U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
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|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________.
Commission file number 0-27282
ATLANTIC TECHNOLOGY VENTURES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-3898269
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Broadway, Suite 1110, New York, New York 10038
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(Address of principal executive offices)
(212) 267-2503
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(Issuer's telephone number)
150 Broadway, Suite 1009, New York, New York 10038
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X______ No _____
Number of shares of common stock outstanding as of June 30, 2000:
Transitional Small Business Disclosure Format (check one): Yes No X
INDEX
Page
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PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the three monthse nded June, 2000 and 1999, the
six months ended June 30, 2000 and 1999, and the
period from July 13, 1993 (inception) to June 30, 2000 4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2000 and 1999, and the
period from July 13, 1993 (inception) to June 30, 2000 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II-- OTHER INFORMATION
Item 1. Legal Matters 1
Item 6. Exhibits and Reports on Form 8-K 2
SIGNATURES
EXHIBIT INDEX
PART I -- OTHER INFORMATION
Item 1. Financial Statements
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ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
June 30, December 31,
Assets 2000 1999
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(Unaudited)
Current assets:
Cash and cash equivalents $ 1,605,801 (8,9) 3,473,321
Accounts receivable 821,847 337,323
Prepaid expenses 37,599 17,414
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Total current assets 2,465,247 3,828,058
Property and equipment, net 122,282 131,832
Investment in affiliate 86,277 --
Other assets 2,901 --
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Total assets $ 2,676,707 3,959,890
================== ===================
Liabilities and Stockholders' Equity
Current liabilities - accounts payable and accrued expenses $ 542,482 542,759
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Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value.
Authorized 1,375,000 shares; 376,703 and 610,088 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively
(liquidation preference aggregating $4,897,139 and $7,931,144 at June 30,
2000 and December 31, 1999, respectively) 377 610
Convertible preferred stock warrants, 112,896 and 117,195
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 520,263 540,074
Common stock, $.001 par value. Authorized 50,000,000
shares; 5,964,103 and 4,815,990 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 5,964 4,816
Common stock subscribed. 182 shares at June 30, 2000
and December 31, 1999 -- --
Additional paid-in capital 24,863,862 21,662,272
Deficit accumulated during development stage (23,255,699) (18,790,099)
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2,134,767 3,417,673
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
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Total stockholders' equity 2,134,225 3,417,131
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Total liabilities and stockholders' equity $ 2,676,707 3,959,890
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See accompanying notes to consolidated financial statements.
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ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
(inception) to
Three months ended June 30, Six months ended June 30, June 30,
----------------------------------------------------
2000 1999 2000 1999 2000
----------- ----------- ----------- ------------ ------------
Revenues:
Development revenue $ 1,434,634 $ -- $ 2,347,115 $ -- 3,429,625
License revenue -- -- -- -- 2,500,000
Grant revenue -- -- 13,009 -- 190,010
----------- ----------- ----------- ------------ ------------
Total revenues 1,434,634 -- 2,360,124 -- 6,119,635
----------- ----------- ----------- ------------ ------------
Costs and expenses:
Cost of development revenue 1,147,707 -- 1,877,692 -- 2,743,700
Research and development 212,914 365,139 322,353 925,478 8,696,918
Acquired in-process research and development 2,390,023 (8) -- 2,390,023 -- 2,390,023
General and administrative 781,785 (9) 337,938 2,286,283 (7) 708,788 15,954,711
License fees -- -- -- -- 173,500
----------- ----------- ----------- ------------ ------------
Total operating expenses 4,532,429 703,077 6,876,351 1,634,266 29,958,852
----------- ----------- ----------- ------------ ------------
Operating loss (3,097,795) (703,077) (4,516,227) (1,634,266) (23,839,217)
Other (income) expense:
Interest and other income (34,137) (58,302) (74,327) (122,523) (1,232,793)
Interest expense -- -- -- -- 625,575
Equity in (earnings)/loss of affiliate 23,700 -- 23,700 -- 23,700
----------- ----------- ----------- ------------ ------------
Total other (income) expense (10,437) (58,302) (50,627) (122,523) (583,518)
----------- ----------- ----------- ------------ ------------
Net loss $ (3,087,358) $ (644,775) $(4,465,600) $(1,511,743) (23,255,699)
=========== =========== =========== ============ ============
Imputed convertible preferred stock
dividend -- -- -- -- 5,331,555
Preferred stock dividend issued in
preferred shares -- -- 659,319 -- 973,685
----------- ----------- ----------- ------------ ------------
Net loss applicable to common shares $ (3,087,358) (644,775) (5,124,919) (1,511,743) (29,560,939)
=========== =========== =========== ============ ============
Net loss per common share -
basic and diluted $ (0.56) (0.14) (0.98) (0.37)
=========== =========== =========== ============
Shares used in calculation of net
loss per common share - basic
and diluted 5,503,803 4,699,454 5,236,680 4,080,398
=========== =========== =========== ============
See accompanying notes to consolidated financial statements.
-4-
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Cumulative
period from
July 13, 1993
Six months ended June 30, (inception) to
--------------------------------- June 30,
2000 1999 2000
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Cash flows from operating activities:
Net loss $ (4,465,600) (1,511,743) (23,255,699)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and development 1,800,000 (8) -- 1,800,000
Expense relating to issuance of warrants -- -- 298,202
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate 23,700 -- 23,700
Compensation expense relating to
stock options and warrants 1,061,654 (7) -- 1,270,436
Discount on notes payable - bridge financing -- -- 300,000
Depreciation 32,729 60,550 463,139
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (484,524) (558) (821,847)
(Increase) decrease in prepaid expenses (20,185) 20,475 (37,599)
Increase (decrease) in accrued expenses (277) (277,488) 542,482
Increase (decrease) in accrued interest -- -- 172,305
(Increase) decrease in other assets (2,901) -- (2,901)
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Net cash used in operating activities (2,055,404) (1,708,764) (18,434,543)
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Cash flows from investing activities:
Purchase of furniture and equipment (23,179) (8) (4,696) (664,909)
Acquisition of investment (109,977) -- (109,977)
Proceeds from sale of furniture and equipment -- -- 6,100
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Net cash used in investing activities (133,156) (4,696) (768,786)
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Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options 321,040 -- 373,540
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid -- -- (318)
Proceeds from the issuance of common stock -- -- 7,547,548
Proceeds from issuance of convertible preferred stock -- -- 10,613,184
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Net cash provided by financing activities 321,040 -- 20,809,130
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Net decrease in cash and cash equivalents (1,867,520) (1,713,460) 1,605,801
Cash and cash equivalents at beginning of period 3,473,321 5,835,669 --
------------- ---------------- -------------
Cash and cash equivalents at end of period $ 1,605,801 4,122,209 1,605,801
============= ================ =============
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants 19,811 -- 49,880
Conversion of preferred to common stock 289 140 1,704
Preferred stock dividend issued in shares 659,324 -- 973,690
============= ================ =============
See accompanying notes to consolidated financial statements.
-5-
ATLANTIC TECHNOLOGY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
(1) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with Generally Accepted Accounting Principles for interim financial information.
Accordingly, the statements do not include all information and footnotes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, the accompanying financial statements
reflect all adjustments, consisting of only normal recurring adjustments,
considered necessary for fair presentation. Interim operating results are not
necessarily indicative of results that may be expected for the year ending
December 31, 2000 or for any subsequent period. These financial statements
should be read in conjunction with Atlantic Technology Ventures, Inc., and
Subsidiaries' (the "Company") Annual Report on Form 10-KSB as of and for the
year ended December 31, 1999.
(2) LIQUIDITY
The Company anticipates that their current resources, together with
proceeds from an agreement between the Company and Bausch & Lomb Surgical, will
be sufficient to finance their currently anticipated needs for operating and
capital expenditures for at least the next 9 months. In addition, the Company
will attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances, and equity and debt financing.
However, the Company can give no assurance that it will be able to obtain
additional capital through these sources or upon terms acceptable to them.
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted average number of common shares
outstanding for the period. Diluted net loss per common share is the same as
basic net loss per common share, as common equivalent shares from stock options,
stock warrants, stock subscriptions and convertible preferred stock would have
an antidilutive effect because the Company incurred a net loss during each
period presented.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB No. 101, as amended, must be adopted no
later than the fourth quarter of fiscal years beginning after December 15, 1999
with an effective date of January 1, 2000 and the recognition of a cumulative
effect adjustment calculated as of January 1, 2000. The Company is in the
process of evaluating this SAB and the effect it will have on its consolidated
financial statements and current revenue recognition policy.
(5) EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with four executives during
April and May, 2000. These agreements provide for the payment of signing and
year end bonuses in 2000 totaling $225,000, and annual base salaries aggregating
$550,000. Each agreement has an initial term of three years and can be
terminated by the Company, subject to certain provisions, with the payment of
severance amounts that range from three to six months.
(6) PREFERRED STOCK DIVIDEND
On February 15, 2000, the Company's board of directors declared a
payment-in-kind dividend of 0.065 of a share of Series A convertible preferred
stock per share of Series A convertible preferred stock to the holders of shares
of Series A convertible preferred stock as of the record date of February 2,
2000. The estimated fair value of
-6-
this dividend of $659,319 was included in the Company's calculation of net loss
per common share for the six months ended June 30, 2000.
On August 7, 2000, the Company's board of directors declared a
payment-in-kind dividend of 0.065 of a share of Series A convertible preferred
stock per share of Series A convertible preferred stock to the holders of shares
of Series A convertible preferred stock as of the record date of August 7, 2000.
During the 3 months ended June 30, 2000, 4,299 Series A convertible
preferred stock warrants were exercised in cashless transactions for 9,453
shares of the Company's Common Stock.
(7) ISSUANCE OF STOCK WARRANTS
As more fully described in Note 8 to the Company's Annual Report on Form
10-KSB as of and for the year ended December 31, 1999, on January 4, 2000, the
Company entered into a Financial Advisory and Consulting Agreement with Joseph
Stevens & Company, Inc. pursuant to which the Company issued to Joseph Stevens &
Company, Inc. three warrants to purchase an aggregate of 450,000 shares of its
common stock. In accordance with EITF Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services and other relative accounting
literature, the Company is required to measure the expense associated with these
warrants at each reporting date and recognize the appropriate portion of the
expense at the end of each reporting period until the measurement date is
reached (December 4, 2000 in this transaction). As a result, the Company
recorded a general and administrative expense of $990,820 in the first quarter
of 2000 and $70,834 in the second quarter of 2000 based on the estimated value
of the vested warrants as of March 31, 2000 and June 30, 2000, respectively.
(8) INVESTMENT IN PREFERRED STOCK
On May 12, 2000, the Company entered into an agreement to acquire
preferred stock representing a 35% ownership interest in TeraComm Research,
Inc., a privately-held company that is developing next-generation high-speed
fiberoptic communications technologies. The purchase price for this ownership
interest was $5 million in cash, 200,000 shares of the Company's common stock,
and a warrant to purchase a further 200,000 shares of the Company's common
stock, the stock and the warrant being valued at $1.8 million. The warrant has a
term of three years and is exercisable at $8.975 per share of common stock, but
only if the market price of the Company's common stock is $30 or more.
Of the $5 million cash portion of the purchase price, the Company had as
of June 30, 2000, paid $700,000, and in early July the Company paid a further
$300,000. A further $1 million is payable when TeraComm achieves an agreed
technical milestone and the remainder thereafter payable in three quarterly
installments of $1 million. If upon TeraComm achieving the technical milestone
or if by December 30, 2000 (even if TeraComm does not achieve the technical
milestone) the Company elects not to pay the next installment of the cash
portion of the purchase price, the Company would forfeit the right to pay any
further installments on the cash purchase price and the Company's ownership
interest in the TeraComm would be reduced to reflect the proportion of the total
purchase price that the Company had actually paid.
The Company has expensed as acquired in-process research and development
approximately $2.37 million of the stock and warrant issued to TeraComm and the
initial $700,000 paid towards the cash purchase price, as TeraComm's product
development activity is in the very early stages. The majority of the $300,000
subsequently paid towards the cash purchase price and the majority of any
further such payments will likely represent additional acquired in-process
research and development.
(9) GENERAL AND ADMINISTRATIVE EXPENSES
The increase in general and administrative expenses for the quarter ended
June 30, 2000 is largely due to the $70,834 of expense associated with warrants
issued to Joseph Stevens & Company, costs of approximately $159,000 incurred in
hiring and relocating executives, and an increase in fees for professional
services of approximately $90,000 attributable to legal services performed in
connection with the Company's investment in TeraComm.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our results of operations and
financial condition in conjunction with our Annual Report on Form 10-KSB for the
year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended, Bausch
& Lomb Surgical reimburses our subsidiary, Optex Ophthalmologics, Inc., for
costs Optex incurs in developing its Catarex(TM) technology, plus a profit
component. In the second quarter of 2000, this agreement provided $1,434,634 of
development revenue, and the related cost of development revenue was $1,147,707.
For the quarter ended June 30, 1999, no revenue or cost of development revenue
was recognized as all reimbursements from Bausch & Lomb prior to the September
1999 amendment were accounted for as reductions of research and development
expense and general and administrative expenses.
For the quarter ended June 30, 2000, research and development expense was
$212,914 as compared to $365,139 net of Bausch and Lomb reimbursements of
$369,332 in the second quarter of 1999, a decrease of 42%. This decrease is due
to reduced expenditures on certain development projects.
As of June 30, 2000, we have made an investment of $700,000 cash and
commonstock and warrants valued at $1.8 million. For the quarter ended June
30,2000, we have expensed approximately $2.39 milion of this payment asacquired
in-process research and development as Teracomm's product development activity
is in the very early stages.
For the quarter ended June 30, 2000, general and administrative expense
was $781,785 as compared to $337,938 net of Bausch and Lomb reimbursements of
$12,240 in the second quarter of 1999. This increase is largely due to the
$70,834 of expense associated with warrants issued to Joseph Stevens & Company,
costs of approximately $159,000 incurred in hiring and relocating executives,
and an increase in fees for professional services of approximately $90,000
attibutable to the due diligence and closing of the TeraComm investment.
For the second quarter of 2000, interest income was $34,137 compared to
$58,302 in the second quarter of 1999, a decrease of 42%. This decrease is due
to the decline in our cash reserves.
SIX MONTH PERIOD ENDED JUNE 30, 2000 VS. 1999
In accordance with a license and development agreement, as amended, Bausch
& Lomb Surgical reimburses our subsidiary, Optex Ophthalmologics, Inc., for
costs Optex incurs in developing its Catarex(TM) technology, plus a profit
component. In the six month period ended June 30, 2000, this agreement provided
$2,347,115 of development revenue, and the related cost of development revenue
was $1,877,692. For the six month period ended June 30, 1999, no revenue or cost
of development revenue was recognized as all reimbursements from Bausch & Lomb
prior to the September 1999 amendment were accounted for as reductions of
research and development expense and general and administrative expenses.
For the six month period ended June 30, 2000, research and development
expense was $322,353 as compared to $925,478 net of Bausch and Lomb
reimbursements of $878,199 in the six month period ended June 30, 1999, a
decrease of 65%. This decrease is due to reduced expenditures on certain
development projects.
As of June 30, 2000, we have made an investment of $700,000 cash and
common stock and warrants valued at $1.8 million. For the six month period ended
June 30, 2000, we have expensed approximately $2.39 million of this payment as
acquired in-process research and development as Teracomm's product development
activity is in the very early stages.
For the six month period ended June 30, 2000, general and administrative
expense was $2,286,283 as compared to $708,788 net of Bausch and Lomb
reimbursements of $43,720 in the six month period ended June 30, 1999. This
increase is largely due to the $1,061,654 of expense associated with warrants
issued to Joseph Stevens & Company, costs of approximately $159,000 incurred in
hiring and relocating executives, and an increase in fees for professional
services of approximately $287,000 attributable to the due diligence and closing
of the TeraComm investment.
For the six month period ended June 30, 2000, interest income was $74,327
compared to $122,523 in the six month period ended June 30, 1999, a decrease of
39%. This decrease is due to the decline in our cash reserves.
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LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 2000, we incurred an accumulated deficit of
$23,255,699, and we expect to continue to incur additional losses through the
year ending December 31, 2000 and for the foreseeable future.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
our progress in and the cost of ongoing and planned preclinical and clinical
testing; the timing and cost of obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in our existing collaborative and licensing relationships; the resources
that we devote to the developing manufacturing and commercializing capabilities;
technological advances; status of competitors; our ability to establish
collaborative arrangements with other organizations; and our need to purchase
additional capital equipment.
We anticipate that our current resources, together with proceeds from the
Bausch & Lomb agreement, will be sufficient to finance our currently anticipated
needs for operating and capital expenditures for at least the next nine months.
In addition, we will attempt to generate additional capital through a
combination of collaborative agreements, strategic alliances and equity and debt
financing. However, we can give no assurance that we will be able to obtain
additional capital through these sources or upon terms acceptable to us. At June
30, 2000, we had $1,605,801 in cash and cash equivalents and working capital of
$1,922,765.
On May 12, 2000, we entered into an agreement to acquire preferred stock
representing a 35% ownership interest in TeraComm Research, Inc., a
privately-held company that is developing next-generation high-speed fiberoptic
communications technologies. The purchase price for this ownership interest was
$5 million in cash, 200,000 shares of our common stock, and a warrant to
purchase a further 200,000 shares of our common stock. The warrants have a term
of three years and is exercisable at $8.975 per share of common stock, but only
if the market price of our common stock is $30 or more.
Of the $5 million cash portion of the purchase price, we have paid
$1,000,000, with a further $1 million payable when TeraComm achieves an agreed
technical milestone and the remainder thereafter payable in three quarterly
installments of $1 million. If upon TeraComm achieving the technical milestone
or if by December 31, 2000 (even if TeraComm does not achieve the technical
milestone) we elect not to pay the next installment of the cash portion of the
purchase price, we would forfeit the right to pay any further installments on
the cash purchase price and our ownership interest in the TeraComm would be
reduced to reflect the proportion of the total purchase price that we had
actually paid.
We do not currently have the full amount of the cash purchase price. If
the market price of our common stock permits it, we intend to redeem our
redeemable warrants, which would encourage the holders to exercise the warrants,
thereby providing us with capital that we could apply towards the cash purchase
price. Alternatively, we could raise the necessary amount through debt or equity
financing, or a combination of both. It is, however, possible that we will not
be able to raise the required amount.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Commission issued Staff Accounting
Bulletin or SAB No. 101, Revenue Recognition in Financial Statements. SAB No.101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, including
the recognition of non-refundable fees received upon entering into arrangements.
This SAB, as amended, must be adopted no later than the fourth quarter of fiscal
years beginning after December 15, 1999 with an effective date of January 1,
2000 and the recognition of a cumulative effect adjustment calculated as of
January 1, 2000. We are in the process of evaluating this SAB and the effect it
will have on our consolidated financial statements and current revenue
recognition policy.
RESEARCH AND DEVELOPMENT ACTIVITIES
Preclinical and clinical studies involving our primary technologies are
proceeding according to plan.
-9-
Optex
Optex's development of the Catarex device is continuing in cooperation
with Bausch & Lomb. Bausch & Lomb is preparing to file a 510(k) with the U.S.
Food and Drug Administration, or the "FDA," for the Catarex device. In a 510(k)
filing, a company requests that the FDA treat a given technology as
substantially equivalent to an already approved technology, the aim being to
speed up the approval process. We anticipate that in the fourth quarter of 2000
Bausch & Lomb will meet with the FDA to discuss this filing.
On July 14, 2000, we entered into a one-year option to exclusively license
a patented polymer gel technology in the field of ophthalmology from the
Massachusetts Institute of Technology. We intend to use the technology to
develop an injectable lens substitute that would be used, in an integrated
product package, with the Catarex device in both cataract and refractive
surgery. Current methods of cataract surgery are not compatible with the use of
injectable gel lens substitutes because they functionally destroy the integrity
of the lens capsule, thereby rendering it impossible to refill the capsule. We
believe that since cataract removal using the Catarex device leaves the entire
capsule essentially intact except for a tiny peripheral hole in the lens
capsule, it is the only technology that allows for the possibility of replacing
the lens with an injectable, gel-like substance instead of a rigid intra-ocular,
fixed focus lens implant. We believe that a soft and pliable lens would more
closely mimic the eye's natural function, expanding and contracting quickly to
accommodate the different focal lengths needed for near and far vision. A
flexible lens substitute could be implanted into any adult and be used to
correct not only their distance refractive error, but also potentially eliminate
the need for reading glasses and bifocals, which everyone needs as they age and
their natural lenses start to lose their flexibility. Use in refractive surgery
of our Catarex lens removal device combined with an injectable lens substitute
that we develop would create an entirely new market for our products.
CT-3
We are continuing to develop CT-3, a patented synthetic derivative of
tetrahydrocannabinol (THC), the active ingredient in marijuana, as an
alternative to nonsteroidal anti-inflammatory drugs (NSAIDs). In May 2000, the
FDA approved an Investigational New Drug application, or "IND," to begin
clinical trials for CT-3 in the U.S. Additional toxicology testing and
formulation development will be necessary before we can begin large-scale
clinical trials. In addition, we began the first clinical trial in Europe during
July of 2000. We believe it is important that we conduct Phase I studies to
determine CT-3's potential for detrimental central nervous system effects. The
first trial will specifically address CT-3's potential to produce central
nervous system effects resembling those of THC.
Gemini
Our subsidiary Gemini Technologies, Inc. is continuing its research on
antisense enhancing technology. On August 14, 2000, Gemini was awarded a Small
Business Innovation Research (SBIR) phase II grant by the National Institute for
Allergy and Infectious Diseases (NIAID), a unit of the National Institutes of
Health (NIH). The grant, which totals approximately $750,000, will be used to
fund a pre-clinical efficacy study using aerosolized 2-5A antisense compound for
the inhibition of respiratory syncytial virus (RSV) in monkeys. It also will
provide money for the toxicological and pharmacological studies needed to file
an investigational new drug (IND) application with the FDA to begin clinical
studies in humans.
This research is intended to build upon previous published research
reported in the Proceedings of the National Academy of Sciences (PNAS) Vol. 95,
July 1998, that documented the compound's effectiveness against a broad spectrum
of RSV strains. Data collected to date indicate that the molecule to be tested
has 130 times greater in vitro potency than Ribavarin (Virazole), one of two
FDA-approved treatments for RSV infections (the other treatment is a monoclonal
antibody recommended for use in high-risk infants only). This molecule has also
been shown to be stable against degradative enzymes, and is capable of being
absorbed into lung tissue when administered in a droplet formulation.
The primate study will be conducted at the Tulane Regional Primate
Research Center in Covington, Louisiana. Vicki Traina-Dorge, Ph.D., will
overview the animal study. Hagen Cramer, Ph.D., of Gemini will design the study
and develop the aerosolization method. He will also act as Principle
Investigator of the grant. All of the analyses will be conducted at the Gemini
research facility in Cleveland. Other team members of Gemini
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include Jim Okicki, chemical research associate, Frank Longano, biology research
associate, Lateef Saffore, biology research associate, Robert Silverman, Ph.D.,
consultant, and Doug Leaman, Ph.D. consultant.
By focusing the 2-5A antisense program on primate-oriented RSV, we will be
able to more effectively pursue corporate partnerships to develop an RSV
therapeutic treatment as a lead product candidate for our 2-5A antisense
technology. After we enter into such a partnership, we plan to expand our
research and development of 2-5A antisense technology into additional areas of
potential clinical use. These additional areas include other infectious diseases
(herpes, human immunodeficiency virus), certain cancers (chronic myelogenous
leukemia, glioblastoma), conditions modulated by 5-alpha reductase and
dihydrotestosterone receptors (acne and androgenic alopecia), and aspects of the
interferon pathway that are mediated by PKR (a protein kinase enzyme), all of
which have shown promising in vitro studies to date.
TeraComm
On May 12, 2000, we acquired a 35% ownership interest in TeraComm
Research, Inc. (See Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources.) TeraComm is
developing a fiberoptic transmitter that uses a high-temperature superconductor
(HTS) material to switch a laser beam on and off with a high-speed electronic
digital signal. HTS materials have zero electrical resistance at low
temperatures (< 70 K), and also can have very high optical reflectance in their
superconducting state while they can transmit light in their normal
(non-superconducting) state. TeraComm discovered that a small electric current
in an HTS material could switch the material between states, and do so very
quickly--in less than a millionth millionth of a second. Because the HTS optical
switch works best at far infrared wavelengths and these optical waves are too
large to send through an optical fiber, the TeraComm invention employs an
optical wavelength converter to change the waves to the band that is just right
for the fiber.
Thus far, TeraComm has successfully developed methods of producing
effective HTS thin-films with metal electrodes, has successfully demonstrated
control of optical transmission in HTS films using electric current, and has
been awarded patents covering implementation of this technology for fiberoptic
telecommunications.To date, we have provided TeraComm with approximately $1
million of development funds. Our investment is enabling TeraComm to accelerate
its development program. TeraComm is currently focusing on successfully
completing a definitive proof-of-principle test during 2000 and delivering
prototypes to the market in 2001.
On May 23, 2000, we announced that we had appointed Walter L. Glomb,
Jr., as Vice President. Mr. Glomb is responsible for supporting our
investment in TeraComm and identifying complimentary electronic
infrastructure and communication technologies for us to develop. Mr. Glomb
is based in our new office in Vernon, Connecticut, in the center of major
cluster of photonics companies that stretches from Boston to New Jersey.
Atlantic's new strategy focuses on our developing strategic partnerships with
early-stage companies, and we feel that this region promises to be a rich
source of such partnerships.
-11-
PART II -- OTHER INFORMATION
Item 1. Legal Matters
Litigation Brought by Christopher R. Richied
On May 13, 1999, Christopher R. Richied filed suit against a group of
defendants, including Atlantic, in the U.S. District Court for the Southern
District of New York. This lawsuit is described in our Quarterly Reports on Form
10-QSB for the quarterly periods ended June 30, 1999 and September 30, 1999.
This case was settled by the parties on August 8, 2000. The defendants have
agreed that Atlantic is not required to contribute to any settlement payment and
will not be responsible for any costs incurred in defending this litigation.
Arbitration Brought by the Cleveland Clinic Foundation
Our subsidiary Gemini has an exclusive worldwide sublicense from the
Cleveland Clinic Foundation to a U.S. patent and related patent applications, as
well as corresponding foreign applications, relating to 2-5A chimeric antisense
technology and its use for selective degradation of targeted RNA. On May 8,
2000, the Cleveland Clinic Foundation filed a claim for arbitration before the
American Arbitration Association to terminate this sublicense, claiming that we
have breached the sublicense. We believe that the asserted claims are without
merit and we intend to vigorously defend this action.
Item 5. Other Information
As of July 18, 2000, Atlantic and TeraComm Research, Inc. amended the
Preferred Stock Purchase Agreement dated May 12, 2000, pursuant to which we
purchased 1,400 shares of TeraComm preferred stock representing a 35% ownership
interest in TeraComm.
In this amendment, the parties agreed that the $4 million balance of the
$5 million cash component of the purchase price, including the $1 million
payments due on August 12, 2000 and November 12, 2000, would not be due until
TeraComm achieves a certain milestone. Within ten days after TeraComm achieves
that milestone, we must pay TeraComm $1 million and must thereafter make to
TeraComm three payments of $1 million at three-month intervals. If we fail to
make any of these payments, TeraComm's only recourse remains reducing
proportionately our ownership interest. Our failure to make the first $1 million
payment by midnight at the end of December 30, 2000 (whether or not TeraComm has
reached the milestone) will at the option of TeraComm be deemed to constitute
failure by us to timely make that payment.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Preferred Stock Purchase Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. (filed herewith).
10.2 Amendment to Preferred Stock Purchase Agreement dated May 12, 2000,
between Atlantic and TeraComm Research, Inc. (filed herewith).
10.3 Warrant Certificate issued May 12, 2000, by Atlantic to TeraComm
Research, Inc. (filed herewith).
10.4 Stockholders Agreement dated May 12, 2000, between TeraComm
Research, Inc., the common stockholders of TeraComm, and Atlantic
(filed herewith).
10.5 Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
TeraComm preferred stock issued to Atlantic (filed herewith).
10.6 Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
Atlantic common stock issued to TeraComm (filed herewith).
10.7 Employment Agreement dated as of April 10, 2000, between Atlantic
and A. Joseph Rudick (filed herewith).
10.8 Employment Agreement dated as of April 3, 2000, between Atlantic
and Frederic P. Zotos (filed herewith).
10.9 Employment Agreement dated as of April 10, 2000, between Atlantic
and Nicholas J. Rossettos, (filed herewith).
10.10 Employment Agreement dated as of May 15, 2000, between Atlantic
and Walter Glomb (filed herewith).
10.11 Employment Agreement dated as of April 18, 2000, between Atlantic
and Kelly Harris (filed herewith).
(b) Form 8-K
On May 26, 2000, Atlantic filed with the SEC a report on Form 8-K
describing its acquisition of 1,400 shares of Series A preferred stock of
TeraComm Research, Inc., a privately-held Delaware company that is
currently developing next-generation high-speed fiberoptic
telecommunications technologies.
-2-
SIGNATURES
In accordance with the requirements of the Exchange Act, Atlantic caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC TECHNOLOGY VENTURES, INC.
Date: August 21, 2000 /s/ Frederic P. Zotos, Esq.
---------------------------
Frederic P. Zotos, Esq.
President
Date: August 21, 2000 /s/ Nicholas J. Rossettos
-------------------------
Nicholas J. Rossettos
Chief Financial Officer
-3-
Exhibit 10.1
PREFERRED STOCK PURCHASE AGREEMENT
This preferred stock purchase agreement is dated May 12, 2000, and is
between TERACOMM RESEARCH, INC., a Delaware corporation ("TeraComm"), and
ATLANTIC TECHNOLOGY VENTURES, INC., a Delaware corporation ("Atlantic").
Atlantic wishes to purchase from TeraComm, and TeraComm wishes to issue
to Atlantic, shares of TeraComm's Series A preferred stock, par value $.001 per
share (the "TeraComm Preferred Stock").
TeraComm and Atlantic therefore agree as follows:
ARTICLE 1
AUTHORIZATION AND SALE OF SHARES
1.1 Authorization. TeraComm has duly authorized the sale and issuance
of 1,400 shares of TeraComm Preferred Stock. The TeraComm Preferred Stock has
the rights, restrictions, privileges, and preferences set forth in the Restated
Certificate of Incorporation of TeraComm attached hereto as Exhibit A (the
"Restated Certificate of Incorporation"). TeraComm has adopted and filed the
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
1.2 Sale of Shares. Subject to the terms of this agreement, TeraComm
hereby issues to Atlantic, and Atlantic hereby purchases from TeraComm, 1,400
shares of TeraComm Preferred Stock (the "Shares") for a purchase price (the
"Purchase Price") consisting of the following:
(1) $5,000,000 in cash, $250,000 of which Atlantic has already paid to
TeraComm, and the remaining $4,750,000 of which Atlantic shall pay to
TeraComm in immediately available funds in the amounts and on the dates
stated in Schedule 1.2(a) (each installment of the remaining
$4,750,000, a "Subsequent Payment");
(2) 200,000 shares of Atlantic common stock (the "Purchase Price Shares");
and
(3) a warrant for the purchase of a further 200,000 shares of Atlantic
common stock (the "Purchase Price Warrant").
(b) If Atlantic fails to timely make any Subsequent Payment, it
may not make any further Subsequent Payments and it will be deemed to have
surrendered to Teracomm a proportion of the Shares (with any fractional share
rounded up) equal to the proportion of the dollar value of the Purchase Price
that is represented by the missed Subsequent Payment and all other unpaid
Subsquent Payments. This surrender will be Teracomm's sole remedy for the
failure by Atlantic to timely make any Subsequent Payment. For purposes of this
Agreement, the dollar value of the Purchase Price is $6,795,000.
(c) If TeraComm is dissolved and liquidated before Atlantic has
made each Subsequent Payment it is required to make pursuant to Section 1.2(a),
the maximum Series A
Preferred Stock Liquidation Amount payable to Atlantic will be calculated by
multiplying the Preferred Stock Liquidation Amount that it would otherwise be
entitled to by a fraction, the numerator of which is $1,795,000 plus $250,000
plus the amount of each Subsequent Payment made by Atlantic, the denominator of
which is $6,795,000.
1.3 Dividend. TeraComm may not distribute to its common stockholders as
a dividend the Purchase Price Shares and the Purchase Price Warrant until such
time as all holders of TeraComm common stock have made to Atlantic customary
investment representations in a form reasonably acceptable to Atlantic. If by 30
days after the date of this agreement Atlantic has not received signed
investment representations from each holder of TeraComm common stock, TeraComm
may thereafter sell the Purchase Price Shares and issue the proceeds as a
dividend to holders of TeraComm common stock, on condition that the sale is
conducted in compliance with all applicable securities laws. Atlantic hereby
waives any right to receive any part of any dividend made by TeraComm as
contemplated in the Section 1.3.
ARTICLE 2
REPRESENTATIONS CONCERNING TERACOMM
TeraComm represents to Atlantic as follows, except as noted in the
TeraComm Disclosure Schedules delivered to Atlantic by TeraComm concurrently
with execution and delivery of this Agreement:
2.1 Organization and Good Standing. TeraComm is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all necessary corporate power and authority to own or use its
assets and conduct its business as it is now being conducted. TeraComm is duly
qualified to do business as a foreign corporation in, and is in good standing
under the laws of, each state or other jurisdiction in which either the
ownership or use of its assets or the nature of the business conducted by it
requires that it be so qualified.
2.2 Authority. (a) TeraComm has full power and authority to execute and
deliver this agreement and the other Transaction Documents to which it is party
and to perform its obligations hereunder and thereunder. Execution and delivery
of this agreement and the other Transaction Documents to which it is party and
performance by TeraComm of its obligations hereunder and thereunder have been
duly authorized by the board of directors of stockholders of TeraComm and no
other corporate proceedings on the part of TeraComm are necessary with respect
thereto.
(b) This agreement and the other Transaction Documents to which
it is party constitute the valid and binding obligation of TeraComm, each
enforceable in accordance with its terms, except as enforceability is limited by
(1) any applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally, or (2) general principles of equity,
whether considered in a proceeding in equity or at law.
2.3 Consents. TeraComm is not required to obtain the Consent of any
Person, including any party to any Contract to which TeraComm is a party, in
connection with execution and delivery of this agreement and the other
Transaction Documents to which it is party and performance of its obligations
hereunder and thereunder.
2
2.4 No Violations. TeraComm's execution and delivery of this agreement
and the other Transaction Documents to which it is party and performance of its
obligations hereunder and thereunder do not do any of the following:
(1) violate any provision of the Restated Certificate of Incorporation or
the by-laws of TeraComm as currently in effect;
(2) conflict with, result in a breach of, constitute a default under (or an
event that, with notice or lapse of time or both, would constitute a
default under), accelerate the performance required by, result in the
creation of any Lien upon any of the properties or assets of TeraComm
under, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under, any Contract to which
TeraComm is a party or by which any properties or assets of TeraComm
are bound; or
(3) violate any Law or Order to which TeraComm is subject.
2.5 Capitalization. (a) The authorized capital stock of TeraComm
consists of 10,000 shares of common stock, par value $.001 per share ("TeraComm
Common Stock") and 10,000 shares of preferred stock, par value $.001, of which
1,400 shares have been designated shares of TeraComm Preferred Stock.
(b) As of the date of this agreement, (1) there are 2,600 shares
of TeraComm common stock issued and outstanding, (2) excluding the Shares, there
are no shares of TeraComm Preferred Stock issued and outstanding, (3) no shares
of TeraComm common stock or shares of TeraComm Preferred Stock are held in the
treasury of TeraComm, and (4) 1,400 shares of TeraComm common stock have been
reserved for issuance upon conversion of the Shares (those shares of common
stock, the "Conversion Shares").
(c) The Shares and all of the issued and outstanding shares of
TeraComm common stock have been duly authorized and are validly issued, fully
paid and nonassessable, and the Conversion Shares will, upon issuance in
compliance with the Restated Certificate of Incorporation, be duly authorized,
validly issued, fully paid, and nonassessable.
(d) Schedule 2.5(d) lists each stockholder of TeraComm and the
shares of TeraComm Common Stock held by them. Together those shares of TeraComm
Common Stock constitute all of the issued and outstanding shares of TeraComm
Common Stock.
(e) Except with respect to the conversion privileges of the
Shares, there are no options, warrants, or other Contracts to which TeraComm is
a party requiring, and there are no securities of TeraComm outstanding that upon
conversion or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other equity securities of TeraComm or
other securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other equity securities of
TeraComm. There exist no stockholder agreements, voting trusts, proxies, or
other Contracts with respect the sale, transfer, registration or voting of
shares of TeraComm capital stock, except for any entered into in connection with
the transactions contemplated by this agreement.
3
2.6 Ownership Interests. TeraComm does not own, or have any Contract to
acquire, any equity securities or other direct or indirect ownership interest in
any other Person, except as provided in this agreement.
2.7 Financial Statements. TeraComm has previously delivered to Atlantic
(1) the unaudited balance sheet of TeraComm as of December 31, 1999 (the
"Balance Sheet"), and the related unaudited statements of income and cash flow
for TeraComm for the year then ended, and (3) the unaudited balance sheet of
TeraComm as of April 30, 2000 (the "Interim Balance Sheet"), and the related
unaudited statements of income and cash flow for Spectrum for the four months
then ended (the "Interim Financial Statements"). These financial statements have
been prepared in accordance with good accounting principles consistently applied
with past practice (except in each case as described in the notes thereto) and
on that basis present fairly, in all material respects, the financial position
and the results of operations and cash flow of TeraComm as of the respective
dates of and for the period referred to in these financial statements, subject,
in the case of the Interim Financial Statements, to normal year-end adjustments.
2.8 Books and Records. The books of account, minute books, stock record
books, and other records of TeraComm, all of which have been made available to
Atlantic, have been properly kept and contain no inaccuracies except for those
inaccuracies that are not reasonably likely to have a Material Adverse Effect on
TeraComm.
2.9 Real Property. TeraComm does not own any real property. Schedule
2.9 contains an accurate list of all leaseholds or other interests of TeraComm
in any real property.
2.10 Title to Properties; Liens. TeraComm has sufficient title to the
properties and assets (whether real, personal, or mixed, and whether tangible or
intangible) that it owns or purports to own, including all the properties and
assets reflected in the Interim Balance Sheet (except for personal property
disposed of in the Ordinary Course of Business since the date of the Interim
Balance Sheet), free and clear of all Liens except Permitted Liens. TeraComm has
a valid leasehold, license or other interest in all of the other assets, real or
personal, tangible or intangible, that it uses in the operation of its business,
free and clear of all Liens except Permitted Liens.
2.11 Condition and Sufficiency of Assets. The building, plant,
structures, and equipment of TeraComm are structurally sound, are in good
operating condition and repair, reasonable wear and tear excepted, and are
adequate for the uses to which they are being put, and the building, plant,
structures, and equipment of TeraComm is not in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
2.12 Suppliers. Schedule 2.12 contains an accurate list of the name and
address of each supplier from which TeraComm purchased in excess of 5% of
TeraComm's purchases of goods or services since January 1, 1999, and since that
date none of these suppliers has terminated its relationship with or altered in
a manner detrimental to TeraComm its accommodations, sales, or services to
TeraComm or indicated its intention to do so for any reason.
4
2.13 No Undisclosed Liabilities. TeraComm has no liabilities of the
type required to be reflected as liabilities on a balance sheet prepared in
accordance with GAAP except for liabilities or obligations reflected or reserved
against in the Balance Sheet or Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof,
and has no other liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise).
2.14 Taxes. (a) TeraComm has prior to issuance of the Shares been a
"small business corporation" and has maintained a valid election to be an "S"
corporation under Subchapter S of the Code, and the equivalent provisions of all
applicable state income tax statutes, since October 1995. TeraComm has filed on
a timely basis (including any extensions) with the appropriate Governmental
Bodies in the applicable jurisdictions either each Tax Return of TeraComm that
is due or a valid request for extension with respect to that Tax Return. All Tax
Returns filed by TeraComm are accurate and complete. TeraComm has paid fully on
a timely basis all Taxes due.
(b) There are no material claims or assessments pending against
TeraComm for any alleged deficiency in any Tax, there are no pending or to
TeraComm's Knowledge threatened audits or investigations for or relating to any
liability in respect of any Tax, and TeraComm has not been notified in writing
of any proposed Tax claims or assessments against TeraComm. There are no Liens
for any Taxes on the properties or assets of TeraComm except for statutory liens
for current Taxes not yet due and payable. TeraComm has not given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of TeraComm or for which TeraComm may be liable.
TeraComm has no liability for the Taxes of any Person other than TeraComm.
TeraComm has not made any change in accounting methods, and has not received a
ruling from or signed an agreement with any Governmental Body, that is likely to
have a Material Adverse Effect on TeraComm. TeraComm has not, with regard to any
assets or property held, acquired or to be acquired by it, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a "subsection (f) asset" (as
that term is defined in Section 341(f)(4) of the Code) owned by TeraComm.
(c) TeraComm is not a party to any agreement, arrangement or
contract providing for the allocation, indemnification or sharing of Taxes.
TeraComm is not a party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(d) TeraComm is not, nor has it been for the five-year period
preceding the date of this agreement, a U.S. real property holding corporation
as defined in Section 897(c)(2) of the Code.
2.15 Environmental Matters. (a) The operations of TeraComm are and have
always been in compliance with all applicable Environmental Laws.
5
(b) Neither TeraComm nor any of its operations are subject to any
Order or Contract respecting (1) Environmental Laws, (2) Remedial Action, (3)
any Environmental Claim, or (4) the Release or threatened Release of any
Hazardous Material.
(c) None of the operations of TeraComm involves the generation,
transportation, treatment, storage or disposal of Hazardous Material.
2.16 Compliance With Laws; Permits. (a) TeraComm is, and at all times
since it was organized has been, in compliance with each Law that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its properties or assets, except for noncompliance that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect on TeraComm.
(b) TeraComm has not received, at any time since January 1, 1997,
any written notice from any Governmental Body or any other Person regarding (A)
any alleged violation of any Law, or (B) any alleged obligation on the part of
TeraComm to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature under any Law.
(c) Schedule 2.16(c) contains an accurate list of each material
Permit held by TeraComm that relates to the business of, or to any of the
properties or assets owned or used by, TeraComm. Each Permit listed in Schedule
2.16(c) is valid and in full force and effect.
2.17 Proceedings; Orders. There are no Proceedings pending or, to
TeraComm's Knowledge, threatened against TeraComm or any properties or assets of
TeraComm, and there is no Order to which TeraComm, or any of the properties or
assets of TeraComm, is subject.
2.18 Absence of Certain Changes and Events. Since the date of the
Balance Sheet, TeraComm has conducted its business only in the Ordinary Course
of Business and there has not occurred any of the following:
(1) any change in TeraComm's authorized or issued capital stock; purchase,
redemption, retirement, or other acquisition by TeraComm of any shares
of capital stock of TeraComm; or declaration or payment of any dividend
or other distribution (whether in cash, stock, or property) in respect
of shares of capital stock of TeraComm;
(2) any amendment of the certificate of incorporation or by-laws of
TeraComm;
(3) any increase in the salary, bonus, or other compensation payable by
TeraComm to any director, officer, employee, consultant or independent
contractor, except for increases in the Ordinary Course of Business
consistent with TeraComm's past practice, or any entry into any
employment, consulting, incentive compensation, severance, or similar
Contract with any director, officer, employee, consultant or
independent contractor that is not terminable without liability on
notice of 30 days or less;
(4) any incurrence by TeraComm of indebtedness for borrowed money, any
assumption or guarantee by TeraComm of the debt of any other Person, or
any loan or advance by TeraComm to any Person other than in the
Ordinary Course of Business;
6
(5) any damage to or destruction or loss of any asset or property of
TeraComm not fully covered by insurance that is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
TeraComm;
(6) any sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of, or any mortgage, pledge, or
imposition of any Lien except Permitted Liens on, any property or asset
that is material, individually or in the aggregate, to the business of
TeraComm;
(7) any cancellation or waiver of any material claims or rights without
adequate consideration or a reasonable business purpose;
(8) any merger or consolidation with, or purchase of a substantial equity
interest in or all or a substantial portion of the assets of, any
Person;
(9) any material revaluation by TeraComm of any of its assets, including
any writing-off of notes or accounts receivable other than in the
Ordinary Course of Business consistent with past practice;
(10) any material change in the accounting methods used by TeraComm;
(11) any change, event or other circumstance that taken individually or in
the aggregate has had or could reasonably be expected to have a
Material Adverse Effect on TeraComm, except for general changes in the
industry in which TeraComm operates or in the economy; or
(12) entry by TeraComm into any Contract to do any of the foregoing.
2.19 Contracts. (a) Schedule 2.19 contains a list of the following
Contracts to which TeraComm is party, other than those provided for in this
agreement:
(1) each Contract relating to indebtedness of TeraComm for borrowed money
(whether incurred, assumed, guaranteed or secured by any asset);
(2) each Contract relating to the lending of more than $1,000 in any one
instance or $5,000 in the aggregate by TeraComm to any Person,
including any Affiliate of TeraComm;
(3) each Contract (or group of related Contracts) for the lease of personal
property to or from any Person providing for lease payments in excess
of $1,000 in any one instance or $5,000 in the aggregate per annum;
(4) each Contract concerning a partnership or joint venture;
(5) each Contract (other than a Contract listed elsewhere in Schedule 2.19)
requiring that TeraComm maintain confidential any given information;
(6) each Contract in which TeraComm agrees not to compete in any line of
business, in any geographic area, or with any Person;
7
(7) each collective bargaining agreement or other Contract with a labor
union or other representative of a group of employees;
(8) each Contract for the employment by TeraComm of any individual on a
full-time, part-time, consulting, independent contracting, leased
employee or other basis;
(9) each Contract providing for indemnification of or by TeraComm (other
than a Contract listed elsewhere in Schedule 2.19);
(10) each Contract in which TeraComm agrees to provide products or services
to any Person, or receive products or services from any Person, for
consideration other than cash;
(11) each other Contract with a TeraComm customer;
(12) each Contract granting TeraComm the right to use any Intellectual
Property Assets of another Person (excluding Contracts granting
TeraComm rights to off-the-shelf commercial software), or granting
another Person the right to use, or restricting TeraComm's right to
use, Intellectual Property Assets of TeraComm; and
(13) any other Contract (or group of related Contracts) that involve
consideration in excess of $5,000.
(b) TeraComm has permitted Atlantic to review a copy of each
Contract listed in Schedule 2.19.
(c) Each Contract to which TeraComm is a party identified or
required to be identified in Schedule 2.19 is in full force and effect and is
valid and enforceable in accordance with its terms, except as enforceability is
limited by (1) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally, or (2) general principles
of equity, whether considered in a proceeding in equity or at law.
(d) TeraComm is not in default under any Contract to which it is
party, and to TeraComm's Knowledge no event or circumstance has occurred that
would, with notice or lapse of time or both, constitute an event of default
under any material Contract to which TeraComm is a party.
(e) To TeraComm's Knowledge, TeraComm is not party to any
unwritten contract.
2.20 ERISA and Employee Benefit Matters. (a) Neither TeraComm nor any
ERISA Affiliate maintains or has ever maintained, or has proposed or agreed to
create, any Employee Benefit Plan.
(b) For purposes of this agreement, "Employee Benefit Plan" means
any "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, and any other plan, policy,
program, practice, arrangement or Contract providing benefits to any current or
former director, employee or independent contractor (or to any dependent or
beneficiary thereof) of TeraComm, any subsidiary of TeraComm or any
8
ERISA Affiliate, which are now or have ever been maintain by TeraComm, any
subsidiary of TeraComm or any ERISA Affiliate or under which TeraComm, any
subsidiary of TeraComm or any ERISA Affiliate has any obligation or Liability,
including all incentive, bonus, deferred compensation, vacation, holiday,
medical, disability, stock appreciation rights, stock option, stock purchase or
other similar plans, policies, programs, practices, arrangements or Contracts.
(c) For purposes of this agreement, "ERISA Affiliate" means any
Person (whether or not incorporated) other than TeraComm that, together with
TeraComm, is or was a member of (1) a controlled group of corporations within
the meaning of Section 414(b) of the Code, (2) a group of trades or businesses
under common control within the meaning of Section 414(c) of the Code, or (3) an
affiliated service group within the meaning of Section 414(m) of the Code.
2.21 Employees. (a) Schedule 2.21 lists the following information for
each employee of TeraComm as of the date of this agreement, including each
employee on leave of absence or layoff status: (1) name; (2) job title; (3)
current annual base salary or annualized wages; (4) bonus compensation earned
during 1999 and 2000 (projected); and (5) vacation accrued and unused. TeraComm
pays no compensation to the members of its board of directors for acting as
such.
(b) To TeraComm's Knowledge, there exists no condition or state
of facts or circumstances relating to consummation of the transactions
contemplated by this agreement or the other Transaction Documents to which it is
party that could have a material adverse effect on TeraComm's relations with its
employees.
(c) TeraComm does not have any obligation to reinstate any former
officer or employee of TeraComm. TeraComm is not required to make payments of
any kind (including severance payments) to any former director, officer,
employee, agent or independent contractor of TeraComm. No officer or employee of
TeraComm has indicated his or her intention to resign.
(d) No current or former officer or employee of TeraComm is
currently receiving any benefits from TeraComm because he or she is disabled.
(e) All of the officers and employees of TeraComm are in good
standing under the terms and conditions of their employment, and to TeraComm's
Knowledge there exists no problem or difficulty with the employment of such
officer or employee.
(f) TeraComm has paid all wages, bonuses, commissions or other
compensation due and payable to each of its employees in accordance with its
customary practice.
(g) TeraComm is not and has not been a party to any collective
bargaining agreement. Since January 1, 1999, there has not been, and to
TeraComm's Knowledge there is not threatened, any application for certification
of a collective bargaining agent.
2.22 Deposit Accounts. Schedule 2.22 lists (1) the name of each
financial institution in which TeraComm has an account or safe deposit box, (2)
the name or names in which each
9
account or box is held, (3) the type of account, and (4) the name of each Person
authorized to draw on or have access to each account or box.
2.23 Intellectual Property Rights. (a) TeraComm is the sole legal and
beneficial owner, free and clear of any Lien, of the entire interest in the
Intellectual Property Assets used in or necessary for the conduct of TeraComm's
business as currently conducted or as currently proposed to be conducted and
that interest are sufficient in all material respects for the conduct of
TeraComm's business as currently conducted or as currently proposed to be
conducted. Execution and delivery of this agreement and the other Transaction
Documents to which is party and consummation of the transactions contemplated
hereby and thereby will not constitute a material breach of any Contract
involving any of the Intellectual Property Assets of TeraComm and will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of, or any obligation to pay any royalty, license or other fee with
respect to, any Intellectual Property Asset of TeraComm or impair in any
material respect TeraComm's rights to use, sell or license any Intellectual
Property Asset or portion thereof.
(b) Set forth in Schedule 2.23(b) is a complete and correct list
of the following:
(1) all patents and patent applications owned by TeraComm worldwide;
(2) all trademark and service mark registrations and all trademark and
service mark applications and all trade names owned by TeraComm
worldwide;
(3) all copyright registrations and copyright applications owned by
TeraComm worldwide; and
(4) all licenses owned by TeraComm in which TeraComm is (A) a licensor with
respect to any of the patents, trademarks, service marks, trade names
or copyrights listed in Schedule 2.23(b), or (B) a licensee of any
other person's patents, trade names, trademarks, service marks or
copyrights.
(c) TeraComm has made all necessary filings and recordations to
protect and maintain their respective interest in the patents, patent
applications, trademark and service mark registrations, trademark and service
mark applications, trade names, copyright registrations and copyright
applications and licenses set forth in Schedule 2.23(b)
(d) Each patent, patent application, trademark or service mark
registration, trademark or service mark application and copyright registration
or copyright application of TeraComm set forth in Schedule 2.23(b) is valid and
subsisting and has not been judged invalid, unregistrable or unenforceable, in
whole or in part, and is, to TeraComm's Knowledge. valid, registrable and
enforceable. Each license of TeraComm identified in Schedule 2.23(b) is valid
and subsisting and has not been adjudged invalid or unenforceable, in whole or
in part, and is, to TeraComm's Knowledge, enforceable. TeraComm has notified
Atlantic of all uses of any item of the Intellectual Property Assets of TeraComm
used in or necessary for the conduct of the business of TeraComm as presently
conducted or as presently proposed to be conducted that have become invalid or
unenforceable, including uses that were not supported by the good will of the
business connected with those Intellectual Property Assets. TeraComm has not
made a
10
previous assignment, transfer or Lien, or a Contract constituting a present or
future assignment, transfer or Lien, of any Intellectual Property Asset used in
or necessary for the conduct of the business of TeraComm as presently conducted
or as presently proposed to be conducted. TeraComm has not granted any license,
release, covenant not to sue, or non-assertion assurance to any person with
respect to any part of the Intellectual Property Assets.
(e) No use of the Intellectual Property Assets of TeraComm used
in or necessary for the conduct of the business of TeraComm as presently
conducted or as presently proposed to be conducted, nor the manufacture,
marketing, license, sale or use of any product or service currently licensed or
sold by TeraComm or currently under development by TeraComm violates any license
agreement between TeraComm and any Person or to TeraComm's Knowledge infringes
any proprietary rights of any Person and there is no pending or, to TeraComm's
Knowledge, threatened claim or litigation contesting the validity, ownership or
right to use, sell, license or dispose of any such Intellectual Property Asset
or product nor, to TeraComm's Knowledge, is there any basis for any such claim,
nor has TeraComm received any notice asserting that any of such Intellectual
Property Assets or products, or the proposed use, sale, license or disposition
thereof, conflicts or will conflict with the rights of any other Person, nor, to
TeraComm's Knowledge, is there any basis for any such assertion.
(f) To TeraComm's Knowledge there is no unauthorized use,
infringement or misappropriation of any of the Intellectual Property Assets of
TeraComm used in or necessary for the conduct of the business of TeraComm as
presently conducted or as presently proposed to be conducted by any Person,
including any employee or former employee or consultant or former consultant of
TeraComm.
(g) There are no royalties, honoraria, fees or other fixed or
contingent amounts or payments payable by TeraComm to any Person with respect to
any Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted.
(h) TeraComm has taken reasonable and practicable steps designed
to safeguard and maintain the secrecy and confidentiality of, and the
proprietary rights in, the Intellectual Property Assets used in or necessary for
the conduct of the business of TeraComm as presently conducted or as presently
proposed to be conducted. All officers, employees and consultants and other
independent contractors of or to TeraComm having access to or developing any
Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted have executed and delivered an agreement regarding the protection of
proprietary information and the license or assignment to TeraComm, as the case
may be, of all proprietary rights arising from the services performed by such
Persons, and such proprietary rights are licensed or assigned to TeraComm, as
the case may be, or are works-made-for-hire, and TeraComm, as the case may be,
is the author and owner of all such rights under the Copyright Act of 1976, as
amended, or similar foreign laws or by assignment. No current or prior officer,
employee or consultant or other independent contractor of or to TeraComm, as the
case may be, (1) claims or has a right to claim an ownership interest in any
Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted as a result of having been involved in the development or licensing of
any such property while
11
employed by or consulting or otherwise providing services to TeraComm, as the
case may be, or otherwise, or (2) to TeraComm's Knowledge, owns any Intellectual
Property Assets directly or indirectly competitive with those of TeraComm.
2.24 Conduct of Business; Use of Name. The business carried on by
TeraComm has been conducted directly by TeraComm, and not through any Affiliate
or through any other Person. TeraComm owns and has the exclusive right, title
and interest in and to the name "TeraComm Research, Inc." for corporate law
purposes in the State of Delaware, and to TeraComm's Knowledge no other Person
has the right to use that name or any confusing variation on that name in the
U.S. in connection with the operation of any business similar or related to the
business conducted by TeraComm.
2.25 Insurance. Schedule 2.25 lists all insurance policies held by or
on behalf of TeraComm, and the premiums under and expiration dates of those
policies. Each of those policies is in full force and effect and, to TeraComm's
Knowledge, is valid and enforceable in accordance with its terms. TeraComm is
not in default under any such policy nor has TeraComm failed to give any notice
or present any claim under any such policy in due and timely fashion, and to
TeraComm's Knowledge there exist no grounds for the insurer's canceling or
avoiding any of those policies or increasing the premiums of those policies, or
for reducing the coverage provided by those policies.
2.26 Brokers Or Finders. Neither TeraComm nor any of its stockholders
or any of its or their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this agreement.
2.27 Affiliate Transactions. Schedule 2.27 lists any Contract between
TeraComm and any of its stockholders or any director, officer, employee or any
other Affiliate of TeraComm or any of its stockholders.
2.28 Disclosure. No representation made by TeraComm in this agreement
is inaccurate in any material respect or omits to state a material fact
necessary to make the statements made in this agreement, in light of the
circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS OF ATLANTIC
Atlantic represent to TeraComm as follows:
3.1 Organization and Good Standing. Atlantic is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with all necessary corporate power and authority to own or use its
properties and assets and conduct its business as it is now being conducted.
3.2 Authority. (a) Atlantic has all requisite corporate power and
authority to execute and deliver this agreement and the other Transaction
Documents to which it is party and to perform its obligations hereunder and
thereunder. Execution and delivery of this agreement and
12
the other Transaction Documents to which it is party and performance by Atlantic
of its obligations hereunder and thereunder have been duly authorized by the
board of directors of Atlantic, and no other corporate proceedings Atlantic are
necessary with respect thereto.
(b) This agreement constitutes the valid and binding obligation
of Atlantic, enforceable in accordance with its terms, except as enforceability
is limited by (1) any applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer, or similar law affecting creditors' rights
generally, or (2) general principles of equity, whether considered in a
proceeding in equity or at law.
3.3 Consents. Atlantic is not required to obtain the Consent of any
Person, including the Consent of any party to any Contract to which Atlantic is
a party, in connection with execution and delivery of this agreement and
performance of its obligations under this agreement.
3.4 No Violations. Execution and delivery by Atlantic of this agreement
and the other Transaction Documents to which it is party and performance of its
obligations hereunder and thereunder do not (1) violate any provision of its
articles of incorporation or by-laws as currently in effect, (2) conflict with,
result in a breach of, constitute a default under (or an event that, with notice
or lapse of time or both, would constitute a default under), accelerate the
performance required by, result in the creation of any Lien upon any of its
properties or assets under, or create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under, any Contract to which
it is a party or by which any of its properties or assets are bound, or (3)
violate any Law or Order currently in effect to which it is subject.
3.5 Capitalization. (a) The authorized capital stock of Atlantic
consists of 80,000,000 shares of Atlantic Common Stock and 50,000,000 shares of
preferred stock, par value $0.01 per share ("Atlantic Preferred Stock").
(b) As of March 31, 2000, (1) there were 5,302,37 shares of
Atlantic Common Stock issued and outstanding, (2) there were _________ shares of
Atlantic Preferred Stock issued and outstanding, and (3) no shares of Atlantic
Common Stock were held in the treasury of Atlantic.
(c) All of the issued and outstanding shares of Atlantic Common
Stock have been duly authorized and are validly issued, fully paid, and
nonassessable, and all shares of Atlantic Common Stock that have been reserved
for issuance will, upon issuance in compliance with the terms of the instruments
pursuant to which they are to be issued, be duly authorized, validly issued,
fully paid, and nonassessable.
(d) When issued in accordance with the terms of this agreement,
the Purchase Price Shares will be duly authorized, validly issued, fully paid,
and non-assessable.
(e) Except as set forth in Atlantic's Annual Report on Form
10-KSB filed with the SEC on March 30, 2000, other than the Purchase Price
Warrant there are no options, warrants, or other Contracts to which Atlantic is
a party relating to the issuance, sale, or transfer of any equity securities or
other securities of Atlantic.
13
3.6 Filings With the SEC. (a) Since January 1, 1999, Atlantic has filed
with the SEC all reports, proxy statements, forms, and other documents that has
been required by law to file with the SEC (those documents, the "Atlantic SEC
Documents"). As of the date they were each filed, giving effect to any
amendments, (1) the Atlantic SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as applicable,
in effect on the date of filing and (2) the Atlantic SEC Documents do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) Each of the Atlantic financial statements (including the
related notes) included in the Atlantic SEC Documents have been prepared in
accordance with GAAP consistently applied with past practice and on that basis
present fairly, in all material respects, the financial position and the results
of operations, changes in stockholders' equity, and cash flows of Atlantic as of
the respective dates of and for the periods referred to in these financial
statements.
3.7 Investment Representations. (a) Atlantic is acquiring the Shares
for its own account, not as a nominee or agent, and not with a view to
distributing any of the Shares or the Conversion Shares in violation of the
securities laws.
(b) Atlantic understands that investment in the Shares is
speculative and involves a high degree of risk. Atlantic is knowledgeable in
business and financial matters and is capable of evaluating the merits and risks
of an investment in Holdings.
(c) Atlantic understands that neither the Shares nor the
Conversion Shares have been registered under the Securities Act and may not be
sold or otherwise disposed of except pursuant to an effective registration
statement filed under the Securities Act or pursuant to an exemption from the
Securities Act. Atlantic acknowledges that TeraComm is under no obligation to
register the Shares or the Conversion Shares under the Securities Act on behalf
of Atlantic, except as provided in the Registration Rights Agreement.
(d) Atlantic acknowledges that TeraComm may place a legend on the
any stock certificates representing any Shares or Conversion Shares stating that
the Shares or Conversion Shares, as the case may be, represented by that
certificate have not been registered under the Securities Act and therefore
cannot be offered, sold or transferred unless they are registered under the
Securities Act or an exemption from such registration is available.
(e) Atlantic has been afforded the opportunity to ask
representatives of TeraComm such questions concerning TeraComm's operations as
Atlantic has deemed necessary, and Atlantic has received all documents and
information relating to its investment in the Shares requested by or on behalf
Atlantic.
3.8 Proceedings. There are no Proceedings pending or, to Atlantic's
Knowledge, threatened in writing against Atlantic that question the validity of
this agreement or any of the other Transaction Documents to which it is party or
any action taken or to be taken in connection with the transactions contemplated
by this agreement or any of the other Transaction Documents to which it is
party.
14
3.9 Brokers or Finders. Atlantic and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this agreement.
ARTICLE 4
CERTAIN OBLIGATIONS OF TERACOMM
4.1 Duration of Obligations. Unless they terminate earlier pursuant to
the terms of this Article 4, TeraComm will no longer have any obligations under
this Article 4 upon occurrence of the following:
(1) termination of the Stockholders Agreement;
(2) any transaction or series or combination of transactions whereby all or
substantially all of TeraComm's assets are acquired by a Person that is
not an Affiliate of TeraComm, or by a group of such Persons; and
(3) any merger, consolidation or reorganization of TeraComm with any Person
that is not an Affiliate of TeraComm, or a group of such Persons, other
than a merger, consolidation or reorganization that results in the
voting securities of TeraComm outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another Person) at least 50% of the
combined voting power of the surviving Person;
4.2 Accounts and Reports. Until Atlantic owns less than 20% of the
capital stock of TeraComm (on a fully-diluted basis), TeraComm shall furnish to
Atlantic, and to each assignee of Atlantic, the following reports:
(1) as soon as available and in any event within 90 days after the end of
each fiscal year, consolidated and consolidating financial statements
of TeraComm, including a consolidated balance sheet as at the end of
such fiscal year and consolidated statements of income and
stockholders' equity and of cash flows for such fiscal year, together
with all notes thereto, prepared in reasonable detail and in accordance
with GAAP together with an opinion thereon by a nationally-recognized
firm of independent certified public accountants selected by TeraComm's
board of directors;
(2) as soon as available, and in any event within 30 days after the end of
each quarterly accounting period, financial statements of TeraComm,
including a balance sheet as at the end of that quarterly accounting
period and statements of income and stockholders' equity and cash flows
for that quarterly accounting period and for the period from the
beginning of such fiscal year to the end of that quarterly accounting
period, prepared in reasonable detail and certified by the chief
financial officer of Holding to have been prepared in accordance with
GAAP (subject to normal year end adjustments and except for the
omission of footnote disclosure), and incorporating a comparison
between the actual figures for that quarterly accounting period, the
comparable figures for the prior year and the comparable figures
included in the final annual forecast referenced in
15
Section 4.2(3) for that quarterly accounting period, with an
explanation of any material differences between them;
(3) (A) as soon as available and in any event no later than the end of each
fiscal year, a provisional annual forecast, and (B) as soon as
available and in any event no later than 60 days after the end of each
fiscal year, a final annual forecast, including budgeted quarterly
balance sheets, cash flow and income and loss projections, a
consolidated capital and operating expense budget and a business plan
for TeraComm in respect of the following fiscal year, all itemized in
reasonable detail including the assumptions on which the forecast was
based and, promptly after preparation, any revisions to any of the
foregoing;
(4) promptly upon receipt thereof (and in no event later than 5 business
days after receipt thereof), copies of all final audit reports,
"management letters" and other communications and reports submitted to
TeraComm by independent certified public accountants in connection with
each interim, annual, or special audit of the books of TeraComm made by
those accountants;
(5) promptly upon request, a copy of all financial statements, reports,
press releases, notices, proxy statements and other documents sent by
TeraComm to its stockholders generally or released to the public and
copies of all regular and periodic reports, if any, filed by TeraComm
with the SEC or any securities exchange; and
(6) prompt notice of (A) any action, suit, proceeding or investigation at
law or in equity or by or before any governmental instrumentality or
agency which, if adversely determined, would materially impair the
right of TeraComm to carry on their business as then conducted or would
have a Material Adverse Effect on TeraComm or (B) of any other event on
condition that has resulted in or could reasonably be expected to
result in a Material Adverse Effect on TeraComm.
4.3 Information and Inspection. Until Atlantic owns less than 20% of
the capital stock of TeraComm (on a fully-diluted basis), TeraComm shall furnish
to Atlantic from time to time with reasonable promptness, upon request, full
information regarding the business and operations of TeraComm and, at all
reasonable times and as often as Atlantic reasonably requests, permit any
authorized representative designated by it to visit and inspect any of the
properties of TeraComm or any of their Subsidiaries, including its books (and to
make extracts therefrom), and to discuss with its officers its business and
operations.
4.4 Payment of Taxes. TeraComm shall pay and discharge all Taxes
imposed upon it or upon its income or profits, or upon any properties belonging
to it, prior to the date on which penalties attach thereto, and all lawful
claims that, if unpaid, might become a Lien upon any of its properties, except
that TeraComm is not required to pay any such Tax that it is contesting in good
faith and by proper proceedings if all reserves required under GAAP and
reasonably determined to be adequate by TeraComm's board of directors have been
set aside on its books with respect thereto.
16
4.5 Corporate Existence. TeraComm shall at all times preserve and keep
in full force and effect its corporate existence and rights and franchises
material to its business, and shall qualify to do business as a foreign
corporation in any jurisdiction where the failure to do so could reasonably be
expected to have a Material Adverse Effect on TeraComm.
4.6 Compliance with Laws. TeraComm shall use commercially reasonable
efforts to comply in all material respects with ERISA and all Environmental
Laws, and shall comply in all material respects with all other Laws applicable
to the conduct of its business and the ownership of its property, except that
TeraComm is not required to comply with any Law any time it is contesting its
obligation to do so in good faith by appropriate Proceedings promptly initiated
and diligently conducted, and if it has set aside on its books all reserves with
respect thereto required by GAAP and reasonably determined to be adequate by
TeraComm's board of directors.
4.7 Insurance; Insurance Coverage Maintenance. TeraComm shall use
commercially reasonable efforts to maintain with financially sound and reputable
insurers insurance with respect to its properties and businesses against Losses
of the kinds customarily insured against by Persons of established reputation
engaged in the same or a similar business and similarly situated, in such
amounts and by such methods as are customary for such Persons and reasonably
deemed adequate by TeraComm.
4.8 Regular Meetings of Directors. TeraComm shall take such action as
is required to cause its board of directors to meet not less often than
quarterly. TeraComm shall promptly pay all reasonable out-of-pocket expenses,
including travel and lodging expenses, incurred by directors in connection with
meetings of TeraComm's board of directors.
4.9 Restrictive Agreements Prohibited. TeraComm shall not become a
party to or bound by any agreement that by its express terms restricts
performance by TeraComm of its obligations under this agreement, the other
Transaction Documents to which it is party or the Restated Certificate of
Incorporation.
4.10 By-Laws. TeraComm shall use their best efforts to cause its
by-laws to provide at all times that any two directors have the right to call a
meeting of the board of directors or stockholders. TeraComm shall use its best
efforts to maintain at all times provisions in its Restated Certificate of
Incorporation and by-laws indemnifying its directors against liability to
TeraComm and its stockholders to the maximum extent permitted under Law.
4.11 Directors' and Officers' Liability Insurance. TeraComm shall use
its best efforts to secure and maintain on commercially reasonable terms
directors' and officers' liability insurance providing for appropriate coverage,
taking to account the directors' and officers' liability insurance coverage
maintained by companies comparable to TeraComm.
4.12 Publicity. Except as may be required by law, TeraComm shall not
use the name of, or make reference to, Atlantic or any of its Affiliates in any
press release or in any public or private manner without Atlantic's prior
consent (which may be given, made conditional or withheld in Atlantic's sole
discretion).
4.13 Super-Majority Requirements. Until the earlier of (1) Atlantic
owning less than 20% of the capital stock of TeraComm (on a fully-diluted
basis), and (2) the second anniversary
17
of the date of this agreement, without the prior written consent of the holders
of a majority the Shares and Conversion Shares considered together TeraComm
shall not do any of the following or enter into a Contract to do any of the
following:
(1) engage in any merger or consolidation with or into any other entity, or
sell, lease or otherwise dispose of all or substantially all or any
significant portion of its assets (collectively, a "Sale Transaction"),
for a period of 18 months from the Closing (the "Lock-Up Period");
(2) engage in any Sale Transaction after the Lock-Up Period, unless
Atlantic's pro rata share of the proceeds from that Sale Transaction is
promptly distributed to it in cash;
(3) redeem, purchase, or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any shares of its capital stock, except
for the repurchase of shares of its capital stock from employees,
officers, directors, consultants or other persons performing services
for TeraComm pursuant to agreements under which the issuing corporation
has the option to repurchase such shares at cost or at cost upon the
occurrence of certain events, such as the termination of employment, on
condition that the aggregate amount so paid to repurchase shares of
capital stock during any period of twelve consecutive months shall not
exceed $50,000;
(4) declare or pay any dividends (whether in cash, shares of stock or
otherwise) on, or make any other distribution in respect of its capital
stock;
(5) take any action (A) that would alter the powers, preferences or rights
of the Shares or (B) to create any new class or series of stock having
a preference over or being on a parity with the Shares with respect to
dividends, redemption, voting, liquidation or otherwise;
(6) engage in any transaction, pay any fee or other remuneration, or enter
into, amend, modify or otherwise alter any Contract with any of its
directors, officers or stockholders or any Affiliate, other than as
required by the Transaction Documents to which it is party;
(7) amend the Restated Certificate of Incorporation or its by-laws;
(8) organize any Subsidiaries;
(9) engage in any business other than development of high-speed fiber optic
communications technologies and other lines of business related thereto
or move or attempt to move substantially all of its assets outside of
the United States of America; or
(10) agree to do any of the foregoing.
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ARTICLE 5
SURVIVAL; INDEMNIFICATION
5.1 Survival of Representations. All representations contained in the
Transaction Documents survive for 24 months following the date of this
agreement, except that the representations made by TeraComm in Section 2.14 will
survive until the applicable statute of limitations has expired.
5.2 Indemnification of Atlantic. TeraComm hereby indemnifies Atlantic
and each officer, director, employee, agent, stockholder and Affiliate of
Atlantic from and against, and shall pay or reimburse each of them for, any and
all claims, losses, fines, costs, damages or other liabilities, including
without limitation reasonable out-of-pocket expenses and reasonable attorneys'
and accountants' fees (collectively, "Losses"), arising out of breach by
TeraComm of any of its obligations under any Transaction Document to which it is
party or any inaccuracy in any representation by TeraComm in any of the
Transaction Documents to which it is party.
5.3 Indemnification of TeraComm. Atlantic hereby indemnifies TeraComm
and each officer, director, employee, agent, stockholder and Affiliate of
TeraComm from and against, and shall pay or reimburse each of them for, any and
all Losses arising out of breach by Atlantic of any of its obligations under any
Transaction Document to which it is party or any inaccuracy in any
representation by Atlantic in any of the Transaction Documents to which it is
party.
5.4 Indemnification Procedures. (a) In order to be entitled to
indemnification under this Article 5 in connection with a claim made by any
Person against any Person entitled to indemnification pursuant to this Article 5
(an "Indemnified Party"; any such claim, a "Third Party Claim"), that
Indemnified Party must do the following:
(1) notify the Person or Persons obligated to indemnify it (the
"Indemnifying Party") in writing, and in reasonable detail, of that
Third Party Claim promptly but in any event within 10 business days
after receipt of notice of that Third Party Claim, except that any
failure to give any such notification will only affect the Indemnifying
Party's obligation to indemnify the Indemnified Party if the
Indemnifying Party has been prejudiced as a result of that failure; and
(2) deliver to the Indemnifying Party promptly but in any event within 10
business days after the Indemnified Party receives them a copy of all
notices and documents (including court papers) delivered to that
Indemnified Party relating to that Third Party Claim.
(b) No Indemnified Party will be entitled to indemnification
under this Article 5 in connection with any Third Party Claim that it notifies
the Indemnifying Party of more than two years after the date of this agreement.
(c) In the event of a Third Party Claim against one or more
Indemnified Parties, the Indemnifying Party will be entitled to participate in
the defense of that Third Party Claim and, if they so choose, to assume at their
expense the defense of that Third Party Claim with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party so elects to assume the defense of a Third Party Claim, the
Indemnifying Party will not be liable to the Indemnified Party for any legal
expenses
19
subsequently incurred by the Indemnified Party in connection with the defense of
that Third Party Claim, except that if, under applicable standards of
professional conduct, there exists a conflict on any significant issue between
the Indemnified Party and the Indemnifying Party in connection with that Third
Party Claim, the Indemnifying Party shall pay the reasonable fees and expenses
of one additional counsel to act with respect to that issue to the extent
necessary to resolve that conflict. If the Indemnifying Party assumes defense of
any Third Party Claim, the Indemnified Party will be entitled to participate in
the defense of that Third Party Claim and to employ counsel, at its own expense,
separate from counsel employed by the Indemnifying Party, it being understood
that the Indemnifying Party will be entitled to control that defense. The
Indemnifying Party will be liable for the fees and expenses of counsel employed
by the Indemnified Party for any period during which the Indemnifying Party did
not assume the defense of any Third Party Claim (other than during any period in
which the Indemnified Party failed to give notice of the Third Party Claim as
provided above and a reasonable period after such notice). If the Indemnifying
Party chooses to defend or prosecute a Third Party Claim, all the parties shall
cooperate in the defense or prosecution of that Third Party Claim, including by
retaining and providing to the Indemnifying Party records and information
reasonably relevant to that Third Party Claim, and making employees available on
a reasonably convenient basis. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, the Indemnified Party will agree to any
settlement, compromise or discharge of that Third Party Claim that the
Indemnifying Party recommends and that by its terms obligates the Indemnifying
Party to pay the full amount of liability in connection with that Third Party
Claim, except that the Indemnifying Party may not without the Indemnified
Party's prior written consent agree to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term that
each claimant or plaintiff give to the Indemnified Party a release from all
liability with respect to that Third Party Claim. Whether or not the
Indemnifying Party has assumed the defense of a Third Party Claim, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, that Third Party Claim without the Indemnifying Party's
prior written consent.
(d) In order for one or more Indemnified Parties to be entitled
to any indemnification under this agreement in respect of a claim that does not
involve a Third Party Claim (a "Claim"), the Indemnified Party must reasonably
promptly notify the Indemnifying Party of that Claim, and describe in reasonable
detail the basis for that Claim, except that any failure to give any such
notification will only affect the Indemnifying Party's obligation to indemnify
the Indemnified Party if the Indemnifying Party has been prejudiced as a result
of that failure. No Indemnified Party will be entitled to indemnification under
this Article 5 in connection with any Claim if it notifies the Indemnifying
Party of that Claim more than two years after the date of this agreement. If the
Indemnifying Party does not dispute that the Indemnified Party is entitled to
indemnification with respect to that Claim by notice to the Indemnified Party
prior to the expiration of a 30-calendar-day period following receipt by the
Indemnifying Party of notice from the Indemnified Party of that Claim, that
Claim will be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of that liability to the Indemnified
Party on demand or, in the case of any notice in which the amount of the Claim
(or any portion thereof) is estimated, on such later date as the amount of the
Claim (or any portion thereof) becomes finally determined. If the Indemnifying
Party has timely disputed their liability with respect to the Claim, the
Indemnifying Party and the
20
Indemnified Party shall proceed in good faith to negotiate a resolution of the
Claim and, if the Claim is not resolved through negotiations, the Indemnified
Party may pursue such remedies as may be available to enforce their rights to
indemnification under this agreement.
5.5 Limitation on Indemnification. (a) Each Indemnifying Party's
exclusive remedy with respect to any claims of that Indemnifying Party under
this Agreement will be pursuant to the indemnification provisions of this
Article 5.
(b) Neither Indemnifying Party will be liable for any obligations
under this Article 5 until the aggregate of any amounts it is required to pay to
any Indemnified Party under this Article 5 (the "Aggregate Indemnification
Amount") exceeds $50,000, after which it will be obligated to pay the total
Aggregate Indemnification Amount.
(c) Once the Aggregate Indemnification Amount of either
Indemnifying Party exceeds $6,795,000, that Indemnifying Party will not be
required to pay any Indemnified Party any additional amounts pursuant to this
Article 5.
ARTICLE 6
DELIVERIES
6.1 Deliveries to Atlantic. The obligation of Atlantic to purchase the
Shares is subject to each of the following being delivered to Atlantic
concurrently with execution and deliver of this agreement:
(1) a fully-executed copy of a stockholders agreement between Atlantic and
all holders of shares TeraComm Common Stock in the form attached as
Exhibit B (the "Stockholders Agreement");
(2) a fully-executed copy of a registration rights agreement between
Atlantic and TeraComm with respect to the Shares in the form attached
as Exhibit C (the "Atlantic Registration Rights Agreement");
(3) a fully-executed copy of a registration rights agreement between
Atlantic and TeraComm with respect to the Purchase Price Shares and the
shares of Atlantic common stock underlying the Purchase Price Warrant
in the form attached as Exhibit D (the "TeraComm Registration Rights
Agreement");
(4) a stock certificate representing the Initial Shares;
(5) an officer's certificate of TeraComm certifying as to the following:
(A) the accuracy of (i) resolutions or similar documents evidencing
that TeraComm's board of directors has approved the Transaction
Documents and the transactions contemplated thereby, and (ii)
the Amended and Restated Certificate of Incorporation and
TeraComm's by-laws, a copy of each of which documents is
attached thereto; and
21
(B) the incumbency and specimen signature of each authorized officer
of TeraComm signing a Transaction Document;
(6) an investment representation letter by each holder of TeraComm common
stock in the form attached as Exhibit E; and
(7) a fully-executed copy of an employment agreement between TeraComm and
each of Kenneth A. Puzey and Thomas Ferrence in the form attached as
Exhibit F-1 and Exhibit F-2 (the "Employment Agreements").
6.2 Deliveries to TeraComm. The obligation of TeraComm to issue the
Shares to Atlantic is subject to each of the following being delivered to
TeraComm concurrently with execution and deliver of this agreement:
(1) a fully-executed copy of the Stockholders Agreement;
(2) a fully-executed copy of the Atlantic Registration Rights Agreement;
(3) a fully-executed copy of the TeraComm Registration Rights Agreement;
(4) an officer's certificate of Atlantic certifying as to the following:
(A) the accuracy of resolutions or similar documents evidencing that
Atlantic's board of directors has approved the Transaction
Documents and the transactions contemplated thereby, a copy of
which documents is attached thereto; and
(B) the incumbency and specimen signature of each authorized officer
of Atlantic signing a Transaction Document;
(5) a fully-executed copy of each Employment Agreement;
(6) a stock certificate representing the Purchase Price Shares; and
(7) the Warrant.
ARTICLE 7
DEFINITIONS
When used in this agreement, the following terms have the following
meanings:
"Affiliate" means, with respect to any given Person, (1) any other
Person at the time directly or indirectly controlling, controlled by or under
common control with that Person, (2) any other Person of which that Person at
the time owns or has the right to acquire, directly or indirectly, 10% or more
on a consolidated basis of any class of the capital stock or other ownership
interest, (3) any other Person which at the time owns or has the right to
acquire, directly or indirectly, 10% or more of any class of the capital stock
or other ownership interest of that Person, or (4) any director, officer or
employee of that Person.
22
"Atlantic's Knowledge" means the actual knowledge after due inquiry of
A. Joseph Rudick and Frederic P. Zotos.
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant thereto.
"Consent" means any approval, consent, ratification, filing,
declaration, registration, waiver, or other authorization (including any
Permit).
"Contract" means any oral or written agreement, contract, obligation,
promise, arrangement, or undertaking that is legally binding.
"Environmental Claim" means any notice of violation, action, claim,
demand, abatement or other order by any Governmental Body or any other Person
for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects an the environment, or for fines,
penalties or restrictions resulting from or based upon the following:
(1) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden accidental or
non-accidental Releases) of, or exposure to, any Hazardous Material in,
into or onto the environment (including, without limitation, the air,
soil, surface water or groundwater) at, in, by, from or related to any
property owned, operated or leased by TeraComm or any activities or
operations thereof;
(2) the transportation, storage, treatment or disposal of Hazardous
Materials in connection with any property owned, operated or leased by
the seller or its operations or facilities; or
(3) the violation, or alleged violation, of any Environmental Law or Order
of any Governmental Body relating to environmental matters connected
with any property owned, leased or operated by TeraComm.
"Environmental Law" means any Law relating to the environment, natural
resources, or public or employee health and safety, and includes the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.ss.9601 et seq., the Hazardous Materials Transportation Act, 49
U.S.C.ss.1801 et seq., the Resource Conservation and Recovery Act, 42
U.S.C.ss.6901 et seq., the Clean Water Act, 33 U.S.C.ss.1251 et seq., the Clean
Air Act, 33 U.S.C.ss.2601 et seq., the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq., the Oil Pollution Act of 1990, 33 U.S.C.ss.2701 et seq.,
and the Occupational Safety and Health Act, 29 U.S.C.ss.651 et seq.
"ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant thereto.
23
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor law, and any rules or regulations issued pursuant thereto.
"GAAP" means generally accepted United States accounting principles.
"Governmental Body" means any (1) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (2) federal, state,
local, municipal, foreign, or other government, (3) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal,
including an arbitral tribunal), (4) multi-national organization or body, or (5)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"Hazardous Material" means any substance, material or waste which is
regulated under Environmental Law, including, without limitation, any material,
substance or waste that is defined as a "hazardous waste," "hazardous material,"
or "hazardous substance" under any provision of Environmental Law.
"Intellectual Property Assets" means with respect to any Person the
worldwide industrial and intellectual property rights of that Person, including
without limitation patents, patent applications, patent rights, trademarks,
trademark applications, trademark rights, service marks, service mark
applications, service mark rights, copyrights, copyright applications, trade
names, unfair competition rights, franchises, licenses, know-how, trade secrets,
moral rights, rights of publicity, customer lists, proprietary information,
technologies, processes and formulae, all source and object code, algorithm,
architecture, structure, display screens, layouts, inventions, development
tools, and all documentation and media constituting, describing or relating to
the above, including, without limitation, manuals, memoranda and records in any
format, whether hard copy or machine-readable only.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Law" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Lien" means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, assets, properties, results of operations, or
condition (financial or otherwise) of that Person.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court, arbitral
tribunal, administrative agency, or other Governmental Body.
24
"Ordinary Course of Business" means, with respect to an action taken by
a Person, that that action is (1) consistent with the past practices of that
Person and taken in the ordinary course of the normal day-to-day operations of
that Person, and (2) is not required to be authorized by the board of directors
of that Person (or by any Person or group of Persons exercising similar
authority).
"Permit" means any approval, consent, license, permit, waiver, or other
authorization issued, granted, given, or otherwise made available by or under
the authority of any Governmental Body or pursuant to any Law.
"Permitted Lien" means (1) any Lien for taxes that are not yet due, or
(2) any carrier's, warehouseman's, mechanic's, materialman's, repairman's,
landlord's, lessor's or similar statutory Lien incidental to the ordinary course
of business.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Body or other entity.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body.
"Release" means any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching, or migration on or into the indoor or outdoor environment or into or
out of any property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required by any Governmental Body to (1) clean up, remove,
treat, or in any other way address any Hazardous Material or other substance,
(2) prevent the Release or threat of Release, or minimize the further Release of
any Hazardous Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment, (3) perform pre-remedial studies and investigations or
post-remedial monitoring, or (4) bring facilities on any property owned,
operated or leased by TeraComm and the facilities located and operations
conducted thereon into compliance with all Environmental Laws.
"Representative" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of that Person, including legal counsel, accountants, and financial advisors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and rules or regulations issued pursuant thereto.
"Taxes" means all taxes, duties, assessments or governmental charges,
including income, gross receipts, windfall profits, value added, severance,
property, production, sales, use, license, excise, franchise, employment,
withholding or similar taxes, together with any interest, additions
25
or penalties with respect thereto and any interest in respect of such additions
or penalties, imposed by any Governmental Body having the power to tax.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Law relating to any Tax.
"TeraComm's Knowledge" means the actual knowledge after due inquiry of
Kenneth A. Puzey and Thomas G. Ference.
"Transaction Documents" means this agreement, the Registration Rights
Agreement, the Stockholders Agreement, the Warrant, the Employment Agreements
and the other documents to be executed and delivered by the parties as
contemplated under this agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Governing Law. This agreement is governed by the laws of the State
of New York, without giving effect to principles of conflict of laws.
8.2 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, any of the
Transaction Documents may be brought against any of the parties in the courts of
the State of New York, County of New York, or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
New York, and each of the parties consents to the jurisdiction of those courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any such action or
proceeding may be served by sending or delivering a copy of the process to the
party to be served at the address and in the manner provided for the giving of
notices in Section 8.3. Nothing in this Section 8.2, however, affects the right
of any party to serve legal process in any other manner permitted by law.
8.3 Notices. Every notice or other communication required or
contemplated by this agreement must be in writing and sent by one of the
following methods: (1) personal delivery, in which case delivery is deemed to
occur the day of delivery; (2) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded by the U.S. Postal Service as delivered to the intended
recipient; or (3) next-day delivery to a U.S. address by recognized overnight
delivery service such as Federal Express, in which case delivery is deemed to
occur upon receipt. In each case, a notice or other communication sent to a
party must be directed to the address for that party set forth below, or to
another address designated by that party by written notice:
26
If to Atlantic, to:
Atlantic Technology Ventures, Inc.
150 Broadway
Suite 1009
New York, NY 10038
Attention: Frederic P. Zotos, President
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attention: Ezra G. Levin, Esq.
If to TeraComm, to:
TeraComm Research, Inc.
74 Ethan Allen Drive
Suite 103
South Burlington, VT 05403
Attention: Kenneth A. Puzey, President
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway
Suite 2600
Denver, CO 80202
Attention: Jack Lewis, Esq.
8.4 Severability. If any provision of this agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this agreement will remain in full force and effect. Any provision of this
agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
8.5 Public Announcements. The parties shall cooperate with respect to
any public statement regarding the transactions contemplated by this agreement
or any of the other Transaction Documents.
8.6 Amendment. This agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
8.7 Entire Agreement. This agreement and the other Transaction
Documents, together with all exhibits and schedules hereto and thereto,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties.
27
8.8 Counterparts. This agreement may be executed in several
counterparts, each of which is an original and all of which together constitute
one and the same instrument.
8.9 No Third-Party Rights. Nothing expressed or referred to in this
agreement gives any Person other than the parties to this agreement any legal or
equitable right, remedy, or claim under or with respect to this agreement or any
provision of this agreement, and this agreement and all of its provisions are
for the sole and exclusive benefit of the parties to this agreement and their
successors and assigns.
8.10 Best Efforts. Upon the terms and subject to the conditions of this
agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this agreement or
any of the other Transaction Documents as promptly as practicable.
The undersigned are executing this agreement on the date stated in the
introductory clause.
ATLANTIC TECHNOLOGY VENTURES, INC.
By:________________________________
A. Joseph Rudick
Chief Executive Officer
TERACOMM RESEARCH, INC.
By:________________________________
Kenneth A. Puzey
President
28
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
dated May __, 2000,
between
TERACOMM RESEARCH, INC.
and
ATLANTIC TECHNOLOGY VENTURES, INC.
================================================================================
29
TABLE OF CONTENTS
Page
----
ARTICLE 1 AUTHORIZATION AND SALE OF SHARES..................................1
1.1 Authorization..............................................1
1.2 Sale of Shares.............................................1
1.3 Dividend...................................................2
ARTICLE 2 representations concerning TeraComm...............................2
2.1 Organization and Good Standing.............................2
2.2 Authority..................................................2
2.3 Consents...................................................2
2.4 No Violations..............................................3
2.5 Capitalization.............................................3
2.6 Ownership Interests........................................4
2.7 Financial Statements.......................................4
2.8 Books and Records..........................................4
2.9 Real Property..............................................4
2.10 Title to Properties; Liens.................................4
2.11 Condition and Sufficiency of Assets........................4
2.12 Suppliers..................................................4
2.13 No Undisclosed Liabilities.................................5
2.14 Taxes......................................................5
2.15 Environmental Matters......................................6
2.16 Compliance With Laws; Permits..............................6
2.17 Proceedings; Orders........................................6
2.18 Absence of Certain Changes and Events......................6
2.19 Contracts..................................................7
2.20 ERISA and Employee Benefit Matters.........................8
2.21 Employees..................................................9
2.22 Deposit Accounts..........................................10
2.23 Intellectual Property Rights..............................10
2.24 Conduct of Business; Use of Name..........................12
2.25 Insurance.................................................12
2.26 Brokers Or Finders........................................12
2.27 Affiliate Transactions....................................12
2.28 Disclosure................................................12
ARTICLE 3 representations of Atlantic......................................12
3.1 Organization and Good Standing............................12
3.2 Authority.................................................13
3.3 Consents..................................................13
3.4 No Violations.............................................13
3.5 Capitalization............................................13
3.6 Filings With the SEC......................................14
3.7 Investment Representations................................14
3.8 Proceedings...............................................15
i
TABLE OF CONTENTS
Page
----
3.9 Brokers or Finders........................................15
ARTICLE 4 certain obligations of teracomm..................................15
4.1 Duration of Obligations...................................15
4.2 Accounts and Reports......................................15
4.3 Information and Inspection................................16
4.4 Payment of Taxes..........................................16
4.5 Corporate Existence.......................................17
4.6 Compliance with Laws......................................17
4.7 Insurance; Insurance Coverage Maintenance.................17
4.8 Regular Meetings of Directors.............................17
4.9 Restrictive Agreements Prohibited.........................17
4.10 By-Laws...................................................17
4.11 Directors' and Officers' Liability Insurance..............17
4.12 Publicity.................................................17
4.13 Super-Majority Requirements...............................18
ARTICLE 5 SURVIVAL; INDEMNIFICATION........................................19
5.1 Survival of Representations...............................19
5.2 Indemnification of Atlantic...............................19
5.3 Indemnification of TeraComm...............................19
5.4 Indemnification Procedures................................19
5.5 Limitation on Indemnification.............................21
ARTICLE 6 deliveries.......................................................21
6.1 Deliveries to Atlantic....................................21
6.2 Deliveries to TeraComm....................................22
ARTICLE 7 DEFINITIONS......................................................22
ARTICLE 8 MISCELLANEOUS....................................................26
8.1 Governing Law.............................................26
8.2 Jurisdiction; Service of Process..........................26
8.3 Notices...................................................26
8.4 Severability..............................................27
8.5 Public Announcements......................................27
8.6 Amendment.................................................27
8.7 Entire Agreement..........................................28
8.8 Counterparts..............................................28
8.9 No Third-Party Rights.....................................28
8.10 Best Efforts..............................................28
ii
INDEX OF DEFINED TERMS
Affiliate..........................................22 Lock-Up Period.....................................18
Aggregate Indemnification Amount...................21 Losses.............................................19
Atlantic............................................1 Material Adverse Effect............................24
Atlantic Preferred Stock...........................13 Order..............................................25
Atlantic Registration Rights Agreement.............21 Ordinary Course of Business........................25
Atlantic SEC Documents.............................14 Permit.............................................25
Atlantic's Knowledge...............................23 Permitted Lien.....................................25
Balance Sheet.......................................4 Person.............................................25
Claim..............................................20 Proceeding.........................................25
Code...............................................23 Purchase Price......................................1
Consent............................................23 Purchase Price Shares...............................1
Contract...........................................23 Purchase Price Warrant..............................1
control............................................23 Release............................................25
Conversion Shares...................................3 Remedial Action....................................25
Employee Benefit Plan...............................8 Representative.....................................25
Employment Agreements..............................22 Restated Certificate of Incorporation...............1
Environmental Claim................................23 Sale Transaction...................................18
Environmental Law..................................23 SEC................................................25
ERISA..............................................24 Securities Act.....................................26
ERISA Affiliate.....................................9 Shares..............................................1
Exchange Act.......................................24 Stockholders Agreement.............................21
GAAP...............................................24 Subsequent Payment..................................1
Governmental Body..................................24 Tax Return.........................................26
Hazardous Material.................................24 Taxes..............................................26
Indemnified Party..................................19 TeraComm............................................1
Indemnifying Party.................................19 TeraComm Common Stock...............................3
Intellectual Property Assets.......................24 TeraComm Preferred Stock............................1
Interim Balance Sheet...............................4 TeraComm Registration Rights Agreement.............21
Interim Financial Statements........................4 TeraComm's Knowledge...............................26
IRS................................................24 Third Party Claim..................................19
Law................................................24 Transaction Documents..............................26
Lien...............................................24
AMENDMENT TO
PREFERRED STOCK PURCHASE AGREEMENT
This Amendment to the Preferred Stock Purchase Agreement dated May 12,
2000 (the "Purchase Agreement"), by and between TeraComm Research, Inc.
("TeraComm") and Atlantic Technology Ventures, Inc. ("Atlantic") is dated as of
July 18, 2000 (the "Amendment").
WHEREAS, Atlantic has since the date of the Purchase Agreement made
Subsequent Payments to TeraComm in the amount of $750,000; and
WHEREAS, the parties wish to modify their rights and obligations with
respect to Subsequent Payments under the Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Schedule 1.2 of the Purchase Agreement is hereby amended to provide
that the remaining $4 million of Subsequent Payments (including the $1 million
payments due on August 12, 2000 and November 12, 2000) are not be due and
payable until the Technology Milestone attached hereto as Attachment A has been
achieved. Within ten (10) days of TeraComm's achieving the Technology Milestone,
Atlantic shall make the $1 million Subsequent Payment currently due on August
12, 2000 (the "Second Subsequent Payment") and shall thereafter make the
remaining three $1 million Subsequent Payments on the next three-month
anniversary dates of the date of such first $1 million Subsequent Payment. The
other provisions of Section 1.2 shall remain in effect, including subparagraph
(b) with respect to failure to make timely Subsequent Payments.
2. TeraComm shall keep the representatives of Atlantic on the TeraComm
Board of Directors informed as to progress toward achieving the Technology
Milestone. If TeraComm believes it has achieved the Technology Milestone, it
will notify Atlantic in writing thereof. If Atlantic disagrees that TeraComm has
achieved the Technology Milestone, it shall so state in writing within five (5)
business days of the notice from TeraComm. If the matter cannot be resolved
within the following ten (10) business days by discussions between the parties,
the matter shall be deemed submitted to arbitration administered by the American
Arbitration Association in accordance with its commercial arbitration rules. The
place of arbitration shall be Boston, Massachusetts. With respect to the
arbitration, the parties will attempt to agree on an arbitrator with sufficient
background in fiberoptic communications development to determine the dispute. If
the parties cannot agree on such person within thirty (30) days of submission of
the matter to arbitration, each party shall pick an arbitrator with relevant
experience and those two parties shall pick a third arbitrator, and all three
will hear the arbitration.
3. Failure of Atlantic to make the Second Subsequent Payment by
midnight at the end of December 30, 2000 (whether or not TeraComm has reached
the Technology Milestone), will at the election of TeraComm be deemed to
constitute failure by Atlantic to timely make a Subsequent Payment. That
election must be voted on by the Board of Directors of TeraComm, with all
members entitled to participate in the decision (regardless of conflict of
interest).
4. All terms used as defined terms herein and not otherwise defined
herein shall have the meaning given them in the Purchase Agreement.
5. This Amendment amends the Purchase Agreement only to the extent
stated herein. All other provisions of the Purchase Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TERACOMM RESEARCH, INC.
By: ________________________________
Its: ________________________________
ATLANTIC TECHNOLOGY VENTURES,
INC.
By: ________________________________
Its: ________________________________
2
Exhibit 10.3
Neither the warrant represented by this certificate (the "Warrant") nor the
shares issuable upon exercise thereof (the "Warrant Shares") have been
registered under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under applicable state securities laws. Atlantic
Technology Ventures, Inc. (the "Company") is not required to give effect to any
transfer of the Warrant or the Warrant Shares unless (1) there is an effective
registration statement under the Act with respect to the Warrant or the Warrant
Shares, as applicable, and the Warrant or the Warrant Shares, as applicable, are
registered or qualified under applicable state securities laws, or (2) the
holder of the Warrant provides to the Company an opinion of counsel reasonably
acceptable to the Company to the effect that such transfer may be made without
registration under the Act and applicable state securities laws.
ATLANTIC TECHNOLOGY VENTURES, INC.
WARRANT CERTIFICATE
This warrant certificate certifies that TeraComm Research, Inc., or its
permitted assigns (the "Holder"), is the owner of a warrant (the "Warrant")
entitling it at any time prior to the Expiration Date to purchase from Atlantic
Technology Ventures, Inc., a Delaware corporation (the "Company"), for a
purchase price of $8.975 per share (the "Exercise Price"), 200,000 shares of
common stock, par value $0.001 per share, of the Company (the "Common Stock";
those shares, "Warrant Shares"), the number of Warrant Shares and the Exercise
Price being subject to adjustment as provided herein.
1. Exercise; Expiration Date. (a) The Warrant is exercisable, at the
option of the Holder, in whole or in part at any time after issuance and prior
to the Expiration Date upon surrender of this warrant certificate to the
Company, together with a duly completed Notice of Exercise in the form attached
hereto as Annex A and payment of an amount equal to the Exercise Price, on
condition that on the day this warrant certificate is surrendered to the Company
the Current Market Price of the Common Stock is at least $30. "Expiration Date"
means 5:00 p.m. New York time on May 12, 2003.
2. Partial Exercise. The Warrant may be exercised in part by surrender
of this Warrant Certificate in the manner provided in Section 1, except that the
amount payable by the Holder on such partial exercise is the amount obtained by
multiplying the number of Warrant Shares designated by the Holder in the Notice
of Exercise by the Exercise Price then in effect. On any such partial exercise
the Company at its expense must forthwith issue and deliver to or upon the order
of the Holder a warrant certificate in the name of the Holder or as the Holder
(upon payment by the Holder of any applicable transfer taxes) requests
containing terms substantially identical to those contained in this Warrant
Certificate evidencing a warrant for a number of warrant shares equal to the
number of Warrant Shares remaining unpurchased.
3. Registration and Transfer on Company Books. (a) Prior to due
presentment for registration of transfer of this warrant certificate or the
Warrant Shares, the Company may deem and treat the Holder as the absolute owner
thereof, regardless of any notice to the contrary.
(b) The Company shall register upon its books any transfer of
this warrant certificate upon its surrender to the Company with a written
instrument of transfer duly executed
by the Holder or by a duly authorized attorney. Upon registration of transfer,
the Company shall issue a new Warrant Certificate to the transferee and shall
cancel the surrendered Warrant Certificate.
(c) Neither the Warrant nor the Warrant Shares have been
registered under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under applicable state securities laws. The Company is
not required to give effect to any transfer of the Warrant or the Warrant Shares
unless (1) there is an effective registration statement under the Act with
respect to the Warrant or the Warrant Shares, as applicable, and the Warrant or
the Warrant Shares, as applicable, are registered or qualified under applicable
state securities laws, or (2) the Holder provides to the Company an opinion of
counsel reasonably acceptable to the Company to the effect that such transfer
may be made without registration under the Act and applicable state securities
laws.
4. Limited Transferability. The Holder may not without the prior
written consent of the Company transfer the Warrant or any Warrant Shares, which
consent may not be unreasonably withheld.
5. Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrant, the number of shares of capital stock then
issuable upon the exercise of the Warrant. The Company shall upon issue cause
all Warrant Shares to be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and shall cause the Warrant Shares to be listed on each national
securities exchange, if any, on which the other shares of Common Stock are then
listed.
6. Loss or Mutilation. The Company shall execute and deliver a new
Warrant Certificate in lieu of one that has been lost, stolen, destroyed or
mutilated upon receipt by the Company of reasonable evidence of ownership and
either indemnity reasonably satisfactory to the Company (in the case of loss,
theft or destruction) or surrender and cancellation of a mutilated Warrant
Certificate.
7. Adjustment of Purchase Price and Number of Warrant Shares. The
number of Warrant Shares and the Purchase Price are subject to adjustment as
follows:
(1) If at any time after the date hereof the Company (A) declares a
dividend or makes a distribution on its outstanding shares of Common
Stock payable in shares of its capital stock, (B) subdivides its
outstanding shares of Common Stock through stock split or otherwise,
(C) combines its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or issues by reclassification of its
Common Stock (including any reclassification in connection with a
consolidation or merger in which the Company is the continuing
corporation) other securities of the Company, the number or nature, or
both, of the Warrant Shares on the record date thereof (in the case of
a dividend) or at the effective time thereof (in the case of a
subdivision, combination or reclassification) will be adjusted so as to
entitle the Holder to receive after such time the number and nature of
Warrant Shares or other securities of the Company which the
2
Holder would have been entitled to receive by virtue of any of the
events described above, had the Warrant been exercised immediately
prior to such time.
(2) If the Company issues rights, options or warrants or securities
convertible into Common Stock to the holders of its shares of Common
Stock generally, entitling them (for a period expiring within 45 days
after the record date for such issuance) to subscribe for or purchase
shares of Common Stock at a price per share which (together with the
value of the consideration, if any, payable for such rights, options,
warrants or convertible securities) is lower on the record date
referred to below than the then Exercise Price, the number of Warrant
Shares must be adjusted by multiplying the number of Warrant Shares
immediately prior to that record date by a fraction, the numerator of
which is the number of shares of Common Stock outstanding on that
record date plus the number of additional shares of Common Stock
offered for subscription or purchase, and the denominator of which is
the number of shares of Common Stock outstanding on that record date
plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at the
then Exercise Price. Such an adjustment must be made whenever such
rights, options, warrants or convertible securities are issued, and
will become effective retroactively as of the record date for the
determination of stockholders entitled to receive such rights, options,
warrants or convertible securities, except that (A) on the expiration
or termination of any such rights, options, warrants or convertible
securities in respect of which any adjustments have been made pursuant
to this Section 7(a)(2), the number of Warrant Shares in effect
immediately prior to the time of such expiration or termination must
forthwith be adjusted to the number that would have been obtained had
the adjustments made upon the issue of such rights, options, warrants
or convertible securities not been made, and (B) in the event that the
exercise price or purchase price in respect of any such rights,
options, warrants or convertible securities is increased or reduced,
then for purposes of this Section 7(a)(2) such initial rights, options,
warrants or convertible securities will be deemed to have been
cancelled or terminated and new rights, options, warrants or
convertible securities with the altered exercise or purchase price will
be deemed to have been issued. If the exercise price or subscription
price in respect of any such rights, options, warrants or convertible
securities may be paid partly or entirely in a form other than cash,
the value of this consideration must be determined in good faith by the
Board of Directors of the Company, whose determination will be final,
binding and conclusive on the Company and on the Holder.
(3) If the Company distributes to all holders of shares of Common Stock, or
all holders of Common Stock otherwise become entitled to receive shares
of capital stock of the Company (other than dividends or distributions
on its Common Stock referred to in Section 7(a)(1)), evidences of its
indebtedness or rights, options, warrants or convertible securities
providing the right to subscribe for or purchase any shares of the
Company's capital stock or evidences of its indebtedness (other than
any rights, options, warrants or convertible securities referred to in
Section 7(a)(2)), then in each case the number of Warrant Shares shall
thereafter be determined by multiplying the number of Warrant Shares
prior thereto by a fraction, the numerator of which is the Current
Market Price on the record date mentioned below in this Section
7(a)(3), and the denominator of which is the Current Market Price on
such record date minus the then fair value (as determined by
3
the Board of Directors of the Company, in good faith, whose
determination will be final, binding and conclusive on the Company and
the Holder) of the shares of the Company's capital stock other than
Common Stock, evidences of indebtedness, or of such rights, options,
warrants or convertible securities, distributed with respect to each
share of Common Stock. Such adjustment must be made whenever any such
distribution is made, and is effective retroactively as of the record
date for the determination of stockholders entitled to receive such
distribution.
(4) In the event of any capital reorganization or any reclassification of
the capital stock of the Company or in case of the consolidation or
merger of the Company with another corporation (other than a
consolidation or merger in which the outstanding shares of Common Stock
are not converted into or exchanged for other rights or interests and
other than a reclassification to which Section 7(a)(1)(D) applies), or
in the case of any sale, transfer or other disposition to another
corporation of all or substantially all the properties and assets of
the Company, the Holder will thereafter be entitled to purchase (and it
must be a condition to the consummation of such reorganization,
reclassification, consolidation, merger, sale, transfer or other
disposition that the Holder thereafter be entitled to purchase) the
number and nature of shares of stock and other securities and property
(including cash) which the Holder would have been entitled to receive
had the Warrant been exercised immediately prior to the effective date
of such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition; and in any such case appropriate
adjustments must be made in the application of the provisions of this
Section 7 with respect to rights and interest thereafter of the Holder
to the end that the provisions of this Section 7 thereafter be
applicable, as near as reasonably may be, in relation to any shares or
other property thereafter purchasable upon the exercise of the Warrant.
The provisions of this Section 7(a)(4) are similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
sales, transfers or other dispositions.
(5) Whenever the number of Warrant Shares purchasable upon the exercise of
the Warrant is adjusted, as provided in this Section 7(a), the Exercise
Price must be adjusted by multiplying the Exercise Price immediately
prior to such adjustment by a fraction, the numerator of which is the
number of Warrant Shares immediately prior to such adjustment, and the
denominator of which is the number of Warrant Shares immediately
thereafter.
(b) In the event the Company declares a dividend, or makes a
distribution to the holders of shares of Common Stock generally, whether in
cash, property or assets of any kind, or any dividend payable in stock or
securities of any other issuer owned by the Company (excluding cash dividends
payable out of current or retained earnings declared from time to time by the
Company's Board of Directors or any dividend or distribution referred to in
Section 7(a)(1) or Section 7(a)(3)), the Exercise Price will be reduced, without
any further action by the parties hereto, by the Per Share Value (as hereinafter
defined) of the dividend. For purposes of this Section 7(b), the "Per Share
Value" of a cash dividend or other distribution shall be the dollar amount of
the distribution on each share of Common Stock and the "Per Share Value" of any
dividend or distribution other than cash is equal to the fair market value of
such non-cash distribution on each share of Common Stock as determined in good
faith by the Board
4
of Directors of the Company, whose determination will be final, binding and
conclusive on the Company and the Holder.
(c) If the Company at any time or from time to time issues any
shares of Common Stock or rights to acquire Common Stock (other than shares or
rights issued in any transactions covered by Section 7(a) or 7(b)), for a
consideration per share less than the Exercise Price in effect on the date of
such issue, then, forthwith upon such issue, the Exercise Price will be reduced
to a price determined by dividing (1) the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issue multiplied by the
Exercise Price in effect immediately prior to such issue, plus (B) the
consideration, if any, received by the Company upon such issue, by (2) the
number of shares of Common Stock outstanding immediately after such issue. In
addition to such adjustment to the Exercise Price, the number of Warrant Shares
will be increased to a number determined by dividing (x) the number of Warrant
Shares immediately prior to such issue, multiplied by the Exercise Price in
effect immediately prior to such issuance, by (y) the Exercise Price in effect
immediately after the foregoing adjustment. For the purpose of the above
determination, the following provisions are applicable:
(1) If the Company in any manner issues any options, warrants or other
rights to subscribe for or to purchase shares of Common Stock, then,
for the purposes of this Section 7(c), (A) all shares which the holders
of such rights will be entitled thereby to subscribe for or purchase
will be deemed to be issued as of the date of issue of such rights, and
(2) the minimum aggregate consideration payable pursuant to such rights
for the shares covered thereby, plus the consideration, if any,
received by the Company for such rights, will be deemed to be the
consideration actually received by the Company (as of the date of the
issue of such rights) for the issue of the total number of shares
underlying such rights, except that (A) on the expiration or
termination of any such options or rights in respect of which any
adjustments are made pursuant to this Section 7(c)(1), the Exercise
Price in effect immediately prior to the time of such expiration or
termination will forthwith be adjusted to such Exercise Price as would
have been obtained had the adjustments made upon the issue of such
options or rights not been made and (B) in the event that the exercise
price or purchase price in respect of any such options or rights is
increased or reduced, then for purposes of this Section 7(c)(1) such
initial option or right will be deemed to have been cancelled or
terminated and a new option or right with the altered exercise or
purchase price will be deemed to have been issued.
(2) If the Company in any manner issues any securities or obligations
directly or indirectly convertible into or exchangeable for shares of
Common Stock, then, for the purposes of this Section 7(c), (A) all
shares to which holders of such securities or obligations will thereby
be entitled upon conversion or exchange will be deemed issued as of the
date of issue of such securities or obligations, and (B) the aggregate
amount received or receivable by the Company in consideration for the
issue of such securities or obligations, plus the minimum aggregate
amount of additional consideration, if any, payable upon conversion or
exchange of such securities or obligations, will be deemed to be the
consideration actually received (as of the date of the issue of such
securities or obligations) for issuance of the total number of shares
issuable upon conversion or exchange of such securities or obligations,
except that (1) on the expiration or termination of any such right to
convert or exchange any such convertible or exchangeable securities
5
in respect of which any adjustments are made pursuant to this Section
7(c)(2), the Exercise Price in effect immediately prior to the time of
such redemption, expiration or other termination shall forthwith be
adjusted to such Exercise Price as would have been obtained had the
adjustments made upon the issue of such convertible or exchangeable
securities not been made, and (2) in the event that the exercise price,
purchase price, exchange price or ratio in respect of any convertible
or exchangeable security is increased or reduced, then for purposes of
this Section 7(c)(2) such convertible or exchangeable security will be
deemed to have expired or been terminated and a new convertible or
exchangeable security with the altered exercise price, purchase price
or exchange price or ratio will be deemed to have been issued.
(3) The consideration received by the Company for any shares of Common
Stock, or rights to acquire Common Stock, is deemed to be the proceeds
received for such shares or rights, excluding cash received on account
of accrued interest or accrued dividends and before deducting therefrom
any and all commissions and expenses paid or incurred by the Company
for any underwriting of, or otherwise in connection with, the issue of
such shares or rights.
(4) No adjustment of the Exercise Price or the Warrant Shares will be made
as a result of or in connection with the issuance of any shares of
Common Stock or options to purchase Common Stock issued in connection
with any duly authorized employee stock option plan, stock purchase
plan or restricted stock award plan of the Company.
(5) For the purposes of this Section 7(c), (1) the term "issue" or
"issuance" of shares or securities by the Company is deemed to include
any issuance, sale or other disposition of shares or securities of the
Company, including shares held in the treasury of the Company, (2) the
term "Common Stock" includes any capital stock of the Company, other
than preferred stock, with a fixed limit on dividends and a fixed
amount payable in the event of any liquidation, and (3) in no event
will the Exercise Price be increased, or the number of Warrant Shares
decreased, as a result of the provisions of this Section 7(c).
(d) No adjustment in the number of Warrant Shares, or in the
Exercise Price, is required unless such adjustment would require an increase or
decrease of at least 3% in the number of Warrant Shares or in the Exercise
Price, except that any adjustments which by reason of this Section 7(d) are not
required to be made will be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Exercise Price must be rounded to the nearest one hundredth of a
share or the nearest cent, as the case may be. Anything in this Section 7 to the
contrary notwithstanding, the Company is entitled, but not required, to make
such changes in the number of Warrant Shares or in the Exercise Price, in
addition to those required by this Section 7, as it in its discretion determines
to be advisable in order to ensure that any dividend or distribution in shares
of Common Stock, subdivision, reclassification or combination of shares of
Common Stock, issuance of rights, warrants or options to purchase Common Stock,
or distribution of shares of stock other than Common Stock, evidences of
indebtedness or assets (other than distributions of cash out of retained
earnings) or convertible or exchangeable securities hereafter made by the
Company to the holders of its Common Stock does not result in any tax to the
holders of Common Stock or securities convertible into Common Stock.
6
(e) Whenever the number of Warrant Shares or the Exercise Price
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, setting forth the number of Warrant Shares and the
Exercise Price after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made. In the
absence of manifest error, this computation will be final, binding and
conclusive on the Company and the Holder.
(f) In the event that at any time prior to the Expiration Date
and prior to exercise of the Warrant:
(1) the Company declares any distribution (other than a cash dividend or a
dividend payable in securities of the Company with respect to the
Common Stock); or
(2) the Company offers for subscription to the holders of the Common Stock
any additional shares of stock of any class or any other securities
convertible into Common Stock or any rights to subscribe thereto; or
(3) the Company declares any stock split, stock dividend, subdivision,
combination, or similar distribution with respect to the Common Stock,
regardless of the effect of any such event on the outstanding number of
shares of Common Stock; or
(4) the Company declares a dividend, other than a dividend payable in
shares of the Company's own Common Stock; or
(5) there is any capital change in the Company as set forth in Section
7(a)(4); or
(6) there is a voluntary or involuntary dissolution, liquidation or winding
up of the Company (other than in connection with a consolidation,
merger or sale of all or substantially all of its property, assets and
business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (or as soon
as practicable, if there is no record date, or if 20 days prior notice is
impracticable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company will close or a
record will be taken with respect to, such event. Such notice must also set
forth facts indicating the effect of such action (to the extent this effect is
known at the date of such notice) on the Exercise Price and the kind and amount
of the shares of stock or other securities or property deliverable upon exercise
of the Warrant.
(g) The form of Warrant Certificate need not be changed because
of any change in the number of Warrant Shares or the Exercise Price, and any
Warrant Certificate issued before or after such change may state the same number
of Warrant Shares and the same Exercise Price as stated in the Warrant
Certificates theretofore issued. The Company may, however, at any time, in its
sole discretion, make any change in the form of Warrant Certificate that it
deems appropriate and that does not affect the substance thereof, and any
Warrant
7
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
8. Conversion Rights. (a) In lieu of exercise of the Warrant, the
Warrant may, at the election of the Holder, be converted into the nearest whole
number of shares of Common Stock equal to: (1) the product of (A) the number of
shares of Common Stock then issuable upon the exercise of the Warrant and (B)
the excess, if any, of (i) the Current Market Price (as determined pursuant to
Section 11) on the date of conversion over (ii) the Exercise Price in effect on
the business day next preceding the date of conversion, divided by (2) the
Current Market Price on the date of conversion. The Holder shall pay any
applicable withholding taxes with respect to any such conversion.
(b) The conversion rights provided under this Section 8 may be
exercised in whole or in part and at any time and from time to time. In order to
exercise the conversion privilege, the Holder must surrender to the Company, at
its offices, this warrant certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Annex B. The Warrant shall be deemed
to have been converted immediately prior to the close of business on the day of
surrender of the Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company shall issue and shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock to which the
Holder is entitled as a result of the conversion.
9. Voluntary Adjustment by the Company. The Company may, at its option,
at any time reduce the then current Exercise Price to any amount deemed
appropriate by the Board of Directors of the Company or extend the Expiration
Date, or both.
10. Fractional Shares. Anything contained herein to the contrary
notwithstanding, the Company is not required to issue any fraction of a share of
Common Stock in connection with the exercise of the Warrant. Upon exercise of
the Warrant, the Company shall issue to the Holder the largest aggregate whole
number of shares of Common Stock called for thereby upon receipt of the
aggregate Exercise Price and shall pay a sum in cash equal to the remaining
fraction of a share of Common Stock, multiplied by the Current Market Price (as
determined pursuant to Section 11) as of the last business day preceding the
date on which the Warrant is presented for exercise.
11. Determination of Current Market Price. (a) As used herein, "Current
Market Price" means, as of each date of determination, the following:
(1) if there is a public market for the Common Stock, the average of the
daily market price per share of Common Stock for 10 consecutive
business days before the date of determination and 10 consecutive
business days after that date; and
(2) if there is no such public market, the Appraised Value Per Share.
(b) The daily market price for each Business Day is as follows:
(1) the last sale price on that Business Day on the principal stock
exchange on which the Common Stock is then listed or admitted to
trading;
8
(2) if no sale takes place on that Business Day on any that exchange, the
average of the last reported closing bid and asked prices on that
Business Day as officially quoted on that exchange;
(3) if the Common Stock is not then listed or admitted to trading on any
stock exchange, the average of the last reported closing bid and asked
prices on that Business Day in the over-the-counter market, as
furnished by the NASD's Automatic Quotation System or the National
Quotation Bureau, Inc.;
(4) if neither NASD's Automatic Quotation System nor the National Quotation
Bureau, Inc. is at the time engaged in the business of reporting such
prices, as furnished by any similar Person then engaged in that
business; or
(5) if there is no such Person, as furnished by any member of the NASD
selected by the Holder and the Company or, if they cannot agree upon
such selection, as selected by two such members of the NASD, one of
which is selected by the Holder and one of which is selected by the
Company.
(c) As used in this warrant certificate, "Appraised Value Per
Share" means, as of each date of determination, the fair saleable value of the
Common Stock as of the last day of the most recent fiscal month ending prior to
such date divided by the number of Fully Diluted Outstanding shares of Common
Stock. The Appraised Value Per Share must be made by an investment banking firm
of nationally recognized standing selected jointly by the Holder and the
Company. If the Holder and the Company are unable to agree upon an investment
banking firm, then the Holder and the Company shall each choose one such
investment banking firm and the respective chosen firms must agree on another
investment banking firm, which must make the determination. The Company shall
retain, at its sole cost, the investment banking firm responsible for
determining the Appraised Value Per Share. The Appraised Value Per Share must
(1) be determined on a consolidated basis without giving effect to any discount
for (A) minority interest or (B) any lack of liquidity of the Common Stock or,
if applicable, the Company not having any class of equity registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (2) must
be based on the sale of the Company in an arms'-length sale between a willing
buyer and a willing seller with neither acting under compulsion.
12. Tax. The issuance of any shares or other securities upon the
exercise of the Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, will be without charge to the
Holder for any tax or other charge in respect of such issuance. The Company is
not, however, required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company is not required to issue or deliver any
such certificate unless and until the person or persons requesting the issue
thereof have paid to the Company the amount of such tax or have established to
the satisfaction of the Company that such tax has been paid.
13. Legend. Unless registered pursuant to the provisions of the
registration rights agreement between TeraComm Research, Inc. and the Company
dated the date of this warrant certificate, the Warrant Shares issued on
exercise of the Warrants will be subject to a stop
9
transfer order and the certificate or certificates representing the Warrant
Shares must bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or registered
or qualified under applicable state securities laws. TeraComm Research,
Inc. (the "Company") is not required to give effect to any transfer of
these securities unless (1) there is an effective registration
statement under the Act with respect to these securities and these
securities are registered or qualified under applicable state
securities laws, or (2) the Company is provided with an opinion of
counsel reasonably acceptable to the Company to the effect that such
transfer may be made without registration under the Act and applicable
state securities laws.
14. No Rights as Stockholder. The Holder does not have solely on
account of that status any rights of a stockholder of the Company, either at law
or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this warrant certificate.
15. Notices. Every notice or other communication required or
contemplated by this Warrant must be in writing and sent by one of the following
methods: (1) personal delivery, in which case delivery is deemed to occur the
day of delivery; (2) transmission by telecopy with acknowledgement of receipt,
in which case delivery is deemed to occur the day of transmission; (3) certified
or registered mail, postage prepaid, return receipt requested, in which case
delivery is deemed to occur the day it is officially recorded as delivered to
the intended recipient; or (4) next-day delivery to a U.S. address by recognized
overnight delivery service such as Federal Express, in which case delivery is
deemed to occur the day of delivery. In each case, a notice or other
communication sent to a party must be directed to the coordinates for that party
set forth below, or to other coordinates designated by that party by written
notice:
if to the Holder, at its last known address appearing on the books of
the Company maintained for such purpose; and
if to the Company at:
Atlantic Technology Ventures, Inc.
150 Broadway
Suite 1009
New York, NY 10038
Attention: Frederic P. Zotos, President
16. Governing Law. This warrant certificate is governed by the laws of
the State of New York without regard to principles of conflict of laws.
10
The Company is executing this warrant certificate on May 12, 2000.
ATLANTIC TECHNOLOGY VENTURES, INC.
By:________________________________
A. Joseph Rudick
Chief Executive Officer
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Annex A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the Warrant owned
by the undersigned pursuant to the accompanying Warrant Certificate for, and to
purchase thereunder, ______ shares of common stock, par value $0.001 per share,
of Atlantic Technology Ventures, Inc., and herewith makes payment of the
Exercise Price (as defined in the Warrant Certificate) of those shares in full
as provided in the Warrant Certificate.
_______________________________
Print Name
________________________________
Signature
Address of Holder:
________________________________
________________________________
________________________________
________________________________
Annex B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to
Section 8 of the Warrant Certificate accompanying this Notice of Conversion, the
Warrant owned by the undersigned pursuant to the accompanying Warrant
Certificate into shares of common, par value $.01, of the Company (the "Common
Stock").
The number of shares of Common Stock to be received by the undersigned
is to be calculated in accordance with the provisions of Section 8 of the
accompanying Warrant Certificate.
_______________________________
Print Name
________________________________
Signature
Address of Holder:
________________________________
________________________________
________________________________
________________________________
Exhibit 10.4
STOCKHOLDERS AGREEMENT
This stockholders agreement is dated May 12, 2000, and is between
TERACOMM RESEARCH, INC., a Delaware corporation ("TeraComm"), each of the
stockholders of TeraComm listed on Exhibit A (each a "Common Stockholder"), and
ATLANTIC TECHNOLOGY VENTURES, INC. , a Delaware corporation ("Atlantic";
together with all other holders of Preferred Stock, the "Preferred
Stockholders"; and the Preferred Stockholders together with the Common
Stockholders, each a "Stockholder").
The Common Stockholders each hold shares of common stock, par value
$0.001, of TeraComm (the "Common Stock").
Atlantic and TeraComm are concurrently with execution and delivery of
this agreement entering into a stock purchase agreement (the "Stock Purchase
Agreement") pursuant to which TeraComm is issuing to Atlantic 1,400 shares of
Series A preferred stock, par value $0.001 per share, of TeraComm (the
"Preferred Stock"; together with the Common Stock, the "Capital Stock").
TeraComm and each of the Stockholders desire, for their mutual benefit
and protection, to enter into this agreement to set forth their respective
rights and obligations with respect to their shares of Capital Stock.
TeraComm and the Stockholders therefore agree as follows:
ARTICLE 1
CORPORATE GOVERNANCE AND MANAGEMENT
1.1 Voting. The Stockholders hold all shares of Capital Stock
registered in their respective names or beneficially owned by them as of the
date of this agreement (and any shares of Capital Stock legally or beneficially
acquired by each of them after the date of this agreement) subject to, and shall
vote those shares of Capital Stock in accordance with, the provisions of this
agreement.
1.2 Election of Directors. (a) Immediately following execution and
deliver of this agreement, and any time thereafter TeraComm's stockholders act
to elect members of TeraComm's board of directors, the Stockholders shall take
such actions (whether by vote in person, by proxy or by written consent)
required to establish at five the number of members of TeraComm's board of
directors, and to elect as those members two individuals designated by the
Preferred Stockholders and three individuals designated by the Common
Stockholders, except that if at anytime the Preferred Stockholders own fewer
than 1,400 shares of Preferred Stock, they will only have the right to designate
only one member of TeraComm's board of directors.
(b) No designee of the Preferred Stockholders on TeraComm's board
of directors may be removed without the consent of the Preferred Stockholders.
If the Preferred Stockholders notify the Common Stockholders that they wish to
have removed a designee of the Preferred Stockholders on TeraComm's board of
directors, the Common Stockholders shall take such
actions, or cause their designees on TeraComm's board of directors to cause
TeraComm to take such actions, as are required to remove that designee. In the
event that a member of TeraComm's board of directors resigns, is removed or is
otherwise unable to serve in that capacity, the Stockholder or Stockholders
entitled to designate that member shall designate a replacement and the
Stockholders shall take such actions, or cause their designees on TeraComm's
board of directors to cause TeraComm to take such actions, as are required to
elect the replacement member.
(c) Atlantic hereby designates A. Joseph Rudick and Frederic P.
Zotos as the initial designees of the Preferred Stockholders on TeraComm's board
of directors, and the Common Stockholders designate Kenneth A. Puzey, Thomas G.
Ference and Nancy Hamilton as their initial designees on TeraComm's board of
directors, to be elected to TeraComm's board of directors immediately following
execution and deliver of this agreement.
ARTICLE 2
TRANSFER OF SHARES OF CAPITAL STOCK
2.1 Restrictions on Transfer. (a) No Stockholder may sell, assign,
exchange, give, pledge, mortgage or otherwise transfer (collectively,
"transfer"; the act of so doing, a "transfer") any of the shares of Capital
Stock currently owned by it, or any other shares of Capital Stock that it
acquires, or any right or interest therein, whether voluntarily or
involuntarily, by operation of law or otherwise, except in accordance with the
terms of this agreement and in compliance with any and all applicable Federal
and state securities laws. Any such purported transfer in violation of this
agreement will be void.
(b) If a Stockholder transfers its shares of Capital Stock to a
Person that is not a Stockholder, that transfer will only be valid if the Person
acquiring those shares agrees in writing, prior to the transfer, to be bound by
the terms of this agreement to the same extent that the transferring Stockholder
was bound by this agreement immediately prior to the transfer. If that Person so
agrees, then upon completion of the transfer it will become a party to this
agreement.
2.2 Transfers to Related Transferees. Each Stockholder may freely
transfer Shares to any Related Transferee.
2.3 Right of First Refusal. (a) Subject to Section 2.1(b), if at any
time any Common Stockholder proposes to transfer any of its shares of Common
Stock to any Person other than the Preferred Stockholders (that Common
Stockholder, a "Selling Stockholder"), the Selling Stockholder shall give
written notice to the Preferred Stockholders describing fully and accurately the
proposed transfer, including the number of shares of Common Stock it proposes to
transfer, the identity of the proposed transferee (the "Outside Party"), and the
proposed price and payment terms of the proposed transfer (that notice, the
"Transfer Notice"). The payment terms of the contemplated transfer to the
Outside Party from the Selling Stockholder must be expressed in terms of cash,
cash equivalents (such as certificates of deposit, shares of stock in
publicly-traded companies, and the like) or a promissory note of the Outside
Party payable on one or more
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dates specified in the Transfer Notice. The Outside Party's offer must be a bona
fide written offer of a Person other than TeraComm.
(b) At any time within the 10-day period immediately following
the Preferred Stockholders' receipt of the Transfer Notice, the Preferred
Stockholders may by written notice to the Selling Stockholder elect to purchase
all the shares of Common Stock subject to the Transfer Notice (the "Refusal
Shares") at the price per share set forth in the Transfer Notice (this right,
the "Right of First Refusal").
(c) The closing of any purchase of the Refusal Shares by the
Preferred Stockholders pursuant to the Right of First Refusal must be held at
TeraComm's offices on a date and at a time designated by the Preferred
Stockholders in their notice of exercise of the Right of First Refusal, but the
closing must be held no later than 60 days after delivery of the Transfer
Notice.
(d) If the Preferred Stockholders fail to exercise timely the
Right of First Refusal upon the terms set forth in the Transfer Notice, or elect
to purchase the Refusal Shares, but fail to close the purchases of the Refusal
Shares within the period specified therefor in Section 2.3(c), then the Selling
Stockholder may not later than 120 days following delivery of the Transfer
Notice transfer the Refusal Shares on the terms described in the Transfer
Notice. Any proposed transfer on terms materially different to those described
in the Transfer Notice, as well as any proposed transfer by the Selling
Stockholder after the expiration of the 120-day period, will again be subject to
the Right of First Refusal, and in connection with any such proposed transfer
the Selling Stockholder must comply with the procedure described in this Section
2.3.
(e) At any closing under this Section 2.3 any Selling Stockholder
effecting a transfer of shares of Common Stock shall deliver, against wire
transfer of payment for those shares to an account designated in writing by that
Selling Stockholder, certificates representing those shares duly endorsed in
blank or accompanied by appropriate duly-executed assignments or stock powers
for transfer.
2.4 Involuntary Transfer. Without limiting the effect of Sections 2.1
and 2.2, in the case of any purported transfer of title to or beneficial
ownership of any shares of Capital Stock upon default, foreclosure, forfeit,
court order, or otherwise than by a voluntary decision on the part of a
Stockholder (an "Involuntary Transfer"), that Stockholder (or its legal
representatives) shall promptly (but in no event later than two business days
after that Involuntary Transfer) furnish written notice to TeraComm indicating
that the Involuntary Transfer has occurred, specifying the name of the Person to
whom the shares have been transferred, and giving a detailed description of the
circumstances giving rise to, and stating the legal basis for, the Involuntary
Transfer.
2.5 Improper Transfer. Any attempt to transfer any shares of Capital
Stock in violation of this agreement will be null and void, and TeraComm shall
not give any effect to such attempted transfer in its stock records.
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ARTICLE 3
RIGHT OF PARTICIPATION
3.1 Right of Participation. Subject to the terms of this Section 3.1,
TeraComm hereby grants to each Stockholder the right to purchase that
Stockholder's Pro Rata Portion of any New Securities that TeraComm may, from
time to time, propose to sell and issue. A Stockholder's "Pro Rata Portion" for
purposes of this Section 2.1 is the ratio of (1) the sum of the number of shares
of Common Stock then held by that Stockholder and the number of shares of Common
Stock then issuable upon conversion of outstanding securities convertible into
or exercisable for shares of Common Stock (including shares of Preferred Stock)
held by that Stockholder bears to (2) the sum of the total number of shares of
Common Stock then outstanding and the number of shares of Common Stock then
issuable upon conversion of all outstanding securities convertible into or
exercisable for shares of Common Stock (including shares of Preferred Stock).
3.2 Definition of New Securities. (a) Subject to Section 3.2(b), "New
Securities" means any security (including but not limited to shares of Common
Stock or Preferred Stock, whether authorized or not, and rights, options or
warrants to purchase shares of Common Stock or Preferred Stock, and securities
of any type whatsoever that are, or may become, convertible into shares of
Common Stock or Preferred Stock) that TeraComm issues after the date of this
Agreement.
(b) The term New Securities does not include the following:
(1) securities offered to the public generally pursuant to a registration
statement effective under the Securities Act;
(2) securities issued pursuant to the acquisition of another business by
TeraComm by merger, purchase of all or substantially all of the assets
or shares of the other business or other reorganization whereby
TeraComm or its stockholders own not less than a majority of the voting
power of the surviving or successor business;
(3) any shares of Common Stock or options to purchase Common Stock
(including any shares of Common Stock issued upon exercise of any such
options) issued to officers, employees or directors of, or consultants
to, TeraComm pursuant to any agreement, plan or arrangement approved by
the TeraComm's board of directors;
(4) any shares of Common Stock issued to any lender, customer or vendor of
TeraComm, on condition that any such transaction or arrangement is
approved by TeraComm's board of directors;
(5) securities issued by TeraComm in connection with any stock split, stock
dividend or recapitalization; and
(6) securities issued by TeraComm upon conversion or exercise of other
securities.
3.3 Notice of Right. If TeraComm proposes to undertake an issuance of
New Securities, it shall give each Stockholder written notice of its intention,
describing the type of New Securities and the price and general terms upon which
TeraComm proposes to issue them.
4
If a Stockholder wishes to purchase any New Securities, it must within 15 days
of its receipt of any such notice provide TeraComm with a written notice stating
that it wishes to purchase New Securities for the price and upon the terms
specified in the notice and stating how many New Securities it wishes to
purchase (up to the amount referred to in Section 3.1).
3.4 Exercise of Right. If any Stockholder exercises its right under
Section 3.1, the closing of the purchase by that Stockholder of the New
Securities with respect to which it has exercised its right must take place
within 30 days after the Stockholder gives notice of its exercise. This period
of time will be extended if necessary to permit TeraComm or that Stockholder to
comply with applicable laws and regulations. Upon any exercise of a
Stockholder's right under Section 3.1, TeraComm and that Stockholder must use
commercially reasonable efforts to consummate the purchase contemplated thereby
and shall use all reasonable efforts to secure any approvals required in
connection therewith.
3.5 Lapse and Reinstatement of Right. (a) In the event any Stockholder
fails to or elects not to exercise its right under Section 3.1 within the 15-day
period specified in Section 3.3, the remaining Stockholders that have elected to
purchase their pro rata portions will be entitled to purchase any New Securities
that remain unpurchased. Each such Stockholder will have the right to purchase
those New Securities in the proportion that the sum of the number of shares of
Common Stock then held by that Stockholder and the number of shares of Common
Stock then issuable upon conversion of outstanding securities convertible into
or exercisable for shares of Common Stock (including shares of Preferred Stock)
held by that Stockholder (prior to receipt of the written notice of TeraComm
referred to in Section ) bears to the sum of the number of shares of Common
Stock then held by all Stockholders also electing to purchase the remaining New
Securities and the number of shares of Common Stock then issuable upon
conversion of outstanding securities convertible into or exercisable for shares
of Common Stock (including shares of Preferred Stock) held by all Stockholders
also electing to purchase the remaining New Securities. All such purchases must
be made within the period specified for closing specified in Section 3.4.
(b) If after the 90-day period specified in Section 3.4 any New
Securities remain unpurchased, TeraComm may within 90 days sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby will be
closed, if at all, within 60 days from the date of that agreement) to sell those
New Securities at the price and upon the terms specified in the notice delivered
by TeraComm pursuant to Section 3.3. If TeraComm has not sold the New Securities
or entered into an agreement to sell the New Securities within that 90-day
period (or sold and issued New Securities in accordance with the foregoing
within 60 days of the date of any agreement to sell those New Securities),
TeraComm may not thereafter issue or sell any New Securities without first
offering those New Securities to the Stockholders in the manner provided in this
Article 3. Any offer by TeraComm of New Securities in addition to those
specified in the notice described in Section 3.3, whether on the same or
different terms as are specified therein, must comply with the terms of this
Article 3.
5
ARTICLE 4
MISCELLANEOUS
4.1 Consent of Spouse. The spouse of each Stockholder who is an
individual and married has executed a Consent of Spouse in the form of Exhibit
B, which that Stockholder is delivering to Teracomm with this agreement..
4.2 Stock Dividends. If during the term of this agreement there is any
stock dividend, stock split or similar other change in the character or amount
of any of the outstanding shares of Capital Stock, then any and all new,
substituted or additional securities to which the Stockholders are entitled by
reason of their ownership of shares of Capital Stock will immediately be subject
or entitled to the terms of this agreement with the same force and effect as the
shares of Capital Stock currently subject to this agreement without any further
action by the parties.
4.3 Subsequent Issuances and Purchases. All shares of Capital Stock
that are issued to or purchased by any Stockholder after the date of this
agreement, including without limitation any obtained by exercise of any warrant
granted hereafter, or any stock option, will become immediately subject or
entitled to the terms of this agreement with the same force and effect as the
shares of Capital Stock currently subject to this agreement without further
action by the parties.
4.4 Restrictive Legends. Except as otherwise provided in Section
4.4(c), TeraComm shall cause each certificate representing shares of Capital
Stock held by a Stockholder or a transferee to be stamped or otherwise imprinted
with a legend in substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under applicable state securities laws.
TeraComm Research, Inc. ("TeraComm") is not required to give effect to
any transfer of these securities unless (a) there is an effective
registration statement under the Securities Act with respect to these
securities and these securities are registered or qualified under
applicable state securities laws, or (b) TeraComm is provided with an
opinion of counsel reasonably acceptable to TeraComm to the effect that
such transfer may be made without registration under the Securities Act
and applicable state securities laws.
(b) TeraComm shall cause each certificate representing shares of
Capital Stock held by a Stockholder or a transferee to include a legend in
substantially the following form:
The securities represented by this certificate are subject to
restrictions on transfer and other terms contained in a stockholders
agreement dated May 12, 2000. You may obtain a copy of this agreement
from TeraComm at its principal executive offices.
(c) The legend requirements of Section 4.4(a) terminate as to any
shares of Capital Stock (1) when and so long as those shares have been
effectively registered under the Securities Act of 1933 as amended (the
"Securities Act"), and disposed of pursuant thereto or
6
(2) when TeraComm has determined that those shares may be transferred without
registration thereof under the Securities Act and that such legend may be
removed.
4.5 Termination. The term of this agreement expires upon (1) the
written agreement of Atlantic and a majority of the then-outstanding shares held
by the Common Stockholders or (2) immediately prior to the occurrence of a
Qualified Public Offering (as defined in TeraComm's certificate of
incorporation), whichever occurs earlier.
4.6 Governing Law. Except where the mandatory law of Delaware applies,
this agreement is governed by the laws of the State of New York, without giving
effect to principles of conflict of laws.
4.7 Notices. Every notice or other communication required or
contemplated by this agreement must be in writing and sent by one of the
following methods: (1) personal delivery, in which case delivery is deemed to
occur the day of delivery; (2) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded by the U.S. Postal Service as delivered to the intended
recipient; or (3) next-day delivery to a U.S. address by recognized overnight
delivery service such as Federal Express, in which case delivery is deemed to
occur upon receipt. In each case, a notice or other communication sent to a
Stockholder must be directed to the address for that Stockholder as recorded on
TeraComm's books and records of TeraComm, and a notice or other communication
sent to TeraComm must be directed to the address set forth below:
TeraComm Research, Inc.
P.O. Box 163
Essex Junction, VT 05453
Attention: Kenneth A. Puzey, President
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway
Suite 2600
Denver, CO 80202
Attention: Jack Lewis, Esq.
4.8 Severability. If any provision of this agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this agreement will remain in full force and effect. Any provision of this
agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
4.9 Definitions. As used in this agreement, the following terms have
the following meanings:
"Affiliate" means, with respect to any given Person, any other Person
at the time directly or indirectly controlling, controlled by or under common
control with that Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or
7
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Person" means any natural person, a sole proprietorship, a
corporation, a partnership, a limited liability company, a joint venture, an
association, a trust, or any other entity or organization, including a
government entity.
"Related Transferee" means (1) with respect to any Stockholder who is
an individual, that Stockholder's spouse, any adult lineal descendants, the
adult spouse of any adult lineal descendant, and any trust for the benefit of
any minor or adult lineal descendants, and (2) with respect to any Stockholder
that is not an individual, any Affiliate of that Stockholder.
4.10 Amendment. This agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
4.11 Entire Agreement. This agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties.
4.12 Counterparts. This agreement may be executed in several
counterparts, each of which is an original and all of which together constitute
one and the same instrument.
The undersigned are executing this agreement on the date stated in the
introductory clause.
TERACOMM RESEARCH, INC.
By:___________________________
Kenneth A. Puzey
President
8
COUNTERPART SIGNATURE PAGE
TO
STOCKHOLDERS AGREEMENT
(All joint owners to sign)
STOCKHOLDER:
______________________________________________
Print Name
______________________________________________
Signature
STOCKHOLDER:
______________________________________________
Print Name
______________________________________________
Signature
Exhibit A
STOCKHOLDERS
Kennth A. Puzey
Thomas G. Ference
David L. Simon
Terry Allen
John M. Fife
David G. Weaver
Harvey Bordett
Donna M. Kaylor
Robert E. Nary
Wayne K. Higashi
Linda A. Meloro
Linda Pellegrino
Brian Slepian
Stephen C. Shear
Michael L. Edwards
Curtis B. Prochowski
Thomas S. Staron, Jr.
Mathew P. & Jennifer Haynos
Susan E. Murley
Jonathan H. Fay (custodians: Jon Fay
and Elaine Ploof)
Brian R. Kessler
Jed H. Rankin
Mark Staron
William D. Surdock
Exhibit B
CONSENT OF SPOUSE
I am the spouse of one of the stockholders of TeraComm Research, Inc.
("TeraComm"), and I hereby agree as follows:
1. I consent to my spouse's signing the agreement among TeraComm
stockholders (that agreement, the "Stockholders Agreement").
2. I acknowledge that my spouse's interest in TeraComm shares is a
business interest that is subject to the sole management and control of my
spouse.
3. I agree to be bound by the terms of the Stockholders Agreement and
agree that it applies to my community property interest, if any, in my spouse's
TeraComm shares.
5. I acknowledge that TeraComm has recommended that I obtain separate
legal counsel before signing this consent, and that I have considered this
recommendation prior to signing this consent.
6. I specifically consent to the provisions of the Stockholders
Agreement that impose restrictions on my spouse's transfer of his or her
TeraComm shares.
Effective Date: Print Name: Signature:
- --------------- ----------- ---------
May 12, 2000 ________________________ ____________________________
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
This registration rights agreement is dated May 12, 2000, and is
between TERACOMM RESEARCH, INC., a Delaware corporation ("TeraComm"), and
ATLANTIC TECHNOLOGY VENTURES, INC., a Delaware corporation ("Atlantic").
Pursuant to a stock purchase agreement dated the date hereof between
TeraComm and Atlantic, TeraComm is issuing to Atlantic 1,400 shares of its
Series A preferred stock, par value $0.001 per share ("Series A Preferred
Stock"; those shares, the "Shares"). The Shares are being issued without being
registered under the Securities Act, as they are being issued in reliance upon
an exemption from registration. TeraComm and Atlantic wish to specify Atlantic's
rights in connection with public offerings and sales of those shares.
The parties therefore agree as follows:
1. Definitions. As used in this agreement, the following terms have the
following meanings:
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in the State of Vermont are
authorized by law, regulation or executive order to close.
"Common Stock" means TeraComm's common stock, par value $0.001 per
share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any similar successor federal statute), and the rules and regulations
thereunder, as in effect from time to time.
"Holder" means Atlantic and its successors, assigns and transferees
(subject to Section 13). For purposes of this agreement, TeraComm may, subject
to Section 13, deem the registered holder of a Registrable Security to be the
Holder thereof, except that the beneficial owner of any Registrable Securities
held in "street name" will be deemed to be the Holder thereof.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, government or
agency or political subdivision thereof or other entity.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by a prospectus supplement with respect to
the terms of the offering of any portion of the Registrable Securities covered
by that Registration Statement and by all other amendments and supplements to
the prospectus, including post-effective amendments, and all material
incorporated by reference in such prospectus.
"Registrable Securities" means (1) any shares of Common Stock issued or
issuable upon conversion of the Shares, and (2) any shares of Common Stock
issued as, or issued upon the conversion or exercise of any warrant, right or
other convertible security that is issued as, a dividend or other distribution
with respect to, or in exchange for or in replacement of, any shares of Common
Stock issued or issuable upon conversion of the Shares.
"Registration Statement" means any registration statement covering any
of the Registrable Securities pursuant to the provisions of this agreement,
including the Prospectus included therein, all amendments and supplements to
that Registration Statement, including post-effective amendments, all exhibits
and all material incorporated by reference in that Registration Statement.
"Reporting Event" means the consummation of TeraComm's first
firm-commitment underwritten public offering of Common Stock.
"SEC" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended (or any
similar successor federal statute), and the rules and regulations thereunder as
in effect from time to time.
"Underwritten Offering" means an offering that is registered under the
Securities Act in which securities of TeraComm are sold to an underwriter for
reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled to the
benefits of this agreement are the Registrable Securities but, with respect to
any particular Registrable Security, only so long as that security continues to
be a Restricted Security. A Registrable Security that has ceased to be a
Registrable Security cannot thereafter become a Registrable Security. As used
herein, a "Restricted Security" is a Registrable Security that has not been
effectively registered under the Securities Act and distributed in accordance
with an effective Registration Statement and that has not been distributed by a
Holder pursuant to Rule 144, Rule 903 or Rule 904, unless, in the case of a
Registrable Security distributed pursuant to Rule 903 or Rule 904, any
applicable restricted period has not expired or the SEC or its staff has taken
the position in a published release, ruling or no-action letter that securities
distributed under Rule 903 or 904 are ineligible for resale in the United States
under Section 4(1) of the Securities Act notwithstanding expiration of the
applicable restricted period.
3. Demand Registration. Upon the written request of Holders owning at
least a majority of the Registrable Securities and provided that there is then
no effective Registration Statement in effect with respect to all the
Registrable Securities, TeraComm shall in accordance with the terms of this
agreement as promptly as possible register under the Securities Act the
Registrable Securities that the Holders request be so registered, on condition
that the Registrable Securities that the requesting Holders request be so
registered represent not less than 25% of the Registrable Securities owned by
the requesting Holders or have a value of not less than $5 million, based on the
Current Market Price. As used in this Agreement, "Current Market Price" means
the current market price of a share of TeraComm common stock as determined in
good faith by the TeraComm's board of directors or, if TeraComm's board of
directors is unable to so determine, by a nationally-recognized independent
investment banking firm selected by Atlantic and TeraComm or, in the event
Atlantic and TeraComm are unable to agree upon the selection of an investment
banking firm, by a nationally-recognized independent investment banking firm
selected by a nationally-recognized independent investment banking firm selected
by Atlantic and one selected by TeraComm.
2
(b) Upon receipt of any request for registration pursuant to
Section 3(a) from any Holders, TeraComm shall promptly give written notice of
that request to all other Holders. TeraComm shall include in the requested
registration all Registrable Securities requested to be included by those of the
other Holders who make that request by written notice to TeraComm delivered
within 10 Business Days of delivery of TeraComm's notice. If TeraComm receives a
request for inclusion in the registration of the Registrable Securities of
additional Holders, it shall promptly so inform the Holders who made the initial
request for registration.
(c) A Holder or Holders requesting a registration pursuant to
this Section 3 may, at any time prior to the effective date of the Registration
Statement relating to that registration, revoke that request by providing a
written notice to TeraComm revoking that request. If a Holder or Holders revoke
any demand for registration or that demand registration otherwise fails to
become effective as a result of any action or inaction by the Holder or Holders,
that Holder or those Holders, at their option, shall either pay all Registration
Expenses with respect to that revoked demand or count that revoked demand as the
completed demand for registration to which that Holder or those Holders are
entitled pursuant to this Section 3.
(d) TeraComm is not required to register the Registrable
Securities prior to the date six months after the Reporting Event or during the
90-day period following the completion of any Underwritten Offering. Atlantic
may not demand more than two registrations pursuant to this Section 3.
(e) Subject to Section 3(c), TeraComm shall pay all Registration
Expenses with respect to any demand registration pursuant to this Section 3.
(f) TeraComm shall use its best efforts to (1) cause the
Registration Statement relating to any demand registration pursuant to this
Section 3 to become effective under the Securities Act as promptly as
practicable, (2) thereafter keep that Registration Statement effective
continuously for the period specified in Section 3(g), and (3) prevent the
happening of any event of the kind described in Sections 6(a)(2)(D) and (E).
TeraComm may initiate or engage in negotiations with respect to, or consummate,
any transaction (whether or not material to TeraComm), even if the effect
thereof would be cause the happening of an event described in Section
6(a)(2)(F).
(g) A demand registration requested pursuant to this Section 3
will not be deemed to have been effected or complied with unless the
Registration Statement relating thereto has become effective under the
Securities Act and remain continuously effective (except as otherwise permitted
under this agreement) for a period ending on the earlier of the following dates:
(1) the date 120 days after the effective date of that Registration
Statement; and
(2) the date on which all Registrable Securities covered by that
Registration Statement have been sold and the distribution contemplated
thereby has been completed.
(h) TeraComm and any holder of TeraComm's securities that has
registration rights (other than the Holders) may include its securities in any
demand registration effected pursuant to this Section 3, except that if the
managing underwriter or underwriters of any
3
Underwritten Offering contemplated in connection with that registration advise
the Holders in writing that the total amount or kind of securities to be include
in that Underwritten Offering is sufficiently large to materially adversely
affect the success of the Underwritten Offering, then TeraComm shall reduce the
amount or kind of securities to be offered for the account of TeraComm or any
other holder to the extent necessary to reduce the total amount or kind of
securities to be included in the contemplated Underwritten Offering to the
amount or kind recommended by the managing underwriter or underwriters.
(i) TeraComm may elect to effect any registration under this
Section 3 on a form permitted by the rules and regulations of the SEC, except
that TeraComm shall use Form S-3 if TeraComm is eligible to use that form.
(j) When in the opinion of counsel for TeraComm registration of
the Registrable Securities is not required by the Securities Act and other
applicable securities laws in connection with a proposed sale of Registrable
Securities, the Holders may not request a demand registration pursuant to this
Section 3 in connection with that proposed sale and TeraComm shall promptly
provide to the transfer agent and the Holder's or Holders' broker or brokers in
connection with any sale transaction an opinion of counsel for TeraComm to the
effect set forth above, on condition that the Holder or Holders provide
representation letters in customary form to counsel for TeraComm rendering that
opinion.
4. Piggyback Registration. If TeraComm at any time proposes to file a
registration statement with respect to any class of its equity securities,
whether for its own account (other than a registration statement on Form S-4 or
S-8, or any successor or substantially similar form, or a registration statement
covering (A) an employee stock option, stock purchase or compensation plan or
securities issued or issuable pursuant to any such plan, or (B) a dividend
reinvestment plan) or for the account of one or more holders of securities of
TeraComm (other than the Holders) pursuant to demand registration rights granted
by TeraComm (each such holder, a "Requesting Securityholder"), then TeraComm
shall in each case give written notice of the proposed filing to all Holders at
least 20 Business Days before the anticipated filing date of the registration
statement by TeraComm, which notice must offer to all Holders the opportunity to
have any or all of the Registrable Securities included in that registration
statement, subject to the terms of this agreement. Each Holder that wishes to
have any of its Registrable Securities registered under this Section 4 must so
advise TeraComm within 10 Business Days after the date of its receipt of that
notice, specifying how many of its Registrable Securities it wishes to have so
registered, and subject to Section 4(b) TeraComm shall include in that
Registration Statement all Registrable Securities that Holders have requested be
included therein, except that in the event that Registration Statement is for an
Underwritten Offering, the Holders included therein must join in the
underwriting on the same terms and conditions as TeraComm or the Requesting
Securityholders (except that the Holders will not be required to give any
representations relating to TeraComm in their capacity as the Holders), and
shall execute any underwriting agreement, "lock-up" letters or other customary
agreements or documents executed by TeraComm or the Requesting Securityholders
in connection with that Underwritten Offering.
(b) If the managing underwriter or underwriters of any such
proposed public offering advise TeraComm in writing that the total amount or
kind of securities that the Holders, TeraComm, any Requesting Securityholders
and any other Persons intended to be included in
4
that proposed public offering is sufficiently large to materially adversely
affect the success of that proposed public offering, then TeraComm may, upon
written notice to all Holders, reduce pro rata the number of Registrable
Securities and the amount or kind of securities to be offered for the accounts
of any other Persons requesting registration of securities pursuant to rights
similar to the rights of the Holders under this Section 4 to the extent
necessary to reduce the total amount or kind of securities to be included in
that proposed public offering to the amount or kind recommended by that managing
underwriter or underwriters before the securities offered by TeraComm or any
Requesting Securityholder are so reduced.
(c) Neither the giving of notice by TeraComm nor any request by
the Holders to register Registrable Securities pursuant to Section 4(a) will in
any way obligate TeraComm to file a Registration Statement with the SEC.
TeraComm may at any time prior to its effective date determine not to offer the
securities to which a Registration Statement relates or withdraw that
Registration Statement from the SEC, all without incurring any liability to the
Holders.
(d) When in the opinion of counsel for TeraComm registration of
the Registrable Securities is not required by the Securities Act and other
applicable securities laws in connection with a proposed sale of Registrable
Securities, the Holders may not request a piggyback registration pursuant to
this Section 4 in connection with that proposed sale and TeraComm shall promptly
provide to the transfer agent and the Holder's or Holders' broker or brokers in
connection with any sale transaction an opinion of counsel for TeraComm to the
effect set forth above, on condition that the Holder or Holders provide
representation letters in customary form to counsel for TeraComm rendering that
opinion.
5. Limitations on Subsequent Registration Rights. TeraComm may not
without the consent of the Holders owning a majority of the Registrable
Securities enter into with any Person any other agreement granting registration
rights that are, in the reasonable judgment of Holders owning a majority of the
Registrable Securities, superior to the rights granted in this Agreement, unless
TeraComm grants the Holders rights comparable to those that it proposes to grant
in that other agreement..
6. Registration Procedures and Other Agreements. (a) In connection with
TeraComm's registration obligations pursuant to Section 3 and, to the extent
applicable thereto, Section 4, TeraComm shall do the following:
(1) prepare and file with the SEC a new Registration Statement or such
amendments and post-effective amendments to an existing Registration
Statement as may be necessary to keep that Registration Statement
effective, except that no Registration Statement need remain in effect
after all Registrable Securities covered by that Registration Statement
have been sold and distributed as contemplated by that Registration
Statement;
(2) notify each selling Holder promptly of the following:
(A) when a new Registration Statement, amendment thereto, Prospectus
or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any new Registration Statement
or post-effective amendment, when it has become effective;
5
(B) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional
information;
(C) of the issuance by the SEC of any comments with respect to any
filing;
(D) of any stop order suspending the effectiveness of any
Registration Statement or the initiation or threatening of any
proceedings for that purpose;
(E) of any suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(F) of the happening of any event that makes any statement of a
material fact made in any Registration Statement, Prospectus or
any document incorporated therein by reference untrue or that
requires the making of any changes in any Registration
Statement, Prospectus or any document incorporated therein by
reference in order to make the statements therein (in the case
of any Prospectus, in the light of the circumstances under which
they were made) not misleading; and make every reasonable effort
to obtain as promptly as practicable the withdrawal of any order
or other action suspending the effectiveness of any Registration
Statement or suspending the qualification or registration (or
exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(3) furnish to each selling Holder, without charge, at least one manually
signed or "edgarized" copy and as many conformed copies as that Holder
reasonably requests, of the then-effective Registration Statement and
any post-effective amendment thereto, and one copy of all financial
statements and schedules, all documents incorporated therein by
reference and all exhibits thereto (including those incorporated by
reference);
(4) deliver to each selling Holder, without charge, as many copies of the
then-effective Prospectus (including each prospectus subject to
completion) and any amendments or supplements thereto as that Holder
reasonably requests;
(5) use best efforts to register or qualify under the securities or blue
sky laws of such jurisdictions as the selling Holders reasonably
request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in those jurisdictions
of the Registrable Securities covered by the then-effective
Registration Statement, except that TeraComm will not be required to
(A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify or (B) subject itself to general
taxation in any such jurisdiction;
(6) upon the occurrence of any event contemplated by Section 6(a)(2)(F), as
promptly as practicable (in light of the circumstances causing the
occurrence of that event) prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
6
(7) use reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange (or
quotation system operated by a national securities association) on
which identical securities issued by TeraComm are then listed, and
enter into customary agreements including, if necessary, a listing
application and indemnification agreement in customary form;
(8) if the registration is in connection with an Underwritten Offering,
enter into an underwriting agreement with respect to the Registrable
Securities containing provisions that are customary in connection with
underwritten secondary offerings, including representations, opinions
of counsel, letters of accountants and indemnification provisions with
underwriters that acquire Registrable Securities;
(9) otherwise use its best efforts to comply in all material respects with
all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and
complying with Rule 158 of the SEC thereunder;
(10) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc.; and
(11) make available for inspection by a representative of selling Holders
and any attorney or accountant retained by such selling Holders all
financial and other records, pertinent corporate documents and
properties of TeraComm and cause TeraComm's officers, directors and
employees to supply all information reasonably requested by, and to
cooperate fully with, any such representative, underwriter, attorney or
accountant in connection with such registration, and otherwise to
cooperate fully in connection with any due diligence investigation;
provided that such representatives, underwriters, attorneys or
accountants enter into a confidentiality agreement, in form and
substance reasonably satisfactory to TeraComm, prior to the release or
disclosure to them of any such information, records or documents.
(b) Each selling Holder shall furnish to TeraComm, upon request,
in writing such information and documents as, in the opinion of counsel to
TeraComm, is reasonably necessary to prepare properly and file that Registration
Statement in accordance with the applicable provisions of the Securities Act.
7. Registration Expenses. Whether or not any Registration Statement
becomes effective, TeraComm will be responsible for all expenses incident to
TeraComm's performance of or compliance with this agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
one counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of one counsel retained by the Holders,
printing expenses (including expenses of printing Prospectuses), messenger and
delivery expenses, internal expenses (including all salaries and expenses of its
officers and employees performing legal or accounting duties), fees and
disbursements of its counsel and its independent certified public accountants
(including the
7
expenses of any special audit or "comfort" letters required by or incident to
such performance or compliance), securities acts liability insurance (if
TeraComm elects to obtain such insurance), fees and expenses of any special
experts retained by TeraComm in connection with any registration hereunder and
the fees and expenses of any other Person retained by TeraComm (all such fees
and expenses being referred to as "Registration Expenses"). Not included in
Registration Expenses are underwriting discounts, commissions or fees and any
stock transfer taxes, attributable to the sale of the Registrable Securities.
8. Suspension of Sales under Certain Circumstances. (a) Upon receipt of
any notice from TeraComm that dispositions under the then-current Prospectus
must be discontinued and suspended, whether as a result of an event described in
Section 6(a)(2)(D), (E) or (F) or otherwise, each Holder shall forthwith
discontinue and suspend disposition of Registrable Securities pursuant to that
Prospectus until (1) the Holders are advised in writing by TeraComm that a new
Registration Statement covering the offer of Registrable Securities has become
effective under the Securities Act, or (2) the Holders receive copies of a
supplemented or amended Prospectus contemplated by Section 6, or (3) the Holders
are advised in writing by TeraComm that they may resume use of the Prospectus.
(b) If at any time following the date hereof any shares of Common
Stock are to be sold pursuant to an Underwritten Offering (other than in
connection with a registration statement on Form S-4 or S-8, or any successor or
substantially similar form, or a registration statement covering (A) an employee
stock option, stock purchase or compensation plan or securities issued or
issuable pursuant to any such plan, or (B) a dividend reinvestment plan), then
for the period commencing 15 days prior to, and expiring 90 days after, the
effective date of such Underwritten Offering, none of the Holders may effect any
public sale or distribution of any Registrable Securities or any other shares of
Common Stock of TeraComm then owned by the Holders, other than pursuant to that
Underwritten Offering (if any Registrable Securities are included in such
Underwritten Offering).
9. Indemnification. (a) TeraComm shall indemnify, to the full
extent permitted by law, but without duplication, each Holder, any of their
respective officers and directors, if any, and each Person who controls any
Holder within the meaning of the Securities Act against all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation
and reasonable legal fees and expenses) resulting from any untrue statement of a
material fact in, or any omission of a material fact required to be stated in,
any Registration Statement or in any preliminary or final Prospectus, or any
amendment or supplement thereto, or necessary to make the statements therein (in
the case of a Prospectus in light of the circumstances under which they were
made) not misleading, except that TeraComm will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense (A) arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to TeraComm by or on behalf of the Holders
specifically for inclusion therein or (B) is caused by any untrue statement or
omission, or any alleged untrue statement or omission, made in a Prospectus but
eliminated or remedied in a subsequent Prospectus if TeraComm shall have timely
furnished copies thereof to the relevant Holder in accordance with this
agreement and a copy of the Prospectus was required pursuant to the Securities
Act to be sent or given by that Holder or on its
8
behalf to the Person asserting that loss, claim, damage, liability or expense at
or prior to the sale of those Registrable Securities to that Person and was not
so sent or given.
(b) In connection with any Registration Statement covering
Registrable Securities of any Holder, that Holder shall furnish to TeraComm in
writing such information as TeraComm reasonably requests for use in connection
with any such Registration Statement or Prospectus and shall indemnify, to the
full extent permitted by law, but without duplication, TeraComm, its officers,
directors, stockholders, employees, advisors and agents, and each Person who
controls TeraComm (within the meaning of the Securities Act), against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact in, or any omission of a material fact required to
be stated in, the Registration Statement or in any preliminary or final
Prospectus, or any amendment or supplement thereto, or necessary to make the
statements therein (in the case of a Prospectus in light of the circumstances
under which they were made) not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by that Holder to TeraComm specifically for inclusion therein. If the
offering to which the Registration Statement relates is an Underwritten
Offering, each Holder shall enter into an underwriting agreement in customary
form with the underwriters and indemnify the underwriters, their officers and
directors, if any, and each Person who controls the underwriters within the
meaning of the Securities Act to the same extent as each Holder is required to
indemnify TeraComm.
(c) Any Person entitled to indemnification hereunder must (1)
give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification, and (2) permit the indemnifying party to assume the
defense of that claim with counsel reasonably satisfactory to the indemnified
party, except that the indemnified party may employ separate counsel and
participate in, but not control, the defense of that claim. The indemnified
party will be responsible for the fees and expenses of such counsel, unless (A)
the indemnifying party fails to assume the defense of that claim and employ
counsel reasonably satisfactory to the indemnified party in a timely manner, or
(B) in the reasonable judgment of the indemnified party, based upon written
advice of its counsel, a conflict of interest may exist between the indemnified
party and the indemnifying party with respect to that claim (in which case, if
the indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party may not assume the defense of any claim as to which that
conflict of interest may exist). The indemnifying party will not be subject to
any liability for any settlement made without its consent. No indemnified party
will be required to consent to the entry of any judgment or enter into any
settlement that does not require that the claimant or plaintiff give the
indemnified party a release from all liability in respect of that claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of the claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by that
indemnifying party with respect to that claim, as well as one local counsel in
each relevant jurisdiction.
(d) If for any reason indemnification provided for in Section
9(a) or 9(b) is unavailable to an indemnified party or insufficient to hold it
harmless as contemplated by Sections 9(a) and 9(b), then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of the loss, claim, damage, liability or expense for which it is entitled
to indemnification in such proportion as is appropriate to reflect not only the
relative
9
benefits received by the indemnifying party and the indemnified party, but also
the relative fault of the indemnifying party and the indemnified party, as well
as any other relevant equitable considerations. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentations.
10. Rule 144. TeraComm shall use its reasonable best efforts to make
publicly available and available to the Holders, pursuant to Rule 144, such
information as is necessary to enable the Holders to make sales of Registrable
Securities pursuant to that Rule. TeraComm shall use its reasonable best efforts
to file timely with the SEC all documents and reports required of TeraComm under
the Exchange Act. TeraComm shall furnish to any Holder, upon request, a written
statement executed on behalf of TeraComm as to compliance with the current
public information requirements of Rule 144.
11. Amendments and Waivers. The provisions of this agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, without the written consent of TeraComm
and Holders of a majority of the Registrable Securities.
12. Notices. Every notice or other communication required or
contemplated by this agreement must be in writing and sent by one of the
following methods: (1) personal delivery, in which case delivery is deemed to
occur the day of delivery; (2) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded as delivered to the intended recipient; or (3) next-day
delivery by a recognized overnight delivery service such as Federal Express, in
which case delivery is deemed to occur one business day after being sent. In
each case, a notice or other communication sent to a party must be directed to
the address for that party set forth below, or to another address designated by
that party by written notice:
If to a Holder, at the most current address for that Holder as it
appears on the books of TeraComm; and
If to TeraComm, to:
TeraComm Research, Inc.
P.O. Box 163
Essex Junction, VT 05453
Attention: Kenneth A. Puzey, President
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway
Suite 2600
Denver, CO 80202
Attention: Jack Lewis, Esq.
10
13. Successors and Assigns. This agreement inures to the benefit of and
is binding upon the successors, transferees and assigns of the parties hereto,
except that (1) no transferee in any transfer made in reliance on Rule 144 under
the Securities Act will have any rights as a Holder under this agreement, and
(2) no Person to whom Registrable Securities are transferred will have any
rights under this agreement as a Holder unless that Person agrees to be bound by
the terms and conditions of this agreement.
14. Governing Law. This agreement is governed by the laws of the State
of New York, without giving effect to principles of conflict of laws.
15. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
agreement may be brought against any of the parties in the courts of the State
of New York, or, if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of New York, and each of the parties
consents to the jurisdiction of those courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any such action or proceeding may be served by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 12. Nothing in this
Section 15, however, affects the right of any party to serve legal process in
any other manner permitted by law.
16. Entire Agreement. This agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties.
Atlantic and TeraComm are executing this agreement on the date stated
in the introductory clause.
TERACOMM RESEARCH, INC.
By:____________________________________
Kenneth A. PuzeyPresident
ATLANTIC TECHNOLOGY VENTURES, INC.
By:____________________________________
A. Joseph Rudick
President
11
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This registration rights agreement is dated May 12, 2000, and is
between TERACOMM RESEARCH, INC., a Delaware corporation ("TeraComm"), and
ATLANTIC TECHNOLOGY VENTURES, INC., a Delaware limited liability company
("Atlantic").
Pursuant to a stock purchase agreement dated the date hereof between
TeraComm and Atlantic, Atlantic is issuing to TeraComm 200,000 shares of
Atlantic's common stock (the "Shares") and a warrant to purchase an additional
200,000 shares of Atlantic's Common Stock (the "Warrant"). TeraComm and Atlantic
wish to specify TeraComm's rights in connection with public offerings and sales
of the Shares and the shares of Common Stock issuable upon exercise of the
Warrant.
The parties therefore agree as follows:
1. Definitions. As used in this agreement, the following terms have the
following meanings:
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in the State of Vermont are
authorized by law, regulation or executive order to close.
"Common Stock" means Atlantic's common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any similar successor federal statute), and the rules and regulations
thereunder, as in effect from time to time.
"Holder" means TeraComm and its successors, assigns and transferees
(subject to Section 13). For purposes of this agreement, Atlantic may, subject
to Section 13, deem the registered holder of a Registrable Security to be the
Holder thereof, except that the beneficial owner of any Registrable Securities
held in "street name" will be deemed to be the Holder thereof.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, government or
agency or political subdivision thereof or other entity.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by a prospectus supplement with respect to
the terms of the offering of any portion of the Registrable Securities covered
by that Registration Statement and by all other amendments and supplements to
the prospectus, including post-effective amendments, and all material
incorporated by reference in such prospectus.
"Registrable Securities" means (1) the Shares and any shares of Common
Stock issued or issuable upon exercise of the Warrant, and (2) any shares of
Common Stock issued as, or issued upon the conversion or exercise of any
warrant, right or other convertible security that is issued as, a dividend or
other distribution with respect to, or in exchange for or in replacement of, the
Shares or issuable upon exercise of the Warrant.
"Registration Statement" means any registration statement covering any
of the Registrable Securities pursuant to the provisions of this agreement,
including the Prospectus included therein, all amendments and supplements to
that Registration Statement, including post-effective amendments, all exhibits
and all material incorporated by reference in that Registration Statement.
"SEC" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended (or any
similar successor federal statute), and the rules and regulations thereunder as
in effect from time to time.
"Underwritten Offering" means an offering that is registered under the
Securities Act in which securities of Atlantic are sold to an underwriter for
reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled to the
benefits of this agreement are the Registrable Securities but, with respect to
any particular Registrable Security, only so long as that security continues to
be a Restricted Security. A Registrable Security that has ceased to be a
Registrable Security cannot thereafter become a Registrable Security. As used
herein, a "Restricted Security" is a Registrable Security that has not been
effectively registered under the Securities Act and distributed in accordance
with an effective Registration Statement and that has not been distributed by a
Holder pursuant to Rule 144, Rule 903 or Rule 904, unless, in the case of a
Registrable Security distributed pursuant to Rule 903 or Rule 904, any
applicable restricted period has not expired or the SEC or its staff has taken
the position in a published release, ruling or no-action letter that securities
distributed under Rule 903 or 904 are ineligible for resale in the United States
under Section 4(1) of the Securities Act notwithstanding expiration of the
applicable restricted period.
3. Registration. Atlantic shall in accordance with the terms of this
agreement cause a registration statement covering all Registrable Securities to
be filed and declared effective no later than 30 days following the date hereof.
Atlantic shall use its best efforts to keep such registration statement
effective until the first anniversary of the date hereof and to prevent the
happening of any event of the kind described in Sections 4(a)(2)(D) and (E).
Atlantic may initiate or engage in negotiations with respect to, or consummate,
any transaction (whether or not material to Atlantic), even if the effect
thereof would be cause the happening of an event described in Section 4(a)(2)(F)
(b) Atlantic may elect to effect any registration under this
Section 3 on a form permitted by the rules and regulations of the SEC, except
that Atlantic shall use Form S-3 if Atlantic is eligible to use that form.
(c) When in the opinion of counsel for Atlantic registration of
the Registrable Securities is not required by the Securities Act and other
applicable securities laws in connection with a proposed sale of Registrable
Securities, the Holders may not request registration pursuant to this Section 3
in connection with that proposed sale and Atlantic shall promptly provide to the
transfer agent and the Holder's or Holders' broker or brokers in connection with
any sale transaction an opinion of counsel for Atlantic to the effect set forth
above, on condition that the
2
Holder or Holders provide representation letters in customary form to counsel
for Atlantic rendering that opinion.
4. Registration Procedures and Other Agreements. (a) In connection with
Atlantic's registration obligations pursuant to Section 3, Atlantic shall do the
following:
(1) prepare and file with the SEC a new Registration Statement or such
amendments and post-effective amendments to an existing Registration
Statement as may be necessary to keep that Registration Statement
effective, except that no Registration Statement need remain in effect
after all Registrable Securities covered by that Registration Statement
have been sold and distributed as contemplated by that Registration
Statement;
(2) notify each selling Holder promptly of the following:
(A) when a new Registration Statement, amendment thereto, Prospectus
or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any new Registration Statement or
post-effective amendment, when it has become effective;
(B) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional
information;
(C) of the issuance by the SEC of any comments with respect to any
filing;
(D) of any stop order suspending the effectiveness of any
Registration Statement or the initiation or threatening of any
proceedings for that purpose;
(E) of any suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(F) of the happening of any event that makes any statement of a
material fact made in any Registration Statement, Prospectus or
any document incorporated therein by reference untrue or that
requires the making of any changes in any Registration Statement,
Prospectus or any document incorporated therein by reference in
order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they
were made) not misleading; and make every reasonable effort to
obtain as promptly as practicable the withdrawal of any order or
other action suspending the effectiveness of any Registration
Statement or suspending the qualification or registration (or
exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(3) furnish to each selling Holder, without charge, at least one manually
signed or "edgarized" copy and as many conformed copies as that Holder
reasonably requests, of the then-effective Registration Statement and
any post-effective amendment thereto, and one copy of all financial
statements and schedules, all documents incorporated therein by
reference and all exhibits thereto (including those incorporated by
reference);
3
(4) deliver to each selling Holder, without charge, as many copies of the
then-effective Prospectus (including each prospectus subject to
completion) and any amendments or supplements thereto as that Holder
reasonably requests;
(5) use best efforts to register or qualify under the securities or blue
sky laws of such jurisdictions as the selling Holders reasonably
request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in those jurisdictions
of the Registrable Securities covered by the then-effective
Registration Statement, except that Atlantic will not be required to
(A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify or (B) subject itself to general
taxation in any such jurisdiction;
(6) upon the occurrence of any event contemplated by Section 4(a)(2)(F), as
promptly as practicable (in light of the circumstances causing the
occurrence of that event) prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(7) use reasonable efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange (or
quotation system operated by a national securities association) on
which identical securities issued by Atlantic are then listed, and
enter into customary agreements including, if necessary, a listing
application and indemnification agreement in customary form;
(8) if the registration is in connection with an Underwritten Offering,
enter into an underwriting agreement with respect to the Registrable
Securities containing provisions that are customary in connection with
underwritten secondary offerings, including representations, opinions
of counsel, letters of accountants and indemnification provisions with
underwriters that acquire Registrable Securities;
(9) otherwise use its best efforts to comply in all material respects with
all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and
make generally available to its securities holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and
complying with Rule 158 of the SEC thereunder;
(10) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc.; and
(11) make available for inspection by a representative of selling Holders
and any attorney or accountant retained by such selling Holders all
financial and other records, pertinent corporate documents and
properties of Atlantic and cause Atlantic's officers, directors and
employees to supply all information reasonably requested by, and to
cooperate fully with, any such representative, underwriter, attorney or
accountant in connection with such
4
registration, and otherwise to cooperate fully in connection with any
due diligence investigation; provided that such representatives,
underwriters, attorneys or accountants enter into a confidentiality
agreement, in form and substance reasonably satisfactory to Atlantic,
prior to the release or disclosure to them of any such information,
records or documents.
(b) Each selling Holder shall furnish to Atlantic, upon request,
in writing such information and documents as, in the opinion of counsel to
Atlantic, is reasonably necessary to prepare properly and file that Registration
Statement in accordance with the applicable provisions of the Securities Act.
5. Registration Expenses. Whether or not any Registration Statement
becomes effective, Atlantic will be responsible for all expenses incident to
Atlantic's performance of or compliance with this agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
one counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of one counsel retained by the Holders,
printing expenses (including expenses of printing Prospectuses), messenger and
delivery expenses, internal expenses (including all salaries and expenses of its
officers and employees performing legal or accounting duties), fees and
disbursements of its counsel and its independent certified public accountants
(including the expenses of any special audit or "comfort" letters required by or
incident to such performance or compliance), securities acts liability insurance
(if Atlantic to obtain such insurance), fees and expenses of any special experts
retained by Atlantic in connection with any registration hereunder and the fees
and expenses of any other Person retained by Atlantic (all such fees and
expenses being referred to as "Registration Expenses"). Not included in
Registration Expenses are underwriting discounts, commissions or fees and any
stock transfer taxes, attributable to the sale of the Registrable Securities.
6. Suspension of Sales under Certain Circumstances. (a) Upon receipt of
any notice from Atlantic that dispositions under the then-current Prospectus
must be discontinued and suspended, whether as a result of an event described in
Section 4(a)(2)(D), (E) or (F) or otherwise, each Holder shall forthwith
discontinue and suspend disposition of Registrable Securities pursuant to that
Prospectus until (1) the Holders are advised in writing by Atlantic that a new
Registration Statement covering the offer of Registrable Securities has become
effective under the Securities Act, or (2) the Holders receive copies of a
supplemented or amended Prospectus contemplated by Section 4, or (3) the Holders
are advised in writing by Atlantic that they may resume use of the Prospectus.
(b) If at any time following the date hereof any shares of Common
Stock are to be sold pursuant to an Underwritten Offering (other than in
connection with a registration statement on Form S-4 or S-8, or any successor or
substantially similar form, or a registration statement covering (A) an employee
stock option, stock purchase or compensation plan or securities issued or
issuable pursuant to any such plan, or (B) a dividend reinvestment plan), then
for the period commencing 15 days prior to, and expiring 90 days after, the
effective date of such Underwritten Offering, none of the Holders may effect any
public sale or distribution of any Registrable Securities or any other shares of
Common Stock of Atlantic then owned by the
5
Holders, other than pursuant to that Underwritten Offering (if any Registrable
Securities are included in such Underwritten Offering).
7. Indemnification. Atlantic shall indemnify, to the full extent
permitted by law, but without duplication, each Holder, any of their respective
officers and directors, if any, and each Person who controls any Holder within
the meaning of the Securities Act against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
reasonable legal fees and expenses) resulting from any untrue statement of a
material fact in, or any omission of a material fact required to be stated in,
any Registration Statement or in any preliminary or final Prospectus, or any
amendment or supplement thereto, or necessary to make the statements therein (in
the case of a Prospectus in light of the circumstances under which they were
made) not misleading, except that Atlantic will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense (A) arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to Atlantic by or on behalf of the Holders
specifically for inclusion therein or (B) is caused by any untrue statement or
omission, or any alleged untrue statement or omission, made in a Prospectus but
eliminated or remedied in a subsequent Prospectus if Atlantic shall have timely
furnished copies thereof to the relevant Holder in accordance with this
agreement and a copy of the Prospectus was required pursuant to the Securities
Act to be sent or given by that Holder or on its behalf to the Person asserting
that loss, claim, damage, liability or expense at or prior to the sale of those
Registrable Securities to that Person and was not so sent or given.
(b) In connection with any Registration Statement covering
Registrable Securities of any Holder, that Holder shall furnish to Atlantic in
writing such information as Atlantic reasonably requests for use in connection
with any such Registration Statement or Prospectus and shall indemnify, to the
full extent permitted by law, but without duplication, Atlantic, its officers,
directors, stockholders, employees, advisors and agents, and each Person who
controls Atlantic (within the meaning of the Securities Act), against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact in, or any omission of a material fact required to
be stated in, the Registration Statement or in any preliminary or final
Prospectus, or any amendment or supplement thereto, or necessary to make the
statements therein (in the case of a Prospectus in light of the circumstances
under which they were made) not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by that Holder to Atlantic specifically for inclusion therein. If the
offering to which the Registration Statement relates is an Underwritten
Offering, each Holder shall enter into an underwriting agreement in customary
form with the underwriters and indemnify the underwriters, their officers and
directors, if any, and each Person who controls the underwriters within the
meaning of the Securities Act to the same extent as each Holder is required to
indemnify Atlantic.
(c) Any Person entitled to indemnification hereunder must (1)
give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification, and (2) permit the indemnifying party to assume the
defense of that claim with counsel reasonably satisfactory to the indemnified
party, except that the indemnified party may employ separate counsel and
participate in, but not control, the defense of that claim. The indemnified
party will be responsible for the fees and expenses of such counsel, unless (A)
the indemnifying party fails
6
to assume the defense of that claim and employ counsel reasonably satisfactory
to the indemnified party in a timely manner, or (B) in the reasonable judgment
of the indemnified party, based upon written advice of its counsel, a conflict
of interest may exist between the indemnified party and the indemnifying party
with respect to that claim (in which case, if the indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party may not assume the
defense of any claim as to which that conflict of interest may exist). The
indemnifying party will not be subject to any liability for any settlement made
without its consent. No indemnified party will be required to consent to the
entry of any judgment or enter into any settlement that does not require that
the claimant or plaintiff give the indemnified party a release from all
liability in respect of that claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of the claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by that indemnifying party with respect to that claim, as well as
one local counsel in each relevant jurisdiction.
(d) If for any reason indemnification provided for in Section
7(a) or 7(b) is unavailable to an indemnified party or insufficient to hold it
harmless as contemplated by Sections 7(a) and 7(b), then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of the loss, claim, damage, liability or expense for which it is entitled
to indemnification in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party and the indemnified party,
but also the relative fault of the indemnifying party and the indemnified party,
as well as any other relevant equitable considerations. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
8. Rule 144. Atlantic shall use its reasonable best efforts to make
publicly available and available to the Holders, pursuant to Rule 144, such
information as is necessary to enable the Holders to make sales of Registrable
Securities pursuant to that Rule. Atlantic shall use its reasonable best efforts
to file timely with the SEC all documents and reports required of Atlantic under
the Exchange Act. Atlantic shall furnish to any Holder, upon request, a written
statement executed on behalf of Atlantic as to compliance with the current
public information requirements of Rule 144.
9. Amendments and Waivers. The provisions of this agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, without the written consent of Atlantic
and Holders of a majority of the Registrable Securities.
10. Notices. Every notice or other communication required or
contemplated by this agreement must be in writing and sent by one of the
following methods: (1) personal delivery, in which case delivery is deemed to
occur the day of delivery; (2) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded as delivered to the intended recipient; or (3) next-day
delivery by a recognized overnight delivery service such as Federal Express, in
which case delivery is deemed to occur one business day after being sent. In
each case, a notice or other communication sent to a party
7
must be directed to the address for that party set forth below, or to another
address designated by that party by written notice:
If to a Holder, at the most current address for that Holder as it
appears on the books of Atlantic; and
If to Atlantic, to:
Atlantic Technology Ventures, Inc.
150 Broadway, Suite 1009
New York, NY 10038
Attention: Frederic P. Zotos, President
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attention: Ezra G. Levin, Esq.
11. Successors and Assigns. This agreement inures to the benefit of and
is binding upon the successors, transferees and assigns of the parties hereto,
except that (1) no transferee in any transfer made in reliance on Rule 144 under
the Securities Act will have any rights as a Holder under this agreement, and
(2) no Person to whom Registrable Securities are transferred will have any
rights under this agreement as a Holder unless that Person agrees to be bound by
the terms and conditions of this agreement.
12. Governing Law. This agreement is governed by the laws of the State
of New York, without giving effect to principles of conflict of laws.
13. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
agreement may be brought against any of the parties in the courts of the State
of New York, or, if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of New York, and each of the parties
consents to the jurisdiction of those courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any such action or proceeding may be served by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 10. Nothing in this
Section 13, however, affects the right of any party to serve legal process in
any other manner permitted by law.
14. Entire Agreement. This agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties.
8
Atlantic and TeraComm are executing this agreement on the date stated
in the introductory clause.
TERACOMM RESEARCH, INC.
By:________________________________
Kenneth A. PuzeyPresident
ATLANTIC TECHNOLOGY VENTURES, INC.
By:_______________________________
A. Joseph Rudick
President
9
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 10th day of April, 2000, between Atlantic Technology Ventures, Inc. a
Delaware corporation having its executive offices and principal place of
business at 150 Broadway, Suite 1110, New York, New York (the "Company"), and
Dr. Joseph Rudick, an individual currently residing at 901, Lexington Avenue,
New York ("Executive").
WHEREAS, the Company desires to employ Executive, and
Executive desires to accept such employment on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Term.
The term of this Agreement shall be the three-year period
commencing on April 3, 2000 and ending on April 2, 2003 (the "Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company during the Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as an executive of
the Company and shall have such duties as may be prescribed by the Board of
Directors and shall serve in such other and/or additional position(s) as the
Board of Directors may determine from time to time.
(b) Performance of Duties. Throughout the Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Board of Directors and serve the Company to the best of
Executive's ability. Until otherwise determined by the Board of Directors,
Executive shall have the title of Chief Executive Officer of the Company, and in
such capacity shall be principally responsible for the management of the Company
and shall report to the Board of Directors of the Company.
(c) Place of Performance. Executive shall be based
initially at the Company's offices in New York, New York or such other
location(s) in the greater New York area as the Company may determine.
Throughout the Term, Executive shall maintain Executive's personal residence
within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive a
base salary ("Base Salary") at the annual rate of $125,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Initial Bonus. Within thirty days after the execution
of this Agreement, the Company shall pay to Executive a bonus in the amount of
$25,000 in lieu of other compensation otherwise due Executive from the Company.
(c) Bonus. The Company shall pay to Executive an annual
bonus (the "Bonus") in an amount to be determined by Compensation Committee of
the Board of Directors in its discretion but in no event less than $25,000. In
addition, Executive shall be entitled to participate in any bonus or other
incentive programs as may be established by the Company.
(d) Other Bonuses. The Company shall continue to pay to
Executive the bonus referenced the October 31, 1999 minutes of the meeting of
the Compensation Committee of the Board of Directors in accordance with the
terms set by the Compensation Committee.
(e) Grant of Options and Terms Thereof.
(i) The Board of Directors has approved, and the
Company has granted to Executive, an option (the "Plan Option"), pursuant to the
Company's 1995 Stock Incentive Plan, to purchase one hundred thousand (100,000)
shares of the Company's common stock (the "Plan Option Shares"), subject to
vesting as set forth below. The exercise price for each Plan Option Share shall
be equal to the market value of a share of the Company's common stock on the
date of the grant of the Plan Option. The Plan Option Shares shall vest in four
equal installments, the first such installment to vest on the first day of the
Term and each subsequent installment to vest, respectively, on the first,
second, and third anniversary of the grant of the Plan Option, provided that
Executive is employed by the Company on each such vesting date. All other terms
(including exercisability) of the Plan Option shall be governed by the Company's
Stock Incentive Plan, as well as the applicable option agreement to be entered
into pursuant to the terms of such plan.
(ii) In order to induce Executive to enter into this
Agreement, the Board of Directors has approved, and the Company has granted to
Executive, an option (the "Non-Plan Option") to purchase twenty-five thousand
(25,000) shares of the Company's common stock (the "Non-Plan Option Shares"),
subject to vesting as set forth below. The exercise price for each Non-Plan
Option Share shall be equal to the market value of a share of the Company's
common stock on the date of the grant of the Non-Plan Option. The Non-Plan
Option Shares shall vest in four equal installments, the first such installment
to vest on the first day of the Term and each subsequent installment to vest,
respectively, on the first, second, and third anniversary of the grant of the
Non-Plan Option, provided that Executive is employed by the Company on each such
vesting date. All other terms (including exercisability) of the Non-Plan Option
shall be governed by the applicable option agreement to be entered into by the
Company and Executive and shall otherwise be subject to the terms set forth in
the Company's 1995 Stock Incentive Plan, it being recognized that the Non-Plan
Option has not been granted under such plan.
(f) Benefits and Perquisites. Executive shall be entitled
to participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same
2
level and responsibility as Executive, including without limitation family
medical insurance and life insurance (subject to applicable employee
contributions). Executive shall be entitled to four weeks of vacation per year.
(g) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive.
(h) Waiver of Compensation for Board Service. Executive
waives any right to receive additional compensation in respect of service as a
director of the Company or a member of any committees of the Board of Directors,
and agrees that the consideration set forth in this Agreement shall constitute
compensation for such services as may be requested of Executive by the Company.
(i) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in this Section 3 and in Section 4 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time to the
extent the same are consistently applied, including normal payroll practices,
and shall be subject to all applicable employment and withholding taxes and
other withholdings.
(j) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for Cause (as defined below) or for any breach of this Agreement, in
which case the provisions of Section 4(b) of this Agreement shall apply. The
Company may also terminate Executive's employment in the event of Executive's
Disability (as defined below), in which case the provisions of Section 4(c) of
this Agreement shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 4(d) of this Agreement shall apply. If Executive's
employment is terminated by reason of Executive's death, retirement or voluntary
resignation, the provisions of Section 4(b) of this Agreement shall apply.
(b) Termination for Cause; Termination by Reason of Death
or Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Term (x) by the Company for Cause (as defined
below), (y) by reason of Executive's death or retirement or (z) by reason of
Executive's voluntary resignation, then the Company shall pay to Executive only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
3
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) engaging in
any act which, in each case, subjects, or if generally known would subject, the
Company to public ridicule or embarrassment; (iv) gross neglect or misconduct in
the performance of Executive's duties hereunder; (v) willful failure or refusal
to perform such duties as may reasonably be delegated to Executive; or (vi)
material breach of any provision of this Agreement by Executive; provided,
however, that with respect to clauses (iv), (v) or (vi), Executive shall have
received written notice from the Company setting forth the alleged act or
failure to act constituting "Cause" hereunder, and Executive shall not have
cured such act or refusal to act within 10 business days of his actual receipt
of notice.
(c) Disability. If, as a result of Executive's incapacity
due to physical or mental illness, Executive shall have been absent from
Executive's duties hereunder on a full time basis for either (i) one hundred
twenty (120) days within any three hundred sixty-five (365) day period, or (ii)
ninety (90) consecutive days, the Company may terminate Executive's employment
hereunder for "Disability". In that event, the Company shall pay to Executive
only the Base Salary through such date of termination. During any period that
Executive fails to perform Executive's duties hereunder as a result of
incapacity due to physical or mental illness (a "Disability Period"), Executive
shall continue to receive the compensation and benefits provided by Section 3 of
this Agreement until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Executive under disability benefit plans and programs of the Company
or under the Social Security disability insurance program.
(d) Termination By Company For Any Other Reason. In the
event that Executive's employment hereunder is terminated by the Company during
the Term for any reason other than as provided in Section 4(b) or 4(c) of this
Agreement, then the Company shall pay to Executive the Base Salary through such
date of termination and, in lieu of any further compensation and benefits for
the balance of the Term, severance pay equal to the Base Salary that Executive
would have otherwise received during the period beginning on such date of
termination and ending on the earlier of (i) six (6) months from the effective
date of such termination and (ii) the last day of the Term, which severance pay
shall be paid commencing with such date of termination at the times and in the
amounts such Base Salary would have been paid. Notwithstanding anything to the
contrary contained herein, in the event that Executive shall breach Section 5 or
6 of this Agreement, in addition to any other remedies the Company may have in
the event Executive breaches this Agreement, the Company's obligation pursuant
to this Section 4(d) to continue such salary shall cease and Executive's rights
thereto shall terminate and shall be forfeited.
(e) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 4 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment pursuant to and in accordance with
this Section 4 (as applicable), the Company and its
4
directors, officers, employees, subsidiaries, affiliates, stockholders,
successors, assigns, agents and representatives shall have no further obligation
or liability to Executive or any other person under this Agreement. The Company
shall have the right to condition the payment of any severance pursuant to this
Section 4 upon the delivery by Executive to the Company of a release in form and
substance satisfactory to the Company of any and all claims Executive may have
against the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives
arising out of or related to Executive's employment by the Company and the
termination of such employment.
5. Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder.
(b) No Competition. Executive recognizes the highly
competitive nature of the Company's business and that Executive's position with
the Company and access to and use of the Company's confidential records and
proprietary information renders Executive special and unique. Without limiting
the generality of the provisions of Section 2(b) or 5(a) of this Agreement,
during the Term and for a period of one year after the termination of
Executive's employment with the Company for any reason, Executive shall not,
directly or indirectly, own, manage, operate, join, control, participate in,
invest in or otherwise be connected or associated with, in any manner, including
as an officer, director, employee, independent contractor, stockholder, member,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in the United States; provided, however, that
ownership of 2% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
Nasdaq Stock Market, shall not constitute a breach of this Section 4, so long as
Executive does not in fact have the power to control, or direct the management
of, or is not otherwise associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean
any business or venture which, directly or indirectly, engages in a business
that competes with the business of any Related Entity. The term Related Entity
shall include all operating subsidiaries of the Company and all other business
entities in which the Company has an ownership interest, together with all
affiliates thereof.
(c) No Solicitation of Employment. During the Term and for
a period of two years thereafter, Executive shall not solicit or encourage any
employee of the Company or any Related Entity to leave the Company or such
Related Entity for any reason, nor assist any business in doing so, nor employ
such an employee in a Competing Business or any other business.
(d) Company Customers. Executive shall not, during the Term
and for a period of one year thereafter, except as required by the Company in
the performance by Executive of his duties under this Agreement, directly or
indirectly, on behalf of a Competing Business, contact, solicit or do business
with any "customers" (as defined below) of any Related Entity for the purpose of
selling or licensing any product, service, or technology then sold or
5
licensed by such Related Entity the Company or proposed to be sold or licensed
by such Related Entity. For the purposes of the provisions of this Section 5(d),
"customer" shall include any entity that, within two years prior to the
termination of Executive's employment hereunder, purchased or licensed any
product, service, or technology from such Related Entity. The term "customer"
also includes any former customer or potential customer of a Related Entity
which the Related Entity has solicited within two years prior to the termination
of Executive's employment hereunder for the purpose of selling or licensing any
product, service, or technology then sold or licensed by the Company or proposed
to be sold or licensed.
(e) Executive understands that the provisions of this Section 5
may limit his ability to earn a livelihood in a business that competes with the
business of the Related Entities but nevertheless agrees and hereby acknowledges
that the consideration provided under this Agreement is sufficient to justify
the restrictions contained in such provisions. In consideration thereof and in
light of Executive's education, skills and abilities, Executive agrees that he
will not assert in any forum that such provisions prevent him from earning a
living or otherwise are void or unenforceable or should be held void or
unenforceable.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and each
Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which have
great value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company or any Related Entity to Executive, but
also information developed or learned by Executive during the course or as a
result of employment with the Company, which information shall be the property
of the Company or the applicable Related Entity. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which the Company or any Related Entity is engaged
or contemplates engaging, and all information of which the unauthorized
disclosure could be detrimental to the interests of the Company or any Related
Entity, whether or not such information is specifically labeled as Confidential
Information by such entity. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company or any Related Entity concerning trade
secrets, techniques, know-how (including designs, plans, procedures,
merchandising, marketing, distribution and warehousing know-how, processes, and
research records), software, computer programs and designs, development tools,
all proprietary property, and any other intellectual property created, used or
sold (through a license or otherwise) by the Company or a Related Entity,
electronic data information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, budgets, projections, customer, supplier, licensee, licensor and
subcontractor identities, characteristics, agreements and operating procedures,
and salary, staffing and employment information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company and the Related
6
Entities may disclose to and entrust Executive with Confidential Information
which is the exclusive property of such entities and which Executive may possess
or use only in the performance of Executive's duties to the Company. Executive
also acknowledges that Executive is aware that the unauthorized disclosure of
Confidential Information, among other things, may be prejudicial to the
Company's interests or those of a Related Entity, an invasion of privacy and an
improper disclosure of trade secrets. Executive shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
corporation, partnership or other entity, individual or other third party, other
than in the course of Executive's assigned duties and for the benefit of the
Company, any Confidential Information, either during the Term or thereafter. In
the event Executive desires to publish the results of Executive's work for or
experiences with the Company or any Related Entity through literature,
interviews or speeches, Executive will submit requests for such interviews or
such literature or speeches to the Chief Executive Officer of the Company at
least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Executive agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Executive Officer of the Company.
(c) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company or any Related
Entity, including those which relate to or contain Confidential Information, or
any copies thereof. Upon request or when employment with the Company terminates,
Executive will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and
be enforceable by, and may be assigned by the Company to, any purchaser of all
or substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants that
neither Executive's employment with the Company nor Executive's performance of
Executive's obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other obligations, legal or otherwise, which Executive may
have. Executive covenants that he shall
7
perform his duties hereunder in a professional manner and not in conflict or
violation, or otherwise inconsistent with other obligations legal or otherwise,
which Executive may have.
(b) Nondisclosure; Other Employers. Executive will not disclose
to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive does not possess any property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with the
Company for any reason, Executive shall cooperate with the Company, as requested
by the Company, to affect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(d) No Duty to Mitigate. Executive shall be under no duty to
mitigate any losses or damage to the Company with respect to any severance or
other amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and thereafter,
Executive agrees that he will take not action which is intended, or would
reasonably be expected, to harm the Company or its reputation or which would
reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and submits to the
jurisdiction of any state or federal court sitting in the State, City, and
County of New York in connection with any dispute arising out of or relating to
this Agreement. Each party hereto waives any objection to the laying of venue in
such courts and any claim that any such action has been brought in an
inconvenient forum. To the extent permitted by law, any judgment in respect of a
dispute arising out of or relating to this Agreement may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of such judgment being conclusive evidence of the fact and
amount of such judgment.
(h) Waiver of Jury Trial. Each of the parties hereto
irrevocably waives any and all right to trial by jury with respect to any
action, claim or other proceeding arising out of or relating to this Agreement.
(i) Entire Agreement. This Agreement (including all exhibits
and schedules hereto) contains the entire agreement and understanding between
the parties hereto in respect of Executive's employment and supersedes, cancels
and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting Executive's
employment, including all prior employment agreements, if any, between the
Company and Executive, which agreement(s) hereby are terminated and shall be of
no further force or effect.
8
(j) Amendment. This Agreement may be amended only by a writing
which makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(k) Severability. If any term, provision, covenant or condition
of this Agreement or part thereof, or the application thereof to any person,
place or circumstance, shall be held to be invalid, unenforceable or void by a
court of competent jurisdiction, the remainder of this Agreement and such term,
provision, covenant or condition shall remain in full force and effect, and any
such invalid, unenforceable or void term, provision, covenant or condition shall
be deemed, without further action on the part of the parties hereto, modified,
amended and limited, and the court shall have the power to modify, to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Sections 5 and 6 of this Agreement are reasonable and necessary
for the protection of the Company.
(l) Construction. The headings and captions of this Agreement
are provided for convenience only and are intended to have no effect in
construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation." As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 of this Agreement or otherwise. As used
herein, the words "day" or "days" shall mean a calendar day or days.
(m) Nonwaiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(n) Remedies for Breach. The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement special value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including,
without limitation, Sections 5 and 6). Without limiting the generality of the
foregoing, if Executive breaches or threatens to breach Section 5 or 6 of this
Agreement, such breach or threatened breach will entitle the Company, without
posting of bond, to an injunction prohibiting (i) Executive from disclosing any
Confidential Information to any Competing
9
Business; (ii) such Competing Business from receiving from Executive or using
any such Confidential Information; and (iii) Executive from, indirectly or
directly, owning, managing, operating, joining, controlling, participating in,
investing in or otherwise being connected or associated with, in any manner, any
such Competing Business. The rights and remedies of the parties hereto are
cumulative and shall not be exclusive, and each such party shall be entitled to
pursue all legal and equitable rights and remedies and to secure performance of
the obligations and duties of the other under this Agreement, and the
enforcement of one or more of such rights and remedies by a party shall in no
way preclude such party from pursuing, at the same time or subsequently, any and
all other rights and remedies available to it.
(o) Notices. Any notice, request, consent or approval required
or permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: President, as the case may be. All such
notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail. However, the time period in which a
response thereto must be given shall commence to run from the date of receipt on
the return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(p) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(q) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
ATLANTIC TECHNOLOGY VENTURES, INC. EXECUTIVE:
By: /s/ Frederic P. Zotos /s/ Dr. Joseph Rudick
---------------------------- ------------------------
Name: Frederic P. Zotos Dr. Joseph Rudick
Title: President
10
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 3rd day of April, 2000, between Atlantic Technology Ventures, Inc. a
Delaware corporation having its executive offices and principal place of
business at 150 Broadway, Suite 1110, New York, New York (the "Company"), and
Frederic P. Zotos, an individual currently residing at 2007 Court North Drive,
Melville, New York ("Executive").
WHEREAS, the Company desires to employ Executive, and
Executive desires to accept such employment on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Term.
The term of this Agreement shall be the three-year period
commencing on April 3, 2000 and ending on April 2, 2003 (the "Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company during the Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as an executive of
the Company and shall have such duties as may be prescribed by the Company and
shall serve in such other and/or additional position(s) as the Company may
determine from time to time.
(b) Performance of Duties. Throughout the Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time to the business
and affairs of the Company, subject to vacations and sick leave in accordance
with Company policy and as otherwise permitted herein. Until otherwise
determined by the Company, Executive shall have the title of President of the
Company, and in such capacity shall be principally responsible for the
management of the Company and shall report to the Chief Executive Officer and
the Board of Directors of the Company.
(c) Place of Performance. Executive shall be based
initially at the Company's offices in New York, New York or such other
location(s) in the greater New York area as the Company may determine.
Throughout the Term, Executive shall maintain Executive's personal residence
within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive a
base salary ("Base Salary") at the annual rate of $175,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Signing Bonus. Within thirty days after the execution
of this Agreement, the Company shall pay to Executive a bonus in the amount of
$50,000 (the "Signing Bonus"). Executive shall repay to the Company the Signing
Bonus if Executive is terminated by the Company for Cause (as hereinafter
defined) during the Term or voluntarily resigns his employment hereunder during
the first twelve months of the Term.
(c) Bonus. The Company shall pay to Executive an annual
bonus (the "Bonus") in an amount to be determined by Compensation Committee of
the Board of Directors in its discretion but in no event less than $50,000. In
addition, Executive shall be entitled to participate in any bonus or other
incentive programs as may be established by the Company.
(d) Grant of Options and Terms Thereof.
(i) The Board of Directors has approved, and the
Company has granted to Executive, an option (the "Plan Option"), pursuant to the
Company's 1995 Stock Incentive Plan, to purchase one hundred thousand (100,000)
shares of the Company's common stock (the "Plan Option Shares"), subject to
vesting as set forth below. The exercise price for each Plan Option Share shall
be equal to the market value of a share of the Company's common stock on the
date of the grant of the Plan Option. The Plan Option Shares shall vest in four
equal installments, the first such installment to vest on the first day of the
Term and each subsequent installment to vest, respectively, on the first,
second, and third anniversary of the grant of the Plan Option, provided that
Executive is employed by the Company on each such vesting date. All other terms
(including exercisability) of the Plan Option shall be governed by the Company's
Stock Incentive Plan, as well as the applicable option agreement to be entered
into pursuant to the terms of such plan.
(ii) In order to induce Executive to enter into this
Agreement and to become employed by the Company pursuant to the terms hereof,
the Board of Directors has approved, and the Company has granted to Executive,
an option (the "Non-Plan Option") to purchase one hundred thousand (150,000)
shares of the Company's common stock (the "Non-Plan Option Shares"), subject to
vesting as set forth below. The exercise price for each Non-Plan Option Share
shall be equal to the market value of a share of the Company's common stock on
the date of the grant of the Non-Plan Option. The Non-Plan Option Shares shall
vest in four equal installments, the first such installment to vest on the first
day of the Term and each subsequent installment to vest, respectively, on the
first, second, and third anniversary of the grant of the Non-Plan Option,
provided that Executive is employed by the Company on each such vesting date.
All other terms (including exercisability) of the Non-Plan Option shall be
governed by the applicable option agreement to be entered into by the Company
and Executive and shall otherwise be subject to the terms set forth in the
Company's 1995 Stock Incentive Plan, it being recognized that the Non-Plan
Option has not been granted under such plan.
2
(e) Benefits and Perquisites. Executive shall be entitled
to participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive, including without limitation family medical
insurance and life insurance (subject to applicable employee contributions).
Executive shall be entitled to four weeks of vacation per year.
(f) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive.
(g) Relocation Expenses. The Company shall reimburse
Executive for such expenses reasonably incurred by Executive in connection with
the relocation of his residence to New York, New York or its immediate vicinity
upon submission of documentation in a form reasonably acceptable to the Company.
In addition, Executive shall be entitled to reimbursement of rent and similar
temporary living expenses incurred by him during the first three months of the
Term in connection with his maintenance of a residence in New York, New York to
the extent he continues to maintain his current residence in Melville, New York.
, Executive must consult with and receive approval from the Company's Chief
Executive Officer, which approval shall not be unreasonably withheld, prior to
incurring any such expenses. Executive shall be required to repay to the Company
any relocation and temporary living expenses reimbursed pursuant to this Section
3(f) if Executive's employment hereunder is terminated (i) by the Company for
Cause during the Term or (ii) as a result of Executive's voluntary resignation
during the first twelve months of the Term.
(h) Waiver of Compensation for Board Service. Executive
waives any right to receive additional compensation in respect of service as a
director of the Company or a member of any committees of the Board of Directors,
and agrees that the consideration set forth in this Agreement shall constitute
compensation for such services as may be requested of Executive by the Company.
(i) Waiver of Compensation From Other Sources. Executive
acknowledges and agrees that any compensation, property, or other emoluments to
be received by him, directly or indirectly, in connection with any transaction
involving the Company or any business of the Company shall be considered
property of the Company and upon receipt Executive shall deliver such
compensation, property, or emoluments to the Company for its sole benefit.
Executive hereby assigns to the Company any existing right to receive any such
compensation, property, or emoluments.
(j) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in this Section 3 and in Section 4 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to
3
time to the extent the same are consistently applied, including normal payroll
practices, and shall be subject to all applicable employment and withholding
taxes and other withholdings.
(k) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for Cause (as defined below) or for any breach of this Agreement, in
which case the provisions of Section 4(b) of this Agreement shall apply. The
Company may also terminate Executive's employment in the event of Executive's
Disability (as defined below), in which case the provisions of Section 4(c) of
this Agreement shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 4(d) of this Agreement shall apply. If Executive's
employment is terminated by reason of Executive's death, retirement or voluntary
resignation, the provisions of Section 4(b) of this Agreement shall apply.
(b) Termination for Cause; Termination by Reason of Death
or Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Term (x) by the Company for Cause (as defined
below), (y) by reason of Executive's death or retirement or (z) by reason of
Executive's voluntary resignation, then the Company shall pay to Executive only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) engaging in
any act which, in each case, subjects, or if generally known would subject, the
Company to public ridicule or embarrassment; (iv) gross neglect or misconduct in
the performance of Executive's duties hereunder; (v) willful failure or refusal
to perform such duties as may reasonably be delegated to Executive; or (vi)
material breach of any provision of this Agreement by Executive; provided,
however, that with respect to clauses (iv), (v) or (vi), Executive shall have
received written notice from the Company setting forth the alleged act or
failure to act constituting "Cause" hereunder, and Executive shall not have
cured such act or refusal to act within 10 business days of his actual receipt
of notice.
(c) Disability. If, as a result of Executive's incapacity
due to physical or mental illness, Executive shall have been absent from
Executive's duties hereunder on a full time basis for either (i) one hundred
twenty (120) days within any three hundred sixty-five (365) day period, or (ii)
ninety (90) consecutive days, the Company may terminate Executive's employment
hereunder for "Disability". In that event, the Company shall pay to Executive
only the Base Salary through such date of termination. During any period that
Executive fails to perform Executive's duties hereunder as a result of
incapacity due to physical or mental illness (a "Disability Period"), Executive
shall continue to receive the compensation and benefits provided by Section 3 of
this Agreement until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the
4
Disability Period shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the Company or under
the Social Security disability insurance program.
(d) Termination By Company For Any Other Reason. In the
event that Executive's employment hereunder is terminated by the Company during
the Term for any reason other than as provided in Section 4(b) or 4(c) of this
Agreement, then the Company shall pay to Executive the Base Salary through such
date of termination and, in lieu of any further compensation and benefits for
the balance of the Term, severance pay equal to the Base Salary that Executive
would have otherwise received during the period beginning on such date of
termination and ending on the earlier of (i) six (6) months from the effective
date of such termination and (ii) the last day of the Term, which severance pay
shall be paid commencing with such date of termination at the times and in the
amounts such Base Salary would have been paid. Notwithstanding anything to the
contrary contained herein, in the event that Executive shall breach Section 5 or
6 of this Agreement, in addition to any other remedies the Company may have in
the event Executive breaches this Agreement, the Company's obligation pursuant
to this Section 4(d) to continue such salary shall cease and Executive's rights
thereto shall terminate and shall be forfeited.
(e) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 4 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment pursuant to and in accordance with
this Section 4 (as applicable), the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives shall have no further obligation or liability to Executive
or any other person under this Agreement. The Company shall have the right to
condition the payment of any severance pursuant to this Section 4 upon the
delivery by Executive to the Company of a release in form and substance
satisfactory to the Company of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and the termination of such
employment.
5. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Chief Executive Officer or the
Board of Directors of the Company; provided, however, that Executive shall be
entitled to manage his personal investments and otherwise attend to personal
affairs, including charitable activities, in a manner that does not unreasonably
interfere with his responsibilities hereunder, or (ii) accept any other
employment, whether as an executive or
5
consultant or in any other capacity, and whether or not compensated therefor,
unless Executive receives the prior approval of the Board of Directors.
(b) No Competition. Executive recognizes the highly
competitive nature of the Company's business and that Executive's position with
the Company and access to and use of the Company's confidential records and
proprietary information renders Executive special and unique. Without limiting
the generality of the provisions of Section 2(b) or 5(a) of this Agreement,
during the Term and for a period of one year after the termination of
Executive's employment with the Company for any reason, Executive shall not,
directly or indirectly, own, manage, operate, join, control, participate in,
invest in or otherwise be connected or associated with, in any manner, including
as an officer, director, employee, independent contractor, stockholder, member,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in the United States; provided, however, that
ownership of 2% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
Nasdaq Stock Market, shall not constitute a breach of this Section 4, so long as
Executive does not in fact have the power to control, or direct the management
of, or is not otherwise associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean
any business or venture which, directly or indirectly, engages in a business
that competes with the business of any Related Entity. The term Related Entity
shall include all operating subsidiaries of the Company and all other business
entities in which the Company has an ownership interest, together with all
affiliates thereof.
(c) No Solicitation of Employment. During the Term and for
a period of two years thereafter, Executive shall not solicit or encourage any
employee of the Company or any Related Entity to leave the Company or such
Related Entity for any reason, nor assist any business in doing so, nor employ
such an employee in a Competing Business or any other business.
(d) Company Customers. Executive shall not, during the Term
and for a period of one year thereafter, except as required by the Company in
the performance by Executive of his duties under this Agreement, directly or
indirectly, on behalf of a Competing Business, contact, solicit or do business
with any "customers" (as defined below) of any Related Entity for the purpose of
selling or licensing any product, service, or technology then sold or licensed
by such Related Entity the Company or proposed to be sold or licensed by such
Related Entity. For the purposes of the provisions of this Section 5(d),
"customer" shall include any entity that, within two years prior to the
termination of Executive's employment hereunder, purchased or licensed any
product, service, or technology from such Related Entity. The term "customer"
also includes any former customer or potential customer of a Related Entity
which the Related Entity has solicited within two years prior to the termination
of Executive's employment hereunder for the purpose of selling or licensing any
product, service, or technology then sold or licensed by the Company or proposed
to be sold or licensed.
(e) Executive understands that the provisions of this
Section 5 may limit his ability to earn a livelihood in a business that competes
with the business of the Related Entities but nevertheless agrees and hereby
acknowledges that the consideration provided under
6
this Agreement is sufficient to justify the restrictions contained in such
provisions. In consideration thereof and in light of Executive's education,
skills and abilities, Executive agrees that he will not assert in any forum that
such provisions prevent him from earning a living or otherwise are void or
unenforceable or should be held void or unenforceable.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and
each Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which have
great value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company or any Related Entity to Executive, but
also information developed or learned by Executive during the course or as a
result of employment with the Company, which information shall be the property
of the Company or the applicable Related Entity. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which the Company or any Related Entity is engaged
or contemplates engaging, and all information of which the unauthorized
disclosure could be detrimental to the interests of the Company or any Related
Entity, whether or not such information is specifically labeled as Confidential
Information by such entity. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company or any Related Entity concerning trade
secrets, techniques, know-how (including designs, plans, procedures,
merchandising, marketing, distribution and warehousing know-how, processes, and
research records), software, computer programs and designs, development tools,
all proprietary property, and any other intellectual property created, used or
sold (through a license or otherwise) by the Company or a Related Entity,
electronic data information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, budgets, projections, customer, supplier, licensee, licensor and
subcontractor identities, characteristics, agreements and operating procedures,
and salary, staffing and employment information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company and the Related Entities may disclose to and entrust Executive with
Confidential Information which is the exclusive property of such entities and
which Executive may possess or use only in the performance of Executive's duties
to the Company. Executive also acknowledges that Executive is aware that the
unauthorized disclosure of Confidential Information, among other things, may be
prejudicial to the Company's interests or those of a Related Entity, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership or other entity, individual or other
third party, other than in the course of Executive's assigned duties and for the
benefit of the Company, any Confidential Information, either during the Term or
thereafter. In the event Executive desires to publish the results of Executive's
work for or experiences with the Company or any Related Entity through
literature, interviews or speeches, Executive will submit requests for such
interviews or such literature or speeches to the Chief Executive Officer of the
7
Company at least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Executive agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Executive Officer of the Company.
(c) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company or any Related
Entity, including those which relate to or contain Confidential Information, or
any copies thereof. Upon request or when employment with the Company terminates,
Executive will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of
and be enforceable by, and may be assigned by the Company to, any purchaser of
all or substantially all of the Company's business or assets, any successor to
the Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
(b) Executive. Executive's rights and obligations under
this Agreement shall not be transferable by Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void; provided, however, that if Executive shall die, all amounts then payable
to Executive hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants
that neither Executive's employment with the Company nor Executive's performance
of Executive's obligations hereunder will conflict with or violate or otherwise
are inconsistent with any other obligations, legal or otherwise, which Executive
may have. Executive covenants that he shall perform his duties hereunder in a
professional manner and not in conflict or violation, or otherwise inconsistent
with other obligations legal or otherwise, which Executive may have.
(b) Nondisclosure; Other Employers. Executive will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive does not possess any property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with
the Company for any reason, Executive shall cooperate with the Company, as
requested by the Company, to affect a transition of Executive's responsibilities
and to ensure that the Company is aware of all matters being handled by
Executive.
8
(d) No Duty to Mitigate. Executive shall be under no duty
to mitigate any losses or damage to the Company with respect to any severance or
other amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and
thereafter, Executive agrees that he will take not action which is intended, or
would reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and
submits to the jurisdiction of any state or federal court sitting in the State,
City, and County of New York in connection with any dispute arising out of or
relating to this Agreement. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought in
an inconvenient forum. To the extent permitted by law, any judgment in respect
of a dispute arising out of or relating to this Agreement may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of such judgment being conclusive evidence of the fact and
amount of such judgment.
(h) Waiver of Jury Trial. Each of the parties hereto
irrevocably waives any and all right to trial by jury with respect to any
action, claim or other proceeding arising out of or relating to this Agreement.
(i) Entire Agreement. This Agreement (including all
exhibits and schedules hereto) contains the entire agreement and understanding
between the parties hereto in respect of Executive's employment and supersedes,
cancels and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting Executive's
employment, including all prior employment agreements, if any, between the
Company and Executive, which agreement(s) hereby are terminated and shall be of
no further force or effect.
(j) Amendment. This Agreement may be amended only by a
writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Executive and, on behalf of the Company, by its
duly authorized officer.
(k) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision, covenant or
condition shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited, and the court shall have the power to
modify, to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Executive
9
acknowledges that the provisions of Sections 5 and 6 of this Agreement are
reasonable and necessary for the protection of the Company.
(l) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation." As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 of this Agreement or otherwise. As used
herein, the words "day" or "days" shall mean a calendar day or days.
(m) Nonwaiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(n) Remedies for Breach. The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement special value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including,
without limitation, Sections 5 and 6). Without limiting the generality of the
foregoing, if Executive breaches or threatens to breach Section 5 or 6 of this
Agreement, such breach or threatened breach will entitle the Company, without
posting of bond, to an injunction prohibiting (i) Executive from disclosing any
Confidential Information to any Competing Business; (ii) such Competing Business
from receiving from Executive or using any such Confidential Information; and
(iii) Executive from, indirectly or directly, owning, managing, operating,
joining, controlling, participating in, investing in or otherwise being
connected or associated with, in any manner, any such Competing Business. The
rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
(o) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing,
10
and if and when sent by certified or registered mail, return receipt requested,
with postage prepaid, to Executive's residence (as reflected in the Company's
records or as otherwise designated by Executive on thirty (30) days' prior
written notice to the Company) or to the Company's principal executive office,
attention: President, as the case may be. All such notices, requests, consents
and approvals shall be effective upon being deposited in the United States mail.
However, the time period in which a response thereto must be given shall
commence to run from the date of receipt on the return receipt of the notice,
request, consent or approval by the addressee thereof. Rejection or other
refusal to accept, or the inability to deliver because of changed address of
which no notice was given as provided herein, shall be deemed to be receipt of
the notice, request, consent or approval sent.
(p) Assistance in Proceedings, Etc. Executive shall,
without additional compensation, during and after expiration of the Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(q) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
ATLANTIC TECHNOLOGY VENTURES, INC. EXECUTIVE:
By: /s/ A. Joseph Rudic /s/ Frederic P. Zotos
----------------------- ---------------------
Name: A. Joseph Rudic Frederic P. Zotos
Title: CEO
11
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 10th day of April, 2000, between Atlantic Technology Ventures, Inc. a
Delaware corporation having its executive offices and principal place of
business at 150 Broadway, Suite 1110, New York, New York (the "Company"), and
Nicholas Rossettos, an individual currently residing at 64 Highland Avenue, Apt
18, Winchester, Massachusetts ("Executive").
WHEREAS, the Company desires to employ Executive, and
Executive desires to accept such employment on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Term.
The term of this Agreement shall be the three-year period
commencing on April __, 2000 and ending on April __, 2003 (the "Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company during the Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as an executive of
the Company and shall have such duties as may be prescribed by the Company and
shall serve in such other and/or additional position(s) as the Company may
determine from time to time.
(b) Performance of Duties. Throughout the Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time to the business
and affairs of the Company, subject to vacations and sick leave in accordance
with Company policy and as otherwise permitted herein. Until otherwise
determined by the Company, Executive shall have the title of Chief Financial
Officer of the Company, and in such capacity shall have such authority and
duties as may be assigned by the President or Chief Executive Officer of the
Company and shall report to the President and the Chief Executive Officer of the
Company.
(c) Place of Performance. Executive shall be based
initially at the Company's offices in New York, New York or such other
location(s) in the greater New York area as the Company may determine.
Throughout the Term, Executive shall maintain Executive's personal residence
within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive a
base salary ("Base Salary") at the annual rate of $125,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Signing Bonus. Within thirty days after the execution
of this Agreement, the Company shall pay to Executive a bonus in the amount of
$25,000 (the "Signing Bonus"). Executive shall repay to the Company the Signing
Bonus if Executive is terminated by the Company for Cause (as hereinafter
defined) during the Term or voluntarily resigns his employment hereunder during
the first twelve months of the Term.
(c) Bonus. The Company shall pay to Executive an annual
bonus (the "Bonus") in an amount to be determined by Compensation Committee of
the Board of Directors in its discretion but in no event less than $25,000. In
addition, Executive shall be entitled to participate in any bonus or other
incentive programs as may be established by the Company.
(d) Grant of Options and Terms Thereof. The Company shall
grant to Executive, an option (the "Option"), pursuant to the Company's 1995
Stock Incentive Plan, to purchase fifty thousand (50,000) shares of the
Company's common stock (the "Option Shares"), subject to vesting as set forth
below. The exercise price for each Option Share shall be equal to the market
value of a share of the Company's common stock on the date of the grant of the
Option. The Option Shares shall vest in four equal installments, the first such
installment to vest on the later of the date of the grant of the Option and the
first day of the Term and each subsequent installment to vest, respectively, on
the first, second, and third anniversary of the grant of the Option, provided
that Executive is employed by the Company on each such vesting date.. All other
terms (including exercisability) of the Option shall be governed by the
Company's Stock Incentive Plan, as well as the applicable option agreement to be
entered into pursuant to the terms of such plan.
(e) Benefits and Perquisites. Executive shall be entitled
to participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive, including without limitation family medical
insurance and life insurance (subject to applicable employee contributions).
Executive shall be entitled to four weeks of vacation per year.
(f) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive.
(g) Relocation Expenses. The Company shall reimburse
Executive for such expenses reasonably incurred by Executive in connection with
the relocation of his residence to New York, New York or its immediate vicinity
upon submission of documentation
2
in a form reasonably acceptable to the Company, provided that Executive must
consult with and receive approval from the Company, which approval shall not be
unreasonably withheld, prior to incurring any such expenses. In addition,
Executive shall be entitled to reimbursement of rent and similar temporary
living expenses incurred by him during the first three months of the Term in
connection with his maintenance of a residence in or in the vicinity of New
York, New York to the extent he continues to maintain his current residence in
__________, Massachusetts, provided that Executive must consult with and receive
approval from the Company, which approval shall not be unreasonably withheld,
prior to incurring any such expenses. Executive shall be required to repay to
the Company any relocation and temporary living expenses reimbursed pursuant to
this Section 3(f) if Executive's employment hereunder is terminated (i) by the
Company for Cause during the Term or (ii) as a result of Executive's voluntary
resignation during the first twelve months of the Term.
(h) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in this Section 3 and in Section 4 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time to the
extent the same are consistently applied, including normal payroll practices,
and shall be subject to all applicable employment and withholding taxes and
other withholdings.
(i) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for during the first three months of the Term for any reason or no
reason, in which case the provisions of Section 4(b) of this Agreement shall
apply. The Company may terminate Executive's employment for Cause (as defined
below) or for any breach of this Agreement, in which case the provisions of
Section 4(c) of this Agreement shall apply. The Company may also terminate
Executive's employment in the event of Executive's Disability (as defined
below), in which case the provisions of Section 4(d) of this Agreement shall
apply. The Company may also terminate the Executive's employment for any other
reason by written notice to Executive, in which case the provisions of Section
4(e) of this Agreement shall apply. If Executive's employment is terminated by
reason of Executive's death, retirement or voluntary resignation, the provisions
of Section 4(c) of this Agreement shall apply.
(b) Termination by the Company During Initial Period. In
the event that Executive's employment hereunder is terminated by the Company
during the first three months of the Term (such period to be the "Initial
Period") for any reason or no reason, then the Company shall pay to Executive
only the Base Salary through such date of termination and any expenses incurred
by Executive through the date of such termination and properly reimbursable
pursuant to Section 3(g) hereof.
3
(c) Termination for Cause; Termination by Reason of Death
or Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Term (x) by the Company for Cause (as defined
below), (y) by reason of Executive's death or retirement or (z) by reason of
Executive's voluntary resignation, then the Company shall pay to Executive only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) engaging in
any act which, in each case, subjects, or if generally known would subject, the
Company to public ridicule or embarrassment; (iv) gross neglect or misconduct in
the performance of Executive's duties hereunder; (v) willful failure or refusal
to perform such duties as may reasonably be delegated to Executive; or (vi)
material breach of any provision of this Agreement by Executive; provided,
however, that with respect to clauses (iv), (v) or (vi), Executive shall have
received written notice from the Company setting forth the alleged act or
failure to act constituting "Cause" hereunder, and Executive shall not have
cured such act or refusal to act within 10 business days of his actual receipt
of notice.
(d) Disability. If, as a result of Executive's incapacity
due to physical or mental illness, Executive shall have been absent from
Executive's duties hereunder on a full time basis for either (i) one hundred
twenty (120) days within any three hundred sixty-five (365) day period, or (ii)
ninety (90) consecutive days, the Company may terminate Executive's employment
hereunder for "Disability". In that event, the Company shall pay to Executive
only the Base Salary through such date of termination. During any period that
Executive fails to perform Executive's duties hereunder as a result of
incapacity due to physical or mental illness (a "Disability Period"), Executive
shall continue to receive the compensation and benefits provided by Section 3 of
this Agreement until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Executive under disability benefit plans and programs of the Company
or under the Social Security disability insurance program.
(e) Termination By Company For Any Other Reason. In the
event that Executive's employment hereunder is terminated by the Company during
the Term for any reason other than as provided in Section 4(b), 4(c), or 4(d) of
this Agreement, then the Company shall pay to Executive the Base Salary through
such date of termination and, in lieu of any further compensation and benefits
for the balance of the Term, severance pay equal to the Base Salary that
Executive would have otherwise received during the period beginning on such date
of termination and ending on the earlier of (i) three (3) months from the
effective date of such termination and (ii) the last day of the Term, which
severance pay shall be paid commencing with such date of termination at the
times and in the amounts such Base Salary would have been paid. Notwithstanding
anything to the contrary contained herein, in the event that Executive shall
breach Section 5 or 6 of this Agreement, in addition to any other remedies the
Company may have in the event Executive breaches this Agreement, the Company's
obligation pursuant to this Section 4(e) to continue such salary shall cease and
Executive's rights thereto shall terminate and shall be forfeited.
4
(f) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 4 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment pursuant to and in accordance with
this Section 4 (as applicable), the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives shall have no further obligation or liability to Executive
or any other person under this Agreement. The Company shall have the right to
condition the payment of any severance pursuant to this Section 4 upon the
delivery by Executive to the Company of a release in form and substance
satisfactory to the Company of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and the termination of such
employment.
5. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Chief Executive Officer or the
Board of Directors of the Company; provided, however, that Executive shall be
entitled to manage his personal investments and otherwise attend to personal
affairs, including charitable activities, in a manner that does not unreasonably
interfere with his responsibilities hereunder, or (ii) accept any other
employment, whether as an executive or consultant or in any other capacity, and
whether or not compensated therefor, unless Executive receives the prior
approval of the Board of Directors.
(b) No Competition. Executive recognizes the highly
competitive nature of the Company's business and that Executive's position with
the Company and access to and use of the Company's confidential records and
proprietary information renders Executive special and unique. Without limiting
the generality of the provisions of Section 2(b) or 5(a) of this Agreement,
during the Term and for a period of one year after the termination of
Executive's employment with the Company for any reason, Executive shall not,
directly or indirectly, own, manage, operate, join, control, participate in,
invest in or otherwise be connected or associated with, in any manner, including
as an officer, director, employee, independent contractor, stockholder, member,
partner, consultant, advisor, agent, proprietor, trustee or investor, any
Competing Business located in the United States; provided, however, that
ownership of 2% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
Nasdaq Stock Market, shall not constitute a breach of this Section 4, so long as
Executive does not in fact have the power to control, or direct the management
of, or is not otherwise associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean
any business or venture which, directly or indirectly, engages in a business
that competes with the business of
5
any Related Entity. The term Related Entity shall include all operating
subsidiaries of the Company and all other business entities in which the Company
has an ownership interest, together with all affiliates thereof.
(c) No Solicitation of Employment. During the Term and for
a period of two years thereafter, Executive shall not solicit or encourage any
employee of the Company or any Related Entity to leave the Company or such
Related Entity for any reason, nor assist any business in doing so, nor employ
such an employee in a Competing Business or any other business.
(d) Company Customers. Executive shall not, during the Term
and for a period of one year thereafter, except as required by the Company in
the performance by Executive of his duties under this Agreement, directly or
indirectly, on behalf of a Competing Business, contact, solicit or do business
with any "customers" (as defined below) of any Related Entity for the purpose of
selling or licensing any product, service, or technology then sold or licensed
by such Related Entity the Company or proposed to be sold or licensed by such
Related Entity. For the purposes of the provisions of this Section 5(d),
"customer" shall include any entity that, within two years prior to the
termination of Executive's employment hereunder, purchased or licensed any
product, service, or technology from such Related Entity. The term "customer"
also includes any former customer or potential customer of a Related Entity
which the Related Entity has solicited within two years prior to the termination
of Executive's employment hereunder for the purpose of selling or licensing any
product, service, or technology then sold or licensed by the Company or proposed
to be sold or licensed.
(e) Executive understands that the provisions of this
Section 5 may limit his ability to earn a livelihood in a business that competes
with the business of the Related Entities but nevertheless agrees and hereby
acknowledges that the consideration provided under this Agreement is sufficient
to justify the restrictions contained in such provisions. In consideration
thereof and in light of Executive's education, skills and abilities, Executive
agrees that he will not assert in any forum that such provisions prevent him
from earning a living or otherwise are void or unenforceable or should be held
void or unenforceable.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and
each Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which have
great value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company or any Related Entity to Executive, but
also information developed or learned by Executive during the course or as a
result of employment with the Company, which information shall be the property
of the Company or the applicable Related Entity. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which the Company or any Related Entity is engaged
or contemplates engaging, and all information of which the unauthorized
disclosure could be detrimental to the interests of the Company or any Related
Entity, whether or not such information is specifically labeled as Confidential
Information by such entity. By way of example and without limitation,
Confidential Information includes any
6
and all information developed, obtained, licensed by or to or owned by the
Company or any Related Entity concerning trade secrets, techniques, know-how
(including designs, plans, procedures, merchandising, marketing, distribution
and warehousing know-how, processes, and research records), software, computer
programs and designs, development tools, all proprietary property, and any other
intellectual property created, used or sold (through a license or otherwise) by
the Company or a Related Entity, electronic data information know-how and
processes, innovations, discoveries, improvements, research, development, test
results, reports, specifications, data, formats, marketing data and plans,
business plans, strategies, forecasts, unpublished financial information,
orders, agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, budgets, projections, customer,
supplier, licensee, licensor and subcontractor identities, characteristics,
agreements and operating procedures, and salary, staffing and employment
information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company and the Related Entities may disclose to and entrust Executive with
Confidential Information which is the exclusive property of such entities and
which Executive may possess or use only in the performance of Executive's duties
to the Company. Executive also acknowledges that Executive is aware that the
unauthorized disclosure of Confidential Information, among other things, may be
prejudicial to the Company's interests or those of a Related Entity, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership or other entity, individual or other
third party, other than in the course of Executive's assigned duties and for the
benefit of the Company, any Confidential Information, either during the Term or
thereafter. In the event Executive desires to publish the results of Executive's
work for or experiences with the Company or any Related Entity through
literature, interviews or speeches, Executive will submit requests for such
interviews or such literature or speeches to the Chief Executive Officer of the
Company at least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Executive agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Executive Officer of the Company.
(c) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company or any Related
Entity, including those which relate to or contain Confidential Information, or
any copies thereof. Upon request or when employment with the Company terminates,
Executive will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of
and be enforceable by, and may be assigned by the Company to, any purchaser of
all or substantially all of the Company's business or assets, any successor to
the Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
7
(b) Executive. Executive's rights and obligations under
this Agreement shall not be transferable by Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void; provided, however, that if Executive shall die, all amounts then payable
to Executive hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants
that neither Executive's employment with the Company nor Executive's performance
of Executive's obligations hereunder will conflict with or violate or otherwise
are inconsistent with any other obligations, legal or otherwise, which Executive
may have. Executive covenants that he shall perform his duties hereunder in a
professional manner and not in conflict or violation, or otherwise inconsistent
with other obligations legal or otherwise, which Executive may have.
(b) Nondisclosure; Other Employers. Executive will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive does not possess any property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with
the Company for any reason, Executive shall cooperate with the Company, as
requested by the Company, to affect a transition of Executive's responsibilities
and to ensure that the Company is aware of all matters being handled by
Executive.
(d) No Duty to Mitigate. Executive shall be under no duty
to mitigate any losses or damage to the Company with respect to any severance or
other amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and
thereafter, Executive agrees that he will take not action which is intended, or
would reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and
submits to the jurisdiction of any state or federal court sitting in the State,
City, and County of New York in connection with any dispute arising out of or
relating to this Agreement. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought in
an inconvenient forum. To the extent permitted by law, any judgment in respect
of a dispute arising out of or relating to this Agreement may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of such judgment being conclusive evidence of the fact and
amount of such judgment.
8
(h) Waiver of Jury Trial. Each of the parties hereto
irrevocably waives any and all right to trial by jury with respect to any
action, claim or other proceeding arising out of or relating to this Agreement.
(i) Entire Agreement. This Agreement (including all
exhibits and schedules hereto) contains the entire agreement and understanding
between the parties hereto in respect of Executive's employment and supersedes,
cancels and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting Executive's
employment, including all prior employment agreements, if any, between the
Company and Executive, which agreement(s) hereby are terminated and shall be of
no further force or effect.
(j) Amendment. This Agreement may be amended only by a
writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Executive and, on behalf of the Company, by its
duly authorized officer.
(k) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision, covenant or
condition shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited, and the court shall have the power to
modify, to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Executive acknowledges
that the provisions of Sections 5 and 6 of this Agreement are reasonable and
necessary for the protection of the Company.
(l) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation." As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 of this Agreement or otherwise. As used
herein, the words "day" or "days" shall mean a calendar day or days.
(m) Nonwaiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
9
(n) Remedies for Breach. The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement special value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including,
without limitation, Sections 5 and 6). Without limiting the generality of the
foregoing, if Executive breaches or threatens to breach Section 5 or 6 of this
Agreement, such breach or threatened breach will entitle the Company, without
posting of bond, to an injunction prohibiting (i) Executive from disclosing any
Confidential Information to any Competing Business; (ii) such Competing Business
from receiving from Executive or using any such Confidential Information; and
(iii) Executive from, indirectly or directly, owning, managing, operating,
joining, controlling, participating in, investing in or otherwise being
connected or associated with, in any manner, any such Competing Business. The
rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
(o) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when sent by certified or registered
mail, return receipt requested, with postage prepaid, to Executive's residence
(as reflected in the Company's records or as otherwise designated by Executive
on thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: President, as the case may be. All such
notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail. However, the time period in which a
response thereto must be given shall commence to run from the date of receipt on
the return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(p) Assistance in Proceedings, Etc. Executive shall, without additional
compensation, during and after expiration of the Term, upon reasonable notice,
furnish such information and proper assistance to the Company as may reasonably
be required by the Company in connection with any legal or quasi-legal
proceeding, including any external or internal investigation, involving the
Company or any of its affiliates or in which any of them is, or may become, a
party.
(q) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
ATLANTIC TECHNOLOGY VENTURES, INC. EXECUTIVE:
By: /s/ A. Joseph Rudick /s/ Nicholas Rossettos
------------------------ ----------------------
Name: A. Joseph Rudick Nicholas Rossettos
Title: CEO
11
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York as of
the 15th day of May, 2000, between Atlantic Technology Ventures, Inc. a Delaware
corporation having its executive offices and principal place of business at 150
Broadway, Suite 1110, New York, New York (the "Company"), and Walter Glomb, an
individual currently residing at 1 Oakwood Circle, Ellington, CT 06029
("Executive").
WHEREAS, the Company desires to employ Executive, and Executive
desires to accept such employment on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Term.
The term of this Agreement shall be the three-year period
commencing on May 15, 2000 and ending on May 15, 2003 (the "Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be employed
by the Company during the Term upon the terms and subject to the conditions set
forth in this Agreement. Executive shall serve as an executive of the Company
and shall have such duties as may be prescribed by the Company and shall serve
in such other and/or additional position(s) as the Company may determine from
time to time.
(b) Performance of Duties. Throughout the Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time to the business
and affairs of the Company, subject to vacations and sick leave in accordance
with Company policy and as otherwise permitted herein. Until otherwise
determined by the Company, Executive shall have the title of Vice President of
the Company, and in such capacity shall have such authority and duties as may be
assigned by the President or Chief Executive Officer of the Company and shall
report to the President and the Chief Executive Officer of the Company.
(c) Place of Performance. Executive shall be based initially
at an office in the greater Hartford, Connecticut area. During his employment
with the Company, Executive will work at the Company's offices in New York, New
York, as necessary or appropriate (as determined in the Company's sole
discretion), to or at such other location(s) in the greater New York area as the
Company may determine. Throughout the Term, Executive shall maintain Executive's
personal residence within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive a base
salary ("Base Salary") at the annual rate of $125,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Bonus. The Company shall pay to Executive an annual bonus
(the "Bonus") in an amount to be determined by Compensation Committee of the
Board of Directors in its discretion but in no event less than $25,000. In
addition, Executive shall be entitled to participate in any bonus or other
incentive programs as may be established by the Company.
(c) Grant of Options and Terms Thereof. The Company shall
grant to Executive, an option (the "Option"), pursuant to the Company's 1995
Stock Incentive Plan, to purchase fifty thousand (50,000) shares of the
Company's common stock (the "Option Shares"), subject to vesting as set forth
below. The exercise price for each Option Share shall be equal to the market
value of a share of the Company's common stock on the date of the grant of the
Option. The Option Shares shall vest in four equal installments, the first such
installment to vest on the later of the date of the grant of the Option and the
first day of the Term and each subsequent installment to vest, respectively, on
the first, second, and third anniversary of the grant of the Option, provided
that Executive is employed by the Company on each such vesting date.. All other
terms (including exercisability) of the Option shall be governed by the
Company's Stock Incentive Plan, as well as the applicable option agreement to be
entered into pursuant to the terms of such plan.
(d) Benefits and Perquisites. Executive shall be entitled to
participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive, including without limitation family medical
insurance and life insurance (subject to applicable employee contributions).
Executive shall be entitled to four weeks of vacation per year.
(e) Travel and Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of Executive's duties
under this Agreement in accordance with the policies and procedures established
by the Company from time to time for executives of the same level and
responsibility as Executive.
(f) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in this Section 3 and in Section 4 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time to the
extent the same are consistently applied, including normal payroll practices,
and shall be subject to all applicable employment and withholding taxes and
other withholdings.
(g) Cessation of Employment. In the event Executive shall
cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall
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cease on the date of such event, except as otherwise provided herein or in any
tapplicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Executive's
employment for Cause (as defined below) or for any breach of this Agreement, in
which case the provisions of Section 4(b) of this Agreement shall apply. The
Company may also terminate Executive's employment in the event of Executive's
Disability (as defined below), in which case the provisions of Section 4(c) of
this Agreement shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 4(d) of this Agreement shall apply. If Executive's
employment is terminated by reason of Executive's death, retirement or voluntary
resignation, the provisions of Section 4(b) of this Agreement shall apply.
(b) Termination for Cause; Termination by Reason of Death or
Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Term (x) by the Company for Cause (as defined
below), (y) by reason of Executive's death or retirement or (z) by reason of
Executive's voluntary resignation, then the Company shall pay to Executive only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) engaging in
any act which, in each case, subjects, or if generally known would subject, the
Company to public ridicule or embarrassment; (iv) gross neglect or misconduct in
the performance of Executive's duties hereunder; (v) willful failure or refusal
to perform such duties as may reasonably be delegated to Executive; or (vi)
material breach of any provision of this Agreement by Executive; provided,
however, that with respect to clauses (iv), (v) or (vi), Executive shall have
received written notice from the Company setting forth the alleged act or
failure to act constituting "Cause" hereunder, and Executive shall not have
cured such act or refusal to act within 10 business days of his actual receipt
of notice.
(c) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) one hundred twenty (120)
days within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, the Company may terminate Executive's employment hereunder for
"Disability". In that event, the Company shall pay to Executive only the Base
Salary through such date of termination. During any period that Executive fails
to perform Executive's duties hereunder as a result of incapacity due to
physical or mental illness (a "Disability Period"), Executive shall continue to
receive the compensation and benefits provided by Section 3 of this Agreement
until Executive's employment hereunder is terminated; provided, however, that
the amount of compensation and benefits received by Executive during the
Disability Period shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the Company or under
the Social Security disability insurance program.
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(d) Termination By Company For Any Other Reason. In the event
that Executive's employment hereunder is terminated by the Company during the
Term for any reason other than as provided in Section 4(b) or 4(c) of this
Agreement, then the Company shall pay to Executive the Base Salary through such
date of termination and, in lieu of any further compensation and benefits for
the balance of the Term, severance pay equal to the Base Salary that Executive
would have otherwise received during the period beginning on such date of
termination and ending on the earlier of (i) six (6) months from the effective
date of such termination and (ii) the last day of the Term, which severance pay
shall be paid commencing with such date of termination at the times and in the
amounts such Base Salary would have been paid. Notwithstanding anything to the
contrary contained herein, in the event that Executive shall breach Section 5 or
6 of this Agreement, in addition to any other remedies the Company may have in
the event Executive breaches this Agreement, the Company's obligation pursuant
to this Section 4(d) to continue such salary shall cease and Executive's rights
thereto shall terminate and shall be forfeited.
(e) Release. Payment made and performance by the Company in
accordance with this Section 4 shall operate to fully discharge and release the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives from any further
obligation or liability with respect to Executive's employment and termination
of employment. Other than paying Executive's Base Salary through the date of
termination of Executive's employment and making any severance payment pursuant
to and in accordance with this Section 4 (as applicable), the Company and its
directors, officers, employees, subsidiaries, affiliates, stockholders,
successors, assigns, agents and representatives shall have no further obligation
or liability to Executive or any other person under this Agreement. The Company
shall have the right to condition the payment of any severance pursuant to this
Section 4 upon the delivery by Executive to the Company of a release in form and
substance satisfactory to the Company of any and all claims Executive may have
against the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives
arising out of or related to Executive's employment by the Company and the
termination of such employment.
5. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the President, Chief Executive
Officer or the Board of Directors of the Company; provided, however, that
Executive shall be entitled to manage his personal investments and otherwise
attend to personal affairs, including charitable activities, in a manner that
does not unreasonably interfere with his responsibilities hereunder, or (ii)
accept any other employment, whether as an executive or consultant or in any
other capacity, and whether or not compensated therefor, unless Executive
receives the prior approval of the Board of Directors.
(b) No Competition. Executive recognizes the highly
competitive nature of the Company's business and that Executive's position with
the Company and access to
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and use of the Company's confidential records and proprietary information
renders Executive special and unique. Without limiting the generality of the
provisions of Section 2(b) or 5(a) of this Agreement, Executive shall not (i)
during the Term and for a period of one year after the termination of
Executive's employment with the Company for any reason, directly or indirectly,
own, manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, independent contractor, stockholder, member, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business located
in the United States or (ii) during the Term and for a period of two years after
the termination of Executive's employment with the Company for any reason, own,
manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, independent contractor, stockholder, member, partner, consultant,
advisor, agent, proprietor, trustee or investor, any business using
superconducting films for fiber optic applications; provided, however, that
ownership of 2% or less of the stock or other securities of a corporation, the
stock of which is listed on a national securities exchange or is quoted on The
Nasdaq Stock Market, shall not constitute a breach of this Section 4, so long as
Executive does not in fact have the power to control, or direct the management
of, or is not otherwise associated with, such corporation.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which, directly or indirectly, engages in a business that
competes with the business of the Company or any Related Entity. The term
Related Entity shall include all operating subsidiaries of the Company and all
other business entities in which the Company has an ownership interest, together
with all affiliates thereof.
(c) No Solicitation of Employment. During the Term and for a
period of two years thereafter, Executive shall not solicit or encourage any
employee of the Company or any Related Entity to leave the Company or such
Related Entity for any reason, nor assist any business in doing so, nor employ
such an employee in a Competing Business or any other business.
(d) Company Customers. Executive shall not, during the Term
and for a period of two years thereafter, except as required by the Company in
the performance by Executive of his duties under this Agreement, directly or
indirectly , on behalf of a Competing Business, contact, solicit or do business
with any "customers" (as defined below) of the Company or any Related Entity for
the purpose of selling or licensing any product, service, or technology then
sold or licensed by such Related Entity or the Company or proposed to be sold or
licensed by such Related Entity or the Company. For the purposes of the
provisions of this Section 5(d), "customer" shall include any entity that,
within two years prior to the termination of Executive's employment hereunder,
purchased or licensed any product, service, or technology from such Related
Entity or the Company. The term "customer" also includes any former customer or
potential customer of a Related Entity or the Company which the Related Entity
or the Company has solicited within two years prior to the termination of
Executive's employment hereunder for the purpose of selling or licensing any
product, service, or technology then sold or licensed by the Company or any
Related Entity or proposed to be sold or licensed.
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(e) Executive understands that the provisions of this Section
5 may limit his ability to earn a livelihood in a business that competes with
the business of the Related Entities but nevertheless agrees and hereby
acknowledges that the consideration provided under this Agreement is sufficient
to justify the restrictions contained in such provisions. In consideration
thereof and in light of Executive's education, skills and abilities, Executive
agrees that he will not assert in any forum that such provisions prevent him
from earning a living or otherwise are void or unenforceable or should be held
void or unenforceable.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and
each Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which have
great value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company or any Related Entity to Executive, but
also information developed or learned by Executive during the course or as a
result of employment with the Company, which information shall be the property
of the Company or the applicable Related Entity. Confidential Information
includes all information that has or could have commercial value or other
utility in the businesses in which the Company or any Related Entity is engaged
or contemplates engaging, and all information of which the unauthorized
disclosure could be detrimental to the interests of the Company or any Related
Entity, whether or not such information is specifically labeled as Confidential
Information by such entity. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company or any Related Entity concerning trade
secrets, techniques, know-how (including designs, plans, procedures,
merchandising, marketing, distribution and warehousing know-how, processes, and
research records), software, computer programs and designs, development tools,
all proprietary property, and any other intellectual property created, used or
sold (through a license or otherwise) by the Company or a Related Entity,
electronic data information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, budgets, projections, customer, supplier, licensee, licensor and
subcontractor identities, characteristics, agreements and operating procedures,
and salary, staffing and employment information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of Executive's duties hereunder
the Company and the Related Entities may disclose to and entrust Executive with
Confidential Information which is the exclusive property of such entities and
which Executive may possess or use only in the performance of Executive's duties
to the Company. Executive also acknowledges that Executive is aware that the
unauthorized disclosure of Confidential Information, among other things, may be
prejudicial to the Company's interests or those of a Related Entity, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership or other entity, individual or other
third party, other than in the course of Executive's assigned duties and for the
benefit of the Company, any Confidential Information, either during the Term or
thereafter. In
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the event Executive desires to publish the results of Executive's work for or
experiences with the Company or any Related Entity through literature,
interviews or speeches, Executive will submit requests for such interviews or
such literature or speeches to the Chief Executive Officer of the Company at
least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Executive agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Executive Officer of the Company.
(c) Intellectual Property. All inventions, innovations or
improvements (including policies, procedures, products, improvements, software,
ideas and discoveries, whether patent, copyright, trademark, service mark, or
otherwise) conceived or made by Executive, either alone or jointly with others,
in the course of his employment by the Company, and any derivatives of any such
inventions, innovations, or improvements, belong to the Company. Executive shall
promptly disclose to the Company in writing all such inventions, innovations or
improvements and perform all actions reasonably requested by the Company to
establish and confirm ownership by the Company, including, but not limited to,
cooperating with and assisting the Company in obtaining patents, copyrights,
trademarks, or service marks for the Company in the United States and in foreign
countries. Executive agrees that any application filed by Executive within one
year after the termination of his employment hereunder will be presumed to
constitute an invention that was made during his employment unless he can
provide evidence satisfactory to the Company to the contrary.
(d) Delivery of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records
(written or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company or any Related
Entity, including those which relate to or contain Confidential Information, or
any copies thereof. Upon request or when employment with the Company terminates,
Executive will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and
be enforceable by, and may be assigned by the Company to, any purchaser of all
or substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
-7-
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants that
neither Executive's employment with the Company nor Executive's performance of
Executive's obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other obligations, legal or otherwise, which Executive may
have. Executive covenants that he shall perform his duties hereunder in a
professional manner and not in conflict or violation, or otherwise inconsistent
with other obligations legal or otherwise, which Executive may have.
(b) Nondisclosure; Other Employers. Executive will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive does not possess any property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with the
Company for any reason, Executive shall cooperate with the Company, as requested
by the Company, to affect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(d) No Duty to Mitigate. Executive shall be under no duty to
mitigate any losses or damage to the Company with respect to any severance or
other amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and thereafter,
Executive agrees that he will take not action which is intended, or would
reasonably be expected, to harm the Company or its reputation or which would
reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and
submits to the jurisdiction of any state or federal court sitting in the State,
City, and County of New York in connection with any dispute arising out of or
relating to this Agreement. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought in
an inconvenient forum. To the extent permitted by law, any judgment in respect
of a dispute arising out of or relating to this Agreement may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of such judgment being conclusive evidence of the fact and
amount of such judgment.
(h) Waiver of Jury Trial. Each of the parties hereto
irrevocably waives any and all right to trial by jury with respect to any
action, claim or other proceeding arising out of or relating to this Agreement.
(i) Entire Agreement. This Agreement (including all exhibits
and schedules hereto) contains the entire agreement and understanding between
the parties hereto in
-8-
respect of Executive's employment and supersedes, cancels and annuls any prior
or contemporaneous written or oral agreements, understandings, commitments and
practices between them respecting Executive's employment, including all prior
employment agreements, if any, between the Company and Executive, which
agreement(s) hereby are terminated and shall be of no further force or effect.
(j) Amendment. This Agreement may be amended only by a writing
which makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(k) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision, covenant or
condition shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited, and the court shall have the power to
modify, to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Executive acknowledges
that the provisions of Sections 5 and 6 of this Agreement are reasonable and
necessary for the protection of the Company.
(l) Construction. The headings and captions of this Agreement
are provided for convenience only and are intended to have no effect in
construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation." As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 of this Agreement or otherwise. As used
herein, the words "day" or "days" shall mean a calendar day or days.
(m) Nonwaiver. Neither any course of dealing nor any failure
or neglect of either party hereto in any instance to exercise any right, power
or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(n) Remedies for Breach. The parties hereto agree that
Executive is obligated under this Agreement to render personal services during
the Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement special value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive
-9-
relief or any other equitable remedy against Executive, without the posting of a
bond, in the event of any breach or threatened breach of any provision of this
Agreement by Executive (including, without limitation, Sections 5 and 6).
Without limiting the generality of the foregoing, if Executive breaches or
threatens to breach Section 5 or 6 of this Agreement, such breach or threatened
breach will entitle the Company, without posting of bond, to an injunction
prohibiting (i) Executive from disclosing any Confidential Information to any
Competing Business; (ii) such Competing Business from receiving from Executive
or using any such Confidential Information; and (iii) Executive from, indirectly
or directly, owning, managing, operating, joining, controlling, participating
in, investing in or otherwise being connected or associated with, in any manner,
any such Competing Business. The rights and remedies of the parties hereto are
cumulative and shall not be exclusive, and each such party shall be entitled to
pursue all legal and equitable rights and remedies and to secure performance of
the obligations and duties of the other under this Agreement, and the
enforcement of one or more of such rights and remedies by a party shall in no
way preclude such party from pursuing, at the same time or subsequently, any and
all other rights and remedies available to it.
(o) Notices. Any notice, request, consent or approval required
or permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: President, as the case may be. All such
notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail. However, the time period in which a
response thereto must be given shall commence to run from the date of receipt on
the return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(p) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(q) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder.
-10-
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
ATLANTIC TECHNOLOGY VENTURES, INC. EXECUTIVE:
By: Frederic P. Zotos /s/ Walter Glomb
---------------------- ----------------------
Name: Frederic P. Zotos Walter Glomb
Title: President
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made in New York, New York
as of the 18th day of April, 2000, between Atlantic Technology Ventures, Inc. a
Delaware corporation having its offices and principal place of business at 150
Broadway, Suite 1110, New York, New York (the "Company"), and Kelly Harris, an
individual currently residing at 3084 Peachtree Ct, Woodbridge, VA 22192
("Employee").
WHEREAS, the Company desires to employ Employee, and Employee
desires to accept such employment on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements hereinafter set forth, the Company and Employee agree as follows:
1. Term.
The term of this Agreement shall be period commencing on March
__, 2000 and ending on the date Employee's employment is terminated in
accordance with the terms hereof (the "Term").
2. Employment.
(a) Employment by the Company. Employee agrees to be
employed by the Company during the Term upon the terms and subject to the
conditions set forth in this Agreement. Employee shall serve as an employee of
the Company and shall have such duties as may be prescribed by the Company and
shall serve in such other and/or additional position(s) as the Company may
determine from time to time.
(b) Performance of Duties. Throughout the Term, Employee
shall faithfully and diligently perform Employee's duties in conformity with the
directions of the Company and serve the Company to the best of Employee's
ability. Employee shall devote Employee's entire working time to the business
and affairs of the Company, subject to vacations and sick leave in accordance
with Company policy and as otherwise permitted herein. Until otherwise
determined by the Company, Employee shall have the title of Director of
Administration of the Company, and in such capacity shall be responsible for
such duties as may be assigned by the Company and shall report to the President
of the Company.
(c) Place of Performance. Employee shall be based initially
at the Company's offices in New York, New York or such other location(s) in the
greater New York area as the Company may determine. Throughout the Term,
Employee shall maintain Employee's personal residence within reasonable access
to Employee's place of employment.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Employee a
base salary ("Base Salary") at the annual rate of $40,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Signing Bonus. Within thirty days after the execution
of this Agreement, the Company shall pay to Employee a bonus in the amount of
$10,000 (the "Signing Bonus"). Employee shall repay to the Company the Signing
Bonus if Employee is terminated by the Company for Cause (as hereinafter
defined) during the Term or voluntarily resigns her employment hereunder during
the first twelve months of the Term.
(c) Bonus. The Company shall pay to Employee an annual
bonus (the "Bonus") in an amount to be determined by Compensation Committee of
the Board of Directors in its discretion but in no event less than $10,000. In
addition, Employee shall be entitled to participate in any bonus or other
incentive programs as may be established by the Company.
(d) Grant of Options and Terms Thereof. The Company shall
grant to Employee, an option (the "Option"), pursuant to the Company's 1995
Stock Incentive Plan, to purchase twenty thousand (20,000) shares of the
Company's common stock (the "Option Shares"), subject to vesting as set forth
below. The exercise price for each Option Share shall be equal to the market
value of a share of the Company's common stock on the date of the grant of the
Option. The Option Shares shall vest in four equal installments, the first such
installment to vest on the later of the date of the grant of the Option and the
first day of the Term and each subsequent installment to vest, respectively, on
the first, second, and third anniversary of the grant of the Option, provided
that Employee is employed by the Company on each such vesting date. All other
terms (including exercisability) of the Option shall be governed by the
Company's Stock Incentive Plan, as well as the applicable option agreement to be
entered into pursuant to the terms of such plan.
(e) Benefits and Perquisites. Employee shall be entitled to
participate in, to the extent Employee is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to the Company's employees, including without
limitation family medical insurance and life insurance (subject to applicable
employee contributions). Employee shall be entitled to four weeks of vacation
per year.
(f) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner specified by the Company, Employee
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Employee in the performance of Employee's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for employees of the Company.
(g) Relocation Expenses. The Company shall reimburse
Employee for such expenses reasonably incurred by Employee in connection with
the relocation of her residence to New York, New York or its immediate vicinity
upon submission of documentation
2
in a form reasonably acceptable to the Company, provided that Employee must
consult with and receive approval from the Company, which approval shall not be
unreasonably withheld, prior to incurring any such expenses. Employee shall be
required to repay to the Company any relocation expenses reimbursed pursuant to
this Section 3(f) if Employee's employment hereunder is terminated (i) by the
Company for Cause or as a result of Employee's voluntary resignation during the
first twelve months of the Term.
(h) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in this Section 3 and in Section 4 of this
Agreement shall be in lieu of any and all other compensation and benefits.
Payment of all compensation and benefits to Employee hereunder shall be made in
accordance with the relevant Company policies in effect from time to time to the
extent the same are consistently applied, including normal payroll practices,
and shall be subject to all applicable employment and withholding taxes and
other withholdings.
(i) Cessation of Employment. In the event Employee shall
cease to be employed by the Company for any reason, then Employee's compensation
and benefits shall cease on the date of such event, except as otherwise provided
herein or in any applicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Employee's
employment for during the first three months of the Term for any reason or no
reason, in which case the provisions of Section 4(b) of this Agreement shall
apply. The Company may terminate Employee's employment for Cause (as defined
below) or for any breach of this Agreement, in which case the provisions of
Section 4(c) of this Agreement shall apply. The Company may also terminate
Employee's employment in the event of Employee's Disability (as defined below),
in which case the provisions of Section 4(d) of this Agreement shall apply. The
Company may also terminate the Employee's employment for any other reason by
written notice to Employee, in which case the provisions of Section 4(e) of this
Agreement shall apply. If Employee's employment is terminated by reason of
Employee's death, retirement or voluntary resignation, the provisions of Section
4(c) of this Agreement shall apply.
(b) Termination by the Company During Initial Period. In
the event that Employee's employment hereunder is terminated by the Company
during the first three months of the Term (such period to be the "Initial
Period") for any reason or no reason, then the Company shall pay to Employee
only the Base Salary through such date of termination and any expenses incurred
by Employee through the date of such termination and properly reimbursable
pursuant to Section 3(g) hereof.
(c) Termination for Cause; Termination by Reason of Death
or Retirement or Voluntary Resignation. In the event that Employee's employment
hereunder is terminated during the Term (x) by the Company for Cause (as defined
below), (y) by reason of Employee's death or retirement or (z) by reason of
Employee's voluntary resignation, then the Company shall pay to Employee only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any
3
substantiated act involving moral turpitude; (iii) engaging in any act which, in
each case, subjects, or if generally known would subject, the Company to public
ridicule or embarrassment; (iv) gross neglect or misconduct in the performance
of Employee's duties hereunder; (v) willful failure or refusal to perform such
duties as may reasonably be delegated to Employee; or (vi) material breach of
any provision of this Agreement by Employee; provided, however, that with
respect to clauses (iv), (v) or (vi), Employee shall have received written
notice from the Company setting forth the alleged act or failure to act
constituting "Cause" hereunder, and Employee shall not have cured such act or
refusal to act within 10 business days of her actual receipt of notice.
(d) Disability. If, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from
Employee's duties hereunder on a full time basis for either (i) one hundred
twenty (120) days within any three hundred sixty-five (365) day period, or (ii)
ninety (90) consecutive days, the Company may terminate Employee's employment
hereunder for "Disability". In that event, the Company shall pay to Employee
only the Base Salary through such date of termination. During any period that
Employee fails to perform Employee's duties hereunder as a result of incapacity
due to physical or mental illness (a "Disability Period"), Employee shall
continue to receive the compensation and benefits provided by Section 3 of this
Agreement until Employee's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Employee
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Employee under disability benefit plans and programs of the Company
or under the Social Security disability insurance program.
(e) Termination By Company For Any Other Reason. In the
event that Employee's employment hereunder is terminated by the Company during
the Term for any reason other than as provided in Section 4(b), 4(c), or 4(d) of
this Agreement, then the Company shall pay to Employee the Base Salary through
such date of termination and, in lieu of any further compensation and benefits
for the balance of the Term, severance pay equal to the Base Salary that
Employee would have otherwise received during the period beginning on such date
of termination and ending one (1) month from the effective date of such
termination, which severance pay shall be paid commencing with such date of
termination at the times and in the amounts such Base Salary would have been
paid. Notwithstanding anything to the contrary contained herein, in the event
that Employee shall breach Section 5 or 6 of this Agreement, in addition to any
other remedies the Company may have in the event Employee breaches this
Agreement, the Company's obligation pursuant to this Section 4(e) to continue
such salary shall cease and Employee's rights thereto shall terminate and shall
be forfeited.
(f) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 4 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Employee's employment and termination of employment. Other than paying
Employee's Base Salary through the date of termination of Employee's employment
and making any severance payment pursuant to and in accordance with this Section
4 (as applicable), the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives shall have no further obligation or liability to Employee or any
other person
4
under this Agreement. The Company shall have the right to condition the payment
of any severance pursuant to this Section 4 upon the delivery by Employee to the
Company of a release in form and substance satisfactory to the Company of any
and all claims Employee may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of or related to Employee's
employment by the Company and the termination of such employment.
5. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Employee's employment with the Company, Employee shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Employee's duties hereunder nor shall Employee engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Chief Employee Officer or the
Board of Directors of the Company; provided, however, that Employee shall be
entitled to manage her personal investments and otherwise attend to personal
affairs, including charitable activities, in a manner that does not unreasonably
interfere with her responsibilities hereunder, or (ii) accept any other
employment, whether as an Employee or consultant or in any other capacity, and
whether or not compensated therefor, unless Employee receives the prior approval
of the President of the Company.
(b) No Solicitation of Employment. During the Term and for
a period of one year thereafter, Employee shall not solicit or encourage any
employee of the Company or any Related Entity to leave the Company or such
Related Entity for any reason, nor assist any business in doing so, nor employ
such an employee in a Competing Business or any other business.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and
each Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which have
great value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company or any Related Entity to Employee, but also
information developed or learned by Employee during the course or as a result of
employment with the Company, which information shall be the property of the
Company or the applicable Related Entity. Confidential Information includes all
information that has or could have commercial value or other utility in the
businesses in which the Company or any Related Entity is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company or any Related Entity, whether or
not such information is specifically labeled as Confidential Information by such
entity. By way of example and without limitation, Confidential Information
includes any and all information developed, obtained, licensed by or to or owned
by the Company or any Related Entity concerning trade secrets, techniques,
know-how (including designs, plans, procedures, merchandising, marketing,
distribution and warehousing know-how, processes, and research records),
software, computer programs and designs, development tools, all proprietary
property, and any other intellectual property created, used or sold (through a
license or
5
otherwise) by the Company or a Related Entity, electronic data information
know-how and processes, innovations, discoveries, improvements, research,
development, test results, reports, specifications, data, formats, marketing
data and plans, business plans, strategies, forecasts, unpublished financial
information, orders, agreements and other forms of documents, price and cost
information, merchandising opportunities, expansion plans, budgets, projections,
customer, supplier, licensee, licensor and subcontractor identities,
characteristics, agreements and operating procedures, and salary, staffing and
employment information.
(b) Protection of Confidential Information. Employee
acknowledges and agrees that in the performance of Employee's duties hereunder
the Company and the Related Entities may disclose to and entrust Employee with
Confidential Information which is the exclusive property of such entities and
which Employee may possess or use only in the performance of Employee's duties
to the Company. Employee also acknowledges that Employee is aware that the
unauthorized disclosure of Confidential Information, among other things, may be
prejudicial to the Company's interests or those of a Related Entity, an invasion
of privacy and an improper disclosure of trade secrets. Employee shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership or other entity, individual or other
third party, other than in the course of Employee's assigned duties and for the
benefit of the Company, any Confidential Information, either during the Term or
thereafter. In the event Employee desires to publish the results of Employee's
work for or experiences with the Company or any Related Entity through
literature, interviews or speeches, Employee will submit requests for such
interviews or such literature or speeches to the Chief Employee Officer of the
Company at least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Employee agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Employee Officer of the Company.
(c) Delivery of Records, Etc. In the event Employee's
employment with the Company ceases for any reason, Employee will not remove from
the Company's premises without its prior written consent any records (written or
electronic), files, drawings, documents, equipment, materials and writings
received from, created for or belonging to the Company or any Related Entity,
including those which relate to or contain Confidential Information, or any
copies thereof. Upon request or when employment with the Company terminates,
Employee will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of
and be enforceable by, and may be assigned by the Company to, any purchaser of
all or substantially all of the Company's business or assets, any successor to
the Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise).
(b) Employee. Employee's rights and obligations under this
Agreement shall not be transferable by Employee by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Employee shall die, all amounts then payable to
Employee hereunder shall be paid in accordance with the
6
terms of this Agreement to Employee's devisee, legatee or other designee or, if
there be no such designee, to Employee's estate.
8. Miscellaneous.
(a) Other Obligations. Employee represents and warrants
that neither Employee's employment with the Company nor Employee's performance
of Employee's obligations hereunder will conflict with or violate or otherwise
are inconsistent with any other obligations, legal or otherwise, which Employee
may have. Employee covenants that she shall perform her duties hereunder in a
professional manner and not in conflict or violation, or otherwise inconsistent
with other obligations legal or otherwise, which Employee may have.
(b) Nondisclosure; Other Employers. Employee will not
disclose to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Employee represents and warrants that Employee does not possess any property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(c) Cooperation. Following termination of employment with
the Company for any reason, Employee shall cooperate with the Company, as
requested by the Company, to affect a transition of Employee's responsibilities
and to ensure that the Company is aware of all matters being handled by
Employee.
(d) No Duty to Mitigate. Employee shall be under no duty to
mitigate any losses or damage to the Company with respect to any severance or
other amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and
thereafter, Employee agrees that she will take not action which is intended, or
would reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and
submits to the jurisdiction of any state or federal court sitting in the State,
City, and County of New York in connection with any dispute arising out of or
relating to this Agreement. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought in
an inconvenient forum. To the extent permitted by law, any judgment in respect
of a dispute arising out of or relating to this Agreement may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified copy of such judgment being conclusive evidence of the fact and
amount of such judgment.
(h) Waiver of Jury Trial. Each of the parties hereto
irrevocably waives any and all right to trial by jury with respect to any
action, claim or other proceeding arising out of or relating to this Agreement.
7
(i) Entire Agreement. This Agreement (including all
exhibits and schedules hereto) contains the entire agreement and understanding
between the parties hereto in respect of Employee's employment and supersedes,
cancels and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting Employee's
employment, including all prior employment agreements, if any, between the
Company and Employee, which agreement(s) hereby are terminated and shall be of
no further force or effect.
(j) Amendment. This Agreement may be amended only by a
writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Employee and, on behalf of the Company, by its
duly authorized officer.
(k) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision, covenant or
condition shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited, and the court shall have the power to
modify, to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Employee acknowledges
that the provisions of Sections 5 and 6 of this Agreement are reasonable and
necessary for the protection of the Company.
(l) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Employee. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation." As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 of this Agreement or otherwise. As used
herein, the words "day" or "days" shall mean a calendar day or days.
(m) Nonwaiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(n) Remedies for Breach. The parties hereto agree that
Employee is obligated under this Agreement to render personal services during
the Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement special value, and, in the event of a
breach or threatened breach of any covenant of Employee herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be
8
reasonably or adequately compensated in damages in an action at law.
Accordingly, Employee expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Employee, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Employee (including,
without limitation, Sections 5 and 6). Without limiting the generality of the
foregoing, if Employee breaches or threatens to breach Section 5 or 6 of this
Agreement, such breach or threatened breach will entitle the Company, without
posting of bond, to an injunction prohibiting (i) Employee from disclosing any
Confidential Information to any Competing Business; (ii) such Competing Business
from receiving from Employee or using any such Confidential Information; and
(iii) Employee from, indirectly or directly, owning, managing, operating,
joining, controlling, participating in, investing in or otherwise being
connected or associated with, in any manner, any such Competing Business. The
rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
(o) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when sent by certified or registered
mail, return receipt requested, with postage prepaid, to Employee's residence
(as reflected in the Company's records or as otherwise designated by Employee on
thirty (30) days' prior written notice to the Company) or to the Company's
principal Employee office, attention: President, as the case may be. All such
notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail. However, the time period in which a
response thereto must be given shall commence to run from the date of receipt on
the return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
(p) Assistance in Proceedings, Etc. Employee shall, without
additional compensation, during and after expiration of the Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(q) Survival. Cessation or termination of Employee's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Employee and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Employee's employment hereunder.
9
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Employee has duly executed this Agreement, all as of the date and year first
written above.
ATLANTIC TECHNOLOGY VENTURES, INC. EMPLOYEE:
By: /s/ A. Joseph Rudick /s/ Kelly Harris
----------------------- -------------------------
Name: A. Joseph Rudick Kelly Harris
Title: CEO
10
