000 shares of common stock at $5.70 per share. The warrant was issued in consideration of the waiver by Baytree Capital Associates of registration and other rights we had granted to Baytree in connection with its services as investment banker for the acquisition of Circle of Fire Studios. The issuance of this warrant was exempt from registration pursuant to Section 4(2) of the Securities Act.
II-2
8. In June 1999, we sold nine private placement units at $100,000 per unit to two accredited investors. Each private placement unit consisted of 17,600 shares of common stock and a Series A common stock purchase warrants to purchase 20,000 shares of common stock at $5.70 per share. In connection with this private placement, we engaged HD Brous & Co., Inc. as exclusive placement agent. We paid HD Brous a fee of $90,000 and a non-accountable expense allowance of $27,000. We also issued HD Brous a warrant to purchase one placement agent unit for $90,000. A placement agent unit consists of 15,840 shares of our common stock and a Series A common stock purchase warrant to purchase 18,000 shares of our common stock at $5.70 per share. The warrant to HD Brous will terminate upon the completion of this offering. In connection with the private placement, we and our officers, directors and 5% stockholders gave HD Brous a three-year right of first refusal with respect to public and private sales of our securities. The issuance of these securities was exempt from registration pursuant to Rule 506 and Sections 4(2) and 4(6) of the Securities Act.
Item 27. Exhibits
1.1 Form of Underwriting Agreement between the Issuer and the Underwriter.
1.2 Form of Underwriter's Unit Purchase Option.
2. Plan of reorganization between Vanguard Enterprises, Inc. and Circle of Fire Studios, Inc. dated January 13, 1999.
3.1 Certificate of Incorporation of the Issuer as filed with the Delaware Secretary of State on September 5, 1995.
3.2 Certificate of Amendment to Certificate of Incorporation of the Issuer as filed with the Delaware Secretary of State on September 29, 1995.
3.3 Certificate of Amendment to Certificate of Incorporation of the Issuer as filed with the Delaware Secretary of State on October 12, 1995.
3.4 Certificate for Renewal and Revival of Certificate of Incorporation of the Issuer as filed with the Delaware Secretary of State on September 10, 1997.
3.5 Certificate of Amendment to Certificate of Incorporation of the Issuer as filed with the Delaware Secretary of State on January 21, 1999.
3.6 Bylaws of the Issuer.
4.1 Form of Common Stock Certificate.
II-3
4.2 Form of Warrant Agreement, including form of Series B Redeemable
Common Stock Purchase Warrant.
4.3 Form of Series A Redeemable Common Stock Purchase Warrant.
5 Opinion of Pepe & Hazard, LLP.*
10.1 Activeworlds.com, Inc. 1999 Stock Option Plan.
10.2 Lease Agreement dated February 27, 1999 between the Issuer and
Robert L. Wood.
10.3 Amended and Restated Employment Agreement, dated as of January 21,
1999, between the Issuer and Richard F. Noll.
10.4 Amended and Restated Employment Agreement, dated as of January 21,
1999, between the Issuer and J. P. McCormick.
10.5 Stock Option Agreement between the Issuer and Richard F. Noll.
10.6 Stock Option Agreement between the Issuer and J. P. McCormick.
23.1 Consent of Pannell Kerr Forster PC (included on Page II- ).
23.2 Consent of Pepe & Hazard, LLP (included in Exhibit 5).
24. Power of Attorney (included in the Signature Page).
27. Financial Data Schedule (for SEC purposes only).
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* To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-4
The Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement, and
(iii) Include additional or changed material information on
the plan of distribution, and PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That for purposes of determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(4) That for purposes of determining liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(5) That for purposes of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
(6) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(7) To provide the underwriters, at the closing specified in the Underwriting Agreement, certificates representing the units in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant certifies it has reasonable grounds to believe it meets all the requirements for filing on this Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Newburyport, Commonwealth of Massachusetts, on this _____ day of August, 1999.
ACTIVEWORLDS.COM, INC.
By:_____________________________
Richard F. Noll, President
In accordance with the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ Richard F. Noll President and chief executive August __, 1999 ----------------------------- officer and director (principal Richard F. Noll executive officer) /s/ J.P. McCormick Chief financial officer and August __, 1999 ----------------------------- director (principal financial and J.P. McCormick accounting officer) |
II-6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of our report dated July 30, 1999, accompanying the financial statements of Activeworlds.com, Inc. for the year ended December 31, 1998 and the period January 17, 1997 (date of incepton) to December 31, 1997 and to the use of our name and the statements with respect to us as appearing under the heading "Experts" in the Prospectus.
PANNELL KERR FORSTER P.C.
Boston, Massachusetts
July 30, 1999
II-7
EXHIBIT INDEX
Exhibit
No. Description
------- ------------
1.1 Form of Underwriting Agreement between the Issuer and the Underwriter.
1.2 Form of Underwriter's Unit Purchase Option.
2. Plan of reorganization between Vanguard Enterprises, Inc. and Circle
of Fire Studios, Inc. dated January 13, 1999.
3.1 Certificate of Incorporation of the Issuer as filed with the Delaware
Secretary of State on September 5, 1995.
3.2 Certificate of Amendment to Certificate of Incorporation of the Issuer
as filed with the Delaware Secretary of State on September 29, 1995.
3.3 Certificate of Amendment to Certificate of Incorporation of the Issuer
as filed with the Delaware Secretary of State on October 12, 1995.
3.4 Certificate for Renewal and Revival of Certificate of Incorporation of
the Issuer as filed with the Delaware Secretary of State on September
10, 1997.
3.5 Certificate of Amendment to Certificate of Incorporation of the Issuer
as filed with the Delaware Secretary of State on January 21, 1999.
3.6 Bylaws of the Issuer.
4.1 Form of Common Stock Certificate.
4.2 Form of Warrant Agreement, including form of Series B Redeemable
Common Stock Purchase Warrant.
4.3 Form of Series A Redeemable Common Stock Purchase Warrant.
5 Opinion of Pepe & Hazard, LLP.*
10.1 Activeworlds.com, Inc. 1999 Stock Option Plan.
10.2 Lease Agreement dated February 27, 1999 between the Issuer and
Robert L. Wood.
10.3 Amended and Restated Employment Agreement, dated as of January 21,
1999, between the Issuer and Richard F. Noll.
10.4 Amended and Restated Employment Agreement, dated as of January 21,
1999, between the Issuer and J. P. McCormick.
10.5 Stock Option Agreement between the Issuer and Richard F. Noll.
10.6 Stock Option Agreement between the Issuer and J. P. McCormick.
23.1 Consent of Pannell Kerr Forster PC (included on Page II-7).
23.2 Consent of Pepe & Hazard, LLP (included in Exhibit 5).
24. Power of Attorney (included in the Signature Page).
27. Financial Data Schedule (for SEC purposes only).
|
* To be filed by amendment.
Exhibit 1.1
1,200,000 Units
ACTIVEWORLDS.COM, INC.
Each Unit consisting of one share of Common Stock and a Series B Redeemable Common Stock Purchase Warrant to purchase one share of Common Stock
Underwriting Agreement
As of , 1999
HD Brous & Co, Inc.
40 Cuttermill Road
Great Neck, New York 11021
Dear Sirs:
Activeworlds.com, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to HD Brous & Co., Inc., a New York corporation ("Brous" or the "Underwriter"), upon the basis of the representations, warranties, and agreements of the Company contained in this Underwriting Agreement (the "Agreement") and, subject to the terms and conditions of this Agreement, the Underwriter proposes to purchase from the Company, an aggregate of 1,200,000 Units, each Unit to consist of one (1) share of the Company's common stock, par value $.001 per share ("Common Stock"), and a Series B Redeemable Common Stock Purchase Warrant ("Warrant") to purchase one (1) share of Common Stock at a price of $ per share, subject to adjustment. The 1,200,000 Units are hereinafter collectively referred to as the "Firm Units." The shares of Common Stock issuable upon exercise of the Warrants are presently authorized but unissued shares of the Common Stock of the Company. In addition, the Company proposes to grant the Underwriter the option to purchase from the Company up to an additional 180,000 Units (collectively "Option Units") solely for the purpose of covering over-allotments, if any, in connection with the sale of the Firm Units. The Company also proposes to issue and sell to the Underwriter or its designees, Unit Purchase Options (collectively, the "Unit Purchase Option") to purchase 120,000 Units (collectively the "Purchase Option Units") as more fully described in Paragraph 5(a) of this Agreement. The Warrants included in the Firm Units, the Option Units and the Purchase Option Units are referred to in this Agreement collectively as the "Warrants." The Firm Units, Option Units and Purchase Option Units are referred to in this Agreement collectively as the "Securities."
The Company hereby confirms the agreement made by it with respect to the purchase of the Firm Units and the Option Units by the Underwriter, as follows.
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Units. Subject to the terms and conditions of this Agreement, and upon the basis of the representations and warranties contained in this Agreement, the Company agrees to issue and sell to the Underwriter, and Underwriter agrees to
purchase from the Company, the Firm Units at a price of and /100 dollars ($ . ) per Unit. The Underwriter plans to offer the Firm Units for sale to the public at the price and upon the terms set forth in the Prospectus (the "Public Offering") as soon as practicable after the date the Registration Statement, as hereinafter defined, is declared effective (the "Effective Date") by the Securities and Exchange Commission (the "Commission"). The Company acknowledges that the Underwriter shall have the right to enter into agreements with selected dealers for the sale of the Units to the public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter an option (the "Over-Allotment Option") to purchase from the Company, solely for the purpose of covering over-allotments in connection with the sale of Firm Units, all or any portion of the Option Units for a period of forty-five (45) days from the date of this Agreement at the same purchase price payable by the Underwriter for Firm Units as provided in Paragraph 1(a) of this Agreement. The Option Units shall be purchased from the Company, for the account of Underwriter.
(ii) The Over-Allotment Option may be exercised during the term thereof by written notice to the Company from the Underwriter. Such notice shall set forth the aggregate number of Option Units as to which the option is being exercised and the time and date of payment and delivery therefor. Such time and date of delivery shall not be earlier than either the Closing Date (as defined below) or the second business day after the day on which the option shall have been exercised, nor later than the fifth business day after the date of such exercise, as determined by the Underwriter (the "Option Closing Date"). Delivery and payment for such Option Units shall be at the offices set forth below for delivery and payment of the Firm Units.
(iii) The obligation of the Underwriter to purchase and pay for any of the Option Units is subject to the accuracy and completeness (as of the date of this Agreement and as of the Option Closing Date) of and compliance in all material respects with the representations and warranties of the Company in this Agreement, to the accuracy and completeness of the statements of the Company or its officers made in any certificate or other documents to be delivered by the Company pursuant to this Agreement, to the performance in all material respects by the Company of its obligations hereunder, to the satisfaction by the Company of the conditions as of the date of this Agreement and as of the Option Closing Date set forth in Paragraph 1(c) of this Agreement and to the delivery to the Underwriter an opinion, certificates and letters dated the Option Closing Date substantially similar in scope to those specified in Paragraph 6 of this Agreement, but with each reference to the "Closing Date" being deemed to be the "Option Closing Date." Notwithstanding the exercise of the Over-Allotment Option, the Underwriter may, at any time prior to the payment for the purchase price of the Option Units, cancel, in whole or in part, the exercise of the Over-Allotment Option, in which event, the Underwriter shall only be obligated to purchase and pay for those only Option Units, if any, remaining subject to the exercise of the Over-Allotment Option after such cancellation.
(c) Delivery of and Payment for Securities.
(i) Delivery of the stock and warrant certificates representing the securities comprising the Firm Units shall be made to the Underwriter at the offices of Brous, 40 Cuttermill Road, Great Neck, New York 11021, or such other location as you shall determine and
advise the Company upon at least two (2) full business days' notice in writing, against payment therefor by certified or bank cashier's check drawn in New York clearing house funds or similar next day funds or by wire transfer payable to the order of the Company, at 10:00 A.M., Eastern Time, on ____________, 1999, or at such other time and business day (Saturdays, Sundays, and legal holidays in New York, New York not being considered business days for the purposes of this Agreement), not later than the 10th business day following the Effective Date, as shall be determined by the Underwriter, which time and date are herein called the "Closing Date."
(ii) Delivery of certificates for the Common Stock and Warrants comprising the Units shall be made in registered form in such name or names and in such denominations as you shall specify to the Company upon at least two (2) full business days' notice in writing prior to the Closing Date or the Option Closing Date, as the case may be. The Company will make the certificates available to the Underwriter for examination at the offices of the Underwriter, 40 Cuttermill Road, Great Neck, New York 11021, Attention: Howard D. Brous, Chairman, or at such other location as you shall specify to the Company, not later than 2:00 P.M., Eastern Time, on the business day immediately preceding the Closing Date or the Option Closing Date, as the case may be. At the request of the Underwriter, delivery of the Common Stock and Warrants comprising the Units shall be made through the facilities of Depository Trust Company ("DTC").
(d) Use of Preliminary Prospectus. The Company hereby confirms its authorization to the Underwriter to use, and to make available for use by prospective dealers, the Preliminary Prospectus, and the Company hereby authorizes the Underwriter, all selected dealers, and all other dealers to whom any of the Securities may be sold by the Underwriter or Selected Dealers, to use the Prospectus, as from time to time amended or supplemented, in connection with the sale of the Securities in accordance with the applicable provisions of the Securities Act of 1933, as amended (the "Securities Act"), the rules and regulations (the "Regulations") of the Commission thereunder, and applicable state law until completion of the Public Offering and for such longer period as Underwriter may request if the Prospectus is required to be delivered in connection with sales of the Securities by Underwriter or a dealer.
2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has prepared in conformity with the requirements under the Securities Act and the Regulations, and has filed with the Commission under the Securities Act, a registration statement on Form SB-2, File No. 333-_____, including the related preliminary prospectus, for the registration of the Securities. The conditions for the use of a registration statement on Form SB-2 set forth in the General Instructions thereto have been satisfied with respect to the Company, the transactions contemplated by this Agreement, and the Registration Statement. As used in this Agreement, the term "Registration Statement" means such registration statement of the Company, as amended, on file with the Commission at the time the registration statement becomes effective under the Securities Act (including all financial statements and financial schedules, exhibits, all other documents filed as a part thereof or incorporated by reference therein, and all the information contained in any final prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act or deemed by virtue of Rule 430A of this Commission under the Securities Act to be part of the Registration Statement). The term "Prospectus" as used in this Agreement means the final prospectus included as part of the Registration Statement, including, if applicable, the information contained
in any final prospectus filed with the Commission pursuant to Rule 424(b) of the Commission under the Securities Act or deemed by virtue of Rule 430A of the Commission under the Securities Act to be part of the Registration Statement. The term "Preliminary Prospectus" refers to and means any prospectus included in the Registration Statement or any amendment thereto prior to the Registration Statement becoming effective under the Securities Act.
(b) Use and Accuracy of Preliminary Prospectus. To the Company's Knowledge, the Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or any part thereof, and each Preliminary Prospectus delivered to the Underwriter for dissemination in connection with the offering, at the time of filing thereof and delivery to the Underwriter for such dissemination, did not contain any untrue statement of a material fact, or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; the foregoing shall not apply, however, to statements in, or omissions from, any Preliminary Prospectus that are based upon and conform to written information furnished to the Company with respect to Underwriter (or any affiliate or associate thereof) by or on behalf of the Underwriter or such Underwriter specifically for use in the preparation thereof. As used in this Agreement, the term "the Company's Knowledge" or words of like import shall mean and include (i) actual knowledge of the Company or any executive officer or director of the Company and (ii) that knowledge which a prudent businessperson could reasonably have obtained in the management of such person's business affairs after exercising reasonable due diligence.
(c) Effectiveness and Accuracy of Registration Statement. The Registration Statement and the Prospectus, from the Effective Date through the Closing Date and, if Option Units are purchased, up to the Option Closing Date, will comply as to form in all material respects with the applicable requirements of the Securities Act and the Regulations, and neither the Registration Statement nor the Prospectus will, on such dates, 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, and, on such dates, no event will have occurred that should have been set forth in an amendment or supplement to the Registration Statement or the Prospectus that has not then been set forth in such an amendment or supplement; the foregoing shall not apply, however, to statements in, or omissions from, the Registration Statement or Prospectus that are based upon and conform to written information furnished to the Company with respect to the Underwriter (or any affiliate or associate thereof) by or on behalf of the Underwriter specifically for use in the preparation thereof. The descriptions in the Registration Statement and the Prospectus of contracts and other documents of the Company are accurate and present fairly the information required to be disclosed, and there are no contracts or other documents required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement under the Securities Act or the Regulations which have not been so described or filed as required.
(d) Independent Public Accountants. Panel Kerr Forrester, PC, the accountants whose reports on the financial statements of the Company are filed with the Commission as a part of the Registration Statement, are, and were during the periods covered by its report, independent public accountants with respect to the Company as required by the Securities Act and the Regulations.
(e) Organization and Qualification. Each of the Company and its wholly-owned subsidiary, Activeworlds, Inc., a Nevada Corporation (the "Subsidiary"), is (i) a corporation duly organized and existing in good standing under the laws of the state of its incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted and (ii) qualified to conduct business as a foreign corporation to do business and in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. Other than the Subsidiary, the Company has no subsidiaries and has no equity interest in, and, the Company has no loans to or guarantee of obligations of, any other corporation, limited liability company, partnership or other entity. As used in this Agreement, the term "Material Adverse Effect" means any material adverse effect on (A) the Common Stock and the Warrants; (B) the ability of the Company to perform its obligations under this Agreement, the Warrant Agreement or the Unit Purchase Option or (C) the business, operations, properties, financial condition or prospects of the Company or the Subsidiary.
(f) No Other Interests of Investments. Except for the Company's ownership of and advances to the Subsidiary, neither the Company nor either Subsidiary controls, directly or indirectly, or has any direct or indirect interest or investment in any corporation, firm, partnership, association, limited liability company, business trust or other business organization, and does not own any shares of stock or any other securities of (other than bank certificates of deposit, shares or units of interest in "money market" funds, or as set forth in the Prospectus) and, except as set forth in the Prospectus, neither the Company nor the Subsidiary has made any loans (other than advances to employees in the ordinary course of business, none of which are material or made to officers or directors) to or guaranteed any obligations of, any other corporation, firm, partnership, association, limited liability company, business trust or other business organization.
(g) Capitalization and Legality of Securities. (i) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization." The capital stock and other securities of the Company conform to the descriptions thereof contained in the Prospectus under the caption "Description of Capital Stock." Except as otherwise set forth in the Prospectus, there are no outstanding options, warrants, or other rights to purchase any shares of Common Stock or other capital stock, or to purchase any other securities convertible into or exchangeable for Common Stock. The outstanding securities of the Company and the outstanding securities of the Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable. All the shares of Common Stock which are (i) registered pursuant to the Registration Statement, (ii) issuable upon exercise of the Warrants registered pursuant to the Registration Statement, and (iii) issuable upon exercise of the Unit Purchase Option and the warrants issuable upon exercise of the Unit Purchase Option have been duly authorized and, when issued and delivered against payment therefor as provided in this Agreement, the Prospectus, Warrant Agreement or the Unit Purchase Option, as applicable, will be validly issued, fully paid and nonassessable.
(ii) The Company owns all of the issued and outstanding capital stock of the Subsidiary. The Subsidiary has not granted any options, warrants or rights or issued any convertible notes, debentures, preferred stock or other securities or entered into any agreement or understanding upon the exercise or conversion of which or pursuant to the terms of which any shares of any class or series of capital stock of the Subsidiary may be issued.
(iii) This Agreement constitutes, and the Warrant Agreement, the Warrants, Unit Purchase Option and the Warrants issuable upon exercise of the Unit Purchase Option will constitute, when sold and delivered as contemplated, valid and binding obligations of the Company enforceable in accordance with their respective terms, except to the extent that enforcement thereof may be limited by (A) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws and court decisions now or hereafter in effect relating to or affecting creditors' rights and remedies generally and (B) general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or in equity). A sufficient number of shares of Common Stock have been reserved for issuance upon sale of the Securities and Purchase Option Units and upon the exercise of all of the above-referenced Warrants.
(h) Financial Statements. The financial statements (audited and unaudited) of the Company and the related financial exhibits and schedules included in the Prospectus or filed with and as part of the Registration Statement present fairly the consolidated financial position of the Company (and the Subsidiary ) as of the balance sheet dates and the results of its consolidated operations and cash flows for the respective periods then ended, and such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved; all adjustments that are necessary for a fair presentation of the results for such periods have been made. The financial statements filed with the Registration Statement or included in the Prospectus are the only financial statements required under the Securities Act or the Regulations to be included in the Registration Statement and Prospectus.
(i) Material Loss. Neither the Company nor the Subsidiary has,
since the date of the latest financial statements included in the Prospectus,
sustained any material loss or interference with its business from fire,
explosion, flood, or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order, or decree, other
than as set forth in the Prospectus. Since the respective dates as of which
information is set forth in the Prospectus, and except as otherwise set forth
therein: (i) there has not been any change in the capital stock, or material
increase in the long-term debt, of the Company or the Subsidiary; (ii) there has
not been any material adverse change in the condition (financial or otherwise),
business, results of operations, general affairs, or management of the Company
or the Subsidiary, whether or not arising in the ordinary course of business;
(iii) no event has occurred that would result in a material write-down of assets
of the Company or the Subsidiary; (iv) neither the Company nor the Subsidiary
has incurred any material liability or obligation, direct or contingent, or
entered into any material transaction, other than those in the ordinary course
of business; (v) neither the Company nor either Subsidiary has purchased any of
the Company's outstanding capital stock; (vi) there has been no dividend or
distribution of any kind declared, paid, or made by the Company or the
Subsidiary in respect of the Common Stock; (vii) there has not been any material
interruption in the availability of materials, supplies, or equipment necessary
for the conduct of the business of the Company or the Subsidiary; and (viii)
there has not been any execution or imposition of any material lien, charge, or
encumbrance upon any property or assets of the Company or the Subsidiary.
(j) Compliance with Documents and Laws. Neither the Company nor the Subsidiary is in violation of its certificate of incorporation, by-laws, or other governing documents, or in material default in the due performance of any material lease or other material contract,
indenture, mortgage, deed of trust, note, loan, or other material agreement or instrument to which the Company or the Subsidiary is a party or by which it or any of its properties or businesses are subject or bound, or, to the Knowledge of the Company, any applicable material license, franchise, certificate, permit, authorization, statute, rule or regulation of or from any public, regulatory, or governmental agency or authority having jurisdiction over the Company or the Subsidiary or any of their respective properties or assets, or any approval, consent, order, judgment or decree, except such as could not reasonably be expected to have a Material Adverse Effect. The execution and performance of this Agreement by the Company will not conflict with or result in a breach or violation of, or default under, any material lease or other material contract, indenture, mortgage, deed of trust, note, loan, or other material agreement or instrument to which the Company or the Subsidiary is a party or by which the Company, the Subsidiary or any of their respective properties or businesses are subject, and no consent, approval, authorization, or order of any court or governmental authority or agency having jurisdiction over any of the Company, the Subsidiary or any of their respective properties or assets is required to be obtained by the Company for the consummation by the Company of the transactions contemplated by this Agreement, except such as have been obtained or may be required under the Securities Act, the Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the regulations of the Commission thereunder or state securities (or "Blue Sky") laws or the applicable rules and regulations promulgated thereunder.
(k) Authorization of Agreements. Each of this Agreement, the Warrant Agreement, the Warrant, the Unit Purchase Options, has been duly authorized, executed and delivered by the Company and constitutes the valid, binding and enforceable obligation of the Company. The execution, delivery and performance of this Agreement, the Warrant Agreement, the Warrants, and the Unit Purchase Options by the Company, the consummation by the Company of the transactions herein and therein contemplated, and the compliance by the Company with the terms of this Agreement, the Warrant Agreement, the Warrants, the Unit Purchase Option have been duly authorized by all necessary corporate action and do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of the certificate of incorporation and by-laws of the Company, (ii) result in a breach of or conflict with any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or the Subsidiary pursuant to any indenture, mortgage, note, contract, commitment or other agreement or instrument to which the Company or either Subsidiary is a party or which the Company or the Subsidiary or any of their respective properties or assets are or may be bound or affected, (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company, the Subsidiary or any of their respective properties or business, or (iv) violate any permit, certification, registration, approval, consent, license or franchise applicable to the business or properties of the Company or the Subsidiary.
(l) Title to Property. The Company has good title to, and valid and enforceable leasehold estates in, all items of property described in the Registration Statement or Prospectus as owned or leased by it, as the case may be, or that are material to the conduct of the Company's businesses, free and clear of all liens, encumbrances, claims, security interests, and other restrictions, other than those described in the Prospectus and those that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. The leases,
licenses or other contracts or instruments under which the Company leases, holds or is entitled to use any property, real or personal, are valid, subsisting and enforceable as against the Company and, to the Company's Knowledge, the other parties thereto, with only such exceptions as are not material and do not interfere with the use of such property made, or proposed to be made, by the Company, and all rentals, royalties or other payments accruing thereunder which became due prior to the date of this Agreement have been duly paid, and neither the Company nor, to its Knowledge, any other party is in default thereunder and, to the Company's Knowledge, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. The Company has not received notice of any violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties except any such violation that could not reasonably be expected to have a Material Adverse Effect. The Company has insured their respective properties against loss or damage by fire or other casualty and maintain such other insurance which management of the Company believes is adequate for the Company's present and proposed business operations.
(m) Copyrights, Trademarks and Intellectual Property Rights. Except as set forth in the Prospectus, the Company owns or possesses the requisite licenses or rights to use all trademarks, copyrights, service marks, service names, and trade names, if any, presently used in or necessary to conduct their respective businesses as described in the Prospectus. To the Company's Knowledge, neither the Company nor the Subsidiary has infringed the rights of another in any patent, trademark, copyright, service mark, service name, trade name, trade secret, confidential information, or any other such intellectual property, and there is no outstanding claim of others alleging any such infringement. To the Company's Knowledge, there is no claim or action by any person pertaining to, or proceeding pending, or threatened, which challenges the exclusive rights of the Company or the Subsidiary with respect to any trademarks, copyrights, service marks, service names and trade names used in the conduct of the Company's or the Subsidiary's business.
(n) Litigation. There is no litigation or governmental or other proceeding or investigation before any court or before or by any public, regulatory, or governmental agency or authority (or any judgment, decree, or order of such court, agency, or authority) pending or, to the Company's Knowledge, threatened, to which the Company or the Subsidiary is a party or of which the business or property of the Company is the subject that is material to the Company and is not disclosed in the Prospectus. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal naming the Company or the Subsidiary and enjoining the Company or the Subsidiary from taking, or requiring the Company or the Subsidiary to take, any action, or to which the Company, the Subsidiary or their respective properties or businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor the Subsidiary nor any of their respective directors or officers acting in any capacity on behalf of the Company or the Subsidiary nor, to the Company's Knowledge, any of the Company's or the Subsidiary's sales agents, directly or indirectly, has used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment.
(p) Internal Accounting Controls. The Company and the Subsidiary maintain a system of internal accounting controls which, taken as a whole, is sufficient to meet the broad objectives of preventing and detecting errors or irregularities in amounts that would be material to the Company's and the Subsidiary's financial statements, and neither the Company nor either Subsidiary has received any formal or informal notice from its independent accountants to the contrary. Except as specifically disclosed in the Prospectus, neither the Company nor any of its employees or agents has made any payment or transfer of any funds or assets of the Company, conferred any personal benefit by the use of the assets of the Company or received any funds, assets, or personal benefit in violation of any law, rule, or regulation, which is required to be stated in the Prospectus or necessary to make the statements therein not misleading.
(q) Tax Returns. The Company and the Subsidiary have filed all Federal, state, and local tax returns required to be filed through the date of this Agreement, including but not limited to franchise tax returns, or has obtained valid extensions with respect to such filings not made; neither the Company nor the Subsidiary is in default in the payment of any taxes or other amounts that were payable pursuant to said returns or any assessments with respect thereto; and neither the Company nor the Subsidiary is aware of any tax or other payment deficiency outstanding, proposed, or assessed against the Company or the Subsidiary that could, in the aggregate, have a Material Adverse Effect. Except as disclosed in writing to the Underwriter, neither the Company nor the Subsidiary has executed or filed with any taxing authority, foreign or domestic, any agreement extending the period for assessment or collection of any income taxes and is not a party to any pending action or proceeding by and foreign or domestic governmental agency for assessment or collection of taxes; and no claims for assessment or collection of taxes have been asserted against the Company or the Subsidiary.
(r) Employee Plans. Except as set forth in the Prospectus, the Company does not have any employee benefit plans (including, without limitation, pension, profit sharing, and welfare benefit plans, but excluding health and disability insurance plans and disability provisions of employment contracts) or deferred compensation arrangements.
(s) Labor Disputes. No labor dispute exists or, to the Company's Knowledge, is imminent with the employees or other persons engaged by the Company or the Subsidiary which could reasonably be expected to result in a Material Adverse Effect.
(t) Registration Rights. No person, firm or entity of any nature whatsoever has any right to require the Company to register or attempt to register under the Securities Act or any other securities law any shares of Common Stock or securities convertible into or exchangeable or exercisable for any shares of Common Stock, by reason of the filing of the Registration Statement with the Commission, and, except as set forth in the Prospectus, no person, firm or entity has any rights which may require the Company to file a registration statement within eighteen (18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person that controls, is controlled by or is under common control with the Company has taken or will take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in under the Exchange Act, stabilization or manipulation of the price of any security in order to facilitate the sale or resale of any of the Securities.
(v) Finder or Broker. The Company has not retained or dealt with any broker or finder with respect to the transactions contemplated hereby, and the Company knows of no outstanding claims for services in the nature of a finder's fee or origination fee with respect to the sale of the Securities. The Company will indemnify and hold harmless Underwriter with respect to any claim for a finder's fee by any party claiming to be owed such fee based on contacts, conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements between the Company and its officers named under the caption "Management -- Employment Agreements" in the Prospectus, are binding and enforceable obligations upon the respective parties thereto in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws or arrangements affecting creditors' rights generally and subject to principles of equity, and public policy considerations.
(x) Contracts. Each material contract or other instrument (however characterized or described) to which the Company or the Subsidiary is a party or by which it or its property or business is or may be bound or affected and to which reference is made in the Prospectus has been duly and validly executed by the Company or by the Subsidiary, as applicable, is in full force and effect in all material respects and, assuming that each other party has full power, corporate or other, to execute, deliver and perform such contracts, is enforceable against the parties thereto in accordance with its terms, and none of such contracts or instruments has been assigned by the Company or the Subsidiary, and neither the Company or the Subsidiary, nor, to the Company's Knowledge, any other party is in default thereunder and, to the Company's Knowledge, no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. None of the material provisions of such contracts or instruments violates any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court having jurisdiction over the Company or the Subsidiary or any of their assets or businesses, where such violation or default would have a Material Adverse Effect.
(y) Year 2000 Compliance. To the Company's Knowledge, except as disclosed in the Prospectus, the Company's and the Subsidiary's computer systems and products are designed to be year 2000 compliant, and the disclosure in the Prospectus concerning Year 2000 compliance is true and correct in all material respects.
3. Covenants of the Company. The Company covenants and agrees with the Underwriter that:
(a) Effectiveness of Registration Statement. The Company will use its best efforts to cause the Registration Statement and any subsequent amendments thereto to become effective as promptly as possible. The Company will notify you promptly (i) when the Registration Statement or any subsequent amendment thereto has become effective or any supplement to the Prospectus has been filed and (ii) of the receipt of any requests, and the nature and substance thereof, by the Commission for any amendment or supplement to the Registration Statement or Prospectus or for any other additional information. The Company will prepare and file with the Commission, promptly upon your reasonable request, any amendments or supplements to the Registration Statement or Prospectus that may be necessary or advisable in connection with the distribution of the Securities or any of the Securities. The Company will file no amendment or
supplement to the Registration Statement or Prospectus (other than any document required to be filed under the Exchange Act that upon filing is deemed to be incorporated by reference therein) to which you shall reasonably object by notice to the Company after having been furnished a copy within a reasonable time, but no later than three (3) business days, prior to the proposed filing thereof. The Company will furnish to you at or prior to the filing thereof a copy of any document that upon filing is deemed to be incorporated by reference in whole or in part in the Registration Statement or Prospectus.
(b) Notice of Stop Order. The Company will advise you promptly, and confirm in writing, when and if it receives notice or obtains Knowledge of (i) the issuance by the Commission of any stop order or other order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or the effectiveness of the Registration Statement, (ii) the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction in which they were previously qualified, or (iii) the initiation or threat of any proceeding for that purpose. The Company will promptly use its best efforts to prevent the issuance, and to obtain the withdrawal if such issuance is not prevented, of any such stop order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act. Within the time during which a prospectus relating to the Securities is required to be delivered under the Securities Act, the Company will use its best efforts to comply with all requirements imposed upon it by the Securities Act and the Exchange Act, as now and hereafter amended, and by the Regulations, as from time to time in force to permit the continuance of sales of or dealings in the distribution of the Securities as contemplated by the provisions therein, in this Agreement, and in the Prospectus. If during such period any event as to which the Company has Knowledge occurs as a result of which the Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Securities Act, the Company will notify you promptly, will amend the Registration Statement or supplement the Prospectus to comply with the Securities Act, the Company will notify you promptly, will amend the Registration Statement or supplement the Prospectus (at the expense of the Company) so as to correct such statement or omission or otherwise to effect such compliance, and will furnish without charge to Underwriter and to any dealer in securities as many copies of such amended or supplemented Prospectus as you may from time to time reasonably request.
(d) Copies of Registration Statement. The Company will deliver to Underwriter, from time to time without charge, such number of copies of the Registration Statement (at least one of which delivered to you shall be manually signed and will include all exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and supplements thereto, in each case as soon as available and in such quantities and to such persons as requested by you.
(e) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with you and your counsel, to register or qualify the Securities for offering and sale under the securities laws of such jurisdictions as you reasonably designate, and will continue such qualifications in effect for so long as may be necessary to complete the distribution of such Securities; provided that in no event shall the Company be required in connection therewith to
qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject.
(f) Section 11(a) Earnings Statement. The Company will make generally available to its security holders (within the meaning of Section 11(a) of the Securities Act) and deliver to you as soon as practicable (but not later than fifteen (15) months after the Effective Date), an earnings statement that shall satisfy the requirements of Section 11(a) and Rule 158 under the Securities Act, covering a period of at least twelve (12) consecutive months after the Effective Date.
(g) Information to the Underwriter. Until the earlier of the
third (3rd) anniversary of the Effective Date or such date as of which the
Warrants and the Unit Purchase Option have been exercised or have expired, the
Company will, at its cost and expense, furnish or cause to be furnished to you
and your counsel, with reasonable promptness, copies of (i) annual audited
balance sheets and audited statements of operations and changes in cash flows of
the Company, and quarterly balance sheets and statements of income of the
Company (which need not be audited), (ii) all reports, if any, to its
stockholders, (iii) all reports filed by the Company with the Commission, and
any securities exchange or the National Association of Securities Dealers, Inc.
("NASD") and (iv) such other material documents and information with respect to
the Company and its affairs as you may from time to time reasonably request and
which the Company can produce at reasonable cost; provided, however, that the
Company shall not be required to produce such information or documents if the
Company has received the opinion of its counsel that providing such information
to Underwriter is reasonably likely to create liability under applicable Federal
and state securities laws. Upon request, the Company shall also provide the
Underwriter with current lists of its stockholders. In addition to the
foregoing, during the six months following the Effective Date, the Company
shall, at its cost and expense, furnish or cause to be furnished to the
Underwriter, (x) daily issuer transfer sheets by Depository Trust Company
("DTC"), which shall be transmitted to the Underwriter by fax daily, and (y)
weekly transfer sheets provided by the Company's transfer agent, which shall be
provided to the Underwriter at the end of each week. For the three years
subsequent to such six month period, upon request of the Underwriter, the
Company shall furnish or cause to be furnished to the Underwriter with copies of
the Company's monthly DTC transfer sheets and transfer sheets from the Company's
transfer agent.
(h) Listing in Securities Manual; Investor Relations Firm. The Company shall, as soon as practicable after the Effective Date, use its best efforts to obtain listing on an expedited basis in Standard and Poor's Corporation Records or such other recognized securities manuals for which it may qualify for listing, and the Company shall use its best efforts to maintain such listings for at least three (3) years after the Closing Date. The Company further agrees at any time during the three (3) year period following the Closing Date, to engage within sixty (60) days of a written request by you, the services of an investor relations firm reasonably acceptable to you, who will act as investor relations liaison during such three (3) year period, which spokesperson is not required to be the same person during the duration of the three (3) year period, to consult with and advise the Company regarding communications and relations with stockholders and the financial and investment communities.
(i) Listing on Nasdaq. The Company shall apply for the inclusion of the Units, Common Stock and Warrants on The Nasdaq SmallCap Market (the "SmallCap Market") under the symbols AWLDV, AWLD and AWLDW or another symbol acceptable to the Underwriter, to take effect on the Effective Date; provided, that if the Common Stock and Warrants are not separate transferable on the Effective Date, then the Warrants need not be included in the SmallCap Market at such date; provided, however, that, on the date on which the Common Stock and Warrants first become separately transferable, the Warrants shall be listed on the Small Cap Market. At such time as the Company meets the eligibility requirements for the inclusion of the Common Stock on the Nasdaq National Market ("NNM"), the Company shall use its best efforts to obtain such listing. The Company shall use its best efforts to maintain the Nasdaq listing provided for in this Paragraph 3(i) for at least three (3) years after the date of this Agreement.
(j) Exchange Act Filings. The Company shall file such registration statement and take such other reasonable action, including the filing of a registration statement on Form 8-A and requesting effectiveness not later than the date the Registration Statement becomes effective, to register Common Stock and the Warrants pursuant to Section 12(g) of the Exchange Act, such registration statement to become effective simultaneously with the effectiveness of the Registration Statement, and shall thereafter use its best efforts to keep such registration effective. The Company shall comply with the Securities Act, the Regulations, the Exchange Act and the rules and regulations promulgated Commission under the Exchange Act, the applicable rules and regulations of the Nasdaq, and applicable state securities laws so as to permit the continuance of sales of and dealings in the Securities in compliance with applicable provisions of such laws, rules, and regulations, including the filing with the Commission and the Nasdaq of all reports required to be so filed, and the Company will deliver to the holders of the Securities all reports required to be provided to such holders pursuant to such laws, rules, or regulations.
(k) Use of Proceeds. The Company shall apply the net proceeds received from the sale of the Securities in the manner set forth under the caption "Use of Proceeds" in the Prospectus. The Company shall report the use of proceeds from the Offering in accordance with the Regulations and will provide a copy of each such report to you and your counsel.
(l) Board Meetings and Membership.
(i) For a period of five (5) years commencing on the Closing Date, the Underwriter shall have the right to designate one nominee (reasonably acceptable to the Company based on the designee's character and reputation) for election to the Company's Board of Directors. The Company shall initially elect such designee as soon as possible after the identity of such designee is provided to the Company and thereafter shall include the Underwriter's designee as a member of the board of directors' slate. Following the election of such nominee as a director, such person shall receive the same compensation, including options, that is paid to other non-employee directors of the Company and shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings including, but not limited to, food, lodging and transportation. The Company agrees to indemnify and hold such director harmless to the maximum extent permitted by law, against any and all claims, actions, awards and judgments arising out of his or her service as a director and, in the event the Company maintains a liability insurance policy affording coverage for the acts of its officers and directors, to include such director as an insured under such policy. Such director shall also serve on the Company's audit, compensation and, if such committees are appointed, nominating and executive
committees. The rights and benefits of such indemnification and the benefits of such insurance shall, to the extent possible, extend to the Underwriter insofar as it may be or may be alleged to be responsible for such director, without additional cost to the Company.
(ii) In lieu of designating a member of the board of directors pursuant to Paragraph 3(l)(i) of this Agreement, the Underwriter shall have the right, during the five-year period commencing on the Closing Date, to have one observer to attend all meetings of the Board of Directors of the Company and its executive, audit, compensation and such other committees as shall be designated by Underwriter. Such observer shall be entitled to the same compensation and reimbursement for expenses of attending meetings as is provided to non-employee directors and committee members and, to the extent it may legally do so, such indemnity as is provided to the Company's non-employee directors.
(m) Future Sales. Except for the permitted issuances described below, for a period of one (1) year from the Effective Date, the Company shall not sell or otherwise dispose of any Common Stock (or securities convertible into or exercisable for Common Stock) or Preferred Stock of the Company or any subsidiary of the Company without the Underwriter's prior written consent. Permitted issuance shall mean shares of Common Stock issuable (i) upon the exercise or conversion of options or warrants specifically contemplated in the Prospectus or provided for in this Agreement, (ii) pursuant to and in order to consummate a merger with or acquisition of an unaffiliated party in a transaction negotiated at arms' length and approved by (A) a majority of the Company's Board of Directors, and (B) all of the non-employee directors; (iii) in a public offering approved by the Underwriter, and (iv) pursuant to a private placement, at a price per share, or, with respect to convertible securities and warrants, having an exercise or conversion price, not less than 80% of the average of the closing bid prices of the Common Stock for ten (10) consecutive trading days ending not earlier than three (3) days prior to the date of such sale or on other terms acceptable to the Underwriter.
(n) Preferred Stock. The Company shall not create any series of preferred stock or issue any shares of preferred stock for two years from the Effective Date without the consent of the Underwriter.
(o) Press Releases. Prior to the later of the Closing Date or the Option Closing Date, if any, the Company will not issue, directly or indirectly, without your prior written consent (which consent shall not be unreasonably withheld), any press release or other public communication or hold any press conference with respect to the Company, its activities, or the public offering, other than trade releases in the ordinary course of the Company's business.
(p) Undertakings. The Company will comply with the provisions of all undertakings contained in the Registration Statement or made in connection with any application to register or qualify any of the Securities under blue sky laws.
(q) Certain Deliveries to the Underwriter. The Company will obtain from its officers, counsel, and accountants those certificates, opinions, and letters referred to in Paragraph 6 of this Agreement.
(r) Key Man Life Insurance. The Company will obtain on or before the Closing Date, and use its best efforts to maintain thereafter for the term of their respective employment
with the Company, key man life insurance policies in the amount of $1,000,000 insuring the lives of Richard F. Noll, J. P. McCormick and ___________________, of with the Company named as sole beneficiary.
(s) Employment Agreements. The Company has entered into employment agreements with Richard F. Noll and J. P. McCormick on the terms that are disclosed in the Prospectus.
(t) Redemption and Dividends. For a period of two (2) years from the Closing Date, the Company shall not redeem any of its securities and shall not pay any dividends or make any other cash distribution without obtaining the Underwriter's prior written consent. The Underwriter shall either approve or disapprove such contemplated redemption of securities or dividend payment or distribution within ten (10) business days from the date the Underwriter receives written notice of the Company's proposal with respect thereto; a failure of the Underwriter to respond within the ten (10) business day period shall be deemed approval of the transaction. Nothing in this Paragraph 3(s) shall be construed to prohibit the Company from calling the Warrants for redemption subsequent to one year from the Effective Date.
(u) Restrictions on Sales, Options by Affiliates. The Company will cause each of its officers, directors, five percent (5%) stockholders to agree in writing that such person will not, during the six (6) month period immediately following the Effective Date (the "Lockup Period"), offer, pledge, sell (which term includes a short sale or sale against the box), contract to sell, grant any option for the sale of, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company's Common Stock without obtaining the Underwriter's prior written approval; provided that such persons may transfer such securities in a private transaction to a person who agrees to be subject to these restrictions.
(v) Outstanding Warrants, Options and Other Rights. There shall not be outstanding on the Closing Date any warrants, options, or other rights to purchase any shares of Common Stock, except as otherwise set forth in the Prospectus. During the two (2) years following the Effective Date, the Company shall not, without the prior written consent of the Underwriter, grant options, rights or warrants or sell any securities to its officers, directors, employees or consultants under its stock option plan as described in the Prospectus or otherwise except at an exercise, purchase or conversion price which is not less than the market price of the Common Stock on the date of grant, issuance or sale, as the case may be.
(w) Restrictions on Filing Registration Statements. During the eighteen (18) months following the Effective Date, the Company will not, without the prior written consent of the Underwriter, register any securities pursuant to the Securities Act, except that such restriction shall not apply to the registration of Common Stock issuable pursuant to the Company's present stock option plan, as described in the Prospectus, on a Form S-8 registration statement.
(x) Waiver of Registration Rights. The Company shall obtain a waiver of so-called "piggy-back" registration rights from any holders of any securities of the Company who have the right to require inclusion of any or all of their securities in the Registration Statement contemplated by this Agreement.
(y) Directors and Officers Liability Insurance. Within ninety
(90) days after the effective date of the Registration Statement, the Company
will use its best efforts to obtain Directors and Officers Liability Insurance
in an amount no less than $5,000,000 per occurrence.
(z) Accounting Firm. The Company shall retain an independent public accounting firm reasonably acceptable to the Underwriter for a period of three (3) years from the Effective Date. The Underwriter agrees that the firm of Panel Kerr Forrester, PC, is acceptable to the Underwriter. In addition, for a period of two years from the Effective Date, the Company, at its expense, shall cause its independent accounting firm to review, but not audit, the Company's financial statements for each of the first three fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's quarterly report on Form 10-QSB and the mailing of quarterly financial information to stockholders, if applicable.
(aa) Restrictions on Acquisitions. During the one (1) year following the Closing Date, without the prior consent of the Underwriter, the Company shall not enter into any agreement to acquire any other business or the assets of any other business. The term "acquire" shall be broadly construed and shall include the acquisition of assets, the merger with or into another corporation or entity, whether directly by the Company or through a subsidiary, or the acquisition of stock or other equity interests, however defined, of another corporation, partnership, limited liability company, business trust, sole proprietorship or other entity of any kind or description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing, filing,
and copying of the Registration Statement, Prospectus, this Agreement, blue sky
memoranda, the Agreement Among Underwriter, if any, the Selected Dealers
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter, the
costs of mailing Prospectuses to offerees and purchasers of the Securities, and
the out-of-pocket travel expenses of the Underwriter and counsel to the
Underwriter or other professionals designated by the Underwriter to visit the
Company's facilities or its counsel's offices for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and delivery
of certificates representing Common Stock and Warrants, including any transfer
or other taxes payable thereon; (iii) the registration or qualification of the
Securities under state securities or "blue sky" laws, including the reasonable
fees and disbursements of counsel (regardless of whether such counsel is also
counsel to the Underwriter, subject to the limitation set forth in Paragraph
4(c) of this Agreement) and filing fees in connection therewith; (iv) all
reasonable fees and expenses of the Company's counsel and accountants; (v) all
filing fees in connection with review of the terms of the Public Offering by the
NASD; (vi) all costs and expenses of any listing of the Securities, Common Stock
and Warrants on the SmallCap Market or the NNM and/or any other stock exchange
and/or in Standard and Poor's Stock Guide and/or any other securities manuals;
(vii) all costs and expenses of four (4) bound volumes provided to the
Underwriter and its counsel of all closing documents, paper exhibits,
correspondence and records forming the materials included in the Public
Offering; (viii) the reasonable costs and expenses of all pre-closing and
post-closing advertisements relating to the
Public Offering (such as tombstone adds), in addition to fifteen (15) lucite cubes;(ix) all costs of holding informational meetings and "road shows;" and (x) all other costs and expenses incurred or to be incurred by the Company in connection with the transactions contemplated by this Agreement. The obligations of the Company under this Paragraph 4(a) shall survive any termination or cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the Company's responsibility for payment of the foregoing expenses, the Company shall pay to the Underwriter a non-accountable expense allowance equal to three percent (3%) of the gross proceeds of the Public Offering, including in such amount the proceeds from any sale of Option Units. The non-accountable expense allowance due shall be paid at the Closing Date and any Option Closing Date, as applicable, and shall include fees and disbursements of Underwriter's counsel (exclusive of legal fees for state registration and qualification as provided in Paragraph 4(c) of this Agreement), but shall not include fees of the Company's counsel, state registration filing fees, NASD filing fees, Nasdaq listing fees, printing and mailing to members of the underwriting or selling group, and any and all other expenses customarily paid by the issuer in a public offering of securities.
You hereby acknowledge your prior receipt from the Company of $________, which amount shall be applied to the non-accountable expense allowance due when and if the Public Offering is closed. If the Public Offering does not close, then any portion of such amount in excess of your accountable reimbursable expenses shall be returned promptly by you to the Company.
(c) Compliance with Blue Sky Laws. You shall determine in which states or jurisdictions the Securities shall be registered or qualified for sale. Copies of all applications and related documents for the registration or qualification of securities (except for the Registration Statement and Prospectus) filed with the various states shall be supplied to the Company's counsel not later than one business day following their transmission to the various states, and copies of all comments and orders received from the various states shall be made available promptly to the Company's counsel. Immediately prior to the Effective Date, counsel for the Underwriter shall advise counsel for the Company in writing of all states in which the offering has been registered or qualified for sale or has been canceled, withdrawn, or denied, the date of each such event, and the number of Securities registered or qualified for sale in each such state. The Company shall be responsible for the cost of state registration or qualification filing fees and the legal fees of Underwriter's counsel in connection with such filings, which filing fees are payable to Underwriter's counsel in advance of such filings. The legal fees payable by the Company with respect to blue sky filings by Underwriter's counsel shall be fifty thousand dollars ($50,000), of which twenty five thousand dollars ($25,000) has been paid. The Company hereby acknowledges that any remaining balance with respect to legal fees or blue sky filing fees is immediately due and payable.
5. Unit Purchase Option; Other Financial Arrangements
(a) Unit Purchase Option. On the Closing Date, the Company will sell to the Underwriter, for an aggregate price of $10, the Unit Purchase Option to purchase an aggregate of one hundred twenty thousand (120,000) Units from the Company at an exercise price equal to one hundred twenty percent (120%) of the public offering price of the Units. The Unit Purchase
Option and the underlying securities shall be non-transferable (other than to officers or partners of members of the underwriting or selling group or as otherwise may be permitted by the NASD) during the one (1) year period commencing on the Effective Date. The Unit Purchase Option and the terms of the underlying securities shall be exercisable for a period of four (4) years commencing one (1) year from the Effective Date. The Unit Purchase Option shall be in substantially the form provided by the Underwriter and filed as an Exhibit to the Registration Statement.
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter shall
introduce to the Company another party or entity (the "Introduced Party"), and,
as a result of such introduction, a Transaction is consummated with such
Introduced Party, the Company shall pay to the Underwriter a finder's fee (the
"Fee") equal to six percent (6%) of the first five million dollars ($5,000,000)
of the consideration paid or received in such Transaction; plus five percent
(5%) of the consideration in excess of five million dollars ($5,000,000) and up
to six million dollars ($6,000,000); plus four percent (4%) of the consideration
in excess of six million dollars ($6,000,000) and up to seven million dollars
($7,000,000); plus three percent (3%) of the consideration in excess of seven
million dollars ($7,000,000) and up to eight million dollars ($8,000,000); plus
two percent (2%) of the consideration in excess of eight million dollars
($8,000,000). As used in this Paragraph 5(b), a "Transaction" shall mean any of
the following (i) the sale of all or substantially all of the assets and
properties of the Company or all or substantially all of the stock of the
Company, (ii) the merger or consolidation of the Company with or into any other
corporation or other entity (other than a merger with a company owned or
controlled by the Company), (iii) the acquisition by the Company of the assets
or stock of another business entity in which the Company may be involved, or
(iv) a joint venture, licensing or marketing agreement or arrangement, however
structured.
(ii) The Fee shall be paid in cash at the closing of the particular Transaction, regardless of whether the Transaction involves installment payments or the consideration paid includes securities or a combination of securities and cash; provided, however, that in the event that the Transaction is a marketing or license or other agreement pursuant to which a stream of revenue or cash receipts may be generated or other Transaction where it is impossible to determine the value of the consideration to be paid or received or in the event that there are contingent payments, the Fee shall be paid with respect to each payment at the same time as the payment is made or received, as the case may be, regardless of when the payment is received as long as the original agreement pursuant to which the payment is made was entered into during the five (5) year period commencing on the Effective Date. No modification of payment or other terms of any agreement shall impair the Underwriter's right to the Fee. In the event that the Transaction involves a merger or sale of assets or tender offer or sale of stock where the consideration is paid to any or all of the Company's stockholders, the consideration paid to such stockholders shall be included in the consideration paid or received for purposes of computing the Fee. All references to the Company in the context of a Transaction shall include Activeworlds.com, Inc., any of its present or future subsidiaries or any affiliate of the Company, regardless of whether such party shall pay or receive the consideration paid in the Transaction.
(iii) In determining the value of the consideration paid or received, the following provisions shall apply:
(A) Any securities which are regularly traded on a securities exchange or in the over-the-counter market shall be valued at the average of the closing prices in the case of securities listed on the New York or American Stock Exchange or the Nasdaq Stock Market (or the closing bid price if there are no transactions on any of such days) or the average of the closing bid prices, as reported by Nasdaq or the National Quotation Bureau, Inc. or similar recognized reporting agency, in the case of securities not traded on such exchanges or in such markets on the ten (10) trading days prior to the earlier of (I) the date of the agreement or (II) in the event that a press release or other announcement is made by the Company and/or the Introduced Party concerning the Transaction and the consideration provided for in the agreement includes the transfer of a fixed number of securities, the date of such press release or announcement.
(B) Any debt securities which are not regularly traded on a securities exchange or on the over-the-counter market shall be valued at the principal amount thereof if such obligations bear a stated interest rate or, if no interest rate is stated, at the present value of the payments due, discounted using an interest rate equal to the prime rate of Chemical Bank in effect on the second business day prior to the closing date.
(C) The consideration received in a joint venture shall be based on the consideration paid to the joint venture by the Introduced Party plus any additional consideration paid by or on behalf of the joint venture partner to the Company.
(D) In the event that the Transaction involves the receipt by the Company of property or equipment the consideration shall be fair value of the property and equipment.
(E) In the event that the fair market value of any property cannot be determined pursuant to the application of Paragraph 5(b)(iii) of this Agreement and the Company and the Underwriter shall not be able to agree on a value, the value shall be determined by an appraiser jointly selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph 5(b) to the contrary, if the Company shall, within one hundred eighty (180) days immediately following the expiration of five (5) years from the Effective Date, consummate a Transaction with an Introduced Party which was introduced by the Underwriter to the Company during such five (5) year period, the Company shall pay the Underwriter the Fee in the same manner as is otherwise provided in this Paragraph 5(b).
6. Conditions to the Obligations of the Underwriter. The obligation of Underwriter to purchase and pay for the Securities shall be subject to the accuracy in all material respects, as of the date of this Agreement and each Closing Date (whether the Closing Date with respect to the Firm Units or an Option Closing Date with respect to the Option Units), as if made on such Closing Date, of the representations and warranties of the Company contained in this Agreement and the following additional conditions:
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have become effective not later than 5:30 P.M., Eastern Time, on the date of this Agreement, or such later time or date as shall have been consented to by you in writing (the "Effective Date").
(ii) On the Closing Date, no stop order suspending the effectiveness of the Registration Statement or the qualification or registration of the Securities under the blue sky laws of any jurisdiction (whether or not a jurisdiction specified by the Underwriter) shall have been issued, and no proceeding for that purpose shall have been initiated or shall be threatened or contemplated by the Commission or the authorities of any such jurisdiction.
(iii) Any request of the Commission or any such authorities for additional information to be included in the Registration Statement or Prospectus or otherwise shall have been complied with to the reasonable satisfaction of counsel for the Underwriter.
(b) Representations; Compliance with Agreement. The representations and warranties of the Company in this Agreement shall be true and correct on and as of the Closing Date, with the same effect as if made on the Closing Date, and the Company shall have complied with all the agreements and satisfied all the obligations required to be performed or satisfied by it at or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and the Prospectus shall contain all statements required to be stated therein in accordance with the Securities Act and the Regulation and the Registration Statement and the Prospectus shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, since the Effective Date, there shall not have occurred any event required to be set forth in an amended or supplemented Prospectus that has not been so set forth (except any such statement or omission based upon information furnished in writing by or on behalf of the Underwriter for inclusion in the Registration Statement).
(d) No Material Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, (i) there shall have been
no material adverse changes with respect to the officers, directors, operations,
capitalization, contractual obligations, legal proceedings, proposed use of
proceeds from the sale of the Securities, business, plans or prospects, net
assets or liabilities or obligations, properties, or any other aspect of the
financial condition or results of operations of the Company or the Subsidiary,
(ii) neither the Company nor the Subsidiary shall have entered into any material
transaction not in the ordinary course of business, (iii) neither the Company
nor the Subsidiary shall have paid or declared any dividends or other
distributions on its capital stock, (iv) the conduct of the business and
operations of the Company and the Subsidiary shall not have been materially
interfered with by strike, fire, flood, hurricane, accident or other calamity
(whether or not insured), or by any court or governmental action, order or
decree, and the properties of the Company and the Subsidiary shall not have
sustained any material loss or damage (whether or not insured) as a result of
any such occurrence, and (v) except as set forth in the Prospectus, there are no
actions, suits, proceedings or investigations pending before any arbitrator,
court or governmental agency, authority or body
or, to the Company's Knowledge, threatened, to which the Company or the Subsidiary is a party or of which the business or property of the Company or the Subsidiary is the subject and which, if adversely decided, could reasonably be expected to have a material adverse affect on the business, property, condition (financial or otherwise), results of operations or general affairs of the Company or the Subsidiary, and there have been no material adverse development in any such suits, actions, proceedings or investigations.
(e) NASD. The NASD shall have indicated that it has no objection to the underwriting arrangements pertaining to the sale of the Securities by the Underwriter. No action shall have been taken by the Commission or the NASD the effect of which would make it improper, at any time prior to the Closing Date, for any member firm of the NASD to execute transactions (as principal or as agent) in the Securities, Common Stock or Warrants and no proceedings for the purpose of taking such action shall have been instituted or shall be pending, or, to the Underwriter's or the Company's Knowledge, shall be contemplated by the Commission or the NASD. The Company represents at the date of this Agreement, and shall represent as of the Closing Date or Option Closing Date, as the case may be, that it has no Knowledge that any such action is in fact contemplated by the Commission or the NASD.
(f) Certificates, Bylaws and Proceedings. The Company's Certificate of Incorporation and By-Laws, and all proceedings taken in connection with the authorization, issuance, or sale of the Securities as herein contemplated, shall be reasonably satisfactory in form and substance to you.
(g) Officers' Certificate. The Company shall have furnished to the Underwriter a certificate of the President and of the Chief Financial Officer of the Company, dated the day of the Closing Date, to the effect that each signer of such certificate has examined the Registration Statement, the Prospectus, and this Agreement, and confirming, in form satisfactory to the Underwriter, that the compliance by the Company of the conditions set forth in Paragraphs 6(a) through (d) of this Agreement have been satisfied.
(h) Opinion of Company Counsel. The Company shall have furnished to the Underwriter the opinion of Pepe and Hazard, LLP, counsel for the Company, dated the Closing Date, in form and substance reasonably satisfactory to counsel to the Underwriter and substantially in the form of Exhibit A attached hereto. In rendering the opinion, such counsel may rely as to matters of fact, to the extent they deem proper, upon certificates of the Company's officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is executed and as of the Closing Date, Pannell Kerr Forster, PC, independent public accountants for the Company, shall have furnished to you a letter addressed to the Underwriter and dated the date of this Agreement or the Closing Date, as applicable, in form and substance previously approved by the Underwriter and its counsel.
(j) Agreements with Stockholders. The Underwriter shall have received the agreements, in form and substance satisfactory to the Underwriter, as contemplated by Paragraph 3(u) of this Agreement.
(k) Change in Capitalization. Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been any material adverse change or decrease in the capital stock or long-term debt obligations of the Company or any decreases in stockholders' equity, net assets or current net assets of the Company or any material adverse change in the financial position, revenues, expenses or results of operations of the Company or the Subsidiary, each as compared with the amounts shown in the most recent financial statements included in the Registration Statement, except as disclosed in the Prospectus, that makes it impractical or inadvisable in the reasonable judgment of the Underwriter to proceed with the Public Offering or the delivery of the Securities, as the case may be, as contemplated in the Prospectus.
(l) Other Agreements. The Company shall have executed and delivered to the Underwriter the Warrant Agreement and the Unit Purchase Option to purchase one hundred twenty thousand (120,000) Units.
(m) Opinion of Underwriter's Counsel. The Underwriter shall have received an opinion from Esanu Katsky Korins & Siger, LLP, counsel for the Underwriter, as to the organization of the Company, the validity of the Securities, the form of the Registration Statement and the Prospectus, and such other related matters as you may request, and such counsel shall have been furnished by the Company such papers and information as they request to enable them to pass upon such matters. It is understood that such counsel will express no opinion with respect to the financial statements and other financial, accounting, and statistical data included in the Registration Statement and the Prospectus. In rendering the foregoing opinion, such counsel shall be entitled to rely upon the opinion delivered to the Underwriter pursuant to Paragraph 6(h) of this Agreement as to matters of Federal securities law, and may rely as to matters of fact upon such certificates and other documents and information as they may reasonably request for purposes of such opinion.
(n) Other Information. Prior to the Closing Date, the Company shall have furnished to the Underwriter such further information, certificates, and documents in connection with the Company's obligations set forth in this Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall not have been fulfilled when and as required by this Agreement, this Agreement and all obligations of the Underwriter hereunder may be terminated by you at, or at any time prior to, the Closing Date. Notice of such termination shall be given to the Company in writing, or by facsimile transmission or telephone and confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to indemnify and hold harmless Underwriter and each person who controls any Underwriter within the meaning of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act, or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact made by the Company in this Agreement, (ii) any untrue statement or alleged untrue statement of a material
fact made by the Company contained in the Registration Statement, or any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any amendment thereof or supplement thereto, or in any blue sky application or other document executed by the Company specifically for that purpose (or based upon written information furnished by the Company) filed in any state or other jurisdiction in order to qualify any of the Securities or other Securities under the securities laws thereof (any such application, document or information being referred to as a "Blue Sky Application"); or (iii) the omission or alleged omission to state in any such Registration Statement, Preliminary Prospectus or Prospectus, or amendment thereof or supplement thereto, or Blue Sky Application a material fact required to be stated therein or necessary to make the statements made therein not misleading, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein or omitted therefrom in reliance upon and in conformity with written information furnished to the Company by or on behalf of you or such Underwriter specifically for use in connection with the preparation thereof, and further provided, however, that the foregoing indemnity with respect to any untrue statement, alleged untrue statement, omission, or alleged omission contained in any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, claims any of, damage, or liability purchased any of the securities that are the subject thereof (or to the benefit of any person who controls such Underwriter), if a copy of the Prospectus was not delivered to such person with or prior to the written confirmation of the sale of such security to such person. This indemnity agreement will be in addition to any liability that the Company may otherwise have.
(b) Indemnification by Underwriter. Underwriter agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed or signs the Registration Statement, and each person who controls the Company within the meaning of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act, or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any amendment thereof or supplement thereto, or in a Blue Sky Application, or (ii) the omission or the alleged omission to state in any such Registration Statement, Preliminary Prospectus or Prospectus, amendment thereof or supplement thereto, or Blue Sky Application a material fact required to be stated therein or necessary to make the statements made therein not misleading, in each case to the extent, but only to the extent, that the same was made therein or omitted therefrom in reliance upon and in conformity with written information furnished to the Company by or on behalf of you or such Underwriter specifically for use in the preparation thereof, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against any such loss, claim, damage, liability or action. This indemnity agreement will be in addition to any liability that the Underwriter may otherwise have.
(c) Claims. Within five (5) days after receipt by an indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; the failure so to notify the indemnifying party shall relieve the indemnifying party from any liability under this Paragraph 7 as to the particular item for which indemnification is then being sought, unless such indemnifying party has otherwise received actual notice of the action at least thirty (30) days before any answer or response is required by the indemnifying party in its defense of such action, but will not relieve it from any liability that it may have to any indemnified party otherwise than under this Paragraph 7. If any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof; provided, that if the defendants in any such action include both the indemnified party and the indemnifying party and either (i) the indemnifying party or parties agree, or (ii) representation of both the indemnifying party or parties and the indemnified party or parties by the same counsel is inappropriate under applicable standards of professional conduct because of actual or potential conflicting interests between them, then the indemnified party or parties shall have the right to select separate counsel to assume such legal defense and to otherwise participate in the defense of such action. The indemnifying party will not be liable to such indemnified party under this Paragraph 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed counsel in connection with the assumption of legal defenses in accordance with the proviso to the immediately preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel approved by the indemnifying party for all indemnified parties), (ii) the indemnifying party shall not have employed counsel to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall an indemnifying party be liable under this Paragraph 7 for any settlement, effected without its written consent, which consent shall not be unreasonably withheld, of any claim or action against an indemnified party.
(d) Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) an indemnified party makes a claim for indemnification pursuant to Paragraphs 7(a) or (b) of this Agreement (subject to the limitations thereof) but is judicially determined, by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal, that such indemnification may not be enforced in such case notwithstanding that the provisions of this Paragraph 7 provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified or indemnifying party in circumstances for which indemnification is provided under Paragraphs 7(a) or (b) of this Agreement, then, and in each such case, the Company and the Underwriter shall contribute to the aggregate losses, claims, damages, or liabilities to which they may be subject (after contribution from all others) in such proportion so that the Underwriter is responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the Public Offering Price appearing thereon, and the Company is responsible for the remaining portion; provided, however, that if such allocation is not permitted by applicable law, then the relative fault of the Company and the Underwriter in connection with the statements or omissions that resulted in such losses, liabilities, claims, and damages and other relevant equitable considerations shall
also be considered. The relative fault shall be determined by reference to, among other things, whether in the case of an untrue statement of a material fact or the omission to state a material fact, such statement or omission relates to information supplied by the Company or by the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriter agree that it would not be just and equitable if the respective obligations of the Company and the Underwriter to contribute pursuant to this Paragraph 7(d) were to be determined by pro rata or per capita allocation of the aggregate damages (even if the Underwriter and their respective controlling persons in the aggregate were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this Paragraph 7(d). For purposes of this Paragraph 7(d), the term "damages" shall include any legal or other expenses reasonably incurred by the indemnified party in connection with investigating or defending against or appearing as a third party witness in any action or claim that is the subject of the contribution provisions of this Paragraph 7(d). Notwithstanding the provisions of this Paragraph 7(d), an Underwriter and its controlling persons collectively shall not be required to contribute any amount in excess of the difference between the total price of the Securities purchased by the Underwriter, directly or indirectly, from the Company pursuant to this Agreement and the amount of any damages that such Underwriter and its controlling persons collectively have been required to pay by reason of such untrue statement or omission other than pursuant to this Paragraph 7(d). No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For the purposes of this Paragraph 7(d), any person who controls an Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have the same rights to contributions as the Underwriter and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as the Company.
The foregoing contribution agreement shall in no way affect the contribution liabilities of any person having liability under Section 11 of the Securities Act other than the Company and the Underwriter and persons controlling the Company or the Underwriter.
After receipt by any party to this Agreement of notice of the commencement of any action, suit, or proceeding, such person will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party of the commencement thereof within a reasonable time thereafter, but the failure so to notify the contributing party will not relieve the contributing party from any liability that it may have to any party other than for contribution pursuant to this Paragraph 7(d). Any notice given pursuant to any other provision of this Paragraph 7 shall be deemed to be like notice pursuant to this Paragraph 7(d). If any such action, suit or proceeding is brought against any party, and such person notifies a contributing party of the commencement thereof, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified, subject to the provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution agreements by the Underwriter and the Company contained in this Paragraph 7, and the covenants, representations and warranties of the Company set forth in this Agreement, shall remain operative and in full force
and effect regardless of (i) any investigation made by the Underwriter or on their behalf or by or on behalf of any person who controls any Underwriter, by the Company or any controlling person of the Company or any director or any officer of the Company, (ii) acceptance of the Securities and payment therefor, or (iii) any termination of this Agreement, and shall survive the delivery of the Securities, and any successor to the Company or to any Underwriter or any person who controls any Underwriter or the Company, as the case may be, shall be entitled to the benefit of such respective indemnity and contribution agreements.
8. Effectiveness. This Agreement shall become effective contemporaneously with the effectiveness of the Registration Statement, or at such date after the effective time of the Registration Statement as you, in your discretion, shall first release the Securities for sale to the public; provided, however, that the provisions of Paragraphs 4, 6, and 7 of this Agreement shall at all times be in full force and effect. For the purposes of this Paragraph 8, the Securities shall be deemed to have been released for sale to the public upon release by you after effectiveness of the Registration Statement of a newspaper advertisement relating to the Securities or upon release by you thereafter of telegrams advising securities dealers of the effectiveness of the Registration Statement, whichever shall first occur.
9. Termination. This Agreement may be terminated, in your absolute
discretion, by notice given to the Company prior to the Closing Date if the
Company shall have failed, refused, or been unable, prior to the Closing Date,
to perform any material agreement required to be performed by it hereunder, or
if any other condition of the Underwriter's obligations hereunder required to be
fulfilled by the Company is not fulfilled. In addition, this Agreement may be
terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (a) material governmental restrictions (not in
force and effect on the date of this Agreement) have been imposed on trading in
securities on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market; (b) the determination by you that there shall have
occurred a material adverse change, beyond normal fluctuations, in general
financial market or economic conditions from such conditions on the date of this
Agreement; (c) a material interruption in mail or telecommunications service or
other general means of communications within the United States after the
execution and delivery of this Agreement; (d) a banking moratorium has been
declared by Federal or New York state authorities; (e) an outbreak of major
international hostilities or other national or international calamity has
occurred; (f) the passage by the Congress of the United States or by any state
legislative body of any act or measure, or the adoption of any orders, rules, or
regulations by any governmental body or executive or any authoritative
accounting institute or board, that you believe will have a Material Adverse
Effect on the business, financial condition, or financial statements of the
Company or the distribution of the Securities or market for the Securities; or
(g) any material adverse change has occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business. Any such termination shall be without liability of
any party to any other party, except as provided in Paragraph 7 in this
Agreement and except that the Company shall remain obligated to pay costs and
expenses pursuant to Paragraph 4 in this Agreement. If you elect to prevent this
Agreement from becoming effective, or to terminate this Agreement, as provided
in this Paragraph 9, you shall promptly notify the Company by telecopier or
telephone, and confirm by letter, and the Underwriter shall not be under any
liability to the Company.
10. Survival of Representations, Warranties, and Indemnities. The respective agreements, representations, warranties, and indemnities contained in this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of you, any Underwriter or the Company, or any of your or their respective officers or directors or controlling persons, and will survive delivery of and payment for the Securities and the Unit Purchase Option.
11. Notices. All notices and other communications hereunder (unless otherwise expressly provided for in this Agreement) shall be in writing and shall be deemed given when delivered in person or by overnight courier service or Express Mail, on the business day (before 5:00 P.M.) transmitted if sent by facsimile transmission or similar means of communication if receipt if confirmed or if transmission is confirmed as otherwise provided in this Paragraph 11, or the fifth (5th) day after mailing if mailed if sent by registered or certified mail (return receipt requested) to the party to receive the same at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company: Activeworlds.com.,Inc.
95 Parker Street
Newburyport, MA 01950
Facsimile: (978) 499-0221
Attention: Richard F. Noll, President
With a copy to: Pepe & Hazard, LLP
150 Federal Street, 28th Floor
Boston, MA 02110-1745
617-695-9255-Fax
Attention: John A. Kostrubanic, Esq.
If to the Underwriter: HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
Facsimile: (516) 773-1829
Attention: Mr. Howard D. Brous, Chairman
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Facsimile: (212) 953-6899
Attention: Asher S. Levitsky P.C.
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12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors. The terms "successor" and "successors and assigns" as used in this Agreement shall not include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire understanding between the parties to this Agreement and supersedes any prior or contemporaneous oral or prior written agreement, understandings or letter of intent, and may not be modified or amended nor may any right be waived except by a writing signed by all parties in the case of a modification or
amendment or the party to be charged in the case of a waiver. No course of conduct or dealing and no trade custom or practice shall be construed to modify any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original but all of which taken together shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements executed and to be performed wholly within such State.
Please confirm, by signing and returning to the Company counterparts of this Underwriting Agreement, that the foregoing correctly sets forth the understanding between the Company and you, whereupon this Agreement will constitute a binding agreement among us.
Very truly yours,
ACTIVEWORLDS.COM, INC.
Confirmed and Accepted as of
the date first above-written:
HD BROUS & CO, INC.
Exhibit A
Opinion of Company Counsel
1. The Company and the Subsidiary (a) has been duly incorporated and is a validly existing corporation in good standing under the laws of the state of its incorporation, with full corporate power and authority to own and operate its properties and to carry on its business as set forth in the Registration Statement and Prospectus; (b) on the Effective Date has authorized and outstanding capital stock as set forth in the Prospectus, and (c) is duly licensed or qualified as a foreign corporation in Massachusetts and all other jurisdictions in which by reason of owning or leasing real property in such jurisdiction it is required to be so licensed or qualified except where failure to be so qualified or licensed would have no Material Adverse Effect.
2. All of the outstanding shares of Common Stock are duly and validly authorized and issued and outstanding, fully paid and non-assessable, conform to the description set forth in the Prospectus and do not have any, and were not issued in violation of any, preemptive rights under the Company's certificate of incorporation or by-laws or any other agreement known to such counsel.
3. The Company has authorized and reserved for issuance the shares of Common Stock issuable (a) upon exercise of the outstanding options or warrants (other than the Warrants) in accordance with the terms of the applicable options or warrants, (b) upon exercise of the Warrants, including Warrants issued upon exercise of the Unit Purchase Option, pursuant to the terms of the Warrants and the Warrant Agreement, and (c) upon exercise of the Unit Purchase Option, and when issued upon such exercise, such shares of Common Stock will be duly and validly authorized and issued, fully paid and non-assessable and not subject to any preemptive rights or rights of first refusal pursuant to the Company's certificate of incorporation or by-laws or other agreement known to such counsel.
4. The shares of Common Stock included in the Units offered pursuant to the Prospectus (a) are duly and validly authorized and issued, fully paid and non-assessable, (b) have not been issued in violation of the pre-emptive rights or rights of first refusal pursuant to the Company's certificate of incorporation or any agreement known to such counsel and (c) are not subject to any liens, encumbrances, claims, security interests, stockholders agreements, voting trusts or restrictions on voting or transfer other than as disclosed in the Prospectus or as may be imposed under Federal and state securities laws.
5. The Warrants and the Unit Purchase Option, when issued as provided in this Agreement and/or the Unit Purchase Option, will constitute the valid, binding and enforceable obligations of the Company, subject to bankruptcy, insolvency and other laws of general applications affecting the enforceability of creditors' rights and subject to the discretionary nature of any remedies in the nature of equitable relief and except that no opinion is given with respect to the indemnification and contribution provisions of the Underwriter's Warrants.
6. The shares of Common Stock and Warrants included in the Units offered pursuant to the Prospectus, when issued pursuant to this Agreement upon payment of the consideration provided for in this Agreement, will, to such counsel's knowledge, be free of all liens, encumbrances, claims, security interests, restrictions (other than those disclosed in the
Prospectus or imposed by Federal or state securities laws), stockholders' agreements and voting trusts resulting from agreements known to such counsel to which the Company is a party.
7. The shares of Common Stock issuable upon exercise of the Unit Purchase Option and upon exercise of the Warrants issuable upon exercise of the Unit Purchase Option have been duly and validly authorized for issuance, and when issued pursuant to the terms of the Unit Purchase Option and/or the Warrant Agreement, as the case may be, will be validly issued, fully paid and non-assessable; the Warrants issuable upon exercise as provided in the Unit Purchase Option, will constitute the valid and binding obligations of the Company, subject to bankruptcy, insolvency and other laws of general applications affecting the enforceability of creditors' rights and subject to the discretionary nature of any remedies in the nature of equitable relief in any legal or equitable action.
8. Except as set forth in or contemplated by the Prospectus, to such counsel's knowledge, as of the date of this Agreement, there were no outstanding options, warrants or other rights providing for the issuance of any class of capital stock of the Company, or any security convertible into, or exchangeable for, any shares of any class of capital stock of the Company.
9. To such counsel's knowledge, neither the filing of the Registration Statement nor the offering of the Units as contemplated by this Agreement gives rise to any registration rights or other rights, other than those which have been waived or satisfied, relating to the registration under the Act of any shares of Common Stock.
10. The certificates evidencing the shares of Common Stock and Warrants are in proper legal form.
11. To such counsel's knowledge, no consents, approvals, authorizations or orders of agencies, officers or other regulatory authorities are necessary for the valid authorization, issue or sale of the Securities pursuant to this Agreement, except such as may be required under the Securities Act, the Exchange Act or state securities or blue sky laws or pursuant to the NASD's rules, regulations and policies or as required under the regulations of the Nasdaq SmallCap Market.
12. This Agreement, the Warrant Agreement and the Unit Purchase Option have been duly authorized and executed by the Company and constitute the valid and binding agreements of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and other laws of general applications affecting the enforceability of creditors' rights and subject to the discretionary nature of any remedies in the nature of equitable relief and except that no opinion is given with respect to the provisions of Paragraph 7 of this Agreement.
13. The Company has corporate power and authority to authorize, issue and sell the Securities on the terms and conditions set forth in this Agreement, the Warrant Agreement, the Unit Purchase Option, as the case may be, and in the Registration Statement and in the Prospectus, and the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement, the Warrant Agreement and the Unit Purchase Option and compliance by the Company with the terms of this Agreement, the Warrant Agreement and the Unit Purchase Agreement will not conflict with, or constitute a default under, the certificate of incorporation or by-laws of the Company or any indenture, mortgage, deed or trust, note or any
other agreement or instrument known to such counsel to which the Company or the Subsidiary is a party or by which they or their respective businesses or their properties are bound, or, to such counsel's knowledge, any law, order, rule or regulation, writ, injunction or decree of any government, governmental instrumentality, or court having jurisdiction over the Company, the Subsidiary or their respective businesses or properties.
14. Such counsel knows of no actions, suits or proceedings at law or in equity of a material nature pending, or to such counsel's knowledge, threatened, against the Company before or by any state commission, regulatory body, or administrative agency or other governmental body, wherein an unfavorable ruling, decision or finding would materially adversely affect the business or financial condition of the Company or which question either (a) the validity of the issuance of the Securities, the execution of the Underwriting Agreement, the Warrant Agreement or the Unit Purchase Option by the Company, or (b) any action taken or to be taken by the Company pursuant to the Underwriting Agreement, the Warrant Agreement or the Unit Purchase Option, which are not disclosed in or contemplated by the Prospectus.
15. The Registration Statement has become effective under the Act.
Furthermore, the Registration Statement and the Prospectus (except as to the financial statements and other financial, statistical and accounting information contained therein or omitted therefrom, as to which no opinion is expressed), comply as to form in all material respects with the requirements of the Act and the rules and regulations (the "Rules") of the Commission under the Securities Act. In passing upon the form of such documents, such counsel has assumed the correctness and completeness of the statements made or included therein by the Company and take no responsibility for the accuracy, completeness or fairness of the statements contained therein except insofar as such statements relate to the description of the Securities or relate to such counsel. However, in the course of the preparation by the Company of the Registration Statement and the Prospectus, such counsel had conferences with officers and directors of the Company in connection with the preparation of the Registration Statement and Prospectus, and, without independently verifying the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus and relying on the Company's officers regarding materiality, no facts have come such counsel's attention which gave such counsel reason to believe that the Registration Statement, as of the effective date thereof (except as to the financial statements and other financial, statistical and accounting information contained therein or omitted therefrom, as to which no opinion is expressed), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; or that the Prospectus (except as to the financial statements and other financial, statistical and accounting information contained therein or omitted therefrom, as to which no opinion is expressed) contained any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel does not know of any documents which are required to be filed as exhibits to the Registration Statement which have not been so filed.
Exhibit 1.2
UPO- Option to Purchase Units
THIS CERTIFIES THAT and its registered assigns (herein sometimes called the "Holder") is entitled to purchase from Activeworlds.com, Inc., a Delaware corporation (hereinafter called the "Company"), at the price and during the period as hereinafter specified, up to Units ("Units"), each Unit consisting of one share of the Company's Common Stock, par value $.001 per share ("Common Stock"), and one Series B Redeemable Common Stock Purchase Warrant of the Company (a "Warrant" and collectively, the "Warrants") to purchase one (1) share of Common Stock. Each Warrant to purchase one share of Common Stock entitles the holder to purchase one share of Common Stock at an exercise price of and /100 dollars ($ ) per share, subject to adjustment as provided in the Warrant Agreement, as hereinafter defined.
1. This option (this "Option"), together with options of like tenor, constituting in the aggregate options (the "Options") to purchase an aggregate of one hundred twenty thousand (120,000) Units, was originally issued pursuant to an underwriting agreement (the "Underwriting Agreement") between the Company and HD Brous & Co., Inc. ("Brous" or the "Underwriter") in connection with a public offering of one million two hundred thousand (1,200,000) Units, at an aggregate price of $10 for the Options. Except as specifically otherwise provided in this Option, the Common Stock and the Warrants issued upon exercise of the Option shall bear the same terms and conditions as described under the captions "Description of Securities" and "Underwriting" in the Company's Registration Statement on Form SB-2, File No. (the "Registration Statement") which was declared effective by the Securities and Exchange Commission (the "Commission") on , 1999 (the "Effective Date"). Pursuant to the Underwriting Agreement, Options to purchase one hundred twenty thousand (120,000) Units are being issued to the Underwriter and/or selected dealers. The Holder shall have registration rights under the Securities Act of 1933, as amended (the "Securities Act"), for this Option, the Units
issuable upon exercise of this Option, the Common Stock and the Warrants included in the Units issuable upon exercise of this Option and the shares of Common Stock issuable upon exercise of the Warrants, as more fully described in Paragraph 7 of this Option. The Warrants issuable upon exercise of this Option shall be issued pursuant to the warrant agreement (the "Warrant Agreement") dated as of , 1999, between the Company and American Stock Transfer & Trust Company, as warrant agent.
2. During the four-year period commencing one year from the Effective Date until 5:30 P.M., New York City time, on , 2004, inclusive (the "Term"), the Holder shall have the option to purchase the Units pursuant to this Option at a price of and /100 dollars ($ ) per Unit (the "Initial Exercise Price"), representing 120% of the initial public offering price of the Units offered pursuant to the Registration Statement.
3. This Option may be exercised at any time during the Term, in whole or in part, by the surrender of this Option (with the purchase form at the end of this Option properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) accompanied by payment to the Company of the Option Exercise Price, as hereinafter defined, for the number of Units specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any, and delivery to the Company of a duly executed agreement (an "Assumption Agreement"), which may be incorporated in the purchase form, signed by the person(s) designated in the purchase form as the person in whose name the underlying securities are to be issued (the "Purchaser") to the effect that such person(s) agree(s) to be bound by the provisions of Paragraphs 8(b), (c) and (d) of this Option. This Option shall be deemed to have been exercised, in whole or in part to the extent specified in said purchase form, immediately prior to the close of business on the date this Option is surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 3, and the person or persons in whose name or names the certificates for shares of Common Stock and Warrants shall be issuable upon such exercise shall become the holder or holders of record of such Common Stock and Warrants at that time and date. The Common Stock and Warrants and the certificates for the Common Stock and Warrants so purchased shall be delivered to the Holder or other Purchaser
within a reasonable time, not exceeding ten (10) days, after this Option shall have been so exercised; provided, that the Company shall not be required to deliver certificates for the securities unless the Purchaser shall have delivered the Assumption Agreement to the Company. If the Option is exercised subsequent to expiration or redemption of the Warrants (including any extensions thereof), the Holder of the Option shall exercise the Warrants contemporaneously with the exercise of the Option.
4. Neither this Option nor the Common Stock or Warrants comprising the Units issuable upon exercise of this Option nor the Common Stock issuable upon exercise of such Warrants shall be transferred, sold, assigned, or hypothecated during the one-year period commencing on the Effective Date, except that such securities may be transferred during such period to successors of the Holder, and may be assigned in whole or in part to any person who is an officer of the Underwriter, a member of the underwriting or selling group or any officer or partner of a member of the underwriting or selling group. Any person who is a permitted transferee may transfer the Option by will or trust or pursuant to the laws of descent and distribution. Commencing one year from the Effective Date, this Option and the securities issuable upon exercise of this Option may be transferred without restriction as long as such transfer is in compliance with applicable Federal and state securities laws. Any such assignment during such period shall be effected by the Holder executing the form of assignment at the end of this Option and surrendering this Option for cancellation at the office of the Company or other office or agency as provided in Paragraph 3 of this Agreement accompanied by a certificate (signed by an officer of the Holder if the Holder is a corporation), stating that each transferee is a permitted transferee under this Paragraph 4; whereupon the Company shall issue, in the name or names specified by the Holder (including the Holder) a new Option or Options of like tenor and representing in the aggregate rights to purchase the same number of Units as are purchasable hereunder.
5. The Company covenants and agrees that all shares of Common Stock which are sold as part of the Units purchased pursuant to this Option, and all shares of Common Stock which may be issued upon exercise of the Warrants have been, and will be, duly authorized and, will, upon issuance, be duly and validly issued, fully paid and nonassessable and no personal
liability will attach to the holder thereof. The Company covenants and agrees that the Warrants which are issued as part of the Units purchased pursuant to this Option have been duly authorized and, when issued and delivered, will have been duly executed, issued and delivered and will constitute the valid and legally binding obligations of the Company enforceable in accordance with their terms. The Company further covenants and agrees that during the period within which this Option may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of this Option and that it will have authorized and reserved a sufficient number of shares of Common Stock for issuance upon exercise of the Warrants.
6. This Option shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.
7. (a) The Company shall advise the Holder, whether the Holder holds this Option or has exercised this Option and holds Units or any of the underlying securities, as hereinafter defined, by written notice (certified or registered mail) at least twenty (20) days prior to the filing of any post-effective amendment to the Registration Statement or of any new registration statement or post-effective amendment thereto under the Securities Act covering any securities of the Company (other than a registration statement on Form S-8, S-4 or subsequent similar forms), and will during the term of the Option and for a period of two years thereafter, upon the request of the Holder, at the Company's cost and expense, include in any such post-effective amendment (if permitted by law) or registration statement, such information as may be required to permit a public offering of all or any of the Units underlying this Option, the Common Stock or Warrants issued as part of the Units, or the Common Stock issuable upon the exercise of the Warrants (collectively "underlying securities"). In connection with any such registration statement, the Company shall supply prospectuses, use its best efforts to qualify any of the described securities for sale in such states as such Holder reasonably designates and furnish indemnification in the manner provided in Paragraph 8 of this Option. The Holder(s) participating in any such registration shall furnish information and indemnification as set forth in said Paragraph 8.
(b) In connection with any underwritten public offering relating solely to an offering of the Company's securities by the Company, the Holder will agree to defer any sale of such securities for up to ninety (90) days from the effective date of the applicable registration statement, unless the applicable registration statement is filed pursuant to Paragraph 7(c) of this Option, provided that the underwriter or managing underwriter has requested such deferral on the grounds that the offering by the Company would be materially adversely affected by the earlier sale of such securities and the Company agrees to keep the registration statement current for nine (9) months after the effective date of the registration statement or such longer period as such registration statement is otherwise being kept effective. This Paragraph 7(b) shall not be applicable with respect to any registration statement filed pursuant to Paragraph 7(c) of this Option.
(c) If any majority holder (as defined below) shall give notice to the Company at any time to the effect that such holder desires to register under the Securities Act the Units or any of the underlying securities under such circumstances that a public distribution (within the meaning of the Securities Act) of any such securities will be involved then the Company will promptly, but no later than thirty (30) business days after date such notice is given (the "Notice Date"), time being of the essence, file a post-effective amendment to the current Registration Statement or a new registration statement pursuant to the Securities Act, to the end that the Units and/or any of the underlying securities, as the Holder shall determine, may be publicly sold under the Securities Act as promptly as practicable thereafter and the Company will use its best efforts to cause such registration to become effective; provided, that such holder shall furnish the Company with appropriate written information as to the Holder and the proposed plan of distribution and indemnification as set forth in Paragraph 8. The majority holder may, at its option, request the filing of a post-effective amendment to the Registration Statement or a new registration statement under the Securities Act on two occasions during the term of the Option. Within ten (10) business days after receiving any such notice pursuant to this Paragraph 7(c), the Company shall give notice to the other Holders of the Options, advising that the Company is proceeding with such post-effective amendment or registration statement and offering to include therein the Units and/or the underlying securities of the other Holders, provided that they shall furnish the Company with such appropriate information (relating to the intentions of such holders) in connection therewith as the Company shall request in writing. The costs and expense of the
first such post-effective amendment or new registration statement shall be borne by the Company, except that each Holder shall bear the fees of his own counsel and/or accountants and any underwriting discounts or commissions applicable to any of the securities sold by him. The costs and expenses of the second such registration statement shall be borne by the Holders. The Company will maintain and keep such registration statement current under the Securities Act for a period of at least nine (9) months from the effective date of such registration statement. The Company shall supply prospectuses, use its best efforts to qualify any of the described securities for sale in such states as such holder reasonably designates and furnish indemnification in the manner provided in Paragraph 8 of this Agreement.
(d) If, on the date of receipt by the Company of notice from any majority holder requesting registration of Units and/or any of the underlying securities pursuant to Paragraph 7(c) of this Option, the Company has previously notified the Holder pursuant to Paragraph 7(a) of this Option that the Company intends to file a post-effective amendment to the Registration Statement or a new registration statement under the Securities Act covering any securities of the Company and offering to include the Units and/or the underlying securities of the Holder in such Registration Statement or provides notice to the Holder pursuant to Paragraph 7(a) of this Option within seven (7) days after receipt of such notice from any majority holder, the Holder agrees that the demand registration request shall be withdrawn and that if he so elects, he may participate in the Registration Statement filed by the Company pursuant to Paragraph 7(a) of this Option; provided that (x) the Registration Statement or post-effective amendment to the Registration Statement covering the Holder's Units and/or underlying securities is filed within sixty (60) days and declared effective within one hundred fifty (150) days after the earlier of the date of such notice to the Company from the majority holder pursuant to Paragraph 7(c) or the date of such notice to the Holder from the Company pursuant to Paragraph 7(a); and (y) the majority holder will not be deemed to have exercised any demand registration right pursuant to Paragraph 7(c) of this Option.
(e) The term "majority holder" as used in this Paragraph 7 shall mean the holder of at least a majority of the Common Stock (including the Common Stock issued or issuable upon exercise of the Warrants) for which the Options (considered in the aggregate) are exercisable and shall include any owner or combination of owners of such securities, which ownership shall be calculated by determining the number of shares of Common Stock held by such owner or owners
resulting from the exercise of any Option after giving effect to any stock dividend, split, reverse split or other recapitalization, the number of shares of Common Stock issuable upon exercise of any unexercised Option, the number of shares of Common Stock issuable upon exercise of any then outstanding Warrants issued upon exercise of any Option, and the number of shares of Common Stock issuable upon exercise of any Warrants issuable upon exercise of any Option.
(f) In connection with any registration described in Paragraph 7(a) of this Option, the Holder may request inclusion of the Option in such registration statement; provided, however, that the Company shall not be required to maintain any public market in the Options.
8. (a) Whenever, pursuant to Paragraph 7 of this Option, a registration statement relating to this Option or any underlying securities is filed under the Securities Act or is amended or supplemented, the Company will indemnify and hold harmless each holder of the securities covered by such registration statement, amendment or supplement (such holder being hereinafter called the "Distributing Holder"), and each person, if any, who controls (within the meaning of the Securities Act) the Distributing Holder, and each underwriter (within the meaning of the Securities Act) of such securities and each person, if any, who controls (within the meaning of the Securities Act) any such underwriter, against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder, any such controlling person or any such underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or action in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arise out of or are based upon the omission to state therein a 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; and will reimburse the Distributing Holder and each such controlling person and underwriter for any legal or other expenses reasonably incurred by the Distributing Holder or such controlling person or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder or for any other Distributing Holder, expressly for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said registration statement and such amendments and supplements thereto, each person, if any, who controls the Company (within the meaning of the Securities Act) and each underwriter participating in such offering (within the meaning of the Securities Act) and each person, if any, who controls (within the meaning of the Securities Act) any such underwriter, against any losses, claims, damages or liabilities to which the Company or any such director, officer, controlling person or underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in said registration statement, said preliminary prospectus, said final prospectus, or said amendment or supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder expressly for use in the preparation thereof; and will reimburse the Company or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this Paragraph 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof.
(d) In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, join with any other indemnifying party similarly notified to assume the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Paragraph 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, that if the defendants in any such action include both the indemnified party and the indemnifying party and either (i) the indemnifying party or parties agree, or (ii) representation of both the indemnifying party or parties and the indemnified party or parties by the same counsel is inappropriate under applicable standards of professional conduct because of actual or potential conflicting interests between them, then the indemnified party or parties shall have the right to select separate counsel to assume such legal defense and to otherwise participate in the defense of such action. The indemnifying party will not be liable to such indemnified party under this Paragraph 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed counsel in connection with the assumption of legal defenses in accordance with the proviso to the immediately preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel approved by the indemnifying party for all indemnified parties), (ii) the indemnifying party shall not have employed counsel to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall an indemnifying party be liable under this Paragraph 8 for any settlement, effected without its written consent, which consent shall not be unreasonably withheld, of any claim or action against an indemnified party.
9. The number and kind of securities purchasable upon the exercise of the Option shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided, except that, unless the Company elects to issue additional Warrants pursuant to Paragraph 9(i) of the Warrant Agreement, the provisions of this Paragraph 9 shall not apply to the Warrants issuable upon exercise of this Option. The number and kind of securities purchasable upon exercise of the Option shall be subject to adjustment (with no change in the Option Exercise Price) as follows:
(a) In case the Company shall pay a dividend or make a distribution or a split with respect to its shares of Common Stock in shares of Common Stock, subdivide or reclassify its outstanding Common Stock into a greater number of shares, or combine or reclassify its outstanding Common Stock into a smaller number of shares or otherwise effect a reverse split, the number of shares of Common Stock issuable upon exercise of this Option shall, as of the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification, be proportionately adjusted so that the Holder of any Option exercised after such date shall be entitled to receive the aggregate number and kind of shares which, if such Option had been exercised immediately prior to such time, he would have owned upon such exercise and such shares as he would have been entitled to receive upon such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed in this Paragraph 9(a) shall occur.
(b) No adjustment in the Option Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($.05) in such price; provided, however, that any adjustments which by reason of this Paragraph 9(b) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Paragraph 9 shall be made to the nearest cent or to the nearest one-hundredth of a share of Common Stock as the case may be. Anything in this Paragraph 9 to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Option Exercise Price, in addition to those required by this Paragraph 9, as it in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, reclassification or combination of Common Stock, issuance of warrants to purchase Common Stock or distribution of evidences of indebtedness or other assets (excluding cash dividends) referred to hereinabove in this Paragraph 9 hereafter made by the Company to the holders of its Common Stock shall not result in any tax to the holders of its Common Stock or securities convertible into Common Stock.
(c) Whenever the Option Exercise Price is adjusted, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Option Exercise Price and adjusted number of shares of Common Stock issuable upon exercise of the Option as to each
Unit to be mailed to the Holders at their last address appearing in the Option register maintained by the Company, and shall cause a certified copy thereof to be mailed to its transfer agent. The Company may retain a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Paragraph 9, and a certificate signed by such firm shall be evidence of the correctness of such adjustment.
(d) In the event that at any time, as a result of an adjustment made pursuant to Paragraph 9(a) of this Option, the Holder of any Option thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Option shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Paragraph 9.
(e) Irrespective of any adjustments in the Option Exercise Price or the number or kind of shares purchasable upon exercise of Options, Options theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Options initially issuable pursuant to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its duly authorized officers this day of , 1999.
ACTIVEWORLDS.COM, INC.
Attest:
PURCHASE FORM
(To be signed only upon exercise of Option)
____________.
Dated: , 19 .
___________________________
By: _______________________
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Address: ____________________________________
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers unto the right to purchase Units represented by the foregoing Option to the extent of Units, and appoints attorney to transfer such rights on the books of ACTIVEWORLDS.COM, INC. with full power of substitution in the premises.
Dated: , 19 .
By: ____________________________
Signature Medallion Guaranteed
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
VANGUARD ENTERPRISES, INC.
AND
CIRCLE OF FIRE STUDIOS, INC.
TABLE OF CONTENTS
1. Plan of Reorganization......................................1
2. Exchange of Shares..........................................1
3. Pre-Closing Events..........................................2
4. Exchange of Securities......................................2
5. Other Events Occurring at Closing...........................3
6. Delivery of Shares..........................................4
7. Representations of Circle Stockholders......................4
8. Representatiions of Circle..................................4
9. Representations of Vanguard and Dixon.......................6
10. Closing....................................................8
11. Conditions Precedent to the Obligations of Circle..........8
12. Conditions Precedent to the Obligations of Vanguard ......10
13. Indemnification...........................................10
14. Nature and Survival of Representations....................11
15. Documents at Closing......................................11
16. Finder's Fees.............................................12
17. Miscellaneous.............................................12
Signature Page..........................................................13
Exhibit A - Circle Stockholder Schedule
Exhibit B - Amendment to Articles of Incorporation
Exhibit C - Investment Letter
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the "Agreement") is entered into effective as of this day of January, 1999, by and among Vanguard Enterprises, Inc., a Delaware corporation (hereinafter "Vanguard"); Lynn Dixon, the principal shareholder of Vanguard (hereinafter "Dixon"); Circle of Fire Studios, Inc., a Nevada corporation (hereinafter "Circle"), and the owners of all the outstanding shares of common stock of Circle (hereinafter the "Circle Stockholders").
RECITALS:
WHEREAS, the Circle Stockholders own all of the issued and outstanding common stock of Circle which comprises 3,535,907 shares (the "Circle Common Stock"). Vanguard desires to acquire the Circle Common Stock solely in exchange for voting common stock of Vanguard, making Circle a wholly-owned subsidiary of Vanguard; and
WHEREAS, the Circle Stockholders (as set forth on the attached Exhibit "A") desire to acquire voting common stock of Vanguard in exchange for the Circle Common Stock, as more fully set forth herein.
NOW THEREFORE, for the mutual consideration set out herein and other good and valuable consideration, the legal sufficiency of which is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Reorganization. It is hereby agreed that all of the Circle Common Stock shall be acquired by Vanguard in exchange solely for Vanguard common voting stock (the "Vanguard Shares"). It is the intention of the parties hereto that all of the issued and outstanding shares of capital stock of Circle shall be acquired by Vanguard in exchange solely for Vanguard common voting stock and that this entire transaction qualify as a corporate reorganization under Section 368(a)(1)(B) and/or Section 351 of the Internal Revenue Code of 1986, as amended, and related or other applicable sections thereunder.
2. Exchange of Shares. Vanguard and Circle Stockholders agree that on the Closing Date or at the Closing as hereinafter defined, the Circle Common Stock shall be delivered at Closing to Vanguard in exchange for the Vanguard Shares, after giving effect to a 2 to 1 reverse stock split (the "Vanguard Reverse Stock Split") as to all presently outstanding shares of Vanguard common stock, as follows:
(a) At Closing, Vanguard shall, subject to the conditions set forth herein, issue an aggregate of 8,149,816 shares of Vanguard common stock (after giving effect to the Vanguard Reverse Stock Split) for immediate delivery to the Circle Stockholders in exchange for Vanguard Shares.
(b) Each Circle Stockholder shall execute this Agreement or a written consent to the exchange of their Circle Common Stock for Vanguard Shares.
(c) Unless otherwise agreed by Vanguard and Circle this transaction shall close only in the event Vanguard is able to acquire at least 80% of the outstanding Circle Common Stock; however, it is the intent of the parties to have Vanguard acquire all of the Circle Common Stock.
3. Pre-Closing Events. The Closing is subject to the completion of the following:
(a) Vanguard shall have authorized 50,000,000 shares of $.001 par value common stock and 500,000 shares of $.001 par value preferred stock. The preferred stock shall be subject to issuance in such series and with such rights, preferences and designations as determined in the sole discretion of the board of directors.
(b) Vanguard shall have effectuated the Vanguard Reverse Stock Split at or prior to Closing, and shall have 500,000 shares of its common stock issued and outstanding and no other shares of capital stock issued or outstanding.
(c) Vanguard shall demonstrate to the reasonable satisfaction of Circle that it has no material assets and no liabilities contingent or fixed.
(d) Circle shall demonstrate to the reasonable satisfaction of Vanguard that it has resolved and settled all ongoing litigation with former owners of Circle re ownership and use of assets of Circle and that Circle has clear title to its intellectual property.
4. Exchange of Securities. As of the Closing Date each of the following shall occur:
(a) All shares of Circle Common Stock issued and outstanding immediately prior to the Closing Date shall be exchanged for the Vanguard Shares (up to an aggregate amount of 8,149,816 Vanguard Shares to be delivered at Closing). All such outstanding shares of Circle Common Stock shall be deemed, after Closing, to be owned by Vanguard. The holders of such certificates previously evidencing shares of Circle Common Stock outstanding immediately prior to the Closing Date shall cease to have any rights with respect to such shares of Circle Common Stock except as otherwise provided herein or by law;
(b) Any shares of Circle Common Stock held in the treasury of Circle immediately prior to the Closing Date shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto;
(c) The 500,000 shares of Vanguard common stock previously issued and outstanding prior to the Closing, after giving effect to the Vanguard Reverse Split, will remain outstanding.
5. Other Events Occurring at Closing. At Closing, the following shall be accomplished:
(a) Vanguard shall file an amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware in substantially the form attached hereto as Exhibit "B" effecting an amendment to its Certificate of Incorporation to reflect a name change Activeworlds.Com, Inc. as set forth in the attached Exhibit "B".
(b) The resignation of the existing Vanguard officer and director and appointment of new officers and directors as directed by Circle.
(c) Vanguard shall have completed a limited offering under Regulation D, Rule 504, as promulgated by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended, of up to 2,000,000 (but no less than 550,000 shares) shares of its common stock at $.50 per share. The gross proceeds of this offering (the "Vanguard Financing") shall be up to $1,000,000, (but no less than $275,000) which amount, less agreed upon costs, shall be delivered to the control of new management of Vanguard at Closing in good funds or shall be represented by the conversion of previous loans to Circle arranged for by Baytree. The Vanguard Financing shall have been completed in compliance with all applicable state and federal securities laws and the securities sold shall be delivered at Closing to the investors in the Vanguard Financing. Persons who have loaned money to Circle, up to $1,000,000, shall be given the opportunity to convert the principal of said loans to the purchase of shares in the limited offering prior to Closing upon the same terms as other investors in the limited offering.
(d) It is recognized by the parties hereto that Circle entered into an agreement including all amendments thereto (the "Baytree Agreement" originally dated October 30 1998, with Baytree Capital Associates, LLC ("Baytree") wherein Baytree agreed to identify a public company to be involved in a "reverse merger" with Circle, and that Vanguard is the public company agreed to by Baytree and Circle. Under said Baytree Agreement, at Closing of the transactions described herein, Vanguard shall issue 20,000 shares of its common stock (after given effect to the Vanguard Reverse Stock Split) to Baytree for each $100,000 (or part thereof above the minimum of $275,000) raised in the Vanguard Financing. These shares are deemed to be covered by the defined term "Vanguard Shares" as set forth herein for purposes of all representations and warranties of Vanguard and the legal opinion given on behalf of Vanguard herein. Out of the proceeds of the Vanguard Financing (as further defined herein) there shall be paid at Closing, a non-accountable expense allowance of $30,000 to Baytree and the fees and reasonable disbursements of Baytree and Acquiror's legal counsel not to exceed $30,000.00 (to be paid from the proceeds of the Vanguard Financing). Furthermore, Vanguard recognizes and hereby assumes, at Closing, the obligations of Circle set forth in the Baytree Agreement including the obligation to register shares of its common stock issued to Baytree hereunder at the request of Baytree in accordance with the express terms and conditions of said Baytree Agreement including "Piggyback" registration rights and further acknowledges its obligation to issue stock under the terms of the Baytree Agreement for six months after any initial Closing in the event the entire Financing has not been completed at the initial Closing and additional amounts are thereafter financed, at the discretion of Circle, pursuant to the terms of the Baytree Agreement.
(e) Vanguard shall issue warrants to certain warrantholders of Circle (as set forth on Exhibit "A") in exchange for outstanding warrants of Circle. The Vanguard warrants issued shall cover an aggregate of 484,023 post split shares exercisable at varying prices and subject to terms similar to the Circle options for which they are being exchanged.
(f) Vanguard shall adopt a Stock Option Plan at Closing to include up to 1,000,000 shares of its common stock. The Plan shall include "incentive" stock options under Section 422 of the Internal Revenue Code of 1986, as amended and other options and similar rights. Vanguard shall grant options under said plan to employees and others, at Closing, exercisable at $.50 per share, as designed by Circle subject to the reasonable approval of Vanguard.
6. Delivery of Shares. On or as soon as practicable after the Closing Date, Circle will use its best efforts to cause the Circle Stockholders to surrender certificates for cancellation representing their shares of Circle Common Stock, against delivery of certificates representing the Vanguard Shares for which the shares of Circle Common Stock are to be exchanged at Closing.
7. Representations of Circle Stockholders. Each Circle Stockholder hereby represents and warrants each only as to its own Circle Common Stock, effective this date and the Closing Date as follows:
(a) Except as may be set forth in Exhibit "A", the Circle Common Stock is free from claims, liens, or other encumbrances, and at the Closing Date said Circle Stockholder will have good title and the unqualified right to transfer and dispose of such Circle Common Stock.
(b) Said Circle Stockholder is the sole owner of the issued and outstanding Circle Common Stock as set forth in Exhibit "A";
(c) Said Circle Stockholder has no present intent to sell or dispose of the Vanguard Shares and is not under a binding obligation, formal commitment, or existing plan to sell or otherwise dispose of the Vanguard Shares.
8. Representations of Circle. Circle hereby represents and warrants as follows, which warranties and representations shall also be true as of the Closing Date:
(a) Except as noted on Exhibit "A", the Circle Stockholders listed on the attached Exhibit "A" are the sole owners of record and beneficially of the issued and outstanding common stock of Circle.
(b) Circle has no outstanding or authorized capital stock, warrants, options or convertible securities other than as described in the Circle Financial Statements or in Exhibit "A", attached hereto.
(c) The unaudited financial statements as of and for the periods ended December 31, 1997 and October 27, 1998, which have been (or will be prior dissemination of an Information Statement by Vanguard) delivered to Vanguard (hereinafter referred to as the "Circle Financial Statements") are complete and accurate and fairly present the financial condition of Circle as of the dates
thereof and the results of its operations for the periods covered. There are no material liabilities or obligations, either fixed or contingent, not disclosed in the Circle Financial Statements or in any exhibit thereto or notes thereto other than contracts or obligations in the ordinary course of business; and no such contracts or obligations in the ordinary course of business constitute liens or other liabilities which materially alter the financial condition of Circle as reflected in the Circle Financial Statements. Circle has good title to all assets shown on the Circle Financial Statements subject only to dispositions and other transactions in the ordinary course of business, the disclosures set forth therein and liens and encumbrances of record. The Circle Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto) and fairly present the financial position of Circle as of the dates thereof and the results of its operations and changes in financial position for the periods then ended.
(d) Since the date of the Circle Financial Statements, there have not been any material adverse changes in the financial position of Circle except changes arising in the ordinary course of business, which changes will in no event materially and adversely affect the financial position of Circle.
(e) Circle is not a party to any material pending litigation or, to its best knowledge, any governmental investigation or proceeding, not reflected in the Circle Financial Statements, and to its best knowledge, no material litigation, claims, assessments or any governmental proceedings are threatened against Circle.
(f) Circle is in good standing in its jurisdiction of incorporation, and is in good standing and duly qualified to do business in each jurisdiction where required to be so qualified except where the failure to so qualify would have no material negative impact on Circle.
(g) Circle has (or, by the Closing Date, will have filed) all material tax, governmental and/or related forms and reports (or extensions thereof) due or required to be filed and has (or will have) paid or made adequate provisions for all taxes or assessments which have become due as of the Closing Date.
(h) Circle has not materially breached any material agreement to which it is a party. Circle has previously given Vanguard copies or access thereto of all material contracts, commitments and/or agreements to which Circle is a party including all relationships or dealings with related parties or affiliates.
(i) Circle has no subsidiary corporations except as described in writing to Vanguard.
(j) Circle has made all material corporate financial records, minute books, and other corporate documents and records available for review to present management of Vanguard prior to the Closing Date, during reasonable business hours and on reasonable notice.
(k) The execution of this Agreement does not materially violate or breach any material agreement or contract to which Circle is a party and has been duly authorized by all appropriate and necessary corporate action under Delaware of other applicable law and Circle, to the extent required, has obtained all necessary approvals or consents required by any agreement to which Circle is a party.
(l) All disclosure information regarding Circle which is to be set forth in disclosure documents of Vanguard or otherwise delivered to Vanguard by Circle for use in connection with the transaction (the "Acquisition") described herein is true, complete and accurate in all material respects.
9. Representations of Vanguard and Dixon. Vanguard, and Dixon to the best of his knowledge, hereby jointly and severally represent and warrant as follows, each of which representations and warranties shall continue to be true as of the Closing Date:
(a) As of the Closing Date, the Vanguard Shares, to be issued and delivered to the Circle Stockholders hereunder will, when so issued and delivered, constitute, duly authorized, validly and legally issued shares of Vanguard common stock, fully-paid and nonassessable. Vanguard shall have completed its reverse stock split wherein each holder of Vanguard Shares shall have received one share of the Vanguard Shares for each two Vanguard Shares previously held. The total number of Vanguard Shares outstanding shall be 500,000. No shares of Vanguard's preferred stock, $0.001 shall be outstanding.
(b) Vanguard has the corporate power to enter into this Agreement and to perform its respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of Vanguard. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which Vanguard is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to Vanguard or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of the Certificate of Incorporation or by-laws of Vanguard.
(c) Vanguard has delivered to Circle a true and complete copy of its audited financial statements for the years ended December 31, 1996 and 1997, and unaudited financial statements for the nine months ended September 30, 1998, (the "Vanguard Financial Statements"). The Vanguard Financial Statements are complete, accurate and fairly present the financial condition of Vanguard as of the dates thereof and the results of its operations for the periods then ended. There are no material liabilities or obligations either fixed or contingent not reflected therein. The Vanguard Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of Vanguard as of the dates thereof and the results of its operations and changes in financial position for the periods then ended.
(d) Since September 30, 1998, there have not been any material adverse changes in the financial condition of Vanguard except with regard to disbursements to pay reasonable and ordinary expenses in connection with maintaining its corporate status and pursuing the matters contemplated in this Agreement. Prior to Closing, all accounts payable and other liabilities of Vanguard shall be paid and satisfied in full and Vanguard shall have no liabilities either contingent or fixed.
(e) Vanguard is not a party to or the subject of any pending litigation, claims, or governmental investigation or proceeding not reflected in the Vanguard Financial Statements or otherwise disclosed herein, and there are no lawsuits, claims, assessments, investigations, or similar matters, to the best knowledge of Dixon, threatened or contemplated against or affecting Vanguard, its management or its properties.
(f) Vanguard is duly organized, validly existing and in good standing under the laws of the State of Delaware; has the corporate power to own its property and to carry on its business as now being conducted and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material negative impact on it.
(g) Vanguard has filed all federal, state, county and local income, excise, property and other tax, governmental and/or related returns, forms, or reports, which are due or required to be filed by it prior to the date hereof, except where the failure to do so would have no material adverse impact on Vanguard, and has paid or made adequate provision in the Vanguard Financial Statements for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns or pursuant to any assessments received. Vanguard is not delinquent or obligated for any tax, penalty, interest, delinquency or charge.
(h) There are no existing options, calls, warrants, preemptive rights or commitments of any character relating to the issued or unissued capital stock or other securities of Vanguard, except as contemplated in this Agreement.
(i) The corporate financial records, minute books, and other documents and records of Vanguard have been made available to Circle prior to the Closing and shall be delivered to new management of Vanguard at Closing.
(j) Vanguard has not breached, nor is there any pending, or to the knowledge of management, any threatened claim that Vanguard has breached, any of the terms or conditions of any agreements, contracts or commitments to which it is a party or by which it or its assets are is bound. The execution and performance hereof will not violate any provisions of applicable law or any agreement to which Vanguard is subject. Vanguard hereby represents that it has no business operations or material assets and it is not a party to any material contract or commitment other than appointment documents with its transfer agent, and that it has disclosed to Circle all relationships or dealings with related parties or affiliates.
(k) Vanguard common stock is currently approved for quotation on the OTC Bulletin Board under the symbol "VANG" and there are no stop orders in effect with respect thereto.
(l) All information regarding Vanguard which has been provided to Circle or otherwise disclosed in connection with the transactions contemplated herein, is true, complete and accurate in all material respects. Vanguard and Dixon specifically disclaim any responsibility regarding disclosures as to Circle, its business or its financial condition.
10. Closing. The Closing of the transactions contemplated herein shall take place on such date (the "Closing") as mutually determined by the parties hereto when all conditions precedent have been met and all required documents have been delivered, which Closing is expected to take place on or about January 21, 1999, but no later than February 12, 1999, unless extended by mutual consent of all parties hereto. The "Closing Date" of the transactions described herein (the "Acquisition"), shall be that date on which all conditions set forth herein have been met and the Vanguard Shares are issued in exchange for the Circle Common Stock.
11. Conditions Precedent to the Obligations of Circle. All obligations of Circle under this Agreement are subject to the fulfillment, prior to or as of the Closing and/or the Closing Date, as indicated below, of each of the following conditions:
(a) The representations and warranties by or on behalf of Dixon and Vanguard contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing and Closing Date as though such representations and warranties were made at and as of such time.
(b) Vanguard shall have performed and complied with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied with or executed and delivered by it prior to or at the Closing.
(c) On or before the Closing, the board of directors, and shareholders representing a majority interest the outstanding common stock of Vanguard, shall have approved in accordance with applicable state corporation law the execution and delivery of this Agreement and the consummation of the transactions contemplated herein.
(d) On or before the Closing Date, Vanguard shall have delivered to Circle certified copies of resolutions of the board of directors and shareholders of Vanguard approving and authorizing the execution, delivery and performance of this Agreement and authorizing all of the necessary and proper action to enable Vanguard to comply with the terms of this Agreement including the election of Circle's nominees to the Board of Directors of Vanguard and all matters outlined herein.
(e) The Acquisition shall be permitted by applicable law and Vanguard shall have sufficient shares of its capital stock authorized to complete the Acquisition.
(f) At Closing, the existing sole officer and director of Vanguard shall have resigned in writing from all positions as director and officer of Vanguard effective upon the election and appointment of the Circle nominees.
(g) At the Closing, all instruments and documents delivered to Circle and Circle Stockholders pursuant to the provisions hereof shall be reasonably satisfactory to legal counsel for Circle.
(h) The shares of restricted Vanguard capital stock to be issued to Circle Stockholders and in the Vanguard Financing at Closing will be validly issued, nonassessable and fully-paid under Delaware corporation law and will be issued in compliance with all federal, state and applicable corporation and securities laws.
(i) Circle and Circle Stockholders shall have received the advice of their tax advisor, if deemed necessary by them, as to all tax aspects of the Acquisition.
(j) Circle shall have received all necessary and required approvals and consents from required parties and its shareholders.
(k) Vanguard shall have completed at least $275,000 of the Vanguard Financing.
(l) At the Closing, Vanguard shall have delivered to Circle an opinion of its counsel dated as of the Closing to the effect that:
(i) Vanguard is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation;
(ii) This Agreement has been duly authorized, executed and delivered by Vanguard and is a valid and binding obligation of Vanguard enforceable in accordance with its terms;
(iii) Vanguard through its board of directors and stockholders has taken all corporate action necessary for performance under this Agreement;
(iv) The documents executed and delivered by Vanguard to Circle and Circle Stockholders hereunder are valid and binding in accordance with their terms and vest in Circle Stockholders, as the case may be, all right, title and interest in and to the Vanguard Shares to be issued pursuant to the terms hereof, and the Vanguard Shares when issued will be duly and validly issued, fully-paid and nonassessable;
(v) Vanguard has the corporate power to execute, deliver and perform under this Agreement;
(vi) Legal counsel for Vanguard is not aware of any liabilities, claims or lawsuits involving Vanguard;
12. Conditions Precedent to the Obligations of Vanguard. All obligations of Vanguard under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions:
(a) The representations and warranties by Circle and Circle Stockholders contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing as though such representations and warranties were made at and as of such time.
(b) Circle shall have performed and complied with, in all material respects, all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing;
(c) Circle shall deliver on behalf of the Circle Stockholders a letter commonly known as an "Investment Letter," signed by each of said shareholders, in substantially the form attached hereto as Exhibit "C", acknowledging that the Vanguard Shares are being acquired for investment purposes.
(d) Circle shall deliver an opinion of its legal counsel to the effect that:
(i) Circle is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material adverse impact on Circle;
(ii) This Agreement has been duly authorized, executed and delivered by Circle.
(iii) The documents executed and delivered by Circle and Circle Stockholders to Vanguard hereunder are valid and binding in accordance with their terms and vest in Vanguard all right, title and interest in and to the Circle Common Stock, which stock is duly and validly issued, fully-paid and nonassessable.
13. Indemnification. For a period of one year from the Closing, Vanguard and Dixon agree to jointly and severally indemnify and hold harmless Circle, and Circle agrees to indemnify and hold harmless Vanguard and Dixon, at all times after the date of this Agreement against and in respect of any liability, damage or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses including attorney's fees incident to any of the foregoing, resulting from any material misrepresentations made by an indemnifying party to an indemnified party, an indemnifying party's breach of covenant or warranty or an indemnifying party's nonfulfillment of any agreement hereunder, or from any material misrepresentation in or omission from any certificate furnished or to be furnished hereunder.
14. Nature and Survival of Representations. All representations, warranties and covenants made by any party in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby for one year from the Closing. All of the parties hereto are executing and carrying out the provisions of this Agreement in reliance solely on the representations, warranties and covenants and agreements contained in this Agreement and not upon any investigation upon which it might have made or any representation, warranty, agreement, promise or information, written or oral, made by the other party or any other person other than as specifically set forth herein.
15. Documents at Closing. At the Closing, the following documents shall be delivered:
(a) Circle will deliver, or will cause to be delivered, to Vanguard the following:
(i) a certificate executed by the President and Secretary of Circle to the effect that all representations and warranties made by Circle under this Agreement are true and correct as of the Closing, the same as though originally given to Vanguard on said date;
(ii) a certificate from the jurisdiction of incorporation of Circle dated at or about the Closing to the effect that Circle is in good standing under the laws of said jurisdiction;
(iii) Investment Letters in the form attached hereto as Exhibit "C" executed by each Circle Stockholder;
(iv) such other instruments, documents and certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement;
(v) certified copies of resolutions adopted by the shareholders and directors of Circle authorizing this transaction; and
(vi) all other items, the delivery of which is a condition precedent to the obligations of Vanguard as set forth herein.
(vii) the legal opinion required by Section 12(d) hereof.
(b) Vanguard will deliver or cause to be delivered to Circle:
(i) stock certificates representing the Vanguard Shares to be issued as a part of the stock exchange as described herein;
(ii) a certificate of the President of Vanguard, to the effect that all representations and warranties of Vanguard made under this Agreement are true and correct as of the Closing, the same as though originally given to Circle on said date;
(iii) certified copies of resolutions adopted by Vanguard's board of directors and Vanguard's Stockholders authorizing the Acquisition and all related matters described herein;
(iv) certificate from the jurisdiction of incorporation of Vanguard dated at or about the Closing Date that Vanguard is in good standing under the laws of said state;
(v) opinion of Vanguard's counsel as described in Section 11(l) above;
(vi) such other instruments and documents as are required to be delivered pursuant to the provisions of this Agreement;
(vii) resignation of the existing officer and director of Vanguard;
(viii) all corporate and financial records of Vanguard; and
(ix) all other items, the delivery of which is a condition precedent to the obligations of Circle, as set forth in Section 12 hereof.
16. Finder's Fees. Vanguard, represents and warrants to Circle, and Circle represents and warrants to Vanguard that neither of them, or any party acting on their behalf, has incurred any liabilities, either express or implied, to any "broker" of "finder" or similar person in connection with this Agreement or any of the transactions contemplated hereby other than the arrangements described in Section 5(d) hereof. In this regard, Vanguard, on the one hand, and Circle on the other hand, will indemnify and hold the other harmless from any claim, loss, cost or expense whatsoever (including reasonable fees and disbursements of counsel) from or relating to any such express or implied liability other than as disclosed herein.
17. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after the Closing Date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived in writing by the party to whom such compliance is owed.
(c) Amendment. This Agreement may be amended only in writing as agreed to by all parties hereto.
(d) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered in person or sent by prepaid first class registered or certified mail, return receipt requested.
(e) Headings. The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(g) Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware.
(h) Binding Effect. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns.
(i) Entire Agreement. This Agreement and the attached Exhibits constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof.
(j) Time. Time is of the essence.
(k) Severability. If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.
VANGUARD ENTERPRISES, INC.
By:___________________________________
Lynn Dixon, President and Secretary
CIRCLE OF FIRE STUDIOS, INC.
By: ______________________________ By: __________________________________
J.P. McCormick, Secretary Richard F. Noll, President
ASSOCIATED CORPORATE SERVICES SHAREHOLDERS OF CIRCLE OF FIRE
STUDIOS, INC.
By:_______________________________ ______________________________________
Richard F. Noll
__________________________________ ______________________________________
Richard Noll, Sr. J. P. McCormick
__________________________________ ______________________________________
Steve Lunstrum Ellen Noll
__________________________________ SCANDINAVIA ONLINE
Graham Evans
__________________________________ By: ______________________________
Nelson Crowle
__________________________________
Shamus Young
|
EXHIBIT "A"
To Agreement and Plan of Reorganization
List of Circle Stockholders
Circle Vanguard Shares to
Name Shares be Issued at Closing
---- ------ ---------------------
Richard F. Noll 1,641,500 3,783,449
J.P. McCormick 1,620,141 3,734,219
Ellen Noll 10,641 24,526
Scandinavia Online 67,000 154,427
Associated Corporate Services 50,000 115,244
Richard Noll, Sr. 18,000 41,488
Steve Lunstrum 5,000 11,524
Graham Evans 50,000 115,244
Nelson Crowle 8,625 19,879
Shamus Young 65,000 149,816
|
List of Circle Option Holders
Circle Shares Circle Exercise Number of Vanguard Exercise
Name Under Option Price Shares under Option Price
---- ------------- --------------- -------------------- --------
Roland Vilett 25,000 $1.00 57,622 $.43
25,000 $1.00 57,622 $.43
Jeff Schwartz 150,000 $1.00 345,730 $.43
Mandee Tatum 10,000 $1.00 23,049 $.43
------- -------
210,000 484,023
======= =======
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EXHIBIT "B"
To Agreement and Plan of Reorganization
Form of Amendment to Certificate of Incorporation
VANGUARD ENTERPRISES, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Vanguard Enterprises, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
1st: That by unanimous written consent of the Board of Directors of
Vanguard Enterprises, Inc., a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and proposing approval by the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the FIRST article thereof so that, as amended, said Article shall read as set forth below:
FIRST: The name of this corporation shall be:
Activeworlds.com, Inc.
2nd: The Corporation has effectuated a 2 to 1 reverse stock split effective with the commencement of business on January 22, 1999, as to shares outstanding at the opening of business on January 21, 1999. Said reverse split reduces the outstanding shares from 1,000,000 shares to 500,000 shares but does not reduce the Corporation's authorized shares of common stock.
3rd: That thereafter, pursuant to resolution of its Board of Directors, a written approval by majority consent of the stockholders of said Corporation was duly received in accordance with the General Corporation law of the State of Delaware, by which consent the necessary number of shares as required by statute were voted in favor of the amendment.
4th: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, and the necessary number of shares as required by statute were voted in favor of the amendment.
IN WITNESS WHEREOF, said Vanguard Enterprises, Inc., has caused this certificate to be signed by Lynn Dixon, its President and its Secretary-Treasurer, this day of January, 1999.
EXHIBIT "C"
To Agreement and Plan of Reorganization
Form of Investment Letter
INVESTMENT LETTER
TO THE BOARD OF DIRECTORS OF VANGUARD ENTERPRISES, INC. ("Corporation")
The undersigned hereby represents to the Corporation, that (1) the shares of the Corporation's common stock (the "Securities") which are being acquired by the undersigned are being acquired for his own account and for investment and not with a view to the public resale or distribution thereof; (2) the undersigned will not sell, transfer or otherwise dispose of the securities except in compliance with the Securities Act of 1933, as amended (the "Act"); and (3) he is aware that the Securities are "restricted securities" as that term is defined in Rule 144 or the General Rules and Regulations under the Act.
The undersigned acknowledges that he has been afforded access to disclosure documents and information regarding the Corporation as requested by the undersigned.
The undersigned further acknowledges that he has had an opportunity to ask questions of and receive answers from duly designated representatives of the Corporation concerning the terms and conditions pursuant to which the Securities are being purchased. The undersigned acknowledges that he has been afforded an opportunity to examine such documents and other information which he has requested for the purpose of verifying the information set forth in the documents referred to above.
The undersigned acknowledges and understands that the Securities are unregistered and must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available.
The undersigned further acknowledges that he is fully aware of the applicable limitations on the resale of the Securities. These restrictions for the most part are set forth in Rule 144. The Rule permits sales of "restricted securities" upon compliance with the requirements of such Rule. If the Rule is available to the undersigned, the undersigned may make only routine sales of securities, in limited amounts, in accordance with the terms and conditions of that Rule.
The Company is the only person which may register its Securities under the Act and it currently is not contemplating registering any of its Securities. Furthermore, the Company has not made any representations, warranties or covenants to the undersigned regarding registration of the Securities or compliance with any exemption under the Act.
By reason of my knowledge and experience in financial and business matters in general, and investments in particular, I am capable of evaluating the merits and risks of an investment by me in the Securities.
I am capable of bearing the economic risks of an investment in the Securities. I fully understand the speculative nature of the Securities.
My present financial condition is such that I am under no present or contemplated future need to dispose of any portion of the Securities to satisfy any existing or contemplated undertaking, need, or indebtedness.
Any and all certificates representing the Securities, and any and all securities issued in replacement thereof or in exchange therefor, shall bear the following legend, which the undersigned has read and understands:
The shares represented by this Certificate have not been registered under the Securities Act of 1933 (the "Act") and are "restricted securities" as that term is defined in Rule 144 under the Act. The shares may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company.
The undersigned further agrees that the Corporation shall have the right to issue stop-transfer instructions to its transfer agent and acknowledges that the Corporation has informed the undersigned of its intention to issue such instructions.
Very truly yours,
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
VANGUARD ENTERPRISES, INC.
FIRST. The name of this corporation shall be:
VANGUARD ENTERPRISES, INC.
SECOND. Its registered office in the State of Delaware is to be located at 1013 Centre Road, in the City of Wilmington, County of New Castle and its registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is authorized to issue is:
Fifty Five Million (55,000,000) shares of which Fifty Million (50,000,000) shares with a par value of ($.001) each, amounting to Fifty Thousand Dollars ($50,000.00) are Common Stock and Five Million (5,000,000) shares with a par value of ($.001) each, amounting to Five Thousand Dollars ($5,000.00) are Preferred Stock.
FIFTH. The name and address of the incorporator is as follows:
Maryann Martone
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
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repeal the by-laws.
SEVENTH. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named, has executed, signed and acknowledged this certificate of incorporation this fifth day of September, A.D., 1995.
Incorporator
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
Before Issuance of Shares
OF
CERTIFICATE OF INCORPORATION
OF
VANGUARD ENTERPRISES, INC.
Pursuant to Section 241 of Title 8 the Delaware Code of 1953, as Amended
I, the undersigned, being the Sole Incorporator of the above named corporation, a corporation organized under and by virtue of the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST. That at a meeting of the Sole Incorporator of said corporation, duly held and convened, resolutions were adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation and declaring said amendment advisable.
RESOLVED that the Certificate of Incorporation of this Corporation be, and it hereby is, amended by changing Article FOURTH to read as follows.
FOURTH: The total number of shares of stock which this corporation is authorized to issue is:
(a) Common. 50,000,000 shares of Common stock having a par value of $.001 per share;
(b) Preferred. 5,000,000 shares of Preferred stock having a par value of $.001 per share and to be issued in such series and to have such rights, preferences, and designation as determined by the Board of Directors of the Corporation.
SECOND. That no part of the capital of said corporation having been paid, this certificate is filed pursuant to Section 241 of Title 8 of the Delaware Code, as amended.
IN WITNESS WHEREOF, I have duly executed this Certificate of Amendment this twenty-ninth day of September, A.D. 1995.
Maryann Martone
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
Before Issuance of Shares
OF
CERTIFICATE OF INCORPORATION
OF
VANGUARD ENTERPRISES, INC.
Pursuant to Section 241 of Title 8
the Delaware Code of 1953, as Amended
I, the undersigned, being the Sole Incorporator of the above named corporation, a corporation organized under and by virtue of the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:
FIRST. That at a meeting of the Sole Incorporator of said corporation, duly held and convened, resolutions were adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation and declaring said amendment advisable.
RESOLVED that the Certificate of Incorporation of this Corporation be, and it hereby is, amended by changing Article FOURTH to read as follows:
FOURTH: The total number of shares of stock which this corporation is authorized to issue is :
(a) Common. 50,000,000 shares of Common stock having a par value of $.001 per share;
(b) Preferred. 500,000 shares of Preferred stock having a par value of $.001 per share and to be issued in such series and to have such rights, preferences, and designation as determined by the Board of Directors of the Corporation.
SECOND. That no part of the capital of said corporation having been paid, this certificate is filed pursuant to Section 241 of Title 8 of the Delaware Code, as amended.
IN WITNESS WHEREOF, I have duly executed this Certificate of Amendment this twelfth day of October, A.D. 1995.
Maryann Martone
EXHIBIT 3.4
CERTIFICATE FOR RENEWAL AND REVIVAL
OF CERTIFICATE OF INCORPORATION
Vanguard Enterprises, Inc., a corporation organized under the laws of Delaware, the certificate of Incorporation of which was filed in the office of the Secretary of State on the 5th day of September, 1995 and thereafter voided for non-payment of taxes, now desiring to procure; a revival of its Certificate of Incorporation, hereby certifies as follows:
1. The name of the corporation is Vanguard Enterprises, Inc.
2. Its registered office in the State of Delaware is located at Corporation Service Company, 1013 Center Street, City of Wilmington, County of New Castle and the name of its registered agent at such address is Corporation Service Company.
3. The date when revival of the Certificate of Incorporation of this corporation is to commence is the 28th day of February, 1997, same being prior to the date the Certificate of Incorporation became void. Revival of the Certificate of Incorporation is to be perpetual.
4. The corporation was duly organized under the laws of Delaware and carried on the business authorized by its Certificate of Incorporation until the 1st day of March, 1997, at which time its Certificate of Incorporation became inoperative and void for non-payment of taxes and this Certificate for Renewal and Revival is filed by authority of the duly elected directors of the corporation with the laws of Delaware.
IN WITNESS WHEREOF, said Vanguard Enterprises, Inc. in compliance with Section 312 of Title 8 of the Delaware Code has caused this Certificate to be signed by LYNN DIXON its last and acting PRESIDENT, this 3RD day of SEPTEMBER, 1997.
By President
EXHIBIT 3.5
VANGUARD ENTERPRISES, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Vanguard Enterprises, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
1st: That by unanimous written consent of the Board of Directors of Vanguard Enterprises, Inc., a resolution was duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and proposing approval by the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the FIRST article thereof so that, as amended, said Article shall read as set forth below:
FIRST: The name of this corporation shall be:
Activeworlds.com, Inc.
2nd. The Corporation has effectuated a 2 to 1 reverse stock split effective with the commencement of business on January 22, 1999, as to shares outstanding at the opening of business on January 21, 1999. Said reverse split reduces the outstanding shares from 1,000,000 shares to 500,000 shares but does not reduce the Corporation's authorized shares of common stock.
3rd. That thereafter, pursuant to resolution of its Board of Directors, a written approval by majority consent of the stockholders of said Corporation was duly received in accordance with the General Corporation law of the State of Delaware, by which consent the necessary number of shares as required by statute were voted in favor of the amendment.
4th. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, and the necessary number of shares as required by statute were voted in favor of the amendment.
IN WITNESS WHEREOF, said Vanguard Enterprises, Inc., has caused this certificate to be signed by Lynn Dixon, its President and its Secretary-Treasurer, this 19th day of January, 1999.
Secretary-Treasurer
BYLAWS
OF
ACTIVEWORLDS.COM, INC.
June 3, 1999
ARTICLE I
STOCKHOLDERS
1.1 Annual Meetings. Annual meetings of Stockholders for the election of Directors and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and dates as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. At each annual meeting, the Stockholders entitled to vote shall elect a Board of Directors and may transact such other corporate business as shall be stated in the notice of the meeting.
1.2 Other Meetings. Meetings of Stockholders for any purpose other than the election of Directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting.
1.3 Voting. Each Stockholder entitled to vote in accordance with the terms and provisions of the Certificate of Incorporation and these Bylaws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such Stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon the demand of any Stockholder, the vote for Directors and upon any question before the meeting shall be by ballot. All elections for Directors shall be decided by plurality vote; all other questions should be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware.
1.4 Stockholder List. The officer who has charge of the stock ledger of the Corporation shall at least ten days before each meeting of Stockholders prepare a complete alphabetical addressed list of the Stockholders entitled to vote at the ensuing election, with the number of shares held by each. Said list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be available for inspection at the meeting.
1.5 Quorum. Except as otherwise required by law, by the Certificate of Incorporation or these Bylaws, the presence, in person or by proxy, of Stockholders holding a majority of all common stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the Stockholders. In case of quorum shall not be present at any meeting, a majority in interest of the Stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those Stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof.
1.6 Special Meetings. Special meetings of the Stockholders, for any purpose, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Directors or 25% of the Stockholders entitled to vote. Such request shall state the purpose of the proposed meeting.
1.7 Notice of Meetings. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each Stockholder entitled to vote thereat at his address as it appears upon the books of the Corporation, not less than ten nor more than sixty days before the date of the meeting.
1.8 Business Transacted. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all of the Stockholders entitled to vote thereat.
1.9 Action Without Meeting. Except as otherwise provided by the Certificate of Incorporation, whenever the vote of Stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or the Certificate of Incorporation or of these Bylaws, the meeting and vote of Stockholders may be dispensed with, if all the Stockholders who would have been entitled to vote upon the action if such meeting were held, shall consent in writing to such corporate action being taken.
ARTICLE II
BOARD OF DIRECTORS
2.1 Powers. The business of the Corporation shall be managed by a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Term. The number of Directors shall be no fewer than one or such other minimum number as is required by law. The Directors shall be elected at the annual meeting of the Stockholders and each Director shall be elected to serve until his successor shall be elected and shall qualify.
2.3 Resignations. Any Director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective.
2.4 Vacancies. If the office of any Director, member of a committee or other officer becomes vacant, the remaining Directors in office, though less than a quorum by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold such office for the unexpired term and until his successor shall be duly chosen.
2.5 Removal. Any Director or Directors may be removed from office with or without cause at any time by the affirmative vote of the holders of a majority of the shares of stock outstanding and entitled to vote, at a special meeting of the Stockholders called for the purpose and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the Stockholders entitled to vote.
2.6 Increase of Number. The number of Directors may be increased by amendment of these Bylaws by the affirmative vote of a majority of the Directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the Stockholders, at the annual meeting or at a special meeting called for such purpose, and by like vote the additional Directors may be chosen at such meeting to hold office until the next annual election and until their successors are elected and qualify.
2.7 Special Meetings. Special meetings of the Directors may be held at any time and place designated in a call by the Chairman of the Board of Directors, President, Treasurer or two or more Directors or one Director in the event there is only a single Director in office.
2.8 Action By Consent. Any action required or permitted to be taken at any meeting of the Directors or any committee may be taken without a meeting if all the Directors or committee members consent to the action in writing and the written consents are filed with the records of the meetings of the Directors or such committee. Each consent shall be treated for all purposes as a vote of the Directors or committee at a meeting.
2.9 Meetings by Telephone Conference Calls. Directors or members or any committee designated by the Directors may participate in a meeting of the Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
2.10 Quorum of Directors. At any meeting of the Directors a majority of the Directors at the time in office shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice. Unless otherwise provided by law or by the By-Laws, business may be transacted by vote of a majority of those in attendance at any meeting at which there is a quorum.
2.11 Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, by the Certificate of Incorporation or by these Bylaws.
2.12 Committees. The Directors may, by unanimous vote of the Directors then in office, elect from their number an executive or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Certificate of Incorporation or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors. The Board of Directors shall have the power at any time to fill vacancies in any such committee, to change its membership or to discharge the committee.
2.13 Compensation of Directors. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE III
OFFICERS
3.1 Enumeration. The Officers of the Corporation shall consist of a President, a Treasurer, a Secretary, and such other Officers, including one or more Vice Presidents, Assistant Treasurers, Assistant Secretaries as the Directors may determine.
3.2 Election. The President, Treasurer and Secretary shall be elected annually by the Directors at their first meeting following the annual meeting of Stockholders. Other Officers may be chosen by the Directors at such meeting or at any other meeting.
3.3 Qualification. The President may, but need not be a Director. No officer need be a Stockholder. Any two or more offices may be held by the same person. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the Corporation in such amount and with such sureties as the Directors may determine.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, the President, Treasurer and Secretary shall hold office until the first meeting of the Directors following the annual meeting of Stockholders and thereafter until his successor is chose and qualified; and all other Officers shall hold office until the first meeting of the Directors following the annual meeting of Stockholders, unless a shorter term is specified in the vote choosing or appointing them.
3.5 Resignation and Removal. Any officer may resign by delivering his written resignation to the Corporation at its principal office or to the President or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. The Directors may remove any officer with or without cause by a vote of a majority of the entire number of Directors then in office, provided, that an officer may be removed with cause only after reasonable notice and opportunity to be heard by the Board of Directors prior to action thereon.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is chose and qualified, or until he sooner dies, resigns or is removed.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercises the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the Corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the Stockholders, and if he is a Director, at all meetings of the Board of Directors. The President shall perform such other duties and shall possess such other powers as the Board of Directors may from time to time prescribe.
3.9 Chief Executive Officer. The Chief Executive Officer, if elected, shall be responsible for supervising the management of the business and affairs of the Corporation, subject to the directions and limitations imposed by the Board of Directors, these By-laws and the Certificate of Incorporation of this Corporation. All other officers shall report and be accountable to the Chief Executive Officer, except as otherwise provided in these By-laws or as otherwise determined by the Board of Directors. The Chief Executive Officer need not be the principal executive officer of the Corporation.
3.10 Chief Operating Officer. The Chief Operating Officer, if elected, shall be responsible for supervising the day to day operations of the business and affairs of the Corporation, subject to the directions and limitations imposed by the Board, the Chief Executive Officer and these By-laws, and shall report to the Chief Executive Officer or to the Board of Directors, as the Board of Directors shall determine. All other officers involved with the operations of the Corporation shall, to the extent of the Board of Directors shall determine, report and be accountable to the Chief Operating Officer.
3.11 Chief Financial Officer. The Chief Financial Officer, if elected, shall be responsible for supervising the Corporation's overall financial planning and financial controls and shall be responsible for the maintenance of the Corporation's books and records, subject to the directions and limitations imposed by the Board, the Chief Executive Officer and these By-laws. All other officers involved with the financial and accounting functions of the Corporation shall report and be accountable to the Chief Financial Officer, and the Chief Financial Officer shall report to the Chief Executive Officer or the Board of Directors, as the Board of Directors shall determine.
3.12 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.
3.13 Treasurer and Assistant Treasurers. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of Treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the Corporation, to deposit funds of the Corporation in depositories selected in accordance with these Bylaws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and the financial condition of the Corporation.
The Assistant Treasurer shall perform such duties and posses such powers as the Board of Directors, the President or the Treasury may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.
3.14 Secretary and Assistant Secretary. The Secretary shall give, or cause to be given, notice of all meetings of Stockholders and Directors, and all other notices required by law or these Bylaws, and in the case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the Directors, or Stockholders, upon whose requisition the meeting is called as provided in these Bylaws. The Secretary shall attend all meetings of the Board of Directors and shall keep a record of the meetings of the Directors in a book maintained for such purpose. The Secretary shall keep in safe custody the seal of the Corporation, and when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of any Assistant Secretary. He shall possess such other powers and shall perform such other duties as the Board of Directors or the President may from time to time prescribe.
Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
3.15 Other Powers and Duties. Each officer shall, subject to these By-Laws, has in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate.
ARTICLE IV
CAPITAL STOCK
4.1 Certificate of Stock. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each Stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or such rights. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, the signatures of such Officers may be facsimiles.
4.2 Lost Certificates. New certificates of stock, may be issued in place of any certificate therefore issued by the Corporation, alleged to have been lost or destroyed, and the Directors may, in their discretion, require the owner of the lost or destroyed certificate or his legal representatives, to give the Corporation a bond, in such sum as they may direct, within the limits permitted by law as the Directors may require for the protection of the Corporation of any transfer agent or registrar to indemnify the Corporation against it on account of the alleged loss of any such new certificate.
4.3 Transfer of Shares. The shares of stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer and old certificates shall surrendered to the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other persons as the Directors may designate, by who they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and no absolutely, it shall be so expressed in the entry of the transfer.
4.4 Stockholders Record Date. In order that the Corporation may determine the Stockholders entitled to notice or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any divided or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the day of such meeting, nor m ore than sixty days prior to any other action. A determination of Stockholders or record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
4.5 Dividends. Subject to the provisions of the Certificate of Incorporation the Board of Directors may, out of funds legally available therefore at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when any funds of the Corporation available for dividends, such sum or sums as the Directors from time to time in their discretion deem proper working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Directors shall deem conducive to the interests of the Corporation.
4.6 Seal. The corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
4.7 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
4.8 Checks. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by the officer or Officers, agent or agents of the Corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.
4.9 Notice and Waiver of Notice. Whenever any notice is required by these Bylaws to be given, personal notice is not meant unless expressly stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepared, addressed to the person entitled thereto at his address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.
Whenever any notice whatsoever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the Corporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed proper notice.
ARTICLE V
INDEMNIFICATION
5.1 Power To Indemnify In Actions, Suits Or Proceedings Other Than Those By Or In The Right Of The Corporation. Subject to Section 5.3 of this Article V the Corporation shall indemnify any person who was or is a party of is threatened to be made a party to any threatened, pending or completed action, suite or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
5.2 Power To Indemnify In Actions, Suits Or Proceedings By Or In The Right Of The Corporation. Subject to Section 5.3 of this Article V, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment it is favor by reason or the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court or Chancery or such other court shall deem proper.
5.3 Authorization Of Indemnification. Any indemnification under this
Article V (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Section 5.1 or Section
5.2 of this Article V, as the case may be. Such determination shall be made (i)
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suite or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the Stockholders. To the extent, however, that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific.
5.4 Good Faith Defined. For purposes of any determination under Section 5.3 of this Article V, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the Offices of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 5.4 shall mean any other corporation or any partnership, joint venture, trust, employment benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a Director, officer, employee or agent. The provisions of this Section 5.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 5.1 or 5.2 of this Article V, as the case may be.
5.5 Indemnification By A Court. Notwithstanding any contrary determination in the specific case under Section 5.3 this Article V, and notwithstanding the absence of any determination thereunder, any Director, officer, employee or agent may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 5.1 and 5.2 of this Article V. The basis of such indemnification by a court shall be determination by such court that indemnification of the Director, officer, employee, or agent is proper in the circumstances because he has met the application for indemnification pursuant to this Section 5.5 shall be given to the Corporation promptly upon the filing of such application.
5.6 Expenses Payable In Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be at the discretion of the Board of Directors, be paid by the Corporation in advance of the final disposition of such actin, suite or proceeding upon receipt of any undertaking by or on behalf of the Director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article V.
5.7 Nonexclusively And Survival Of Indemnification. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article V shall not be deemed exclusively of any other rights to which those seeking indemnification or advancement or expenses may be entitled under any By-Law, agreement, contract, vote of Stockholders or disinterested Directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office it being the policy of the Corporation that indemnification of the persons specified in Sections 5.1 and 4.2 of this Article V shall be made to the fullest extent permitted by law. The provisions of this Article V shall be made to the fullest extent permitted by law. The provisions of this Article V shall not be deemed to preclude the indemnification of any person who is not specified in Sections 5.1 or 5.2 of this Article V but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. The indemnification and advancement of expenses provided, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who was ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
5.8 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or obligation to indemnify him against such liability under the provisions of this Article V.
5.9 Meaning Of "Corporation" For Purposes Of Article V. For the purpose f this Article V, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
ARTICLE VI
AMENDMENTS
These Bylaws may be altered and repealed and Bylaws may be made at any annual meeting of the Stockholders or at any special meeting thereof if notice thereof is contained in the notice of such special meeting by affirmative vote of a majority of the stock issued and outstanding or entitled to vote thereat, or by the regular meeting of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice thereof is contained in the notice of such special meeting.
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
[ACTIVEWORLDS.COM, INC. LOGO]
CUSIP NO. 00504X 10 8
activeworlds.com, Inc.
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.001 PER SHARE
THIS CERTIFIES THAT
[SAMPLE]
IS THE RECORD HOLDER OF
Shares of ACTIVEWORLDS.COM, Inc. Common Stock transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
/s/ J. P. McCormick /s/ Richard F. Noll
---------------------------- ------------------------------
Secretary President
|
[ACTIVEWORLDS.COM,
INC. CORPORATE
SEAL DELAWARE]
"The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be offered, sold, or otherwise transferred in the absence of an effective registration statement for the shares under the Securities Act of 1933, or a prior opinion of counsel satisfactory to the issuer, that registration is not required under the Act."
Signature must be guaranteed by a firm which is a member of a registered national stock exchange, or by a bank (other than a savings bank), or a trust company. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT- . . CUSTODIAN..
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ..............................
in common. (state)
|
Additional abbreviations may also be used though not on the above list.
For Value Received, _______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
"The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be offered, sold, or otherwise transferred in the absence of an effective registration statement for the shares under the Securities Act of 1933, or a prior opinion of counsel satisfactory to the issuer, that registration is not
required under the Act."
Exhibit 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1999, by and between
Activeworlds.com, Inc., a Delaware corporation (the "Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,200,000 units (the
"Units"), each Unit consisting of one share of common stock, par value $.001 per
share ("Common Stock"), and a Series B Redeemable Common Stock Purchase Warrant
(collectively, the "Warrants") to purchase one share of Common Stock, pursuant
to an underwriting agreement (the "Underwriting Agreement") dated as of ,
1999, between the Company and HD Brous & Co., Inc. (the "Underwriter"), the
Company may issue Warrants to purchase up to One Million Five Hundred thousand
($1,500,000) shares of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, as
hereinafter defined, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date of this Agreement at
40 Wall Street, 46th floor, New York, New York 10005.
(b) "Effective Date" shall mean the date that the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the Purchase Price; provided, however, that, subject to Paragraph 4 of this
Agreement, if payment shall be made by personal or corporate check, the exercise
of the Warrant shall not be effective until the Warrant Agent shall be satisfied
that the check shall have cleared; provided, further, that if such payment is
made prior to the Warrant Expiration Date or the expiration of a period during
which a reduced Purchase Price is in effect pursuant to Paragraph 9(f) of this
Agreement and the check shall not have cleared until after the Warrant
Expiration Date or such other date, then the Warrant shall be deemed to have
been exercised immediately prior to 5:00 P.M. New York City time on the Warrant
Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be and /100 dollars ($ ) per share for the Warrants,
subject to adjustment from time to time pursuant to the provisions of Paragraph
9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms of
this Agreement, which price shall be ten cents ($.10) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form SB-2, File No. , which was declared effective by
the Commission on , 1999.
(g) "Registered Holder" shall mean, as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Paragraph 6 of this Agreement.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Certificate" shall mean the certificate for the
Warrants in the form attached as Exhibit A to this Agreement.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York
City time on the first to occur of (i) , 2004, or (ii) the business day
immediately preceding the Redemption Date, as defined in Paragraph 8(c) of this
Agreement; provided, that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, the Warrant
Expiration Date shall be the next day which is not such a date. Upon notice to
all warrant holders the Company shall have the right to extend the Warrant
Expiration Date.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase, upon the
exercise thereof, in accordance with the terms of this Agreement, subject to
modification and adjustment as provided in Paragraph 9 of this Agreement, such
number of shares of Common Stock as is set forth on the certificate representing
the Warrants.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the shares of Common Stock issuable upon
the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued hereunder
or otherwise issuable pursuant to the Underwriting Agreement, including those
issuable in exchange for certain outstanding warrants, (ii) those issued on or
after the date of this Agreement, upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised Warrants
held by the exercising Registered Holder, (iii) those issued upon any transfer
or exchange pursuant to Paragraph 6 of this Agreement; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Paragraph 7 of this Agreement; (v) those issued pursuant to the
Underwriter's Option, and (vi) at the option of the Company, in such form as may
be approved by the Board of Directors, to reflect any adjustment or change in
the Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants made pursuant to Paragraph 9 of this Agreement. In
addition, at the discretion of the Company, the Company may authorize the
issuance of additional Warrants, which shall be subject to the provisions of
this Agreement.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Warrants shall be
substantially in the form annexed as Exhibit A to this Agreement, (the
provisions of which are hereby incorporated herein)
and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Paragraph 2(b) of this Agreement. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer or exchange in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter M or other letters
acceptable to the Company and the Warrant Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed the Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Paragraph 4 of this Agreement.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time after the issuance thereof, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of those securities upon the exercise of
the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company in
writing of the exercise of the Warrant. Promptly following, and in any event
within five (5) days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Underwriter or such other investment banks and
brokerage houses as the Company shall approve in writing to the Warrant Agent,
by the Underwriter or such other investment bank or brokerage house,
certificates shall immediately be issued without prior notice to the Company or
any delay. Upon the exercise of any Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit the payment received for the Warrant (the
"Warrant Proceeds") to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares shall, at the time of delivery in accordance
with this Agreement, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue thereof (other
than those which the Company shall promptly pay or discharge), and that upon
issuance such shares shall be listed on each national securities exchange or
eligible for inclusion in each automated quotation system, if any, on which the
other shares of outstanding Common Stock of the Company are then listed or
eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any Federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the
shares of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions of this Agreement, the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A reasonable service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchanges, registration or transfer of Warrant Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter
retained by the Warrant Agent until termination of this Agreement or resignation
as Warrant Agent, or, with the prior written consent of the Underwriter,
disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
(a) Commencing twelve (12) months from the Effective Date or
earlier with the consent of the Underwriter, the Company shall have the right,
on not less than thirty (30) nor more than sixty (60) days notice given prior to
the Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Warrants at the Redemption Price, provided that the Market Price of
the Common Stock shall equal or exceed the "Target Price" with respect to the
class of Warrants as to which the Company is exercising its right of redemption.
The "Target Price" shall mean one hundred twenty five percent (150%) of the
Purchase Price with respect to the applicable class of Warrants. Market Price
for the purpose of this Paragraph 8 shall mean, if the Common Stock is listed on
the Nasdaq Stock Market or the New York or American Stock Exchange, the average
last reported sales price (or, if no sale is reported on any such trading day,
the average of the closing bid and asked prices) on the principal market for the
Common Stock or, if the Common Stock is not so listed or traded, the average of
the last reported bid prices of the Common Stock, during the twenty (20) day
period ending within three (3) days of the date the Warrants are called for
redemption. Notice of redemption shall be mailed by first class mail, postage
prepaid, not later than five (5) business days (or such longer period to which
the
Underwriter may consent) after the date the Warrants are called for redemption.
All Warrants of any class of Warrants must be redeemed if any Warrants of such
class are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request the Underwriter or the Warrant Agent to mail the
notice of redemption referred to in said Paragraph 8(a) to each of the
Registered Holders of the Warrants to be redeemed, first class, postage prepaid,
not earlier than the sixtieth (60th) day nor later than the thirtieth (30th) day
before the date fixed for redemption, at their last addresses as shall appear on
the records maintained pursuant to Paragraph 6(b) of this Agreement. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice. The
Warrant Agent agrees to mail such notice if requested by the Company or the
Underwriter.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price to be paid, and (iv)
that the right to exercise the Warrants shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (A) to whom notice was not mailed or (B) whose
notice was defective. An affidavit of the Warrant Agent or of the Secretary or
an Assistant Secretary of the Representative or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) If either class of Warrant shall have been redeemed, any
right to exercise a Warrant of such class shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding the Redemption Date. After
such time, Holders of the Warrants shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price without interest,
subject to the provisions of applicable laws relating to the treatment of
abandoned property. In the event that the Warrants or the Warrant Shares shall
not be subject to a current and effective registration statement under the
Securities Act of 1933, as amended, at any time subsequent to the date the
Warrants are called for redemption, the notice of redemption shall not be
effective and shall be deemed for all purposes not to have been given. Nothing
in the preceding sentence shall be construed to prohibit or restrict the Company
from thereafter calling the Warrants for redemption in the manner provided for,
and subject to the provisions of, this Paragraph 8.
(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of redemption,
upon presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the Redemption Price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) Notwithstanding any other provision of this Agreement, the
Company shall not call the Warrants for redemption unless there is, at the time
the Warrants are called for redemption, a current and effective registration
statement or a post-effective amendment to the registration statement covering
the issuance of the shares of Common Stock issuable upon exercise of the
Warrants.
(g) In the event that the Underwriter's Option is exercised at
a time subsequent to the redemption of the Warrants but prior to the Warrant
Expiration Date, as defined in Paragraph 1(j) of this Agreement, then,
notwithstanding any other provisions of this Agreement, the Warrants issued upon
such exercise may be redeemed by the Company at any time after issuance.
9. Adjustment of Exercise Price and Number of Securities Issuable upon
Exercise of Warrants.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, subdivide or reclassify
its outstanding Common Stock into a greater number of shares, or combine or
reclassify its outstanding Common Stock into a smaller number of shares or
otherwise effect a combination of shares or reverse split, the Purchase Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of shares which,
if such Warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed in this Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph 9(e) of this
Agreement) on the record date mentioned below, the Purchase Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Purchase Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Purchase Price shall be readjusted to the Purchase Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock evidences
of its indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in Paragraph
9(a) of this Agreement) or subscription rights or warrants (excluding those
referred to in Paragraph 9(b) of this Agreement), then in each such case the
Purchase Price in effect thereafter shall be determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as defined in
Paragraph 9(e) of this Agreement), less the fair market value (as determined by
the Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the denominator shall be
the total number of shares or Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) Whenever the Purchase Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this Agreement,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares issuable
upon exercise of each Warrant in effect on the date thereof by the Purchase
Price in effect on the date thereof and dividing the product so obtained by the
Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to Paragraphs
9(b) and (c) of this Agreement, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for thirty (30) consecutive business days commencing fifteen (15) business days
before such date. The closing price for each day shall be the reported last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported high bid and low asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, if the Common Stock is admitted to
trading or listing on the New York or American Stock Exchange or on The Nasdaq
Stock Market if included in such system or if not listed or admitted to trading
on such exchange or system, the average of the highest bid and lowest asked
prices as reported by Nasdaq, or the National Quotation Bureau, Inc. or another
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of Directors
of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Paragraph 9(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Anything in this Paragraph 9 to the
contrary notwithstanding, the Company may, upon notice to the record holders of
the Warrants, in its sole discretion, reduce the Purchase Price of the Warrants,
and, if such reduction is not otherwise required by this Paragraph 9, such
reduction (i) will not, unless the Board of Directors otherwise determines,
result in any change in the number or class of shares of Common Stock issuable
upon exercise of such Warrants, and (ii) may be of limited duration, in which
event the reduction in Purchase Price shall not apply to any Warrants exercised
after the expiration of the time during which the reduced Purchase Price is in
effect.
(g) The Company may retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Paragraph 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Agreement, the holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs 9(a) to (f),
inclusive, of this Agreement.
(i) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record and each Warrant issuable upon exercise of the
Underwriter's Option prior to such adjustment of the number of Warrants shall
become that number of Warrants or an Underwriter's Option to purchase that
number of Warrants (calculated to the nearest tenth) determined by multiplying
the number one by a fraction, the numerator of which shall be the Purchase Price
in effect immediately prior to such adjustment and the denominator of which
shall be the Purchase Price in effect immediately after such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Paragraph 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Paragraph 10 of this Agreement, the number
of additional Warrants to which such Holder shall be entitled as a result of
such adjustment or, at the option of the Company, cause to be distributed to
such Holder in substitution and replacement for the Warrant Certificates held by
him prior to the date of adjustment (and upon surrender thereof, if required by
the Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment. With respect to the
Representative's Option, the Company shall give the registered holders of the
Representative's Option notice as to the number of Warrants issuable in respect
of such Representative's Option reflecting such adjustment. Any Warrants or
notice to registered holders of Representative's Option may be mailed by the
Warrant Agent or by first class mail, postage prepaid.
(j) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock, or in case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as, or substantially as, an entirety (other than a sale/leaseback, mortgage or other financing transaction), the Company shall cause effective provision to be made so that each holder of a Warrant then outstanding shall have the right thereafter, by exercising such Warrant, to purchase the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been purchased upon exercise of such Warrant immediately prior to such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provisions shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Paragraph 9. The Company shall not effect any such consolidation, merger or sale unless, prior to or simultaneously with the consummation thereof, the successor (if other than the Company) resulting from such consolidation or merger or the corporation purchasing assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Warrant Agent, the obligation to deliver to the holder of each Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase and the other obligations under this Agreement. The foregoing provisions shall similarly apply to successive reclassifications, capital reorganizations and other changes of outstanding shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that, as a result of any merger, consolidation or similar transaction, all of the holders of Common Stock receive and are entitled to receive no consideration other than cash in respect of their shares of Common Stock, then, at the effective time of the transaction, the rights to purchase Common Stock pursuant to the Warrants shall terminate, and the holders of the Warrants shall, notwithstanding any other provisions of this Agreement or the Warrants, receive in respect of each Warrant to purchase one (1) share of Common Stock, upon presentation of the Warrant Certificate, the amount by which the consideration per share of Common Stock payable to the holders of Common Stock at such effective time exceeds the Purchase Price in effect on such effective date, without giving effect to the transaction. In the event that, subsequent to the effective time, additional cash or other consideration is payable to the holders of Common Stock of record as of the effective time, the same consideration shall
be payable to the holders of the Warrants to the extent that the total cash then
received by the holders of Common Stock exceeds the Purchase Price in effect at
such effective date, without giving effect to the transaction, with the same
effect as if the Warrants had been exercised on and as of such effective time.
In the event of any merger, consolidation, sale or lease of substantially all of
the Company's assets or reorganization whereby the Company is not the surviving
corporation, in lieu of the foregoing provisions of this Paragraph 9(j), the
Company may provide in the agreement relating to the transaction that each
Warrant shall become, be converted into or be exchanged for, such securities of
the surviving or acquiring corporation or other entity as has a value equal to
the value of the Warrants (which shall not exceed the amount by which the
consideration to be received per share of Common Stock (valued on such date as
the Company's board of directors shall determine) exceeds the exercise price of
the Warrant), the value of the Warrants and securities being issued in exchange
therefor to be determined by the Company's Board of Directors, such
determination to be final, binding and conclusive on the Company and the holders
of the Warrants. In the event that, in such a transaction, the value of the
consideration to be received per share of Common Stock is not greater than the
exercise price of the Warrants, the Warrants shall terminate and no
consideration will be paid with respect thereof.
(k) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Paragraphs 2(e) and 9(i) of this Agreement, continue to express the
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as to the Purchase Price per share, and the number of
shares purchasable and the Redemption Price therefore were expressed in the
Warrant Certificates when the same were originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice President or Treasurer, of the Company setting forth:
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by first class mail to the Representative and
to each registered holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof. The
affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, constitute prima facie evidence
of the facts stated therein.
(m) As used in this Paragraph 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the Effective Date and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the Effective Date or, in the
case of any reclassification, change, consolidation, merger, sale or conveyance
of the character referred to in Paragraph 9(j) of this Agreement, the stock,
securities or property provided for in such section or, in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9, or
as to the amount of any such adjustment, if required, shall be binding upon the
holders of the warrants and the Company if made in good faith by the Board of
Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. If the Company exercises such right
no adjustment which otherwise might be called for pursuant to said Paragraph
9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of shares
of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Paragraph 9 of this Agreement, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares.
With respect to any fraction of a share called for upon any exercise hereof, the
Company, at its option, shall either issue a whole share in lieu of such
fractional share or pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(a) If the Common Stock is listed on the New York or American
Stock Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq Stock Market, the current value shall be the
reported last sale price of the Common Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant, or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange or system; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the last reported bid price
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained in this
Agreement be construed to confer upon the holder of Warrants, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provide in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance of the Warrants, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Paragraph 6 of this Agreement.
14. Cancellation of Warrant Certificates. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired.
15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined solely
by the provisions of this Agreement. The Warrant Agent shall not, by issuing and
delivering Warrant certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary, unless other evidence in respect thereof is
specifically prescribed in this Agreement. The Warrant Agent shall not be liable
for any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or wilful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own negligence or wilful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such under
this Agreement, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason, it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may,
by supplemental agreement, make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law; and provided, further, that Paragraphs 4(b)
and 4(c) may not be modified or amended without the consent of the Underwriter.
17. Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and, unless otherwise expressly
provided in this Agreement, delivered
personally or sent by overnight courier or messenger against receipt thereof or
sent by registered or certified mail (air mail if overseas), return receipt
requested, or by facsimile transmission or similar means of communication.
Notices sent by facsimile transmission or similar means of communication shall
be confirmed by acknowledged receipt or by registered or certified mail, return
receipt requested. Notices shall be deemed to have been received on the date of
personal delivery or telecopy or, if sent by certified or registered mail,
return receipt requested, shall be deemed to be delivered on the third business
day after the date of mailing. Notices shall be sent to the Registered Holders
at their respective addresses on the Warrant Agent's warrant register, to the
Company at 95 Parker Street, Newburyport, MA 01950, telecopier (978) 499-0221,
Attention: Richard F. Noll, President and Chief Executive Officer, and to the
Warrant Agent at its Corporate Office, telecopier (718) 236-2641. Either party
may, by like notice, change the address, person or telecopier number to which
notice should be given.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entered and to be performed wholly within such State, without regard to
principles of conflicts of laws. The parties hereby (a) irrevocably consent and
agree that any legal or equitable action or proceeding arising under or in
connection with this Agreement shall be brought exclusively in any Federal or
state court situated in New York County, New York, (b) irrevocably submit to and
accept, with respect to their respective properties and assets, generally and
unconditionally, the in personam jurisdiction of the aforesaid courts and (c)
agree that any process in any action commenced in such court under this
Agreement may be served upon such party personally, by certified or registered
mail, return receipt requested, or by overnight courier service which obtains
evidence of delivery, with the same full force and effect as if personally
served upon such party in New York City, in addition to any other method of
service permitted by law.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
ACTIVEWORLDS.COM, INC.
AMERICAN STOCK TRANSFER &
TRUST COMPANY
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. A- Warrant to Purchase
Shares of Common Stock
Void after , 2004 (or earlier upon redemption).
|
ACTIVEWORLDS.COM, INC
SERIES B REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED or registered assigns (the "Registered Holder") is the owner of the number of Series B Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully paid and nonassessable share of Common Stock, par value $.001 per share ("Common Stock"), of Activeworlds.com, Inc., a Delaware corporation (the "Company"), at any time during the period commencing with the issuance of this Warrant and ending on the Expiration Date, as hereinafter defined, by delivery of this Warrant, with the Subscription Form on the reverse hereof duly executed, at the corporate office of American Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $ , subject to adjustment as provided in the Warrant Agreement (the "Purchase Price") in lawful money of the United States of America in cash or by official bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of , 1999, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price or the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificates or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time) on __ , 2004 or earlier upon redemption as hereinafter provided. If such date shall in the State of New York be a holiday or a day on which the banks are authorized or required to close, then the Expiration Date shall mean 5:00 P.M. (New York City time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized or required to close. Under certain circumstances as provided in the Warrant Agreement, the period during which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is effective. The Company has covenanted and agreed that it will file a registration statement and will use its commercially reasonably efforts to cause the same to become effective and to keep such registration statement current while any of the Warrants are outstanding. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall
be designated by such Registered Holder at the time of such surrender. Upon payment by the Registered Holder of any tax or other governmental charge imposed in connection therewith, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificate representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement.
Commencing , 2000, or earlier as provided in the Warrant Agreement, this Warrant may be redeemed at the option of the Company, at a redemption price of $.01 per Warrant at any time, provided the average closing price for the Common Stock issuable upon exercise of such Warrant shall equal or exceed $ per share, subject to adjustment, for the twenty day period prior to the date which is five days before the date the Warrants are called for redemption. Notice of redemption shall be given not earlier than the thirtieth (30th) day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time) on the business day immediately preceding the date fixed for redemption, the Registered Holder shall have no rights with respect to this Warrant except to receive the $.01 per Warrant upon surrender of this Certificate. This Warrant may only be called for redemption if, on the date the Warrant is called for redemption, the issuance of the shares of Common Stock upon exercise of this Warrant is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements executed and to be performed wholly within such State, without regard to principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon.
ACTIVEWORLDS.COM, INC.
Dated: By:
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By:
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Countersigned:
AMERICAN STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
ACTIVEWORLDS.COM, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise______________ Warrants represented by this Warrant Certificate to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of
Please insert Social Security
or other identifying number
and be delivered to
and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below.
Date:__________________________ X
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Address
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Taxpayer Identification Number
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Signature Medallion Guaranteed
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ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and transfers onto
Please insert social security
or other identifying number
______________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints
_______________________________________________________________________Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises.
Date:______________ X
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Signature Medallion Guaranteed
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THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. AND MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE
Exhibit 4.3
Warrant to Purchase
WA- ** ** Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 P.M. New York City time on June 30, 2004 Subject to redemption as provided in Paragraph (j) of this Warrant
SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
OF
ACTIVEWORLDS.COM, INC.
This is to certify that, FOR VALUE RECEIVED, or
registered assigns ("Holder"), is entitled to purchase, on the terms and subject
to the provisions of this Warrant from Activeworlds.com, Inc., a Delaware
corporation (the "Company"), thousand ( ,000) shares of
the common stock, par value $.001 per share ("Common Stock"), of the Company at
an exercise price per share of five and 70/100 dollars ($5.70), at any time
during the period (the "Exercise Period") commencing on the date of issuance of
this Warrant and ending at 5:00 P.M. New York City time, on June 30, 2004;
provided, however, that if such date is a day on which banking institutions in
the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day. This Warrant is subject to
redemption by the Company at the time and in the manner set forth in Paragraph
(j) of this Warrant. This Warrant was issued as part of a private placement by
the Company of nine (9) units, each unit consisting of seventeen thousand six
hundred (17,600) shares of Common Stock and a Warrant to purchase twenty
thousand (20,000) shares of Common Stock. Reference to the Warrants shall mean
all of the Series A Common Stock Purchase Warrants issued by the Company in
connection with such private placement and any Warrants issued as a result of
the transfer or partial exercise or conversion of such Warrants and any Warrants
issued to the placement agent for such private placement.
(a) EXERCISE OF WARRANT.
(1) Subject to prior redemption, this Warrant may be exercised in whole at any time or in part from time to time during the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock specified in such form. Payment of
the Exercise Price may be made either by check (subject to collection) in the
amount of the Exercise Price or by delivery of such number of shares of Common
Stock as has a current value, determined in the manner provided for in Paragraph
(a)(2) of this Warrant (with the current value being based on the market price
of the Common Stock on the date the Warrant, accompanied by the shares of Common
Stock delivered in respect of such exercise, is delivered to the Company or its
transfer agent), equal to the Exercise Price. The date of such delivery shall
mean the date that this Warrant, accompanied by the shares of Common Stock, is
deposited in the United States mail, certified or registered mail, or by
messenger service or by overnight courier service which provides evidence of
delivery, addressed to the Company or its transfer agent. If this Warrant should
be exercised in part only, whether pursuant to this Paragraph (a)(1) or pursuant
to Paragraph (a)(2) of this Warrant, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder hereof to purchase the balance of the shares of Common
Stock purchasable hereunder. Upon receipt by the Company of this Warrant at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(2) In lieu of exercising this Warrant by payment of the
Exercise Price pursuant to Paragraph (a)(1) of this Warrant, the Holder shall
have the right to convert this Warrant, in whole at any time or in part from
time to time to the extent that this Warrant has not been exercised pursuant to
said Paragraph (a)(1), for the number of shares of Common Stock determined by
(i) multiplying (x) the number of shares as to which this Warrant is being
exercised by (y) the difference between the current value per share of Common
Stock on the date of exercise and the Exercise Price per share, as in effect on
such date, and (ii) dividing the result so obtained by the current value per
share of Common Stock on the date of exercise. The date of exercise shall mean,
for purposes of this Paragraph (a)(2), the date on which this Warrant
accompanied by the notice of exercise is delivered to the Company or its
transfer agent as provided in said Paragraph (a)(1). The current value per share
of Common Stock shall be determined as follows:
(A) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the Nasdaq Stock Market ("Nasdaq") or other automated quotation system which provides information as to the last sale price, the current value shall be the average of the reported last sale prices of one share of Common Stock on such exchange or system on the last five (5) trading days prior to the date of exercise of this Warrant, or if, on any of such dates, no such sale is made on such day, the closing bid price for such date on such exchange or system shall be used; or
(B) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current value shall be the mean the average of the reported last bid price of one share of Common Stock as reported by Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service, on the last five (5) trading day prior to the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value of one share of Common Stock shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise or conversion of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant and that it shall not, without the prior approval of the holders of a majority of the Warrants then outstanding, increase the par value of the Common Stock.
(c) FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise of this Warrant, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined in the manner set forth in Paragraph (a)(2) of this Warrant, except that the price shall be based on the closing price on the last trading day before the date of exercise.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Subject to the provisions of Paragraph (k) of this Warrant, upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows:
(1) In case the Company shall, subsequent to the date the first Warrant was issued (the "Initial Issuance Date"), (A) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (C) combine or reclassify its outstanding Common Stock into a smaller number of shares or otherwise effect a reverse split, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed in this Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to the Initial Issuance
Date, issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less than
the current market price per share of Common Stock (as defined in Paragraph
(f)(5) of this Warrant) on the record date mentioned below, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of Common Stock, and of which the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription or
purchased (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock or securities convertible into Common
Stock are not delivered after the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(3) In case the Company shall, subsequent to the Initial Issuance
Date, distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (f)(1) of this Warrant
or subscription rights or warrants (excluding those referred to in Paragraph
(f)(2) of this Warrant), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common Stock outstanding multiplied by the current market price per share of Common Stock (as defined in Paragraph (f)(5) of this Warrant), less the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and of which the denominator shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution.
(4) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant, the number of shares of Common Stock purchasable upon exercise of each Warrant shall simultaneously be adjusted by multiplying the number of shares of Common Stock issuable upon exercise of each Warrant in effect on the date thereof by the Exercise Price in effect on the date thereof and dividing the product so obtained by the Exercise Price, as adjusted. In no event shall the Exercise Price per share be less than the par value per share, and, if any adjustment made pursuant to Paragraph (f)(1), (2) or (3) would result in an exercise price of less than the par value per share, then, in such event, the Exercise Price per share shall be the par value per share. The Company agrees not to increase the par value of the Common Stock other than in connection with a reverse split or combination or shares or other recapitalization, in which event any such increase shall not be greater that which would result from the application of the adjustments provided in Paragraph (f)(1) of this Warrant to the par value.
(5) For the purpose of any computation under Paragraphs (f)(2) and
(3) of this Warrant, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for thirty
(30) consecutive trading days commencing forty five (45) trading days before
such date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
reported last bid price, in either case on the principal national securities
exchange or market on which the Common Stock is admitted to trading or listed or
on Nasdaq, or if not listed or admitted to trading on such exchange or such
market, the average of the reported closing bid prices as reported by Nasdaq,
the National Quotation Bureau, Inc. or other similar organization if Nasdaq is
no longer reporting such information, or if not so available, the fair market
price as determined in good faith by the Board of Directors.
(6) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($0.05) in such price; provided, however, that any adjustments which by reason of this Paragraph (f)(6) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Paragraph (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Paragraph (f), as it in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, reclassification or combination of Common Stock, issuance of warrants to purchase
Common Stock or distribution of evidences of indebtedness or other assets
(excluding cash dividends) referred to hereinabove in this Paragraph (f)
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(7) The Company may retain a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular accountants engaged by the Company) to make any computation required by this Paragraph (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment.
(8) In the event that at any time, as a result of an adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Paragraphs (f)(1) to (6), inclusive, of this Warrant.
(9) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in this and similar Warrants initially issued by the Company.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Paragraph (f) of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder, and the Company shall, forthwith after each such adjustment, mail, by first class mail, a copy of such certificate to the Holder at the Holder's address set forth in the Company's Warrant Register.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail, return receipt requested, to the Holder, at least fifteen days
prior to the date specified in clauses (i) and (ii), as the case may be, of this
Paragraph (h) a notice containing a
brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Paragraph (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.
(j) REDEMPTION RIGHTS.
(1) Commencing two (2) years from the Initial Issuance Date, the Company shall have the right, on not less than thirty (30) nor more than sixty (60) days written notice given prior to the Redemption Date, as hereinafter defined, at any time to redeem all, and not less than all, of the then outstanding Warrants at the redemption price (the "Redemption Price") of ten cents ($.10) per share of Common Stock issuable upon exercise of the Warrants, provided that the conditions set forth in Paragraph (j)(2) of this Warrant shall be satisfied.
(2) The Company may only redeem the Warrants if all of the following conditions are met:
(A) The closing price of the Common Stock is not less than one hundred fifty percent (150%) of the Exercise Price of the Warrants for each day in a period of ten (10) consecutive trading days ending not earlier than five (5) trading days prior to the date the Warrants are called for redemption.
(B) Notice of redemption shall be sent to the holders of the Warrants not later than five (5) days after the Board of Directors approves the redemption of the Warrants by certified or registered mail or by messenger against receipt or by an overnight courier service that
gives evidence of delivery. The notice of redemption shall state (i) the Redemption Price, (ii) the date fixed for redemption, (iii) the place where the Warrants shall be delivered and the redemption price paid, and (iv) that the right to exercise the Warrants shall terminate at 5:00 p.m. (New York City time) on the business day immediately preceding the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the Redemption Date.
(C) The Common Stock is listed on either the New York or American Stock Exchange or the Nasdaq Stock Market at all times during the period commencing on the date the notice of redemption is sent to the holders of the Warrants as provided in Paragraph (j)(2)(B) of this Warrant and ending on the Redemption Date.
(D) The shares of Common Stock issuable upon exercise or conversion of the Warrants (the "Warrant Shares") shall have been registered with the Commission and such registration statement shall be current and effective at all times during the period from the date the notice of redemption is sent to the holders of the Warrants until the Redemption Date.
(3) If the Warrants shall have been called for redemption, any right to exercise a Warrant shall terminate at 5:00 p.m. (New York City time) on the business day immediately preceding the Redemption Date. After such time, Holders of the Warrants shall have no further rights except to receive, upon surrender of the Warrant, the Redemption Price without interest, subject to the provisions of applicable laws relating to the treatment of abandoned property. In the event that the Warrant Shares shall not be subject to a current and effective registration statement under the Securities Act at any time subsequent to the date notice of redemption is sent to the Holders of the Warrants, the notice of redemption shall not be effective and shall be deemed for all purposes not to have been given. Nothing in the preceding sentence shall be construed to prohibit or restrict the Company from thereafter calling the Warrants for redemption in the manner provided for, and subject to the provisions of, this Paragraph (j).
(4) From and after the Redemption Date, the Company shall, at the place specified in the notice of redemption, upon presentation and surrender to the Company by or on behalf of any Holder of the Warrants to be redeemed, deliver or cause to be delivered to or upon the written order of such Holder a sum in cash equal to the Redemption Price of each such Warrant. From and after the Redemption Date and upon the deposit or setting aside by the Company of a sum sufficient to redeem all the Warrants called for redemption, such Warrants shall expire and become void and all rights under the Warrants, except the right to receive payment of the Redemption Price, shall cease.
(k) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "Securities Act") and in compliance with applicable state securities laws with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Paragraph
(k) with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or
(2) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act and state securities laws relating to such securities and the offering thereof for such sale or disposition.
Dated as of June 3, 1999
ACTIVEWORLDS.COM, INC.
By: ______________________________________
Richard F. Noll
President and Chief Executive Officer
Dated: , 19
_________ The undersigned hereby irrevocably exercises this Warrant to the
extent of purchasing _____ shares of Common Stock and hereby makes
payment of $____________ in payment of the Exercise Price therefor.
_________ The undersigned hereby irrevocably exercises this Warrant to the
extent of purchasing ______ shares of Common Stock and hereby makes
payment of $____________ in payment of the Exercise Price therefor
by delivery of shares of Common Stock pursuant to Paragraph (a)(1)
of this Warrant.
_________ The undersigned hereby irrevocably elects to exchange this Warrant
to the extent of ______ shares of Common Stock pursuant to the
provision of Paragraph (a)(2) of this Warrant.
|
Name _______________________________________________
(Please typewrite or print in block letters)
Signature __________________________________________
Social Security or Employer Identification No. _______________
FOR VALUE RECEIVED,
hereby sells, assigns and transfer unto
Name ________________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________ Social Security or Employer Identification No. ________________
The right to purchase Common Stock represented by this Warrant to the extent of _________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ______________________ attorney to transfer the same on the books of the Company with full power of substitution.
Dated: ________________________, 19__
Signature ________________________________
Signature Medallion Guaranteed:
ACTIVEWORLDS.COM, INC.
1999 LONG-TERM INCENTIVE PLAN
Preamble. Activeworlds.com, Inc., a corporation incorporated under the laws of the State of Delaware (the "Corporation") hereby adopts the following incentive plan to be known as the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan (the "Plan").
Section I. Purpose of the Plan. The purposes of the Plan are (i) to associate more closely the interests of certain key contributors to the success of the Corporation with those of the Corporation's stockholders by encouraging stock ownership, (ii) to provide long-term incentives and rewards to those persons who are in a position to contribute to the long-term success and growth of the Corporation and its subsidiaries, and (iii) to assist the Corporation and its Affiliates (as hereinafter defined) in retaining and attracting key employees, independent contractors, directors and other service providers. Awards under the Plan may be made to employees of the Corporation and its Affiliates, and other key service providers or consultants to the Corporation and its Affiliates.
Section II. Administration.
a. The Committee. The Plan shall be administered by a committee
appointed by the Board of Directors of the Corporation (the
"Committee"). The Committee shall be composed of members who
(i) to the extent necessary to comply with Rule 16b-3 as
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") are "Non-Employee Directors"
within the meaning of Rule 16b-3 and (ii) to the extent any
option granted hereunder is intended to qualify as
performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder (the "Code"), constitute "outside
directors" within the meaning of Section 162(m) of the Code.
Such Committee shall consist of not less than two members of
the Corporation's Board of Directors. The Board of Directors
may, from time to time, remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board of Directors. The
Committee shall select one of its members as Chairman, and
shall hold meetings at such times and places as it may
determine. A majority of the Committee at which a quorum is
present, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid
acts of the Committee.
b. Authority and Discretion of Committee. Subject to the express provisions of the Plan and provided that all actions taken shall be consistent with the purposes of the Plan, the Committee shall have full and complete authority and the sole discretion to: (i) select the individuals to whom awards shall be granted under the Plan (the "Participants"); (ii) determine the size and the form of the award or awards to be granted to any Participant; (iii) determine the time or times such awards shall be granted; (iv) establish the terms and conditions upon which such awards may be exercised and/or transferred; (v) alter any restrictions; (vi) interpret and construe provisions of the Plan or of any award granted under it; and (vii) adopt such rules and regulations, establish, define and/or interpret any other terms and conditions, and make all other determinations (which may be on a case-by-case basis) deemed necessary or desirable for the administration of the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any stock option or other award granted under it.
c. If at any time no Committee shall be in office, the Board of Directors shall perform the functions of the Committee.
Section III. Awards. Awards under the Plan may include any or all of the following, as described and defined herein: Stock Options, including Incentive Stock Options and Nonqualified Stock Options, Stock Appreciation Rights, Restricted Share Awards and Performance Shares.
a. Stock Options. Stock options ("Stock Options") are rights to purchase shares of common stock $0.001 par value of the Corporation ("Common Stock") at a stated price (determined by the Committee) on the date of grant for a predetermined period of time.
i. The Committee may grant Stock Options either alone or in conjunction with Stock Appreciation Rights as described in paragraph d. below. It shall determine the number of shares of Common Stock to be covered by each such Stock Option.
ii. The Committee will determine the conditions of Stock Option exercise as well as the conditions upon which Stock Options shall lapse, but in no event may any portion of a Stock Option be exercisable later than ten (10) years from the date of the grant.
iii. The Committee may provide for acceleration of Stock Option exercise in case of the acquisition of a significant portion of the assets or a significant change in ownership of the Corporation.
iv. The exercise price of any Stock Option shall be determined by the Committee, and shall be paid in full upon exercise, either (a) in cash, (b) by delivery of shares of Common Stock (valued at their Fair Market Value on the date of purchase, as defined in Section IV) or (c) a combination of cash and Common Stock. In addition, the Committee may provide for the cashless exercise of Stock Options.
b. Incentive Stock Options. Any Stock Option designated by the Committee as an "Incentive Stock Option" is intended to qualify as an "incentive stock option" within the meaning of Subsection 422 (b) of the Code and shall satisfy, in addition to the conditions of Section III.a. hereof, the conditions set forth in this Section III.b.
i. Incentive Stock Options may only be granted to common law employees of the Corporation or its subsidiaries.
ii. On the date on which an Incentive Stock Option is granted, the exercise price per share provided for in such Incentive Stock Option will not be less than the Fair Market Value of one share of the stock for which such Incentive Stock Option may be exercised, provided however, that an Incentive Stock Option may only be granted to an individual who, on the date of grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of any Affiliate (a "Ten Percent Owner") if, on the date such Incentive Stock Option is granted, the exercise price per share provided for in such option granted to a Ten Percent Owner is at least 110 percent of the Fair Market Value of one share of the stock for which such Incentive Stock Option may be exercised.
iii. An Incentive Stock Option may only be exercised during the ten (10) year period following the date such Incentive Stock Option is granted, provided however, that an Incentive Stock Option may only be granted to a Ten Percent Owner if such Incentive Stock Option by its terms is not exercisable after the expiration of the five (5) year period following the date such Incentive Stock Option is granted.
iv. To the extent that the aggregate Fair Market Value of stock with respect to which Incentive Stock Options are exercisable for the first time by any individual during any calendar year under all option plans maintained by the Corporation or any Affiliate exceeds $100,000, such excess shall be treated as Nonqualified Stock Options and not as Incentive Stock Options.
c. Nonqualified Stock Options. Any Stock Option designated by the
Committee as a "Nonqualified Stock Option" is intended to
qualify as a "non-statutory stock option" within the meaning
of Section 83 of the Code and shall satisfy the conditions of
Section III.a. Nonqualified Stock Options may be granted to
(i) individuals who are key employees (including officers and
directors who are also key employees) of the Corporation or
any Affiliate, (ii) Directors who are not otherwise employees
of the Corporation or an Affiliate; or (iii) employees and
other persons who are consultants to or otherwise perform
services to or for the benefit of the Corporation, any
Affiliate, or any Affiliate (whether or not a member of the
Corporation's consolidated group), all as the Committee shall
determine from time to time.
d. Stock Appreciation Rights. "Stock Appreciation Rights" are rights to receive cash and/or Common Stock in lieu of the purchase of shares under a related Stock Option. The Committee may grant Stock Appreciation Rights to any recipient of a Stock Option either at the time of the grant of the Stock Option or subsequently, by amendment to such grant. All Stock Appreciation Rights shall be granted under and subject to the following terms and conditions, and such other terms and conditions as the Committee may establish:
i. Each Stock Appreciation Right shall be exercisable at the same times and with regard to the same number of shares as the related Stock Option is exercisable.
ii. Each Stock Appreciation Right shall entitle the holder thereof to surrender to the Corporation a portion of or all of the unexercised, but exercisable, related Stock Option, and to receive with respect to each share of Common Stock represented by such surrendered portion cash and/or shares of Common Stock of a value equal to the amount by which the Fair Market Value of each such share on the date of exercise exceeds the exercise price provided in the related Stock Option. The recipient shall not be required to pay the Stock Option exercise price upon surrender of the Stock Option or exercise of the related Stock Appreciation Right.
iii. Each surrender of a portion of or all of a Stock Option upon the exercise of a Stock Appreciation Right shall cause a share for share reduction in the number of shares of Common Stock covered by the related Stock Option.
iv. Notwithstanding any other provision of the Plan, the Committee may, from time to time, determine the maximum amount of cash or stock which may be paid or issued upon exercise of Stock Appreciation Rights (a) in any year and/or (b) to any particular Participant. In no event, however, may the cash portion of such payment exceed 50% of the total amount due. Any other limitation on payments may be changed by the Committee from time to time, provided that no such change shall require the holder to return to the Corporation any amount theretofore received upon the exercise of Stock Appreciation Rights.
e. Restricted Stock Awards. "Restricted Stock Awards" are grants of Common Stock to a Participant subject to the restrictions described in the following subsections.
i. The Committee may award Restricted Stock alone or in conjunction with Performance Shares as described in paragraph f. below. The Committee shall further determine the number of shares of Restricted Stock to be awarded.
ii. Restricted Stock may be subject to such terms and
conditions as the Committee may determine which may
include, without limitation, a provision that the
Restricted Stock will be forfeited unless the
recipient remains in the employ of the Corporation or
an Affiliate for a minimum period of time, or a
provision that the Restricted Stock will be forfeited
unless the Corporation or an Affiliate achieves
specified earnings, sales or other performance-based
goals. In addition, the Committee may condition the
grant of Restricted Stock on the agreement of the
recipient to make an election to disregard the risk
of forfeiture of the Restricted Stock pursuant to
Section 83(b) of the Internal Revenue Code of 1986,
as amended. The period during which any Restricted
Stock remains subject to forfeiture shall be
determined by the Committee but shall not be less
than one (1) year nor more than ten (10) years. Upon
the satisfaction of any vesting requirement specified
in the grant of the Restricted Stock, such Restricted
Stock will cease to be Restricted Stock and, other
than restrictions, if any, imposed by federal or
state securities or similar laws, shall be freely
transferable by the owner.
iii. Restricted Stock may not be sold, transferred or otherwise disposed of, pledged, or otherwise encumbered.
iv. In the event a recipient of Restricted Stock is an employee whose employment is terminated for any reason except death, retirement or permanent disability, any Restricted Stock he or she holds shall be delivered to the Corporation without compensation and on such other terms identified in the restricted stock grant within 30 days following such termination and shall be deemed void for all corporate purposes.
v. Upon the occurrence of the earlier of the death, retirement, or permanent disability of the recipient of a Restricted Stock Award, the restrictions against disposition of shares as to which such restrictions have not otherwise lapsed shall immediately lapse.
vi. In addition to the terms provided in paragraph e.ii. above, the Committee may, in its discretion, provide that any forfeitable Restricted Stock shall become nonforfeitable upon the acquisition of a significant portion of the assets or upon any significant change of ownership of the Corporation.
vii. Certificates issued in respect of Restricted Stock granted under the Plan shall be registered in the name of the recipient but shall bear the following legend:
"The transferability of this certificate and the shares of stock represented hereby is restricted and the shares are subject to the further terms and conditions contained in the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan. Copies of said plan are on file in the office of the Treasurer of Activeworlds.com, Inc. at its offices in Newburyport, Massachusetts."
viii. In order to enforce the restrictions, terms and conditions on Restricted Stock, each recipient thereof shall, immediately upon receipt of a certificate or certificates representing such shares, deposit such certificates, together with stock powers and other instructions of transfer as the Committee may require, appropriately endorsed in blank, with the Corporation as escrow agent under an escrow agreement in such form as shall be determined by the Committee.
f. Performance Shares. Performance Shares are rights to payment in cash of an amount equal to the Fair Market Value of the Corporation's Common Stock on the date the restrictions lapse on an accompanying Restricted Stock Award. The Committee may grant Performance Shares to a recipient of Restricted Stock either at the time of the award of the Restricted Stock or subsequently by amendment of such award. Any number of Performance Shares, up to an amount equal the number of shares of the accompanying Restricted Stock Award, may be granted by the Committee.
g. Special Rules for Awards to Covered Employees. The Committee
may, in its sole discretion, grant to any Covered Employee (as
defined below) any Stock Option for which the exercise price
of a share of the stock for which such option is granted is
equal to or greater than the Fair Market Value of a share of
such stock on the date such Stock Option is granted with the
intent that such award qualifies as "performance-based
compensation" under Section 162(m) of the Code, or any
successor provision thereto (a "162(m) Award"). In the event
the Corporation is a "publicly held corporation" as defined in
Section 162 (m) (2) of the Code, awards to Covered Employees
(as defined below) shall be made only in compliance with that
intent and with all of the following conditions:
i. Only the Committee shall have authority to make
162(m) Awards to Covered Employees;
ii. No more than One Thousand (1,000) shares of the
Corporation's Common Stock shall be included in
162(m) Awards made to any Covered Employee in any
calendar year;
iii. In connection with his or her initial employment, an employee may be granted options to purchase up to an additional One Hundred (100) shares, which shall not count against the limit set forth in subsection ii. above;
iv. The foregoing limitations shall be adjusted
proportionately in connection with any change in
the Corporation's capitalization as described in
Section V;
v. If an option granted in connection with a 162(m)
Award is canceled in the same fiscal year of the
Corporation in which it was granted (other than in
connection with a transaction described in Article
6(g)), the canceled option shall be counted against
the limits set forth in subsections (ii) and (iii)
above. For this purpose, if the exercise price of an
option is reduced, the transaction will be treated as
a cancellation of the option and the grant of a new
option;
vi. Amounts earned in connection with 162(m) Awards shall be based upon the attainment of performance objectives established by the Committee in accordance with Section 162(m). Such performance objectives may vary by optionee and by award and shall be based upon the attainment of specific amounts of, or changes in one or more of the following: Fair Market Value of the Corporation's common stock, revenues, earnings, shareholders' equity, return on equity, assets, return on assets, capital, return on capital, book value, economic value added, operating margins, cash flow, shareholder return, expenses or market share. The Committee may provide that in measuring the achievement of the performance objectives, a 162(m) Award may include or exclude items such as realized investment gains and losses, extraordinary, unusual or non-recurring items, asset write-downs, effects of accounting charges, currency fluctuations, acquisitions, divestitures, reserve-strengthening and other non-operating items; and
vii. For the purposes of this Plan, the term "Covered Employee" is defined in Section 162(m)(3) of the Code and generally includes (a) the Corporation's Chief Executive Officer who is serving on the last day of the taxable year (the "CEO") and (b) the four (4) most highly compensated employees of the Corporation other than the CEO whose compensation is required to be reported to the Corporation's shareholders under the Securities Exchange Act of 1934.
Section IV. Miscellaneous Provisions.
1. Rights of Recipients of Awards. The holder of Stock Appreciation Rights or any Stock Option granted under this Plan shall have no rights as a stockholder of the Corporation with respect thereto unless and until certificates for shares are issued. The holder of a Restricted Stock Award will be entitled to receive any dividends on such shares in the same amount and at the same time as they are declared on shares of Common Stock of the Corporation and shall be entitled to vote such shares as a stockholder of record.
a. Assignment of Options and Stock Appreciation Rights. No stock Option or Stock Appreciation Right or any rights or interests of the recipient therein shall be assignable or transferable by such recipient except by will or the laws of descent and distribution. During the lifetime of the recipient, such Stock Option or Stock Appreciation Right shall be exercisable only by, or payable only to, the recipient thereof.
b. Further Agreements. All Stock Options, Stock Appreciation Rights, Restricted Stock Awards, and Performance Share Awards granted under this Plan shall be evidenced by agreements in such form and containing such terms and conditions (which must be consistent with this Plan) as the Committee may require.
c. Replacement Options and Stock. Upon cancellation of an outstanding Stock Option or the forfeiture of Restricted Stock, replacement Stock Options or replacement Restricted Stock may be issued in an amount and with such terms as the Committee may determine.
d. Legal and Other Requirements. No shares of Common Stock shall be issued or transferred upon exercise of any award under the Plan unless and until all legal requirements applicable to the issuance or transfer of such shares and such other requirements as are consistent with the Plan have been complied with to the satisfaction of the Committee. The Committee may require that, prior to the issuance or transfer of Common Stock hereunder, the recipient thereof shall enter into a written agreement to comply with any restrictions on subsequent disposition that the Committee or the Corporation deem necessary or advisable under any applicable law, regulation or official interpretation thereof. Certificates of stock issued hereunder may be legended to reflect such restrictions.
e. Withholding of Taxes. Pursuant to applicable Federal, state, local, or foreign laws, the Corporation may be required to collect income or other taxes upon the grant of certain awards, the exercise of an option, or Stock Appreciation Right, or the lapse of restrictions on a Restricted Stock Award. The Corporation may deduct applicable taxes from payments made under the Plan, or require, as a condition to such award, or to the exercise of an option or Stock Appreciation Right, that the recipient pay the Corporation, at such time as the Committee or the Corporation determines, the amount of any taxes which the Committee or the Corporation, in their discretion, determines are required to be withheld.
f. Right to Awards. No employee of the Corporation or other person shall have any claim or right to be a Participant in this Plan or to be granted an award hereunder. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Corporation. Nothing contained hereunder shall be construed as giving any Participant or any other person any equity or interest of any kind in any assets of the Corporation or creating a trust of any kind or a fiduciary relationship of any kind between the Corporation and any such person. As to any claim for any unpaid amounts under the Plan, any Participant or any other person having a claim for payments shall be an unsecured creditor.
g. Fair Market Value The "Fair Market Value" of Common Stock shall be (x) if the Common Stock of the Corporation is listed on a national stock exchange or traded in the over-the-counter market, the closing price reported on the day immediately preceding the date of grant, (y) if the Common Stock is not listed on a national stock exchange or traded in the over-the-counter market but a private sale of Common Stock has taken place within the 60 days preceding a grant or award, the sales price per share in such private sale, unless the Board of Directors determines in good faith that such price does not accurately reflect the value of the Common Stock or (z) in any other case, the value determined by the Board of Directors in good faith.
h. Permanent Disability. A Participant shall be deemed to have a "Permanent Disability" if, for physical or mental reasons, the Participant is prevented from performing the Participant's duties for 60 consecutive days, or 120 days during any twelve-month period. A Permanent Disability shall be determined by the Board of Directors in consultation with a medical doctor selected by it. The Participant shall submit to a reasonable number of examinations by the medical doctor making the determination of Disability, and the Participant shall authorize the disclosure and release to the Corporation of such determination and all supporting medical records. If the Participant is not legally competent, the Participant's legal guardian or duly authorized attorney-in-fact shall act in the Participant's stead for the purposes of submitting the Participant to the examinations, and providing the authorization of disclosure, required hereunder.
i. Retirement. "Retirement" shall mean any date on which an employee terminates employment with the Corporation on or after attaining age 62.
j. Indemnity. Neither the Board of Directors nor the Committee, nor any members of either, nor any employees of the Corporation or any Affiliate, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with their responsibilities with respect to the Plan. The Corporation hereby agrees to indemnify the members of the Board of Directors, the members of the Committee, and the employees of the Corporation and its subsidiaries with respect to any claim, loss, damage, or expense (including counsel fees) arising from any such act, omission, interpretation, construction or determination to the full extent permitted by law.
2. Affiliate. For the purposes of this Plan, the term "Affiliate" means, with respect to a specified Person, any Person that directly or indirectly controls, is controlled by, or is under common control with, the specified Person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. The term "Person" means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization. An entity which is included with the "affiliated group" of the Corporation as defined by Section 1504 of the Code, or an entity which is consolidated with the Corporation for financial reporting purposes, shall in any case be considered an "Affiliate" as defined herein.
Section V. Amendment and Termination; Adjustments Upon Changes in Stock. The Board of Directors of the Corporation may at any time, and from time to time, amend, suspend or terminate the Plan in whole or in part; provided, however, that the Board of Directors may not materially increase the benefits accruing to participants under the Plan, increase the number of shares of Common Stock reserved for purposes of the Plan, or materially modify the requirements as to eligibility for participation in the Plan without further approval by the affirmative vote of at least a majority of the holders of the outstanding shares of Common Stock. Except as provided herein, no amendment, suspension or termination of the Plan may affect the rights of a participant to whom an award has been granted without such participant's consent. In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the Corporation's corporate structure, appropriate adjustments may be made by the Committee or by the Board of Directors of the Corporation (or, if the Corporation is not the surviving corporation in any such transaction, by the Board of Directors of the surviving corporation) in the aggregate number of shares available for award under the Plan, and in the aggregate number and kind of shares and the price per share subject to outstanding Stock Options, Stock Appreciation Rights, Restricted Stock Awards or Performance Share Awards.
Section VI. Shares of Stock Available. The aggregate number of Stock Options and Restricted Stock Awards under the Plan is One Million (1,000,000) shares of the capital stock of the Corporation on a fully-diluted basis, assuming full exercise of all options and conversion of all convertible shares. The total number of Stock Options and Restricted Stock Awards which may be issued hereunder will be reduced (i) upon the exercise of an option, by the number of shares for which such option is exercised; (ii) upon the exercise of a Stock Appreciation Right, by the number of shares covered by the option canceled upon such exercise; and (iii) by the number of shares which are released due to the lapse of restrictions in case of a Restricted Stock Award. The grant and payment of Performance Shares shall not affect the number of shares of Common Stock subject to the Plan. Any shares subject to an option hereunder that for any reason is canceled (other than because of the exercise of an attached Stock Appreciation Right) or expires unexercised or shares reacquired because restrictions do not lapse on Restricted Stock Awards will be available for further awards. Shares of Common Stock to be delivered under the Plan may be authorized, but unissued shares or shares reacquired on the open market.
Section VII. Effective Date and Term of the Plan. Subject to shareholder approval, the effective date of the Plan is January 21, 1999, and awards under the Plan may be made for a period of ten (10) years commencing on such date. The period during which an option or other award may be exercised may extend beyond that time as provided herein.
This Plan was adopted by the directors of the Corporation at a meeting held on January 22, 1999.
EXHIBIT 10.2
1. PARTIES Robert L. Wood, LESSOR, which expression shall include his
heirs, successors, and assigns where the context so
admits, does hereby lease to Activeworlds.com, Inc.,
LESSEE, which expression shall include its successors,
executors, administrators, and assigns where the context
so admits, and the LESSEE hereby leases the following
described premises:
2. PREMISE 4,500 square feet of space on the 2nd floor as shown on
the plan attached hereto and labeled Exhibit "A" located
at 95 Parker Street, Newboryport, Massachusetts, together
with the right to use in common, with others entitled
thereto, parking facilities, hallways and stairways
necessary for access to said leased premises.
3. TERM The term of this lease shall be for a term of three (3)
years commencing on March 1, 1999 and ending on February
28, 2002, with an option to renew for a period of three
(3) years at current market value on February 28, 2002.
4. RENT The LESSEE shall pay to the LESSOR rent at the rate of
Thirty-one Thousand Five Hundred ($31,500.00) DOLLARS per
year, payable in advance in monthly installments of Two
Thousand Six Hundred Twenty-five and No/100 ($2,625.00)
DOLLARS. All rent shall be payable without offset or
deduction.
5. LAST MONTH'S Upon execution of the lease, the LESSEE shall pay to the
RENT LESSOR, the amount of Five Thousand Two Hundred Fifty and
No/100 ($5,250.00) Dollars, which shall represent payment
for first month and last month of the term.
6. UTILITIES The LESSEE shall pay, as they become due, all bills for
electricity and other utilities (whether they are used for
furnishing heat or other purposes) that are furnished to
the leased premises and presently separately metered.
LESSEE is leasing 4,500 square feet of the 80,000 square
foot building. LESSEE shall pay each month 5.6% of the
water and sewer bill for the building. LESSEE shall pay
LESSOR 5.6% of the reasonable cost of snow and ice removal
in each year of the term of the lease and proportionately
for any part of a year. The LESSEE shall pay LESSOR for
snow and ice removal on February 28, 2000, February 28,
2001 and February 28, 2002. LESSOR shall provide an annual
statement in reasonable detail setting forth such charges,
and will promptly provide LESSEE with copies of all bills
for the items included therein. LESSOR shall have no
obligation to provide utilities or equipment other than
the utilities and equipment within the premises as of the
commencement date of this lease. Subject to Paragraph 21,
in the event LESSEE requires additional utilities or
equipment, the installation and maintenance thereof shall
be the LESSEE'S sole obligation, provided that such
installation shall be subject to the written consent of
the LESSOR.
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7. TAXES LESSEE shall pay to LESSOR as additional rent hereunder,
when and as designated by notice in writing by LESSOR,
5.6% of the real estate taxes on the building in each year
of the term of the lease and proportionately for any part
of a fiscal year. LESSOR shall, upon request, provide to
LESSEE copies of all tax bills. If the LESSOR obtains an
abatement for any such real estate tax, a proportionate
share of such abatement, less the reasonable fees and
costs incurred in obtaining the same, if any, shall be
refunded to the LESSEE.
8. USE OF LEASED
PREMISES The LESSEE shall use the leased premises for the purpose
of research and development and for other associated and
business purposes.
9. COMPLIANCE
WITH LAWS The LESSEE acknowledges that no trade or occupation will
be conducted in the leased premises or use made thereof
which will be unlawful, improper, noisy or offensive, or
contrary to any law or any municipal by-law or ordinance
in force in the city or town in which the premises are
situated. LESSEE shall be responsible for compliance with
requirements imposed by the Americans with Disabilities
Act relative to the layout of leased premises and any work
performed by the LESSEE therein.
10. FIRE INSURANCE The LESSEE shall not permit any use of the leased premises
which will make voidable any insurance on the property of
which the leased premises are a part, or on the contents
of said property or which shall be contrary to any law or
regulation from time to time established by the New
England Fire Insurance Rating Association or any similar
body succeeding to its powers. The LESSEE shall on demand
reimburse the LESSOR, and all other tenants, all extra
insurance premiums caused by the LESSEE'S use of the
premises.
11. MAINTENANCE
A. LESSEE'S
OBLIGATIONS The LESSEE agrees to maintain the leased premises in good
condition, damage by fire and other casualty, eminent
domain and damage caused by LESSOR, its agents, employees
and contractors, only excepted, and whenever necessary, to
replace plate glass and other glass therein, acknowledging
that the leased premises are now in good order and the
glass whole. The LESSEE shall not permit the premises to
be overloaded, damaged, stripped, or defaced, nor suffer
any waste. LESSEE shall obtain written consent of LESSOR
before erecting any sign on the premises, which consent
shall not be unreasonably withheld or delayed.
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B. LESSOR'S
OBLIGATION The LESSOR agrees to maintain the structure of the
building and parking lot of which the leased premises are
a part and the utility systems within or serving the
leased premises in the same condition as it is at the
commencement of the term or as it may be put in during the
term of this lease, reasonable wear and tear, damage by
fire and other casualty only excepted, unless such
maintenance is required because of the LESSEE or those for
whose conduct the LESSEE is legally responsible.
12. ALTERATIONS -
ADDITIONS The LESSEE shall not make structural alterations or
additions to the leased premises, but may make
non-structural alterations provided the LESSOR consents
thereto in writing. All such allowed alterations shall be
at LESSEE'S expense and shall be in quality at least equal
to the present construction. LESSEE shall not permit any
mechanics' liens, or similar liens, to remain upon the
leased premises for labor and material furnished to LESSEE
or claimed to have been furnished to LESSEE in connection
with work of any character performed or claimed to have
been performed at the direction of LESSEE and shall cause
any such lien to be released of record forthwith without
cost to LESSOR. Any alterations or improvements made by
the LESSEE shall become the property of the LESSOR at the
termination of occupancy as provided herein.
13. ASSIGNMENT -
SUBLEASING The Lessee shall not assign or sublet the whole or any
part of the leased premises without LESSOR'S prior written
consent, which consent shall not be unreasonably withheld
or delayed, notwithstanding such consent, LESSEE shall
remain liable to LESSOR for the payment of all rent and
for the full performance of the covenants and conditions
of this lease.
14. SUBORDINATION This Lease shall be subject and subordinate to any and all
mortgages, deeds of trust and other instruments in the
nature of a mortgage, now or at any time hereafter, a lien
or liens on the property of which the leased premises are
a part and the LESSEE shall, when requested, promptly
execute and deliver such written instruments as shall be
necessary to show the subordination of this lease to said
mortgages, deeds of trust or other such instruments in the
nature of a mortgage.
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15. LESSOR'S
ACCESS The LESSOR or agents of the LESSOR may, at reasonable
times, and upon reasonable notice enter to view the leased
premises and may remove placards and signs not approved
and affixed as herein provided, and make repairs and
alternations as LESSOR should elect to do and may show the
leased premises to others, and at any time within three
(3) months before the expiration of the term, may affix to
any suitable part of the leased premises or property of
which the leased premises are a part and keep the same so
affixed without hindrance or molestation.
16. LESSEE'S
LIABILITY
INSURANCE The LESSEE shall maintain with respect to the leased
premises and the property of which the leased premises are
a part comprehensive public liability insurance in the
amount of $500,000/$1,000,000 with property damage
insurance in limits of $50,000 in responsible companies
qualified to do business in Massachusetts and in good
standing therein insuring the LESSOR as well as LESSEE
against injury to persons or damage to property as
provided. The LESSEE shall deposit with the LESSOR
certificates for such insurance at or prior to the
commencement of the term, and thereafter within thirty
(30) days prior to the expiration of any such policies.
All such insurance certificates shall provide that such
policies shall not be canceled without at least ten (10)
days prior written notice to each assured named therein.
17. FIRE CASUALTY -
EMINENT DOMAIN Should a substantial portion of the leased premises or of
the property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by eminent
domain, the LESSOR may elect to terminate this lease. When
such fire, casualty, or taking renders the leased premises
substantially unsuitable for their intended use, a just
and proportionate abatement of rent shall be made, and the
LESSEE may elect to terminate this lease if:
(a) The LESSOR fails to give written notice within
ten (10 days of intention to restore leased
premises, or
(b) The LESSOR fails to restore the leased premises
to a condition substantially similar to that which
existed immediately prior to such fire or casualty
within ninety (90) days of said fire, casualty or
taking.
In the event that the premises are not materially damaged,
the LESSOR shall be entitled to terminate this lease only
if the LESSOR simultaneously terminates leases for spaces
of substantially similar size which are similarly
affected. The LESSOR reserves, and the LESSEE grants to
the LESSOR, all rights which the LESSEE may have for
damages or injury to the leased premises for any taking by
eminent domain, except for damage to the LESSEE'S
fixtures, property, or equipment.
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18. DEFAULT AND
BANKRUPTCY In the event that:
(a) The LESSEE shall default in the payment of any
installment of rent or other sum herein specified
and such default shall continue for fifteen (15)
days after written notice thereof, or
(b) The LESSEE shall default in the observance or
performance of any other of the LESSEE'S covenants,
agreements, or obligations hereunder and such
default shall not be corrected within thirty (30)
days after written notice thereof, or
(c) The LESSEE shall be declared bankrupt or
insolvent according to law, or, if any assignment
shall be made of LESSEE'S property for the benefit
of creditors, then the LESSOR shall have the right
thereafter, while such default continues, to
re-enter and take complete possession of the leased
premises, to declare the term of this lease ended,
and remove the LESSEE'S effects, without prejudice
to any remedies which might e otherwise used for
arrears of rent or other default. The LESSEE shall
indemnify the LESSOR against all loss of rent and
other payments which the LESSOR may incur by reason
of such termination during the residue of the term.
LESSOR shall use his best efforts to locate another
LESSEE. If the LESSEE shall default after reasonable
notice thereof, in the observance or performance of
any conditions or covenants on LESSEE'S part to be
observed or performed under or by virtue of any of
the provisions in any article of this lease, the
LESSOR, without being under any obligation to do so
and without thereby waiving such default, may remedy
such default for the account at the expense of the
LESSEE. If the LESSOR makes any expenditures or
incurs any obligations for the payment of money in
connection therewith, including but not limited to,
reasonable attorney's fees in instituting,
prosecuting, or defending any action or proceeding,
such sums paid or obligations insured, with interest
at the rate of ten (10%) per cent per annum and
costs, shall be paid to the LESSOR by the LESSEE as
additional rent.
19. NOTICE Any notice from the LESSOR to the LESSEE relating to the
leased premises or the occupancy thereof, shall be deemed
duly served, if mailed to the leased premises, registered
or certified mail, return receipt requested, postage
prepaid, addressed to the LESSEE. Any notice from the
LESSEE to the LESSOR relating to the leased premises or to
the occupancy thereof, shall be deemed duly served, if
mailed to the LESSOR by registered or certified mail,
return receipt requested, postage prepaid, addressed to
the LESSOR at such address as the LESSOR may from time to
time advise in writing. All rent notices shall be paid and
sent to the LESSOR at 95 Parker Street, Newburyport,
Massachusetts 01950.
5
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20. SURRENDER The LESSEE shall at the expiration or other termination of
this lease remove all LESSEE'S goods and effects from the
leased premises, (including, without hereby limiting the
generality of the foregoing, all signs and lettering
affixed or painted by the LESSEE, either inside or outside
the leased premises). LESSEE shall deliver to the LESSOR
the leased premises and all keys, locks thereto, and other
fixtures connected therewith and all alterations and
additions made to or upon the leased premises, in good
condition, damage by fire eminent domain or other casualty
and damage caused by LESSOR its agents, employees and
contractors only excepted. In the event of the LESSEE'S
failure to remove any of LESSEE'S property from the
premises, LESSOR is hereby authorized, without liability
to LESSEE for loss or damage thereto, and the sole risk of
LESSEE, to remove and store any of the property at
LESSEE'S expense, or to retain same under LESSOR'S control
or to sell at public or private sale, without notice any
or all of the property not so removed and to apply the net
proceeds of such sale to the payment of any sum due
hereunder, or to destroy such property.
21. BUILD OUT LESSOR agrees to build out the premises according to the
specification shown in the plan attached hereto and
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labeled EXHIBIT "B". LESSEE agrees to pay Twenty Thousand ($20,000.00) DOLLARS for the build out as follows:
(1) Ten Thousand ($10,000.00) DOLLARS, on February
19, 1999;
(2) Ten Thousand ($10,000.00) DOLLARS, upon the
execution of the lease.
If the cost of build out is more than Sixty Thousand
($60,000.00) DOLLARS, Lessee agrees to pay one-third (1/3)
of the additional costs over Sixty Thousand ($60,000.00)
DOLLARS.
22. FORCE MAJEURE In the event that the LESSOR is prevented or delayed from
making any repairs or performing any other covenant
hereunder by reason of any cause reasonably beyond the
control of the LESSOR, the LESSOR shall not be liable to
the LESSEE therefor nor, except as expressly otherwise
provided in case of casualty or taking, shall the LESSEE
be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim by
the LESSEE that such failure constitutes actual or
constructive eviction from the leased premises or any part
thereof.
6
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23. LATE CHARGE If rent or any other sum payable hereunder remains
outstanding for a period of ten (10) days, the LESSEE
shall pay to the LESSOR a late charge equal to one and
one-half percent (1.5%) of the amount due for each month
or portion thereof during which the arrearage continues.
24. LIABILITY OF
OWNER No owner of the property of which the leased premises are
a part shall be liable hereunder except for breaches of
the LESSOR'S obligations occurring during the period of
such ownership. The obligations of the LESSOR shall be
binding upon the LESSOR'S interest in said property, but
not upon other assets of the LESSOR, and no individual
partner, agent, trustee, stockholder, officer, director,
employee or beneficiary of the LESSOR shall be personally
liable for performance of the LESSOR'S obligations
hereunder.
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IN WITNESS WHEREOF, the said parties hereunto set their hand s and seals this day of , 1999.
------------------------------ ------------------------- Richard F. Noll, President Robert L. Wood, LESSOR Activeworlds.com, Inc., LESSEE |
RESTATED
EMPLOYMENT AGREEMENT
This Restated Employment Agreement (the "Agreement") is effective as of the 21st day of January, 1999, by and between Activeworlds.com, Inc., a corporation organized under the laws of the State of Delaware, having its principal offices at 95 Parker Street, Newburyport, Massachusetts 01950 (the "Employer") and Richard F. Noll of Billerica, Massachusetts (the "Employee"). This Agreement supersedes any and all prior employment agreements between the Employer and Employee, whether written or oral, including specifically the Employment Agreement between Employer and Employee dated January 21, 1999, and the terms of such prior agreements shall hereafter be deemed to be null and void and of no continuing effect.
WHEREAS, the Employer and Employee are desirous of entering into a Employment Agreement, to replace all prior employment agreements, whether written or oral, which have been entered into between the Employee and the Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby agrees to employ the Employee, and the Employee hereby accepts employment, all upon the terms, conditions and covenants set forth in this Agreement.
2. Duties. The Employer hereby employs the Employee to serve as its President, Chief Executive Officer and such other offices as Employee may be elected to hold from time to time, with all powers and duties customarily associated with such title or titles. During the term of this Agreement, the Employee shall serve also, without additional compensation, as a Director of the Employer, if and when so elected by the shareholders of the Employer. Employer may not, without Employee's consent, materially diminish Employee's title and responsibilities during the term of this Agreement. Employee's employment with Employer shall be his sole business activity. The Employee, however, may devote time to charitable and personal matters so long as such activities, in the determination of the Employer, do not materially detract from the performance of Employee's duties to the Employer. The Employee's duties hereunder will be performed primarily within the State of Massachusetts, and, until otherwise changed by mutual agreement, his work location shall be within Massachusetts.
3. Term. Subject to Section 14, the term of this Agreement shall begin on the date hereof and, unless terminated sooner pursuant to Section 14, shall continue until January 20, 2002 (the "Term"). Thereafter, the Term shall automatically be renewed for up to three successive one (1) year periods unless, not later than 90 days prior to the expiration of the initial Term or any one year extension term, the party desiring to terminate this Agreement shall have notified the other in writing of its intention to terminate, which in the case of the Employer shall be authorized by the Employer's Board of Directors.
4. Compensation and Benefits.
(a) In each year of this Agreement the Employer shall pay to the Employee an annual base salary (the "Annual Salary"), the total of which during the first year of the Term shall be One Hundred Forty Thousand Dollars ($140,000.00) prorated for any partial month (the "Initial Annual Salary"). The Initial Annual Salary shall be payable as follows:
(i) During the first six months of 1999, payment of the Initial Annual Salary shall be made (A) in equal amounts calculated according to an annual salary of $57,000.00 (approximately $4,750.00 per month) in accordance with Employer's general payroll policies and prorated for any partial months of employment; and (B) in a lump sum payment made on June 30, 1999 or within 5 business days thereafter equal to the difference between (1) the amount paid to Employee for services rendered through June 30, 1999 as set forth above in part (A) of this subsection, and (2) the remaining amount due to Employee for services rendered through June 30, 1999 calculated according to an annual salary of $140,000.00 and prorated for any partial months of employment.
(ii) During the last six months of 1999, payment of the Initial Annual Salary shall be made in equal amounts calculated according to an annual salary of $140,000.00 (approximately $11,666.66 per month) in accordance with Employer's general payroll policies and prorated for any partial months of employment.
The payment of the Annual Salary shall be made in accordance with the Employer's general payroll policies and shall be prorated for any partial years of employment hereunder. Any increases in the Annual Salary shall be subject to the approval by the compensation committee, as described in section 4(e).
(b) The Employee shall be granted options to purchase from the Employer up to Fourteen Thousand (14,000) shares of the Employer's authorized but unissued common stock, $0.001 par value (the "Common Stock"), at an exercise price of $0.55 per share, which options are subject to the terms and conditions to be set forth more specifically in a Stock Option Agreement between the Employer and Employee.
(c) The Employee shall be entitled to participate (to the extent that he is eligible) in all other employee benefits, if any, provided by the Employer for its employees, including participation in any qualified pension or profit sharing plan, eligibility for participation in any group life, health (including family dependant coverage), dental and eye care benefits. If a "change in control" occurs (as defined in Section 16), the Employee may choose, within one year following the event giving rise to the change in control, to receive instead of any regularly-provided employee benefit or other benefit provided for hereunder, the similar benefit provided by the Employer prior to such event, for the balance of the Term hereunder. If there is no benefit then provided which is similar to a previously-provided employee benefit, or if the benefit elected by the Employee cannot be provided by the Employer, then the Employer (or its successor) shall pay the Employee, no less than monthly, as additional compensation, a cash amount equal to the value of the benefit to the Employee. This provision shall survive any termination of this Agreement.
(d) The Employer shall provide or reimburse the Employee for reasonable disability insurance coverage and such other insurance as is reasonably approved by the Board of Directors of the Employer.
(e). Employee shall be eligible to share in a portion of a bonus pool created by the compensation committee (which shall be comprised of at least two members of the board of directors and may consist only of outside directors). The compensation committee shall have the authority to create for each year a bonus pool in an amount equal to not more than 10% of the Employer's net income, before income taxes, in excess of $750,000. Income before income taxes shall be determined in accordance with generally accepted accounting principles prior to the determination of the amount of the bonus pool. The compensation committee shall have the sole discretion to determine the allocation of the bonus pool among the senior executive officers. If the Board of Directors does not appoint a compensation committee for any given year, there will be no bonus pool and Employee shall not receive any raise. The compensation committee may increase, but not decrease, the Annual Salary from year to year.
5. Sick Pay and Disability Income. Salary, employee benefits, vacation accruals, automobile allowance and all other benefits set forth herein shall be paid to the Employee for any temporary periods of illness during which the Employee is unable to work and through the period of any disability (as defined hereinafter).
6. Vacation and Conventions. The Employee shall be entitled each year to three weeks of paid vacation, prorated for any partial year. Commencing two years following the effective date of the Company's 1999 underwritten secondary public offering, however, Employee shall be entitled to four weeks of paid vacation, prorated for any partial year. Unused vacation time (including time accumulated prior to the date hereof) shall accumulate from year to year and the Employee will be compensated for any unused vacation accumulated upon demand at any time following its accrual (including any vacation time accrued prior to the date of this agreement for which payment has not yet been made). In no event, however, may Employee carry over into a subsequent year more than 14 days of unused vacation. Any vacation not used in excess of the maximum permitted accrual shall be forfeited by Employee unless the compensation committee determines otherwise. In addition, the Employee will be entitled to leaves of absence, at full pay, for attendance at conventions, seminars or as otherwise reasonably determined by the Employee. In the event any vacation time shall not be taken by the Employee during any given year and compensation is not rendered for such unused vacation time, Employee shall be entitled to carry over such time into any subsequent year or years during the Term. In the event that Employee has any unused vacation time accrued under this Agreement upon the termination of Employee's employment or at the conclusion of the Term, Employee shall be entitled to be compensated for such unused vacation time.
7. Reimbursement for Expenses. The Employer shall reimburse the Employee for items of travel, entertainment or meals incurred while working outside of the Employer's principal office (including working at the Employee's home), and miscellaneous expenses incurred or paid by the Employee in the performance of his duties under this Agreement (including conventions and seminars), upon presentation by the Employee of such expense statements, vouchers or other supporting information as the Employer may reasonably require.
8. Automobile. The Employer will provide the Employee with an automobile allowance of a maximum of $350.00 per month (increased at the beginning of each year, only, by the Consumer Price Index as determined by the United States Department of Commerce, or any replacement index), or, if Employee so elects, with free use of any automobile approved by the unanimous vote of the Employer's Board of Directors. In addition, the Employer will either pay directly or reimburse the Employee for all expenses incurred in connection with such automobile, including without limitation, insurance, fuel, maintenance and repairs. Reimbursement shall be made upon the Employer's receipt of a signed itemized list of such expenses. The value of any benefits given to or of any amounts paid to the Employee under this Section 8 in excess of Employee's actual costs and expenses incurred in the performance of services for Employer shall be deemed additional compensation under this Agreement and not subject to reimbursement to the Employer.
9. Office. The Employer shall provide the Employee with an office, secretarial and administrative assistance, office equipment and supplies and such other facilities and services as are suitable to the Employee's position and adequate for the performance of his duties. In addition, the Employer shall reimburse the Employee for any expenses incurred by the Employee for use of his home for business purposes on behalf of the Employer and any associated expenses, including but not limited to those referenced in paragraph 7 hereof.
10. Withholding. The Employer shall withhold or deduct from the Employee's compensation any amounts required by law to be so withheld or deducted.
11. Confidentiality. During the Term of this Employment Agreement and thereafter, the Employee hereby covenants and agrees that he shall not other than for the benefit of the Employer publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Employer or its parent or affiliates, and any other Confidential Information concerning the Employer's or its parent or affiliate's, business, structure or affairs. All Confidential Information and copies thereof are the sole property of the Employer and Employee shall deliver promptly to the Employer at the termination of his employment or at any time as the Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Employee. Employee shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Employer's customers, contractors and others with whom the Employer has a business relationship, whether learned or acquired by Employee during the course of his employment by the Employer.
The nondisclosure obligations of this Section 11 shall not apply to:
(a) information that may be disclosed generally or is in the public domain
through no fault of the Employee; (b) information received from a third party
outside the Employer that was disclosed without a breach of any confidentiality
obligation; (c) information approved for release by written authorization of the
Employer; or (d) information that may be required by law or an order of any
court, agency or proceeding to be disclosed. This Section 11 shall remain in
effect notwithstanding any termination of this Employment Agreement.
12. Non-Competition and Non-Solicitation.
(a) During the time Employee is employed by the Employer, Employee shall devote his full time and efforts to the business of the Employer and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Employer. For a period of one year after the termination of employment with the Employer, and in any geographic area in which the Employer conducts business, for any reason: (i) Employee shall not hire or attempt to hire any employee of the Employer, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Employer; (ii) Employee shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Employer in any business in which the Employer is engaged; and (iii) Employee shall not cause or assist to cause any of the customers of the Employer with whom Employee communicated, dealt with or became acquainted during his term of employment with the Employer to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Employer.
(b) "Blue Pencil" Rule. The Employee and the Employer desire that the provisions of this Section 12 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Employee in this Section 12 are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Employee and the Employer agree and intend that the court shall enforce this Section 12 to whatever extent the court deems reasonable to effect the intent of this Section 12.
(c) Legitimate Purpose. The Employee has read carefully all of the terms and conditions of this Section 12 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Employer, and (ii) will not preclude the Employee from earning a livelihood during the life of this Section 12.
13. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Employee relating to the Employer's business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the Term of employment ("Developments"), shall be the sole property of the Employer. Employee agrees to and hereby does assign to the Employer all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Employer and take all such actions reasonably requested by the Employer to establish and confirm the Employer's ownership of such Developments. Employee agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Employer all copyrights, patents, trademarks and other proprietary rights the Employee may have in such Developments.
14. Termination. This Agreement shall be terminated (except for those obligations of the Employer which by their terms survive termination) by the occurrence of any of the following:
(a) The Employee's death.
(b) The action by the Board of Directors following the Employee's "disability". For this purpose, the term "disability" shall mean any physical or mental illness, disability or incapacity of the Employee which prevents him from substantially performing his regular duties for a period of three (3) consecutive months or four (4) months, even though not consecutive, in any twelve (12) month period.
(c) Action of the Board of Directors of the Employer for Cause. "Cause" is defined as the occurrence of any of the following events: (i) Employee's willful breach of this Agreement, repeated after written notice of such breach has been given to Employee, and having a material adverse effect upon the Employer's business or financial circumstances; (ii) Employee's habitual gross neglect of a substantial portion of his duties hereunder, which has not been cured by the Employee within 30 days after prior written notice thereof is given by the Employer to the Employee; (iii) the Employee's conviction of a felony; (iv) a conviction of any other crime involving fraud, theft, embezzlement and any violations of securities laws and laws relating to the workplace; and (v) a breach of the provisions of the agreement dealing with noncompetition, nonsolicitation, trade secrets and assignment of inventions. In no event shall "cause" be deemed to mean the Board of Director's mere disagreement, after the fact, with any lawful action undertaken by the Employee in the good faith exercise of his business judgment.
(d) Upon the election of the Employee by written notice to the Employer at any time following the period ending twenty four months from the date of this Agreement, not less than: (i) 30 days prior to the effective date of termination, or (ii) after a change in control (as defined in Section 16), 30 days prior to the effective date of termination.
(e) Upon the election of the Employee with "good reason". "Good reason" is defined as a material breach of this Agreement by the Employer and includes, but is not limited to, any decrease in the salary or benefits provided to the Employee, relegating the Employee to duties which are unrelated to or at a lower level of responsibility than those currently performed by Employee, having Employee report to any other officer rather than directly to the Board of Directors, altering Employee's title as President, or relocating the Employee to a location unreasonably distant from his work location. Provided, however, that for the purposes of this Section 14 (e) the term Employer shall include (A) the surviving entity in the event of any merger between the Employer and another entity; or (B) any company holding at least a majority of the outstanding common stock of the Employer, in the event that a controlling interest in the shares of the Employer were acquired by any other entity.
15. Damages for Breach by Employer.
(a) The employment provisions in this Agreement are a material
inducement to the Employee in continuing to render services to the Employer
during the Term and thereafter. The parties acknowledge that if the Employer
should breach such provisions, the Employee may be required to bring legal
action for damages and that questions of mitigation of damages would be
presented which could be very difficult to resolve prior to expiration of the
Term. For the sake of certainty and to avoid the cost, difficulty and delay of
proving damages in such circumstances, both parties agree that the Employee
shall be entitled to the amount of liquidated damages as set forth in Section 15
(c) in the event of the Employer's breach.
(b) If (i) the Employee terminates this Agreement for "good reason", or (ii) If during the Term hereof, the Employer (or any successor) terminates the Employee's employment for any reason other than "cause", as defined herein, then, in either such case, the Employer shall pay to the Employee, not later than thirty (30) days after the date of such termination, the amount of damages as set forth in Section 15 (c).
(c) In the event of the termination of this Agreement pursuant to Sections 15 (a) or (b), Employee shall be entitled to payment equal to the lesser of (a) one year's salary and bonus for the period of employment prior to the calendar year in which termination occurred; or (b) the salary due for the balance of the term plus a pro rata portion of the bonus paid to the Employee for the previous year. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 15 (c) by seeking other employment or otherwise, nor shall the Employee's income from any source after such termination be deducted for any reason from the sum computed under this Section 15 (c).
(d) The provisions of this Section 15 shall survive any termination of this Agreement.
16. Change in Control Defined. A "change in control" of the Employer shall occur upon the occurrence of one of the following events, but only if the Employee elects, within one year thereafter, to have such event treated as a change in control:
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") excepting Richard F. Noll and J.P. McCormick is or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty (30%) percent of the combined voting power of the Company's then outstanding securities, or if
(b) over any twelve (12) month period ("Period") during the term of this Agreement, individuals who at the beginning of such Period constitute the board of the Company do not constitute at least fifty (50%) percent of the number of Directors elected during such twelve (12) month Period, or if
(c) the Board adopts a resolution, in its sole discretion, to the effect that a material change in control of the Company has occurred for the purposes of this Agreement. For purposes of clause (b) above, a person who was not a Director at the beginning of such Period but who has (i) filled the place of a Director who has died or has retired in the ordinary course in accordance with any Company policies then in effect, and (ii) been approved in advance by Directors who constitute at least two-thirds (2/3) of the Directors who were, or are deemed to be, Directors at the beginning of the Period shall for purposes of this provision be deemed to be a Director since the beginning of the Period.
17. Indemnification.
(a) The Employer agrees to indemnify the Employee in any suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Employer) to the maximum extent provided under the laws of the State of Delaware.
18. Notice. Any notices required to be given pursuant to the provisions of this Agreement shall be in writing and delivered by hand delivery, express delivery service or by certified mail return receipt requested to the parties at the following addresses:
Employer: Activeworlds.com, Inc.
95 Parker Street
Newburyport, MA 01950
Employee: Richard F. Noll
16 Salem Road
N. Billerica, MA 01862
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19. Successors; Binding Effect.
(a) The Employer shall require any successor (whether direct or indirect by purchase of assets, purchase or exchange of stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. Failure of the Employer to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Employer" shall mean Activeworlds.com, Inc. and any successor to the business and/or assets of Activeworlds.com, Inc. which executes and delivers the agreement provided for in this Section 19 (a) or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the administrators, successors, heirs, distributees, devisees and legatees of the Employee. If the Employee should die prior to the payment to him of any amounts due him hereunder, all such payments shall be made in accordance with this Section 15 (b).
20. Arbitration. At the election of the Employee, any dispute
respecting this Agreement, whether commenced by the Employer or Employee may be
resolved by arbitration before a three person panel of independent arbitrators
pursuant to the Commercial Rules of the American Arbitration Association
("AAA"). Any arbitration compelled pursuant to this section shall be held at the
AAA office nearest to Employee's residence at the time such action is commenced.
Employee shall be entitled to a stay of any legal proceeding instituted against
by the Employer in the event that an election to arbitrate pursuant to this
Section is made.
21. Injunctive Relief. Employee acknowledges that in certain situations
Employer would not have any adequate remedy at law in the event Employee
breaches this Agreement and that Employer will suffer irreparable damage and
injury in such event. Employee agrees that Employer, in addition to any other
available rights and remedies available hereunder (including without limitation,
incidental and consequential damages), and notwithstanding the provisions of
Section 20 hereof, shall be entitled to equitable relief, including an
injunction restricting Employee from committing or continuing any violation of
this Agreement. Any action to seek an injunction pursuant to this Section 21 may
be brought in a court of competent jurisdiction in Boston, Massachusetts and the
parties hereto consent to the venue and jurisdiction of such court.
22. Attorney's Fees. In any litigation or arbitration relating to this Agreement, including litigation or arbitration with respect to any instrument, document or other agreement made under or in connection with this Agreement, the Employer shall bear all costs and attorney's fees of both parties.
23. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder.
24. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed original, but all of which together shall constitute one and the same instrument.
25. Severability. If any provisions of this Agreement shall be held to be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement and such term and condition, except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law.
26. Headings. The paragraph headings contained herein are for convenience and reference only, and shall be given no effect in the interpretation of any term or condition of this Agreement.
27. Miscellaneous. This Agreement is entered into and shall be construed under the laws of the State of Massachusetts applicable to contracts made and to be entirely performed within that State. In the event that, notwithstanding Section 20 hereof, any litigation relating to this Agreement is held to be permissible, the venue thereof shall be in the appropriate court with jurisdiction over the matter in dispute for the county in which the Employee resides at the time of the filing of the lawsuit in question. This Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Agreement shall inure to the benefits of the parties and their successors in interest. This Agreement is the entire agreement of the parties relating to the employment of the Employee by the Employer and supersedes all previous written or oral agreements.
IN WITNESS WHEREOF the parties have executed this Agreement under seal effective as of the day and year first above written.
EMPLOYEE: ACTIVEWORLDS.COM, INC. --------------------------------- --------------------------------------- Richard F. Noll J.P. McCormick, Chief Financial Officer |
RESTATED
EMPLOYMENT AGREEMENT
This Restated Employment Agreement (the "Agreement") is effective as of the 21st day of January, 1999, by and between Activeworlds.com, Inc., a corporation organized under the laws of the State of Delaware, having its principal offices at 95 Parker Street, Newburyport, Massachusetts 01950 (the "Employer") and J.P. McCormick of West Newbury, Massachusetts (the "Employee"). This Agreement supersedes any and all prior employment agreements between the Employer and Employee, whether written or oral, including specifically the Employment Agreement between Employer and Employee dated January 21, 1999, and the terms of such prior agreements shall hereafter be deemed to be null and void and of no continuing effect.
WHEREAS, the Employer and Employee are desirous of entering into a Employment Agreement, to replace all prior employment agreements, whether written or oral, which have been entered into between the Employee and the Employer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby agrees to employ the Employee, and the Employee hereby accepts employment, all upon the terms, conditions and covenants set forth in this Agreement.
2. Duties. The Employer hereby employs the Employee to serve as its Chairman of the Board, Chief Financial Officer and such other offices as Employee may be elected to hold from time to time, with all powers and duties customarily associated with such title or titles. During the term of this Agreement, the Employee shall serve also, without additional compensation, as a Director of the Employer, if and when so elected by the shareholders of the Employer. Employee acknowledges that the Employer shall have the right to replace him as Chief Financial Officer during the term of this Agreement, but that in such case the Employee shall be given the title Chief Operating Officer or another title agreed upon by the Employer and Employee. Employer may not, without Employee's consent, otherwise materially diminish Employee's title and responsibilities during the term of this Agreement. Employee's employment with Employer shall be his sole business activity. The Employee, however, may devote time to charitable and personal matters so long as such activities, in the determination of the Employer, do not materially detract from the performance of Employee's duties to the Employer. The Employee's duties hereunder will be performed primarily within the State of Massachusetts, and, until otherwise changed by mutual agreement, his work location shall be within Massachusetts.
3. Term. Subject to Section 14, the term of this Agreement shall begin on the date hereof and, unless terminated sooner pursuant to Section 14, shall continue until January 20, 2002 (the "Term"). Thereafter, the Term shall automatically be renewed for up to three successive one (1) year periods unless, not later than 90 days prior to the expiration of the initial Term or any one year extension term, the party desiring to terminate this Agreement shall have notified the other in writing of its intention to terminate, which in the case of the Employer shall be authorized by the Employer's Board of Directors.
4. Compensation and Benefits.
(a) In each year of this Agreement the Employer shall pay to the Employee an annual base salary (the "Annual Salary"), the total of which during the first year of the Term shall be One Hundred Forty Thousand Dollars ($140,000.00) prorated for any partial month (the "Initial Annual Salary"). The Initial Annual Salary shall be payable as follows:
(i) During the first six months of 1999, payment of the Initial Annual Salary shall be made (A) in equal amounts calculated according to an annual salary of $57,000.00 (approximately $4,750.00 per month) in accordance with Employer's general payroll policies and prorated for any partial months of employment; and (B) in a lump sum payment made on June 30, 1999 or within 5 business days thereafter equal to the difference between (1) the amount paid to Employee for services rendered through June 30, 1999 as set forth above in part (A) of this subsection, and (2) the remaining amount due to Employee for services rendered through June 30, 1999 calculated according to an annual salary of $140,000.00 and prorated for any partial months of employment.
(ii) During the last six months of 1999, payment of the Initial Annual Salary shall be made in equal amounts calculated according to an annual salary of $140,000.00 (approximately $11,666.66 per month) in accordance with Employer's general payroll policies and prorated for any partial months of employment.
The payment of the Annual Salary shall be made in accordance with the Employer's general payroll policies and shall be prorated for any partial years of employment hereunder. Any increases in the Annual Salary shall be subject to the approval by the compensation committee, as described in section 4(e).
(b) The Employee shall be granted options to purchase from the Employer up to Fourteen Thousand (14,000) shares of the Employer's authorized but unissued common stock, $0.001 par value (the "Common Stock"), at an exercise price of $0.55 per share, which options are subject to the terms and conditions to be set forth more specifically in a Stock Option Agreement between the Employer and Employee.
(c) The Employee shall be entitled to participate (to the extent that he is eligible) in all other employee benefits, if any, provided by the Employer for its employees, including participation in any qualified pension or profit sharing plan, eligibility for participation in any group life, health (including family dependant coverage), dental and eye care benefits. If a "change in control" occurs (as defined in Section 16), the Employee may choose, within one year following the event giving rise to the change in control, to receive instead of any regularly-provided employee benefit or other benefit provided for hereunder, the similar benefit provided by the Employer prior to such event, for the balance of the Term hereunder. If there is no benefit then provided which is similar to a previously-provided employee benefit, or if the benefit elected by the Employee cannot be provided by the Employer, then the Employer (or its successor) shall pay the Employee, no less than monthly, as additional compensation, a cash amount equal to the value of the benefit to the Employee. This provision shall survive any termination of this Agreement.
(d) The Employer shall provide or reimburse the Employee for reasonable disability insurance coverage and such other insurance as is reasonably approved by the Board of Directors of the Employer.
(e) Employee shall be eligible to share in a portion of a bonus pool created by the compensation committee (which shall be comprised of at least two members of the board of directors and may consist only of outside directors). The compensation committee shall have the authority to create for each year a bonus pool in an amount equal to not more than 10% of the Employer's net income, before income taxes, in excess of $750,000. Income before income taxes shall be determined in accordance with generally accepted accounting principles prior to the determination of the amount of the bonus pool. The compensation committee shall have the sole discretion to determine the allocation of the bonus pool among the senior executive officers. If the Board of Directors does not appoint a compensation committee for any given year, there will be no bonus pool and Employee shall not receive any raise. The compensation committee may increase, but not decrease, the Annual Salary from year to year.
5. Sick Pay and Disability Income. Salary, employee benefits, vacation accruals, automobile allowance and all other benefits set forth herein shall be paid to the Employee for any temporary periods of illness during which the Employee is unable to work and through the period of any disability (as defined hereinafter).
6. Vacation and Conventions. The Employee shall be entitled each year to three weeks of paid vacation, prorated for any partial year. Commencing two years following [the effective date of the Conpany's 1999 underwritten secondary public offering], however, Employee shall be entitled to four weeks of paid vacation, prorated for any partial year. Unused vacation time (including time accumulated prior to the date hereof) shall accumulate from year to year and the Employee will be compensated for any unused vacation accumulated upon demand at any time following its accrual (including any vacation time accrued prior to the date of this agreement for which payment has not yet been made). In no event, however, may Employee carry over into a subsequent year more than 14 days of unused vacation. Any vacation not used in excess of the maximum permitted accrual shall be forfeited by Employee unless the compensation committee determines otherwise. In addition, the Employee will be entitled to leaves of absence, at full pay, for attendance at conventions, seminars or as otherwise reasonably determined by the Employee. In the event any vacation time shall not be taken by the Employee during any given year and compensation is not rendered for such unused vacation time, Employee shall be entitled to carry over such time into any subsequent year or years during the Term. In the event that Employee has any unused vacation time accrued under this Agreement upon the termination of Employee's employment or at the conclusion of the Term, Employee shall be entitled to be compensated for such unused vacation time.
7. Reimbursement for Expenses. The Employer shall reimburse the Employee for items of travel, entertainment or meals incurred while working outside of the Employer's principal office (including working at the Employee's home), and miscellaneous expenses incurred or paid by the Employee in the performance of his duties under this Agreement (including conventions and seminars), upon presentation by the Employee of such expense statements, vouchers or other supporting information as the Employer may reasonably require.
8. Automobile. The Employer will provide the Employee with an automobile allowance of a maximum of $350.00 per month (increased at the beginning of each year, only, by the Consumer Price Index as determined by the United States Department of Commerce, or any replacement index), or, if Employee so elects, with free use of any automobile approved by the unanimous vote of the Employer's Board of Directors. In addition, the Employer will either pay directly or reimburse the Employee for all expenses incurred in connection with such automobile, including without limitation, insurance, fuel, maintenance and repairs. Reimbursement shall be made upon the Employer's receipt of a signed itemized list of such expenses. The value of any benefits given to or of any amounts paid to the Employee under this Section 8 in excess of Employee's actual costs and expenses incurred in the performance of services for Employer shall be deemed additional compensation under this Agreement and not subject to reimbursement to the Employer.
9. Office. The Employer shall provide the Employee with an office, secretarial and administrative assistance, office equipment and supplies and such other facilities and services as are suitable to the Employee's position and adequate for the performance of his duties. In addition, the Employer shall reimburse the Employee for any expenses incurred by the Employee for use of his home for business purposes on behalf of the Employer and any associated expenses, including but not limited to those referenced in paragraph 7 hereof.
10. Withholding. The Employer shall withhold or deduct from the Employee's compensation any amounts required by law to be so withheld or deducted.
11. Confidentiality. During the Term of this Employment Agreement and thereafter, the Employee hereby covenants and agrees that he shall not other than for the benefit of the Employer publish, disclose to any third party or in any way use for his own benefit any confidential information ("Confidential Information"), including without limitation, any balance sheet or income statement information (including but not limited to the value, amount or condition of capital assets and/or inventory, sales figures, profitability, etc.), or any other financial data, banking information, credit information, trade secrets, financial statements or related data, customer lists or information pertaining to customers or any unique distribution, manufacturing, marketing and research methods of the Employer or its parent or affiliates, and any other Confidential Information concerning the Employer's or its parent or affiliate's, business, structure or affairs. All Confidential Information and copies thereof are the sole property of the Employer and Employee shall deliver promptly to the Employer at the termination of his employment or at any time as the Board of Directors may request, without retaining copies, any Confidential Information made, compiled, delivered, made available or otherwise obtained by Employee. Employee shall also use his best efforts and exercise utmost diligence to protect and safeguard the Confidential Information of the Employer's customers, contractors and others with whom the Employer has a business relationship, whether learned or acquired by Employee during the course of his employment by the Employer.
The nondisclosure obligations of this Section 11 shall not apply to:
(a) information that may be disclosed generally or is in the public domain
through no fault of the Employee; (b) information received from a third party
outside the Employer that was disclosed without a breach of any confidentiality
obligation; (c) information approved for release by written authorization of the
Employer; or (d) information that may be required by law or an order of any
court, agency or proceeding to be disclosed. This Section 11 shall remain in
effect notwithstanding any termination of this Employment Agreement.
12. Non-Competition and Non-Solicitation.
(a) During the time Employee is employed by the Employer, Employee shall devote his full time and efforts to the business of the Employer and shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Employer. For a period of one year after the termination of employment with the Employer, and in any geographic area in which the Employer conducts business, for any reason: (i) Employee shall not hire or attempt to hire any employee of the Employer, or assist in such hiring by anyone else, or encourage any employee to terminate his or her employment with the Employer; (ii) Employee shall not participate, directly or indirectly, in any capacity, in any business or activity that is in competition with the Employer in any business in which the Employer is engaged; and (iii) Employee shall not cause or assist to cause any of the customers of the Employer with whom Employee communicated, dealt with or became acquainted during his term of employment with the Employer to enter into contractual arrangements with himself or any other person, firm, partnership, corporation or other company in any business or activity that is in competition with the Employer.
(b) "Blue Pencil" Rule. The Employee and the Employer desire that the provisions of this Section 12 be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If a court of competent jurisdiction, however, determines that any restrictions imposed on the Employee in this Section 12 are unreasonable or unenforceable because of duration, area of restriction, or otherwise, the Employee and the Employer agree and intend that the court shall enforce this Section 12 to whatever extent the court deems reasonable to effect the intent of this Section 12.
(c) Legitimate Purpose. The Employee has read carefully all of the terms and conditions of this Section 12 and agrees that the restraints set forth herein (i) are reasonable and necessary to support the legitimate business interests and goodwill of the Employer, and (ii) will not preclude the Employee from earning a livelihood during the life of this Section 12.
13. Developments. All Confidential Information and all other discoveries, inventions, processes, methods, and improvements conceived, developed, or otherwise made by Employee relating to the Employer's business or products, whether or not patentable or subject to copyright protection and whether or not reduced to tangible form or reduced to practice, during the Term of employment ("Developments"), shall be the sole property of the Employer. Employee agrees to and hereby does assign to the Employer all right, title, and interest throughout the world in and to all Developments and agrees to promptly disclose such Developments to the Employer and take all such actions reasonably requested by the Employer to establish and confirm the Employer's ownership of such Developments. Employee agrees that all such Developments shall constitute works made for hire under the copyright laws of the United States and hereby assigns to the Employer all copyrights, patents, trademarks and other proprietary rights the Employee may have in such Developments.
14. Termination. This Agreement shall be terminated (except for those obligations of the Employer which by their terms survive termination) by the occurrence of any of the following:
(a) The Employee's death.
(b) The action by the Board of Directors following the Employee's "disability". For this purpose, the term "disability" shall mean any physical or mental illness, disability or incapacity of the Employee which prevents him from substantially performing his regular duties for a period of three (3) consecutive months or four (4) months, even though not consecutive, in any twelve (12) month period.
(c) Action of the Board of Directors of the Employer for Cause. "Cause" is defined as the occurrence of any of the following events: (i) Employee's willful breach of this Agreement, repeated after written notice of such breach has been given to Employee, and having a material adverse effect upon the Employer's business or financial circumstances; (ii) Employee's habitual gross neglect of a substantial portion of his duties hereunder, which has not been cured by the Employee within 30 days after prior written notice thereof is given by the Employer to the Employee; (iii) the Employee's conviction of a felony; (iv) a conviction of any other crime involving fraud, theft, embezzlement and any violations of securities laws and laws relating to the workplace; and (v) a breach of the provisions of the agreement dealing with noncompetition, nonsolicitation, trade secrets and assignment of inventions. In no event shall "cause" be deemed to mean the Board of Director's mere disagreement, after the fact, with any lawful action undertaken by the Employee in the good faith exercise of his business judgment.
(d) Upon the election of the Employee by written notice to the Employer at any time following the period ending twenty four months from the date of this Agreement, not less than: (i) 30 days prior to the effective date of termination, or (ii) after a change in control (as defined in Section 16), 30 days prior to the effective date of termination.
(e) Upon the election of the Employee with "good reason". "Good reason" is defined as a material breach of this Agreement by the Employer and includes, but is not limited to, any decrease in the salary or benefits provided to the Employee, relegating the Employee to duties which are unrelated to or at a lower level of responsibility than those currently performed by Employee, having Employee report to any other officer rather than directly to the Board of Directors, altering Employee's title as Chief Financial Officer (if no successor Chief Financial Officer has been appointed by the Employer) or Chief Operating Officer (if a successor Chief Financial Officer has been appointed), or relocating the Employee to a location unreasonably distant from his work location. Provided, however, that for the purposes of this Section 14 (e) the term Employer shall include (A) the surviving entity in the event of any merger between the Employer and another entity; or (B) any company holding at least a majority of the outstanding common stock of the Employer, in the event that a controlling interest in the shares of the Employer were acquired by any other entity.
15. Damages for Breach by Employer.
(a) The employment provisions in this Agreement are a material
inducement to the Employee in continuing to render services to the Employer
during the Term and thereafter. The parties acknowledge that if the Employer
should breach such provisions, the Employee may be required to bring legal
action for damages and that questions of mitigation of damages would be
presented which could be very difficult to resolve prior to expiration of the
Term. For the sake of certainty and to avoid the cost, difficulty and delay of
proving damages in such circumstances, both parties agree that the Employee
shall be entitled to the amount of liquidated damages as set forth in Section 15
(c) in the event of the Employer's breach.
(b) If (i) the Employee terminates this Agreement for "good reason", or (ii) If during the Term hereof, the Employer (or any successor) terminates the Employee's employment for any reason other than "cause", as defined herein, then, in either such case, the Employer shall pay to the Employee, not later than thirty (30) days after the date of such termination, the amount of damages as set forth in Section 15 (c).
(c) In the event of the termination of this Agreement pursuant to Sections 15 (a) or (b), Employee shall be entitled to payment equal to the lesser of (a) one year's salary and bonus for the period of employment prior to the calendar year in which termination occurred; or (b) the salary due for the balance of the term plus a pro rata portion of the bonus paid to the Employee for the previous year. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 15 (c) by seeking other employment or otherwise, nor shall the Employee's income from any source after such termination be deducted for any reason from the sum computed under this Section 15 (c).
(d) The provisions of this Section 15 shall survive any termination of this Agreement.
16. Change in Control Defined. A "change in control" of the Employer shall occur upon the occurrence of one of the following events, but only if the Employee elects, within one year thereafter, to have such event treated as a change in control:
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") excepting Richard F. Noll and J.P. McCormick is or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than thirty (30%) percent of the combined voting power of the Company's then outstanding securities, or if
(b) over any twelve (12) month period ("Period") during the term of this Agreement, individuals who at the beginning of such Period constitute the board of the Company do not constitute at least fifty (50%) percent of the number of Directors elected during such twelve (12) month Period, or if
(c) the Board adopts a resolution, in its sole discretion, to the effect that a material change in control of the Company has occurred for the purposes of this Agreement. For purposes of clause (b) above, a person who was not a Director at the beginning of such Period but who has (i) filled the place of a Director who has died or has retired in the ordinary course in accordance with any Company policies then in effect, and (ii) been approved in advance by Directors who constitute at least two-thirds (2/3) of the Directors who were, or are deemed to be, Directors at the beginning of the Period shall for purposes of this provision be deemed to be a Director since the beginning of the Period.
17. Indemnification.
(a) The Employer agrees to indemnify the Employee in any suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Employer) to the maximum extent provided under the laws of the State of Delaware.
18. Notice. Any notices required to be given pursuant to the provisions of this Agreement shall be in writing and delivered by hand delivery, express delivery service or by certified mail return receipt requested to the parties at the following addresses:
Employer: Activeworlds.com, Inc. 95 Parker Street Newburyport, MA 01950
Employee: J.P. McCormick 10 Illsley Hill Road West Newbury, MA 01985
19. Successors; Binding Effect.
(a) The Employer shall require any successor (whether direct or indirect by purchase of assets, purchase or exchange of stock, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. Failure of the Employer to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Employer" shall mean Activeworlds.com, Inc. and any successor to the business and/or assets of Activeworlds.com, Inc. which executes and delivers the agreement provided for in this Section 19 (a) or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the administrators, successors, heirs, distributees, devisees and legatees of the Employee. If the Employee should die prior to the payment to him of any amounts due him hereunder, all such payments shall be made in accordance with this Section 15 (b).
20. Arbitration. At the election of the Employee, any dispute
respecting this Agreement, whether commenced by the Employer or Employee may be
resolved by arbitration before a three person panel of independent arbitrators
pursuant to the Commercial Rules of the American Arbitration Association
("AAA"). Any arbitration compelled pursuant to this section shall be held at the
AAA office nearest to Employee's residence at the time such action is commenced.
Employee shall be entitled to a stay of any legal proceeding instituted against
by the Employer in the event that an election to arbitrate pursuant to this
Section is made.
21. Injunctive Relief. Employee acknowledges that in certain situations
Employer would not have any adequate remedy at law in the event Employee
breaches this Agreement and that Employer will suffer irreparable damage and
injury in such event. Employee agrees that Employer, in addition to any other
available rights and remedies available hereunder (including without limitation,
incidental and consequential damages), and notwithstanding the provisions of
Section 20 hereof, shall be entitled to equitable relief, including an
injunction restricting Employee from committing or continuing any violation of
this Agreement. Any action to seek an injunction pursuant to this Section 21 may
be brought in a court of competent jurisdiction in Boston, Massachusetts and the
parties hereto consent to the venue and jurisdiction of such court.
22. Attorney's Fees. In any litigation or arbitration relating to this Agreement, including litigation or arbitration with respect to any instrument, document or other agreement made under or in connection with this Agreement, the Employer shall bear all costs and attorney's fees of both parties.
23. Authority. Each party represents that its undersigned representative or corporate officer has all requisite power and authority to enter into this agreement and to execute any and all instruments and documents on its behalf necessary to and in performance of their respective obligations hereunder.
24. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed original, but all of which together shall constitute one and the same instrument.
25. Severability. If any provisions of this Agreement shall be held to be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement and such term and condition, except to such extent or in such application, shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforced to the fullest extent and in the broadest application permitted by law.
26. Headings. The paragraph headings contained herein are for convenience and reference only, and shall be given no effect in the interpretation of any term or condition of this Agreement.
27. Miscellaneous. This Agreement is entered into and shall be construed under the laws of the State of Massachusetts applicable to contracts made and to be entirely performed within that State. In the event that, notwithstanding Section 20 hereof, any litigation relating to this Agreement is held to be permissible, the venue thereof shall be in the appropriate court with jurisdiction over the matter in dispute for the county in which the Employee resides at the time of the filing of the lawsuit in question. This Agreement shall be amended, modified or terminated only by an instrument in writing, signed by the party or parties to be charged. This Agreement shall inure to the benefits of the parties and their successors in interest. This Agreement is the entire agreement of the parties relating to the employment of the Employee by the Employer and supersedes all previous written or oral agreements.
IN WITNESS WHEREOF the parties have executed this Agreement under seal effective as of the day and year first above written.
EMPLOYEE: ACTIVEWORLDS.COM, INC. ------------------------------------ ------------------------------------ J.P. McCormick Richard F. Noll, President |
ACTIVEWORLDS.COM, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of January 22, 1999 (the "Effective Date") is between Activeworlds.com, Inc., a Delaware corporation (the "Corporation"), and Richard F. Noll of ____________________________________ (the "Optionee").
RECITALS
The Corporation and the Optionee desire to enter into an agreement providing for the grant by the Corporation to the Optionee of incentive stock options to purchase shares of the Corporation's common stock, $.001 par value (the "Common Stock"). All shares of Common Stock pursuant to this Agreement issued upon the exercise of all or any portion of the options granted hereunder and all shares of Common Stock hereafter acquired by the Optionee, hereinafter are referred to in this Agreement as "Employee Stock".
The options granted hereunder are granted pursuant to the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan, a copy of which is attached hereto as Exhibit A (the "Plan"), and are intended to be considered "incentive stock options" thereunder, and are subject in all respects to the provisions of the Plan and the Code (as defined below) concerning "incentive stock options." This Agreement is subject to the terms of the Plan and in the event of any inconsistencies between the Plan and this Agreement, the Plan will control. Capitalized terms used herein not otherwise defined herein shall have the same meaning as in the Plan.
The parties agree as follows:
1. Award of Option. Subject to the terms and conditions set forth in
this Agreement and the Plan, the Corporation hereby grants to Optionee options
to purchase from the Corporation up to Fourteen Thousand (14,000) shares of the
Corporation's Common Stock upon payment to the Corporation of an exercise price
equal to Fifty-Five cents ($0.55) per share (with each such right to purchase a
share of Common Stock hereunder being referred to as an "Option"). Each Option
granted hereunder shall if otherwise vested or exercisable entitle the Optionee
to purchase one (1) share of Common Stock. Each Option being granted hereunder
is intended to qualify as an "incentive stock option" within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended, and under the
regulations promulgated thereunder or under any legislation which is passed as a
successor thereto (collectively the "Code"). If any Option or shares of the
Corporation's Common Stock acquired upon exercise of any Option are held for the
holding periods specified for Incentive Stock Options under the Code and the
Plan, they will be given favorable tax treatment. The Optionee should consult
with his or her tax advisor concerning the tax aspects of this Option award, its
exercise and the subsequent sale of the shares acquired.
2. Term and Termination of the Option.
2.1 Term. Unless any Option issued hereunder terminates pursuant to subsection 2.2. or is subject to accelerated vesting pursuant to Section 3, such Option is or will become exercisable and will vest in accordance with Schedule 1 attached hereto and incorporated herein.
2.2 Termination of Option. In the event that the employment of the Optionee with the Corporation is terminated for any reason, the Optionee may exercise Options granted hereunder, with respect to the number of shares for which the Optionee is on that date vested, within three (3) months after the date of such termination; provided, however, that:
i. If such termination is because of the Optionee's death or disability, then such Options may only be exercised with respect to the number of shares for which the Optionee is vested at the date of termination and by the Optionee, the Optionee's legal representative or a person who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, as the case may be (hereinafter such person is referred to as the "Optionee"), within one (1) year after the date of Optionee's termination on account of death or disability. In the event of an exercise under the terms of this subsection by someone other than the original Optionee, appropriate proof of such person's authority to act on behalf of the Optionee or his or her estate must be provided to the Corporation.
ii. If Optionee's employment is terminated for "cause" all Options issued hereunder shall terminate immediately.
iii. If Optionee's employment is terminated on or before the anniversary of this Agreement other than for the reasons set forth in subsections i. or ii. of this Section 2.2, the Optionee shall be entitled to exercise all Options issued hereunder which remain unexercised to the extent such Options have vested at such time.
iv. In no event (including by death of the Optionee) may any Options granted hereunder be exercised after the fifth anniversary of this Agreement.
For purposes of this Agreement, "cause" shall mean as the occurrence of
any of the following events: (i) the termination of the Optionee's Employment
Agreement, if any, pursuant to its terms due to a breach of such agreement by
the Optionee; (ii) Optionee's refusal or intentional failure to carry out the
reasonable directives of the Board of Directors or Officers of the Corporation;
(iii) Optionee's habitual gross neglect of a substantial portion of his duties
with the Corporation; or (iv) the Optionee's criminal activity, including but
not limited to action involving fraud, theft, or embezzlement.
3. Acceleration. Notwithstanding the provisions of section 2.1 hereof,
the Options granted hereunder shall immediately become fully vested and
exercisable with regard to all Fourteen Thousand (14,000) shares upon the
occurrence of one of the following events (such events are hereinafter
collectively referred to as the "Transfer"): (i) the sale of all or
substantially all of the assets of the Corporation; or (ii) the sale of in
excess of ninety-percent (90%) of the issued and outstanding stock of the
Corporation. The purpose and the intent of this subsection is to permit the
Optionee to participate in such Transfer with respect to all shares obtainable
pursuant to the Options. The Corporation will provide the Optionee with thirty
(30) days advance written notice of any such Transfer so as to enable the
Optionee to exercise the Options granted hereunder. Any exercise pursuant to
this subsection shall be contingent and effective upon the closing or
consummation of the transaction giving rise to acceleration hereunder.
4. Exercise Procedure. The Optionee, or the legal representative of the
Optionee's estate upon the occurrence of any event contemplated by section 2.2,
may exercise any Options granted hereunder by giving written notice of exercise
of such Options to the Corporation at its principal office on the Notice of
Exercise form annexed hereto as Exhibit B to this Agreement. Such notice shall
state the number of Options being exercised and shall be accompanied by a
payment in an amount equal to the product of the number of whole shares which
are issuable upon the exercise of such Options multiplied by the exercise price
per share (the "Exercise Price"). Such Exercise Price shall be payable either:
(i) in cash or by certified or cashier's check, (ii) by transfer to the
Corporation by the Optionee, or his or her Legal Representative, of such
quantity of Common Stock of the Corporation owned by the Optionee as has an
aggregate Fair Market Value, as of the date such Options are exercised, equal to
such Exercise Price, or (iii) by a combination of (i) and (ii).
5. Lapse. Subject to the provisions of Section 2 and Section 3, all Options granted hereunder shall lapse and be of no further force or effect on or after the fifth anniversary of the Effective Date if they are not exercised before such anniversary.
6. Transfer of Option Prohibited. The Options granted hereunder may not be sold or otherwise transferred by the Optionee except by will or by the laws of descent and distribution and during the lifetime of the Optionee, may be exercised only by the Optionee. These Options are being granted on the condition that any Employee Stock issued hereunder shall be for investment purposes only, and not with a view to resale or distribution. At the time of the exercise of any Options, the Optionee shall execute such documents as the Corporation may require to implement the foregoing conditions and to acknowledge the Optionee's familiarity with restrictions on the resale of the shares under applicable securities laws.
7. No Rights as Shareholder. Before the exercise of any Options granted hereunder and the subsequent issuance of shares of Common Stock certificates, the Optionee will have no rights as shareholder of the Corporation with respect to any shares subject to the Options.
8. Dilution Protection. If the Corporation shall at any time pay a stock dividend or distribution on its Common Stock or if the Corporation shall at any time split, subdivide or combine the outstanding shares of its Common stock, the number of shares for which the Options granted hereunder may be exercised and the exercise price per share shall be adjusted proportionately. Any such adjustments shall be effective as of the record date for the split, subdivision or combination.
9. Termination of Restrictions. The restrictions on the transfer of Employee Stock will continue until such time as the class of shares of the Corporation's capital stock of which comprise the Employee Stock is registered under the Securities Exchange Act of 1934, as amended.
10. Legend. The certificates representing the Employee Stock will bear a legend similar to the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN INCENTIVE STOCK OPTION AGREEMENT BETWEEN ACTIVEWORLDS.COM, INC. AND THE ORIGINAL HOLDER HEREOF, A COPY OF WHICH MAY BE OBTAINED AT ACTIVEWORLDS.COM, INC.'S PRINCIPAL PLACE OF BUSINESS.
11. Definition of Employee Stock. For the purposes of this Agreement, Employee Stock shall continue to be Employee Stock in the hands of any holder other than the Optionee (except for the Corporation and purchasers after the restrictions on transfer have terminated pursuant to Section 9), and each such other holder of Employee Stock will succeed to all rights and obligations attributable to the Optionee as holder of Employee Stock hereunder. Employee Stock will also include shares of the Corporation's capital stock issued with respect to shares of Employee Stock by ways of stock split, stock dividend or other recapitalization.
12. Right to Call the Employee Stock. Subject to the holding period requirements contained in the Code and the Plan, the Corporation, or following any sale referred to in section 3 hereof, its successor corporation, shall have the right to repurchase all of the Employee Stock within sixty (60) days following the occurrence of one of the following events: (i) the sale of all or substantially all of its assets; (ii) the acquisition by an investor, other than those persons who were shareholders of the Corporation on the date of execution of this Agreement, of at least two thirds of the issued and outstanding shares of capital stock of the Corporation, or (iii) the merger of the Corporation into another corporation such that the Corporation is not the surviving corporation. The Corporation shall provide notice to the Optionee of its intent to exercise this right in writing which notice shall include the per share purchase price for the Employee Stock which shall be equal to the price paid by the third party investor for each share of Common Stock in the transaction that triggers the right to call (which in the case of an acquisition of assets or merger shall be the aggregate purchase price divided all outstanding shares of Capital Stock of the Corporation).
13. Notices. Any notice provided for in this Agreement must be in writing, and shall be deemed given when delivered by hand delivery, or one day after deposit with a reputable overnight delivery service, or three days after deposit in the United State mail, certified, return receipt requested, postage prepaid, and addressed as follows:
To the Corporation: 4 Middle Street
Newburyport, Massachusetts 01950
To the Optionee: At the most recent address available
in the Corporation's employment
records.
|
14. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement shall be reformed and construed as if such invalid provision had never been contained herein.
15. Complete Agreement. This Agreement embodies the complete agreement and understanding of the parties and supersedes and pre-empts any prior understandings, agreements or representation, written or oral, between the parties, which may have related to the subject matter hereof in any way.
16. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the Optionee, the Corporation, and their respective successors and assigns.
17. Choice of Law; Venue. All questions concerning the construction, validity and interpretation of this Agreement, will be governed by the laws of the Commonwealth of Massachusetts, without regard to the conflict of law rules thereof. All disputes arising hereunder shall be resolved by a court of competent jurisdiction located in the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal on the date first written above.
ACTIVEWORLDS.COM, INC.
OPTIONEE:
SCHEDULE 1
ACTIVEWORLDS.COM, INC.
TERM AND EXERCISE OF THE OPTION
All Options being granted hereunder shall vest and become exercisable over a period of five (5) years from the Effective Date of this Agreement at the rate of one-fifth (1/5) of the total number of shares for which the Options may be exercised per year with such vesting to occur on the same day of each year as the Effective Date commencing on the Effective Date of this Agreement and continuing on each annual anniversary of the Effective Date up to the fourth annual anniversary of the Effective Date.
EXHIBIT A
ACTIVEWORLDS.COM, INC.
LONG-TERM INCENTIVE PLAN
See Attached
EXHIBIT B
ACTIVEWORLDS.COM, INC.
INCENTIVE STOCK OPTION AGREEMENT
NOTICE OF EXERCISE
The undersigned employee of Activeworlds.com, Inc. (the "Corporation"), pursuant to the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan (the "Plan"), and pursuant to an Incentive Stock Option Agreement dated as of ________________________________, hereby agrees to purchase from the Corporation __________(1) shares of common stock, $.001 par value per share, of the Corporation ("Employee Stock") at an exercise price of $__________ per share.
Optionee:____________________________________________________________________
First Middle Last
(Print name exactly as it will appear on your stock certificate)
Social Security Number:_________-________-__________
Address:_____________________________________________________________________
The undersigned Optionee has delivered the following consideration to the Corporation in exchange for the Employee Stock:
(1) $________________ in cash or by certified or bank cashier's check;
and/or
(2) _________________ shares of the Corporation's common stock, $.01 par value per share, having a fair market value (as defined in the Plan) of $________________ as of _____________________________.
(Optionee: Signature)
Name:
Date: __________________
-------------------
(1) No less than 100 shares may be purchased at one time unless the
|
number purchased is the total number that may then be purchased under the
Option.
ACTIVEWORLDS.COM, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, effective as of January 22, 1999 (the "Effective Date") is between Activeworlds.com, Inc., a Delaware corporation (the "Corporation"), and J.P. McCormick of _____________________________________ (the "Optionee").
RECITALS
The Corporation and the Optionee desire to enter into an agreement providing for the grant by the Corporation to the Optionee of incentive stock options to purchase shares of the Corporation's common stock, $.001 par value (the "Common Stock"). All shares of Common Stock pursuant to this Agreement issued upon the exercise of all or any portion of the options granted hereunder and all shares of Common Stock hereafter acquired by the Optionee, hereinafter are referred to in this Agreement as "Employee Stock".
The options granted hereunder are granted pursuant to the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan, a copy of which is attached hereto as Exhibit A (the "Plan"), and are intended to be considered "incentive stock options" thereunder, and are subject in all respects to the provisions of the Plan and the Code (as defined below) concerning "incentive stock options." This Agreement is subject to the terms of the Plan and in the event of any inconsistencies between the Plan and this Agreement, the Plan will control. Capitalized terms used herein not otherwise defined herein shall have the same meaning as in the Plan.
The parties agree as follows:
1. Award of Option. Subject to the terms and conditions set forth in
this Agreement and the Plan, the Corporation hereby grants to Optionee options
to purchase from the Corporation up to Fourteen Thousand (14,000) shares of the
Corporation's Common Stock upon payment to the Corporation of an exercise price
equal to Fifty-Five cents ($0.55) per share (with each such right to purchase a
share of Common Stock hereunder being referred to as an "Option"). Each Option
granted hereunder shall if otherwise vested or exercisable entitle the Optionee
to purchase one (1) share of Common Stock. Each Option being granted hereunder
is intended to qualify as an "incentive stock option" within the meaning of
Section 422(b) of the Internal Revenue Code of 1986, as amended, and under the
regulations promulgated thereunder or under any legislation which is passed as a
successor thereto (collectively the "Code"). If any Option or shares of the
Corporation's Common Stock acquired upon exercise of any Option are held for the
holding periods specified for Incentive Stock Options under the Code and the
Plan, they will be given favorable tax treatment. The Optionee should consult
with his or her tax advisor concerning the tax aspects of this Option award, its
exercise and the subsequent sale of the shares acquired.
2. Term and Termination of the Option.
2.1 Term. Unless any Option issued hereunder terminates pursuant to subsection 2.2. or is subject to accelerated vesting pursuant to Section 3, such Option is or will become exercisable and will vest in accordance with Schedule 1 attached hereto and incorporated herein.
2.2 Termination of Option. In the event that the employment of the Optionee with the Corporation is terminated for any reason, the Optionee may exercise Options granted hereunder, with respect to the number of shares for which the Optionee is on that date vested, within three (3) months after the date of such termination; provided, however, that:
i. If such termination is because of the Optionee's death or disability, then such Options may only be exercised with respect to the number of shares for which the Optionee is vested at the date of termination and by the Optionee, the Optionee's legal representative or a person who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, as the case may be (hereinafter such person is referred to as the "Optionee"), within one (1) year after the date of Optionee's termination on account of death or disability. In the event of an exercise under the terms of this subsection by someone other than the original Optionee, appropriate proof of such person's authority to act on behalf of the Optionee or his or her estate must be provided to the Corporation.
ii. If Optionee's employment is terminated for "cause" all Options issued hereunder shall terminate immediately.
iii. If Optionee's employment is terminated on or before the anniversary of this Agreement other than for the reasons set forth in subsections i. or ii. of this Section 2.2, the Optionee shall be entitled to exercise all Options issued hereunder which remain unexercised to the extent such Options have vested at such time.
iv. In no event (including by death of the Optionee) may any Options granted hereunder be exercised after the tenth anniversary of this Agreement.
For purposes of this Agreement, "cause" shall mean as the occurrence of
any of the following events: (i) the termination of the Optionee's Employment
Agreement, if any, pursuant to its terms due to a breach of such agreement by
the Optionee; (ii) Optionee's refusal or intentional failure to carry out the
reasonable directives of the Board of Directors or Officers of the Corporation;
(iii) Optionee's habitual gross neglect of a substantial portion of his duties
with the Corporation; or (iv) the Optionee's criminal activity, including but
not limited to action involving fraud, theft, or embezzlement.
3. Acceleration. Notwithstanding the provisions of section 2.1 hereof,
the Options granted hereunder shall immediately become fully vested and
exercisable with regard to all Fourteen Thousand (14,000) shares upon the
occurrence of one of the following events (such events are hereinafter
collectively referred to as the "Transfer"): (i) the sale of all or
substantially all of the assets of the Corporation; or (ii) the sale of in
excess of ninety-percent (90%) of the issued and outstanding stock of the
Corporation. The purpose and the intent of this subsection is to permit the
Optionee to participate in such Transfer with respect to all shares obtainable
pursuant to the Options. The Corporation will provide the Optionee with thirty
(30) days advance written notice of any such Transfer so as to enable the
Optionee to exercise the Options granted hereunder. Any exercise pursuant to
this subsection shall be contingent and effective upon the closing or
consummation of the transaction giving rise to acceleration hereunder.
4. Exercise Procedure. The Optionee, or the legal representative of the
Optionee's estate upon the occurrence of any event contemplated by section 2.2,
may exercise any Options granted hereunder by giving written notice of exercise
of such Options to the Corporation at its principal office on the Notice of
Exercise form annexed hereto as Exhibit B to this Agreement. Such notice shall
state the number of Options being exercised and shall be accompanied by a
payment in an amount equal to the product of the number of whole shares which
are issuable upon the exercise of such Options multiplied by the exercise price
per share (the "Exercise Price"). Such Exercise Price shall be payable either:
(i) in cash or by certified or cashier's check, (ii) by transfer to the
Corporation by the Optionee, or his or her Legal Representative, of such
quantity of Common Stock of the Corporation owned by the Optionee as has an
aggregate Fair Market Value, as of the date such Options are exercised, equal to
such Exercise Price, or (iii) by a combination of (i) and (ii).
5. Lapse. Subject to the provisions of Section 2 and Section 3, all Options granted hereunder shall lapse and be of no further force or effect on or after the tenth anniversary of the Effective Date if they are not exercised before such anniversary.
6. Transfer of Option Prohibited. The Options granted hereunder may not be sold or otherwise transferred by the Optionee except by will or by the laws of descent and distribution and during the lifetime of the Optionee, may be exercised only by the Optionee. These Options are being granted on the condition that any Employee Stock issued hereunder shall be for investment purposes only, and not with a view to resale or distribution. At the time of the exercise of any Options, the Optionee shall execute such documents as the Corporation may require to implement the foregoing conditions and to acknowledge the Optionee's familiarity with restrictions on the resale of the shares under applicable securities laws.
7. No Rights as Shareholder. Before the exercise of any Options granted hereunder and the subsequent issuance of shares of Common Stock certificates, the Optionee will have no rights as shareholder of the Corporation with respect to any shares subject to the Options.
8. Dilution Protection. If the Corporation shall at any time pay a stock dividend or distribution on its Common Stock or if the Corporation shall at any time split, subdivide or combine the outstanding shares of its Common stock, the number of shares for which the Options granted hereunder may be exercised and the exercise price per share shall be adjusted proportionately. Any such adjustments shall be effective as of the record date for the split, subdivision or combination.
9. Termination of Restrictions. The restrictions on the transfer of Employee Stock will continue until such time as the class of shares of the Corporation's capital stock of which comprise the Employee Stock is registered under the Securities Exchange Act of 1934, as amended.
10. Legend. The certificates representing the Employee Stock will bear a legend similar to the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN INCENTIVE STOCK OPTION AGREEMENT BETWEEN ACTIVEWORLDS.COM, INC. AND THE ORIGINAL HOLDER HEREOF, A COPY OF WHICH MAY BE OBTAINED AT ACTIVEWORLDS.COM, INC.'S PRINCIPAL PLACE OF BUSINESS.
11. Definition of Employee Stock. For the purposes of this Agreement, Employee Stock shall continue to be Employee Stock in the hands of any holder other than the Optionee (except for the Corporation and purchasers after the restrictions on transfer have terminated pursuant to Section 9), and each such other holder of Employee Stock will succeed to all rights and obligations attributable to the Optionee as holder of Employee Stock hereunder. Employee Stock will also include shares of the Corporation's capital stock issued with respect to shares of Employee Stock by ways of stock split, stock dividend or other recapitalization.
12. Right to Call the Employee Stock. Subject to the holding period requirements contained in the Code and the Plan, the Corporation, or following any sale referred to in section 3 hereof, its successor corporation, shall have the right to repurchase all of the Employee Stock within sixty (60) days following the occurrence of one of the following events: (i) the sale of all or substantially all of its assets; (ii) the acquisition by an investor, other than those persons who were shareholders of the Corporation on the date of execution of this Agreement, of at least two thirds of the issued and outstanding shares of capital stock of the Corporation, or (iii) the merger of the Corporation into another corporation such that the Corporation is not the surviving corporation. The Corporation shall provide notice to the Optionee of its intent to exercise this right in writing which notice shall include the per share purchase price for the Employee Stock which shall be equal to the price paid by the third party investor for each share of Common Stock in the transaction that triggers the right to call (which in the case of an acquisition of assets or merger shall be the aggregate purchase price divided all outstanding shares of Capital Stock of the Corporation).
13. Notices. Any notice provided for in this Agreement must be in writing, and shall be deemed given when delivered by hand delivery, or one day after deposit with a reputable overnight delivery service, or three days after deposit in the United State mail, certified, return receipt requested, postage prepaid, and addressed as follows:
To the Corporation: 4 Middle Street
Newburyport, Massachusetts 01950
To the Optionee: At the most recent address available in the
Corporation's employment records.
|
14. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement shall be reformed and construed as if such invalid provision had never been contained herein.
15. Complete Agreement. This Agreement embodies the complete agreement and understanding of the parties and supersedes and pre-empts any prior understandings, agreements or representation, written or oral, between the parties, which may have related to the subject matter hereof in any way.
16. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the Optionee, the Corporation, and their respective successors and assigns.
17. Choice of Law; Venue. All questions concerning the construction, validity and interpretation of this Agreement, will be governed by the laws of the Commonwealth of Massachusetts, without regard to the conflict of law rules thereof. All disputes arising hereunder shall be resolved by a court of competent jurisdiction located in the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal on the date first written above.
ACTIVEWORLDS.COM, INC.
OPTIONEE:
SCHEDULE 1
ACTIVEWORLDS.COM, INC.
TERM AND EXERCISE OF THE OPTION
All Options being granted hereunder shall vest and become exercisable over a period of five (5) years from the Effective Date of this Agreement at the rate of one-fifth (1/5) of the total number of shares for which the Options may be exercised per year with such vesting to occur on the same day of each year as the Effective Date commencing on the Effective Date and continuing on each annual anniversary of the Effective Date up to the fourth annual anniversary of the Effective Date.
EXHIBIT A
ACTIVEWORLDS.COM, INC.
LONG-TERM INCENTIVE PLAN
See Attached
EXHIBIT B
ACTIVEWORLDS.COM, INC.
INCENTIVE STOCK OPTION AGREEMENT
NOTICE OF EXERCISE
The undersigned employee of Activeworlds.com, Inc. (the "Corporation"), pursuant to the Activeworlds.com, Inc. 1999 Long-Term Incentive Plan (the "Plan"), and pursuant to an Incentive Stock Option Agreement dated as of ________________________________, hereby agrees to purchase from the Corporation __________(1) shares of common stock, $.001 par value per share, of the Corporation ("Employee Stock") at an exercise price of $__________ per share.
Optionee:_______________________________________________________________________
First Middle Last
(Print name exactly as it will appear on your stock certificate)
Social Security Number:_________-________-__________
Address:_____________________________________________________________________
The undersigned Optionee has delivered the following consideration to the Corporation in exchange for the Employee Stock:
(1) $________________ in cash or by certified or bank cashier's check;
and/or
(2) _________________ shares of the Corporation's common stock, $.01 par value per share, having a fair market value (as defined in the Plan) of $________________ as of _____________________________.
Date:__________________
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD FROM JANUARY 17, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997 AND THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE NOTES TO OUR FINANCIAL STATEMENTS INCLUDED IN OUR REGISTRATION STATEMENT ON FORM SB-2. |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 86,520 |
| SECURITIES | 0 |
| RECEIVABLES | 69,836 |
| ALLOWANCES | 18,000 |
| INVENTORY | 0 |
| CURRENT ASSETS | 148,847 |
| PP&E | 23,034 |
| DEPRECIATION | 9,987 |
| TOTAL ASSETS | 328,143 |
| CURRENT LIABILITIES | 559,781 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 390,723 |
| OTHER SE | 0 |
| TOTAL LIABILITY AND EQUITY | 328,143 |
| SALES | 576,163 |
| TOTAL REVENUES | 576,163 |
| CGS | 0 |
| TOTAL COSTS | 0 |
| OTHER EXPENSES | 645,696 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | (88,142) |
| INCOME TAX | 0 |
| INCOME CONTINUING | 0 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 79,061 |
| CHANGES | 0 |
| NET INCOME | (9,081) |
| EPS BASIC | (.001) |
| EPS DILUTED | (.001) |