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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: May 31, 1999
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Commission File Number 33-96638-A
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eCom eCom.com, Inc.
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(Name of Small Business Issuer as specified in its charter)
Florida 65-0538051
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8125 Monetary Drive, Suite H4
Riviera Beach, Florida 33404
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (561) 622-4395
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __
Registrant's revenues for its most recent fiscal year were $288,613.
As of May 31, 1999, there were 12,883,600 shares of the registrant's $.0001
par value common stock issued and 12,883,600 shares outstanding.
Transitional Small Business Disclosure Format Used (Check one) Yes No X
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TABLE OF CONTENTS
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PART I
Item 1. Business of the Company 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 9
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7. Financial Statements 15
Item 8. Disagreements on Accounting and Financial Disclosures 15
PART III
Item 9. Directors and Executive Officers of the Registrant 15
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial
Owners and Management 18
Item 12. Certain Relationships and Related Transactions 19
Item 13. Exhibits, Financial Statements
and Reports on Form 8-K 21
Additional Information* 22
* This document incorporates into a single document the requirements of the
Securities and Exchange Commission for the Annual Report to Stockholders and
the Form 10-KSB.
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Special Note Regarding Forward-Looking Statements
Certain statements in this report and elsewhere (such as in other filings by
the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended
to identify these forward-looking statements. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that might cause or contribute to such differences
include, among others, competitive pressures, the growth rate of the paintball
industry and electronic commerce, constantly changing technology and market
acceptance of the Company's products and services. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements, which may be made to reflect events of
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. BUSINESS OF THE COMPANY
ecom ecom.com, inc. ("ECOM") and its direct and indirect wholly-owned
subsidiaries, US Amateur Sports Company ("USASC") and USA Performance
Products, Inc. ("USAPP") combined, are usually referred to as "we", "us" or
"ECOM". We are located at 8125 Monetary Drive, Suite H4, Riviera Beach,
Florida 33404, and our telephone number is (561) 622-4395.
USASC owns USAPP, a paintball gun manufacturer, and it is developing USA
SportsNet, an Internet portal for amateur athletes to access sports
information, products and services. All American Sports Classics, another
business unit of USASC, is being developed to present all-star games and
championship team events designed to showcase leading amateur athletes in a
wide range of sports. Company-produced events will be intended to provide
content for the growing number of television sports channels and for USA
SportsNet. We plan to use these events and other Company-sponsored sports
activities to promote all of the segments of our business.
ECOM develops Internet e-commerce enterprises. It is the parent of the
eCom eCom Trading Club and the US Amateur Sports Company. eCom eCom Trading
Club, which is carving its niche in the Internet auction industry,
differentiates itself from other auction sites, such as eBay, by functioning
as a membership club and by providing swapping and classified listings to its
members.
ECOM was incorporated on June 14, 1994 in the State of Florida and was
originally named US Amateur Sports, Inc. ("USAS"). Our initial plans included
the development of a sports complex dedicated to amateur athletes and the
development of a sports training and fitness complex. We were unable to raise
sufficient capital to develop these concepts. However, the marketing program
proposed to promote the business of these concepts included use of the
Internet based on early recognition of the marketing power inherent in this
medium and the low cost of entry. In seeking to capitalize on use of the
Internet, our management proposed to develop the USA SportsNet concept. We
also acquired rights to the Viper M1 paintball marker and related assets with
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the intention to market paintball products over the Internet. This led to
formation of the USAPP subsidiary.
Our experience in marketing the Viper M1 over the Internet confirmed our
management's belief that focus on electronic commerce would provide the
greatest opportunity for future development of our business, and on January
27, 1999, we changed our name to ecom ecom.com, inc. in the belief that this
name more accurately reflects the nature of our intended core business,
electronic commerce. US Amateur Sports Company then became a wholly-owned
subsidiary of ECOM, and USA Performance Products, Inc. became a wholly-owned
subsidiary of US Amateur Sports Company. In addition, the assets of the USA
SportsNet business unit were transferred into US Amateur Sports Company.
The purpose of these changes was to provide a structure that would
maximize our ability to pursue certain e-commerce concepts that extend beyond
the amateur sports market.
Investors are warned that our business strategy includes a novel use of
the Internet, and despite the recent success of other Internet-related
companies, there can be no assurance that we will be successful.
Electronic Commerce and the eCom eCom Trading Club
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The Internet is growing to become a part of everyday life in the world of
commerce. Our strategy is to capitalize on the need to facilitate commerce
through the use of the Internet. We developed and currently operate the eCom
eCom Trading Club ("Trading Club"), located on the Internet at
www.ecomecom.com. The grand opening of the Trading Club occurred on April 29,
1999. The goal of the Trading Club is to make e-commerce easy through an
Internet site that provides three primary formats for bringing together
individual buyers and sellers. Use of the Trading Club is free to members who
wish to bid on items posted in the first venue, the eCom eCom Auction, or who
wish to use the two other venues, the classified ad and swapping facilities.
The eCom eCom Auction allows anyone with a personal computer to reach
potential buyers all over the world to auction off any item to the highest
bidder. Unlike other auction sites, the Trading Club does not charge for
listing items to be auctioned and does not charge a percentage of the value of
items sold. Members who wish to sell items through the auction are charged an
annual fee.
The second venue, "AClassifiedAd," offers goods and services through a
format modeled after traditional newspaper classified advertising. Finally,
the third venue is "Swap and Shop," a forum where users can list items they
wish to acquire and what they are willing to barter.
The AClassifiedAd and Swap and Shop websites were acquired in February
1999 to broaden the scope of the Trading Club's services and to provide
additional benefits and incentives to attract Trading Club members. A factory
outlet concept is planned for addition to the Trading Club. This feature will
be attractive to businesses that want to sell excess inventory or discontinued
items or to businesses that simply want to establish an Internet presence
without investing in their own site.
In order to buy or sell items through the Trading Club, individuals must
first register for membership. Registration and use of the site by buyers and
browsers is a free service. For members who wish to sell items through use of
the Auction, there will be an annual fee of $36 for individuals and $100 for
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businesses which allows unlimited listings. For members who wish to list
items or services in the AClassifiedAd or the Swap and Shop forums, there is
no fee.
Membership registration is a matter of completing a simple on-line form,
including contact information and optional personal information. Once
registered, a member may list items or services in any of the three forums.
When listing an item in the Auction forum, the member selects from a variety
of selling categories (e.g., "Antiques") in which he would like the item
listed. He can then insert scanned or electronically downloaded photographs
of the item and a text describing the item in the seller's words. The seller
may optionally elect enhanced selling features, such as bold item headings,
for a nominal fee. The seller then selects the auction format, ranging from
the traditional English auction procedure, in which "reserves" (similar to
minimum bids) are allowed, to a Dutch auction format, commonly used for
selling quantities of like items wherein the items are sold for a single
"market" price which is determined using a bid format.
As of the end of July 1999, the Trading Club had attracted approximately
35,000 members. In order to build its membership, the Trading Club will not
charge its members any fee (including the seller's fee) until November 1,
1999. However, ECOM plans to generate revenues during the intervening period
by acquiring close-out inventories and selling these products through the
auction site. It is anticipated the Company may not yield a direct profit,
but it is expected to help generate more interest in the site. As membership
grows, we think that the Trading Club site will become increasingly attractive
to other merchants, and that advertising will become a significant source of
our revenues.
In June, 1999 the Trading Club website was inaccessible due to technical
reasons of which the Company was unaware existed. While investigating and
remedying the cause, the Company made certain design and functional changes
over a three week period before the site was returned to operation. Although
the Company makes every effort to eliminate these occurrences, there can be no
assurances they will not recur.
USA Performance Products, Inc. (USAPP)
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USAPP is a wholly-owned subsidiary that markets paintball products and
produces and sells the Viper M1 paintball marker and accessories. The
subsidiary was incorporated in the State of Florida on January 20, 1998 in
order to segregate the business unit's operations and accounts and to
facilitate management's focus on development of our paintball business. Right
now, substantially all of our revenues have come from the sale of paintball
guns and related accessories.
Paintball is a sport in which each contestant attempts to remove the
other contestants from the game by marking them with a capsule from the
paintball marker while at the same time trying to avoid being removed from the
game himself. The game can be played either indoors or outdoors and, except
for the paintball marker and face mask, it does not require extensive
equipment. There are many different ways to play paintball. In general, a
player uses the marker to "shoot" at other players or at specific targets. It
is most often played as a team event. Some universities have adopted the
sport as a course offering for the teaching of team building skills.
Corporations view the game as an opportunity for employees to increase
leadership and communication skills, to exercise and to have fun. Paintball,
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conceived in 1981, is played in over 40 countries and has its own annual World
Cup event.
Through acquisition and redesign, we obtained our first product, the
Viper M1 paintball marker, along with a line of associated parts and
accessories. In 1996, we purchased certain assets of Performance Paintball
Products, Inc. of Riviera Beach, Florida. These assets consist of inventory,
property and equipment, including the tools and dies necessary to manufacture
the Viper M1. The assets also include exclusive rights to the related names
and technology.
We initially subcontracted the manufacture and assembly of the Viper M1
paintball products to a company that proved to lack the capacity to produce
the paintball marker in quantities sufficient to meet demand. In order to
increase production quantities, we moved our headquarters in June 1998 from
Palm Beach Gardens, Florida to approximately 6,000 square feet of leased
commercial space in Riviera Beach. The creation of an in-house production
capability has allowed us to grow to meet demand for the marker.
Having demonstrated the ability to manufacture the product in-house,
advertising efforts are being expanded to increase penetration of this segment
of the paintball market. To date, the majority of Viper M1 sales have been
through our e-commerce program. However, we have also contracted for
advertising in the leading paintball-related magazines and trade journals.
The popularity of paintball has created a market for equipment,
accessories, clothing and protective gear. To respond to this opportunity, we
are linking the power of toll-free telecommunications with the global reach of
the Internet. We own the rights to use of the toll-free telephone number,
1-800-PAINTBALL, and the Internet address, www.800paintball.com, which leads
to USAPP's paintball website. We plan to use the advertising advantages
inherent in the combination of these two forms of electronic commerce to
penetrate as many sectors of the paintball market as possible.
Although the impact of the expanded advertising program has not yet been
realized, we currently have a backlog of approximately 80 orders for the Viper
M1 marker and accessories, and over 1,000 orders for paintball products are
being received each month. Depending on the availability of money, we think
that we will be able to manufacture and sell Viper M1 markers at the rate of
1,000 units per month by September 1999.
USA SportsNet
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USA SportsNet is an Internet portal concept that is intended to enable
amateur athletes and their high school and youth athletic organizations to
access information, products and services to support their sports activities.
Through USA SportsNet, scores, standings, schedules and highlights of local
amateur athletic competitions can be posted free of charge by any community
recreation department, youth league or school. Local organizations can use
the site to sell advertising to raise funds for their programs. This local
information is intended to appear adjacent to features of interest to athletes
everywhere within a sports meeting place that offers a resource never
available before. Currently, the existing site offers an online
correspondence course that provides youth sports organizations with a
convenient and cost-effective means of ensuring that volunteers are qualified
to coach young athletes. It is anticipated that benefits of this concept will
allow aspiring athletes to learn how to throw a curve ball, receive tips from
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the pros, find the best deals on sports equipment, and even view film of their
own sports achievements.
Responsibility for posting information of local interest will reside with
local athletic organizations, while portions of the website of interest to all
athletes will be maintained by us. We intend to retain the services of sports
celebrities to promote the concept and to answer the questions posed by young
athletes.
We believe that the USA SportsNet grassroots approach will attract
millions of visitors from a market that we estimate to include approximately
one hundred million amateur athletes, traversing all demographics. We expect
the site to become a popular place for the merchants who are drawn to the
amateur sports market. We then expect to generate revenue from advertising in
addition to the sale of products through the website.
During the past fiscal year, development of the USA SportsNet concept was
deferred in order to focus on our other electronic commerce concepts. However,
the online correspondence course is presently available and is maintained
through an agreement with the North American Youth Sport Institute.
All American Sports Classics
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We are in the process of developing a new product, "All American Sports
Classics," to present all-star games and championship team events designed to
showcase leading amateur athletes in a wide range of sports. Company-produced
events will provide content for the growing number of television sports
channels and for USA SportsNet. Our first event in the series, the national
high school football All American Bowl, was played on July 5, 1997 and
broadcasted to over 40 million households across the nation via the Sunshine
Network, Fox SportsNet regional affiliates and other local networks. A severe
storm that hit the game site in Palm Beach Gardens, Florida disrupted sales of
tickets, programs, tee shirts and other memorabilia, and the event resulted in
a financial loss. However, the excitement of the game, which featured big
plays and a close score, celebrity coaches, the top college football recruits
in the nation and a very professional presentation by the Sunshine Network,
made the event an artistic success. The next presentation of the All American
Bowl is now planned for 2000.
Major sponsors of the 1997 All American Bowl included Coca-Cola, Adidas
and Schutt Sports. We think that the very positive response to the game in
1997 is an indication that this event has the potential to attract sufficient
sponsorship in the future to contribute to Company profitability. However, we
view all of the events that are produced or sponsored by us as opportunities
to promote our business, regardless of whether a particular event proves to be
profitable.
Competition
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We currently or potentially compete with a number of other companies.
Our direct competitors include various online person-to-person auction
services, including Yahoo! Auctions Powered by Onsale and Excite, Inc., both
of which are free to sellers and buyers, eBay, Auction Universe and a number
of other small services, including those that serve specialty or regional
markets such as CityAuction. We also compete indirectly with
business-to-consumer online auction services such as Onsale, First Auction,
Surplus Auction and uBid. A number of traditional auction companies,
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including Butterfield & Butterfield and Sotheby's, are offering or have
announced plans to create or have merged with existing Internet auction sites.
We potentially face competition in the Internet commerce business from a
number of large online communities and services that have expertise in
developing online commerce and in facilitating online person-to-person
interaction. Amazon.com recently announced the opening of Amazon.com
Auctions, a service on its website where users can buy and sell goods similar
to those available to our members. Some of these potential competitors,
including America Online, Inc. ("AOL"), Lycos, Inc. and Microsoft Corporation,
currently offer business-to-consumer trading services and classified ad
services. Some of these companies also may introduce person-to-person trading
to their large user populations. Other large companies with strong brand
recognition and experience in online commerce, such as Cendant Corporation,
QVC, USA Network and large newspaper or media companies, also may seek to
compete in the online auction market. The principal competitive factors in
our market include financial backing, volume of transactions and selection of
goods, community cohesion and interaction, system reliability, customer
service, reliability of delivery and payment by users, brand recognition,
website convenience and accessibility, level of service fees and quality of
search tools.
There is a substantial number of known production paintball markers
presently in the marketplace, in addition to custom-made markers. Some or all
may be more established and better funded than us. Some of these competitors
include Brass Eagle (formerly Daisy Manufacturing), Tippman, Kingman, WORR
Products, Air Design, National Paintball, 888 Paintball and many other smaller
competitors.
There are countless numbers of sports-related sites on the Internet,
including ESPN and the major networks. They offer everything from scores,
news, schedules, standings, personal interviews with stars, products,
services, handicapping, trading cards, contests and a sundry of gimmicks to
entice visitors. A main source of these connections from the on-line services
to various on-line sports-related websites is through "search engines" with
which we are registered. Also, proper links and listings with heavily
traveled sites produce visitors. We will employ a full time Web specialist to
keep abreast of links and site management. E-mail is utilized for immediate
response to customers with product literature sent by e-mail, fax or regular
mail.
In order to respond to changes in the competitive environment, we may,
from time to time, make pricing, service or marketing decisions or
acquisitions that could harm our business. New technologies may increase the
competitive pressures by enabling our competitors to offer a lower cost
service. Some Web-based applications that direct Internet traffic to certain
websites may channel potential members to trading services that compete with
us.
The All American Sports Classics series must gain the attention of sports
fans who now can choose from a huge variety of sports events available locally
or accessed via television, radio or the Internet. However, the All American
Sports Classics are intended to spotlight athletes and teams who are
overlooked by these other events. The only competition for other national
high school sports events known to management is the McDonalds Boys Basketball
and Nike Girls Basketball series. Although there exist a number of regional
and state all-star football games in various parts of the country, some of
which are televised on a local or regional basis, the All American Bowl is the
only national football all-star game in the country for high school seniors.
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ITEM 2. PROPERTIES
We do not own any real property. On June 15, 1998, we relocated to a
commercial space in Riviera Beach, Florida consisting of approximately 5,720
square feet. This location houses our offices and provides facilities for the
manufacture and warehousing of our paintball products. The term of the lease
is for three years and one half month ending June 30, 2001. An initial rental
rate of $5.66 per square foot adjusts to $6.29 in the second year and $6.92 in
the third year. The Company anticipates that growth will require additional
office space, and management is evaluating leasing an additional 1,000-2,000
square feet of office space in Palm Beach Gardens at an annual lease rate of
$20-$30 per square foot.
We maintain inventories which consist of merchandise acquired for sale by
USA SportsNet in addition to paintball markers (guns) and accessories. We own
tools, dies and fixtures for the manufacturing of paintball products. Other
properties consist of computer hardware and software and furniture, fixtures
and equipment.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any material legal proceedings or litigation and
the officers and directors are aware of no other pending litigation which
would have a material, adverse effect on eCom.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
(a) Market for Common Equity
The Company's common stock is traded on the Over the Counter Bulletin
Board under the symbol "ECEC".
The following is a table of the high and low bid prices of the Company's
stock for each of the four quarters for the fiscal year ended May 31, 1999:
Quarter Ended High Low
5/1999 $21.5 $0.9375
2/1999 2.625 0.10
11/1998 0.437 0.14
8/1998 1.062 0.365
These quotations reflect interdealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Security Holders
The Company has approximately 155 shareholders of record.
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(c) Dividends
There have been no cash dividends declared or paid since the inception of
the Company, and no cash dividends are contemplated to be paid in the
foreseeable future. The Company may consider a potential dividend in the
future in either common stock or the stock of future operating subsidiaries.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATION
Overview
We believe that our company has just entered into the most exciting phase
of its development with the opportunity to become a major player in a huge and
rapidly expanding market. The year ended May 31, 1999 was marked by changes
that have significantly broadened the scope and potential of our business
concept.
Corporate Restructuring
On December 17, 1998, our directors voted to change the name of the
company from US Amateur Sports, Inc. to ecom ecom.com, inc. in the belief that
the proposed name more accurately reflected the nature of our core business,
electronic commerce. At a Special Meeting of Shareholders held on January 25,
1999, our shareholders approved an amendment to the Articles of Incorporation
in order to adopt the new name. At that time, Form 8-K was filed with the
Securities and Exchange Commission to inform the Commission of this event, and
the name change became effective on January 27, 1999.
Also on January 27, 1999, Articles of Incorporation of US Amateur Sports
Company were filed with the State of Florida. US Amateur Sports Company
became a wholly-owned subsidiary of ecom ecom.com,inc., and USA Performance
Products, Inc. became a wholly-owned subsidiary of US Amateur Sports Company.
In addition, the assets of the USA SportsNet business were transferred into US
Amateur Sports Company.
We believe that this new corporate structure and identity focuses on the
greatest opportunity for the future development of our business and our most
successful growth strategy to date, the use of the Internet. These changes
maximize our ability to pursue e-commerce concepts that extend beyond the
amateur sports market.
Electronic Commerce
From the inception of US Amateur Sports, we have been confident of the
viability of an amateur sports network on the Internet that would serve as a
portal for amateur athletes worldwide to access sports information, products
and services to support their activities. This portal, USA SportsNet, would
include a site available to local community recreation departments, youth
leagues and schools to post scores, standings, schedules and highlights of
local amateur athletic activities free of charge. This approach is designed
to build a high volume of Internet traffic which we believe will make USA
SportsNet attractive to sports-oriented merchants.
In September 1998, we entered into an agreement with the North American
Youth Sport Institute (NAYSI) and its founder and director, Dr. Jack Hutslar,
under which NAYSI granted exclusive rights to present the NAYSI coaches course
on USA SportsNet in return for 100,000 shares of restricted common stock. In
connection with a profit-sharing agreement, Dr. Hutslar provides consultation
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services to ensure that the content of the course and its related text is kept
current. Founded in 1979, NAYSI has developed curricula for national training
programs that enroll over one million youngsters annually, and it has trained
more than 30,000 coaches and teachers in live training sessions. Availability
of the coaches course on USA SportsNet provides a tool for local sports
organizations to strengthen the abilities of the volunteers who coach young
athletes.
After the addition of the NAYSI course, further development of USA
SportsNet was deferred in order to focus on other electronic commerce
concepts. We then embarked on a program to accelerate development of our
Internet assets through the use of strategic alliances, independent
contractors and personnel additions combined with acquisition of existing
Internet properties.
Following the name change and restructuring, we announced our plans for
the eCom eCom Trading Club. To build on the popularity of the on-line auction
concept and provide Internet consumers with a full-service, secure and
economical site to conduct their e-commerce activities, the Trading Club was
constructed at www.ecomecom.com. By making the concept a club with free
membership and fees limited to an annual charge of $36 for consumers who are
entitled to post an unlimited number of items for sale, we expect to generate
repeat visits from consumers who will then become aware of our other on-line
products and services.
In February 1999, we acquired the AClassifiedAd web site and the Swap and
Shop web site. These acquisitions included the rights to the completed
technology, customer lists and domain names of each site. Addition of these
web sites broadened the scope of the Trading Club's services to include a
newspaper classified advertising format and a facility that enables members to
swap their items.
The grand opening of the Trading Club occurred on April 29, 1999.
Revenues from members who choose to sell items through our auction will not
commence until November 1999 because the selling fee has been waived until
then in order to encourage membership growth. During the intervening period,
we plan to begin generating revenues by acquiring close-out inventories and
selling these products through the auction site. Although this may not result
in direct profit, it is seen as a method to generate interest in the site.
Paintball
To date, substantially all of our revenues have come from the sale of
paintball guns ("markers") and related accessories. During the current fiscal
year, we moved production of the Viper M1 from a subcontractor to in-house
facilities. This has enhanced our control over production, and we expect to
rapidly expand our production capability over the coming year. The effect of
this change has already been reflected in our performance. The first units
assembled in-house were completed in November 1998. Sales volume increased
from one quarter to the next throughout the past year, and over 76% of the
current year revenues were recorded in the second half of the year.
During the third quarter, we acquired the right to use the toll-free
telephone number, 1-800-PAINTBALL. We also registered the Internet domain
name 800paintball.com and a number of related domain names. We plan to use
the advertising advantages inherent in the combination of these two forms of
electronic commerce to penetrate as many sectors of the paintball market as
possible.
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Paintball magazines provide the primary venue for advertising within the
industry, but our use of this medium to date has been minimal because our web
site has generated a demand for the Viper M1 product line that exceeded our
manufacturing resources. We expect that our new 800-PAINTBALL print
advertising program, combined with our enhanced production capability, will
accelerate the growth in paintball sales over the coming year. Moreover, the
Company is adding to its paintball product line by distributing other
manufacturers' paintball products. This allows the Company to substantially
leverage the Viper M1 into other paintball product sales.
Funding
Limited financial resources have substantially restrained the growth of
our company. We have been forced to rely on revenues, stockholder loans and
capital contributions from the private sale of restricted stock and the
exchange of stock for services. Although these financial sources have allowed
us to gradually establish and expand our business, they are not sufficient to
enable us to achieve the aggressive goals that we have set for the company.
Investment Agreement
On May 13, 1999, we entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz"). In
July 1999 we signed an Amended and Restated Investment Agreement with Swartz.
Any reference to the "Investment Agreement" in this Prospectus shall mean the
Amended and Restated Investment Agreement. Pursuant to the terms of the
Investment Agreement, we may, in our sole discretion and subject to certain
restrictions, periodically sell ("Put") shares of ECOM's Common Stock for up
to $30,000,000 upon the effective registration of such Put shares and
continuing for a period of thirty-six months thereafter. The Investment
Agreement requires us to sell Common Stock to Swartz at times which we decide
are advantageous. The Investment Agreement is not a debt instrument. Any Put
exercised by us is the sale of Common Stock and not a loan.
PUT RIGHTS. An advance put notice must be delivered to Swartz at least
ten days prior to the date that we intend to sell the Common Stock to Swartz.
The advance put notice must state the put date as well as the number of shares
of Common Stock that we intend to put to Swartz. The notice may also state a
minimum purchase price per share which cannot be greater than 80% of the
closing bid price of our Common Stock on the date of the advance put notice.
After the registration statement registering the put shares is declared
effective, the number of shares Swartz may be required to purchase in a given
Put will be the lesser of the actual number of shares we intend to sell to
Swartz as set forth in the Advance Put Notice and the Individual Put Limit.
The Individual Put Limit is equal to the lesser of (i) 15% of the sum of the
aggregate daily reported trading volumes in the outstanding Common Stock on
our principal market, excluding any block trades of 20,000 or more shares of
Common Stock for all evaluation days in the pricing period; (ii) the number of
Put Shares which, when multiplied by their respective Put Share Prices, equals
the Maximum Put Dollar Amount (the lesser of the maximum put amount set forth
in our Advance Put Notice or $10,000,000); or (iii) 9.9% of the total amount
of our Common Stock that would be outstanding upon completion of the Put. The
purchase price for the Put Shares will be equal to the lesser of the Market
Price for such Put minus $.25 or 92% of the Market Price (lowest closing bid
price for the Common Stock on the principal market during the twenty day
pricing period), but in no event can it be less than our designated minimum
put share price as set forth in the Advance Put Notice.
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We must cancel a particular put between the date of the advance put
notice and the last day of the pricing period if:
- we discover an undisclosed material fact relevant to Swartz's
investment decision;
- the registration statement registering resales of the common shares
becomes ineffective; or
- shares are delisted from the then primary exchange.
However, we will be required to issue Common Shares equal to the number of
shares which equals the lesser of (i) 17.5% of the sum of the daily reported
trading volume in our Common Stock on our Principal Market on each business
day during the shortened pricing period where the lowest intra-day trading
price of our Common Stock is greater than or equal to the minimum put share
price plus $.25 or the minimum put share price divided by .92, (ii) the number
of Put Shares which when multiplied by their Put Share Prices equals the
Maximum Dollar Put Amount, and (iii) 9.9% of our total Common Stock
outstanding upon completion of the Put.
If we have not put a minimum of $1,000,000 in aggregate Put Dollar Amount
during any six month period of time during the term of the Investment
Agreement, we, in consideration of Swartz's commitment costs, will be required
to pay Swartz a non-usage fee equal to the difference of $100,000 minus 10% of
the aggregate Put Dollar Amount of the Put Shares put to Swartz during such
six month period. In the event that we deliver a termination notice to Swartz
or an automatic termination occurs, we must pay Swartz a termination fee equal
to the difference of $200,000 minus 10% of the aggregate Put Dollar Amount of
the Put Shares put to Swartz during all Puts to such date.
Comparison of Results of Operations - Year Ended May 31, 1998 vs. Year Ended
May 31, 1999:
Revenue for the year ended May 31, 1999 was $228,613 compared to
$149,582. All current period revenue consisted of sales of the paintball
products, including the Viper M1 paintball and therefore, the 53% increase is
attributable to the Company's paintball operations.
Cost of products sold increased $47,356, or 47%, as a result of the
growth in sales of the Viper M1. An increase of $153,078 in sales and
marketing consisted of expenditures designed to promote the eCom eCom Trading
Club in addition to increased advertising of the Viper M1 paintball marker.
Product development expenses are associated with the Company's creation of the
Trading Club internet site, which development began in 1999. General and
administrative expenses increased $64,711, or 27%, as a result of necessary
administrative support for a larger base of operations and expected future
growth. Growth in rent, depreciation, office and other operating expenses was
created by relocation and equipping of our headquarters, while focus on
development of our Internet properties caused professional fees and product
development expense to grow. Acquisition of Internet properties, including
the AClassifiedAd and Swap and Shop web sites, plus purchase of the right to
use the toll-free number 1-800-PAINTBALL, resulted in increased expense to
amortize these intangible assets. Because no All American Bowl was ultimately
produced by the Company in the current year, only $8,230 of comparable costs
were incurred in 1999 compared to $69,794 in 1998. A decrease of $4,640 in
interest expense was created by the replacement of interest-bearing debt with
non-interest-bearing stockholder loans.
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No provision for federal and state income taxes has been recorded because
our company has incurred net operating losses since inception. Our net
operating loss carry-forwards as of May 31, 1999 total $920,006. These carry-
forwards will be available to offset future taxable income. If not used, the
operating loss carry-forwards will expire from 2010 to 2014. We do not
believe that the realization of the related deferred income tax assets meets
the criteria required by generally accepted accounting principles and,
accordingly, deferred income tax assets have been reduced to $0 as of May 31,
1999.
Liquidity and Capital Resources
At May 31, 1999, current assets totaled $296,654 compared to $216,592 at
the prior year end. Accounts receivable increased $11,840 due to the growth in
paintball sales. An increase of $70,738 in inventories consisted of paintball
inventories, reflecting the growth in the Company's paintball operation. A
reduction of $18,831 in prepaid expense resulted primarily from expensing
amounts paid for advertising.
Current liabilities dropped from $272,518 at May 31, 1998 to $236,620 at
the current year end. Accounts payable decreased slightly from $131,704 to
$130,683, but $30,214 of the current portion of notes payable and $4,663 of
the related portion of accrued interest were eliminated from the prior year
balance.
Net cash used by operating activities was $400,150 and $167,275 for the
years ended May 31, 1999 and 1998, respectively. The principal use of cash in
both periods was to fund our net loss from operations. Other significant uses
of cash in the current year provided the increases in inventories and accounts
receivable.
Net cash used by investing activities was $168,882 during the year ended
May 31, 1999 and $34,372 during the prior year. All of the investment cash
used during the prior year was used to purchase property and equipment.
During the current year $51,220 was used to acquire property and equipment,
and $57,662 was used for the acquisition of intangible assets.
Net cash provided by financing activities was $585,347 and $290,379 for
the years ended May 31, 1999 and 1998, respectively. Increased capital
contributions from private sales of restricted stock and the exchange of stock
for services produced current year cash flows of $451,021. Loans from
stockholders, which bear no interest, continued to be a significant source of
capital to fund operations, but these cash flows were offset by reductions in
notes payable.
We believe that the combination of revenues, loans from stockholders and
capital contributions will be sufficient to fund operations for the next
twelve months. As discussed above, we have entered into an agreement designed
to provide us with an equity line of credit to be used to finance the
expansion of our business through acquisitions and internal growth. However,
the amount of common stock we can require Swartz to purchase is tied to the
market for our common stock. Consequently, if market volume and price decline,
so does the amount of common stock we can put to Swartz. To the extent that
additional funds are required to support operations or to expand our business,
we may sell additional equity, issue debt or obtain other credit facilities
through financial institutions. Any sale of additional equity securities will
result in dilution to our shareholders. There can be no assurance that
additional financing, if required, will be available to the company in amounts
or on terms that are acceptable.
14
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Year 2000 Issue
We are aware of the impact that the two-digit coding of dates in many
currently installed computer systems and software products will have in the
year 2000. We do not believe that this issue will result in any material
adverse effect on our company's financial condition or results of operations.
ITEM 7. FINANCIAL STATEMENTS
The audited consolidated balance sheet of the Company for its years ended
May 31, 1999 and 1998 and related consolidated statements of operations,
stockholders' equity and cash flows for the years ended May 31, 1999 and 1998
are included following Item 13, in sequentially numbered pages numbered F-1
through F-6. The page numbers for the financial statement categories are as
follows:
Index Page
Report of Independent Auditors F-2
Consolidated Balance Sheets as of May 31, 1999 and 1998 F-3
Consolidated Statements of Operations
for the Years Ended May 31, 1999 and 1998 F-4
Consolidated Statement of Stockholders' Equity
for the Years Ended May 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
for the Years Ended May 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
The following sets forth the names and ages of all of the Directors and
Executive Officers of eCom, positions held by such person, length of service,
when first elected or appointed and term of office.
Position First Term of
Name Age With eCom Appointed Office
David J. Panaia 59 Chief Executive June 1994 (1), (2)
Officer, President
and a Director
Gerald V. Bergman 52 Director June 1995 (2)
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Guy T. Lindley 52 Director June 1998 (2)
Thomas DeRita, Jr. 53 Director May 1999 (2)
(1) Officers serve at the pleasure of the Company's Board of Directors.
(2) Each of these Directors was appointed to serve until the next Annual
Meeting of shareholders. We currently intend to hold our next annual meeting
during October 1999.
Our Board of Directors sets corporate policies which are implemented by
the Company's management. In the event that the our Board of Directors
determines that a member faces a conflict of interest, for any reason, it is
expected that the subject director will abstain from voting on the matter
which raised the issue.
Our directors and executive officers are:
David J. Panaia, President, Chief Executive Officer and Director, is the
founder of ECOM and has served as Director and President since we were
incorporated in June 1994. From June 1998 through May 31, 1999 he also acted
as Treasurer. Mr. Panaia previously founded several other businesses,
including Gold Cross Ambulance Service, Inc. and Gold Cross Medical Services,
Inc., and acquired several other companies which were consolidated into Gold
Cross, Inc., which provided ground and air ambulance service, medical
services, equipment and supplies. After operating for over twenty years, Gold
Cross was sold in 1982. Mr. Panaia then founded Biomedics Corporation, a
durable medical equipment dealer, which he operated until its sale in 1988.
Both corporations were privately owned. Since 1988, he has served as a
political and small business marketing consultant through his own firm,
Sunpoint Industries, Inc. Sunpoint offered political consulting services to
political candidates and medical equipment businesses located in the United
States. He served on the Board of Directors of two private schools. Mr.
Panaia is President of the Palm Beach Gardens Youth Athletic Association and
has served as President of the Palm Beach Gardens Little League for several
years. Mr. Panaia has attended various sports conventions and seminars and
has been a member of the Sportsplex Owners and Directors Association (SODA).
He will concentrate full time in his duties as the President of ECOM.
Gerald V. Bergman has served as a Director of ECOM since June 1994. From
June, 1994 through May, 1998 he also served as Chief Financial Officer and
Treasurer. Effective May 31, 1998, Mr. Bregman resigned his position as CFO
and Treasurer. A CPA, Mr. Bergman joined Price Waterhouse & Co. in 1975 where
he was an audit manager. In 1980 he was appointed Director of Corporate
Planning and Analysis of the Red Lobster division of General Mills. In 1984
through 1985 he served as Vice President and Controller of J.L. Mason, Inc., a
homebuilder. Mr. Bergman then became the Chief Financial and Administrative
Officer and a Director of Overseas Service Corporation, an international
manufacturers representative. He left Overseas Service Corporation in May
1992 to form DBS Associates, a business consulting firm that replaced a third
party rendering financial and administrative services to Overseas Service
Corporation. In November 1994, Mr. Bergman formed Unisyn Group, Inc., a
company that specializes in managing its corporate clients' outsourcing
programs. Such programs include the provision of marketing, financial,
accounting and human resource services through contracts with outside parties.
Unisyn is still considered an "active" corporation although it has suspended
operations so that Mr. Bergman can concentrate on the development of ECOM.
16
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DBS is now an inactive corporation. Mr. Bergman has extensive experience in
support of community and high school sports programs as a fund raiser and
coach. Mr. Bergman also serves as the President and Director of Amateur
Athletes of America, Inc., a corporation that promotes the retention of
fitness and sports programs through fund raisers for America's schools and
municipal youth athletic associations.
Guy T. Lindley joined ECOM as a Director in June, 1998. He served as
Chief Financial Officer from June 1998 to May 31, 1999. Mr. Lindley has
extensive experience in the management of corporate financial matters, a
career interest that he developed after receiving his medical degree. From
1975 to 1985 he managed the financial affairs of Fabritek/PBTI Group, a
company that engaged in the development and marketing of operating room
infection control systems. In 1985 Mr. Lindley joined Medical Care
Development Corporation and Doctors Healthcare Group. There he managed all
financial affairs of various subsidiaries and served as the business manager
for one of the first public physical venture groups in partnership with a
public foundation-controlled hospital. From 1989 to 1992, and again from 1994
to 1998, he supervised all corporate finance activities for the Wellman Family
Group of Companies, a privately-owned holding company with a public
subsidiary, IASG. Wellman Group subsidiaries are engaged in aircraft support
and include a certified flag carrier for air transport. From 1992 to 1994, he
managed the financial affairs of Sun Express Group, a public air transport
management company that formed a joint venture leading to the development of
Conquest Sun Airlines, subsequently known as Airtran and purchased by Valujet.
Thomas DeRita, Jr., joined ECOM as a Director effective May, 1999. From
1992 until the present, Mr. DeRita has acted as President of Stuart Nissan, an
automobile dealership located in Stuart, Florida. From 1986 to 1992, Mr.
DeRita was employed by Cuillo Enterprises of West Palm Beach, Florida as its
Chief Financial Officer. Cuillo Enterprises is a multi-automobile dealership
holding company. From 1983 to 1986, Mr. DeRita owned and operated North
Chrysler Plymouth Dealership in Houston, Texas. Mr. DeRita received his
associates' BA degree from Johnson & Wales Business School in 1966 and his BA
in Business from The University of Rhode Island Extension in 1970. Mr. DeRita
shall devote only as much time as necessary in his position as a director of
ECOM.
The Company at this time has no insurance coverage for officers and
directors and has not expended any funds to obtain such insurance policies to
insure or indemnify directors or officers against any liabilities that may
occur in the registration, offering and sale of these securities. Management
reserves the right to obtain such insurance.
ITEM 10. EXECUTIVE COMPENSATION
1997, 1998, 1999 SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Awards Awards LTIP All
Principal Restricted Restricted Pay- Other
Position Salary Bonus Other Stock Options outs Compensation
- ---------------- ------ ----- ----- ---------- ---------- ---- ------------
David J. Panaia,
Chief Executive
Officer 0 0 0 0 0 0 0
17
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Gerald V. Bergman,
Chief Financial
Officer 0 0 0 0 0 0 0
Guy T. Lindley, 0 0 0 0 0 0 0
Chief Financial
Officer
None of the Company's executive officers and directors have employment
agreements or stock option arrangements with the Company. It is intended that
the directors be compensated at the rate of $4,000 per year, plus $100.00 per
meeting attended and reasonable travel expenses if cash flow permits. To
date, none of the officers or directors have received any salaries or other
cash compensation. When cash flow permits, it is anticipated that the
officers will be compensated in accordance with appropriate employment
contracts.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of the date of this report, we have a total of 50,000,000 shares of
Common Stock authorized at a par value of $.0001, and there are 12,883,600
shares of Common Stock outstanding. The following table sets forth
information, as of such date, with respect to the beneficial ownership of our
Common Stock by (a) each person known by us to be the beneficial owner of more
than 5% of our outstanding Common Stock, (b) the directors and officers of
ECOM, and (c) the directors and officers of ECOM as a group.
Number of % of Shares
Shares Owned Outstanding
------------ -----------
David J. Panaia (1) 2,212,400 17.17
10 Wyndham Lane
Palm Beach Gardens, FL
Gerald V. Bergman (2) 1,763,000 13.68
10692 Hidden Lake Circle
Palm Beach Gardens, FL
Axis Enterprises, Ltd. 1,442,030 11.19
P. O. Box N1201
Nassau, Bahamas
Guy T. Lindley -0- -0-
411 Lighthouse Drive
Palm Beach Gardens, FL
Thomas DeRita, Jr. (3) 100,000 0.78
5770 Whirlaway Road
Palm Beach Gardens, FL
All Officers and
Directors as a Group-4 4,075,400 31.63
___________________________
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(1) David J. Panaia is the beneficial owner of 400,000 shares held in the
name of the Panaia Family Trust and 50,000 shares held in the name of Barbara
Panaia, wife of David Panaia.
(2) Gerald V. Bergman is the beneficial owner of 1,460,000 shares held in the
name of Linda Bergman, wife of Gerald Bergman, and 10,000 shares held by each
of three of Mr. Bergman's children.
(3) Thomas DeRita is the beneficial owner of 100,000 shares held in the name
of Resource Group, Inc., a company which he owns.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain transactions to which the Company is a party and certain matters
affecting the Company have or will result in a material benefit to certain of
the Company's directors and executive officers, or may create conflicts of
interest, as follows:
Linda Bergman was the sole owner of a privately-held business called
Amateur Athletes of America. She is also the wife of Gerald V. Bergman, who
is a Director and our former Chief Financial Officer. On November 23, 1996,
we issued an aggregate of 500,000 shares for cancellation of debt to Linda
Bergman and Gerald Bergman in the amount of $16,333. The Bergmans directed
that 460,000 shares be issued directly to Linda Bergman, and that each of
their four children be issued 10,000 shares.
Mr. Brody Brockman is the son-in-law of Gerald V. Bergman. 25,000 shares
were issued to Mr. Brockman on November 23, 1996 for sales and shipping
services.
Mr. Thomas J. Thomas is a Florida attorney who performed legal services
for us and also served as our Secretary and a Director. On May 31, 1997, we
issued 50,000 shares to Mr. Thomas as compensation for his legal services
performed prior to that date.
On February 6, 1998, we issued 5,000 shares to Angela Bergman for
performing secretarial, receptionist and other services for us. Angela
Bergman is the daughter of Gerald V. Bergman and Linda Bergman.
On February 6, 1998, we issued 5,000 shares to Mr. Brody Brockman for
performing sales and shipping services for us. Mr. Brody Brockman and Angela
Bergman were recently married (June 12, 1999).
On February 27, 1998 we acquired certain assets of Amateur Athletes of
America, Inc. in a tax-free exchange of assets for stock. We acquired all
rights to the ProCard and ComCard plus certain Internet-based sports equipment
exchange concepts in exchange for 1,000,000 shares of Common Stock. The
ProCard and ComCard are prepaid telephone cards with unique emergency medical
features which are marketed through youth athletic organizations. A portion
of the stock was used for payment of a note held by Amateur Athletes of
America. Amateur Athletes of America, Inc. was a private corporation owned by
Linda C. Bergman, wife of Gerald V. Bergman, former corporate chief Financial
Officer and a member of our Board of Directors.
On February 6, 1998, we issued 1,500,000 shares to Axis Enterprises
pursuant to an agreement with Axis Enterprises to provide management services
for USA Performance Products, Inc. and to provide financial assistance to us.
19
<PAGE>
On February 6, 1998, we issued an additional 150,000 shares to Thomas J.
Thomas for legal services performed by him prior to that date.
On February 6, 1998, we issued 327,900 shares to David Panaia (the
Company's Chief Executive Officer, President and a Director) in cancellation
of indebtedness in the amount of $6,148.
On April 16, 1998, we issued 100,000 shares to Bonnie Panaia for
accounting and other services and issued an additional 400,000 shares to her
for services in connection with the preparation of the infrastructure of our
billing and online e-commerce systems. Bonnie Panaia is the daughter of David
Panaia, our Chief Executive Officer, President and a Director.
On April 16, 1998, we issued 25,000 shares to Doug Panaia for performing
manual labor for us prior to that date. Doug Panaia is the brother of David
Panaia, our Chief Executive Officer, President and a Director.
On April 16, 1998, we issued 150,000 shares for engineering services
performed by Jack Enterline for the Company prior to that date. Mr. Enterline
requested that the shares be issued in the name of his wife, Karen. At the
time these services were performed, Mr. Enterline served as one of our
Directors.
On April 16, 1998, we issued 200,000 shares to Gerald V. Bergman (our
Chief Financial Officer at that time) in cancellation of indebtedness in the
amount of $12,810.
On April 16, 1998, we issued 200,000 shares to David Panaia (our Chief
Executive Officer and a Director) in cancellation of indebtedness in the
amount of $12,810.
On April 16, 1998, we issued an additional 150,000 shares to Thomas J.
Thomas for legal services performed by him prior to that date.
During the year ended May 31, 1998 we executed a promissory note (the
"Note") in favor of Stratex Corporation in the amount of $100,000. Derek D.
Panaia, son of David J. Panaia, Chief Executive Officer of the Company, is the
sole shareholder of Stratex Corporation.
The Note bears interest at the rate of prime plus 6% and is due and
payable in full in September 2000. The Note is secured by the rights to the
Viper M1 paintball marker, including its names and the technology used in its
manufacture.
On January 22, 1999, we issued 60,000 shares to Angela Bergman for
performing secretarial, receptionist and other services for us. Angela
Bergman is the daughter of Gerald V. Bergman and Linda Bergman.
On January 22, 1999, we issued 30,000 shares to Mr. Brody Brockman for
performing sales and shipping services.
On March 4, 1999, we issued an additional 62,000 shares to Axis
Enterprises in a privately-negotiated transaction in cancellation of
indebtedness to Axis in the amount of $11,780.
On May 16, 1999, we issued 100,000 shares to Resource Group, Inc. for
promotional services performed for us. Thomas DeRita, a member of our board,
is a shareholder in Resource Group, Inc.
20
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Except as described above, no director, officer or principal
securityholder of ECOM has or has had a direct or indirect material interest
in any transaction to which we are or were a party. We believe that the terms
of each of the transactions described above were no less favorable to us than
could have been obtained from third parties. However, it should be noted that
all stock issuance to affiliates are made at 95% discount from the then market
value of our Common Stock. In addition, in the future we will not enter into
additional transactions with directors, officers or principal shareholders
unless the terms thereof are no less favorable to us than could be obtained
from third parties.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Index to financial statements and financial statement schedules
The audited balance sheet of the Company for its years ended May 31, 1999
and 1998 and related statements of operations, stockholders' equity and cash
flows for the years ended May 31, 1999 and 1998 follow in sequentially
numbered pages numbered F-1 through F-12. The page numbers for the financial
statement categories are as follows:
Page Description
F-1 Table of Contents
F-2 Report of Independent Auditors - May 31, 1999 and 1998
F-3 Balance Sheets as of May 31, 1999 and 1998
F-4 Statements of Operations for the Years Ended May 31, 1999 and 1998
F-5 Statement of Stockholders' Equity for the Years Ended May 31, 1999
and 1998
F-6 Statements of Cash Flows for the Years Ended May 31, 1999 and 1998
F-7 Notes to Financial Statements
(b) 8-K Reports
On January 28, 1999 a Form 8-K was filed with the Securities and Exchange
Commission reporting our name change.
On May 26, 1999 a Form 8-K was filed with the Securities and Exchange
Commission reporting the agreement with Swartz Private Equity, LLC.
(c) Exhibits:
Exhibit Description
3.1 Articles of Incorporation (1)
3.2 By-laws (1)
10.1 Agreement for acquisition of assets of Performance Paintball
Products, Inc. (1)
10.2 Agreement for acquisition of rights to All American Bowl (2)
10.3 Personal services agreement with All American Bowl Executive
Director (2)
10.4 Promissory Note to Stratex Corporation dated August 12, 1997 (3)
10.5 Marketing and Management Agreement between Axis Enterprises, Ltd.
and Registrant dated January 10, 1998 (3)
10.6 Agreement for acquisition of assets of Amateur Athletes of America,
Inc.(3)
10.7 Lease Agreement between Ryco Properties, Inc. and Registrant dated
May 4, 1998 (3)
21
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10.8 Investment Agreement between Swartz Private Capital LLC and the
Registrant dated May 13, 1999 (4)
10.9 Registration Rights Agreement between Swartz Private Capital LLC
and the Registrant dated May 13, 1999 (4)
10.10 Side Agreement (4)
10.11 Amended and Restated Investment Agreement between Swartz Private
Capital LLC and the Registrant dated July 1999
10.12 Memorandum dated September 13, 1999 from Swartz Private Capital LLC
extending date to file registration statement
10.13 First Stock Incentive Plan
11 Statement of Computation of Earnings per Share
21 Subsidiaries of the Company
27 Financial Data Schedule
_______________________
(1) Incorporated by reference to the Company's original registration
statement on Form 10 SB-1, Registration 33-96638-A, filed on September 6,
1995.
(2) Incorporated by reference to Form 10-KSB for the year ended May 31,
1997.
(3) Incorporated by reference to Form 10-KSB for the year ended May 31,
1998.
(4) Incorporated by reference to Form 8-K filed with the Commission on
May 26, 1999.
ADDITIONAL INFORMATION
Corporate Headquarters
8125 Monetary Drive, Suite H4, Riviera Beach, Florida 33404
Telephone Number: (561) 622-4395; Fax Number: (561) 841-7422
Internet Address - http:// www.usas.com; E-mail Address - [email protected]
Independent Public Accountants
Hafer & Gilmer
Certified Public Accountants
251 Royal Palm Way, Suite 302
Palm Beach, Florida 33480-4310
Transfer Agent
Florida Atlantic Stock Transfer, Inc.
5701 North Pine Island Road, Suite 310B
Tamarac, Florida 33321
Exhibits to the Form 10-KSB will be provided to shareholders of the
Registrant upon written request addressed to William A. Hartman, eCom
eCom.com, Inc., 8125 Monetary Drive, Suite H4, Riviera Beach, FL 33404. Any
exhibits furnished are subject to a reasonable photocopying charge.
The Securities and Exchange Commission has not approved or disapproved of
this Form 10-KSB and Annual Report to Shareholders nor has it passed upon its
accuracy or adequacy.
22
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<PAGE>
CONTENTS
Page
Auditors' Report ................................. F-2
Balance Sheets ................................... F-3
Statements of Operations ......................... F-4
Statements of Stockholders' Equity ............... F-5
Statements of Cash Flows ......................... F-6
Notes To Financial Statements .................... F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and
Stockholders of eCom eCom.com, Inc.
We have audited the consolidated balance sheets of eCom eCom.com, Inc. as of
May 31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eCom eCom.com, Inc. as of May
31, 1999 and 1998, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements the Company has incurred net losses since its inception and has
experienced liquidity problems. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to those matters are described in Note N. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Hafer & Gilmer
Hafer & Gilmer
August 24, 1999
F-2
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
May 31, 1999 May 31, 1998
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 105,857 $ 89,542
Accounts receivable 19,155 7,315
Inventories 155,893 85,155
Prepaid expense 15,749 34,580
---------- ----------
Total current assets 296,654 216,592
Property and equipment 97,263 70,980
Intangible assets 67,135 25,309
Deferred charges 0 2,818
Other assets 6,773 7,862
---------- ----------
Total assets $ 467,825 $ 323,561
========== ==========
Liabilities
Current liabilities
Accounts payable and accrued expenses $ 130,683 $ 131,704
Current portion of notes payable 100,000 130,214
Current portion of accrued interest 5,937 10,600
---------- ----------
Total current liabilities 236,620 272,518
Loans from stockholders 212,344 101,600
Notes payable, less current portion 7,295 13,500
Accrued interest, less current portion 0 1,314
---------- ----------
Total liabilities 456,259 388,932
---------- ----------
Stockholders' equity
Common stock, $.0001 par value:
Authorized - 50,000,000 shares;
Issued - 12,883,600 shares in 1999
and 11,894,600 shares in 1998 1,288 1,189
Additional paid-in capital 935,284 484,361
Accumulated deficit (920,006) (545,921)
Less treasury stock - at cost 2,000
shares at May 31, 1999 (5,000) (5,000)
---------- ----------
Total stockholders' equity 11,566 (65,371)
---------- ----------
Total liabilities and stockholders' equity $ 467,825 $ 323,561
========== ==========
See notes to financial statements.
F-3
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
Year Ended Year Ended
May 31, 1999 May 31,1998
------------ -----------
Revenues
Net sales $ 228,613 $ 149,582
Cost of sales 148,344 100,988
---------- ----------
Total revenues 80,269 48,594
Other operating expenses
Sales and marketing 176,376 23,298
Product redevelopment 34,347 0
General and administrative 187,166 122,455
Depreciation and amortization 43,591 28,378
---------- ----------
Total operating expenses 441,480 174,131
---------- ----------
Loss from operations (361,211) (125,537)
Interest expense 12,874 17,514
---------- ----------
Net loss $ (374,085) $ (143,051)
========== ==========
Net loss per common share $ (.03) $ (.02)
===+====== ==========
Weighted average shares outstanding 12,233,142 7,430,045
See notes to financial statements.
F-4
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1999 AND 1998
Number of Addi- Total
Shares tional Accumu- Stock
Issued and Paid-in lated Treasury holders'
Outstanding Amount Capital Deficit Stock Equity
----------- ------ --------- ----------- -------- ---------
Balance at
May 31, 1997 6,000,600 $ 600 $ 299,690 $ (402,870) $ - $(102,580)
Purchase of
Treasury stock (2,000) - - - (5,000) (5,000)
Issuance of
common stock 5,894,000 589 184,671 - - 185,260
Net loss, year
ended May 31,
1998 - - - (143,051) - (143,051)
---------- ------ --------- ----------- ------- ---------
Balance,
May 31, 1998 11,892,600 1,189 484,361 (545,921) (5,000) (65,371)
Issuance of
common stock 989,000 99 450,923 - - 451,022
Net loss, year
ended May 31,
1999 - - - (374,085) - (374,085)
---------- ------ --------- ----------- ------- ---------
Balance May 31,
1999 12,881,600 $1,288 $ 935,284 $ (920,006) $(5,000) $ 11,566
========== ====== ========= =========== ======= =========
See notes to financial statements.
F-5
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999 AND 1998
Year Ended Year Ended
May 31,1999 May 31,1998
----------- -----------
Cash flows from operating activities
Net loss $ (374,085) $ (143,051)
Reconciling adjustments:
Amortization 18,654 12,092
Depreciation 24,937 16,286
(Increase) in receivables (11,840) (4,251)
(Increase) in inventories (70,738) (7,209)
Decrease (increase) in prepaid expenses 18,831 (32,580)
Decrease (increase) in other assets 1,089 (7,862)
Increase (decrease) in accounts payable (1,021) 52,243
Increase (decrease) in accrued expenses 0 (40,000)
(Decrease) in accrued interest (5,977) (12,943)
---------- ----------
(26,065) (24,224)
Net cash used by operating activities (400,150) (167,275)
---------- ----------
Cash Flows From Investing Activities
Acquisition of property and equipment (51,220) (34,372)
Acquisition of intangible assets (57,662) 0
---------- ----------
Net cash used by investing activities (108,882) (34,372)
Cash Flows From Financing Activities
Capital contributions 451,021 180,260
Notes payable (36,419) 74,519
Loans from stockholders 110,745 35,600
---------- ----------
Net cash provided by financing activities 525,347 290,379
---------- ----------
Net increase in cash 16,315 88,732
Cash balance, beginning of period 89,542 810
---------- ----------
Cash balance, end of period $ 105,857 $ 89,542
========== ==========
See notes to financial statements.
F-6
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The Company maintains its accounts on the accrual basis of accounting. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
- -------------
The consolidated financial statements of the Company include the accounts of
USA Performance Products, Inc. The Company formed USA Performance Products,
Inc. as a separate wholly-owned subsidiary on January 20, 1998 and transferred
all assets related to the manufacture and sale of the Viper M1 paintball
marker and accessories to this new corporation. See note L.
Revenue Recognition
- -------------------
Revenues are derived primarily from the sale of paintball markers and
accessories and this revenue is recognized at the time title is transferred
which is normally on shipment of the goods. With respect to the Company's
sporting events operations, revenue is recognized at the time the underlying
event is held.
Depreciation
- ------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed using the straight-line
method.
Amortization
- ------------
Intangible assets consisting of rights to technology and associated trademarks
are amortized using the straight-line method over five years.
Inventories
- -----------
Inventories are stated at the lower of cost or market using the first in first
out method. See Note C.
NOTE B: CASH EQUIVALENTS
Cash equivalents consist of cash credits received in connection with the sale
of All American Bowl Sponsorship Promotional Packages to Itex Corporation.
These cash credits will be used for the purchase of products and/or services
provided by other Itex clients.
F-7
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE C: INVENTORIES
Inventories consist of merchandise acquired for sale by the Company's USA
SportsNet business unit in addition to paintball markers and accessories.
Inventories are carried at cost which is considered to be less than market
value.
NOTE D: PREPAID EXPENSE
Prepaid expense includes amounts paid for commercial insurance and
advertising.
NOTE E: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment recorded in the financial
statements at cost less depreciation as of May 31, 1999 and 1998:
May 31, 1999 May 31, 1998
------------ ------------
Computer hardware $ 60,858 $ 32,245
Computer software 28,584 10,564
Furniture, fixtures and equipment 22,948 21,072
Tools, dies and fixtures 54,928 52,217
--------- ---------
Total cost 167,318 116,098
Less: accumulated depreciation 70,055 (45,118)
--------- ---------
Total net property and equipment $ 97,263 $ 70,980
========= =========
The useful lives assigned to property and equipment to compute depreciation
are:
Computer hardware 5 years
Computer software 5 years
Furniture, fixtures and equipment 7 years
Tools, dies and fixtures 5 years
F-8
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE F: INTANGIBLE ASSETS
During the year ended May 31, 1996, the Company acquired the assets of
Performance Paintball Products, Inc. Included in the purchase were exclusive
rights to use of the Viper name and related technology used in the manufacture
of the Viper M1 paintball marker. The total cost of these rights are valued
at $54,134 less accumulated amortization of $32,639 and $22,146 at May 31,
1999 and 1998, respectively.
During 1999, the Company acquired the rights to the toll free telephone
number, 800-724-6822, and marketed as 1 800 PAINTBALL. The Company paid
$20,000 in cash and 100,000 shares of the Company's common stock. This asset
is reflected in the balance sheet at a gross cost of $40,000 less accumulated
amortization of $5,000 and $0, as of May 31, 1999 and 1998, respectively.
This asset is amortized over a 5 year life. Also during 1999, the Company
acquired two internet websites. AclassifiedAd and Swapandshop for $11,200.
This asset is being amortized over 5 years and accumulated amortization was
$560 and $0 as of May 31, 1999 and 1998, respectively.
NOTE G: OTHER ASSETS
Other assets consist primarily of deposits. In 1998, this included an advance
to an officer of the company which was fully liquidated in 1999.
NOTE H: NOTES PAYABLE AND LOANS FROM STOCKHOLDERS
The Company's notes payable consist of the following as of May 31,:
1999 1998
--------- ---------
Stratex Corporation (due September 2000,
interest at prime plus 6%, secured) $ 100,000 $ 100,000
MME (due on demand, interest at 12.25%
per annum, unsecured) 7,295 13,500
Other (due September 98, unsecured,
non-interest bearing) 0 30,214
Security for the Stratex loan consists of the rights to the Viper M1 paintball
marker including its names and technology used in its manufacture.
Loans from Stockholders consist of advances provided to the Company by the
Chief Executive officer and such loans are unsecured and no interest is
charged on such advances.
F-9
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE I: COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing and office facilities under an operating
lease which expires June 30, 2001. Rent expense approximated $32,800 and
$22,800 for the years ended May 31, 1999 and 1998, respectively. Future
minimum operating lease payments as of May 31, 1999 are:
Year ended May 31, Total
------------------ ----------
2000 $ 38,160
2001 41,976
----------
Total minimum lease payments $ 80,136
==========
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not currently a party to any legal proceedings, the adverse outcome
of which, individually or in the aggregate, would have a material adverse
effect on the Company's financial position or results of operations.
NOTE J: ISSUANCE OF COMMON STOCK
During the year, the Board of Directors authorized the issuance of 5,999,400
shares of common stock. These newly-issued shares were designated to pay for
certain management, financial, marketing and other business related services,
to allow certain creditors of the Company to trade their debt for equity and
to effect a tax-free acquisition of the assets of Amateur Athletes of America,
Inc. 11,894,600 shares were issued as of May 31, 1998. 2,000 shares were
purchased for the treasury. During the year ended May 31, 1999, the Board of
Directors authorized the issuance of 989,000 shares of Common Stock. These
issuances primarily were to allow certain creditors of the Company to trade
their debt for equity and to pay for management, financial, marketing and
other business related services.
NOTE K: RELATED PARTY TRANSACTIONS
In January 1998, the Company's Board of Directors approved an agreement with
Axis Enterprises, Ltd., a Bahamian corporation of Nassau, Bahamas, to retain
Axis for a period of three years to provide certain financing, marketing and
management services in support of the Company's subsidiary, USA Performance
Products, Inc. In exchange for performance of these services, Axis was
granted 1,500,000 shares of common stock. The final marketing and management
agreement was executed in April 1998. In 1999, the Company issued 150,000
shares of common stock in cancellation of indebtedness of $111,780.
Derek D. Panaia, son of David J. Panaia, CEO of the Company, was retained as a
consultant to provide management oversight of USA Performance Products. In
connection with this agreement, Derek Panaia was granted 400,000 shares of
common stock in return for his services.
F-10
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE K: RELATED PARTY TRANSACTIONS (CONT'D)
Stratex Corporation has a loan to the Company in the amount of $100,000 (see
Note H). Stratex Corporation is owned by Derek D. Panaia, son of David J.
Panaia, Chief Executive Officer of the Company.
On February 27, 1998, the Company acquired certain assets of Amateur Athletes
of America, Inc. in a tax-free exchange of assets for stock. The Company
acquired all rights to the ProCard and ComCard plus certain Internet-based
sports equipment exchange concepts in exchange for one million shares of
common stock. The ProCard and ComCard are prepaid telephone cards with unique
medical features which are marketed through youth athletic organizations. A
portion of the stock was used for payment of a note held by Amateur Athletes
of America. Amateur Athletes of America, Inc. was a private corporation owned
by Linda C. Bergman, wife of Gerald V. Bergman, former Treasurer and a member
of the Company's Board of Directors.
In May 1999, the Company issued 100,000 shares to Resource Group, Inc. in
exchange for promotional and related consulting services. Resource Group,
Inc. is a public relations and promotional firm of which a member of the
Board, Mr. Thomas DeRita, is a principal.
NOTE L: BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services. The Company has three reportable segments:
paintball products, sports events, and Internet commerce. The paintball
segment produces a mid-priced paintball marker. The event segment has produced
the All American Bowl, a national high school football all-star game. The
Internet segment develops and operates internet websites including the ECEC
Trading Club.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. There have been no intersegment
sales or transfers. Revenues from sale of the Company's paintball products
over the Internet are reported within the paintball segment. Internet
revenues for 1998 consist principally of advertising sold through barter
transactions.
Following is a summary of segment information:
Sports Internet All
Paintball Events Commerce Others(a) Totals
--------- --------- --------- --------- ---------
May 31, 1999
- ------------
Revenues $ 228,613 $ - $ - $ - $ 228,613
Interest expense 12,874 - - - 12,874
Depreciation 10,915 - - 14,022 24,937
Amortization 10,493 - - 8,161 18,654
Segment profit (loss) (114,357) (8,230) (120,501) (130,997) (374,085)
Segment assets 177,293 0 60,048 230,484 467,825
F-11
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE L: BUSINESS SEGMENTS (CONT'D)
Sports Internet All
Paintball Events Commerce Others(a) Totals
--------- --------- --------- --------- ---------
May 31, 1998
- ------------
Revenues $ 52,139 $ 17,289 $ 80,000 $ - $ 149,582
Interest expense 14,310 - - 3,204 17,514
Depreciation 10,063 - - 6,223 16,286
Amortization 9,492 - - 2,600 12,092
Segment profit (loss) (64,723) (64,894) 58,400 (71,834) (143,051)
Segment assets 76,676 - 80,123 166,762 323,561
(a) Includes amounts not allocated to operating segments.
NOTE M: RECOVERABILITY OF ASSETS AND GOING CONCERN
The Company's financial statements have been presented on the basis that it is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's continued existence is dependent upon its ability to secure
financing or its ability to generate sufficient cash flows through operations
to meet its operating costs and repay current obligations as they come due.
In April of 1999, the Company entered into a financing agreement with a third
party whereby the Company may sell to the third party and that third party
must buy a number of the Company's shares of common stock, subject to
restrictions (the "Put Option"). The more salient of the restrictions under
the Put Option includes that the Company must first register the shares which
may be subject to the put and the number of the shares which may be put to the
third party in any 30 day period is dependent upon the Company's share price
as determined on the OTC Bulletin Board and volume of trading activity. The
Company can make no assurances that it will be successful in registering the
subject shares or that the market in the Company's stock will remain adequate
to allow the Company to raise necessary funds through the use of the Put
Option.
NOTE N: INCOME TAXES
No provision for federal and state income taxes has been recorded because our
company has incurred net operating losses since inception. Our net operating
loss carry-forwards as of May 31, 1999 total $920,006. These carry-forwards
will be available to offset future taxable income and expire beginning in
2010. We do not believe that the realization of the related net deferred tax
asset meets the criteria required by generally accepted accounting principles
and, accordingly, the deferred income tax asset arising from such loss
carryforwards have been fully reserved.
F-12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ecom ecom.com, inc.
September 13, 1999 By /s/ David J. Panaia
David J. Panaia, Chief Executive Officer,
President and Director
September 13, 1999 By /s/ David J. Panaia
David J. Panaia, Principal Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
ecom ecom.com, inc.
September 13, 1999 By /s/ David J. Panaia
David J. Panaia, Director
September __, 1999 By __________________________________________
Gerald V. Bergman, Director
September 13, 1999 By /s/ Guy T. Lindley
Guy T. Lindley, Director
September 13, 1999 By /s/ Thomas DeRita, Jr.
Thomas DeRita, Jr., Director
ECOM ECOM.COM, INC.
AMENDED AND RESTATED INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN
BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT J
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS AMENDED AND RESTATED INVESTMENT AGREEMENT (this "Agreement" or
"Investment Agreement") is dated as of the 13th day of May, 1999, by and
between eCom eCom.com, Inc., a corporation duly organized and existing under
the laws of the State of Florida (the "Company"), and Swartz Private Equity,
LLC ("Investor"), and amends and restates that certain Investment Agreement
between the Company and the Investor dated May 13, 1999.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's Common Stock as part of an offering of Common
Stock by the Company to Investor, for a maximum aggregate offering amount of
Thirty Million Dollars ($30,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Section 4(2) promulgated under the Act,
Regulation D promulgated under the Act and/or upon such other exemption from
the registration requirements of the Act as may be available with respect to
any or all of the purchases of Common Stock to be made hereunder.
<PAGE>
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.26.
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.5.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.6.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (I) the same numeric day of the next calendar
month or (ii) the last day of the next calendar month. Each Calendar Month
shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.6.1.
<PAGE>
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (I) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section
2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on the O.T.C. Bulletin Board, or, if the
O.T.C. Bulletin Board is not the principal securities exchange or trading
market for such security, the last closing bid price of such security on the
principal securities exchange or trading market where such security is listed
or traded as reported by such principal securities exchange or trading market,
or if the foregoing do not apply, the last closing bid price of such security
in the over-the-counter market on the electronic bulletin board for such
security, or, if no closing bid price is reported for such security, the
average of the bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the Investor
in this Offering. If the Company and the Investor in this Offering are unable
to agree upon the fair market value of the Common Stock, then such dispute
shall be resolved by an investment banking firm mutually acceptable to the
Company and the Investor in this offering and any fees and costs associated
therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.7.
"Commitment Warrants" shall have the meaning set forth in Section 2.7.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.7.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean eCom eCom.com, Inc., a corporation duly organized
and existing under the laws of the State of Florida.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.4.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not quoted or listed on, and
actively trading on, the O.T.C. Bulletin Board, the Nasdaq Small Cap Market,
the Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is
<PAGE>
suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.6
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.7(b).
"Equity Securities" shall have the meaning set forth in Section 6.6.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Extended Put Period" shall mean the period of time between the Advanced
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.3.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit
B, or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
<PAGE>
"Key Employee" shall have the meaning set forth in Section 5.18, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(I) a consolidation, merger or other business combination or event
or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(I) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved
in such consolidation, merger, combination or event is a publicly traded
company with "Substantially Similar Trading Characteristics" (as defined
below) as the Company and the holders of Common Stock are to receive solely
Common Stock or no consideration (if the Company is the surviving entity) or
solely common stock of such other entity (if such other entity is the
surviving entity), such transaction shall not be deemed to be a Major
Transaction (provided the surviving entity, if other than the Company, shall
have agreed to assume all obligations of the Company under this Agreement and
the Registration Rights Agreement). For purposes hereof, an entity shall have
Substantially Similar Trading Characteristics as the Company if the average
daily dollar trading volume of the common stock of such entity is equal to or
in excess of $200,000 for the 90th through the 31st day prior to the public
announcement of such transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender
or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable
Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (I) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a
Put Notice, and (ii) $10 million.
"Maximum Offering Amount" shall mean Thirty Million Dollars
($30,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"NYSE" shall have the meaning set forth in Section 6.10.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
<PAGE>
"Offering" shall mean the Company's offering of common stock and warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, the Registration Opinion and
the Purchase Warrant Opinion of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall have the meaning set forth in Section 2.3.7(b).
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7(a).
"Purchase Warrant" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit
O, or such other form as agreed upon by the parties, as to the issuance of
Purchase Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.13(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
<PAGE>
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section
2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which
case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the Put Share Price with respect to such Put Shares, subject to the
limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon
by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit A, or such other form as
agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Securities
Act of 1933, as amended.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
<PAGE>
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.7.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.26.
"Six Month Anniversary" shall mean the date that is the same Numeric Day
of the sixth (6th) calendar month after the Investment Date, and the date that
is the same Numeric Day of each sixth (6th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination
Date.
"Termination Date" shall mean the earlier of (I) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to
the Investor, (c) the date of an Automatic Termination, and (d) the date that
all of the Warrants have been exercised. Notwithstanding the above, if no
Registration Statement has been declared effective by the date that is one (1)
year after the date of this Agreement, the Termination Date shall be the date
that is one (1) year after the date of this Agreement.
"Termination Fee" shall have the meaning set forth in Section 2.7.
"Termination Notice" shall have the meaning as set forth in Section
2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.7(b).
<PAGE>
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.7(b).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.13(b).
"Unlegended Share Certificates" shall mean a certificate or certificates,
or electronically delivered shares, as appropriate (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or
its nominee (as instructed by Investor), not containing a restrictive legend
and not subject to any stop transfer order, including but not limited to the
Put Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Warrant Shares" shall mean the Common Stock issuable upon exercise of
the Warrants.
"Warrants" shall mean the Commitment Warrants and the Purchase Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of
the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying
Warrants as the Company may, in its sole and absolute discretion, from time to
time elect to issue and sell to Investor according to one or more Puts
pursuant to Section 2.3 below.
2.2 Investment Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Transfer Agent, and the other Conditions
to Investor's Obligations set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Investor's Obligations. As a prerequisite
to the Investment Commitment Closing and the Investor's obligations hereunder,
all of the following (the "Conditions to Investor's Obligations") shall have
been satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
<PAGE>
(a) the following documents shall have been
delivered to the Investor: (I) the Registration Rights Agreement, (executed by
the Company and Investor), (ii) the Investment Commitment Opinion of Counsel
(signed by the Company's counsel), (iii) the Transfer Agent Instructions
(executed by the Company and the Transfer Agent), and (iv) a Secretary's
Certificate as to (A) the resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's Certificate of Incorporation,
and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the
Company, shall have been received by the Investor;
(c) [Intentionally Left Blank];
(d) the Company's Common Stock shall be quoted
for trading and actually trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or
the New York Stock Exchange;
(e) other than continuing losses described in the
Risk Factors set forth in the Disclosure Documents (provided for in Section
3.2.4), as of the Closing there have been no material adverse changes in the
Company's business prospects or financial condition since the date of the last
balance sheet included in the Disclosure Documents, including but not limited
to incurring material liabilities; and
(f) the representations and warranties of the
Company in this Agreement shall be true and correct in all material respects
and the conditions to Investor's obligations set forth in this Section 2.2.4
shall have been satisfied as of such Closing; and the Company shall deliver an
Officer's Certificate, signed by an officer of the Company, to such effect to
the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual
Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and
the other conditions and limitations set forth in this Agreement, at any time
beginning on the date on which the Registration Statement is declared
effective by the SEC (the "Effective Date"), the Company may, in its sole and
absolute discretion, elect to exercise one or more Puts according to the
following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than twenty (20) Business Days following the
preceding Put Date:
(a) Delivery of Advance Put Notice. At least ten (10)
Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the
form of which is attached hereto as Exhibit E, the date of such Advance Put
Notice being the "Advance Put Notice Date") to Investor stating the Put Date
for which the Company shall, subject to the limitations and restrictions
contained herein, exercise a Put and stating the number of shares of Common
Stock (subject to the Individual Put Limit and the Maximum Put Dollar Amount)
which the Company intends to sell to the Investor for the Put (the "Intended
Put Share Amount").
<PAGE>
The Company may, at its option, also designate in an Advance Put Notice
(I) a maximum dollar amount of Common Stock, not to exceed $10,000,000, which
it shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase Shares pursuant to such Put Notice (a "Company
Designated Minimum Put Share Price"). The Company Designated Minimum Put
Share Price, if applicable, shall be no greater than 80% of the Closing Bid
Price of the Company's common stock on the Advance Put Notice Date.
Notwithstanding the above, if at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the previous Put
Date, such Advance Put Notice shall provide at least twenty (20) Business Days
notice of the intended Put Date, unless waived in writing by the Investor. In
order to effect delivery of the Advance Put Notice, the Company shall (I) send
the Advance Put Notice by facsimile on such date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on such date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile,
a confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the
Company specifying that the Advance Put Notice has been received and affirming
the intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number
of shares of Common Stock that the Investor shall be obligated to purchase in
a given Put, and shall equal the lesser of (I) the Intended Put Share Amount,
and (ii) the Individual Put Limit. The "Individual Put Limit" shall equal the
lesser of (I) 15% of the sum of the aggregate daily reported trading volumes
in the outstanding Common Stock on the Company's Principal Market, excluding
any block trades of 20,000 or more shares of Common Stock, for all Evaluation
Days (as defined below) in the Pricing Period, (ii) the number of Put Shares
which, when multiplied by their respective Put Share Prices, equals the
Maximum Put Dollar Amount, and (iii) 9.9% of the total amount of the Company's
Common Stock that would be outstanding upon completion of the Put.
(c) Put Share Price. The purchase price for the Put
Shares (the "Put Share Price") shall equal the lesser of (I) the Market Price
for such Put, minus $.25, or (ii) 92% of the Market Price for such Put, but
shall in no event be less than the Company Designated Minimum Put Share Price
for such Put, if applicable.
(d) Delivery of Put Notice. After delivery of an Advance
Put Notice, on the Put Date specified in the Advance Put Notice, the Company
shall deliver written notice (the "Put Notice," the form of which is attached
hereto as Exhibit G) to Investor stating (I) the Put Date, (ii) the Intended
Put Share Amount as specified in the Advance Put Notice (such exercise a
"Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company
shall (I) send the Put Notice by facsimile on the Put Date so that such notice
is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on the Put Date to a courier for overnight delivery to
the Investor (or two (2) day delivery in the case of an Investor residing
outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the
Put Notice, the Investor shall, within two (2) Business Days, send, via
facsimile, a confirmation of receipt (the "Put Notice
<PAGE>
Confirmation," the form of which is attached hereto as Exhibit H) of the Put
Notice to Company specifying that the Put Notice has been received and
affirming the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the
Put Date for such Put, the Company shall deliver the Required Put Documents
(as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the
Investor, the Put Shares of Common Stock shall be transmitted electronically
pursuant to such electronic delivery system as the Investor shall request;
otherwise delivery shall be by physical certificates. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the
Put Date, the Put shall be automatically cancelled, unless the Investor
agrees to delay the Put Date by up to three (3) Business Days, in which case
the Pricing Period begins on the Business Day following such new Put Date. If
the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date (or new Put Date, if applicable), and the
Investor has not agreed in writing to delay the Put Date, the Put is
automatically canceled (an "Impermissible Put Cancellation") and, unless the
Put was otherwise canceled in accordance with the terms of Section 2.3.13, the
Company shall pay the Investor $5,000 for its reasonable due diligence
expenses incurred in preparation for the canceled Put and the Company may
deliver an Advance Put Notice for the subsequent Put no sooner than ten (10)
Business Days after the date that such Put was canceled, unless otherwise
agreed by the Investor.
2.3.2 Termination of Right to Put. The Company's right to
require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination"), unless waived in writing by
the Investor, upon the occurrence of any of the following:
(a) the Company shall not exercise a Put or any Put
thereafter if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that gives rise to (I) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud
or misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put
thereafter, on any date after a cumulative time period or series of time
periods, including both Ineffective Periods and Delisting Events, that lasts
for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put
thereafter if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
provided that in the event that an involuntary bankruptcy petition is filed
against the Company, the Company shall have sixty (60) days to obtain
dismissal of such petition before such Put prohibition shall initiate;
(d) the Company shall not exercise a Put after the sooner
of (I) the date that is three (3) years after the Effective Date, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts
equal the Maximum Offering Amount; and
<PAGE>
(e) the Company shall not exercise a Put after the Company
has breached any covenant in Section 2.7, Section 6, or Section 9 hereof.
2.3.3 Put Limitations. The Company's right to exercise a Put
shall be limited as follows, unless waived in writing by the Investor:
(a) [Intentionally Left Blank].
(b) notwithstanding the amount of any Put, the Investor
shall not be obligated to purchase any additional Put Shares once the
aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(c) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has announced
a subdivision or combination, including a reverse split, of its Common Stock
or has subdivided or combined its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has paid a
dividend of its Common Stock or has made any other distribution of its Common
Stock during the Extended Put Period;
(e) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has made,
during the Extended Put Period, a distribution of all or any portion of its
assets or evidences of indebtedness to the holders of its Common Stock;
(f) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which a Major Transaction has
occurred during the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to
Deliver an Advance Put Notice or a Put Notice and the Obligation of the
Investor to Purchase Put Shares. The right of the Company to deliver an
Advance Put Notice or a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is
subject to the satisfaction, on (I) the date of delivery of such Advance Put
Notice or Put Notice and (ii) the applicable Put Closing Date, of each of the
following conditions, unless waived in writing by the Investor:
(a) the Company's Common Stock shall be quoted for
and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap
Market, the Nasdaq National Market or the New York Stock Exchange and the Put
Shares shall be so quoted, and to the Company's knowledge there is no notice
of any suspension or delisting with respect to the trading of the shares of
Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights Agreement, including, but not
limited to, the filing of the Registration Statement with the SEC with respect
to the resale of all Registrable Securities and the requirement that the
Registration Statement shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company shall have satisfied and
shall be in compliance with any and all obligations pursuant to this Agreement
and the Warrants;
<PAGE>
(c) [Intentionally Left Blank].
(d) the representations and warranties of the
Company are true and correct in all material respects as if made on such date
and the conditions to Investor's obligations set forth in this Section 2.3.4
are satisfied as of such Closing, and the Company shall deliver a certificate,
signed by an officer of the Company, to such effect to the Investor;
(e) the Company shall have reserved for issuance
a sufficient number of Common Shares for the purpose of enabling the Company
to satisfy any obligation to issue Common Shares pursuant to any Put and to
effect exercise of the Warrants;
(f) the Registration Statement is not subject to
an Ineffective Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and to the Company's
knowledge there is no notice of any investigation or inquiry concerning any
stop order with respect to the Registration Statement; and
(g) if the Aggregate Issued Shares after the
Closing of the Put would exceed the Cap Amount, the Company shall have
obtained the Stockholder 20% Approval as specified in Section 6.12.
2.3.5 Documents Required to be Delivered on the Put Date as
Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to
the Investor of each of the following (the "Required Put Documents") on or
before the applicable Put Date, unless waived or extended in writing by the
Investor:
(a) a number of Unlegended Share Certificates (or
electronically delivered shares, as appropriate) equal to the Intended Put
Share Amount, in denominations of not more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, any required Registration Opinion, and any
report or disclosure required under Section 2.3.6 or Section 2.6;
(c) current Risk Factors; and
(d) all documents, instruments and other writings required
to be delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated
herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the
Investor, (I) whenever required by Section 2.3.6(b) or by Section 2.6.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of Exhibit R (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material
Facts") have come to such counsel's attention that have caused it to believe
that the Registration Statement is subject to an Ineffective Period or to
believe that the Registration Statement, any Supplemental Registration
Statement (as each may be amended, if
<PAGE>
applicable), and any related prospectuses, contains an untrue statement of
material fact or omits a material fact required to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading. If a Registration Opinion cannot be delivered by the Company's
independent counsel to the Investor on the Registration Opinion Deadline due
to the existence of Material Facts or an Ineffective Period, the Company shall
promptly notify the Investor and as promptly as possible amend each of the
Registration Statement and any Supplemental Registration Statement, as
applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and
updated prospectus as soon as possible thereafter. If at any time after a Put
Notice shall have been delivered to Investor but before the related Pricing
Period End Date, the Company acquires knowledge of such Material Facts or any
Ineffective Period occurs, the Company shall promptly notify the Investor and
shall deliver a Put Cancellation Notice to the Investor pursuant to Section
2.3.13 by facsimile and overnight courier by the end of that Business Day.
(b) (I) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have
requested delivery of an "Agreed Upon Procedures Report" pursuant to Section
2.6.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this
Section 2.3.6(b) cannot be delivered by the Company's independent auditors,
the Company shall, if necessary, promptly revise the Registration Statement
and the Company shall not deliver a Put Notice until such report is delivered.
2.3.7 Mechanics of Purchase of Put Shares.
(a) Investor's Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the Investor shall be
required to purchase (each a "Purchase") from the Company a number of Put
Shares equal to the Put Share Amount, in the manner described below.
(b) Pricing Period. For purposes hereof, the "Pricing
Period" shall mean, unless otherwise shortened under the terms of this
Agreement, the period beginning on the Business Day immediately following the
Put Date and ending on and including the date which is 20 Business Days after
such Put Date; provided that, if a Put Cancellation Notice has been delivered
to the Investor after the Put Date, the Pricing Period for such Put shall end
at on the close of trading on the last full trading day on the Principal
Market that ends prior to the moment of initial delivery of the Put
Cancellation Notice (a "Truncated Pricing Period") to the Investor.
For purposes of this Agreement:
<PAGE>
"Trigger Price" for any Pricing Period shall mean the greater of (I)
the Company Designated Minimum Put Share Price, plus $.25, or (ii) the Company
Designated Minimum Put Share Price divided by .92.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is greater
than or equal to the Trigger Price.
2.3.8 Mechanics of Put Closing. Each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is
five (5) Business Days following the applicable Pricing Period End Date (or
such other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On or before
each Payment Due Date, the Investor shall deliver to the Company, in the
manner specified in Section 8 below, the Put Dollar Amount to be paid for
such Put Shares, determined as aforesaid. The closing (each a "Put Closing")
for each Put shall occur on the date that both (I) the Company has delivered
to the Investor all Required Put Documents, and (ii) the Investor has
delivered to the Company such Put Dollar Amount and any Late Payment Amount,
if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent
(1%) for each month that passes after the date in question, up to a maximum of
five percent (5%) per month; provided, however, that in no event shall the
amount of interest that shall become due and payable hereunder exceed the
maximum amount permissible under applicable law.
2.3.9 [Intentionally Left Blank].
2.3.10 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or
any short sale or other hedging or similar arrangement it deems appropriate
with respect to Put Shares after it receives a Put Notice with respect to such
Put Shares so long as such sales or arrangements do not involve more than the
number of such Put Shares specified in the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed on the
Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the
Company has obtained Stockholder 20% Approval as set forth in Section 6.12 or
unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued
Shares exceed the maximum number of shares of Common Stock (the "Cap Amount")
that the Company can, without stockholder approval, so issue pursuant to
Nasdaq Rule 4460(I)(1)(d)(ii) (or any other applicable Nasdaq Rules or any
successor rule) (the "Nasdaq 20% Rule").
<PAGE>
2.3.12 [Intentionally Left Blank]
2.3.13 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time
during a Pricing Period the Company discovers the existence of Material Facts
or any Ineffective Period or Delisting Event occurs, the Company shall cancel
the Put (a "Put Cancellation"), by delivering written notice to the Investor
(the "Put Cancellation Notice"), attached as Exhibit Q, by facsimile and
overnight courier. The "Put Cancellation Date" shall be the date that the Put
Cancellation Notice is first received by the Investor, if such notice is
received by the Investor by 6:00 p.m., New York, NY time, and shall be the
following date, if such notice is received by the Investor after 6:00 p.m.,
New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put shall
remain effective with respect to a number of Put Shares (the "Truncated Put
Share Amount")equal to the Put Share Amount for the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon
receipt by the Investor of a facsimile copy of the Put Cancellation Notice,
the Investor shall promptly send, via facsimile, a confirmation of receipt
(the "Put Cancellation Notice Confirmation," a form of which is attached as
Exhibit S) of the Put Cancellation Notice to the Company specifying that the
Put Cancellation Notice has been received and affirming the Put Cancellation
Date.
2.3.14 Investment Agreement Cancellation. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other
rights and obligations under this Agreement, the Registration Rights Agreement
or the Warrants. Notwithstanding the above, any cancellation occurring during
an Extended Put Period is governed by Section 2.3.13.
2.3.15 Return of Excess Common Shares. In the event that
the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 [Intentionally Omitted].
2.4.2 Purchase Warrants. Within five (5) Business Days of the
end of each Pricing Period, the Company shall issue and deliver to the
Investor a warrant ("Purchase Warrant"), in the form attached hereto as
Exhibit D, or such other form as agreed upon by the parties, to purchase a
number of shares of Common Stock equal to 8% of the number of Put Shares
issued to Investor in that Put. Each Purchase Warrant shall be exerciseable
at a price (the "Purchase Warrant Exercise Price") which shall initially equal
110% of the Market Price on the Pricing Period End Date, and shall have semi-
annual reset provisions. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a
<PAGE>
term beginning on the date of issuance and ending on the date that is five (5)
years thereafter. The Warrant Shares shall be registered for resale pursuant
to the Registration Rights Agreement. Concurrently with the issuance and
delivery of the Purchase Warrant to the Investor, the Company shall deliver to
the Investor a Purchase Warrant Opinion of Counsel (signed by the Company's
independent counsel).
2.5 [Intentionally Left Blank].
2.6 Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors
to and representatives of the Investor (who may or may not be affiliated with
the Investor and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of Common Stock on behalf of the
Investor pursuant to the Registration Statement, any Supplemental Registration
Statement, or amendments or supplements thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company
as may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made
or submitted by any of them), prior to and from time to time after the filing
and effectiveness of the Registration Statement for the sole purpose of
enabling the Investor and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
2.6.1 Treatment of Nonpublic Information. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives unless prior to disclosure of such information the
Company identifies such information as being nonpublic information and
provides the Investor and such advisors and representatives with the
opportunity to accept or refuse to accept such nonpublic information for
review. The Company may, as a condition to disclosing any nonpublic
information hereunder, require the Investor and its advisors and
representatives to enter into a confidentiality agreement (including an
agreement with such advisors and representatives prohibiting them from trading
in Common Stock during such period of time as they are in possession of
nonpublic information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due diligence by
and such persons or entities), which, if not disclosed in the Prospectus
included in the Registration Statement, would cause such Prospectus to include
a material misstatement or to omit a material fact required to be stated
therein in order to make the statements therein, in light of
<PAGE>
the circumstances in which they were made, not misleading. Nothing contained
in this Section 2.6 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain nonpublic information in the
course of conducting due diligence in accordance with the terms of this
Agreement; provided, however, that in no event shall the Investor's advisors
or representatives disclose to the Investor the nature of the specific event
or circumstances constituting any nonpublic information discovered by such
advisors or representatives in the course of their due diligence without the
written consent of the Investor prior to disclosure of such information.
2.6.2 Disclosure of Misstatements and Omissions. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein,
in the light of the circumstances in which they were made, not misleading.
Upon receipt of such disclosure, the Investor's counsel shall consult with the
Company's independent counsel in order to address the concern raised as to the
existence of a material misstatement or omission and to discuss appropriate
disclosure with respect thereto; provided, however, that such consultation
shall not constitute the advice of the Company's independent counsel to the
Investor as to the accuracy of the Registration Statement and related
Prospectus.
2.6.3 Procedure if Material Facts are Reasonably Believed to
be Untrue or are Omitted. In the event after such consultation the Investor
or the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement or a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with copies of
the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (I) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the
event the dispute relates to the adequacy of financial disclosure and the
Investor shall reasonably request, the Company's independent auditors shall
provide to the Company a letter ("Agreed Upon Procedures Report") outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Investor and the Company shall provide the Investor with a
copy of such letter.
2.7 Commitment Payments. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about April 19,
1999 between the Company and the Investor, the Company issued and delivered to
Investor or its designated assignees, warrants (the "Commitment Warrants") in
the form attached hereto as Exhibit U, or such other form as agreed upon by
the parties, to purchase 490,000 shares of Common Stock. The Commitment
Warrants shall be exerciseable at a price (the "Commitment Warrant Exercise
Price") which shall initially equal the
<PAGE>
average Closing Bid Price for the five (5) trading days immediately preceding
April 19, 1999 ("Initial Exercise Price"), and shall have semi-annual reset
provisions. Each Commitment Warrant shall be immediately exercisable at the
Commitment Warrant Exercise Price, and shall have a term beginning on the date
of issuance and ending on date that is five (5) years thereafter. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement. Concurrently with the issuance and delivery of the Commitment
Warrant to the Investor, the Company shall deliver to the Investor a
Commitment Warrant Opinion of Counsel (signed by the Company's independent
counsel).
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during
that Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-Usage Fee ") equal to the
difference of (I) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount
of the Put Shares put to Investor during that Commitment Evaluation Period.
In the event that the Company delivers a Termination Notice to the Investor or
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (I) the Semi-Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x)
$200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares
put to Investor during all Puts to date, and the Company shall not be required
to pay the Semi-Annual Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable within five
(5) business days of the date it accrued, in cash or in registered,
unlegended, freely tradable Common Stock of the Company. Where such payment
is made in shares of Common Stock, each share of Common Stock shall be valued
at the lesser of (I) the average Closing Bid Price for the five (5) Business
Days preceding the date that such Semi-Annual Non-Usage Fee is due, or (ii)
the average Closing Bid Price for the five (5) Business Days preceding the
date that such shares are delivered to Investor. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has
checked the applicable box set forth in Section 12 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional
information which Investor or Investor's professional advisor deems necessary
to verify the accuracy and completeness of the information received.
<PAGE>
3.2.2 Reliance on Own Advisors. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal
tax, investment, legal or other advisors and has not relied on the Company or
any of its affiliates, officers, directors, attorneys, accountants or any
affiliates of any thereof and each other person, if any, who controls any of
the foregoing, within the meaning of Section 15 of the Act for any tax or
legal advice (other than reliance on information in the Disclosure Documents
as defined in Section 3.2.4 below and on the Opinion of Counsel). The
foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering
in order to evaluate the merits and risks of the prospective investment, which
are substantial, including without limitation those set forth in the
Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (I)
the Company's quarterly report on Form 10-QSB for the quarter ended February
28, 1999, (ii) the Company's report on Form 8-K filed on January 25, 1999
(iii) the Risk Factors, attached as Exhibit J, (the "Risk Factors") (iv) the
Capitalization Schedule, attached as Exhibit K, (the "Capitalization
Schedule") and (v) the Use of Proceeds Schedule, attached as Exhibit L, (the
"Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied
solely on the documents described in (a) above, the Company's representations
and warranties and other information in this Agreement, including the
exhibits, documents prepared by the Company which have been specifically
provided to Investor in connection with this Offering (the documents described
in this Section 3.2.4 (a) and (b) are collectively referred to as the
"Disclosure Documents"), and an independent investigation made by Investor and
Investor's representatives, if any; (c) Investor has, prior to the date of
this Agreement, been given an opportunity to review material contracts and
documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors;
and (d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other
than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investor's right to
rely upon covenants, representations and warranties of the Company in Sections
5 and 6 of this Agreement. Investor acknowledges and agrees that the Company
has no responsibility for, does not ratify, and is under no responsibility
whatsoever to comment upon or correct any reports, analyses or other comments
made about the Company by any third parties, including, but not limited to,
analysts' research reports or comments (collectively, "Third Party Reports"),
and Investor has not relied upon any Third Party Reports in making the
decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments
in securities other than those of the Company. Investor acknowledges that
Investor is able to fend for Investor's self in the transaction contemplated
by this Agreement, that Investor has the ability to bear the economic risk of
Investor's investment pursuant to this Agreement and that Investor is an
"Accredited Investor" by virtue
<PAGE>
of the fact that Investor meets the investor qualification standards set forth
in Section 3.1 above. Investor has not been organized for the purpose of
investing in securities of the Company, although such investment is consistent
with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 [Intentionally Left Blank].
3.3.2 No General Solicitation. The Investment Agreement was
not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation,
(I) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
and (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
3.3.3 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock and Warrants issued at each Put
Closing will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold
without registration under the Act or pursuant to an exemption therefrom. In
this connection, Investor represents that Investor is familiar with Rule 144
under the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.3.4 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor
further agrees not to sell, transfer, assign, or pledge the Securities (except
for any bona fide pledge arrangement to the extent that such pledge does not
require registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is realized
upon, any transfer to the pledgee shall comply with the requirements set forth
herein), or to otherwise dispose of all or any portion of the Securities
unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements;
or
(b) (I) Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition to the extent
relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of the
Securities under the Act or state securities laws. It is agreed that the
Company will not require the Investor to provide opinions of counsel for
transactions made pursuant to Rule 144 provided that Investor and Investor's
broker, if necessary, provide the Company with the
<PAGE>
necessary representations for counsel to the Company to issue an opinion with
respect to such transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Common Stock for any minimum or other specific term
and reserves the right to dispose of the Common Stock at any time in
accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement
and each other document included herein for which a signature is required in
such capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing
this Agreement. Investor has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. If Investor is a corporation,
Investor is duly and validly organized, validly existing and in good tax and
corporate standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom
Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in
the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain
all the information, which would be contained in a registration statement
under the Act;
4.2 No Government Approval. No federal or state agency has passed
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
<PAGE>
4.3 No Registration, Restrictions on Transfer. As of the date of
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and
may not be sold, pledged (except for any limited pledge in connection with a
margin account of Investor to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein),
assigned or otherwise disposed of in the absence of an effective registration
of the Securities and any component thereof under the Act or unless an
exemption from such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of
the Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it
may be required to bear the economic risk of Investor's investment for an
indefinite period of time;
4.6 Exempt Transaction. Investor understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
4.7 Legends. The certificates representing the Put Shares shall
not bear a Restrictive Legend. The certificates representing the Warrant
Shares shall not bear a Restrictive Legend unless they are issued at a time
when the Registration Statement is not effective for resale. It is understood
that the certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.9 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws, nor
the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under those
securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company . The Company
hereby makes the following representations and warranties to Investor (which
shall be true at the signing of this Agreement, and as of any such later date
as contemplated hereunder) and agrees with Investor that, except as set forth
in the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Good Standing, and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida, USA and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in
<PAGE>
which the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a whole.
The Company is not the subject of any pending, threatened or, to its
knowledge, contemplated investigation or administrative or legal proceeding (a
"Proceeding") by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission, The
National Association of Securities Dealers, Inc., The Nasdaq Stock Market,
Inc. or any state securities commission, or any other governmental entity,
which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. The Company has the following
subsidiaries: U.S. Amateur Co., a Florida corporation and U.S.A. Performance
Products, Inc., a Florida corporation.
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except
for changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the
Company's business, financial condition, or prospects since the dates of such
Disclosure Documents. The financial statements as contained in the 10-KSB and
10-QSB have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted by Regulation
S-X of the Exchange Act), subject, in the case of unaudited interim financial
statements, to customary year end adjustments and the absence of certain
footnotes, and fairly present the financial condition of the Company as of the
dates of the balance sheets included therein and the consolidated results of
its operations and cash flows for the periods then ended,. Without limiting
the foregoing, there are no material liabilities, contingent or actual, that
are not disclosed in the Disclosure Documents (other than liabilities incurred
by the Company in the ordinary course of its business, consistent with its
past practice, after the period covered by the Disclosure Documents). The
Company has paid all material taxes that are due, except for taxes that it
reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure
Documents. This Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company
by its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations
of the Company hereunder and the authorization, issuance and delivery of the
Common Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals
required for it to execute, deliver and perform each agreement referenced in
the previous sentence.
<PAGE>
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and
warranties of Investor, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Put Shares, the Warrants and the
Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement,
or of any material provision of any material instrument or material contract
to which it is a party or by which it is bound or of any provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which would have a material adverse
effect on the Company's business or prospects, or on the performance of its
obligations under this Agreement or the Registration Rights Agreement. The
execution, delivery and performance of this Agreement and the other agreements
entered into in conjunction with the Offering and the consummation of the
transactions contemplated hereby and thereby will not (a) result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company, which would have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, (b) violate the Company's Certificate of Incorporation or By-Laws
or (c) violate any statute, rule or governmental regulation applicable to the
Company which violation would have a material adverse effect on the Company's
business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of
this Offering and thereafter, to make such reports available, for the full
term of this Agreement, including any extensions thereof, and for as long as
Investor holds the Securities. The Common Stock is duly quoted on the O.T.C.
Bulletin Board. The Company is not in violation of the listing requirements
of the O.T.C. Bulletin Board and reasonably anticipates that the Common Stock
will continue to be quoted by the O.T.C. Bulletin Board for the foreseeable
future. The Company has filed all reports required under the Exchange Act.
The Company has not furnished to the Investor any material nonpublic
information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of May
13, 1999, is, and the capitalization as of the Closing, subject to exercise of
any outstanding warrants and/or exercise of any outstanding stock options,
after taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K.
There are no securities or
<PAGE>
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. Except as disclosed in the
Capitalization Schedule, as of the date of this Agreement, (I) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its subsidiaries, or arrangements by which the
Company or any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their
securities under the Act (except the Registration Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M
lists all patents, trademarks, trademark registrations, trade names and
copyrights of the Company. The Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth in Exhibit M. The
Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth in
Exhibit M. To the best of the Company's knowledge after due inquiry, the
Company is not infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Company's intellectual
property rights. There are no restrictions in any agreements, licenses,
franchises, or other instruments that preclude the Company from engaging in
its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit L hereto. These purposes and amounts are estimates and are
subject to change without notice to any Investor.
5.10 No Rights of Participation. Other than Swartz Private Equity,
LLC, no person or entity, including, but not limited to, current or former
stockholders of the Company, underwriters, brokers, agents or other third
parties, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the financing
contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has
made no representations or warranties, either written or oral, as to how long
the Securities will be held by Investor or regarding Investor's trading
history or investment strategies.
<PAGE>
5.12 No Advance Regulatory Approval. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC,
or any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company
is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company
is currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would
prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under Regulation D of the
Act or would require the issuance of any other securities to be integrated
with this Offering under the Rules of Nasdaq. The Company has not engaged in
any form of general solicitation or advertising in connection with the
offering of the Common Stock or the Warrants.
5.16 [Intentionally Left Blank].
5.17 Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
5.18 Key Employees. Each "Key Employee" (as defined in Exhibit N)
is currently serving the Company in the capacity disclosed in Exhibit N. No
Key Employee, to the best knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each Key Employee does
not subject the Company or any of its subsidiaries to any liability with
respect to any of the foregoing matters. No Key Employee has, to the best
knowledge of the Company and its subsidiaries, any intention to terminate his
employment with, or services to, the Company or any of its subsidiaries.
<PAGE>
5.19 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.20 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that
the Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
5.21 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
5.22 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Florida law which is or could become
applicable to the Investor as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Common
Stock, any exercise of the Warrants and ownership of the Common Shares and
Warrant Shares. The Company has not adopted and will not adopt any "poison
pill" provision that will be applicable to Investor as a result of
transactions contemplated by this Agreement.
5.23 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.25 Financings. There are no other financings currently
pending or contemplated by the Company.
5.26 Shareholder Authorization. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small
Cap Market or the Nasdaq National Market, or at a special meeting to be held
as soon as practicable thereafter, use its best efforts to obtain approval of
its shareholders to (I) authorize the issuance of the full number of shares of
Common Stock which
<PAGE>
would be issuable under this Agreement and eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities with respect to the Company's ability to
issue shares of Common Stock in excess of the Cap Amount (such approvals being
the "20% Approval") and (ii) the increase in the number of authorized shares
of Common Stock of the Company (the "Share Authorization Increase Approval")
such that at least 4,000,000 shares can be reserved for this Offering. In
connection with such shareholder vote, the Company shall use its best efforts
to cause all officers and directors of the Company to promptly enter into
irrevocable agreements to vote all of their shares in favor of eliminating
such prohibitions. As soon as practicable after the 20% Approval and the
Share Authorization Increase Approval, the Company agrees to use its best
efforts to reserve 4,000,000 shares of Common Stock for issuance under this
Agreement.
5.27 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and remain a "Reporting Issuer" (defined as a Company which files periodic
reports under the Exchange Act) (provided, however, that the foregoing
covenant shall not prevent the Company from entering into any merger or
corporate reorganization as long as the surviving entity in such transaction,
if not the Company, assumes the Company's obligations with respect to the
Common Stock and has Common Stock listed for trading on a stock exchange or on
Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due except
for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (I) transfer, sell,
convey or otherwise dispose of any of its material assets to any Subsidiary
except for a proper business purpose or (ii) transfer, sell, convey or
otherwise dispose of any of its material assets to any Affiliate, as defined
below, during the Term of this Agreement. For purposes hereof, "Affiliate"
shall mean any officer of the Company, director of the Company or owner of
twenty percent (20%) or more of the Common Stock or other securities of the
Company.
6.6 Capital Raising Limitations; Rights of First Refusal.
<PAGE>
6.6.1 Capital Raising Limitations. During the period from the date of
this Agreement until the earlier of (I) the date that is one year after the
Termination Date, or (ii) (a) in the case of a Company Termination, the date
that is one (1) year after the date of such Company Termination, or (b) in the
case of an Automatic Termination that is not waived by the Investor, the date
that is six (6) months after the date of such Automatic Termination, the
Company shall not issue or sell, or agree to issue or sell, for cash in
private capital raising transactions (the following to be collectively
referred to herein as, the "Equity Securities"), either (I) Common Stock or
any other equity securities, (ii) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to
receive additional shares of Common Stock or other equity securities, or (iii)
any securities of the Company pursuant to an equity line structure or format
similar in nature to this Offering, without obtaining the prior written
approval of the Investor of the Offering (the limitations referred to in this
subsection 6.6.1 are collectively referred to as the "Capital Raising
Limitations").
6.6.2 Investor's Right of First Refusal. For any private capital
raising transactions of Equity Securities or equity line structured
investments which close after the date hereof and on or prior to the date that
is six (6) months after the Termination Date of this Agreement, not including
any warrants issued in conjunction with this Investment Agreement, the Company
agrees to deliver to Investor, at least ten (10) days prior to the closing of
such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the
same terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights of First
Refusal. Notwithstanding the above, the Capital Raising Limitations and the
Rights of First Refusal shall not apply to any transaction involving
issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a business,
product or license by the Company or exercise of options by employees,
consultants or directors. The Capital Raising Limitations also shall not
apply to (a) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (b) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or
restricted stock plan for the benefit of the Company's employees, directors or
consultants, or (c) the issuance of debt securities, with no equity feature,
incurred solely for working capital purposes.
6.6.4 Effect of Payment Default by Investor. The Capital Raising
Limitations and the Investor's Right of First Refusal shall not apply so long
as the payment of the required Put Dollar Amount for any Put Shares is more
than ten (10) Business Days past due and remains unpaid for five (5)
additional Business Days after the Company notifies the Investor in writing
that it intends to effect a transaction that would trigger either the Capital
Raising Limitations or the Investor's Right of First Refusal.
6.7 Financial 10-K Statements, Etc. and Current Reports on Form 8-
K. The Company shall deliver to the Investor copies of its annual reports on
Form 10-K, and quarterly reports on Form 10-Q and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the
Term of this Agreement.
<PAGE>
6.8 Opinion of Counsel. Investor shall, concurrent with the
purchase of the Common Stock and accompanying Warrants pursuant to this
Agreement, receive an opinion letter from the Company's legal counsel, in the
form attached as Exhibit B or in such form as agreed upon by the parties, as
to the Investment Commitment Closing and in the form attached as Exhibit I or
in such form as agreed upon by the parties, as to any Put Closing.
6.9 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms
of this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without
the Legend, if (a) the sale of such Security is registered under the Act, or
(b) such holder provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be borne by the Investor), to
the effect that a public sale or transfer of such Security may be made without
registration under the Act, or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144.
Each Investor agrees to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were
originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the Act.
6.10 Listing. Subject to the remainder of this Section 6.10, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares) are quoted and available for trading on the O.T.C. Bulletin Board.
Thereafter, the Company shall (I) use its best efforts to continue the listing
and trading of its Common Stock on the O.T.C. Bulletin Board or to become
eligible for and listed and available for trading on the Nasdaq Small Cap
Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in
all material respects with the Company's reporting, filing and other
obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.11 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock, by delivering
instructions in the form of Exhibit T hereto, to issue certificates,
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by
the holder thereof. Such certificates shall not bear a Legend unless issuance
with a Legend is permitted by the terms of this Agreement and Legend removal
is not permitted by Section 6.9 hereof and the Company shall cause the
Transfer Agent to issue such certificates without a Legend. Nothing in this
Section shall affect in any way Investor's obligations and agreement set forth
in Sections 3.3.3 or 3.3.4 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) an Investor provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from registration or (b)
pursuant to Rule 144, an Investor transfers Securities to an affiliate which
is an accredited investor,
<PAGE>
the Company shall permit the transfer, and, in the case of Put Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.11, that
an Investor shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, the
Company shall obtain approval of its stockholders to authorize (I) the
issuance of the full number of shares of Common Stock which would be issuable
pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to
the Company's ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be
unreasonably withheld by Investor.
6.14 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no further Commitment Fees shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties
shall survive the Investment Date and any Put Closing contemplated by this
Agreement notwithstanding any due diligence investigation made by or on behalf
of the party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration Statement,
this Agreement shall continue in full force and effect without said provision;
provided that if the removal of such provision materially changes the economic
benefit of this Agreement to either party, the affected party, at its option,
may terminate this Agreement or require that other terms of the Agreement be
amended to compensate for such material economic changes.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent, If assigned, the terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or
<PAGE>
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Investor may assign Investor's rights hereunder, in
connection with any private sale of the Common Stock of such Investor, so long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference
to the others.
7.5 Written Notices, Etc. Any notice, demand or request required
or permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants, whether oral, written, or otherwise,
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The
parties acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the parties
hereto, shall be filed in any state or federal court sitting in Atlanta,
Georgia. Georgia law shall govern both the proceeding as well as the
interpretation and construction of the Transaction Documents and the
transaction as a whole. In any litigation between the parties hereto, the
prevailing party, as found by the court, shall be entitled to an award of all
attorney's fees and costs of court. Should the court refuse to find a
prevailing party, each party shall bear its own legal fees and costs.
<PAGE>
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire
transfer, to the Company pursuant to a wire instruction letter to be provided
by the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges
and agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel, terminate or revoke
this Agreement or any other agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other agreements shall
survive the death or disability of such Investor and shall be binding upon and
inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators, successors, legal
representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Investor and all of its stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents,
members, partners or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorney's fees and
disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or documents
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim, derivative or otherwise, by any stockholder of
the Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
stockholders of the Company.
<PAGE>
The Investor shall defend, protect, indemnify and hold harmless Company
and all of its stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents, members, partners
or other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Investor in the Transaction Documents,
or (b) any breach of any covenant, agreement or obligation of the Investor
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which
it would be required to make if such foregoing undertaking was enforceable
which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 9,
deliver to the Indemnitor a written notice of the commencement thereof and the
Indemnitor shall have the right to participate in and to assume the defense
thereof with counsel reasonably selected by the Indemnitor, provided, however,
that an Indemnified Party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of such counsel to be paid by the
Indemnitor, if representation of such Indemnified Party by the counsel
retained by the Indemnitor would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the Indemnitor within a reasonable time of the commencement
of any such action, if prejudicial to the Indemnitor's ability to defend such
action, shall relieve the Indemnitor of any liability to the Indemnified Party
under this Section 9, but the omission to so deliver written notice to the
Indemnitor will not relieve it of any liability that it may have to any
Indemnified Party other than under this Section 9 to the extent it is
prejudicial.
10. [Intentionally Left Blank].
11. [Intentionally Left Blank].
<PAGE>
12. Accredited Investor. Investor is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a corporation, limited duration
company, limited liability company, business trust, or partnership not formed
for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that he is capable
of evaluating the merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or
general partner of the issuer of the securities being offered or sold or a
director, executive officer or general partner of a general partner of that
issuer.
[ ] has an individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an
entity described in a - b above or is an individual who could check one (1) of
the last three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify]
_______________________________________________________________________
The undersigned hereby subscribes for the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct
and that Investor by the following signature(s) executed this Agreement.
Dated this _____ day of May, 1999.
________________________________ ________________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where your
security is to be delivered
________________________________ ATTN: __________________________________
Title/Representative Capacity
(if applicable)
________________________________ ________________________________________
Name of Company You Represent Street Address
(if applicable)
________________________________ ________________________________________
Place of Execution of this City, State or Province, Country,
Agreement Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Please print address where Copy is to
Notice is to be delivered be delivered
ATTN: ____________________________ ATTN: _______________________________
__________________________________ _____________________________________
Street Address Street Address
__________________________________ _____________________________________
City, State or Province, Country, City, State or Country, Offshore
Offshore Postal Code Postal Code
Telephone: _______________________ Telephone: __________________________
Facsimile: _______________________ Facsimile: __________________________
Facsimile: _______________________ Facsimile: __________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT THE MAXIMUM OFFERING
AMOUNT ON THE ____ DAY OF MAY 1999.
ECOM ECOM.COM, INC.
By:
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
<PAGE>
ADVANCE PUT NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below,
to _____________________________, the Investor, as of the Intended Put Date
written below, all pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the Company and Swartz Private Equity,
LLC dated on or about May 13, 1999.
Date of Advance Put Notice: ___________________
Intended Put Date :___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
ECOM ECOM.COM, INC.
By: _________________________________
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
EXHIBIT E
<PAGE>
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
ECOM ECOM.COM, INC.'s (the "Company") Advance Put Notice on the Advance Put
Date written below, and its intention to elect to exercise a Put to sell
shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about May 13, 1999.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT F
<PAGE>
PUT NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Swartz Private Equity, LLC dated on or about May 13, 1999.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
ECOM ECOM.COM, INC.
By: _________________________________
David Panaia, CEO
Address: ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
EXHIBIT G
<PAGE>
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
eCom eCom.com, Inc. (the "Company") Put Notice and election to exercise a Put
to sell ___________________________ shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company
and Swartz Private Equity, LLC dated on or about May 13, 1999.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT H
<PAGE>
PUT CANCELLATION NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Swartz Private Equity, LLC dated on or about May
13, 1999, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice
is delivered to the Investor), provided that such cancellation shall not apply
to the number of shares of Common Stock equal to the Truncated Put Share
Amount (as defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration
Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
ECOM ECOM.COM, INC.
By: ____________________________________
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
EXHIBIT Q
<PAGE>
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Company, and Swartz Private Equity, LLC dated
on or about May 13, 1999, hereby confirms receipt of ECom eCom.com, Inc.'s
(the "Company") Put Cancellation Notice, and confirms the following:
Date of this Confirmation: ________________
Put Cancellation Date : ___________________
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT S
SWARTZ PRIVATE EQUITY, LLC
MEMORANDUM
To: Ted Freedman, Esq.
Fax: (303) 893-2882
Company: Krys Boyle Freedman & Sawyer, P.C.
From: Brad Hathorn
Date: September 13, 1999
Re: Ecom Registration, Filing Extension
Pages (Inc. Cover): 1
As discussed, Swartz Private Equity, LLC hereby extends the filing deadline
for the Registration Statement until Friday, September 17, 1999.
/s/ Brad Hathorn
- ------------------------
Brad Hathorn, Esq.
cc: David Panaia (561) 841-7422
1080 Holcomb Bridge Road, 200 Roswell Summit, Ste. 185, Roswell, GA 30076
Telephone: (770) 640-8130; FAX (770) 640-7150
eCom eCom.com, Inc.
_________________________
FIRST STOCK INCENTIVE PLAN
_________________________
1. Purpose of the Plan
This eCom eCom.com, Inc. (the "Company") First Stock Incentive Plan is
intended to promote the interests of the Company by providing the employees of
the Company and others, who are largely responsible for the management, growth
and protection of the business of the Company, with incentives and rewards to
encourage them to continue to provide their services to the Company.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of
the Company.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of the
Participant's employment by the Company on account of (i) the willful and
continued failure by the Participant substantially to perform his duties and
obligations (other than any such failure resulting from his incapacity due to
physical or mental illness) or (ii) the willful engaging by the Participant in
misconduct which could reasonably be expected to cause substantial injury to
the Company. For purposes of this Section 2(b), no act, or failure to act, on
a Participant's part shall be considered "willful" unless done, or omitted to
be done, by the Participant in bad faith and without reasonable belief that
his action or omission was in the best interests of the Company.
(c) "Cash Bonus" shall mean an award of a bonus payable in cash
pursuant to Section 13 hereof.
(d) "Change in Control" shall mean:
(i) a change in control of the Company of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act; or
(ii) the occurrence of any of the following events:
(1) any Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities;
<PAGE>
(2) a majority of individuals who are nominated by the
Board of Directors for election to the Board of Directors on any date, fail to
be elected to the Board of Directors as a direct or indirect result of any
proxy fight or contested election for positions on the Board of Directors; or
(3) the Board of Directors determines in its sole and
absolute discretion that there has been a change in control of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean the Board of Directors or such
committee as the Board of Directors shall appoint from time to time to
administer the Plan.
(g) "Common Stock" shall mean the Company's common stock, $.0001
par value per share.
(h) "Company" shall mean eCom eCom.com, Inc., a Florida
corporation, and each of its Subsidiaries.
(i) "Disability" shall mean a Participant's inability to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(k) The "Fair Market Value" of a share of Common Stock with
respect to any day shall be (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or
admitted to trading or (ii) if not so reported, the average of the closing bid
and ask prices on the immediately preceding business day as reported on the
National Association of Securities Dealers Automated Quotation System or (iii)
if not so reported, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Committee. In the event that the
price of a share of Common Stock shall not be so reported, the Fair Market
Value of Common Stock shall be determined by the Committee in its absolute
discretion.
(l) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR, share of Phantom Stock, share of Restricted Stock, Stock
Bonus or Cash Bonus granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the Code and
which is identified as an Incentive Stock Option in the agreement by which it
is evidenced.
(n) "Issue Date" shall mean the date established by the
Committee on which certificates representing shares of Restricted Stock shall
be issued by the Company pursuant to the terms of Section 10(d) hereof.
<PAGE>
(o) "LSAR" shall mean a limited stock appreciation right which
is granted pursuant to the provisions of Section 8 hereof and which relates to
an Option. Each LSAR shall be exercisable only upon the occurrence of a
Change in Control and only in the alternative to the exercise of its related
Option.
(p) "Non-Qualified Stock Option" shall mean an Option which is
not an Incentive Stock Option and which is identified as a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(q) "Option" shall mean an option to purchase shares of Common
Stock of the Company granted pursuant to Section 6 hereof. Each Option shall
be identified as either an Incentive Stock Option or a Non-Qualified Stock
Option in the agreement by which it is evidenced.
(r) "Participant" shall mean a person who is eligible to
participate in the Plan and to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be.
(s) "Person" shall mean a "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act.
(t) "Phantom Stock" shall mean the right to receive in cash the
Fair Market Value of a share of Common Stock of the Company, which right is
granted pursuant to Section 11 hereof and subject to the terms and conditions
contained therein.
(u) "Plan" shall mean the eCom eCom.com, Inc. First Stock
Incentive Plan, as it may be amended from time to time.
(v) "Restricted Stock" shall mean a share of Common Stock which
is granted pursuant to the terms of Section 10 hereof and which is subject to
the restrictions set forth in Section 10(c) hereof, to the extent that any
such restrictions are applicable, for so long as such restrictions continue to
apply to such share.
(w) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(x) "Stand-Alone SAR" shall mean a stock appreciation right
granted pursuant to Section 9 hereof which is not related to any Option.
(y) "Stock Bonus" shall mean a grant of a bonus payable in
shares of Common Stock pursuant to Section 12 hereof.
(z) "Subsidiary" shall mean any corporation in which at the time
of reference the Company owns, directly or indirectly, stock comprising more
than fifty percent of the total combined voting power of all classes of stock
of such corporation.
(aa) "Tandem SAR" shall mean a stock appreciation right granted
pursuant to Section 8 hereof which is related to an Option. Each Tandem SAR
shall be exercisable only to the extent its related Option is exercisable and
only in the alternative to the exercise of its related Option.
<PAGE>
(bb) "Vesting Date" shall mean the date established by the
Committee on which a share of Restricted Stock or Phantom Stock may vest.
3. Stock Subject to the Plan
Under the Plan, the Committee may grant to Participants (i) Options, (ii)
LSARs, (iii) Tandem SARs, (iv) Stand-Alone SARs, (v) shares of Restricted
Stock, (vi) shares of Phantom Stock, (vii) Stock Bonuses and (viii) Cash
Bonuses.
Subject to adjustment as provided in Section 14 hereof, the Committee may
grant Options, Stand-Alone SARs, shares of Restricted Stock, shares of Phantom
Stock and Stock Bonuses under the Plan with respect to a number of shares of
Common Stock that in the aggregate does not exceed one million shares of the
Company's Common Stock. The grant of an LSAR, Tandem SAR or Cash Bonus shall
not reduce the number of shares of Common Stock with respect to which Options,
Stand-Alone SARs, shares of Restricted Stock, shares of Phantom Stock or Stock
Bonuses may be granted pursuant to the Plan.
In the event that any outstanding Option or Stand-Alone SAR expires,
terminates or is canceled for any reason (other than pursuant to Paragraphs
7(b)(2) or 8(b)(3) hereof), the shares of Common Stock subject to the
unexercised portion of such Option or Stand-Alone SAR shall again be available
for grants under the Plan. In the event that an outstanding Option is
canceled pursuant to Paragraphs 7(b)(2) or 8(b)(3) hereof by reason of the
exercise of an LSAR or a Tandem SAR, the shares of Common Stock subject to the
canceled portion of such Option shall not again be available for grants under
the Plan. In the event that any shares of Restricted Stock or Phantom Stock,
or any shares of Common Stock granted in a Stock Bonus are forfeited or
canceled for any reason, such shares shall again be available for grants under
the Plan.
Shares of Common Stock issued under the Plan may be either newly issued
shares or treasury shares, at the discretion of the Committee, and the Company
hereby reserves one million shares of Common Stock for issuance pursuant to
the Plan.
4. Administration of the Plan
The Plan shall be administered by the Board of Directors or by such other
committee as may be designated from time to time by the Board of Directors in
its sole and absolute discretion; provided, however, that under no
circumstances shall the Board of Directors be permitted to designate any
committee to administer the Plan if such designation would cause any
transaction involving any grant, award or other acquisition of shares from the
Company pursuant to the Plan to not be exempt from Section 16 of the Exchange
Act in accordance with the provisions of Rule 16b-3 promulgated thereunder.
The Committee shall from time to time designate the persons who shall be
granted Incentive Awards and the amount and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations
for administering the Plan as it may deem necessary. Decisions of the
Committee shall be final and binding on all parties.
<PAGE>
The Committee may, in its absolute discretion (i) accelerate the date on
which any Option or Stand-Alone SAR granted under the Plan becomes
exercisable, (ii) accelerate the Vesting Date or Issue Date, or waive any
condition imposed pursuant to Section 10(b) hereof, with respect to any share
of Restricted Stock granted under the Plan and (iii) accelerate the Vesting
Date or waive any condition imposed pursuant to Section 11 hereof, with
respect to any share of Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion, grant
Incentive Awards to Participants on the condition that such Participants
surrender to the Committee for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices)
as the Committee specifies. Notwithstanding Section 3 herein, prior to the
surrender of such other Incentive Awards, Incentive Awards granted pursuant to
the preceding sentence of this Section 4 shall not count against the limits
set forth in such Section 3.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of
a claim with the approval of the Committee) arising out of any action,
omission or determination relating to the Plan, unless, in either case, such
action, omission or determination was taken or made by such member, director
or employee in bad faith and without reasonable belief that it was in the best
interests of the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be such persons, including employees and officers of the
Company (whether or not such officers are also directors of the Company),
consultants and advisors to the Company ("Non-Employee Participants"), who are
largely responsible for the management, growth and protection of the business
of the Company, as the Committee shall select from time to time. In no event
shall any consultant or advisor to the Company be entitled to receive any
Incentive Award pursuant to the Plan as direct or indirect compensation for
any capital raising or financial public relations services performed for the
Company.
6. Options
The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to
time approve. Options shall comply with and be subject to the following terms
and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified in
the agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
<PAGE>
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted under
the Plan shall be such price as the Committee shall determine on the date on
which such Non-Qualified Stock Option is granted; provided, that such price
may not be less than the minimum price required by applicable law. The
exercise price of any Incentive Stock Option granted under the Plan shall be
not less than 100% of the Fair Market Value of a share of Common Stock on the
date on which such Incentive Stock Option is granted.
(c) Term and Exercise of Option
(1) Each Option shall be exercisable on such date or dates,
during such period and for such number of shares of Common Stock as shall be
determined by the Committee on the day on which such Option is granted and set
forth in the Option agreement with respect to such Option; provided, however,
that no Option shall be exercisable after the expiration of ten years from the
date such Option was granted; and, provided, further, that each Option shall
be subject to earlier termination, expiration or cancellation as provided in
the Plan.
(2) Each Option shall be exercisable in whole or in part;
provided, that no partial exercise of an Option shall be for an aggregate
exercise price of less than $1,000. The partial exercise of an Option shall
not cause the expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of an Option, the agreements evidencing
such Option and any related LSARs and Tandem SARs shall be returned to the
Participant exercising such Option together with the delivery of the
certificates described in Section 6(c)(4) hereof.
(4) An Option shall be exercised by delivering notice to
the Company's principal office, to the attention of its Secretary, no less
than three business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the agreements evidencing the
Option and any related LSARs and Tandem SARs, shall specify the number of
shares of Common Stock with respect to which the Option is being exercised and
the effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately preceding the effective
date of the proposed exercise, in which case such agreements shall be returned
to him. Payment for shares of Common Stock purchased upon the exercise of an
Option shall be made on the effective date of such exercise either (i) in
cash, by certified check, bank cashier's check or wire transfer or (ii)
subject to the approval of the Committee, in shares of Common Stock owned by
the Participant and valued at their Fair Market Value on the effective date of
such exercise, or partly in shares of Common Stock with the balance in cash,
by certified check, bank cashier's check or wire transfer. Any payment in
shares of Common Stock shall be effected by the delivery of such shares to the
Secretary of the Company, duly endorsed in blank or accompanied by stock
powers duly executed in blank, together with any other documents and evidences
as the Secretary of the Company shall require from time to time.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the broker-dealer has
received from the Participant or the Company a fully-and-duly-endorsed
agreement evidencing such Option and instructions signed by the Participant
<PAGE>
requesting the Company to deliver the shares of Common Stock subject to such
Option to the broker-dealer on behalf of the Participant and specifying the
account into which such shares should be deposited, (ii) adequate provision
has been made with respect to the payment of any withholding taxes due upon
such exercise and (iii) the broker-dealer and the Participant have otherwise
complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220.
(5) Certificates for shares of Common Stock purchased upon
the exercise of an Option shall be issued in the name of the Participant and
delivered to the Participant as soon as practicable following the effective
date on which the Option is exercised.
(6) During the lifetime of a Participant, each Option
granted to him shall be exercisable only by him. No Option shall be
assignable or transferable otherwise than by will, the laws of descent and
distribution, or pursuant to a qualified domestic relations order.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of shares of Common
Stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code) are exercisable for the first time by a Participant
during any calendar year under the Plan and any other stock option plan of the
Company (or any "subsidiary" of the Company as such term is defined in Section
425 of the Code) shall not exceed $100,000. Such Fair Market Value shall be
determined as of the date on which each such incentive stock option is
granted. In the event that the aggregate Fair Market Value of shares of
Common Stock with respect to such incentive stock options exceeds $100,000,
then Incentive Stock Options granted hereunder to such Participant shall, to
the extent and in the order required by Regulations promulgated under the Code
(or any other authority having the force of Regulations), automatically be
deemed to be Non-Qualified Stock Options, but all other terms and provisions
of such Incentive Stock Options shall remain unchanged. In the absence of
such Regulations (and authority), or in the event such Regulations (or
authority) require or permit a designation of the options which shall cease to
constitute incentive stock options, Incentive Stock Options shall, to the
extent of such excess and in the order in which they were granted,
automatically be deemed to be Non-Qualified Stock Options, but all other terms
and provisions of such Incentive Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such individual owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or any of its "subsidiaries" (within the
meaning of Section 425 of the Code), unless (i) the exercise price of such
Incentive Stock Option is at least one hundred and ten percent of the Fair
Market Value of a share of Common Stock at the time such Incentive Stock
Option is granted and (ii) such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option
is granted.
(e) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause, Disability or
death (i) Options granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until
<PAGE>
the expiration of one year after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the
close of business on the date of such termination; provided, however, that no
Option shall be exercisable after the expiration of its term.
(2) In the event that the employment of a Participant with
the Company shall terminate on account of the Disability or death of the
Participant (i) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain exercisable
until the expiration of one year after such termination, on which date they
shall expire, and (ii) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination, shall expire at the
close of business on the date of such termination; provided, however, that no
Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Options granted to such Participant
shall expire at the commencement of business on the date of such termination.
(4) As to Non-Employee Participants, all options shall
remain outstanding according to their initial terms as granted regardless
of whether such Non-Employee Participant has ceased to provide services to the
Company.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option granted
under the Plan and outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan.
7. Limited Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more LSARs relating to a number of shares of Common Stock equal to or
less than the number of shares of Common Stock subject to the related Option.
An LSAR may be granted at the same time as, or subsequent to the time that,
its related Option is granted. Each LSAR shall be evidenced by an agreement
in such form as the Committee shall from time to time approve. Each LSAR
granted hereunder shall be subject to the following terms and conditions:
(a) Benefit Upon Exercise
(1) The exercise of an LSAR relating to a Non-Qualified
Stock Option with respect to any number of shares of Common Stock shall
entitle the Participant to a cash payment, for each such share, equal to the
excess of (i) the greater of (A) the highest price per share of Common Stock
paid in the Change in Control in connection with which such LSAR became
exercisable and (B) the Fair Market Value of a share of Common Stock on the
date of such Change in Control over (ii) the exercise price of the related
Option. Such payment shall be paid as soon as practical, but in no event
later than the expiration of five business days, after the effective date of
such exercise.
<PAGE>
(2) The exercise of an LSAR relating to an Incentive Stock
Option with respect to any number of shares of Common Stock shall entitle the
Participant to a cash payment, for each such share, equal to the excess of (i)
the Fair Market Value of a share of Common Stock on the effective date of such
exercise over (ii) the exercise price of the related Option. Such payment
shall be paid as soon as practical, but in no event later than the expiration
of five business days, after the effective date of such exercise.
(b) Term and Exercise of LSARs
(1) An LSAR shall be exercisable only during the period
commencing on the first day following the occurrence of a Change in Control
and terminating on the expiration of sixty days after such date.
Notwithstanding the preceding sentence of this Section 7(b), in the event that
an LSAR held by any Participant who is or may be subject to the provisions of
Section 16(b) of the Exchange Act becomes exercisable prior to the expiration
of six months following the date on which it is granted, then the LSAR shall
also be exercisable during the period commencing on the first day immediately
following the expiration of such six month period and terminating on the
expiration of sixty days following such date. Notwithstanding anything else
herein, an LSAR relating to an Incentive Stock Option may be exercised with
respect to a share of Common Stock only if the Fair Market Value of such share
on the effective date of such exercise exceeds the exercise price relating to
such share. Notwithstanding anything else herein, an LSAR may be exercised
only if and to the extent that the Option to which it relates is exercisable.
(2) The exercise of an LSAR with respect to a number of
shares of Common Stock shall cause the immediate and automatic cancellation of
the Option to which it relates with respect to an equal number of shares. The
exercise of an Option, or the cancellation, termination or expiration of an
Option (other than pursuant to this Paragraph (2)), with respect to a number
of shares of Common Stock, shall cause the cancellation of the LSAR related to
it with respect to an equal number of shares.
(3) Each LSAR shall be exercisable in whole or in part;
provided, that no partial exercise of an LSAR shall be for an aggregate
exercise price of less than $1,000. The partial exercise of an LSAR shall not
cause the expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of an LSAR, the agreements evidencing the
LSAR, the related Option and any Tandem SARs related to such Option shall be
returned to the Participant exercising such LSAR together with the payment
described in Paragraph 7(a)(1) or (2) hereof, as applicable.
(4) During the lifetime of a Participant, each LSAR granted
to him shall be exercisable only by him. No LSAR shall be assignable or
transferable otherwise than by will, the laws of descent and distribution, or
pursuant to a qualified domestic relations order, and otherwise than together
with its related Option.
(5) An LSAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no less than
three business days in advance of the effective date of the proposed exercise.
Such notice shall be accompanied by the applicable agreements evidencing the
LSAR, the related Option and any Tandem SARs relating to such Option, shall
specify the number of shares of Common Stock with respect to which the LSAR is
being exercised and the effective date of the proposed exercise and shall be
signed by the Participant. The Participant may withdraw such notice at any
<PAGE>
time prior to the close of business on the business day immediately preceding
the effective date of the proposed exercise, in which case such agreements
shall be returned to him.
8. Tandem Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of shares of Common Stock equal
to or less than the number of shares of Common Stock subject to the related
Option. A Tandem SAR may be granted at the same time as, or subsequent to the
time that, its related Option is granted. Each Tandem SAR shall be evidenced
by an agreement in such form as the Committee shall from time to time approve.
Tandem SARs shall comply with and be subject to the following terms and
conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of shares of
Common Stock shall entitle a Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a share of Common
Stock on the effective date of such exercise over (ii) the exercise price of
the related Option. Such payment shall be paid as soon as practical, but in
no event later than the expiration of five business days, after the effective
date of such exercise.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same time and
to the same extent (on a proportional basis, with any fractional amount being
rounded down to the immediately preceding whole number) as its related Option.
Notwithstanding the first sentence of this Paragraph 8(b)(1), (i) a Tandem SAR
shall not be exercisable at any time that an LSAR related to the Option to
which the Tandem SAR is related is exercisable and (ii) a Tandem SAR relating
to an Incentive Stock Option may be exercised with respect to a share of
Common Stock only if the Fair Market Value of such share on the effective date
of such exercise exceeds the exercise price relating to such share.
(2) Notwithstanding the first sentence of Paragraph 8(b)(1)
hereof, the Committee may, in its absolute discretion, grant one or more
Tandem SARs which shall not become exercisable unless and until the
Participant to whom such Tandem SAR is granted is, in the determination of the
Committee, subject to Section 16(b) of the Exchange Act and which shall cease
to be exercisable if and at the time that the Participant ceases, in the
determination of the Committee, to be subject to such Section 16(b).
(3) The exercise of a Tandem SAR with respect to a number
of shares of Common Stock shall cause the immediate and automatic cancellation
of its related Option with respect to an equal number of shares. The exercise
of an Option, or the cancellation, termination or expiration of an Option
(other than pursuant to this Paragraph (3)), with respect to a number of
shares of Common Stock shall cause the automatic and immediate cancellation of
its related Tandem SARs to the extent that the number of shares of Common
Stock subject to such Option after such exercise, cancellation, termination or
expiration is less than the number of shares subject to such Tandem SARs.
Such Tandem SARs shall be canceled in the order in which they became
exercisable.
<PAGE>
(4) Each Tandem SAR shall be exercisable in whole or in
part; provided, that no partial exercise of a Tandem SAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of a
Tandem SAR shall not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of a Tandem SAR, the
agreements evidencing such Tandem SAR, its related Option and LSARs relating
to such Option shall be returned to the Participant exercising such Tandem SAR
together with the payment described in Section 8(a) hereof.
(5) During the lifetime of a Participant, each Tandem SAR
granted to him shall be exercisable only by him. No Tandem SAR shall be
assignable or transferable otherwise than by will, the laws of descent and
distribution, or pursuant to a qualified domestic relations order, and
otherwise than together with its related Option.
(6) A Tandem SAR shall be exercised by delivering notice to
the Company's principal office, to the attention of its Secretary, no less
than three business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the applicable agreements
evidencing the Tandem SAR, its related Option and any LSARs related to such
Option, shall specify the number of shares of Common Stock with respect to
which the Tandem SAR is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may withdraw
such notice at any time prior to the close of business on the business day
immediately preceding the effective date of the proposed exercise, in which
case such agreements shall be returned to him.
9. Stand-Alone Stock Appreciation Rights
The Committee may grant Stand-Alone SARs pursuant to the Plan, which
Stand-Alone SARs shall be evidenced by agreements in such form as the
Committee shall from time to time approve. Stand-Alone SARs shall comply with
and be subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the Plan
shall be determined by the Committee at the time of the grant of such Stand-
Alone SAR.
(b) Benefit Upon Exercise
The exercise of a Stand-Alone SAR with respect to any number of
shares of Common Stock prior to the occurrence of a Change in Control shall
entitle a Participant to a cash payment, for each such share, equal to the
excess of (i) the Fair Market Value of a share of Common Stock on the exercise
date over (ii) the exercise price of the Stand-Alone SAR. The exercise of a
Stand-Alone SAR with respect to any number of shares of Common Stock upon or
after the occurrence of a Change in Control shall entitle a Participant to a
cash payment, for each such share, equal to the excess of (i) the greater of
(A) the highest price per share of Common Stock paid in connection with such
Change in Control and (B) the Fair Market Value of a share of Common Stock on
the date of such Change in Control over (ii) the exercise price of the Stand-
Alone SAR. Such payments shall be paid as soon as practical, but in no event
later than five business days, after the effective date of the exercise.
<PAGE>
(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such date
or dates, during such period and for such number of shares of Common Stock as
shall be determined by the Committee and set forth in the Stand-Alone SAR
agreement with respect to such Stand-Alone SAR; provided, however, that no
Stand-Alone SAR shall be exercisable after the expiration of ten years from
the date such Stand-Alone SAR was granted; and, provided, further, that each
Stand-Alone SAR shall be subject to earlier termination, expiration or
cancellation as provided in the Plan.
(2) Each Stand-Alone SAR may be exercised in whole or in
part; provided, that no partial exercise of a Stand-Alone SAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of a
Stand-Alone SAR shall not cause the expiration, termination or cancellation of
the remaining portion thereof. Upon the partial exercise of a Stand-Alone
SAR, the agreement evidencing such Stand-Alone SAR shall be returned to the
Participant exercising such Stand-Alone SAR together with the payment
described in Section 9(b) hereof.
(3) A Stand-Alone SAR shall be exercised by delivering
notice to the Company's principal office, to the attention of its Secretary,
no less than three business days in advance of the effective date of the
proposed exercise. Such notice shall be accompanied by the applicable
agreement evidencing the Stand-Alone SAR, shall specify the number of shares
of Common Stock with respect to which the Stand-Alone SAR is being exercised
and the effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately preceding the effective
date of the proposed exercise, in which case the agreement evidencing the
Stand-Alone SAR shall be returned to him.
(4) During the lifetime of a Participant, each Stand-Alone
SAR granted to him shall be exercisable only by him. No Stand-Alone SAR shall
be assignable or transferable otherwise than by will, the laws of descent and
distribution, or pursuant to a qualified domestic relations order.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause, Disability or
death (i) Stand-Alone SARs granted to such Participant, to the extent that
they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one year after such termination, on which
date they shall expire, and (ii) Stand-Alone SARs granted to such Participant,
to the extent that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such termination;
provided, however, that no Stand-Alone SAR shall be exercisable after the
expiration of its term.
(2) In the event that the employment of a Participant with
the Company shall terminate on account of the Disability or death of the
Participant (i) Stand-Alone SARs granted to such Participant, to the extent
that they were exercisable at the time of such termination, shall remain
exercisable until the expiration of one year after such termination, on which
date they shall expire, and (ii) Stand-Alone SARs granted to such Participant,
to the extent that they were not exercisable at the time of such termination,
<PAGE>
shall expire at the close of business on the date of such termination;
provided, however, that no Stand-Alone SAR shall be exercisable after the
expiration of its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Stand-Alone SAR's granted to such
Participant shall expire at the commencement of business on the date of such
termination.
(4) As to Non-Employee Participants, all Stand Alone
SAR's shall remain outstanding according to their initial terms as granted
regardless of whether such Non-Employee Participant has ceased to provide
services to the Company.
(e) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Stand-Alone SAR
granted under the Plan and outstanding at such time shall become fully and
immediately exercisable and shall remain exercisable until its expiration,
termination or cancellation pursuant to the terms of the Plan.
10. Restricted Stock
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of
shares of Restricted Stock shall comply with and be subject to the following
terms and conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting Date or
Vesting Dates with respect to such shares. The Committee may divide such
shares into classes and assign a different Issue Date and/or Vesting Date for
each class. Except as provided in Sections 10(c) and 10(f) hereof, upon the
occurrence of the Issue Date with respect to a share of Restricted Stock, a
share of Restricted Stock shall be issued in accordance with the provisions of
Section 10(d) hereof. Provided that all conditions to the vesting of a share
of Restricted Stock imposed pursuant to Section 10(b) hereof are satisfied,
and except as provided in Sections 10(c) and 10(f) hereof, upon the occurrence
of the Vesting Date with respect to a share of Restricted Stock, such share
shall vest and the restrictions of Section 10(c) hereof shall cease to apply
to such share.
(b) Conditions to Vesting
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not inconsistent with
the provisions hereof, to the vesting of such shares as it, in its absolute
discretion deems appropriate.; provided, however, that in the event the
Company issues shares of Restricted Stock to a Participant as compensation for
services performed for the Company in the past, such shares of Restricted
Stock shall vest immediately upon issuance. By way of example and not by way
of limitation, the Committee may require, as a condition to the vesting of any
class or classes of shares of Restricted Stock, that the Participant or the
Company achieve certain performance criteria, such criteria to be specified by
the Committee at the time of the grant of such shares.
<PAGE>
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no transfer of
a Participant's rights with respect to such shares, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon
any attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
(1) Except as provided in Sections 10(c) or 10(f) hereof,
reasonably promptly after the Issue Date with respect to shares of Restricted
Stock, the Company shall cause to be issued a stock certificate, registered in
the name of the Participant to whom such shares were granted, evidencing such
shares; provided, that the Company shall not cause to be issued such a stock
certificate unless it has received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate shall bear the following
legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and conditions
(including forfeiture and restrictions against transfer) contained in the eCom
eCom.com, Inc. First Stock Incentive Plan and an Agreement entered into
between the registered owner of such shares and eCom eCom.com, Inc. Copies of
the Plan and Agreement are on file in the office of the Secretary of eCom
eCom.com, Inc.
Such legend shall not be removed from the certificate evidencing
such shares until such shares vest pursuant to the terms hereof.
(2) Each certificate issued pursuant to Paragraph (10(d)(1)
hereof, together with the stock powers relating to the shares of Restricted
Stock evidenced by such certificate, shall be deposited by the Company with a
custodian designated by the Company. The Company shall cause such custodian
to issue to the Participant a receipt evidencing the certificates held by it
which are registered in the name of the Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock pursuant to the
terms hereof, the restrictions of Section 10(c) hereof shall cease to apply to
such share. Reasonably promptly after a share of Restricted Stock vests
pursuant to the terms hereof, the Company shall cause to be issued and
delivered to the Participant to whom such shares were granted, a certificate
evidencing such share, free of the legend set forth in Paragraph 10(d)(1)
hereof, together with any other property of the Participant held by the
custodian pursuant to Section 14(b) hereof.
(f) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause prior to the
vesting of shares of Restricted Stock granted to such Participant, a
proportion of such shares, to the extent not forfeited or canceled on or prior
to such termination pursuant to any provision hereof, shall vest on the date
<PAGE>
of such termination. The proportion referred to in the preceding sentence
shall be determined by the Committee at the time of the grant of such shares
of Restricted Stock and may be based on the achievement of any conditions
imposed by the Committee with respect to such shares pursuant to Section
10(b). Such proportion may be equal to zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Restricted Stock granted to such
Participant which have not vested as of the date of such termination shall
immediately be forfeited.
(g) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of Restricted
Stock which have not theretofore vested (including those with respect to which
the Issue Date has not yet occurred), or been canceled or forfeited pursuant
to any provision hereof, shall immediately vest.
11. Phantom Stock
The Committee may grant shares of Phantom Stock pursuant to the Plan.
Each grant of shares of Phantom Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of
shares of Phantom Stock shall comply with and be subject to the following
terms and conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the Committee
shall establish a Vesting Date or Vesting Dates with respect to such shares.
The Committee may divide such shares into classes and assign a different
Vesting Date for each class. Provided that all conditions to the vesting of a
share of Phantom Stock imposed pursuant to Section 11(c) hereof are satisfied,
and except as provided in Section 11(d) hereof, upon the occurrence of the
Vesting Date with respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 30 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair Market
Value of a share of Common Stock of the Company on the date on which such
share of Phantom Stock vests and (ii) the aggregate amount of cash dividends
paid with respect to a share of Common Stock of the Company during the period
commencing on the date on which the share of Phantom Stock was granted and
terminating on the date on which such share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the Committee
may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the vesting of such shares as it, in its absolute
discretion deems appropriate. By way of example and not by way of limitation,
the Committee may require, as a condition to the vesting of any class or
classes of shares of Phantom Stock, that the Participant or the Company
achieve certain performance criteria, such criteria to be specified by the
Committee at the time of the grant of such shares.
<PAGE>
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with
the Company shall terminate for any reason other than Cause prior to the
vesting of shares of Phantom Stock granted to such Participant, a proportion
of such shares, to the extent not forfeited or canceled on or prior to such
termination pursuant to any provision hereof, shall vest on the date of such
termination. The proportion referred to in the preceding sentence shall be
determined by the Committee at the time of the grant of such shares of Phantom
Stock and may be based on the achievement of any conditions imposed by the
Committee with respect to such shares pursuant to Section 11(c). Such
proportion may be equal to zero.
(2) In the event of the termination of a Participant's
employment for Cause, all shares of Phantom Stock granted to such Participant
which have not vested as of the date of such termination shall immediately be
forfeited.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of Phantom
Stock which have not theretofore vested, or been canceled or forfeited
pursuant to any provision hereof, shall immediately vest.
12. Stock Bonuses
The Committee shall grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time and
subject to such conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Certificates for shares of Common Stock granted as
a Stock Bonus shall be issued in the name of the Participant to whom such
grant was made and delivered to such Participant as soon as practicable after
the date on which such Stock Bonus is required to be paid.
13. Cash Bonuses
The Committee may, in its absolute discretion, grant, in connection with
any grant of Restricted Stock or Stock Bonus or at any time thereafter, a cash
bonus, payable promptly after the date on which the Participant is required to
recognize income for federal income tax purposes in connection with such
Restricted Stock or Stock Bonus, in such amounts as the Committee shall
determine from time to time; provided however, that in no event shall the
amount of a Cash Bonus exceed the Fair Market Value of the related shares of
Restricted Stock or Stock Bonus on such date. A Cash Bonus shall be subject
to such conditions as the Committee shall determine at the time of the grant
of such Cash Bonus.
14. Adjustment Upon Changes in Common Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, recapitalization,
merger, consolidation, combination or exchange of shares or similar corporate
change, the maximum aggregate number of shares of Common Stock with respect to
which the Committee may grant Options, Stand-Alone SARs, shares of Restricted
Stock, shares of Phantom Stock and Stock Bonuses shall be appropriately
<PAGE>
adjusted by the Committee. In the event of any change in the number of shares
of Common Stock outstanding by reason of any other event or transaction, the
Committee may, but need not, make such adjustments in the number and class of
shares of Common Stock with respect to which Options, Stand-Alone SARs, shares
of Restricted Stock, shares of Phantom Stock and Stock Bonuses may be granted
as the Committee may deem appropriate.
(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends paid in
cash) received by a Participant with respect to a share of Restricted Stock,
the Issue Date with respect to which occurs prior to such event, but which has
not vested as of the date of such event, as the result of any dividend, stock
split, recapitalization, merger, consolidation, combination, exchange of
shares or otherwise will not vest until such share of Restricted Stock vests,
and shall be promptly deposited with the custodian designated pursuant to
Paragraph 10(d)(2) hereof.
The Committee may, in its absolute discretion, adjust any grant of
shares of Restricted Stock, the Issue Date with respect to which has not
occurred as of the date of the occurrence of any of the following events, or
any grant of shares of Phantom Stock, to reflect any dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of shares or
similar corporate change as the Committee may deem appropriate to prevent the
enlargement or dilution of rights of Participants under the grant.
(c) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs--
Increase or Decrease in Issued Shares Without Consideration
Subject to any required action by the shareholders of the Company,
in the event of any increase or decrease in the number of issued shares of
Common Stock resulting from a subdivision or consolidation of shares of Common
Stock or the payment of a stock dividend (but only on the shares of Common
Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Company, the Committee shall
proportionally adjust the number of shares of Common Stock subject to each
outstanding Option, LSAR, Tandem SAR and Stand-Alone SAR, and the exercise
price per share of Common Stock of each such Option, LSAR, Tandem SAR and
Stand-Alone SAR.
(d) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs--
Certain Mergers
Subject to any required action by the shareholders of the Company,
in the event that the Company shall be the surviving corporation in any merger
or consolidation (except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another corporation),
each Option, LSAR, Tandem SAR and Stand-Alone SAR outstanding on the date of
such merger or consolidation shall pertain to and apply to the securities
which a holder of the number of shares of Common Stock subject to such Option,
LSAR, Tandem SAR or Stand-Alone SAR would have received in such merger or
consolidation.
(e) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs--
Certain Other Transactions
<PAGE>
In the event of (i) a dissolution or liquidation of the Company,
(ii) a sale of all or substantially all of the Company's assets, (iii) a
merger or consolidation involving the Company in which the Company is not the
surviving corporation or (iv) a merger or consolidation involving the Company
in which the Company is the surviving corporation but the holders of shares of
Common Stock receive securities of another corporation and/or other property,
including cash, the Committee shall, in its absolute discretion, have the
power to:
(i) cancel, effective immediately prior to the occurrence
of such event, each Option (including each LSAR and Tandem SAR related
thereto) and Stand-Alone SAR outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or Stand-Alone SAR
was granted an amount in cash, for each share of Common Stock subject to such
Option or Stand-Alone SAR, respectively, equal to the excess of (A) the value,
as determined by the Committee in its absolute discretion, of the property
(including cash) received by the holder of a share of Common Stock as a result
of such event over (B) the exercise price of such Option or Stand-Alone SAR;
or
(ii) provide for the exchange of each Option (including any
related LSAR or Tandem SAR) and Stand-Alone SAR outstanding immediately prior
to such event (whether or not then exercisable) for an option on or stock
appreciation right with respect to, as appropriate, some or all of the
property for which such Option or Stand-Alone SAR is exchanged and, incident
thereto, make an equitable adjustment as determined by the Committee in its
absolute discretion in the exercise price of the option or stock appreciation
right, or the number of shares or amount of property subject to the option or
stock appreciation right or, if appropriate, provide for a cash payment to the
Participant to whom such Option or Stand-Alone SAR was granted in partial
consideration for the exchange of the Option or Stand-Alone SAR.
(f) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs--
Other Changes
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Section 14(c),
(d) or (e) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options, LSARs,
Tandem SARs or Stand-Alone SARs outstanding on the date on which such change
occurs and in the per share exercise price of each such Option, LSAR, Tandem
SAR and Stand-Alone SAR as the Committee may consider appropriate to prevent
dilution or enlargement of rights.
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall have
any rights by reason of any subdivision or consolidation of shares of stock of
any class, the payment of any dividend, any increase or decrease in the number
of shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
<PAGE>
15. Rights as a Shareholder
No person shall have any rights as a shareholder with respect to any
shares of Common Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate
with respect to such shares. Except as otherwise expressly provided in
Section 14 hereof, no adjustment to any Incentive Award shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
16. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall confer upon
any Participant any right with respect to the continuation of his employment
by the Company or interfere in any way with the right of the Company, subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of
the Participant from the rate in existence at the time of the grant of an
Incentive Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to
such Participant or any other Participant or other person at any time nor
preclude the Committee from making subsequent grants to such Participant or
any other Participant or other person.
17. Securities Matters
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common Stock to
be issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company shall not be
obligated to cause to be issued or delivered any certificates evidencing
shares of Common Stock pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates is
in compliance with all applicable laws, regulations of governmental authority
and the requirements of any securities exchange on which shares of Common
Stock are traded. The Committee may require, as a condition of the issuance
and delivery of certificates evidencing shares of Common Stock pursuant to the
terms hereof, that the recipient of such shares make such covenants,
agreements and representations, and that such certificates bear such legends,
as the Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that
the issuance and delivery of shares of Common Stock pursuant to such exercise
is in compliance with all applicable laws, regulations of governmental
authority and the requirements of any securities exchange on which shares of
Common Stock are traded. The Company may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder in order to allow
the issuance of shares of Common stock pursuant thereto to be made pursuant to
registration or an exemption from the registration or other methods for
compliance available under federal or state securities laws. The Company
shall inform the Participant in writing of its decision to defer the
effectiveness of the exercise of an Option granted hereunder. During the
period that the effectiveness of the exercise of an Option has been deferred,
<PAGE>
the Participant may, by written notice, withdraw such exercise and obtain the
refund of any amount paid with respect thereto.
(c) With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Committee fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
18. Withholding Taxes
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise
of an Option, the occurrence of the Issue Date or Vesting Date with respect to
a share of Restricted Stock or the payment of a Stock Bonus, the Company shall
have the right to require the Participant to remit to the Company in cash an
amount sufficient to satisfy federal, state and local withholding tax
requirements, if any, attributable to such exercise, occurrence or payment
prior to the delivery of any certificate or certificates for such shares. In
addition, upon the exercise of an LSAR, Tandem SAR or Stand-Alone Sar, the
grant of a Cash Bonus or the making of a payment with respect to a share of
Phantom Stock, the Company shall have the right to withhold from any cash
payment required to be made pursuant thereto an amount sufficient to satisfy
the federal, state and local withholding tax requirements.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the
Committee, when shares of Common Stock are to be issued upon the exercise of
an Option, the occurrence of the Issue Date or the Vesting Date with respect
to a share of Restricted Stock or the grant of a Stock Bonus, in lieu of the
remittance required by Section 18(a) hereof, the Participant may tender to the
Company a number of shares of Common Stock determined by such Participant, the
Fair Market Value of which at the tender date the Committee determines to be
sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise, occurrence or grant and
not greater than the Participant's estimated total federal, state and local
tax obligations associated with such exercise, occurrence or grant.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the
Committee, when shares of Common Stock are to be issued upon the exercise of
an Option, the occurrence of the Issue Date or the Vesting Date with respect
to a share of Restricted Stock or the grant of a Stock Bonus, in lieu of the
remittance required by Section 18(a) hereof, the Company shall withhold a
number of such shares determined by such Participant, the Fair Market Value of
which at the exercise date the Committee determines to be sufficient to
satisfy the federal, state and local withholding tax requirements, if any,
attributable to such exercise, occurrence or grant and is not greater than the
Participant's estimated total federal, state and local tax obligations
associated with such exercise, occurrence or grant.
<PAGE>
(d) Timing and Method of Elections
Notwithstanding any other provisions of the Plan, a Participant who
is subject to Section 16(b) of the Exchange Act may not make either of the
elections described in Sections 18(b) and (c) hereof prior to the expiration
of six months after the date on which the applicable Option, share of
Restricted Stock or Stock Bonus was granted, except in the event of the death
or Disability of the Participant, unless the Company is advised by its counsel
that such election(s) may be permitted pursuant to Section 16 of the Exchange
Act or any rule or interpretation of the U.S. Securities and Exchange
Commission thereunder. A Participant who is subject to Section 16(b) of the
Exchange Act may not make such elections other than (i) during the 10-day
window period beginning on the third business day following the date of
release for publication of the Company's quarterly and annual summary
statements of sales and earnings and ending on the twelfth business day
following such date or (ii) at least six months prior to the date as of which
the income attributable to the exercise of such Option is recognized under the
Code. Such election shall be irrevocable and shall be made by the delivery to
the Company's principal office, to the attention of its Secretary, of a
written notice signed by the Participant.
19. Amendment of the Plan
The Board of Directors may at any time suspend or terminate the Plan or
revise or amend it in any respect whatsoever; provided, however, that the Plan
may not be amended more than once every six months other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder, or any other laws or regulations.
20. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or Stand-Alone
SAR shall impose no obligation upon such Participant to exercise such Option,
LSAR, Tandem SAR or Stand-Alone SAR.
21. Transfers Upon Death or Pursuant to a Qualified Domestic
Relations Order
Upon the death of a Participant or pursuant to a qualified domestic
relations order, outstanding Incentive Awards granted to such Participant may
be exercised only by the executors or administrators of the Participant's
estate or by any person or persons who shall have acquired such right to
exercise by will, the laws of descent and distribution, or pursuant to a
qualified domestic relations order. No transfer by will, the laws of descent
and distribution, or pursuant to a qualified domestic relations order, of any
Incentive Award, or the right to exercise any Incentive Award, shall be
effective to bind the Company unless the Committee shall have been furnished
with (a) written notice thereof and with a copy of the will, order, and/or
such evidence as the Committee may deem necessary to establish the validity of
the transfer and (b) an agreement by the transferee to comply with all the
terms and conditions of the Incentive Award that are or would have been
applicable to the Participant and to be bound by the acknowledgements made by
the Participant in connection with the grant of the Incentive Award.
<PAGE>
22. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used
for general corporate purposes.
23. Participant's Failure to Comply
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Incentive
Award, unless such failure is remedied by such Participant within ten days
after having been notified of such failure by the Committee, shall be grounds
for the cancellation and forfeiture of such Incentive Award, in whole or in
part, as the Committee, in its absolute discretion, may determine.
24. Effective Date and Term of Plan
The Plan shall be effective as of January 1, 1999. The Plan shall
terminate on December 31, 2008 unless earlier terminated pursuant to Section
19. No grants may be made under the Plan after December 31, 2008.
US AMATEUR SPORTS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Calculation of Numerator: Calculation of Denominator:
Net loss 374,085 Weighted average common shares
Adjustment 0 issued and outstanding 12,233,142
-------- Potentially dilutive securities 0
Net Loss (374,085) ----------
======== Weighted average shares
outstanding 12,233,142
==========
US AMATEUR SPORTS, INC.
SUBSIDIARIES
as of May 31, 1999
State of Name Under Which
Subsidiary Name and Address Incorporation Business is Conducted
- --------------------------- ------------- ---------------------
US Amateur Sports Company Florida US Amateur Sports Company
USA Performance Products, Inc. Florida USA Performance Products
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages F-2 and F-3 of the Company's Form 10-KSB for the fiscal year ended May
31, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 105,857
<SECURITIES> 0
<RECEIVABLES> 19,155
<ALLOWANCES> 0
<INVENTORY> 155,893
<CURRENT-ASSETS> 296,654
<PP&E> 167,318
<DEPRECIATION> 70,055
<TOTAL-ASSETS> 467,825
<CURRENT-LIABILITIES> 236,620
<BONDS> 7,295
0
0
<COMMON> 1,288
<OTHER-SE> 10,278
<TOTAL-LIABILITY-AND-EQUITY> 467,825
<SALES> 228,613
<TOTAL-REVENUES> 228,613
<CGS> 148,344
<TOTAL-COSTS> 148,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,874
<INCOME-PRETAX> (374,085)
<INCOME-TAX> 0
<INCOME-CONTINUING> (374,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (374,085)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
