-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NIyejhgeSrO2W1fD4Um+1pGir1lUPJYSHKDhLtOPjOYzNhNFb3NyPMCOE7erXi8V wkF5BSibBMAMKPBcPpmtsw== 0000950170-98-000097.txt : 19980123 0000950170-98-000097.hdr.sgml : 19980123 ACCESSION NUMBER: 0000950170-98-000097 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19980122 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALACTICOMM TECHNOLOGIES INC CENTRAL INDEX KEY: 0001043003 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 650624233 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-39805 FILM NUMBER: 98511167 BUSINESS ADDRESS: STREET 1: 4101 SW 47TH AVE STREET 2: SUITE 101 CITY: FT LAUDERDALE STATE: FL ZIP: 33314 BUSINESS PHONE: 9545835990 MAIL ADDRESS: STREET 1: 4101 S W 47TH AVENUE CITY: MIAMI STATE: FL ZIP: 33314 SB-2/A 1 As filed with the Securities and Exchange Commission on January 22, 1998 Registration No. 333-39805 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------- AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 GALACTICOMM TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter)
FLORIDA 7373 65 0624233 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer or organization) Classification Code No.) Identification No.)
4101 S.W. 47TH AVENUE SUITE 101 FT. LAUDERDALE, FLORIDA 33314 (954) 583-5990 (Address of principal executive offices) PETER BERG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER GALACTICOMM TECHNOLOGIES, INC. 4101 S.W. 47TH AVENUE SUITE 101 FT. LAUDERDALE, FLORIDA 33314 (954) 583-5990 (Name and address of agent for service) Copies to:
LESLIE J. CROLAND, ESQ. PHILLIP B. SCHWARTZ, ESQ. JEFF T. MIHM, ESQ. STEWART H. LAPAYOWKER, ESQ. LUCIO, MANDLER, CROLAND, BRONSTEIN, AKERMAN, SENTERFITT & EIDSON, P.A. GARBETT, STIPHANY & MARTINEZ, P.A. ONE S.E. 3RD AVENUE, 28TH FLOOR 701 BRICKELL AVENUE, SUITE 2000 MIAMI, FLORIDA 33131-1704 MIAMI, FLORIDA 33131 (305) 374-5600 (305) 579-0012 (305) 374-5095 (FAX) (305) 579-4722 (FAX)
Approximate date of proposed sale to the public: AS SOON AS REASONABLY PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) or Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------------ Units(2)(3).................. $ $10,350,000 $3,136.36 - ------------------------------------------------------------------------------------------------------------------------------------ Units underlying Representative Unit Purchase Option.............. $ $ 1,080,000 $ 327.27 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.0001, included --- --- --- in Units(2)(4)............... - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Purchase Warrants(2)(5)............... --- --- --- - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.0001, underlying Warrants(2)(6)............... $ $ 6,750,000 $2,045.45 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.0001, underlying Bridge Warrants(7)........... $ 3,591,000 $1,088.18 - ------------------------------------------------------------------------------------------------------------------------------------ Total........................ $21,771,000 $6,597.26 ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (2) Includes Units subject to the Underwriters' over-allotment option. (3) Each Unit contains one share of common stock, par value $.0001 per share ("Common Stock"), and one Common Stock Purchase Warrant. No portion of the offering price is attributable to the Warrants. (4) Represents Common Stock within the Units, including the Units underlying the Representative Unit Purchase Option. The registration fee for such Common Stock is included within the Units. (5) Represents Warrants within the Units, including the Units underlying the Representative Unit Purchase Option. (6) Issuable upon exercise of the Warrants, together with such indeterminable number of shares of Common Stock as may be issuable by reason of the anti- dilution provisions contained therein. The exercise of two warrants is required to purchase one share of Common Stock, subject to adjustment. (7) Issuable upon exercise of the Bridge Warrants, together with such indeterminable number of shares of Common Stock as may be issuable by reason of the anti-dilution provisions contained therein. 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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: (i) one to be used in connection with the offer of Units by the Company (the "Prospectus"); and (ii) the other to be used in connection with the offer of an aggregate of 957,600 shares of Common Stock by certain selling shareholders (the "Selling Shareholder Prospectus") underlying warrants (the "Bridge Warrants") issued in October 1997 in connection with a bridge financing by the Company. The Bridge Warrants are exercisable until October 27, 2000 to purchase an aggregate of 957,600 shares of Common Stock at an exercise price of $3.75 per share. See "Recent Financings." The Prospectus and the Selling Shareholder Prospectus will be identical in all respects except for the alternate pages for the Selling Shareholder Prospectus included herein which are labeled "Alternate." INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 22, 1998 _____ UNITS GALACTICOMM TECHNOLOGIES, INC. EACH UNIT CONTAINS ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT Galacticomm Technologies, Inc. (the "Company") hereby offers units ("Units"), each Unit consisting of one share of common stock, par value $.0001 per share (the "Common Stock"), and one Redeemable Common Stock Purchase Warrant (the "Warrant") of the Company. Two Warrants will entitle the holder to purchase one share of Common Stock at a price equal to 120% of the initial public offering price of the Units, during the period commencing (the "First Exercise Date") 90 days after the date of this Prospectus, or on such earlier date as may be determined by the Company and First Equity Corporation of Florida (the "Representative") as the representative of the several Underwriters named herein ("Underwriters") and ending on the third anniversary of the date of this Prospectus. No fractional shares will be issued upon exercise of the Warrants. Outstanding Warrants are redeemable by the Company commencing 30 days after the First Exercise Date upon 30 days prior written notice to the holders thereof, if the average closing bid and asked price of the Common Stock for a period of 20 consecutive trading days is at least equal to 150% of the exercise price of the Warrants. The Common Stock and Warrants will be detachable from the Units and separately transferable commencing on the First Exercise Date. The number of shares underlying the Warrants and the exercise price thereof is subject to adjustment in certain circumstances. Prior to this offering, there has been no public market for the Units, the Common Stock or the Warrants. The Company has applied to list the Units, the Common Stock and the Warrants on the Nasdaq SmallCap Stock Market ("Nasdaq") under the symbols "GALAU," "GALA," and " GALAW," respectively. There can be no assurance that such securities will be accepted for listing or, if accepted, that an active trading market will develop or be sustained. It is currently anticipated that the initial public offering price for the Units will be between $ and $ per Unit. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK, SPECULATIVE SECURITIES AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION" ON PAGE 16. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==================================================================================================================================== UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2)(3) - ------------------------------------------------------------------------------------------------------------------------------------ Per Unit ........................ $_______ $_______ $_______ - ------------------------------------------------------------------------------------------------------------------------------------ Total ........................... $_______ $_______ $_______ ====================================================================================================================================
(1) The Company has agreed to: (i) pay the Representative a non-accountable expense allowance equal to 3% of the gross proceeds of the sale of the Units; (ii) sell to the Representative, for nominal consideration, four-year options (exercisable commencing one year after the date of this Prospectus) to purchase up to Units at an exercise price equal to 120% of the public offering price of the Units offered hereby; and (iii) indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933 (the "Securities Act"). See "Underwriting." (2) Before deducting offering expenses payable by the Company estimated to be approximately $375,000 and the Representative's 3% non-accountable expense allowance payable by the Company in connection with this offering. (3) The Company has granted the Underwriters an option exercisable within 45 days after the date hereof to purchase up to additional Units on the same terms set forth above, solely for the purpose of covering over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." THE UNITS ARE BEING OFFERED BY THE UNDERWRITERS ON A "FIRM COMMITMENT" BASIS SUBJECT TO PRIOR SALE, RECEIPT AND ACCEPTANCE BY THE UNDERWRITERS, APPROVAL OF CERTAIN MATTERS BY COUNSEL, AND CERTAIN OTHER CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW OR CANCEL SUCH OFFER AND TO REJECT ANY OFFER, IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES FOR THE SECURITIES OFFERED HEREBY WILL BE MADE AGAINST PAYMENT THEREFOR ON OR ABOUT __________, 1998. FIRST EQUITY CORPORATION The date of this Prospectus is __________, 1998 CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE UNITS, THE COMMON STOCK AND THE WARRANTS, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." All trademarks, service marks, tradenames and related products referred to in this Prospectus, other than as they relate directly to the Company's products and services, are the property of their respective owners and the Company disclaims ownership of same. 2 SUMMARY THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. IN NOVEMBER 1996, THE COMPANY MERGED WITH TESSIER TECHNOLOGIES, INC. ("TTI") AND ACQUIRED GALACTICOMM, INC., ITS OPERATING SUBSIDIARY. UNLESS THE CONTEXT OTHERWISE REQUIRES OR UNLESS OTHERWISE NOTED: (I) ALL REFERENCES TO THE "COMPANY" THROUGHOUT THIS PROSPECTUS REFER TO THE COMBINED OPERATIONS OF THE COMPANY, GALACTICOMM, INC. AND TTI; (II) ALL FINANCIAL DATA IN THIS PROSPECTUS REFLECTS THE PRO FORMA COMBINED OPERATIONS OF THE COMPANY, GALACTICOMM, INC. AND TTI AS IF THE COMPANY HAD ACQUIRED SUCH COMPANIES ON JANUARY 1, 1995 OR 1996; AND (III) ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO A 4.061771824 TO ONE REVERSE STOCK SPLIT WHICH OCCURRED IN SEPTEMBER 1997. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--INTRODUCTION." THE COMPANY Galacticomm Technologies, Inc. (the "Company") develops, markets, licenses and supports software that enables users to communicate and conduct business over the Internet, intranets, or other online communications systems. The majority of the Company's software products are derived from the Company's flagship product, Worldgroup v3.0 for Windows NT and Windows 95, which is an integrated suite of five communications programs (E-mail, Polls and Questionnaires, Newsgroups, Shared File Libraries and Chat) that enables an individual or enterprise to establish an online system, an intranet or website and also enables users to access certain of such programs using only a standard browser, such as Microsoft's Internet Explorer or Netscape's Navigator. Scheduled for release in March 1998, Worldgroup v3.1 will allow complete access to all of such Worldgroup programs using only a standard browser. The Company estimates that Worldgroup and its predecessor product, Major BBS, have been installed on more than 10,000 online systems worldwide, including systems currently operated by Fortune 500 companies, financial institutions and government agencies. Worldgroup features an open (non-proprietary) set of interfaces, which allow Worldgroup to serve as the software platform for specific communication solutions for a variety of businesses and industries. In conjunction with third party developers, the Company has designed intranets and other online systems for specific projects relating to education, trading, online gaming, virtual office and home television. In addition, over 200 independent software developers have designed more than 500 available products that enhance online systems which utilize the Worldgroup software. Worldgroup software is currently available in 10 languages. The Company has recently released or has under development for release during 1998 several products, including: WEBCAST. Released in March 1997, WebCast allows users to make live audio and visual broadcasts, and broadcast pre-recorded videos on demand, over the Internet to viewers who need only use a standard web browser to receive the broadcast, unlike presently available competitive products which require viewers to download special client software. The Company markets WebCast directly to individual consumers and to businesses through computer catalogs, retail outlets and bundling agreements with camera manufacturers. The Company has recently entered into strategic alliances to bundle WebCast with cameras and other hardware recently introduced by Eastman Kodak, Boca Research, Specom Technologies, Best Data Products and Aztech New Media Corp. WORLDLINK. Scheduled for release by March 1998, Worldlink allows a Worldgroup community to link with other Worldgroup systems. The Company believes that the future development and organization of online communities will result in additional Worldgroup systems and present opportunities to introduce new products for Worldgroup system users. Worldlink with a graphical interface for users is currently being beta-tested. ACTIBASE. Released in December 1997, Actibase is an Internet database connectivity program that is fully integrated with the Worldgroup server. Actibase enables a company to publish any of its databases directly onto the Worldwide Web, with only limited knowledge of computer database programming. Actibase is offered as a stand-alone product as well as an add-on product to Worldgroup and WebCast. NETDISC. NetDisc is an advertising vehicle that uses the Internet and a CD Rom disc to promote products to a specifically targeted market of consumers. The Company's netDisc technology incorporates advertising video clips and website links to advertisers' web pages. NetDisc's game format allows users to win promotional prizes. In conjunction with advertising agencies and magazine publishers, the Company intends to insert the netDisc in magazines, the first installment of which is anticipated to be the June 1998 issue of MOTOR TREND magazine. The Company's objective is to become a leading developer of communications software for the Internet, intranet and other online communications systems. The Company intends to achieve its objective by: (i) developing customized intranets and other applications using Worldgroup as the software foundation; (ii) continually upgrading Worldgroup and other programs and offering new programs that deliver customers high levels of performance, ease of use and security; and (iii) establishing strategic alliances to increase sales and facilitate market acceptance of the Company's products. 3 The Company's executive offices are located at 4101 S.W. 47th Avenue, Suite 101, Fort Lauderdale, Florida 33314. The Company can be reached by telephone at (954) 583-5990 or through its website at http:/www.gcomm.com.
THE OFFERING THE SECURITIES OFFERED............... Units at an estimated offering price of between $ and $ for each Unit. THE UNITS............................ Each Unit contains one share of Common Stock and one Redeemable Common Stock Purchase Warrant. The Common Stock and the Warrants will be detachable from the Units the First Exercise Date (as defined immediately below). THE WARRANTS......................... Two Warrants entitle a holder to purchase one share of Common Stock at an exercise price per share equal to 120% of the initial offering price of a Unit. The Warrants will be exercisable during the period commencing ("First Exercise Date") 90 days after the date of this Prospectus, or on such earlier date as may be determined by the Company and the Representative, and ending on the third anniversary of the date of this Prospectus. The Warrants will be redeemable by the Company, commencing 30 days after the First Exercise Date upon 30 days written notice, if the average of the closing bid and asked price of the Common Stock for 20 consecutive trading days ending three trading days prior to the date of the redemption notice is at least equal 150% of the exercise price of the Warrants. The Warrants are subject to adjustment under certain circumstances. See "Description of Securities--Warrants." COMMON STOCK OUTSTANDING PRIOR TO THE OFFERING.................. 4,422,651 shares(1) COMMON STOCK OUTSTANDING AFTER THE OFFERING...................... shares (1)(2) USE OF PROCEEDS ..................... The Company intends to use the proceeds from this offering for: (i) advertising and marketing programs, (ii) repayment of indebtedness; (iii) research and development; (iv) working capital; and (v) capital expenditures. See "Use of Proceeds." PROPOSED NASDAQ SMALLCAP MARKET SYMBOLS.................... Units -- "GALAU" Common Stock -- "GALA" Warrants -- "GALAW"
- ------------- (1) Includes 48,849 shares of Common Stock underlying a convertible promissory note that will be automatically converted on the effective date of this Prospectus. See "Certain Transactions--Wallenberg Trust and UA Partners Investments." Does not include: (i) 370,000 shares of Common Stock under the Company's 1997 Stock Option Plan, of which options to purchase 164,337 shares of Common Stock are currently outstanding; (ii) 393,143 shares of Common Stock reserved for issuance upon the exercise of outstanding options outside the 1997 Stock Option Plan; (iii) 173,482 shares of Common Stock reserved for issuance upon the exercise of two warrants; and (iv) 957,600 shares of Common Stock reserved for issuance upon the exercise of the warrants (the "Bridge Warrants") issued in connection with the Company's October 1997 Bridge Financing. See "Management--Stock Option Plan," "Management--Stock Option Plan," "Management--Employment Agreement," "Recent Financings," and "Certain Transactions." (2) Does not include: (i) shares of Common Stock reserved for issuance upon the exercise of the over-allotment option and the Warrants included as part of the over-allotment option; (ii) shares of Common Stock issuable upon exercise of the Warrants included as part of the Units offered hereby; (iii) shares of Common Stock reserved for issuance upon the exercise of the Representative Unit Purchase Option ("UPO") and the Warrants included as part of the UPO. 4 RISK FACTORS........................ The securities offered hereby are speculative and involve a high degree of risk and immediate, substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. Prospective investors are urged to carefully review the "Risk Factors" starting on page 7 before making an investment decision. 5 SUMMARY HISTORICAL FINANCIAL DATA Set forth below is summary historical financial data of the Company for the year ended December 31, 1996 (audited) and for the nine month periods ended September 30, 1996 and 1997 (unaudited). The summary financial information should be read in conjunction with the Company's consolidated financial statements and related notes and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contained herein.
YEAR ENDED NINE MONTHS ENDED 12/31/96 9/30/96 9/30/97 ---------- ------- ------- STATEMENT OF OPERATIONS DATA: Revenues............................ $ 1,692,743 $ 1,159,246 $ 2,688,421 Total operating costs and expenses 2,673,699 1,170,670 4,456,174 Loss from operations................ (980,956) (11,424) (1,767,753) Other expense, net................ (60,312) (3,559) (144,373) ------------- ------------- ------------- Net loss............................ $ (1,041,268) $ (14,983) $ (1,912,126) ============= ============= ============= Net loss per share.................. $ (0.32) $ (0.01) $ (0.38) ============= ============= ============= Shares used in computing net loss per share(1)...................... 3,229,101 2,982,455 5,030,371 ========= ========= ==========
SEPTEMBER 30, 1997 ------------------------------------------ PRO FORMA 12/31/96 9/30/97 PRO FORMA(2) AS ADJUSTED(3) -------- ------- ----------- ------------- BALANCE SHEET DATA Cash $ 1,466,392 $ 64,486 $1,520,411 Working capital (deficiency)........ (475,580) ( 1,524,464) 130,036 Goodwill, net of amortization....... 2,079,334 1,875,819 1,875,819 Total assets........................ 4,434,020 3,745,275 5,574,200 Short-term obligations.............. 393,575 278,575 80,000 Long-term obligations............... 1,393,999 1,381,899 3,271,227 Shareholders' equity ............... $ 949,566 $ 221,362 $ 432,034 $
(1) Certain common stock and common stock equivalents issued by the Company within 12 months of the date of this Prospectus have been included in the calculation of number of shares used in calculating net loss per share (using the treasury stock method). (2) Pro forma balance sheet data gives effect to the Company's receipt in October 1997 of loans aggregating $2,100,000 which are being used by the Company to fund its operations pending completion of this offering (the "Bridge Financing") and the application of the net proceeds therefrom. See "Recent Financings." (3) Adjusted to give effect to the sale of Units offered hereby at an assumed initial offering price of $ per share and the application of net proceeds therefrom after deduction of underwriting discounts and commissions and estimated expenses of the offering. See "Use of Proceeds." SUMMARY PRO FORMA FINANCIAL DATA Set forth below is summary pro forma financial data which gives effect to the Company's November 1996 acquisition of Galacticomm, Inc. and merger with Tessier Technologies, Inc. ("TTI") as if such transactions were consummated on January 1, 1995 or 1996. The pro forma data is unaudited and is not necessarily indicative of the results of operations of the Company had the Company acquired Galacticomm, Inc. and TTI on January 1, 1995 or 1996.
YEAR ENDED NINE MONTHS ENDED 12/31/95 12/31/96 9/30/96 -------- -------- ----------------- STATEMENT OF OPERATIONS DATA: Revenues..................................... $ 9,211,139 $ 6,189,505 $ 5,402,806 Cost of revenues............................. 2,897,036 2,515,462 2,310,845 Total operating costs and expenses....... 6,986,378 7,240,672 4,331,813 Loss from operations......................... (672,275) (3,566,629) (1,239,852) Other expense, net......................... (354,329) (655,321) (56,300) Net loss..................................... $ (1,026,604) $ (4,221,950) $ (1,296,152) Net loss per share........................... $ (0.34) $ (1.31) $ (0.43) Shares used in computing net loss per share(1)............................... 2,982,455 3,229,101 2,982,455
(1) Certain common stock and common stock equivalents issued by the Company within 12 months of the date of this Prospectus have been included in the calculation of number of shares used in calculating net loss per share (using the treasury stock method). 6 RISK FACTORS AN INVESTMENT IN THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT IN THE UNITS OFFERED HEREBY. THIS INVESTMENT IS NOT RECOMMENDED FOR THOSE WHO CANNOT BEAR THE RISKS DESCRIBED BELOW. THIS PROSPECTUS CONTAINS "FORWARD-LOOKING" STATEMENTS. FORWARD LOOKING STATEMENTS ARE STATEMENTS ABOUT EVENTS THAT HAVE NOT OCCURRED. THEY INCLUDE STATEMENTS ABOUT THE COMPANY'S FUTURE PLANS, GROWTH STRATEGIES AND INDUSTRY TRENDS. THEY ALSO INCLUDE STATEMENTS WITH WORDS SUCH AS "ANTICIPATE," "INTEND," "BELIEVE," "PLAN," "ESTIMATE," AND "EXPECT." THESE FORWARD LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD LOOKING STATEMENTS AS A RESULT OF THE FACTORS DESCRIBED IN THE FOLLOWING SECTION AS WELL AS ELSEWHERE IN THIS PROSPECTUS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PROSPECTUS WILL IN FACT TRANSPIRE OR PROVE TO BE ACCURATE. LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT The Company was incorporated in December 1995 and therefore has only a limited operating history. Although the Company's operating subsidiary, Galacticomm, Inc., has conducted operations since 1985, Galacticomm, Inc.'s business and operations have only been operated by the Company and its management team since November 1996. Furthermore, the Company's business plan is significantly different from and larger in scope than Galacticomm, Inc.'s historic business. Accordingly, the Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets, such as computer software and the Internet. To address these risks, the Company must, among other things, respond to competitive developments, endeavor to attract, retain and motivate qualified persons, and continue to upgrade its technologies and commercialize products and services incorporating such technologies. There can be no assurance that the Company will be successful in addressing such risks. The Company has incurred net losses since inception. As of September 30, 1997, the Company had an accumulated deficit of $2,972,495. Pursuant to its business strategy, the Company expects to continue to make expenditures on new product introductions and product upgrades, marketing, and research and development, all of which will adversely affect operating results until revenues from sales of such products reach a level at which these costs are supported. There can be no assurance that the Company will achieve or sustain profitability. FLUCTUATIONS IN QUARTERLY RESULTS The Company's quarterly operating results have varied significantly in the past and the Company expects that they will continue to vary in the future. Sales in any one quarter may fluctuate based upon a number of factors, including: (i) the timing of the release of new products or product upgrades by the Company or its competitors, (ii) the size and timing of individual orders by customers, (iii) deferral of orders by customers in anticipation of new products or product upgrades, (iv) technological changes in the operating systems upon which the Company's products run, and (v) changes in the Internet or other networking technology. Fluctuations in operating results may increase as a result of the Company's business strategy to develop and sell customized applications to larger customers to meet their specific requirements. See "--Length of Sales Cycles." The Company believes it will be difficult to predict the timing of these types of sales because they are subject to both designing the solution to meet the customer's needs and convincing the customer to purchase the products, and other risks over which the Company has little or no control. The Company's expenses for each quarter are generally fixed and the Company is generally unable to adjust its spending quickly enough to compensate for unexpected shortfalls in sales. Consequently, a significant shortfall in revenues in any quarter could immediately harm the Company's operating results. As a result, the Company believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. PRODUCT CONCENTRATION Revenues from Worldgroup (and related tools and add-ons) accounted for approximately fifty-seven percent of the Company's product sales revenues for the nine month period ended September 30, 1997. Although the Company has recently introduced several new software products in an effort to, among other things, diversify its sources of revenues, the Company expects that sales of and licenses for the use of Worldgroup (and other software products which are based on the Worldgroup platform) will continue to account for a significant portion of the Company's revenues. Consequently, declines in demand for Worldgroup and related products, whether as a result of competition, technological change or otherwise, will have a material adverse effect on the Company's business, operating results and financial condition. 7 NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE The market for the Company's software and services is characterized by rapidly changing technology and industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can quickly render existing software obsolete and unmarketable. The Company's future success will depend in part on its ability to enhance existing products and services and to develop and introduce new products and services to meet changing customer demands. Specifically, the Company's new products (and enhancements) must: (i) incorporate new and evolving industry standards, (ii) continue to offer improved performance and features, (iii) respond to evolving customer needs, and (iv) achieve market acceptance. The development of new products and services or enhanced versions of existing products and services entails significant technical risks. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new services and products that respond to technological change or evolving industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these services or products, or that its new services and products will adequately meet the requirements of the marketplace and achieve market acceptance. If the Company is unable, for technological or other reasons, to develop and introduce new services or products in a timely and cost-effective manner or to address compatibility, inoperability or other issues raised by technological changes or new industry standards, the Company's business, operating results and financial condition could be materially and adversely affected. COMPETITION The Company faces intense and increasing competition from other software companies. The Company's Worldgroup line of products faces competition from a number of products that permit information exchange in ways similar to Worldgroup, including: (i) Microsoft Back Office; (ii) Lotus Domino, and (iii) Novell's Intranet Ware. WebCast, the Company's web broadcast software, competes with products offered by, among others, White Pine Software, Inc., Progressive Networks, Xing Technology Corporation, NetSpeak, VocalTec, Vivo Software, Inc. and VDOnet Corporation. Webcast is the only product presently available in the market that allows users to make live audio and visual broadcasts, and broadcast pre-recorded videos on demand, over the Internet to viewers who need only use a standard web browser to receive the broadcast. All other presently available competitive products require users to download client software. Many of the Company's competitors are substantially larger than the Company, have greater financial resources and name recognition than the Company, and longer operating histories in the Internet and intranet markets and greater technical and marketing resources than the Company. As a result, such competitors may have a competitive advantage over the Company in that such companies may be able to respond more quickly than the Company to new or emerging technologies and changes in customer needs, or to devote greater resources than the Company to the development, promotion and sale of their products. The Company competes on the basis of: (i) price, (ii) ease of use and performance of its products and (iii) responsive and reliable service. There can be no assurance that the Company will be able to successfully compete against its current or future competitors. LENGTH OF SALES CYCLES The Company must successfully develop new sales methods and adjust to longer sales cycles. A component of the Company's current business strategy is to develop customized applications using its Worldgroup technology as a platform for such applications. The Company intends to develop customized products on its own or with third party software developers and then sell these products to companies, government agencies or other organizations. These types of customers tend to carefully review their software purchases and require the software seller to educate them about how the product works. Consequently, sales to these customers generally take longer to complete. Furthermore, the final sale to these customers often requires approval of the chief executive officer (for companies) or a review board (for government agencies). The Company expects to invest a significant amount of time and resources in the sales process for these types of customers before it completes any such sales. Thus, the Company's revenues for a particular period may be impacted if sales to such customers forecasted to close in that period are delayed by reason of the education or approval process, or otherwise. In addition, the Company's financial condition could be harmed if a number of these types of customers eventually decide not to purchase the Company's products. UNCERTAINTY REGARDING TRADEMARK PROTECTION Although the Company has several pending trademark applications with the United States Patent and Trademark Office (the "PTO"), the Company has only one federal registration, for the trademark "Galacticomm." No assurance can be given that the PTO will grant registrations for the Company's pending trademark applications. Among other things, it is possible that the Company's trademarks, including "WebCast," could be deemed to be generic by the PTO, in which case neither the Company nor any third party could claim exclusive rights to such term. In such event, the Company intends to associate the 8 generic term with registrable or registered trademarks or logos in order to gain trademark protection over the resulting composite mark. In July 1997, the Company became aware of the existence of a third party which may claim a prior right in the trademark "Worldgroup." The Company and the third party are presently discussing a co-existence arrangement whereby the Company would have the right, without the payment of a royalty, to continue to use the trademark "Worldgroup" on its present products and services. Although the third party does not presently distribute products that compete with the Company's products, the licensing arrangement presently under discussion would not preclude the third party from using the "Worldgroup" trademark in competition with the Company. Also in July 1997, the Company became aware that several other third parties filed applications for registration for the trademark "WebCast," before the Company filed its application. If "WebCast" is determined not to be generic and one of the third party applications matures into a registration, then such third party will have superior rights to the Company. If a third party has superior rights to any of the Company's trademarks, the Company believes that when the Company first commenced use of its trademarks, it acted innocently, unintentionally, and without knowledge of the existence of any third party's purported rights in such marks. Furthermore, if the third party user of "Worldgroup" decides to enforce its trademark rights through an infringement action, the Company believes that valid defenses exist with respect to any such action, including, without limitation, waiver, estoppel and laches and that as a result thereof, any liability of the Company should be limited to injunctive relief prohibiting the Company from future use of such mark. Trademark litigation is expensive and complex and the outcome of such litigation is difficult to predict. Generally, if a court were to find that the Company unintentionally infringed a third party's mark, the Company's liability would be limited to its actual net profit from the sale of infringing products, the third party's actual damages, and injunctive relief. On the other hand, if a court were to find that the Company has wilfully infringed a third party's trademark, the Company could be enjoined from further use of the trademark and could be liable, under the federal Lanham Act, for the lesser of: (i) the Company's net profit stemming from the sale of infringing products and (ii) the third party's actual damages, plus three times the greater of: (a) the Company's profit from the sale of the infringing product, and (b) the third party's actual damages, plus prejudgment interest, attorneys' fees, and the cost of litigation. OTHER INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company regards its software as proprietary and attempts to protect it with copyrights, restrictions on disclosure, copying and transferring title, and enforcement of trade secret laws. Despite these precautions, it is possible for unauthorized third parties to copy the Company's products and it may be possible for them to obtain and use information that the Company regards as proprietary. Although the Company has filed a federal patent application with respect to netDisc, no assurance can be given as to the issuance of a patent or as to the breadth or degree of protection any issued patent may afford. In addition, existing copyright laws give only limited protection to its software and some foreign countries' laws do not protect proprietary rights to the same extent as United States laws. Consistent with the general practice of software developed for retail sale, the Company licenses its products primarily under "shrink wrap" license agreements that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. Except to the extent noted above with respect to certain trademark matters, the Company is not aware that it is infringing or violating any proprietary rights of any third party relating to the Company or the Company's products. The computer software market is characterized by frequent and substantial intellectual property litigation and it is possible that third parties might assert infringement claims against the Company in the future. If this occurs, the Company might be forced into costly litigation or have to obtain a license to the intellectual property rights of others. It is possible that such licenses may not be available on reasonable terms, or at all. The Company currently licenses some of its technology from third parties. For a description of the material terms of the Company's third party licenses, see "Business--Proprietary Rights and Intellectual Property." In the future, such third party technology licenses may not be available to the Company on commercially reasonable terms, if at all. If the Company cannot maintain any of these technology licenses, it is possible that product shipments could be delayed and the Company's financial condition could be harmed. DEPENDENCE ON THE INTERNET The success of the Company's products and services depends on the continued development and growth of the Internet and on the need of businesses and other organizations to continue to develop private intranets. The Internet is new and evolving and may not develop into the large commercial marketplace that many predict. The following factors could slow the growth of the Internet: (i) inadequate development of the necessary infrastructure (e.g., reliable network backbone), (ii) untimely development of affordable complementary products, (e.g., high speed modems), (iii) delays in the development or adoption of new standards to handle increased levels of Internet activity, or (iv) increased government regulation. The number of Internet and intranet users has grown significantly over the last few years and is expected to continue to grow. 9 See "Business--Industry Background." No assurance can be given that the Internet infrastructure will continue to support the demands placed on it by this continued growth. The Company's financial condition could be harmed if the Internet does not become a viable commercial marketplace. POTENTIAL FOR UNDETECTED ERROR The Company's software may contain undetected errors or "bugs" when first introduced or when new versions are released. To prevent defects, the Company seeks to test its products before they are commercially released. Despite its quality control efforts, it is possible that the Company may release new products (or upgrades of existing products) that contain bugs. The Company's inadvertent release of products containing bugs could result in: (i) revenue loss, (ii) delay in market acceptance of the product, (iii) increased service costs, and (iv) damage to the Company's reputation. DEPENDENCE ON KEY EMPLOYEES The Company's success depends on the performance of the senior management, particularly the Chief Executive Officer, Peter Berg, and the President, Yannick Tessier. Mr. Berg and Mr. Tessier are also two of the largest shareholders of the Company. See "Principal Shareholders." Although the Company has entered into employment agreements with each of Mr. Berg and Mr. Tessier which do not expire until November 20, 1999, such employment agreements may be terminated by the employee upon notice for any reason. See "Management -- Employment Agreements." The Company's success also depends on its ability to retain and motivate other key employees, particularly software developers, software programmers and customer support personnel. Competition for these types of employees is intense and no assurance can be given that the Company will be able to attract or retain satisfactory personnel. The loss of the services of Mr. Berg, Mr. Tessier or other key employees could harm the Company's prospects for success. The Company carries key man life insurance on Messrs. Berg and Tessier in the amount of $1,000,000 each. MANAGEMENT OF A GROWING BUSINESS The Company intends to expand its business and operations by continuing to improve Worldgroup, its flagship communications software product, developing new products, designing customized applications for customers, and creating a global network of Worldgroup communities. This growth strategy will place significant demands on the Company's executive officers and financial resources. To be successful, the Company must continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. No assurance can be given that management will be able to successfully manage a rapidly growing business as will be required to fully exploit the market for the Company's products and services. Furthermore, the Company may acquire new companies or products in the future, although the Company does not presently have any understandings, commitments or agreements with respect to any acquisition. Acquisitions involve many unique risks including assimilating acquired operations and products and the diversion of management's attention from the Company's primary business. ANTI-TAKEOVER PROVISIONS The Company's Articles of Incorporation and Bylaws contain provisions that may have the effect of discouraging certain transactions involving an actual or threatened change of control of the Company. See "Description of Securities--Certain Provisions of the Articles and Bylaws." Furthermore, the Company's Articles of Incorporation authorizes the issuance of 1,000,000 shares of "blank check" preferred stock with such designation, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control of the Company. Although the Company has no present intention to designate a series or issue any shares of its preferred stock, there can be no assurance that the Company will not do so in the future. To the extent takeover attempts are discouraged by the foregoing provisions, temporary fluctuations in the market price of the Common Stock, which may result from actual or rumored takeover attempts, may be inhibited. ABSENCE OF DIVIDENDS The Company has not paid any dividends and does not expect to pay any dividends in the foreseeable future and intends to retain earnings, if any, to provide funds for general corporate purposes and the implementation of the Company's business plan. 10 IMMEDIATE AND SUBSTANTIAL DILUTION OF ___ PERCENT TO PUBLIC INVESTORS The purchase price of the Units substantially exceeds the net tangible book value of the Common Stock (which at September 30, 1997 was negative). Assuming a $ offering price per Unit, purchasers will experience immediate and substantial dilution in the adjusted net tangible book value per share after this offering in the amount of $ per share or % of the offering price per Unit. In addition, the Company may issue a substantial number of additional shares of Common Stock in the future upon the exercise of options and warrants having an exercise price below the initial public offering price of the Units. The issuance of a material number of such shares may have the effect of increasing the dilution to new investors in this offering. See "Dilution." DETERMINATION OF OFFERING PRICE AND EXERCISE PRICE; NO ASSURANCE OF PUBLIC MARKET Prior to this offering, there has been no public market for the Units, the Warrants or the Common Stock. The Company has applied to list the Units, the Warrants, and the Common Stock for quotation on the NASDAQ SmallCap Market. No assurance can be given that such securities will be accepted for listing, or, if accepted, that a trading market for such securities will develop, or be sustained. The initial public offering price of the Units and the exercise price and other terms of the Warrants have been determined by negotiation between the Company and the Representative and may not be indicative of the market price for the securities after the offering. The market prices for securities of emerging companies, especially those involved in computers and high technology, have historically been highly volatile and may be unrelated or disproportionate to the operating performance of such companies. Future announcements concerning the Company or its competitors, including technological innovations or new commercial products, may have a significant impact on the market price of the Company's securities. See "Underwriting." CURRENT PROSPECTUS AND STATE REGISTRATION NEEDED TO EXERCISE WARRANTS The Warrants may only be exercised if a current prospectus relating to the Common Stock is then in effect under the Securities Act. While the Company will use its best efforts to maintain the effectiveness of a current prospectus, the Company cannot guarantee that it will be able to do so. After a registration statement becomes effective, it may require continuous updating by the filing of post-effective amendments. A post-effective amendment is required (i) when, for a prospectus that is used more than nine months after the effective date of the registration statement, the information contained therein (including the certified financial statements) is as of a date more than 16 months prior to the use of the prospectus, (ii) when facts or events have occurred which represent a fundamental change in the information contained in the registration statement, or (iii) when any material change occurs in the information relating to the plan of distribution of the securities registered by such registration statement. Furthermore, the Warrants may only be exercised if the Common Stock is qualified for sale or exempt from qualification in the state where the holder of the Warrant resides. The Warrants may have no value if the Common Stock underlying the Warrants is not qualified or exempt from qualification in a particular state, or if a prospectus is not kept current. REDEMPTION OF WARRANTS The Warrants are subject to redemption by the Company, at any time commencing 30 days after the First Exercise Date upon 30 days' prior written notice to the holders thereof, if the average of the closing bid and asked price for the Common Stock for a period of 20 consecutive trading days ending three trading days prior to the date of the redemption notice is at least equal to 150% of the exercise price of the Warrants. In the event that the Warrants are called for redemption by the Company, Warrant holders will have 30 days during which they may exercise their rights to purchase shares of Common Stock. In the event a current prospectus is not available, the Warrants may not be exercised and the Company will be precluded from redeeming the Warrants. If holders of the Warrants elect not to exercise them upon notice of redemption, and the Warrants are subsequently redeemed prior to exercise, the holders would lose the benefit of the difference between the market price of the underlying Common Stock as of such date and the exercise price of such Warrants, as well as any possible future price appreciation in the Common Stock. As a result of an exercise of the Warrants, existing shareholders would be diluted and the market price of the Common Stock may be adversely affected. See "Description of Securities - -Warrants." ADJUSTMENTS TO WARRANT EXERCISE PRICE AND EXERCISE DATE AND IMPACT OF WARRANT EXERCISE ON MARKET The Company, in its sole discretion, and in accordance with the terms of the Warrant Agreement with the Warrant Agent, may reduce the exercise price of the Warrants and extend the time within which the Warrants may be exercised, depending on such things as current market conditions, the market price of the Common Stock and the Company's need for additional capital. Further, in the event that the Company issues certain securities or makes certain distributions to the 11 holders of its Common Stock, the exercise price of the Warrants (and the shares of Common Stock issuable on exercise thereof) may be proportionately reduced. Any such price reductions (assuming exercise of the Warrants) will provide less money for the Company and could possibly adversely affect the market price of the Company's securities. Furthermore, if a substantial number of Warrants are exercised within a reasonably short period of time after the right to exercise commences, the resulting increase in the amount of Common Stock of the Company in the trading market could substantially affect the market price of the Common Stock. See "Description of Securities - Warrants." CONTINUING RELATIONSHIP WITH UNDERWRITERS; POTENTIAL INFLUENCE. Following this offering, the Company will have certain continuing relationships with the Representative. The Company has agreed with the Representative to: (i) sell the Representative, for nominal consideration, the UPO; (ii) grant the Representative the right, for a period of three years after the date of this Prospectus, to nominate a designee to the Company's board of directors; and (iii) grant the Representative the right, for a period of two years after the date of this Prospectus, to represent the Company in connection with any public or private offering, merger or acquisition. The foregoing relationships may allow the Representative to have a continuing influence over the Company's operations and its future capital raising ability. See "Description of Securities" and "Underwriting." EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS In addition to the Warrants to be issued in connection with this offering ( Warrants if the over-allotment option is exercised in full), the Company, upon completion of this offering, will sell the Representative Unit Purchase Option ("UPO"), which will entitle the Representative to purchase Representative Units. See "Underwriting." The Company has also issued Bridge Warrants to purchase an aggregate of 957,600 shares of Common Stock at an exercise price of $3.75 per share until October 27, 2000. See "Recent Financings." The shares of Common Stock underlying the UPO and Bridge Warrants have been included in the Registration Statement of which this Prospectus forms a part. See "Description of Securities--Registration Rights and Sales by Certain Shareholders." Furthermore, the Company has 164,337 outstanding options under the Company's 1997 Stock Option Plan with an exercise price of $6.50 per share and options and warrants to purchase an aggregate of 566,625 shares of Common Stock outside the Company's 1997 Stock Option Plan, that are exercisable at prices below the estimated initial offering price of the Units offered hereby. See "Description of Securities--Outstanding Option and Warrants." It may be expected that the such options and warrants will be exercised only if it is advantageous to the holders thereof. Therefore, during the period in which such options and warrants may be exercised, the holders thereof are given the opportunity to profit from a rise in the market price of the Common Stock. To the extent that such options and warrants are exercised, dilution to the interests of the Company's shareholders will occur. Further, the terms upon which the Company will be able to obtain additional capital may be adversely affected since the holders of such options and warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided by such options and warrants. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price for the Common Stock. Immediately prior to the date of this Prospectus, there are 4,422,651 shares of Common Stock issued and outstanding, which includes 48,849 shares of Common Stock reserved for issuance through the automatic conversion of the UA Partners Note on the date of this Prospectus. See "Certain Transactions." Of such amount, shareholders owning an aggregate of shares of Common Stock have agreed not to sell or otherwise dispose of their shares of Common Stock for a period of one year from the date of this Prospectus without the prior written consent of the Representative. Subject to such lock-up period, the outstanding shares of Common Stock may be sold without registration under the Securities Act in compliance with Rule 144. In general, under Rule 144, a person who has satisfied a one-year holding period may under certain circumstances sell, within any three-month period, a number of shares which does not exceed the greater of 1% of the outstanding shares of Common Stock or the reported average weekly trading volume in the four weeks preceding the sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who is not an affiliate of the company and who has satisfied a two year holding period. See "Description of Securities--Shares Eligible for Future Sale." In addition, the Company has granted certain demand and registration rights with respect to shares of issued and outstanding Common Stock and shares of Common Stock underlying the Bridge Warrants, the UPOs and other options and warrants. The shares of Common Stock underlying the Bridge Warrants have been included in the Registration Statement of which this Prospectus forms a part, although such shares may not be sold prior to six months from the date of this Prospectus, unless otherwise agreed to by the Representative. The exercise of registration rights would permit a large number of shares to become freely tradeable without restriction 12 (subject to any lock-up arrangements) under the Securities Act immediately upon effectiveness of such registration. See "Description of Securities--Registration Rights and Sales by Certain Shareholders." POSSIBLE DELISTING OF SECURITIES FROM NASDAQ AND RISKS OF COMMON STOCK TRADING BELOW $5.00 PER SHARE. Upon consummation of this offering, the Common Stock, the Warrants and the Units (collectively the "Securities") are expected to be listed on the NASDAQ SmallCap Market. In order to qualify for continued listing on the SmallCap Market, the Company will be subject to compliance with maintenance and corporate governance requirements, including: (i) net tangible assets of at least $2 million, market capitalization of $35,000,000, or net income of $500,000; (ii) a public float of at least 500,000 shares valued at $1 million or more; (iii) at least two market makers; (iv) at least 300 shareholders; and (v) a minimum bid price of $1.00 per share. The corporate governance requirements for the SmallCap Market require distribution of annual and interim reports to shareholders, a minimum of two independent directors, an audit committee comprised of a majority of independent directors, an annual shareholder meeting, a quorum requirement, solicitations of proxies, review of conflicts of interest, shareholder approval for certain corporate actions and voting rights protection. In the event that the Company is unable to satisfy the requirements for continued quotation on NASDAQ, trading in the Securities would be conducted in the over-the-counter market in what are commonly referred to as the "pink sheets" or on the OTC Bulletin Board. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the Securities. In addition, if the Securities are suspended or terminated from NASDAQ and at such time has a market price of less than $5.00 per share, then the sale of the Common Stock would become subject to certain "penny stock" regulations adopted by the Securities and Exchange Commission which impose sales practice requirements on broker-dealers. For example, broker-dealers selling the Securities would, prior to effecting the transaction, be required to provide their customers with a document which discloses the risks of investing in the Securities. Furthermore, if the person purchasing the Securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in the Securities. Accordingly, if the listing of the Securities is suspended or terminated from NASDAQ and is trading for less than $5.00 per share, the penny stock regulations may restrict the ability of broker-dealers to sell the Securities and may affect the ability of purchasers in this offering to sell the Securities in the secondary market. 13 USE OF PROCEEDS The net proceeds that the Company will receive from the sale of the Units offered hereby, based upon an assumed offering price of $ per Unit and after deduction of underwriting discounts, the non-accountable expense allowance and other offering expenses, will be approximately $6,933,000 ($8,029,200 if the over-allotment option is exercised in full). The Company intends to use such proceeds as follows:
APPROXIMATE APPLICATION OF PROCEEDS DOLLAR AMOUNT PERCENTAGE ----------------------- ------------- ---------- Advertising and Marketing Programs(1) $2,750,000 Repayment of Bridge Notes(2) $2,150,000 Repayment of Indebtedness to Shareholders(3) $ 67,000 Research and Development(4) $ 800,000 Working Capital and General Corporate Purposes(5) $ 741,000 Capital Expenditures(6) $ 425,000
- ----------- (1) Includes expenditures for trade shows, product catalogs, print advertising, cooperative dealer advertising, public relations and the hiring of sales and marketing personnel. (2) Repayment of principal and estimated interest under the Bridge Notes sold in connection with the Bridge Financing. The Bridge Notes bear interest at a rate of 10% per year and are due and payable at the closing of this offering. See "Recent Financings." (3) Repayment of: (i) a 10% note in the amount of $50,000 to Yannick Tessier which is payable by the Company on the effective date of this offering; and (ii) repayment of interest (estimated at approximately $15,000) accrued under the 10% convertible secured UA Partners Note, which interest is due and payable within five days of the effective date of this Prospectus. The principal amount of the UA Partners Note will be repaid by the Company through the automatic conversion of such note into an aggregate of 48,849 shares of Common Stock on the date of this Prospectus. See "Certain Transactions." (4) Includes the hiring of research and development personnel and purchase of software development tools and related equipment. See "Business--Research and Development." (5) Proceeds from the exercise of the over-allotment option, if any, will be added to working capital. (6) For leasehold improvements, office furniture and modules and computer equipment. The foregoing represents the Company's best estimate of its allocation of the net proceeds from this offering based upon the current state of the Company's business operations, its current plans and current economic conditions. Based on the Company's current proposed plans and assumptions relating to the implementation of its business strategy, the Company anticipates that net proceeds from this offering will be sufficient to satisfy its contemplated cash requirements for at least 18 months following the consummation of this offering. Future events, including the problems, delays, expenses and complications frequently encountered by software companies as well as changes in regulatory, political and competitive conditions affecting the Company's business and the success or lack thereof of the Company's business strategy, may necessitate shifts in the allocation of funds. The Company also reserves the right to allocate the net proceeds for acquisitions. The Company does not have any present understandings, commitments or agreements with respect to an acquisition. Pending use of the proceeds of this offering, the Company may invest such funds in interest bearing accounts, certificates of deposit, money market funds or similar short-term investments. 14 CAPITALIZATION The left hand column of the following table presents the actual capitalization of the Company as of September 30, 1997. The middle column of this table presents the pro forma capitalization of the Company at September 30, 1997, after giving effect to the Bridge Financing and the application of the proceeds therefrom. See "Recent Financings." The right hand column has been adjusted to give effect to: (i) the sale of the Units offered hereby (based upon an assumed offering price of $ per share) and the application of the proceeds therefrom; and (ii) the conversion of the Wallenberg Trust Note and the UA Partners Note. See "Certain Transactions--Wallenberg Trust and UA Partners Investment." This table should be read in conjunction with the Company's financial statements and notes thereto beginning on page F-1 of this Prospectus.
SEPTEMBER 30, 1997 (UNAUDITED) ACTUAL PRO FORMA AS ADJUSTED(1) ------ ------------------------------ Notes Payable and Short-Term Borrowings.................. $ 198,575 $ --- $ Notes Payable - Shareholder.............................. 80,000 80,000 Long-term Debt........................................... 1,381,899 1,381,899 Bridge Notes (all long-term debt)........................ --- 1,889,328 Shareholders' Equity: Preferred Stock, par value $.001 per share, 1,000,000 shares authorized; none outstanding....................................... --- --- Common Stock, par value $.0001 per share; 20,000,000 shares authorized; 3,829,907 shares issued and outstanding actual and pro forma and shares as adjusted............................ 383(2) 383(2) (3) Additional Paid-in Capital............................... 3,193,474 3,404,146 Accumulated Deficit ..................................... (2,972,495) (2,972,495) 221,362 432,034 Total Capitalization .................................. $1,881,836 $3,783,261 $
(1) Assumes an initial public offering price of $ per Unit, and no exercise of: (i) the Warrants, (ii) the Underwriter's over-allotment option and (iii) the Representative Unit Purchase Option. (2) Excludes: (i) 370,000 shares of Common Stock reserved for issuance upon the exercise of stock options under the Company's 1997 Stock Option Plan, of which 164,337 options are presently issued and outstanding; (ii) 393,143 shares of Common Stock which may be acquired upon the exercise of options granted outside the 1997 Stock Option Plan; (iii) 173,482 shares of Common Stock which may be acquired upon the exercise of two warrants; (iv) the shares of Common Stock underlying the Wallenberg Trust Note and UA Partners Note; and (v) 957,600 shares of Common Stock reserved for issuance upon the exercise of the Bridge Warrants. (3) Includes 543,895 shares of Common Stock issued to the Wallenberg Trust on December 31, 1997 upon conversion of the Wallenberg Trust Note and 48,849 shares of Common Stock to be issued to UA Partners upon the conversion of the UA Partners Note as of the date of this Prospectus. 15 DIVIDEND POLICY Holders of the Common Stock are entitled to cash dividends when, as and if declared by the Board of Directors out of funds that are legally available for such dividends. The Company does not anticipate the declaration or payment of any dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will be subject to the discretion of the Board of Directors and will be contingent upon future earnings, if any, the Company's financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. Future dividends may also be subject to covenants contained in loan agreements, other financing documents or the terms of any preferred stock. Therefore, there can be no assurance that cash dividends of any kind will ever be paid. DILUTION Dilution is the difference between the price paid for the Units and the "net tangible book value" per share of the Company's Common Stock before this offering. Net tangible book value per share represents the amount of the Company's tangible assets less the amount of its liabilities, divided by the number of the Company's outstanding securities. At September 30, 1997, the Company had a negative net tangible book value of ($2,140,745), or ($0.56) per share. On a pro forma basis, after giving effect to the Bridge Financing, the Company would have had a negative net tangible book value of ($2,002,573), or approximately ($0.52) per share. See "Recent Financings." After giving effect to the sale of Units offered hereby at an assumed price of $ per share and the Company's receipt of the net proceeds from this offering less underwriting discounts, the non-accountable expense allowance and other estimated offering expenses, and without giving effect to the Underwriter's over-allotment option, the Representative Unit Purchase Option or the exercise of the Warrants or any other outstanding options or warrants, the pro forma net tangible book value of the Company as adjusted at September 30, 1997 would be approximately $ , or $ per share. Accordingly, the cash investment by investors in this offering of $ per share will be diluted immediately by approximately $ per share or %. The aggregate increase in the net tangible book value to the present shareholders, at no additional cost to them, will be approximately $ per share. The following table illustrates the per share dilution effect: Public offering price per share........................... $ Pro Forma Net tangible book value per share before offering .................................. $(0.52) Increase per share attributable to payments by public investors............................ -- Adjusted pro forma net tangible book value per share after offering................................ -- Dilution of net tangible book value per share to public investors .......................... $ The foregoing assumes no exercise of the Underwriter's over-allotment option. If the Underwriter's over-allotment option is exercised in full, the net tangible book value per share at September 30, 1997, as adjusted for this offering, would be $ , and dilution of net consolidated tangible book value per share to public investors would be $ or %. The following table summarizes the difference between public investors and current shareholders of the Company with respect to the number of shares purchased from the Company, the total consideration paid to the Company (based upon an assumed exercise price of $ per Unit and before deduction of underwriting discounts, the non-accountable expense allowance and other estimated offering expenses) and the applicable average purchase price per share:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE ------ ---------- ------ ---------- --------- Public Investors........................ % $ % $ Current Shareholders................... 4,422,651 % $4,710,698 % $1.07 Total................................... 100% $ 100%
16 The foregoing table gives effect to the automatic conversion of the UA Partners Note into 48,849 shares of Common Stock on the date of this Prospectus, but assumes no exercise of: (i) 164,337 shares of Common Stock which may be acquired upon the exercise of outstanding options under the Company's 1997 Stock Option Plan; (ii) 393,143 shares of Common Stock which may be acquired upon the exercise of options granted outside the 1997 Stock Option Plan; (iii) 173,482 shares of Common Stock which may be acquired upon exercise of two warrants; (iv) 957,600 shares of Common Stock which may be acquired upon the exercise of the Bridge Warrants; (v) shares of Common Stock reserved for issuance upon the exercise of the over-allotment option and the Warrants included as part of the over-allotment option; (vi) shares of Common Stock issuable upon exercise of the Warrants included as part of the Units offered hereby; and (vii) shares of Common Stock reserved for issuance upon the exercise of the Representative Unit Purchase Option ("UPO") and the Warrants included as part of the UPO. See "Management--Stock Option Plan," "Management--Employment Agreements," "Certain Transactions" and "Recent Financings." To the extent that the foregoing options and warrants are exercised, there will be further dilution to new investors. RECENT FINANCINGS In October 1997, the Company issued and sold 42 bridge units ("Bridge Units"), each Bridge Unit consisting of an unsecured non-negotiable promissory note in the principal amount of $50,000 ("Bridge Note") and a warrant ("Bridge Warrant") to purchase 19,000 shares of Common Stock (collectively, the "Bridge Financing"). The Bridge Notes, which bear interest at a rate of 10% per year, are due and will be paid at the closing of this offering from the proceeds of this offering. See "Use of Proceeds." The Bridge Warrants entitle the holders thereof to purchase one share of Common Stock at a price of $3.75 per share until October 27, 2000. The holders of the Bridge Warrants have agreed not to transfer the Bridge Warrants or the shares of Common Stock underlying such warrants for a period of 180 days following this offering. An aggregate of 957,600 shares of Common Stock underlying the Bridge Warrants (including the 159,600 shares underlying the Warrants issued to the Representative, as noted below) have been included in the registration statement of which this Prospectus forms a part. See "Description of Securities--Registration Rights and Sales by Certain Shareholders." In exchange for serving as the placement agent for the Bridge Financing, the Company paid the Representative: (i) cash compensation equal to 10 percent of the principal amount of the Bridge Notes; (ii) a non-accountable expense allowance equal to three percent of the principal amount of the Bridge Notes and certain accountable expenses totaling $10,000; and (iii) warrants to purchase 159,600 shares on terms substantially the same as the Bridge Warrants. After deducting these and other expenses of the Bridge Financing, the Company received net proceeds of approximately $1,627,000 from the Bridge Financing. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." In June 1997, the Company completed a private placement (the "Private Placement") of an aggregate of 259,802 shares of Common Stock to nine persons for an aggregate consideration of $970,762 or $3.74 per share. 17 SELECTED HISTORICAL FINANCIAL DATA Set forth below is selected historical financial data of: (i) the Company for the year ended December 31, 1996 (audited) and for the nine month periods ended September 30, 1997 and 1996 (unaudited); and (ii) Galacticomm, Inc. for the year ended December 31, 1995 and the ten month period ended October 31, 1996. The financial data as of and for the nine month periods ended September 30, 1997 and 1996 has not been audited, but, in the opinion of management, such consolidated financial statements include all material adjustments necessary for a fair presentation. The following selected financial information should be read in conjunction with the Company's consolidated financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operation."
GALACTICOMM TECHNOLOGIES, INC. GALACTICOMM, INC. ---------------------------------------------------- ------------------------- TEN MONTHS YEAR ENDED NINE MONTHS ENDED YEAR ENDED ENDED 12/31/96 9/30/96 9/30/97 12/31/95 10/31/96 ---------- ------- ----------------- --------- -------- STATEMENT OF OPERATIONS DATA: Revenues............................ $ 1,692,743 $ 1,159,246 $ 2,688,421 $ 7,487,983 $ 3,293,876 Cost of revenues.................... 758,050 594,214 682,738 1,737,170 1,005,595 Selling, general and administrative. 1,531,130 557,424 2,376,280 3,602,809 2,382,613 Depreciation........................ 47,533 18,495 130,698 131,713 150,185 Goodwill amortization............... 38,665 537 394,140 - - Compensation expense on warrants.... - - 113,760 443,242 529,139 Customer support.................... 72,772 - 324,513 425,924 387,797 Research and development............ 225,549 - 434,045 1,034,174 638,200 Total operating expense............. 2,673,699 1,170,670 4,456,174 7,375,032 5,093,529 Profit (loss) from operations....... (980,956) (11,424) (1,767,753) 112,951 (1,799,653) Other expense, net.................. (60,312) (3,559) (144,373) (198,025) (468,153) Net loss............................ $ (1,041,268) $ (14,983) $ (1,912,126) $ (85,074) $ (2,267,806) Net loss per share.................. $ (0.32) $ (0.01) $ (0.38) Shares used in computing net loss per share......................... 3,229,101(1) 2,982,455(1) 5,030,371(1)
GALACTICOMM TECHNOLOGIES, INC. SEPTEMBER 30, 1997 --------------------------------------- PRO FORMA 12/31/96 9/30/97 PRO FORMA(2) AS ADJUSTED(3) -------- ------- ----------- ------------- BALANCE SHEET DATA Cash ............................... $ 1,466,392 $ 64,486 $ 1,520,411 $ Working capital (deficiency)........ (475,580) (1,524,464) 130,036 Goodwill, net of amortization....... 2,079,334 1,875,819 1,875,819 Total assets........................ 4,434,020 3,745,275 5,574,200 Short-term obligations.............. 393,575 278,575 80,000 Long-term obligations............... 1,393,999 1,381,899 3,271,227 Shareholders' equity ............... $ 949,566 $ 221,362 $ 432,034 $
- ------------ (1) All common stock and common stock equivalents issued by the Company within twelve months of the date of this Prospectus have been included in the calculation of number of shares used in calculating net loss per share (using the treasury stock method). (2) Pro forma balance sheet data gives effect to the Bridge Financing and the application of the net proceeds therefrom. See "Recent Financings." (3) Adjusted to gives effect to the sale of Units offered hereby at an assumed initial offering price of $ per share and the application of net proceeds therefrom after deduction of underwriting discounts and commissions and estimated expenses of the offering. See "Use of Proceeds." 18 SELECTED PRO FORMA FINANCIAL DATA Set forth below is selected pro forma financial data which gives effect to the Company's November 1996 acquisition of Galacticomm, Inc. and merger with Tessier Technologies, Inc. ("TTI") as if such transactions were consummated on January 1, 1995 or 1996. The pro forma data is unaudited but, in the opinion of management, such financial statements include all material adjustments necessary for a fair presentation. The pro forma data is not necessarily indicative of the results of operations of the Company had the Company acquired Galacticomm, Inc. and TTI on January 1, 1995 or 1996.
PRO FORMA ----------------------------------------------- YEAR ENDED NINE MONTHS ENDED 12/31/95 12/31/96 9/30/96 -------- -------- ----------------- STATEMENT OF OPERATIONS DATA: Revenues..................................... $ 9,211,139 $ 6,189,505 $ 5,402,806 Cost of revenues............................. 2,897,036 2,515,462 2,310,845 Selling, general and administrative.......... 4,514,023 4,381,252 3,061,992 Depreciation and amortization................ 569,015 1,005,963 362,424 Compensation expense on warrants............. 443,242 529,139 - Customer support............................. 425,924 460,569 351,028 Research and development..................... 1,034,174 863,749 556,369 ------------- ------------- -------------- Total operating expense...................... 6,986,378 7,240,672 4,331,813 ------------- ------------- -------------- Loss from operations......................... (672,275) (3,566,629) (1,239,143) Other expense, net........................... (354,329) (655,321) (56,300) ------------ ------------- -------------- Net loss..................................... $ (1,026,604) $ (4,221,950) $ (1,296,152) ============ ============= ============= Net loss per share........................... $ (0.34) $ (1.31) $ (0.43) ============ ============= ============== Shares used in computing net loss per share(1) .............................. 2,982,455 3,229,101 2,982,455 ============ ============= ==============
(1) All common stock and common stock equivalents issued within twelve months of the date of this Prospectus have been included in the calculation of number of shares used in calculating net loss per share (using the treasury stock method). 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company was incorporated in December 1995 under the name i-View Software, Inc. and acquired its primary operating subsidiary, Galacticomm, Inc., on November 21, 1996. In April 1997, the Company changed its name to Galacticomm Technologies, Inc. Galacticomm, Inc. was formed in 1985 as an online service offering multiplayer games. In 1986, Galacticomm, Inc. developed Major BBS, a character-based computer bulletin board software product which allowed users in different locations access to a common operating environment. In 1995, Galacticomm, Inc. shifted its primary focus from the BBS market to the significantly larger Internet and intranet market through the development and release of Worldgroup 1.0, a client/server software program with an easy to use, Windows-based graphic user interface. See "Business--Worldgroup." The Company acquired Galacticomm, Inc. through the issuance of an aggregate of 193,158 shares of Common Stock and $668,413 in cash. The acquisition was financed through the sale of Common Stock and the issuance of convertible notes to Union Atlantic Partners I Limited ("UA Partners") and Hemingfold Investments Limited ("Hemingfold"), which has transferred its interest in such notes to the Peder Sager Wallenberg Charitable Trust (the "Wallenberg Trust"), an affiliate of Hemingfold. See "Certain Transactions--Wallenberg Trust and UA Partners Investment." Immediately prior to the Company's acquisition of Galacticomm, Inc., the Company acquired Tessier Technologies, Inc. ("TTI") by merger. Prior to such merger, TTI was a leading value added reseller of Major BBS and Worldgroup that had developed over 20 add-on products for these platforms. Prior to the acquisition of Galacticomm, Inc., the Company designed, developed and licensed i-View, a turnkey software package developed on the Worldgroup platform that enables the creation, operation and administration of an online subscription service with real time audio and video to subscribers through several connectivity methods. Using the i-View software, the Company, prior to the acquisition of Galacticomm, Inc., offered adult entertainment subscription services to third parties, although, as a condition to the investment by the Wallenberg Trust and UA Partners in the Company in November 1996, the Company divested itself of all adult-entertainment business. The Company's revenues and operating results have varied substantially from period to period, are likely to continue to vary in the future and should not be relied upon as an indication of future results. See "Risk Factors--Fluctuations in Quarterly Results." The Company has historically operated with no significant backlog. The Company's quarterly results may be affected by the Company's focus on customized software for use by specific customers or specific industries. See "Business--Worldgroup Customized Applications." At September 30, 1997, the Company had a net goodwill balance of $1,875,819 as a result of the merger with TTI and the acquisition of Galacticomm, Inc. The goodwill associated with the TTI merger (approximately $161,000 at September 30, 1997) is being amortized over a three year period. The goodwill balance associated with the Galacticomm, Inc. acquisition is being amortized over a five year period. Consequently, annual earnings of the Company will be negatively effected by approximately $487,000 until 1999 and thereafter by approximately $450,000 per year until 2001. RESULTS OF OPERATIONS The results of operations discussed below for the nine months ended September 30, 1996 and the years ended December 31, 1996 and 1995 reflect the operations of the Company combined with the operations of Galacticomm, Inc. and TTI as if the Company had acquired such companies on January 1, 1995 or 1996. The Company has not provided a comparative discussion with respect to the historic results of the Company, since it does not believe that such comparisons are meaningful. The pro forma financial information included herein is unaudited and is not necessarily indicative of the results that would have actually occurred had the Company acquired Galacticomm, Inc. and TTI at January 1, 1995 or 1996, nor is it necessarily indicative of future results of operations. Among other things, prospective investors should be aware that the cost structure of the pro forma combined companies for the nine month period ended September 30, 1996 was significantly different than the cost structure of the Company on a historical basis for the nine month period ended September 30, 1997, including significant differences between such periods in the number of persons employed, occupancy costs and sales and marketing strategies. Consequently, reductions in the Company's expenses between such periods are not necessarily indicative of efficiencies achieved by the Company in the 1997 period. 20 NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED WITH PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1996 (ASSUMES THE ACQUISITION OF GALACTICOMM, INC. AND TTI HAD OCCURRED ON JANUARY 1, 1996) Net revenues for the nine month period ended September 30, 1997 decreased 50% from $5,402,806 for the nine month period ended September 30, 1996 to $2,688,421 for the comparable period in 1997. The decrease in revenue was primarily attributable to reduced software product revenues as a result of: (i) increased competition from other software companies in connection with the emergence of Internet-based standards and technologies in the market for the Company's products; and (ii) to a lesser extent, the Company's decision to de-emphasize the sale of modems and certain other hardware products in late 1996. In response to the competitive pressure and rapid technological change in the market for the Company's products, the Company has recently redesigned Worldgroup to be compatible with the evolving standards of the Internet. In December 1996, the Company introduced Worldgroup v3.0 for Windows NT with Active HTML interface for several Worldgroup applications permitting access to a Worldgroup server through the Internet using a standard web browser. The Company expects to release Worldgroup v3.1 in March 1998, offering all applications in Active HTML interface. See "Business--Worldgroup." The Company has additionally recently released or has under development for release several additional Internet-based products, including WebCast, Actibase and netDisc. See "Business--Worldgroup." For the nine month period ended September 30, 1997, the consolidated revenues of the Company were derived 63% from software related products, royalties and licensing fees, 10% from hardware product sales, and 20% from billing and collection services provided to Worldgroup communities for collecting fees charged to customers for membership and Internet access. See "Business--Services." The Company anticipates that, as a percentage of net revenues, software revenues will increase as the Company implements its business strategy, and that, as a percentage of net revenues, revenues from the sale of hardware will decrease in the future. Revenues from billing and collection services, as a percentage of net revenues, are expected to remain constant in the near term. Cost of revenues consists primarily of direct hardware and software product costs. For the nine month period ended September 30, 1997, cost of revenues decreased 70% from $2,310,845 in the 1996 period to $682,738 in the 1997 period. This decrease was primarily attributed to lower hardware related product costs and lower costs for billing and collection services as a result of lower component revenues for the period. Gross profit for the nine month period ended September 30, 1997 decreased 35% from $3,091,961 in the 1996 period to $2,005,683 in the 1997 period. As a percentage of revenues, gross profit increased by 32% from 57% for the nine month period ended September 30, 1996 to 75% for the comparable period in 1997. The Company expects gross profits from period to period to fluctuate based on the mix of distribution channels used by the Company, the mix of products sold during that period, and the mix of product revenues versus service revenues. Generally, the Company realizes higher gross profits on direct product sales than on product sales through distributors, resellers and other indirect channels and higher gross profits on product revenues than on service revenues. The increase in gross profits as a percentage of revenues for the nine months ended September 30, 1997 resulted from the Company's decision to focus on software sales and other higher margin products and on selling products through direct versus indirect channels of distribution. The Company expects to continue to realize higher gross profits as a percentage of revenue by increasing the mix of software products, royalty and licensing revenues, although this increase may be offset by the distribution of the Company's products through indirect channels. Selling, general, and administrative ("SG&A") expenses for the nine month period ended September 30, 1997 decreased 22% from $3,061,992 in 1996 to $2,376,280 in 1997. SG&A expenses consist primarily of employee compensation, trade show expenses, professional services and office expenses. Depreciation and amortization for the nine month period ended September 30, 1997 increased 45% from $362,424 in 1996 to $524,838 in 1997. Such increase results from an increase of $394,140 in amortization of intangibles, which primarily represents the amortization of goodwill resulting from the Company's acquisitions over periods of three to five years. Such increase was offset by a decrease of $239,484 in depreciation expense due to the change in the depreciable life of computer equipment from 5 years to 3 years and the resultant full depreciation of certain assets during 1996. Stock-related compensation expense for the nine month period ended September 30, 1997 amounted to $113,760 as a result of the issuance of warrants by two of the Company's officers, directors and stockholders to another stockholder of the Company. See "Certain Transactions," and Note 12(c) to the consolidated financial statements of the Company included elsewhere in this Prospectus. Stock-related compensation expenses related to such warrants is not expected to recur in future periods. There were no stock-related compensation expenses for the nine month period ended September 30, 1996. 21 Customer support expenses for the nine month period ended September 30, 1997 decreased 8% from $351,028 in the 1996 period to $324,513 in 1997 period. This decrease was primarily caused by lower telecommunications costs in the 1997 period. Research and development expenses for the nine month period ended September 30, 1997 decreased 22% from $556,369 to $434,045 in 1997. The Company expects that research and development expenses will increase in the future as the Company expands its product development activities. See "Business--Research and Development." Other expenses, net of other income, for the nine month period ended September 30, 1997 increased 156% from $56,300 in 1996 to $144,373 in 1997. Such increase in other expenses resulted primarily from interest expense related to the Wallenberg Trust and UA Partners convertible secured notes and amortization of related financing costs and expense related to the issuance of an aggregate of 22,857 shares of Common Stock to five persons to cancel certain royalty rights pursuant to the terms of five agreements. Such increase was partially offset by a business interruption insurance claim of approximately $39,000 during the 1997 period. As a result of the foregoing factors, net loss for the nine month period ended September 30, 1997 increased $615,974 from $1,296,152 in 1996 to $1,912,126 in 1997. PRO FORMA YEAR ENDED DECEMBER 31, 1996 AS COMPARED WITH PRO FORMA YEAR ENDED DECEMBER 31, 1995 (ASSUMES IN BOTH CASES THAT THE ACQUISITION OF GALACTICOMM, INC. AND TTI HAD OCCURRED ON JANUARY 1, 1995 OR 1996, RESPECTIVELY) Net revenues for the year ended December 31, 1996 decreased 33% from $9,211,139 in 1995 to $6,189,505 in 1996. The release of Worldgroup 1.0 in the second quarter of 1995 generated revenues in 1995 which were not matched in 1996, during which year revenues from software sales suffered as a result of the Company's delay in upgrading Worldgroup to be fully compatible with the evolving standards of the Internet. In addition, Galacticomm, Inc. curtailed its Network Integration Service division ("NIS") and discontinued the development of software products based on the UNIX operating system in 1996 and instead focused its efforts on the development of a Worldgroup version operating on the Windows NT platform. The discontinuation of the NIS and UNIX operating divisions in 1996 reduced revenues by approximately $794,000 in 1996. During the year ended December 31, 1996 consolidated revenues of the Company were derived 68% from software related products, royalties and licensing fees, 14% from hardware sales, and 17% from billing and collection services. Cost of revenues for the year ended December 31, 1996 decreased 13% from $2,897,036 in 1995 to $2,515,462 in 1996. The decrease in cost of revenues for 1996 was due to lower 1996 software product revenues. Gross profit for the year ended December 31, 1996 decreased 42% from $6,314,103 in 1995 to $3,674,043 in 1996. The 1996 gross profit decrease of $2,640,060 is primarily the result of lower software sales in 1996. As a percentage of revenue, gross profit decreased 14% from 69% in 1995 to 59% in 1996. Selling general, and administrative expenses for the year ended December 31, 1996 decreased 3% from $4,514,023 in 1995 to $4,381,252 in 1996. As a percentage of revenue, SG&A increased 47% from 49% in 1995 to 72% in 1996. In November 1996, the new management of the Company adopted new business strategies which modified systems and procedures to better monitor and budget SG&A expenses for the future. Depreciation and amortization for the year ended December 31, 1996 increased 77% from $569,015 in 1995 to $1,005,963 in 1996. Such increase resulted from the amortization of intangible assets resulting from the Company's acquisitions in 1996, and the change in depreciation from five years to three years of the depreciable useful life of the Company's technology and equipment. Stock related compensation expense for the year ended December 31, 1996 increased 16% from $443,242 in 1995 to $529,139 in 1996. The 1995 expense related to premature exercises of certain stock options by a former employee of Galacticomm, Inc. and the 1996 expense related to the conversion by former employees of Galacticomm, Inc. of phantom stock units into shares of common stock. Customer support expenses for the year ended December 31, 1996 increased 8% from $425,924 in 1995 to $460,569 in 1996. The increase during 1996 resulted from the introduction of Worldgroup 1.0 in the second quarter of 1995. Research and development expenses for the year ended December 31, 1996 decreased 16% from $1,034,174 in 1995 to $863,749 in 1996. The discontinuance of the NIS and UNIX divisions in 1996 was, in part, responsible for this decrease. 22 Other expense, net of other income, for the year ended December 31, 1996 increased $300,992 from $354,329 in 1995 to $655,321 in 1996. The Company's decision in November 1996 to terminate its lease obligation for the rental of a new operating facility was the primary cause for this increase. The cost of lease termination ($380,040) is non recurring, and is shown as part of other expenses for 1996. As a result of the foregoing, net loss for the year ended December 31, 1996 increased $3,195,346 from $1,026,604 in 1995 to $4,221,950 in 1996. LIQUIDITY AND CAPITAL RESOURCES The Company financed the acquisition of Galacticomm, Inc. in November 1996 and has financed its operations since such time primarily through the sale of debt and equity securities in private transactions as described below. The Company acquired 99.9 percent of the outstanding common stock of Galacticomm, Inc. in November 1996 and February 1997 through the issuance of an aggregate of 193,158 shares of Common Stock and $755,915 in cash consideration. The acquisition of Galacticomm, Inc. was financed through investments in the Company by the Wallenberg Trust and UA Partners, pursuant to which the Company received net proceeds of $2,610,641 from the sale of 537,337 shares of Common Stock and the issuance of secured 10% convertible promissory notes in the aggregate principal amount of $1,375,000, which notes have been fully converted into shares of Common Stock as of the date of this Prospectus. See "Certain Transactions--Wallenberg Trust and UA Partners Investment." In June 1997, the Company received net proceeds of $844,553 from the sale of 259,802 shares of Common Stock to nine persons in a private transaction. The Company used $100,000 of the proceeds to pay down its existing credit facility with a financial institution and allocated the balance of such funds for working capital and general corporate purposes. In October 1997, the Company completed the Bridge Financing, pursuant to which the Company issued and sold $2,100,000 principal amount of Bridge Notes and Bridge Warrants to purchase an aggregate of 957,600 shares of Common Stock. The Company will pay all principal and interest (at a rate of 10 percent per year) outstanding on the Bridge Notes from the proceeds of this offering. See "Use of Proceeds." The Company used approximately $272,500 from the proceeds of the Bridge Financing to repay certain indebtedness, including approximately $200,000 of outstanding amounts under the Company's line of credit with a financial institution. Approximately $107,000 of the proceeds from the Bridge Financing were allocated to build out and make improvements to the Company's office space, and the balance was allocated for working capital and general corporate purposes. The Company has been approved for the continuation of its $200,000 line of credit with a financial institution, which line of credit will be guaranteed by Galacticomm, Inc. and Messrs. Berg and Tessier. Such line of credit bears interest at an annual rate of 1.5% above the applicable prime rate. At September 30, 1997, the Company had an accumulated deficit of $2,972,495 and its current liabilities exceeded current assets by $1,524,464. The Company is not currently generating positive cash flow from operations and, pursuant to its business strategy, the Company expects to continue making expenditures on new product introductions and upgrades, marketing, research and development and therefore does not expect to generate positive cash flow from operations until revenues from sales of such products reach a level at which these costs are supported. In addition to the introduction of new products and product upgrades, the Company plans to achieve positive cash flow from operations by increasing sales of current products through increased product marketing, targeted sales efforts focused on, among others, value added resellers and strategic alliances with third party computer software and hardware companies, including co-branding, licensing, OEM and bundling agreements. There can be no assurance that the Company will achieve or sustain positive cash flow from operations or profitability. The Company anticipates, based on its currently proposed plans and assumptions relating to operations, that the net proceeds from the sale of the Units offered hereby, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 18 months from the date hereof. The Company's material commitments consist of the lease of a T-3 fiberoptic digital circuit for $17,500 per month until April 15, 2000 and the lease of its office space. See "Business--Facilities." The Company is also obligated under its employment and consulting agreements for salaries and fees equal to approximately $68,000 per month. See "Management -- Employment Agreements" and "Certain Transactions -- Consulting Agreements with Union Atlantic." The Company intends to use approximately $425,000 of the proceeds from this offering to build out and make improvements to its office space and for office furniture and modules and computer equipment. 23 BUSINESS INTRODUCTION The Company develops, markets, licenses and supports software that enables users to communicate and conduct business over the Internet, intranets, or other online communications systems. The majority of the Company's software products are derived from the Company's flagship product, Worldgroup v3.0 for Windows NT and Windows 95, which is an integrated suite of five communications programs (E-mail, Polls and Questionnaires, Newsgroups, Shared File Libraries and Chat) that enables an individual or enterprise to establish an online system, an intranet or website and also enables users to access certain of such programs using only a standard browser, such as Microsoft's Internet Explorer or Netscape's Navigator. Scheduled for release in March 1998, Worldgroup v3.1 will allow complete access to all of such Worldgroup programs using only a standard browser. The Company estimates that Worldgroup and its predecessor product, Major BBS, have been installed on more than 10,000 online systems worldwide, including systems currently operated by Fortune 500 companies, financial institutions and government agencies. Worldgroup features an open (non-proprietary) set of interfaces, a scalable infrastructure that can grow with a company's needs, and multiple means of connectivity, including the Internet. Such features allow Worldgroup to serve as the software platform for specific communication solutions for a variety of businesses and industries. In conjunction with third party developers, the Company has designed intranets and other online systems for specific projects relating to education, trading, online gaming, virtual office and home television. Worldgroup's open set of interfaces has allowed third party developers to design and sell add-ons that supplement Worldgroup's standard features. As a result, over 200 independent software developers have designed more than 500 available products that enhance online systems which utilize the Worldgroup software. Worldgroup software is currently available in 10 languages. The Company has recently released or has under development for release during 1998 several products, including: WEBCAST. Released in March 1997, WebCast allows users to make live audio and visual broadcasts, and broadcast pre-recorded videos on demand, over the Internet to viewers who need only use a standard web browser to receive the broadcast, unlike presently available competitive products which require viewers to download special client software. The Company markets WebCast directly to individual consumers and to businesses through computer catalogs, retail outlets and bundling agreements with camera manufacturers. The Company has recently entered into strategic alliances to bundle WebCast with cameras and other hardware recently introduced by Eastman Kodak, Boca Research, Specom Technologies, Best Data Products and Aztech New Media Corp. WORLDLINK. Scheduled for release in March 1998, Worldlink allows a Worldgroup community to link with other Worldgroup systems. The Company believes that the future development and organization of online communities will result in additional Worldgroup systems and present opportunities to introduce new products for Worldgroup system users. Worldlink with an Active HTML interface is currently being beta-tested. ACTIBASE. Released in December 1997, Actibase is an Internet database connectivity program that is fully integrated with the Worldgroup server database. Actibase enables a company to publish any of its databases directly onto the Worldwide Web, with only limited knowledge of computer database programming. Actibase is offered as a stand-alone product as well as an add-on product to Worldgroup and WebCast. NETDISC. NetDisc is an advertising vehicle that uses the Internet and a CD Rom disc to promote products to a specifically targeted market of consumers. The Company's netDisc technology incorporates advertising video clips and website links to advertisers' web pages. NetDisc's game format allows users to win promotional prizes. In conjunction with advertising agencies and magazine publishers, the Company intends to insert the netDisc in magazines, the first installment of which is anticipated to be the June 1998 issue of MOTOR TREND magazine. The Company's objective is to become a leading developer of communications software for the Internet, intranet and other online communications systems. The Company intends to achieve its objective by: (i) developing customized intranets and other applications using Worldgroup as the software foundation; (ii) continually upgrading Worldgroup and other programs and offering new programs that deliver customers high levels of performance, ease of use and security; and (iii) establishing strategic alliances to increase sales and facilitate market acceptance of the Company's products. The Company was incorporated in December 1995 under the name i-View Software, Inc. In November 1996, the Company acquired its primary operating subsidiary, Galacticomm, Inc., the developer of Major BBS and Worldgroup. Also in November 1996, the Company merged with TTI, a leading value added reseller of Major BBS and Worldgroup that had developed over 20 add-on products for these platforms. For additional information regarding such acquired companies, see "Management's Discussion 24 and Analysis of Financial Condition and Results of Operations--Introduction." In April 1997, the Company changed its name to Galacticomm Technologies, Inc. The Company's executive offices are located at 4101 S.W. 47th Avenue, Suite 101, Fort Lauderdale, Florida 33314. The Company can be reached by telephone at (954) 583-5990 or through its website at http:/www.gcomm.com. INDUSTRY BACKGROUND THE INTERNET AND THE WORLDWIDE WEB Online communication has grown dramatically since 1987, when the Company first began offering communications software. It is currently estimated that over 40 million people exchange information and communicate electronically using personal computers. By the year 2000, this number is expected to increase to over 200 million. The convergence of communications and computers was greatly accelerated in the 1990s by the market acceptance and commercialization of the Internet, a global web of computer networks. Developed in 1969, this "network of networks" allows any computer connected to the Internet to communicate with any other computer using a common telecommunication protocol. Originally subsidized by the United States government, funding for the Internet infrastructure and backbone operations shifted to the private sector in the 1990s as the number of commercial entities relying on the Internet for business communications and commerce increased. The rapid growth of the Internet has been caused by the emergence of a network of servers and information available on the Internet called the World Wide Web (the "Web"). The Web, which is based on a client-server model and a set of standards for information access and navigation, can be accessed using software that allows non-technical users to exploit the capabilities of the Internet. Electronic documents are published on Web servers in a common format called the Hypertext Markup Language ("HTML"). Web client software (known as browsers) can retrieve these documents across the Internet by making requests using a standard protocol called Hypertext Transfer Protocol ("HTTP"). The most common commercial browsers currently in use are Microsoft Internet Explorer and Netscape Navigator. The explosive growth of online communications has created increasing demand for software solutions that enable users to interact and communicate more efficiently and effectively. Forrester Research, Inc. estimates that the combined Internet and intranet worldwide software market will increase from $382 million in 1996 to $8.5 billion in 1999. Uses for such software include the following: INTRANETS AND OTHER ONLINE SYSTEMS Businesses and other enterprises use personal computers to help their employees communicate and collaborate with each other. Organizations have developed Bulletin Board Systems ("BBSs"), local area networks (LANs) and Wide Area Networks (WANs) and other closed systems (collectively, "Online Systems") to electronically connect their employees as well as their customers. In addition, the technology and protocols of the Internet have been applied to expand the use of private data networks through the development of intranets. An intranet is a network using the TCP/IP protocol of the Internet that connects an organization's computers in a way that makes information more accessible and facilitates navigation through all the resources and applications of the organization's computing environment. In many instances, the same software applications in use on the Internet and Online Systems can be applied to intranets, thereby broadening the market for such software applications. See "Business--Worldgroup Customized Applications." ONLINE COMMERCE Commercial uses of the Internet and Online Systems include business-to-business and business-to-consumer transactions, product marketing, advertising, entertainment, electronic publishing, electronic services and customer support. This new medium offers innovative opportunities for retail and mail order businesses to target and manage a wider customer base. Companies from many industries are using the Web to publish product and company information, provide customer support, allow customers to buy products online, and to collect customer feedback and demographic information interactively. The Company, as well as other software companies make use of the Internet and Online Systems to offer technical support for products and save shipping costs by making software updates available electronically through copying or "downloading" procedures. Other businesses, such as financial institutions and brokerage firms, are also appearing online as the Internet provides access to a growing base of home, business and education customers. International Data Corporation has predicted that the amount of commerce conducted over the Web will increase from $2.6 billion in 1996 to more than $220 billion during 2001. 25 ONLINE COMMUNITIES Online "communities" are one of the fastest growing areas of the Internet, according to a recent report by BUSINESS WEEK. An online community is a network of users that communicate with one another via computer. Online communities may be commercial or private, small or large. Prior to the advent of the Internet, online communities existed through Bulletin Board Systems, which consist of a personal computer running a software program onto which users would typically connect through a standard telephone line. Many applications that are now standard on the Internet such as newsgroups, file transfers and E-mail were initially introduced on BBSs. Pioneering software that enabled the creation of online communities included the Company's Major BBS software, which the Company offered from 1987 until 1995, when the Company introduced Worldgroup. The Company believes that, based upon a report on the Company prepared by an independent third party, Major BBS, the predecessor to Worldgroup, was, by 1994, the industry leader in the corporate market segment for BBS software. Until recently, online communities were primarily organized for non-commercial purposes. The attraction to members of these communities is the ability to interact with users with similar interests locally or worldwide. Members engage in real-time conversation in chat rooms, post messages on a variety of topics in newsgroups or on bulletin boards or play interactive games, known as MUDs. Increasingly, businesses are creating online communities to attract and make sales to consumers. The premise behind these commercial online communities is that consumers will visit and stay longer at a website or Online System where they can interact with others who share a common interest. To encourage interaction between consumers and to retain users at their site, businesses have added online chat rooms, bulletin boards, e-mail and other software applications to their commercial website or Online System. WORLDGROUP The Company's communication software products are designed to connect people and information over the Internet, Intranets and Online Systems. The majority of the Company's software products are based on the Company's flagship product, Worldgroup, a comprehensive client/server software and development tool that allows users in different locations to exchange ideas and information using a variety of connection methods, including the Internet, dial up modem, LANs, WANs, integrated services digital network (ISDN) and serial connection. Using Worldgroup, businesses can establish an interactive web site (or improve an existing website), organizations can establish intranets and exchange data with remote employees, suppliers and customers, and entrepreneurs can create their own online community similar to services such as America Online as well as offer their customers access to the Internet. The Company estimates that the Worldgroup software and its predecessor, Major BBS, have been installed on over 10,000 online servers worldwide, including systems currently operated by Symantec Corporation, General Electric, U.S. Robotics, Citibank, the United States Air Force and the National Weather Service. These servers reach an estimated 1.1 million end-users who use and interact with the Company's software. Worldgroup software is currently available in 10 languages. Worldgroup is both an out-of-the-box product and a software platform that can be configured to provide communications solutions for different businesses and industries. Out of the box, Worldgroup is a suite of popular client/server applications, including: ELECTRONIC MAIL. Electronic mail or E-mail allows users to deliver a private message to others who need not be there when the message arrives. Worldgroup's E-mail has the following features: file attachments, carbon copies, mail forwarding, distribution lists, offline filing cabinets, "new mail" notification, and return receipt. POLLS AND QUESTIONNAIRES. This feature allows the Worldgroup system operator or administrator ("Worldgroup Administrator") to create questionnaires, application forms or opinion polls to ascertain market research and other information about customers and other users. FORUMS. Popularly known as newsgroups, forums allow users to post messages and respond to messages posted by others. A Worldgroup Administrator can configure up to 10,000 separate forums for online discussions. TELECONFERENCING. Popularly known as chat, the teleconference application allows users to establish real-time conversations. Teleconferencing enables group meetings where participants can exchange files in real time with other users while continuing the conversation. The Worldgroup Administrator can create up to 65,535 different channels, each with its own moderator and topic. FILE LIBRARIES. File Libraries allow users to share program and document files. Users can search files by library, category, file names, file date, descriptive words, and popularity. A Worldgroup Administrator can limit user access to particular files or programs. 26 With the release of Worldgroup v3.0 for Windows NT/95 in December 1996, the Company introduced Active HTML interfaces which permit access to a Worldgroup server using only a standard Web browser. This "thin client" access, where there is no need to download client software or employ other controls, makes access to a Worldgroup system as convenient as accessing any website. Currently, both the Sign-Up and File Libraries applications of Worldgroup have been converted to Active HTML. The Company is in the process of converting other applications (including Registry, Polls & Questionnaires, Account Display/Edit, Teleconference and forums) to Active HTML for inclusion in Worldgroup v3.1, which is scheduled for release in March 1998. In addition to its thin client capabilities, all Worldgroup applications continue to be available using the Company's proprietary client software, Worldgroup Manager. The use of Worldgroup Manager has many practical advantages over current thin client technology, including reduced bandwidth needs, greater real time interactivity between users, and the ability to compute "offline". The Company's client software is offered at no cost and can be launched from the Web directly through the Worldgroup plug-in for Netscape Navigator, Microsoft Internet Explorer and Oracle Power Browser. Worldgroup has been designed for multiple connectivity. Users can access a Worldgroup system through dial-up modems, ISDN, Novell-based networks (SPX), and packet-switched X.25 networks as well as the Internet and TCP/IP based networks. Multiple connectivity has several advantages over Internet-only connectivity, including enabling fixed bandwidth connections, alternative access routes if the primary route is "down" or otherwise not available, and better security for private transactions. Worldgroup v3.0 is designed to run on DOS, as well as the Windows NT and Windows 95 operating systems. In addition to being an out-of-the-box product, Worldgroup is a development platform. The Company believes that one of Worldgroup's key strengths is its standard set of interfaces or open architecture. Through Worldgroup's application programming interfaces (APIs) and development kits, over 200 independent software vendors have developed and market applications that can be easily added on to an Internet or Online System using Worldgroup's software. This allows Worldgroup users to pick and choose additional applications for a Worldgroup system depending on their needs. For example, if a group calendar/scheduling program is desired, an add-on application entitled Community Calendar can be seamlessly integrated into the Worldgroup system. The Company and independent software vendors currently offer over 500 add-on applications for Worldgroup, including add-ons that allow a Worldgroup system to offer: (i) outgoing online fax service; (ii) an online shopping mall; (iii) form templates for workflow environments; (iv) video conferencing with point-to-point, broadcast, and theater-replay video; (v) group scheduling; (vi) online publishing; and (vii) SLIP/PPP Internet access to users and optional support for Radius security and accounting protocol for terminal server equipment. Several of these add-on applications are embedded in the Worldgroup software and therefore can be electronically distributed to and immediately launched by the users upon payment. To allow independent software vendors, system operators and system integrators to create such add-ons as well as other customize client-side applications, the Company offers a Worldgroup developer kit for $699, which contains the source code for the five core Worldgroup applications and in-depth developer information. Additional "extended" source suites and application option source packages are available with a wide range of prices. The Company believes that significant opportunities exist for the sale of Worldgroup into emerging markets. It is estimated that 80% of the total demand for Internet access originates in the United States. One of the primary reasons for the lack of Internet access in other countries is cost. In certain Eastern European, Asian and Latin American countries which do not have an established telecommunications infrastructure, the cost of access to high speed Internet networks can be as much as 10 times the cost in the United States. Consequently, the Company believes that the Worldgroup product operating as a bulletin board using existing telephone systems (as opposed to high speed Internet networks) offers an attractive and economically feasible solution in emerging markets. The Company's strategy is to develop a loyal customer base in such markets. The Company currently sells its products in 29 countries. Worldgroup's ability to offer advanced communications technology to third world countries has been recognized by the United Nations Development Programme Global Technology Group, which, in January 1997, selected Worldgroup to the United Nations Flag Technology Program. The suggested retail price for Worldgroup v3.0 for access by eight simultaneous users is $699. The number of simultaneous users can be increased to up to 256 simultaneous users through the purchase of additional user packs, at prices ranging from $55 to $65 per additional user connection. Worldgroup Customized Applications Using Worldgroup as the foundation, the Company, working in conjunction with third party developers, has designed intranets and other communications systems for a number of industries and customers, including the following: 27 REAL-TIME GLOBAL TRADING SOLUTIONS The Company is targeting manufacturers and distributors of commodities worldwide to utilize its software for real-time trading and consolidating of commodities. The Company has entered into a venture with World Commerce Online ("World Commerce") which has launched Floraplex, a private extranet for the floral industry that allows growers, importers, exporters, wholesalers and mass merchandisers to execute purchases over the Internet from any place in the world. The system also provides for the payment of purchases and helps in the consolidation of freight and other shipping items. Pursuant to a Reseller Agreement, dated March 27, 1997, between the Company and World Commerce, the Company receives 6% of the gross revenues collected by World Commerce and 20% of any maintenance fees generated by the system. Such amounts are in addition to the up front revenues that the Company receives for the license of its Worldgroup server software. World Commerce is expected to attempt to offer this solution to a variety of other commodity-based organizations worldwide, although no assurances can be given that World Commerce will be successful in selling this software product to other industries. Accordingly, the Company is unable, at this time, to estimate the impact that the Company's Reseller Agreement with World Commerce will have on its results of operations. Such agreement expires in March 2000. ONLINE GAMING Worldgroup is currently being utilized in the development of on-line casino games for both the entertainment and casino marketplace. The Company sells its software to Atlantic Entertainment which offers a program called I.C.E. (Internet Casino Extension). I.C.E. is marketed to domestic and international casinos who want to provide a non-monetary form of casino gaming to their casino customers to encourage patronage. The Company itself has no intent to offer such gaming activities online. EDUCATION The Company has designed software which is a ready to use classroom intranet designed to connect teachers, student, parents and administrators online. This software offers "managed" Internet access to schools, enabling students to browse the Worldwide Web, but only to sites approved by teachers and school administrators. TELEVISION SET-TOP INTERNET CONNECTIVITY The Worldgroup client/server software has been configured to allow manufacturers of set-top terminals to provide Internet access to the home television set and to provide e-mail and other communications programs to the end consumer. The Company licenses its software to Intercon P/C, Inc. who is installing Worldgroup software as the foundation of its set-top box called "Spider." New Products The Company has recently released or has under development for release during 1998 the following products: WEBCAST Introduced in March 1997, WebCast is an Internet multi-media software product which enables websites to broadcast live or pre-recorded audio and video over the Internet to viewers who need only use a standard web browser to receive the broadcast. All other presently available competitive products require viewers to download special client software. Business and other applications of WebCast include: (i) the ability to have customer service representatives or technicians talking live with customers, (ii) the ability to have staff meetings with remote offices, and (iii) parents away from home checking on their children or other family members. WebCast v2.0, offering video on demand and clientless audio capabilities, was released by the Company in October 1997. The Company currently offers three WebCast products--WebCast Personal, WebCast ProServer and WebCast Lite. WebCast Personal is designed for individual users and allows up to 4 simultaneous viewers. In addition to its audio and video capabilities, WebCast Personal provides teleconferencing, caller ID, call blocking, password authorization and an address book. The suggested retail price of WebCast Personal is $49.95. WebCast ProServer is designed for commercial applications and allows up to 255 simultaneous viewers. WebCast is built upon the Worldgroup v3.0 platform and therefore offers, in addition to audio and video, all of the standard and add-on features available for Worldgroup, such as E-mail, teleconference, file libraries and polling. The suggested retail price of WebCast ProServer is $995, with each additional video stream retailing for $100. 28 The Company also offers at no cost WebCast Lite, a promotional version of WebCast that permits users the opportunity to try the WebCast product. The Company has entered into bundling agreements with a number of manufacturers of web cameras, pursuant to which WebCast Lite has been incorporated into their respective products. After demonstrating WebCast Lite, users may then purchase WebCast Personal or WebCast ProServer from the Company. See "--Sales, Marketing and Distribution." In August 1997, the Company entered into a licensing agreement with Boca Research, Inc., pursuant to which the Company has granted Boca Research a license to include WebCast Lite and related technology in their modems, video conferencing and other hardware products, in exchange for royalty payments that are determined based on the amount and type of product sold by Boca Research. If Boca Research fails to pay royalties of at least $100,000 in any quarter or at least $120,000 in two consecutive quarters, the Company has the right to renegotiate the terms of such license agreement. NETDISC NetDisc is a CD-ROM and Internet game developed by the Company that allows advertising agencies and others to simultaneously promote several products or companies to a targeted market of consumers. Each netDisc CD-Rom contains video clips from an advertiser and links to an advertiser's web page. The Company's netDisc CD-ROM will be distributed through direct marketing or in magazines aimed at a particular market segment. Buyers of such magazines are presented with the opportunity to win prizes in the netDisc game by viewing the various advertisers' videos on the CD-ROM and by visiting such advertisers web site. For each such visit, buyers earn Galact-a-Buck $ game scrip that can be redeemed for prizes. The Company is in discussions with Peterson Publishing, pursuant to which it is anticipated that the first installment of netDisc will be inserted in the June 1998 issue of MOTOR TREND magazine. The Company has filed a patent application with respect to netDisc. See "--Proprietary Rights and Intellectual Property." ACTIBASE Released in December 1997, Actibase is an ODBC compliant database connectivity program which is fully integrated with the Worldgroup server database. Actibase enables a company to publish any of their databases directly onto the Worldwide Web, with only limited knowledge of computer programming or HTML. Actibase features include dynamically generated SQL and HTML Code, a drag and drop form editor and security options. Actibase, as a stand alone product, includes support for eight simultaneous users with user count upgrades available. Actibase is fully integrated into the Company's other product lines as an add-on to Worldgroup and WebCast. WORLDLINK There are approximately 500 Worldgroup communities operating with the Company's Worldgroup and/or Major BBS software. Unlike larger Online Systems, such as America Online and Microsoft Network, Worldgroup communities are typically formed by users and entrepreneurs with a common interest in a particular subject (e.g. horse racing) or by users who are located in the same geographic area. The Company believes that localized service is attractive to users in much the same way that a local newspaper appeals to many readers over a national one. One of the drawbacks to local Online Systems, however, is the need for users traveling outside their local area to make a long-distance telephone call to connect into their local system. To meet this need, the Company has created Worldlink, an add-on application to Worldgroup designed to connect Worldgroup systems to each other to create a global network of Worldgroup communities. Worldlink has been developed to act as a central hub that enables users of a Worldgroup system in one location to interact and communicate with users of a different Worldgroup system. Worldlink presently operates in terminal mode and is capable of connecting up to 250 systems operating on Worldgroup v.1 or v.2. In March 1998, Worldlink will be upgraded to: (i) operate in client/server mode as well as terminal mode; (ii) connect up to 60,000 Worldgroup systems and 16 million simultaneous users; and (iii) include Worldgroup v.3's thin client access via Active HTML. The Company's objective is to ultimately create a global network of Worldgroup communities. The ability of the Company to successfully launch a global network of Worldgroup communities is subject to a number of risks, many of which (such as the participation of individual Worldgroup communities) are beyond the control of the Company. No assurance can be given that the Company will be successful in developing a global community of Worldgroup systems. SALES, MARKETING AND DISTRIBUTION The Company markets and distributes its products through distributors and resellers, as well as directly to end-users. The Company's WebCast Personal product recently entered the consumer retail market and is now being offered for sale throughout North America by CompUSA, Computer City and Fry's Electronics. Historically, the Company has relied on its distribution network for a substantial portion of its sales. The Company's primary distributors in the United States are Ingram Micro Inc. and DistribuPro, Inc. Internationally, the Company distributes its products through Sisnet, S.A. and a network of 30 resellers located 29 in 29 countries. In addition, the Company has established a network of preferred distributors, identified as Ambassador Dealers, many of whom also act as system integrators and value added resellers. The Company provides its Ambassador Dealers with special training programs, promotional incentives and marketing programs. Although the Company uses these and other means to encourage its distributors to focus primarily on the promotion and sale of the Company's products, the Company's distributors may also represent other lines of products that compete with the Company's products and no assurance can be given that these distributors will not give higher priority to the sale of competing products. The Company has recently increased its efforts to make direct sales to end-users in an effort to increase gross profits. Direct sales by the Company are made by mail order to end users who are solicited through catalogs such as CDW, PC Zone, Tiger Direct, MicroWarehouse and PC Connections. In addition, direct sales are made through the Company's direct mailing and telesales efforts aimed at Internet service providers and other end-users. The Company publishes a magazine, VISIONS, aimed at educating end-users about the capabilities of the Company's products. VISIONS, which includes articles about the Company, its recent product releases and development efforts, is distributed to the Company's installed customer base, as well as to the Company's Ambassador Dealers and other distributors of the Company's products. The Company also markets its products on its Web site, which contains demonstrations, free downloads of certain products and significant other information regarding the Company's products and services. The Company intends to increase the sales and distribution of WebCast and its other products by incorporating promotional versions of the Company's software into computer hardware, such as web cameras and modems, that are manufactured and marketed by other companies. Through these bundling arrangements, end purchasers of the computer hardware have an opportunity to try the Company's software and, if desired, to purchase a fully-functional version of the Company's software. These arrangements generally provide that the Company's software is, at no cost to the Company, advertised on the package for the hardware product and that the hardware manufacturer receives a percentage of the purchase price of any software purchased from the Company as a result of such arrangement. To date, the Company has entered into agreements with Eastman Kodak, Boca Research, Aztech New Media Corp., Best Data and Specom to bundle WebCast Lite with computer hardware products offered by such companies. The Company's marketing and sales efforts are supported by a sales and marketing force of 10 people operating from the Company's headquarters in Fort Lauderdale, Florida. The Company intends to add five more employees in marketing and sales following the closing of this offering. There can be no assurance that such expansion will be successfully completed, or that the cost of such expansion will not exceed the revenues generated. RESEARCH AND PRODUCT DEVELOPMENT The market for the Company's products is characterized by rapidly changing technology and frequent new product introductions. The Company's future success depends on its ability to enhance its existing products and to develop new products that: (i) incorporate new and evolving industry standards, (ii) respond to evolving customer requirements, and (iii) achieve market acceptance. The primary aim of the Company's research and development efforts is to identify emerging online communications technology and standards and develop products that address evolving market needs. Specifically, the Company intends to improve and upgrade its existing product, and to develop and introduce new products that deliver customers high levels of performance, ease of use and security. The Company has incurred significant research and development costs over the past two years to convert the Company's software to the Internet and intranet markets. Research and development costs, on a combined pro forma basis, were $863,749 and $1,034,174 for the fiscal years ended December 31, 1996 and 1995, respectively, and $434,045 for the nine month period ended September 30, 1997. The Company believes that significant research and development costs will continue to be incurred in the future to successfully implement the Company's business strategy. SERVICES SUPPORT PROGRAMS The Company has made a commitment to provide timely, high quality technical support to meet the diverse needs of its customers and partners and to facilitate the purchase and use of its products. Presently included at no additional charge with each purchase of Worldgroup v3.0 NT/95 is 120 minutes of technical support through the Company's toll-free telephone number. Additional support is available at the cost of $2.00 per minute, although the Company offers reduced rates through prepaid support plans. Customer support is also available at no cost to customers through a number of additional means, including E-mail and facsimile responses. The Company also publishes a list of answers to frequently asked questions and hosts a customer support forum on its website. 30 Using the Company's own WebCast product, the Company recently began offering live video customer service through the Company's website at http://www.gcomm.com. This service allows the Company's customers to see a live image of and speak to the Company's customer support personnel. The Company believes it is one of only a very few companies in the world offering live video customer service. TRAINING The Company offers several different training courses to system operators, integrators and resellers. Topics covered in these courses include system installation, configuration, administration, security and troubleshooting. Prices for the two to three day courses range from $595 to $995 per person. WORLDGROUP BILLING SERVICES The Company offers Worldgroup communities a 900 telephone number collection service as an alternative means to credit cards and direct billing to collect the fees they charge customers for membership and Internet access. The 900 telephone number collection service allows an end user to obtain and pay for membership and internet access provided by a particular Worldgroup community by dialing a 900 number. Such fees are paid by the end user to the telephone company as part of monthly phone bills and remitted to the Company after deducting telephone company and service bureau collection fees. The Company in turn remits such membership and internet access fees to the Worldgroup community after deducting a service fee of approximately 10 percent. COMPETITION The communications software industry is intensely competitive. Many of the Company's competitors are substantially larger and have much greater financial resources and name recognition than the Company. They also have longer operating histories in the Internet and intranet markets and greater technical and marketing resources than the Company. To maintain or increase its position in the industry, the Company will need to continually enhance its current product line, and introduce new products and services. There can be no assurance, however, that the Company will be able to compete successfully in the future, or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company's Worldgroup product faces competition from a number of products that permit information exchange in ways similar to Worldgroup, including: (i) Microsoft Back Office; (ii) Lotus Domino, (iii) Novell's Intranet Ware; and (iv) Netscape's SuiteSpot. While these and other competitive products offer features similar to Worldgroup, the Company believes that Worldgroup maintains a competitive advantage over these products in terms of price, availability of add-on applications, ease of use and administration. WebCast, the Company's software for Web cameras, competes with products offered by White Pine Software, Inc., Progressive Networks, Vxtreme, Inc., Xing Technology Corporation, NetSpeak, VocalTec, Vivo Software, Inc. and VDOnet Corporation. The Company competes against these products in terms of price and the fact that no special client software, other than Netscape Navigator 2.0 or above or Microsoft's Internet Explorer 4.0 or above web browser, is required to view the WebCast video or audio stream. All other presently available competitive products require viewers to download client software See "--Products-WebCast." Actibase, the Company's Internet database connectivity program, competes with, among others, Claris' Filemaker Pro, Microsoft's InterDev and Topspeed's Clarion. The Company competes against these products in terms of price and product features. PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY The Company regards its software as proprietary and attempts to protect it with copyrights, trademarks, restrictions on disclosure, copying and transferring title and enforcement of trade secret laws. Despite these precautions, it is possible for unauthorized third parties to copy the Company's products and it may be possible for them to obtain and use information that the Company regards as proprietary. Although the Company has filed a federal patent application with respect to netDisc, no assurance can be given as to the issuance of a patent or as to the breadth or degree of protection any issued patent may afford. In addition, existing copyright laws give only limited protection to its software and some foreign countries' laws do not protect proprietary rights to the same extent as United States laws. Consistent with the general practice of software developed for retail sale, the Company licenses its products primarily under "shrink wrap" license agreements that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. Although the Company has several pending trademark applications with the United States Patent and Trademark Office (the "PTO"), the Company has only one federal registration, for the trademark "Galacticomm." No assurance can be given that the PTO will grant registrations for the Company's pending trademark applications. Among other things, it is possible that the Company's trademarks, including "WebCast," could be deemed 31 to be generic by the PTO, in which case neither the Company nor any third party could claim exclusive rights to such term. In such event, the Company intends to associate the generic term with registrable or registered trademarks or logos in order to gain trademark protection over the resulting composite mark. In July 1997, the Company became aware of the existence of a third party which may claim a prior right in the trademark "Worldgroup." The Company and the third party are presently discussing a co-existence arrangement whereby the Company would have the right, without the payment of a royalty, to continue to use the trademark "Worldgroup" on its present products and services. Although the third party does not presently distribute products that compete with the Company's products, the licensing arrangement presently under discussion would not preclude the third party from using the "Worldgroup" trademark in competition with the Company. Also in July 1997, the Company became aware that several other third parties filed applications for registration for the trademark "WebCast," before the Company filed its application. If "WebCast" is determined not to be generic and one of the third party applications matures into a registration, then such third party will have superior rights to the Company. If a third party has superior rights to any of the Company's trademarks, the Company believes that when the Company first commenced use of its trademarks, it acted innocently, unintentionally, and without knowledge of the existence of any third party's purported rights in such marks. Furthermore, if the third party user of "Worldgroup" decides to enforce its trademark rights through an infringement action, the Company believes that valid defenses exist with respect to any such action, including, without limitation, waiver, estoppel and laches and that as a result thereof, any liability of the Company should be limited to injunctive relief prohibiting the Company from future use of such mark. Trademark litigation is expensive and complex and the outcome of such litigation is difficult to predict. Generally, if a court were to find that the Company unintentionally infringed a third party's mark, the Company's liability would be limited to its actual net profit from the sale of infringing products, the third party's actual damages, and injunctive relief. On the other hand, if a court were to find that the Company has wilfully infringed a third party's trademark, the Company could be enjoined from further use of the trademark and could be liable, under the federal Lanham Act, for the lesser of: (i) the Company's net profit stemming from the sale of infringing products and (ii) the third party's actual damages, plus three times the greater of: (a) the Company's profit from the sale of the infringing product, and (b) the third party's actual damages, plus prejudgment interest, attorneys' fees, and the cost of litigation. Except to the extent noted above with respect to certain trademarks, the Company does not believe that its products infringe on the rights of third parties. The computer software market is characterized by frequent and substantial intellectual property litigation and it is possible that third parties might assert infringement claims against the Company in the future. If this occurs, the Company might be forced into costly litigation or have to obtain a license to the intellectual property rights of others. It is possible that such licenses may not be available on reasonable terms, or at all. The Company currently licenses the following technology from third parties: (i) audio playback for java receiver software from Vosaic LLC ("Vosaic") allows WebCast users to hear live audio through a standard web browser, pursuant to a Software License Agreement, dated September 19, 1997, for which the Company pays Vosaic a royalty equal to 7% of the retail price of any WebCast product that includes such software; (ii) multimedia graphical display technology from Lead Technology, Inc., pursuant to an agreement, dated September 29, 1995, for which the Company pays Lead Technology, Inc. a royalty of $75 for each sale of Worldgroup Developer's Kit and $20 for each upgrade; (iii) TCP/IP data transport for Worldgroup for DOS from Pacific Softworks Inc., for which royalties are limited to a maximum of $30,000; (iv) a database engine for Worldgroup, ActiBase and WebCast from Novell, Inc. for which no royalties are paid; and (v) VBX technology for the Worldgroup Manager from Sheridan Software, for which no royalties are paid. In the future, these third party technology licenses may not be available to the Company on commercially reasonable terms, if at all. If the Company cannot maintain any of these technology licenses, it is possible that product shipments could be delayed and the Company's financial condition could be harmed. GOVERNMENT REGULATIONS The Company does not believe that its business activities are currently subject to direct regulation by any government agency, other than regulations applicable to business generally, and there are currently few laws or regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, it is possible that laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing and characteristics and quality of products and services. For example, Congress recently passed the Communications Decency Act of 1996 prohibiting the distribution of obscene or indecent material over the Internet, although this law was recently held unconstitutional by the United States Supreme Court. The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for the Company's products and increase the Company's cost of doing business or otherwise have an adverse effect on the Company's business, operating results or financial condition. Furthermore, the application of existing laws governing issues such as property ownership, libel and personal privacy on the Internet is uncertain. Because material may be downloaded by an online or Internet service facilitated by the Company, there is a potential risk that claims may be made against the Company for defamation, negligence, copyright or trademark infringement or 32 other theories based on the nature and content of such materials. Although the Company carries general liability insurance, the Company's insurance may not cover potential claims of this type, or may not be adequate to indemnify the Company for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on the Company's business, results of operations and financial condition. FACILITIES The Company leases 11,129 square feet of office space for its corporate headquarters in Fort Lauderdale, Florida, including approximately 2,000 of square feet that the Company commenced occupying in September 1997. The monthly rent under this lease is $9 per square foot (plus applicable taxes), which amount increases annually by four percent. The Company has options to extend the lease for up to an additional six years past its present expiration date in 2001. The Company also has an option to lease approximately 6,000 square feet of adjacent office space should the Company need additional space. The Company intends to use a portion of the proceeds from this offering to build out and improve its leasehold. See "Use of Proceeds." EMPLOYEES As of the date of this Prospectus, the Company employs 33 persons, including 15 in engineering and support, 10 in sales and marketing, 1 in production and 7 in administration and accounting. None of its employees are currently represented by a union or any other form of collective bargaining unit. The Company regards its relations with employees as good. LEGAL PROCEEDING A suit was filed against the Company on December 16, 1997 in the United States District Court for the District of New Mexico by DataSafe Publications, Inc. ("DataSafe"), a reseller of the Company's products, alleging price fixing, price discrimination, resale price maintenance, predatory practices, breach of contract and economic coercion by the Company under federal antitrust laws and New Mexico state laws. DataSafe seeks treble the amount of its actual damages alleged to be in excess of $1.5 million and costs and expenses. The Company will file a response denying that it has engaged in any of the alleged conduct and will defend the action vigorously. Although no assurance can be given, the Company believes, based upon special antitrust counsel's preliminary investigation and advice, that the ultimate outcome of the suit will not have a material adverse effect on the Company's business or financial position. 33 MANAGEMENT DIRECTORS AND OFFICERS OF THE COMPANY The following table sets forth certain information concerning the directors and executive officers of the Company:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Peter Berg 42 Chairman, Chief Executive Officer and Secretary Yannick Tessier 29 President and Director Timothy Mahoney 41 Director David Manovich 46 Director Claus Stenbaek 36 Director T. Michael Love 32 Chief Financial Officer
PETER BERG has served as the Chairman of the Board, Chief Executive Officer and Secretary of the Company since November 1996 when the Company acquired Galacticomm, Inc. See "Certain Transactions." From December 1995 to November 1996, Mr. Berg was the President and Secretary of the Company. Prior to founding the Company, Mr. Berg was, since May 1992, the Sr. Vice President of Marketing of Integrated Communications Network, Inc. (and its predecessor company Visions Communications, Inc.), a direct response marketing firm. Mr. Berg received his bachelor of science degree, MAGNA CUM LAUDE, from Florida State University. YANNICK TESSIER has served as the President of the Company since November 1996 when Tessier Technologies, Inc. was merged into the Company. See "Certain Transactions." Prior to joining the Company, Mr. Tessier was the Chief Executive Officer of TTI, which he founded in 1989. Mr. Tessier has over 12 years of experience in online software development, systems integration and product distribution. Mr. Tessier has an associates degree in accounting. TIMOTHY MAHONEY has served as a director of the Company since January 1997. Mr. Mahoney has over 15 years of experience with the operations and management of technology companies. He founded and served as the president of the consumer products business for SyQuest Technology, a manufacturer of removable cartridge disk drives from 1991 to 1994. He also founded and served as the president of Rodime Systems, a computer disk-drive sub-system manufacturer from 1986 to 1991. Mr. Mahoney has, since 1994, served as a managing member of Union Atlantic L.C., a consulting firm specializing in emerging technology companies and presently serves as Union Atlantic's designee to the Board. See "Certain Transactions." Mr. Mahoney received an Masters of Business Administration degree from George Washington University. DAVID MANOVICH has served as a director of the Company since December 1997. Mr. Manovich has over 10 years experience with Apple Computer, Inc., ("Apple"), where he served in a variety of management and sales executive positions. From March 1997 until he joined the Company, Mr. Manovich was executive vice president, worldwide sales and services for Apple. During the period from January 1992 until January 1996, Mr. Manovich's positions with Apple included vice president of the consumer sales division, director of channel sales, director of marketing for the personal computer business division and country manager for Apple UK. In addition, Mr. Manovich was from May 1996 to March 1997 vice president of sales for Fujitsu PC Corporation, where he was responsible for establishing and managing Fujitsu's retail and distribution channels in the Americas. Mr. Manovich received a Masters of Business Administration in Finance and a bachelor of science in business administration from the University of Montana. Mr. Manovich is a certified public accountant. CLAUS STENBAEK has served as a director of the Company since January 1997. Effective January 1, 1998, Mr. Stenbaek will be the Managing Director of Tallard B.V., an affiliate of the Wallenberg Trust. In 1997, he was Managing Director of Lemshaga Consulting AB, a consulting services firm. From 1995 to 1997 Mr. Stenbaek was the Managing Director of Rakerise Ltd. a financial and business advisory firm to companies specializing in information technology, distribution, real estate and finance. From 1991 to 1995, Mr. Stenbaek was the finance director of F.L. Smidth & Cia, an engineering company involved in cement machinery and minerals processing. Prior thereto, Mr. Stenbaek was, among other things, a senior management consultant with Andersen Consulting in their London office. Mr. Stenbaek received his bachelor of science in management accounting from Copenhagen Business School and an Executive Masters of Business Administration from Institute of Business, Madrid, Spain. Mr. 34 Stenbaek is the designee of the Wallenberg Trust to the Board, pursuant to the Wallenberg Trust Stock Purchase Agreement, as amended. See "Certain Transactions." T. MICHAEL LOVE has served as the Company's Chief Financial Officer since August 1997. Prior to joining the Company, Mr. Love was, since January 1995, Director of Mergers and Acquisitions at Blockbuster Entertainment Group, a division of Viacom, Inc., where he was responsible for its global acquisition efforts in the consolidating video industry as well as other acquisition, sale and joint venture transactions. From January 1988 through January 1995, Mr. Love was a member of KPMG Peat Marwick's financial services audit practice, where, since 1992, he served as Manager and then Senior Manager. Mr. Love received his bachelor of science degree in accounting and finance from Florida State University. OTHER KEY EMPLOYEES PAUL ROUB, age 30, has served as the Company's Director of Engineering since March, 1997. Prior to becoming the Director of Engineering, Mr. Roub was a programmer with the Company specializing in server-side 32-bit development. From 1993 to 1996, Mr. Roub was a programmer with Equitrac Corporation and, from 1990 to 1993, he was a programmer with PC's & Programs. RICHARD SKURNICK, age 33, has been employed by the Company since 1989 and, for the past three years, has served as the Company's Management Information Systems manager. Mr. Skurnick, who has significant programming experience, served as the Project Manager for Worldgroup v3.0 and developed the Company's customer database program. MANUEL RODRIGUEZ, age 36, has served as the Company's Director of International Sales since August 1997. Since 1996, Mr. Rodriguez served as the Territory Manager - Latin America at Madge Networking. From 1994 to 1996, he was National Corporate Network Sales Manager at Best Internet Communications and from 1992 to 1994, he was an account executive at Swift Software, a software bundling company. Mr. Rodriguez works directly with Robert O'Brien, a marketing consultant to the Company. For information with respect to Mr. O'Brien, see "Certain Transactions--Consulting Agreements with Union Atlantic." COMPENSATION OF DIRECTORS The Company does not presently pay any cash compensation to the directors of the Company for serving on the board. On January 14, 1997, the Company granted Mr. Stenbaek an immediately exercisable three year option to purchase 6,155 shares of Common Stock at an exercise price of $2.56 per share as consideration for serving on the board. On December 15, 1997, the Company granted Mr. Manovich a three year option to purchase 30,000 shares of Common Stock at an exercise price of $3.75 per share as consideration for serving on the board. COMMITTEES OF THE BOARD AND INDEPENDENT DIRECTORS The Company has established a compensation committee and intends to establish an audit committee of the Board of Directors. The compensation committee, which is comprised of Messrs. Mahoney and Stenbaek, is responsible for the review and approval of the compensation of the Company's employees, the administration of the 1997 Stock Option Plan and related compensation matters. The Company intends to add at least one additional independent director to its Board. 35 SUMMARY COMPENSATION TABLE The following table provides the cash and other compensation paid or accrued by Galacticomm Technologies, Inc. to its Chief Executive Officer and President.
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------- -------------- SECURITIES NAME AND FISCAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION - ------------------- ------ ------ ----- -------------- ------------ Peter Berg, 1997 $170,961 ---- 177,263 ------ Chief Executive 1996 $73,461 ---- ------- ------ Officer 1995 $0 ---- ------- ------ 1997 $170,961 ---- 177,263 ------ Yannick Tessier, President
OPTION GRANTS The following table sets forth the stock option grants to the Company's Chief Executive Officer and President made during the fiscal year ended December 31, 1997. No stock appreciation rights have been granted to date.
OPTION GRANTS IN LAST FISCAL YEAR % OF TOTAL SECURITIES OPTIONS GRANTED UNDERLYING TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION NAME OPTIONS GRANTED FISCAL YEAR PRICE PER SHARE DATE - ---- --------------- --------------- ---------------- ---------- Peter Berg 177,263 34% $3.74 (1) Yannick Tessier 177,263 34% $3.74 (1)
- ------------- (1) Such options expire in one-third increments on November 20, 2002, November 20, 2003 and November 20, 2004. See "--Employment Agreements." EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with each of Peter Berg, the Chairman and Chief Executive Officer of the Company, and Yannick Tessier, the President of the Company. The employment agreements provide for an annual salary of $175,000 for each officer, which salary will increase each contract year by 10 percent of the prior year's salary. Messrs. Berg and Tessier are also eligible to receive an annual cash bonus at the discretion of the Compensation Committee of the Board of Directors. Pursuant to their respective employment agreements, Messrs. Berg and Tessier have each been granted options to purchase 177,263 shares of Common Stock at an exercise price of $3.74 per share. Such options vest one-third on November 21, 1997, one-third on November 21, 1998 and the final one-third on November 21, 1999. Such options expire five years after the respective date of vesting. Pursuant to the terms of their respective employment agreements, the Company provides Messrs. Berg and Tessier with an automobile allowance of $600 per month and a term life insurance policy in the amount of $1,000,000. The employment agreements provide for a three-year term that expires November 20, 1999, which term may be terminated earlier by the Company with or without cause (as defined in the employment agreements). Such employment agreements may be 36 terminated earlier by the employee with or without "good reason," which is defined to include: (i) a significant decrease in the employee's responsibilities; (ii) a material change in the employee's position; (iii) a reduction in the employee's salary; or (iv) a change in the location of the Company's executive offices outside of Broward, Palm Beach or Dade County, Florida or a requirement that employee change his permanent residence outside of Broward, Palm Beach or Dade County, Florida. If such employment agreement is terminated for any reason, other than by the Company for cause, death or disability or by the employee without good reason, then the employee is entitled to receive his salary under the employment agreement for the greater of the remaining term of the agreement or 12 months from the date of termination. Pursuant to the employment agreements, the Company has agreed to indemnify each of Messrs. Berg and Tessier to the fullest extent permitted by law for any action related to his employment with the Company or for serving as a director of the Company. The Company has also entered into a two-year employment agreement, dated August 25, 1997, with T. Michael Love, the Company's Chief Financial Officer, pursuant to which Mr. Love receives an annual salary of $120,000 and has been granted options under the Company's 1997 Stock Option Plan to purchase 34,468 shares of Common Stock at an exercise price of $6.50 per share. See "--Stock Option Plan". The Company may terminate Mr. Love's employment with the Company with cause, as such term is defined in his employment agreement. If the Company terminates such employment without cause, Mr. Love will receive his salary for a six month period following the date of termination and stock options which would have vested at the end of the vesting period then in effect shall automatically vest. Each of the Company's employment agreements with Messrs. Berg, Tessier and Love impose prohibitions against the disclosure of confidential information and contains non-compete provisions. There can be no assurance that these provisions will protect the Company from unauthorized disclosure or use of its proprietary information, nor can there be any assurance that these provisions will be held enforceable in whole or in part by a court if they are contested by an employee. STOCK OPTION PLAN The Company has adopted the 1997 Stock Option Plan (the "1997 Plan"). Pursuant to the 1997 Plan, options to acquire a maximum of 370,000 shares of Common Stock may be granted to directors, executive officers, employees (including employees who are directors), independent contractors and consultants of the Company. Options to purchase 164,337 shares at an exercise price of $6.50 per share are presently outstanding under the 1997 Plan, none of which are currently exercisable. The 1997 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee determines which persons will receive options and the number of options to be granted to such persons. The Compensation Committee also interprets the provisions of the 1997 Plan and makes all other determinations that it may deem necessary or advisable for the administration of the 1997 Plan. No more than 37,000 options may be granted to a single person in any fiscal year. Pursuant to the 1997 Plan, the Company may grant ISOs (Incentive Stock Options) and NQSOs (Non-Qualified Stock Options). The price at which the Common Stock may be purchased upon the exercise of ISOs granted under the 1997 Plan are required to be at least equal to the per share fair market value of the Common Stock on the date particular options are granted. Options granted under the 1997 Plan may have maximum terms of not more than 10 years and are not transferable, except by will or the laws of descent and distribution. None of the ISOs under the 1997 Plan may be granted to an individual owning more than 10 percent of the total combined voting power of all classes of stock issued by the Company unless the purchase price of the Common Stock under such option is at least 110 percent of the fair market value of the shares issuable on exercise of the option determined as of the date the option is granted, and such option is not exercisable more than five years after the grant date. ISOs granted under the 1997 Plan are subject to the restriction that the aggregate fair market value (determined as of the date of grant) of options which first become exercisable in any calendar year cannot exceed $100,000. Generally, options granted under the 1997 Plan may remain outstanding and may be exercised at any time up to six months after the person to whom such options were granted is no longer employed or retained by the Company or serving on the Company's Board of Directors. Pursuant to the 1997 Plan, unless otherwise determined by the Compensation Committee, one-fourth of the options granted to an individual are exercisable 90 days after grant, one-fourth are exercisable on the first anniversary of such grant, one-fourth are exercisable on the second anniversary and the final one-fourth are exercisable on the third anniversary of such grant. However, one-half of all outstanding options under the 1997 Plan shall become immediately exercisable upon a "change in control" of the 37 Company. The remaining one-half of the outstanding options shall become exercisable upon the first anniversary of a "change in control" of the Company. A "change in control" is generally deemed to occur when: (i) any person (other than Messrs. Berg or Tessier) becomes the beneficial owner of or acquires voting control with respect to more than 50 percent of the Common Stock, (ii) a change occurs in the composition of a majority of the Company's Board of Directors during a two-year period, provided that a change with respect to a member of the Company's Board of Directors shall be deemed not to have occurred if the appointment of a member of the Company's Board of Directors is approved by a vote of at least 75 percent of the individuals who constitute the then existing Board of Directors, or (iii) the approval by the shareholders of the Company of the sale of all or substantially all of the assets of the Company. The 1997 Plan provides for appropriate adjustments in the number and type of shares covered by the 1997 Plan and options granted thereunder in the event of any reorganization, merger, recapitalization or certain other transactions involving the Company. INDEMNIFICATION PROVISIONS Pursuant to the Company's Articles of Incorporation and Bylaws, officers and directors of the Company are entitled to be indemnified by the Company to the fullest extent allowed under Florida law for claims brought against them in their capacities as officers and directors. Indemnification is allowed if the officer or director acts in good faith and, in the case of conduct in his official capacity, in a manner reasonably believed to be in the best interests of the Company, or in all other cases, with a reasonable belief that his conduct was at least not opposed to the Company's best interests. In the case of criminal proceedings, it is necessary that an officer or director have no reasonable cause to believe his conduct was unlawful. In addition, the Company has agreed to indemnify Messrs. Berg and Tessier pursuant to their employment agreements with the Company. See "--Employment Agreements." Accordingly, it is possible that indemnification may occur for liabilities arising under the Securities Act. The Underwriting Agreement also contains provisions under which the Company and the Underwriters have agreed to indemnify each other (including officers and directors) against certain liabilities under the Securities Act. See "Underwriting." Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 38 CERTAIN TRANSACTIONS TESSIER TRANSACTION Pursuant to a Stock Issuance Agreement, dated August 26, 1996, among the Company, Peter Berg and Yannick Tessier, the Company agreed to issue to Mr. Tessier shares of the Company's Common Stock equal to the number of shares of Common Stock held by Peter Berg. Such shares were thereafter issued to Mr. Tessier in connection with an Agreement and Plan of Merger ("Merger Agreement"), dated November 20, 1996, pursuant to which the Company acquired Tessier Technologies, Inc. ("TTI"), a company controlled by Mr. Tessier. In connection with such transaction, Mr. Tessier received 1,215,749 shares of Common Stock and two former shareholders of TTI received an aggregate of 66,434 shares of Common Stock in exchange for their shares of TTI common stock. Mr. Tessier was elected to the Board of Directors of the Company and was appointed the President of the Company upon completion of such transaction. A Worldgroup online community operated by Tessier that was initially excluded from the assets acquired by the Company in the November 20, 1996 transaction was subsequently acquired by the Company in June 1997 for $30,000, payable in 12 equal monthly installments. Mr. Tessier advanced $50,000 to TTI in 1996 to fund operations and was issued a 10% note in the amount of $50,000, which is payable by the Company on the effective date of this offering. WALLENBERG TRUST AND UA PARTNERS INVESTMENTS Effective November 21, 1996, the Company raised a total of $2,750,000 from the sale of shares of Common Stock and convertible notes to Hemingfold Investments, Ltd. ("Hemingfold") and Union Atlantic Partners I Limited ("UA Partners"). On November 21, 1996, the Company used approximately $611,476 of such proceeds to acquire substantially all of its interests in the shares of Galacticomm, Inc. See "--Acquisition of Galacticomm, Inc." The remaining proceeds of this funding were allocated to working capital. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In September 1997, Hemingfold transferred all of its rights and interests in the agreements described below to Kenworthy Investments, Limited, a wholly-owned subsidiary of the Peder Sager Wallenberg Charitable Trust (the "Wallenberg Trust"), an affiliate of Hemingfold. Accordingly, references to the Wallenberg Trust below and elsewhere in this Prospectus refer to Hemingfold for all periods prior to such transfer. In connection with the transaction with the Wallenberg Trust, the Company entered into a Stock Purchase Agreement (the "Wallenberg Trust Stock Purchase Agreement"), whereby the Wallenberg Trust received 488,488 shares of Common Stock in exchange for $1,250,000 in cash or $2.56 per share. Pursuant to the Wallenberg Trust Stock Purchase Agreement, the Wallenberg Trust was originally granted the following rights with respect to such shares of Common Stock: (i) piggyback registration rights ("Piggyback Registration Rights") for up to four registrations; (ii) demand registration rights ("Demand Registration Rights") for one registration; (iii) tag-along rights ("Tag Along Rights") that require that such shares be included on a pro rata basis in certain sales of Common Stock by either Peter Berg or Yannick Tessier; and (iv) bring along rights ("Bring Along Rights") that require that such shares be included on a pro rata basis in certain offers for the purchase of the Common Stock of either Peter Berg or Yannick Tessier for a three year period ending November 20, 1999. The Wallenberg Trust Stock Purchase Agreement originally provided that the shares acquired by the Wallenberg Trust would additionally be granted: (x) certain anti-dilution rights if the Company issued securities below $2.56 per share; (y) preemptive rights for any future issuance of the Company's securities; and (z) certain rachet rights which would have entitled the Wallenberg Trust to receive approximately 247,077 shares of Common Stock if the Company's after tax earnings for the year ended December 31, 1997 were less than $1,000,000 and approximately 123,538 shares of Common Stock if the Company's after tax earnings for such period were between $1,000,000 and $1,500,000. By letter agreement, dated September 8, 1997, the ratchet rights, the anti-dilution rights and preemptive rights were waived in exchange for the Company's September 1997 issuance of 73,859 shares of Common Stock to the Wallenberg Trust. Messrs. Berg and Tessier have, for so long as the Wallenberg Trust beneficially owns more than 20 percent of the outstanding Common Stock, agreed to vote their shares in favor of one person nominated by the Wallenberg Trust to the Board of Directors of the Company, and, on the earlier of March 31, 1998 or the date of this Prospectus, three persons nominated by the Wallenberg Trust. The current nominee of the Wallenberg Trust is Claus Stenbaek. See "Management--Directors and Officers of the Company." Simultaneous with the Wallenberg Trust Stock Purchase Agreement, the Wallenberg Trust loaned the Company $1,250,000 and received a Convertible Promissory Note (the "Wallenberg Trust Note"), dated November 21, 1996. On December 31, 1997, the Wallenberg Trust converted all principal and interest ($1,391,780) outstanding under such note into 543,895 shares of 39 Common Stock based upon the conversion rate of $2.56 per share set forth in the Wallenberg Trust Note. The shares of Common Stock issued upon conversion of the Wallenberg Trust Note have been granted the same Piggyback Registration, Demand Registration, Tag Along and Bring Along Rights as those granted in connection with the Wallenberg Trust Stock Purchase Agreement. On November 21, 1996, the Company entered into a Stock Purchase Agreement (the "UA Partners Stock Purchase Agreement") with UA Partners, pursuant to which UA Partners acquired 48,849 shares of Common Stock for cash consideration of $125,000 or $2.56 per share and loaned the Company $125,000. In exchange for the loan, the Company issued a Convertible Promissory Note ("UA Partners Note") to UA Partners. Other than the number of shares purchased and amount loaned, the terms of the UA Partners Stock Purchase Agreement and the UA Partners Note are identical in all material respects to the Wallenberg Trust Stock Purchase Agreement and the Wallenberg Trust Note (since converted). By letter agreement, dated September 8, 1997, UA Partners waived the ratchet rights, the anti-dilution rights and preemptive rights originally set forth in the UA Partners Stock Purchase Agreement were waived in exchange for the Company's September 1997 issuance of 7,386 shares of Common Stock. The outstanding principal of the UA Partners Note will be automatically converted into 48,849 shares of Common Stock (based upon a conversion price of $2.56 per share) as of the date of this Prospectus. Interest on such note accrues at a rate of 10% per year and will be paid from the proceeds of this offering. See "Use of Proceeds." The UA Partners Note is secured by, among other things, the accounts, inventory, equipment and general intangibles of the Company, which security interest will terminate upon conversion of such note and the payment of all accrued interest. In connection with their loans to the Company, the Wallenberg Trust and UA Partners entered into an Intercreditor Agreement with the Company and Union Atlantic L.C. ("Union Atlantic"). Pursuant to this agreement, the Wallenberg Trust and UA Partners have appointed Union Atlantic to serve as their collateral agent with respect to the loans made to the Company under the Wallenberg Trust Note and the UA Partners Note and have agreed that, in the event of default by the Company under such notes, the parties will share any payments in proportion to the amount outstanding under their respective notes from the Company. The Wallenberg Trust purchased 66,902 shares of Common Stock in the Private Placement and 10 Bridge Units in the Bridge Financing. UA Partners purchased two Bridge Units in the Bridge Financing. See "Recent Financings." CONSULTING AGREEMENTS WITH UNION ATLANTIC The Company has engaged the services of Union Atlantic since November 1996. Union Atlantic is a consulting firm specializing in emerging technology companies. Timothy Mahoney, who is a managing member of Union Atlantic, is also a director of the Company. See "Management--Directors and Officers of the Company" for additional information regarding Mr. Mahoney's experience with respect to the operations and management of technology companies. Pursuant to one of two consulting agreements that the Company has entered into with Union Atlantic, Union Atlantic is entitled to receive a monthly fee of $10,000 until June 30, 2001 for providing consulting services with respect to the Company's operations, administration, corporate development and marketing and distribution strategies. Union Atlantic owns all of the outstanding voting securities of Union Atlantic Partners I Limited ("UA Partners"), which acquired 48,849 shares of Common Stock and the UA Partners Note in November 1996. See "--Wallenberg Trust and UA Partners Investments." In connection with the UA Partners investment, the Company paid Union Atlantic the following amounts for identifying the Wallenberg Trust to the Company: (i) cash compensation of $357,500; (ii) a three-year warrant to purchase 139,708 shares of Common Stock at an exercise price of $2.56 per share with Demand and Piggyback Registration Rights; and (iii) 78,133 shares of Common Stock. Similarly, the Company paid Union Atlantic the following amounts for identifying investors in the June 1997 Private Placement: (y) cash compensation of $126,209; and (z) a three-year warrant to purchase 33,774 shares of Common Stock at an exercise price of $3.74 per share with Demand and Piggyback Registration Rights. Pursuant to the consulting agreement between Union Atlantic and the Company, Union Atlantic has designated Mr. Mahoney as its representative to the Company's Board of Directors. Pursuant to its second consulting agreement with the Company, Union Atlantic is providing the Company with the services of Robert O'Brien, a sales and marketing specialist with over 25 years experience, including positions with Truevision Corporation, Ulsi Systems, Inc., Softsmith Corporation, and Gap Stores, Inc. The Company pays Union Atlantic a fee of $7,000 per month for Mr. O'Brien's services and has agreed to reimburse Mr. O'Brien for business expenses approved by the Company. Pursuant to such consulting agreement which expires December 31, 1998, the Company has granted Mr. O'Brien an immediately exercisable, three year option to purchase 2,462 shares of Common Stock at an exercise price of $2.56 per share. The shares of Common Stock underlying such option have been granted Demand and Piggyback Registration Rights. Mr. O'Brien has also been 40 granted an option to purchase 7,386 shares of Common Stock at a per share price of $6.50 under the Company's 1997 Stock Option Plan. ACQUISITION OF GALACTICOMM, INC. The Company owns 99.9 percent of Galacticomm, Inc.'s common stock. In November 1996, the Company acquired 8,037,203 shares of the common stock of Galacticomm, Inc. (representing approximately 96% of Galacticomm, Inc.'s then issued and outstanding shares of common stock) in exchange for the issuance of 150,263 shares of Common Stock and cash of $611,476. In February 1997, the Company acquired an additional 848,404 shares of the common stock of Galacticomm, Inc. in exchange for the issuance of 42,895 shares of Common Stock and cash consideration of $56,937. BERG AND TESSIER GRANT OF WARRANTS TO THE WALLENBERG TRUST Peter Berg, Yannick Tessier and a third minority shareholder of the Company have granted the Wallenberg Trust the right to purchase an aggregate of 615,496 shares of Common Stock from them at an exercise price of $3.25 per share, pursuant to three warrants, dated March 15, 1997 (the "Private Warrants"). On October 17, 1997, the parties agreed to extend the expiration date of the Private Warrants from December 31, 1997 to March 31, 1998, as a result of which the Company recognized an expense of approximately $30,000 in the fourth quarter of 1997. The Wallenberg Trust may exercise the Private Warrants at any time prior to March 31, 1998 and will be deemed to have exercised the Private Warrants automatically on the date of this Prospectus. To guarantee the Wallenberg Trust's payment of the exercise price for the Private Warrants, the parties have entered into an escrow agreement (the "Warrant Escrow"), pursuant to which certificates representing an aggregate of 615,496 shares of Common Stock underlying the Private Warrants (the "Escrowed Shares") and the $2,000,000 aggregate exercise price (the "Escrowed Funds") have been placed in escrow. On October 17, 1997, the escrow agreement was amended by the parties to direct the escrow agent to use $500,000 of the Escrowed Funds to purchase 10 Bridge Units in the name of the Wallenberg Trust. See "Recent Financings." Such Bridge Units have been placed in the Warrant Escrow. If the Private Warrants are exercised prior to March 31, 1998, the escrow agent will distribute to the Wallenberg Trust the Escrowed Shares and the Bridge Warrants included in such Bridge Units and will distribute to the three shareholders the Escrowed Funds and the Bridge Notes included in such Bridge Units. If the Private Warrants are not exercised by the Wallenberg Trust prior to March 31, 1998, the Escrowed Funds and Units will be returned to the Wallenberg Trust and the Escrowed Shares will be returned to the three shareholders. A total of $200,000 of the Escrowed Funds was loaned to the Company, which amount was repaid to the Warrant Escrow at the closing of the Bridge Financing. In consideration for the payment of $50,000 to the Company by the Wallenberg Trust, the Company has granted the Wallenberg Trust the same Piggyback Registration Rights and Demand Registration Rights with respect to the shares of Common Stock underlying the Private Warrants as have been granted under the Wallenberg Trust Stock Purchase Agreement. See "--Wallenberg Trust and UA Partners Investments." The Company will not receive any of the proceeds from the exercise of the Private Warrants. Although the Company may have lacked sufficient disinterested independent directors to ratify one or more of the foregoing transactions at the time that they were initiated, the Company believes that the foregoing transactions between the Company and its officers, directors and five percent or greater shareholders were on terms no less favorable to the Company than those which could have been obtained from unaffiliated parties. Any future material transactions between the Company and its officers, directors or five percent or greater shareholders will be on terms no less favorable to the Company than could be obtained from unaffiliated parties. 41 PRINCIPAL SHAREHOLDERS The following table sets forth with respect to: (i) each person (or group) who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) each of the named executive officers, and (iv) all directors and executive officers of the Company as a group, certain information with respect to the beneficial ownership of the Company's outstanding Common Stock as of the date of this Prospectus and as adjusted to reflect: (a) the sale by the Company of the Units offered hereby; and (b) the automatic exercise of the Private Warrants on the date of this Prospectus. See "Certain Transactions--Berg and Tessier Grant of Warrants to the Wallenberg Trust." Unless otherwise specified, the address of each shareholder is the address of the Company set forth herein.
SHARES BENEFICIALLY PERCENTAGE BENEFICIALLY OWNED(1) NAME OF BENEFICIAL OWNER OWNED(2) BEFORE OFFERING AFTER OFFERING - ------------------------ ------------------- --------------- -------------- Peter Berg................................................... 1,215,749(3) 25.7% % Yannick Tessier.............................................. 1,215,749(4) 25.7% % Peder Sager Wallenberg Charitable Trust.................. 1,978,640(5) 42.8% % Bayard Trust Company, Limited............................ 1,978,640(5) 42.8% % Mees Pierson Management (Guernsey) Limited............... 1,978,640(5) 42.8% % Insinger S.A. .............................................. 2,462,807(5)(6) 50.7% % Timothy Mahoney ............................................. 226,955(6) 5.3% % David Manovich............................................... 30,000(7) * * Claus Stenbaek............................................... 6,155(8) * * All directors and executive officers as a group (four persons)....................................... 2,704,456 60 % %
- ----------- (1) Percentage of ownership is based on 4,422,651 shares of Common Stock outstanding immediately prior to this offering and shares of Common Stock outstanding immediately after this offering. All such amounts include 48,849 shares of Common Stock underlying the UA Partners Note that will be automatically converted on the effective date of this Prospectus. See "Certain Transactions--Wallenberg Trust and UA Partners Investments." An asterisk in the foregoing table indicates beneficial ownership of less than one percent. (2) Calculated pursuant to Rule 13d-3(d)1 of the Exchange Act. Shares not outstanding that are subject to options or other rights exercisable by the holder thereof within 60 days of the date of this Prospectus are deemed outstanding for the purposes of calculating the number and percentage owned by such shareholder and all directors and officers as a group, but not deemed outstanding for the purpose of calculating the percentage owned by each other shareholder listed. (3) Includes 295,438 shares of Common Stock over which Mr. Berg has granted the Wallenberg Trust an option to purchase such shares at a per share exercise price of $3.25, which options will be exercised automatically upon the effective date of this offering. Also includes 36,902 shares of Common Stock over which Mr. Berg has granted options to a total of nine persons to purchase such shares at a per share exercise price of $3.05. Does not include options granted to Mr. Berg to purchase an aggregate of 177,263 shares of Common Stock which are not exercisable within 60 days of the date hereof. Such options were granted in connection with Mr. Berg's employment agreement with the Company. (4) Includes 295,438 shares of Common Stock over which Mr. Tessier has granted the Wallenberg Trust an option to purchase such shares at a per share exercise price of $3.25, which options will be automatically exercised upon the effective date of this offering. Also includes 36,957 shares of Common Stock over which Mr. Tessier has granted options to a total of five persons to 42 purchase such shares at a per share exercise price of $3.05. Does not include options granted to Mr. Tessier to purchase an aggregate of 177,263 shares of Common Stock which are not exercisable within 60 days of the date hereof. Such options were granted in connection with Mr. Tessier's employment agreement with the Company. (5) Includes: (i) an aggregate of 615,496 shares of Common Stock which will be acquired by the Wallenberg Trust on the effective date of this Prospectus upon the automatic exercise of options granted by Messrs. Berg and Tessier and another stockholder of the Company; (ii) 543,895 shares of Common Stock acquired upon the conversion of Wallenberg Trust Note; and (iii) 190,000 shares of Common Stock underlying Bridge Warrants. See "Certain Transactions." The trustees of the Wallenberg Trust are Bayard Trust Company Limited ("Bayard") and Mees Pierson Management (Guernsey), Limited ("Mees Pierson"). Bayard is a wholly-owned subsidiary of Insinger S.A. and has designated two of its directors - -- Martyn D. Crespel and John B. Wilson -- to act on behalf of Bayard. Mees Pierson is a subsidiary of Fortis AG and Fortis AMEV (collectively "Fortis") and has designated two of its directors -- Paul Backhouse and Julie Scott -- to act on behalf of Mees Pierson. Integro Trust (Jersey) Ltd., a subsidiary of Insinger S.A., serves as trustee for three trusts -- the Hive Trust, the Coach Trust and the Cascade Trust -- that beneficially own an aggregate of 257,212 shares of Common Stock. Insinger S.A., a publicly-traded Luxembourg bank holding company, disclaims any pecuniary interest in such shares or in the Wallenberg Trust shares for which Bayard or Integro Trust (Jersey) Ltd. serves as the trustee. Mr. Crespel, who serves as a director of Integro Trust (Jersey) Ltd., separately beneficially owns 27,157 shares of Common Stock. Insinger S.A. also beneficially owns 226,955 shares of Common Stock beneficially owned by Bayard Management Services (BVI) Limited, a wholly-owned subsidiary of Insinger S.A. and one of the managing members of Union Atlantic L.C. For a description of such securities, see footnote 6 immediately below. Peder Sager Wallenberg disclaims any beneficial ownership of the shares of Common Stock owned beneficially or of record by the Wallenberg Trust. The address of Bayard and the Wallenberg Trust is c/o Bayard, 2nd Floor, Queen's House, Don Road, St.Helier Jersey JEI 4HP, Channel Islands, Great Britain. The address of Insinger S.A. is Residence Centre du St Esprit, 1A, rue du St Esprit, L-1475, Luxembourg. The address of Mees Pierson and Fortis, an international insurance, banking and investment company, is Boulevard Emile Jacqmain 53, 1000 Brussels, Belgium. (6) Represents: (i) warrants to purchase an aggregate of 57,827 shares of Common Stock distributed by Union Atlantic, L.C. ("Union Atlantic") to the managing members of Union Atlantic; (ii) 26,044 shares of Common Stock distributed by Union Atlantic to the managing members of Union Atlantic; (iii) 48,849 shares of Common Stock, issuable to Union Atlantic Partners I, Limited ("UA Partners") upon conversion of the UA Partners Note; (iv) 48,849 shares of Common Stock owned by UA Partners; (v) 7,386 shares issued to UA Partners to cancel certain ratchet and other rights; and (vi) 38,000 shares of Common Stock underlying Bridge Warrants. See "Certain Transactions." (7) Represents warrants to purchase 30,000 shares of Common Stock. See "Management--Compensation of Directors." (8) Represents warrants to purchase 6,155 shares of Common Stock. See "Management--Compensation of Directors." Mr. Stenbaek, who serves on the Board of Directors of the Company as a representative of the Wallenberg Trust, disclaims any beneficial ownership of the Common Stock owned beneficially or of record by the Wallenberg Trust. 43 DESCRIPTION OF SECURITIES The following section does not purport to be complete and is qualified in its entirety by reference to the detailed provisions of the Company's Articles of Incorporation and Bylaws, copies of which have been filed with the Company's Registration Statement on Form SB-2, of which this Prospectus forms a part. The Company's authorized capital consists of 20,000,000 shares of Common Stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"). COMMON STOCK On the date of this Prospectus, there are 66 shareholders of record who own 4,422,651 shares of issued and outstanding Common Stock, which includes 48,849 shares of Common Stock reserved for issuance upon the automatic conversion of the UA Partners Note on the date of this Prospectus. See "Certain Transactions." Upon completion of this offering, there will be shares of Common Stock issued and outstanding. Each outstanding share of Common Stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by the owners thereof at meetings of the shareholders. The holders of Common Stock: (i) have equal ratable rights to dividends from funds legally available therefor, when, as and if declared by the Board of Directors of the Company, (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of the affairs of the Company, (iii) do not have preemptive, subscription or conversion rights, or redemption or sinking fund provisions applicable thereto, and (iv) are entitled to one non-cumulative vote per share on all matters on which shareholders may vote at all meetings of shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock that may be issued in the future, including voting, dividend, and liquidation rights. The holders of shares of Common Stock of the Company do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors of the Company if they so choose and, in such event, the holders of the remaining shares will not be able to elect any of the Company's directors. UNITS Each of the Units offered hereby consists of one share of Common Stock and one Warrant. Neither the Common Stock nor the Warrants included in the Units may be separately traded or transferred until the First Exercise Date. WARRANTS The Warrants will be issued in registered form pursuant to the terms of a Warrant Agreement (the "Warrant Agreement") between the Company and Continental Stock Transfer & Trust Co., New York, New York, as warrant agent (the "Warrant Agent"). The Company has authorized the issuance of up to Warrants to purchase an aggregate of shares of Common Stock (exclusive of securities issuable pursuant to the Representative Unit Purchase Option) and has reserved an equivalent number of shares of Common Stock for issuance upon exercise of such Warrants. None of the Warrants are currently issued and outstanding. For every two Warrants, the holder is entitled to purchase one share of Common Stock upon payment of the exercise price set forth on the cover page of this Prospectus, subject to adjustment. The Warrants are exercisable at any time commencing (the "First Exercise Date") 90 days after the date of this Prospectus, or on such earlier date as may be determined by the Company and the Representative, and ending on the third anniversary of the date of this Prospectus, provided that at such time a current prospectus relating to the Common Stock is in effect and the Common Stock is qualified for sale or exempt from qualification under applicable state securities laws. The Warrants are not transferrable separately from the Common Stock issued with such Warrant as part of the Units until the First Exercise Date. The Company may, at its option, redeem all, but not less than all, outstanding Warrants, commencing 30 days after the First Exercise Date upon not less than 30 days prior notice to the registered holders of the Warrants for a redemption price of $.05 44 for each share of Common Stock to which the Warrant holder would then be entitled upon exercise of the Warrants being redeemed, in the event that: (i) there exists a current prospectus relating to the Common Stock issuable upon exercise of the Warrants under an effective registration statement filed with the Securities and Exchange Commission and the issuance of the Common Stock upon exercise of the Warrants has been qualified for sale or exempt from qualification under applicable state securities laws, and (ii) the shares of Common Stock of the Company have had an average closing bid and asked price of not less than 150% of the Warrant exercise price for a period of 20 consecutive trading days ending three trading days prior to the date of the redemption notice. Holders of Warrants will automatically forfeit their rights to purchase the shares of Common Stock issuable upon exercise of such Warrants unless the Warrants are exercised before 5:00 p.m. (Miami time) on the date set for redemption. All of the outstanding Warrants may be affected. A notice of any redemption of the redemption date is required to be mailed to each of the registered holders of the Warrants by first class mail, postage prepaid, 30 days before the date fixed for redemption. The notice of redemption is required to specify the date fixed for redemption, and the right to exercise the Warrants shall terminate at 5:00 p.m. (Miami time) on the redemption date. The Warrants may be exercised upon surrender of the certificates therefor on or prior to the final exercise date (as explained above) at the offices of the Warrant Agent with the "Subscription Form" on the reverse side of the certificate(s) completed and executed as indicated, accompanied by payment (in the form of certified or cashier's check payable to the order of the Company) of the full exercise price for the number of Warrants being exercised. The holders of the Warrants will not have any of the rights or privileges of shareholders of the Company (except to the extent they own Common Stock of the Company) prior to the exercise of the Warrants. The exercise price of the Warrants and the number of shares of Common Stock issuable upon the exercise thereof are subject to adjustment upon the occurrence of certain evens such as stock splits, stock dividends or the like, as set forth in the Warrant Agreement. In the event of a capital reorganization of the Company, reclassification of the Common Stock or a consolidation or merger of the Company with or into, or a disposition of substantially all of the Company's properties and assets to, any other corporation, the Warrants then outstanding will thereafter be exercisable into the kind and amount of shares of stock or other securities or property (including cash) to which the holders thereof would have been entitled if they had exercised such Warrants and received shares of Common Stock immediately prior to such reorganization, reclassification, consolidation, merger or disposition, consistent with the requirements for exercise set forth in the Warrant Agreement. For the life of the Warrants, the Warrant holders have the opportunity to profit from a rise in the market price of the Common Stock without assuming the risk of ownership of the shares of Common Stock issuable upon the exercise of the Warrants, with a resulting dilution in the interest of the Company's shareholders by reason of exercise of Warrants at a time when the exercise price is less than the market price for the Common Stock. Further, the terms on which the Company could obtain additional capital during the life of the Warrants may be adversely affected as a result of the Warrants being outstanding. The Warrant holders may be expected to exercise their Warrants at a time when the Company would, in all likelihood, be able to obtain any needed capital by an offering of Common Stock on terms more favorable than those provided for by the Warrants. For a holder to exercise the Warrants there must be a current registration statement in effect with the Securities and Exchange Commission and registration or qualification with, or approval from, various state securities agencies with respect to the shares or other securities underlying the Warrants. The Company has agreed to use its best efforts to cause a registration statement with respect to such securities under the Securities Act to continue to be effective during the term of the Warrants and to take such other actions under the laws of various states as may be required to cause the sale of Common Stock upon exercise of Warrants to be lawful, unless such action would cause the Company to be subject to general service of process or require it to amend its charter documents or any action taken by the Company's board of directors. However, the Company will not be required to honor the exercise of Warrants if, in the opinion of the Company's Board of Directors upon advice of counsel, the sale of securities upon exercise would be unlawful. The Company is not required to issue fractional shares of Common Stock, and in lieu thereof will make a cash payment based upon the current market value of such fractional shares. A holder of the Warrants will not possess any voting or any other rights as a shareholder of the Company unless he or she exercises the Warrants. The Warrant exercise price was arbitrarily determined by negotiation between the Company and the Representative. The Company may reduce the exercise price of the Warrants or extend the warrant expiration date upon notice to Warrant holders. The 45 foregoing is merely a summary of the rights and privileges of the holders of Warrants, and is qualified in its entirety by reference to the Warrant Agreement. OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES On the date of this Prospectus, the following shares of Common Stock may be acquired upon the exercise or conversion of outstanding options, warrants (exclusive of the Warrants) or convertible securities: (i) 164,337 shares of Common Stock upon the exercise of presently issued and outstanding stock options granted under the Company's 1997 Stock Option Plan; (ii) 393,143 shares of Common Stock upon the exercise of outstanding options granted outside of the 1997 Stock Option Plan; (iii) 173,482 shares of Common Stock which may be acquired upon the exercise of two warrants; (iv) 48,849 shares of Common Stock underlying the UA Partners convertible promissory note which will be automatically converted on the date of this Prospectus; and (v) 957,600 shares of Common Stock reserved for issuance upon the exercise of the Bridge Warrants, which amount includes warrants to purchase 159,600 shares of Common Stock granted to the Representative for serving as the placement agent of the Bridge Financing. See "Recent Financings." REGISTRATION RIGHTS AND SALES BY CERTAIN SHAREHOLDERS The Company has granted Demand Registration Rights and Piggyback Registration Rights to the Wallenberg Trust, UA Partners, Union Atlantic and Robert O'Brien with respect to an aggregate of 2,002,766 shares of Common Stock held by them and/or issuable to them upon conversion or exercise of promissory notes or warrants held by them. See "Certain Transactions." The Demand Registration Rights are limited to one registration and may not be exercised until the earlier of November 20, 1999 or the date the Company's equity securities are publicly traded. The Piggyback Registration Rights provide that if the Company proposes to register any of its securities under the Act, the holders of such rights are entitled to include shares of Common Stock in the registration. Such registration rights are subject to certain conditions and limitations, among them the right of the underwriters of a registered offering to limit the number of shares included in such registration. Pursuant to the terms of the UPOs sold to the Representative in connection with this offering, the Company has agreed that, for a period of four years beginning on the first anniversary of this offering, that upon written demand of the holders of a majority of the UPOs it will, on one occasion, register for sale in a public offering under the Securities Act all or any portion of the securities issuable upon exercise of the UPOs. See "Underwriting." Any such registration would be at the Company's expense. The Company has also agreed to include such underlying securities in any appropriate registration statement which is filed by the Company during the four years beginning one year from the date of this Prospectus. In connection with the Bridge Financing, the Company agreed to register the shares of Common Stock underlying the Bridge Warrants in a registration statement for an initial public offering of the Company's securities. See "Recent Financings." Accordingly, an aggregate of 957,600 shares of Common Stock underlying the Bridge Warrants have been included in the registration statement of which this Prospectus forms a part. Such registration includes 159,600 shares of Common Stock underlying Bridge Warrants granted to the Representative for serving as the placement agent of the Bridge Financing. The Bridge Warrants are exercisable at price of $3.75 per share until October 27, 2000. Holders of the Bridge Warrants have agreed not to sell or transfer the shares of Common Stock underlying the Bridge Warrants for a six-month period following the date of this Prospectus unless otherwise agreed to by the Representative. Sales of Common Stock after the expiration of the six month period by such selling shareholders or even the potential of such sales will likely have an adverse effect on the market prices of the Units, Common Stock and the Warrants. PREFERRED STOCK The Company's Board of Directors has the authority to issue 1,000,000 shares of Preferred Stock, $.001 par value, none of which is issued and outstanding, in one or more series and to fix, by resolution, conditional, full, limited or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, if any,and the qualifications, limitations or restrictions thereof, if any, including the number of shares in such series (which the Board may increase or decrease as permitted by Florida law), liquidation preferences, dividend rates, conversion or exchange rights, redemption provisions of the shares constituting any series, and such other special rights and protective provision with respect to any class or series as the Board may deem advisable without any further vote or action by the shareholders. Any shares of Preferred Stock so issued would have priority over the Common Stock with respect to dividend or liquidation rights or both and could have voting and other rights 46 of shareholders. The issuance of Preferred Stock with voting or conversion rights may adversely affect the voting rights of the holders of Common Stock. The Company has no present plans to issue shares of Preferred Stock. CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS GENERAL. A number of provisions of the Articles of Incorporation ("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate governance and the rights of shareholders. Certain of these provisions, as well as the ability of the Board of Directors to issue shares of Preferred Stock and to set the voting rights, preferences and other terms thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain shareholders may deem to be in their best interests). To the extent takeover attempts are discouraged, temporary fluctuations in the market price of the Common Stock, which may result from actual or rumored takeover attempts, may be inhibited. These provisions, together with the ability of the Board to issue Preferred Stock without further shareholder action, also could delay or frustrate the removal of incumbent Directors or the assumption of control by shareholders, even if such removal or assumption would be beneficial to shareholders of the Company. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of shareholders, and could potentially depress the market price of the Common Stock. The Board of Directors believes that these provisions are appropriate to protect the interests of the Company and all of its shareholders. MEETINGS OF SHAREHOLDERS. The Bylaws provide that a special meeting of shareholders may be called by the Board of Directors or the holders of not less than 10% of the outstanding Common Stock entitled to vote at such a meeting unless otherwise required by law. The Company's Bylaws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special meeting, unless otherwise provided by law. In addition, the Bylaws set forth certain advance notice and informational requirements and time limitations on any director nomination or any new business which a shareholder wishes to propose for consideration at an annual meeting of shareholders. INDEMNIFICATION AND LIMITATION OF LIABILITY. The Articles provide that directors, officers and employees and agents of the Company shall be indemnified by the Company to the fullest extent authorized by Florida law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. The Articles also provide that the right of directors and officers to indemnification shall not be exclusive of any other right possessed or hereafter acquired under any bylaw, agreement, vote of shareholders or otherwise. AMENDMENT OF BYLAWS. The Articles provide that the Bylaws may be amended or repealed by the Board of Directors or by the shareholders. Such action by the Board of Directors requires the affirmative vote of a majority of the directors then in office. Such action by the shareholders requires the affirmative vote of the holders of at least two-thirds of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal at an annual meeting of shareholders or a special meeting called for such purposes. SHARES ELIGIBLE FOR FUTURE SALE After completion of this offering, the Company will have shares of Common Stock outstanding assuming no exercise of the Warrants, the Bridge Warrants, the Underwriters' over-allotment option, the Representative Unit Purchase Option or any other outstanding options or warrants. Of these shares, all of the shares of Common Stock included in the Units offered hereby will be freely tradeable without restriction or further registration under the Securities Act, unless purchased by "affiliates" of the Company, as that term is defined in Rule 144. The remaining 4,422,651 shares of Common Stock were issued and sold by the Company in private transactions and are eligible for public sale only if registered under the Securities Act, sold in accordance with Rule 144 thereunder or pursuant to an exemption from registration. In general, under Rule 144 under the Securities Act as currently in effect, any affiliate of the Company or any person (or persons whose shares are aggregated in accordance with the Rule) who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the outstanding shares of Common Stock or the reported average weekly trading volume in the over-the-counter market for the four weeks preceding the sale. Sales under Rule 144 are also subject to certain manner of sale restrictions and notice requirements and to the availability of current public information concerning the Company. Persons who have not been affiliates of the Company for at least three months and who have held their shares for more than two years are entitled to sell restricted securities without regard to the volume, manner of sale, notice and public information requirements of Rule 144. 47 The Company, its executive officers, directors and shareholders (other than those noted below) have agreed that for a period of one year from the date of this Prospectus, they will not, without the prior written consent of the Representative, offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Common Stock. See "Underwriting." Such lock-up does not apply to the following securities:___________________________________. The Representative, in its sole discretion at any time and without notice, may release any and all shares from the lock-up agreement and permit holders of the shares to resell all or any portion of their shares prior to the expiration of the one-year lock-up period. Prior to this offering, there has been no market for the Company's securities and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. The possibility that substantial amounts of shares of Common Stock may be sold in the public market may adversely affect prevailing market prices for the shares of Common Stock and/or may impair the Company's ability to raise equity capital in the future. TRANSFER AGENT AND WARRANT AGENT The transfer agent for the Common Stock and the Warrant Agent for the Warrants is Continental Stock Transfer & Trust Co., New York, New York. UNDERWRITING The Underwriters named below, for whom First Equity Corporation of Florida is acting as Representative, have severally agreed, subject to the terms and conditions of the Underwriting Agreement (a copy of which is an exhibit to the Registration Statement filed with the Commission of which this Prospectus is a part) to purchase and pay for the number of Units from the Company set forth opposite their respective names below: UNDERWRITERS NUMBER OF UNITS - ------------ --------------- First Equity Corporation of Florida................ Total............................................ The Units are being sold on a firm commitment basis. The Underwriting Agreement provides, however, that the obligations of the several Underwriters to purchase and pay for the Units are subject to certain conditions precedent, including approval of certain legal matters by counsel. The Underwriters are committed to purchase all of the Units offered hereby if any are purchased. The Units are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters. The Representative has advised the Company that the Underwriters propose initially to offer the Units to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriters may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. ("NASD") concessions not to exceed $____ per Unit, of which amount a sum not in excess of $.____ per Unit may be re-allowed by such dealers to other dealers who are members of the NASD. Although the Representative will not change the public offering price until after the initial public offering has been completed, the concessions and the reallowances may be changed by the Representative thereafter. The Company has granted to the Underwriters an option, exercisable not later than 45 days after the date of this Prospectus, to purchase from the Company at the public offering price, less underwriting discounts and the non-accountable expense allowance, up to additional Units. The Underwriters may exercise this option in whole or, from time to time, in part, for the sole purpose of covering over-allotments, if any, made in connection with the sale of the Units offered hereby. To the extent the Underwriters exercise such option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase that number of the additional Units. The Company has agreed to pay the Representative a non-accountable expense allowance equal to 3% of the gross proceeds of this offering (including the sale of any Units subject to the over-allotment option), of which $25,000 has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the Units offered 48 hereby for sale under the laws of such states as the Representative may designate, including fees and expenses of counsel (up to $25,000) retained for such purposes by the Representative and the costs and disbursements in connection with qualifying the offering with the NASD. The Company has agreed, upon closing of this offering, to sell to the Representative and its designees, for $75.00, Representative Unit Purchase Options ("UPOs") which entitle the Representative to purchase Units (the "Representative Units"), exclusive of Units sold under the Underwriters' over-allotment option. The UPOs will be exercisable for a four-year term, commencing one year from the effective date of the offering, at an exercise price equal to $ (120% of the public offering price of the Units offered hereby). The Representative Units, issuable upon exercise of the UPOs, consist of one share of Common Stock and a non-redeemable Warrant. The UPOs will be restricted from sale, transfer, assignment or hypothecation (other than to officers and partners of the Representative or to other NASD members participating in the offering or their officers or partners) for one year following the date of this Prospectus. The number of Units covered by the UPOs and the exercise price are subject to adjustment upon the subdivision, combination or reclassification of the Common Stock, or certain mergers and consolidations. It may be expected that the UPOs will be exercised only if it is advantageous to the Representative. Therefore, during the period in which the UPOs may be exercised, the holders thereof are given, at a nominal cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the UPOs are exercised, dilution to the interests of the Company's shareholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the UPOs can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the UPOs. Any gain from the sale of the shares issued upon exercise of the UPOs or the underlying Representative Warrants or the shares underlying the Representative Warrants may be deemed additional underwriter compensation to the Representative. The Company has granted the Representative certain registration rights with respect to the securities underlying the UPOs. See "Description of Securities -- Registration Rights and Sales by Certain Shareholders." The Company has also granted to the Representative the right, for a period of three years after the date of this Prospectus, to nominate a designee of the Representative for election to the Board of Directors of the Company. The Company's officers, directors and shareholders (other than___) have agreed to vote their shares of Common Stock in favor of such designee. The Representative has not yet exercised its right to designate such a person. In addition, the Company has granted to the Representative for a period of two years after the date of this Prospectus the right to represent the Company in connection with any merger or acquisition involving the Company for which the Company intends to use the services of an investment banker or a financial advisor and a right of first refusal to manage any public or private offering of the Company's securities. The Company does not presently anticipate incurring any expenses related to these arrangements with the Representative. The Representative acted as placement agent for the Company in connection with the Bridge Financing and was paid a placement fee equal to: (i) cash compensation equal to 10 percent of the principal amount of the Bridge Notes; (ii) a non-accountable expense allowance equal to 3 percent of the principal amount of the Bridge Notes and certain accountable expenses totaling $10,000; and (iii) warrants to purchase 159,600 shares of Common Stock on substantially the same terms as the Bridge Warrants, which shares have been included in the registration statement of which this Prospectus forms a part. See "Description of Securities -- Registration Rights and Sales by Certain Shareholders." The holders of an aggregate of shares of Common Stock ( % of the outstanding shares of the Company's Common Stock after giving effect to this offering, but without giving effect to the issuance, if any, of shares pursuant to the over-allotment option), consisting of all the officers and directors of the Company, and all shareholders of the Company (other than___), have agreed not to sell, transfer or otherwise dispose of any beneficial interest in any Common Stock owned by them, other than gifts and intra-family transfers (so long as the holders remain subject to the restrictions), for a period of 12 months following the date of this Prospectus, without the prior written consent of the Representative. Prior to this offering there has been no public trading market for the Units, the Common Stock of the Warrants. Consequently, the initial public offering price of the Units and the exercise price of the Warrants have been determined by negotiation between the Company and the Representative, do not necessarily bear any relationship to the Company's assets, book value, revenues or other established criteria of value, and should not be considered indicative of the actual value of the Company's securities. Factors considered in determining such public offering price, in addition to prevailing market conditions, include the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, its past and present operations, the prospects of the Company, market prices of similar securities of comparable publicly-traded companies, the general condition of the securities market and such other factors as were deemed relevant. In connection with the offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the prices of the Units, the Common Stock and the Warrants. Specifically, the Underwriters may overallot the offering, 49 creating a syndicate short position. The Underwriters may bid for and purchase Units, shares of Common Stock and Warrants in the open market to cover such syndicate short position or to stabilize the price of the Units, the Common Stock and the Warrants. The Underwriters may also reclaim selling concessions allowed to a dealer for distributing the Units in the offering, if the Underwriters repurchase previously distributed Units in transactions to cover short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Units, the Common Stock and the Warrants above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make. The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed 5% of the total number of Units offered hereby. See "Principal Shareholders." In connection with the Underwriting Agreement, Messrs. Berg and Tessier will on the closing of this offering enter into a Voting Agreement with the Company, pursuant to which Messrs. Berg and Tessier will agree, for a period of two years following the closing of this offering, to vote all voting securities beneficially owned by them in the same proportion as the votes cast by non-affiliates of the Company in any vote of the shareholders of the Company on the following two matters: (i) a liquidation of the Company; or (ii) any business combination in which the Company is not the surviving corporation or any sale of all or substantially all of the Company's assets. The foregoing includes a summary of all material terms of the Underwriting Agreement. Such summary, however, is qualified in its entirety by reference to the copy of the form of Underwriting Agreement filed as an exhibit to the Company's Registration Statement of which this Prospectus forms a part. LEGAL MATTERS The validity of the issuance of the securities being offered hereby will be passed upon for the Company by Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A., Miami, Florida. Akerman, Senterfitt & Eidson, P.A, Miami, Florida is acting as counsel for the Underwriter in connection with this offering. EXPERTS The consolidated financial statements of the Company as of and for the year ended December 31, 1996 and the financial statements of Galacticomm, Inc. for the year ended December 31, 1995 and the ten months ended October 31, 1996 have been included herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein and upon the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form SB-2 filed by the Company with the Securities and Exchange Commission under the Securities Act with respect to the Units offered hereby. This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits and schedules for further information with respect to the Company and the Common Stock offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and in each such instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits and schedules forming a part thereof can be inspected and copies at the public reference facilities maintained by the Securities and Exchange Commission at Room 124, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at the following regional offices of the Securities and Exchange Commission: 7 World Trade Center, Suite 1300, New York, New York 10007; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Registration Statement may also be obtained from the Securities and Exchange Commission's website on the Internet, the address of which is http://www.sec.gov. Consistent with the requirements for continued inclusion on the NASDAQ Stock Market, the Company intends to furnish its shareholders with annual reports containing financial statements certified by independent auditors and quarterly reports for the first three quarters of each year containing unaudited financial statements. 50
INDEX TO FINANCIAL STATEMENTS GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY PAGE NUMBERS ------------ Report of Independent Auditors......................................................................................F-2 Consolidated Balance Sheets as of December 31, 1996 and (Unaudited) as of September 30, 1997 ...........................................................................F-3 Consolidated Statements of Operations for the year ended December 31, 1996 and (Unaudited) for each of the nine months ended September 30, 1997 and 1996 ......................................F-4 Consolidated Statements of Shareholders' Equity for the year ended December 31, 1996 and (Unaudited) for the nine months ended September 30, 1997........................................................F-5 Consolidated Statements of Cash Flows for the year ended December 31, 1996 and (Unaudited) for the nine months ended September 30, 1997 and 1996 ..............................................F-6 Notes to Consolidated Financial Statements..........................................................................F-7 GALACTICOMM, INC. Report of Independent Auditors......................................................................................F-22 Statements of Operations for the year ended December 31, 1995 and for the ten months ended October 31, 1996.......................................................................F-23 Statements of Cash Flows for the year ended December 31, 1995 and for the ten months ended October 31, 1996 ......................................................................F-24 Notes to Financial Statements.......................................................................................F-25 PRO FORMA Unaudited Pro Forma Consolidated Statement of Operations of Galacticomm Technologies, Inc. for the year ended December 31, 1996................................................................................F-31
F-1 INDEPENDENT AUDITORS' REPORT To The Board of Directors Galacticomm Technologies, Inc. Fort Lauderdale, Florida: We have audited the accompanying consolidated balance sheet of Galacticomm Technologies, Inc. and subsidiary as of December 31, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Galacticomm Technologies, Inc. and subsidiary as of December 31, 1996 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Miami, Florida September 9, 1997, except as to notes 12(a) and 12(c), which are as of October 28, 1997, the last paragraph of note 1 and note 6, which are as of January 8, 1998 and note 12(e), which is as of January 20, 1998 F-2
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, SEPTEMBER 30, ASSETS 1996 1997 ------ ---- ---- (Unaudited) Current assets: Cash $ 1,466,392 64,486 Accounts receivable, net of allowance of $90,363 in 1996 and $164,000 in 1997 31,762 382,094 Inventories 83,730 92,694 Prepaid expenses and other current assets 32,991 78,276 ----------- ----------- Total current assets 1,614,875 617,550 Property and equipment, net 544,569 563,450 Goodwill, net 2,079,334 1,875,819 Deferred debt issuance 139,359 78,386 Deferred offering costs 10,000 407,902 Other assets 45,883 202,168 ------------ ----------- Total assets $ 4,434,020 3,745,275 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 395,994 893,986 Notes payable and short-term borrowings 343,575 198,575 Notes payable-shareholder 50,000 80,000 Deferred revenues 305,145 212,476 Accrued expenses 921,678 722,767 Other current liabilities 74,063 34,210 ------------ ------------ Total current liabilities 2,090,455 2,142,014 Convertible promissory notes 1,375,000 1,375,000 Other liabilities 18,999 6,899 ------------ ------------ Total liabilities 3,484,454 3,523,913 ------------ ----------- Commitments and contingencies Shareholders' equity: Preferred stock; $.001 par value; 1,000,000 shares authorized; none issued - - Common stock; $.0001 par value; 20,000,000 shares authorized; 3,423,108 shares issued and outstanding December 31, 1996; 3,829,907 shares issued and outstanding September 30, 1997 342 383 Additional paid-in capital 2,009,593 3,193,474 Accumulated deficit (1,060,369) (2,972,495) ------------ ----------- Total shareholders' equity 949,566 221,362 ------------ ----------- Total liabilities and shareholders' equity $ 4,434,020 3,745,275 ============ ===========
See accompanying notes to consolidated financial statements. F-3
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------------------------ 1996 1997 1996 ---- ---- ---- (Unaudited) Revenue: Licensing fee and royalties $ 1,482,510 274,286 1,159,246 Product sales 210,233 2,414,135 - ---------- --------- ---------- Total revenue 1,692,743 2,688,421 1,159,246 Operating costs and expenses: Cost of revenue 758,050 682,738 594,214 Selling, general and administrative 1,531,130 2,376,280 557,424 Depreciation 47,533 130,698 18,495 Amortization of intangibles 38,665 394,140 537 Compensation expense on warrants - 113,760 - Research and development 225,549 434,045 - Customer support 72,772 324,513 - ----------- ---------- ---------- Total costs and expenses 2,673,699 4,456,174 1,170,670 ----------- ---------- ---------- Loss from operations (980,956) (1,767,753) (11,424) Other income (expense): Interest expense (91,217) (171,508) (4,268) Other income, net 30,905 27,135 709 ----------- ---------- ---------- (60,312) (144,373) (3,559) ----------- ---------- ---------- Net loss $ (1,041,268) (1,912,126) (14,983) =========== ========== ========== Net loss per share $ (0.32) (.38) (.01) ==== === === Number of shares used in calculating net loss per share 3,229,101 5,030,371 2,982,455 =========== ========== ==========
See accompanying notes to consolidated financial statements. F-4
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Year ended December 31, 1996 and unaudited nine months ended September 30, 1997 COMMON STOCK ADDITIONAL NUMBER OF PAR PAID-IN ACCUMULATED SHARES VALUE CAPITAL DEFICIT TOTAL ------ ----- ------- ------- ----- Balance, December 31, 1995 1,375,192 $ 137 19,863 (19,101) 899 Capital contributions - - 29,684 - 29,684 Stock issued to acquire Tessier 1,282,183 128 194,967 - 195,095 Stock issued in private placement (net of $139,359 of issuance costs) 537,337 54 1,235,587 - 1,235,641 Stock issued to acquire Galacticomm 228,396 23 529,492 - 529,515 Net loss for the year ended December 31, 1996 - - - (1,041,268) (1,041,268) -------- --- -------- --------- --------- Balance, December 31, 1996 3,423,108 342 2,009,593 (1,060,369) 949,566 Stock issued to acquire Galacticomm (unaudited) 42,895 4 139,891 - 139,895 Warrants issued (unaudited) - - 113,760 - 113,760 Stock issued in private placement (net of $126,209 of issuance costs) (unaudited) 259,802 27 844,526 - 844,553 Stock issued to terminate royalty agreement (unaudited) 22,857 2 85,712 - 85,714 Stock issued for ratchet rights (unaudited) 81,245 8 (8) - - Net loss for the nine months ended September 30, 1997 (unaudited) - - - (1,912,126) (1,912,126) --------- --- --------- --------- ---------- Balance, September 30, 1997 (unaudited) 3,829,907 $ 383 3,193,474 (2,972,495) 221,362 ========= === ========= ========= ========== See accompanying notes to consolidated financial statements.
F-5
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------------------- 1996 1997 1996 ---- ---- ---- (Unaudited) Cash flows from operating activities: Net loss $ (1,041,268) (1,912,126) (14,983) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 86,198 577,101 19,032 Loss on sale of property and equipment 10,373 15,368 - Compensation expense on warrants - 113,760 - Non-cash royalties expense - 85,714 - Changes in assets and liabilities, net of effects of purchase business combinations: Accounts receivable 65,692 (415,332) (80,178) Inventories 8,046 (8,964) - Prepaid expenses and other current assets 13,372 (45,285) (71,982) Other assets (33,571) (156,285) 4,959 Accounts payable and accrued expenses 525,744 299,081 160,834 Deferred revenue (50,383) (92,669) - Other liabilities (37,963) (51,953) - ----------- ----------- ------- Net cash (used in) provided by operating activities (453,760) (1,591,590) 17,682 ----------- ----------- ------- Cash flows from investing activities: Purchases of property and equipment (150,220) (168,904) (150,220) Proceeds from the sale of property and equipment 65,000 - - Acquisitions, net of cash acquired (548,911) 56,937 - ----------- ----------- ------- Net cash used in investing activities (634,131) (111,967) (150,220) ----------- ----------- ------- Cash flows from financing activities: Proceeds from notes payable 80,000 - 206,358 Proceeds from convertible promissory notes 1,375,000 - - Proceeds from loans receivable - - 8,122 Repayments on notes payable (35,000) (145,000) - Net proceeds from the sale of common stock 1,235,641 844,553 29,685 Debt issuance costs (139,359) - - Offering costs (10,000) (397,902) - Additional capital contributions 29,684 - - ----------- ----------- ------- Net cash provided by investing activities 2,535,966 301,651 244,165 ----------- ----------- ------- Net increase (decrease) in cash 1,448,075 (1,401,906) 111,627 Cash, beginning of period 18,317 1,466,392 18,317 ----------- ----------- ------- Cash, end of period $ 1,466,392 64,486 129,944 =========== =========== ======= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 12,016 68,750 1,738 =========== ============ =======
See accompanying notes to consolidated financial statements. F-6 GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 and (unaudited) September 30, 1997 (1) THE COMPANY AND LIQUIDITY Galacticomm Technologies, Inc. and subsidiary (the "Company") develops and licenses computer software applications and tools. The Company was incorporated in December 1995 under the name of Iview Software, Inc. ("Iview"), and changed its name to Galacticomm Technologies, Inc. after acquiring Galacticomm, Inc. ("Galacticomm") in November 1996 (see note 2). The Company was originally incorporated with 5,000,000 authorized shares, par value $.001. At that time, 687,596 shares were issued of which 607,875 were owned by the Chairman and Chief Executive Officer. The consideration paid for these founders shares was $20,000. During 1996 the founding shareholders contributed an additional $29,684 bringing the per share price for the founders shares to $.036 per share. On November 19, 1996, the Board of Directors approved the recapitalization of the Company which increased the authorized shares of common stock from 5,000,000 shares to 20,000,000, reduced the par value from $.001 per share to $.0001 per share and effected a 2 for 1 split of the Company's common stock, increasing the number of shares issued and outstanding to 1,375,192. In September 1997, the Company effected a 4.061771824 for one reverse split of the Company's common stock. The par value of each common share remained $0.0001 and a total of $1,048 was reclassified from common stock to additional paid-in capital. All share and per share amounts have been restated to retroactively reflect the reverse stock split. In addition, the Company's Board of Directors recommended and the shareholders approved the authorization of 1,000,000 shares of preferred stock, par value $0.001 per share. Prior to the acquisition of Galacticomm, Iview developed, marketed and supported software that enabled individuals to broadcast and receive video and audio signals over the Internet and on dial-up networks and offered online subscription services using such software. Galacticomm was incorporated in July 1985 and develops and sells network-centric software applications and tools. Its primary product, Worldgroup, a client-server software, is a platform that merges Bulletin Board Systems, E-Mail, and Worldgroup functions that enable enterprises to provide client/server applications over the Internet and Intranet and secure external data exchanges with customers, field agents, suppliers, and others. On November 21, 1996, the Company merged with Tessier Technologies, Inc. (see note 2). Tessier specialized in the on-line software industry selling platform software from Galacticomm. Tessier also developed its own line of software as add-ons to the baseline products in both business and entertainment. F-7 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1996, the Company's current liabilities exceeded its current assets by $475,580. Additionally, the Company incurred a net loss of $1,041,268 for the year ended December 31, 1996. The accompanying unaudited September 30, 1997 financial statements indicate that these situations are continuing as current liabilities exceeded current assets by $1,524,464 at September 30, 1997 and a net loss of $1,912,126 was incurred for the nine months ended September 30, 1997. Pursuant to its business strategy, the Company expects to continue making expenditures on new product introductions, marketing, research and development. As such, the Company expects to incur a loss in 1997 and does not expect to generate cash flow from operating activities during 1997 sufficient to offset such expenditures. The Company's losses have been funded through the sale of debt and equity securities and during October 1997, the Company completed a bridge loan financing. However, the Company is currently operating at a negative cash flow position. The Company plans to achieve positive cash flow from operations by introducing new products and product upgrades and by increasing sales of current products through increased marketing; targeted sales efforts focused on, among others, value added resellers; and strategic alliances with third party computer software and hardware companies, including co-branding, licensing, OEM and bundling agreements. In addition, the Company intends to improve its cash flow position by raising additional capital through an initial public offering of its securities [see note 12(a)] and, if necessary prior thereto, obtaining interim debt financing. There is no assurance that such conditions or events will occur. (2) ACQUISITIONS On August 26, 1996 the Company entered into an agreement with the principal and controlling shareholder of Tessier to issue him shares of the Company's common stock such that he would have the same percentage interest in the Company as that of the then current controlling shareholder (36 percent). On November 20, 1996, this agreement was consummated as part of a merger between the Company and Tessier. Under the plan of merger the Company acquired Tessier in exchange for 1,282,183 shares of the Company's common stock valued at $195,095. On November 21, 1996, the Company acquired 96 percent of the outstanding common stock of Galacticomm in exchange for 228,396 shares of the Company's common stock valued at $529,515 and $698,978 in cash. Such amounts include consideration of 150,263 shares of common stock valued at $329,495 and $611,476 in cash exchanged for Galacticomm's prior shareholder's interests, and $287,522 of acquisition costs consisting of $87,502 in cash and 78,133 shares of common stock valued at $2.56 per share (see note 8). Certain shares of the Galacticomm common stock acquired by the Company on November 21, 1996 were subject to a stock purchase warrant (the "Galacticomm Warrant") that had been granted to certain third parties by the previous owner of such Galacticomm common stock. In connection with the cancellation of the Galacticomm Warrant, the two majority shareholder's of the Company granted such holders 73,859 warrants (the "New Warrants") to purchase shares of the Company's common stock. The New Warrants bear an exercise price of $3.05 per warrant and may be exercised at any time through November 21, 1999. The fair value of the New Warrants was immaterial to the Company's acquisition of Galacticomm. F-8 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The above transactions were recorded under the purchase method of accounting. Accordingly, the results of operations of Tessier and Galacticomm for the period from October 31, 1996 to December 31, 1996 have been included in the accompanying consolidated financial statements. The operations from October 31, 1996 to November 20, 1996 for Tessier and to November 21, 1996 for Galacticomm, are not material to the consolidated financial statements. The purchase prices have been allocated to assets acquired and liabilities assumed based on the fair market values at the dates of acquisition. The fair value of assets acquired and liabilities assumed is as follows: GALACTICOMM TESSIER ----------- ------- Current assets $ 347,136 44,360 Property and equipment 451,113 66,141 Goodwill 1,911,431 206,627 Current liabilities (1,452,338) (38,114) Long-term liabilities (28,849) (83,919) ---------- -------- $ 1,228,493 195,095 ========== ======== The consolidated statement of operations for the nine months ended September 30, 1996 do not include Tessier and Galacticomm. The following unaudited pro forma financial information for the Company for the year ended December 31, 1996 gives effect to the Tessier and Galacticomm acquisitions as if they had occurred on January 1, 1996, after including the impact of certain adjustments, such as amortization of goodwill and interest expense related to financings obtained to fund the acquisitions. In management's opinion, the unaudited pro forma combined results of operations are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at January 1, 1996, or of future operations of the acquired companies under the ownership and management of the Company. Revenues, net $ 6,189,505 ========= Net loss $ (4,221,950) ========= Net loss per share $ (1.31) ========= (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) UNAUDITED INTERIM FINANCIAL INFORMATION The unaudited consolidated balance sheet as of September 30, 1997, and the unaudited consolidated statements of operations and cash flows for the nine months ended September 30, 1997 and 1996 and the unaudited consolidated statement of shareholders' equity for the nine months ended September 30, 1997 include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's consolidated financial position, results of operations and cash flows. Operating results for nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. F-9 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (B) BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Galacticomm Technologies, Inc. and its wholly-owned subsidiary, Galacticomm Inc. All intercompany transactions and accounts have been eliminated in consolidation. (C) CASH FLOWS The Company considers investments with maturities of three months or less, when purchased, to be cash equivalents. (D) ACCOUNTS RECEIVABLE Accounts receivable are principally from distributors and end-users of the Company's products. The Company performs periodic credit evaluations of its customers and has recorded an allowance for potential credit losses and product returns of $90,363 at December 31, 1996. The Company is subject to rapid changes in technology and shifts in consumer demand which could result in credit losses and product returns in excess of the Company's reserves at December 31, 1996. (E) INVENTORIES Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. The Company's inventories consist primarily of software media, manuals and related packaging materials and hardware and hardware components which are subject to rapid technological obsolescence or reduction in value as a result of new products developed by competitors or as a result of normal competitive pressures. The Company periodically estimates an allowance for obsolete inventory based on current market conditions. Changes in the marketplace may significantly affect management's estimates. (F) LONG-LIVED ASSETS Property and equipment are stated at cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred; betterments are capitalized. Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the assets and any gain or loss is recognized. Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally three to five years. During 1996 approximately $38,000 was recorded as goodwill amortization expense. The Company implemented the provisions of Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," effective January 1, 1996. The Company reviews its long-lived assets (property, plant and equipment, and related intangible assets that arose from business combinations accounted for under the purchase method) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and F-10 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the assets exceeds its fair value. The adoption of Statement No. 121 had no impact on the Company's financial position or results of operations. (G) REVENUE RECOGNITION Sales are recognized at the time the product is shipped, in accordance with the provisions of American Institute of Certified Public Accountants Statement of Position 91-1, "Software Revenue Recognition." While the Company has no obligations to perform future services subsequent to shipment, the Company provides telephone customer support as an accommodation to purchasers of its products. Costs associated with this effort are not significant and are expensed as incurred. Sales to distributors are subject to agreements allowing limited rights of return and price protection. The Company provides reserves for estimated future returns, exchanges and price protection. The Company offers distributors co-op funds that are used to promote the Company's products. These funds are generally paid as a credit against outstanding invoices and are included in marketing expense during the period in which the revenue is recognized. At December 31, 1996 the Company had deferred revenues recorded in the accompanying balance sheet related to customer subscriptions paid in advance. (H) SOFTWARE LICENSING AGREEMENTS During February and April 1996 the Company entered into service agreements with two marketing and sales companies ("Sales Companies"). Under these agreements there were various compensation arrangements for sales services. For prepaid services the Company received 45 percent of the prepaid amount. In November 1996, the Company terminated these agreements and entered into new licensing agreements with the two Sales Companies to use the Company's service mark. These agreements require royalties of 12 percent of the licensee's gross revenue and expire in 1999. The revenue is recognized as the gross revenue is reported by the licensees. During 1996 the revenue from all the above agreements was approximately $1,480,000. (I) SOFTWARE DEVELOPMENT COSTS The Company accounts for software development costs under Statement of Financial Accounting Standards No. 86, "Accounting for Costs of Computer Software to Be Sold, Leased or Otherwise Marketed" ("FAS 86"). Under FAS 86, the costs associated with software development are required to be capitalized after technological feasibility has been established. Costs incurred by the Company subsequent to the establishment of technological feasibility have been insignificant and, as a result, the Company has not capitalized any development costs. F-11 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (J) INCOME TAXES The Company elected S corporation status effective upon inception and maintained that status until October 29, 1996, when it became a taxable corporation. Under S corporation status, each shareholder is individually responsible for reporting their share of taxable income or loss. Accordingly, through October 29, 1996, no provision for Federal income taxes has been reflected in the accompanying consolidated financial statements. A provision for state income taxes is made where applicable. Given that the Company has incurred net losses since inception, had the Company been a taxable corporation prior to October 30, 1996, no provision for income taxes would have been recorded. Beginning October 30, 1996, the Company follows the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (K) STOCK OPTION PLAN The Company accounts for its stock option plan (see note 12) in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. Under APB Opinion No. 25, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (L) NET LOSS PER SHARE Net loss per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. In accordance with a Securities and Exchange Commission (SEC) Staff Accounting bulletin, certain common stock and common stock equivalents issued within a 12-month period prior to the initial filing of a registration statement relating to an initial public offering are treated as outstanding for the entire period (using the treasury stock method). (M) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and notes payable approximates fair value because of the short maturity of these instruments. F-12 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of each of the Company's long-term debt instruments is based on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The carrying amounts approximate the estimated fair value at December 31, 1996. (N) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the 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 to prepare these financial statements in conformity with generally accepted accounting principles. Significant estimates are primarily related to provisions for sales returns, bad debt and obsolete inventory. Actual results could materially differ from these estimates. (4) PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31, 1996:
ESTIMATED USEFUL LIFE ----------- Equipment $ 464,023 5 years Furniture and fixtures 105,875 7 years Software 13,464 3 years -------- 583,362 Less accumulated depreciation and amortization 38,793 -------- $ 544,569 ========
(5) INCOME TAXES Income tax expense for the year ended December 31, 1996 was $0, and differed from the amounts computed by applying the United States federal income tax rate of 34 percent to pretax losses as a result of the following:
Computed "expected" tax benefit $ 354,031 Increase (reduction) in income taxes resulting from: State income tax benefit, net of federal 35,439 Various non-deductible expenses (3,928) S-corporation earnings from January 1, 1996 to October 29, 1996 not subject to corporate tax (54,716) Increase in the valuation allowance for deferred tax assets (330,826) ------------- $ - =============
F-13 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1996 are presented below: Deferred tax assets: Allowances for returns and bad debts $ 9,143 Net operating loss carryforwards 339,730 Goodwill 8,852 Accrued expenses 5,303 --------- Total gross deferred tax assets 363,028 Less valuation allowance (330,826) --------- Total deferred tax asset 32,202 Deferred tax liabilities: Property and equipment 32,202 --------- Net deferred tax asset $ - ========= Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Management believes that there is a risk that these net operating loss carryforwards may expire unused and, accordingly has established a valuation allowance for the deferred tax asset. The Company's net operating loss carry forward of $902,817 expires in the year 2011. (6) DEBT At December 31, 1996, debt consisted of the following: (A) NOTES PAYABLE The Company's subsidiary has a line of credit with a bank for $300,000 which bears interest at the bank's prime rate plus 1 percent. During May 1997, the Company repaid $100,000 of the outstanding amount on the line of credit and entered into a $200,000 line of credit due on demand with a final maturity of September 30, 1997. At December 31, 1996, $298,575 was outstanding under the line of credit agreement. The line is secured by the Company's accounts receivable, inventory and other assets, and is personally guaranteed by an officer of the Company [see note 12(a)]. All amounts outstanding under the line of credit were repaid during October 1997. The Company has been approved for the continuation of its credit line which will bear interest at prime plus 1.5 percent. The Company issued five notes payable in the original total amount of $80,000, each due on demand, with interest rates of 12 percent per annum. At December 31, 1996 the total unpaid principal balance was $45,000. These notes were repaid during January 1997. Under the terms of the notes, the Company is obligated to pay a royalty ("Royalty") to the creditors equivalent to a certain percentage (ranging from 1.0 percent to 2.0 percent) of the Company's gross revenues while the notes are outstanding. Additionally, after the notes are repaid, the Company is obligated to pay a royalty to the creditors equivalent to a certain percentage (ranging from 0.5 percent to 1.5 percent) of the Company's net revenue (the "Additional Royalty"). F-14 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During August 1997 the Company terminated the Royalty and Additional Royalty obligation by issuing 22,857 shares of the Company's common stock and paying $72,500 of accrued royalties to such creditors. In connection with the issuance of such common stock, the Company recognized related expense of approximately $86,000, representing the fair value of the common stock. (B) CONVERTIBLE PROMISSORY NOTES On November 21, 1996, the Company received proceeds in the amount of $1,375,000 from the issuance of secured convertible promissory notes payable to two shareholders of the Company. These notes are secured by all of the Company's tangible and intangible assets. Each note bears interest at a rate of 10 percent per annum and interest is payable quarterly. The notes each mature at the earliest to occur of: (i) November 21, 1998; (ii) The completion of a private placement offering by the Company greater than $3,000,000; or (iii) The completion of an IPO of equity or debt securities by the Company. In addition, upon (a) written demand of the creditors or (b) written demand of the Company on or before April 15, 1998, if the Company's audited financial statements for the year ended December 31, 1997 show after tax earnings greater than $1,000,000, all principal and accrued interest due and payable under these notes may be converted into shares of the Company's common stock equal to the unpaid outstanding amount of the notes divided by the conversion price of $2.56 per share, the fair value of the Company's common stock on the date of the debt issuance. On September 8, 1997, the convertible notes were amended such that upon the occurrence of any of the following events all principal due under the notes shall be converted into that number of shares of common stock equal to the outstanding principal balance divided by the conversion price of $2.56 per share and all accrued interest shall be paid by the Company: (i) Upon the occurrence of events (a) or (b) as detailed in the preceding paragraph or (ii) On the date that the Company's IPO is declared effective by the SEC. On December 31, 1997, one of the holders of the convertible promissory notes converted $1,250,000 of the principal due under such notes, plus accrued interest of $141,781, into 543,895 shares of the Company's common stock, at the conversion price of $2.56 per share. During 1997, the Company did not make the quarterly interest payments due on March 31, June 30 and (unaudited) September 30. The Company has obtained a waiver from the holder of the convertible promissory notes of $125,000 outstanding at December 31, 1997, waiving all such interest payments until March 31, 1998. F-15 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (C) NOTE PAYABLE-SHAREHOLDER At December 31, 1996, note payable - shareholder includes a non-interest bearing note payable totaling $50,000. On December 31, 1997, this note payable was amended to bear interest at 10 percent, with repayment due at the earlier of the completion of an IPO of equity or debt securities of the Company, or December 31, 1998. (7) ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 1996: Salaries, wages and other compensation $ 307,306 Professional fees 115,620 Rent 138,953 Interest 80,000 Sales returns 34,000 Other 245,799 ------- $ 921,678 ======= (8) SHAREHOLDERS' EQUITY On November 21, 1996 the Company completed a private placement for $1,375,000 in convertible notes payable (see note 6(b)) and 537,337 shares of its common stock at $2.56 per share. Under the terms of the stock-purchase agreement for the sale of the 537,337 shares, the buyers of such shares were granted piggy-back, demand registration and antidilution rights and certain other rights. On September 8, 1997, the Company issued such buyers 81,245 shares of the Company's common stock in exchange for the buyers retraction of certain rights which were in the original stock purchase agreement. The material terms of the contractual rights relinquished originally entitled the buyers to a certain number of shares of the Company's common stock, for no additional consideration, based on the Company's after-tax earnings for the year ending December 31, 1997. Furthermore, the September 8, 1997 agreement also provided that the buyers would relinquish certain preemptive and anti-dilution rights contained in the original agreement upon completion of an IPO. As a result of the issuance of the additional 81,245 shares, the par value of $8 of the additional shares issued was reclassified from additional paid-in capital to common stock. In connection with the private placement and the acquisition of Galacticomm, the Company issued the following consideration in exchange for consulting and advisory services with respect to the Company's finances to a consultant who is a current shareholder of the Company: (i) a warrant to purchase 139,708 shares of the Company's common stock at an exercise price of $2.56 per warrant having an approximate fair value of $28,000, (ii) 78,133 shares of the Company's common stock having an approximate fair value of $200,000, and (iii) cash of $357,500. Accordingly, of the total consideration, (i) approximately $140,000 was allocated as a direct cost of the common stock issued in the private placement, (ii) approximately $140,000 was allocated to the convertible debt issued in the private placement and such amount was capitalized as a deferred financing cost and (iii) approximately $300,000 was allocated to the Company's acquisition of Galacticomm and such amount was included in the Company's purchase price of Galacticomm. F-16 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) 401(K) RETIREMENT PLAN The Company's subsidiary, Galacticomm, maintains a 401(k) retirement plan. All of Galacticomm's employees who have attained the age of 21 and completed one year of service are eligible. The plan allows vesting at 20 percent per year beginning in the second year of service. Participants can contribute up to 15 percent of their annual compensation and Galacticomm may make discretionary contributions. Galacticomm made no contributions during 1996. On April 1, 1997 and effective January 1, 1997, the 401(k) retirement plan was amended to allow eligibility for employees after having completed 6 months of service and vesting at 25 percent per year beginning in the first year of service. (10) COMMITMENTS AND CONTINGENCIES (A) LEASES The Company leases its main administrative office and warehouse premises under a lease which expired on May 13, 1997. On July 21, 1997, the Company entered into a new lease agreement for such premises which runs through October 2001. The Company also leases office equipment under operating leases. The following summarizes future minimum obligations under non-cancelable operating leases: DECEMBER 31 ----------- 1997 $ 99,135 1998 101,198 1999 104,858 2000 109,010 2001 93,850 -------- $ 508,051 ======== F-17 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Total rent expense under operating leases was $31,045 for the year ended December 31, 1996. (B) EMPLOYMENT AGREEMENTS On November 21, 1996, the Company entered into employment contracts through November 20, 1999 with two of its officers that include commitments for a base salary plus bonuses (at the discretion of the Compensation Committee of the Board of Directors). The base salary commitment for each officer for the years ended December 31, 1997, 1998 and 1999 is approximately $175,000, $195,000 and $195,000, respectively. In addition, on June 30, 1997, each officer was granted stock options for 177,263 shares of common stock with an exercise price of $3.74 per share. One-third of the options vested on November 21, 1997 and an additional one-third vests each year thereafter. The options expire five years from the respective vesting dates and any non-vested options shall be forfeited upon termination of employment. On August 25, 1997 the Company entered into an employment contract through August 24, 1999 with its chief financial officer that includes a commitment for an annual base salary of $120,000 and the granting of 34,468 stock options with an exercise price of $6.50 under the Company's 1997 Stock Option Plan (see note 12(d)). (C) CONSULTING AGREEMENT On November 20, 1996, the Company entered into a consulting agreement with a shareholder to perform consulting and advisory services with respect to the operations and finances of the Company. The consulting fee under this agreement is $10,000 per month until June 30, 2001. Other than the monthly fee, no material commitments exist under the Company's agreement with such consultant. On January 15, 1997 the Company entered into a second consulting agreement with such shareholder pursuant to which the Company engages the services of an employee of such shareholder to develop the Company's sales and marketing strategies. The fee under this agreement for the services of such employee is $7,000 per month and the agreement expires December 31, 1998. Under such consulting agreement, the Company also issued an option to such employee to acquire 2,462 shares of the Company's common stock at a per share price of $2.56. Such option is immediately exercisable and has a three year life. In addition, such employee has been granted options to purchase 7,386 shares of common stock under the Company's 1997 Stock Option Plan at an exercise price of $6.50 per share. The fair value of such options are immaterial to the consolidated financial statements. (D) PAYROLL TAXES During August 1997, the Company reached a settlement with the IRS relating to payroll taxes due for 1996 employee wages. The amount of such settlement was $89,000 and is reflected as an accrued expense at December 31, 1996. F-18 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (E) OTHER In July 1997, the Company became aware of the existence of a third party which may claim a prior right in the trademark name "Worldgroup" (the name of a product of the Company). The Company and the third party are presently discussing a coexistence agreement whereby the Company would have the right, without payment of a royalty, to continue to use the trademark "Worldgroup" on its present products and services. Management believes that the Company will be able to come to such an agreement with the third party. In July 1997, the Company became aware that several other third parties filed applications for registration of "WebCast" (the name of a product of the Company), before the Company filed its application. If "WebCast" is not determined to be generic and one of the third party applications matures into registration, then such third party will have superior rights to the Company. If a third party has superior rights to any of the Company's trademarks and such third party decides to enforce its trademark rights through an infringement action, management believes that the Company has valid defenses with respect to any such action. The Company is subject to certain legal matters arising in the ordinary course of business which, in the opinion of management, based on the advice of its legal counsel, will not have a material effect on the financial position and results of operations of the Company. (11) VALUATION ACCOUNTS The following summarizes the changes in the Company's valuation accounts for the year ended December 31, 1996:
BALANCE AT BALANCE AT BEGINNING OF END OF DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD ----------- ------------ --------- ---------- ---------- Allowance for doubtful accounts and sales returns $ - 90,363 - 90,363 Inventory reserve $ - 18,191 - 18,191
(12) SUBSEQUENT EVENTS (A) PLANNED PUBLIC OFFERING In April 1997, the Company signed a nonbinding letter of intent with an investment banking firm to underwrite, on a firm-commitment basis, an initial public offering of the Company's securities. Pursuant to the terms of the letter of intent, the Company in October 1997 completed a bridge loan financing of 42 bridge units, each of which consists of a $50,000 promissory note and a three year warrant to purchase 19,000 shares of the Company's common stock at an exercise price of $3.75 per share. The total principal amount of the promissory notes of $2,100,000 bears interest of 10 percent per year. Accrued interest is due semi-annually and the note will mature upon the earlier of January 4, 1999 or the completion of an initial public offering. After deducting fees and expenses paid to the investment banking firm of $283,000, and $190,000 for other expenses related to the bridge loan financing, net proceeds of the F-19 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS bridge financing were approximately $1,627,000. Additionally, in connection with the bridge financing, the Company issued 159,600 warrants to the investment banking firm with terms similar to the aforementioned bridge warrants. The fair value of the bridge warrants issued was determined to be $.22 per share or $210,672 using the Black-Scholes pricing model and will be recorded as a discount on the bridge financing and amortized over the life of the notes. A portion of the proceeds of the bridge loan were used to repay all amounts outstanding under the Company's line of credit. (B) SALE OF COMMON STOCK In June 1997, the Company sold an aggregate of 259,802 shares of its common stock at 3.74 per share in a private placement. Net proceeds to the Company after deducting a $126,209 fee paid to a shareholder of the Company were $844,553. In connection with such sale of common stock, the Company issued, to a shareholder of the Company, a three year warrant to purchase 33,774 shares of the Company's common stock at an exercise price of $3.74 per share. The fair value of such warrants was immaterial to such sale of common stock. (C) WARRANTS On March 14, 1997, two principal shareholders of the Company issued warrants for 615,496 shares of the Company's common stock to another shareholder of the Company at an exercise price of $3.25 per share. This warrant is automatically exercisable upon completion of an IPO. The Company recognized a related expense of $113,760 representing the fair value of the warrants issued. Additionally, on September 8, 1997, in consideration of the payment of $50,000, the Company permitted the common stock underlying such warrants to have certain registration rights. On October 17, 1997, the warrants were amended to extend the expiration date to March 31, 1998. As a result of this amendment, related incremental expense of approximately $30,000 was recognized in October 1997. (D) STOCK OPTION PLAN On September 4, 1997 the Company adopted the 1997 Stock Option Plan (the "Plan"). Pursuant to the Plan, the Company's board of directors may grant incentive or non-qualified stock options to employees or service providers. Under the Plan, 370,000 shares of the Company's common stock are reserved for issuance and options granted shall vest 25 percent 180 days after issuance and then 50 percent, 75 percent and 100 percent over the first, second and third anniversaries of the grant date, respectively. The Plan has a ten year term and no options granted under the Plan shall have a life greater than ten years. In addition to the stock option grants under the Plan discussed in notes 10(b) and 10(c), during September 1997, the Company granted 164,337 options under the Plan to various employees with an exercise price of $6.50 per option. F-20 (Continued) GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (E) LEGAL MATTER A suit was filed against the Company on December 16, 1997 by a reseller of the Company's products alleging price fixing, price discrimination, resale price maintenance, predatory practices, breach of contract and economic coercion by the Company. The reseller seeks treble the amount of its actual damages alleged to be in excess of $1,500,000. The Company will file a response denying that it has engaged in any of the alleged conduct and will defend the action vigorously. Although no assurance can be given, the Company believes, based upon special antitrust counsel's preliminary investigation and advice that the ultimate outcome of the suit will not have a material adverse effect on the Company's business or financial position. (13) NEW ACCOUNTING PRONOUNCEMENTS In June 1997 the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 requires all items to be recognized under accounting standards as components of comprehensive income to be reported in a separate financial statement. The Company does not believe that the adoption of SFAS No. 130 will have a significant impact on the Company's financial reporting. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" ("SFAS No. 131"). SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. The Company does not believe that the adoption of SFAS No. 131 will have a significant impact on the Company's financial reporting. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER SHARE. SFAS 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include (i) eliminating the presentation of primary EPS and replacing it with basic EPS, (ii) eliminating the modified treasury stock method and the three percent materiality provision and (iii) revising the contingent share provisions and the supplemental EPS data requirements. SFAS 128 also makes a number of changes to existing disclosure requirements. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company does not believe that the adoption of SFAS 128 in 1997 will have a significant impact on the Company's reported EPS. F-21 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Galacticomm, Inc. Fort Lauderdale, Florida: We have audited the accompanying statements of operations and cash flows of Galacticomm, Inc. for the year ended December 31, 1995 and the ten months ended October 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Galacticomm, Inc.'s operations and cash flows for the year ended December 31, 1995 and the ten months ended October 31, 1996 in conformity with generally accepted accounting principles. August 22, 1997 /s/ KPMG Peat Marwick, LLP -------------------------- KPMG Peat Marwick, LLP F-22 GALACTICOMM, INC. STATEMENTS OF OPERATIONS TEN MONTHS YEAR ENDED ENDED DECEMBER 31, OCTOBER 31, 1995 1996 ------------ ----------- Revenue $7,487,983 3,293,876 Operating costs and expenses: Cost of revenue 1,737,170 1,005,595 Selling, general and administrative 3,602,809 2,382,613 Depreciation and amortization 131,713 150,185 Compensation expense related to phantom units -- 529,139 Compensation expense on option exercise 443,242 -- Research and development 1,034,174 638,200 Customer support 425,924 387,797 ---------- ---------- Total operating costs and expenses 7,375,032 5,093,529 ---------- ---------- Operating profit (loss) 112,951 (1,799,653) Other income (expense): Lease termination -- (380,040) Interest income 33,042 10,760 Realized loss on short-term investments (225,818) -- Other expense, net (5,249) (98,873) ---------- ---------- Total other expense (198,025) (468,153) ---------- ---------- Net loss $ (85,074) (2,267,806) ========== ========== See accompanying notes to financial statements. F-23
GALACTICOMM, INC. STATEMENTS OF CASH FLOWS TEN MONTHS YEAR ENDED ENDED DECEMBER 31, OCTOBER 31, 1995 1996 ------------- ----------- Cash flows from operating activities: Net loss $ (85,074) (2,267,806) Adjustments to reconcile net loss to net cash provided by (used in) perating activities: Depreciation and amortization 131,713 150,185 Loss on disposal of equipment 10,000 24,582 Bad debt and product return provisions 16,786 80,065 Compensation expense related to phantom units -- 529,139 Compensation expense on stock option exercise 443,242 -- Realized loss on short-term investments 225,818 -- Interest income on subscription notes receivable (1,393) (1,874) Changes in assets and liabilities: Accounts receivable (51,108) 270,956 Inventories (77,593) 195,869 Prepaid expenses and other assets (171,711) 230,264 Accounts payable 111,153 (69,701) Deferred revenue 105,034 150,031 Accrued expenses 142,028 227,860 ---------- ---------- Net cash provided by (used in) operating activities 798,895 (480,430) ---------- ---------- Cash flows used in investing activities: Capital expenditures (164,129) (19,815) ---------- ---------- Cash flows from financing activities: Net proceeds from notes payable -- 298,575 Payments on capital lease obligations (23,952) (24,515) Dividends to stockholders (775,261) (28,295) Net proceeds from the exercise of stock options and sale of common stock 23,277 -- ---------- ---------- Net cash (used in) provided by financing activities (775,936) 245,765 ---------- ---------- Net decrease in cash and cash equivalents (141,170) (254,480) Cash and cash equivalents-beginning of period 504,347 363,177 ---------- ---------- Cash and cash equivalents-end of period $ 363,177 108,697 ========== ==========
See accompanying notes to financial statements. F-24 GALACTICOMM, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1995 and October 31, 1996 (1) THE COMPANY AND BASIS OF PRESENTATION Galacticomm, Inc. (the "Company") develops and sells network-centric software applications and tools. The Company's primary product, Worldgroup, a client/server software, is a platform that merges Bulletin Board Systems, E-mail, and workgroup functions and enables enterprises to provide client/server applications over the Internet and intranets and secure external data exchanges with customers, field agents, suppliers, and others. Substantially all of the Company's revenue is derived from sales of the Worldgroup software product and related hardware, documentation and training manuals, and royalties. The Company operates in a highly competitive industry characterized by rapidly changing technology which could adversely affect the Company's revenues and the related results of operations. On November 21, 1996, 8,037,203 of the issued and outstanding common shares of the Company, representing a 96 percent ownership of the Company, were purchased by Galacticomm Technologies, Inc., (formerly Iview Software, Inc.) in exchange for $.094 in cash and .0644 shares of Galacticomm Technologies, Inc. for each share of the Company's common stock. The accompanying financial statements were prepared for inclusion in a registration statement of Galacticomm Technologies, Inc. The separate audited balance sheets of the Company are not presented at December 31, 1995 and October 31, 1996 as the fair value of the acquired assets and assumed liabilities has been included in the December 31, 1996 consolidated balance sheet of Galacticomm Technologies, Inc. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) ACCOUNTS RECEIVABLE Accounts receivable are principally from distributors and end-users of the Company's products. The Company performs periodic credit evaluations of its customers and has recorded an allowance for potential credit losses and product returns of $85,680 and $110,428 at December 31, 1995 and October 31, 1996, respectively. The Company is subject to rapid changes in technology and shifts in consumer demand which could result in credit losses and product returns in excess of the Company's reserves. (B) INVENTORIES Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. The Company's inventories consist primarily of software media, manuals and related packaging materials and hardware and hardware components which are subject to rapid technological obsolescence or reduction in value as a result of new products developed by competitors or as a result of normal competitive pressures. The Company periodically estimates an allowance for obsolete inventory based on current market conditions. Changes in the marketplace may significantly affect management's estimates. F-25 (C) LONG-LIVED ASSETS The Company presents its property and equipment at cost less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost and accumulated depreciation are removed from the account and any gain or loss is recognized. The Company implemented the provisions of Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," effective January 1, 1996. The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The adoption of Statement No. 121 had no impact on the Company's results of operations. (D) REVENUE RECOGNITION Sales are recognized at the time the product is shipped, in accordance with the provisions of American Institute of Certified Public Accountants Statement of Position 91-1, "Software Revenue Recognition". While the Company has no obligations to perform future services subsequent to shipment, the Company provides telephone customer support as an accommodation to purchasers of its products. Costs associated with this effort are not significant and are expensed as incurred. Sales to distributors are subject to agreements allowing limited rights of return and price protection. The Company provides reserves for estimated future returns, exchanges and price protection. The Company offers distributors co-op funds that are used to promote the Company's products. These funds are generally paid as a credit against outstanding invoices and are included in marketing expense during the period in which the revenue is recognized. The Company has various contracts which require the Company to provide consulting services, custom systems integration and training at specified contractual rates. Such contracts are short-term in nature. The Company records as deferred revenue, all payments received on each contract until the contract is completed. Deferred revenues are recorded for short-term contracts and customer subscriptions paid in advance. (E) ROYALTIES The Company licenses software used to develop components of Worldgroup. Royalties are payable to developers of the software at various rates and amounts, generally based on unit sales. Royalty expense was approximately $7,000 and $46,000 for the year ended December 31, 1995 and the ten months ended October 31, 1996, respectively. Such costs are included as a component of cost of revenues in the accompanying statements of operations. F-26 GALACTICOMM, INC. NOTES TO FINANCIAL STATEMENTS (F) SOFTWARE DEVELOPMENT COSTS The Company accounts for software development costs under Statement of Financial Accounting Standards No. 86, "Accounting for Costs of Computer Software to Be Sold, Leased or Otherwise Marketed" ("FAS 86"). Under FAS 86, the costs associated with software development are required to be capitalized after technological feasibility has been established. Costs incurred by the Company subsequent to the establishment of technological feasibility have been insignificant and, as a result, the Company has not capitalized any research and development expenses. (G) INCOME TAXES Prior to the sale to Galacticomm Technologies, Inc. (see note 1) the Company was an S corporation for federal income tax purposes. As such, the income tax effects of the results of operations of the Company accrued directly to its stockholders. Accordingly, the accompanying financial statements do not include a provision for income taxes. (H) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the 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 to prepare these financial statements in conformity with generally accepted accounting principles. Significant estimates are primarily related to provisions for sales returns, bad debt and obsolete inventory. Actual results could materially differ from these estimates. (3) INVESTMENT ACTIVITY The Company's short-term investments consisted of various call options which were indexed to interest rates on thirty-year U.S. treasury instruments and expired between January and December 1995. In December 1995, the final call option expired and had a zero fair value, resulting in the Company realizing an investment loss of $225,818 for the year ended December 31, 1995. The Company has no other short-term investments at December 31, 1995 or October 31, 1996. (4) LINE OF CREDIT The Company had a line of credit with a bank for $300,000 which bears interest at prime plus 1 percent and is collateralized by the Company's accounts receivable, inventory and property and equipment. This line of credit expired January 9, 1997. As of October 31, 1996, the Company had borrowed $298,575 under the line of credit agreement. F-27 GALACTICOMM, INC. NOTES TO FINANCIAL STATEMENTS (5) INCENTIVE STOCK OPTION PLAN The Company has reserved 3,000,000 shares of its common stock for issuance under its 1987 Incentive Stock Option Plan (the "Plan"). Under the Plan, options may be granted to purchase common stock at exercise prices not less than fair market value at the date of grant, as determined by the Board of Directors. During August 1996, the Board of Directors approved the conversion of all stock options outstanding, on a one-for-one basis, into phantom units under the Company's phantom stock plan, and changed the number of shares of common stock reserved for issuance under the Plan to 500,000. All options expire on the date specified in the option agreement and in no event later than the tenth anniversary of the date on which the option was granted. A summary of incentive stock option activity is as follows:
NUMBER OF EXERCISE OPTIONS PRICE ---------- ------------ Options outstanding, December 31, 1994 1,220,050 $ .30 - 2.85 Options granted 50,000 3.18 Options canceled (65,000) 1.46 - 3.18 Options exercised (283,765) 1.23 - 1.85 ---------- Options outstanding, December 31, 1995 921,285 .30-3.18 Converted to phantom units (921,285) .30-3.18 ---------- ----------- Options outstanding, October 31, 1996 - $ - ========== ===========
On November 21, 1996 the Plan was canceled. In 1994, the Company exchanged 83,620 shares of common stock for $122,492 in promissory notes issued by two directors. Also in 1994, a director of the Company exercised 187,760 options and issued a promissory note of $56,328 as consideration thereof. The promissory notes referred to above bear interest at rates ranging from 4.00 -5.86 percent and mature in September 1996 through January 1997 and are collateralized by common stock of the Company held by the two directors. During 1996, such notes were repaid with 563,536 shares of the Company's common stock. The non-cash option transactions described above have been excluded from the accompanying statements of cash flows. F-28 GALACTICOMM, INC. NOTES TO FINANCIAL STATEMENTS During 1995, a former employee of the Company exercised 279,000 options to acquire shares of common stock. The exercise price for the first 1,864 options exercised was funded by an exchange of 1,000 shares of common stock held by the former employee. Such common shares exchanged had been held by the former employee greater than six months. Subsequent to the initial exercise, the former employee immediately used the shares of common stock acquired under option to satisfy the exercise price for additional shares under the same option (the "Pyramiding Exercise"), until the former employee's remaining 277,136 options were exercised. The shares of common stock used in the Pyramiding Exercise were considered "immature" as they were held less than six months by the former employee. Accordingly, the Company recognized $443,242 in compensation expense in 1995. (6) PHANTOM STOCK PLAN In July 1994, the Company's Board of Directors authorized the Galacticomm, Inc. Phantom Stock Plan. The purpose of the plan is to provide equity-based compensation to certain employees and directors through the awarding of rights or "units" associated with the common stock of the Company. These units entitle the holder to receive bonus compensation and an election may be made by the holder to receive the common stock of the Company based on the occurrence of certain events. A summary of the Phantom Stock Plan's activity is as follows: Units outstanding, December 31, 1994 98,296 Units granted 89,675 Units canceled (15,361) --------- Units outstanding, December 31, 1995 172,590 Units granted 4,009,947 Units canceled (64,729) Units converted to common stock (3,625,429) --------- Units outstanding, October 31, 1996 492,379 ========= During August 1996, the Board of Directors approved the increase of phantom units that may be issued under the Phantom Stock Plan to 4,500,000. As a result of the purchase by Galacticomm Technologies, Inc. (see note 1) of 8,037,203 of the issued and outstanding common shares of the Company, certain provisions in the Phantom Stock Plan were met and triggered the conversion into common stock feature of all currently outstanding phantom units. As such, all phantom unit holders at October 31, 1996 had the option to convert each phantom unit held into a common share of the Company. Accordingly, $529,139 of compensation expense was recorded, representing the fair value of the Company's common stock underlying all phantom units outstanding on October 31, 1996. On November 21, 1996 the Phantom Stock Plan was canceled. F-29 GALACTICOMM, INC. NOTES TO FINANCIAL STATEMENTS (7) LEASE TERMINATION On June 8, 1996, the Company entered into a third amendment to a certain 10-year office space lease agreement, under which the Company stipulated that the Company did not desire to take occupancy of the subject property. As of October 31, 1996 the Company has recorded a lease termination expense of $380,040 representing lost security deposits and future lease payments. (8) COMMITMENTS The Company leases its main office and warehouse premises under an operating lease which expires on May 13, 1997. The Company also leases office equipment under operating leases. The following summarizes future minimum leases under non-cancelable operating leases as of October 31, 1996: 1997 $ 76,192 1998 4,531 ------- $ 80,723 ======= Rent expense under operating leases for the year ended December 31, 1995 and the ten months ended October 31, 1996 amounted to $78,857 and $96,671, respectively. The Company also leases certain computer equipment under capital leases. The annual maturities of these capital lease obligations are as follows: OCTOBER 31, ----------- 1997 $ 33,092 1998 23,361 1999 5,488 ------- $ 61,941 ======= F-30 GALACTICOMM TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS The following unaudited pro forma consolidated statement of operations of Galacticomm Technologies Inc. for the year ended December 31, 1996 gives effect to the following pro forma events, as if such events had occurred on January 1, 1996: (i) the inclusion of the results of operations of Galacticomm, Inc. and Tessier Technologies, Inc. for the year ended December 31, 1996 as if such acquisitions were consummated on January 1, 1996; (ii) the elimination of intercompany transactions between Galacticomm Technologies, Inc., Galacticomm, Inc. and Tessier Technologies, Inc. for the year ended December 31, 1996 assuming these entities reported on a consolidated basis; (iii) an increase of amortization of goodwill as a result of the acquisitions of Galacticomm, Inc. and Tessier Technologies, Inc. assuming such acquisitions were consummated on January 1, 1996; and (iv) an increase of interest expense due to the financings obtained to fund the acquisitions of Galacticomm, Inc. and Tessier Technologies, Inc. assuming such acquisitions were consummated on January 1, 1996. These unaudited pro forma consolidated statements of operations should be read in conjunction with the audited consolidated financial statements of Galacticomm Technologies, Inc. The unaudited pro forma data are not necessarily indicative of the results of oeprations ofd Galacticomm Technologies, Inc. that would have occurred if the pro forma events had been in effect at the beginning of the periods presented, nor are they necessarily indicative of future results of operations.
PRO FORMA GTI TESSIER GALACTICOMM(7) COMBINED ADJUSTMENTS PRO FORMA --- ------- -------------- -------- ----------- --------- Revenues $1,692,743 $1,350,204 $3,293,876 $ 6,336,823 $ (147,318) (1,2) $ 6,189,505 Cost of revenues 758,050 865715 1005595 2,629,360 -113898 (1,2) 2515462 --------------------------------------------------------------------- -------------- Gross profit 934,693 484489 2288281 3707463 -33420 3674043 Selling, general and admistrative 1531130 472729 2196421 4200280 180972 (3,4) 4381252 Depreciation 47,533 31542 336377 415452 415452 Amortization of intangibles 38,665 - - 38665 551846 (5) 590511 Compensation expense on warr - - 529139 529139 529139 Customer support 72,772 - 387797 460569 460569 Research and development 225,549 - 638200 863749 863749 --------------------------------------------------------------------- -------------- Total operating expenses 1915649 504271 4087934 6507854 732818 7240672 --------------------------------------------------------------------- -------------- Income (loss) from operations -980956 -19782 -1799653 -2800391 -766238 -3566629 Other income (expense) -60312 - -468153 -528465 -126856 (6) -655321 --------------------------------------------------------------------- -------------- Loss before income taxes -1041268 -19782 -2267806 -3328856 -893094 -4221950 Income taxes - - - - - - Net loss $(1,041,268) $ (19,782) $(2,267,806) $(3,328,856) $ (893,094) $ (4,221,950) Net loss per share $ (1.31) Shares used in computing net loss per share 3,229,101
(1) Adjustment reflects elimination of intercompany sales from Galacticomm, Inc. to Tessier Technologies, Inc. (2) Adjustment reflects the remaining portion of the elimination of intercompany sales. (3) Adjustment reflects additional officers salaries as if officers employment agreements were effective January 1, 1996. (4) Adjustment reflects additional consulting fees to a stockholder of the company as if the related consulting agreement had been entered into on January 1, 1996. (5) Adjustment reflects an additional ten months goodwill amortization related to the Galacticomm, Inc. and Tessier Technologies, Inc. acquisitions. (6) Adjustment reflects additional interest expense on debt incurred to finance the acquisition of Galacticomm and Tessier as if the acquisitions were consummated on January 1, 1996. F-31 No person is authorized in connection with any offering made hereby to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or by an Underwriter. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any security other than the Shares offered by this Prospectus, nor does it constitute an offer to sell or a solicitation to such person. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstance create any implication that information contained herein is correct as of any date subsequent to its date. TABLE OF CONTENTS PAGE ---- Prospectus Summary............................................... Risk Factors..................................................... Use of Proceeds ................................................. Capitalization .................................................. Dividend Policy ................................................. Dilution......................................................... Recent Financings ............................................... Selected Historical Financial Data .............................. Selected Pro Forma Financial Data................................ Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................... Business ........................................................ Management ...................................................... Certain Transactions............................................. Principal Shareholders .......................................... Description of Securities ..................................... Underwriting .................................................... Legal Matters ................................................... Experts ......................................................... Additional Information .......................................... Index to Financial Statements ................................F-1 Until , 1998 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This 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. GALACTICOMM TECHNOLOGIES, INC. UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT -------- PROSPECTUS -------- FIRST EQUITY CORPORATION _____________, 1998 ALTERNATE PROSPECTUS GALACTICOMM TECHNOLOGIES, INC. 957,600 SHARES OF COMMON STOCK This Prospectus relates to 957,600 shares of the common stock, par value $.0001 per share (the "Common Stock") of Galacticomm Technologies, Inc. (the "Company"). The Common Stock offered by this Prospectus has been or may be acquired by certain selling shareholders (the "Selling Shareholders") of the Company upon the exercise of warrants (the "Bridge Warrants") issued by the Company in connection with a bridge financing in October 1997. See "Recent Financings." The Bridge Warrants are exercisable at a price of $3.75 per share until October 27, 2000. The shares of Common Stock underlying the Bridge Warrants may be sold from time to time by the Selling Shareholders, or by their transferees, upon exercise of the Bridge Warrants, commencing six months from the date of this Prospectus, or earlier with the consent of First Equity Corporation of Florida, the underwriter of a concurrent public offering of the Company's securities. No underwriting arrangements have been entered into by the Selling Shareholders. The distribution of the Common Stock by the Selling Shareholders may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker's transactions, privately-negotiated transactions or through sales to one or more dealers for resale of such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Shareholders in connection with sales of such Common Stock. The Selling Shareholders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, (the "Securities Act"), with respect to the securities offered, and any profits realized or commissions received may be deemed underwriting compensation. The Company has agreed to indemnify the Selling Shareholders against certain liabilities, including liabilities under the Securities Act. The Company will not receive any of the proceeds from the sale of securities by the Selling Shareholders although it will receive approximately $3,591,000 upon exercise of the Bridge Warrants in full. Expenses of this offering, estimated at approximately $15,000, are payable by the Company. Application has been made to list the Common Stock on the NASDAQ SmallCap Market under the symbol GCOM. On the date of this Prospectus a registration statement under the Securities Act with respect to an underwritten public offering of Units by the Company was declared effective by the Securities and Exchange Commission. The Units are comprised of a total of Common Stock and Warrants to purchase a total of 600,000 Common Stock (without giving effect to the over-allotment option granted to the underwriter of the offering). Sales pursuant to the offering of Units by the Company and of Common Stock by security holders of the Company other than the Selling Shareholders or even the potential of such sales may have an adverse effect on the market price of the Common Shares. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1998 ------------------- Alt.1 ALTERNATE SELLING SHAREHOLDERS The table below sets forth certain information with respect to the Selling Shareholders. The 957,600 shares of Common Stock registered for the account of the Selling Shareholders may be acquired upon the exercise of the Bridge Warrants. See "Recent Financings." Except as set forth below with respect to the Wallenberg Trust, Union Atlantic Partners I Limited and First Equity Corporation, none of the Selling Shareholders has ever held any position with the Company or had any other material relationship with the Company. The Company will not receive any proceeds from sales of Common Stock by the Selling Stockholders, although the Company will receive approximately $3,591,000 upon exercise of the Bridge Warrants in full. Expenses of this offering, estimated at approximately $ , are payable by the Company.
SHARES OWNED BENEFICIALLY SHARES OWNED BENEFICIALLY BEFORE OFFERING(1) SHARES BEING AFTER OFFERING(1) SELLING SECURITY HOLDER NUMBER PERCENT(2) OFFERED NUMBER PERCENT - ----------------------- ------ --------- ------------ Steven Adelman............ 19,000 * 19,000 0 * Ronald Alsheimer.......... 38,000 * 38,000 0 * Richard A. Belgard and Debra O. Belgard........ 9,500 * 9,500 0 * Jerry Bengis.............. 9,500 * 9,500 0 * Caledonian Securities Ltd. ................... 95,000 * 95,000 0 * The Cascade Trust......... 22,880 * 9,500 13,380 * The Coach Trust........... 111,854 38,000 73,854 % William C. Cook, Jr....... 9,500 * 9,500 0 * Gilbert Drozdow and Linda Drozdow........... 9,500 * 9,500 0 * Dynamic Value Partners, Ltd. ................... 19,000 * 19,000 0 * First Equity Corporation(3).......... 159,600 Charles Flaxman........... 9,500 * 9,500 0 * Scott Goldberg and Lisa Goldberg........... 9,500 * 9,500 0 * Allan F. Greenberg and Rita H. Greenberg....... 9,500 * 9,500 0 * The Hive Trust............ 122,478 % 57,000 65,478 % Joseph Kerman............. 4,750 * 4,750 0 * Lewis H. Kerman........... 1,900 * 1,900 0 * Max Kerman................ 4,750 * 4,750 0 * David Levine.............. 7,600 * 7,600 0 * Levine Family Partnership............. 19,000 * 19,000 0 * John McClure.............. 9,500 * 9,500 0 * Pacifica Capital Group.... 19,000 * 19,000 0 * L. Grant Peeples Defined Benefit Plan............ 9,500 * 9,500 0 * Longman Investments Limited................. 9,500 * 9,500 0 * Perycom Management B.V. 24,215 * 9,500 14,715 * Joanne S. Roberts......... 4,750 * 4,750 0 * Selma Roberts............. 14,250 * 14.250 0 * Oleg Selawry and Helena Selawry.......... 9,500 * 9,500 0 * Seventh Investment Bancing Corp. .......... 9,500 * 9,500 0 * Steven Sheinman........... 9,500 * 9,500 0 * Alt.2 Ellen Dee Silvers......... 9,500 * 9,500 0 * Isaac Sklar and Rebeca Sklar............ 4,750 * 4,750 0 * Ruben Sklar............... 4,750 * 4,750 0 * Paul U. Skoric, IRA....... 19,000 * 19,000 0 * Harry B. Smith............ 19,000 * 19,000 0 * Samuel S. Smith and Susan E. Smith.......... 9,500 * 9,500 0 * Eric Stein................ 9,500 * 9,500 0 * Shirley Suskind........... 9,500 * 9,500 0 * Union Atlantic Partners I Limited(4)............ 152,932 % 38,000 114,932 % The Wallenberg Trust(5)... 1,978,640 % 190,000 1,788,640 % ========= ---- ------- ========= === TOTAL............... 957,600 =======
- --------- (1) Percentage of ownership is based on shares of Common Stock outstanding immediately prior to this offering (which amount includes shares of Common Stock underlying the Units) and shares of Common Stock outstanding immediately after this offering (which amount assumes the exercise in full of the Bridge Warrants). An asterisk in the foregoing table indicates beneficial ownership of less than one percent. (2) Calculated pursuant to Rule 13d-3(d)1 of the Exchange Act. Shares not outstanding that are subject to options or other rights exercisable by the holder thereof within 60 days of the date of this Prospectus are deemed outstanding for the purposes of calculating the number and percentage owned by such shareholder and all directors and officers as a group, but not deemed outstanding for the purpose of calculating the percentage owned by each other shareholder listed. (3) Represents: (i) 159,600 shares of Common Stock underlying warrants issued to the Representative for serving as the Placement Agent of the Bridge Financing; and (ii) shares of Common Stock underlying the Representative Unit Purchase Option. For additional information regarding such person, see "Underwriting." (4) Represents 48,849 shares of Common Stock issuable to Union Atlantic Partners I, Limited ("UA Partners") upon conversion of the UA Partners Note; (iv) 58,697 shares of Common Stock owned by UA Partners; (v) 7,386 shares issued to UA Partners to cancel certain ratchet and other rights; and (vi) 38,000 shares of Common Stock underlying Bridge Warrants. For additional information with respect to UA Partners, see "Certain Transactions." (5) For information with respect to the Wallenberg Trust and its beneficial ownership of shares of Common Stock, see "Principal Shareholders" and "Certain Transactions." Alt.3 USE OF PROCEEDS The Company will receive no proceeds from the sale of securities by the Selling Shareholders. If all of the Bridge Warrants are exercised, of which there is no assurance, the Company will receive gross proceeds of $3,591,000. After deducting $15,000 of estimated expenses of this offering, net proceeds to the Company would be $3,576,000. The Company intends to use such proceeds, if any, for working capital purposes and the implementation of the Company's business plan. PLAN OF DISTRIBUTION No underwriting arrangements have been entered into by the Selling Shareholders. The distribution of the Common Stock by the Selling Shareholders may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker's transactions, privately-negotiated transactions or through sales to one or more dealers for resale of such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Shareholders in connection with sales of such Common Stock. The Selling Shareholders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act, with respect to the securities offered, and any profits realized or commissions received may be deemed underwriting compensation. The Company has agreed to indemnify the Selling Shareholders against certain liabilities, including liabilities under the Securities Act. Alt.4 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Pursuant to the provisions of Section 607.0850(1) of the Florida Business Corporation Act, the Company has the power to indemnify any person who is or was a party to any proceeding (other than an action by, or in the right of, the Company), because such person is or was a director, officer, employee, or agent of the Company (or is or was serving at the request of the Company under specified capacities) against liability incurred in connection with such proceeding provided such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interest of the Company (and with respect to any criminal action or proceeding, such person had no reasonable cause to believe such person's conduct was unlawful). With respect to a proceeding by or in the right of the Company to procure a judgment in its favor, Section 607.085(2) of the Florida Business Corporation Act provides that the Company shall have the power to indemnify any person who is or was a director, officer, employee, or agent of the Company (or is or was serving at the request of the Company under specified capacities) against expenses and amounts paid in settlement not exceeding, in the judgment of the Board of Directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding provided such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interest of the Company, except that no indemnification shall be made in a case in which such person shall have been adjudged to be liable to the Company unless and only to the extent that the court in which the proceeding was brought, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses. Indemnification as described above shall only be granted in a specific case upon a determination that indemnification is proper under the circumstances using the applicable standard of conduct which is made by (a) a majority of a quorum of directors who were not parties to such proceeding, (b) if such a quorum is not attainable or by majority vote of a committee designated by the Board of Directors consisting of two or more directors not parties to the proceeding, (c) by independent legal counsel selected by the Board of Directors described in the foregoing parts (a) and (b), or if a quorum cannot be obtained, then selected by a majority vote of the full Board of Directors, or (d) by the shareholders by a majority vote of a quorum consisting of shareholders who are not parties to such proceeding. Section 607.0850(12) of the Florida Business Corporation Act permits the Company to purchase and maintain insurance on behalf of any director, officer, employee or agent of the Company (or is or was serving at the request of the Company in specified capacities) against any liability asserted against such person or incurred by such person in any such capacity whether or not the Company has the power to indemnify such person against such liability. ARTICLES OF INCORPORATION The Articles of Incorporation of the Company (the "Articles") provide for the indemnification of directors and officers of the Company to the fullest extent permitted by Section 607.0850 of the Florida Business Corporation Act. The Articles of Incorporation further provide that the indemnification provided for therein shall not be exclusive of any rights to which those indemnified may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise. The Articles also contain a provision that eliminates the personal liability of the Company's directors for monetary damages unless the director has breached his or her fiduciary duty and such breach constitutes or includes certain violations of criminal law, a transaction from which the director derived an improper personal benefit, certain unlawful distributions or certain other reckless, wanton or wilful acts or misconduct. This provision does not alter a director's liability under the federal securities laws. In addition, this provisions does not affect the availability of equitable remedies, such as an injunction or rescission, for breach of fiduciary duty. II-1 SECURITIES AND EXCHANGE COMMISSION POLICY Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company, the Company has been informed 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. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the issuance of the securities being registered are as follows: SEC Registration Fee* .................................... $6,597.26 NASD Filing Fee* ......................................... $2,677.10 NASDAQ Listing Fee* ...................................... $10,000 3% Non-Accountable Expenses ..............................$252,000 Printing Expenses ........................................ $55,726 Accounting Fees and Expenses .............................$100,000 Legal Fees and Expenses ..................................$125,000 Blue Sky Fees and Expenses ............................... $50,000 Transfer and Warrant Agent Fees and Expenses ............. $15,000 Miscellaneous ............................................ $10,000 ------------ Total ................................................ $627,000.36 ============ *Actual amount. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is certain information regarding sales of securities by the Company without registration under the Securities Act. Such information gives retroactive effect to the Company's November 1996 1 for 2 forward stock split of the Common Stock and the Company's September 1997 4.061771824 for 1 reverse stock split of the Common Stock. On December 4, 1995, the Company issued an aggregate of 1,375,192 shares of Common Stock to Peter Berg, Lorraine Gouger and Mitch Segal for an aggregate consideration of $20,000. The offer and sale of such securities was made in reliance on Section 4(2) of the Securities Act for transactions not involving a public offering. In reliance upon such exemption from registration, the Company determined that each of the foregoing persons had such knowledge and experience in financial and business matters so as to be able to evaluate the merits and risks of an investment in the Company and each person had access to the type of information that would have been included in a registration statement filed with the Commission. On November 20, 1996, the Company issued an aggregate of 66,434 shares of Common Stock to Walter Muharsky and Vincent Toscano in connection with the merger of TTI with and into the Company. The recorded value of such shares of Common Stock was $145,714. The Company, on November 20, 1996, also issued 1,215,749 shares of Common Stock to Yannick Tessier, pursuant to the Stock Issuance Agreement, dated August 26, 1996. The recorded value of such shares of Common Stock was $49,381. The offer and sale of such securities was made in reliance on Section 4(2) of the Securities Act for transactions not involving a public offering. In reliance upon such exemption from registration, the Company determined that each of the foregoing persons had such knowledge and experience in financial and business matters so as to be able to evaluate the merits and risks of an investment in the Company and each person had access to the type of information that would have been included in a registration statement filed with the Commission. On November 21, 1996, the Company issued to the Wallenberg Trust and UA Partners: (i) an aggregate of 537,377 shares of Common Stock in exchange for aggregate consideration of $1,375,000 or $2.56 per share; and (ii) convertible promissory notes in the principal aggregate amount of $1,375,000, which are convertible into shares of Common Stock at a rate of $2.56 per share. On December 31, 1997, the Company issued 543,895 shares of Common Stock to the Wallenberg Trust upon conversion of their convertible note in the aggregate amount of $1,391,781. As consideration for its services in connection with November 1996 transaction, the Company granted Union Atlantic a three-year warrant to purchase 139,708 II-2 shares of common Stock at an exercise price of $2.56 per share and issued 78,133 shares of Common Stock which shares were valued at $200,020. The offer and sale of such securities to the Wallenberg Trust was made in an offshore offering in reliance on Regulation S of the Securities Act. The offer and sale of such securities to Union Atlantic and UA Partners was made in reliance on Section 4(2) for transactions not involving a public offering. In reliance upon such exemption from registration, the Company determined that each of the foregoing persons had such knowledge and experience in financial and business matters to be able to evaluate the merits and risks of an investment in the Company and each person had access to the type of information that would have been included in a registration statement filed with the Commission. On November 21, 1996, the Company acquired from eight shareholders of Galacticomm, Inc. an aggregate of 8,037,203 shares of the common stock of Galacticomm, Inc. (representing approximately 96 percent of the then issued and outstanding shares of the common stock of Galacticomm, Inc.) in exchange for the issuance of an aggregate of 150,263 shares of Common Stock and the aggregate cash payment of $611,476. The offer and sale of such securities was made in reliance on Rule 504 of Regulation D promulgated under the Securities Act. On January 14, 1997, the Company granted Claus Stenbaek a three-year option to purchase 6,155 shares of Common Stock at an exercise price of $2.56 per share as consideration for serving on the Company's board of directors and granted Robert O'Brien a three-year option to purchase 2,462 shares of Common Stock at an exercise price of $2.56 per share in exchange for sales and marketing consulting services rendered to the Company. The offer and sale of such securities was made in reliance on Rule 701 of the Securities Act. In February 1997, the Company acquired from 34 persons an additional 848,404 shares of the common stock of Galacticomm, Inc. in exchange for the issuance of an aggregate of 42,895 shares of Common Stock and the aggregate cash payment of $56,937. The recorded value of such shares of Common Stock was $139,408. The offer and sale of such securities was made in reliance on Rule 504 of Regulation D promulgated under the Securities Act. In June 1997, the Company issued 259,802 shares of Common Stock to nine persons (3 accredited and 6 non-accredited) for aggregate consideration of $970,762. As consideration for its services in connection with such transaction, the Company granted Union Atlantic three-year warrants to purchase 33,774 shares of Common Stock at an exercise price of $3.74 per share. The offer and sale of such securities was made in reliance on Rule 506 of Regulation D promulgated under the Securities Act. Each of the non-accredited investors represented to the Company, among other things, that such investor had such experience in financial and business matters so as to be able to evaluate the merits and risks of the investment. On June 30, 1997, the Company granted options to purchase an aggregate of 354,526 shares of Common Stock at an exercise price of $3.74 per share to Messrs. Berg and Tessier pursuant to the terms of their respective employment agreements with the Company. The offer and sale of such securities was made in reliance on Section 4(2) of the Securities Act for transactions not involving a public offering. In reliance upon such exemption from registration, the Company determined that each of the foregoing persons had such knowledge and experience in financial and business matters so as to be able to evaluate the merits and risks of an investment in the Company and each person had access to the type of information that would have been included in a registration statement filed with the Commission. In August 1997, the Company issued an aggregate of 22,857 shares of Common Stock to five persons, pursuant to the terms of five Agreements to Distribute Proceeds entered into between December 1995 and February 1997. The offer and sale of such securities was made in reliance on Section 4(2) of the Securities Act for transactions not involving a public offering. In reliance upon such exemption from registration, the Company determined that each of the foregoing persons had such knowledge and experience in financial and business matters so as to be able to evaluate the merits and risks of an investment in the Company and each person had access to the type of information that would have been included in a registration statement filed with the Commission. In September 1997, the Company granted options to purchase an aggregate of 194,496 shares of Common Stock (of which 164,337 are outstanding at September 30, 1997) at an exercise price of $6.50 per share to 36 employees of the Company pursuant to the Company's 1997 Stock Option Plan. The offer and sale of such securities was made in reliance on Rule 701 of the Securities Act. On September 8, 1997, the Company issued an aggregate of 81,245 shares of Common Stock to the Wallenberg Trust and UA Partners as consideration for relinquishing the following rights that were originally set forth in the Stock Purchase Agreements, dated November 21, 1997, between the Company and each of the Wallenberg Trust and UA Partners: (i) ratchet rights that required the Company to issue additional shares of Common Stock to such persons based on the II-3 Company's 1997 after tax earnings as follows: (x) 0.2529 shares for each share then owned if after tax earnings were less than $1,000,000; (y) 0.12645 shares for each share then owned if after tax earnings were between $1,000,000 and $1,500,000; and (z) no additional shares if after tax earnings exceeded $1,500,000; (ii) certain preemptive rights; and (iii) certain anti-dilutive rights. The foregoing transaction was recorded as a reclassification of the par value of such shares of Common Stock from additional paid in capital to common stock. On October 28, 1997, the Company issued to 39 persons (26 accredited investors and 13 non-accredited investors) 42 units, each unit consisting of a promissory note in the principal amount of $50,000 and three year warrants to purchase 19,000 shares of Common Stock at an exercise price of $3.75 per share. Such offering was made in reliance on Rule 506 of Regulation D promulgated under the Securities Act. Each of the non-accredited investors represented to the Company, among other things, that such investors had such experience in financial and business matters to be able to evaluate the merits and risks of the investment. As consideration for serving as the placement agent for such offering, the Company paid the Representative a placement fee equal to: (i) cash compensation of $210,000; (ii) a non-accountable expense allowance of $63,000 and accountable expenses totaling $10,000; and (iii) warrants to purchase 159,600 shares on terms substantially the same as the Bridge Warrants. On December 15, 1997, the Company granted David Manovich a three year option to purchase 30,000 shares of Common Stock at an exercise price of $3.75 per share as consideration for serving on the board of directors of the Company. The offer and sale of such securities was made in reliance on Rule 701 of the Securities Act. ITEM 27. EXHIBITS (A) EXHIBITS. EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1. Form of Underwriting Agreement between the Company and the Underwriters.* 3.1 Articles of Incorporation of the Company as filed with the Secretary of State on December 4, 1995.* 3.2 Articles of Amendment to Articles of Incorporation of the Company as filed with the Florida Secretary of State on November 19, 1996.* = 3.3 Articles of Amendment to Articles of Incorporation of the Company as filed with the Florida Secretary of State on May 1, 1997.* 3.4 Articles of Amendment to Articles of Incorporation of the Company as filed with the Florida Secretary of State on September 9, 1997.* 3.5 Articles of Amendment to Articles of Incorporation of the Company as filed with the Florida Secretary of State on dated September 30, 1997.* 3.6 Articles of Merger of the Company as filed with the Florida Secretary of State on November 21, 1996.* 3.7 Bylaws of the Company.* 3.8 Amendment to the Bylaws of the Company dated as of November 19, 1996.* 4.1 Form of Common Stock Certificate.** 4.2 Form of Warrant Agreement.* 4.3 Form of Warrant Certificate.** 4.4 Form of Representative Unit Purchase Option.* 4.5 Form of Representative Common Stock Purchase Warrant.* II-4 4.6 Form of Representative Purchase Option Certificate.* 5 Opinion of Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A.** 10.1 Stock Purchase Agreement, dated November 21, 1996, among the Company, Peter Berg ("Berg"), Yannick Tessier ("Tessier") and Hemmingfold Investments Ltd. ("Hemmingfold").* 10.2 Letter Agreement, dated September 8, 1997, by and among the Company, Berg, Tessier and Hemmingfold amending the Stock Purchase Agreement dated November 21, 1996.* 10.3 Secured Convertible Promissory Note, dated November 21, 1996, from the Company in favor of Hemmingfold.* 10.4 Letter Agreement, dated September 8, 1997, by and between the Company and Hemmingfold amending the Secured Convertible Promissory Note, dated November 21, 1996.* 10.5 Stock Purchase Agreement, dated November 21, 1996, among the Company, Berg, Tessier and Union Atlantic Partners I Limited ("UA Partners").* 10.6 Letter Agreement, dated September 8, 1997, by and among the Company, Berg, Tessier and UA Partners amending the Stock Purchase Agreement, dated November 21, 1996.* 10.7 Secured Convertible Promissory Note, dated November 21, 1996, from the Company in favor of UA Partners.* 10.8 Letter Agreement, dated September 8, 1997, by and between the Company and Union Atlantic Partners amending the Secured Convertible Promissory Note, dated November 21, 1996.* 10.9 Warrant dated November 21, 1996, between Company and Union Atlantic, L.C. ("Union Atlantic").* 10.10 1997 Stock Option Plan.* 10.11 Form of Bridge Note.* 10.12 Form of Bridge Warrant.* 10.13 Form of Bridge Registration Rights Agreement.* 10.14 Agreement and Plan of Merger between Company and Tessier Technologies, Inc. dated November 20, 1996. 10.15 Lease Agreement to lease office space between Galacticomm, Inc. and New Town Commerce Center, Ltd., dated July 21, 1997. 10.16 Agreement to lease T-3 Fiber Optic Digital Equipment between AT&T and the Company, dated December 26, 1996. 10.17 Letter Agreement to acquire Galacticomm, Inc. between Company and Galacticomm, Inc. dated October 29, 1996.* 10.18 Amended and Restated Consulting Agreement, dated July 1, 1997, between the Company and Union Atlantic.* 10.19 Consulting Agreement, dated January 15, 1997, by and among the Company, Union Atlantic and Robert J. O'Brien.* 10.20 Amended and Restated Employment Agreement, dated June 30, 1997, between the Company and Berg. 10.21 Amended and Restated Employment Agreement, dated June 30, 1997, between the Company and Tessier. 10.22 Employment Agreement, dated August 25, 1997, between the Company and T. Michael Love.* 10.23 Stock Option and Agreement between the Company and Berg.* II-5 10.24 Stock Option and Agreement between the Company and Tessier.* 10.25 Stock Issuance Agreement among the Company, Berg and Tessier dated August 26, 1996.* 10.26 Promissory Note from Galacticomm, Inc. in favor of Capital Bank. 10.27 Promissory Note, dated April 2, 1996, from the Company in favor of Skyline, Inc.* 10.28 Promissory Note, dated August 3, 1996, from Tessier Technologies, Inc. in favor of Yannick Tessier.* 10.29 Promissory Note Extension, dated December 31, 1996 in favor of Yannick Tessier by the Company.* 10.30 Bundling Agreement with Authorization to Replicate Products between Eastman Kodak Company and Galacticomm, Inc. dated May 29, 1997.* 10.31 Agreement between Majorware Inc., and Galacticomm, Inc. dated April 30, 1997.* 10.32 Sale of High Society BBS to Galacticomm, Inc. Agreement dated June 10, 1997.* 10.33 Galacticomm Agreement between the Company and Specom Technologies Corp., dated May 8, 1997.* 10.34 Letter of Permission to Distribute Software between Galacticomm, Inc. and Aztech New Media Corp., dated May 21, 1997. 10.35 Software Distribution License between Galacticomm, Inc. and Digital Vision, Inc. dated May 30, 1997.* 10.36 Software Distribution License between Best Data Products and Galacticomm, Inc. dated May 30, 1997.* 10.37 Letter Agreement between Galacticomm, Inc. and DataSafe Publications, Inc. dated October 28, 1997.* 10.38 Restated Software License Agreement between Galacticomm, Inc. and LEAD Technologies, Inc. dated September 29, 1995.* 10.39 Annual Source Support and Maintenance Agreement between Galacticomm, Inc. and Pacific Software, Inc. dated September 14, 1995.* 10.40 Software Source Code and Software Binary Distribution License Agreement between Galacticomm, Inc. and Pacific Software, Inc. dated April 14, 1995. 10.41 License Agreement between Crown Communications, Inc. and the Company dated November 18, 1996. 10.42 Renewal and Modification Agreement to Distribution Agreement between Tech Data Corporation and Galacticomm, Inc. dated October 8, 1995.* 10.43 Start-Up Agreement between Galacticomm, Inc. and Ingram Micro, Inc. dated April 9, 1997.* 10.44 Reseller Agreement between Galacticomm, Inc. and World Commerce Online, Inc. dated March 27, 1997.* 10.45 Distribution Agreement between Galacticomm, Inc. and DistribuPro dated February 10, 1994. 10.46 Web Hosting Agreement between Galacticomm, Inc. and Horst Entertainment, Inc. dated September 9, 1997.* 10.47 Software License Agreement, dated August 12, 1997 between the Company and Boca Research, Inc.*** 10.48 Reseller Agreement, dated December 12, 1997, between the Company and Microland Trading, Inc.*** 10.49 Reseller Agreement, dated January 12, 1998, between the Company and Simon & Schuster, Inc.*** II-6 10.50 Joint Venture Agreement, dated January ___, 1998, by and between the Company and Express Web, Inc.** 10.51 Form of Voting Agreement between the Company and Messrs. Berg and Tessier. 10.52 Form of Lock-Up Agreement. 10.53 Promissory Note Extension, dated December 31, 1997 in favor of Yannick Tessier. 11. Statement re: Computation of per share loss. 21. Subsidiaries of the Company: Galacticomm, Inc., a corporation organized under the laws of the State of Florida. 23. Consent of KPMG Peat Marwick LLP. 24. Power of Attorney (included in the Signature Page of initial filing of the Registration Statement). 27. Financial Data Schedule (for SEC purposes only). - ----------------------------- * Previously filed with this Registration Statement ** To be filed by amendment *** Portions of such exhibit have been omitted pursuant to a request for confidential treatment ITEM 28. UNDERTAKINGS. (a) The undersigned small business issuer hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 of 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. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned small business issuer hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a(3) of the Securities Act; II-7 (ii) To 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 together, represent a fundamental change in the information in the registration statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) 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. (e) The undersigned registrant hereby undertakes that it will: (i) file a post-effective amendment to this Registration Statement if the lock-up arrangement with the Selling Shareholders is waived for ten percent or more of the shares of Common Stock offered by the Selling Shareholders; or (ii) add a supplement to the prospectus of which this Registration Statement forms a part if such lock-up arrangement is waived for between five and ten percent of the shares of Common Stock offered by the Selling Shareholders. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused Amendment No. 1 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of Florida, on the 22nd day of January 1998. GALACTICOMM TECHNOLOGIES, INC. By: /S/ PETER BERG ------------------------------------- Peter Berg, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1 to this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /S/ PETER BERG Chairman of the Board and Chief January 22, 1998 - -------------------------------------- Executive Officer (Principal Executive Peter Berg Officer) /S/ YANNICK TESSIER President and Director January 22, 1998 - ------------------------------------ Yannick Tessier /S/ T. MICHAEL LOVE Chief Financial Officer (Principal January 22, 1998 - ------------------------------------ Financial and Accounting Officer) T. Michael Love */S/ PETER BERG Director January 22, 1998 - ------------------------------------ Timothy Mahoney - ------------------------------------ Director January __, 1998 David Manovich */S/ PETER BERG Director January 22, 1998 - ------------------------------------ Claus Stenbaek */S/ PETER BERG ----------------------------- Peter Berg, Attorney-in-Fact
II-9 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 10.14 Agreement and Plan of Merger between Company and Tessier Technologies, Inc. dated November 20, 1996. 10.15 Lease Agreement to lease office space between Galacticomm, Inc. and New Town Commerce Center, Ltd., dated July 21, 1997. 10.16 Agreement to lease T-3 Fiber Optic Digital Equipment between AT&T and the Company, dated December 26, 1996. 10.26 Promissory Note from Galacticomm, Inc. in favor of Capital Bank. 10.34 Letter of Permission to Distribute Software between Galacticomm, Inc. and Aztech New Media Corp., dated May 21, 1997. 10.40 Software Source Code and Software Binary Distribution License Agreement between Galacticomm, Inc. and Pacific Software, Inc. dated April 14, 1995. 10.41 License Agreement between Crown Communications, Inc. and the Company dated November 18, 1996. 10.45 Distribution Agreement between Galacticomm, Inc. and DistribuPro dated February 10, 1994. 10.47 Software License Agreement, dated August 12, 1997 between the Company and Boca Research, Inc.*** 10.48 Reseller Agreement, dated December 12, 1997, between the Company and Microland Trading, Inc.*** 10.49 Reseller Agreement, dated January 12, 1998, between the Company and Simon & Schuster, Inc.*** 10.51 Form of Voting Agreement between the Company and Messrs. Berg and Tessier. 10.52 Form of Lock-Up Agreement. 10.53 Promissory Note Extension, dated December 31, 1997 in favor of Yannick Tessier. 11. Statement re: Computation of per share loss. 23. Consent of KPMG Peat Marwick LLP. 27. Financial Data Schedule (for SEC purposes only). *** PORTIONS OF SUCH EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. EX-10.14 2 EXHIBIT 10.14 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of November 20, 1996, by and between I-View Software, Inc., a Florida corporation (hereinafter referred to as "I-View" or "Surviving Corporation") and Tessier Technologies, Inc., a Florida corporation (hereinafter referred to as "Tessier" or "Merging Corporation"), (the Surviving and Merging Corporations being sometimes referred to as the "Constituent Corporations"). WITNESSETH: WHEREAS, the Board of Directors of each of I-View and Tessier deem it advisable for the general welfare of the Constituent Corporations and their shareholders that the Constituent Corporations merge into a single corporation pursuant to this Agreement and the applicable laws of the State of Florida; and NOW THEREFORE, for and in consideration of the premises and the mutual agreements hereinafter set forth, the Constituent Corporations agree that Tessier shall be merged with and into I-View (the "Merger") in accordance with the applicable laws of Florida and that the name of the surviving corporation shall continue to be I-View Software, Inc. and that the terms and conditions of the Merger and the mode of carrying same into effect shall be as follows: SECTION 1. THE MERGER 1.1 CLOSING. At a closing to take place on or before November 20, 1996, at the offices of I-View, 300 South Pine Island Road, Suite 261, Plantation, Florida 33324, or at such other time or place mutually agreeable to the parties (the "Closing", the date thereof being referred to herein as the "Closing Date"), the parties shall carry out the transaction described hereinbelow. 1.2 CONSUMMATION OF THE TRANSACTION. At or prior to the Closing, Articles of Merger prepared in accordance with Florida law and consistent with this Agreement (the "Articles of Merger") shall be executed and acknowledged by the duly authorized officers of each of I-View and Tessier in accordance with the applicable provisions of the Florida Business Corporation Act. After the Closing, a copy of the Articles of Merger shall be delivered by I-View to and filed with the Secretary of State of Florida, in the manner prescribed by Section 607.1105 of the Florida Business Corporation Act. At the time of the filing of the respective Tessier and I-View Articles of Merger with the Florida Secretary of State (the "Effective Time"), the Merger will become effective, Tessier shall be merged with and into I-View and the separate corporate existence of Tessier shall cease. Any and all filings required pursuant to the laws of Florida shall be completed prior to the Effective Time. After the Effective Time, I-View shall be referred to as the Surviving Corporation. It is the intention of the 1 of 16 parties hereto that the transactions described herein qualify as a tax-free reorganization under Section 368(a)(2)(e) of the Internal Revenue Code of 1986, as amended and related sections thereunder. 1.3 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION. At the Effective Time, the Articles of Incorporation, as amended, of I-View as in effect immediately prior thereto shall become the Articles of Incorporation, as amended, of the surviving Corporation. At the Effective Time, the By-Laws of I-View as in effect immediately prior thereto shall be the By-Laws of the Surviving Corporation. 1.4 CONVERSION OF SHARES. The mode of carrying the Merger into effect and the manner and basis of converting the shares of the Merging Corporation into shares of the Surviving Corporation are as follows: (a) Upon the Effective Time, each share of common stock, $.001 par value, of Tessier ("Tessier Common Stock") which is issued and outstanding at the Effective Time other than shares owned by shareholders who have objected to the Merger and demanded purchase of their shares in accordance with the provisions of Section 607.1302 of the laws of the State of Florida and with respect to which such demand shall not have been withdrawn with the consent of the Constituent Corporations ("Dissenting Shares") shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into 1.0415873 shares of Common Stock, $.0001 par value, of I-View ("I-View Common Stock"). (b) Each certificate evidencing ownership of shares of Tessier Common Stock issued and outstanding at the Effective Time shall by virtue of the Merger and without any action on the part of Tessier be retired and canceled. (c) Each certificate evidencing ownership of shares of I-View Common Stock issued and outstanding at the Effective Time or held by I-View in its treasury shall continue to evidence ownership of the same number of shares of I-View Common Stock. 1.5 EXCHANGE OF CERTIFICATES. At the Closing hereof, each holder of an outstanding certificate or certificates representing shares of Tessier Common Stock (other than certificates representing Dissenting Shares) shall surrender them to I-View. Upon receipt, I-View shall thereupon issue and each shareholder shall receive in exchange, a certificate or certificates representing the full number of shares of I-View Common Stock into which the shares of Tessier Common Stock represented by the certificate or certificates so surrendered shall have been converted. Each Tessier shareholder exchanging shares of Tessier for shares of I-View Common Stock shall execute a letter of investment intent in a form as attached hereto as Exhibit "A", and in accordance with the terms thereof, I-View shall imprint a restrictive legend on the 2 of 16 back of each of the I-View share certificates so issued. The I-View shareholders prior to the Merger shall also have the same restrictive legend appear on their respective I-View share certificates. 1.6 UNEXCHANGED CERTIFICATES. Until surrendered, each outstanding certificate which, prior to the Effective Time, represented Tessier Common Stock (other than certificates representing Dissenting shares) shall be deemed for all purposes, other than the payment of dividends or other distributions, to evidence ownership of the whole number of shares of I-View Common Stock into which it was converted, and no dividend or other distribution payable to the holders of I-View Common Stock after any date subsequent to the Effective Time, shall be paid to the holders of outstanding certificates representing shares of Tessier Common Stock; provided, however, that upon surrender and exchange of the outstanding certificates (other than certificates representing Dissenting Shares), there shall be paid to the record holders of the certificates issued in exchange therefore the amount, without interest thereon, of dividends and other distributions which would have been payable with respect to the shares of Tessier Common Stock represented thereby. 1.7 BOARD OF DIRECTORS AND OFFICERS. Upon the Effective Time of the Merger, the current officers and directors of I-View shall continue in their respective positions and shall be: Peter Berg Chief Executive Officer, Chairman of the Board of Directors and Director The Company shall use its best efforts to ensure that at the Effective Time of the Merger, Yannick Tessier shall be elected as a Director of the Company and be appointed the Company's President and Treasurer. In addition, each of Peter Berg and Yannick Tessier shall each appoint two nominees to the Board of Directors for an aggregate of six directors. 1.8 FURTHER ASSURANCES. At the Effective Time, Tessier shall be merged with and into the Surviving Corporation and the separate corporate existence of Tessier shall cease (except insofar as continued by statute). All the property, real, personal and mixed property of each of the Constituent Corporations, and all debts due to either of them, shall be transferred to and vested in the Surviving Corporation, (except for Tessier's High Society on-line service to which Yannick Tessier, individually, shall be granted all right, title and interest and be obligated for all debts, obligations, and liabilities relating thereto), and all obligations, including liabilities to holders of Dissenting Shares, of each of the Constituent Corporations, and any claim or judgment against either of the Constituent Corporations, may be enforced against the Surviving Corporation. I-View will repay to Yannick Tessier his prior shareholder loan to Tessier in the aggregate amount of $50,000, without interest, from time to time and in any 3 of 16 event, within twelve (12) months of the Closing Date. The Constituent Corporations agree that if at any time after the Effective Time, any deeds or assignments shall be deemed by the Surviving Corporation to be reasonably necessary or desirable to vest, perfect or confirm in the Surviving Corporation title to any property or rights of Tessier, the Surviving Corporation and its duly authorized officers and directors may execute and deliver in the name of Tessier all such deeds and assignments deemed necessary to vest, perfect or confirm in the Surviving corporation title to and possession of all property, rights, privileges, immunities, powers, purposes and franchises belonging to Tessier and otherwise to carry out the purpose of this Agreement. 1.9 APPROVAL OF SHAREHOLDERS. This Agreement shall be submitted to the shareholders of the Constituent Corporations as provided by the applicable law of the State of Florida. There shall be required for the adoption of this Agreement the affirmative vote of the holders of all the shares of Common Stock and/or other securities issued and outstanding and entitled to vote of each of Tessier and I-View, respectively. SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF TESSIER Tessier hereby makes the following representations, warranties and covenants: 2.1 ORGANIZATION AND STANDING. Tessier is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida with full corporate power to own or lease its properties and conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it. 2.2 FINANCIAL STATEMENTS. The compiled financial statements of Tessier as of November 14, 1996 (the "Financial Statements") which have previously been delivered to I-View, are true and complete statements of the financial condition of Tessier as of that date; there are no material liabilities, either fixed or contingent, not reflected in such Financial Statements for Tessier or otherwise, except as disclosed therein, other than contracts or obligations entered into in the usual course of business, or liens or other liabilities which would not materially alter the financial condition of Tessier as reflected in such Financial Statements. 2.3 AUTHORITY. Tessier and all of its securityholders entitled to vote have approved this Agreement and the transactions contemplated hereby, and has authorized the execution and delivery hereof. Tessier has full corporate authority to execute this Agreement and to carry out the transactions contemplated hereby. This Agreement and the transactions contemplated hereby will not violate (i) any of the terms and provisions of Tessier's Articles of Incorporation, as amended, or By-Laws, as 4 of 16 amended; (ii) any provision of, or result in a default under any mortgage, lien, lease, agreement, contract, instrument, order, arbitration award, judgment or decision to which such corporation is a party or by which it or any of its property is bound; or (iii) any federal, state or local laws or ordinances. 2.4 CAPITALIZATION. The authorized capital stock of Tessier consists of (i) 5,000,000 shares of Common Stock, $.001 par value, of which there are and will be at the Closing Date, 5,000,000 issued and outstanding shares, duly and validly authorized and issued, fully paid and nonassessable with no preemptive or anti-dilution rights. The Common Stock has full voting, dividend and liquidation rights. There are no outstanding options or warrants or any other securities convertible or exchangeable into any shares of capital stock or other securities of Tessier. No restrictions exist on the transfer of any shares of Tessier capital stock except for those arising under applicable state and federal securities laws. 2.5 ARTICLES OF INCORPORATION; BY-LAWS; MINUTE BOOKS. The copies of the Articles of Incorporation, as amended to date, and of the By-Laws, as amended to date, of Tessier which have previously been delivered to I-View, are correct and complete as of the date hereof. 2.6 PAYMENT OF TAXES. Tessier has filed all federal, state and local tax returns, including all franchise tax returns, required to be filed, and has paid any and all taxes owing by it pursuant to such returns or pursuant to any assessment, or as otherwise have become due and payable. There is no known tax deficiency proposed or threatened against Tessier except as disclosed in Schedule 2.6 attached hereto. 2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the balance sheet dated as of November 14, 1996 (the "Balance Sheet") included in the Financial Statements of Tessier and except as have been incurred since the date of the Balance Sheet in the ordinary course of business or previously disclosed in writing to I-View, Tessier has no liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise (whether or not required to be reflected in the Financial Statements in accordance with generally accepted accounting principles) and whether matured or unmatured, known or unknown. 2.8 ABSENCE OF CERTAIN CHANGES. Since the date of the Balance Sheet Tessier has not, except as disclosed in Schedule 2.8 attached hereto (i) issued or sold any corporate securities (other than as previously disclosed in writing to I-View); (ii) incurred any obligations or liabilities (fixed or contingent), other than obligations or liabilities incurred in the ordinary course of business, and obligations or liabilities under contracts and other documents, if any, except as disclosed herein; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (fixed or contingent), other than current liabilities included in the Balance Sheet, current 5 of 16 liabilities incurred since such date in the ordinary course of business, and obligations and liabilities under contracts or other documents if any, except as disclosed herein; (iv) declared or made any dividend payment or like distribution to its shareholders or purchased or redeemed any shares of its capital stock; (v) paid or contracted to pay for any shares of its capital stock; (vi) paid or contracted to pay any general wage or salary increase or entered into any employment contract with any officer or salaried employee not previously disclosed in writing to I-View other than in the ordinary course of business and approved by Tessier's Board of Directors as reflected in its corporate minutes as previously provided to I-View; (vii) mortgaged, pledged or subjected to any lien or other encumbrance any of its assets, tangible or intangible; (viii) sold or transferred any of its tangible assets or canceled any debts or claims, except, in each case, in the ordinary course of business; (ix) sold, assigned, transferred or granted rights under any patents, trademarks, trade names, copyrights, licenses or other intangible assets; (x) waived any rights of material value; (xi) entered into any transactions other than in the ordinary course of business, except those contracts or other documents, if any, disclosed herein; or (xii) suffered any material adverse change in its business or financial condition or any damage, destruction or loss (whether or not covered by insurance), adversely affecting the business or prospects of any of the properties of Tessier. 2.9 TITLE TO REAL PROPERTY; INTELLECTUAL PROPERTY. Annexed hereto as Schedule 2.9 is a description of all real properties owned by or leased to Tessier and except as disclosed on Schedule 2.9, Tessier is not in default in any respect thereunder. I-View has previously been provided by Tessier with true and correct copies of all leases. The offices located on the premises covered by said leases are not known to be in violation of any building and zoning laws. Tessier further represents and warrants that it owns the patents, patent applications, trademarks, trademark registrations, trademark applications, copyrights, trade secrets and technology, if any, listed on Schedule 2.9 attached hereto (collectively the "intellectual property rights") and that it has not previously assigned, licensed, and/or pledged the intellectual property rights, and further represents and warrants that the intellectual property rights are not subject to any lien or claim of security by a third party, and additionally represents and warrants that it has not otherwise assigned or transferred any rights to or in the intellectual property rights. Further, Tessier represents and warrants that the patents, if any, are valid and enforceable, and that it knows of no challenge to the validity of the patents. Tessier additionally represents and warrants that there is no challenge to its right to use the trademarks, if any, listed on Schedule 2.9 by any third party. Tessier further represents and warrants that it has no knowledge of any challenge by a third party to Tessier's right to use the technology and know-how embodied in the intellectual property rights, including, but not limited to, allegations 6 of 16 of patent, trademark and copyright infringement and allegations of misappropriation and/or theft of trade secrets regarding the use of the intellectual property rights by Tessier. 2.10 CONTRACTS AND COMMITMENTS. Except only as to those contracts and agreements disclosed herein in Schedule 2.10 attached hereto, Tessier is not a party to or bound by any written or oral (i) contract not made in the ordinary course of business; (ii) contract with any labor union or association; (iii) bonus, pension, profit-sharing, retirement, stock purchase, hospitalization, insurance or other plan providing employee benefits: (iv) lease with respect to any property, real or personal, whether as lessor or lessee; (v) continuing contract for the future purchase of materials, supplies or equipment in excess of the requirements of its business now booked or for normal operating inventories; (vi) contracts or commitments for capital expenditures; or (vii) contracts continuing over a period of more than one year from their respective dates. Tessier has, in all material respects, performed all obligations required to be performed by it to date and is not in default in any material respect under any agreements, leases or other documents to which it is a party or by which it is bound. 2.11 FIXED ASSETS. Tessier's fixed assets as reflected on the Balance Sheet and on the books of Tessier on the Closing Date are, and will be, in good condition and in operating order. 2.12 COMPLIANCE WITH THE LAWS. As of the date hereof, Tessier is, and on the Closing Date will be, in compliance with any and all applicable laws of any federal, state, municipal or other governmental body relating to the operation and -conduct of its property and business, There are no actions, suits or proceedings pending, or known to be threatened against or affecting Tessier, either at law or in equity, either private, governmental or quasi-governmental, or before any federal, state, municipal or other governmental body which have not previously been disclosed in writing by Tessier to I-View. 2.13 DISCLOSURE. No representation, warranty or covenant of Tessier contained herein, and no statement made in any certificate, exhibit or schedule furnished in connection with the transactions contemplated hereby, contains or will contain any known untrue statement of material fact, and nothing herein or in such certificate or schedule omits or fails to state a material fact. 2.14 DISPOSITION OF I-VIEW COMMON STOCK; INVESTMENT REPRESENTATION. Each shareholder of Tessier represents and warrants to I-View that he is acquiring (and his designees and assignees, if any shall acquire) shares of I-View Common Stock (the "Restricted Shares") to be issued and delivered to him on the Closing Date for his own account for investment and not with a view to any distribution thereof. Each of the shareholders expressly represents and agrees that for purposes of the requirements of Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities 7 of 16 Act"), the holding period for the Restricted Shares received pursuant to this Agreement shall be deemed to commence upon the Closing hereof. Each shareholder acknowledges that he has been informed by I-View that the Restricted Shares issued pursuant to this Agreement have not been registered under the Securities Act and that the Restricted Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Each shareholder also acknowledges that he is fully aware of the restrictions on resale of the Restricted Shares under the Securities Act and the General Rules and Regulations thereunder (including, without limitation, Rule 144), and that I-View is under no obligation to register any of the Restricted Shares. Each certificate representing Restricted Shares to be issued to the shareholders on the Closing Date shall bear the following legend or one comparable thereto, unless, in the opinion of I-View's counsel, such legend is no longer necessary to assure compliance with the Securities Act: "These securities have not been registered under the Securities Act of 1933, as amended, and may be offered and sold (transferred, hypothecated or otherwise assigned) only if registered pursuant to the provisions of such Act or if counsel to the Company renders an opinion that an exemption from registration therefrom is available." 2.15 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. The representations, warranties and covenants of Tessier contained in this Section 2 shall survive the Closing Date. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF I-VIEW I-View hereby makes the following representations, warranties and covenants: 3.1 ORGANIZATION AND STANDING. I-View is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida with full corporate power to own or lease its property and conduct business. 3.2 FINANCIAL STATEMENTS. The compiled financial statements of I-View as of September 30, 1996 (the "I-View Financial Statements"), which have previously been delivered to Tessier, are true and complete statements of the financial condition of I-View as of that date; there are no material liabilities, either fixed or contingent, not reflected in such I-View Financial Statements or otherwise, except as disclosed therein, other than contracts or obligations entered into in the usual course of business, or liens or other liabilities which would not materially alter the financial condition of I-View as reflected in such I-View Financial Statements. 8 of 16 3.3 AUTHORITY. I-View and all of its securityholders entitled to vote have approved this Agreement and the transactions contemplated hereby and have authorized the execution and delivery hereof. I-View has full corporate authority to execute this Agreement and to carry out the transactions contemplated hereby. This Agreement and the transactions contemplated hereby will not violate (i) any of the terms and provisions of I-View's Articles of Incorporation, as amended, or By-Laws; (ii) any provision of, or result in a default under any mortgage, lien, lease, agreement, contract, instrument, order, arbitration, award, judgment or decision to which such corporation is a party or by which it or any of its property is bound; or (iii) any federal, state or local laws or ordinances. 3.4 CAPITALIZATION. The authorized capital stock of I-View consists of 20,000,000 shares of Common Stock, $.0001 par value, of which there are and will be at the Closing Date, 10,793,651 issued and outstanding shares, duly and validly authorized and issued, fully paid and non-assessable with no pre-emptive or anti-dilution rights. The Common Stock has full voting, dividend and liquidation rights. There are no outstanding options or warrants or any other securities convertible or exchangeable into any shares of capital stock or other securities of I-View. No restrictions exist on the transfer of any shares of I-View capital stock except for those arising under applicable state and federal securities laws. 3.5 ARTICLES OF INCORPORATION AND BY-LAWS. The copies of the Articles of Incorporation, as amended to date and By-Laws of I-View, which have previously been delivered to Tessier, are correct and complete as of the date hereof. 3.6 PAYMENT OF TAXES. I-View has filed all federal, state and local tax returns, including all franchise tax returns, required to be filed, and has paid any and all taxes owing by it pursuant to such returns or pursuant to any assessment, or as otherwise have become due and payable. There is no known tax deficiency proposed or threatened against I-View except as disclosed herein in Schedule 3.6 attached hereto. 3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the balance sheet dated as of September 30, 1996 (the "I-View Balance Sheet") included in the I-View Financial Statements and except as have been incurred since the date of the I-View Balance Sheet in the ordinary course of business or previously disclosed in writing to Tessier, I-View has no liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise (whether or not required to be reflected in the I-View Financial Statements in accordance with generally accepted accounting principles) and whether matured or unmnatured, known or unknown. 3.8 ABSENCE OF CERTAIN CHANGES. Since the date of the I-View Balance Sheet I-View has not, except as disclosed in Schedule 3.8 attached hereto (i) issued or sold any corporate securities (other than as previously disclosed in writing to Tessier); 9 of 16 (ii) incurred any obligation or liabilities (fixed or contingent), other than obligations or liabilities incurred in the ordinary course of business, and obligations or liabilities under contracts and other documents, if any except as disclosed herein; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (fixed or contingent), other than current liabilities included in the I-View Balance Sheet, current liabilities incurred since such date in the ordinary course of business, and obligations and liabilities under contracts or other documents, if any, except as disclosed herein; (iv) declared or made any dividend payment or like distribution to its shareholders or purchased or redeemed any shares of its capital stock; (v) paid or contracted to pay for any shares of its capital stock; (vi) paid or contracted to pay any general wage or salary increase or entered into any employment contract with any officer or salaried employee not previously disclosed in writing to Tessier other than in the ordinary course of business and approved by I-View's Board of Directors; (vii) mortgaged, pledged or subjected to any lien or other encumbrance any of its assets, tangible or intangible; (viii) sold or transferred any of its tangible assets or canceled any debts or claims, except, in each case, in the ordinary course of business; (ix) sold, assigned, transferred or granted rights under any patents, trademarks, trade names, copyrights, licenses or other intangible assets; (x) waived any rights or material value; (xi) entered into any transactions other than in the ordinary course of business, except those contracts or other documents, if any, disclosed herein; or (xii) suffered any material adverse change in its business or financial condition or any damage, destruction or loss (whether or not covered by insurance), adversely affecting the business or prospects of any of the properties of I-View. 3.9 TITLE TO REAL PROPERTY; Intellectual Property. Annexed here to as Schedule 3.9 is a description of all real properties owned by or leased to I-View and except as disclosed on Schedule 3.9, I-View is not in default in any respect thereunder. Tessier has previously been provided by I-View with true and correct copies of all leases. The offices located on the premises covered by said leases are not known to be in violation of any building and zoning laws. I-View further represents and warrants that it owns the patents, patent applications, trademarks, trademark registrations, trademark applications, copyrights, trade secrets and technology, if any, listed on Schedule 3.9 attached hereto (collectively the "intellectual property rights") and that it has not previously assigned, licensed, and/or pledged the intellectual property rights, and further represents and warrants that the intellectual property rights are not subject to any lien or claim of security by a third party, and additionally represents and warrants that it has not otherwise assigned or transferred any rights to or in the intellectual property rights. Further, I-View represents and warrants that the patents, if any, are valid and enforceable, and that it knows of no challenge to the validity of the patents. I-View additionally represents and warrants that there is no challenge to its right to use the trademarks, if any, listed on Schedule 3.9 by any third party. 10 of 16 I-View further represents and warrants that it has no knowledge of any challenge by any third party to I-View's right to sue the technology and know-how embodied in the intellectual property rights, including, but not limited to, allegations of patent, trademark and copyright infringement and allegations of misappropriation and/or theft of trade secrets regarding the use of the intellectual property rights by I-View. 3.10 CONTRACTS AND COMMITMENTS. Except only as to those contracts and agreements disclosed herein in Schedule 3.10 attached hereto, I-View is not a party to or bound by any written or oral (i) contract not made in the ordinary course of business; (ii) contract with any labor union or association; (iii) bonus, pension, profit-sharing, retirement, stock purchase, hospitalization, insurance or other plan providing employee benefits; (iv) lease with respect to any property, real or personal, whether as lessor or lessee; (v) continuing contract for the future purchase of materials, supplies or equipment in excess of the requirements of its business now booked or for normal operating inventories; (vi) contracts or commitments for capital expenditures; or (vii) contracts continuing over a period of more than one year from their respective dates. I-View has, in all material respects, performed all obligations required to be performed by it to date and is not in default, in any material respect under any agreements, leases or other documents to which it is a party or by which it is bound. 3.11 FIXED ASSETS. I-View's fixed assets as reflected on the I-View Balance Sheet and on the books of I-View on the Closing Date are, and will be, in good condition and in operating order. 3.12 COMPLIANCE WITH THE LAWS. As of the date hereof, I-View is, and on the Closing Date will be in material compliance with any and all applicable laws of any federal, state, municipal or other governmental body relating to the operation and conduct of its property and business. There are no actions, suits, or proceedings pending, or known to be threatened against or affecting I-View, either at law or in equity, either private, governmental or quasi-governmental, or before any federal, state, municipal or other governmental body which have not previously been disclosed in writing by I-View to Tessier. 3.13 DISCLOSURE. No representation, warranty or covenant of I-View contained herein, and no statement made in any certificate, exhibit or schedule furnished in connection with the transactions contemplated hereby, contains or will contain any known untrue statement of material fact, and nothing herein or in such certificate or schedule omits or fails to state a material fact. 3.14 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. The representations, warranties and covenants of I-View contained in this Section 3 shall survive the Closing Date. 11 of 16 SECTION 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF I-VIEW The obligation of I-View to consummate this Agreement and the transactions contemplated hereby are subject to the conditions that prior to the Closing Date: 4.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants of Tessier contained in Section 2 hereof, or in any certificate or document delivered pursuant to the provisions hereof, or in connection with the transactions contemplated hereby, shall be true and correct in all material respects as though made on and at the Closing Date. Tessier shall have fully performed and complied with all of the covenants, duties, obligations and conditions required by this Agreement to be performed or complied with by it, at or before the Closing Date. 4.2 NO MATERIAL ADVERSE AFFECT. The business of Tessier shall not have been adversely affected in any material respect as the result of any pending or threatened litigation, legislation or regulatory action by any federal, state or municipal instrumentality, or as the result of any fire, accident, or other casualty or any labor disturbance or act of God or the public enemy. There shall have been no changes in the business of Tessier since the date of the Balance Sheet which would have a material adverse effect on the value of such business except as disclosed herein in Schedule 2.8. 4.3 DELIVERY OF SHARES. All issued and outstanding shares of Tessier shall be delivered to I-View in accordance with Section 1.5 herein, such certificates being duly endorsed with signatures notarized making I-View the sole owner thereof, free and clear of any liens, claims and encumbrances and all owners thereof shall be bound by the terms of this Agreement. 4.4 APPROVAL AND ADOPTION. Holders of all of the voting securities of Tessier shall have authorized and approved this Agreement and the consummation of the transactions contemplated hereby. SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF TESSIER The obligation of Tessier to consummate this Agreement and the transactions contemplated hereby are subject to the conditions that prior to the Closing Date: 5.1 REPRESENTATIONS WARRANTIES AND COVENANTS. The representations, warranties and covenants of I-View contained in Section 3 hereof, or in any certificate or document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby, shall be true and correct in all material respects as though made on and at the Closing Date. I-View shall have fully performed and 12 of 16 complied with all of the covenants, duties, obligations and conditions required by this Agreement to be performed or complied with by it at or before the Closing Date. 5.2 NO MATERIAL ADVERSE AFFECT. The business of I-View shall not have been adversely affected in any material respect as the result of any pending or threatened litigation, legislation or regulatory action by any federal, state or municipal instrumentality, or as the result of any fire, accident, or other casualty or any labor disturbance or act of God or the public enemy. There shall have been no changes in the business of I-View since the date of the I-View Balance Sheet which would have a material adverse effect on the value of such business except as disclosed herein in Schedule 3.8. 5.3 APPROVAL AND ADOPTION. Holders of all of the outstanding voting securities of I-View shall have authorized and approved this Agreement and the consummation of the transactions contemplated hereby. SECTION 6. TERMINATION OF AGREEMENT Anything herein or elsewhere to the contrary notwithstanding this Agreement may be terminated (notwithstanding approval by the shareholders of the Constituent Corporations) and the transaction abandoned, subject to the provisions stated below, at any time prior to the Closing, as follows: 6.1 MUTUAL CONSENT. By mutual consent in writing of the Boards of Directors of Tessier and I-View. 6.2 BREACH BY I-VIEW. By Tessier if (i) I-View shall fail to timely comply in any material respect with any of its agreements contained herein; or (ii) there has been a material misrepresentation or material breach of any of the warranties or covenants of I-View; or (iii) the conditions stated in Section 4 herein have not been satisfied at or prior to the Closing Date. 6.3 BREACH BY TESSIER. By I-View if (i) Tessier shall fail to timely comply in any material respect with any of its agreements contained herein; or (ii) there has been a material misrepresentation or material breach of any of the warranties or covenants of Tessier; or (ii) the conditions stated in Section 3 have not been satisfied at or prior to the Closing Date. 6.4 EFFECT OF TERMINATION. In the event that this Agreement shall be terminated as herein provided, this Agreement shall become wholly void and of no effect and there shall be no liability on the part of any of the parties hereto or their Boards of Directors, officers or shareholders. Each party will return all papers, documents, financial statements and other data furnished to it by, or with respect to each other party. 13 of 16 6.5 WAIVER. Any one or more of the conditions precedent to the obligations of either Tessier or I-View to effect the transactions described herein, may be waived in writing by the party to whom such obligation is owed. 6.6 AMENDMENTS. Any amendments or changes to this Agreement must be in writing and signed by all parties. SECTION 7. MISCELLANEOUS 7.1 FEES AND EXPENSES. All fees and expenses incurred by or on behalf of each of Tessier and I-View in connection with the authorization, preparation, execution and consummation of this Agreement, and all of the transactions contemplated thereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants employed by any thereof, and taxes including documentary stamp taxes, if any, shall be borne by Tessier and I-View, respectively. All filing fees are to be paid by I-View. 7.2 ACCESS. From the date hereof to the Closing Date, Tessier and I-View shall provide each other with such information and permit each other's officers and representatives such access to its properties and books and records as the other may from time to time reasonably request. 7.3 NO FINDER. Each party acknowledges that there is no finder to this transaction and that no one is entitled to any fee in that regard. 7.4 NOTICES. Any notice, instruction or other document to be given hereunder to any of the parties by any other party shall be in writing and delivered personally or sent by certified or registered mail, postage prepaid, as follows: If to Tessier: 10931 N.W. 3rd Street Plantation, Florida 33324 Attention: Yannick Tessier, President If to I-View: I-View Software, Inc. 300 South Pine Island Road, Suite 261 Plantation, Florida 33324 Attention: Peter Berg, Chief Executive Officer 14 of 16 With a copy to: Kipnis Lescher Lippman Valinsky & Kian One Financial Plaza, Suite 2308 Fort Lauderdale, Florida 33394 Attention: Jay Valinsky, Esq. 7.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes and cancels any other agreement, representation, communication, writing between the parties hereto relating to the transactions contemplated herein or the subject matter hereof. 7.6 GOVERNING LAW; VENUE: JURISDICTION. This Agreement, and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Florida. Fach of the parties hereto expressly submit themselves to and agree that all actions and proceedings arising out of or relating to this Agreement shall occur solely in the venue and jurisdiction of the state and federal courts located in Broward County, Florida. 7.7 LITIGATION: ATTORNEY'S FEES AND COSTS. In connection with any litigation, including appellate proceedings, arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorney's fees and costs. Such fees and costs include those incurred in any and all judicial, bankruptcy, reorganization, administration or other proceedings, including appellate proceedings, whether such proceedings arise before or after the entry of a final judgment. 7.8 REMEDIES. In the event any party shall fail to perform any of its obligations under this Agreement or be found in breach of this Agreement by a court of competent jurisdiction, the aggrieved party shall be entitled to specific performance and to any additional remedy which the arbitration panel and/or the court deems appropriate. 7.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which together shall constitute one and the same instrument. 7.10 PUBLICITY AND DISCLOSURE. No press releases or public disclosures, either written or oral, of the transactions contemplated hereby, shall be made without the prior knowledge and written consent of the parties hereto. 7.11 TIME IS OF THE ESSENCE. Time is of the essence with respect to performance of the terms and conditions of this Agreement. 7.12 ASSIGNMENT. This Agreement shall inure to the benefit of the parties hereto and to their respective successors and assigns; provided however, that this 15 of 16 Agreement shall not be assignable by either party without the express written consent of the other party. 7.13 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. IN WITNESS WHEREOF, Tessier and I-View have caused this Agreement to be executed as of the date first above written. I-VIEW SOFTWARE, INC., a Florida corporation Attest: ILLEGIBLE By:/s/ PETER BERG ---------------------------- Peter Berg, Chief Executive Officer TESSIER TECHNOLOGIES, INC., a Florida corporation Attest: ILLEGIBLE By: /s/ YANNICK TESSIER ------------- --------------------------------- Yannick Tessier, President 16 of 16 EXHIBIT A/Investment Representation Letter November 20, 1996 I-View Software, Inc. 300 S. Pine Island Road, Suite 261 Plantation, Florida 33324 Gentlemen: In connection with the restricted shares (the "Shares") of Common Stock of I-View Software, Inc. ("Company") to be received by the undersigned in connection with the merger of the Company with Tessier Technologies, Inc. (the "Merger"), the undersigned is acquiring such shares of Company Common Stock with investment intent and not with a view to the distribution thereof. The undersigned represents that he/she is an "accredited" investor, as that term is defined in Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), that the Shares are "restricted securities" within the meaning of the Securities Act, and that for purposes of Rule 144 thereunder, the holding period for the Shares shall be deemed to commence upon the closing of the Merger. The undersigned further acknowledges that he has been informed by the Company that the Shares have not been registered under the Securities Act and that the Shares must be held indefinitely unless such can be registered under the Securities Act or an exemption from such registration is available. The undersigned acknowledges that he/she is fully aware of the restrictions on resale of the Shares under the Securities Act and the general rules and regulations thereunder (including, without limitation, Rule 144) and that the Company is under no obligation to register any of the Shares for resale. The undersigned further acknowledges that the share certificates representh1g the Shares shall bear a restrictive legend to the effect of the foregoing. The undersigned represents that he/she has such knowledge and experience in financial, investment, and business matters that he/she is capable of evaluating the merits and risks in the prospective investment in the Shares being offered on the terms and conditions set forth in the Agreement and Plan of Merger by and between the Company and Tessier Technologies, Inc., which the undersigned has read and understands. The undersigned represents that he/she has adequate means of providing for his/her current financial needs and possible personal contingencies, has no need for liquidity in his/her investment in the Company, can afford to hold unregistered securities for an indefinite period of time and has sufficient liquid assets to sustain a complete loss of the entire amount of the investment, has not made an overall commitment to investments which are not really marketable which is disproportionate so as to cause such overall commitment to become excessive and confirms that there has been no material adverse change in the information, financial and other, previously given to the Company in order to induce the Company to send this form of investment representation letter to the undersigned. The undersigned has been afforded the opportunity to ask questions of and receive answers from the officers and/or directors of the Company acting on its behalf concerning the terms and conditions of the Merger and to obtain any additional information, to the extent that the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information furnished; and has availed himself/herself of such opportunity to the extent he/she considers appropriate in order to permit him/her to evaluate the merits and risks of an investment in the Company. It is understood that all documents, records and books pertaining to this investment have been made available for inspection by the undersigned's attorney and their other advisors and the undersigned, and that the books and records of the Company will be available upon reasonable notice for inspection by investors during reasonable business hours at the Company's principle place of business. Sincerely, Tessier Technologics, Inc. Schedule 2.6 Tax Obligations N/A Tessier Technologies, Inc. Schedule 2.8 Absence of Certain Changes N/A Tessier Technologies, Inc. Scheclule 2.9 Title to Property, Intellectual Property /bullet/ WorldLink Sottware /bullet/ 900 Service Software /bullet/ Professional Backgammon Software /bullet/ Tournament Chess Software Tournament /bullet/ Checkers Software /bullet/ Tournament Othello Software /bullet/ BBS Listing Software /bullet/ BBSopoly Software /bullet/ Card Sharks Software /bullet/ Charge Card Manager Software /bullet/ Cross-Wordz Software /bullet/ Global Actions Software /bullet/ Hearts Software /bullet/ Horse Track Software /bullet/ Instant Lotto Software /bullet/ Jumble Madness Software /bullet/ Liar Software /bullet/ Log Master Software /bullet/ MicroMind Software /bullet/ Mouse Trap Software /bullet/ Oltima 2000 Software /bullet/ Pig Software /bullet/ Roulette Software /bullet/ Tic-tac-toe Software /bullet/ Trivia Forum Software /bullet/ Video Blackjack Software /bullet/ Video Poker Software /bullet/ Worldlink Cross-wordz /bullet/ Worldlink Jumble /bullet/ Yahtzee Software /bullet/ iView Video Conferencing Software /bullet/ Customer Service Software /bullet/ Service Bureau Accounting Software /bullet/ DNIS/ANI Capture Software /bullet/ WorldLink Mail Processing Software Schedule 2.9 Computer Equipment /bullet/ 9 Computer Systems 386,486 & Pentiums /bullet/ 8 Monitors SVGA & Monochrome /bullet/ 5 Printers /bullet/ 8 UPS Backups /bullet/ 3 Routers /bullet/ 3 DSUs /bullet/ 1 Copy Machine /bullet/ 1 Fax Machine Office Furniture /bullet/ 8 Desks /bullet/ 3 Bookshelves /bullet/ 2 Tables /bullet/ 11 Chairs /bullet/ 1 Cabinet /bullet/ 1 Credenza /bullet/ 6 File Cabinets /bullet/ 1 Mini-refrigerator /bullet/ 1 Water dispensor Schedule 2.10 Contracts and Commitments (Tessier) Schedule 3.6 Tax Obligations (I-View) Schedule 3.8 Absence of Certain Changes (I-View) Schedule 3.9 REAL PROPERTY Item No. of Units Compaq p133 1 Princeton 17" Monitor 1 HP P90 Computer 1 Monitor for HP P90 1 Sharp 20" tv 1 Symphonic VCR 1 AIWA Stereo 1 Xerox Workcenter 250 fax 1 Deskjet 682c printer 1 Deskjet 866c Printer 1 GE Refrigertator 1 Office Furniture - Set 2 Custom Computer: 586/166/32mb RAM 1 Custom Computer: 586/166/16mb RAM 1 Custom Computer: 586/133/96mb RAM 1 Custom Computer: 486DX4/100/4mb RAM 2 Equinox Cables 64 U.S. Robotics Modems - Courier v.Everything 24 Motorola Modems - Power 28.8 7 Linksys Hub - 16 Port 1 Linksys Hub - 8 Port 2 OmniView Port 8 switch 1 Masterview 4 Port Switch 1 Vanguard Router 1 Paradyne X.25 PAD 1 Dianate1 C024 3 Motorola CSU/D8U 1 TrippLits UP8 Systems 5 Equinox 16 Port Expansion Module 4 Schedule 3.10 Contracts and Commitments (I-View) ARTICLE IX Miscellaneous Provisions 9.1 GOVERNING LAW. This Agreement shall be governed by, and shall be construed and interpreted in accordance, with the laws of the State of Florida. 9.2 NOTICES. Any and all notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand, or when delivered by United States mail, by registered or certfied mail, postage prepaid, return receipt requested, to the respective parties at the following respective addresses: If to the Company: I-View Software, Inc. 4101 S.W. 47 Avenue Suite 101 Ft. Lauderdale, Florida 33314 If to the Executive, Yannick Tessier 10931 N.W. 3rd Street Plantation, Florida 33324 or to such other address as either party may from time to time give written notice of to the other in accordance with the provisions of this Section 9.2. 9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the Company and the Executive with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and arrangements, both oral and written, between the Company and the Executive with respect to such subject matter. 9.4 AMENDMENTS. This Agreement may not be amended or modified in any manner, except by a written instrument executed by each of the Company and the Executive. 9.5 BENEFITS: BINDING EFFECT. This Agreement shall be for the benefit of, and shall be binding upon, each of the Company and the Executive and their respective heirs, personal representatives, executors, legal representatives, successors and assigns. 9.6 SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part hereof, all of which are inserted conditionally on their being valid in law. Except as otherwise provided in Section 6.3 above, if any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid by any court of competent jurisdiction, then, in any such event, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted. 9.7 NO WAIVERS. The waiver by either party of a breach or violation of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach or violation. The waiver by either party to exercise any right or remedy it or he may possess shall not operate nor be construed as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation. 9.8 JURISDICTION AND VENUE; SERVICE OF PROCESS. Any claim or dispute arising out of, connected with, or in any way related to this Agreement which results in litigation shall be instituted by the complaining party and adjudicated either in the federal or state courts located in Broward County, Florida and each of the parties to this Agreement consent to the personal jurisdiction of and venue in such courts. In no event shall either party to this Agreement contest the jurisdiction or venue of such courts with respect to any such litigation. Each of the Company and the Executive agrees that service of any process, summons, notice or document, by United States registered or certified mail, to its or his address set forth in or as provided in Section 9.2 above shall be effective service of such process, summons, notice or document for any action, suit or proceeding brought against it or him by the other party in the federal or state courts located in Broward County, Florida. 9.9 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions hereof. 9.10 COUNTERPARTS. This Agreement may be executed in any number by counterparts and by the separate parties in separate countetparts' each of which shall be deemed to constitute an original and all of which shall be deemed to constitute the one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has executed and delivered this Agreement as of the date first written above. I-VIEW SOFTWARE, INC. By: Peter Berg ---------------------------------- Yannick Tessier -------------------------------------- YANNICK TESSIER EX-10.15 3 EXHIBIT 10.15 LEASE 1. BASIC LEASE PROVISIONS. 1.1 PARTIES. This Lease (the "Lease"), dated as of this 21 day of July, 1997, is made by and between New Town Commerce Center, Ltd., a Florida Limited Partnership (hereinafter referred to as "Landlord"), and Galacticomm, Inc., a Florida Corporation (hereinafter referred to as "Tenant"). 1.2 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord a portion of real property commonly known as Suites 101, 102, 103 and 104 at 4101 S.W. 47th Avenue, Fort Lauderdale, Florida 33314, located at New Town Commerce Center (hereinafter referred to as the "Center"), consisting of approximately 11,129 square feet (the "Leased Premises"). The location of the Leased Premises is generally de1inated on EXHIBIT "A" which is attached hereto and made a part hereof. All of the real property underlying the Center and adjacent thereto, with all improvements thereon, including the Center and the Common Areas (as defined below), and used in connection with the operation of the Center, shall hereinafter be referred to as the "Project". 1.2.1 Notwithstanding the description of the Leased Premises in paragraph 1.2, for the first month of this Lease, Landlord leases to Tenant and Tenant leases from landlord only Suites 101, 102 and 103 at 4101 S.W 47th Avenue, Fort Lauderdale, Florida 33314. 1.3 USE OF ADDITIONAL AREAS. The use and occupation by the Tenant of the Leased Premises shall include the non-exclusive use, in common with others entitled thereto, of the common areas, employees' parking areas, service roads, malls, loading facilities, sidewalks and customer car parking areas as such common areas now exist or as such common areas may hereafter be constructed, and other facilities as may be designated from time to time by the Landlord, subject to the terms and conditions of this Lease and to reasonable rules and regulations for the use thereof as prescribed from time to time by the Landlord. 1.4 USE OF LEASED PREMISES. Tenant will use and occupy the Leased Premises only for the purposes of general office and warehouse use and for no other use and purpose. In the event that Tenant uses the Leased Premises for purposes not expressly permitted herein, Landlord may seek damages without terminating Lease, in addition to all other remedies available to it, terminate this Lease or restrain said improper use by injunction. Tenant shall not perform any acts or carry on any practices which may damage the Project, building or improvements or be a nuisance or menace to other tenants in the Project or their customers, employees or invitees or which will result in the increase of casualty insurance premiums. Tenant agrees to conduct its business in the Leased Premises under the name or trade name as set forth in the Lease Agreement and under no other name or trade name except such as may be first approved by Landlord in writing. Tenant shall be solely responsible to determine if the intended use complies with all governmental regulations. Landlord, by execution of this Lease or otherwise, makes no representations that the intended use complies with governmental regulations. 1.5 TERM. The Lease term shall commence on August 17, 1997 (hereinafter referred to as the "Commencement Date") and shall terminate on October 31, 2001 unless earlier terminated pursuant to the terms hereof (hereinafter referred to as the "Term"). The "Lease Year" hereunder shall be defined as a period of twelve (12) consecutive months, with first Lease Year commencing on the Commencement Date and each subsequent Lease Year commencing on the expiration of the immediately preceeding Lease Year, provided, however, the first Lease Year shall include that period of time from the Commencement Date through October 31, 1997 and the twelve (12) month period commencing on November 1, 1997. The expiration of every, Lease Year shall be referred to as the "Anniversary". 1.6 FAILURE OF TENANT TO TAKE POSSESSION. In the event that Tenant fails to take possession or, if applicable, to occupy the Leased Premises and to commence to do business on the Commencement Date, then Tenant shall be in default hereafter and Landlord shall have the right, at its option to cancel this Lease by giving Tenant written notice of intent to cancel thereof and this Lease will terminate ten (10) days after the giving of such notice and Landlord will retain all prepaid rentals and security deposits as liquidated and agreed damages. 1.7 OBLIGATIONS OF TENANT BEFORE RENT COMMENCEMENT DATE. In the event the Commencement Dates precedes the time for payment of rent, Tenant shall observe and perform all of its obligations under this Lease (except its obligations to pay Base Rent) beginning on the Commencement Date. 1.8 OBLIGATIONS OF LANDLORD BEFORE LEASED PREMISES BECOME VACANT. If this Lease is executed before the Leased Premises become vacant, or if any present Tenant or occupant of the Leased Premises holds over, and Landlord cannot acquire possession of the Leased Premises prior to the Commencement Date of this Lease, Landlord shall not be deemed to be in default hereunder, and Tenant agrees to accept possession of the Leased Premises and rent shall commence at such time as Landlord is able to deliver the same; provided, however, Tenant shall not be obligated hereunder unless Landlord is able to deliver the Leased Premises within ninety (90) days of the Commencement Date. 1.9 CONTROL OF COMMON AREAS BY LANDLORD. All areas within the exterior boundaries of the Project which are not now or hereafter held for lease or occupation by the Landlord, or used by other persons entitled to occupy floor space in the Project, including, without limitation, all automobile parking areas, driveways, entrance and exists thereto, and other facilities furnished by Landlord in or near the Project, including employee parking areas, the through way or ways, loading docks, pedestrian sidewalks and ramps, landscaped areas, exterior stairways and other areas and improvements provided by Landlord for the general use, in common, of tenants, their officers, agents, employees and customers ("Common Areas") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right, but not the obligation, to construct, maintain and operate lighting facilities on all said areas and improvements, to patrol the same, from time to time to change the area, level, location and arrangement of parking areas and other facilities herein above referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas. Landlord shall have the right to close all or any portion of said areas or facilities to such extent as may, in the opinion of Landlord's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights of any person or the public therein to close temporarily all or any portion of the parking areas or facilities, to discourage non-customer parking; and to do and perform such other acts in and to said areas and improvements as, in the use of good business judgment, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees and customers. Landlord shall keep said Common Areas -2- clean and in good repair and available for the purposes for which they are intended. Landlord shall have the full right and authority to employ all personnel and to make al1 rules and regulations pertaining to and necessary for the proper operation and maintenance of the Common Areas and facilities. Notwithstanding any language contained herein to the contrary, Landlord shall not perform any acts or improvements in or to the common areas which would materially or permanently prohibit ingress or egress to Tenant's Leased Premises or Tenant's use of parking. 1.10 LICENSE. All Common Areas and facilities not within the Leased Premises, which Tenant may be permitted to use and occupy, are hereby authorized to be used and occupied under a revocable license, and if any such license be revoked, or if the amount of such areas be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation or diminution of such areas be deemed constructive or actual eviction. 2. PAYMENT OF RENT AND OTHER CHARGES. 2.1 BASE RENT. Tenant agrees to pay to Landlord throughout the Term of this Lease, monthly payments of base rent ("Base Rent") as set forth below, which amounts shall be paid to Landlord in advance in United States currency on or before the first day of each month, without any offset or deduction whatsoever, plus applicable Florida sales and use tax for each of said monthly payments: ANNUAL RENT PER TOTAL ANNUAL MONTHLY PERIOD RENTABLE SQUARE FOOT BASE RENT BASE RENT ------ -------------------- ------------ --------- 8-1-1997 to 10-31-1977 N/A N/A $6,959.25 11-1-1997 to 10-31-1998 $9.00 $100,161.00 $8,346.75 11-1-1998 to 10-31-1999 $9.36 $104,167.44 $8,680.62 1l-1-1999 to 10-31-2000 $9.73 $108,285.17 $9,023.76 11-1-2000 to 10-31-2001 $10.12 $112,625.48 $9,385.46 Tenant will promptly pay all rentals and other charges and render all statements herein prescribed. Any rental payment not received by Landlord within five (5) business days of its due date shall incur a "late charge" equal to five percent (5%) of such payment to compensate Landlord for its administrative expenses in connection with such late payment. When rental payments are delivered by Tenant through the mails, Tenant shall mail such payments sufficiently in advance so that the Landlord will receive the payments on or before the first day of the calendar month or on or before the due date in the event the due date is other than the first day of a calendar month. If Landlord shall pay any moneys, or incur any expenses in correction of any violation of any covenant or of any other obligation of Tenant herein set forth or implied herein, the amounts so paid or incurred shall, at Landlord's option and on notice to Tenant, be considered additional rentals payable by Tenant, with the first installment of rental thereafter to become due and payable, and may be collected or enforced as by law provided in respect to rentals. -3- 2.1.1 Services Provided. The following services at minimum are provided with the Base Rent for the Initial Term: 2.1.1.1 gardening, landscaping and irrigation, exterior repairs and painting: 2.1.1.2 sanitary control, removal of trash, rubbish, garbage and other refuse from the Common Areas but not from any Leased Premises; 2.1.1.3 utilities for Common Areas; 2.1.1.4 maintenance and repair of air conditioning; and 2.1 1.5 a dumpster(s) will be provided for refuse collection. Dumpsters are for office and incidental waste only. Those tenants determined by Landlord to produce excessive and/or refuse that we do not allow to be disposed of in our dumpster(s) will be required to provide their own dumpster at their expense. In the event any payment of Rent, whether Base rent or Additional Rent, is made by check and the check is returned to Landlord due to insufficient funds Landlord shall have the right, upon written notice to Tenant, to require al1 future rent payments to be made by cashier's check. If this right is exercised by Landlord, attempted payment by means other than cashier's check shall not be deemed a payment pursuant to this Lease, unless the Landlord, in writing, revokes the requirement of a cashiers check. 2.2 SALES OR USE TAX OR EXCISE TAX. Tenant shall also pay, as Additional Rent, all sales or use or excise tax imposed, levied or assessed against the rent or any other charge or payment required herein by any governmental authority having jurisdiction there over, even though the taxing statute or ordinance may purport to impose such sales tax against the Landlord. The payment of sales tax shall be made by Tenant on a monthly basis, concurrently with payment of the Base Rent. 2.3 PRO RATA SHARE OF PROJECT AREA EXPENSES. For each Lease Year or partial Lease Year if Project Area Expenses are calculated by calendar year of any option period only, Tenant will pay to Landlord, in addition to the Base Rent specified above, as further additional rent, "Tenant's proportionate share" of "Project Area Operating Expenses", less the "Base Amount". This paragraph 2.3 shall not apply to the initial Term set out in paragraph 1-5. For each Lease Year after the first Lease Year of the first option period, any increase in pro rata share of project area expenses shall be capped at four (4%) percent over that of the prior Lease Year 2.3.1 "Tenant's proportionate share" shall mean a proportion of the Project Area Operating Expenses, calculated by multiplying the total Project Area Operating Expenses by a fraction, the numerator of which shall be the number of square feet contained in the Leased Premises and the denominator of which shall be the aggregate number of square feet of leasable building space in the Project, which Tenant's proportionate share is hereby agreed to be .0381 (3.81%). -4- 2.3.2 "Base Amount" shall mean a sum equal to the aggregate Project Area Operating Expenses estimated by Landlord for the Base Year. 2.3.3 "Project Area Operating Expenses" as used herein means the total cost and expense incurred in operating and repairing the Project buildings and improvements and common facilities, hereinafter defined, excluding only items of expense commonly known and designated as debt service, plus an administrative fee of fifteen percent (15%) of actual expenses. Project Area Operating Expenses shall specifically include, without limitation: 2.3.3.1 gardening, landscaping and irrigation, repairs, painting; 2.3.3.2 management fees; 2.3.3.3 sanitary control, removal of trash, rubbish, garbage and other refuse from the Common Areas but not from any Leased Premises; 2.3.3.4 depreciation of machinery and equipment, 2.3.3.5 the cost of maintenance and support personnel, including but not limited to payroll and applicable payroll taxes, worker's compensation insurance and fringe benefits; 2.3.3.6 utilities charges for the common areas; 2.3.3.7 water and sanitary sewer charged not billed directly to tenants; 2.3.3.8 Association fees or dues; and 2 3 3 9 any and all other charges, costs or expenses which may be associated with Landlord's operation of the Project (excluding Real Estate Taxes and Insurance). 2.3.4 "Common Facilities" means all areas, space, equipment and special services provided by Landlord for the common or joint use and benefit of the occupants or operations of the Project, their employees, agents, servants, customers and other invitees, including without limitation, parking areas, access roads, driveways, retaining walls, landscaped areas, pedestrian malls, courts, stairs, ramps and sidewalks, public rest rooms, washrooms, community hall or auditorium (if any) and signs, wherever located, identifying the Project, or providing instructions thereto. 2.3.5 Landlord may estimate the Project Area Operating Expenses and Tenant shall pay one-twelfth (l/l2) of Tenant's proportionate share of said estimated amount monthly in advance, together with the next due payment of Base Rent. After the end of each Lease Year, Landlord shall furnish Tenant a statement of the actual Project Area Operating Expenses. Within thirty (30) days after receipt by Tenant of said statement, Tenant shall have the right in person to inspect Landlord's books and records as pertain to said Project Area Operating Expenses, at Landlord's office, during normal business hours, upon four (4) days prior written notice. The -5- statement shall become final and conclusive between the parties unless Landlord receives written detailed objections with respect thereto within said thirty, (30) day period. Any balance shown to be due pursuant to said statement shall be paid by Tenant to Landlord within thirty (30) days following Tenant's receipt thereof and any overpayment shall be immediately credited against Tenant's obligation to pay Additional Rent in connection with anticipated Project Area Operating Expenses for the next year, or, if by reason of any termination of this Lease no such future obligation exists, refunded to Tenant. Anything herein to the contrary notwithstanding, Tenant shall not delay or withhold payment of any balance shown be due pursuant to a statement rendered by Landlord to Tenant because of any objection which Tenant may raise with respect thereto and Landlord shall immediately credit or refund any overpayment found to be owing to Tenant as aforesaid upon the resolution of said objection. Additional Rent due by reason of this section for the final months of this Lease is due and payable even though it may not be calculated until subsequent to the termination date of the Lease and shall be prorated according to that portion of said calendar year that this Lease was actually in effect. Tenant expressly agrees that Landlord, at Landlord's sole discretion, may apply the Security Deposit, in full or partial satisfaction of any Additional Rent due for the final months of this Lease, but nothing herein contained shall be construed to relieve Tenant of the obligation to pay any Additional Rent due for the final months of this Lease, nor shall Landlord be required to first apply said Security Deposit to such Additional Rent if there are any other sums or amounts owed Landlord by Tenant by reason of any other terms or provisions of this Lease. 2.4 ADDITIONAL RENT. In order to give Landlord a lien of equal priority with Landlord's lien of rent, and for no other purpose, including tax determination any and all sums of money or charges required to be paid by Tenant under this Lease, whether or not the same be so designated, shall be considered "Additional Rent". If such amounts or charges are not paid at the time provided in this Lease they shall nevertheless, if not paid when due, be collectible as Additional Rent with the next installment of rent thereafter falling due hereunder, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charges as the same becomes due and payable hereunder, or limit any other remedy of Landlord. 2.5 SPECIAL ASSESSMENTS. For each Lease Year in any option period, Tenant will pay to Landlord, in addition to Base Rent as further Additional Rent, Tenant's proportionate share of any special assessments assessed against the Project, with applicable tax, if any. The payment of any such special assessments shall be made by Tenant on a monthly basis, concurrently with Base Rent. Tenant's proportionate share of any such special assessment shall be the percentage share stated in Section 2.3.1. This paragraph shall not apply to the initial Term set out in paragraph 1.5. 2.6 REAL ESTATE TAXES. For each Lease Year or partial Lease Year, if real estate taxes are computed for a calendar year of any option period only, Tenant will pay to Landlord, in addition to Base Rent as further Additional Rent, a proportionate share of all ad valorem and real estate taxes levied by any lawful authority against the Project less a proportionate share of said ad valorem and real estate taxes of the Project for the base year. Tenant's proportionate share shall be .1357 (13.57%). Landlord may estimate the amount in the manner set out in Section 2.3.4. This paragraph 2.6 shall not apply to the initial Term set out in paragraph 1.5. 2.7 INSURANCE. For each Lease Year or partial Lease Year, if insurance is paid per calendar year of any option period only, Tenant will pay to Landlord, in addition to Base Rent as further Additional Rent, Tenant's proportionate share of Landlord's insurance premiums on or in -6- respect of the Project, including but not limited to public liability, property damage, all risk perils, rent and flood insurance, if carried by Landlord less Tenant's proportionate share of said insurance premiums for the base year. Tenant's proportionate share shall be the proportionate share stated in Section 2.3.1. Landlord may estimate the amount in the manner set out in Section 2.3.4. This paragraph 2.7 shall not apply to the initial Term set out in paragraph 1 5. 2.8 The base year for computation of proportionate share applicable to option periods only is 2001. 2.9 GUARD/PATROL SERVICES. Landlord, in its sole discretion, determination and option may, but is not required to enter into a contract or contracts or otherwise provide or make arrangement for the providing of guard, patrol and/or security, separate from the association, which may include security guards and/or electronic devices and/or a guard gate and/or gate house. For option years only, Tenant shall pay its proportionate share for the expense of the services. Landlord shall in no way be responsible for the performance or non-performance of the obligations of guard/patrol/security personnel or service, including but not limited to negligent or intentional acts, and Tenant hereby releases Landlord from any claims of any nature whatsoever in connection therewith. Any increase in this expense over the first applicable Lease Year shall be capped at four (4%) percent over that charged for the prior year. 3. DELIVERY OF LEASED PREMISES. 3.1 CONSTRUCTION OF PREMISES BY LANDLORD. 3.1.1 Landlord has constructed the Leased Premises prior to the execution of this Lease. Tenant certifies that it has inspected the Leased Premises and accepts the Leased Premises existing "as is" condition. 3.2 TENANT'S WORK. Tenant agrees, at its own cost and expense, to perform all work and comply with all conditions, more particularly described in EXHIBIT "D" annexed hereto, which is necessary to make the Leased Premises conform with Tenant's plans to be approved by Landlord. No later than thirty, (30) days a after the execution of this Lease, Tenant shall furnish Landlord, in advance of Tenant's commencement of work, for Landlord's written approval, plans and specifications showing a layout, interior finish, and any work or equipment to be done or installed by Tenant affecting any structural, mechanical or electrical part of the Leased Premises or the building containing same. Landlord agrees it will not unreasonably withhold such approval, it being the only purpose of this requirement that Tenant's work shall not be detrimental to the other tenants in the Project or to Landlord's building. To the extent not inconsistent with this section, Section 6 of this Lease shall apply to this Section 3.2. Tenant shall be responsible for all costs and expenses for architectural fees, plans and Tenant improvements. 3.3 CHANGES AND ADDITIONS TO BUILDING. Landlord hereby reserves the right at any time to perform maintenance operations and to make repairs, alterations or additions, and to build additional stories on the building in which the Leased Premises are contained and to build adjoining the same. Landlord also reserves the right to construct other buildings or improvements, including, but not limited to, structures for motor vehicle parking and the enclosing and air conditioning of sidewalks in the Project from time to time and to make alterations thereof or additions thereto. Any changes or additions to the building shall not affect Tenant's business or use of the Leased Premises. Tenant agrees to cooperate with Landlord permitting Landlord to accomplish any -7- such maintenance, repairs, alterations, additions or construction. Partial temporary obstruction of access to Tenant's premises caused by such construction shall not be a default of Landlord. Any changes shall be at Landlords sole cost and expense unless (a) Tenant agrees to the contrary or (b) the change is caused by or results from the use of the Tenant. 4. CONDUCT OF BUSINESS BY TENANT. 4.1 TAKING POSSESSION OF PREMISES. Tenant shall occupy the Leased Premises without delay upon the Commencement Date, and shall conduct his business continuously in the Leased Premises. 4.2 OBJECTIONABLE USE OF PREMISES. Without limiting application of any other provision in this Lease, the following actions and activities shall not be allowed in on or upon the Leased Premises, the Common Areas or the Project without the prior written consent of Landlord. 4.2.1 Employment of any mechanical apparatus causing noises or vibration which may be transmitted beyond the Leased Premises. 4.2.2 objectionable odors emanating or dispelled from the leased premises. 4.2.3 conducting any auction, fire, bankruptcy selling out or similar sales of any kind on or about the Leased Premises; display merchandise on the exterior of the Leased Premises either for sale or for promotion purposes. 4.2.4 use or operate any machinery, which in Landlord's reasonable opinion, may harm the building of which the Leased Premises is a part. 4.2.5 Store, keep or permit the storage of any merchandise equipment, machinery or any other item on the walkways, loading docks, parking areas, roof or grounds surrounding the Leased Premises or Common Areas not specifically referenced herein. 4.2.6 Store or dump on or about the Demised Premises trash, rubbish, pallets, chemicals, hazardous, toxic or other such substances or dispose or attempt to dispose of such items in the sewers or stone drains of the Demised Premises. 4.2.7 Wash and/or wax and/or repair vehicles. Store or keep any boats, recreational vehicles, trailers or inoperable or unregistered vehicles outside Demised Premises or in parking areas, leave vehicles in any parking areas on the property for an extended period of time. 4.2.8 residing in the Leased Premises, the Common Area or the Project. 4.2.9 abandon or dispose of personal property by leaving same in the Leased Premises, Common Areas or Project. 4.2.10 Allowing animals or pets on the Leased Premises, Common Areas or Project. -8- 4.3 REMEDIES IN CASE OF VIOLATION. In the event Tenant vio1ates any provision of Section 4.2, Landlord shal1 provide Tenant written notice of the violation. Tenant shall have three (3) days from date of delivery of notice to cease and/or cure the objectionable use, providing, however, in the event Tenant violates the terms of this Section more than twice during the Term, Landlord shall not be required to provide written notice or a cure period to invoke the remedies authorized herein. 4.4 In the event Tenant fails to cure and/or cease objectionable activities Landlord may (1) declare the lease materially breached; (2) cure the violation as the Landlord in its sole discretion deems appropriate with costs and fees for doing so charged to the Tenant as Additional Rent; (3) take such legal or equitable action as is appropriate, including but not limited to seeking injunctive relief; (4) take such other action as is authorized by law. These remedies shall be deemed cumulative. Nothing herein shall prohibit Landlord from taking emergency action in the event any violation threatens the life, health and/or safety of any person or threatens property on or of the project. 5. SECURITY DEPOSIT. 5.1 AMOUNT OF DEPOSIT. Landlord and Tenant acknowledge transfer of a prior security deposit in the sum of -0- to be security deposit for this Lease. Said deposit shall be held by Landlord, without liabi1ity for interest, and may be commingled with other funds of Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease by Tenant to be kept and performed during the term hereof. 5.2 USE AND RETURN OF DEPOSIT. If at any time during the term of this Lease any of the rent herein reserved shall be overdue and unpaid, or any other sum payable by Tenant to Landlord hereunder shall be overdue and unpaid or in the event of the failure of Tenant to keep and perform any of the terms, covenants and conditions of this Lease to be kept and performed by Tenant, then Landlord may after five (5) days written notice to tenant of the reason and Tenant failing to cure same, at its option (but Landlord shall not be required to) appropriate and apply all or any portion of said deposit to the payment of any such overdue rent or other sum or so much thereof as shall be necessary to compensate the Landlord for all loss or damage sustained or suffered by Landlord due to the breach of Tenant. Should the entire deposit, or any portion thereof, be appropriated and applied by Landlord for the payment of overdue rent or other sums due and payable by Tenant hereunder, then Tenant shall, upon the written demand of Landlord forthwith remit to Landlord a sufficient amount in cash to restore said security to the original sum deposited, and Tenant's failure to do so within five (5) days after receipt of such demand shall constitute a breach of this Lease. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at the expiration of the term of this Lease. The security deposit shall not be deemed last month's rent. 5.3 TRANSFER OF DEPOSIT. Landlord may deliver the funds deposited hereunder by Tenant to the purchaser or transferee of Landlord's interest in the Leased Premises, in the event that such interest be sold or transferred, and thereupon Landlord shall be discharged from any further liability with respect to such deposit, providing purchaser or transferee assumes the obligations regarding Tenant's security deposit. -9- 6. FIXTURES AND ALTERATIONS. 6.1 INSTALLATION BY TENANT. 6.1.1 All improvements installed by Tenant shall be new or in good working order. Tenant shall not make or cause to be made any alterations, additions or improvements or install or cause to be installed any exterior signs, exterior lighting, plumbing fixtures, fences, gates, shades or awnings or make any changes to the common areas or the exterior of the building in which the Leased Premises are located without first obtaining Landlord's written approva1 and consent which approval or consent shall not be unreasonably withheld. Tenant shall present to the Landlord plans and specifications for such work at the time approval is sought, and simultaneously demonstrate to Landlord that the proposed alterations comply with local zoning and building codes. Tenant may perform minor alterations to the interior of the Leased Premises not requiring a building permit without the consent of the Landlord. Upon Tenant's breach of this provision, Landlord may take such action as is necessary to remove the unauthorized installation with all cost and expense to be charged to Tenant as additional rent. In addition, Landlord may take such legal action at law or equity as a result of the breach, including but not limited to injunctive relief. 6.1.2 All construction work done by Tenant within the Leased Premises and otherwise shall be performed in a good and workmanlike manner, in compliance with all governmental requirements, and in such manner as to cause a minimum of interference with other construction in progress (if any) and with the transaction of business in the Project. Without limitation on the generality of the foregoing, Landlord shall have the right to require that such work be performed outside of general business hours, and in accordance with other rules and regulations which Landlord may, from time to time prescribe. Tenant agrees to indemnify Landlord and hold it harmless against any loss, liability or damage, resulting from such work excluding that caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees. Tenant shall be liable to Landlord for any damages resulting from labor disputes, strikes or demonstrations resulting from Tenant's construction or alteration work with the employment of non-union workers. 6.2 RESPONSIBILITY OF TENANT. All alterations, decorations, additions and improvements made by the Tenant, or made by the Landlord on the Tenant's behalf by agreement under this Lease, shall remain the property of the Tenant for the term of this Lease, or any extension of renewal thereof. Such alterations, decorations, additions and improvements shall not be removed from the premises without prior consent in writing from the Landlord. Upon expiration of this Lease, or any renewal term thereof, the Landlord shall have the option of requiring the Tenant to remove all such alterations, decorations, additions and improvements, and restore the Leased Premises as provided in Section 7.2 hereof. If the Tenant fails to remove such alterations, decorations, additions and improvements and restore the Leased Premises, then such alterations, decorations, additions and improvements shall become the property of the Landlord and in such event, should Landlord so elect, Landlord may restore the premises to its original condition for which cost, with allowance for ordinary wear and tear, Tenant shall be responsible and shall pay promptly upon demand. 6.3 TENANT SHALL DISCHARGE ALL LIENS. Nothing contained in this Lease shall be construed as a consent on the part of the Landlord to subject the estate of the Landlord to liability under the Mechanic's Lien Law of the State of Florida, it being expressly understood that Landlord's estate shall not be subject to liens for improvements made by the Tenant. Tenant shall strictly comply with the Mechanic's Lien Law of the State of Florida as set forth in Florida Statutes Section 713. In -10- the event that a mechanic's claim of lien is filed against the property in connection with any work performed by or on behalf of the Tenant, the Tenant shall satisfy such claim or shall transfer same to security, within twenty (20) days from the date of filing. In the event that the Tenant fails to satisfy or transfer such claim within said twenty (20) day period, the Landlord may do so and thereafter charge the Tenant, as additional rent, all costs incurred by the Landlord in connection with satisfaction or transfer of such claim, including attorneys' fees. Further, the Tenant agrees to indemnify, defend and save the Landlord harmless from and against any damage or loss incurred by the Landlord as a result of such mechanics' claim of lien. If so requested by the Landlord, the Tenant shall execute a short form or memorandum of this Lease, which may, in the Landlord's discretion be recorded in the Public Records for the purpose of protecting the Landlord's estate from mechanics' claims of lien, as provided in Florida Statutes Section 713.10. In the event such short form or memorandum of lease is executed, the Tenant shall simultaneously execute and deliver to the Landlord an instrument terminating the Tenant's interest in the real property upon which the Leased Premises are located, which instrument may be recorded by the Landlord only at the expiration of the term of this Lease, or such earlier termination hereof. Landlord only has the right to record the memorandum without execution by Tenant in the event Tenant fails to execute the memorandum within seven (7) days of request. The security deposit paid by the Tenant may be used by the Landlord for the satisfaction or transfer of any mechanics' claim of lien, as provided in this Section. This Section shall survive the termination of the Lease. 6.4 SIGNS. Tenant shall not exhibit, inscribe, paint or affix any sign, advertisement, notice or other lettering on any part of the outside of the Demised Premises or of the building of which the Demised Premises are a part, or inside the Demised Premises if visible from the outside, without the written consent of Landlord. If consent is given, Tenant further agrees to maintain such sign, lettering, etc. as may be approved in accordance with all city, county, and state laws, ordinance or requirements and in good condition and repair at all times. 7. REPAIRS AND MAINTENANCE OF LEASED PREMISES. 7.1 RESPONSIBILITY OF LANDLORD. Provided Tenant is not in default according to the terms of this Lease and subject to interruption caused by repairs, renewals, improvements, changes of service and alterations to the Leased Premises, and further, subject to interruption caused by strikes, lockouts, labor controversies, inability to obtain fuel or power, accidents, breakdowns, catastrophes, national or local emergencies, "Acts of God," and conditions and causes beyond the control of Landlord, Landlord will furnish the following services to Tenant: 7.1.1 Landlord agrees to repair and maintain in good order and condition the roof, roof drains, outside walls, foundations and structural portions, both interior and exterior, of the Leased Premises. Landlord shall initiate repairs of applicable problems within a reasonable period of time after receipt of written notice of needed repairs or maintenance with completion as soon as reasonably possible. Unless caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees, there is excepted from this provision, however: 7.1.1.1 repair or replacement of broken plate or window glass (except in case of damage by fire or other casualty covered by Landlord's fire and extended coverage policy); -11- 7.1.1.2 interior and exterior doors, door closure devices, window and door frames, moldings, locks and hardware; 7.1.1.3 repair of damage caused directly or indirectly by the negligence or intentional acts of Tenant, its employees, agents, contractors, customers, invitees; and 7.1.1.4 interior repainting and redecoration. 7.1.2 Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, or leaks from any part of the Leased Premises or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatever nature, excluding that caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees. Landlord shall not be liable for any such damage caused by other tenants or persons in the Leased Premises, occupants of adjacent property, of the Project, or the public, or caused by operations in construction of any private, public or quasi-public work. Landlord shall not be liable in damages or otherwise for any latent defect in the Leased Premises or in the building of which they form a part. 7.1.3 In no event, however, shall Landlord be liable for incidental or consequential damages arising from (i) the failure to make said repairs, or (ii) making repairs in a untimely manner, nor shall Landlord be liable for incidental or consequential damages arising from defective workmanship or materials in making any such repairs. 7.1.4 Except as hereinabove provided in Subparagraphs (a) and (b), Landlord shall not be obligated or required to make any other repairs, and all other portions of the Leased Premises shall be kept in good repair and condition by Tenant. 7.2 RESPONSIBILITIES OF TENANT. 7.2.1 Tenant agrees to maintain the Leased Premises in good order and condition. 7.2.2 Tenant will not install any equipment which exceeds the capacity of the utility lines leading into the Leased Premises or the building of which the Leased Premises constitute a portion. 7.2.3 Tenant covenants and agrees to keep and maintain in good order, condition and repair (which repair shall mean replace if necessary) the Leased Premises and every part thereof, except as hereinbefore provided, including but without limitation to the exterior and interior portions of all doors, equipment, security gates, windows, glass utility facilities, plumbing and sewage facilities within the Leased Premises or under the floor slab including free flow up to the main sewage line fixtures, heating equipment, exterior utility facilities and exterior electrical equipment serving the Leased Premises and interior walls, floors and ceilings, including compliance with all applicable building codes including but not limited to those relative to fire extinguishers, excluding that caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees. Tenant will use at Tenants cost a pest exterminating -12- contractor at such intervals as may be necessary to keep the Leased Premises free of rodents and vermin. If Tenant refuses or neglects to commence or complete repairs promptly and adequately Landlord may, but shall not be required to do so, make or complete said repairs and Tenant shall pay the cost thereof to Landlord upon demand. 7.2.4 Tenant, its employees, or agents, shall not deface any walls, ceilings, partitions, floors, wood, stone or ironwork without Landlord's written consent. 7.2.5 Tenant shall comply with the requirements of all laws, orders, ordinances and regulations of all governmental authorities and will not permit any waste of property or same to be done and will take good care of the Lease Premises. 7.2.6 If Tenant refuses or neglects to maintain the Leased Premises properly as required and does not correct an identified problem(s) to the reasonable satisfaction of Landlord as soon as reasonably possible after written demand, Landlord may take such remedial action as Landlord may reasonably determine, without liability to Tenant, for any loss or damage that may accrue to Tenant's equipment, fixtures, or other property, or to Tenant's business by reason thereof and upon completion thereof Tenant shall pay Landlord's cost for the taking of such action, plus ten (10%) percent for overhead, upon presentation of bill therefor, as additional rent. Said bill shall include interest at ten (10%) percent of said cost from the date of completion by Landlord. In the event the Landlord shall undertake any maintenance or repair in the course of which it shall be determined that such maintenance or repair work was made necessary by the negligence or willful act of Tenant or any of its employees or agents or that the maintenance or repair is, under the terms of this Lease, the responsibility of Tenant, Tenant shall pay Landlord's costs therefore plus overhead and interest as above provided in this Section. 7.2.7 Unless requested in writing by the Landlord to the contrary, at the expiration of the tenancy hereby created, Tenant shall surrender the Leased Premises in the same condition as the Leased Premises were in upon the Commencement Date or following completion of Tenant's Work, whichever is later, reasonable wear and tear excepted, and damage by unavoidable casualty excepted, and shall surrender all keys for the Leased Premises to Landlord. Tenant shall remove all its trade fixtures, leased equipment and such part of the said Tenant's Work and any subsequent alterations or improvements which Landlord requests to be removed before surrender of the Leased Premises as aforesaid and shall repair any damage to the Leased Premises caused thereby. Tenant's obligation and liability under this covenant shall survive the expiration or other termination of this Lease. In the event that Tenant shall vacate the Leased Premises in unsatisfactory condition, in addition to the cost of repairs, Tenant shall: 7.2.7.1 pay to Landlord a sum equal to 110% of the Base Rent and Additiona1 Rent for the time period required to effect such repairs; 7.2.7.2 pay all damages that Landlord may suffer on account of Tenant's vacating the Leased Premises in unsatisfactory condition; and 7.2.7.3 indemnify and save Landlord harmless from and against any and all claims made by succeeding tenant of the Leased Premises against Landlord on account of delay of Landlord in delivering possession of the Leased Premises to said succeeding tenant to the extent that such delay is occasioned by Tenant's vacating the Leased Premises in unsatisfactory condition. -13- 7.2.8 Tenant shall at its own expense perform all janitorial and cleaning services within the Leased Premises in order to keep same in a neat, clean and orderly condition. 7.2.9 Tenant shall give Landlord prompt written notice (and telephonic notice in the case of an emergency) of any fire or damage occurring on or to the Leased Premises, any defects in the Leased Premises, and any defects in any fixtures or equipment for which Landlord is responsible under the Lease. 8. UTILITIES. Tenant shall be solely responsible for and shall promptly pay all charges for gas, electricity, telephone or any other separately metered utility used or consumed in the Leased Premises. Landlord shall not be liable for an interruption or failure in the supply of any such utilities to the Leased Premises unless caused by the gross negligence or intentional act of the Landlord. 9. INSURANCE AND INDEMNITY. 9.1 Tenant shall carry and maintain, at its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for: 9.1.1 Public liability and property damage. Tenant shall, during the Term, maintain insurance against public liability, including that from personal injury or property damage in or about the Premises resulting from the occupation, use, or operation of the Premises, insuring both Landlord, Landlord's managing agent and Tenant and naming the Landlord and Landlord's managing agent as an additional insured therein, in amounts of not less than One Million Dollars ($1,000,000.00) against liability for bodily injury including death and personal injury for any one (1) occurrence and not less than One Million Dollars ($1,000,000.00) for property damage; or combined single limit insurance in the amount of not less than One Million Dollars ($1,000,000.00). 9.1.2 Plate glass insurance providing full coverage for replacement of damaged or destroyed glass in or upon the Premises; 9.1.3 Workman's compensation insurance for the benefit of all employees entering upon the Premises as a result of or in connection with their employment by Tenant; 9.1.4 All other insurance required of Tenant, as an employer, pursuant to any law, rule, or ordinance of any governmental authority having jurisdiction; 9.1.5 Fire, casualty, and extended coverage insurance on Lessee's fixtures, improvements and finishings, which policies of insurance shall be in amounts, in such forms and issued by such companies are as approved by Landlord and shall name Landlord and Tenant as their interests may appear; and 9.1.6 Such other forms of insurance which are not available as of the date hereof, but which may become available in the future and are typically required by landlords of properties similar in character to the Center, if in the Landlord's sole discretion, the same is -14- necessary to adequately insure the Premises and underlying property and such other forms of insurance which may become necessary as the result of any changes in applicable laws. 9.2 The original of each policy of insurance, certified duplicates thereof, and certificates of insurance issued by the insurance or insuring organization shall be delivered to Landlord on or before the Commencement Date and proof of renewal shall be provided to Landlord not less than thirty (30) calendar days prior to the expiration of any policy. In addition to and together with Tenant's pro rata share of operating costs, Tenant shall pay to Landlord within ten (10) calendar days of its receipt of Landlord's written request, the entire amount of any extraordinary or additional premium for insurance upon or for the Premises and/or Center occasioned by or resulting from Tenant's use of the Premises. 9.3 The aforementioned insurance shall be in companies authorized to engage in the business of insurance in the State of Florida with a minimum rating of "A" by A.M. BEST, and shall be in form, substance, and amount (where not stated above) satisfactory to Landlord. The insurance shall not be subject to cancellation except after at least thirty (30) calendar days prior written notice to Landlord. If any of the aforementioned insurance shall not be procured or maintained by Tenant, Landlord may, at its option, procure such insurance or any portion thereof, and Tenant shall pay to Landlord any sums expended by Landlord therefore upon demand; or, Landlord may, at its option terminate this Lease. 9.4 Increase in Fire Insurance Premium. Tenant agrees that it will not keep, use, sell or offer for sale in or upon the Leased Premises any article which may be prohibited by the standard form of fire and extended risk insurance policy. Tenant agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the term of this Lease on the amount of such insurance which may be carried by Landlord on said premises or the building of which they are a part, resulting from the type of merchandise used or sold by Tenant in the Leased Premises, whether or not Landlord has consented to the same. 9.5 INDEMNIFICATION OF LANDLORD. Tenant shall indemnify Landlord and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property (a) arising from or out of any occurrence in, upon or at the Leased Premises (b) arising from or out of the occupancy or use by Tenant or concessionaires of the Leased Premises, whether occurring in or about the Leased Premises, excluding that caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees. In the event Landlord shall be made a party to any litigation commenced by or against Tenant, then the Tenant shall protect and hold the Landlord harmless and shall pay all reasonable costs, expenses and reasonable attorney's fees incurred or paid by the Landlord in connection with such litigation. 9.6 WAIVER OF SUBROGATION. Tenant waives (unless said waiver should invalidate any such insurance) its right to recover damages against Landlord for any reason whatsoever to the extent Tenant recovers indemnity from its insurance carrier. Any insurance policy procured by Tenant which does not name Landlord as a named insured shall, if obtainable, contain an express waiver of any right of subrogation by the insurance company against the Landlord. All public liability and property damage policies shall contain an endorsement that Landlord, although named as an insured, shall nevertheless be entitled to recover damages caused by the negligence of Tenant. -15- 10. ATTORNMENT AND SUBORDINATION. 10.1 ATTORNMENT. In the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Landlord covering the Leased Premises or in the event a deed is given in lieu of foreclosure of any such mortgage, if requested to do so, Tenant shall attorn to the purchaser or grantee in lieu of foreclosure upon any such foreclosure or sale and recognize such purchaser or grantee in lieu of foreclosure as the Landlord under this Lease 10.2 SUBORDINATION. Tenant agrees that this Lease and the interest of Tenant therein shall be, and the same hereby is made subject and subordinate at al1 times to all covenants, restrictions, easements and other encumbrances now or hereafter affecting the fee title of the Project and to all ground and underlying leases and to any mortgage of any amounts and all advances made and to be made thereon, which may now or hereafter be placed against or affect any or all of the land and/or any or all of the buildings and improvements, including the Leased Premises, now or at any time hereafter constituting a part of the Project, and/or any ground or underlying leases covering the same, and to al1 renewals, modifications, consolidations, participations, replacements and extensions thereof. The term "Mortgages" as used herein shall be deemed to include trust indentures and deeds of trust. The aforesaid provisions shall be self-operative and no further instrument of subordination shall be necessary unless required by any such ground or underlying lessors or mortgages. Should the Landlord, any ground or underlying lessors or mortgagees desire confirmation of such subordination, Tenant, within ten (l0) days following written request therefor, shall execute and deliver, without charge, any and all documents (in form acceptable to Landlord and such ground or underlying lessors or mortgagees) subordinating the Lease and the Tenant's rights hereunder. However, should any such ground or underlying lessors or any mortgagees request that Lease be made superior, rather than subordinate, to any such ground or underlying lease and/or mortgage, then Tenant, within ten (10) days following Landlord's written request therefor, agrees to execute and deliver, without charge, any and all documents (in form acceptable to Landlord and such ground or underlying lessors or mortgagees) effectuating such priority. 11 ASSIGNMENT AND SUBLETTING. 11.1 Consent Required. 11.1.1 Tenant may not assign or in any manner transfer, or grant or suffer any encumbrance of Tenant's interest in this Lease in whole or in part, nor sublet all or any portion of the Leased Premises, or grant a license, concession or other right of occupancy of any portion of the Leased Premises, without the prior written consent of Landlord in each instance. Tenant may assign the Lease to an affiliate providing it can be demonstrated to the reasonable satisfaction of the Landlord that the affiliate has financial strength equal to or greater than that of the Tenant. The consent by Landlord to any assignment or subletting shall not constitute a waive of the necessity for such consent to any subsequent assignment or subletting. Consent shall not be unreasonably withheld. If this Lease be assigned, or if the Leased Premises or any part thereof be underlet or occupied by any party other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of Tenant from the further performance by Tenant of the covenants on the part of Tenant herein contained. This prohibition against assignment or subletting -16- shall be construed to include prohibition against any assignment or subleasing by operation of law, legal process, receivership, bankruptcy or otherwise, whether voluntary or involuntary. Notwithstanding any assignment or sublease, Tenant shall remain fully liable on this Lease and shall not be released from performing any of the terms, covenants and conditions of this Lease. An attempt by Tenant to sublease the Leased Premises, in whole or in part, a renta1 rate greater than that charged under this Lease shall be deemed a valid reason for withholding consent for the sublease. 11.1.2 The Tenant shall pay an administrative fee of $350 in connection with any assignment or sublease. 11.2 SIGNIFICANT CHANGE OF OWNERSHIP. If the Tenant is a corporation (other than one whose shares are regularly and publicly traded either on a recognized stock exchange or the over-the-counter market), Tenant represents that the Ownership and power to vote its entire outstanding capital stock belongs to and is vested in the officer or officers executing this Lease or members of his or their immediate family. If there shall occur any change in the ownership of and/or power to vote the majority of the outstanding capital stock of Tenant, whether such change of ownership is by sale, assignment, request, inheritance, operation, of law or otherwise, without the prior written consent of Landlord, then Landlord shall have the option to terminate this Lease upon thirty (30) days notice to Tenant. If Tenant is a partnership, Tenant represents that the general partner executing this Lease is duly authorized to execute the same on behalf of said partnership. If there shall occur any change in the ownership of the Interest of the general partners of the partnership, whether such change results from a sale, assignment, request, inheritance, operation of law or otherwise, or if the partnership is dissolved, without the prior written consent of Landlord, then Landlord shall have the option to terminate this Lease upon thirty (30) days notice to Tenant. 11.3 ASSIGNMENT BY LANDLORD. In the event of the transfer and assignment by Landlord of its interest in this Lease and/or in the building containing the Leased Premises to a person expressly assuming Landlord's obligations under this Lease, Landlord shall thereby be released from any further obligations thereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any security given by Tenant to secure performance of Tenant's obligations hereunder may be assigned and transferred by Landlord to such successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto. 12. WASTE, GOVERNMENTAL REGULATIONS. 12.1 WASTE OR NUISANCE. Tenant shall not commit or suffer to be committed any waste upon the Leased Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Project, or which may adversely affect Landlord's interest in the Leased Premises or the Project. 12.2 GOVERNMENT REGULATIONS. Tenant shall, at Tenant's sole cost and expense, comply with all county, municipal, state, federal laws, orders, ordinances and other applicable requirements of all governmental authorities, now in force, or which may hereafter be in force, pertaining, or affecting the condition, use or occupancy of the Leased Premises, and shall faithfully observe in the use and occupancy of the Leased Premises all municipal and county ordinances and state and federal statutes now in force or which may hereafter be in force. Tenant shall indemnify, -17- defend and save Landlord harmless from all costs, losses, expenses or damages resulting from Tenant's failure to perform its obligations under this Section. 13. RULES AND REGULATIONS. Tenant agrees to comply with all reasonable rules and regulations Landlord may adopt from time to time for operation of the Project, and protection and welfare of Project, its tenants, visitors, and occupants. The present rules and regulations, which Tenant hereby agrees to comply with, entitled "Rules and Regulations" are attached hereto as EXHIBIT "B". Landlord may amend the rules from time to time and any future rules and regulations shall become a part of this Lease, and Tenant hereby agrees to comply with the same upon delivery of a copy thereof to Tenant, providing the same do not materially deprive Tenant of its rights established under this Lease. 14. ADVERTISING, ETC. 14.1 SOLICITATION OF BUSINESS. Tenant and Tenant's employees and agents shall not solicit business in the parking or other common areas, nor shall Tenant distribute any handbills or other advertising matter on automobiles parked in the parking area or in other common areas. 14.2 ADVERTISED NAME AND ADDRESS. Tenant may use as its advertised business address the name of the Project. Tenant shall not use the name of the Project for any purpose other than as the address of the business to be conducted by Tenant in the Leased Premises, and Tenant shall not acquire any property right in or to any name which contains the name of the Project as a part thereof. Any permitted use by Tenant of the name of the Project during the term of the Lease shall not permit Tenant to use, and Tenant shall not use, such name of the Project either after the termination of this Lease or at any other location. Tenant shall not use the name of the Landlord in any advertisement, or otherwise. 15. DESTRUCTION OF LEASED PREMISES. 15.1 TOTAL OR PARTIAL DESTRUCTION. If the Leased Premises shall be damaged by fire, the elements, unavoidable accident or other casualty, without the fault of Tenant, but are not thereby rendered untenantable in whole or in part, Landlord shall at its own expense cause such damage, except to Tenant's equipment and trade fixtures, to be repaired, and the rent and other charges shall not be abated. Repairs shall commence within a reasonable period of time. If by reason of such occurrence, the Leased Premises shall be rendered untenantable only in part, Landlord shall at its own expense cause the damage, except to Tenant's equipment and trade fixtures, to be repaired within a reasonable period of time, but only to the condition in which the Leased Premises were originally delivered to Tenant, and the Base Rent meanwhile shall be abated proportionately as to the portion of the Leased Premises rendered untenantable. If such damage shall occur during the last two (2) years of the term of this Lease (or of any renewal term), Landlord shall have the right, to be exercised by notice to Tenant within sixty (60) days after said occurrence, to elect not to repair such damage and to cancel and terminate this Lease effective as of a date stipulated in Landlord's notice, which shall not be earlier than thirty (30) days nor later than sixty (60) days after the giving of such notice. If the Leased Premises shall be rendered wholly untenantable by reason of such occurrence, the Landlord shall at its own expense cause such damage, except to Tenant's equipment and trade fixtures, to be repaired, but only to the condition in which the Leased Premises were originally delivered to Tenant, and the Base Rent meanwhile shall be abated in whole except that Landlord shall have the right, to be exercised by notice to Tenant within sixty (60) days after said occurrence, to -18- elect not to reconstruct the destroyed Leased Premises, and in such event this Lease and the tenancy hereby created shall cease as of the date of the said occurrence. There shall be no abatement of the Base Rent if such damage is caused by the fault of Tenant. Whenever the Base Rent shall be abated pursuant to this Section l5.1, such abatement shall continue until the date which shall be the sooner to occur of; (i) fifteen (15) days after notice by Landlord to Tenant that the Leased Premises have been substantially repaired and restored; or (ii) the date Tenant's business operations are restored in the entire Leased Premises. 15.2 PARTIAL DESTRUCTION OF BUILDING. In the event that fifty (50%) percent or more of the rentable area of the building in which the Leased Premises are located shall be damaged or destroyed by fire or other cause, notwithstanding any other provisions contained herein and that the Leased Premises may be unaffected by such fire or other cause, Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within sixty (60) days after said occurrence, to elect to cancel and terminate this Lease. Upon the giving of such notice to Tenant, the term of this Lease shall expire by lapse of time upon the thirtieth day after such notice is given, and Tenant shall vacate the Leased Premises and surrender the same to Landlord; provided, however, in the event the building is deemed to be a hazard or danger by any governmental agency, the Lease shall expire upon the third day after notice is given. 15.3 RECONSTRUCTION OF IMPROVEMENT. In the event of any reconstruction of the Leased Premises under this Section, said reconstruction shall be in substantial conformity of the Leased Premises on the Commencement Date. Tenant, at its sole cost and expense, shall be responsible for the repair and restoration of all items that was Tenant's Work, and the replacement of its stock in trade fixtures, furniture, finishings and equipment. Tenant shall commence the installation of fixtures, equipment, and merchandise hereof promptly upon delivery to it of possession of the Leased Premises and shall diligently prosecute such installation to completion. 15.4 Under no circumstances shall Landlord be responsible or liable to Tenant for lost income, revenue or profits. 16. EMINENT DOMAIN. 16.1 TOTAL CONDEMNATION. If the whole of the Leased Premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding and all rentals and other charges shall be paid up to that date and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease. 16.2 PARTIAL CONDEMNATION. 16.2.1 If any part of the Leased Premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, and in the event that such partial taking or condemnation shall, in the opinion of Landlord and Tenant, render the Leased Premises unsuitable for the business of the Tenant, then Landlord and Tenant shall each have the right to terminate this Lease by notice given to the other within sixty (60) days after the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease. A taking or condemnation in excess of 50% of the square footage of the Leased Premises shall be presumed to render the Leased Premises unsuitable for the business of the tenant. -19- 16.2.2 If more than fifty (50%) percent of the floor area of the buildings in the Project shall be taken as aforesaid (whether or not the Leased Premises shall be affected by the taking), Landlord shall have the right to terminate this Lease by notice to Tenant given within sixty (60) days after the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of the unexpired term of this Lease. 16.3 LANDLORD'S DAMAGES. In the event of any condemnation or taking as hereinabove provided, whether whole or partial, the Tenant shall not be entitled to any part of the award, as damages or otherwise, for such condemnation and Landlord is to receive the full amount of such award, the Tenant hereby expressly waiving any right or claim to any part thereof. 16.4 TENANT'S DAMAGES. Although all damages in the event of any condemnation are to belong to the Landlord, whether such damages are awarded as compensation for diminution in value of the Leasehold or the fee of the Leased Premises, Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any damage to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment, provided no such claim shall diminish or otherwise adversely affect Landlord's award. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of Section 16.3 and this Section 16.4. 16.5 SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes under this Section. 17. DEFAULT OF TENANT. 17.1 EVENTS OF DEFAULT. Upon the happening of one or more of the events as expressed below, inclusive (individually and collectively, "Events of Default"), the Landlord shall have any and all rights and remedies hereinafter set forth: 17.1.1 In the event Tenant should fail to pay any monthly installment of rent or any other sums required to be paid hereunder, within ten (10) days from when same become due. 17.1.2 To the extent not contrary to Bankruptcy Law, in the event a petition in bankruptcy (including Chapter 11 bankruptcy proceeding or any other reorganization proceedings under Bankruptcy Law) is filed by the Tenant, or is filed against Tenant, and such petition is not dismissed within ninety (90) days from the filing thereof, or in the event Tenant is adjudicated a bankrupt. 17.1.3 In the event an assignment for the benefit of creditors is made by Tenant. 17.1.4 In the event of an appointment by any court of a receiver or other court officer of Tenant's property and such receivership is not dismissed within sixty (60) days from such appointment. -20- 17.1.5 In the event Tenant removes, attempts to remove, or permits to be removed from the Leased Premises, except in the usual course of trade, the equipment, furniture, effects or other property of the Tenant brought thereon. 17.1.6 In the event Tenant, before the expiration of the term hereof and without the written consent of the Landlord, vacates the Leased Premises or abandons the possession thereof, or uses the Leased Premises or property of the Project for a purpose other than identified in the Lease. 17 1.7 In the event an execution or other legal process is levied upon the equipment, furniture, effects or other property of Tenant brought on the Leased Premises, or upon the interest of Tenant in this Lease, and the same is not satisfied or dismissed within thirty (30) days from the levy, providing that during the thirty day period, rent is paid when due, excluding any grace period otherwise granted in other provisions of this Lease. 17.1.8 In the event Tenant fails to keep, observe or perform any of the other terms, conditions or covenants on the part of Tenant herein to be kept, observed and performed for more than ten (10) days after written notice thereof is given by Landlord to Tenant specifying the nature of such default, or if the default so specified shall be of such a nature that the same cannot reasonably be cured or remedied within said ten (10) day period, if Tenant shall not in good faith have commenced the curing or remedying of such default within such ten (10) day period and shall not thereafter continuously and diligently proceed therewith to completion; provided, however, nothing herein shall prohibit Landlord from taking immediate legal action, with or without notice, to protect the health, safety or welfare of the Landlord, the Project, tenants of the Project, other persons or entities in or about the Project or the general public. 17.1.9 Notwithstanding anything contained herein to the contrary, in the event of a monetary default on the part of Tenant, Landlord shall give and shall only be required to give Tenant five (5) days written notice within which Tenant must cure the monetary default. 17.2 REMEDIES OF LANDLORD. 17.2.1 In the event of any such default or breach, Landlord shall have the immediate right to re-enter the Leased Premises, either by summary proceedings, by force or otherwise, and to dispossess Tenant and all other occupants therefrom and remove and dispose of all property therein in the manner provided in subdivision (c) of this Section, all without service of any notice of intention to re-enter and with or without resort to legal process and without Landlord being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby. In the event of any such default or breach, Landlord shall have the right, at its option, from time to time, without terminating this Lease, to re-enter and re-let the premises, or any part thereof, as the agent and for the account of Tenant upon such terms and conditions as Landlord may deem advisable or satisfactory, in which event the rents received on such re-letting shall be applied first to the expenses of such re-letting and collection including but not limited to, necessary renovation and alterations of the Leased Premises, reasonable attorney's fees, any real estate commissions paid, and thereafter toward payment of all sums due or which become due Landlord hereunder, and if a sufficient sum shall not be thus realized or secured to pay such sums and other charges, (i) at Landlord's option, Tenant shall pay Landlord any deficiency monthly, notwithstanding Landlord may -21- have received rental in excess of the rental stipulated in this Lease in previous or subsequent months, and Landlord may bring an action therefor as such monthly deficiency shall arise or (ii) at Landlord's option, the entire deficiency, which is subject to ascertainment for the remaining term of this Lease, shall be immediately due and payable by Tenant. Nothing herein, however, shall be construed to require Landlord to re-enter in any event. The Landlord shall not, in any event, be required to pay Tenant any surplus of any sums received by Landlord on a re-letting of said premises in excess of the rent provided in this Lease. 17.2 2 In the event of any such default or breach, the Landlord shall have the right, at its option, to declare the rents for the entire remaining term and other indebtedness, if any, immediately due and payable without regard to whether or not possession shall have been surrendered to or taken by Landlord, and may commence action immediately thereupon and recover judgment therefor. 17.2.3 The Landlord in addition to other rights and remedies it may have, shall have the right to remove all or any part of the Tenant's property from said premises and any property removed may be stored in any public warehouse or elsewhere at the cost of, and for the account of Tenant and the Landlord shall not be responsible for the care or safekeeping thereof, and the Tenant hereby waives any and all loss, destruction and/or damage or injury which may be occasioned by any of the aforesaid acts unless removal was done illegally. 17.2.4 No such re-entry or taking possession of said Leased Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention is given to Tenant. Notwithstanding any such re-letting without termination, Landlord may at all times hereafter, elect to terminate this Lease for such previous default or breach. Any such re-entry shall be allowed by Tenant without hindrance, and Landlord shall not be liable in damages for any such re-entry, or guilty of trespass or forcible entry. 17.2.5 Any and all rights, remedies and options given in this Lease to Landlord shall be cumulative and in addition to and without waiver of or in derogation of any right or remedy given to it under any law now or hereafter in effect. 17.3 WAIVER. The waiver by Landlord of any breach of any term, condition or covenant herein contained shall not be waiver of such term, condition or covenant, or any subsequent breach of the same or any other term, condition or covenant herein contained. The consent or approval by Landlord to or of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent similar act by Tenant. No re-entry hereunder shall bar the recovery of rents or damages for the breach of any of the terms, conditions or covenants on the part of Tenant herein continued. The receipt of rent after breach or condition broken, or delay, on the part of Landlord to enforce any right hereunder, shall not be deemed a waiver or forfeiture, or a waiver of the right of Landlord to terminate this Lease or to re-enter said Leased Premises or to re-let same. 17.4 EXPENSES OF ENFORCEMENT. In the event any payment due Landlord under this Lease shall not be paid on the due date, Tenant agrees to pay interest on the amount which is delinquent at the highest rate permitted under the laws of the state in which the Project is located, for such delinquent payment until made. In the event any check, bank draft, order for payment or negotiable instrument given to Landlord for any payment under this Lease shall be dishonored for any reason whatsoever not attributable to Landlord, Landlord shall be entitled to make an administrative -22- charge to Tenant of One Hundred ($100.00) Dollars. Tenant recognizes and agrees that the charges which Landlord is entitled to make upon the conditions stated in this Section 17.4 represents, at the time this Lease is made, a fair and reasonable estimate and liquidation of the costs of Landlord in the administration of the Project resulting to landlord from the events described which costs are not contemplated or included in any other rental or charges provided to be paid by Tenant to Landlord in this Lease. Any charges becoming due under this Section of this Lease shall be added and become due with the next ensuing monthly payment of Base Rent and shall be collectible as a part thereof. 17.5 LEGAL EXPENSES. In the event that it shall become necessary for Landlord to employ the services of an attorney to enforce any of its rights or to protect its interest under this Lease or to collect any sums due to it under this Lease or to remedy the breach of any covenant of this Lease on the part of this Tenant to be kept or performed, regardless of whether suit be brought, Tenant shall pay to Landlord such fee as shall be charged by Landlord's attorney for such services. Should suit be brought for the recovery of possession of the Leased Premises, or for rent or any other sum due Landlord under this Lease, or because of the breach of any of Tenant's covenants under this Lease, or to protect any interest or right under the lease, the prevailing party shall be entitled to received from the non-prevailing party all expenses of such suit and any appeal thereof, including reasonable attorney's fee. 18. ACCESS BY LANDLORD. 18.1 RIGHT OF ENTRY. Landlord and Landlord's agents shall have the right to enter the Leased Premises at all reasonable times upon twenty-four (24) hours notice, to examine the same, and to show them to prospective purchasers or lessees of the building, and to make such repairs, or alterations, improvements or additions as Landlord may deem necessary or desirable, and Landlord shall be allowed to take all materials into and upon said premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part and the rent reserved shall in no way abate while said repairs, alterations, improvements or additions are being made unless Tenant is prevented from operating in the Leased Premises in whole or in part, in which event rent shall be proportionately abated during said period. During the six (6) months prior to the expiration of the term of this Lease or any renewal term, Landlord may exhibit the premises to prospective tenants or purchasers. If tenant shall not be personally present to open and permit an entry into said premises, at any time, when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents may enter the same without in any manner affecting the obligations and covenants of this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever, for the care, maintenance or repair of the building or any part thereof, except as otherwise herein specifically provided. 18.2 ROOF. Use of the roof and air space above the Leased Premises is reserved exclusively to the Landlord. l9. TENANT'S PROPERTY. 19.1 TAXES ON LEASEHOLD OR PERSONALTY. Tenant shall be responsible for and shall pay before delinquent all municipal, county or state taxes assessed during the term of this Lease against any leasehold interest or personal property or any kind, owned by or placed in, upon or about the Leased Premises by the Tenant. -23- 19.2 LOSS AND DAMAGE. Landlord shall not be responsible for any damage to property of Tenant or of others located on the Leased Premises nor for the loss of or damage to any property of Tenant or of others by theft or otherwise. All property of Tenant kept or stored on the Leased Premises shall be so kept or stored at the risk of Tenant only and Tenant shall hold Landlord harmless from any and all claims arising out of damage to same, including subrogation claims by Tenant's insurance carriers. 20. HOLDING 0VER, SUCCESSORS. 20.1 HOLDING OVER. On the last day of the term of this Lease, or upon any earlier termination of this Lease, or upon re-entry by Landlord upon the Leased Premises, Tenant shall peaceably and without notice of any sort, quit and surrender the Leased Premises to Landlord in accordance with the requirements of this Lease. Tenant specifically agrees that in the event Tenant retains possession and does not so quit and surrender the Leased Premises to Landlord, then Tenant shall pay to Landlord: 20.1.1 all damages that Landlord may suffer on account of Tenant's failure to so surrender and quit the Leased Premises, and Tenant will indemnify and save Landlord harmless from and against any and all claims made by succeeding tenant of the Leased Premises against Landlord on account of delay of Landlord in delivering possession of the Leased Premises to said succeeding tenant to the extent that such delay is occasioned by the failure of tenant to so quit and surrender said Leased Premises. 20.1.2 rent for each month or any applicable portion of a month of such holding over at one and one-half the amount payable for the month immediately preceding the termination of this Lease, during the time Tenant thus remains in possession. The additional one-half of rent may be applied as a setoff against any damages incurred under paragraph 20.1.1. The provisions of this paragraph do not waive any of Landlord's rights of re-entry or any other right under the terms of this Lease, If Tenant shall fail to surrender the Leased Premises as herein provided, no new tenancy shall be created and Tenant shall be guilty of unlawful detainer. 20.2 SUCCESSORS. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, successors, and permitted assigns of the said parties; and if there shall be more than one Tenant, they shall be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefits of any assignee of Tenant unless the assignment to such assignee has been approved by Landlord in writing. Nothing contained in this Lease shall in any manner restrict Landlord's right to assign or encumber this Lease and, in the event Landlord sells or transfers its Interest in the Project and the purchaser or transferee assumes Landlord's obligation and covenants, Landlord shall thereupon be relieved of all further obligations hereunder. 21. ENVIRONMENTAL ACTIONS AND INDEMNIFICATION. 21.1 Tenant agrees not to store in, on or outside of the Leased Premises any hazardous materials of any type, as defined by any local, state or federal agency or any other toxic, -24- corrosive, reactive or ignitable material without first obtaining in each case all governmental approvals and permits required for such storage. 21.2 Tenant shall indemnify and hold Landlord harmless for any and all damages, potential damages, losses, liabilities, costs and expenses of corrective work, obligations, penalties, fines, impositions, fees, levies, lien removal or bonding costs, claims litigator, demands, defenses, judgments, disbursements, or expenses (including without limitation attorneys fees and expert's fees) related to, concerning or arising out of Tenant causing or permitting, knowingly or unknowingly, directly or indirectly, hazardous material to pollute or contaminate the Leased Premises, the Project or any part thereof, or any person or property in, on, under, above or outside of the Project, excluding that caused by the gross negligence, intentional acts or willful misconduct of the Landlord, its officers, directors, agents or employees. The terms of this paragraph shall survive the expiration or earlier termination of the term of this Lease. 22. QUIET ENJOYMENT. Upon payment by the Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Leased Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under the Landlord, subject, nevertheless, to the terms and conditions of this Lease. 23. MISCELLANEOUS. 23.1 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying the check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in the Lease or by law. 23.2 NO PARTNERSHIP. Landlord does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or Joint venturer or a member of a joint enterprise with Tenant. 23.3 FORCE MAJEURE. In the event that either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period of such delay. The provisions of this Section 23.3 shall not operate to excuse Tenant from the prompt payment of rent, additional rent or any other payments required by the terms of this Lease. 23.4 NOTICES. Except as otherwise required by statute, any notice, demand, request or other communication required or permitted be given under this Lease shall be in writing, signed by the party giving it and conclusively deemed to have been properly given to and received and to be effective (a) if sent by tested telex or cable, or hand-delivered against receipt therefor, or by -25- telecopy or other facsimile transmission, or by express mail service, on the day on which delivered, as the case may be, at the respective addresses hereafter set forth, or if such day of delivery is not a business day, on the first business day thereafter, or (b) if sent by registered or certified mail, return receipt requested, postage prepaid, on the third business day after the day on which deposited in any post office station or letter box, addressed at the respective addresses hereafter set forth: If to Landlord: New Town Commerce Center, Ltd. 1400 N.W. 107th Avenue Miami, Florida 33172 With a copy to: Attorney, New Town Commerce Center, Ltd. 1400 N.W. 107th Avenue Miami, Florida 33172 If to Tenant: Yannick Tessier, President Galacticomm, Inc. 4101 S.W. 47 Avenue Ft. Lauderdale, Florida 33134 With a copy to: Peter Bronstein, Esq. 701 Brickell Avenue Suite 2000 Miami, Florida 33131 Any party hereto may, by giving five (5) days written notice to the other party hereto, designate any other address in substitution of the foregoing address to which notice shall be given. 23.5 CAPTIONS AND SECTION NUMBERS. The captions, section numbers, article numbers and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or described the scope or intent of such sections or articles of this Lease nor in any way affect this Lease. 23.6 TENANT DEFINED, USE OF PRONOUN. The word "Tenant" shall be deemed and taken to mean each and every person mentioned as a Tenant herein be the same, one or more and if there shall be more than one Tenant. Any notice required or permitted by the terms of this Lease may be given by or to any one thereof, and shall have the same force and effect as if given or to all thereof. The use of the neuter singular pronoun to refer to Landlord or Tenant shall be deemed a proper reference even though Landlord or Tenant may be an individual, a partnership, a corporation, or a group of two or more individuals or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where there is more than one Landlord or Tenant and to either corporations, associations, partnerships, or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. 23.7 BROKER'S COMMISSION. Each of the parties represents and warrants that it has dealt with no broker or brokers in connection with the execution of this Lease, except Colliers Lehrer Adler, and each of the parties agrees to indemnify the other against, and hold it harmless from, all liabilities arising from any claim for brokerage commissions or finder's fee resulting from the indemnitor's acts (including, without limitation, the cost of counsel fees in connection therewith) except for the persons or entities set forth above. Landlord shall pay any fees or commissions due Colliers, Lehrer, Adler as a result of this Lease. -26- 23.8 PARTIAL INVALIDITY. In any term, covenant or condition of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by law. 23.9 EFFECTIVENESS OF LEASE. The submission of this Lease for examination does not constitute a reservation of or option for the Leased Premises and this Lease becomes effective as a lease only upon execution and delivery thereof by Landlord to Tenant, and the receipt of the full security deposit, and if paid by check, subject to clearance. 23.10 RECORDING. Tenant shall not record this Lease or any memorandum thereof without the written consent and joinder of Landlord. 23.11 LIABILITY OF LANDLORD. Anything contained in this Lease, at law or in equity to the contrary notwithstanding, Tenant expressly acknowledges and agrees that there shall at no time be or be construed as being any personal liability by or on the part of Landlord under or in respect of this Lease or in any way related hereto or the Leased Premises; it being further acknowledged and agreed that Tenant is accepting this Lease and the estate created hereby upon and subject to the understanding that it shall not enforce or seek to enforce any claim or judgment or any other matter, for money or otherwise, personally or directly against any officer, director, stockholder, partner, principal (disclosed or undisclosed), representative or agent of Landlord, but will look solely to the Landlord's interest in the Project for the satisfaction of any and all claims, remedies or judgements (or other judicial process) in favor of Tenant requiring the payment of money by Landlord in the event of any breach by Landlord of any of the terms, covenants or agreements to be performed by Landlord under this Lease or otherwise, subject, however, to the prior rights of any ground or underlying lessors or the holders of the mortgages covering the Project, and no other assets of Landlord or owners of Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant's claims; such exculpation of personal liability as herein set forth to be absolute, unconditional and without exception of any kind. 23.12 TIME OF THE ESSENCE. Time is of the essence of this Lease and each and all of its provisions in which performance is a factor. 23.13 ESTOPPEL INFORMATION. When the commencement date is determined, Tenant agrees, upon request of Landlord, to execute and deliver to Landlord, without charge and within ten (10) days following request therefor, a written declaration in form satisfactory to Landlord: (i) ratifying this Lease; (ii) confirming the commencement and expiration dates of the term of this Lease; (iii) certifying that Tenant is in occupancy of the Leased Premises, the date Tenant commenced operating Tenant's business therein and that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended, except by such writings as shall be stated; (iv) that all conditions under this Lease to be performed by Landlord have been satisfied; except such as shall be stated; (v) that there are no defenses or offsets against the enforcement of this Lease by Landlord, or stating those claimed by Tenant; (vi) reciting the amount of advance rental, if any, paid by Tenant and the date to which rental has been paid; (vii) reciting the amount of security deposited with Landlord, if any, and (viii) certifying the status of any other matter reasonably requested by Landlord or its lender. Tenant agrees to execute and deliver similar declarations at any time and from time to time and within ten (10) days following request therefor by Landlord or by any mortgage holder or -27- ground or underlying lessor and or purchaser of the Project, and each of such parties shall be entitled to rely upon such written declaration made by Tenant. Tenant's failure or refusal to execute the declaration required hereunder within ten (10) days following the request therefor will constitute a default hereunder and Landlord shall have such rights and remedies against Tenant as is available to Landlord for Tenant's default. Landlord agrees to provide Tenant with an estoppel letter of similar form and substance within ten (10) days of written request. 23.14 CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 23.15 CHOICE OF LAW. This Lease shall be governed by the laws of the State of Florida. The venue for any action filed in connection herewith by either party shall be the county in which the Leased Premises are located. 23.16 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE LEASED PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE. 23.17 COUNTERPARTS. This Lease may be executed in multiple copies, each of which shall be deemed an original, and all of such copies shall together constitute one and the same instrument. 23.18 ACCEPTANCE OF FUNDS BY LANDLORD. No receipt of money by the Landlord from the Tenant after the termination of this Lease or after the service of any notice or after the commencement of any suit, or after final judgment for possession of the Leased Premises shall reinstate, continue or extend the term of this Lease or affect any such notice, demand or suit. 23.19 RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present a health risk to persons who are [ENTIRE TWO LINES ARE ILLEGIBLE] from your county public health unit. 23.20 ATTACHMENTS. Any Exhibits as well as any Amendments which are attached to this Lease are a part of this Lease and are incorporated herein as if fully set forth herein. 23.21 INSERTIONS. No insertion, whether handwritten or otherwise, which attempts or purports to change or modify the standard type written provisions of this Lease and/or attachments or amendments thereto shall be effective or binding unless and until each party to this Lease initials the change(s) or modification(s) in the margin immediately adjacent thereto. A general initialing by the parties of a page, at the top or bottom thereof, shall not be deemed compliance with the above-referenced requirement and shall not bind either party to the terms or conditions of the insertion. -28- 23.22 RENEWAL OPTIONS. The terms of options to renew, if any, are subject to the following conditions: 23.22.1 Any right to renew is conditioned upon Tenant not being in default under any terms of the Lease at the time of election to exercise the option and at the time the extended period is to begin. 23.12.2 If Tenant shal1 elect to exercise any option, it shall do so by giving Landlord written notice at least one hundred eighty (180) days prior to the expiration of the primary term of the Lease, or the then current extension thereof. Failure to provide proper notice within the time required shall terminate the pending or remaining option rights of the Tenant. 23.22.3 Option Terms: Tenant shall have two (2) options for additional three (3) year terms. For each year of any option period exercised, the base rent shall increase four percent (4%) over the prior year. Base year for the option periods shall be 2001. 23.23 RIGHT OF FIRST OFFER. Tenant shall have the right of first offer on suites 105 and 106 at 4101 S.W. 47th Avenue, Fort Lauderdale, Florida. This right of first offer is conditioned on the space offered being contiguous with space currently occupied by Tenant; it being the intent that the offer for suite 106 is not available unless suite 105 is leased by Tenant pursuant to this paragraph or otherwise. Further, no right of first offer may be exercised by Tenant unless at least two years remain in the initial Term or exercised option period. When availability of each suite is determined by Landlord, Landlord shall notice Tenant in writing of that fact. Such notice shall occur at least ninety (90) days before the space is available. Tenant shall have five (5) business days after receiving notice to exercise its right to lease the space. If accepted, the base rental rate shall be the then applicable rate charged per square foot for suites 101-104, with a term to run consecutively with suites 101-104, including options and the proportionate share in paragraph 2.3.1 shall be adjusted accordingly. Suites 105 and 106 shall be delivered "as is" and Tenant shall be responsible for cost and expense of all fees, plans and tenant improvements. In that regard the concept of paragraph 3.2 of the Lease shall apply. 23.24 REMOVAL OF EXISTING TENANT. Suite 104 is currently occupied by Equipment and Parts. Tenant shall pay Landlord the sum of twenty-two thousand dollars ($22,000) for the expense of removing Equipment and Parts from Suite 104, $10,000 to be paid upon execution of this Lease and the remaining $12,000 on the date Suite 104 is vacated by Equipment and Parts. The anticipated date for Equipment and Parts vacating Suite 104 is on or before September l, 1997. In the event Equipment and Parts has not vacated Suite 104 by September 1, l997, the following times shall be extended and/or adjusted by adding the period of time between September l, 1997 and date Suite 104 is vacated: 23.24.1 the one (1) month period in paragraph 1.2.l 23.24.2 the Term of the Lease in paragraph 1.5 23.24.3 each "Period" set out in the schedule of paragraph 2.1; the additional time shall be added to the first Period referenced and the remaining Periods to be adjusted accordingly to reflect one year increments thereafter. -29- 23.25 ENTIRE AGREEMENT. This Lease and the Exhibits, and Amendments, if any, attached hereto and forming a part hereof, set forth all covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Leased Premises and there are no covenants, promises, conditions or understandings, either oral or written, between them other than are herein set forth. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease of the day and year first above written. WITNESSES: LANDLORD: NEW TOWN COMMERCE CENTER, LTD. BY: Colliers Lehrer Adler, as Manager /s/ Paula C. Harrell /s/ Brett Harris - -------------------------------- --------------------------------------- Brett Harris, Managing Director of Asset Services [ILLEGIBLE] - -------------------------------- TENANT: Galacticomm, Inc. /s/ Yannick Tessier --------------------------------------- /s/ Paula C. Harrell - -------------------------------- Yannick Tessier, President [ILLEGIBLE] - -------------------------------- -30- EX-10.16 4 EXHIBIT 10.16 CONTRACT NO. CUSTOM/FS AGREEMENT BETWEEN AT&T CORP. AND IVIEW SOFTWARE FOR AT&T WORLDNET (SERVICEMARK) SERVICES AUGUST 9, 1996 PLEASE RETURN ALL ORIGINALS OF THIS DOCUMENT TO: AT&T AT&T WORLDNET (SERVICEMARK) SERVICES CONTRACTS GROUP, ROOM24C55 55 CORPORATE DRIVE BRIDGEWATER, NJ 08807 AT&T - PROPRIETARY AT&T WORLDNET (SERVICE MARK) SERVICES AGREEMENT This Agreement ("Agreement") is between AT&T Corp., a New York corporation with an office at 55 Corporate Drive, Bridgewater, NJ 08807 ("AT&T"), and iView Software, with offices at 300 S. Pine Island Road, Suite 261, Plantation, FL, 33324 ("Customer"). AT&T and Customer agree that the following terms and conditions apply to the provision and use, within the United States, of the AT&T WorldNet (Service mark) Services and related products ("Services") referenced in any Attachments to this Agreement signed by Customer and accepted in writing by AT&T. Such Attachments are an integral part of this Agreement. 1. CONTRACT PERIOD This Agreement is effective when signed by Customer and accepted in writing by AT&T ("Effective Date"). The Contract Period commences on the Effective Date and, unless terminated in accordance with the provisions herein, will continue in effect for as long as any Service is provided pursuant to any Attachment to this Agreement. 2. BILLING AND PAYMENT A. Customer shall pay AT&T all charges due under this Agreement, without deduction or setoff. All payments shall be mailed to the address stated on the bill. Bills will be issued monthly and are payable within thirty (30) days from the date shown on the invoice. B. Customer agrees to pay any taxes due on the Services, however designated (excluding taxes on AT&T's net income), unless Customer provides a valid tax exemption certificate. 3. TERMINATION A. If Customer fails to pay any outstanding charges within ten (10) days after receipt of written notice from AT&T of delinquency, or if Customer fails to perform or observe any other material term or condition of this Agreement within thirty (30) days after receipt of written notice from AT&T of such failure, AT&T may terminate this Agreement. Customer shall then be liable for all charges incurred as of the date of termination and, if applicable, any termination charges associated with termination of the Attachments. All such charges that are not previously due and payable shall be payable within thirty (30) days from the date shown on AT&T's invoice. B. If AT&T fails to perform or observe any material term or condition of this Agreement within thirty (30) days after receipt of written notice from Customer of such failure, Customer may terminate the Attachments materially affected by the breach. Except for charges incurred as of the date of termination, Customer shall have no further financial obligations to AT&T for such terminated Attachments. Page 1 AT&T - PROPRIETARY 4. CUSTOMER RESPONSIBILITIES A. Customer shall ensure that all Customer-provided equipment on its premises that connects to the Services will perform according to published technical specifications for such equipment and AT&T's interface specifications and otherwise complies with AT&T's specifications for the Services. B. In cases in which Customer and AT&T agree to have AT&T act as Customer's authorized agent for ordering and coordinating local access circuits for a Service outside of this Agreement, a separate Agency Agreement will be executed. C. Customer is solely responsible for the content of any transmissions using the Services, or any other use of the Services, by Customer or by any person or entity Customer permits to access the Services (a "User"). Customer agrees that it and any User will not use the Services for illegal purposes, or to interfere with or disrupt other network users, network services or network equipment. Violations of the foregoing by Customer or any User may result in removal of violative communications and early termination of the Service. Disruptions include, but are not limited to, distribution of unsolicited advertising or chain letters, propagation of computer worms and viruses, and using the network to make unauthorized entry to any other machine accessible via the network. Customer shall defend, indemnify, and hold harmless AT&T (as defined in Paragraph 7.A.) from and against all liabilities and costs (including reasonable attorneys' fees) arising from any and all claims by any person based upon the content of any transmissions by Customer or any User using the Services or any other use of the Services by Customer or any User. D. Customer shall limit access to and use of the Services to its employees, agents, and contractors (and, in the case of a Customer that is a nonprofit educational institution, to employees and students), shall not authorize any person to use the Services other than for Customer's business purposes, and shall not resell or otherwise generate income by providing access to the Services to any User. If Customer permits Users to access the Services, Customer shall defend, indemnify, and hold harmless AT&T (as defined in Paragraph 7.A.) from and against all liabilities and costs (including reasonable attorneys' fees) arising from any and all claims by any such Users in connection with the Services, regardless of the form of action, whether in contract, tort, warranty, or strict liability. However, Customer shall have no obligation to indemnify and defend AT&T against claims for direct damages to real or tangible personal property, or for bodily injury or death, proximately caused by AT&T's negligence. E. To the extent deemed necessary by Customer, Customer shall implement security procedures necessary to limit access to the Services to Customer's authorized users and shall maintain a procedure external to the Services for reconstruction of lost or altered files, data or programs. F. Customer is responsible for establishing designated points of contract to interface with AT&T. G. Customer agrees to comply, and to use best efforts to cause all Users to comply, with United States law with regard to the transmission of technical data which is exported from the United States using the Services. H. Customer understands that Services provided under this Agreement (including Internet use) may require registrations and related administrative reports that are public in nature. In addition, Customer agrees that AT&T may include its name: IP (Internet Protocol), electronic mail, street, and other addresses; and, telephone information in directories. Page 2 AT&T - PROPRIETARY 5. AT&T RESPONSIBILITIES AT&T will provide the Services as described in the Attachments. However, AT&T's policy is to continually improve its products and services, and so may from time to time change the Services as provided to Customer under this Agreement. In the event that AT&T changes the Services in any way that materially decreases the level of the Services available to Customer, Customer shall have a one time right to terminate this Agreement within the thirty (30) day period following receipt of notice of such change by giving AT&T seven (7) days' written notice of termination and payment of all charges incurred as of the termination date, but without any termination liability to AT&T. 6. LICENSES AT&T hereby grants to Customer a personal, nonexclusive, nontransferable license during the term of this Agreement to use, in object code form, all software and documentation ("Licensed Material") which may be furnished to Customer under this Agreement. Customer agrees to use its best efforts to ensure that its employees and users of all Licensed Material hereunder comply with the terms and conditions set out in this Agreement. Customer also agrees to refrain from taking any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent to the software. All Licensed Material furnished to Customer under this Agreement shall be used by Customer only to support Customer's use of the Services, shall not be reproduced or copied in whole or in part, shall not be removed from the United States, and shall be returned to AT&T at the conclusion of the term of this Agreement. In addition, to the extent Licensed Material includes software or documentation provided by any third party pursuant to a sublicense from AT&T ("Third Party Material"), Customer agrees, as a condition to the right to use such Third Party Material, to abide by the terms and conditions of such sublicense (including such additional end user terms and conditions as shall be required by such sublicense), and Customer shall be bound by such terms and conditions by virtue of its use of such Third Party Material following notice of such terms and conditions. 7. WARRANTY AND LIMITATION OF LIABILITY A. FOR PURPOSES OF THIS PARAGRAPH 7, "AT&T" INCLUDES AT&T, ANY AFFILIATED AND SUBSIDIARY COMPANIES OF AT&T, ANY SUBCONTRACTORS AND SUPPLIERS OF THE FOREGOING, AND THE DIRECTORS, EMPLOYEES, OFFICERS, AGENTS, SUBCONTRACTORS AND SUPPLIERS OF ALL OF THEM. B. NO TARIFFED SERVICES ARE PROVIDED UNDER THIS AGREEMENT, PRODUCTS OR SERVICES SOLD OR PROVIDED UNDER ANOTHER CONTRACT OR UNDER TARIFF ARE GOVERNED SOLELY BY THE TERMS OF THAT CONTRACT OR TARIFF, INCLUDING ANY WARRANTIES, GUARANTEES, OR OTHER OBLIGATIONS OF AT&T UNDER THAT CONTRACT OR TARIFF. AT&T MAKES NO WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, WITH RESPECT TO ANY SERVICES OR PRODUCTS PROVIDED UNDER THIS AGREEMENT, AND AT&T EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. C. AT&T'S LIABILITY TO CUSTOMER ON ACCOUNT OF ANY ACTS OR OMISSIONS RELATING TO THIS AGREEMENT SHALL BE LIMITED TO PROVEN DIRECT DAMAGES IN AN AGGREGATE AMOUNT NOT TO EXCEED THE GREATER OF: (A) $25,000 FOR EACH SITE PROVISIONED FOR SERVICES UNDER THIS AGREEMENT OR (B) THE AMOUNTS PAID BY CUSTOMER FOR SERVICES DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE INCIDENT GIVING RISE TO THE CLAIM FOR DAMAGES, IN NO EVENT TO EXCEED AN AGGREGATE OF $50,000 IN THE CASE OF Page 3 AT&T - PROPRIETARY (A) OR (B). HOWEVER, NOTHING IN THIS SUBPARAGRAPH 7.C., LIMITS AT&T'S LIABILITY FOR DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY, OR FOR BODILY INJURY OR DEATH, PROXIMATELY CAUSED BY AT&T'S NEGLIGENCE. D. AT&T SHALL NOT BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR HARM TO BUSINESS, LOST PROFITS, LOST SAVINGS OR LOST REVENUES, WHETHER OR NOT AT&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. AT&T SHALL NOT BE LIABLE FOR ANY DAMAGE THAT CUSTOMER MAY SUFFER ARISING OUT OF USE OF, OR INABILITY TO USE, THE SERVICES OR PRODUCTS PROVIDED HEREUNDER UNLESS SUCH DAMAGE IS CAUSED BY AN INTENTIONAL ACT OF AT&T. AT&T SHALL NOT BE LIABLE FOR UNAUTHORIZED ACCESS BY THIRD PARTIES TO CUSTOMER'S TRANSMISSION FACILITIES OR PREMISE EQUIPMENT OR FOR UNAUTHORIZED ACCESS TO OR ALTERATION, THEFT, LOSS OR DESTRUCTION OF CUSTOMER'S NETWORK, SYSTEMS, APPLICATIONS, DATA FILES, PROGRAMS, PROCEDURES OR INFORMATION THROUGH ACCIDENT, FRAUDULENT MEANS OR DEVICES, OR ANY OTHER METHOD. EXCEPT AS EXPRESSLY SET FORTH IN OR CONTEMPLATED BY THIS AGREEMENT, IN ANY INSTANCE INVOLVING PERFORMANCE OR NONPERFORMANCE BY AT&T WITH RESPECT TO SERVICES OR PRODUCTS PROVIDED HEREUNDER, CUSTOMER'S SOLE REMEDY SHALL BE: (A) IN THE CASE OF SERVICES, REFUND OF A PRO RATA PORTION OF THE PRICE PAID FOR SERVICES WHICH WERE NOT PROVIDED; OR, (B) IN THE CASE OF PRODUCTS, REPAIR OR RETURN OF THE DEFECTIVE PRODUCT TO AT&T FOR REFUND, AT THE OPTION OF AT&T, EXCEPT AS EXPRESSLY SET FORTH IN OR CONTEMPLATED BY THIS AGREEMENT, IN THE CASE OF REFUND FOR LOST SERVICES, CREDIT WILL BE ISSUED ONLY FOR PERIODS OF LOST SERVICE GREATER THAN TWENTY-FOUR (24) HOURS. E. THESE LIMITATIONS OF LIABILITY SHALL APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, WARRANTY, STRICT LIABILITY OR TORT, AND SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY. F. AT&T SHALL NOT BE RESPONSIBLE FOR: (1) SERVICE IMPAIRMENTS CAUSED BY ACTS WITHIN THE CONTROL OF CUSTOMER, ITS EMPLOYEES, AGENTS, SUBCONTRACTS, SUPPLIERS OR LICENSEES; (2) INTEROPERABILITY OF SPECIFIC CUSTOMER APPLICATIONS; (3) INABILITY OF CUSTOMER TO ACCESS OR INTERACT WITH ANY OTHER SERVICE PROVIDER THROUGH THE INTERNET, OTHER NETWORKS OR USERS THAT COMPRISE THE INTERNET OR THE INFORMATIONAL OR COMPUTING RESOURCES AVAILABLE THROUGH THE INTERNET; (4) INTERACTION WITH OTHER SERVICE PROVIDERS, NETWORKS, USERS OR INFORMATIONAL OR COMPUTING RESOURCES THROUGH THE INTERNET; (5) SERVICES PROVIDED BY OTHER SERVICE PROVIDERS; OR, (6) PERFORMANCE IMPAIRMENTS CAUSED ELSEWHERE ON THE INTERNET. 8. CONFIDENTIALITY A. All tangible technical or business information disclosed by one party to the other party and marked as proprietary shall be deemed the property of the disclosing party and shall be returned upon request. The receiving party shall: (1) hold such information in confidence for three (3) years after any termination of this Agreement; (2) restrict disclosure of such information solely to its employees and employees of its affiliated companies with a need to know; (3) and use a reasonable degree of care (in no event less than the same degree of care as it uses for its own proprietary information) to prevent the unauthorized disclosure, use or publication of such proprietary information. Page 4 AT&T - PROPRIETARY B. The receiving party shall have no obligation to preserve the confidentiality of any information which; (1) was previously known to the receiving party or any of its affiliated companies free of any confidentiality obligation; (2) is disclosed to third parties by the disclosing party without restrictions; (3) becomes publicly available by other than unauthorized disclosure; (4) was not identified as confidential or proprietary; or, (5) is independently developed by the receiving party. C. The pricing, terms and conditions of this Agreement are proprietary information and shall be treated in confidence. 9. GENERAL A. IF A DISPUTE ARISES WITH RESPECT TO THIS AGREEMENT, OR ANY SERVICES PROVIDED OR WORK PERFORMED HEREUNDER. EITHER PARTY MAY SUBMIT THE DISPUTE TO A SOLE MEDIATOR SELECTED BY THE PARTIES OR, AT ANY TIME, TO MEDIATION BY THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). IF NOT THUS RESOLVED, IT MAY BE REFERRED BY EITHER PARTY TO A SOLE ARBITRATOR SELECTED BY THE PARTIES OR TO AAA ARBITRATION. THE ARBITRATION SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT AND JUDGMENT ON THE AWARD MAY BE ENTERED BY ANY COURT HAVING JURISDICTION. THE PARTIES SHALL AGREE ON WHAT, IF ANY, DISCOVERY SHALL BE MADE AVAILABLE; IF THE PARTIES FAIL TO AGREE ON THE FORM OF DISCOVERY WITHIN 30 DAYS AFTER THE APPOINTMENT OF THE ARBITRATOR, THERE SHALL BE NO DISCOVERY OR ISSUANCE OF ANY SUBPOENAS. THE ARBITRATOR SHALL NOT LIMIT, EXPAND, OR MODIFY THE TERMS OF THIS AGREEMENT NOR AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES PERMITTED UNDER THIS AGREEMENT, AND EACH PARTY WAIVES ANY CLAIM TO SUCH EXCESS DAMAGES. THE ARBITRATOR SHALL NOT HAVE ANY ABILITY TO AWARD ANY EQUITABLE REMEDIES, AND SHALL BE LIMITED TO REMEDIES AVAILABLE AT LAW. THE ARBITRATOR SHALL NOT HAVE THE RIGHT TO AWARD ANY DAMAGES IN EXCESS OF DAMAGES THAT COULD LAWFULLY BE AWARDED BY A COURT OF COMPETENT JURISDICTION. THE ARBITRATOR SHALL ISSUE A WRITTEN DECISION CONTAINING FINDINGS AND CONCLUSIONS ON ALL SIGNIFICANT ISSUES. A REQUEST BY A PARTY TO A COURT FOR INTERIM PROTECTION SHALL NOT AFFECT EITHER PARTY'S OBLIGATION HEREUNDER TO MEDIATE AND ARBITRATE. EACH PARTY SHALL BEAR ITS OWN EXPENSES AND AN EQUAL SHARE OF ALL COSTS AND FEES OF THE MEDIATION AND/OR ARBITRATION. ANY MEDIATOR OR ARBITRATOR SELECTED SHALL BE COMPETENT IN THE LEGAL AND TECHNICAL ASPECTS OF THE SUBJECT MATTER OF THIS AGREEMENT. THE CONTENT AND RESULT OF MEDIATION AND/OR ARBITRATION SHALL BE HELD IN CONFIDENCE BY ALL PARTICIPANTS, EACH OF WHOM WILL BE BOUND BY AN APPROPRIATE CONFIDENTIALITY AGREEMENT. B. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES, EXCEPT THAT PARAGRAPH 9.A., SHALL BE INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT. C. Any legal action arising from or in connection with this Agreement, or any Services provided or work performed hereunder, must be brought within two (2) years after the cause of action arises, except to the extent that such action arises from claims which are subject to an indemnification obligation. D. Neither party shall publish or use any advertising, sales promotions, press releases or other publicity which use the other party's name, logo, trademarks or service marks without the prior written approval of the other party. Page 5 AT&T - PROPRIETARY E. Nothing in this Agreement shall create or vest in Customer any right, title, or interest in the Services, other than the right to use the Services under the terms and conditions of this Agreement. F. Except for IP addresses expressly registered in Customer's name, all IP addresses (classes A, B, and C) shall remain at all times the property of AT&T and shall be nontransferable. Upon request by Customer at least seven (7) days prior to termination of this Agreement, AT&T shall grant a single transition period to facilitate Customer's transition from IP addresses assigned to Customer under this Agreement and in use as of the termination date of this Agreement. Such transition period shall begin immediately following the termination date of this Agreement and shall extend for thirty (30) days, during which time Customer may continue its use of IP addresses assigned to Customer under this Agreement and in use as of the termination date of this Agreement. G. If any portion of this Agreement is found to be invalid or unenforceable, the remaining portions shall remain in effect and the parties will begin negotiations for a replacement of the invalid or unenforceable portion. H. Except as expressly provided herein, neither party may assign this Agreement without the prior written consent of the other party. Such consent shall be in the sole discretion of the party requested to give consent. Any attempt to sublicense, assign or transfer (except as expressly provided herein) any of the rights, duties or obligations under this Agreement in derogation hereof shall be null and void. By the provision of notice in accordance with this Agreement, AT&T shall have the right to assign this Agreement and to assign its rights and delegate its obligations and liabilities under this Agreement, either in whole or in part (an "Assignment") to any entity that is, or that was immediately preceding such Assignment; (i) a current or former subsidiary, business unit, or division of AT&T; or, (ii) an entity in which AT&T had an ownership interest. The notice of Assignment shall state the effective date thereof. Upon the effective date and to the extent of the Assignment, AT&T shall be released and discharged from all obligations and liabilities under this Agreement. Such Assignment, release and discharge shall be complete and shall not be altered by the termination of the affiliation between AT&T and the entity assigned rights or delegated obligations and liabilities under this Agreement. I. AT&T's performance obligations under this Agreement shall be solely to Customer and not to any third party. Other than as expressly set forth herein, this Agreement shall not be deemed to provide third parties with any remedy, claim, right of action, other right. J. AT&T SHALL NOT HAVE ANY LIABILITY FOR DAMAGES OR DELAYS DUE TO FIRE, EXPLOSION, LIGHTNING, POWER SURGES OR FAILURES, STRIKES OR LABOR DISPUTES, WATER, ACTS OF GOD, THE ELEMENTS, WAR, CIVIL DISTURBANCES, ACTS OF CIVIL OR MILITARY AUTHORITIES OR THE PUBLIC ENEMY, INABILITY TO SECURE PRODUCTS OR TRANSPORTATION FACILITIES, FUEL OR ENERGY SHORTAGES, ACTS OR OMISSIONS OF COMMUNICATIONS CARRIERS OR SUPPLIERS, OR OTHER CAUSES BEYOND ITS CONTROL WHETHER OR NOT SIMILAR TO THE FOREGOING. K. All formal notices, requests, demands and other communications required or permitted under this Agreement shall be in writing unless otherwise specified in this Agreement and shall be deemed to have been duly made and received when personally served, or when mailed by first class mail, postage prepaid, to the addresses indicated on Page 1 of this Agreement. The parties may change the addresses on ten (10) days' prior written notice. In addition, the parties may provide other notices in connection with Page 6 AT&T - PROPRIETARY the provision of the Services under this Agreement (such as notices relating to service outages and maintenance) by other means, including by telephone, facsimile or electronic mail. L. Each party will comply with all applicable federal, state, local and other laws, regulations, rules, and ordinances applicable to the provision and use of the Services under this Agreement. M. THIS IS THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER AND IT SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS, OR UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES. No change, modification, or waiver of any of the terms of this Agreement shall be binding unless included in a written agreement and signed by both parties. - ------------------------------------------------------------------------------- CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY THEM. - ------------------------------------------------------------------------------- iVIEW SOFTWARE AT&T CORP. By: /s/ Peter Berg By: /s/ Florence C. Sylvester ----------------------------------- ------------------------------- (Authorized Signature) (Authorized Signature) Peter Berg Florence C. Sylvester - --------------------------------------- ------------------------------- (Typed or Printed Name) (Typed or Printed Name) President Contract Manager - --------------------------------------- ------------------------------- (Title) (Title) 8/13/96 8/15/96 - --------------------------------------- ------------------------------- (Date) (Date) Page 7 AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT COVER SHEET PAGE 1 This Attachment to the AT&T WorldNet/Service mark/ Services Agreement between Customer and AT&T Corp. ("Agreement") covers AT&T WorldNet/Service mark/ Managed Internet Service (Plus) ("MIS Plus") and is an integral part of the Agreement. This Attachment consists of: /bullet/ Cover Sheet /bullet/ Appendix 1 MIS Plus Service Description /bullet/ Appendix 2 MIS Plus Pricing /bullet/ Appendix 3 MIS Plus Additional Terms and Conditions /bullet/ Appendix 4 (If Applicable) Agency Agreement authorizing AT&T to act as Customer's agent to order access circuits for connection to MIS Plus SERVICE PERIOD This Attachment is effective when signed by Customer and accepted in writing by AT&T ("Attachment Effective Date"). The Service Period will commence on the ANAD (as defined in Appendix 3) and, unless terminated in accordance with the provisions in the Agreement, will continue in effect for a period of Thirty-six (36) months. At the end of the Service Period, this Attachment will continue in effect on a month-to-month basis until terminated by either party giving the other party at least thirty (30) days prior written notice. TYPE OF CONTRACT NEW TYPE OF ACCESS PRIVATE LINE TAX EXEMPT NO CHECK ALL OPTIONS THAT APPLY TO THIS ATTACHMENT [ ] Customer elects OPTION A - PREMISES EQUIPMENT PACKAGE [ ] Customer elects OPTION B - PRIMARY DOMAIN NAME SERVICE ADMINISTRATION (UP TO 15 ZONES/150 KBYTES) [ ] Customer elects OPTION C - NETWORK NEWS FEED SERVICE [ ] Customer elects OPTION D - PACKET FILTERING [ ] Customer elects OPTION E - USAGE REPORTS [ ] Customer elects OPTION F - ADDITIONAL SECONDARY DNS (UP TO 30 ZONES/300 KBYTES) CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS EACH OF THE TERMS AND CONDITIONS IN THIS ATTACHMENT AND AGREES TO BE BOUND BY THEM. IVIEW SOFTWARE AT&T BY: /s/ PETER BERG ACCEPTED: /s/ FLORENCE C. SYLVESTER ----------------------------------- -------------------------- (Authorized Signature) (Authorized Signature) PETER BERG FLORENCE C. SYLVESTER ----------------------------------- ------------------------------- (Typed or Printed Name) (Typed or Printed Name) PRESIDENT CONTRACT MANAGER ----------------------------------- ------------------------------- (Title) (Title) 8/15/96 8/15/96 ----------------------------------- ------------------------------- (Date) (Date) AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-1 1. SERVICE DESCRIPTION AT&T WorldNet/Service mark/ Managed Internet Service (Plus) ("MIS Plus") is a value-added service providing managed connectivity to the Internet and other value-added features. MIS Plus is provided in conjunction with BBN Planet. MIS Plus provides managed Internet access, along with the following optional advanced services: /bullet/ Premises Equipment Package /bullet/ Primary Domain Name Service ("DNS") Administration (up to 15 zones/150 Kbytes) /bullet/ Network News Feed /bullet/ Packet Filtering /bullet/ Usage Reports /bullet/ Additional Secondary DNS (up to 30 zones/300 Kybtes) The Service Description includes Implementation Support, Network Operations and Services, Technical Services and Support, and Advanced Services. 1.1 SERVICE DELIVERY MIS Plus is available at access bandwidth sizes ranging from 56 Kps to 45 Mbps, and will be provisioned to ensure adequate throughput for MIS Plus on a shared-facilities basis consistent with the selected access bandwidth size. AT&T reserves the right to aggregate network facilities based on AT&T network engineering design criteria. Access options include Digital Private Line (ACCUNET/Registered trademark/ Digital Services). Frame Relay (AT&T InterSpan/Registered trademark/ Frame Relay Service) and Static Integrated Network Access ("SINA"). When Customer elects to employ Digital Private Line (ACCUNET/Registered trademark/ Digital Services) access, a 10 Mbps access bandwidth is available. Customers purchasing 10 Mbps access bandwidth in connection with Digital Private Line access must provide: (1) a Digital Link 3100 CSU/DSU; and, (2) and a 45 Mbps access circuit exclusively for use in connection with MIS Plus. No portion of the Customer-provided 45 Mbps MIS Plus Service access circuit may be used for any application other than the 10 Mbps (including but not limited to M28 functionality, channel separation arrangements, or other shared uses). Where Customer elects to employ AT&T InterSpan/Registered trademark/ Frame Relay access, Customer must make available exclusively for use in connection with the MIS Plus Service: (1) one Permanent Virtual Circuit (PVC) equal to the MIS Plus access bandwidth specified in MIS Pricing Appendix 2, Schedule II attached hereto; (2) one AT&T InterSpan/Registered trademark/ Frame Relay ingress access port equal in size or larger than the PVC identified above: and, (3) a POTS line for diagnostic purposes. The PVC, ingress access port and POTS line may not under any circumstances be shared among MIS Plus Service and any Frame Relay or other devices. Where Customer elects to employ SINA, Customer must make available, exclusively for use in connection with the MIS Plus Service: (1) bandwidth equal or greater in size than the MIS Plus access bandwidth specified in MIS Pricing Appendix 2, Schedule II attached hereto; and, (2) a POTS line. 1.2 INTERNET CONNECTIVITY OPTIONS As consideration for the provision of Services hereunder, Customer irrevocably waives any and all rights it may have under service agreement(s) with AT&T (predating this Agreement) to purchase Internet connectivity in connection with AT&T InterSpan Frame Relay Services. Under this Attachment, MIS Plus is available only within the 48 contiguous states of the United States. 2. IMPLEMENTATION SUPPORT MIS Plus is a complete set of Internet access services and support. MIS Plus includes everything necessary to assure that a business customer will establish and maintain a successful connection to the Internet. MIS Plus includes expert implementation support, pro-active monitoring of service levels, and problem diagnosis and resolution. Implementation support, including Option "A" for customer premises equipment, is described below. 2.1 SITE PLANNING AND PREPARATION AT&T will provide site planning information to Customer's designated point of contact in order to assist Customer in preparing for installation of MIS Plus. Customer will be responsible for providing space and power for a dedicated router and other premises equipment, an attachment to Customer's internal network, and at least one computer with TCP/IP support. AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-2 MIS Plus includes the registration and propagation of network numbers, domain names, and routing information as required for Customer's environment. 2.2 COMMUNICATIONS CIRCUIT ORDERING AT&T will (on behalf of Customer) order and arrange for installation of the Digital Private Line or other circuit necessary to connect Customer's locations as specified in the initial Sales Order form, to the designated AT&T Point of Presence ("Access Facilities"). AT&T arranges for termination of the circuit in proximity to the planned location of the premises equipment. Any inside wiring charges shall be the responsibility of Customer. AT&T shall use reasonable efforts to work with suppliers of Access Facilities to resolve problems with Access Facilities, but AT&T shall not be responsible for interruptions to MIS Basic caused by Access Facilities or installation delays caused by suppliers of Access Facilities. Arrangements shall be made for AT&T to be given adequate and necessary control over Access Facilities as required in connection with AT&T's provision of MIS Basic. 2.3 EQUIPMENT PROVISIONING AND STAGING Customer may purchase and own premises equipment as required by AT&T to use in connection with MIS Plus, but shall assign full management and operational control of that equipment, including passwords, to AT&T. MIS Plus customers must maintain the premises equipment to current hardware and software revision levels to make sure that AT&T continues to be able to exercise operational control. An MIS Implementation Engineer will work with Customer's Implementation coordinator to assure that the proper equipment is used and configured correctly. Customer is able to lease or purchase CPE equipment under option "A". With or without Option "A," customers may, for additional charges as specified in the Pricing Schedule (Appendix 2), select either remote installation, referred to as Tele-Install (via telephone), of premises equipment, or on-site installation. Tele-Install entails having MIS technicians remotely assist Customer's technical liaison in the configuration of the premises equipment as necessary to ensure that the premises equipment is configured properly to work with MIS Plus and validate the integration of Customer's existing internal network with MIS Plus. In the case of the on-site implementation option, an MIS technician is dispatched to Customer's premises to perform the installation. 2.4 ACCEPTANCE TESTING The MIS Network Operations Center ("NOC") conducts tests to Customer's locations as specified in the initial Sales Order form to ensure that the on-site router can successfully communicate over MIS Plus. The acceptance test verifies the proper operation of the on-site equipment package, the local access facility, and the AT&T access infrastructure. 2.5 INITIAL INTEGRATION SERVICE MIS Plus includes Internet Integration support. This includes consultation and assistance towards performance of the following initial configuration and orientation tasks on Customer's fully-installed internet host: /bullet/ TCP/IP software configuration /bullet/ SMTP mail host configuration Such activities will be undertaken on AT&T-approved computing systems with suitable TCP/IP software. The integration phase of implementation is considered complete when the criteria defined in Section 2.6 are met. 2.6 ACCEPTANCE CRITERIA Project implementation for Customer shall be considered complete and service billing will be initiated when the following criteria have been met: 1. The access router and associated premises equipment is correctly configured and installed at Customer locations specified in the initial Sales Order form, and IP connectivity to the Internet (including routing outside the MIS network) exists. MIS technical staff verifies IP connectivity through a test which sends repeated pings through the Internet to Customer site and verifies that the pings were received. In cases when the premises equipment configuration supports it, technical staff verifies IP routing through a traceroute test. AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-3 2. If Customer has its own domain, Customer's domain is registered with InterNIC (a process which is managed by AT&T) and any AT&T-supplied primary and secondary DNS servers are operational for Customer's domain. 3. Any required packet filtering, if Option "D" is selected, has been installed in the MIS router. After completion of the acceptance criteria specified above, Customer may request that MIS Plus be re-installed and tested at locations different from that specified in the initial Sales Order form ("New Location") for the duration of the Service Period, provided that the total number of Customer locations does not exceed that specified in the initial Sales Order form. AT&T shall re-install and re-test MIS Plus at New Locations for an additional installation fee as specified in Appendix 2. Following satisfaction of the above-specified acceptance criteria for the locations specified in the initial Sales Order form, service billing will continue throughout the Service Period regardless of re-installation and testing activities at any New Location. 2.7 NEW CUSTOMER TRAINING Installation includes classroom training on networking topics such as establishing domain name servers, configuring gateways, implementing subnetting schemes and processing electronic mail addresses. The two days of training for two people will be offered at a designated MIS Training Facility. 3. NETWORK OPERATIONS AND SERVICE MIS network operations and technical support staff is dedicated to providing high network availability and performance. MIS is monitored 24 hours per day, 365 days a year by experienced operators and technicians. The NOC will coordinate operations with Customer's designated points of contact, hardware vendors and operators of other networks. The NOC will perform proactive operations support and troubleshooting of network and service infrastructure and provide pro-active monitoring of service levels and problem diagnosis and resolution. In addition, AT&T will regularly generate and store premises router performance information in the NOC for Customer's retrieval and use. 3.1 NETWORK MONITORING The NOC uses SNMP-based (Simple Network Management Protocol) software to monitor the network. This software is coupled with additional tools to monitor non-SNMP equipment, domain name servers, NNTP (Network News Transfer Protocol) news feeds, and other network services. The monitoring software reports the status of the network to a display that is monitored throughout the day. Changes in the network status are logged to provide the NOC with the ability to evaluate staff responsiveness and network availability. 3.2 COMMUNICATION LINK MAINTENANCE The NOC is responsible for maintaining the communications link between Customer and the MIS network. This includes problem diagnosis, and any necessary vendor interaction for dispatch and repair. 3.3 PREMISES EQUIPMENT MAINTENANCE MIS Plus includes maintenance for dedicated premises equipment for MIS Plus customers who purchase CPE option "A". The MIS operations staff shall diagnose failures with the assistance of Customer's designated point of contact designated by Customer at the site, and determine whether equipment replacement is required. Customer's designated point of contact shall perform the actual replacement with telephone assistance (as necessary) from the NOC. If Customer has selected Option "A" (Premises Equipment Package), Customer shall receive replacement equipment via next-business-day courier. 4. TECHNICAL SERVICES AND SUPPORT 4.1. SOFTWARE AND CONFIGURATION SUPPORT MIS technical staff will coordinate software updates and configuration changes as required for the router and CSU/DSU. AT&T will notify the Customer's designated point of contact of software changes, and will seek where feasible to perform maintenance during off-hours. AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-4 4.2 24-HOUR HOTLINE All hotline calls will be answered by a touch-tone menu system. The hotline will be staffed on a 24-hour basis. 4.3 TROUBLE TICKET SYSTEM The Network Operations Trouble Ticket System allows the NCC to track problems from initial report through satisfactory resolution. As the MIS staff works to resolve problems, the current status is always entered in the Trouble Ticket System. The system's electronic mail and fax interfaces allow these entries to be provided automatically to interested customer technical contacts. 4.4 FAULT ISOLATION AND PROBLEM RESOLUTION Fault isolation involves coordination among network operators and technicians, staff at the affected site and other vendors. Depending on the specific technologies used, the process may involve testing equipment, reconfiguring routers, or diagnosing communications linkproblems. The MIS operations staff will also seek to keep AT&T customer informed of any widespread outages on connecting networks. 4.5 SECURITY PROCEDURES MIS security procedures include keeping customers informed of known and suspected security breaches. Information about security problems will be reviewed and may be distributed to customer sites by the MIS operations staff. Fax, phone calls and e-mail will be employed, based on the urgency and nature of the problem. MIS Plus customers may designate a list of up to 5 contacts who will be authorized to request site disconnection or reconnection as necessary. The security procedures employed with MIS Plus constitute only part of a comprehensive security plan for any user of Internet services, and do not guarantee network security or prevent security incidents. Customer is responsible for implementing security measures to protect its network, systems, applications, data files, programs, procedures and information from unauthorized access, alteration, theft, loss or destruction. 4.6 SECONDARY DOMAIN NAME SERVICE (DNS) AT&T provides MIS Plus customers with secondary domain name service as necessary for successful presence on the network (up to 10 zones and 100 Kbytes of zone file data). Secondary DNS service is maintained on multiple servers which are physically diverse and connected to the MIS network at different points. DNS administration is performed during normal business hours and changes are limited to an average of one per week. 5. OPTIONAL SERVICES MIS Plus customers may subscribe to the following optional advanced services. OPTION "A" - PREMISES EQUIPMENT PACKAGE MIS Plus customers may choose to obtain pre-configured customer premises equipment from AT&T as part of the service for an additional monthly fee, or on a purchase basis at a one-time cost. AT&T will replace equipment in need of repair under this Option as provided in Section 3.3 of Appendix 1, Service Description. Customers are able to lease or purchase, for an additional fee, a redundant CPE configuration for use as a replacement spare. Customers who are using Digital Private Line (ACCUNET/Registered trademark/ Digital Services) access may choose one of three premises equipment packages. Package one: a TCP/IP router, CSU/DSU, loopback connector, transceiver, and associated cables. Package two: a TCP/IP router, loopback connector, transceiver, and associated cables. Package three: a CSU/DSU only. These configurations are provided and managed by AT&T. For Customers who use Frame Relay (AT&T InterSpan/Registered trademark/ Frame Relay Service) or SINA access, only premise equipment Package two is available. The premises equipment package (Package two) for Frame Relay and SINA Customers consists of a TCP/IP router, a 14.4 Kbps diagnostic modem, loopback connector, transceiver, and associated cables. This configuration is provided and managed by AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-5 AT&T. Customer must provide and manage a multiplexor or a CSU/DSU with drop and insert capability and a POTS line. Customers may choose between Token Ring, AUI or 10BASE-T and 10BASE-2 transceiver types. Where a different type of transceiver is required, Customer is responsible for providing it. The package of service equipment utilized by each customer is pre-assembled and subjected to a hardware quality acceptance test by MIS technical staff before delivery to Customer site. To ease installation, equipment is either pre-configured before delivery to Customer or remotely configured by MIS technical staff after it is connected to the network. OPTIONS "B" - PRIMARY DOMAIN NAME SERVICE (DNS) ADMINISTRATION (up to 15 zones/150 Kbytes) The translation of domain names (e.g., xxx.com) to underlying Internet addresses is performed by primary domain name servers. Therefore, establishment of a primary DNS is a prerequisite for each Internet presence. Secondary DNS backup is part of MIS Plus (up to 10 zones and 100 Kbytes of associated zone file data). By purchasing Option "B," Customers may have MIS provide primary DNS service rather than incurring the cost of setting up and managing a primary DNS system in-house. This option provides primary DNS for up to 15 zones and 150 Kybtes of associated zone file data. Customers may purchase multiple instances of primary DNS to satisfy their primary DNS requirements. MIS engineers work with Customer to develop and implement a DNS strategy. This includes working with InterNIC to register Customer's domain name. Customer is responsible for all InterNIC fees related to provisioning and use of domain names. Once in place, changes to the DNS data base are performed during normal business hours and limited to an average of one request per week. OPTION "C" - NETWORK NEWS FEED SERVICE Network News is a forum of groups that conduct national and international dialogues on thousands of topics. Hundreds of thousands of people throughout the world participate in this "bulletin board." The forum allows people to post and read about new findings, products, services, or commentary within a special interest group or a wider audience. Under Option "C", MIS Plus offers comprehensive or selective access to these news groups, as chosen by the Customer. AT&T IS NOT RESPONSIBLE IN ANY WAY FOR THE CONTENT OF ANY NEWS GROUPS THAT MAY BE ACCESSED BY CUSTOMER THROUGH THIS FEATURE. As a prerequisite to Network News Feed Service, Customer must install a news server provided by Customer. Once the server is in place and the service is established, MIS Plus feeds selected news information from the MIS central news server to Customer's server via NNTP making it available to all authorized users on Customer's private network. MIS staff will track evolving use of news feed service and make recommendations on upgrading access line speed to keep pace with news feed requirements. Customers may request changes to the list of news groups fed from the MIS server during normal business hours at a frequency averaging up to one change request per week. OPTION "D" - PACKET FILTERING Packet Filtering is a useful component of a comprehensive security plan. Under Option "D," AT&T oversees implementation and ongoing management of packet filtering tables resident in the premises router. These filters help control which outside addresses can enter a customer's internal network and help screen internal users from connecting with predesignated outside destinations via the Internet. The MIS engineering staff works with Customer to develop a customized packet filtering plan. Once this design phase is complete, AT&T builds the filtering tables in the router and maintains the filtering tables as Customer's environment evolves. Routine changes to filters are limited to an average of one request per week. OPTION "E" - USAGE REPORTS Network Usage Reports are a traffic summary that allow customers to track access line utilization and peak activity periods. With this information, customers can proactively plan access line bandwidth upgrades as overall utilization grows. The usage report is provided weekly and details utilization as a percentage of available bandwidth across the week. This information is collected from Customer premises equipment using SNMP tools. AT&T - PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 1 MIS PLUS SERVICE DESCRIPTION PAGE 1-6 OPTION "F" - ADDITIONAL SECONDARY DNS (up to 30 zones/300 Kybtes) Secondary DNS, as back-up to the Primary DNS, is included as part of MIS Basic for up to 10 zones and 100 Kbytes of associated zone file data. By selecting this option, Customer can choose to increase that coverage to up to 30 zones and 300 Kbytes of associated zone file data. Customers may purchase multiple instances of secondary DNS to satisfy their secondary DNS requirements. AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 2 MIS PLUS PRICING PAGE 2-1 PRICING The prices specified in this Appendix 2 apply to each location specified in the initial Sales Order from and provisioned for MIS Plus and, other than Access Facilities Changes under Schedule IV, are guaranteed for the Service Period only and only for services initially purchased under this Attachment. At the end of the Service Period, all discounts and discount plans will cease, and AT&T may amend the prices from time-to-time provided that AT&T gives Customer at least sixty (60) days prior written notice. Different prices may also apply to services, features, options and locations selected after the Attachment Effective Date. Schedule I: Implementation Support Fees SERVICE LEVEL TELE-INSTALL WAIVED Notes: (1) Implementation support fees are a one-time charge due within 30 days of the service commencement. (2) Travel expenses also apply to on-site installations more than 125 miles from any MIS service center: Dallas, Chicago, Atlanta, Cambridge, New York City, Palo Alto and Washington, DC. (**) 45 Mbps Installation costs will be provided to the customer on a case by case basis. Schedule II: AT&T Worldnet/Service mark/ Managed Internet Service (Plus) ACCESS BANDWITH RATES AND MONTHLY SERVICE FEE 45 MBPS QTY - --- 1 $17,500 each Notes: (**) 45 Mbps Service costs will be quoted on a case by case basis. Additional charges may apply for services or features not specified herein, including location changes and professional services. Schedule III: Options Services OPTIONS Option "A" Premises Equipment Package A-1. MIS Token Ring Router CPE CISCO 2502 (1 Token Ring Port and 2 Serial Ports) and CSU/DSU -N/A- CISCO 2513 (1 Token Ring Port, 1 Ethernet Port and 2 Serial Ports) and CSU/DSU -N/A- MIS 2 Ethernet Port CPE CISCO 2514 (2 Ethernet Ports and 1 Serial Port) and CSU/DSU -N/A- A-2. Routers AT&T PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 2 MIS PLUS PRICING PAGE 2-2 -N/A- A-3. CSU/DSU -N/A- (**) 45 Mbps prices will be quoted on a case by case basis. INSTALLATION MONTHLY (ONE TIME) ------- ------------ Option "B" Primary DNS Administration (Up to 15 Zones/150 Kbytes) -NA- -NA- Notes: (1) Secondary DNS Administration included in MIS Plus includes up to 10 zones and 100 Kbytes of associated zone file data. Primary DNS Administration includes up to 15 zones and 150 Kbytes of associated zone file data. INSTALLATION MONTHLY (ONE TIME) ------- ------------ Option "C" Network News Feed Service -NA- -NA- Option "D" Packet Filtering -NA- -NA- Option "E" Usage Reports -NA- -NA- Option "F" Additional Secondary DNS (up to 30 Zones/300 Kbytes) -NA- -NA- Schedule IV: Access Facilities Charges Access Facilities will be priced on an individual case basis by your AT&T Representative from Customer location to the point where service availability has been defined. The following access types will be supported: Digital Private Line (ACCUNET/registered/ Digital Services) Frame Relay (AT&T InterSpan/registered/ Fram Relay Service) Static Integrated Network Access (SINA) Others as approved by AT&T on a case-by-case basis Service will be available at all AT&T InterSpan and ACCUNET Points of Presence within the 48 contiguous states of the United States. AT&T PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 2 MIS PLUS PRICING PAGE 2-3 Schedule V: Special Options Redundant Configuration Option -NA- Special Options include Redundant Configurations. With this Special Option, available to MIS Plus customers that select Option "A" Premises Equipment Package, dual premises equipment is provided to the customer, and each router and CSU/DSU pair is homed into a different AT&T POP. This Special Option does not include loadsharing of outbound traffic across the Access Facilities (which is the responsibility of the customer's host) or inbound traffic balancing across the Access Facilities (which cannot be assured in this configuration). Special Options also include the following services offered by BBN Planet: Web Advantage /Service mark/ Service and Site Patrol /Service mark/ Service. See your AT&T Representative for descriptions and terms and conditions relating to these services. Special Options will be priced out on an individual basis by your AT&T Representative. THE TOTAL MONTHLY PRICE IS THE SUM OF APPLICABLE PORTIONS OF SCHEDULES II, III, IV AND V. Schedule VI: Moving Fees Re-installation of MIS Service at a New Location $1,000 per location Re-installation services performed outside of standard operating hours (8:00 a.m. to 5:00 p.m. Monday through Friday) $500 per location AT&T PROPRIETARY AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 3 MIS PLUS ADDITIONAL TERMS AND CONDITIONS PAGE 3-1 1. IMPLEMENTATION Customer and AT&T will mutually agree upon a Scheduled Network Activation Date ("SNAD") for each location site specified in the initial Sales Order form. AT&T will use all reasonable efforts to ensure that service is provided by that date. 2. BILLING Billing for each location specified in the initial Sales Order form shall begin on the earlier of (i) the Actual Network Activation Date ("ANAD") for that location; or, (ii) if implementation is postponed beyond the SNAD at the request of Customer, due to Customer's failure to meet its obligations under this agreement, or otherwise due to circumstances within Customer's control, the SNAD as set forth in Section 1, Implementation. The ANAD for a Customer location is when Customer is notified by AT&T that MIS Plus is being provided to that location. 3. TERMINATION IF A 12-MONTH SERVICE PERIOD IS SELECTED, THE FOLLOWING APPLIES: Customer may terminate this Attachment by thirty (30) days' prior written notice to AT&T and payment of all charges incurred as of the termination date and a Termination Charge. The Termination Charge will consist of: (1) 100% of the scheduled payments for each of the months remaining through month 12 of the Service Period; (2) all discounts (if any) received by Customer; and, (3) any Access Facilities cancellation charges or other charges incurred by AT&T as a result of such termination. IF A 24-MONTH SERVICE PERIOD IS SELECTED, THE FOLLOWING APPLIES: Customer may terminate this Attachment by thirty (30) days' prior written notice to AT&T and payment of all charges incurred as of the termination date and a Termination Charge. The Termination Charge will consist of: (1) 100% of the scheduled payments for each of the months remaining through month 12; (2) 50% of the scheduled payments for each of the months remaining through month 24; (3) all discounts (if any) received by Customer; and, (4) any Access Facilities cancellation charges or other charges incurred by AT&T as a result of such termination. IF A 36-MONTH SERVICE PERIOD IS SELECTED, THE FOLLOWING APPLIES: Customer may terminate this Attachment by thirty (30) days' prior written notice to AT&T and payment of all charges incurred as of the termination date and a Termination Charge. The Termination Charge will consist of (1) 100% of the scheduled payments for each of the months remaining through month 12; (2) 50% of the scheduled payments for each of the months remaining through month 24; (3) 25% of the scheduled payments for each of the months remaining through month 36; (4) all discounts (if any) received by Customer; and, (5) any Access Facilities cancellation charges or other charges incurred by AT&T as a result of such termination. For both the 12-month, 24-month, and 36-month terms, thirty (30) days after the ANAD of the first location, Customer shall have a one time right to terminate this Attachment within the ten (10) day period thereafter by giving AT&T seven (7) days' written notice of termination and payment of all charges incurred as of the termination date, but without payment of any Termination Charges other than as provided under item (3) in the preceding paragraph. Customer may terminate this Attachment at any time during the Service Period without liability (other than for any Access Facilities cancellation charges or other charges incurred by AT&T as a result of such termination) provided that Customer replaces this Attachment with a new Attachment or Agreement with AT&T for MIS of term and revenue commitments at the same locations equal to or greater than the aggregate term and revenue commitments contained in this Attachment. AT&T PROPRIETARY AT&T WORLDNET/service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 3 MIS PLUS ADDITIONAL TERMS AND CONDITIONS PAGE 3-2 4. AT&T-PROVIDED EQUIPMENT ON CUSTOMER'S PREMISES The following applies to any AT&T provided equipment located on Customer's premises: AT&T will deliver, install, and maintain the equipment, as more specifically described in Appendix 1, Service Description. Customer, at its own expense, will provide: (i) an equipment room environmentally compliant with local laws of each country and other environmental conditions as specified by AT&T; (ii) reasonable access to the equipment at times specified by AT&T; and, (iii) adequate work space, heat, light, ventilation and electrical outlets. Customer is responsible for removal of any hazardous material (e.g., asbestos) or correction of any hazardous condition on Customer's premises that affects AT&T's performance. The equipment shall not be removed, relocated, modified, or attached to non-AT&T equipment by Customer without prior written authorization from AT&T, which shall not be unreasonably withheld. Except for equipment subject to the Purchase Option under Option "A" (Premises Equipment Package), title to the equipment will remain with AT&T. Customer will, however, be liable for repair charges or the replacement cost of the equipment if it is damaged or lost due to theft, negligence, intentional acts, unauthorized acts or other causes within the reasonable control of Customer, its agents or employees, Customer will bear all risk of loss to equipment subject to the Purchase Option under Option "A" (Premises Equipment Package). Except for equipment subject to the Purchase Option under Option "A" (Premises Equipment Package), upon termination of this Agreement, or earlier termination of the applicable AT&T provided equipment option, Customer will make the equipment available for removal or return it in the same condition as originally installed, ordinary wear and tear excepted or Customer will pay for restoration of the equipment to such condition. AT&T shall not be obligated to restore the premises to its original condition. If Customer does not return the equipment or make it available for removal by AT&T, then Customer shall be liable for its then-current market value. EQUIPMENT PROVIDED TO CUSTOMER SUBJECT TO THE PURCHASE OPTION UNDER OPTION "A" IS PROVIDED BY AT&T "AS IS," WITH NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF ANY KIND (SUCH AS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). AT&T'S SOLE OBLIGATION WITH RESPECT TO SUCH EQUIPMENT SHALL BE AS PROVIDED UNDER SECTION 3.3 OF APPENDIX 1, SERVICE DESCRIPTION. AT&T WORLDNET/Service mark/ MANAGED INTERNET SERVICE (PLUS) ATTACHMENT APPENDIX 4 AGENCY AGREEMENT PAGE 4-1 This Agency Agreement is between AT&T Corp. ("AT&T") and Customer. 1. EFFECTIVE DATE This Agreement is effective upon execution of the AT&T Worldnet/Service mark/ Managed Internet Service (Plus) Attachment and shall continue in effect as long as the MIS Attachment is in effect. 2. SERVICES Customer authorizes AT&T to arrange for and coordinate installations and disconnection of tariffed and other communications services as required by Customer for its MIS Plus configuration. 3. PAYMENT OF CHARGES All recurring and non-recurring charges made by vendors for service ordered on Customer's behalf shall be paid by Customer directly and are not the responsibility of AT&T. 4. LIMITATION OF LIABILITY Customer's sole and exclusive remedies shall be: (a) in the event of breach of this Agency Agreement by AT&T, Customer's right to terminate this Agency Agreement; (b) Customer's right to direct damages for damage to real or tangible personal property or damages for bodily injury or death, proximately caused by AT&T's negligence; and, (c) Customer's right to receive a credit for charges billed to Customer by vendors solely as a result of negligence by AT&T. Except as provided in subparagraphs (b) and (c) above, AT&T shall have no liability for either direct, indirect, incidental or consequential damages (including lost profits) resulting from or arising in connection with this Agency Agreement. AT&T shall not be responsible for non-performance by any vendor from which AT&T orders service or equipment on Customer's behalf. 5. COVERAGE This Agency Agreement is in effect for all of Customer's MIS Plus locations unless otherwise specified by Customer in writing. THIS IS THE ENTIRE AGENCY AGREEMENT BETWEEN CUSTOMER AND AT&T WITH RESPECT TO MIS PLUS. ANY AMENDMENTS, MODIFICATIONS OR CHANGES MUST BE IN WRITING AND SIGNED BY CUSTOMER AND AT&T. IVIEW SOFTWARE AT&T By: /s/ Peter Berg By: /s/ Florence C. Sylvester ----------------------------- -------------------------------- (Authorized Signature) (Authorized Signature) Peter Berg Florence C. Sylvester ----------------------------- -------------------------------- (Typed or Printed Name) (Typed or Printed Name) President Contract Manager ----------------------------- -------------------------------- (Title) (Title) 8/13/96 8/15/96 ----------------------------- -------------------------------- (Date) (Date) AT&T PROPRIETARY EX-10.26 5 EXHIBIT 10.26 [LOGO] PROMISSORY NOTE Customer No. 5500003334 $200,000.00 Date: NOVEMBER 5, 1997 Maturity Date: DEMAND, 19__ [X] IF CHECKED, THIS NOTE IS A MASTER [ ] IF CHECKED, THIS NOTE IS A NOTE (See Section 5) RENEWAL FOR VALUE RECEIVED, the undersigned ("Borrower") promise(s) to pay to the order of CAPITAL BANK, a Florida banking corporation ("Bank"), at the office of Bank at 1221 Brickell Avenue, Miami, Florida 33131, or at such other place or places as the holder of this Note from time to time may designate in writing, the principal sum of TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($200,000.00) in lawful money of the United States (the "Loan"), together with interest in like lawful money from the date funds are advanced under this Note at the applicable annual rate set forth below, to be computed on the basis of the actual number of days elapsed and a year of 360 days. Borrower and all endorsers, sureties, guarantors and any other persons liable or to become liable with respect to the Loan are each included in the term "Obligor" as used in this Note. 1. PAYMENTS. Borrower shall pay the interest and principal of this Note as follows: (A) PRINCIPAL: DUE AND PAYABLE ON DEMAND (B) INTEREST: DUE AND PAYABLE MONTHLY COMMENCING DECEMBER 5, 1997 Borrower shall pay all amounts owing under this Note in full when due without set-off, counterclaim, deduction or withholding for any reason whatsoever. If any payment falls due on a day other than a day on which Bank is open for business (a "Business Day"), then such payment shall instead be made on the next succeeding Business Day, and interest shall accrue accordingly. Any payment received by bank after 2:00 p.m. shall not be credited against the indebtedness under this Note until at least the next succeeding Business Day. 2. INTEREST RATE. the unpaid principal balance of the Loan shall bear interest at: [X] A floating rate of interest equal to ONE AND 50/100 percent (1.50%) over the Wall Street Journal Prime Rate per annum, subject to provisions of Section 4 of this Note, with the floating interest rate under this Note to be adjusted on the first day of each month. (Prime Rate shall mean, at any time, the rate of interest quoted in the Wall Street Journal, Money Rates Section as the "Prime Rate" (currently defined as the base rate on corporate loans posted by at least 75% of the nation's thirty (30) largest banks), with the Prime Rate in effect on the first day of a month being applicable to the entire month. In the event that the Wall Street Journal quotes more than one rate, or a range of rates as the Prime Rate, then the Prime Rate shall mean the average of the quoted rates. In the event that the Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the three largest U.S. money center commercial banks, as determined by Bank); or [ ] A fixed interest rate of ____________________________ percent (____________%) per annum. 3. SECURITY INTERST. As security for the payment of this Note, and any renewals, extensions or modifications hereof, and any other liablilities, indebtedness or obligations of Borrower to Bank, however or whenever created, Borrower hereby grants to Bank a security interest in any and all collateral pledged to the Bank as set forth below and any and all other collateral now or hereafter pledged to the Bank pursuant to a security agreement which provides for such security interest: ALL INVENTORY, ACCOUNTS, CONTRACT RIGHTS, GENERAL INTANGIBLES, FURNITURE, FIXTURES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, WHEREVER SITUATED, NOW OWNED BY THE BORROWER OR HEREAFTER ACQUIRED, TOGETHER WITH THE PROCEEDS OF THE ABOVE DESCRIBED COLLATERAL AS SECURITY FOR PRESENT AND FUTURE ADVANCES. including all proceeds and products thereof and rights in connection therewith. Whether or not specific property is described above, as additional security for the payment of this Note, any renewals, extensions or modifications thereof, and any other liabilities of Borrower to Bank, however or whenever created, Borrower hereby pledges, assigns and grants to Bank, a security interest in and lien on any and all property of Borrower of every kind (whether tangible or intangible) now or hereafter delivered to or left in or coming into the actual or constructive possession, control or custody of Bank, whether expressly as collateral security or for any other purpose (including cash, deposits, accounts, bills, checks, drafts, collections, balances, notes, stocks, dividends and all rights to subscribe for securities incident to, declared, or granted in connection with such property), and property described in collateral receipts or other documents signed or furnished by Borrower, and any and all replacements of any of the foregoing, whether or not in the possession of Bank. All such property and all other property securing Borrower's liabilities to Bank will hereinafter be referred to as the "Collateral". The Collateral shall also serve as security for all other liablities (primary, secondary, direct, contingent, sole, joint or several), due or to become due or which may be hereafter contracted or acquired, of each Obligor (as defined above) to Bank, whether such liablities arise in the ordinary course of business or not. It is expressly agreed that if the Collateral or a portion thereof is real estate, all covenants, conditions and agreements contained in the mortgage are hereby made a part of this Note and a default thereunder is a default under this Note. It is further agreed that if a separate security agreement is executed by any Obligor, all covenants, conditions and agreements contained in the security agreement are made a part of this Note to the extent that the terms of the security agreement are consistent with the terms of this Note and a default thereunder is a default under this Note. Bank may continue to hold any Collateral after the payment of this Note, if at the time of the payment and discharge hereof, Borrower or any Obligor shall be then directly or contingently liable to Bank, as borrower, endorser, surety or guarantor of any other note, draft, bill of exchange, or other instrument, or otherwise, and Bank may thereafter exercise the rights with respect to the Collateral granted herein even though this Note shall have been surrendered to Borrower. Any married person who signs this Note hereby expressly agrees that recourse may be had against his or her separate property for any obligation secured by the Collateral under this Note. (a) Additions to, releases, reductions or exchanges of, or substitutions for the Collateral, payments on account of the Loan or increases of the same, or other loans made partially or wholly upon the Collateral, may from time to time be made without affecting the provisions of this Note or liabilities of any Obligor hereto. Bank shall have no responsibility for ascertaining any maturities, calls, conversions, exchanges, offers, tenders or similar matters relating to any of the Collateral, nor for informing the undersigned with respect to any thereof. Bank shall not be bound to take any steps necessary to preserve any rights in the Collateral against prior parties, and Borrower shall take all necessary steps for such purposes. Bank or its nominee need not collect dividends or interest on or principal of any Collateral or give any notice with respect to it. (b) Bank shall have, without limitation, the following rights, each of which may be exercised at Bank's sole discretion at any time whether or not this Note is due: (i) to pledge, assign, sell, transfer or otherwise dispose of this Note and the Collateral, whereupon Bank shall be relieved of all duties and responsibilities and relieved from any and all liability with respect to any Collateral so pledged or transferred, and any pledgee or transferee shall for all purposes stand in the place of Bank hereunder and have all the rights of Bank hereunder; (ii) to transfer the whole or any part of the Collateral into the name of itself or its nominee; (iii) to notify the Obligors on any Collateral to make payment to Bank of any amounts due or to become due on any Collateral and hold same as additional Collateral and upon an occurrence of an Event of Default (as defined in Section 6 of this Note) apply it to the principal or interest hereon or to any liabilities secured hereby; (iv) to demand, sue for, collect, or make any compromise or settlement it deems desirable with respect to the Collateral; and (v) to take possession or control of any proceeds of the Collateral. 4. MAXIMUM INTEREST RATE. In no event shall any agreed or actual exaction charged, reserved or taken as an advance or forbearance by Bank as consideration for the Loan exceed the limits (if any) imposed or provided by the law applicable from time to time to the Loan for the use or detention of money or for forbearance in seeking its collection, and Bank hereby waives any right to demand such excess. If the floating rate of interest based on the Prime Rate (as set forth in Section 2 of this Note) should increase such maximum interest rate permitted by applicable law (if any), then notwithstanding any contrary provision in this Note or any other Loan Document (as defined in Section 6 of this Note) and without necessity of further agreement or notice by Bank or any Obligor, the unpaid pricipal balance of the Loan, shall thereupon bear interest at such maximum lawful rate. If the floating interest rate should thereafter decrease below such maximum lawful rate, the Loan shall neverthless continue to bear interest at such maximum lawful rate until Bank receives the full amount of interest delayed by application of such maximum lawful rate under this paragraph, at which time the Loan shall once again bear interest at the then applicable floating interest rate under Section 2. In the event that the interest provisions of this Note or any exactions provided for in this Note or any other Loan Document (as defined in Section 6 of this Note) shall result at any time or for any reason in an effective rate of interest that transcends the maximum interest rate permitted by applicable law (if any), then without further agreement or notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by Bank in excess of those lawfully collectible as interest shall be applied against the principal of the Loan immediately upon Bank's receipt thereof, with the same force and effect as though the payor had specifically designated such extra sums to be so applied to principal and Bank had agreed to accept such extra payments(s) as a premium-free prepayment or prepayments. During any time that the Loan bears interest at the maximum lawful rate (whether by application of this paragraph, the Default Rate provisions of this Note or otherwise), interest shall be computed on the basis of the actual number of days elapsed and the actual number of days in the respective calendar year. Pursuant to Florida Statutes, Section 687.12, the interest rate charged is authorized by Florida Statutes, Chapter 665. 5. MASTER NOTE. If this Note is a Master Note, Borrower is extended a non-binding, discretionary line of credit up to but not to exceed the amount shown herein. Bank, in its sole descretion, may make advances pursuant to this Note from time to time and it is therefore contemplated that the outstanding balance may fluctuate accordingly. Nothing herein shall be construed as a warranty or representation by Bank that it will at any time make advances to Borrower. Any request for an advance under this Note shall be subject to review and approval by Bank. Borrower hereby agrees to pay any additional fees imposed by the State of Florida including additional documentary stamp tax or intangible tax when advances are made under the line of credit or upon any renewals thereof. 6. EVENTS OF DEFAULT. The entire unpaid principle balance of the Loan, together with all unpaid interest accrued thereon and all other sums owing under this Note or any other instrument or document executed by any Obligor in connection with the Loan (this Note and all such instruments and documents, including, without limitation, any guaranties, agreements, undertakings, contracts, mortgages, security agreements, assignments and other documents executed to secure the Loan being referred to in this Note as the "Loan Documents"), shall at the option of Bank become immediately due and payable without notice or demand upon the occurrance of any one or more of the following events ("Events of Default"), regardless of the cause thereof and whether within or beyond the control of any Obligor: (a) the failure of any Obligor to pay any sum when due under this Note, or the failure of any Obligor to pay any other sum when due under any other Loan Document (and the expiration of any applicable grace period provided in such Loan Document for that payment); (b) the failure of any Obligor to observe or perform any covenant or agreement in any Loan Document, or the occurrence of any other default (whether concerned with the payment of money or otherwise) under any Loan Document, and the expiration of any applicable grace period provided in such Loan Document for the cure of that failure or default; (c) if any representative, warranty, affidavit, certificate or statement made or delivered to Bank by any Obligor or on any Obligor's behalf from time to time in connection with the Loan shall be deemed by Bank to be false, incorrect or misleading; (d) the death or mental or physical incapacity of any Obligor who is a natural person, or the dissolution or merger or consolidation or termination of existence of any other Obligor, or the failure or cessation or liquidation of the business of any Obligor, or a material change in the business of any Obligor, or if the person(s) controlling any Obligor which is a business entity shall take any action authorizing or leading to the same; (e) if any Obligor shall default in the payment of any indebtedness for borrowed money (whether direct or contingent or whether matured or accelarated) to Bank or to any person whomsoever, including, without limitation, any affiliate or subsidiary of Bank, or if any Obligor shall become insolvent or unable to pay such Obligor's debts as they become due; (f) the anticipatory repudiation by any Obligor of that Obligor's obligations under the Loan Documents, or any declaration by any Obligor of intention not to perform any such obligations as and when the same become due; (g) the disposition, sale, transfer or exchange of all or a substantial part of any Obligor's assets, or the entry of any judgement against any Obligor, or the issuance of any levy, attachment, charging order, garnishment or other process against any property of any Obligor or the filing of any lien against any such property (and the expiration of any grace period provided in any Loan Document for the discharge of such lien); (h) if any Obligor shall make an assignment for the benefit of creditors, file a petition in bankruptcy, apply to or petition any tribunal for the appointment of a custodian, receiver, intervenor or trustee for such Obligor or a substantial part of such Obligor's assets, or if any Obligor shall commence any proceeding under any bankruptcy, arrangement, readjustment or debt, dissolution or liquidation under any law or statute of any jurisdiction, whether now or hereinafter in effect, or if any such petition or application shall have been filed or proceeding commenced against any Obligor, or if any such custodian, receiver, intervenor or trustee shall have been appointed; (i) if any Obligor shall have concealed, transferred, removed or permitted to be concealed or transferred or removed, any part of such Obligor's property with intent to hinder, delay or defraud any such Obligor's creditors, or if any Obligor shall have made or suffered a transfer of any such obligor's properties which may be invalid under any bankruptcy, fraudulent conveyance, preference or similiar law, or if any Obligor shall have made any transfer of such Obligor's properties to or for the benefit of any creditor at a time when other creditors similarly situated have not been paid; (j) the failure to obtain any permit, license, approval or consent from, or to make any filing with, any federal, state or municipal governmental authority (or the lapse or revocation of rescission thereof once obtained or made) which is necessary in connection with the execution or delivery of any Loan Document, the making of the Loan, the performance of any Obligor's obligations under any Loan Document, or the enforcement of any Loan Document; (k) if it shall become unlawful for Bank to extend credit to Borrower, or to maintain any credit so extended, or for any Obligor the performance of any of such Obligor's obligations under any Loan Document: (l) if any governmental authority (or any person acting or purporting to act under government authority) shall take any action to condemn, assume custody or control of, seize or appropriate all or any part of Obligor's property in which the value taken is equal to or greater than ten percent (10%) of the fair market value of the property, or displace the management of such Obligor's business; (m) in the case of any Obligor then residing or located in any jurisdiction outside the United States, if such jurisdiction shall impose any moratorium or suspension on the repayment of its foreign indebtedness or any substantial portion thereof, or if such jurisdiction shall declare that it is not liable or responsible for or will not honor of its foreign indebtedness or any substantial portion thereof; (n) the failure of any Obligor, after request by Bank, to furnish financial information or additional financial information or to permit examination and inspection of the Collateral and/or of Obligor's books and records; (o) in the case of any Obligor that is a corporation, the payment of any dividends, or the distribution of earnings, by such Obligor to its stockholders without the prior written consent of Bank; (p) the further granting by any Obligor of a security interest in any of the Collateral without the prior written consent of Bank; (q) the failure to do all things necessary to preserve and maintain the value and collectibility of the Collateral, including, but not limited to, the payment of taxes and premiums on policies of insurance on the due date without benefit of the grace period; or (r) if at any time Bank deems itself insecure for any reason whatsoever (notwithstanding any grace period in any Loan Document), or if any change or event shall occur which in Bank's exclusive judgment impairs any security for the Loan, increases Bank's risk in connection with the Loan, or indicates that any Obligor may be unable to perform such Obligor's obligations under any Loan Document. 7. LATE PENALTY AND DEFAULT RATE OF INTEREST. Borrower shall pay Bank a late charge of five percent (5%) of any payment not received by Bank within fifteen (15) days of its due date; provided, however, if said fifteen (15) day period ends on a day other than a Business Day, then the aforedescribed late charge shall be payable if the payment is not received by the last Business Day within said fifteen (15) day period. At Bank's sole option the entire unpaid principal balance of the Loan and any other sums owing under any Loan Document shall bear interest until paid at an augmented annual rate (the "Default Rate") from and after the occurrence and during the continuation of any Event of Default, regardless of whether Bank also elects accelerate the maturity of the Loan; provided, however, that after judgment all such sums shall bear interest at the greater of the Default Rate or the rate prescribed by applicable law for judgments. At Bank's sole option, all interest which accrues at the Default Rate shall be due and payable on Bank's demand from time to time, but absent such demand shall be due and payable on the regularly scheduled dates for interest payments under this Note. The Default Rate shall equal the lesser of (i) twenty-five percent (25%) per annum or (ii) the maximum interest rate permitted by applicable law, if any. 8. RIGHTS AND REMEDIES OF BANK. Bank shall be entitled to pursue any and all rights and remedies provided by applicable law and/or under the terms of this Note or any other Loan Document, all of which shall be cumulative and may be exercised successively or concurrently. Upon the occurrence and during the continuation of any Event of Default, Bank, at its option, may at any time declare any or all other liablilities of any Obligor to Bank immediately due and payable (notwithstanding any contrary provisions thereof) without demand or notice of any kind. In addition, -2- Bank shall have the right to set off any and all sums owed to any Obligor by Bank in any capacity (whether or not then due) against the Loan and/or against any other liabilities of any Obligor to Bank. Bank's delay in exercising or failure to exercise any rights or remedies to which Bank may be entitled if any Event of Default occurs shall not constitute a waiver of any rightrs or remedies of Bank with respect to that or any subsequent Event of Default, whether of the same or a different nature, nor shall any single or partial exercise of any right or remedy by Bank preclude any other or future exercise of that or any other right or remedy. No waiver of any right or remedy by Bank shall be effective unless made in writing and signed by Bank nor shall any waiver on one occasion apply to any future occasion, but shall be effective only with respect to the specific occasion addressed in that signed writing. 9. WAIVER AND CONSENT. The Obligors hereby severally: (a) waive demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold any Obligor liable with respect to the Loan; (b) waive any right to immunity from any such action or proceeding and waive any immunity or exemption or any property, wherever located, from garnishment, levy, execution, siezure or attachment prior to or in execution of judgment, or sale under execution of other process for the collection of debts; (c) waive any right to interpose any set-off or non-compulsory counterclaim or to plead laches or any statute of limitations as a defense in any such action or proceeding, and waive (to the extent lawfully waivable) all provisions and requirements of law for the benefit of any Obligor now or hereafter in force; (d)submit to the jurisdiction of the state and federal courts in the State of Florida for purposes of any such action or proceeding (e) agree that the venue of any such action or proceeding may be laid in Dade County (in addition to any county in which any collateral for the Loan is located) and waive any claim that the same is an inconvenient forum; and (f) stipulate that service of process in any such action or proceeding shall be properly made if mailed by any form of registered or certified mail (airmail if international), postage prepaid, to the address then registered in Bank's records for the Obligor(s) so served and that any process so served shall be effective ten (10) days after mailing. No provision of this Note shall limit Bank's right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other competent jurisdiction. The Obligors hereby severally consent and agree that, at any time and from time to time without notice, (i) Bank and the owner(s) of any Collateral then securing the Loan may agree to release, increase, change, substitute or exchange all or any part of such Collateral, and (ii) Bank and any person(s) then primarily liable for the Loan may agree to renew, extent or compromise the Loan in whole or in part or to modify the terms of the Loan in any respect whatsoever, no such release, increase, change, substitution, exchange, renewal extension, compromise or modification shall release or affect in any way the liability of any Obligor, and the Obligors hereby severally waive any and all defenses and claims whatsoever based thereon. Until Bank receives all sums due under this Note and all other Loan Documents in immediately available funds, no Obligor shall be released from liability with respect to the Loan unless Bank expressly releases such Obligor in a writing signed by Bank, and Bank's release of any Obligor(s) shall not release any other person liable with respect to the Loan. 10. COSTS, INDEMNITIES AND EXPENSES. The Obligors jointly and severally agree to pay all filing fees and similar charges and all costs incurred by Bank in collecting or securing or attempting to collect or secure the Loan and such right shall extend beyond the entry of a Final Judgment including attorneys' fees, whether or not involving litigation and/or appellate, administrative or bankruptcy proceedings. Such entitlement or attorneys' fees shall not merge with the entry of a Final Judgment and shall constitute post-judgment unless and/or until any and all indebtedness due Bank is fully satisfied. The Obligors jointly and severally agree to pay any documentary stamp taxes, intangible taxes or other taxes (except for federal or Florida franchise or income taxes based on Bank's net income) which may now or hereafter apply to this Note or the Loan or any security therefor, and the Obligors jointly and severally agree to indemnify and hold Bank harmless from and against any liability, costs, attorneys' fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. The Obligors jointly and severally agree to pay on demand, and to indemnify and hold Bank harmless from and against, any and all present or future taxes, levies, imposts, deductions, charges and withholdings imposed in connection with the Loan by the laws or government authorities of any jurisdiction other than the State of Florida or the United States of America, and all payments to Bank under this Note shall be made free and clear thereof and without deduction therefor. Notwithstanding the existence of Florida Statute 57.105(2) or any statute of a like or similar nature, each Borrower and/or Obligor hereby waives any right to any attorneys' fees thereunder and each Borrower and/or Obligor agrees that the Bank exclusively shall be entitled to indemnification and recovery of any and all attorneys' fees in respect of any litigation based hereon, or arising out of, or related hereto whether, under or in connection with this Note and/or any agreement contemplated to be executed in conjunction herewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party. 11. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with the laws of the State of Florida, except that federal law shall govern to the extent that it may permit Bank to charge, from time to time, interest on the Loan at a rate higher than may be permissible under applicable Florida law. 12. INVALIDITY. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceablity without invalidating the remaining provisions hereof or affecting the validity or enforceablity of such provision in any other jurisdiction. To the extent that the Obligors may lawfully waive any law that would otherwise invalidate any provision of this Note, each of them hereby waives the same, to the end that this Note shall be valid and binding and enforceable against each of them in accordance with all of its terms. 13. INTERPRETATION. If this Note is signed by more than one person, then the term "Borrower" as used in this Note shall refer to all such persons jointly and severally, and all promises, agreements, covenants, waivers, consents, representations, warranties and other provisions in this Note are made by and shall be binding upon each and every undersigned person, jointly and severally. The term "Bank" shall be deemed to include any subsequent holder(s) of this Note. As used in Section 3 and 8 of this Note, the term "Bank" shall also be deemed to include under each affiliate and subsidiary of Bank. Each affiliate and subsidiary of Bank shall have the same rights and remedies granted to Bank under Section 3 and 8 of this Note. Whenever used in this Note, the term "person" means any individual, firm, corporation, trust or other organization or association or other enterprise or any governmental or political subdivision, agency, department or instrumentality thereof. Whenever used in this Note, words in the singular include the plural, words in the plural include the singular, and pronouns of any gender include the other genders, all as may be appropriate. Captions and paragraph headings in this Note are for convenience only and shall not affect its interpretation. The "Prime Rate" is a base reference rate of interest adopted by Bank as a general benchmark from which Bank determines the floating interest rates chargeable on various loans to borrowers with varying degrees of creditworthiness, and Borrower acknowledges and agrees that Bank has made no representations whatsoever that the "Prime Rate" is the interest rate actually offered by Bank to borrowers of any particular creditworthiness. 14. MISCELLANEOUS. Time shall be of the essence with respect to the terms of this Note. This Note cannot be changed or modified orally. Bank shall have the right unilaterally to correct patent errors or omissions in this Note or any other Loan Document. This Note may be prepaid in whole or in part at any time without penalty. Except as otherwise required by law or by the provisions of this Note or any other Loan Document, payments received by Bank hereunder shall be applied first against expenses and indemnities, next against interest accrued on the Loan, and next in reduction of the outstanding principal balance of the Loan, except that during the continuance of any Event of Default. Bank may apply such payments in any order of priority determined by Bank in its exclusive judgment. Borrower shall receive immediate credit on payments only if made in the form of either a federal wire transfer or cleared funds or a check drawn on an account maintained with Bank containing sufficient available funds. Otherwise, Borrower shall receive credit on payments after clearance, which shall be no sooner than the first Business Day after receipt of payment by Bank. For purposes of determining interest accruing under this Note, principal shall be deemed outstanding on the date payment is credited by Bank. If any payment required to be made pursuant to the Note is not received on the due date, Bank shall have the right, at its election, to charge any of Borrower's accounts at Bank with the amount of such payment. Except as otherwise required by the provisions of this Note or any other Loan Document, any notice required to be given to any Obligor shall be deemed sufficient if made personally or if mailed, postage prepaid, to such Obligor's address as it appears in this Note (or, if none appears, to any address for such Obligor then registered in Bank's records). Bank may grant participations in all or any portion of, and may assign all or any part of Bank's rights under this Note. Bank may disclose to any such participant or assignee any and all information held by or known to Bank at any time with respect to any Obligor. Borrower shall furnish Bank such financial information of Borrower as Bank may from time to time request and shall permit Bank to inspect its books and records. All of the terms of this Note shall inure to the benefit of Bank and its successors and assigns and shall be binding upon each and every of the Obligors and their respective heirs, executors, administrators, personal representatives, successors and assigns, jointly and severally. -3- 15. WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL INDUCEMENT TO THE BANK IN EXTENDING CREDIT TO THE BORROWER, THAT THE BANK WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER. The Obligors have subscribed their names to the respective Loans Documents (as defined in Section 6 of this Note) without condition that anyone else should sign the same or become bound thereunder, and without any other condition whatsoever. The failure of any witness to sign as witness or the failure of this Note to be notarized shall not affect the validity of this Note. This Note is signed, sealed and delivered as of the date first written above. WITNESS: BORROWER: GALACTICOMM TECHNOLOGIES, INC. A FLORIDA CORPORATION /s/ ILLEGIBLE BY: /s/ PETER BERG - -------------------- --------------------------------- PETER BERG, C.E.O./SECRETARY - -------------------- --------------------------------- ADDRESS: 4101 SW 47TH AVENUE, SUITE 101 FORT LAUDERDALE, FL 33314 BROWARD COUNTY ) - --------------- )SS: FLORIDA - --------------- ) The foregoing instrument was acknowledged before me this 9th day of JANUARY, 1998 by PETER BERG as C.E.O/SECRETARY of GALACTICOMM TECH., a Florida corporation, on behalf of the corporation. He [X] is personally known to me or [ ] produced ________________________________, as identification. /s/ MICHAEL JOSEPH HUNT -------------------------------- Notary Public Print Name: MICHAEL JOSEPH HUNT --------------------- Commission Number: cc 55 75 71 -------------- My Commission Expires: MAY 27, 2000 [NOTARIAL SEAL] -4- EX-10.34 6 EXHIBIT 10.34 LETTER OF PERMISSION TO DISTRIBUTE SOFTWARE In reference to free, light, demo, timed-out, shareware and/or feature restricted software product(s) and their associated logo(s) (collectively "Software" by Aztech New Media Corp.) the undersigned, who is a representative of the below stated company (Company), authorizes and represents and warrants that they are empowered to authorize Aztech New Media (Aztech New Media shall mean Aztech New Media Corp., Aztech New Media International Corp. and their subsidiaries, affiliates, parents, clients, customers and designees) to have the unrestricted right to use, copy in any form, record or have recorded onto CD-ROMS, place in compilations in a manner of Aztech New Media's choosing (including electronic distribution), and to publish and distribute throughout the world the Company's below listed Software, which is warranted to and represented to be authored and owned by the Company, and to be free of all claims of others including without limitation, liens or encumbrances, moral rights and copyright claims - without payment of money, royalties or any other fees, and without obligations of any kind to Aztech New Media Corp. Peter Berg /s/ PETER BERG - ------------------------ --------------------------- Printed Name Authorized Signature CEO 5/21/97 - ------------------------ --------------------------- Title Date Company Name: Galacticomm, Inc. ------------------------------------------ Software Title: WebCast Lite Trial Version: --------------------------- ------- Software Title: Version: --------------------------- ------- Street Address: 4101 SW 47th Avenue Suite 101 ------------------------------------------ City: Ft. Lauderdale ------------------------------------------ Province/State: Florida ------------------------------------------ Country: USA Postal / Zip: 33314 --------------------- -------- Telephone: 954-583-5990 ------------------------------------------ Fax: 954-583-7846 ------------------------------------------ This authorization shall extend for a term of one year from date of acceptance by the Company above. AGREEMENT THIS AGREEMENT entered into this 21 day of May, 1997 by Galacticomm, Inc., a Florida Corporation located at 4101 SW 47th Avenue Suite 101, Ft. Lauderdale, FL 33314 (hereinafter "SUPPLIER") and AZTECH NEW MEDIA CORP., located at 1 Scarsdale Road, Don Mills, Ontario, Canada, M3B 2R2 (hereinafter called "AZTECH"). WHEREAS SUPPLIER has product(s) Called WebCast Lite Trial in time and/or feature limited versions ("DEMO") as described in appendix "A" that Aztech would like to distribute: WHEREAS AZTECH would like to distribute the Demo with its product; IT IS THEREFORE AGREED as follows: LICENSE 1. For good and valuable consideration, SUPPLIER grants and AZTECH accepts a worldwide non-exclusive license to distribute the Demo versions to end users for the term and consideration set out below. AZTECH may not sublicense or otherwise transfer this license to any other party than as agreed. COMMISSION 2. (i) Should any customer receiving AZTECH'S CD or Demo offer, decide to upgrade any of the Demo's to full versions of the software, or purchase other software of the SUPPLIER as referred to in Appendix A, SUPPLIER agrees to pay AZTECH a percentage of the purchase price of the software as provided by SUPPLIER, or as outlined in Appendix A. This Purchase price is calculated prior to any Aztech offered incentive discount or amount offered to the customer. SUPPLIER will pay commission to AZTECH within thirty (30) days from the end of the month in which commission is earned. SUPPLIER will provide reports each month, covering the previous month, which sets out the following information: a) the amount of registration numbers requested by end users: b) the number of purchases of the SUPPLIER's software attributable to AZTECH's distribution: c) the amount of commission due to AZTECH; and d) the purchaser name, address, phone number, fax number, email address, etc. e) the information in a, b, c, and d categorized by Aztech's separate identification number for each of it's clients or product sku's. (ii) AZTECH shall have the right, at it's own cost, to audit the relevant records of SUPPLIER to verify the reports by giving ten (10) business days notice to SUPPLIER of the intent to audit such records at a reasonably convenient time during business hours. METHOD OF DISTRIBUTION 3. SUPPLIER will provide AZTECH one (1) copy of the selected Demos listed in Appendix A. SUPPLIER will also provide download, installation, and purchasing instructions as required for use by the consumer. Technical support will be provided by the Supplier. SUPPLIER will provide AZTECH purchasers the ability to purchase the full commercial versions of the Demo's as well as other software commercially offered by the Supplier. The consumer can order by electronic or direct telephone sales means, with the Supplier noting electronically or by direct request the Aztech Specific Reference number appearing in the software or on Aztech's CD or assigned to Aztech - in order to credit the AZTECH account. AZTECH will provide SUPPLIER with an estimation of the distribution volume of the Demo. SUPPLIER will fulfill the order for software and/or software upgrade within ten (10) business days of the receipt of the consumer sales information. PROPRIETARY MARKS 4. All intellectual property, including, but not limited to, trademarks, tradenames, copyrights, company designs and logos, and software, and patents shall remain the property of the respective owner. AZTECH shall not modify, reverse engineer or decompile the licensed software. AZTECH may use SUPPLIER trademarks solely for advertising in relation to this Agreement. Supplier represents and warrants that to the best of its knowledge, (i) it has all necessary right, title and interest in and to the Demo and commercial versions of software it offers for sale to grant the license(s) and other rights granted under this Agreement; and (ii) the Demo and commercial versions of software it offers for sale does not infringe any United States or international patent or copyright of any third party. Supplier will save harmless and indemnifies Aztech and it clients for any claims against infringement by the intellectual property provided by the Supplier. This clause survives termination. MISCELLANEOUS 5. This agreement is performable in and venue lies in Ft. Lauderdale, FL. Both parties agree to be bound by Ontario law. 6. Should a court declare any portion of this Agreement invalid the remaining portions shall continue to bind the parties. 7. The Agreement can only be amended in writing executed by both parties. All notices shall be sent to the parties at the addresses listed above unless a later appropriate address is provided. All notices sent by first class mail shall be deemed delivered within three (3) days of placing in the U.S. Mail or on the same day if delivered via facsimile, or the next day if sent by a nationally recognized courier. 8. This Agreement constitutes the entire Agreement between the parties and supersedes any previous written or oral Agreements. Appendix A forms part of this Agreement and Demo's and titles may be added from time to time upon mutual agreement. 9. Each party is acting as an independent contractor and not as an agent, partner, or joint venturer with the other party for any purpose. Except as provided in this Agreement, neither party shall have any right, power or authority to act or create any obligation, expressed or implied, on behalf of the other. 10. The term of this Agreement is for one (1) year, commencing on the date hereof, and shall be automatically renewed for subsequent one (1) year term(s) commencing on each anniversary date, unless terminated at any term, with a minimum 30 days notice prior to the end of a term. Upon termination of this Agreement for any reason, the parties agree to continue their cooperation in order to affect an orderly termination of their relationship. Any specific completion of commitments to Aztech clients will be continued to proceed until a convenient time for removing the Supplier's content from distribution. The following sections of this Agreement will survive termination of the Agreement for a period of two (2) years: 2 and 3. Agreed to by the parties herein: Galacticomm, Inc. AZTECH NEW MEDIA CORP. - ---------------------------- SUPPLIER NAME /s/ PETER BERG - ---------------------------- ---------------------------- SIGNATURE RENE PARDO Peter Berg - ---------------------------- PRINTED NAME EXECUTIVE VICE PRESIDENT CEO - ---------------------------- TITLE 5/21/97 - ---------------------------- ---------------------------- DATE DATE PLEASE VERIFY AND/OR COMPLETE FAX BACK: OEM ADMINISTRATION 416 449 1058 PAGE __ OF __ Company Name Galacticomm 954-583-5990 954-583-7846 http:// www.gcomm.com ----------- ------------ ------------ -------------------------- (phone) (fax) web site Contacts: Sales Lois Messner 954-583-5990 954-583-7846 email: lmessner@gcomm.com ----------- ------------ ------------ -------------------- Technical Bill Posner 954-583-5990 954-583-7846 bposner@gcomm.com ----------- ------------ ------------ -------------------- Other Bobby O'Brien 954-583-5990 954-583-7846 bobrien@gcomm.com ----------- ------------ ------------ -------------------- Initial Product Information: PRODUCT NAME PLATFORM VERSION DATE LIMITATION ON PRODUCT SOFTWARE TO OF NEXT (DEMO, TIMED-OUT BE PROVIDED REVISION FEATURE RESTRICTED) WEB SITE OR CD WebCast Lite Trial Win 95/NT Feature restricted diskette WebCast Lite Trial Win 95/NT Feature restricted diskette WebCast Lite Trial Win NT/95 Feature restricted diskette PRODUCT NAME OEM/AZTECH ID SERIAL #'S UPSELLING OR SALES TO FULL SELLING PRICE DISTRIBUTION % TO BE EMBEDDED ON CD COMMERCIAL PRODUCT - DISCOUNT TO OR TO BE MADE UP JOINTLY. NAME AND/OR VERSION # AZTECH WebCast Lite Trial WebCast Personal $ 49.95 40% WebCast Lite Trial WebCast ProServer $995 40% WebCast WebCast Video Lite Trial Broadcaster Add-on $495 40% METHOD OF ORDER TAKING: (yes/no) (yes/no) a) Link to web site yes e) Custom home page or order taking work required ___ b) Publisher's 1 800 yes f) Minimum order size - one yes c) Faxed orders from printed g) Publisher capable of reading ID ___ form from offer ___ h) Demo software solicits upsell yes d) Publisher equipped to i) Both demo & full version on CD no accept Aztech discount j) Both demo & full version from incentive offer to consumer yes Aztech/OEM site no PRODUCT DELIVERY - BY PUBLISHER POSSIBLE-AZTECH OR OEM (yes/no) (yes/no) a) Unlocking-emailing key No No b) Electronic download of full commercial version Yes No c) Software to be shipped in a box Yes No d) Other _________________ __________________________ ____________ PREPARED BY: /s/ PETER BERG Peter Berg CEO Galacticomm, Inc. 5-21-97 ------------------ --------------- -------------- ------------------------ -------------- (Signature) (printed name) (title) (Publisher/Company) (date: m/d/yr)
EX-10.40 7 EXHIBIT 10.40 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. PACIFIC SOFTWORKS INC. SOFTWARE SOURCE CODE & SOFTWARE BINARY DISTRIBUTION LICENSE AGREEMENT This Software Source Code License Agreement is entered into as of the date of last signature on this Agreement, by and between Pacific Softworks Inc. ("Pacific Softworks Inc."), a California corporation, with offices at 4000 Via Pescador, Camarillo, California 93012-5049 USA, and Galacticomm Inc. ("Licensee"), a Florida Corporation with its offices at 4101 SW 47 Ave. Suite 101, Ft. Lauderdale, Florida 33314. WHEREAS, Pacific Softworks Inc. has rights in certain TCP/IP networking software known as FUSION TCP/IP Developer's Kit ("Software") and related documentation in which licensee desires to acquire certain rights to incorporate ("Port") the Licensed Software into the Licensee's computer system, operating system, or other networked system ("System") to provide TCP/IP-based networking for the System. NOW, THEREFORE, in consideration of the mutual promises and conditions contained in this agreement, Pacific Softworks Inc. and Licensee agrees as follows: 1. DEFINITIONS Terms used in this Agreement have the following, meanings: 1.1 SOFTWARE means the FUSION TCP/IP networking software and related software provided to Licensee as the FUSION Developer's Kit which is used by the Licensee to port to Licensee's System in order to provide TCP/IP networking applications. See Appendix A.1 for a description of the FUSION Developer's Kit. 1.2 SOURCE CODE means the software code, the majority in the C software language, which is included in the FUSION Developer's Kit in the configuration of Licensee's System defined in Appendix A.2. 1.3 BINARY DISTRIBUTION means a copy of the Licensee's ported Binary (Object Code) version of the Software Source Code which is used at the time of execution on the Licensee's System. Binary Distributions are authorized by the use of Binary Incorporation Stickers provided by Pacific Softworks Inc.. These stickers are affixed to the software media or to the System which contains the Binary Distribution. 1.4 DOCUMENTATION means user manuals, porting guides, reference manuals, programmer's manuals, and installation manuals included with the FUSION Developer's Kit or other documentation provided to the Licensee relating to the Software. 1.5 SYSTEM means the Licensee's computer hardware, circuit board, or other hardware/firmware component, computer operating software, or other software component which, together with FUSION TCP/IP Networking Software comprises a fully functioning product. 1.6 END-USER means a sub-licensee of Licensee authorized to use the Software Binary Distribution under terms furnished by and governed by the Licensee. 1.7 DISTRIBUTOR means an agent authorized by Licensee to market, sell, and distribute Software Binary Distributions directly to End-users. 1.8 DEVELOPER COMPANIES are End-users who are either independent software vendors wishing to make add-on products for sale to other End-users (for use with the Licensee's Binary Distribution products), or customers wishing to customize the Licensee's Binary Distribution products. 2. GRANT OF LICENSE Subject to the terms and conditions of this Agreement, Pacific Softworks Inc. grants to Licensee, and Licensee hereby accepts from Pacific Softworks Inc., a non-exclusive, non-transferable right and license to: 2.1 Use, edit, merge, translate, enhance or otherwise modify the Software Source Code as needed in order to port the Software to Licensee's System, 2.2 Make up to two (2) copies of the Software Source Code for archival purposes only, Page 1 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. 2.3 Create internal use Binary Distributions of the ported software for execution on the Licensee's System for the purpose of testing, debugging, supporting and marketing of the binary version of the ported software. Create binary Distributions of the Software and copies of the derived Documentation to the extent necessary to fully utilize the rights granted herein, Distribute and sub-license the Software Binary Distribution and derived Documentation as part of Licensee's product world-wide directly to End-user for the purpose of and to effect the End-user's utilization of Licensee's product. Distribute Binary copies of the software (executables) occasionally to members of the media or other influential people, without binary stickers required if solely for review purposes. Authorize Distributors to distribute and sub-license the Software Binary Distribution and derived Documentation directly to End-users. Create Binary Distribution of the Software and copies of the derived Documentation for updating End-users, without incurring additional cost/or Binary Stickers. Pacific Softworks will issue credit for destroyed labels returned by Licensee. Pacific Softworks Inc. Grants permission to distribute a subset of the header files (".H" files) that are included in the software, or derivative thereof, to Developer companies as part of special development kits: (a) only those required by Galacticomm's Developer companies and (b) All such files should contain the original Pacific Softworks copyright notice, and due credit will be given in the documentation of those development kits: "Portions of the accompanying software Copyright Pacific Softworks Inc., used by permission." 2.4 Use the Source Code at the following designated site of Licensee: Licensee: GALACTICOMM INC. Address: 4101 SW 47 AVE. SUITE 101, FT. LAUDERDALE, FL 33314 User Contact: BOB STEIN 2.5 Limitation on Use: Notwithstanding Section 2.1 above, any restrictions on the use of the Software by Licensee identified in Appendix D and attached as part of this Agreement are included and are binding as part of this Agreement. 3. DELIVERY AND PAYMENT 3.1 In consideration of the rights and licenses, granted in this Agreement, Licensee agrees to pay Pacific Softworks Inc. the fees for the Software as specified in Appendix A.1 and per-copy binary distribution fee or a one time buy-out fee. Licensee will execute a company Purchase Order for the amount of the fees. 3.2 Pacific Softworks Inc. will deliver to Licensee one master set of the Documentation and one master copy of the 3.2 Software Source Code Documentation shall be in hard copy form; Documentation in electronic form must be previously arranged and agreed upon by Pacific Softworks Inc.. Delivery media for Software Source Code shall be in the form specified in the configuration defined in on page 9. 3.3 The fees are due and payable within 30 days of receipt by Licensee of the Software Source Code and Documentation. Licensee shall pay Pacific Softworks Inc. a 2% per month (or highest rate allowed by law) on all amounts which are due but unpaid under this Agreement. From the date such amounts are overdue until they are paid, such charge shall accure and be due payable on a daily basis. 4. OWNERSHIP RIGHTS AND PROTECTION OF COPYRIGHT 4.1 Title to and ownership of the Software and Source Code and all related technical know-how, including any modifications, revisions, bug fixes, enhancements, improvements and derivative versions of the Software thereof, developed by either Licensee or Pacific Softworks Inc. and all rights therein, including all rights in patents, copyrights and trade secrets applicable thereto, shall remain vested in Pacific Softworks Inc. during and after the term of this Agreement. 4.2 Licensee shall deliver to Pacific Softworks Inc. any modifications, revisions, bug fixes, enhancements, improvements, and derivative versions of the Documentation, the Software, and Source Code upon completion and Page 2 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. within 30 days of Port of code to target configuration specified in Appendix A.2, to Pacific Softworks Inc. for archival purposes and to better support Licensees completed code. 4.3 Licensee shall faithfully reproduce and conspicuously display in and on all copies made and the media, documentation, and packages in which such copies are contained the following notices: (a) The Binary Incorporation Sticker supplied with the Developer's Kit is to be affixed to all internal use binary copies made of the Software. (b) Notice for copies of any portion of the Documentation relating to the Software or any modifications thereof: COPYRIGHT(copyright sign) 1983 to 1994 PACIFIC SOFTWORKS INC. ALL RIGHTS RESERVED. (c) Notice for all whole or partial copies of the Software Source Code, made by Licensee: COPYRIGHT(copyright sign) 1983 to 1994, AN UNPUBLISHED WORK BY PACIFIC SOFTWORKS INC.. ALL RIGHTS RESERVED. THIS PROGRAM IS AN UNPUBLISHED WORK PROTECTED BY THE UNITED STATES COPYRIGHT LAWS (TITLE 17 UNITED STATES CODE) AND CONTAINS TRADE SECRETS OF PACIFIC SOFTWORKS INC. WHICH MUST BE HELD IN STRICT CONFIDENCE. (d) Pacific Softworks will have available at all times, and ready to ship on the same day if required Binary Incorporated Stickers to Licensee. Pacific Softworks Inc. will notify Licensee 90 days in advance of any required changes to copyright notices. An End-user may be authorized to use the Software only pursuant to a sub-license agreement between Licensee or a Distributor, as the case may be, and an End-user. The sub-license shall be either in the form of (i) a written, executed sub-license containing substantially the same terms included herein governing the End-users use of, or the Distributors' use or marketing of the Software; or (ii) a so-called "Shrink-wrap License Agreement" as shown in Appendix C of this agreement, which contains substantially the same terms included in the Appendix to govern the End-user's use of the Software or (iii) as set forth in Appendix B Configuration, License Fees. 5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION 5.1 Pacific Softworks Inc. and Licensee acknowledge that certain information may be disclosed to one another in order to carry out this Agreement, including but not limited to financial, statistical, personnel or technical information relating to each other's business which may be deemed proprietary and confidential. In the event either party receives such information, that party agrees to keep such information confidential by using the same care and discretion that it uses with its own information which it considers confidential. 5.2 Licensee hereby acknowledges that the Software and all related materials and technical know-how contains Pacific Softworks Inc.'s trade secrets and is confidential and proprietary to Pacific Softworks Inc.. Licensee agrees to hold all such information in confidence, and agrees not to disclose such information to anyone other than Licensee's employees with a bona fide need to know. Licensee's employees having access to the Software and all related materials and technical know-how are also enjoined by this non-disclosure agreement. Additionally, Licensee agrees to use at least that degree of care which it uses to protect its own information of a similar proprietary nature. 5.3 The obligations described in Section 5.1 and 5.2 shall terminate five (5) years from the date of disclosure or termination of this Agreement, whichever occurs later, and shall not be applicable with respect to any portion of the received information which: (a) is rightfully known by either party at the time of its receipt, (b) is publicly known by either party, (c) is rightfully provided by either party without any restriction on disclosure by a third party not bound in a confidential relationship, (d) is provided by either party to third parties without restriction on disclosure, or (e) is independently developed by either party. Page 3 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. 6. WARRANTY 6.1 Pacific Softworks Inc. hereby warrants for a period of thirty (3O) days from receipt by Licensee of the Software that the Software meets the specifications stated in Appendix A.2. During this thirty day period, if Licensee notifies Pacific Softworks Inc. in writing that the Software does not meet such specifications, Pacific Softworks Inc.'s sole obligation will be to correct such deficiencies or errors within two weeks of the written notice by Licensee to Pacific Softworks Inc.. If such deficiency or error cannot be corrected within the two week time period, Pacific Softworks Inc. will provide a plan for bringing the software into conformance with the specifications using its best efforts in accordance with usual commercial practices. Notwithstanding the foregoing, Pacific Softworks Inc. makes warrants that operation of the Software wil1 be uninterrupted, error free, or conform to any reliability or performance standards not stated in Appendix A.2. 6.2 THE ABOVE WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY PROVIDED BY PACIFIC SOFTWORKS INC.. PACIFIC SOFTWORKS INC. EXPRESSLY EXCLUDES ANY AND OTHER WARRANTIES, WHETHER EXPRESSED, IMPLIED OR STATUTORY, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY STATEMENTS MADE BY ANY OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES OF PACIFIC SOFTWORKS INC. ABOUT THE DESIGN, SUITABILITY, QUALITY, PERFORMANCE OR RESULTS OF USING THE SOFTWARE IN VARIANCE WITH, OR IN ADDITION TO, THE SPECIFICATIONS STATED IN APPENDIX A.2 SHALL NOT BE DEEMED TO BE A WARRANTY OR REPRESENTATION BY PACIFIC SOFTWORKS INC. FOR ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF PACIFIC SOFTWORKS INC. 6.3 The warranties made by Pacific Softworks Inc. herein are not transferable, and are made solely for the benefit of Licensee and shall not extend to any third party. Licensee agrees that the Binary Distribution copies provided by Licensee to its End-users are warranted by Licensee only; no warranty from Pacific Softworks Inc. is provided. 7. TRAINING, SUPPORT AND MAINTENANCE 7.1 Upon execution of this agreement Pacific Softworks will provide Licensee with 90 days of software support, including porting support and maintenance. Additional training and support, including porting support, for the Software, is provided by Pacific Softworks Inc. upon execution by Licensee of the Annual Source Support and Maintenance Agreement provided separately from this Agreement. However if this source code agreement remains in effect but both the initial 90 days support and Annual Source Support and Maintenance Agreement terminates, Licensee shall be able to obtain technical telephone, fax and e-mail support from Pacific Softworks Inc. at S100. per hour, and/or releases or revision of the Software for a $2000.00 fee per release. Alternatively, the Annual Source Support and Maintenance Agreement shall be renewable by Licensee for a $4000. per year. However, each year during the lapse period, requires a $2000. fee to bring Licensee current. 7.2 No other continued maintenance and support of the Software, except that provided separately from this Agreement, and obtained at the discretion of the Licensee, is provided under this Agreement. 7.3 Licensee will provide to its End-users and Distributors all support and maintenance functions necessary for the proper and continued use of the Software Binary Distribution. No support is provided directly by Pacific Softworks Inc. to Licensee's End-users or Distributors for the Software Binary Distribution. 8. TERM AND TERMINATION 8.1 The initial term of this Agreement shall begin on the day Licensee's purchase order is issued and automatically renewed annually on the anniversary of that date, unless terminated by either party subject to the terms and conditions of this Agreement. 8.2 If Licensee fails to perform any of its obligations under this Agreement, including non-payment of fees, and such failure continues for a period of thirty (30) days after written notice from Pacific Softworks Inc., Pacific Softworks Inc. may terminate this Agreement and license granted herein to Licensee. Licensee may terminate this Agreement at any time by giving sixty (60) days advance written notice to Pacific Softworks Inc. Notwithstanding anything to the contrary contained herein, Pacific Softworks Inc. may terminate this Agreement immediately upon notice to Licensee if Licensee ceases to do business for any reason, becomes bankrupt or insolvent, makes a general assignment for the benefit of creditors, reorganizes, suffers or permits the appointment of a receiver for its business or assets or files any application or petition seeking relief under federal or state law generally affecting the rights of Page 4 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. creditors. Pacific Softworks Inc. agrees that the primary purpose of section 8.2 is to protect its interest under this Agreement, and that it will not unreasonably terminate this Agreement in the event that Licensee is acquired, goes public, or undergoes a similar transformation that does not substantially impair Licensee's creditworthiness, or its ability to meet the terms of this Agreement. 8.3 If Licensee elects to terminate this Agreement on account of a default by Pacific Softworks Inc. in performing any of its obligations under this Agreement, then, so long as Licensee is not in default of any obligations, Licensee may continue to use the Software and Source Code to the extent necessary to support and maintain its port of the Source Code, provided that Licensee not make any additional full or partial copies of the Software except as necessary for such maintenance and support. 8.4 Within thirty (30) days after termination of this Agreement, Licensee shall deliver to Pacific Softworks Inc. or destroy the Software and all copies made of the Software (except for two (2) copies for Licensee's archival purposes), all copies of internal use Binary Distributions of the ported software, and the Documentation. Licensee shall furnish to Pacific Softworks Inc. an affidavit certifying that, through Licensee's best efforts and to the best of its knowledge, complete delivery or destruction has been effected. Notwithstanding the foregoing, Licensee may continue to use and retain copies of the Software to the extent necessary to support and maintain the Software, in which case the provisions of the following Sections of this Agreement survive the termination: Section 3. DELIVERY AND PAYMENT, Section 4. OWNERSHIP RIGHTS AND PROTECTION OF COPYRIGHT, Section 5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION, and Section 9 LIMITATION OF LIABILITY. 8.5 Following any termination or cancellation of this Agreement or the licenses granted herein (i) Licensee and its Distributors may use and distribute the Binary Distribution of the Software only to maintain, service, and support its then current licensees, but may not use or distribute any version of the Software for any other purpose; (ii) Licensee's rights to continue to distribute or market the Software shall immediately cease, and the rights of all Distributors to continue to distribute or market the Software shall cease as provided in Licensee's Distributor agreements regarding discontinuance of products, and (iii) all of Pacific Softworks Inc. obligations thereunder shall cease. So long as Licensee has any copy of the Software in its possession, Licensee shall continue to be bound by the terms of this Agreement. Notwithstanding anything to the contrary, no cancellation or termination of this Agreement or any of the licenses granted herein will have any effect on the rights of an End-user to continue to use any copy of the Software previously licensed in accordance with the terms thereof. 9. LIMITATION OF LIABILITY 9.1 Neither party shall be liable to the other for any direct, indirect, incidental, or consequential damages, whether foreseeable or not, including without Limitation damages for loss of business profits or business interruption, resulting from or arising out of the use or inability to use the Software, even if either party has been advised of the possibility of such. Pacific Softworks Inc. shall in no event be liable to License for damages on account of any claims against Licensee by any third party. 9.2 Pacific Softworks Inc. cumulative Liability to Licensee for any breaches of this Agreement and Pacific Softworks Inc. obligations under this Agreement shall be limited to the fees paid to Pacific Softworks Inc. by the Licensee for the Software. 10. INDEMNITY 10.1 Pacific Softworks Inc. agrees that it will defend, at its expense, any suit or proceeding brought against Licensee and will pay all damages and costs finally awarded against Licensee in such suit or proceeding, insofar as such suit or proceeding is based on a claim that the Software and/or Binary Distributions made thereof when used within the scope of the License granted within the United States, infringes any U.S. patent, U.S. copyright, U.S. trademark or other proprietary right, provided Pacific Softworks Inc. is promptly notified in writing of any such claim and is given reasonable assistance by Licensee for such defense of such claim 10.2 In the event that the Software and/or Binary Distributions made thereof, when so used, is held in such suit or proceeding to infringe any such patent, copyright, trademark or other proprietary right and its use is enjoined by a court of competent jurisdiction, Pacific Softworks Inc., at its own expense, shall either: (i) procure for Licensee the right to continue using the Software; or (ii) modify or replace the Software so that it becomes non-infringing while giving equivalent performance If Pacific Softworks Inc. provides License with such a non-infringing replacement version of the Software, Licensee shall within fifteen (15) days thereafter (i) cease to use, modify, copy or sub-license the replaced, infringing Software and/or Binary Distributions, (ii) use its reasonable efforts to cause all Page 5 Agreement No. 95-1208-349 Licensee: Galacticomm Inc. Distributors to cease to use, copy, or sub-license the replaced, infringing Software Binary Distributions and (iii) use its reasonable efforts to notify Distributors and End-users of the availability of the non-infringing replacement version of the Software Binary Distributions 10.3 Pacific Softworks Inc. is not liable for any claim based upon Licensee's modification or use of the Software or use of the Binary Distribution thereof, or Pacific Softworks Inc.'s following any instruction or direction of Licensee in regard to the Software. 10.4 THIS SECTION STATES PACIFIC SOFTWORKS INC.'S ENTIRE LIABILITY FOR ANY INFRINGEMENT OR VIOLATION OF ANY OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS. 10.5 This section survives the termination of this Agreement. 11. NOTICE Any notice to be given thereunder shall be in writing and shall be effective upon receipt, if personally delivered, or on the fifth business day following mailing by first class United States Registered or Certified mail (or the equivalent thereof), postage prepaid, addressed tO the parties, as shown below For Pacific Softworks Inc: For Licensee: Pacific Softworks Inc. Galacticomm Inc. 4101 SW 47 Ave., Suite 101 4000 Via Pescador Ft. Lauderdale, FL 33314 Camari11o, CA 93012-5049 Attention: Bob Stein Attention: Contracts Administrator 12. MISCELLANEOUS 12.1 Choice of Law The parties hereto agree that all actions or proceedings arising directly or indirectly from this Agreement shall be litigated in courts having a suits within Ventura County, California, and hereby consent to the jurisdiction of any court in which such an action is commenced that is located in Ventura County, California, and agree not to disturb such choice of forum, waive the personal service of any and all process upon them, and consent that all such service of process may be made by an overnight delivery service. ATTORNEYS' FEES. If any legal action is brought for the violation or breach of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection therewith, including any attorneys' fees incurred after a judgment has been rendered by a court of competent jurisdiction. (Any judgment shall include an attorneys' fees clause which shall entitle the judgment creditor to recover attorneys' fees incurred to enforce a judgment hereon, which attorneys' fees shall be an element of post-judgment costs; the parties agree that this post-judgment attorneys' fee provision shall (a) not merge into any judgment, (b) be severable from all other provisions hereof, and (c) survive any judgment.) 12.2 Waiver No delay, omission, or failure to exercise any right or remedy thereunder by either party shall be deemed to be a waiver thereof; nor shall any exercise of any right or remedy thereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by Law. 12.3 Entire Agreement Licensee and Pacific Softworks Inc. acknowledge that they have read this entire Agreement and that this Agreement and the Appendices attached hereto constitute the entire understanding and contract between the parties with respect to the Software and supporting Documentation and supersede any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof 12.4 Amendment to Agreement This Agreement shall not be modified, amended or in any way altered except by an instrument in writing signed by both parties. Page 6 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. 12.5 Assignment This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Licensee may not assign this Agreement or any of Licensee's rights or obligations hereunder without the prior written permission of Pacific Softworks Inc.. Any purported assignment in violation of the foregoing shall be void. 12.6 Export Licensee agrees that neither Licensee nor its Distributors wil1 export or re-export the Licensed Software and/or Documentation in contravention of the Export Administration Act of 1979 of the United States of America. Licensee will obtain all export licenses required by law prior to export of the Licensed Software and/or Documentation and cooperate fully with Pacific Softworks Inc. to ensure compliance with the law. Licensee will provide Pacific Softworks Inc. with a Letter of Assurance (included in Appendix D). IN WITNESS WHEREOF, the parties hereto have caused this Software Source Code License Agreement to be executed by their authorized representatives. For Pacific Softworks, Inc. For Licensee: Name: /s/ GLENN RUPPELL /s/ ROBERT N. STEIN ------------------------------ --------------------------------- (signature) (signature) Name: Glenn Ruppell Robert N. Stein ------------------------------ --------------------------------- (signature) (signature) Title: Executive Vice President Writer/Developer ------------------------------ --------------------------------- Date: 14 April 95 10 Apr 95 ------------------------------ --------------------------------- Page 7 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX A.1 SOFTWARE SOURCE CODE CONFIGURATION 1. PART NUMBERS AND LICENSE FEES
DESCRIPTION PART NUMBER FEE FUSION Lower Layer Source Code FNS-SRC-EMB $15,000.00 to include: *TCP, UDP, IP, ICMP, ARP, and RARP *FUSION Socket Libraries and socket manager *Ethernet interface layer *Processor interface, and network controller interface NDIS driver. *Two (2) binary license stickers FUSION Serial Line Internet Protocol FUSION Point to Point Protocol FNS-SRC-PPP $2,000.00 FUSION Binary Royalty Licensing for quantity of FNS-SRC-PPP $5,000.00 10% of annual royalties totaling 500 at $1.00/each FNS-SRC-BIN $ 500.00 (subsequent royalty binary license stickers are subject to standard royalty scheduling pricing, as listed on page 10 and 11 of this agreement) FUSION Basic Porting Assistance, for 5 days At Pacific Softworks Inc. facility. FNS-SRC-BPA $4,000.00
In the event that within the initial 30 days, Galacticomm determines the porting effort requires significant development effort, it may terminate this Agreement and receive a full refund, of the fees in this Appendix, except the fees for the Porting Visit, shall be nonrefundable. *Price for Porting Assistance by one of the Pacific Softworks Engineers is at $800.00 per day.* * Price for Customized Porting by one of Pacific Softworks Engineers is at $1,500.00 per day.* Page 8 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX A.2 2. TARGET SYSTEM CONFIGURATION Host Processor 386, 486, P5, ... Host OS and Kernel WORLDGROUP (DOS) WINDOWS) Host System Bus ___________________________________ LAN Controller Chip SEVERAL (embedded system) LAN Controller Board SEVERAL Intelligent Node Processor LAN Chip __________________________ Processor__________________________ OS_________________________________ 3. DEVELOPMENT ENVIRONMENT Development System: Host Processor 386, 486, P5, ... Host OS DOS, WINDOWS Compiler Used BORLAND Other Development Tools PUAR LAP 286/DOS EXTENDER PUAR LAP TNT Software Source Code Distribution Medium: Specify software distribution medium by marketing ("X"): ____ 1600 bpi 9-track tape in UNIX tar format ____ DC300 cartridge in Sun tar format ____ 1.2 MByte 5-1/4 in. floppy in Xenix tar format ____ 1.2 MByte 5-1/4 in. floppy in DOS format ____ 1.44 MByte 3-1/2 floppy in DOS format _X__ CD Rom ____ Other (must be approved prior to Agreement): SPECIAL CONDITION FOR EMBEDDED SYSTEMS The following restriction on the use of the Software for Embedded Systems is part of this agreement and is as follows: * The use of the FUSION Software for Embedded Systems is per this agreement solely for the Worldgroup product family. Page 9 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX B.1 CONFIGURATION, LICENSE FEES 1. Configuration by Machine Type The Binary Software Distribution is to be merged with or embedded with Licensee's Machine Type indicated by marking ("X"): SYSTEM TYPE SYSTEM DESCRIPTION ----------- ------------------ X J Embedded system FNS-BIN-TCP-J Royalty pricing for FUSION Complete Source Code. Fees Based on Cumulative Copies Select the estimated annual quantity to determine your fee per copy price. An order for 10% of annual quantity is required at time of purchase of source. NUMBER OF CUMULATIVE COPIES FEE PER COPY --------------------------- ------------ 1 to 3 70.00 4 to 9 60.00 10 to 24 53.00 25 to 49 46.00 50 to 99 19.00 100 to 249 16.00 250 to 999 11.00 1,000 to 1,999 7.00 2,000 to 4,999 4.00 5,000 to 9,999 3.00 Buy-Out (unlimited right to copy) consult factory PRODUCT BUYOUT DEFINITION: Unlimited right to copy. The right being limited to the product specified in Appendix A.2 of this agreement. No Stickers, No Wrap and tear License required. In addition, you will receive a generous savings for the first 3 years and 100% savings thereafter. OR TECHNOLOGY BUYOUT DEFINITION: Unlimited right to copy license on unlimited products. Corporate wide rights to use and distribute as binary. No stickers, No Wrap License required. Page 10 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX B.2 2. Fees Based on Annual Quantity Commitment From the date of execution of this agreement to the first anniversary of this Agreement, and from each anniversary date to each succeeding anniversary date of this Agreement, until amended or terminated, Licensee will order the following cumulative minimum quantity of Binary License Stickers according to the Machine Type and corresponding part number indicated above and pay the following per-copy fee. Additional copies beyond that number shall be priced at even the lower per-copy price of the category until the cumulative number falls into the next higher quantity category, etc. Number of copies 5000 Fee per copy $3.00 For the initial term of this Agreement, Licensee will purchase 10% of the minimum annual commitment to be ordered upon the execution of this agreement. The initial 10% is equal to 500 copies. This initial 500 may be purchased at a discounted price of $1.00 for updating. In the event that Licensee fails to meet its annual purchased commitment as computed upon the anniversary date of the Agreement for the prior year, Pacific Softworks and Licensee will agree at the time to one of the following methods of recourse: (i) Licensee will order a quantity of Binary Incorporated Stickers to make up the shortfall, or (ii) Licensee will place an adjustment order whose dollar quantity corrects for the difference in fees over the prior year, and begin paying fees for the new annual term corresponding to the actual ordering level reached for the prior year. Conversely, at any time throughout the year, Licensee may retroactively qualify for a lower fee per copy by ordering sufficient Binary Incorporated Stickers that the cumulative order quantity for the year reached or exceeds the corresponding minimum quantity, per section B.1. The intention is to correct both underestimates and overestimates so that the net fee per copy reflects actual annual order quantity, as if it had been estimated correctly at the beginning of the year. Lastly, once royalties have accumulated to $30,000.00, the software is considered a "product buy-out", and no further royalties for the product mentioned in Appendix A.2, are required. Page 11 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX C GALACTICOMM SOFTWARE LICENSE AGREEMENT ADD-ON OPTIONS FOR THE MAJOR BBS/Registered Mark/ YOU SHOULD CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE OPENING THIS DISKETTE ENVELOPE. OPENING THIS DISKETTE ENVELOPE INDICATES YOUR ACCEPTANCE OF THESE TERMS AND CONDITIONS. IF YOU DO NOT AGREE WITH THEM, YOU SHOULD RETURN THIS ENVELOPE UNOPENED WITHIN 30 DAYS OF THE ORIGINAL DATE OF PURCHASE AND PRICE OF THE PRODUCT WILL BE REFUNDED. GALACTICOMM, Inc. provides this Software and licenses its use throughout the world. You assume responsibility for the selection of the Software to achieve your intended results, and for the installation, use, and results obtained from the Software. DEFINITIONS "You" and "Your" shall be taken as referring to the person or business entity who purchased this liscense to use this Software and for whom such license was purchased. "Software" shall be taken as referring to the files supplied on the diskette(s) inside this envelope, and to any and all copies, updates, modifications, functionally-equivalent derivatives, or any parts or portions thereof. "Run-Time Access" shall be taken as referring to a single computer connected with communication hardware providing run-time access to this Software. "Live Computer" shall be taken as referring to a single computer connected with communication hardware providing run-time access to this Software. "Development Computer" shall be taken as referring to a computer upon which a copy of this Software may be installed for configuration and development purposes, not providing run-time access to this Software. LICENSE You may: 1. install and use one copy of this Software on a single Live Computer; you may also install and use one copy of this Software on a single Development Computer; 2. copy this Software into machine readable or printed form, for backup or archival purposes in support of your use of this Software; 3. transfer this Software and license to another party if the other party agrees to accept the terms and conditions of this Agreement. If the enclosed Software is an update, any transfer must include the update and all prior versions. If you transfer the Software, you must at the same time either transfer all copies, whether in machine-readable or printed form, to the same party, or destroy any copies not transferred. If this Software package contains both 3.5" and 5.25" disks, only a single Software License is created hereby. All enclosed diskettes are covered under, and restricted by, the terms of this single Software License Agreement. YOU MAY NOT USE, COPY, MODIFY, OR TRANSFER THIS SOFTWARE, OR ANY COPY, MODIFICATION, OR MERGED PORTION, IN WHOLE OR IN PART, EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS LICENSE, OR IN AMENDMENTS SIGNED BY AN OFFICER OF GALACTICOMM. IF YOU TRANSFER POSSESSION OF ANY COPY OF THIS SOFTWARE, OR ANY FUNCTIONALLY-EQUIVALENT DERIVATIVE, OR ANY PORTION OR MODIFICATION THEREOF, TO ANOTHER PARTY, YOUR LICENSE IS AUTOMATICALLY TERMINATED. TERM This license is effective until terminated. You may terminate it at any time by destroying all copies of the Software covered by this Agreement. It will also terminate upon conditions set forth elsewhere in this Agreement, or if you fail to comply with any term or condition of this Agreement. You agree upon such termination to destroy this Software, including all copies, functionally-equivalent derivatives, and all portions and modifications thereof in any form. (continued) Page 12 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. LIMITED WARRANTY THIS SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE SOFTWARE IS WITH YOU. SHOULD THE SOFTWARE PROVE DEFECTIVE, YOU (NOT GALACTICOMM) ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR, OR CORRECTION. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES. SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE. GALACTICOMM does not warrant that the functions contained in this Software will meet you requirements or that the operation of this Software will be uninterrupted or error-free. However, GALACTICOMM does warrant the diskette on which the software is furnished to be free from defects in materials and workmanship under normal use for a period of ninety (90) days from the date of delivery to you. LIMITATIONS OF REMEDIES GALACTICOMM'S entire liability and your exclusive remedy shall be: a. the replacement of any diskette not meeting GALACTICOMM'S "Limited Warranty" and which is returned to GALACTICOMM or b. if GALACTICOMM is unable to deliver a replacement diskette which is free of defects in materials or workmanship, you may terminate this Agreement by returning this Software and your money will be refunded. IN NO EVENT WILL GALACTICOMM BE LIABLE TO YOU FOR ANY DAMAGES, INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THIS SOFTWARE EVEN IF GALACTICOMM OR ITS AUTHORIZED REPRESENTATIVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATIONS OR EXCLUSIONS MAY NOT APPLY TO YOU. GENERAL You may not license, assign or otherwise transfer this Software or Software License except as expressly provided in this Agreement. Any attempt to otherwise sublicense, assign, or transfer any of the rights, duties or obligations hereunder is expressly prohibited and will terminate this License Agreement. This Agreement will be governed by the laws of the State of Florida. All Agreements covering this Software (including but not limited to any and all updates, upgrades, and enhancements to this Software or any portion thereof) shall be deemed to be counterparts of one and the same License Agreement instrument. BY OPENING THIS DISKETTE ENVELOPE, YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, WHICH SUPERCEDES ANY PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATIONS BETWEEN US RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. Page 13 Agreement No. 95-1208-349 Licensee:Galacticomm Inc. APPENDIX D LETTER OF ASSURANCE To: GALACTICOMM INC., (U.S. Re-Exporter) SUBJECT: Restricted Technical Data Received from Galacticomm (U.S. Re-Exporter) REFERENCE: U.S. Export Administration Regulations (Section 779.4(f)(1)) We, Galacticomm Inc. hereby certify that source code is not intended to be shipped, either directly or indirectly, to: Haiti, Iran, Iraq, People's Republic of China, Syria, Yugoslavia (Serbia and Montenegro) Q Romania S Libya W Poland Y Albania, Bulgaria, Cambodia, Estonia, Laos, Latvia, Lithnania, Mongolian People's Republic, Geographic area of the former Union of Soviet Socialist Republics (includes Armenia, Azerbaijan, Belorussia, Georgia, Kazakhstan, Maldovia, Russia, Tajikistan, Turkmanistan, Ukraine, Uzbekistan) Z Cuba, North Korea, Vietnam Further, no technical data may be re exported to the Republic of South Africa where we know or have reason to know that the data or the direct product of the data is for delivery, directly or indirectly, to or for use by or for military or police entities in these destinations or for use in servicing equipment owned, controlled or used by or for such entities. Respectfully, Michael F. Hunt, E.V.P. ------------------------------------- (Signature of U.S. Re-Exporter) Page 14 EX-10.41 8 EXHIBIT 10.41 LICENSE AGREEMENT between I-VIEW SOFTWARE, INC. a Florida corporatIon and CROWN COMMUNICATIONS, INC. a Florida corporation Date: Nov. 18th, 1996 LICENSE AGREEMENT This license agreement (the "License") is entered into as of the 18th day of November, 1996 between I-View Software, Inc., a Florida corporation, whose principal office is located at 300 S. Pine Island Road, Suite 261, Plantation, Florida 33124, United States of America ("Licensor") and Crown Communications, Inc., a Florida corporation, whose office is located at 1334 N. State Rd. 7, Margate, 33063 ("Licensee"). RECITALS: A. Licensor is the owner of a service mark, as well as certain copyrights, trade secrets, proprietary technical and business information, engineering data and specifications and designed equipment used in connection with the operation of a video conferencing software and hardware package which allows video broadcasting and video point to point operation over Galacticomm Worldgroup Software, including all accounting, point of sale components and integration with Galacticomm Software. B. Licensee wishes to acquire a license to use such service marks, copyrights, trade secrets, proprietary technical and business information, engineering data and specifications and designed equipment in connection with the operation an Adult Entertainment video conferencing and video point to point service in North America. NOW THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 "Adult Entertainment" means sexually explicit entertainment that is not obscene under applicable law. 1.2 "Copyrights" shal1 have the meaning set forth in Sechon 2.2(a) 1.3 "Licensed Rights" shall have the meaning set forth in Section 5.1(a). 1.4 "Mark" shall have the meaning set forth in Section 2.1(a). 1.5 "Royalty" shall have the meaning set forth in Section 4.1(a). 1.6 "Services" shall have the meaning set forth in Section 2.1(a). 1.7 "Term" shall have the meaning set forth in Section 3.1. 1.8 "Territory" shall have the meaning set forth in Section 3.4. 1.9 "Trade Secrets" shall have the meaning set forth in Section 2.3(a). ARTICLE II GRANT OF LICENSE 2.1 SERVICE MARK LICENSE. (a) GRANT. Licensor grants to Licensee for the Term and Territory, an exclusive, nontransferable license to use the service mark "I-View" (the "Mark") in advertisements that promote Licensee's Adult Entertainment video conferencing services (the "Services") in the Territory. Licensee may only use the mark in such advertisements in the following manner (or its Dutch equivalent): "We use I-View software" or "Download free I-View software". (b) QUALITY STANDARDS. Licensee understands that in order to maintain valid and enforceable rights in the Mark, Licensor must maintain certain quality standards relating to the nature of the services rendered in connection with Mark. Accordingly, Licensee agrees that the nature and quality of the services rendered by the Licensee in connection with the Mark and all related advertising, promotional and other related uses of the Mark shall conform to such commercially reasonable standards of use that may exist within the Territory, from time to time, consistent in all material respects with the requirements of the laws and regulations of the Netherlands and the European Community. 2.2 COPYRIGHT LICENSE. (a) GRANT. Licensor grants to Licensee for the Term and Territory an exclusive, nontransferable license to use the copyrighted works identified in SCHEDULE 2.2 attached hereto (the "Copyrights") for use solely in connection with the operation of the Services in the Territory. (b) ALTERATION. (i) Licensee shall not, and acknowledges that it is not entitled to, make any alterations, additions, changes in or revisions of the Copyrights, without the prior written consent of Licensor. Licensee shal1 not create any new works, compilations or derivative works based entirely or in substantial part on the Copyrights without the prior written consent of the Licensor. (ii) If Licensor authorizes any changes, alterations, revisions, new works, compilations or derivative works based entirely or in substantial part on the Copyrights, all right, title and interest in such alterations, additions, changes, revisions, new works, compilations or derivative works shall belong to Licensor, and Licensee shall take whatever steps are reasonably necessary to assign, transfer or perfect title in such works solely in the name of the Licensor. (iii) Nothing herein shall be construed to permit or authorize Licensee to make any changes, alterations, additions, revisions, new works, compilations or derivative works based in whole or in any part on the Copyrights licensed hereunder. (c) DISTRIBUTION AND PUBLICATION. Licensee shall not distribute, publish, lease, rent or display to the public any Copyrights without the prior written consent of the Licensor. However, during the term of this license, Licensee may freely distribute I-View Software to its customers so long as such customers agree to the terms of the license agreement attached hereto as Exhibit 2.2(c) 2.3 TRADE SECRETS PROPRIETARV INFORMATION. (a) GRANT Licensor grants to Licensee for the Term and Territory, an exclusive, nontransferable license, to use all trade secrets, proprietary technical and business information, engineering data and specifications provided to Licensee by Licensor (the "Trade Secrets"), including without limitation those Trade Secrets identified in Schedule 2.3, for use solely in connection with the operation of the Services in the Territory. (b) COPIES. Licensee shall make no copies of the Trade Secrets without the prior written consent of Licensor. However, Licensee may make one copy of the Trade Secrets for archival purposes only. Such archival copy shall be kept among the confidential papers of the Licensee at its offices and shall not be disclosed to any third parties. (c) DISCLOSURE TO EMPLOYEES. (i) Licensee may disclose the Trade Secrets only to those employees of Licensee who, by virtue of their duties and responsibilities, have a need to know the Trade Secrets. Prior to any disclosure of any of the Trade Secrets to any employee, such employee shal1 execute a non-disclosure, non-competition agreement under which such employee agrees, subject to applicable law, to maintain the secrecy of the Trade Secrets for as long as the Trade Secrets remain secret and proprietary to Licensor and to refrain from using any Trade Secrets in any future employment by third parties. Furthermore, such employee shall agree, in writing, to assign to Licensee (who in turn shall assign to Licensor) all right, title and interest to any trade secret or proprietary information, invention, discovery or computer software program created or made by the employee during the course of his employment and which relates to the Trade Secrets. (ii) For the purposes of this Section, the term "employee" includes all officers, directors and employees of Licensee. (iii) All employees to whom Trade Secrets may be disclosed shall be timely identified to Licensor. (d) MARKINGS. Licensee shall maintain the Trade Secrets in confidence and shall mark each document or thing bearing or containing a Trade Secret with the legend: CONFIDENTIAL BUSINESS INFORMATION - TRADE SECRET I-VIEW SOFTWARE, INC. or: TRADE SECRET - I-VIEW (e) REVERSE ENGINEERING. Licensee shall not reverse engineer or otherwise decompile any softcware licensed hereunder, including, but not limited to the reverse engineering or decompilation of any object or source codes of the software licensed hereunder. ARTICLE III TERM, TER1MINATION AND TERRITORY 3.1 TERM. This exclusive license is for a term of three (3) years commencing on the date hereof, unless terminated earlier in accordance with Section 2.2 (the "Term"). 3.2 TERMINATION. (f) Licensor may immediately terminate this License if: (i) Licensee commits a material breach of this License; (ii) Licensee fails to make any payment required hereunder, in a timely manner, to Licensor; (iii) Licensee uses the Licensed Rights in any way that contravenes applicable criminal or obscenity Laws; or (iv) Licensee becomes bankrupt, insolvent or is otherwise unable to pay its creditors in a timely manner. (g) Licensee may immediately terminate this License if: (i) Licensor commits a material breach of this License; or (ii) Licensor becomes bankrupt, insolvent or is otherwise unable to pay its creditors in a timely manner. 3.3 EFFECT OF TERMINATION. (a) Upon the expiration or termination of the License, Licensee shall immediately cease all use of the Mark, the Copyrights and the Trade Secrets. (b) Within thirty (30) days of the expiration or termination of this License, Licensee shall return, at its sole expense, to Licensor all original and copies of all materials in its possession, custody or control bearing Licensor's service marks; all copyrighted materials in its possession, custody or control containing any copyrighted materials owned or licensed hereunder by Licensor and all materials containing any licensed trade secrets, proprietary technical or business information, engineering data and specifications. Licensee shal1 make no further use of any of these materials and equipment or any improvements, additions or modifications thereto made by Licensee during the term of this License. (c) Within thirty (30) days of the expiration or termination of this License, Licensee shall deliver to Licensor a final accounting of its revenues, together with all licensing fees and expenses owed to Licensor. (d) Licensor, at its sole expense, may conduct a final audit of Licensee's books and records in accordance with the provisions above within one (l) year ofthe termination or expiration of this License. 3.4 TERRITORY. This exclusive license is solely for the territory of North America (the "Territory"). The Territory shall not include any dependencies, colonies or territories of the Netherlands outside the boundaries of the Netherlands. ARTICLE IV LICENSING FEES AND EXPENSES 4.1 ROYALTIES. (a) Licensee shall pay to Licensor a royalty (the "Royalty") equal to twelve percent (12%) of Licensee's gross revenues calculated on a weekly basis for the previous week ending on a Friday. For each week, Licensee shall pay the Royalty for such week to Licensor in U.S. dollars by the Friday of the following week. 4.2 ACCOUNTINC AND RECORD KEEPING. (a) Licensee shall keep and maintain, at its principal office, records of its revenues with respect to sales covered by this License. Licensor and its authorized representatives shall have access to Licensee's premises during normal business hours to examine such records upon not less than two (2) days written notice to Licensee. Furthermore, Licensee shall grant remote system operator access to all of Licensee's computers that are used in the provision of the Services. (b) No later than fifteen (15) days after the last day of March, June, September and December during the term of this License, Licensee shall deliver to Licensor financial information with respect to sales subject to this License for the immediately preceding calendar quarter including gross revenues derived from the Services. (c) Licensor may, at its expense and not more than once in a twelve (12) month period, audit the books and records of Licensee after reasonable notice of not less than five (5) days. 4.3 EXPENSES. Licensee shall not be responsible to pay for additional software upgrades. In the event that Licensor requires additional custom software not herein defined then such software will be provided by Licensor at a fee agreed to in advance by Licensor. All amounts invoiced by Licensor hereunder shall be due and payable by Licensee within thirty (30) days of Licensor's delivery of invoices to Licensee. ARTICLE V OWNERSHIP AND INFRINGEMENT OF LICENSED RIGHTS 5.1 OWNERSHIP (a) Licensee acknowledges that Licensor is the sole and exclusive owner of al1 right, title and interest in the Mark, the Copyrights and the Trade Secrets (collectively, the "Licensed Rights"). Licensee agrees that it wil1 do nothing inconsistent with such ownership rights and that all uses of the Licensed Rights by Licensee shall inure to the benefit of the Licensor. Licensee shall assist Licensor, at Licensor's sole expense, in the execution and filing of any documents necessary to perfect such rights in the Territory and to record this License as may be necessary. (i) Licensee agrees that nothing in this License shall give Licensee any right, title or interest in the Licensed Rights other than the right to use and exploit the License Rights under the terms of this License. (ii) Licensee acknowledges the validity of the Licensed Rights. In doing so, Licensee shal1 not attack Licensor's title to the Licensed Rights, nor the validity of the Licensed Rights or this License 5.2 INFRINGEMENTS (a) Licensee has no affirmative obligation to investigate or police infringements or unauthorized uses of the Licensed Rights. However, Licensee shall provide Licensor with written notice of any infringements or unauthorized uses of the Licensed Rights of which any employee of the Licensee shall become aware, within five (5) business days of learning of the same. Licensor shall have the sole and exclusive right and discretion to bring any action or proceeding for service mark copyright or trade secret infringement or theft, unfair competition, passing off or any other action available to Licensor during the first thirty (30) days after receiving notice of such infringement. (b) If Licensor takes any legal action or proceeding against a third party for infringement of the Licensed Rights in the Territory, Licensee shall cooperate with Licensor in the prosecution and defense of such action or proceeding, including but not limited to discovery, document production, pretrial and trial testimony and the like. Any award of damages (including reimbursements of costs and expenses) in favor of Licensor shall be for the exclusive benefit of Licensor. 5.3 USE OF LICENSED RIGHTS IN ACCORDANCE WITH LAW. Licensee shall use the Licensed Rights in accordance with all applicable laws. Without limiting the generality of the foregoing, Licensee shall not use the Licensed Rights in any way that contravenes any applicable criminal or obscenity laws. ARTICLE VI INDEMNIFICATION BY LICENSEE Licensee shall indemnify Licensor against any claims or damages arising from or related to Licensee's breach of this License, including but not limited to actual damages, punitive, compensatory, increased or treble damages, costs and reasonable attorneys' fees (both at the trial and appeal level). Any indemnification payment required by this Article shal1 be made by Licensee to Licensor within ten days of Licensor's providing Licensee with reasonable proof of Licensor's payment or incurrence of the costs or damages that are subject to reimbursement hereunder. ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.1 REPRESENTATIONS AND WARRANTIES OF LICENSOR. Licensor represents and warrants to Licensee, as follows: (a) ORGANIZATION. QUALIFICATION. ETC.. Licensor is a duly organized and validly existing corporation in good standing under the laws of the State of Florida. (b) ENFORCEABILITY. Licensor has full right, power and authority to enter into this License and to consummate the transactions contemplated herein. This License has been duly and validly executed and delivered by Licensor, and is a valid and binding agreement of Licensor, enforceable in accordance with its terms, except as such enforceability may be subject to: (a) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights; or (b) the remedy of specific performance and injunction and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) CORPORATE AUTHORITY. The execution, delivery and performance of this License by Licensor have been duly authorized by all necessary corporate action of Licensor (and constitutes the legal, valid and legally binding obligation of Licensor enforceable against Licensor in accordance with its terms) and do not and will not conflict with or violate any provision of law or regulation, or any writ, order or decree of any court, governmental regulatory authority or agency or any applicable license, franchise, certificate, permit, authorization, approval or consent, which would have a material adverse effect on Licensor, or any provision of Licensor's Articles of Incorporation or Bylaws and do not and will not result in a breach of, or constitute a default under or require any consent pursuant to any agreement, contract, arrangement or understanding to which Licensor is a party, which would have a material adverse effect on Licensor. The execution and delivery of this License and the performance of all the transactions contemplated to be performed by Licensor: (i) requires no consent, approval or authorization from any court, governmental regulatory authority or agency or any other person; and (ii) does not result in the execution or imposition of any lien, charge or encumbrance upon any property of Licensor under any indenture or instrument to which Licensor is a party, or by which any of Licensor's property or business may be bound that, in any such case, would have a material adverse effect on Licensor. 7.2 REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee represents and warrants to Licensor, as follows: (a) ORGANIZATION. QUALIFICATION. ETC.. Licensee is a duly organized and validly existing corporation in good standing under the laws of the Netherlands. (b) ENFORCEABILITY. Licensee has full right, power and authority to enter into this License and to consummate the transactions contemplated herein. This License has been duly and validly executed and delivered by Licensee, and is a valid and binding agreement of Licensee, enforceable in accordance with its terms, except as such enforceability may be subject to: (a) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights; or (b) the remedy of specific performance and injunction and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) CORPORATE AUTHORITY. The execution, delivery and performance of this License by Licensee have been duly authorized by all necessary corporate action of Licensee (and constitutes the legal, valid and legally binding obligation of Licensee enforceable against Licensee in accordance with its terms) and do not and will not conflict with or violate any provision of law or regulation, or any writ, order or decree of any court, governmental regulatory authority or agency or any applicable license, franchise, certificate, permit, authorization, approval or consent, which would have a material adverse effect on Licensee, or any provision of Licensee's Articles of Incorporation or Bylaws (or equivalent orgaruzational documents) and do not and will not result in a breach of, or constitute a default under or require any consent pursuant to any agreement, contract, arrangement or understanding to which Licensee is a party, which would have a material adverse effect on Licensee. The execution and delivery of this License and the performance of all the transactions contemplated to be performed by Licensee: (i) requires no consent, approval or authorization from any court, governmental regulatory authority or agency or any other person; and (ii) does not result in the execution or imposition of any lien, charge or encumbrance upon any property of Licensee under any indenture or instrument to which Licensee is a party, or by which any of Licensee's property or business may be bound that, in any such case, would have a material adverse effect on Licensee. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 TRANSFERABILITY. Licensee shall not assign, by means of sublicensing or otherwise, its rights or obligation under this License to any third party, without the prior written approval of Licensor. Licensor may assign its rights and obligations hereunder to any third party. 8.2 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made) upon the earliest to occur of (a) receipt, if made by personal service, (b) two days after dispatch, if made by reputable overnight courier service, (c) upon the delivering Partys receipt of a written confirmation of a transmission made by cable, by telecopy, by telegram, or by telex, or (d) three days after being mailed by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section: To: I-View Software, Inc. 300 S. Pine Island Road Suite 261 Plantation, Florida 33324 Tel: (954)474-1500 Fax: (954) 474-1931 Attn: Peter Berg, President To: Crown Communications, Inc. Tel: 954-968-4887 Fax: 954-968-4243 Attn: Larry Levinson 8.3 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the masculine, feminine, neuter, singular and plural wherever the context and facts require such construction. The descriptive headings in the sections of this License are inserted for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. 8.4 SEVERABILITY. If any provision of this License is held by a court or regulatory body of competent jurisdiction to be invalid, illegal or unenforceable, such provision shall be severed and the remaining provisions hereof shall be enforced to the extent possible or modified in such a way as to make it enforceable, and the invalidity, illegality or unenforceability thereof shall not affect the validity, legality or enforceability of the remaining provisions of this License. 8.5 MODIFICATION: AMENDMENT. No modification or amendment of this License shall be valid unless the same shall be in writing executed by the Licensor and the Licensee. 8.6 GOVERNING LAW AND FORUM SELECTION. This License shall be governed by and construed in accordance with the laws of the State of Florida, U.S.A., without regard to the conflict of laws provisions thereof. Each party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the state courts of the State of Florida, sitting in Broward County, and the Federal courts of the Southern District of Florida. Each party irrevocably and unconditionally waives: (a) any objection which it may now or hereafter have to venue in any such court; and (b) any claim that any action or proceeding brought in such court has been brought in an inconvenient or improper forum. 8.7 BINDING EFFECT: COMPLETE AGREEMENT. This License shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. This License constitutes the entire agreement among the parties hereto and supersede all prior agreements and understandings, oral or written, among the parties hereto with respect to the subject matter hereof. 8.8 COUNTERPARTS. This License may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 8.9 ATTORNEYS' FEES. If any legal or equitable action, including an action for declaratory relief, is brought to enforce any provision of this License, the prevailing party shall be entitled to recover its reasonable attorneys' fees from the non-prevailing party. These fees, which may be set by the court in the same action or in a separate action brought for that purpose, are in addition to any other relief to which any prevailing party may be entitled. 8.10 WAIVER. Except as otherwise expressly set forth herein, the failure of any party hereto to enforce any provision or provisions of this License shall not be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this License. The waiver of any single remedy shall not constitute a waiver of such partys rights to assert all other legal remedies available to such party under the circumstances. 8.11 CONFIDENTIALITY. The parties acknowledge that the terms and conditions of this License are confidential business information and shall not be disclosed by either party without the prior written approval of the other party unless required by law or as otherwise permitted by the terms hereof. IN WITNESS WHEREOF, the undersigned parties have executed this License as of the day and year first above written. I-VIEW SOFTWARE, INC. CROWN COMMUNICAI;IONS, INC. By: /s/ Peter Berg By: /s/ Larry Levinson ----------------------------------- --------------------------- Name: PETER BERG Name: LARRY LEVINSON ----------------------------------- --------------------------- Title: President Title: V.P. ----------------------------------- --------------------------- EX-10.45 9 EXHIBIT 10.45 DISTRIBUTION AGREEMENT THIS AGREEMENT (THE "AGREEMENT") IS MADE AND ENTERED INTO AS OF, FEBRUARY 10, 1994 BY AND BETWEEN DISTRIBUPRO, INC., A CALIFORNIA CORPORATION, WITH OFFICES AT 1288 MCKAY DRIVE, SAN JOSE, CALIFORNIA 95131 ("DISTRIBUPRO") AND GALACTICOMM, INC., A CORPORATION, WITH OFFICES AT 4101 SW 47TH AVENUE, SUITE 101, FORT LAUDERDALE, FL 33314 ("VENDOR"). WITNESSETH WHEREAS, Vendor desires to grant to DistribuPro, DistribuPro desires to obtain, the right to sell and distribute computer products marketed by Vendor pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF DISTRIBUTION RIGHTS 1.1 Vendor hereby grants to DistribuPro, and DistribuPro hereby accepts, the nonexclusive worldwide right to distribute all computer products marketed by Vendor during the term of this Agreement, including those products listed on Exhibit A hereto (the "Products"). 1.2 Each purchase of Products hereunder shall include a transferable license of the software contained in such Products. 1.3 Vendor acknowledges that DistribuPro has the right to distribute any other products, including computer products which competes with the Products. 2. TERM 2.l The Term of this Agreement shall be for a period of one (l) year commencing on the Effective Date, and continuing thereafter from year to year until terminated by either party as set forth in this Agreement (the "Term"). 2.1 The Term of this Agreement shall be automatically renewed for successive one year periods following expiration of the initial or any subsequent term of this Agreement, unless either party gives written notice to the contrary to the other party not less than 30 days prior to the expiration of the then current term, in which event this Agreement shall expire at the end of the then current term. 3. SHIPMENT AND DELIVERY OF PRODUCTS 3.1 Vendor shall deliver all Products ordered by DistribuPro within 10 days after receipt of a DistribuPro Product order with respect to such Products. If, in the event that said Products are not received in 15 days, Vendor must, at DistribuPro's request, provide overnight delivery of these Products at no charge to DistribuPro. Delivery of the Products shall be F.O.B. DistribuPro or the destination specified in the related Product order. Title and risk of loss or damage with respect to any of the Products to be delivered shall pass from Vendor to DistribuPro after receipt of such Products. 3.2 If necessary, Vendor agrees to deliver Products to a third party location ("drop skip") if requested by DistribuPro. Delivery of the Products shall be F.O.B. the destination specified in the related Product order. 3.3 Vendor agrees to use its reasonable best efforts to maintain sufficient inventory to permit it to fill DistribuPro's orders on a timely basis. If a shortage of any Products in Vendor's inventory exists in spite of Vendor's efforts, Vendor shall allocate to DistribuPro at least as many units of the Products which are made available by Vendor to any other customer. 3.4 After each shipment to DistribuPro an invoice shall be sent to DistribuPro that includes DistribuPro's order number, a description of the Products shipped, and their price and applicable discount. Vendor shall also provide to DistribuPro, on a monthly basis, a current statement of account, listing all invoices outstanding and any payments made and credits given since the date of the previous month's statement. 3.5 DistribuPro shall not be required to purchase any minimum amount or quantity of the Products. 3.6 All Units of Products being ordered and delivered to DistribuPro for resale must be coded with the ABCD bar code standard, UPC Version A bar code. 4. PURCHASE PRICE 4.1 The purchase price and applicable discount for units of the Products ordered by DistribuPro pursuant to this Agreement is set forth on Exhibit A hereto, which is incorporated in this Agreement by reference. The purchase price includes any license fee with respect to the software contained in such units and is exclusive of taxes. The current suggested retail list price for each Product currently manufactured or marketed by Vendor is set forth on EXHIBIT A. 4.2 The suggested retail list price of any Product may be changed only upon 60 days' prior written notice given by Vendor to DistribuPro. In the event that Vendor shall reduce the price of a Product, or offer the Product at a lower price to any other party, including by raising the discount offered, Vendor shall credit DistribuPro for the difference between the invoice price charged to DistribuPro and the reduced price for each unit of Product remaining in inventory by DistribuPro as of the effective date of such price reduction. 4.3 Vendor will also credit DistribuPro for the difference between the invoice price charged to DistribuPro and the reduced price for each unit of Products held in inventory by DistribuPro's customers as of the effective date of such price reduction if DistribuPro's customers shall request such credit. In addition, price protection shall be extended to DistribuPro for one hundred twenty (120) days from the effective date of any suggested retail price decrease for any unit of Products to cover Products returned to DistribuPro through the dealers' stock balancing programs. 4.4 Vendor represents and warrants that the Product prices herein offered to DistribuPro are the best prices available to any distributor of the Products, and covenants that all prices for Products made available to DistribuPro during the term of this Agreement shall be the best prices available to any distributor of the Products. 5. PAYMENT 5.1 Vendor agrees that the initial order will be invoiced on a net 90 day basis from date of receipt of the Products. Vendor agrees the initial Product order will be subject to a 90 day return period for unsold merchandise. All subsequent invoices shall be paid on a net 45 day basis from date of DistribuPro's receipt of the Products. 6. PRODUCT SUPPORT 6.1 Vendor agrees to promptly report to DistribuPro all suspected or reported Product problems or defects. 6.2 At the request of DistribuPro, Vendor shall provide to DistribuPro a reasonable number (but no less than two) demonstration units of each of the Products to aid DistribuPro and its staff in the support and promotion of Product. All units provided will be maintained by DistribuPro in good condition, reasonable wear and tear excepted. 7. STOCK BALANCING AND PRODUCT UPGRADES 7.1 DistribuPro may balance its stock at no cost per Product on any unopened Product for product credit or cash refund at the election of DistribuPro. Shipping costs will be borne by DistribuPro. 7.2 DistribuPro will, before returning any Product for stock balancing, upgrading or any other purpose, receive from Vendor, a return merchandise authorization number before Product is shipped and Vendor shall not unreasonably withhold or delay the issuance of such number to DistribuPro. In the event that, notwithstanding the foregoing, Vendor's issuance of a return merchandise authorization number is unreasonably withheld or delayed, DistribuPro may in such case return Product to Vendor without a return merchandise authorization number. 7.3 Vendor agrees to provide DistribuPro with 30 days prior written notice of any Product version changes, packaging changes or any other changes which may render current Products unsalable. In the event of any of the above changes which renders the old version unsalable or obsolete, Vendor will replace all unsold Products on a dollar for dollar basis. All freight charges incurred by DistribuPro in returning the Product and all freight charges incurred for the purpose of shipping replacement Product shall be borne by Vendor. 7.4 In the event that a Product is found to be defective by DistribuPro's technical staff, Vendor agrees to replace the defective Product at no cost to DistribuPro. All freight charges incurred by DistribuPro in returning the Product and all freight charges incurred for the purpose of shipping replacement Products shall be borne by Vendor. 7.5 In the event that there are Product problems or defects, DistribuPro shall have the right to return all Products for a full refund. All freight charges incurred by DistribuPro in returning the Products shall be borne by Vendor. 7.6 In the event Vendor recalls any or all of the Products due to defects, revisions, or upgrades, Vendor shall pay all of DistribuPro's expenses in connection with such recall. 7.7 In the event Vendor shall discontinue any Product, or declare any Product to be obsolete, Vendor shall notify DistribuPro sixty (60) days in advance of such discontinuation or declaration of obsolescence. DistribuPro shall have the right to return all units of such Product then in DistribuPro's inventory to Vendor, for credit in the amount of the price paid for the aggregate number of units of such Product so returned, less any previously applied credits. Such credit shall be applied to any uncontested, outstanding amounts due to Vendor by DistribuPro with respect to the Products. In the event (i) no uncontested amounts are due to Vendor by DistribuPro; or (ii) the amount of such uncontested amount due to Vendor is not equal to the amount of such credit, Vendor shall pay DistribuPro the full amount or remaining balance of such credit promptly upon written request by DistribuPro. Vendor agrees to pay all freight charges on shipments of discontinued Product. 7 8 Vendor shall have the option to review DistribuPro's inventory level and sell through rates of Vendor's Products but, no more often than once per month. 8. PRODUCT WARRANTIES; INDEMNITY 8.1 Vendor represents and warrants that the Products will perform in conformance with their published specifications. 8.2 Vendor is solely responsible for the design, development, supply, production and performance of the Products. Vendor agrees to defend, indemnify and hold DistribuPro harmless from any third party claim, loss, damage, expense or liability (including attorneys' fees and costs) arising out of distribution or use of the Products, or arising out of, in whole or in part, infringement, or any claim of infringement, of any patent, trademark, copyright, trade secret or other proprietary right with respect to the Products. 9. TERMINATION 9.1 Either party may terminate this Agreement upon not less than 30 days' prior written notice in the event of a material breach by the other party of this Agreement and the failure of such other party to cure such breach within said 30 day period. 9.2 Either party may terminate this Agreement at any time if (a) a receiver is appointed for the other party or its property, (b) the other party makes, or attempts to make, an assignment for the benefit of its creditors, (c) any proceedings are commenced by or for the other party under any bankruptcy, insolvency, or debtor's relief law, (d) the other party liquidates or dissolves or attempts to liquidate or dissolve. 9.3 Upon expiration or termination of this Agreement for any reason, DistribuPro shall, for a period of 60 days, have the right to return to Vendor all or a portion of the Products remaining in DistribuPro's inventory and Vendor agrees to repurchase each such Product at the Purchase Price, which amount, shall be credited to DistribuPro's account. In the event that no outstanding balance exists, DistribuPro will be issued a refund. Shipping charges shall be borne by DistribuPro for returns under this section. 9.4 DistribuPro shall have the right to use Vendor's trade names, trademarks and service marks to promote DistribuPro's inventory of Products after the expiration or termination of this Agreement, which right shall survive expiration or termination hereof. 10. ADVERTISING 10.1 DistribuPro shall have the right to utilize Vendor's trade name and any trademarks and service marks associated with advertising and promotional materials. Vendor shall use diligent efforts in accordance with industry standards to advertise and promote each Product, any unit of which is in DistribuPro's inventory and shall cooperate with DistribuPro in advertising and promoting each Product. Such advertising and promotion may take the form of direct mailing, catalog production, tradeshow displays, product promotions or product pricing promotions. 10.2. Vendor shall provide DistribuPro product launch funds in the amount of $TBD to be utilized by DistribuPro, in accordance with the launch plan developed by DistribuPro and vendor, to launch and otherwise conduct initial marketing activities for the Products of Vendor to Dealers and has been pre-approved by Vendor. DistribuPro shall provide to Vendor an accounting of all costs and expenditures actually incurred by DistribuPro in performing the activities set forth on the product launch plan and shall render invoices to Vendor for such initial marketing activities. Invoices rendered hereunder shall be paid by Vendor within thirty (30) days after receipt. The cost of this product launch shall not be deducted from the marketing development fund defined in paragraph 10.4, and must be preapproved by Vendor. 10.3 Vendor agrees to provide DistribuPro with promotional materials at no cost to DistribuPro. 10.4 Vendor grants DistribuPro a marketing development fund for Products purchased by DistribuPro from Vendor to the extent that DistribuPro or its dealers use the allowance for any advertising and promoting which features the Products and has been pre-approved by Vendor. Upon receipt of reasonable evidence of advertising expenditures, Vendor agrees to credit the amount of any such expenditures against future purchases by DistribuPro, or if requested by DistribuPro pay such amount to DistribuPro within 30 days of Vendor's receipt of an invoice therefor. 10.5 Dealer marketing development funds provided by Vendor to DistribuPro may be passed by DistribuPro to its Dealers to promote Vendor's products. Such passthrough Dealer marketing development funds will have no bearing on DistribuPro's marketing development fund accrual pursuant to this Agreement. 11. MISCELLANEOUS 11.1 Except as otherwise provided herein, no remedy made available to either party hereto by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every shall be cumulative and shall be in addition to every other remedy given hereunder now or hereafter existing at law or in equity. 11.2 The failure of either party to exercise any of its rights under this Agreement or to require the performance of any term or provision of this Agreement, or the waiver by either party of such breach of this Agreement, shall not prevent a subsequent exercise or enforcement of such rights or be deemed a waiver of any subsequent breach of the same or any other term or provision of this Agreement. Any waiver of the performance of any of the terms or conditions of this Agreement shall be effective only if in writing and signed by the party against which such waiver is to be enforced. 11.3 All notices and other communications herein provided for shall be sent by postage prepaid, registered or certified mail, return receipt requested, or delivered personally to the parties at their respective addresses as set forth on the first page of this Agreement or to such other address as either party shall give to the other party in the manner provided herein for giving notice. Notice by mail shall be considered given on the date received. Notice delivered personally shall be considered given at the time it is delivered. 11.4 This Agreement shall be construed and enforced in accordance with the laws of the State of California which are applicable to the construction and enforcement of contracts between parties resident in California which are entered into and fully performed in California. Any action or proceeding brought by either party hereto against the other arising out of or related to this Agreement shall be brought in a state or federal court of competent jurisdiction located in the county of Santa Clara, California, and both parties hereby consent to the jurisdiction of such courts for that purpose. 11.5 This Agreement may be executed in two counterparts, each of which shall be deemed an original and both of which shall constitute one and the same instrument. 11.6 In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms. 11.7 Any reference herein to a section shall constitute a reference to all subsections thereof. 11.8 This Agreement constitutes the entire understanding and agreement between DistribuPro and Vendor with respect to the transactions contemplated herein, and supersedes any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof, all of which are merged herein. This Agreement shall not be modified, amended or in any way altered except by an instrument in writing signed by the parties. In Witness Whereof, the parties hereto have executed this Agreement by their duly authorized representatives as of the respective dates indicated below. DISTRIBUPRO, INC. VENDOR: By: /s/ F.S. WYSOCKI By:/s/ SCOTT J. BRINKER ----------------------- ----------------------- Name: F.S. Wysocki Name: Scott J. Brinker --------------------- --------------------- Title: Title: President --------------------- --------------------- Date: 2/2/94 Date: 2/4/94 --------------------- --------------------- EXHIBIT A Payment Terms Payments to Supplier with respect to all Products received by DistribuPro shall be as set forth: PRODUCT/VER MEDIA PART# WT MSRP COST - ------------------------------------------------------------------------------ EXHIBIT A PAYMENT TERMS LICENSED PRODUCTS AND DISTRIBUTOR PRICE LIST PRODUCT RETAIL PRICE DIST. PRICE - ------------------------------------------------------------------------------ The Major BBS Version 6.1, 2-user $259.00 $116.55 CONNECTIVITY OPTIONS User Six-Pack* $249.00 $749.40 Advanced LAN Option* $645.00 $451.50 X.25 Software Option* $935.00 $654.50 ADD-ON OPTIONS RIP____ Add-on Option $249.00 $174.30 German Language Add-on Option $249.00 $174.30 Spanish Language Add-on Option $249.00 $174.30 The Major Database Add-on Option $495.00 $346.50 Shopping Mail Add-on Option $249.00 $149.40 Fax/Online Add-on Option $249.00 $149.40 Search and Retrieve Add-on Option $199.00 $119.40 Dial-Out Add-on Option $199.00 $119.40 Major Gateway/Internet Add-on Option $249.00 $149.40 Entertainment Collection Add-on Option $249.00 $149.40 Kyrandia Add-on Option $199.00 $119.40 Major QWK-mail Add-on Option $199.00 $119.40 Sysop Flash Pack* $199.00 $119.40 C SOURCE CODE Developer's C Source Kit $385.00 $269.50 Extended C Source Suite $560.00 $392.00 Fax/Online Developer's Kit $ 99.00 $ 59.40 The Major Database C Source Code $735.00 $514.50 Shopping Mall C Source Code $370.00 $259.00 Search and Retrieve C Source Code $295.00 $206.50 Dial-Out C Source Code $295.00 $206.50 Entertainment Collection C Source Code $370.00 $259.00 Kyrandia C Source Option $295.00 $206.50 Major QWK-mail C Source Code $295.00 $206.50 MULTI-USER HARDWARE GalactiBoard $575.00 $460.00 GalactiBox (unpopulated) $1695.00 $1356.00 PC XNet Card $1295.00 $1036.00 These prices do not include shipping Updates and ASUP _____(ILLEGIBLE) *These items _________(ILLEGIBLE) EX-10.47 10 EXHIBIT 10.47 A PORTION OF EXHIBIT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION. SOFTWARE LICENSE AGREEMENT This Software Licensing Agreement (the "Agreement") is made and entered into this 12th day of August, 1997, by and between Galacticomm Technologies, Inc., a Florida company with its principal place of business located at 4101 S.W. 47th Avenue, Suite 101, Ft. Lauderdale, FL 33314 ("Licenser"), and Boca Research, Inc., a Florida corporation, whose principal place of business is located at 1377 Clint Moore Road, Boca Raton FL 33487 ("Licensee"). W I T N E S S E T H: WHEREAS, Licenser has developed the proprietary software products described in Exhibit A and commonly known as Licenser's Webcast (the "Software"); and WHEREAS, Licensee desires to acquire certain rights to the Software so that Licensee may sub-license the Software to end-users for use in combination with Licenser's Product Line; and WHEREAS, Licenser agrees to grant the licenses contained herein in consideration for Licensee's payment of royalties to Licenser based on Exhibit A for sub-licenses of the Software with additional specifications in Exhibit C. NOW THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, the parties agree to the foregoing and as follows: 1. GRANT OF LICENSE 1.1. Subject to the terms and conditions of this Agreement, Licenser hereby grants to Licensee, and Licensee accepts, for the term of this Agreement a limited, world-wide, non-exclusive, right and license to (a) use, copy, distribute and sub-license the Software in object code form configured solely for use in combination with Product, and (b) use the Software in combination with Product to maintain, market, display, perform, distribute and license Product. Any sub-license granted pursuant to this Agreement may be no longer in term nor any less restrictive in scope than any corresponding Product license granted to such sub-license. 1.2. Nothing herein shall be read to provide or permit Licensee access to source code for the Software at any time or for any reason. Licensee shall not modify the Software or decompile, disassemble or otherwise reverse engineer the Software or any part thereof and/or endeavor to recreate the Source Code from other information made available under this Agreement. Any sub-licenses granted pursuant to this Agreement shall include the restrictions contained in this Exhibit A. 1.3 Licensed Software Support, Testing and Server Support. Licenser shall (a) provide support and assistance to Licensee's staff in developing familiarity with the Licensed Software, (b) cooperate with Licensee in developing manufacturing and testing plans and processes with respect to the Licensed Software, (c) maintain the necessary hardware, software and personnel to maintain an independent Listing Server. Licenser agrees to make every reasonable mean to immediately correct any malfunctions or downtime for this server and build a backup plan in conjunction with the Licensee in case of a total Listing Server shutdown or if the Licensee needs to move the Server Listing to a third party site. Licenser also agrees to provide statistical data on the Listing Server to determine growth, expansion and a hand-off point for the Listing Server. If the Listing Server goes beyond 10,000 users with current equipment see Exhibit C, then both parties agree to re-negotiate the Listing Server hosting agreement and placement. 2. FEES AND PAYMENTS 2.1. Licensee shall pay to Licenser the royalties and fees set forth on Exhibit A for each sub-license of the Software granted by Licensee to pursuant to this Agreement. Royalties shall be remitted to Licenser thirty (30) days after Licensee's grant of such sub-license for all product shipped with in that 30 day period. Other fees shall be remitted to Licenser as set forth on Exhibit A, by the end of the first week of every month, for the previous month's shipments. 2.2. Each party shall bear all of its respective costs and expenses incurred by each in connection with each party's obligations under this Agreement 2.3. At Licenser's request, at any time during this Agreement but no more than twice per year, Licensee will permit an independent firm of accountants and auditors selected by Licenser to audit the books and records of Licensee and/or any distributors of Product to verify that Licensee has paid Licenser the proper amount of fees and royalties pursuant to Exhibit A. Licenser shall bear the costs associated with such an audit; provided, however, that if such an audit reveals an underpayment of royalties to Licenser in an amount greater than 5% of the amount due to Licenser, Licensee shall bear all costs and expenses associated with such an audit and shall pay Licenser an amount equal to one hundred and fifty (150%) of the total underpayment thus revealed. 3. IMPROVEMENTS Except as otherwise provided in this Agreement, Licenser shall have the exclusive right to create or develop any improvement, customization, enhancement, extension, alteration, modification, upgrade or derivative work; (collectively, an "Improvement") of the Software. Any such Improvements may be made a part of the Software and subject to the terms of this Agreement upon mutual agreement of the parties including any additional fees, royalties, or restrictions applicable thereto. 4. CONFIDENTIALITY; OWNERSHIP 4.1. "Confidential Information" means the Software, specifications and any other information and material marked by either party as confidential that is delivered or disclosed by the disclosing party or, if such additional information and material are orally disclosed, are described by written memorandum that designates them as confidential and is delivered within thirty (30) days of the oral disclosure. Notwithstanding the foregoing, Confidential Information -2- but in no event less than a reasonable level of care. The parties shall be permitted to disclose to the appropriate authorities information that is required to be disclosed pursuant to a court order or other due process of law as a matter of public record; provided, however, the disclosing party shall be provided the opportunity to contest such court order prior to the Confidential Information being disclosed to such court order. 4.3. Except as otherwise provided herein, no title to ownership of the Software in any form or any of its parts is hereby transferred to Licensee and Licensee's rights shall at all times be subject to Licenser's world-wide intellectual property rights, the world-wide intellectual property rights of any third parties licensing technology to Licenser, and the restrictions set forth in this Agreement. 4.4. Except as otherwise provided in this Agreement, upon termination of this Agreement, Licensee shall promptly return to Licenser all materials that were delivered to Licensee by Licenser hereunder including all Confidential Information, and any copies thereof. Licensee will cause an officer to certify to Licenser in writing that Licensee has complied with this section. Likewise, upon termination of this Agreement, Licenser shall promptly return to Licensee all of Licensee's Confidential Information and any copies thereof, and will cause an officer to certify to Licensee in writing that Licenser has complied with this section. 5. PROPRIETARY RIGHTS 5.1. "Trademarks" shall mean the trade name "Licenser" and any other trade name, trademark or service mark owned by or licensed by Licenser for use on or with the Software regardless of whether or not such marks are registered with the U.S. Patent and Trademark Office or any other domestic or foreign registrar of trademarks. "Copyrights" shall mean any of the copyrights owned by or licensed to Licenser for use on, in, or with the Software regardless of whether or not such copyrights are registered with the U.S. Register of Copyrights or any other domestic or foreign registrar of copyrights. "Proprietary Rights" shall mean the Trademarks, Copyrights, and all trade secrets and other proprietary rights of Licenser, collectively. -3- Software to become inoperable or otherwise incapable of being used in the full manner for which it was designed and created (a "Software Limitation"). Additionally, there is no Software Limitation that would be triggered by: (a) the Software being used or copied a certain number of times, or after the lapse of a certain period of time; or (b) the occurrence or lapse of any similar triggering factor or event. Licenser further agrees that it shall correct any Software Limitation promptly upon its discovery and at no cost to Licensee. The Software delivered by Licenser will be free from physical defects in the media that tangibly embodies such copy. Licenser shall replace any copy of the Software provided by Licenser that fails to comply with this warranty at Licenser's expense. 6.3. Except as otherwise set forth above, the Software is provided "AS IS" and Licenser does not warrant that: (a) the Software will meet the needs of Licensee or its Licensees, -4- (b) the Software will be error-free; or (c) the Software will function properly on all hardware, operating systems, or software platforms. 6.4. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, Licenser DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, AND SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 6.5. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT SHALL LICENSER BE LIABLE TO LICENSEE, ANY LICENSEE OR SUB LICENSEE, OR ANY OTHER THIRD PARTY FOR ANY LOST DATA, LOST PROFITS, LOST SAVINGS, BUSINESS INTERRUPTION, DOWNTIME, CONSEQUENTIAL, EXEMPLARY, INDIRECT, PUNITIVE, INCIDENTAL, COVER, OR SPECIAL DAMAGES OR COSTS (INCLUDING ATTORNEYS' FEES) OR LOSS OF GOODWILL RESULTING FROM ANY CLAIM (INCLUDING BUT NOT LIMITED TO ANY CAUSE OF ACTION SOUNDING IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY, OR PRODUCTS LIABLITY) REGARDING THIS AGREEMENT OR RESULTING FROM OR IN CONNECTION WITH THE USE OF OR INABILITY TO USE THE SOFTWARE OR ANY PRODUCT OF LICENSEE INCORPORATING ALL OR ANY PORTION OF THE SOFTWARE, EVEN IF LICENSER HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES. IN NO EVENT SHALL THE TOTAL LIABILITY OF LICENSER UNDER THIS AGREEMENT FOR ALL CAUSES OF ACTION (EXCEPT COPYRIGHT, PATENT AND TRADEMARK INFRINGEMENTS) ON A CUMULATIVE BASIS EXCEED THE LESSER OF $50,000.00 OR THE FEES PAID TO LICENSER UNDER THIS AGREEMENT. Licensee acknowledges and agrees that the fees charged by Licenser in this Agreement reflect the allocation of risks, including, without limitation, the foregoing limitation of damages and the limited warranty set forth in this section. A modification of the allocation of risks set forth in this Agreement would affect the fees charged by Licenser, and in consideration of such fees, Licensee agrees to such allocation of risks. 7. MARKETING AND PROMOTION OBLIGATIONS Licensee shall, on all Products that includes the Software, be co-branded using the Licenser name and logo in a prominent position on all product, packaging, promotional and advertising materials for Products that include the Software other than products shipped to OEMs, unless otherwise approved by OEM. Licenser shall also be accorded credit: (a) if there is an initial "splash" screen, on such "splash" screen in second position to Licensee; and (b) in an "About Box" in Product. For purposes of this section, "second position" for Licenser means that Licensee's logo may be larger than Licenser's logo. 8. INDEMNIFICATION 8.1. Licenser agrees to defend, indemnify, and hold Licensee, its Licensees, sub Licensees, officers, directors, employees and agents harmless from any loss, cost, expense, -5- (c) Licensee modify the Software to render it non-infringing, while remaining like capability. 8.2 Licensee agrees to defend, indemnify, and hold Licenser, its officers, directors, employees and agents harmless from any loss, cost, expense, damage, or liability (including reasonable attorneys' fees), arising out of: (a) any claim that Product infringes or violates any third party's trademark, patent, copyright, trade secret or other proprietary rights; or (b) the use by Licensee, its Licensees or sub-Licensees of the Software or information or data retrieved from or produced by the Software. Licenser shall promptly notify Licensee in writing of such action and give Licensee authority, information, and assistance for the defense of such suit or proceeding. 9. TERMINATION 9.1. The term of this Agreement shall be one (1) year from the date set forth above and shall be automatically renewed for subsequent one (1) year periods. After the initial period either party may terminate this agreement upon one hundred and eighty (180) days written notice to the other party. 9.2. Licenser shall have the right to terminate this Agreement immediately upon written notice to Licensee if: (a) commits a material breach or default with respect to any of its duties and obligations under this Agreement and such default has not been cured within (30) days after delivery to Licensee of notice thereof; (b) ceases to do business as a going concern, makes an assignment of its assets for the benefit of its creditors, is unable or admits in writing its inability to pay its debts as they become due, or becomes insolvent, suspends or abandons its business; (c) authorizes, applies for or consents to the appointment of a trustee or receiver of all or a substantial part of its assets; (d) files a voluntary petition under any bankruptcy or insolvency law or files a voluntary petition under the reorganization provisions of the laws of the United States; or (e) a court assumes jurisdiction over Licensee's assets. 9.3. Licensee may, at its sole option, terminate this Agreement immediately upon written notice to Licenser if: (a) Licenser commits a breach or default with respect to any of its duties and obligations under this Agreement and such default has not been cured within thirty days after delivery to Licenser of notice thereof; (b) Licenser ceases to do business as a going concern, makes an assignment of its assets for the benefit of its creditors, is unable or admits in writing its inability to pay its debts as they become due, or becomes insolvent, suspends or abandons its business; (c) Licenser authorizes, applies for or consents to the appointment of a trustee or receiver of all or a substantial part of its assets; (d) Licenser files a voluntary petition under any bankruptcy or insolvency law or files a voluntary petition under the reorganization -6- 10.4. Any notice or communication required or permitted under this Agreement shall be in writing and deemed received by a party when personally delivered to it or, if addressed to the party at the address of such party specified herein or at such other address as specified by such party in a notice delivered to the other party in accordance with this Section: When sent by fax with proof of receipt; when received by overnight courier service (provided it shall be deemed -7- received no more than two (2) business days after delivery to such courier's drop-off site); or when received by certified or registered mail (provided it shall be deemed received no more than five (5) business days after posting). 10.5. Every provision of this Agreement is intended to be severable; if any term or provision is determined to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement. Without limiting the generality of the preceding sentence, if any remedy set forth in this Agreement is determined to have failed its essential purpose, then all other provisions of this Agreement, including without limitation the limitation of liability and exclusion of damages, shall remain in full force and effect. The titles of sections are for convenience of reference only. IN WITNESS WHEREOF, the parties, by their duly authorized representatives, have executed this Agreement as of the date first written above. LICENSER: LICENSEE: GALACTICOMM TECHNOLOGIES, INC. BOCA RESEARCH, INC. /s/ YANNICK TESSIER /s/ JACQUELINE N. MILLER - -------------------------------- ----------------------------------- By: Yannick Tessier By: Title: President Title: Director of Purchasing & Product Marketing -8- EXHIBIT A
ROYALTY PER UNIT - DISTRIBUTION SCHEDULE Boca Research Boca Research Boca Research Boca Research Boca Research 33.6K Modems 56K Modems Camera Kits Cameras Capture Cards Volume 35,000 per month 18,000 per month 1,250 per month 2,500 per month 1,250 per month Licensed * WSC WSC WPER & WSC WPER & WSC WPER & WSC Exclusivity YES WSC/1 YR YES WSC/1 YR YES WSC/1 YR YES WSC/1 YR YES WSC/1 YR Royalty (*) at 75-100% ***** ***** ***** ***** ***** Volume Volume Scale 0-95% ***** ***** ***** ***** ***** 06-50% ***** ***** ***** ***** ***** 51 -74% ***** ***** ***** ***** *****
On all sales of the full version of Webcast Personal, Galacticomm Technologies will receive a $***** per unit license fee. The list server for all Webcast products shall be provided and hosted exclusively by Galacticomm Technologies, Inc. Royalty Schedule will be reviewed quarterly to address current market conditions. Licenser will have the right to revoke exclusivity or re-negotiate this Agreement if Licensee pays royalties of less then $100,000 per quarter or if royalties are less then $120,000.00 for two (2) consecutive quarters. * See Exhibit B *****Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission.
PRODUCT DEFINITIONS EXHIBIT B CODE WEBCAST SCREEN CAPTURE No Camera needed to capture images or any part of the desktop and WSC display live on an html page. WEBCAST PERSONAL Broadcast streaming Live Audio and video to 4 viewers. WPER WEBCAST PROSERVER NT Server and Broadcast Machine needed for up to 250 viewers. WPRO Supports Live Camera's and Capturing of desktop images for one broadcaster. WEBCAST PROSERVER ADD-ONS Additional 5 broadcasters allowed on ProServer. WPRA LITE A 30 Day demo of the full product LITE RETAIL A package of the full product RETL
EXHIBIT C SPECIAL MODIFICATION REQUIREMENTS 1. Licensee will be allowed to rename the product for its use as long as Licenser is still listed as the copyright holder and developer with appropriate co-branding as described in section 7 of this agreement. 2. Licenser will setup, maintain and host a new Listing Server provided by Licensee for the Licenser products sold by Licensee. This new Listing Server will only mention Licensee as the seller of Licenser's products. The looks of this site will be designed by Licensee and implemented by Licenser. 3. The Listing Server consists of a Pentium Pro 200-Class Machine with 128 Megs of Ram, a 2 Gigabyte hard drive and network card. For software, we require Windows NT Server 4.0 and IIS. The estimate cost to Licensee for the Listing Server hardware and software is $ 2,800.00. 4. Licenser agrees to enhance the Software product by adding a log file of viewers for the broadcaster to view at any time which viewers came to the site. This enhancement is estimated at a development cost of $1,000.00 and will be paid for by Licensee. S. Licenser agrees to also enhance the Listing Server for licensee to report hits of total viewers to the participating broadcasters at an estimated development cost of $750.00 to be paid for by Licensee. 6. All other cosmetic and functional changes to the Software contracted by Licensee will be billed on an hourly rate of $100.00 per hour once approved by Licenser. EX-10.48 11 EXHIBIT 10.48 A PORTION OF THE EXHIBIT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION. RESELLER AGREEMENT AGREEMENT made this 12th day of December, 1997 by and between Microland Trading Inc. ("RESELLER") with its principal place of business at 2153 NW 79 Avenue, Miami, FL 33126 and GALACTICOMM TECHNOLOGES, INC.(GALACTICOMM) with its principal offices at 4101 SW 47th Avenue Suite 101, Fort Lauderdale, Florida 33314. 1. WHEREAS, GALACTICOMM has developed some computer programs and products which it desires to sell to RESELLER for purposes of distribution and marketing, and WHEREAS; RESELLER DESIRES TO MARKET THE COMPUTER PROGRAMS DEVELOPED BY GALACTICOMM; NOW THEREFORE, in consideration of the mutual promises contained herein it is hereby agreed as follows: 1.1 DISTRIBUTION RIGHTS During the term hereof, GALACTICOMM grants to RESELLER the non-exclusive right and license to market and distribute the computer PROGRAMS described in Schedule "A" (hereinafter referred to as the "PROGRAMS"), as such computer PROGRAMS may be upgraded or modified from time to time by GALACTICOMM. Unless otherwise specified, the term PROGRAMS as hereinafter defined, shall refer to the binary or object code of the PROGRAMS and not the source code. Nothing herein shall be interpreted to include, and GALACTICOMM does not hereby grant to RESELLER, any right or license to enter into a VAR., OEM or other redistribution agreement or license. 1.2 LICENSE TO USE TRADEMARK AND TRADE NAME Any and all trademarks and trade names which GALACTICOMM uses in connection with the license granted hereunder are and shall remain the exclusive property of GALACTICOMM. This Agreement gives RESELLER no rights therein except for a limited license to reproduce trademarks and trade names as necessary for, and for the sole purpose of allowing RESELLER to fully promote and sell the PROGRAMS pursuant to the terms of this Agreement. 1.3 LICENSED SOFTWARE SUPPORT AND SERVER SUPPORT. Licenser shall (a) provide Licensee with a "master diskette" for duplication purposes and activation codes for the number of copies purchased, (b) provide support and assistance to Licensee's staff in developing familiarity with the Licensed Software, (c) provide the necessary software to maintain an independent Listing Server. Licenser agrees to make every reasonable mean to immediately correct any malfunctions or downtime for this server. 1.4 TERM This Agreement shall continue in full force and effect from the date this Agreement was entered into, as specified above, until June 30, 1998, and will thereafter automatically be renewed for additional periods of one (1) year. Prior to the end of the initial term (or of any successive renewal terms) of the Agreement, this Agreement maybe canceled by thirty (30) days' prior written notice by either party to the other. 2. PRICE AND PAYMENT 2.1 PRICE Purchase price to RESELLER and RESELLER's payment obligations for the PROGRAMS will beset forth in Schedule "A". 2.2 SHIPMENT RESELLER agrees to supply GALACTICOMM with a minimal initial order of $30,000 USD of the software PROGRAMS as an initial stocking order by December 1, 1997. Following the initial stocking order, a minimum quantity of $18,000 USD per quarter will be shipped starting June 1998 and thereafter for the term of this agreement. RESELLER agrees to notify GALACTICOMM in a timely matter if RESELLER's inventory of software PROGRAMS becomes insufficient to fill orders, GALACTICOMM agrees to ship the software PROGRAMS to RESELLER in a timely fashion via carrier of RESELLER's choice. Shipping charges are F.O.B. Fort Lauderdale for shipment of software PROGRAMS to RESELLER. 2.3 TERMS OF PAYMENT RESELLER agrees to pay GALACTICOMM within 30 days of receipt of invoices. 2.4 TAXES RESELLER's payment obligation includes any federal, state, county, local or other governmental taxes, duties or excise taxes, now or hereafter due and payable in connection which is applied on the production, storage, sale, transportation, import, export, licensing or use of the PROGRAMS including sale tax, value added tax or similar tax. Any taxes imposed by federal, state or any municipal government or any amount in lieu thereof, including interest and penalties thereon paid or payable at any time by GALACTICOMM in connection with GALACTICOMM'S sale to RESELLER, exclusive of taxes based on net income, shall be borne by RESELLER. 3. OWNERSHIP AND PROPERTY RIGHTS 3.1 OWNERSHIP GALACTICOMM represents and warrants that it has all necessary rights in and to all copyrights, patents and other proprietary rights associated with the PROGRAMS that are necessary to market, distribute and license the PROGRAMS. GALACTICOMM has the unrestricted right and authority to enter into this Agreement and to grant the rights and licenses hereunder with respect to the PROGRAMS. 3.2 PROPERTY RIGHTS RESELLER acknowledges and agrees that the PROGRAMS and all other items licensed hereunder and all copies thereof constitute valuable trade secrets or proprietary and confidential information of GALACTICOMM; that title thereto is and shall remain in GALACTICOMM; and that all applicable copyrights, trade secrets, patents and other intellectual and property rights in the PROGRAMS and all other items licensed hereunder are and shall remain in GALACTICOMM. All other aspects of the PROGRAMS and all other items licensed hereunder, including without limitation, PROGRAMS, methods of processing, the specific design and structure of individual PROGRAMS and their interaction and the unique programming techniques employed therein, as well as screen formats are and shall remain the sole and exclusive property of GALACTICOMM and shall not be sold, revealed, disclosed or otherwise communicated, directly or indirectly, by RESELLER to any person, company or institution whatsoever, other than for the purposes set forth herein. It is expressly understood and agreed that no title to, or ownership of, the PROGRAMS, or any part thereof, is hereby transferred to RESELLER. The copyright notice set forth in schedule "B " shall appear on all diskettes or other tangible media distributed by RESELLER. RESELLER acknowledges and agrees that all persons who use the PROGRAMS must be licensed by the current GALACTICOMM License Agreement set forth in Schedule "E". All use of any GALACTICOMM trademark in any marketing and promotion, including but not limited to, advertisements and packaging, shall contain notification that such trademark is a trademark which was developed and is owned by GALACTICOMM as set forth in Schedule "E" hereof. 3.3 UNAUTHORIZED COPYING RESELLER agrees that it will not copy, modify or reproduce the PROGRAMS in any way, except as otherwise provided herein. However, RESELLER is not responsible for the disclosure, use, modification or copying of the PROGRAMS by its customers or any other third party so long as RESELLER had no prior knowledge that its customers or any other third party intended to disclose, use, modify, or copy the PROGRAMS. RESELLER agrees to notify GALACTICOMM within 3 business days of any circumstances RESELLER has knowledge relating to any unauthorized use or copying of the PROGRAMS by any person or entity not authorized to do so. 4. WARRANTY 4.1 CUSTOMER WARRANTY GALACTICOMM will enclose, as part of the PROGRAMS package, a warranty with respect to the physical media enclosed therein which is identical to the warranty contained in the then current GALACTICOMM License Agreement (a copy of which is set forth in Schedule "B"). GALACTICOMM agrees to fulfill its responsibilities under the warranty delivered with the PROGRAMS, as the same shall be modified from time to time. RESELLER acknowledges and agrees that the warranty furnished by GALACTICOMM with copies of the PROGRAMS is the only warranty made (or to be made) with respect thereto. RESELLER agrees to include the current GALACTICOMM License Agreement with every copy of the PROGRAMS it distributes and not to make any other representations or warranties with respect to the PROGRAMS. 4.2 DISCLAIMER OF ADDITIONAL WARRANTIES OTHER THAN THOSE WARRANTIES SET FORTH IN PARAGRAPH 3.1 and 4.1, GALACTICOMM DOES NOT WARRANT, REPRESENT, OR GUARANTEE THAT ALL PROBLEMS WILL BE CORRECTED OR THAT ANY UPDATES WILL BE COMPATIBLE WITH PREVIOUS VERSIONS OF THE PRODUCTS. EXCEPT AS EXPRESSED ABOVE, GALACTICOMM DISCLAIMS ALL WARRANTIES, EXPRESSED AND IMPLIED, TO THE PRODUCT, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND GALACTICOMM DISCLAIMS ALL OBLIGATIONS AND LIABILITY ON GALACTICOMM'S PART FOR DAMAGES, INCLUDING BUT NOT LIMITED TO SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH USE OF THE PRODUCT, WHETHER OR NOT GALACTICOMM HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. 5. TERMINATION 5.1 EVENTS CAUSING TERMINATION This agreement may be terminated by GALACTICOMM under any of the following conditions: (a) GALACTICOMM may terminate this agreement if RESELLER fails to meet it's purchase requirements outlined in paragraph 2.2 herein upon thirty (30) days written notice to RESELLER. (b) if one of the parties shall be declared insolvent or bankrupt. (c) if a petition is filed in any court and not dismissed in ninety (90) days to declare one of the parties bankrupt or for a reorganization under the Bankruptcy Law or any other similar statute. (d) if a Trustee in Bankruptcy or a Receiver or similar entity is appointed for one of the parties. (e) if RESELLER does not pay GALACTICOMM with in sixty (60) days from receipt of GALACTICOMM'S invoices or otherwise materially breaches this Agreement. 5.2 DUTIES UPON TERMINATION Upon termination of this Agreement for any reason, the parties agree to continue their cooperation in order to effect an orderly termination of their relationship. RESELLER shall immediately cease representing itself as a RESELLER of the PROGRAMS for GALACTICOMM. The following paragraphs of this Agreement shall survive its termination for a period of five (5) years: 3.2, 7.1, 7.6, 7.7 and 7.10. 6. PRODUCT PROMOTION AND SUPPORT 6.1 RESELLER'S OBLIGATION During the term hereof, RESELLER, as part of its activities to promote the distribution of the PROGRAMS, agrees to confer periodically with GALACTICOMM, at GALACTICOMM'S request, on matters relating to market conditions, sales forecasting, product planning and update, promotional and marketing strategies and programming. GALACTICOMM may, at its sole option, prior to and/or after its use, review all of RESELLER's promotion and advertising materials which utilize any of GALACTICOMM'S trademarks or trade names. RESELLER agrees not to use or to withdraw and retract any promotion or advertising, which utilizes any of GALACTICOMM'S trademarks or trade names, which GALACTICOMM finds unsuitable. GALACTICOMM agrees not to unreasonably withhold its approval of any promotion or advertising which utilizes any of GALACTICOMM'S trademarks or trade names. 6.2 TRAINING AND TECHNICAL SUPPORT BY GALACTICOMM All training provided by GALACTICOMM to RESELLER will be at GALACTICOMM'S customary rates and subject to the availability of GALACTICOMM'S personnel. If RESELLER's support staff calls GALACTICOMM with questions, GALACTICOMM shall make reasonable efforts to advise and support RESELLER's personnel and will respond to RESELLER within a reasonable time period. 7. GENERAL 7.1 CONFIDENTIAL INFORMATION GALACTICOMM and RESELLER acknowledge that, in the course of dealings between the parties, each party will acquire information about the other party, its business activities and operations, its technical information and trade secrets, of a highly confidential and proprietary nature. Each party shall hold such information in strict confidence and shall not reveal the same, except for any information which is: generally available to or known to the public; known to such party prior to the negotiations leading to this Agreement; independently developed by such party outside the scope of this Agreement; or lawfully disclosed by or to a third part or tribunal. The confidential information of each party shall be safeguarded by the other to the same extent that it safeguards its own confidential materials or dates relating to its own business. 7.2 CURE PERIOD Neither party may terminate this Agreement for breach or default of the other party unless and until the party seeking to terminate has specified the breach or default in writing to the other party and such breach or default has not been cured by the defaulting party within thirty (30) days after receipt of written notice of default. 7.3 FORCE MAJEURE Neither party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or interruption of service resulting, directly or indirectly, from acts of God, civil or military authority, acts of the public enemy, war, riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements, strikes, labor disputes, shortages of suitable parts, materials, labor or transportation or any causes beyond the reasonable control of such party. 7.4 JURISDICTION AND VENUE This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. Exclusive jurisdiction for litigation of any dispute, controversy or claim arising out of, in connection with, or in relation to this Agreement, or the breach thereof, shall be only in the United States Federal District Court in Florida or in the Florida State Court having competent jurisdiction and located within Fort Lauderdale. 7.5 ENTIRE AGREEMENT This Agreement, including the schedules attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments, writings and all other communications between the parties, both oral and written. This Agreement may not be released, discharged, changed or modified except by an instrument in writing signed by a duly authorized representative of each of these parties. The terms of this Agreement shall prevail in the event that there shall be any variance with the terms and conditions of any invoice or other such document submitted by GALACTICOMM or any purchase order or any other such document submitted by RESELLER. This Agreement shall not be valid until signed and accepted by both parties and no change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by both parties against whom the same is sought to be enforced. 7.6 INDEPENDENT CONTRACTORS It is expressly agreed that GALACTICOMM and RESELLER are acting hereunder as independent contractors and under no circumstances shall any of the employees of one party be deemed the employees of the other for any purpose. This Agreement shall not be construed as authority for either party to act for the other party in any agency or other capacity or to make commitments of any kind for the account of, or on behalf of, the other party, except to the extent, and for the purposes, expressly provided for and set forth herein. 7.7 ATTORNEY'S FEES In any action between the parties to enforce any of the terms of this Agreement, the prevailing party shall be entitled to recover expenses, including reasonable attorneys' fees. 7.8 NOTICE Any notice required to be given by either party to the other shall be deemed given if in writing and actually delivered or deposited in the United States mail in registered or certified form, return receipt requested, postage prepaid, addressed to the party to whom notice is being given at the address of such party set forth above or to such other address to which the sending party has been directed to send notices by the addressee. 7.9 ASSIGNMENT This Agreement is not assignable by either party hereto without the consent of the other, except that this Agreement shall be assignable upon the sale of all rights to license and sublicense the PROGRAMS to the purchaser of said rights. This Agreement shall be binding upon the parties and their respective successor. 7.10 SEVERABILITY If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other part or provision of this Agreement. 7.11 WAIVER No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof SCHEDULE A: CURRENT PROGRAMS PRICES PRODUCT QUANTITY UNIT PRICE* COST WEBCAST PERSONAL 5,000 ***** ***** PRODUCT QUANTITY UNIT PRICE COST LISTING SERVER 2 ***** ***** Payment Terms: Galacticomm is offering terms. A payment of $***** up-front is required, the remaining payment is to be split into two $***** Purchase Orders. One is Net-30 and the other is Net-60. *****CONFIDENTIAL PORTION. THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by a duly authorized representative as of the date set forth above. GALACTICOMM - GALACTICOMM TECHNOLOGIES, INC., By: /s/ ILLEGIBLE Date: DEC 2 - 97 ----------------------------------------- ---------------------- Print Name: ILLEGIBLE --------------------------------- Title: ILLEGIBLE -------------------------------------- RESELLER - MICROLAND TRADING, INC. By: /s/ ALEX SASTRE Date: DEC 2 1997 ----------------------------------------- ---------------------- Print Name: Alex Sastre --------------------------------- Title: President -------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE B: SOFTWARE LICENSE AGREEMENT GALACTICOMM SOFTWARE LICENSE AGREEMENT WEBCAST/Registered trademark/ YOU SHOULD CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE OPENING THIS ENVELOPE. OPENING THIS ENVELOPE INDICATES YOUR ACCEPTANCE OF THESE TERMS AND CONDITIONS. IF YOU DO NOT AGREE WITH THEM. YOU SHOULD RETURN THIS ENVELOPE UNOPENED WITHIN 30 DAYS OF THE ORIGINAL DATE OF PURCHASE. AND THE PRICE OF THE PRODUCT WILL BE REFUNDED TO YOU. Galacticomm, Inc. provides this Software and licenses its use throughout the world. You assume responsibility for the selection of the Software to achieve your intended results, and for the installation, use, and results obtained from the Software. DEFINITIONS "You" and "your" shall be taken as referring to the person or business entity who purchased this License to use this Software or for whom such License was purchased. "Software" shall he taken as referring to the files supplied on the media inside this envelope, and to any and all copies, updates, modifications, functionally-equivalent derivatives, or any parts or portions then of. "Run-Time Access" shall be taken as referring to a connection that allows the exchange of data between two or more computers. "Live Computer" shall be taken as referring to a single computer connected with communications hardware providing Run-Time Access to this Software. "Development Computer" shall be taken as referring to a single computer upon which a copy of this Software may be installed for configuration and development purposes, not providing Run-Time Access to this Software. "Client Software" shall be taken as referring to the program(s) that can he generated with this Software to give other computers Run-Time Access to your live Computer in a Windows client/server mode. LICENSE You may: 1. install and use one copy of this Software on a single Live Computer. 2. copy this Software into machine-readable or printed form, for backup or archival purposes in support of your use of this Software. 3. transfer this Software and license to another party if the other party agrees to accept the terms and conditions of this Agreement. If the enclosed Software is an update, any transfer must include the update and all prior versions. If you transfer the Software, you must at the same time either transfer all copies, whether in machine-readable form, to the same party, or destroy any copies not transferred. THE VIDEO STREAM(S) PRODUCED BY THIS SOFTWARE CANNOT BE RESOLD TO ANY THIRD PARTIES OR SOLD ON A PAY-PER-VIEW BASIS. THE RESALE OF VIDEO STREAMS IS SUBJECT TO AN ADDITIONAL LICENSE AGREEMENT ATTAINABLE FROM GALACTICOMM. FAILURE TO COMPLY WITH THIS PROVISION WILL RESULT IN THE DE-ACTIVATION OF THE WEBCAST SOFTWARE. NO REFUNDS WILL BE GIVEN TO REGISTERED USERS WHOSE SOFTWARE IS DEACTIVATED UNDER THIS PROVISION. YOU MAY NOT USE, COPY, MODIFY, OR TRANSFER THIS SOFTWARE, OR ANY COPY, MODIFICATION, OR MERGED PORTION, IN WHOLE OR IN PART, EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS LICENSE, OR IN AMENDMENTS SIGNED 8Y AN OFFICER OF GALACTICOMM. IF YOU TRANSFER POSSESSION OF ANY COPY OF THIS SOFTWARE, OR ANY FUNCTIONALLY-EQUIVALENT DERIVATIVE, OR ANY-PORTION OR MODIFICATION THEREOF, TO ANOTHER PARTY, YOUR LICENSE IS AUTOMATICALLY TERMINATED. TERM This license is effective until terminated. You may terminate it at any time by destroying all copies of the Software covered by this Agreement. It will also terminate upon conditions set forth elsewhere in this Agreement or if you fail to comply with any term or condition of this Agreement. You agree upon such termination to destroy this Software, including all copies, functionally-equivalent derivatives, and all portions and modifications thereof in any form. (continued on other side) - -------------------------------------------------------------------------------- SCHEDULE B: SOFTWARE LICENSE AGREEMENT LIMITED WARRANTY THIS SOFTWARE, INCLUDING CLIENT SOFTWARE, IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE SOFTWARE IS WITH YOU. SHOULD THE SOFTWARE PROVE DEFECTIVE, YOU (NOT GALACTICOMM) ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING REPAIR OR CORRECTION. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE. Galacticomm does not warrant that the functions contained in this Software will meet your requirements or that the operation of this Software will be uninterrupted or error-free. However, Galacticomm does warrant the media on which the Software is furnished to be free from defects in materials and workmanship under normal use for a period of ninety (90) days from the date of delivery to you. LIMITATIONS OF REMEDIES Galacticomm's entire liability and your exclusive remedy shall be: a. the replacement of any media not meeting Galacticommn's "Limited Warranty" and which is return to Galacticomm, or b. if Galacticomm is unable to deliver replacement media which is free of defects in materials or workmanship, you may terminate this Agreement by returning this Software and your money will be refunded. IN NO EVENT WILL GALACTICOMM BE LIABLE TO YOU FOR ANY DAMAGES, INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THIS SOFTWARE EVEN IF GALACTICOMM OR ITS AUTHORIZED REPRESENTATIVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THAT ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. GENERAL You may not sublicense, assign, or otherwise transfer this License or Software except as expressly provided in this Agreement. Any attempt to otherwise sublicense, assign, or transfer any of the rights, duties or obligations hereunder is expressly prohibited and will terminate this Agreement. This Agreement will be governed by the laws of the State of Florida. All Agreements covering this Software (including but not limited to any and all updates, upgrades, and enhancements to this Software or any portion thereof, bearing the same registration number) shall be deemed to be counterparts of one and the same License Agreement instrument. BY OPENING THIS ENVELOPE. YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE T0 BE BOUND BY ITS TERMS AND CONDITIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US. WHICH SUPERSEDES ANY PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATIONS BETWEEN US RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. EX-10.49 12 EXHIBIT 10.49 A PORTION OF THE EXHIBIT HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION RESELLER AGREEMENT AGREEMENT made as of this twelfth day of January, 1998 by and between Simon & Schuster, Inc. ("RESELLER") with a place of business at One Lake Street, Upper Saddle River, New Jersey 07458 and GALACTICOMM TECHNOLOGIES, INC. ("GALACTICOMM") with principal offices at 4101 SW 47 Avenue Suite 101, Fort Lauderdale, Florida 33314. WHEREAS, GALACTICOMM has developed some computer PROGRAMS which it desires to license to RESELLER for purposes of distribution and marketing, and WHEREAS; RESELLER DESIRES TO MARKET THE COMPUTER PROGRAMS DEVELOPED BY GALACTICOMM; NOW THEREFORE, in consideration of the mutual promises contained herein it is hereby agreed as follows: 1. LICENSE 1.1 Distribution Rights During the term hereof, GALACTICOMM grants to RESELLER and its affiliates the non-exclusive right and license to market and distribute through any and all channels and media the computer PROGRAMS described in Schedule "A" (hereinafter referred to as the "PROGRAMS"), as such computer PROGRAMS may be upgraded or modified from time to time by GALACTICOMM. The geographical limitation of this right and license is North America. Unless otherwise specified, the term PROGRAMS as hereinafter defined, shall refer to the binary or object code of the PROGRAMS and not the source code. Nothing herein shall be interpreted to include, and GALACTICOMM does not hereby grant to RESELLER, any right or license to enter into a VAR, OEM or other redistribution agreement or license. RESELLER may sell the PROGRAMS as stand-alone products or bundled together with other products. 1.2 License to Use Trademark and Trade Name Any and all trademarks and trade names which GALACTICOMM uses in connection with the license granted hereunder are and shall remain the exclusive property of GALACTICOMM. This Agreement gives RESELLER no rights therein except for a limited license to reproduce trademarks and trade names as necessary for, and for the sole purpose of allowing RESELLER to fully promote and sell the PROGRAMS pursuant to the terms of this Agreement. RESELLER may Co-Brand Product with GALACTICOMM. RESELLER may submit to GALACTICOMM trademarks, designs and other materials as needed to produce a Co-Branded product. 1.3 Term This Agreement shall continue in full force and effect from the date this Agreement was entered into, as specified above, until December 31, 2000 and will thereafter automatically be renewed for additional periods of one (1) year. Prior to the end of the initial term (or of any successive renewal terms) of the Agreement, this Agreement maybe canceled by ninety (90) days' prior written notice by either party to the other. 2. PRICE AND PAYMENT 2.1 Price Purchase price to RESELLER, and RESELLER's payment obligations for the PROGRAMS & SERVICES, are set forth in Schedule "A". Unless expressly provided to the contrary in this Agreement, RESELLER is under no obligation to buy any of the products or services set forth on Exhibit A; in the event it elects to do so, however, the prices set forth on Exhibit A shall govern. The prices in Schedule A are guaranteed until December 31st, 1998. After that time they may increase by not more than 10% in each subsequent year. 2.2 Shipment GALACTICOMM agrees to supply RESELLER with a minimal quantity of twenty five (25) units of the software PROGRAMS as an initial stocking order in December 1997. RESELLER will have a period of six (6) months from initial delivery to sell the PROGRAMS. At such time, RESELLER will be allowed to return all unsold PROGRAMS for a credit. Galacticomm shall maintain sufficient inventory to satify any and all future orders (if any) from RESELLER. GALACTICOMM agrees to ship the software PROGRAMS to RESELLER within 48 hours of receiving an order via carrier of 1 GALACTICOMM's choice, with risk of loss to be borne by GALACTICOMM until delivery to RESELLER'S site at which time the risk of loss shall shift to RESELLER. RESELLER is under no obligation to buy any minimum number of PROGRAMS. 2.3 Terms of Payment RESELLER agrees to pay GALACTICOMM within 45 days of receipt of invoices with the exception of the initial stocking order where RESELLER will pay GALACTICOMM within 30 days of the actual resale of its PROGRAMS. In the event that the initial stocking order is depleted prior to June 30th, 1998, payment to GALACTICOMM will be made within 30 days of receipt of invoices. GALACTICOMM offers a discount of two percent (2.0%) for early payment within ten (10) days of SELLERS receipt of each invoice. 2.4 Taxes RESELLER's payment obligation includes any federal, state, county, local or other governmental taxes, duties or excise taxes, now or hereafter due and payable in connection which is applied on the production, storage, sale, transportation, import, export, licensing or use of the PROGRAMS including sale tax, value added tax or similar tax. Any taxes imposed by federal, state or any municipal government or any amount in lieu thereof, including interest and penalties thereon paid or payable at any time by GALACTICOMM in connection with GALACTICOMM'S sale to RESELLER, exclusive of taxes based on net income, shall be borne by RESELLER. 3. OWNERSHIP AND PROPERTY RIGHTS 3.1 Ownership GALACTICOMM represents and warrants that it has all necessary rights in and to all copyrights, patents and other proprietary rights associated with the PROGRAMS that are necessary to market, distribute and license the PROGRAMS exclusive of any RESELLER trademarks that are provided in connection with co-branding or RESELLER's marketing and sales of the PROGRAMS (which trademarks shall at all times remain RESELLER's property). GALACTICOMM has the unrestricted right and authority to enter into this Agreement and to grant the rights and licenses hereunder with respect to the PROGRAMS. 3.2 Property Rights RESELLER acknowledges and agrees that it obtains no ownership or title in and to the PROGRAMS by virtue of this Agreement. RESELLER's sole rights are the distribution and other rights set forth in Section 1 above. It is expressly understood and agreed that no title to, or ownership of, the PROGRAMS, or any part thereof, is hereby transferred to RESELLER. RESELLER will not remove or modify any copyright notice included with the Programs and diskettes or other tangible media delivered by GALACTICOMM. RESELLER acknowledges and agrees that all persons who use the PROGRAMS must be licensed by the current GALACTICOMM License Agreement set forth in Schedule "B" or sign a RESELLER license agreement that is materially similar. All use of any GALACTICOMM trademark in any marketing and promotion, including but not limited to, advertisements and packaging, shall contain notification that such trademark is a trademark which was developed and is owned by GALACTICOMM. 3.3 Unauthorized Copying RESELLER agrees that it will not copy, modify or reproduce the PROGRAMS in any way, except as otherwise provided herein. However, RESELLER is not responsible for the disclosure, use, modification or copying of the PROGRAMS by its customers or any other third party so long as RESELLER did not authorize or participate in any such activity. RESELLER agrees to promptly notify GALACTICOMM of any circumstances of which RESELLER has knowledge relating to any unauthorized use or copying of the PROGRAMS by any person or entity not authorized to do so. Fine 4. WARRANTY 4.1 Customer Warranty GALACTICOMM will enclose, as part of the PROGRAMS package, a warranty with respect to the physical media enclosed therein which is identical to the warranty contained in the then current GALACTICOMM License Agreement (a copy of which 2 is set forth in Schedule "B"), and that the PROGRAMS shall operate in all material respects in conformance with their published specifications and/or user documentation. GALACTICOMM agrees to fulfill its responsibilities under the warranty delivered with the PROGRAMS, as the same shall be modified from time to time. RESELLER acknowledges and agrees that the warranty furnished by GALACTICOMM with copies of the PROGRAMS is the only warranty made (or to be made) with respect thereto. RESELLER agrees to include the current GALACTICOMM License Agreement (or a materially similar license agreeemnt used by RESELLER) with every copy of the PROGRAMS it distributes and not to make any other representations or warranties with respect to the PROGRAMS. 4.2 Disclaimer of Additional Warranties OTHER THAN THOSE WARRANTIES SET FORTH IN PARAGRAPH 3.1 and 4.1, GALACTICOMM DOES NOT WARRANT, REPRESENT, OR GUARANTEE THAT ALL PROBLEMS WILL BE CORRECTED OR THAT ANY UPDATES WILL BE COMPATIBLE WITH PREVIOUS VERSIONS OF THE PRODUCTS. EXCEPT AS EXPRESSED ABOVE, GALACTICOMM DISCLAIMS ALL WARRANTIES, EXPRESSED AND IMPLIED, TO THE PRODUCT, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND GALACTICOMM DISCLAIMS ALL OBLIGATIONS AND LIABILITY ON GALACTICOMM'S PART FOR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH USE OF THE PRODUCT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. 5. TERMINATION 5.1 Events Causing Termination This agreement may be terminated by GALACTICOMM under any of the following conditions: (a) GALACTICOMM may terminate this agreement if RESELLER fails to meet it's payment requirements outlined in paragraph 2.3 herein upon ninety (30) days written notice to RESELLER. (b) if one of the parties shall be declared insolvent or bankrupt. (c) if a petition is filed in any court and not dismissed in ninety (90) days to declare one of the parties bankrupt or for a reorganization under the Bankruptcy Law or any other similar statute. (d) if a Trustee in Bankruptcy or a Receiver or similar entity is appointed for one of the parties. (e) if RESELLER materially breaches this Agreement and has not cured this breach within 30 days of notice from GALACTICOMM. This Agreement may be terminated by RESELLER at any time and for any reason (or no reason) upon 90 days notice. 5.2 Duties Upon Termination Upon termination of this Agreement for any reason, the parties agree to continue their cooperation in order to effect an orderly termination of their relationship. RESELLER shall immediately cease representing itself as a RESELLER of the PROGRAMS for GALACTICOMM. The following paragraphs of this Agreement shall survive its termination for a period of five (5) years: 3.2, 7.1, 7.6, 7.7 and 7.10. Termination of this Agreement shall not terminate or in any way affect any End User License Agreement between RESELLER and its customers. 6. PRODUCT PROMOTION AND SUPPORT 6.1 RESELLER's Obligation During the term hereof, RESELLER, as part of its activities to promote the distribution of the PROGRAMS, agrees to confer periodically with GALACTICOMM, at GALACTICOMM'S request, on matters relating to market conditions, sales forecasting, product planning and update, promotional and marketing strategies and programming. GALACTICOMM may, at its sole option, prior to and/or after its use, review all of RESELLER's promotion and advertising materials which utilize any of GALACTICOMM'S trademarks or trade names. RESELLER agrees not to use or to withdraw and retract any promotion or 3 advertising, which utilizes any of GALACTICOMM'S trademarks or trade names, which GALACTICOMM has not approved pursuant to this Section 6.1. GALACTICOMM agrees not to unreasonably withhold its approval of any promotion or advertising which utilizes any of GALACTICOMM'S trademarks or trade names. 6.2 Training and Technical Support by GALACTICOMM All training provided by GALACTICOMM to RESELLER will be at GALACTICOMM'S customary rates ( see Schedule "A") and subject to mutually agreeable dates and times. GALACTICOMM will provide fifteen incidences of technical support to RESELLER for each PROGRAM purchased from 9:00 AM until 6:00 PM EST, Monday to Friday. Any technical support beyond fifteen incidences will be charges at the customary rate found in Schedule "A". 7. GENERAL 7.1 Confidential Information GALACTICOMM and RESELLER acknowledge that, in the course of dealings between the parties, each party will acquire information about the other party, its business activities and operations, its technical information and trade secrets, of a highly confidential and proprietary nature. Each party shall hold such information in strict confidence and shall not reveal the same, except for any information which is: generally available to or known to the public; known to such party prior to the negotiations leading to this Agreement; independently developed by such party outside the scope of this Agreement; or lawfully disclosed by or to a third party or tribunal. The confidential information of each party shall be safeguarded by the other to the same extent that it safeguards its own confidential materials or dates relating to its own business. 7.2 Force Majeure Neither party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or interruption of service resulting, directly or indirectly, from acts of God, civil or military authority, acts of the public enemy, war, riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements, strikes, labor disputes, shortages of suitable parts, materials, 'labor or transportation or any causes beyond the reasonable control of such party. 7.3 Jurisdiction and Venue THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS TO BER MADE AND FULLY PERFOEMRED IN THEAT STATE. ANY ACTION OR PROCEEDING BROUGHT BY RESELLER TO ENFORCE ITS RIGHTS UNDER THIS AGREEMENT WILL BE BROUGHT ONLY IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF FLORIDA OR, IF FEDERAL JURISDICTION IS LACKING, IN THE STATE TRIAL COURT LOCATED IN FT. LAUDERDALE, AND ANY ACTION OR PROCEEDING BROUGHT BY GALACTICOMM TO ENFORCE ITS RIGHTS UNDER THIS AGREEMENT WILL BE BROUGHT ONLY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR, IF FEDERAL JURISDICTION IS LACKING, IN THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY. EACH PARTY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF THESE COURTS FOR ANY DISPUTE ALLEGING A BREACH OF THIS AGREEMENT AND NEITHER WILL MAINTAIN THAT ANY SUCH FORUM IS AN INCONVENIENT FORUM FOR RESOLVING ANY SUCH DISPUTE. 7.4 Entire Agreement This Agreement, including the schedules attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments, writings and all 4 other communications between the parties, both oral and written. This Agreement may not be released, discharged, changed or modified except by an instrument in writing signed by a duly authorized representative of each of these parties. The terms of this Agreement shall prevail in the event that there shall be any variance with the terms and conditions of any invoice or other such document submitted by GALACTICOMM or any purchase order or any other such document submitted by RESELLER. This Agreement shall not be valid until signed and accepted by both parties and no change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by both parties against whom the same is sought to be enforced. 7.5 Independent Contractors It is expressly agreed that GALACTICOMM and RESELLER are acting hereunder as independent contractors and under no circumstances shall any of the employees of one party be deemed the employees of the other for any purpose. This Agreement shall not be construed as authority for either party to act for the other party in any agency or other capacity or to make commitments of any kind for the account of, or on behalf of, the other party, except to the extent, and for the purposes, expressly provided for and set forth herein. 7.6 Notice Any notice required to be given by either party to the other shall be deemed given if in writing and actually delivered or deposited in the United States mail in registered or certified form, return receipt requested, postage prepaid, addressed to the party to whom notice is being given at the address of such party set forth above or to such other address to which the sending party has been directed to send notices by the addressee. 7.7 Assignment This Agreement is not assignable by either party hereto without the consent of the other, except that this Agreement shall be assignable upon the sale of all rights to license and sublicense the PROGRAMS to the purchaser of said rights. This Agreement shall be binding upon the parties and their respective successors. Notwithstanding the foregoing, RESELLER shall at all times be free to assign this Agreement in connection with a sale of all or substantially all of its assets or in connection with a change in control. 7.8 Severability If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other part or provision of this Agreement. 7.9 Waiver No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof. 7.10 Indemnity GALACTICOMM agrees to indemnify RESELLER and hold RESELLER harmless from and against any and all damages, costs, claims, interests, expenses, obligations, losses or liabilities of any kind and charator ( including without limitation any attorney's fees and costs) RESELLER incurs in connection with any claim or cause of action that the PROGRAMS infringe or violate any copyright, patent, trademark, or other proprietary right of any kind of any third party. GALACTICOMM shall have the sole right to assume and control the defense of any such claim and RESELLER (at GALACTICOMM's expense) shall provide reasonable assistance and cooperation to GALCATICOMM in connection with any such defense. GALACTICOMM shall not, without the RESELLER'S prior written consent, enter into any settlement of any claim as to which the RESELLER is a party unless such settlement includes an unconditional release of RESELLER from all liability from claims that are the subject matter of such proceedings and the subject of such indemnification, unless GALACTICOMM is responsible for all monetary provisions and other consequences of the settlement. GALACTICOMM shall apprise the RESELLER of all court proceedings, filings and/or settlement offers and will consider in good faith suggestions made by the RESELLER. 7.11 Escrow At RESELLER'S option, and provided that RESELLER is not in breach of its obligations hereunder, the parties shall enter into a source code escrow agreement pursuant to which GALACTICOMM (at its cost) shall deposit with its ordinary source code escrow agent copies of the then-current source code for the PROGRAMS, together with all related technical and design 5 documentation, which materials shall promptly be updated if there are revisions to the PROGRAMS (collectively the "Escrowed Materials"). The Escrowed Materials shall be released to RESELLER solely for the purpose of allowing RESELLER (directly or through a third party, so long as such third party agrees to protect the confidentiality of such Escrowed Materials) to maintain and support the PROGRAMS in the event GALACTICOMM is unwilling or unable to do so consistent with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by a duly authorized representative as of the date set forth above. GALACTICOMM - GALACTICOMM TECHNOLOGIES, INC., By: /s/ PETER BERG Date: 1/17/98 Print Name: Peter Berg Title: CEO RESELLER - SIMON & SCHUSTER, INC. By: /s/ STEVEN R. CONREY Date: 1/17/98 Print Name: Steven R. Conrey Title: Senior Vice President 6 SCHEDULE A I. SIMON & SCHUSTER PRICE LIST ***** PRODUCTS SKU NUMBER DESCRIPTION PRICE - ------------------------------------------------------------------ SSEDU256 Worldgroup v3.1 Education Server $ ***** 256 user license incl. Worldgroup Manager unlimited user incl. Webcast Proserver v2.0 add-on incl. - ------------------------------------------------------------------ SSACTI Actibase 256 user add-on $ ***** - ------------------------------------------------------------------ SSNETP Netpartners Internet Screen System /yr ***** - ------------------------------------------------------------------ SSCOMP Computone Terminal Server $ ***** 32 ports with Radius software - ------------------------------------------------------------------ SSROCK Rocketport Intelligent Sertial Kit $ ***** 32 port controller PCI - ------------------------------------------------------------------ SUPPORT CENTER SERVICES SKU NUMBER DESCRIPTION PRICE - ------------------------------------------------------------------ SSSER Per Server Annual Service Contract $ ***** includes 15 incidents/year plus all software upgrades - ------------------------------------------------------------------ SSSERADD Per Incident Charge $ ***** - ------------------------------------------------------------------ SSENG Custom Programming per/hr $ ***** - ------------------------------------------------------------------ SSWEB Webmaster Design per/hr $ ***** - ------------------------------------------------------------------ TRAINING CLASSES/INSTALLATION SKU NUMBER DESCRIPTION PRICE - ------------------------------------------------------------------ SSTRT Train the Trainer ***** - ------------------------------------------------------------------ SSADDM Administrator Workshop ***** - ------------------------------------------------------------------ SSINST Onsite Installation ***** - ------------------------------------------------------------------ ***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 7 III. SIMON & SCHUSTER (S & S) EDUCATIONAL SOFTWARE DESCRIPTION OF SERVICES TRAINING CLASSES TRAIN THE TRAINER ***** PER DAY PLUS TRAVEL & EXPENSES Designed specifically for the S & S installers. This course includes comprehensive in-depth training on the Worldgroup system, the basis for the Educational Software. Students will learn the basics of the system and work their way up to a complete understanding of all the Administration functions available from the base Worldgroup system. This course will involve extensive lab time. Course will include, but is not limited to: /bullet/ Client/Server Technology /bullet/ Basic Worldgroup Concepts /bullet/ Educational Software Server Installation /bullet/ Worldgroup Server installation /bullet/ Client installation /bullet/ Configuring a client workstation /bullet/ Security and Accounting /bullet/ Menu tree /bullet/ Hypermedia Page editing /bullet/ Forums /bullet/ Libraries /bullet/ Student/Teacher Polls and Questionnaires /bullet/ Adding Modules. /bullet/ Administrative access rights (co-sysops and staff) /bullet/ Backing up and restoring a server /bullet/ System monitoring /bullet/ Computone Terminal Server Installations /bullet/ Serial Modem installation /bullet/ Basic Troubleshooting /bullet/ Conducting a site survey for the Educational Software * TRAINING WILL BE CONDUCTED AT THE S & S OFFICES. S & S WILL BE RESPONSIBLE FOR SUPPLYING ALL NECESSARY HARDWARE FOR THE CLASS. (COMPUTERS, OVERHEAD PROJECTOR ETC.) *GALACTICOMM WILL PROVIDE ALL SOFTWARE AND DOCUMENTATION TO CONDUCT THE CLASS. *A GALACTICOMM INSTRUCTOR WILL CONTACT S & S TO MAKE ALL THE NECESSARY ARRANGEMENTS. ***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 10 ADMINISTRATOR WORKSHOP ***** PER DAY PLUS TRAVEL & EXPENSES This is a 3-4 hour workshop offered to all schools that purchase an Educational Software system. This will prepare the Administrators and/or teachers for what they are about to be using. These workshops are scheduled during or immediately following an Educational Software installation. These workshops will not be held for less than 5 people. Two classes per day can be held to accommodate large amount of attendees. WORKSHOP CONTENT TERMS AND PHRASES CONCEPTS AND HISTORY EDUCATIONAL SOFTWARE OVERVIEW INTRODUCTION TO ADMINISTRATION MENU INTRODUCTION TO FORUMS INTRODUCTION TO LIBRARIES INTRODUCTION USER-ID'S INTRODUCTION TO HPS BASIC TROUBLESHOOTING SUPPORT POLICIES AND ACCESS HYPERMEDIA DESIGN & CONCEPTS ***** PER DAY PLUS TRAVEL & EXPENSES EDUCATIONAL SOFTWARE HPS DESIGN AND CONCEPTS RECOMMENDED FOR ALL EDUCATIONAL SOFTWARE SYSTEM ADMINISTRATORS AND THOSE THAT WILL BE WORKING WITH THE MAINTENANCE AND CHANGE OF EDUCATIONAL SOFTWARE SYSTEM MENU AND GRAPHICS. ***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 11 SERVICES ONSITE INSTALLATION ***** PER DAY PLUS TRAVEL & EXPENSES ONSITE INCLUDES: TRAVEL TO SCHOOL'S SITE; INSTALLATION OF WINDOWS NT; (PROVIDED BY SCHOOL) INSTALLATION OF EDUCATIONAL SOFTWARE; INSTALLATION OF THE FOLLOWING INSTALLATION HARDWARE: MODEMS; TERMINAL SERVER; CABLES. BUILD AND INSTALL ONE CLIENT ON THE SERVER; MODIFICATION OF MENU TREE IF NEEDED. ONSITE DOES NOT INCLUDE: LAN WIRING AND CABLING; LAN SERVER INSTALLATION AND OR CONFIGURATION NOT DIRECTLY RELATED TO EDUCATIONAL SOFTWARE INSTALLATION. MODIFICATIONS All modifications to Menu Tree Structure and/or HPS pages that is not included in the initial contract will be billed at ***** per hour. All program functionality modifications that are not included in the initial contract will be billed at ***** per hour. SUPPORT/ANNUAL MAINTENANCE FEE For each server purchased, S & Swill pay Galacticomm an annual maintenance fee of *****. This fee will include all software updates as described below and fifteen (15) incidents of technical support. An incident is defined as the resolution of a technical problem made from S & S to the technical support center regardless of the amount of time required for resolution. Additional incidents above fifteen will be billed at a rate of ***** per incident. AUTOMATIC SOFTWARE UPDATE PROGRAM (ASUP) UPDATES AND PATCHES Each Educational Software has a built in ASUP which is included with the Annual Support Fee. All Educational Software ASUP updates are sent to S & S to distribute. All patches to the Educational Software will be distributed to the S & S demo system in a special library. It is up to S & S to distribute these patches and make them available to Educational Software Administrators. ***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 12 SCHEDULE B GALACTICOMM SOFTWARE LICENSE AGREEMENT WORLDGROUP/Trademark/ YOU SHOULD CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE OPENING THIS ENVELOPE. OPENING THIS ENVELOPE INDICATES YOUR ACCEPTANCE OF THESE TERMS AND CONDITIONS. IF YOU DO NOT AGREE WITH THEM, YOU SHOULD RETURN THIS ENVELOPE UNOPENED WITHIN 30 DAYS OF THE ORIGINAL DATE OF PURCHASE, AND THE PRICE OF THE PRODUCT WILL BE REFUNDED TO YOU. Galacticomm, Inc. provides this Software and licenses its use throughout the world. You assume responsibility for the selection of the Software to achieve your intended results, and for the installation, use, and results obtained from the Software. DEFINITIONS "You" and "your" shall be taken as referring to the person or business entity who purchased this License to use this Software or for whom such License was purchased. "Software" shall be taken as referring to the files supplied on the media inside this envelope, and to any and all copies, updates, modifications, functionally-equivalent derivatives, or any parts or portions thereof. "Run-Time Access" shall be taken as referring to a connection that allows the exchange of data between two or more computers. "Live Computer" shall be taken as referring to a single computer connected with communications hardware providing Run-Time Access to this Software. "Development Computer" shall be taken as referring to a single computer upon which a copy of this Software may be installed for configuration and development purposes, not providing Run-Time Access to this Software. "Client Software" shall be taken as referring to the program(s) that can be generated with this Software to give other computers Run-Time Access to your Live Computer in a Windows client/server mode. LICENSE You may: 1. install and use one copy of this Software on a single Live Computer; you may also install and use one copy of this Software on a single Development Computer. 2. copy this Software into machine-readable or printed form, for backup or archival purposes in support of your use of this Software. 3. provide Run-Time Access to this Software on your single Live Computer to up to 2 other machines at a time; said other machines need not, and must not, be provided with copies of this Software in order to obtain said Run-Time Access. 4. freely distribute the Client Software either electronically or on diskette(s), CD-ROM(s) or tape(s). 5. transfer this Software and license to another party if the other party agrees to accept the terms and conditions of this Agreement. If the enclosed Software is an update, any transfer must include the update and all prior versions. If you transfer the Software, you must at the same time either transfer all copies, whether in machine-readable form, to the same party, or destroy any copies not transferred. YOU MAY NOT USE, COPY, MODIFY, OR TRANSFER THIS SOFTWARE, OR ANY COPY, MODIFICATION, OR MERGED PORTION, IN WHOLE OR IN PART, EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS LICENSE, OR IN AMENDMENTS SIGNED BY AN OFFICER OF GALACTICOMM. IF YOU TRANSFER POSSESSION OF ANY COPY OF THIS SOFTWARE, OR ANY FUNCTIONALLY-EQUIVALENT DERIVATIVE, OR ANY PORTION OR MODIFICATION THEREOF, TO ANOTHER PARTY, YOUR LICENSE IS AUTOMATICALLY TERMINATED. TERM This license is effective until terminated. You may terminate it at any time by destroying all copies of the Software covered by this Agreement. It will also terminate upon conditions set forth elsewhere in this Agreement or if you fail to comply with any term or condition of this Agreement. You agree upon such termination to destroy this Software, including all copies, functionally-equivalent derivatives, and all portions and modifications thereof in any form. LIMITED WARRANTY 13 GALLACTICOMM WARRANTS THAT THIS SOFTWARE, INCLUDING CLIENT SOFTWARE, SHALL OPERATE IN ALL MATERIAL RESPECTS IN CONFORMANCE WITH THEIR PUBLISHED SPECIFICATIONS AND/OR USER DOCUMENTATION. GALACTICOMM DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. GALLACTICOMM'S SOLE OBLIGATION SHALL BE TO USE GOOD FAITH EFFORTS TO FIX ANY REPRODUCIBLE BUGS, ERRORS, OR DEFECTS IN THE SOFTWARE. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE. Galacticomm does not warrant that the functions contained in this Software will meet your requirements or that the operation of this Software will be uninterrupted or error-free. However, Galacticomm does warrant the media on which the Software is furnished to be free from defects in materials and workmanship under normal use for a period of ninety (90) days from the date of delivery to you. Galaticomm also agrees to indemnify You and hold You harmless from and against any and all damages, costs, claims, interests, expenses, obligations, losses or liabilities of any kind and character (including without limitation any attorney's fees and costs) You incur in connection with any claim or cause of action that the Software or Client Software infringe or violate any copyright, patent, trademark, or other proprietary right of any kind of any third party. Galacticomm shall have the sole right to assume and control the defense of any such claim and You (at Galacticomm's expense) shall provide reasonable assistance and cooperation to Galacticomm in connection with any such defense. LIMITATIONS OF REMEDIES Galacticomm's entire liability and your exclusive remedy shall be: a. the replacement of any media not meeting Galacticomm's "Limited Warranty" and which is return to Galacticomm, or b. if Galacticomm is unable to deliver replacement media which is free of defects in materials or workmanship, you may terminate this Agreement by returning this Software and your money will be refunded. IN NO EVENT WILL GALACTICOMM BE LIABLE TO YOU FOR ANY DAMAGES, INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THIS SOFTWARE EVEN IF GALACTICOMM OR ITS AUTHORIZED REPRESENTATIVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THAT ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. GENERAL You may not sublicense, assign, or otherwise transfer this License or Software except as expressly provided in this Agreement. Any attempt to otherwise sublicense, assign, or transfer any of the rights, duties or obligations hereunder is expressly prohibited and will terminate this Agreement. This Agreement will be governed by the laws of the State of the licensee. All Agreements covering this Software (including but not limited to any and all updates, upgrades, and enhancements to this Software or any portion thereof, bearing the same registration number) shall be deemed to be counterparts of one and the same License Agreement instrument. BY OPENING THIS ENVELOPE, YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, WHICH SUPERSEDES ANY PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATIONS BETWEEN US RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. 14 STATEMENT OF WORK This Statement of Work ("SOW") dated as of January 12, 1998 is incorporated in and made part of the Independent Contractor Master Services Agreement made and entered into as of January 8, 1998 (the "Agreement") by and between SIMON & SCHUSTER, INC., a New York corporation with offices in the State of New York and at One Lake Street, Upper Saddle River, NJ 07458 ("S&S"), and Galacticomm Technologies, Inc., a Florida corporation with a place of business at 4101 SW Avenue Suite 101, Ft. Lauderdale, FL 33314 ("Independent Contractor"). 1. Terms used in this SOW and not otherwise defined shall have the meanings specified in the Agreement. 2. Pursuant to the terms and conditions of the Agreement and this SOW, the parties hereby agree that Independent Contractor shall provide Company with the following Services and/or Materials: CONTRACT TYPE (check as applicable): [X] Fixed price of *****, to be paid in installments as follows: see attached [ ] Time & materials at the following rate(s): Total hourly charges shall not exceed $***** without Company's prior written approval. DESCRIPTION OF SERVICES AND ANY WORK INDEPENDENT CONTRACTOR IS TO PROVIDE (AS APPLICABLE): see attached SCHEDULE FOR DELIVERABLES (IF ANY): see attached INDEPENDENT CONTRACTOR PROJECT MANAGER (IF APPLICABLE): COMPANY PROJECT MANAGER (IF APPLICABLE): ***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 1 INDEPENDENT CONTRACTOR KEY EMPLOYEES (IF APPLICABLE): TERM: see attached ADDITIONAL TERMS: none 3. This SOW and the Agreement to which it becomes a part contains the entire agreement of the parties with respect to the subject matter of this SOW, and supersedes any prior agreement, understanding, or letter or intent, whether oral or written, between the parties. No waiver, modification, or amendment of this SOW shall be valid unless in a writing signed by the party to be charged. 4. This SOW shall have no force and effect unless and until it is signed by a representative of both the applicable Company business unit and a representative of the S&S Legal Department. IN WITNESS WHEREOF, the parties have caused this SOW to be executed and delivered as of the date first set forth above. SIMON & SCHUSTER, INC. INDEPENDENT CONTRACTOR /s/ STEVEN R. CONREY /s/ PETER BERG - ----------------------------- ----------------------------- By: Steven R. Conrey By: Peter Berg Title: Senior Vice President Title: CEO Taxpayer ID #: S&S Legal Department: /s/ ROBERT C. GORDIE, JR. By: Robert C. Gordie, Jr. Title: VP & Ass't. Gen'l Counsel 2 THE SIMON AND SCHUSTER ONLINE CLASSROOM Implementation Proposal 3 TABLE OF CONTENTS 1. PROPRIETARY STATEMENT...............................................................................5 2. COORDINATING ORGANIZATIONS..........................................................................5 3. STATEMENT OF WORK...................................................................................5 4. REQUIREMENTS........................................................................................6 5. SPECIFICATIONS......................................................................................6 5.1. FOCUS..........................................................................................6 5.2. FEATURES AND APPLICATIONS......................................................................7 5.2.1. STANDARD FEATURES (REQUIRE DEVELOPMENT AND CONFIGURATION).................................7 6. SCOPE INCREASES.....................................................................................9 7. PROPOSAL............................................................................................9 7.1. PHASE IMPLEMENTATION (CALCULATED IN MANHOURS OF BILLABLE TIME, NOT ACTUAL TIME FRAMES.).......10 7.1.1. MILESTONE I..............................................................................10 7.1.2. MILESTONE II.............................................................................10 7.1.3. MILESTONE III............................................................................11 8. MILESTONES AND COMMITMENTS.........................................................................12 9. BILLING............................................................................................12 9.1. DEVELOPMENT PHASES............................................................................12 10. EXPENSES........................................................................................13 10.1. TRAVEL.....................................................................................13 10.2. SHIPPING...................................................................................13
4 1. PROPRIETARY STATEMENT Both parties may disclose to each other certain information which may be considered by the disclosing party to be proprietary and trade secret information. Each party recognizes the other's claim to the value and importance of the protection of the other's proprietary information. When such material is in illustrated or written form, marked as confidential or proprietary, or when it is disclosed orally, identified at the time as confidential or proprietary and identified as such in writing to the receiving party within (30) days after disclosure, then the material will not be used by the receiving party other than for the purpose for which it was disclosed and will be protected against disclosure to their parties and will be held as confidential by the receiving party using the same degree of care as that party uses to protect its own confidential or proprietary material, but as least reasonable care. 2. COORDINATING ORGANIZATIONS The organizations involved in the coordination and execution under this Agreement are Galacticomm, Inc. and The Simon and Schuster Online Classroom. Additional resources will be made available as required from the engineering, marketing communications, service, and training organizations of either or both of the parties. The primary contacts of each party for purposes of performance under this Agreement shall be: Galacticomm: Paul Roub Director of Engineering 4101 SW 47th Ave Ste. 101 Bill Posner Director of Customer Operations Ft. Lauderdale Florida 33314 TBA Onsite Engineer 954-583-5990 Simon and Schuster: _____________ _________________
3. STATEMENT OF WORK Design, configure and install a closed system, named "Online Classroom" for the purpose of this appendix, using Galacticomm's current version of Worldgroup for NT. The system will be designed to operate on Pentium class computers using Windows NT Server version 4.0 operating system. The system will support 200+ simultaneous Web based sessions. The system will have the ability to provide external Internet e-mail transfers as well as Internal mail between Students, Teachers and other users of the system. This system is designed to encourage and improve communications electronically. Dissemination of files and documents, teleconferencing, user registries, special private and public discussion areas, Telnet, FTP, and a World Wide Web server will be supported. The system will be accessible via TCP/IP only and will provide the internal network and users of the system access via the Internet. 5 4. REQUIREMENTS The Simon and Schuster Online Classroom system must meet a minimum level of features and functionalities. Services should be intuitive, ergonomic, and uniform. The Simon and Schuster Online Classroom online system needs to have the following features and functions: /bullet/ Internet e-mail and internal Online Classroom e-mail /bullet/ Internet Connectivity and services /bullet/ File Libraries /bullet/ Polls and Questionnaires /bullet/ Chat Rooms /bullet/ Discussion Forums Each Simon and Schuster Online Classroom Server will: /bullet/ Support 200+ active user license /bullet/ Operate Galacticomm's Worldgroup platform. /bullet/ Operate 24 hours a day, seven days a week, except for daily backup/cleanup routines done nightly at a specified time. /bullet/ Be accessible by any authorized user with a PC, and an Internet connection. /bullet/ Allow World Wide Web access to all Student functions. /bullet/ Run as a "closed" system where accounts are initiated by Administrators of the system. 5. SPECIFICATIONS 5.1. FOCUS The Simon and Schuster Online Classroom will offer a communication system for interaction among students, teachers, parents and administrators for the purpose of sharing information, learning and using applications via the World Wide Web. The system foundation will be designed to support an array of content and applications that will lend value to the system, while providing access to The Simon and Schuster Online Classroom, and their online services. This appendix addresses the design, development and configuration of the model that will be used for other systems that are installed. 6 5.2. FEATURES AND APPLICATIONS 5.2.1. STANDARD FEATURES (REQUIRE DEVELOPMENT AND CONFIGURATION) /bullet/ GENERAL FEATURES Many of the modules will include the "Dock/Float" option that will allow the module to be locked within the browser, or float on the desk top. All module and features will be Year 2000 compliant where applicable /bullet/ E-MAIL For all users of the system, with support for file attachments, carbon copies, mail forwarding, distribution lists, new mail notification, return receipts, and security controls to authorize individual users or groups of users to use this service. An SMTP gateway for Internet E-mail is included, all features can be restricted on a user-by-user basis as well. Allows users to search for local WG Users by partial id Implements File Attachments (Upload and Download) Allows user to access all mail on Server (Post Office mode) or just new mail (inbox mode). /bullet/ REGISTRY OF USERS Can be used as a "white pages" directory of users, along with a configurable template for information asked and displayed. Security access restrictions identify which users can insert entries and which can only read them. /bullet/ FILELIBRARIES (file dissemination, searching and browsing) Can be used to manage more than 10,000 categories of files. Each category can have its own description and security access restrictions to determine which users can view the library, download files, upload files for approval, and approve uploaded files. Features include keyword searching, listing by popularity, chronological listings and wildcard file searches, as well as the ability to queue up multiple files for background download. /bullet/ GROUP MESSAGING For one-to-many or many-to-many threaded discussions with support for up to 10,000 unique discussion "forums", or "SIGs" (Special Interest Groups). Each of these forums will include security with user-by-user access control features governing read, write, download, upload and administration privileges. Features will include, file attachments, keyword searching, hierarchical threading of topics, message quoting, configurable profanity filter, embedded URL recognition. Implements easy-to-use TreeGrid (tree-control like) interface for navigation, toolbar w/ tooltips, will implements sysop functions such as Approval, Exemption, Forwarding etc. Will implements File Attachments (Upload and Download) Message Listing by threads or chronological order Online Help /bullet/ CHAT ROOMS Used for real-time data conferencing between the concurrent users on the same server. Features include private whispers, one-to-one chat, 7 squelching of annoying users, unlimited number of rooms each of which can have its own moderator, shared "White Board" that users can share as well as a "chat registry" allowing users to provide brief synopsis of interests. Separate Visibility and Join keys Each channel can be configured to not allow profanity. Each user has his own "private" channel. Will include Teleconference "Actions", or mini macros that will be able to have an unlimited number of lists, unlimited number of words per list, each channel will have TWO action lists. User configurable ON/OFF settings. Lists have keys to be able to see the actions, and to use them. Individual actions can also be keyed. Will include a feature called Teleconference "Pals" which will record the last logon times of a (sysop configurable) number of friends you want to keep track of, your Pal's typing go to a separate window. Administrator ability to squelch any user in the teleconference, which is Keyable. Users will be able to "forget" a number (Administrator configurable) of other users, so they won't see what they type, a Key required to forget users. Administrators can't be forgotten, as can't users who posses a certain, configurable key. Will include the ability to send whispers to other users in the same channel, as well as the ability to direct messages to other users in the same channel (others still see) /bullet/ POLLS AND QUESTIONNAIRES For student/parent surveys, electronic voting for student events, samples tests, data collection, mock social studies polls, etc. Features will include multiple answer and open response questions, automated polling with up-to-the-minute statistics, voting restrictions (e.g., one vote per users), and optional "rewards" for participants (e.g., increased security access or delivery of an specified file). Full user-by-suer security access control will be implemented throughout. "Ticker /bullet/ ACCOUNT MANAGEMENT This option will give each Online Classroom administrator the ability to create or delete user accounts, assign security access levels to "grades" or "classes" of users,(or individual users), an audit trail of every log-on, log-off, and file transfer event, and comprehensive statistics and reporting capabilities to measure usage based on user class, time of day, and connection channel. /bullet/ MULTIMEDIA (CUSTOMIZED GRAPHIC CONTENT) Galacticomm will provide initial design and setup of the "look and feel" of the Online Classroom system. Working with Simon and Schuster, Galacticomm will help coordinate and configure all supplied graphic content from Simon and Schuster. /bullet/ SECURITY Using Galacticomm standard Locks and Keys architecture, Galacticomm technicians in cooperation with Simon and Schuster will design, configure and implement a security structure to meet the needs of The Online Classroom environment. /bullet/ CUSTOMIZED MENUS Galacticomm technicians in cooperation with Simon and Schuster will design, configure and implement a full menu structure that will take advantage of the security mentioned above. This will include a full menu level system that will provide different access for different access levels. For example access levels can be designed to reflect grade level, teacher, parent, administrator, etc. 8 /bullet/ CUSTOMIZED AREAS Galacticomm technicians in cooperation with Simon and Schuster will design, configure and implement customization to the following areas: File Libraries; Forums; Polls and Questionnaires; Chat Rooms; Administration accounts; /bullet/ EXPANDED CHAT ROOM DEVELOPMENT As part of this development process, Galacticomm will develop the ability for schools, at their discretion, to connect to a main "hub" where multiple schools can connect for chat sessions. With this ability students, parent and teachers alike can carry on real-time teleconferencing with other schools using The Online Classroom system. This system will include a "White Board" feature that will be accessible to all users in the same expanded chat rooms. Each user will be able to have a "chat registry" that will provide a brief synopsis of the user's interests. Will allow e-mail between linked systems. Will include special shared forums that can be access between systems. The creator can modify or delete the forum and set access of other systems. Users can delete or modify messages they wrote and have the changes take effect across the network. Will provide options to: Limit the size of attachments, automatically approve attachments for download, Disable network deletion of messages disable network modification of messages. These options will be able to be configured globally and on a per-forum basis 6. SCOPE INCREASES The biggest threat to the successful completion of any project is the tendency to add or change system features. Established change control procedures are important to ensure that changes are only implemented after their impact on cost and schedule has been adequately considered. The following change control procedures will be used for this project: 1. All change requests will be submitted to Simon and Schuster for review. 2. Simon and Schuster will submit written change requests to Galacticomm. (Change order form included with this document.) 3. Galacticomm will respond to the request in writing within five days indicating the impact of the change on the cost and schedule of the project. 4. Simon and Schuster will approve or deny the request within five days of receiving a response from Galacticomm. 5. NO CHANGES will be made to the system prior to receiving written approval from Simon and Schuster or his assigned representative. 7. PROPOSAL Galacticomm will need to dedicate a staff member to The Simon and Schuster Online Classroom This staff member is a Galacticomm employee and has dedicated responsibility to the development of The Online Classroom system. The hours billed are not actual time frames but hours of billable time. 9 7.1. PHASE IMPLEMENTATION (CALCULATED IN MAN-HOURS OF BILLABLE TIME, NOT ACTUAL TIME FRAMES.) 7.1.1. MILESTONE I 7.1.1.1. PHASE I (58 HOURS) Galacticomm will provide analysis, designing, and planning. During this phase design, development strategies, tools needed and project timelines will be determined. The primary goal is to establish a model system that will support all defined functions and features. This model system will be used as the template for all future Online Classroom Systems that Simon and Schuster market. This phase will include at least 3 trips to Simon and Schusters offices for discussion and design meetings. Each trip will include not more than 2 Galacticomm technicians and include at least one full business day each. Galacticomm will: /bullet/ review all specifications with Simon and Schuster. /bullet/ review all hardware & software configurations. /bullet/ evaluate requirements to implement Worldgroup security. /bullet/ review and provide effective solutions per specifications and needs. /bullet/ Provide complete model flowchart and system diagram and description for acceptance by Simon and Schuster. After Galacticomm has completed Phase I and this phase has been accepted by Simon and Schuster then development and configurations will begin. 7.1.2. MILESTONE II 7.1.2.1. PHASE II (104 HOURS, DEVELOPMENT Galacticomm will develop the Online Classroom system as a results agreed upon in Phase I. This phase will require constant communication be Galacticomm assigned technicians and Simon and Schuster to review, analyze and "sign-off" on the developed modules. 7.1.2.2. PHASE III (82 HOURS) Developed applications will be integrated and configured into the model Online Classroom server. This will expand the system to include the following deliverables: /bullet/ TCP/IP connectivity /bullet/ Basic menus and web pages /bullet/ Module setup and testing /bullet/ File Libraries (initially 5 as templates) /bullet/ Chat Rooms (initially 5 as templates) /bullet/ Forums (initially 5 as templates) /bullet/ Special E-mail accounts for Information, Support, Administrators etc. (initially 5) 10 7.1.2.3. PHASE IV (115 HOURS) Galacticomm, will install, test and configure The Online Classroom model. Galacticomm will provide initial customization of the look and feel of this server, customizing all web pages, with extensive HTML document statements to provide easy instructions for future customers who wish to personalize their Online Classroom server. This design and implementation of custom web pages and the look and feel is determined from the results of Phase I. After this phase is completed and accepted, any additional modifications or enhancements will either be done by The Simon and Schuster Online Classroom or contracted with Galacticomm, Inc. under a separate contract. During this phase database structure and design flow will be tested and evaluated. THIS PHASE WILL BRING THE SYSTEM ONLINE AND MEET MILESTONE II At this time The Simon and Schuster Online Classroom will be notified to connect to the system remotely and review the setup and configuration. Approval of this phase by The Simon and Schuster Online Classroom will be required before moving to the next phase. 7.1.3. MILESTONE III 7.1.3.1. PHASE V (ON-SITE 3 DAY TRAINING) This phase will include one Galacticomm Onsite Engineer to be sent to Simon and Schuster's site to install the model Online Classroom and provide the "Master copy". After the server is up and the system is online, Galacticomm will conduct an informal training session with up to 3 The Simon and Schuster representatives. AT THIS TIME, THE SYSTEM WILL BE READY FOR SALE. 7.1.3.2. PHASE VI (INSTALLATION ASSISTANCE, 3 DAYS) This phase will include up to 3 days installation assistance at a Simon and Schuster customers site. Galacticomm will provide a experienced and trained Support Engineer to provide full assistance during the initial installations that Simon and Schuster obtain. 11 8. MILESTONES AND COMMITMENTS MILESTONE I - The completion of Phase I in Level I meets the first milestone. COMMITMENT - Upon the completion of Milestone I, The Simon and Schuster Online Classroom will commit to continuation of Phase II to meet the second milestone. MILESTONE II - The completion of Phase II, III, and IV meets the second milestone. COMMITMENT - At this time The Simon and Schuster Online Classroom will commit to continuation of Phase V to meet the third Milestone.MILESTONE III - The completion of Phase V and VI meets the third milestone.COMMITMENT - Upon the completion of Milestone III, The Simon and Schuster Online Classroom will discuss continued development solely with Galacticomm, Inc. for additional programs, services, and support needed for The Simon and Schuster Online Classroom at Galacticomm's current development rates. 9. BILLING Galacticomm development and consulting rates are billed at ***** per hour for development and ***** per hour for Web Based design and content. The hours billed are not actual time frames but hours of billable time. 9.1. DEVELOPMENT PHASES Milestone I PHASE I - planning and design (58 hrs.) ***** (includes 2 days onsite at Simon and Schuster site) Milestone II PHASE II - Software Development (104 hrs.) ***** PHASE III - Integration and Configuration (82 hrs.) ***** PHASE IV - Web Page development (115 hrs.) ***** (ESTIMATED) Milestone III PHASE V - Onsite Installation/ Training (3 days*) ***** PHASE VI - Installation assistance (3 days) ***** *A "DAY" IS DEFINED AS BEING BETWEEN THE HOURS OF 9:00AM AND 6:00PM, MONDAY THROUGH FRIDAY. THIS PRICE INCLUDES UP TO 3 STUDENTS. FOR EACH ADDITIONAL STUDENT A SURCHARGE OF $***** PER DAY WILL BE ADDED. DEVELOPMENT TOTAL *****
***** Confidential Portion. This portion of the exhibit has been omitted pursuant to a request for confidential treatment, and has been filed separately with the Commission. 12 10. EXPENSES 10.1. TRAVEL All expenses occurred for travel will be the responsibility of Simon and Schuster. This includes but is not limited to: /bullet/ Travel to Simon and Schuster. /bullet/ Travel to Simon and Schuster Customer sites. /bullet/ Travel to Galacticomm, Inc. by Simon and Schuster's staff. ALL TRAVEL EXPENSES INCURRED BY GALACTICOMM IN REGARDS TO THIS PROPOSAL MUST BE APPROVED BY SIMON AND SCHUSTER BEFORE ANY EXPENSES ARE OCCURRED. 10.2. SHIPPING All expenses required for shipping of products to and from Simon and Schuster will be the responsibility of Simon and Schuster. 13 [LOGO] INDEPENDENT CONTRACTOR MASTER SERVICES AGREEMENT S I M O N & S C H U S T E R - -------------------------------------------------------------------------------- INDEPENDENT CONTRACTOR MASTER SERVICES AGREEMENT (the "Agreement") made and entered into as of Janauary 12, 1998 by and between Simon & Schuster, Inc., a New York corporation with offices in New York and at One Lake Street, Upper Saddle River, NJ 07458 ("S&S"), and Galacticomm Technologies, Inc., a Florida corporation whose principal address is 4101 SW 47 Avenue, Suite 101, Ft. Lauderdale, FL 33314 ("Independent Contractor"). IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED HEREIN AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS: 1. ENGAGEMENT. S&S, its subsidiaries, or affiliates may from time to time engage Independent Contractor (with the entity engaging Independent Contractor referred to hereafter as the "Company") to perform certain services and create certain deliverables (collectively, the "Services," with any deliverable that Independent Contractor creates pursuant to this Agreement referred to as a "Work"). Any such engagement shall be subject to execution of a Statement of Work substantially in the form annexed as Exhibit A to this Agreement (each an "SOW"). Once executed, an SOW shall become part of and be governed by this Agreement. In the event of any conflict between this Agreement and an SOW, the SOW shall control. Key Employees identified in an SOW shall not be removed from a particular project without the Company's prior consent. 2. DELIVERY AND ACCEPTANCE OF ANY SOFTWARE DELIVERABLE. 2.1 DELIVERY OF A BETA VERSION. If the Services include any software deliverable, Independent Contractor shall prepare and deliver to Company a Beta Version of any such Work in accordance with the schedule and criteria set forth in the applicable SOW. Independent Contractor shall have each Beta Version internally tested prior to delivery to Company to ensure that, in Independent Contractor's good-faith belief, it meets the applicable SOW. A "Beta Version" shall mean a completed and fully operable version of the Work delivered to Company for testing and review pursuant to Section 2.2 below. 2.2 TESTING OF THE BETA VERSION. Company shall test and review each Beta Version to determine in its reasonable discretion whether such Beta Version meets the applicable SOW and is otherwise suitable for use. Upon completion of its review, Company shall notify Independent Contractor whether it accepts or rejects such Beta Version. Any deadline specified in the SOW for delivery of the Master(s) shall be extended by one (1) day for each day beyond fifteen (15) business days following delivery of the Beta Version it takes Company to provide Independent Contractor notice of acceptance or rejection of the Beta Version. "Master" shall mean a final version of the Work constituting an exact duplicate of the accepted Beta Version. 2.2.1 For each Beta Version Company accepts, Independent Contractor shall deliver to Company in accordance with the schedule and criteria set forth in the applicable SOW a Master for Company's use, together with all computer code for the Work (including all source code and object code) and Documentation. "Documentation" means all technical, functional, design, and other documentation Independent Contractor creates in connection with creating, maintaining, and/or revising the Work. 2.2.2 If Company rejects any Beta Version, Independent Contractor shall submit a revised version for Company's review if a mutually acceptable schedule for submission of such revisions can be reached, which revisions shall then be subject to the review and acceptance procedures outlined in this Section 2.2. This process shall continue until Company, at its option, either accepts the version of the Work in question or terminates this Agreement with respect to such version. 2.3 COMPANY DELAYS. Independent Contractor shall not be liable for any delays or extensions of deadlines to the extent caused by Company's failure to meet any obligation to timely deliver materials or information necessary for Independent Contractor to complete the Services. 3. TITLE AND OWNERSHIP. The parties agree that, as between Independent Contractor and Company: (i) The Independent Contractor has no right to or interest in any Work, Documentation, or any other materials created in connection with the Services (collectively the "Materials"), nor any right to or interest in any copyright therein. The Independent Contractor acknowledges that the Services and the Materials have been specially commissioned or ordered by the Company as "works made-for-hire" as that term is used in the Copyright Law of the United States, and that the Company is therefore to be deemed the author of and is the owner of all copyrights in and to such Materials. (ii) In the event that such Materials or any portion thereof are for any reason deemed not to have been works made-for-hire, the Independent Contractor hereby assigns to the Company any and all right, title, and interest Independent Contractor may have in and to such Materials, including all copyrights, all publishing rights, and all rights to use, reproduce, and otherwise exploit the Materials in any and all languages, channels, and formats or media, whether now known or hereafter created. The Independent Contractor agrees to execute such instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, and protect the Company's ownership of such Materials, and all other rights, title, and interest therein. Independent Contractor hereby waives any and all claims that it has now or hereafter in any jurisdiction throughout the world to so-called moral rights or DROIT MORAL with respect to any Materials. (iii) Notwithstanding the foregoing, the Company acknowledges that the Independent Contractor's ability to carry out the Services may be dependent upon Independent Contractor's past experience in the industry and in providing similar service to others and that Independent Contractor expects to continue such work in the future. Subject to the confidentiality provisions of Section 8 below, information Independent Contractor communicates to Company in the course of presentations, or in documents, that report general industry knowledge is not subject to the terms of (i) and (ii) above. 4. PAYMENT. In consideration of the Services Independent Contractor provides pursuant to a particular SOW, Company shall pay Independent Contractor the amounts, and according to the schedule, specified in the applicable SOW. Independent Contractor shall not be entitled to any compensation, benefits, or expenses other than as specifically provided for in the applicable SOW. 5. WARRANTIES AND INDEMNIFICATION. 5.1 REPRESENTATIONS AND WARRANTIES. Independent Contractor represents and warrants that: (i) Independent Contractor has all rights and authority necessary to enter into this Agreement and carry out its terms and conditions; (ii) the Services and Work will materially conform to the applicable SOW and any Work that is a software deliverable will operate in accordance with commonly accepted standards for computer software; (iii) Independent Contractor (at its cost) has secured all rights and/or licenses to any third-party computer code or other third-party content included in or used in creating the Work or any other deliverable that permits the creation, licensing, and other exploitation of the Work and any other deliverable throughout the world, in any and all languages, formats, and media now known or hereafter created; (iv) the Services, Work, and any other deliverable the Independent Contractor creates shall not contain any libelous, tortious, or otherwise unlawful material or violate or infringe any patent, copyright, trademark, or other proprietary rights of any kind of any third party anywhere in the world; (v) Independent Contractor shall not include or authorize any Trojan Horse, back door, time bomb, drop dead device, worm, virus, or other code of any kind that may disable, erase, display any unauthorized message, or otherwise impair any Work that is a software deliverable or any hardware on which such Work operates; (vi) Independent Contractor shall not subcontract any work to be performed pursuant to this Agreement without Company's prior written consent, which consent shall not be unreasonably withheld. Any subcontracting shall be at Independent Contractor's cost and Company shall have no liability to any such subcontractors; (vii) the Services and Work and any other deliverable will comply with all applicable federal, state, and local law, rules, and regulations, and Independent Contractor is in compliance and will continue to comply with all applicable worker's compensation laws and occupational safety requirements; (viii) Independent Contractor shall comply with all of Company's standards and procedures when working on-site at Company, including without limitation standards relating to security. Any of Independent Contractor's employees or consultants may be denied access to Company's facilities if they fail to comply with the above; (ix) for a period of ninety (90) days following Company's acceptance of any software or computer code that comprises all or part of any Work, Independent Contractor (at its cost) will correct any and all reproducible bugs, errors, or defects in such software or computer code; and (x) to the extent any software or computer code comprising all or part of any Work must sort, process, present, or otherwise accommodate same century and multicentury formulae and date values, it shall do so and shall not otherwise experience or cause any software or hardware abnormality or incorrect or invalid results attributable to date values prior to, during, or after the year 2000 as a result of the passage of time. 5.2 INDEMNITY. Independent Contractor agrees to indemnify and hold harmless S&S, its subsidiaries, and affiliates (each an "Indemnified Party") from and against any and all damages, costs, claims, interest, expenses, obligations, losses, or liabilities of any kind and character (including without limitation any attorneys' fees and costs) any Indemnified Party incurs in connection with any breach or alleged breach of Independent Contractor's representations and warranties set forth in Section 5.1 above. The Indemnified Party shall have the sole right to assume and control the defense of any such claim and, until such claim has been settled or otherwise resolved, may withhold any sums due Independent Contractor under this Agreement or otherwise. Independent Contractor shall provide reasonable assistance and cooperation to the Indemnified Party in connection with any such 1 defense. This indemnity right shall be in addition to any other right that any Indemnified Party may have in law or equity. 6. INDEPENDENT CONTRACTOR. 6.1 RELATIONSHIP. Independent Contractor agrees to perform the Services hereunder solely as an Independent Contractor. The parties recognize that this Agreement does not create any actual or apparent agency, partnership, franchise, or relationship of employer and employee between the parties. Without limiting the generality of the foregoing, Independent Contractor shall not be entitled to participate in any of Company's benefits, including without limitation any health or retirement plans. Independent Contractor is not authorized to enter into or commit Company to any agreements, and Independent Contractor shall not represent itself as the agent or legal representative of Company. Company shall not be liable for injury or death occurring to Independent Contractor or any of its employees or subcontractors during the course of this Agreement. 6.2 TAXES. Company shall not be liable for taxes, worker's compensation, unemployment insurance, employers' liability, employer's FICA, social security, withholding tax, or other taxes or withholding for or on behalf of the Independent Contractor or any other person Independent Contractor consults or employs in performing Services under this Agreement. All such costs shall be Independent Contractor's sole responsibility. 7. TERM AND TERMINATION. 7.1 TERM. This Agreement shall remain in full force and effect unless and until terminated in writing by either party. In addition to the termination rights specified in Section 7.2 below, either party may terminate this Agreement for any reason (or no reason) upon ten (10) days written notice to the other; PROVIDED, HOWEVER, in the event Independent Contractor exercises its right to terminate pursuant to this clause, it shall be obligated to complete the Services specified in any then-outstanding SOW unless Independent Contractor may terminate such SOW for cause pursuant to Section 7.2 (ii) below. 7.2 TERMINATION. This Agreement or any SOW may be terminated: (i) immediately by Company with respect to any Work Company rejects pursuant to Section 2 above or that is not delivered in accordance with the delivery schedule or requirements set forth in the applicable SOW; and (ii) by either party upon the other's breach of any material term or condition of this Agreement if such breach is not cured within fifteen (15) days of receipt of notice thereof from the non-breaching party. Upon termination for any reason, Independent Contractor shall deliver to Company a copy of any Work as it then exists and all tangible information or materials Company delivered to Independent Contractor. Company shall have no obligation to return computer code (including source code and object code) related to any Work, any Documentation, and/or any materials Independent Contractor delivers. 7.3 PAYMENT/REFUND UPON TERMINATION. In addition to any other rights at law or equity either party may have in the event of termination, the following payment/refund obligations shall apply: (i) In the event of termination pursuant to Section 7.1 and provided that Independent Contractor is not in material breach of its obligations hereunder, the Independent Contractor shall be entitled to any amounts paid or owed for Services already acceptably performed and Work already accepted. In addition, and to the extent such termination occurs after Independent Contractor has commenced work on the next installment of the Services (e.g., has delivered an acceptable Beta Version and has begun work finalizing the Master) on a fixed fee basis, Independent Contractor shall be entitled to payment of the next installment of any such fee on a PRO RATA basis (calculated by multiplying the next payment due by a fraction, the numerator of which shall be the total number of days prior to termination that Independent Contractor has worked on the next deliverable and the denominator of which shall be the total number of days allotted in the schedule set forth in the applicable SOW for completion of that deliverable). (ii) If Company terminates this Agreement in whole or in part pursuant to Section 7.2 prior to the time Company accepts the first deliverable (whether that be a Beta Version of the Work, an interim report, or the Work itself if there are no preliminary deliverables), then Independent Contractor shall refund to Company all amounts paid (if any) to Independent Contractor for the Services that are the subject of the termination. If Company terminates this Agreement in whole or in part pursuant to Section 7.2 at any time after Company accepts the first deliverable, then Independent Contractor shall be entitled to any amounts paid or owed for any deliverable that has been accepted but it shall have no right to further payments of any kind, and it shall refund to Company any payments made beyond those for any deliverable already accepted. 8. CONFIDENTIALITY. Company confidential and proprietary information to which Independent Contractor is exposed shall be subject to the non-disclosure requirements annexed as Exhibit B. 9. DISCLAIMER. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT AND ANY SOW (INCLUDING ALL EXHIBITS AND ATTACHMENTS), INDEPENDENT CONTRACTOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE MERCHANTABILITY OR FITNESS FOR USE OF THE WORK. 10. GENERAL PROVISIONS. 10.1 ANTI-ASSIGNMENT. Independent Contractor may not assign this Agreement or any of the rights and obligations hereunder (except the right to receive payments) without the prior written consent of Company. Any purported assignment by Independent Contractor in violation of this Agreement shall be null and void. This Agreement shall be binding upon and inure to the benefit of the parties' successors, Company's assignees, and Independent Contractor's permitted assignees. 10.2 WAIVER. No waiver of any term or condition of this Agreement, or any breach of this Agreement, shall or shall be deemed to be a waiver of any other term or condition of the Agreement or of any later breach of the Agreement. 10.3 SURVIVAL. The terms and conditions of Sections 3, 5, 6, 7, 8, and 9, as well as any provision necessary for the interpretation of this Agreement, shall survive the termination or expiration of this Agreement or completion of the Services. 10.4 HEADINGS. The headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, constrict, or describe the scope or intent of any particular section, nor in any way affect interpretation of this Agreement. 10.5 FORCE MAJEURE. Any delivery or other obligation set forth in this Agreement shall be extended by one (1) day for each day that performance is interfered with by reason of fire or other casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, regulation, ordinance, demand, or requirement of any governmental agency, or any other act or condition beyond the reasonable control of the party whose performance is so affected. Company shall have the right to immediately and at any time terminate any SOW under which Independent Contractor's performance is delayed by reason of any force majeure for a period of fifteen (15) days or more. 10.6 GOVERNING LAW, JURISDICTION, AND VENUE. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THAT STATE. INDEPENDENT CONTRACTOR CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR, IF FEDERAL JURISDICTION IS LACKING, TO THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY FOR ANY DISPUTE ALLEGING A BREACH OF THIS AGREEMENT AND WILL NOT MAINTAIN THAT EITHER FORUM LACKS PERSONAL JURISDICTION OVER INDEPENDENT CONTRACTOR OR IS AN INCONVENIENT FORUM FOR RESOLVING ANY SUCH DISPUTE. 10.7 COMPANY NAME. The Independent Contractor shall not use the Company's name without the Company's prior written consent; PROVIDED, HOWEVER, that notwithstanding the foregoing, Independent Contractor shall have the limited right, in connection with promoting itself to prospective clients, to advise such prospective clients in promotional literature or otherwise that Independent Contractor has provided services to the Company. 10.8 ENTIRE AGREEMENT. This Agreement and its annexed exhibits contain the entire agreement of the parties with respect to the subject matter hereof, and supersedes any prior agreement or understanding, whether oral or written, between the parties. No waiver, modification, or amendment of this Agreement or any SOW shall be valid unless in a writing signed by the party to be charged and Company's legal counsel. 10.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of which when so executed shall be an original and all of which, when taken together, shall constitute one and the same agreement. 10.10 NO IMPLIED AGREEMENT. Nothing contained in this Agreement or in any SOW shall be construed to impose any obligation on either party to enter into any SOW and each party retains the exclusive right to decline to enter into any SOW for any reason. The parties intend to be bound only upon execution of a written agreement or a written SOW and no negotiation, exchange of draft, or partial performance shall be deemed to imply an agreement. Neither the continuation of performance nor any other conduct shall be deemed to imply a continuing agreement upon the expiration of this Agreement or the full performance of any SOW. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first set forth above. SIMON & SCHUSTER, INC. /s/ STEVEN R. CONREY - --------------------------------------- By: Steven R. Conrey Title: Senior Vice President INDEPENDENT CONTRACTOR /s/ PETER BERG - --------------------------------------- By: Peter Berg Title: CEO Taxpayer I.D. No.: 2 EXHIBIT A FORM STATEMENT OF WORK This Statement of Work ("SOW") dated as of ___________, 199_ is incorporated in and made part of the Independent Contractor Master Services Agreement made and entered into as of _____________, 199__ (the "Agreement") by and between SIMON & SCHUSTER, INC., a New York corporation with offices in the State of New York and at One Lake Street, Upper Saddle River, NJ 07458 ("S&S"), and _____________________________, a _______________ corporation with a place of business at ___________________________________________________________________ ("Independent Contractor"). 1. Terms used in this SOW and not otherwise defined shall have the meanings specified in the Agreement. 2. Pursuant to the terms and conditions of the Agreement and this SOW, the parties hereby agree that Independent Contractor shall provide Company with the following Services and/or Materials: CONTRACT TYPE (check as applicable): [ ] Fixed price of $____________, to be paid in installments as follows: [ ] Time & materials at the following rate(s): Total hourly charges shall not exceed $__________ without Company's prior written approval. DESCRIPTION OF SERVICES AND ANY WORK INDEPENDENT CONTRACTOR IS TO PROVIDE (AS APPLICABLE): SCHEDULE FOR DELIVERABLES (IF ANY): INDEPENDENT CONTRACTOR PROJECT MANAGER (IF APPLICABLE): COMPANY PROJECT MANAGER (IF APPLICABLE): INDEPENDENT CONTRACTOR KEY EMPLOYEES (IF APPLICABLE): TERM: ADDITIONAL TERMS: 3. This SOW and the Agreement to which it becomes a part contains the entire agreement of the parties with respect to the subject matter of this SOW, and supersedes any prior agreement, understanding, or letter or intent, whether oral or written, between the parties. No waiver, modification, or amendment of this SOW shall be valid unless in a writing signed by the party to be charged. 4. This SOW shall have no force and effect unless and until it is signed by a representative of both the applicable Company business unit and a representative of the S&S Legal Department. IN WITNESS WHEREOF, the parties have caused this SOW to be executed and delivered as of the date first set forth above. SIMON & SCHUSTER, INC. INDEPENDENT CONTRACTOR [or applicable subsidiary or affiliate] /s/ STEVEN R. CONREY /s/ PETER BERG - --------------------------------------- ----------------------------------- By: Steven R. Conrey By: Peter Berg Title: Senior Vice President Title: CEO Taxpayer ID #: ____________________ S&S Legal Department: ________________________________________ By: ____________________________________ Title: _________________________________ 3 EXHIBIT B NON-DISCLOSURE REQUIREMENTS Pursuant to the Agreement to which this Exhibit B is annexed, Company may be disclosing to Independent Contractor certain confidential business plans, development plans, reports, financial information, design documents, specifications, programmer notes, software (its own and/or third party), and/or other information, whether or not so identified (together with any notes, analyses, compilations, studies, or other documents that are based upon, contain, or otherwise reflect such information, the "Confidential Information," which shall include this Agreement). The parties agree as follows with respect to treatment of the Confidential Information: 1. Independent Contractor shall use the Confidential Information solely for the purpose of performing the Services specified in the applicable SOW and not for any other purpose. Except to the extent permitted by Section 3 below, Independent Contractor will not disclose the Confidential Information, in whole or in part, to any other party. In fulfilling its obligations under this Agreement, Independent Contractor shall use at least the same standard of care it uses to protect its own information of similar kind, but not less than a reasonable standard of care. 2. The term "Confidential Information" shall be deemed not to include information which (i) is or becomes generally available to the public other than (a) as a result of a disclosure by Independent Contractor or any other person who directly or indirectly receives such information from the Independent Contractor or (b) in violation of a confidentiality obligation to the Company known to Independent Contractor or (ii) is or becomes available to Independent Contractor on a non-confidential basis from a source which is entitled to disclose it to Independent Contractor or (iii) is independently developed by Independent Contractor without benefit of the Confidential Information. 3. In the event that Independent Contractor is required by law or by interrogatories, requests for information or documents, subpoena, Civil Investigative Demand, or similar process to disclose any information supplied to Independent Contractor pursuant to the Agreement, including without limitation the Confidential Information or any other information the disclosure of which is restricted by the terms of this Exhibit B, Independent Contractor will provide the Company with prompt prior written notice of such request or requirement so that the Company may seek an appropriate protective order. If, in the absence of a protective order, Independent Contractor is nonetheless, in the written opinion of its counsel (which shall be forwarded to the Company upon request), compelled to disclose Confidential Information or any other information the disclosure of which is restricted by the terms of this Exhibit B to any tribunal or else stand liable for contempt or suffer other material censure or penalty, Independent Contractor may disclose only that portion of the Confidential Information or other information which it is advised in writing by its counsel (which shall be forwarded to the Company upon request) is so legally compelled and Independent Contractor will exercise its best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. 4. All Confidential Information disclosed by the Company to Independent Contractor shall be and shall remain the Company's property. Upon termination of the Agreement, Independent Contractor shall redeliver all tangible Confidential Information furnished by the Company. Except to the extent Independent Contractor is advised in writing by counsel that such action is prohibited by law, Independent Contractor will also destroy all written material, memoranda, notes, and other writings or recordings whatsoever prepared by it based upon, containing, or otherwise reflecting any Confidential Information. Any Confidential Information that is not returned or destroyed, including without limitation any oral Confidential Information, shall remain subject to the confidentiality obligations set forth in this Exhibit B. 5. Independent Contractor acknowledges and agrees that money damages would not be a sufficient remedy for any breach of this Exhibit B by Independent Contractor and that the Company shall be entitled to specific performance, including without limitation injunctive relief, as a remedy for any such breach. Such remedy shall not be deemed to be the exclusive remedy for breach of this Exhibit B but shall be in addition to all other remedies available at law or equity. Independent Contractor agrees to reimburse the Company for costs and expenses (including without limitation attorneys' fees) incurred by the Company in connection with the enforcement of this Exhibit B. 6. If any provision of this Exhibit B is not enforceable in whole or in part, the remaining provisions of this Exhibit B shall not be affected thereby. No failure or delay in exercising any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power, or privilege hereunder. 4 EX-10.51 13 EXHIBIT 10.51 VOTING AGREEMENT This Voting Agreement is entered into as of ____________________ ___ , 199_ (the "Agreement"), by and among Galacticomm Technologies, Inc., a Florida corporation ("Galacticomm"), and the Company Shareholders (as defined below). RECITALS Galacticomm and First Equity Corporation of Florida, Inc. and _________ (the "Representatives"), are entering into an underwriting agreement, (the "Underwriting Agreement"), dated _________________ ___, 1998. As an inducement to the Representatives to enter into the Underwriting Agreement, the Company Shareholders have agreed to enter into this Agreement. AGREEMENT For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. CERTAIN DEFINITIONS (a) Capitalized terms that are used but not otherwise defined in this Agreement will have the meanings given to them in the Underwriting Agreement. (b) For the purposes of this Agreement, the following terms will have the meanings set forth below: (i) An "Affiliate" of Galacticomm is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with Galacticomm. (ii) A Person will be deemed the "Beneficial Owner," and to have "Beneficial Ownership" of, and to "Beneficially Own," any securities as to which such Person is or may be deemed to be the beneficial owner pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, as such rules are in effect on the date of this Agreement, as well as any securities as to which such Person has the right to become a Beneficial Owner (whether such right is exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or other acquisition rights or otherwise. (iii) "Bankruptcy and Equity Exception" means an exception to enforceability of an obligation because of the application of (A) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights; and (B) general equity principles. (iv) "Company Shareholders" means the Persons named on SCHEDULE 1 to this Agreement. (v) "Control" (including the terms "controlling," "controlled by" and "under common control with", with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. (vi) "Closing Date" means the Closing Date for the sale of the Firm Securities pursuant to the Underwriter Agreement. (vii) "Legal Requirement" means any statute, ordinance, code, law, rule, regulation, order or other requirement, standard or procedure enacted, adopted or applied by any governmental entity, including judicial decisions applying common law or interpreting any other Legal Requirement or any agreement entered into with a governmental entity in resolution of a dispute or otherwise. (viii) "Lien" means any lien, security interest, pledge, charge, claim, option, right to acquire, restriction on transfer, voting restriction or encumbrance of any nature. (ix) "Person" when used with reference to a person for whose account securities are to be sold in reliance upon this rule includes, in addition to such persons, all of the following persons: (A) any relative or spouse of such person, or any relative of such spouse, any one of whom has the same home as such person; (B) any trust or estate in which such person or any of the persons specified in paragraph 1(b)(ix)(A) of this Section collectively own ten percent or more of the total beneficial interest as of which any of such persons serve as trustee, executor or in any similar capacity; and (C) any corporation or other organization (other than Galacticomm) in which such persons or any of the persons specified in paragraph 1(b)(ix)(A) of this Section are the beneficial owners of collectively ten percent or more of any class of equity securities or ten percent or more of the equity interest. (x) "Shares" means shares of voting capital stock of Galacticomm. 2. REPRESENTATIONS AND WARRANTIES OF GALACTICOMM. Galacticomm represents and warrants to each of the Company Shareholders that: (a) Galacticomm has all requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver, and to perform its obligations under, this Agreement; and (b) this Agreement has been duly executed and delivered by Galacticomm and is a valid and binding agreement of Galacticomm enforceable against Galacticomm in accordance with its terms, subject to the Bankruptcy and Equity Exception. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS. Each of the Company Shareholders severally represents and warrants to Galacticomm that: 2 (a) such Company Shareholder Beneficially Owns the number of Shares set forth on SCHEDULE 1; (b) each record holder of any Shares Beneficially Owned by such Company Shareholder is identified on SCHEDULE 1; (c) such Company Shareholder, either alone or with one or more other Company Shareholders, has (i) the right to vote, or to direct the voting of, the Shares Beneficially Owned by such Company Shareholder and (ii) the right to dispose, or to direct the disposition of, the Shares Beneficially Owned by such Company Shareholder; (d) such Company Shareholder has all requisite power and authority (corporate or otherwise) and has taken all action (corporate or otherwise) necessary in order to execute and deliver, and to perform its obligations under, this Agreement; (e) this Agreement has been duly executed and delivered by such Company Shareholder and is a valid and binding agreement of such Company Shareholder enforceable against such Company Shareholder in accordance with its terms, subject to the Bankruptcy and Equity Exception; (f) no notices, reports or other filings are required to be made by such Company Shareholder with, and no consents, registrations, approvals, permits or authorizations are required to be obtained by such Company Shareholder from, any Governmental Entity or any other Person, in connection with the execution, delivery and performance of this Agreement by such Company Shareholder, except those that the failure to make or obtain is not, individually or in the aggregate, reasonably likely to prevent, delay or impair the ability of such Company Shareholder to perform such Company Shareholder's obligations under this Agreement; and (g) the execution, delivery and performance of this Agreement by such Company Shareholder do not, and the consummation by such Company Shareholder of the transactions contemplated hereby will not, constitute or result in (i) a breach or violation of, or a default under (in the case of any Company Shareholder that is not a human being), the articles or certificate of incorporation or the bylaws of such Company Shareholder or any comparable governing instruments or (ii) a breach or violation of, or a default under, or the acceleration of any obligations of or the creation of a Lien on the assets of such Company Shareholder (with or without notice, lapse of time or both) pursuant to, any instrument or agreement binding on such Company Shareholder or to which such Company Shareholder is subject or any Legal Requirement to which such Company Shareholder is subject, except, in the case of clause (ii) above, for any breach, violation, default, acceleration, creation or change that, individually or in the aggregate, is not reasonably likely to prevent, delay or impair the ability of such Company Shareholder to perform such Company Shareholder's obligations under this Agreement. 4. AGREEMENT TO VOTE SHARES. In the event that a vote of shareholders of Galacticomm shall be taken upon (a) any liquidation of Galacticomm, or (b) any business combination in which Galacticomm is not the surviving corporation or any sale of all or substantially all of its assets (which combination or sale occurs during the two year period immediately following the Closing Date), the Company Shareholders shall, during the two year period immediately following the Closing Date, vote all Shares Beneficially Owned by them in the same proportion as the votes cast by non-Affiliates voting shares of the same class or series with respect to the matters indicated in paragraphs 4(a) and 4(b) hereof on which a vote of the shareholders is taken. 3 5. NO VOTING TRUSTS OR TRANSFERS. Each Company Shareholder will not, and will not permit any record holder of Shares to, (a) deposit any shares Beneficially Owned by such Company Shareholder in a voting trust or subject any Shares to any arrangement with respect to the voting of such Shares other than this Agreement or any other agreement entered into in connection with the Underwriting Agreement; or (b) except with respect to options or other rights to purchase Shares that have been granted by a Company Shareholder to the third parties identified in the Principal Shareholders section of the Company's prospectus dated ____________ ___, 1998, sell, assign, pledge, grant a Lien on or otherwise transfer any of its interest in any Shares to any Person unless such transferee agrees in writing to be bound by this Agreement to the same extent as such Company Shareholder. 6. MISCELLANEOUS. (a) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF FLORIDA, WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES. (b) VENUE; WAIVER OF JURY TRIAL. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of Florida and the federal court of the United States of America located in the State of Florida solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties irrevocably agree that all claims with respect to such action or proceeding will be heard and determined in such a Florida state or federal court. Each party consents to and grants any such court jurisdiction over the person of such party and over the subject matter of such dispute and agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided in paragraph (c) of this Section or in such other manner as may be permitted by law will be valid and sufficient service thereof. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH (b). (c) NOTICES. All notices, requests, claims, demands and other communications required or permitted to be given or made pursuant to this Agreement will be in writing and will be deemed given 4 (i) on the first business day following the date received, if delivered personally or by telecopy (with telephonic confirmation of receipt by the addressee), (ii) on the business day following timely deposit with an overnight courier service, if sent by overnight courier specifying next day delivery and (iii) on the first business day that is at least five days following deposit in the mails, if sent by first class mail, to the parties at the following addresses (or at such other address for a party as will be specified by like notice): if to the Company Shareholders: As set forth on SCHEDULE 1 if to Galacticomm: Galacticomm Technologies, Inc. 4101 S.W. 47 Avenue Suite 101 Ft. Lauderdale, Florida 33314 Attn: Peter Berg, Chairman Fax No.: (954) 587-1417 with a copy to: Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A. 701 Brickell Avenue Suite 2000 Miami, Florida 33131 Attn: Leslie J. Croland, Esq. Fax No.: (305) 375-8075 with a further copy to the Represesntatives as follows: First Equity Corporation of Florida 201 South Biscayne Boulevard Suite 1400 Miami, Florida 33131 Attn: William R. Fusselmann Fax No.: (305) 372-0861 ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
or to such other Persons or addresses as may be designated in writing by the party to receive such notice as provided above. (d) SEVERABILITY. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or its application to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision will be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances will not be affected by such invalidity or unenforceability, nor will 5 such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. (e) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which will together constitute the same agreement. (f) TERMINATION. This Agreement will terminate (i) upon the mutual written consent of all parties or (ii) five years after the Closing Date. (g) CAPTIONS. All captions in this Agreement are for convenience of reference only and are not part of this Agreement, and no construction or reference will be derived therefrom. (h) SPECIFIC PERFORMANCE. Each party acknowledges that it will be impossible to measure in money the damage to the other party if such party fails to comply with any of the obligations imposed by this Agreement, that each such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party agrees that injunctive relief or any other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that the other party has an adequate remedy at law or in the form of damages. Each party agrees that it will not seek and agrees to waive any requirement for, the securing or posting of a bond in connection with any other party's seeking or obtaining such equitable relief. (i) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns and will not be assignable without the written consent of all other parties hereto. (j) ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any schedules hereto) supersedes all prior agreements, written or oral, among the parties with respect to the subject matter hereof and contain the entire agreement among the parties with respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provision hereof may be modified or waived, except by an instrument in writing signed by all the parties or, in the case of a waiver, each party granting such waiver. No waiver of any provision hereof by any party will be deemed a waiver of any other provision hereof by any such party, nor will any such waiver be deemed a continuing waiver of any provision hereof by such party. (k) FURTHER ASSURANCES. The parties will execute and deliver such additional instruments and other documents and will take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. (l) THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights or remedies of any nature whatsoever under or by reason of this Agreement, except the Representatives, including without limitation, as to Section 6(h) hereof. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. GALACTICOMM TECHNOLOGIES, INC. 6 By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- ---------------------------------- Peter Berg ---------------------------------- Yannick Tessier SCHEDULE 1 COMPANY SHAREHOLDERS SHARES SHAREHOLDER BENEFICIALLY OWNED - ----------- ------------------ Peter Berg 1,215,749 15050 S.W. 10 Street Sunrise, Florida 33326 Yannick Tessier 1,215,749 10931 N.W. 3 Street Plantation, Florida 33324 EX-10.52 14 EXHIBIT 10.52 First Equity Corporation of Florida 201 South Biscayne Blvd., Suite 1400 Miami, Florida 33131 Re: Galacticomm Technologies, Inc. Dear Sir or Madam: In order to induce First Equity Corporation of Florida (the "Underwriter") to enter into an underwriting agreement with Galacticomm Technologies, Inc., a Florida corporation (the "Company"), and the Company to enter into such agreement with the Underwriter, in connection with the proposed initial public offering (the "Offering") of Common Stock and Warrants of the Company contemplated by that certain letter of intent between the Company and the Underwriter and as shall be described in a registration statement to be filed with the Securities and Exchange Commission (the "SEC") (such registration statement, including as it may subsequently be amended, is referred to herein as the "Registration Statement"), and as consideration for the Underwriter participating in the Offering, the undersigned officer, director and/or securityholder, hereby agrees with the Company, the Underwriter and with each other officer, director and/or securityholder executing similar agreements that: 1. Until 12 months after the date that the Registration Statement is declared effective by the SEC (the "Effective Date"), the undersigned will not, without the prior written consent of the Underwriter, directly or indirectly, sell, offer for sale, transfer, hypothecate, pledge or otherwise dispose of, pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"), or otherwise (any of the foregoing, a "Transfer"), any securities (including options, warrants and convertible securities) of the Company directly or indirectly or beneficially owned by the undersigned and acquired by the undersigned prior to the Effective Date (the "Securities") (other than securities of the Company acquired by the undersigned in the Offering for the IPO Price and securities purchased in the marketplace after the Effective Date). Notwithstanding the foregoing, (i) the undersigned may sell or otherwise dispose of the Securities in a privately negotiated transaction, provided that (a) the purchaser agrees in advance in writing with the Underwriter to the restrictions on transfer of Securities as set forth herein and to vote the Securities as set forth below and (b) the disposition is otherwise in accordance with the federal securities and other laws, and (ii) the undersigned, if a present shareholder, may make gifts and transfers of Common Stock to the undersigned's immediate family (as such term is defined in rules promulgated under the Securities Exchange Act of 1934, as amended). 2. For a period of three years following the Effective Date, the undersigned securityholder will vote all of the voting securities of the Company owned by the undersigned securityholder in favor of the election of a designee, if any, of the Underwriter (which designee may change from time to time) to the Company's Board of Directors. 3. The undersigned consents to the placement of an appropriate legend upon any certificates evidencing his/her/its stock or right to acquire stock in the Company and the Company agrees to so legend such certificates, or to direct its transfer agent to do so. Upon request by the Company, the undersigned will submit his/her/its securities of the Company for legending in accordance with this Agreement. To the extent that there are other underwriters participating in the offering, they shall be third party beneficiaries of this Agreement. Very truly yours, ----------------------------- ----------------------------- Address: --------------------- ----------------------------- ----------------------------- Date: ----------------------- GALACTICOMM TECHNOLOGIES, INC. By: -------------------------------------- Peter Berg, Chief Executive Officer Date: ----------------------------------- EX-10.53 15 EXHIBIT 10.53 PROMISSORY NOTE EXTENSION $50,000 10% Interest Per Annum December 31, 1997 As set forth, for value received, the undersigned, Galacticomm Technologies, Inc., a Florida corporation, promises to pay to Yannick Tessier the sum of Fifty-five Thousand ($55,000) dollars, together with interest from the date above on the unpaid principal balance due at the rate of ten percent (10%) per annum. $5,000 shall be due and payable upon the signing of this note extension. The remaining balance plus interest will be due in one lump sum payment at the earlier of: (i) December 31, 1998; or (ii) upon a successful Initial Public Offering by Galacticomm Technologies, Inc. All payments shall be made in lawful currency of the United States of America. Galacticomm Technologies, Inc. agrees to pay all costs of collection, including reasonable attorneys fees. This Note Extension may be prepaid at any time or from time to time in whole or in part without penalty, premium or permission. Any partial payment under this Note Extension shall be first applied to outstanding interest then, in the amount remaining, against the principal balance outstanding. Galacticomm Technologies, Inc. By: /S/ PETER BERG ---------------------- Peter Berg, CEO EX-11 16 EXHIBIT 11 GALACTICOMM TECHNOLOGIES, INC. COMPUTATION OF PER SHARE LOSS Year Ended December 31, 1996 PRIMARY Weighted average common shares outstanding, exclusive of issuances within twelve months prior to the IPO 1,621,838 Common shares and equivalents issued within 12 months prior to the IPO assumed to be outstanding for the entire period 1,607,263 --------- Weighted average common shares outstanding at end of year 3,229,101 ========= Net loss $ (1,041,268) ========= Net loss per share $ (0.32) ==== EX-23.1 17 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Galacticomm Technologies, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus. /s/ KPMG Peat Marwick LLP Miami, Florida January 22, 1998 EX-27 18
5 9-MOS YEAR DEC-31-1996 DEC-31-1996 JAN-01-1997 JAN-01-1996 SEP-30-1997 DEC-31-1996 64,486 1,466,392 0 0 546,094 122,125 164,000 90,363 92,694 83,730 617,550 1,614,875 696,952 583,362 (133,502) (38,793) 3,745,275 4,434,020 2,142,014 2,090,455 0 0 0 0 0 0 383 342 220,979 949,224 3,745,275 4,434,020 2,688,421 1,692,743 2,688,421 1,692,743 682,738 758,050 4,456,174 2,673,699 (27,135) (30,905) 0 0 171,508 91,217 (1,912,126) (1,041,268) 0 0 (1,912,126) 0 0 0 0 0 0 0 (1,912,126) (1,041,268) 3,829,907 3,423,108 5,030,371 3,229,101
-----END PRIVACY-ENHANCED MESSAGE-----