This registration statement has been filed with the Securities and
Exchange Commission but has not yet become effective. Information in this
registration statement is subject to completion or amendment.
As filed with the Securities and Exchange Commission on June 7, 1999.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
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ALOTTAFUN!, INC.
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(Exact Name of Registrant As Specified in Charter)
Delaware 39-1765590
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 N. Main Street, Suite 207, West Bend, Wisconsin 53095
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 334-4500
Securities to be registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which
To be so registered Each class is to be registered
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of Class)
Total Number of Pages: _____
Index to Exhibits at Page: _____
<PAGE>
TABLE OF CONTENTS
PART I
PAGE NO.
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ITEM 1. Description of Business
Overview
The Toy Industry
Electronic Commerce
Business Strategy
Products
Sales, Marketing and Distribution
Intellectual Property
Manufacturing
Intellectual Property
Legal Proceedings
Seasonality
Government and Industry Regulation
Product Liability Insurance
Employees
ITEM 2. Management's Discussion and Analysis
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Liquidity and Capital Resources
ITEM 3. Description of Property
ITEM 4. Security Ownership of Certain Beneficial Owners and
Management
ITEM 5. Directors, Executive Officers, and Key Employees
Business Experience of Executive Officers and Directors
Board of Directors
Key Employees
ITEM 6. Executive Compensation
Summary Compensation Table
Employment and Other Agreements
Company's Incentive Stock Option Plan
Directors Compensation
ITEM 7. Certain Relationships and Related Transactions
ITEM 8. Description of Securities
PART II
ITEM 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters
Market Price of Registrant's Common Stock
Dilution and Absence of Dividends
Description of Company's Securities
Common Stock
Preferred Stock
Shareholders
ITEM 2. Legal Proceedings
ITEM 3. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
ITEM 4. Recent Sales of Unregistered Securities
ITEM 5. Indemnification of Officers and Directors
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PART F/S
Financial Statements
PART III
ITEM 1. Index to Exhibits
ITEM 2. Description of Exhibits
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ITEM 1. DESCRIPTION OF BUSINESS
Overview
We were established in July 1993 as a manufacturer, distributor, and marketer of
collectible toys and candy products for children between the ages of three and
twelve years old. We have an extensive product line that includes tea sets,
games, puzzles, books, plush toys, purses, ride-on cars, and unique surprise
boxes and collectible toys that contain gum and candy, collectible toys, trading
cards, milk caps (pogs), comic strips, tattoos, stickers, and various
promotional inserts. We have joint ventured with E-Commerce Fulfillment, LLC.
which has a contract with M.W Kasch, the largest independent U.S. toy
distributor to launch an e-commerce Internet portal called Alottatoys.com. The
toy industry represented the fastest growing segment of online sales during the
last quarter of 1998. According to Media Metrix, an Internet market research
firm, toy commerce is expected to generate $1.5 billion in sales by 2003.
We plan a series of acquisitions to strengthen and expand our current product
lines. Mother Hubbard Toys (now Hearthside Treasures ) was acquired in June 1998
to provide high quality tea sets, cook n' serve sets, continental cookware sets,
and food sets to children between the ages of three to five years old. This
acquisition presents us with an opportunity to expand our distribution in this
growing segment of the toy industry.
Most of our products are relatively simple and inexpensive toys. We believe that
these products have proven to have enduring appeal and are less subject to
general economic conditions, toy product fads and trends, changes in retail
distribution channels and other factors. In addition, the simplicity of these
products enables us to choose among a wider range of manufacturers and affords
us greater flexibility in product design, pricing and marketing.
We sell our products through our in-house sales staff and independent sales
representatives. Purchasers of our products include grocery, drug, variety,
video, mass merchandisers and specialty outlets.
Over the past few years, the toy industry has experienced substantial
consolidation among both toy companies and toy retailers. We believe that the
ongoing consolidation of toy companies provides us with increased growth
opportunities due to retailers' desire not to be entirely dependent on a few
dominant toy companies.
The Toy Industry
According to Toy Manufacturers of America, Inc. ("TMA"), the leading industry
trade group, total manufacturers' shipments of toys, excluding video games, in
the U.S., were approximately $15.2 billion in 1998. According to the TMA, the
United States represents 36% of toy revenue; Western Europe, Asia and Japan
follow with 28%, 13% and 10%. (TMA, 1997). The U.S. is also the leader in toy
development, sales support, marketing, advertising and special promotions.
Classic toys have consistently remained the backbone of the toy business which
includes games, preschool and infant items and activity toys, although,
high-tech toys have become increasingly popular among children.
Electronic Commerce
We believe that a significant opportunity exists for the online retail sale of
toys on the Internet. The Internet has grown rapidly in recent years, spurred by
development of easy-to-use Web browsers, a large and growing installed base of
advanced personal computers, the adoption of faster and more cost efficient
networks, the emergence of compelling Web-based content and commerce
applications, and the growing sophistication of the user base. At the end of
1998, there were 98 million Internet users, and projections indicate this user
base to grow to 320 million by 2002. In addition, the Internet's commercial use
presents a significant opportunity for merchants to reach an expanded customer
base. Jupiter Communications, a marketing research firm, estimates that the
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value of goods and services purchased over the Internet will increase from $2.6
billion in 1997 to $37.5 billion in 2002. The broad acceptance of the Internet
as a global communication medium presents significant opportunities for online
retail commerce. Online toy retailers currently account for a small portion of
total Internet commerce sales, however, a number of businesses have developed
plans and begun to focus in this area.
Business Strategy
Our business strategy consists of the following elements:
- - Expand core products. In 1999, we plan to introduce new products within
our core product lines, including children's dolls and several unique
collectible toys. These classic toys continue to be popular among children
and are not greatly effected by new trends in the toy industry.
- - Enter new product categories. We are currently developing new collectible
products in conjunction with our Hong Kong agent for manufacturing in
China. This agent supervises the quality control and development aspects of
new toy products. Alottafun! maintains strong affiliations with companies
in Europe that enables us to identify new trends and products in the
European toy market which can be marketed in the U.S. market. In addition,
these relationships present us opportunities in exporting products to
Europe.
- - Development of Alottatoys.com Interactive online toy store. The
Alottatoys.com online toy store will be one of the first interactive online
toy stores. Our Internet destination, targeted to children between the ages
of three and twelve, will contain more interactive games and puzzles than
are traditionally found on electronic commerce Web sites. A number of
characteristics of the toy industry make the online sale of toys
particularly attractive relative to traditional distribution channels. The
online environment offers many data management and multimedia features
which enable consumers to conduct effective searches by name, product type,
or product category and display products better than traditional catalogs.
Online retailers can more easily obtain extensive demographic and
behavioral data about their customers, providing them with greater direct
marketing opportunities and the ability to offer a more personalized
shopping experience. In addition, online retailers can also offer consumers
significantly broader product selection, the convenience of home shopping
and 24-hour-a-day, seven-day-a-week operations, available to any location,
foreign or domestic, that has access to the Internet.
While physical store-based toy retailers must make significant investments in
inventory, real estate and personnel for each store location, online retailers
incur a fraction of these costs, generally use centralized distribution, and
have virtually unlimited merchandising space. Traditional retailers are
compelled to limit the amount of inventory they carry at each store and focus on
a smaller selection of faster-selling hit releases. As a result, we believe that
a typical toy store is able to carry far less merchandise units compared to the
unlimited capability of an online toy store. Online retailers can offer
consumers a broader range of products that include hundreds of smaller toy
companies that currently have difficulty competing against major toy retailers.
- - Pursue strategic acquisitions. Since our inception, we intended to acquire
and develop Alottafun! brands through the acquisition of other toy
companies or their assets. Our Hearthside Treasures product line is the
first of many intended acquisitions that complement our existing product
lines. We intend to continue our efforts to acquire and develop the
Alottafun! Brand through the acquisition of other toy businesses with
valuable trademarks or brands and compatible product lines.
Products
Our initial product consisted of a surprise box that included quality gum and
candy, toys, trading cards, milk caps (pogs), comic strips, tattoos, stickers,
and various promotional inserts. Our initial emphasis was placed upon gaining
distribution among convenience and neighborhood stores. More recently, we have
targeted larger volume trade channels such as grocery, drug, variety, video,
mass merchandisers and specialty outlets.
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Our packaging and graphic designs target children between the ages of three and
twelve years old. Package designs and graphics are provocative, colorful and
irreverent. The main cartoon character located on the package is Reely, which is
representative of a typical 10 year old. To develop brand loyalty among the
higher age groups of seven to twelve years old, high quality trading cards, milk
caps and comics are added to maintain their interest.
Since the introduction of the Alottafun! Surprise Box, we have significantly
expanded our product offerings to include:
- - Cooking and housekeeping sets
- - Collectible toys
- - Puzzles
- - Books with built-in games
- - Plush toys
- - Purses
- - Girl make-up kits
- - Ride-on push cars
- - Building block sets
- - Models
Our collectible toy products are based on the European Collectible Toy market
products. European candy companies have produced collectible toys for over
twenty five years which consist of small toys surrounded by candy shells. The
toys inside the candy shell are well engineered collectible models of airplanes,
cars, clowns, frogs, crocodiles, pandas and a various other objects. These toys
have been collected and traded in Europe for many years and have established a
substantial secondary market.
Alottafun! has an exclusive contract to distribute collectible toys in the
United States. We plan on releasing 72 original collectible toys this year. We
have designed our own version of the European Collectible toy that conforms to
U.S. product guidelines. Prior to this new design, collectible toys could not
meet these guidelines. Alottafun!'s design incorporates the high quality easily
assembled objects within a plastic shell. We will introduce new objects inside
the collectible frequently and will limit the number of objects produced to
stimulate the collectable aspects of the product. The collectible toy product is
a natural extension of Alottafun!'s surprise box and will prove to be a
significant product in the United States.
Our Hearthside Treasures acquisition provides high quality tea sets, cook n'
serve sets, continental cookware sets, and food sets to children between the
ages of three to five years old. This acquisition presents us with an
opportunity to expand our distribution in this growing segment of the toy
industry. These products are primarily targeted toward young girls which allows
us to further diversify our customer base.
Alottatoys.com
Our Internet destination consists of three major components that make it unique.
Upon entering Alottatoys.com, individuals may either choose a section called,
"Fun Stuff" which contains jokes, puzzles, comics, links to Internet sites
targeted toward children. The second section contains a guest book for
registering on the site allowing us to collect valuable demographic information
and extend special promotion to our members. Finally, the last section contains
interactive online games that children may play individually or against others.
Sales, Marketing, and Distribution
We sell all of our products through our own in-house sales staff and independent
sales representatives. Purchasers of our products include toy and discount
retail chain stores, department stores, toy specialty stores and wholesalers.
The Alottafun! Surprise Box product is also distributed through convenience and
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small specialty retail establishments. As we continue to expand our operations,
we will hire additional independent sales representatives to handle specific
classes of trade, such as video, military, mass merchandisers, variety, toy, and
other outlets.
Our success depends on our ability to establish and increase the size of our
distribution network for our products. To facilitate growth in our distribution
network, we provide incentives to distributors by offering them rebates for
volume purchases. Except for purchase orders relating to products on order, we
do not have written agreements with our customers. Instead, we generally sell
products to our customers pursuant to letters of credit or, in some cases, on
open account with payment terms typically varying from 30 to 90 days. From time
to time, we allow our customers credits against future purchases from us in
order to facilitate their retail markdown and sales of slow-moving inventory.
We currently budget approximately 5% of our net sales for advertising and
promotion of our products. Alottafun! will use radio and to a lesser extent
television commercials to market our products. We advertise our products in
trade and consumer magazines and other publications, market our products at
major and regional toy trade shows, conventions and exhibitions and carry on
cooperative advertising with toy retailers and other customers.
Alottatoys.com
Alottatoys.com will promote its brand using a combination of online and
traditional advertising. We will advertise online on those popular destinations
that target children. As part of these arrangements, we will purchase banner
advertisements, often in conjunction with specified search keywords or on
contextually appropriate pages that allow children to immediately click through
to the Alottatoys.com site. The significant flexibility of online advertising
will allow us to quickly adjust advertising plans in response to seasonal and
promotional activities.
We believe that traditional advertising is a key ingredient in building brand
recognition and promoting the benefits of online retail shopping. Traditional
advertising can be an effective means of promoting widespread brand awareness
and attracting traditional retail consumers to Alottatoys.com's online retail
toy store.
Our joint venture with E-Commerce Fulfillment, LLC. requires us to maintain very
low inventory levels. M.W. Kasch currently has the infrastructure and computer
systems installed to process and fill orders. This strategic relationship allows
us to avoid the high fixed costs and capital requirements associated with owning
and warehousing product inventory and the significant operational effort
associated with same-day shipment. We believe that this is a key strategic
advantage in competing with other online toy retailers.
Alottatoys.com will transmit data to M.W. Kasch through a secure network to
ensure customer security and data integrity. M.W. Kasch will package and ship
customer orders and charge us for merchandise, shipping and handling. Products
will be shipped within two business days after an order is placed with
Alottatoys.com. We will perform customer billing through a third-party credit
card processor.
Manufacturing
The majority of our products are produced by manufacturers whom we choose on the
basis of quality, reliability and price. Consistent with industry practice, the
use of third-party manufacturers enables us to avoid incurring fixed
manufacturing costs. All of the manufacturing services performed overseas for us
are paid for either by letter of credit or on open account with the
manufacturers. To date, we have not experienced any material delays in the
delivery of our products; however, delivery schedules are subject to various
factors beyond our control, and any delays in the future could adversely affect
our sales. Currently, we have ongoing relationships with approximately five
manufacturers. We believe that alternative sources of supply are available,
although we cannot assure you that adequate supplies of manufactured products
can be obtained.
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Although we do not conduct the day-to-day manufacturing of our products, we
participate in the design of the product prototype and production tooling and
molds for the products we develop or acquire, and we seek to ensure quality
control by actively reviewing the production process and testing the products
produced by our manufacturers.
Intellectual Property
We typically register our properties, and seek protection under the trademark,
copyright and patent laws of the United States and other countries where our
products are produced or sold. We may seek to grant nonexclusive licenses to
customers for these characters to be used in other products. Accordingly, while
we believe we are sufficiently protected, the loss of some of these rights could
have an adverse effect on our business and results of operations.
Competition
Competition in the toy industry is intense. Many of our competitors have greater
financial resources, stronger name recognition and larger sales, marketing and
product development departments and benefit from greater economies of scale.
These factors, among others, may enable our competitors to market their products
at lower prices or on terms more advantageous to customers than those we could
offer for our competitive products. Competition often extends to the procurement
of entertainment and product licenses, as well as to the marketing and
distribution of products and the obtaining of adequate shelf space. Competition
may result in price reductions, reduced gross margins and loss of market share,
any of which could have a material adverse effect on our business, financial
condition and results of operations. In each of our product lines we compete
against one or both of the toy industry's two dominant companies, Mattel, Inc.
and Hasbro, Inc. We also compete with numerous smaller domestic and foreign toy
manufacturers, importers and marketers in each of our product categories.
Alottatoys.com
The online commerce market is new, rapidly evolving and intensely competitive.
We expect competition to intensify in the future as more and more businesses
develop an Internet presence. Barriers to entry are low which enable current and
new competitors to enter our market and sell competitive products without much
resistance.
Currently, We compete with a variety of other companies, including:
- - Current online toy retailers.
- - Traditional store-based toy and children's product retailers.
- - Major discount retailers.
- - Entertainment companies that sell and license children's products.
- - Catalog retailers of children's products;
- - Manufacturers of children's products.
- - Online retailers that currently sell other products and could easily add
children's products.
- - Internet portals and destination Web sites that host shopping for
children's products.
Alottatoys.com will compete in the online retail toy market based on the
following factors:
- - brand recognition;
- - selection;
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- - convenience;
- - price;
- - speed and accessibility;
- - customer service;
- - quality of site content; and
- - reliability and speed of fulfillment.
Many of our current and potential traditional store-based and online competitors
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially more resources to Web site and systems development than we can. In
addition, larger, well-established and well-financed entities may acquire,
invest in or form joint ventures with online competitors or children's toy
suppliers as the use of the Internet and other online services increases.
Certain of our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet.
Our online competitors are particularly able to use the Internet as a marketing
medium to reach significant numbers of potential customers. Finally, new
technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of Web sites and
may direct customers to other online toy, video game, software, video and music
retailers, may increase competition. If we face increased competition, our
operating results may be adversely affected.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising
out of our ordinary course of business. We believe that there are no claims or
actions pending or threatened against us, the ultimate disposition of which
would have a materially adverse effect on us.
Seasonality
Sales of toy products are seasonal. Traditionally, the first quarter is the
period of lowest shipments and sales in our business which may cause our
operating results to fluctuate significantly from quarter to quarter. Due to
these fluctuations, our results of operations for any quarter may vary
significantly. Our results of operations may also fluctuate as a result of
factors such as the timing of new products introduced by us or our competitors,
the advertising activities of our competitors, delivery schedules set by our
customers and the emergence of new market entrants.
Government and Industry Regulation
Our products are subject to the provisions of the Consumer Product Safety Act
("CPSA"), the Food & Drug Administration ("FDA"), the Federal Hazardous
Substances Act ("FHSA"), the Flammable Fabrics Act ("FFA") and the regulations
promulgated thereunder. The CPSA and the FHSA enable the Consumer Product Safety
Commission to exclude from the market consumer products that fail to comply with
applicable product safety regulations or otherwise create a substantial risk of
injury, and articles that contain excessive amounts of a banned hazardous
substance. The FFA enables the Consumer Products Safety Commission to regulate
and enforce flammability standards for fabrics used in consumer products. The
Consumer Products Safety Commission may also require the repurchase by the
manufacturer of articles which are banned. Similar laws exist in some states and
cities and in various international markets. We maintain a quality control
program designed to ensure compliance with all applicable laws.
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Product Liability Insurance
We have never had any liability claims asserted against us. However, Alottafun!
could be subject to product liability claims in connection with the use of the
products that we sell. We currently have product liability of $1,000,000 per
occurrence and a $2,000,000 aggregate limit. There is no assurance that we can
maintain this coverage or that it will be adequate to protect us against future
claims.
Employees
As of May 20, 1999, we employed 5 persons, all of whom are full-time employees,
including three executive officers. Our employment reflects our outsourcing of
manufacturing and the establishment of strategic partnerships that allows us to
minimize staffing. We believe that we have good relationships with our
employees. None of our employees belong to a labor union.
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<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED FINANCIAL DATA
(Unaudited)
Three Months Ended
Year Ended December 31, March 31,
- ---------------------------- ---------------------- ------------------------ ---------------- ----------------
1997 1998 1998 1999
- ---------------------------- ---------------------- ------------------------ ---------------- ----------------
Income Statement Data
<S> <C> <C> <C> <C>
Total Revenue $ 54,963 $ 37,429 $ 2,349 $ 19,460
Net loss (495,232) (789,620) (86,247) (472,810)
Net loss per share ($0.26) ($0.31) ($0.04) ($0.08)
Shares used in per 1,917,013 2,528,155 2,173,405 5,939,802
Share Computation) (1)
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------- ---------------------- ------------------------ ---------------------------------
(Unaudited)
At December 31 , At December 31 , At March 31,
- ---------------------------- ---------------------- ------------------------ ---------------------------------
- ---------------------------- ---------------------- ------------------------ ---------------------------------
1997 1998
1998 1999
- ---------------------------- ---------------------- ------------------------ ---------------------------------
- ---------------------------- ---------------------- ------------------------ ---------------------------------
Balance Sheet Data
<S> <C> <C> <C> <C>
Total assets $ 367,594 $ 693,151 $ 217,672 $ 722,959
Working capital (153,210) 79,318 (151,026) 224,016
Long-term debt 22,646 360,489 375,234 --
Stockholders' Equity (Deficit) (169,064) (53,142) (157,561) 271,954
</TABLE>
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
This Registration Statement contains forward-looking statements. The
words "anticipated," "believe," "expect," "plan," "intend," "seek," "estimate,"
"project," "will," "could," "may" and similar expressions are intended to
identify forward-looking statements. These statements include, among others,
information regarding future operations, future capital expenditures and future
net cash flow. Such statements reflect the Company's current views with respect
to future events and financial performance and involve risks and uncertainties,
including, without limitation, general economic and business conditions, changes
in foreign, political, social and economic conditions, regulatory initiatives
and compliance with governmental regulations, the ability to achieve further
market penetration and additional customers, and various other matters, many of
which are beyond the Company's control, including, without limitation, the risks
described under the caption "Business." Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove to be incorrect,
actual results may vary materially and adversely from those anticipated,
believed, estimated, or otherwise indicated. consequently, all of the
forward-looking statements made in this Registration Statement are qualified by
these cautionary statements and there can be no assurance of the actual results
or developments.
Alottafun would caution readers that in addition to important factors
described elsewhere, the following important facts, among others, sometimes have
affected, and in the future could affect, the Company's actual results, and
could cause the Company's actual results during 1999 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Alottafun.
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General
We have been a developmental stage enterprise since our inception in August
1993. During this period, we devoted the majority of our efforts to development
of a viable product line, testing of product concepts, developing channels of
distribution, financing and marketing. These activities were funded by
investments from stockholders and borrowings from unrelated third parties.
We have not, through the present time, been in a position to generate sufficient
revenues during our limited operating history to fund on-going operating
expenses or product development activities. As a result, we resorted to raising
capital through equity fundings and from borrowings. In June of 1998, we
acquired inventory, equipment, and goodwill of the Mother Hubbard's Creations
toy line. We have renamed the Mother Hubbard's Creations toy line Hearthside
Treasures. We have sustained significant operating losses since inception
resulting in an accumulated deficit of approximately $2,899,239 at January 1,
1999.
Our present strategy is focused on developing and expanding the Hearthside
Treasures toy line, the introduction of Collectible Toys, and the establishment
of an e-commerce site for the sale of more than 2,000 toys and related items on
the Internet.
We have taken a long-term approach to the development of our business model. Our
present strategy anticipates a systematic and cost efficient introduction of new
products by developing the marketing channels of distribution to create
substantial demand and excitement for our product offerings. We believe this
more prudent approach to development of our business will further enhance our
long-term prospects for profitable operations.
Although we have not yet generated sufficient revenues from operations to be
profitable, we anticipate that our systematic approach of introducing Alottatoys
web site, collectible toy product line and the expansion of Hearthside Treasures
will yield profitable results in calendar year 2000.
We will continue to incur losses until we are able to increase sales, introduce
new product lines and establish distribution capabilities sufficient to offset
ongoing operating and administrative costs.
We recently acquired a computer system that is housed at our corporate
headquarters. We have been assured by the supplier of this system that it fully
complies with the Year 2000 issue. We are not aware of any problem that our
vendors would have with the Year 2000 situation. As our operations are in the
development stage, we do not expect that we will have any problems with Year
2000 that would have an impact upon us.
Results of Operations
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Total Revenues
Total revenues for the three months ended March 31, 1999 were $19,460 compared
to $2,349 for the same period of 1998, which represents an increase of $17,111,
or 728%. This increase was primarily attributable to additional sales generated
from our toy products in what is one of the slowest quarters in the toy
industry.
Cost of Sales
Cost of Sales were 164% and 60%, respectively, for the three month period ended
March 31, 1999, as compared to the prior period ended March 31, 1998. This
increase is the result of reducing gross profit margin on a higher level of
sales and a write-off of obsolete inventory in the amount of $16,389.. We do not
expect, once our products are developed and marketed, that the cost of sales
will remain at this level, prior to the write-off, but we expect the cost of
sales to be lower and in the 65-70% range.
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Selling, General and Administrative Expenses
For the three months ended March 31, 1999, total selling, general and
administrative expenses ("S, G & A") were $175,708 as compared to $79,242 for
the same period of the previous year, an increase of $96,466, or 121%. This
increase is the result of higher marketing, staffing and other general expenses
associated with the pace of our development and marketing of our new product
lines. We expect that there will be further increases in our S, G & A expenses
as we evolve from being a development stage enterprise.
During the three months ended March 31, 1999, we had realized and unrealized
losses of $84,961 from securities transactions in investments unrelated to our
business. This compares to similar losses of $2,690 in the same period of March
31, 1998. We have taken steps to reduce such losses in the future as we intend
to invest our working capital in more secure instruments until these funds are
needed in our operation.
Interest Expense
We had interest expense of $195,652 for the period ended March 31, 1999 as
compared to the prior year's quarter of $5,255. The interest expense associated
with the conversion of the outstanding debenture at a discount to the market
price of the common stock resulted in an additional charge of $192,043 for the
period.
Net Loss
Our loss for the three months ended March 31, 1999 was $472,810 as compared to a
loss of $86,248 in the prior year's period. This loss represents a 448% increase
over the basic loss experienced in the year ago quarter. The basic loss per
share was $0.08 per share for the three months ended March 31, 1999 as compared
to $0.04 per shares for the same period in 1998. The loss per share for the
current period was higher than that of the same period a year ago period. The
weighted average shares outstanding for the quarter ended March 31, 1999 was
5,939,802 as compared to 2,173,405 for the quarter ended March 31, 1998.
We have experienced losses since our inception. Therefore, we do not utilize a
provision within GAAP for a tax benefit from these losses as we are uncertain
when we will become profitable. Our eventual profitability depends upon the
consumer acceptance of our new product lines.
Calendar year 1998 compared to calendar year 1997
Revenues
Total revenues for 1998 were $ 37,429 compared to $54,963 for 1997, which
represents a decrease of $17,534, or 32%. The decrease was primarily the result
of lower sales for our Alottafun Surprise Box product line. There was not a
contribution from the Mother Hubbard product line during 1998. The acquisition
of this product line occurred too late in the selling season to benefit
operating results. The acquisition occurred late in the second quarter and there
was not enough time to re-introduce this product line to the market.
Cost of Sales
Cost of sales for 1998 increased $522 or 0.2% to $28,543 from $28,021 in 1997.
Cost of sales as a percentage of sales increased from 51% to 76% from 1997 to
1998. This increase is attributed to a write down of inventory items that were
discontinued and stale. The company expects that improvement in gross profit
margins will occur during 1999 as we increase revenues.
Selling, General and Administrative Expenses
For the 1998, total selling, general and administrative expenses ("S, G & A")
were $454,127 as compared to $372,426, for 1997, a 22% increase. This increase
is attributed to the additional expense higher compensation for our existing
personnel and the development of our product lines, as these are being prepared
for introduction to the industry within 1999. It is not anticipated that these
expenses will decrease in the coming periods as the business grows and matures.
As revenues increase, we expect that S, G, & A expenses as a percentage of sales
to be in the 20-25% range.
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Interest Expense
Interest expense increased 280%, or $217,229 to $294,896 for 1998 from $77,667
in 1997. This increase in interest expense is attributed to the substantial
charge for issuance of warrants at par value, a significant discount to the then
market price of the common stock, as part of the funding of $400,000 through a
convertible debenture.
Loss on disposal of impaired assets
During 1997, we experienced a loss from a write-off of fixed assets that were no
longer being used in our business. These equipment assets previously were used
to generate income but they became of no further use in our operations during
1997. There was no similar charge in 1998.
Net Loss
The net loss and the net loss per share were $789,620 and $0.31 per share
respectively, for 1998, as compared to a net loss and net loss per share of
$495,232 and $0.26 per share respectively, for 1997. The loss was an increase of
$294,388, or 59%, over the previous year. The loss per share was about 19% more
than the previous year. In 1997, we benefited from the settlement of an
outstanding payable that resulted in a $0.02 per share extraordinary gain. For
1998, there were 2,528,155 shares of common stock outstanding, on a weighted
average basis, as compared to 1,917,013 shares outstanding in 1997, on the same
basis. This represents a 32% increase in shares outstanding in 1998 over the
previous year.
Acquisition of Mother Hubbard Creations product line
On June 26, 1998, we purchased Mother Hubbard Creations Product Line of toys
from Vagabond Associates and Gerald Waak. This purchase included license rights
to the toy line. The consideration for this purchase was royalty payments on
sales of Mother Hubbard products of 2% for 1999, 1% for 2000 and 0.5% in 2001
with a minimum guarantee royalty of $10,000 per year. Additionally, we will pay
a 1% royalty for the exclusive use of the Mother Hubbard trademark. The Mother
Hubbard's Creations toy line has been renamed Hearthside Treasures. We
anticipate that the expansion of this new product line will represent a niche
for young girls that we believe has been neglected and should represent a
significant business opportunity for us.
Liquidity and Capital Resources
To date, we have funded our capital requirements and its business operations,
including product line development activities with funds provided by the sale of
securities and from borrowings. With the Swartz equity placement up to $20
million that will be funded and utilized over the next three years, subject to
meeting funding conditions. We are optimistic that we can meet these conditions.
Upon funding, we intend to repay all our outstanding indebtedness and utilize
the remainder of this funding for working capital purposes to grow the
acceptance of our products within the toy industry.
Since its formation on August 2, 1993 and until January 1, 1999, we have issued
3,808,032 shares of our common stock and raised $1,422,841. Some common stock
was issued for services, all of which has been appropriately valued at the time
of issuance.
During 1998, we issued $400,000 of convertible debt together with warrants to
purchase 400,000 shares at $0.001 per share. This debt allowed the holder to
convert at the lower of $1.25 or 65% of the five-day average of the closing
price of the common stock before the election to convert. All this debt was
converted into common stock during the three-month period ended March 31, 1999.
We have since January 1, 1999, issued 4,217,000 shares of common stock and
raised $367,907 and converted debentures of $359,530. These funds were used to
further develop our product line, the hiring of key personnel and for working
capital purposes.
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<PAGE>
For the three months ended March 31, 1999 the Company used $173,474 as compared
to $156,292 in the similar period ended March 31, 1998. Investing activities for
the present three month period included the purchase of marketable securities in
the amount of $699,495 and the acquisition of equipment in the amount of
$16,066. For the prior year's period, investing activities provided $38,035 from
the sale of marketable securities. Financing activities for the three months
ended March 31, 1999 provide $491,384 that included $367,907 from the issuance
of common stock. For three months ended March 31, 1999, cash decreased $397,651
as compared to a decrease of $7,849 in the prior year's period.
For the calendar year 1998, the Company used $418,719 as compared to $236,975 in
calendar year 1997. Investing activities for 1998 included the purchase and sale
of marketable securities in the amount of $1,320,231 and $1,203,794,
respectively, for net proceeds of $116,437, and the acquisition of equipment in
the amount of $34,969, thus providing $81,468 in cash. For the prior year,
investing activities used $182,488 from the purchase of marketable securities
for $440,320, the sale of such securities in the amount of $290,840, and the
acquisition of equipment in the amount of $33,008. Financing activities for 1998
provide $709,343, the major portion of which was the issuance of a convertible
debenture in the amount of $400,489 and proceeds from stock issuance of
$228,107. For 1998, cash increased $372,092 as compared to an increase of
$39,022 in the prior year.
Historically we have not generated sufficient revenues from operations to
self-fund our capital and operating requirements. We expect that our working
capital and capital to grow our business will come from fundings that will
primarily include the equity placement line for $20 million arranged with Swartz
Private Equity LLC ("Swartz"). This placement will provide funding for the
establishment and marketing for our new Internet destination web site and the
introduction of our product line this selling season.
With our present business strategy, we believe we are focusing on the key
elements necessary for us to be both profitable and successful over the
long-term. We have recently adopted our present strategy with the key element of
using the Internet as a significant channel of distribution for our product
lines. We have focused on the successful implementation of this Internet
opportunity. We believe that we will arrange for all the financial resources
needed to properly execute our plan.
In our opinion, we will need capital to provide for our anticipated working
capital needs over the next twelve months. This is required because of our
investment in the development and operation of our Internet site that we expect
to have operational on September 1, 1999. We expect that the funding commitments
we have now will provide the capital as we need it. Should our Internet endeavor
become highly successful, it will require more capital. Should this occur, the
funding availability in the Swartz placement which is a periodic equity funding
that we are not permitted to entirely draw upon at any one time, may not be
sufficient to meet these capital needs. If this is the case, we have negotiated
provisions with Swartz to permit additional fundings outside of our obligation
to them. We believe we will be successful in obtaining future financing from
Swartz or others to meet our needs.
Seasonality and fluctuations in quarterly operating results
Within the toy industry, there are significant seasonal factors that result in
revenue and sales being concentrated in the last half of the calendar year. We
expect that as our product lines gain acceptance and that collectibles become a
more significant component of our sales, some seasonality can be reduced. Until
that occurs, we will experience the same season cycles within the toy industry
with which other participants are also confronted.
Inflation
Inflation has not proven to be a factor in the Company's business since its
inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
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Investment agreement overview
On June 4, 1999, we entered into an Investment Agreement with Swartz Private
Equity, LLC.("Swartz"). The Investment Agreement entitles us to issue and sell
our common stock for up to an aggregate of $20 million from time to time during
a three-year period through June 3, 2002. This is also referred to as a put
right.
Put rights
In order to invoke a put right, we must have an effective registration statement
on file with the Securities and Exchange Commission registering the resale of
the common shares which may be issued as a consequence of the invocation of that
put right. Additionally, we must give at least ten but not more than twenty
business days advance notice to Swartz of the date on which we intend to
exercise a particular put right and we must indicate the number of shares of
common stock we intend to sell to Swartz. At our option, we may also designate a
maximum dollar amount of common stock (not to exceed $2 million) which we will
sell to Swartz during the put and/or a minimum purchase price per common share
at which Swartz may purchase shares during the put. The number of common shares
sold to Swartz may not exceed 15% of the aggregate daily reported trading volume
during a period which begins on the business day immediately following the day
we invoked the put right and ends on and includes the day which is twenty
business days after the date we invoked the put right. For each common share,
Swartz will pay us the lesser of (i) the market price for such put, minus $.10
or (ii) 91% of the market price for the put, with that percentage determined by
the market price in effect on the date we inform Swartz of the put. Market price
is defined as the lowest intra-day trade price for the common stock on its
principal market for the six business day immediately preceding the date of the
applicable purchase price for a put. However, the market price may not be less
than the designated minimum per share price, if any, that we indicated in our
notice.
Warrants
In partial consideration of the equity line commitment, we issued and delivered
to Subscriber or its designated assignee warrants to purchase a total of 450,000
shares of Common Stock. Each Commitment Warrant shall be exercisable at a price,
which shall initially equal $1.00625. Within five business days after the end of
each purchase period, we are required to issued and deliver to Swartz a warrant
to purchase a number of shares of common stock equal to 15% of the common shares
issued to Swartz in the applicable put. Each warrant will be exercisable at a
price which will initially equal 110% of the market price on the last day of the
applicable purchase period.
Limitations and conditions precedent to our put rights
Swartz is not required to acquire and pay for any common shares with respect to
any particular put for which: we have announced or implemented a stock split or
combination of our stock; we have paid a common stock dividend; we have made a
distribution of our common stock or of all or any portion of our assets between
the put notice date and the date the particular put closes; or we have
consummated a major transaction (including a transaction, which constitutes a
change of control) between the advance put notice date and the date the
particular put closes.
Short sales
Swartz and its affiliates are prohibited from engaging in short sales of our
common stock unless they have received a put notice and the amount of shares
involved in a short sale does not exceed the number of shares specified in the
put notice.
Cancellation of puts
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
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resales of the common shares becomes ineffective, or shares are delisted from
the then primary exchange. However, will be required, at Swartz's option, to
issue common shares equal to the number of shares included in purchase notices
delivered by Swartz on or before the end of the applicable put cancellation
date.
Termination of investment agreement
We may also terminate our right to initiate further puts or terminate the
Investment Agreement by providing Swartz with notice of such intention to
terminate; however, any such termination will not affect any other rights or
obligations we have concerning the Investment Agreement or any related
agreement.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases approximately 2,000 square feet of space at 141 N. Main
Street, Suite 207, West Bend, Wisconsin, 53095, which is currently used for the
Company's principal executive offices. The lease for the offices expire on
December 31, 2001. The monthly rent for the offices is approximately $900.00.
The Company also leases office space in Hong Kong, which is used for the
Company's sourcing operations. The office is located at the Peninsula Center, 67
Mody Road, Tsimshatsui East, Kowloon, Hong Kong. In addition to the above
locations, we also maintain a New York office at 1178 Procan Ct, Hewlett NY, and
a office at Flughafenstrafse 5264546, Morfelden-Walldorf, Germany. We pay no
rent for the offices in Hong Kong, New York and Germany.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership known to Company of shares of Company Common Stock owned as
of May 1, 1999 beneficially by (i) each person who beneficially owns more than
5% of the outstanding Company Common Stock, (ii) each director of the Company,
(iii) the Officers of the Company, and (iv) directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
Name of Beneficial Owner (3) Amount and Nature of Percent of Class (2)
Beneficial Ownership (1) Common(5) Preferred
----------------------------------------------------------------------------------------------------------
(1) (6)
--- ---
Common Preferred
------ ---------
<S> <C> <C> <C> <C>
Michael Porter(4)(7) 3,431,407 1,000,000 25.1 50
David Bezalel (7) 2,500,000 1,000,000 18.3 50
Gerald Couture(8) 590,000 -- 4.3 --
---------- --------- ----- ----
All directors and executive officers as
a group (3 persons) 6,521,407 2,000,000 47.7 100
</TABLE>
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on approximately 8,058,912 shares of Company Common Stock outstanding
as of May 1, 1999 plus, as to each person listed, that portion of the
unissued shares of Company Common Stock subject to outstanding options
which may be exercised by such person, and as to all directors and
executive officers as a group, unissued shares of Company Common Stock as
to which the members of such group have the right to acquire beneficial
ownership upon the exercise of stock options within the next 60 days.
(3) The address of each individual is in care of the Company.
(4) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act.
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(5) Excludes 10,000,000 shares reserved for issuance under the Company's Stock
Option Plan. See "Executive Compensation - Stock Option Plan".
(6) Each share of Preferred Stock has the power to cast twenty- five (25) votes
per share on any matters submitted for vote or action by Common Stock
holders. Each share of Preferred Stock is convertible into 10 shares of
Common Stock. Accordingly, Mr. Porter and Mr. Bezalel control the
management and affairs of the Company. See "Certain Relationships and
Related Transactions" and "Description of Securities".
(7) Includes options to acquire 2,500,000 share of Common Stock at $.15 per
share. See "Executive Compensation - Employment Agreements".
(8) Includes options to acquire 500,000 share of Common Stock at $.15 per
share. See "Executive Compensation - Employment Agreements".
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS,PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers of the Company
The following table sets forth certain information with respect to each person
who is a director or an executive officer of the Company as of May 1, 1999.
NAME AGE POSITION
---- --- --------
Michael Porter 45 Chairman of the Board of Directors
President, Chief Executive Officer
David Bezalel 48 Chief Operating Officer, Vice President
Of Marketing and Director
Gerald Couture 53 Vice President of Finance,
Director, Secretary
Executive officers are elected by the Board of Directors and serve until their
successors are duly elected and qualify, subject to earlier removal by the Board
of Directors. Directors are elected at the annual meeting of shareholders to
serve for their term and until their respective successors are duly elected and
qualify, or until their earlier resignation, removal from office, or death. The
remaining directors may fill any vacancy in the Board of Directors for an
unexpired term. See "Board of Directors" for a discussion of the Directors'
terms.
Business Experience of Executive Officers and Directors
Michael Porter, President and Chief Executive Officer of the Company,
founded the Company in 1993. From 1985 through 1993, Mr. Porter co-founded and
served as President and Chief Executive Officer of Everything's a $1.00, a
one-price close out variety store. During his tenure as Chief Executive Officer
operations expanded from one store to sixty stores nationally. Subsequent to
Everything's a $1.00's merger with Value Merchants, Inc., Mr. Porter served as
Executive Vice President of the international operations. Prior to his
involvement with Everything's a $1.00, Mr. Porter practiced law in the State of
Virginia. He received his B.A. in Political Science from Duke University, his
M.B.A. from the University of South Carolina Business School and his J.D. from
the University of South Carolina Law School.
David Bezalel, Executive Vice President, joined the Company in May
1997. In 1991, he founded and currently serves as President of Ideaforce, Inc.
an international premium and incentive marketing company. Mr. Bezalel also
formed Dmooyat Character Licensing in Israel in 1992, which licenses cartoon
characters and entertainment characters. He founded and served as President of
Lev International Promoters, Inc. from 1989 through 1991. From 1990 through
1991, Mr. Bezalel also worked for General Motors. Mr. Bezalel is a graduate of
Hebrew University with a Bachelor's degree in Mass Communications and Marketing.
Gerald Couture, Vice President of Finance, began working for the
Company in March 1998. In addition to his responsibilities for the Company, Mr.
Couture maintains a financial consulting practice, as Couture & Company, Inc., a
firm founded in 1977, that specializes in providing consulting services to high
potential companies, including services relating to public offerings, mergers
and acquisitions, venture capital investing, crisis management and corporate
restructurings. Prior to his consulting career, Mr. Couture worked for several
years as an engineer for General Electric Company in the nuclear power field and
Rohm & Haas Company in the chemical industry. He received a Bachelor of Science
in Chemical Engineering from the University of Massachusetts and an MBA in
Finance from Temple University, Philadelphia.
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Board of Directors
The Company's Bylaws fix the size of the Board of Directors at no fewer than one
and no more than seven members, to be elected annually by a plurality of the
votes cast by the holders of Common Stock, and to serve until the next annual
meeting of stockholders and until their successors have been elected or until
their earlier resignation or removal. Currently, there are three (3) directors
who were elected on April 20, 1999.
Key Employee
Thomas J. Rathsack, Vice President of Sales and Marketing, joined the Company in
August, 1998. Prior to joining the Company, he was the Director of
Sales/Marketing of Hearts N' Home, a division of the Strombecker Corp.-Tootsie
Toys. Prior to working at Hearts N' Rome, Mr. Rathsack was Vice President of
Sales/Marketing for Globe Toys, Inc. Mr. Rathsack received his B.S. in Education
from the University of Wisconsin.
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<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Executive Compensation
The following table shows the compensation paid or accrued by the Company for
the year ended December 30, 1998, to or for the account of the Chief Executive
Officer. No other executive officer of the Company received an annual salary and
bonus in excess of $100,000 or more during the stated period. Accordingly, the
summary compensation table does not include compensation of other executive
officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
- ---------------------------------------------------------------- ------------------------------------------------
Restricted
Other Annual Stock Options/ LTIP All Other
Name & Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ---------------- ---- ------ ----- -------------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Porter
President, CEO 1998 89,561 --- --- --- --- --- ---
1997 74,371 --- --- --- --- --- ---
</TABLE>
- ------------------------
(1) Excludes options to acquire up to 2,500,000 shares at $.15 per share
issued to Mr. Porter in January 1999. See "Certain Relationships and
Related Transactions."
Employment and Other Agreements
In January 1999, the Company entered into written employment agreements with
Michael Porter and David Bezalel. Each employment agreement has a term of five
(5) years. Each employment agreement has annual base compensation beginning at
$75,000 annually starting May 31, 1999 and increasing $10,000 per year to annual
compensation of $115,000 for 2004.
Each executive has the right, at his election, to receive compensation in the
form of the Company's restricted common stock valued at 50% of the closing bid
price as such stock as of the date of executive's election. Each executive is
entitled to bonuses as approved by the Company's Board of Directors and
reimbursement for ordinary and necessary business expenses.
Upon execution of each agreement, each executive was granted non-qualified stock
options to purchase 2,500,000 shares of the Company's Common Stock at an
exercise price of $.15 per share. These options were immediately exercisable,
contain a cashless exercise provision, and have an exercise period of ten (10)
years. Each executive's employment agreement provides for an automobile
allowance of $800 per month.
In January 1999, the Company also entered into a written employment agreement
with Gerald Couture. This employment agreement has a term of five (5) years and
has an annual base compensation of $60,000 for 480 hours of employment per year.
As consideration for this employment agreement, Mr. Couture received an option
to purchase 500,000 shares of the Company's common stock over a ten-year period
at $0.15 per share. These options may be immediately exercisable and contain a
cash-less exercise provision.
During the term of these employment agreements, each executive agrees not to
compete in the Collectible Toy business. The agreements provide for severance
payments equal to 299% of the annual base compensation then due under each
agreement in the event there is a "change of control" of the Company, as defined
in the agreement, and the executive is subsequently terminated without cause.
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Incentive Stock Option Plan
The Company has in effect a stock option plan, which authorizes the grant of
incentive stock options under Section 422 of the Internal Revenue Code (the
"Plan"). The Plan was adopted in January, 1999. A total of 10,000,000 shares
have been reserved for issuance under the Plan. As of May 1, 1999, 5.575,000
options to purchase a total of 5,575,000 shares at $.15 a share were issued and
outstanding under the Plan.
The Plan provides that (a) the exercise price of options granted under the Plan
shall not be less than the fair market value of the shares on the date on which
the option is granted unless an employee, immediately before the grant, owns
more than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiaries, whereupon the exercise price shall be at least 10%
of the fair market value of the shares on the date on which the option is
granted; (b) the term of the option may not exceed ten years and may not exceed
five years if the employee owns more than 10% of the total combined voting power
of all classes of stock of the Company or any subsidiaries immediately before
the grant; (c) the shares of stock may not be disposed of for a period of two
years from the date of grant of the option and for a period of one year after
the transfer of such shares to the employee; and (d) at all time from the date
of grant of the option and ending on the date three months before the date of
the exercise, the employee shall be employed by Company, or a subsidiary of the
Company, unless employment is terminated because of disability, in which cased
such disabled employee shall be employed from date of grant to a year preceding
the date of exercise, or unless such employment is terminated due to death.
Director Compensation
A director who is an employee of the Company receives no additional compensation
for services as director or for attendance at or participation in meetings
except reimbursement of out-of-pocket expenses and options. Outside directors
will be reimbursed for out-of-pocket expenditures incurred in attending or
otherwise participating in meetings and may be issued stock options for serving
as a director. The Company has no other arrangements regarding compensation for
services as a director.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was originally formed as a Wisconsin corporation in 1993. In
October, 1998, the Company was reincorporated as a Delaware corporation. In
connection with this reincorporation from Wisconsin to Delaware, the Company
amended its Articles of Incorporation to provide for the issuance of 25,000,000
shares, of which 5,000,000 shares were designated as Preferred Stock and
20,000,000 designated as Common Stock. In June 1999, the Company amended its
Certificate of Incorporation to provide for the issuance of 55,000,000 shares,
of which 5,000,000 shares are Preferred Stock and 50,000,000 Common Stock.
Mr. Porter, the Company's founder, was originally issued 1,200,000 shares for
nominal consideration. Mr. Porter has transferred 350,000 shares of the
Company's Common Stock he owns to unaffiliated individuals in satisfaction of
certain Company indebtedness, more fully described below.
Mr. Porter and Mr. Bezalel are currently the holders of record of 2,000,000 of
Series A Preferred Stock. Each individual owns 1,000,000 shares of the Series A
Preferred Stock and are parties to a Preferred Stockholders Agreement, dated
February 20, 1999. Neither Mr. Porter nor Mr. Bezalel may convert, sell, or
transfer the Preferred Stock without giving the other a right of first refusal.
However, Mr. Porter or Mr. Bezalel may pledge or encumber his Series A Preferred
Stock if the proceeds of such loan, which is secured by such stock, is used by
or advanced to the Company. In the event of the death, disability or termination
of employment for any reason, the voting rights of the Series A Preferred Stock
shall transfer to either Mr. Porter or Mr. Bezalel. Mr. Porter and Mr. Bezalel
each agree to vote all of their shares of Preferred Stock to elect each other as
directors of the Company.
In connection with the Preferred Stockholders Agreement, Mr. Porter and Mr.
Bezalel each agree that during the term of the agreement and for a period of 2
years after the sale or transfer of the Series A Preferred Stock that neither
individual will enter into any business that competes with the products offered
by the Company.
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The Series A Preferred Stock held by Mr. Porter and Mr. Bezalel has the right to
cast 25 votes per share on all matters submitted to the vote of other holders of
Common Stock. The Series A Preferred Stock was issued to Mr. Porter and Mr.
Bezalel, the Company's founders, to assure complete and unfettered control of
the Company by its founders during its formative stages. The issuance of the
Series A Preferred Stock constitutes an anti-takeover device since the approval
of any merger or acquisition of the Company will be completely dependent upon
the approval of Mr. Porter and Mr. Bezalel.
Each share of the Series A Preferred Stock is convertible into 10 shares of the
Company's Common Stock at any time by the election or either Mr. Porter or Mr.
Bezalel. If either Mr. Porter or Mr. Bezalel elect to convert the Series A
Preferred Stock into Common Stock, their relative ability to control the affairs
of the Company would be reduced because upon conversion, the Common Stock, which
replaces the Preferred Stock, would only have one (1) per share as opposed to 25
votes per share.
Prior to filing this registration statement, Mr. Porter and Mr. Bezalel entered
into employment agreements with the Company which provide for annual base
compensation and other benefits. In connection with each individual's employment
agreement, the Company agreed to issue options to acquire up to 2,500,000 shares
of the Company's Common Stock at an exercise price of $.15 per share, which was
the fair market value of the Company's Common Stock underlying such options as
of the date of each executive's employment agreement. See "Executive
Compensation - Employment Agreements".
During fiscal year 1997, the Company paid Mr. Bezalel $16,000 in consulting
fees. In fiscal 1998, the Company paid Mr. Bezalel $15,500 as consulting fees.
In May of 1996, Mr. Porter personally assumed approximately $270,000 of the
Company's trade debt to an unaffiliated party. Mr. Porter pledged his stock in
the Company as security for this debt. Mr. Porter was issued 400,000 shares of
common stock by the Company for this debt assumption. Mr. Porter subsequently
defaulted on this obligation and did not make payments under his note as
required. On March 31, 1999, Mr. Porter entered into a Stock Surrender Agreement
in which he agreed to deliver 325,000 shares of his personally owned Company
Common Stock to this unaffiliated individual. This individual shall have 180
days after delivery of the stock by Mr. Porter to sell these shares. If sale of
these shares generates at least $325,000, the Mr. Porter shall be released from
any further obligation to this individual. If net proceeds from the sale of
these $325,000, Mr. Porter shall immediately pay all unpaid amounts. In the
event that the Company's Common Stock for any reason is not publicly traded or
if the weekly volume traded shares falls below 25,000 shares, then Mr. Porter
should be required to immediately pay the remaining amounts owed regardless of
any stock of the Company delivered pursuant to the Stock Surrender Agreement.
Mr. Porter has agreed that while this obligation is outstanding he shall not
sell, pledge, transfer or otherwise dispose of any of his stock or equity
interests in the Company. Sales of these shares pursuant to Rule 144 may have a
depressive effect on the market price of the Company's securities.
In March 1998, the Company engaged Gerald Couture of Couture & Company, Inc., as
a consultant and subsequently in January 1999 expanded his responsibilities to
serve as the Company's Chief Financial Officer. Mr. Couture entered into an
employment agreement with the Company in January 1999. Previously, for his
consulting services, the Company issued Mr. Couture 60,000 shares of its
restricted Common Stocks. An additional 30,000 shares of Common Stock was issued
to Couture & Company in connection with additional services required in
connection with the preparation and filing of this Form 10 and the Company's
periodic reporting obligations under the 1934 Act.
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<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock consists of 50,000,000 shares of common stock, $.01
par value ("Common Stock"), and 5,000,000 of preferred stock, $.0001 par value
("Preferred Stock"), issuable in series. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our Certificate of Incorporation and Bylaws, which are included
as exhibits to this registration statement and by the provisions of applicable
Delaware law.
As of May 1, 1999, there were 8,058,912 shares of Common Stock outstanding, held
of record by approximately 151 stockholders. The Company holds 24,400 shares as
treasury stock. In addition, as of May 1, 1999, there were 5,575,000 shares of
Common Stock subject to outstanding options and 700,000 shares of Common Stock
subject to outstanding warrants.
The holders of Common Stock are entitled to one vote per share for the selection
of directors and all other purposes and do not have cumulative voting rights.
However, Mr. Porter and Mr. Bezalel, through their holdings of the voting
Preferred Stock, control the affairs of the Company, including the election of
directors. The holders of Common Stock are entitled to receive dividends when,
as, and if declared by the Board of Directors, and in the event of the
liquidation by the Company, to receive pro-rata, all assets remaining after
payment of debts and expenses and liquidation of the preferred stock. Holders of
the Common Stock do not have any pre-emptive or other rights to subscribe for or
purchase additional shares of capital stock, no conversion rights, redemption,
or sinking-fund provisions. In the event of dissolution, whether voluntary or
involuntary, of the Company, each share of the Common Stock is entitled to share
ratably in the assets available for distribution to holders of the equity
securities after satisfaction of all liabilities. All the outstanding shares of
Common Stock are fully paid and non-assessable.
The transfer agent for the Company is Manhattan Transfer Registrar Company of
Lake Ronkonkoma, New York.
Preferred Stock
The Board of Directors of the Company (without further action by the
shareholders), has the option to issue from time to time authorized un-issued
shares of Preferred Stock and determine the terms, limitations, residual rights,
and preferences of such shares. The Company has the authority to issue up to
5,000,000 shares of Preferred Stock pursuant to action by its Board of
Directors. As of the date of this registration statement, the Company has
outstanding 2,000,000 shares of Series A Preferred Stock. One million of these
shares are held by Mr. Porter and the other one million are held by Mr. Bezalel.
Each share of the Series A Preferred Stock has the right to cast 25 votes per
share on each and any matter on which the Common Stock is entitled to vote.
Accordingly, Mr. Porter and Mr. Bezalel are able to control the affairs and
operations of the Company including, but not limited to, election of directors,
sale of assets or other business opportunities. The Series A Preferred Stock has
no dividend rights, redemption provisions, sinking fund provisions or preemptive
rights. However, the Series A Preferred Stock holders have the right to convert
each share of Series A Preferred Stock into ten (10) shares of the Company's
Common Stock based upon the following targets. Each one-half (1/2) share of
Series A Preferred Stock is convertible into five (5) shares of Common Stock at
such time as the Corporation generates $5,000,000 of annual revenues in any
twelve month period. Each remaining one half (1/2) share of Series A Preferred
Stock is convertible into an additional five (5) shares of Common Stock at such
time as the Corporation generates $10,000,000 in annual revenues in any twelve
month period.
In the future, the Board of Directors of the Company has the authority to issue
additional shares of Preferred Stock in series with rights, designations and
preferences as determined by the Board of Directors. When any shares of
Preferred Stock are issued, certain rights of the holders of Preferred Stock may
affect the rights of the holders of Common Stock. The authority of the Board of
Directors to issue shares of Preferred Stock with characteristics which it
determines (such as preferential voting, conversion, redemption and liquidation
rights) may have a deterrent effect on persons who might wish to take a takeover
bid to purchase shares of the Company at a price, which might be attractive to
its shareholders. However, the Board of Directors must fulfill its fiduciary
obligation of the Company and its shareholders in evaluating an takeover bid.
24
<PAGE>
Certain Provisions of the Certificate of Incorporation and Bylaws
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
Delaware law. The Company's Bylaws provide that the Company shall indemnify to
the full extent authorized by law each of its directors and officers against
expenses incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of the corporation.
Insofar as indemnification for liabilities may be invoked to disclaim liability
for damages arising under the Securities Act of 1933, as amended, or the
Securities Act of 1934, (collectively, the "Acts") as amended, it is the
position of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Acts and are therefore, unenforceable.
Delaware Anti-Takeover Law and Our Certificate of Incorporation and Bylaw
Provisions
Provisions of Delaware law and our Certificate of Incorporation and Bylaws could
make more difficult our acquisition by a third party and the removal of our
incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of the Company to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with proponent of an unfriendly or unsolicited acquisition
proposal outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
- the Board of Directors approved the transaction in which such
stockholder became an interested stockholder prior to the date
the interested stockholder attained such status;
- upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, he or she
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding
shares owned by persons who are directors and also officers;
or
- on or subsequent to such date the business combination is
approved by the Board of Directors and authorized at an annual
or special meeting of stockholders.
A "business combination" generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of the
corporation's voting stock.
Warrants
As of May 1, 1999, there are warrants outstanding to purchase a total of 450,000
shares of Common Stock at a price of $1.00625 per share. The holders of these
warrants are entitled to piggyback registration rights under the Securities Act
subject to limitations specified in the agreement between the company and the
warrant holders. The Company will bear all registration expenses other than
underwriting discounts and commissions. All registration rights terminate at
such time as the holders are entitled to sell all of its shares in any
three-month period under Rule 144 of the Securities Act.
25
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Market Price of the Registrant's Common Stock
The Common Stock is traded in the over-the-counter market in the so
called "pink sheets," or on the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. (the "NASD") under the symbol "ALFN."
The transfer agent and registrar for the Common Stock is Manhattan Transfer
Registrar Company of Lake Ronkonkoma, New York. The following table sets forth
for the periods indicated the high and low sale prices for shares of the Common
Stock as reported on the OTC.
<TABLE>
<CAPTION>
Sales Price (1)
---------------
High Low
---- ---
<S> <C> <C>
1997
Fourth Quarter 5 1/8 1 5/16
Third Quarter 5 1 7/8
1998
Fourth Quarter 1 1/2 5/32
Third Quarter 2 1/16 7/8
Second Quarter 2 5/8 9/16
First Quarter 3 1
1999
First Quarter 3 1/4 1/8
</TABLE>
(1) The Company's Common Stock began trading on approximately March 11,
1997. There is no trading market for the Company's warrants.
The Company's common stock is not listed on NASDAQ, but is traded in the
over-the-counter market in the so called "pink sheets," or on the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc. (the
"NASD"). Accordingly, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the market value of the common stock. Further,
in the absence of a security being quoted on NASDAQ, a market price of at least
$5.00 per share or the Company having in excess of $2,000,000 in net tangible
assets, trading in the Company's securities may be covered by a Securities and
Exchange Commission ("SEC") rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with net
worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchasers' written agreement to the transaction prior to the
sale. Consequently, the rule affects the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in this
offering to sell their securities in the secondary market.
Previously, the SEC adopted seven rules ("Rules") under the Securities Exchange
Act of 1934 requiring broker/dealers engaging in certain recommended
transactions with their customers in specified equity securities falling within
the definition of "penny stock" (generally non-NASDAQ securities priced below
$5.00 per share) to provide to those customers certain specified information.
Unless the transaction is exempt under the Rules, broker/dealers effecting
customer transactions in such defined penny stocks are required to provide their
customers with: (1) a risk disclosure document; (2) disclosure of current bid
and ask quotations, if any; (3) disclosure of the compensation of the
broker/dealers and its sales person in the transaction; and (4) monthly account
statements showing the market value of each penny stock held in the customer's
account.
26
<PAGE>
As a result of the aforesaid rules regulating penny stocks, the market liquidity
for the Company's securities could be severely adversely affected by limiting
the ability of broker-dealers to sell the Company's securities and the ability
of shareholders sell their securities in the secondary market.
Dilution and Absence of Dividends
The Company has not paid any cash dividends on its common or preferred stock and
does not anticipate paying any such cash dividends in the foreseeable future.
Earnings, if any, will be retained to finance future growth. The Company may
issue shares of its common stock and preferred stock in private or public
offerings to obtain financing, capital or to acquire other businesses that can
improve the performance and growth of the Company. Issuance and or sales of
substantial amounts of common stock could adversely affect prevailing market
prices in the common stock of the Company.
27
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
To the best knowledge of management there are no pending or threatened legal
proceedings, which would have a material adverse effect on the Company.
28
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
29
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In the 12 months ended, December 31, 1998, the Company raised approximately
$228,000 through the sale of 849,694 shares of its Common Stock to approximately
26 unaffiliated investors. In connection with these sales, the Company issued
warrants to acquire approximately 411,000 shares of its Common Stock at exercise
price of $0.001. For the period commencing January 1st through May 1st 1999, the
Company sold an additional 941,979 shares of Common Stock, which raised
approximately $367,907. As of May 1, 1999, warrants to acquire 450,000 shares of
Common Stock at $1.00625 are outstanding.
In December, 1998, the Company entered into a $300,000 Convertible Debenture
Agreement with Lampton, Inc. and a $100,000 Convertible Debenture Agreement with
GEM Management Limited. These debentures provided for a conversion at 65% of the
average closing bid price for the 5 trading days prior to conversion ("Floating
Conversion Price"). All $400,000 of the convertible debentures held by GEM
Management Limited and Lampton, Inc. were converted into a total of 3,931,211
shares of the Company's Common Stock at an average conversion price of $.10.
In connection with the execution of their employment agreements, Mr. Porter and
Mr. Bezalel were each granted options to acquire up to 2,500,000 shares of the
Common Stock at an exercise price of $.15 per share. In addition, Mr. Couture
was granted an option to acquire 500,000 shares of the Common Stock also at an
exercise price of $.15. See "Executive Compensation - Employment Agreements".
In April, 1999, Mr. Porter agreed to transfer 325,000 shares of the Company's
Common Stock he owns to an unaffiliated party as part of an agreement to satisfy
obligations of the Company he personally assumed in 1996. The resale of these
shares in satisfaction of this indebtedness pursuant to Rule 144 may have an
adverse effect on the market price of the Company's Common Stock.
The Company has issued an aggregate of 90,000 shares of its restricted Common
Stock to Couture & Company in connection with consulting services. See "Certain
Relationships and Related Transactions".
The Company issued 7,500 shares of its Common Stock to outside general corporate
counsel in 1997 as partial payment for fees. The Company has also agreed to
issue to counsel approximately 20,000 additional shares for services prior to
and in connection with the preparation of this registration statement.
The company has issued warrants to acquire 450,000 shares of its Common Stock at
an exercise price of $1.00625 to Swartz Private Equity LLC. These warrants
contain certain registration rights, anti-dilution and cashless exercise
conversion provisions.
The Company has issued warrants to acquire up to 250,000 shares of its Common
Stock at an exercise price of $1.00625 to Dunwoody Brokerage Services, Inc. in
connection with the introduction by them of a web development company that is
engaged to establish the infrastructure for the Company's proposed web site.
The Company has 10,000,000 of its Common Stock reserved for issue under its
Stock Option Plan.
In February 1999, Mr. Porter and Mr. Bezalel entered into a voting for
stockholders agreement with the Company in connection with the Company's
issuance of 1,000,000 shares each to Mr. Porter and Mr. Bezalel of Series A
Voting Preferred Stock. See "Description of Securities - Preferred Stock".
For all above enumerated transactions, the Company relied upon various
exemptions afforded by Section 42 and Section 3(b) of the Securities Act of
1933, as amended ("Securities Act") as an exemption available from the
registration requirements of Section 5 of the Securities Act per transaction by
an issuer not involved in a public offering. The Company has relied upon the
Rule 504 offering exemption promulgated under Regulation D of the Securities Act
prior to the repeal of this rule in April, 1999. No advertising or general
solicitation was employed by the Company in the offering of any of its
securities.
30
<PAGE>
As of May 1, 1999, the Company had approximately 8,058,912 shares of its Common
Stock outstanding. Of this amount, approximately 6,393,914 shares may be
considered freely tradable under the Securities Act. The remaining approximate
1,632,067 shares of the Company's outstanding Common Stock prior to this
offering are "restricted securities", including shares held by officers and
directors, as that term is defined under Rule 144 promulgated under the
Securities Act.
Generally under Rule 144, a person holding restricted securities for a period of
one (1) year may, if there is adequate public information available concerning
the Company, sell every three months in ordinary brokerage transactions or
transactions with a market maker an amount equal to the greater of (a) 1% of the
Company's then outstanding stock or (b) the average weekly volume of sales
during the four calendar weeks preceding the sale. Rule 144 does not limit the
amount of restricted securities, which a person who is not an affiliate of the
Company may sell after three years. Affiliate sales under Rule 144 are subject
to such volume limitations regardless of the length of the holding period. Sales
under Rule 144 may, in the future, have a depressive effect on the market price
of the Company's securities should a public market develop.
In addition to sales subject to resale pursuant to Rule 144, the Company has
approximately 6,250,000 warrants, options or other commitments to issue
6,250,000 shares of Common Stock outstanding. In addition, each share of Voting
Preferred Stock held by Mr. Porter and Mr. Bezalel is convertible into 10 shares
of Common Stock. If the Company elects to draw upon the Swartz equity credit
facility, a substantial number of additional shares of Common Stock would be
issued at unknown values. The exercise of such options, warrants, or other
commitments to acquire the Common Stock of the Company could have a potentially
depressive effect on the market value of the Common Stock. The Company is unable
to predict when such options, warrants or other commitments to purchase the
Common Stock of the Company would in fact be exercised.
31
<PAGE>
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Liability and Indemnification of Officers and Directors
Delaware General Corporation Law (the "DGCL") provides that "a corporation shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. With
respect to derivative actions, the DGCL provides in relevant part that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
(by reason of his service in one of the capacities specified in the preceding
sentence) against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Circuit Court or the court in which such
action or suit was bought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Circuit Court or such other court shall deem proper. The Company's
Certificate of Incorporation provides for such indemnification to the fullest
extent provided for by the DGCL.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
the DGCL.
The Company's Bylaws provide that the Company shall indemnify to the full extent
authorized by law each of its directors and officers against expenses incurred
in connection with any proceeding arising by reason of the fact that such person
is or was an agent of the corporation.
Insofar as indemnification for liabilities may be invoked to disclaim liability
for damages arising under the Securities Act of 1933, as amended, or the
Securities Act of 1934, (collectively, the "Acts") as amended, it is the
position of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Acts and are therefore, unenforceable.
32
<PAGE>
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part III for listing of financial statements and exhibits herein,
which include:
1. Audited Financial Statements consisting of the Company's balance
sheet as of December 31, 1998, and related statements of operations, changes in
stockholders equity, and cash flows ended December 31, 1997 and 1998, as audited
by Pender, Newkirk & Company, Certified Public Accountant, along with its report
thereon.
2. Unaudited Interim Financial Statements consisting of a Balance Sheet
as of March 31, 1999, the last day of the Company's most recent past fiscal
quarter and related statements of operations and cash flows.
33
<PAGE>
PART III
EXHIBITS
A. Financial Statements:
The following is a list of each financial statement filed under Part
f/s of this Registration Statement:
1. Audited Financial Statements consisting of the Company's balance
sheet as of December 31, 1998, and related statements of operations, changes in
stockholders equity, and cash flows ended December 31, 1997 and 1998, as audited
by Pender, Newkirk & Company, Certified Public Accountant, along with its report
thereon.
2. Unaudited Interim Financial Statements consisting of a Balance Sheet
as of March 31, 1999, the last day of the Company's most recent past calendar
quarter and related statements of operations and cash flows.
B. Index of Exhibits:
The following exhibits are included as part of this report:
EXHIBITS AND SEC REFERENCE NUMBERS
Number Title of Document Location
- ------ ----------------- --------
2(a) Certificate of Incorporation
2(b) Plan of Merger
2(c) Agreement and Plan of Merger
2(d) Certificate of Merger
2(e) Amendment to Certificate of Incorporation to Increase
Authorized Shares
2(f) ByLaws
3(a) Amended and Restated Certificate of Designation,
Preferences and Rights of Preferred Stock
3(b) Convertible Debenture Agreement by and between the
Company and Lampton, Inc. and GEM Management Limited
dated December 8, 1998
3(c) 2% Convertible Debenture
3(d) Warrant to Purchase Common Stock
3(e) Escrow Agreement
3(f) Preferred Shareholder Agreement
6(a) Agreement by and between Michael Porter and Brian
Henke.
6(b) Employment Contract with Michael Porter dated 1/22/99
6(c) Employment Contract with David Bezalel dated 1/22/99
6(d) Employment Contract with Gerald Couture dated 1/22/99
6(e) Investment Agreement by and between the Company and
Swartz Private Equity, LLC dated June 3, 1999.
6(f) Registration Rights Agreement by and between the
Company and Swartz Private Equity, LLC dated June 3, 1999
6(g) Stock Option Plan of the Company dated May __, 1999
10 Consent of Pender, Newkirk & Company, CPA
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
ALOTTAFUN!, INC.
Dated: June 9, 1999 By: /s/ Michael Porter
-------------------------------
Michael Porter
Chief Executive Officer
Dated: June 9, 1999 By: /s/ Gerald Couture
-------------------------------
Gerald Couture
Chief Financial Officer,
Principal Accounting Officer
35
<PAGE>
Financial Statements
Alottafun!, Inc.
(A Development Stage Enterprise)
Years Ended December 31, 1998 and 1997 and
the Period August 2, 1993 (Inception) to December
31, 1998
Independent Auditors' Report
36
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Financial Statements
Years Ended December 31, 1998 and 1997 and
the Period August 2, 1993 (Inception) to December
31, 1998
Contents
Independent Auditors' Report on Financial Statements.......................F-1
Financial Statements:
Balance Sheet..........................................................F-2
Statements of Operations...............................................F-3
Statements of Changes in Stockholders' Deficit.....................F-4-F-6
Statements of Cash Flows...........................................F-7-F-8
Notes to Financial Statements.....................................F-9-F-19
37
<PAGE>
[COMPANY LOGO]
Independent Auditors' Report
Board of Directors
Alottafun!, Inc.
(A Development Stage Enterprise)
West Bend, Wisconsin
We have audited the accompanying balance sheet of Alottafun!, Inc., (a
development stage enterprise), hereinafter referred to as the Company, as of
December 31, 1998 and the related statements of operations, changes in
stockholders' deficit, and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and the results of its operations and its cash flows for the years ended
December 31, 1998 and 1997 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 more fully discussed in Notes 1 and
2 to the financial statements, the Company is in the development stage, with its
principal activities being the development of products and the raising of
capital to expand operations. The Company has sustained substantial losses since
inception that total approximately $2,900,000, has used cash in operations of
approximately $1,250,000 since inception, has a negative tangible net worth of
approximately $278,000 at December 31, 1998, and is currently in default on
approximately $81,000 of notes payables. Additionally, the Company has not had
significant revenues since inception. These issues raise substantial doubt about
the Company's ability to continue as a going concern. Realization of the
Company's assets is dependent upon the Company's ability to raise additional
capital, as well as generate revenues sufficient to result in future profitable
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Pender, Newkirk & Company, CPAs
Certified Public Accountants
Tampa, Florida
May 9, 1999, except for Note 13, as to which the
date is June 1, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
Alottafun!, Inc.
(A Development Stage Enterprise)
Balance Sheet
December 31, 1998
<S> <C>
Assets
Current assets:
Cash $ 411,114
Inventory 4,914
Deposits, inventory purchases 19,450
Other assets 6,929
---------------
Total current assets 442,407
---------------
Property and equipment, net of accumulated depreciation 25,710
---------------
Other assets:
Deferred financing costs, net of accumulated amortization 32,991
Other intangibles, net of accumulated amortization 192,043
---------------
Total other assets 225,034
---------------
$ 693,151
===============
Liabilities and Stockholders' Deficit Current liabilities:
Current maturities of long-term debt $ 183,953
Accounts payable 99,121
Accrued expenses 80,015
---------------
Total current liabilities 363,089
---------------
Long-term debt, net of current maturities 360,489
---------------
Mandatorily redeemable equity instruments; par value of $.01
per share; 4,643 shares issued and outstanding 22,715
---------------
Stockholders' deficit:
Preferred stock; par value of $.0001 per share; 5,000,000 shares
authorized; no shares issued and outstanding
Common stock; par value of $.01 per share; 20,000,000 shares
authorized; 3,832,433 shares issued; 3,808,033 shares outstanding 38,080
Additional paid-in capital 2,875,905
Deficit accumulated during the development stage (2,899,239)
Treasury stock, at cost; 24,400 shares (67,888)
---------------
Total stockholders' deficit (53,142)
---------------
$ 693,151
===============
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-2
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
August 2, 1993
(Inception) to
Year Ended December 31, December 31,
1998 1997 1998
---------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenue:
Sales, net of allowance and discounts $ 37,429 $ 54,963 $ 2,302,590
Cost of sales 28,543 28,021 2,461,505
----------- ------------ ------------
Gross profit 8,886 26,942 (158,915)
----------- ------------ ------------
Operating expenses:
Selling 66,886 64,386 687,759
General and administrative 387,241 308,040 1,324,620
Depreciation and amortization 13,976 37,087 185,773
----------- ------------ ------------
468,103 409,513 2,198,152
----------- ------------ ------------
Loss from operations (459,217) (382,571) (2,357,067)
----------- ------------ ------------
Other expense:
Net realized loss on sale of securities, trading (35,507) (5,917) (41,424)
Unrealized gain on securities, trading 8,380 8,380
Interest expense (294,896) (77,667) (455,962)
Loss on impairment of fixed assets (92,081) (92,081)
----------- ------------ ------------
Total other expense (330,403) (167,285) (581,087)
Loss before taxes and extraordinary gain (789,620) (549,856) (2,938,154)
Income taxes 8,200 8,150
----------- ------------ ------------
Net loss before extraordinary gain (789,620) (541,656) (2,930,004)
Extraordinary gain on forgiveness of debt, net of
income tax of $8,200 46,424 30,765
----------- ------------ ------------
Net loss $ (789,620) $ (495,232) $ (2,899,239)
=========== ============ ============
Loss per common share:
Loss before extraordinary gain $ (.31) $ (.28) $ (2.11)
Extraordinary gain .02 .02
----------- ------------ ------------
Net loss per common share $ (.31) $ (.26) $ (2.09)
=========== ============ ============
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-3
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
For the Period August 2, 1993 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares $.01 Par
Issued Value
------------------------
<S> <C> <C>
Initial issuance of common stock for cash, August 2,
1993 (unaudited) 900 $ 900
Contribution of capital, 1993 (unaudited)
Issuance of common stock for cash, July 1995 (unaudited) 130 130
Recapitalization, May 30, 1996 (unaudited) 1,668,284 15,663
Issuance of stock, August 1996 (unaudited) 107,500 1,075
Assumption of debt by stockholder, 1996 (unaudited) 800,000 8,000
Conversion of debt to equity by creditors, 1996 (unaudited) 272,555 2,726
Net loss for period August 2, 1993 (inception) to
December 31, 1996 (unaudited)
--------- ----------
Balance, December 31, 1996 2,849,369 28,494
Issuance of common stock for cash, January 1997 298,500 2,985
Issuance of common stock for services, January 1997 1,000 10
Issuance of common stock for cash, February 1997 50,500 505
Issuance of common stock for services, February 1997 31,000 310
Issuance of common stock for services, March 1997 62,000 620
Conversion of debt to equity by creditors, March 1997 5,968 60
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Development Treasury
Capital Stage Stock Total
------- ----- ----- -----
<S> <C> <C> <C>
$ 4,100 $ 5,000
325,930 325,930
24,870 25,000
(15,663)
49,125 50,200
177,664 185,664
636,793 639,519
$ (1,614,387) (1,614,387)
------------- ---------------- --------------- ------------
1,202,819 (1,614,387) (383,074)
199,000 201,985
990 1,000
505
30,690 31,000
43,880 44,500
11,876 11,936
</TABLE>
F-4
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
For the Period August 2, 1993 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares $.01 Par
Issued Value
------------------------
<S> <C> <C>
Issuance of common stock for cash, May 1997, net of
offering costs of $167,836 216,525 2,165
Issuance of common stock for cash, June 1997 25,000 250
Issuance of common stock for cash, August 1997 25,000 250
Reverse 1-for-2 stock split, August 1997 (1,784,169) (17,842)
Issuance of common stock for services, September 1997 1,000 10
Issuance of common stock for cash, November 1997 35,000 350
Issuance of common stock for cash, December 1997 304,150 3,041
Conversion of debt to equity by creditors, December 1997 7,500 75
Acquisition of treasury stock, December 1997
Net loss for year
--------- -------
Balance December 31, 1997 2,128,343 21,283
Issuance of common stock for services, January 1998 38,700 387
Acquisition of treasury stock, January 1998
Issuance of common stock for services, February 1998 25,000 250
Conversion of debt to equity by creditors, March 1998 7,500 75
Issuance of common stock for services, March 1998 36,500 365
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Development Treasury
Capital Stage Stock Total
------- ----- ----- -----
<S> <C> <C> <C>
116,064 118,229
24,750 25,000
14,750 15,000
17,842
490 500
34,650 35,000
277,922 280,963
4,682 4,757
(61,133) (61,133)
(495,232) (495,232)
- -------------- ---------- -------- -----------
1,980,405 (2,109,619) (61,133) (169,064)
32,739 33,126
(6,755) (6,755)
2,250 2,500
14,925 15,000
3,285 3,650
</TABLE>
F-5
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Deficit
For the Period August 2, 1993 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares $.01 Par
Issued Value
------------------------
<S> <C> <C>
Conversion of debt to equity by creditors, April 1998 20,000 200
Issuance of common stock for services, April 1998 37,500 375
Issuance of common stock for cash, May 1998 90,000 900
Issuance of common stock for cash, August 1998 30,000 300
Issuance of common stock for cash, September 1998 200,000 2,000
Issuance of common stock for cash, October 1998 364,900 3,649
Issuance of common stock for services, October 1998 100,000 1,000
Issuance of common stock for cash, November 1998 46,000 460
Intrinsic value of convertible feature of debentures with
detachable warrants
Issuance of common stock for conversion of debentures,
December 1998 269,590 2,696
Exercise of detachable warrants, December 1998 411,000 4,110
Issuance of common stock in settlement of mandatorily
redeemable equity instruments, December 1998 3,000 30
Net loss for year
--------- ----------
Balance, December 31, 1998 3,808,033 $ 38,080
========= ==========
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Development Treasury
Capital Stage Stock Total
------- ----- ----- -----
<S> <C> <C> <C>
29,800 30,000
18,754 19,129
26,100 27,000
2,700 3,000
18,000 20,000
152,758 156,407
95,050 96,050
21,240 21,700
440,949 440,949
37,304 40,000
(4,110)
3,756 3,786
(789,620) (789,620)
- -------------- ---------------- ------------- -------------
$ 2,875,905 $ (2,899,239) $ (67,888) $ (53,142)
============== ================ ============= =============
</TABLE>
F-6
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
August 2, 1993
(Inception)to
Year Ended December 31, December 31,
1998 1997 1998
------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Operating activities
Net loss $ (789,620) $ (495,232) $ (2,899,239)
------------- ----------- -------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 13,976 37,086 185,772
Loss on impairment of fixed assets 92,081 92,081
Loss on sale of marketable securities 35,507 5,917 33,044
Unrealized gain on marketable securities (8,380)
Interest due to conversion feature of convertible
debentures 223,529 223,529
Interest on warrants 25,377 25,377
Common stock issued for services 154,455 77,000 231,455
(Increase) decrease in:
Inventory 8,086 10,910 (4,913)
Other assets (1,013) 2,264 (723)
Deposits (19,250) (19,250)
Increase (decrease) in:
Accounts payable (96,218) (9,999) 791,447
Accrued expenses 26,452 51,378 93,634
------------- ---------- -----------
Total adjustments 370,901 258,257 1,651,453
------------- ---------- -----------
Net cash used by operating activities (418,719) (236,975) (1,247,786)
------------- ---------- -----------
Investing activities
Acquisition of equipment and intangible assets (34,969) (33,008) (323,564)
Proceeds from sale of marketable securities 1,320,231 290,840 1,611,071
Purchase of marketable securities (1,203,794) (440,320) (1,644,114)
------------- ---------- -----------
Net cash provided (used) by investing activities 81,468 (182,488) (356,607)
------------- ---------- -----------
Financing activities
Principal reduction on capital lease obligation (12,990)
Proceeds on line of credit 30,000
Decrease (increase) in stock subscriptions 119,805 (126,213) (6,408)
Proceeds from issuance of note payable 1,111,563
Proceeds from common stock and related
paid-in capital 228,107 844,507 1,422,841
Payment of offering costs (167,826) (167,826)
Purchase of treasury stock (6,755) (61,133) (67,888)
Principal reductions of long-term debt (27,688) (25,350) (683,659)
Issuance of convertible debentures 400,489 400,489
Reduction in mandatorily redeemable equity
instruments (4,615) (5,500) (10,615)
------------- --------- ----------
Net cash provided by financing activities 709,343 458,485 2,015,507
------------- --------- ----------
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-7
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
August 2, 1993
(Inception)
to
Year Ended December 31, December 31,
1998 1997 1998
------------ ----------- -----------------
(Unaudited)
<S> <C> <C> <C>
Net increase in cash 372,092 39,022 411,114
Cash at beginning of year 39,022
------------- ----------- -----------------
Cash at end of year $ 411,114 $ 39,022 $ 411,114
============= =========== =================
Supplemental disclosures of cash flow information
and noncash financing activities
Cash paid during the year for interest $ 14,821 $ 20,429 $ 105,031
============= =========== =================
</TABLE>
During the year ended December 31, 1997, the Company exchanged 13,468 shares
of common stock for accounts payable totaling $16,693. The number of shares
issued was based on the fair value of the stock.
During the year ended December 31, 1998, the Company exchanged 27,500 shares
of common stock as payment on $45,000 of notes payable.
In addition, the Company reclassified 3,000 shares of the mandatorily
redeemable equity instruments to common stock. This was done as payment
against the outstanding payable of $3,786.
The Company issued approximately $400,000 in convertible debentures in 1998
that are convertible into common stock. The Company has recorded interest of
approximately $223,500 to reflect the intrinsic value of the conversion
feature of these debentures. In December 1998, $40,000 of the debentures
were converted into 269,590 shares of common stock.
In connection with the convertible debentures, the Company issued detachable
stock warrants to acquire 411,000 shares of common stock valued at $217,420,
which is recorded as other intangible assets in the accompanying financial
statements. The Company used the Black-Scholes pricing-model to value these
warrants. These shares were issued in December 1998.
Read independent auditors' report. The accompanying
notes are an integral part of the financial statements.
F-8
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
1. Background Information
Alottafun!, Inc. (the "Company") was incorporated in the state of Wisconsin on
August 2, 1993, and effectively re-incorporated in the state of Delaware on
September 17, 1998 by merging the Wisconsin corporation into a newly created
Delaware corporation. The Company is in the development stage and is devoting
substantial efforts on product development and design, raising capital,
recruiting and training personnel, and establishing vendor and customer
relationships. The Company headquarters is located in Milwaukee, Wisconsin.
Initially, the Company operated as an assembler of toy and candy packages. Its
customers were retailers and distributors located primarily throughout the
mid-eastern United States.
In 1997, the Company ceased its assembly operations and changed its focus to
distribution of toys and candy packages. Starting in late 1998, the Company
again shifted its focus, this time towards becoming a toy manufacturer and
marketer with a more extensive toy line. Included in this line are tea and cook
sets, housekeeping toys, games and puzzles, purses, and ride on cars. The
Company intends to distribute the product line through leading toy retailers and
over the Internet.
2. Going Concern
The Company is in the development stage with its principal activity being the
development of products and the raising of capital to expand operations. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. However, the Company has sustained substantial
losses since inception that total approximately $2,900,000, has used cash in
operations of approximately $1,250,000 since inception, and has a negative
tangible net worth of $(278,000). In addition, as further explained in Note 5 to
the financial statements, the Company is currently in default on approximately
$81,000 of notes payable. The Company also has no significant revenues.
Presently, the Company's ability to develop a product and transition to
attaining profitable operations is dependent upon obtaining adequate financing
and achieving a level of sales adequate to support the Company's cost structure.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. These financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
Read independent auditors' report.
F-9
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
3. Significant Accounting Policies
The significant accounting policies followed are:
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.
The Company extends credit to its various customers based on the
customer's ability to pay. Based on management's review of accounts
receivable, no allowance for doubtful accounts is considered necessary.
Property and equipment are stated at cost. Additions and improvements to
property and equipment are capitalized. Maintenance and repairs are
expensed as incurred. When property is retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets ranging from 5 to 7 years.
Inventories are stated at the lower of cost or market, determined on
an average cost method.
Costs incurred in obtaining financing are being amortized over the
estimated average loan life on a straight-line basis. Amortization for
the years ended December 31, 1998 and 1997 amounted to $1,001 and
$1,001, respectively. The costs have been fully amortized as of December
31, 1998 and 1997.
Selling costs related to the issuance of debentures have been
capitalized and are being amortized over the life of the debentures on a
straight-line basis. Amortization amounted to $549 for the year ended
December 31, 1998.
Read independent auditors' report.
F-10
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
3. Significant Accounting Policies (continued)
The Company accounts for marketable securities in accordance with
Financial Accounting Standards Board (FASB) Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification on its investments
in marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Management has classified its
marketable securities as "trading securities." Trading securities are
bought and held principally for the purpose of selling them in the near
term. Unrealized holding gains and losses are deemed temporary and are
included in earnings. The cost of the marketable securities is based on
the specific identification method. Interest and dividends on equity
securities are included in investment income. The Company had no
marketable securities at December 31, 1998.
FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15,
1995. This statement provides that expense equal to the fair value of
all stock-based awards on the date of the grant be recognized over the
vesting period. Alternatively, this statement allows entities to
continue to apply the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," whereby
compensation expense is recorded on the date the options are granted to
employees equal to the excess of the market price of the underlying
stock over the exercise price. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
disclosure of the provisions of FASB No. 123.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities
and their respective income tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
Read independent auditors' report.
F-11
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
3. Significant Accounting Policies (continued)
The Company follows FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of these assets may not be recoverable. In
performing the review for recoverability, the Company estimates the
future cash flows are expected to result from the use of the assets and
their eventual disposition.
The Company issues stock in lieu of cash for certain transactions.
Generally, the fair value of the stock, based on comparable cash
purchases, is used to value the transactions.
Offering costs associated with the sale of stock are capitalized and
offset against the proceeds of the offering or expenses if the offering
is unsuccessful.
The Company issued approximately $400,000 in convertible debentures in
1998. These debentures are convertible into common stock. The Company
has recorded interest totaling $223,529 to reflect the intrinsic value
of the beneficial conversion feature of these debentures. The
convertible debentures are convertible at any time over a five-year
period.
In connection with the convertible debentures, the Company issued
detachable stock warrants to acquire 411,000 shares of common stock
valued at $217,420, which is recorded as other intangibles in the
accompanying financial statements. The Company used the Black-Scholes
pricing-model to value these warrants. The value of these warrants is
being amortized over the five-year life of the convertible debentures.
The conversion of the debentures into stock accelerates the amortization
of the warrants.
Basic loss per share (EPS) is computed by dividing loss available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock. Diluted
EPS is not presented because they are anti-dilutive.
Read independent auditors' report.
F-12
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
4. Property and Equipment
Property and equipment at December 31, 1998 consist of:
Leasehold improvements $ 7,800
Office equipment 16,386
Warehouse equipment 55,404
----------
79,590
Less accumulated depreciation 53,880
----------
$ 25,710
==========
During 1997, it was determined that many of the fixed assets maintained by the
Company had become impaired. The expected future cash flows from carrying these
assets was projected to be $0 as of December 31, 1997. Accordingly, the carrying
values of the impaired assets were written off resulting in a loss of
approximately $92,000.
5. Notes Payable and Long-Term Debt
Notes payable and long-term debt at December 31, 1998 consist of:
Note payable to bank; payable in monthly installments
of $3,350 including principal and interest at 2.25%
over prime; remaining unpaid balance due on
July 6, 1999; collateralized by all assets of the
Company; personally guaranteed by majority
stockholder and 90.0% by the U.S. Small Business
Administration $ 22,808
Revolving note payable to bank (loan limited to lesser
of $100,000 or $30,000, plus 50.0% of accounts
receivable); interest at 2.0% over the bank's
base rate; interest payable monthly;
outstanding principal payable via lockbox
collection of accounts receivable; collateralized
by a selective business security agreement and
personal guarantees; due on demand 30,000
Read independent auditors' report.
F-13
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
5. Notes Payable and Long-Term Debt (continued)
Note payable to Private Industry Council of
Milwaukee County, Inc.; interest at 18.0%;
unsecured; payments of $8,750 each were required
on July 5, 1996, October 5, 1996,
and April 5, 1997; in default 70,000
Note payable, unsecured; payable in monthly
installments of $903, including principal
and interest at 18.0% per annum; in default 11,043
Note payable, unsecured; interest at 24.0% per
annum; due on demand 50,102
Convertible debentures; 2.0% interest per annum;
maturity date of December 8, 2003; payments
semi-annually in arrears; convertible into shares
of common stock at the noteholders' option 360,489
-----------
544,442
Less current maturities 183,953
-----------
$ 360,489
===========
Principal reductions of long-term debt for future years are as follows:
Year Ending
December 31,
------------
1999 $ 183,953
2003 360,489
------------
$ 544,442
============
6. Mandatorily Redeemable Equity Instruments
As part of the Company's restructuring in 1996, the Company issued 7,955 shares
of stock valued at $37,014 for concessions in accounts payable. Each share
contained a call feature that obligated the Company to repurchase the shares of
stock by December 31, 1996; however, all shares were not repurchased as of that
date. Of this amount, $14,299 has been paid as of December 31, 1998 and the
remainder is past due. The remaining $22,715 is included in the accompanying
financial statements as mandatorily redeemable equity instruments, which
represents 4,643 shares.
Read independent auditors' report.
F-14
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
7. Common Stock
The minutes of the Company reflect that a 1-for-2 reverse stock split for its
$.01 par value common stock was authorized on August 25, 1997. The reverse split
reduced the total shares outstanding at that date from 3,564,862 to 1,784,169.
The new post-split shares retained a par value of $.01 per share and the
accompanying financial statements were adjusted to reflect this change.
In December 1997, the Company acquired 18,400 shares of common stock for
$61,133. In January 1998, the Company acquired an additional 6,000 shares of
common stock for $6,755. These shares are shown as treasury stock on the
financial statements and are shown at cost. Treasury stock totaled $67,888 at
December 31, 1998.
The Company issued $400,000 in convertible debentures in December 1998. The
debentures pay interest at two percent per annum and mature on December 8, 2003.
The debentures are convertible into shares of common stock at the option of the
holder and may be converted at any time commencing on the issue date. The
conversion price for each debenture at the date of conversion will be the lessor
of $1.25 or 65 percent of the average closing bid price for the five trading
days immediately preceding the conversion date. If the closing price is less
than or equal to $.10 per share, the Company, at its sole option, may allow the
holder to proceed with the conversion or may redeem the unconverted amount of
debentures at 154 percent of such unconverted amount, plus any accrued and
unpaid interest. The stock was trading at $.53 per share on the date of
issuance. Based upon this price, the debentures could be converted into
approximately 1,176,000 shares of stock. The Company has recorded interest of
approximately $223,500 to reflect the intrinsic value of the conversion feature
of these debentures.
In association with the convertible debentures listed above, the Company issued
detachable stock warrants to acquire 411,000 shares of common stock. The
warrants entitle the holders to purchase common stock at $.001 per share at any
time prior to December 31, 2003. The Company used the Black-Scholes
pricing-model to value the warrants. Based on this pricing-model, the value of
the warrants is $217,519, which is shown as other intangible assets in the
accompanying financial statements. This cost is being amortized over the
five-year life of the convertible debentures; however, the conversion of
debentures to stock accelerates the amortization. The Company has amortized
$25,377 of the intrinsic value during the year ended December 31, 1998.
Read independent auditors' report.
F-15
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
7. Common Stock (continued)
The average fair value of the warrants at their grant during the year ended
December 31, 1998 was $.529. The estimated fair value of each option and warrant
granted is calculated using the Black-Scholes option-pricing model. The
following summarizes the weighed average of the assumptions used in the model:
Risk-free interest rate 5.67%
Expected years until exercised 5
Expected dividend yield 0
Estimated fair market value of underlying stock $.53
During 1998, the Company issued 1,060,100 shares of stock. The checks issued for
these shares were returned for lack of sufficient funds and all stock
certificates were cancelled subsequent to year-end. These shares are not
included in the common stock outstanding since the Company did not have
constructive receipt of the money paid for those shares.
8. Operating Leases
The Company is obligated under various month-to-month operating leases for the
rental of space and related equipment. For 1998 and 1997, total rent amounted to
$6,600 and $6,610, respectively.
9. Income Taxes
The Company has incurred significant operating losses since its inception and,
therefore, no tax liabilities have been incurred for the periods presented.
These operating losses give rise to a deferred tax asset at December 31, 1998
and are as follows:
Deferred tax assets $ 1,018,000
Allowance (1,018,000)
--------------
$ 0
==============
Read independent auditors' report.
F-16
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
9. Income Taxes (continued)
The Company has available at December 31, 1998 approximately $2.6 million of
unused operating loss carryforwards that may be applied against future taxable
income which would reduce taxes payable by approximately $1.0 million in the
future. These operating loss carryforwards expire beginning in 2008. Due to the
Company's history of operating losses, management has established a valuation
allowance in the full amount of the deferred tax assets arising from these
losses because management believes it is more likely than not that the Company
will not generate sufficient taxable income within the appropriate period to
offset these operating loss carryforwards. Income tax benefits resulting from
the utilization of these carryforwards will be recognized in the periods in
which they are realized for federal and state tax purposes.
10. Extraordinary Gain
During 1997, several creditors accepted partial payments on balances due to each
of them as payments in full. The net differences between amounts accepted as
full payments and the vendors outstanding balances as of the date of acceptance
are shown in the accompanying financial statements as extraordinary gain. The
extraordinary item of $46,424 is net of income taxes of $8,200.
11. Earnings Per Share
The following data shows the amounts used in computing earnings per share:
August 2, 1993
(Inception) to
Year Ended December 31, December 31,
1998 1997 1998
---------------------------------------------------
(Unaudited)
Net loss $ (789,620) $ (495,232) $ (2,899,239)
===================================================
Weighted average number of
common shares used in
basic EPS 2,528,155 1,917,013 1,388,390
===================================================
Read independent auditors' report.
F-17
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
12. Commitments
The Company entered into an agreement to purchase the rights to a line of toys
on June 26, 1998. In consideration of these rights, the Company will pay a
royalty on all sales equal to two percent in 1999, one percent in 2000, and .05
percent in 2001, with a minimum guarantee royalty of $10,000 per year. During
1998, no royalties incurred in connection with this agreement.
13. Subsequent Events
In January 1999, the Company initiated a stock option plan for employees of the
Company. A total of 10,000,000 shares have been reserved for issuance under the
plan. Approximately 5,500,000 options to purchase a total of 5,500,000 shares of
stock were granted to executives of the Company as part of their employment
agreements.
In January 1999, the Company entered into employment agreements with two
stockholders of the Company. Each employment agreement has a term of five years
and has an annual base compensation beginning at $75,000 annually for the
12-month period ending May 31, 2000. The agreements increase $10,000 per year to
an annual compensation of $115,000 for the 12-month period ending May 31, 2004.
Each executive has the right, at his election, to receive compensation in the
form of the Company's restricted common stock valued at 50 percent of the
closing bid price as of the date of the executive election. In addition, upon
execution of the employment agreements, each executive was granted non-qualified
stock options to purchase 2,500,000 shares of the Company's common stock at an
exercise price of $.15 per share, which was the fair value at the date of the
grant. These options are immediately exercisable and have an exercise period of
10 years.
Additionally, in January 1999, the Company entered into an employment agreement
with its chief financial officer. This employment agreement has a term of five
years. The annual compensation is $60,000 for 480 hours of service. As
consideration for this employment agreement, the chief financial officer
received an option to purchase 500,000 shares of the Company's common stock over
a 10-year period at $.15 per share, which was the fair value at the date of the
grant. These options may be immediately exercisable.
Each of the above employment agreements has a non-compete clause. The agreements
also generally provide for severance payments equal to 299 percent of the annual
base compensation then due under each agreement in the event of termination
without cause.
Read independent auditors' report.
F-18
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Years Ended December 31, 1998 and 1997 and the
Period August 2, 1993 (Inception) to December 31,
1998 (Unaudited)
13. Subsequent Events (continued)
Subsequent to December 31, 1998, the holders of the convertible debentures
exercised their option to convert $358,000 of the debentures into 3,250,621
shares of common stock. As a result of this conversion, the Company accelerated
the amortization of the intrinsic value assigned to the detachable stock
warrants.
In February 1999, the Company issued two stockholders/officers 1,000,000 shares
each of preferred stock. Each share of preferred stock entitles the holder to 25
votes on matters that the holders of common stock are entitled to vote on. The
holders are not entitled to receive dividends. The preferred stock may be
converted by the holders based on the Company attaining specified annual revenue
limits.
Subsequent to December 31, 1998, the Company's board of directors changed the
capitalization of the Company. The number of authorized shares of common stock
was increased from 20,000,000 shares to 50,000,000 shares.
Read independent auditors' report.
F-19
<PAGE>
Financial Statements
Alottafun!, Inc.
(A Development Stage Enterprise)
Three Months Ended March 31, 1999 and 1998 and
the Period August 2, 1993 (Inception) to March 31,
1999
(Unaudited)
F-20
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Financial Statements
Three Months Ended March 31, 1999 and 1998 and
the Period August 2, 1993 (Inception) to March 31, 1999
Contents
Financial Statements:
Balance Sheet..........................................................F-22
Statements of Operations...............................................F-23
Statements of Cash Flows...............................................F-24
Notes to Financial Statements..........................................F-25
F-21
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Balance Sheet
<TABLE>
<CAPTION>
March 31,
1999
---------------------
(Unauditied)
<S> <C>
Assets
Current assets:
Cash $ 13,463
Marketable securities 614,534
Accounts receivable 17,895
Inventory 5,693
Deposits, inventory purchases -
Other assets 721
---------------------
Total current assets 652,306
---------------------
Property and equipment, net of accumulated depreciation 38,964
---------------------
Other assets:
Deferred financing costs, net of accumulated amortization 31,391
Other intangibles, net of accumulated amortization 298
---------------------
Total other assets 31,689
---------------------
$ 722,959
=====================
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt $ 267,919
Accounts payable 101,251
Accrued expenses 59,120
---------------------
Total current liabilities 428,290
---------------------
Long-term debt, net of current maturities -
---------------------
Mandatorily redeemable equity instruments; par value of $.01
per share; 4,643 shares issued and outstanding. 22,715
---------------------
Stockholders' deficit:
Common stock; par value of $.01 per share; 20,000,000 shares
authorized; 8,049,433 shares issued; 8,025,033 shares outstanding. 80,250
Preferred stock; par value of $.0001; 5,000,000 shares
authorized; 2,000,000 and zero shares issued and outstanding. 200
Additional paid-in capital 3,631,442
Deficit accumulated during the development stage (3,372,050)
Treasury stock, at cost; 24,400 shares (67,888)
---------------------
Total stockholders' deficit 271,954
---------------------
$ 722,959
=====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
August 2, 1993
(Inception) to
Three Months Ended March 31, March 31,
-----------------------------------------------------------
1999 1998 1999
-----------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue:
Sales, net of allowance and discounts $ 19,460 $ 2,349 2,322,050
Cost of sales 31,836 1,410 2,476,952
-----------------------------------------------------------
Gross profit (12,376) 939 (154,902)
-----------------------------------------------------------
Operating expenses:
Selling 31,576 10,926 719,335
General and administrative 144,132 64,822 1,468,752
Depreciation and amortization 4,113 3,494 382,910
-----------------------------------------------------------
179,821 79,242 2,570,997
-----------------------------------------------------------
Loss from operations (192,197) (78,303) (2,725,899)
-----------------------------------------------------------
Other expense:
Net realized loss on sale of securities, trading (6,346) 5,690 (47,770)
Unrealized gain (loss) on securities, trading (78,615) (8,380) (70,235)
Interest expense (195,652) (5,255) (458,590)
Loss on impairment of fixed assets - - (108,470)
-----------------------------------------------------------
Total other expense (280,613) (7,945) (685,065)
-----------------------------------------------------------
Loss before taxes and extraordinary gain (472,810) (86,248) (3,410,964)
Income taxes 8,150
-----------------------------------------------------------
Net loss before extraordinary gain (472,810) (86,248) (3,402,814)
Extraordinary gain on forgiveness of debt, net of
income tax of $8,200 30,765
-----------------------------------------------------------
Net loss $ (472,810) $ (86,248) $ (3,372,049)
===========================================================
Loss per common share:
Loss before extraordinary gain $ (0.08) $ (0.04) $ (0.33)
Extraordinary gain 0.00
-----------------------------------------------------------
Net loss per common share $ (0.08) $ (0.04) $ (0.33)
===========================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
Alottafun!, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
August 2, 1993
(Inception) to
Three Months Ended March 31, March 31,
------------------------------------------------------
1999 1998 1999
------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Operating activities
<S> <C> <C> <C>
Net loss $ (472,810) $ (86,247) $ (3,372,049)
---------- --------- ------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 4,113 3,494 189,885
Loss on impairment of fixed assets - 92,081
Write-off of obsolete inventory 16,389 - 16,389
(Gain) loss on sale of marketable securities 6,346 (5,690) 39,390
Unrealized (gain) loss on marketable securities 78,615 8,380 78,615
Interest due to conversion feature of convertible
debentures - 223,529
Interest on warrants 192,043 217,420
Common stock issued for services 30,000 - 261,455
(Increase) decrease in:
Inventory (17,168) (6,656) (22,081)
Other assets (11,687) (23,166) (12,410)
Deposits 19,450 (19,250) 200
Increase (decrease) in:
Accounts payable 2,130 (22,329) 793,577
Accrued expenses (20,895) (4,828) 72,739
---------- -------- ----------
Total adjustments 299,336 (70,045) 1,950,789
---------- -------- ----------
Net cash used by operating activities (173,474) (156,292) (1,421,260)
---------- -------- ----------
Investing activities
Acquisition of equipment and intangible assets (16,066) - (339,630)
Proceeds from sale of marketable securities - 38,035 1,611,071
Purchase of marketable securities (699,495) (2,343,609)
---------- -------- ----------
Net cash provided (used) by investing activities (715,561) 38,035 (1,072,168)
---------- -------- ----------
Financing activities
Principal reduction on capital lease obligation (12,990)
Proceeds on line of credit 30,000
Decrease (increase) in stock subscriptions 86,985 (6,408)
Proceeds from issuance of note payable 153,158 1,264,721
Proceeds from common stock and related paid-in capital 367,907 54,276 2,190,748
Payment of offering costs (167,826)
Purchase of treasury stock (6,755) (67,888)
Principal reductions of long-term debt (29,681) (23,098) (1,113,340)
Issuance of convertible debentures 400,489
Reduction in mandatorily redeemable equity instruments (1,000) (10,615)
---------- ------- ---------
Net cash provided by financing activities 491,384 110,408 2,506,891
---------- ------- ---------
Net increase in cash (397,651) (7,849) 13,463
Cash at beginning of period 411,114 39,022
---------- ------- ---------
Cash at end of period $ 13,463 $ 31,173 $ 13,463
========== ======= =========
Supplemental disclosures of cash flow information
and noncash financing activities
Cash paid during the period for interest $ 2,628 $ 5,255 $ 107,659
========== ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
ALLOTAFUN!, INC.
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited financial statements, which are for interim periods,
do not include all disclosures provided in the annual financial statements.
These unaudited financial statements should be read in conjunction with the
financial statements and the footnotes thereto contained in the Audited
Financial Statements for the year ended December 31, 1998 and 1997 of
Alottafun!, Inc. (the "Company").
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the results to be expected for the full year.
Note 2 - Per share calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the three month period ended March 31, 1999. The
weighted average shares outstanding for the quarter ended March 31, 1999 was
5,939,802 as compared to 2,173,405 for the quarter ended March 31, 1998.
Note 3 - Subsequent events
Please refer to Audited Financial Statements consisting of the Company's balance
sheet as of December 31, 1998, and related statements of operations, changes in
stockholders equity, and cash flows ended December 31, 1998, as audited by
Pender, Newkirk & Company, Certified Public Accountant.
On June 4, 1999, we entered into an Investment Agreement with Swartz Private
Equity, LLC.("Swartz"). The Investment Agreement entitles the Company to issue
and sell common stock for up to an aggregate of $20 million from time to time
during a three-year period through June 3, 2002. This is also referred to as a
put right. In order to invoke a put right, the Company must file a registration
statement with the Securities and Exchange Commission registering the resale of
the common shares.
On each put the Company must indicate the number of shares of common stock or
maximum dollar amount of common stock (not to exceed $2 million) that it will
sell to Swartz. The number of common shares sold may not exceed 15% of the
aggregate daily reported trading volume for twenty business days after the date
of the put right. Swartz will pay the Company either the lesser of the market
price minus $.10 or 91% of the market price.
In partial consideration of the equity line commitment, the Company issued to
Swartz or its designee warrants to purchase 450,000 shares of Common Stock. Each
warrant is exercisable at $1.00625. In addition, following each purchase, the
Company is obligated to issue to Swartz, a warrant to purchase shares of common
stock equal to 15% of the common shares issued in each put. Each warrant is to
be exercisable at a price equal to 110% of the market price.
F-25
Exhibit 2(a)
Certificate of Incorporation
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ALOTTAFUN!, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation is ALOTTAFUN!, INC.
(hereinafter "Corporation").
SECOND: The address, including street, number, city and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, 19805, County of New Castle; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The Corporation shall be authorized to issue a total of
25,000,000 shares of two classes of capital stock to be designated respectively
preferred stock ("Preferred Stock") and Common Stock ("Common Stock"). The total
number of shares of Preferred Stock the Corporation shall have authority to
issue is 5,000,000 shares, par value $.0001 per share, and the total number of
shares of Common Stock the Corporation shall have authority to issue is
20,000,000 shares, par value $.00001 per share. The Preferred Stock authorized
by this Certificate of Incorporation shall be issued in series. The Board of
Directors is authorized to establish series of Preferred Stock and to fix, in
the manner and to the full extent provided and permitted by law, the rights,
preferences and limitations of each series of the Preferred Stock and the
relative rights, preferences and limitations between or among such series
including:
(1) the designation of each series and the number of shares that
shall constitute the series;
(2) the rate of dividends, if any, payable on the shares of each
series, the time and manner of payment and whether or not such dividends shall
be cumulative;
(3) whether shares of each series may be redeemed and, if so, the
redemption price and the terms and conditions of redemption;
(4) sinking fund provisions, if any, for the redemption or purchase of
shares of each series which is redeemable;
(5) the amount, if any, payable upon shares of each series in the event
of the voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the manner and preference of such payment; and
(6) the voting rights, if any, in the shares of each series and any
conditions upon the exercisability of such rights.
The Board of Directors is also authorized to establish the voting rights of the
Common Stock.
FIFTH: The name and the mailing address of the Incorporator are as
follows:
<PAGE>
Name Mailing Address
---- ---------------
Michael T. Cronin 911 Chestnut Street
Clearwater, FL 33756
The powers of said Incorporator are to terminate upon the filing of
this Certificate of Incorporation. The name and mailing address of the person
who is to serve as the sole Director of the Corporation until the first annual
meeting of stockholders or until his successor or successors is/are elected and
qualify are as follows:
Name Mailing Address
---- ---------------
Michael Porter 222 East Erie Street
Milwaukee, WI 53202
SIXTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Section 102 of the general Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
SEVENTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
person.
EIGHTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article EIGHTH.
Executed on the 6th day of August, 1998.
Michael T. Cronin
Incorporator
dr/162728
Exhibit 2(b)
Plan of Merger
<PAGE>
PLAN OF MERGER
1. This Plan of Merger is for ALOTTAFUN, INC., a corporation organized under the
laws of the State of Wisconsin (hereinafter the "Non-Surviving Corporation"),
and ALOTTAFUN!, INC., a corporation organized under the laws of the State of
Delaware (hereinafter the "Surviving Corporation").
2. The Surviving Corporation and the Non-Surviving Corporation, pursuant to
applicable provisions of the Wisconsin Business Corporation Law and the Delaware
General Corporation Law, shall be merged with and into a single corporation, the
Surviving Corporation (to wit, ALOTTAFUN!, INC., the Delaware corporation) which
shall be the surviving corporation at the effective time and date of the merger,
and which shall continue to exist under its present name pursuant to the
provisions of the laws of the State of Delaware (hereinafter, "Merger"). The
separate existence of the Non-surviving Corporation shall cease at the effective
time and date of the Merger in accordance with applicable provisions of the
Wisconsin Business Corporation Law.
3. The Certificate of Incorporation of the Surviving Corporation in effect
immediately prior to the effective date and time of the Merger (hereinafter
"Effective Time") shall, upon the Merger becoming effective, be and remain the
Articles of Incorporation of the Surviving Corporation until the same shall be
altered, amended or repealed.
4. The Bylaws of the Surviving Corporation in effect immediately prior to the
Effective Time shall, upon the Merger becoming effective, be and remain the
Bylaws of the Surviving Corporation until the same shall be altered, amended or
repealed.
5. The directors and officers of the Surviving Corporation immediately prior to
the Effective Time shall be the members of the Board of Directors and officers,
respectively, of the Surviving Corporation upon the Merger becoming effective,
all of whom shall hold their respective directorships and offices until the
election and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the bylaws of the Surviving
Corporation.
6. Each issued share of the common stock of the Non-Surviving Corporation
immediately prior to the Effective Time shall, at the Effective Time, be
converted into one (1) share of the common stock of the Surviving Corporation.
The issued shares of common stock of the Surviving Corporation prior to the
Effective Time shall not be converted or exchanged in any manner, but each said
share which is issued as of the Effective Time shall continue to represent one
(1) issued share of the Surviving Corporation. The Certificate of Designation,
Preferences and Rights of Preferred Stock, Series A, of the Surviving
Corporation in effect immediately prior to the Effective Time shall, upon the
Merger becoming effective, be and remain the Certificate of Designation,
Preferences and Rights of Preferred Stock, Series A, of the Surviving
Corporation.
7. This Plan of Merger shall be submitted to the shareholders of the
Non-Surviving Corporation for their approval or rejection in the manner
prescribed by the provisions of the Wisconsin Business Corporation Law, and the
Merger shall be authorized in the manner prescribed by the Delaware General
Corporation Law.
<PAGE>
8. In the event this Plan of Merger shall have been approved by the shareholders
entitled to vote of the Non-Surviving Corporation in the manner prescribed by
the provisions of the Wisconsin Business Corporation Law, and in the event that
the Merger shall have been duly authorized in compliance with the Delaware
General Corporation Law, the Non-Surviving Corporation and the Surviving
Corporation hereby stipulate that they will cause to be executed and filed
and/or recorded any document or documents prescribed by the laws of the State of
Wisconsin and of the State of Delaware, and that they will cause to be performed
all necessary acts therein and elsewhere to effectuate the Merger.
9. The Board of Directors and the proper officers of the Non-Surviving
Corporation and of the Surviving Corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the Merger
provided for herein.
-------------------------------------------------
DR/168188
Exhibit 2(c)
Agreement and Plan of Merger
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into this 14th
day of September, 1998, by and between the following named corporations
(hereinafter collectively referred to as the "Constituent Corporations"):
I - SURVIVING CORPORATION
-------------------------
ALOTTAFUN!, INC., a Delaware corporation (the "Surviving
Corporation")
Date of incorporation: August 6, 1998
II - NON-SURVIVING CORPORATION
------------------------------
ALOTTAFUN, INC., a Wisconsin corporation (the "Non-Surviving
Corporation")
Date of incorporation: August 2, 1993
W I T N E S S E T H:
WHEREAS, the Non-Surviving Corporation is a corporation duly organized
and existing under the laws of the State of Wisconsin and the Surviving
Corporation is a corporation duly organized and existing under the laws of the
State of Delaware; and
WHEREAS, the respective boards of directors and shareholders of the
Constituent Corporations deem it advisable and in the best interests of the
Constituent Corporations to merge the Non-Surviving Corporation into the
Surviving Corporation pursuant to Section 252 of the General Corporation Law of
the State of Delaware and said boards of directors and shareholders deem it
advisable that the Surviving Corporation shall not be a new corporation, and its
corporate existence as a continuing corporation under the laws of the State of
Delaware shall not be affected in any manner by reason of the merger except as
set forth herein (hereinafter called the "Merger"); and
<PAGE>
WHEREAS, this Agreement and Plan of Merger was adopted, approved,
certified, executed and acknowledged by the Constituent Corporations in
accordance with the laws under which each is formed and, in the case of the
Surviving Corporation, in the same manner as is provided in Section 251 of the
General Corporation Law of the State of Delaware;
NOW THEREFORE, in consideration of the premises and the covenants,
agreements, provisions, promises and grants herein contained, the parties hereto
agree, in accordance with the provisions of Section 252 of the General
Corporation Law of the State of Delaware, as amended, that the Constituent
Corporations shall be, and they are hereby, merged into a single corporation,
the Surviving Corporation, one of the parties hereto, and that the terms and
conditions of the Merger, the mode of carrying the same into effect, and the
manner and basis of converting or otherwise dealing with the shares of stock of
the Constituent Corporations shall be as hereinafter set forth.
ARTICLE I
CORPORATE EXISTENCE OF SURVIVING CORPORATION
A. Upon the Merger becoming effective, the separate existence of the
Non-Surviving Corporation shall cease, and the Surviving Corporation shall
continue in existence and be governed by the laws of the State of Delaware; all
property, real, personal, tangible and intangible and mixed, of every kind, make
and description, and all rights, privileges, powers and franchises, whether or
not by their terms assignable, and all immunities of a public and of a private
nature, and all debts due the Non-Surviving Corporation, on whatever account and
other choses in action belonging to it, shall be taken and be deemed to be
transferred to and vested in the Surviving Corporation, and shall be thereafter
as effectively the property of the Surviving Corporation as they were of the
Non-Surviving Corporation; and the title to any property, real, personal or
mixed, wherever situated, and the ownership of any right or privilege vested in
the Non-Surviving Corporation shall not revert or be lost or be adversely
affected or be in any way impaired by reason of the Merger, but shall vest in
<PAGE>
the Surviving Corporation; all rights of creditors and all liens upon the
property of any of the Constituent Corporations shall be preserved unimpaired,
limited to the property affected by such liens at the time of the Merger
becoming effective; and all debts, contracts, liabilities, obligations and
duties of the Non-Surviving Corporation shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent as if
they had been incurred or contracted by it.
B. The identity, existence, purposes, powers, franchises, rights and
immunities, whether public or private, of the Surviving Corporation shall
continue unaffected and unimpaired by the Merger, except as modified in this
Agreement.
ARTICLE II
ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
The Articles of Incorporation of Alottafun!, Inc., the Delaware
corporation, in effect immediately prior to the Effective Time (as defined in
Article VII) shall, upon the Merger becoming effective, be and remain the
Articles of Incorporation of the Surviving Corporation until the same shall be
altered, amended or repealed.
ARTICLE III
BYLAWS OF SURVIVING CORPORATION
The Bylaws of Alottafun!, Inc., the Delaware corporation, in effect
immediately prior to the Effective Time shall, upon the Merger becoming
effective, be and remain the Bylaws of the Surviving Corporation until the same
shall be altered, amended or repealed.
<PAGE>
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION
The board of directors and officers of the Surviving Corporation shall
be the following, and they shall hold the following offices until their
respective successors are elected and qualified:
SOLE DIRECTOR:
-------------
Michael Porter
OFFICERS:
Name Office
---- ------
Michael Porter President, Secretary & Treasurer
ARTICLE V
MANNER OF CONVERTING SHARES
Each issued share of the Non-Surviving Corporation immediately prior to
the Effective Time shall, at the Effective Time, be converted into one (1) share
of the Surviving Corporation. The issued shares of the Surviving Corporation
shall not be converted or exchanged in any manner, but each said share which is
issued as of the Effective Time shall continue to represent one (1) issued share
of the Surviving Corporation. The Certificate of Designation, Preferences and
Rights of Preferred Stock, Series A, of the Surviving Corporation in effect
immediately prior to the Effective Time shall, upon the Merger becoming
effective, be and remain the Certificate of Designation, Preferences and Rights
of Preferred Stock, Series A, of the Surviving Corporation
<PAGE>
ARTICLE VI
APPROVAL OF MERGER BY BOARD OF DIRECTORS AND SHAREHOLDERS
This Agreement and Plan of Merger has been adopted, approved,
certified, executed and acknowledged by the boards of directors and the
shareholders of the Surviving Corporation and the Non-Surviving Corporation in
accordance with the laws under which each is formed and, in the case of the
Surviving Corporation, in the same manner as is provided in Section 251 of the
General Corporation Law of the State of Delaware.
ARTICLE VII
EFFECTIVE TIME OF MERGER
This Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware ("Effective
Time").
IN WITNESS WHEREOF, the Constituent Corporations have signed this
Agreement as of the day and year first above written.
SURVIVING CORPORATION:
ALOTTAFUN!, INC.,
a Delaware corporation
By:
----------------------
Michael Porter
President
NON-SURVIVING CORPORATION:
ALOTTAFUN, Inc.,
a Wisconsin corporation
By:
----------------------
Michael Porter
President
dr/163846
Exhibit 2(d)
Certificate of Merger
<PAGE>
CERTIFICATE OF MERGER
OF
ALOTTAFUN, INC.
(a Wisconsin corporation)
WITH AND INTO
ALOTTAFUN!, INC.
(a Delaware corporation)
(Under Section 252 of the General
Corporation Law of the State of Delaware)
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware files this Certificate
of Merger and does hereby certify:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
Alottafun, Inc. Wisconsin
Alottafun!, Inc. Delaware
SECOND: That an Agreement and Plan of Merger dated as of September 14,
1998 between the parties has been adopted, approved, certified, executed and
acknowledged by each of the constituent corporations in accordance with the laws
under which each is formed and, as applicable, in the manner as is provided in
Section 251 of the General Corporation Law of the State of Delaware. Pursuant to
said Agreement and Plan of Merger, the surviving corporation of the merger shall
be Alottafun!, Inc., the Delaware corporation (the "Surviving Corporation").
THIRD: That the name of the Surviving Corporation is Alottafun!, Inc.
FOURTH: That the Certificate of Incorporation of the Surviving
Corporation shall be the Certificate of Incorporation of the said Alottafun!,
Inc., the Delaware corporation.
FIFTH: That the executed Agreement and Plan of Merger is on file at an
office of the Surviving Corporation. The address of said office is 222 East Erie
Street, Milwaukee, Wisconsin 53202 .
SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the Surviving Corporation, upon request and without cost, to any
stockholder of any constituent corporation.
SEVENTH: That the authorized capital stock of Alottafun, Inc., the
Wisconsin corporation, is 10,000,000 shares of common stock, $.01 par value.
EIGHTH: That this Certificate of Merger shall be effective as of the
date of filing.
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate to be executed by its President and attested by its Secretary this
14th day of September, 1998.
Alottafun!, Inc.,
a Delaware corporation
By:
---------------------
Michael Porter
President
ATTEST:
- ---------------------------
Michael Porter
Secretary
dr/163839
Exhibit 2(e)
Amendment to Certificate of Incorporation
to Increase Authorized Shares
<PAGE>
Page 2 of 2
ACTION BY WRITTEN CONSENT OF
THE BOARD OF DIRECTORS
AND MAJORITY SHAREHOLDERS
OF
ALOTTAFUN!, INC.
Amendment to Certificate of Incorporation - Increase in Authorized Stock
The undersigned, being all of the members of the Board of Directors
and the majority shareholders of ALOTTAFUN!, INC., a Delaware corporation
(hereinafter "Corporation"), authorize and adopt the following actions by
written consent and without meetings in accordance with the provisions of
Sections 141(f) and 228 of the Delaware General Corporation Law:
WHEREAS, in order to raise additional working capital for the proper
operation and future expansion of the Corporation's business, the Board of
Directors and the majority shareholders deem it to be advisable and necessary to
increase the authorized capital stock of the Corporation; and
WHEREAS, an increase of the total authorized capital stock of the
Corporation from the current 25,000,000 shares in two classes to 55,000,000
shares in two classes is deemed by the Board of Directors and majority
shareholders to be sufficient to raise the necessary amount of working capital
for the Corporation based on current projections.
NOW, THEREFORE, BE IT RESOLVED that Article Fourth of the
Corporation's Certificate of Incorporation be, and it hereby is, amended to read
in its entirety as follows:
FOURTH: The Corporation shall be authorized to issue a total of
55,000,000 shares of two classes of capital stock to be designated
respectively preferred stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of Preferred Stock the
Corporation shall have authority to issue is 5,000,000 shares, par
value $.0001 per share, and the total number of shares of Common Stock
the Corporation shall have authority to issue is 50,000,000 shares,
par value $.01 per share. The Preferred Stock authorized by this
Certificate of Incorporation shall be issued in series. The Board of
Directors is authorized to establish series of Preferred Stock and to
fix, in the manner and to the full extent provided and permitted by
law, the rights, preferences and limitations of each series of the
Preferred Stock and the relative rights, preferences and limitations
between or among such series including, but not limited to:
(1) the designation of each series and the number of shares
that shall constitute the series;
(2) the rate of dividends, if any, payable on the shares of
each series, the time and manner of payment and whether or not such
dividends shall be cumulative;
(3) whether shares of each series may be redeemed and, if
so, the redemption price and the terms and conditions of redemption;
(4) sinking fund provisions, if any, for the redemption or
purchase of shares of each series which is redeemable;
<PAGE>
(5) the amount, if any, payable upon shares of each series
in the event of the voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the manner and preference of
such payment; and
(6) the voting rights, if any, in the shares of each series
and any conditions upon the exercisability of such rights.
The Board of Directors is also authorized to establish the voting
rights of the Common Stock.
BE IT FURTHER RESOLVED that the proper officers of the Corporation are
authorized and directed to execute and file the appropriate certificate with the
Secretary of State of the State of Delaware in order to effectuate the foregoing
amendment.
IN WITNESS WHEREOF, the foregoing actions are approved and adopted as
the acts and deeds of the Corporation this 1st day of June, 1999.
BOARD OF DIRECTORS: MAJORITY SHAREHOLDERS:
- --------------------------- --------------------------
- --------------------------- --------------------------
- ---------------------------
Gerald Couture
dr/186300
Exhibit 2(f)
ByLaws
<PAGE>
ALOTTAFUN!, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and place of Meeting. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, at which meeting the
stockholders shall elect by a plurality of vote or by written ballot a board of
directors and transact such other business as may properly be brought before the
meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
board of directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 5. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 7. Action by Stockholders. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such questions.
<PAGE>
Section 8. Voting. Unless otherwise duly authorized, each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder.
Section 9. Written Action. Any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
ARTICLE III
DIRECTORS
Section 1. Number and Term. The number of directors of the Corporation
shall consist of not less than one and no more than nine, the exact number to be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by the affirmative vote of a majority of the entire Board of Directors.
No director need be a stockholder. Each director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualified, or until he sooner resigns, is removed or becomes disqualified.
Section 2. Vacancies and New Directorships. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the majority of the directors then in office, though less than
a quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of the directors may be held in the manner provided by
statute.
Section 3. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
Section 4. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or by the President on the day's
notice to each director, either personally or by mail or by telegram; special
meetings of the Board shall be called by the President or Secretary in like
manner and on like notice on the written request of two directors.
Section 7. Quorum. At all meetings of the Board of Directors, a
majority of the directors then in office shall constitute a quorum for
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
<PAGE>
Section 8. Written Action. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes or proceedings of the Board or committee.
Section 9. Participation in Meetings by Conference Telephone. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
ARTICLE IV
NOTICES
Section 1. Generally. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid; and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Generally. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a president, a secretary and a treasurer.
The Board of Directors may also choose a chairman of the Board of Directors, a
vice chairman of the Board of Directors, a chief executive officer, one or more
vice-presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. Compensation. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed by
the Board of Directors. The Board of Directors may delegate the power to fix the
compensation of all other officers and agents of the Corporation to an officer
of the Corporation.
Section 3. Succession. The officers of the Corporation shall hold
office until their successors are chosen and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the Corporation shall be filled by the Board of Directors.
Section 4. Authorities and Duties. The officers of the Corporation
shall have such authority and shall perform such duties as are customarily
incident to their respective offices, or as may be specified from time to time
by the Board of Directors regardless of whether such authority and duties are
customarily incident to such office.
<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of, the Corporation
by the president or a vice-president and the secretary or an assistant secretary
of the Corporation, certifying the number of shares owned by him in the
Corporation.
Section 2. Transfer. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to, or to cause its transfer
agent to, issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 3. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate for shares, another may be issued
in its place pursuant to such requirements as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Corporation
to the full extent permitted or authorized by the General Corporation Law of the
State of Delaware. The Corporation may, but shall not e obligated to, maintain
insurance, at its expense, for its benefit in respect of such indemnification
and that of any such person whether or not the Corporation would otherwise have
the power to indemnify such person.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the Corporation, subject to the provisions of the
Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Signature Authority. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
<PAGE>
Section 5. Seal. The Board of Directors may adopt a corporate seal and
use the same by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the stockholders or by the Board of Directors.
DPR/ej/166250
Exhibit 3(a)
Amended and Restated Certificate of Designation,
Preferences and Rights of Preferred Stock
<PAGE>
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF PREFERRED STOCK, SERIES A
OF
ALOTTAFUN!, INC.
ALOTTAFUN!, INC., a corporation organized and existing under the laws
of the State of Delaware (hereinafter "Corporation"), in accordance with the
provisions of ss.151(g) of the Delaware General Corporation Law, does hereby
certify:
FIRST: The Certificate of Incorporation of the Corporation expressly
grants to the Board of Directors of the Corporation authority to establish
series of Preferred Stock and to fix, in the manner and to the full extent
provided and permitted by law, the rights, preferences and limitations of each
series of the Preferred Stock and the relative rights, preferences and
limitations between or among such series.
SECOND: Pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation, the Board of Directors,
acting by written consent pursuant to ss.141 of the Delaware General Corporation
Law, duly approved and adopted a resolution authorizing amended and restated
rights, qualifications, limitations and restrictions of the Corporation's
Preferred Stock, Series A, as follows:
RESOLVED, that the number of shares, voting power, designation,
preference, conversion, relative, participating, optional and other
special rights and qualifications, limitations and restrictions of the
Corporation's Preferred Stock, Series A, are hereby amended and
restated in their entirety as follows:
1. Designation. The designation of the series of preferred stock
created by this resolution shall be Series A Preferred Stock, $.0001
par value (hereinafter "Series A Preferred Stock"), and the number of
shares constituting such series shall be 2,000,000. The Series A
Preferred Stock shall rank prior to the common stock of the Corporation
(hereinafter "Common Stock") with respect to the distribution of
assets.
2. Dividend Rights. The holders of shares of Series A Preferred Stock
shall not be entitled to receive dividends.
3. Voting Rights. The holders of Series A Preferred Stock shall be
entitled to twenty (20) votes for each share held on all matters on
which the holders of Common Stock are entitled to vote and shall vote
together with the holders of Common Stock and not as a separate class
or series.
4. Reacquired Shares. Shares of Series A Preferred Stock converted,
redeemed, or otherwise purchased or acquired by the Corporation shall
be restored to the status of authorized but unissued shares of
preferred stock without designation as to series.
<PAGE>
5. No Sinking Fund. Shares of Series A Preferred Stock are not subject
to the operation of a sinking fund.
6. Conversion Rights.
a. Conversion Formula. Any holder of shares of the
Corporation's Series A Preferred Stock may convert each such
share of Series A Preferred Stock into five (5) shares of the
Common Stock of the Corporation at any time.
b. Fractional Shares No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred Stock.
Any shares of Series A Preferred Stock surrendered for
conversion which would otherwise result in a fractional share
of Common Stock shall be redeemed for $10.00 per share,
payable as promptly as possible whenever funds are legally
available therefor.
c. Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the principal office
of the Corporation or of any transfer agent for the Series A
Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same
and shall state therein the name or names in which he wishes
the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to his nominee or nominees, a
certificate or certificates for the number of shares of Common
Stock to which he shall be entitled as aforesaid and all
accrued unpaid cumulative dividends through the Conversion
Date. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders or
such shares of Common Stock on such date (the "Conversion
Date").
d. Stock Splits, etc. If the number of shares of Common Stock
issued and outstanding at any time after the effective date of
this Resolution is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then immediately after the record date
fixed for the determination of holders of Common Stock
entitled to receive such stock dividend or the effective date
of such subdivision or split-up, as the case may be, the
number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock shall be appropriately adjusted
by the Board of Directors of the Corporation so that the
holder of any Series A Preferred Stock thereafter converted
shall be entitled to receive the number of shares of Common
Stock that he would have owned immediately following such
stock dividend or split action had such Series A Preferred
Stock been converted immediately prior thereto.
<PAGE>
e. Reverse Stock Splits, etc. If the number of shares of
Common Stock issued and outstanding at any time after the
effective date of this Resolution is decreased by a reverse
stock split, the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock shall be
appropriately adjusted so that the holder of any Series A
Preferred Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock that he would
have owned immediately following such reverse stock split
action had such Series A Preferred Stock been converted
immediately prior thereto.
f. Reorganizations, etc. In case of any capital reorganization
of the Corporation, or of any reclassification of the Common
Stock, or in case of the consolidation of the Corporation with
or the merger of the Corporation with or into any other
person, firm or corporation, or of the sale, lease or other
transfer of all or substantially all of the assets of the
Corporation to any other person, firm or corporation, each
share of Series A Preferred Stock shall after such capital
reorganization, reclassification, consolidation, merger, sale,
lease or other transfer be convertible into the number of
shares of stock or other securities or property to which the
Common Stock issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale,
lease or other transfer) upon conversion of such Series A
Preferred Stock would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale,
lease or other transfer; and in any such case, if necessary,
the provisions set forth herein with respect to the rights and
interests thereafter of the holders of the Series A Preferred
Stock shall be appropriately adjusted so as to be applicable,
as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the
conversion of the Series A Preferred Stock.
g. Notice of Adjustments. Whenever the number of shares of
Common Stock issuable upon conversion of the Series A
Preferred Stock shall be adjusted as provided herein, the
Corporation shall forthwith file, at the office of any
conversion agent for the Series A Preferred Stock and at the
principal office of the Corporation, a statement showing in
detail the facts requiring such adjustment and the number of
shares of Common Stock issuable upon conversion of the Series
A Preferred Stock after such adjustment, and the Corporation
shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of Series A
Preferred Stock at its address appearing on the Corporation's
records. The Corporation's independent public accountants
shall sign each such statement.
<PAGE>
h. Treasury Stock. For the purposes of this Resolution, the
sale or other disposition of any Common Stock of the
Corporation theretofore held in its treasury shall be deemed
to be an issuance thereof.
i. Taxes. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the
issuance or delivery of shares of Common Stock upon conversion
of any Series A Preferred Stock; provided, however, that the
Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such Common Stock in a name
other than that of the holder of the Series A Preferred Stock
in respect of which such shares are being issued.
j. Reserve Shares. The Corporation shall reserve at all times
so long as any Series A Preferred Stock remains outstanding,
free from preemptive rights, out of either or both of its
treasury stock or its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of
the Series A Preferred Stock, sufficient shares of Common
Stock to provide for the conversion of all outstanding Series
A Preferred Stock.
k. Governmental Approvals. If any shares of Common Stock to be
reserved for the purpose of conversion of Series A Preferred
Stock require registration with or approval of any
governmental authority under any federal or state law before
such shares may be validly issued or delivered upon
conversion, then the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration
or approval, as the case may be. If, and so long as, any
Common Stock into which the Series A Preferred Stock is then
convertible is listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange,
list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon
conversion.
l. Valid Issue. All shares of Common Stock which may be issued
upon conversion of the Series A Preferred Stock will, upon
issuance by the Corporation, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and the
Corporation shall take no action which will cause a contrary
result.
THIRD: No shares of Series A Preferred Stock have been issued.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Designation, Preferences and Rights of Preferred Stock,
Series A, to be signed by its President and attested by its Secretary whereby
said President affirms, under the penalties of perjury, that this Certificate is
the act and deed of the Corporation and that the facts stated herein are true,
this 23rd day of February, 1999.
ALOTTAFUN!, INC.
By:
----------------------
Michael Porter
President
Attest:
By:
--------------------
Michael Porter
Secretary
177532
Exhibit 3(b)
Convertible Debenture Agreement by and between the
Company and Lampton, Inc. and GEM Management
Limited dated December 8, 1998
<PAGE>
CONVERTIBLE DEBENTURE AGREEMENT
By and Among
Lampton, Inc. and
Gem Management Limited
(Purchasers)
and
Alottafun, Inc.
------------------------------
Dated as of December 9, 1998
------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS...............................1
ARTICLE II PURCHASE OF DEBENTURES............................3
ARTICLE III REPRESENTATIONS AND WARRANTIES....................4
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES...................8
ARTICLE V CONDITIONS PRECEDENT TO CLOSING..................12
ARTICLE VI TERMINATION......................................14
ARTICLE VII MISCELLANEOUS.............................................15
Exhibit A Convertible Debenture
Exhibit B Conversion Procedures
Exhibit C Warrant
Exhibit D Opinion Letter
Exhibit E Escrow Agreement
Exhibit F Power of Attorney
Schedule 1 List of Purchasers and Warrant Holders
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of December
9, 1998 (this "Agreement"), by and among Alottafun, Inc., a Delaware corporation
(the "Company"), and the persons listed on Schedule 1 (individually, the
"Purchaser" and, collectively the "Purchasers").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire certain of the Company's 2%
Convertible Debentures, due December 8, 2003 (the "Convertible Debentures").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, and
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section
2.1(b).
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$0.01 per share.
"Debentures" means the 2% Convertible Debentures of the
Company, due December 8, 2003, an example of which is attached hereto as Exhibit
A.
"Disclosure Documents" means the disclosure package, including
but not limited to the Company's Financial Statements for the two most recent
fiscal years, the Company's business plan, capitalization information, and
required consents, delivered to the Purchaser in connection with the offering by
the Company of the Debentures and the Schedules to this Agreement furnished by
or on behalf of the Company pursuant to Section 3.1.
"Escrow Agent" means the firm which holds the common shares in
escrow, herein the firm of Kaplan, Gottbetter & Levenson, LLP, 630 Third Avenue,
5th Floor, New York, NY 10017; Tel: 212-983-0532; Fax:
212-983-9210.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
<PAGE>
"GEM" means GEM Advisors, Inc., with its registered address at
712 5th Avenue, 7th Floor, New York, NY 10019; Phone: 212-582-3400;
Fax: 212-265-4035.
"GEM Ltd." means GEM Management Limited, with its registered
address at P.O. Box 860, 11 Bath Street, St. Helier, Jersey, Channel
Islands JE4 0YZ.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, charge or security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"NASD" means the National Association of Securities Dealers,
Inc.
"Per Share Consideration" shall have the meaning set forth in
Section 2.1(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
"Required Approvals" shall have the meaning set forth in
Section 3.1(f).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
"Underlying Shares" means the shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Debenture, and the shares of Common Stock for which the Warrants can be
exercised in accordance with the terms hereof and the Warrant.
"Warrants" means the common stock purchase warrants issued to
GEM and/or its assigns as part of its compensation, an example of which is
attached hereto as Exhibit C.
ARTICLE II
PURCHASE OF DEBENTURES
Section 2.1. Purchase of Debentures; Closing
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchasers, and the Purchasers shall
purchase from the Company on the Closing Date the number of Debentures listed
opposite the Purchaser's name on Schedule 1, which shall have the respective
rights, preferences and privileges set forth in Exhibit A (the "Debenture"), at
a price per Debenture of US$1,000.00 (the "Per Debenture Consideration"). The
Per Debenture Consideration multiplied by the number of Debentures to be
purchased by the Purchaser hereunder is hereinafter referred to as the "Purchase
Price." The total principal amount of Debentures to be purchased by the
Purchasers and the total Purchase Price shall be $400,000.
(b) The closing of the purchase and sale of the Debentures
(the "Closing") shall take place at the offices of the Escrow Agent, Kaplan,
Gottbetter & Levenson, LLP, immediately following the execution hereof, or at
such other time and/or place as the Purchaser and the Company may agree,
provided, however, in no case shall the Closing take place later than the fifth
day after the last of the conditions listed in Article V is satisfied or waived
by the appropriate party. The date of the Closing is hereinafter referred to as
the "Closing Date".
<PAGE>
(c) At the Closing, (i) the Company shall deliver to the
Purchaser (A) one or more Debentures purchased hereunder, registered in the name
of the Purchaser, (B) all documents, instruments and writings required to have
been delivered at or prior to Closing by the Company pursuant to this Agreement,
and (ii) the Purchaser shall deliver to the Company (A) the Purchase Price as
determined pursuant to this Article I in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Company prior to the Closing and (B) all documents, instruments and writings
required to have been delivered at or prior to Closing by the Purchaser pursuant
to this Agreement. At this time, the Company shall also deliver to: (i) GEM
Ltd., the Warrants pursuant to the engagement letter (the "Engagement Letter")
dated November 9, 1998 between GEM and the Company; and (ii) GEM, seven percent
(7%) of the gross proceeds from the sale of the Debentures held by the Escrow
Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on (a) the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, or (b) the Purchaser's
rights under this Agreement, the Debenture and the Warrants (a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. Each of this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in the Disclosure Documents, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Debentures hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of Debentures. The Debentures have been duly and
validly authorized for issuance, offer and sale pursuant to this Agreement and,
when issued and delivered as provided hereunder against payment in accordance
with the terms hereof, shall be valid and binding obligations of the Company
enforceable in accordance with their terms. The Company has and at all times
while the Debentures are outstanding will maintain an adequate reserve of shares
of Common Stock to enable it to perform its obligations under this Agreement and
the Debentures. When issued in accordance with the terms hereof and the
Debentures, the Underlying Shares will be duly authorized, validly issued, fully
paid and nonassessable.
<PAGE>
(e) No Conflicts The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation or bylaws or
(ii) subject to obtaining the consents referred to in Section 3.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in the Disclosure Documents, neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, other than the making
of the applicable blue-sky filings under state securities laws, and other than,
in all cases, where the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, would not materially impair or
delay the ability of the Company to effect the Closing and deliver to the
Purchaser the Debentures free and clear of all Liens (collectively, the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Documents, there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, State, county, local or
foreign) which (i) relates to or challenges the legality, validity or
enforceability of this Agreement or the Debentures (ii) could, individually or
in the aggregate, have a Material Adverse Effect or (iii) could, individually or
in the aggregate, materially impair the ability of the Company to perform fully
on a timely basis its obligations under this Agreement.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability or obligation to perform fully on a timely basis its
obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the
Company to any investment banker or bank with respect to the consummation of the
transactions contemplated hereby except for seven percent (7%) of the gross
proceeds from the sale of the Debentures held in escrow to GEM;
(j) Disclosure Documents. The Disclosure Documents do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
<PAGE>
(k) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Debentures under the Securities Act) which might subject the offering, issuance
or sale of the Debentures to the registration requirements of Section 5 of the
Securities Act.
(l) Not a Reporting Company; Eligibility to use Exemption
under 504(b). The Company is not subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act. The Company has not sold any
securities under 504(b) in the last twelve months. The Company is eligible to
issue securities exempt from registration pursuant to Rule 504 of Regulation D
promulgated under the Securities Act. The Company will not file a Form 10-SB
with the Securities and Exchange Commission for a period of at least ninety days
from the date of Closing.
Section 3.2. Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and otherwise to carry out its obligations hereunder and thereunder. The
purchase of the Debentures by the Purchaser hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement has
been duly executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the
Debentures and the Underlying Shares for its own account (and/or on behalf of
managed accounts who are purchasing solely for their own accounts for
investment) for investment purposes only and not with a view to or for
distributing or reselling such Debentures or Underlying Shares or any part
thereof or interest therein, without prejudice, however, to the Purchaser's
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Debentures or Underlying Shares in
compliance with applicable State securities laws and under an exemption from
registration under Rule 504 of the Securities Act.
(c) Purchaser Status. At the time the Purchaser (and any
account for which it is purchasing) was offered the Debentures, it (and any
account for which it is purchasing) was, and at the date hereof, it (and any
account for which it is purchasing) is, and at the Closing Date, it (and any
account for which it is purchasing) will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Debentures, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Debentures
and, at the present time, is able to afford a complete loss of such investment.
(f) Prohibited Transactions. The Debentures to be purchased by
the Purchaser are not being acquired, directly or indirectly, with the assets of
any "employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
<PAGE>
(g) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Documents and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures and the merits and risks of
investing in the Debentures; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment in
the Common Stock; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with
respect to the Debentures and to verify the accuracy and completeness of the
information contained in the Disclosure Documents.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Debentures are being offered and sold, and the Underlying Shares are
being offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption, depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Manner of Offering The Debentures and Warrants
are being issued pursuant to Rule 504 (b) of Regulation D of the Securities Act
of 1933. The Debentures and the Underlying Shares will be exempt from
restrictions on transfer, and will carry no restrictive legend. The Company will
use its best efforts to insure that no actions are taken that would jeopardize
the availability of the exemption from registration under Rule 504(b) for the
Debentures and the Underlying Shares.
Section 4.2. Furnishing of Information. As long as the
Purchaser owns Debentures, the Warrants or Underlying Shares, the Company will
promptly furnish to it all annual and quarterly reports comparable to those
required by Section 13(a) or 15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall (i)
advise the Purchaser promptly after obtaining knowledge thereof, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Debentures or the Common
Stock for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, or (B) any event that makes any statement of a material
fact made in the Disclosure Documents untrue or that requires the making of any
additions to or changes in the Disclosure Documents in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, (ii) use its best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption from qualification of
the Debentures or the Common Stock under any state securities or Blue Sky laws,
and (iii) if at any time any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Debentures or the Common Stock under any such laws, use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
Section 4.4. Copies and Use of Disclosure Documents. The
Company shall furnish the Purchaser, without charge, as many copies of the
Disclosure Documents, and any amendments or supplements thereto, as the
Purchaser may reasonably request. The Company consents to the use of the
Disclosure Documents, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Debentures or the Underlying Shares
other than pursuant to an effective registration statement.
Section 4.5. Modification to Disclosure Documents. If any
event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Documents in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Documents were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Documents to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Documents (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Documents will not include
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Documents will comply with applicable law.
<PAGE>
Section 4.6. Blue Sky Laws. The Company shall cooperate with
the Purchaser in connection with the qualification of the Debentures, the
Warrants and the Underlying Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may request and to continue such qualification at
all times through the fifth anniversary of the Closing Date; provided, however,
that neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified.
Section 4.7 Integration. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Debentures, the Warrants or the Underlying Shares in a
manner that would require the registration under the Securities Act of the sale
of the Debentures or Underlying Shares to the Purchaser.
<PAGE>
Section 4.8 Furnishing of Rule 144A Materials. The Company
shall, for so long as any of the Debentures, the Warrants or Underlying Shares
remain outstanding and during any period in which it is not subject to Section
13 or 15(d) of the Exchange Act, make available to any registered holder of
Debentures, the Warrants or Underlying Shares in connection with any sale
thereof and any prospective purchaser of such Debentures, the Warrants or
Underlying Shares from such Person, the following information in accordance with
Rule 144A(d)(4) under the Securities Act: a brief statement of the nature of the
business of the Company and the products and services it offers and the
Company's most recent audited balance sheet and profit and loss and retained
earnings statements, and similar audited financial statements for such part of
the two preceding fiscal years as the Company has been in operation.
Section 4.9 Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Debentures, the Warrants or Underlying Shares other than the Disclosure
Documents and any amendments and supplements thereto prepared in compliance
herewith or (ii) solicit any offer to buy or sell the Debentures or Underlying
Shares by means of any form of general solicitation or advertising.
Section 4.10 Subsequent Financial Statements. The Company
shall furnish to the Purchaser, promptly after they are filed with the
Commission, a copy of all financial statements for any period subsequent to the
period covered by the financial statements included in the Disclosure Documents.
Section 4.11. Prohibition on Certain Actions
(a) From the date hereof through the Closing Date, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its Certificate of Incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Purchaser; (ii) split,
combine or reclassify its outstanding capital stock; (iii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock; (iv) redeem, repurchase or offer to repurchase or otherwise acquire
shares of its Common Stock; or (v) enter into any agreement with respect to any
of the foregoing.
Section 4.12. Listing of Underlying Shares The Company shall
use its best efforts to cause the Underlying Shares to be approved for listing
on the NASD Electronic Bulletin Board (or other national securities exchange or
market on which the Common Stock is listed) no later than the first day after
which Debentures may be converted hereunder by the Purchaser or the Warrants may
be exercised, and shall provide to the Purchaser evidence of such listing.
Section 4.13. Conversion Procedures: Exhibit B attached hereto
sets forth the procedures with respect to the conversion of the Debentures,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
Section 4.14 Registration of Underlying Shares. So long as any
Warrants remain unexercised or Debentures remain outstanding, the Company agrees
not to file a registration statement with the Commission, without first having
registered the Underlying Shares for resale with the SEC and for resale in such
states of the United States as the Holders thereof (or the Holders of the
Debentures) shall reasonably request. If the Company shall propose to file with
the SEC any registration statement other than a Form 10 which would cause, or
have the effect of causing, the Company to become subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act (a "Reporting Issuer")
or to take any other action the effect of which would be to cause the Underlying
Shares to be issued upon conversion of any then outstanding Debentures to be
restricted securities or cause the Underlying Shares to be issued upon exercise
of any then outstanding Warrants to be restricted securities (as such term is
defined in Rule 144 promulgated under the Securities Act), the Company agrees to
give written notification of such to the Holders of the Debentures then
outstanding at least two weeks prior to such filing or taking of the proposed
action. If any Debentures are outstanding at the end of such notice period, the
Company agrees to file a registration statement on Form S-1 or SB-2, or such
other form of registration statement in which the Underlying Shares may be
included, and to include in such registration statement the Underlying Shares
issuable upon conversion of any then outstanding Debentures or the exercise of
any then outstanding Warrants so as to permit the public resale thereof. All
costs and expenses of registration shall be borne by the Company.
<PAGE>
Notwithstanding the foregoing, if the Company for any reason shall become a
Reporting Issuer, or shall have taken any action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to immediately file
with the SEC and cause to become effective a registration statement which would
permit the public resale of such Underlying Shares in such states of the United
States as the Holders thereof shall reasonably request. All costs and expenses
of such registration shall be borne by the Company.
Section 4.15 Escrow. The Company agrees to enter into the
escrow agreement attached hereto as Exhibit E (the "Escrow Agreement"), and to
issue into said Escrow certificates to be held by the Escrow Agent (as defined
in the Escrow Agreement), registered in the names of the Purchasers and without
any restrictive legend of any kind, pursuant to the terms of such Escrow
Agreement, rounded up to the nearest even 10,000 shares. Such certificates shall
be in denominations of 50,000 shares.
Section 4.16 Short Selling. Purchasers and their Affiliates
agree not to engage in any short sales, swaps, purchase of puts, or other
hedging activities involving the Common Stock or other securities of the
Corporation.
Section 4.17 Attorney-in-Fact. To effectuate the terms and
provisions of this Agreement, the Escrow Agreement, the Debenture and the
Warrants, the Company hereby designated and appoints the Escrow Agent and each
of its designees or agents as attorney-in-fact of the Company, irrevocably and
with power of substitution, with authority to carry out any acts and things
necessary or advisable in the sole discretion of the Escrow Agent to carry out
and enforce this Agreement, the Escrow Agreement, the Debenture and the
Warrants. All acts done under the foregoing authorization are hereby ratified
and approved and neither the Escrow Agent nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law. This power of attorney being coupled
with an interest is irrevocable while any amount of the Debenture remains
unpaid, any amount of the Warrants remain unexercised or any portion of this
Agreement or the Escrow Agreement remains unsatisfied.
Section 4.18 Changes to Rule 504. If any shares of Common
Stock required to be reserved for purposes of conversion of the Debenture or
exercise of the Warrants hereunder require registration with or approval of any
governmental authority under any federal (including but not limited to the Act
or similar federal statute than in force) or state law, or listing on any
national securities exchange, before such shares may be issued upon conversion
or exercise, for reasons including but not limited to a material change in Rule
504 of Regulation D promulgated under the Act, the Company will, at its expense,
as expeditiously as possible to cause such shares to be duly registered or
approved or listed on the relevant national securities exchange, as the case may
be. Shares of Common Stock issued upon conversion of the Debenture or exercise
of the Warrants shall be registered by the Company under the Act if required by
Section 4.14 and subject to the conditions stated therein.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of the
Purchaser. The obligation of the Purchaser to purchase the Debentures is subject
to the satisfaction or waiver by the Purchaser, at or prior to the Closing, of
each of the following conditions:
(a) Legal Opinion Exhibit D. The Purchaser shall have received
the legal opinion, addressed to it and dated the Closing Date of the Counsel for
the Company. Such legal opinion shall address the Company's authority to enter
into this Agreement and the applicability of Rule 504 to the offer and sale of
the Debentures, the Warrants and the Underlying Shares;
<PAGE>
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing;
(d) No Material Adverse Effect. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q, no event which had a Material Adverse Effect shall have occurred
which is not disclosed in the Disclosure Documents;
(e) No Prohibitions. The purchase of and payment for the
Debentures (and upon conversion thereof, the Underlying Shares) hereunder (i)
shall not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (ii) shall not subject the
Purchaser to any penalty, or in its reasonable judgment, other onerous condition
under or pursuant to any applicable law or governmental regulation that would
materially reduce the benefits to the Purchaser of the purchase of the
Debentures or the Underlying Shares (provided, however, that such regulation,
law or onerous condition was not in effect in such form at the date of this
Agreement);
(f) Company Certificates. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Certificate of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, and (C) resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of this Agreement, the issuance
and sale of the Debentures, Warrants and the Underlying Shares and the
appointment of the Attorney-in-Fact pursuant to Section 4.17, and (ii) the
incumbency of officers executing this Agreement;
(g) No Suspensions of Trading in Common Stock Trading in the
Common Stock shall not have been suspended by the Commission or the NASD or
other exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company);
(h) Required Approvals All Required Approvals shall have been
obtained; and
(i) Delivery of Debentures The Company shall have delivered to
the Escrow Agent the certificate(s) representing the Debentures, registered in
the name of the Purchaser, each in form satisfactory to the Purchaser.
(j) Power of Attorney Exhibit F The Escrow Agent shall have
received a power of attorney executed on behalf of the Company pursuant to
Section 4.17.
Section 5.2. Conditions Precedent to Obligations of the
Company The obligation of the Company to issue and sell the Debentures hereunder
is subject to the satisfaction or waiver by the Company, at or to the Closing,
of each of the following conditions:
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
<PAGE>
(c) No Prohibitions. The sale of the Debentures (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Debentures or the Underlying Shares to
the Purchaser (provided, however, that such regulation, law or onerous condition
was not in effect in such form at the date of this Agreement).
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent. This Agreement may
be terminated at any time prior to Closing by the mutual consent of the Company
and the Purchaser.
Section 6.2. Termination by the Company or the Purchaser. This
Agreement may be terminated prior to Closing by either the Company or the
Purchaser, by giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by December
9, 1998; provided that the terminating party is not then in material
breach of its obligations under this Agreement in any manner that shall
have caused the failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law
or regulation that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final
judgment, order, decree, ruling or injunction of any court of or
governmental authority having competent jurisdiction; or
(c) there shall have been an amendment to Regulation
D or an interpretive release promulgated or issued thereunder, which,
in the reasonable judgment of the terminating party, would materially
adversely affect the transactions contemplated hereby.
Section 6.3. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement and
such breach is not cured within five business days following receipt by the
Purchaser of notice of such breach.
Section 6.4. Termination by the Purchaser. This Agreement may
be terminated prior to Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement and such
breach is not cured within five business days following receipt by the
Company of notice of such breach;
(b) there has occurred an event since the date of the
financial statements included in the Company's disclosure documents
which could reasonably be expected to have a Material Adverse Effect
and which is not disclosed in the Disclosure Documents; or
(c) trading in the Common Stock has been suspended by
the Commission or the NASD or other exchange or market on which the
Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material
information regarding the Company).
<PAGE>
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fees and Expenses Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay the fees of the Escrow Agent and all stamp and other taxes and duties
levied in connection with the issuance of the Debentures (and upon conversion
thereof, the Underlying Shares) pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement. Whether
or not the transactions contemplated by this Agreement are consummated or this
Agreement is terminated, the Company shall pay (i) all costs, expenses, fees and
all taxes incident to and in connection with: (A) the preparation, printing and
distribution of the Disclosure Documents and all amendments and supplements
thereto (including, without limitation, financial statements and exhibits), and
all preliminary and final Blue Sky memoranda and all other agreements,
memoranda, correspondence and other documents prepared and delivered in
connection herewith (B) the issuance and delivery of the Debentures and, upon
conversion thereof, the Underlying Shares, (C) the qualification of the
Debentures and, upon conversion thereof, the Underlying Shares for offer and
sale under the securities or Blue Sky laws of the several states (including,
without limitation, the fees and disbursements of the Purchasers' counsel
relating to such registration or qualification), (D) furnishing such copies of
the Disclosure Documents and all amendments and supplements thereto, as may
reasonably be requested for use in connection, with resales of the Debentures
and, upon conversion thereof, the Underlying Shares, and (E) the preparation of
certificates for the Debentures and, upon conversion thereof, the Underlying
Shares (including, without limitation, printing and engraving thereof), (ii) all
fees and expenses of the counsel and accountants of the Company and (iii) all
expenses and listing fees on Securities Exchanges, if any.
Section 7.2. Entire Agreement; Amendments. This Agreement,
together with the Exhibits, Annexes and Schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
Section 7.3. Notices Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Mr. Michael Porter
President
Alottafun, Inc.
222 East Erie Street
Milwaukee, Wisconsin 53202
Tel: 414-226-2400
Fax: 414-226-2410
<PAGE>
With copies to: Mike Cronin, Esq.
Johnson, Blakely, Pope
911 Chestnut Street
Clearwater, FL 34617
Tel: 813-461-1818
Fax: 727-441-8617
If to the Purchaser:
See Schedule 1 - Schedule of Purchasers (attached hereto)
With copies to: Adam S. Gottbetter
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Tel: 212-983-0532
Fax: 212-983-9210
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.4 Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.5. Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed
to limit or affect any of the provisions hereof.
Section 7.6. Successors and Assigns This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 7.7. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section 7.8. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York without regard to the principles of conflicts of law thereof.
Section 7.9. Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Debentures hereunder.
<PAGE>
Section 7.10. Counterpart Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
Section 7.11. Publicity. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed.
Section 7.12. Severability In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.13. Remedies In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Debentures and the Underlying Shares. Each
of the Company and the Purchaser agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
[ Signature Page Follows ]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
Alottafun, Inc.
By:
------------------------------
Name: Michael Porter
Title: President
Purchaser:
Gem Management Limited
By:
------------------------------
Name:
Title:
Lampton, Inc.
By:
------------------------------
Name:
Title:
<PAGE>
Exhibit B
Conversion Procedures
1. Holder shall execute Holder Conversion Notice in the form attached to
the Debenture as Exhibit A.
2. Holder shall send by fax the Holder Conversion Notice to the Company
and to the Escrow Agent.
3. Holder shall send the original Debenture and Holder Conversion Notice
to the Escrow Agent, along with a fee of $350, with instructions
regarding names and amount of certificates for the issuance of the
Underlying Shares, and instructions as to the reissuance of the balance
of the Debentures, if conversion is not in full.
4. Company will issue and will send by overnight courier within two
business days new Debentures to the Escrow Agent. The Escrow Agent
shall send the new Debenture (if any) and the Common Shares to the
Holder per his instructions. If the Escrow Agent has not received the
new Debenture (if any) and the Common Shares from the Company within
two business days of his receipt of the Conversion Notice, he shall
issue the Common Shares to the Holder from the Escrow Shares.
<PAGE>
SCHEDULE 1
----------
Purchaser Full Amount of Number of Shares in
Name & Address Debenture Escrow
- -------------- --------- ------
Gem Management Limited $100,000 1,100,000
P.O. Box 860
11 Bath Street
St. Helier
Jersey
JE4 0YZ
Phone: 44-1534-872-111
Fax: 44-1534-873-111
- --------------------------------------------------------------------------------
Lampton, Inc. $300,000 3,300,000
P.O. Box 35411
Jerusalem, Israel
Phone: 972.52.939301
================================================================================
Warrant Holder Full Number Number of Shares
Name & Address of Warrants in Escrow
- -------------- ----------- ---------
Gem Management Limited 411,000 411,000
P.O. Box 860
11 Bath Street
St. Helier
Jersey
JE4 0YZ
Phone: 44-1534-872-111
Fax: 44-1534-873-111
Mydoc.10590
Exhibit 3(c)
2% Convertible Debenture
<PAGE>
No. 002
US$ 300,000
2% CONVERTIBLE DEBENTURE DUE December ____, 2003
THIS DEBENTURE is one of a duly authorized issue of Debentures of
Alottafun, Inc., a Delaware corporation (the "Company"), designated as its 2%
Convertible Debentures, due December__, 2003 (the "Debentures"), in an aggregate
principal amount of up to US$400,000.
FOR VALUE RECEIVED, the Company promises to pay to Lampton, Inc., or
registered assigns (the "Holder"), the principal sum of Three Hundred Thousand
Dollars (US$ 300,000), on or prior to December ___, 2003 (the "Maturity Date")
and to pay interest to the Holder on the principal sum, at the rate of 2% per
annum, payable semi annually in arrears. Interest shall accrue daily commencing
on the Original Issue Date (as defined in Section 6) until payment in full of
the principal sum, together with all accrued and unpaid interest, has been made
or duly provided for. Interest shall be calculated on the basis of a 360-day
year. All accrued and unpaid interest shall bear interest at the rate of 2% per
annum from Maturity Date or earlier date on which this Debenture is accelerated,
through and including the date of payment. Interest due and payable hereunder
shall be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and of the Convertible Debenture
Purchase Agreement, dated as of December ___, 1998, as amended from time to time
(the "Purchase Agreement"), executed by the original Holder. The principal of
this Debenture is payable in shares of common stock of the Company at the time
of conversion of part or all of the Debenture in accordance with Section 3
hereof, at the address of the Holder last appearing on the Debenture Register,
and if there is an Event of Default or Redemption pursuant to the terms hereof,
accrued and unpaid interest shall become due and payable as provided herein.
Interest on this Debenture may be paid in shares of common stock of the Company
or in cash, at the time of conversion, at the option of the Company. A transfer
of the right to receive principal and interest under this Debenture shall be
transferable only through an appropriate entry in the Debenture Register as
provided herein.
This Debenture is subject to the following additional provisions:
Section 1. The Debentures are issuable in denominations of one
thousand Dollars (US$1,000.00) and integral multiples of one thousand Dollars
(US$1,000.00) in excess thereof. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of one thousand Dollars
(US$1,000.00). No service charge will be made for such registration of transfer
or exchange.
Section 2. Events of Default and Remedies.
I. "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of or interest
on this Debenture as and when the same shall become due and payable
either at the Maturity Date, by acceleration or otherwise;
(b) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, and such failure or breach shall not have
been remedied within 30 days after the date on which notice of such
failure or breach shall have been given;
<PAGE>
(c) the occurrence of any event or breach or default by the
Company under the Purchase Agreement;
(d) the Company or any of its subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or
hereafter in effect or any successor thereto (the "Bankruptcy Code");
or an involuntary case is commenced against the Company under the
Bankruptcy Code and the petition is not controverted within 30 days, or
is not dismissed within 60 days, after commencement of the case; or a
"custodian" (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or any substantial part of the property of the
Company or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or there is commenced against the Company any such proceeding which
remains undismissed for a period of 60 days; or the Company is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company shall call
a meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or the Company shall by any act or failure to
act indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company for
the purpose of effecting any of the foregoing;
(e) the Company shall default in any of its obligations under
any mortgage, indenture or instrument under which there may be issued,
or by which there may be secured or evidenced, any indebtedness of the
Company in an amount exceeding one hundred thousand dollars
($100,000.00), whether such indebtedness now exists or shall hereafter
be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would
otherwise become due and payable;
(f) the Company shall have its Common Stock (as defined in
Section 6) delisted from the OTCBB or other national securities
exchange or market on which such Common Stock is listed for trading or
suspended from trading thereon, and shall not have its Common Stock
relisted or have such suspension lifted, as the case may be, within
five days;
(g) the Company shall fail to deliver to the Holder or to the
Escrow Agent share certificates representing the Common Shares to be
issued upon conversion of the Debentures within 20 calendar days of the
Conversion Date;
(h) the Company shall issue a Press Release, or otherwise make
publicly known, that it was not honoring properly executed Holder
Conversion Notices for any reason whatsoever.
II. (a) If any Event of Default occurs and is continuing, and in every
such case, then so long as such Event of Default shall then be continuing the
Holder may, by notice to the Company, accelerate all of the payments due under
this Debenture by declaring all amounts of this Debenture, to be, whereupon the
same shall become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are waived by the Company,
notwithstanding anything herein contained to the contrary, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
(b) Holder may thereupon proceed to protect and enforce its
rights either by suit in equity, or by action at law, or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to enforce the
payment of any of the Note held by it, and to enforce any other legal or
equitable right of such holder.
<PAGE>
(c) Except or expressly provided for herein, the Company
specifically waives all rights it may have (i) to notice of nonpayment, demand,
presentment, protest and notice of protest with respect to any of the
obligations hereunder or the shares; (ii) notice of acceptance hereof or of any
other action taken in reliance hereon, notice and opportunity to be heard before
the exercise by Holder of the remedies of self-help, set-off, or other summary
procedures and all other demands and notices of any description; and (iii)
releases Holder, its officers, directors, agents, employees and attorneys from
all claims for loss, damage caused by any act or failure to act on the part of
Holder, its officers, attorneys, agents and employees.
III. To effectuate the terms and provision of this Debenture, the
Holder may send notice of any default to the Company's Attorney-in-Fact (the
"Attorney-in-Fact") and request the Attorney-in-Fact, to comply with the terms
of this Debenture and the Purchase Agreement and all agreements entered into
pursuant to the Purchase Agreement, on behalf of the Company.
Section 3. Conversion
(a) This Debenture shall be convertible into shares of Common
Stock at the Conversion Ratio, at the option of the Holder in whole or in part,
at any time, commencing on the Original Issue Date. Any conversion under this
Section 3(a) shall be of a minimum principal amount of $10,000.00 of Debentures
and the interest due on such amount. The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted to the
Company, together with the form of conversion notice attached hereto as Exhibit
A (the "Holder Conversion Notice") in the manner set forth in Section 3(j). Each
Holder Conversion Notice shall specify the principal amount of Debentures and
related interest to be converted, and the date on which such conversion is to be
effected (the "Holder Conversion Date"). Subject to Section 3, each Holder
Conversion Notice, once given, shall be irrevocable. If the Holder is converting
less than all of the principal amount represented by the Debenture(s) tendered
by the Holder with the Holder Conversion Notice, the Company shall promptly
deliver to the Holder a new Debenture for such principal amount as has not been
converted.
(b) Not later than ten Trading Days after the Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
then required by law), representing the number of shares of Common Stock being
acquired upon the conversion of Debentures and (ii) Debentures in principal
amount equal to the principal amount of Debentures not converted; provided,
however that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon conversion of any Debentures, until
Debentures are either delivered for conversion to the Company or any transfer
agent for the Debentures or Common Stock, or the Holder notifies the Company
that such Debentures have been lost, stolen or destroyed and provides a bond (or
other adequate security reasonably acceptable to the Company) satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the Holder, use its best efforts
to deliver any certificate or certificates required to be delivered by the
Company under this Section 3(c) electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. In the case of a conversion pursuant to a Holder Conversion Notice,
if such certificate or certificates are not delivered by the date required under
this Section 3(c), the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debentures tendered for conversion.
In the event the average closing bid price for the five (5) Trading
Days immediately preceeding the Conversion Date of the common stock is less than
or equal to $.10, the Company shall notify the Holder within one (1) Business
Day of receipt of the Notice of Conversion, if the Company intends to redeem the
unconverted amount of the Debenture as provided for in Section 3(c). If the
Company opts to redeem the unconverted amount of the Debenture, the Company
shall make full payment of the redemption amount as set forth in Section 3(c)
hereof within five (5) Business Days of notifying the Holder of the Redemption.
If the Company fails to pay to the Holder the redemption amount within five (5)
Business Days, then the Conversion shall proceed without delay as the Conversion
Date.
<PAGE>
(c) (i) The Conversion Price for each Debenture in effect on any
Conversion Date shall be the lesser of (x) $1.25 (the "Fixed Conversion Price")
or (y) 65% (sixty-five percent) of the average closing bid price for the five
(5) Trading Days immediately preceding the Conversion Date (the "Floating
Conversion Price"). However, in the event the average closing bid price for the
five (5) Trading Days immediately preceding the Conversion Date of the common
stock is less than or equal to $.10 per share, the Company, at its sole option,
may allow the Holder to proceed with the Conversion or may redeem the
unconverted amount of the Debentures at 154% of such unconverted amount, plus
any accrued and unpaid interest.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Junior Securities payable in shares of its capital stock
(whether payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Adjusted Conversion Price designated in
Section 3(c)(i) shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock of the Company outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
3(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are outstanding,
shall issue rights or warrants to all holders of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the Per Share Market Value of Common Stock at the record date mentioned below,
the Adjusted Conversion Price at the record date designated in Section 3(c)(i)
shall be multiplied by a fraction, of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Adjusted Conversion Price designated in
Section 3(c)(i) pursuant to this Section 3(c)(iii), if any such right or warrant
shall expire and shall not have been exercised, the Adjusted Conversion Price
designated in Section 3(c)(i) shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Adjusted Conversion Price made pursuant to the provisions of this Section 3
after the issuance of such rights or warrants) had the adjustment of the
Adjusted Conversion Price made upon the issuance of such rights or warrants been
made on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Section
3(c)(iii) above) then in each such case the Adjusted Conversion Price at which
each Debenture shall thereafter be convertible shall be determined by
multiplying the Adjusted Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
<PAGE>
in good faith; provided, however that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority of
the principal amount of the Debentures then outstanding; and provided, further
that the Company, after receipt of the determination by such Appraiser shall
have the right to select an additional Appraiser, in which case the fair market
value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the Holder and all other holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.
(v) All calculations under this Section 3 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vi) In the event the Adjusted Conversion Price is not adjusted
pursuant to Section 3(c)(ii), (iii), (iv), or (v), the Company shall promptly
redeem the Debentures at 154% of the par value of the Debentures and pay such
amount and all accrued interest and dividends to the Holder.
(vii) Whenever the Adjusted Conversion Price is adjusted pursuant to
Section 3(c)(ii),(iii), (iv) or (v), or redeemed pursuant to Section 3(c)(vi),
the Company shall promptly mail to the Holder and to each other holder of
Debentures, a notice setting forth the Adjusted Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then each holder of Debentures then
outstanding shall have the right thereafter to convert such Debentures only into
the shares of stock and other securities and property receivable upon or deemed
to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities or property as the
shares of the Common Stock into which such Debentures could have been converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange would have been entitled. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 3(c)(viii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(ix) If:
(A) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(B) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(C) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
(D) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company (other than a subdivision or
combination of the outstanding shares of
Common Stock), any consolidation or merger
to which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory
share exchange whereby the Common Stock is
converted into other securities, cash or
property; or
<PAGE>
(E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding-up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed to the
Holder and each other holder of Debentures at their last addresses as it shall
appear upon the Debenture Register, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(x) Nothing in this agreement shall preclude the Company from issuing
employee/director/officer stock options, and any such issuance shall not cause a
recalculation of the Conversion Price.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the Holder and all other holders of Debentures
(different than or distinguished from the effect generally on rights of holders
of any class of the Company's capital stock) or if at any time any such
conditions are expected to arise by reason of any action contemplated by the
Company, the Company shall, at least 30 calendar days prior to the effective
date of such action, mail a written notice to each holder of Debentures briefly
describing the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the holders of
majority in principal amount of the outstanding Debentures shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 3), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which Debentures may
thereafter be convertible) and any distribution which is or would be required to
preserve without diluting the rights of the holders of Debentures; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price then in
effect.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Debentures as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Debentures, such number of shares of Common Stock as
shall be issuable (taking into account the adjustments and restrictions of
Section 3(b) and Section 3(c) hereof) upon the conversion of the aggregate
principal amount of all outstanding Debentures. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid and nonassessable.
(f) No fractional shares of Common Stock shall be issuable
upon a conversion hereunder and the number of shares to be issued shall be
rounded up to the nearest whole share. If a fractional share interest arises
upon any conversion hereunder, the Company shall eliminate such fractional share
interest by issuing Holder an additional full share of Common Stock.
<PAGE>
(g) The issuance of certificates for shares of Common Stock on
conversion of Debentures shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Debentures converted into Common Stock shall be canceled.
(i) On the Maturity Date, the Debentures and all interest due
thereon shall convert automatically into shares of Common Stock at the lesser of
the Fixed Conversion Price or the Floating Conversion Price set forth in Section
3(c)(i).
(j) Each Holder Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the Treasurer of the Company at the
facsimile telephone number and address of the principal place of business of the
Company. Each Company Conversion Notice shall be given by facsimile and by mail,
postage prepaid, addressed to each holder of Debentures at the facsimile
telephone number and address of such holder appearing on the books of the
Company or provided to the Company by such holder for the purpose of such
Company Conversion Notice, or if no such facsimile telephone number or address
appears or is so provided, at the principal place of business of the holder. A
Conversion Notice must be sent via facsimile no later than 3:00pm on the Holder
Conversion Date. Any such notice shall be deemed given and effective upon the
earliest to occur of (i) receipt of such facsimile at the facsimile telephone
number specified in this Section 3(j), (ii) five days after deposit in the
United States mails or (iii) upon actual receipt by the party to whom such
notice is required to be given.
Section 4. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Adjusted Conversion Price" means the lesser of the Fixed
Conversion Price or the Floating Conversion Price one day prior to the record
date set for the determination of stockholders entitled to received dividends,
distributions, rights, and warrants as provided for in Section 3(c)(ii), (iii)
and (iv).
"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New York City.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, $0.01 par value, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
"Conversion Date" means the date on which a Conversion Notice
is dated.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is the principal amount represented by any Debenture plus accrued
but unpaid interest, and of which the denominator is the Conversion Price at
such time.
"Escrow Agent" means the Escrow Agent as defined in the
Purchase Agreement.
"Junior Securities" means the Common Stock, all other equity
securities of the Company and all other debt that is subordinated to the Debtors
by its terms.
"Original Issue Date" shall mean the date of the first
issuance of this Debenture regardless of the number transfers hereof.
<PAGE>
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the
Over-The-Counter Bulletin Board ("OTCBB") or other stock exchange on which the
Common Stock has been listed or if there is no such price on such date, then the
last bid price on such exchange on the date nearest preceding such date, or (b)
if the Common Stock is not listed on OTCBB or any stock exchange, the closing
bid price for a share of Common Stock in the over-the-counter market, as
reported by the NASD at the close of business on such date, or (c) if the Common
Stock is not quoted by the NASD, the closing bid price for a share of Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), or (d) if the Common Stock is no longer publicly
traded the fair market value of a share of Common Stock as determined by an
Appraiser (as defined in Section 3(c)(iv) above) selected in good faith by the
holders of a majority of principal amount of outstanding Debentures; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is
traded on the OTCBB or principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on the OTCBB or any stock
exchange, a day on which the Common Stock is traded in the over-the-counter
market, as reported by the NASD, or (c) if the Common Stock is not quoted on the
NASD, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
Section 5. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. The Company may not prepay any portion of the
outstanding principal amount on the Debentures.
Section 6. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 7. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 8. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof.
Section 9. All notices or other communications hereunder shall
be given, and shall be deemed duly given and received, if given, in the manner
set forth in Section 3(j).
Section 10. Any waiver by the Company or the Holder a breach
of any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 11. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
<PAGE>
Section 12. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized as of the date first
above indicated.
ALOTTAFUN, INC.
Attest: ________________________ __________________________________
Name: Michael Porter
Title: President
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock, par value U.S.$0.01 per share (the "Common Stock"),
of Alottafun, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. A fee of $350 will
be charged to the Holder for any conversion by the Escrow Agent. No other fees
will be charged to the Holder, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Interest to be Converted
Applicable Conversion Price (to the nearest hundredth)
Signature
Name
Address
Mydoc.11534
Exhibit 3(d)
Warrant to Purchase Common Stock
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT AGREEMENT
BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT J.
Warrant to Purchase
"N" shares Warrant Number ____
Warrant to Purchase Common Stock
of
ALOTTAFUN!, INC.
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from Alottafun!, Inc., a Delaware
corporation (the "Company"), up to "N" fully paid and nonassessable shares,
wherein "N" is defined below, of the Company's common stock ("Common Stock"),
subject to adjustment as provided herein, at a price equal to the Exercise Price
as defined in Section 3 below, at any time beginning on the Date of Issuance
(defined below) and ending at 5:00 p.m., New York, New York time the date that
is five (5) years after the Date of Issuance (the "Exercise Period"); provided,
that, with respect to each "Put," as that term is defined in that certain
Investment Agreement (the "Investment Agreement") by and between the initial
Holder and Company, dated on or about May __, 1999, "N" shall equal nine percent
(9%) of the number of shares of Common Stock purchased by the Holder in that
Put.
Holder agrees with the Company that this Warrant to Purchase Common
Stock of the Company (this "Warrant") is issued and all rights hereunder shall
be held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______
("Date of Issuance"). The term of this Warrant is five (5) years from the Date
of Issuance.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby
Exhibit D
(the "Warrant Shares") upon surrender of this Warrant, with the Exercise Form
attached hereto as Exhibit A (the "Exercise Form") duly completed and executed,
together with the full Exercise Price (as defined below) for each share of
Common Stock as to which this Warrant is exercised, at the office of the
Company, Attention: Michael Porter, CEO, 141 N. Main St., Suite 207, West Bend,
WI 53095; Telephone No. (414) 334-4500, Telecopy No. (414) 334-4502, or at such
other office or agency as the Company may designate in writing, by overnight
mail, with an advance copy of the Exercise Form sent to the Company and its
Transfer Agent by facsimile (such surrender and payment of the Exercise Price
hereinafter called the "Exercise of this Warrant").
<PAGE>
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile. The Company shall not be required to deliver the shares of Common
Stock to the Holder until the requirements of Section 2(a) above are satisfied.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share ("Initial Exercise Price"), where "Y" shall equal 110% of the Market Price
ending on the Pricing Period End Date (as both are defined in the Investment
Agreement) for the applicable Put or, if the Date of Exercise is more than six
(6) months after the Date of Issuance, the lesser of (i) the Initial Exercise
Price or (ii) the "Lowest Reset Price," as that term is defined below. The
Company shall calculate a "Reset Price" on each six-month anniversary date of
the Date of Issuance which shall equal one hundred and ten percent (110%) of the
Market Price ending on such six-month anniversary date of the Date of Issuance.
The "Lowest Reset Price" shall equal the lowest Reset Price determined on any
six-month anniversary date of the Date of Issuance preceding the Date of
Exercise, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
<PAGE>
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Bid Price of the Common Stock
for the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap
Market, or if the Common Stock is not traded on the Nasdaq
Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
the Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the O.T.C. Bulletin Board, the National Market System
("NMS"), the New York Stock Exchange, the Nasdaq Small Cap Market, or if no
longer traded on the O.T.C. Bulletin Board, the NMS, the New York Stock
Exchange, the Nasdaq Small Cap Market, the "Closing Bid Price" shall equal the
closing price on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded and, if not
available, the mean of the high and low prices on the principal national
securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this Warrant
would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about May __, 1999 by and among the Company and certain
investors, or otherwise be registered under the Securities Act of 1933, as
amended.
<PAGE>
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about May __, 1999 between the Company
and certain investors and, accordingly, has the benefit of the registration
rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
<PAGE>
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the net
effect of increasing the Exercise Price in relation to the split adjusted and
distribution adjusted price of the Common Stock. The number of shares of Common
Stock subject hereto shall increase proportionately with each decrease in the
Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, nonassessable and not subject to preemptive rights, rights of first
refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act by
virtue of Regulation D and exempt from state registration under applicable state
laws. The Warrant and the Common Stock issuable upon the Exercise of this
Warrant may not be pledged, transferred, sold or assigned except pursuant to an
effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with
reasonably satisfactory evidence that the conditions of (a) above regarding
registration or exemption have been satisfied, Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
<PAGE>
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Delaware,
without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention:
Michael Porter, CEO, 141 N. Main St., Suite 207, West Bend, WI 53095; Telephone
No. (414) 334-4500, Telecopy No. (414) 334-4502. Notices or demands pursuant to
this Warrant to be given or made by the Company to or on Holder shall be
sufficiently given or made if sent by certified or registered mail, return
<PAGE>
receipt requested, postage prepaid, and addressed, to the address of Holder set
forth in the Company's records, until another address is designated in writing
by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ----------------, -------.
ALLOTAFUN!, INC.
By: ___________________________
Michael Porter, CEO
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: ALOTTAFUN!, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of ALOTTAFUN!,
INC., a Delaware corporation (the "Company"), evidenced by the attached warrant
(the "Warrant"), and herewith makes payment of the exercise price with respect
to such shares in full, all in accordance with the conditions and provisions of
said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature
- -----------------------------------------------------------------------
Print Name
- ------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of ALOTTAFUN!,
INC., evidenced by the attached Warrant and does hereby irrevocably constitute
and appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
MTC/ej/186707
Exhibit 3(e)
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of December 9,
1998, by and among Alottafun, Inc., a Delaware corporation (the "Company"),
Kaplan Gottbetter & Levenson, LLP (the "Escrow Agent") and the parties who have
executed this Agreement as the Purchasers (individually the "Purchaser" and
collectively, the "Purchasers).
Recitals
A. Simultaneously with the execution of this Agreement, the
Purchasers have entered into a Convertible Debenture Purchase Agreement, dated
as of the date hereof (the "Purchase Agreement"), pursuant to which the
Purchasers have agreed to purchase certain debentures (the "Debentures") of the
Company.
B. The Escrow Agent is willing to act as escrow agent pursuant
to the terms of this Agreement with respect to the Purchase Price (as defined in
the Purchase Agreement) to be paid for the Debentures and the delivery of one or
more debentures representing the Debentures registered in the names of the
Purchasers as set forth in the Purchase Agreement (the "Debentures" and,
together with the Ancillary Closing Documents (as defined below), of one or more
warrants representing the Warrants registered in the name of GEM Management Ltd.
or its assigns as set forth in the Purchase Agreement, the "Warrants") and with
respect to shares to be issued by the Company in respect of conversion of the
Debentures or the exercise of the Warrants, (collectively, the "Consideration").
C. Upon the closing of the transaction contemplated by the
Purchase Agreement (the "Closing") and the occurrence of an event described in
Section 2 below, the Escrow Agent shall cause the distribution of the Purchase
Price, Ancillary Closing Documents, the Debentures and the Warrants in
accordance with the terms of this Agreement.
D. All capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Purchase Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration. (a) The Purchasers shall deposit with the Escrow
Agent a copy of the Purchase Agreement, and this Escrow Agreement or a
counterpart thereof, each executed by the Purchasers, and the Purchase Price.
The Company shall deliver to the Escrow Agent (i) the Purchase Agreement or a
counterpart thereof signed by the Company, (ii) this Escrow Agreement or a
counterpart thereof signed by the Company, (iii) certificates (in denominations
of no more than 50,000 and free of any restrictive legends) registered in the
names of the Purchasers representing a number of common shares of the Company
equal to 4,400,000, held for the purpose of honoring conversions by the
Purchasers of the Debentures (the "Debenture Escrow Shares"), rounded up to the
nearest 10,000 shares, (iv) the Debentures, registered in the names of the
Purchasers, (v) Common Stock Purchase Warrants for the purchase of 411,000
shares, registered in the name of GEM Management, Ltd., (vi) certificates (in
denominations of no more than 10,000 free of any restrictive legends) registered
in the name of Gem Management, Ltd. representing a number of common shares of
the Company equal to 411,000, held for the purpose of honoring the exercise of
the Common Stock Purchase Warrants, upon the completion of the purchase of
$400,000 of Debentures (the "Warrant Escrow Shares") (the Debenture Escrow
Shares and the Warrant Escrow Shares, collectively, the "Escrow Shares"),
rounded up to the nearest 10,000 shares and (vii) wiring instructions for
transfer of the Purchase Price by the Escrow Agent into an account specified by
the Company for such purpose. In addition, the Company shall deposit or cause to
be deposited with the Escrow Agent an opinion of the Company's counsel addressed
to the Purchasers in the form of Exhibit D attached to the Purchase Agreement
and the schedules to the Purchase Agreement (such opinion and schedules being
hereinafter referred to as the "Ancillary Closing Documents").
<PAGE>
(i) The Purchase Price shall be delivered by the Purchasers to the
Escrow Agent by wire transfer to the following account:
Bank of New York 100 East 42nd Street New York, NY 10017 ABA#
021000018 Kaplan Gottbetter & Levenson, LLP Acct# 6300584649
Reference: Alottafun, Inc.
(ii) The Debentures, Warrants, Escrow Shares and Ancillary Closing
Documents shall be delivered by the Company to the Escrow Agent at its address
for notice indicated in Section 5(a).
(b) Until termination of this Agreement as set forth in Section 2, all
additional Consideration paid by or which becomes payable between the Company
and the Purchasers shall be deposited with the Escrow Agent.
(c) The Escrow Agent agrees to hold the Consideration received by it in
accordance with the terms and conditions set forth herein until it has received
all of the consideration;
(d) The Purchasers and the Company understand that all Consideration
delivered to the Escrow Agent pursuant to Section 1(a) shall be held in escrow
in a non-interest bearing IOLA account until the Closing. The Purchase Price
will be returned promptly to the Purchasers if all of the Consideration is not
received on or before December 9, 1998. After all of the Consideration has been
received by the Escrow Agent, the parties hereto hereby authorize and instruct
the Escrow Agent to promptly effect the Closing.
2. Terms of Escrow.
(a) The Escrow Agent shall hold the Consideration in escrow until the
earlier to occur of (i) the receipt by the Escrow Agent of all of the total
amount of the Purchase Price from the Purchasers or (ii) the receipt by the
Escrow Agent of a notice, executed by each of the Company and the Purchasers,
stating that the Purchase Agreement has been terminated or otherwise directing
the disposition of the Consideration.
(b) If the Escrow Agent receives the items referenced in clause (i) of
Section 2(a) prior to its receipt of the notice referenced in clause (ii) of
Section 2(a), then, the Escrow Agent shall deliver as soon as practicable, but
in no event later than three (3) business days, the Debentures, Warrants and the
Ancillary Closing Documents executed by the Company to the Purchasers or the
holders of the Warrants (the "Warrant Holders") and shall deliver immediately to
the Company the Purchase Price.
(c) If the Escrow Agent receives the notice referenced in clause (ii)
of Section 2(a) prior to its receipt of the items referenced in clause (i) of
Section 2(a), then the Escrow Agent shall promptly deliver the Purchase Price,
Debentures, Warrants, Escrow Shares and Ancillary Closing Documents as specified
in such notice. The parties agree that if such notice is silent as to the
delivery of such items, the Escrow Agent shall promptly upon receipt of such
notice return (i) the Purchase Price to the Purchasers, (ii) the Debentures,
Warrants and Escrow Shares to the Company and (iii) the Ancillary Closing
Documents to the party that delivered the same.
<PAGE>
(d) If the Escrow Agent, prior to delivering or causing to be delivered
the Consideration in accordance herewith, receives notice of objection, dispute,
or other assertion in accordance with any of the provisions of this Agreement,
the Escrow Agent shall continue to hold the Consideration until such time as the
Escrow Agent shall receive (i) written instructions jointly executed by the
Purchasers and the Company, directing distribution of such Consideration, or
(ii) a certified copy of a judgment, order or decree of a court of competent
jurisdiction, final beyond the right of appeal, directing the Escrow Agent to
distribute said Consideration to any party hereto or as such judgment, order or
decree shall otherwise specify (including any such order directing the Escrow
Agent to deposit the Consideration into the court rendering such order, pending
determination of any dispute between any of the parties). In addition, the
Escrow Agent shall have the right to deposit any of the Consideration with a
court of competent jurisdiction without liability to any party if said dispute
is not resolved within 30 days of receipt of any such notice of objection,
dispute or otherwise.
(e) At any time, and from time to time during the term of this
Agreement, the Purchasers and/or the Warrant Holders may deliver to the Escrow
Agent written notice (a "Conversion Notice" or a "Notice of Exercise") that it
has elected to convert the Debentures registered in the names of such
Purchasers, in whole or in part, in accordance with the terms of the Debentures
(including, without limitation; giving the required notice to the Company and
tendering to the Company the Debenture(s) to be converted) or that it has
elected to exercise the Warrants registered in the names of such Warrant Holder,
in whole or in part, in accordance with the terms of the Warrants (including
without limitation, giving the required notice to the Company and tendering to
the Company the Warrant(s) to be exercised), and the Conversion Notice to be in
the form annexed as Exhibit A hereto or the Notice of Exercise to be in the form
annexed as Exhibit B hereto. A fee of $350 shall accompany every Conversion
Notice or Notice of Exercise delivered to the Escrow Agent. A copy of the
Conversion Notice or Notice of Exercise shall be delivered by the Purchasers or
the Warrant Holders, as the case may be, to the Company simultaneously, and
evidence of such delivery to the Company shall be provided to the Escrow Agent.
The Conversion Notice or Notice of Exercise shall specify the number of Escrow
Shares to be released by the Escrow Agent. The Company shall confirm or object
to the Escrow Agent the number of Escrow Shares to be released, within one
business day of the receipt of the Conversion Notice or Notice of Exercise. If
the Company fails to confirm or object to the number of Escrow Shares to be
released within the said time, then the Company shall be deemed to have
confirmed the number of Escrow Shares set forth in the Purchasers' or Warrant
Holders' Notice. In the event of a dispute, the Parties agree that the Escrow
Agent shall determine the number of Escrow Shares to be released. The Escrow
Agent shall be entitled but not obligated, at his sole discretion, to verify the
computation of the number of Escrow Shares to be released through information
provided by Bloomberg Information Service or similar stock price quotation
service. In the event that the Company decides to redeem the unconverted amount
of the Debenture pursuant to Section 3(c) of the Debenture, the Company shall
notify both the Holder and the Escrow Agent of such redemption within one
business day of receipt of the Notice of Conversion. Within two business days,
the Escrow Agent will release from escrow and deliver to the Purchasers or the
Warrant Holders unlegended certificates or instruments representing the number
of Escrow Shares issuable to the Purchasers or the Warrant Holders in accordance
with such conversion or exercise. In the event that the certificates evidencing
the Debenture Escrow Shares held by the Escrow Agent are not in denominations
appropriate for such delivery to the Purchasers, the Escrow Agent shall request
the Company to cause its transfer agent and registrar to reissue certificates in
smaller denominations. The Escrow Agent shall, however, immediately release to
the Purchasers or the Warrant Holders certificates representing such lesser
number of shares as the denominations in his possession will allow that is
closest to but no more than the actual number to be released to the Purchasers
or the Warrant Holders. Upon his receipt of the reissued shares in lesser
denominations from the Company's transfer agent, the Escrow Agent shall release
to the Purchasers the balance of the shares due to the Purchasers or the Warrant
Holders or the Warrant Holders.
(f) The Company agrees that, at any time the conversion price of the
Debentures is such that the number of Debenture Escrow Shares is less than 200%
of the number that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), and upon five days written notice of such to the Company by the
Purchasers, it will issue additional share certificates, without legend and in
the names of the Purchasers, and deliver same to the Escrow Agent, such that the
new number of Debenture Escrow Shares is equal to 200% of the Full Conversion
Shares.
<PAGE>
3. Duties and Obligations of the Escrow Agent.
(a) The parties hereto agree that the duties and obligations of the
Escrow Agent are only such as are herein specifically provided and no other. The
Escrow Agent's duties are as a depositary only, and the Escrow Agent shall incur
no liability whatsoever, except as a direct result of its willful misconduct or
gross negligence.
(b) The Escrow Agent may consult with counsel of its choice, and shall
not be liable for any action taken, suffered or omitted by it in accordance with
the advice of such counsel.
(c) The Escrow Agent shall not be bound in any way by the terms of any
other agreement to which the Purchasers and the Company are parties, whether or
not it has knowledge thereof, and the Escrow Agent shall not in any way be
required to determine whether or not any other agreement has been complied with
by the Subscriber and the Company, or any other party thereto. The Escrow Agent
shall not be bound by any modification, amendment, termination, cancellation,
rescission or supersession of this Agreement unless the same shall be in writing
and signed jointly by each of the Subscriber and the Company, and agreed to in
writing by the Escrow Agent.
(d) If the Escrow Agent shall be uncertain as to its duties or rights
hereunder or shall receive instructions, claims or demands which, in its
opinion, are in conflict with any of the provisions of this Agreement, it shall
be entitled to refrain from taking any action, other than to keep safely all
property held in escrow, until it shall jointly be directed otherwise in writing
by the Purchasers and the Company or by a final judgment of a court of competent
jurisdiction.
(e) The Escrow Agent shall be fully protected in relying upon any
written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
(f) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
(g) If the Escrow Agent at any time, in its sole discretion, deems it
necessary or advisable to relinquish custody of the Consideration, it may do so
by delivering the same to any other escrow agent mutually agreeable to the
Purchasers and the Company and, if no such escrow agent shall be selected within
three days of the Escrow Agent's notification to the Purchasers and the Company
of its desire to so relinquish custody of the Consideration, then the Escrow
Agent may do so by delivering the Consideration (a) to any bank or trust company
in the County of New York, State of New York, which is willing to act as escrow
agent thereunder in place and instead of the Escrow Agent, or (b) to the clerk
or other proper officer of a court of competent jurisdiction as may be permitted
by law. The fee of any such bank or trust company or court officer shall be
borne by the Company. Upon such delivery, the Escrow Agent shall be discharged
from any and all responsibility or liability with respect to the Consideration
and the Company and the Purchasers shall promptly pay to the Escrow Agent all
monies which may be owed it for its services hereunder, including, but not
limited to, reimbursement of its out-of-pocket expenses pursuant to paragraph
(i) below.
(h) This Agreement shall not create any fiduciary duty on the Escrow
Agent's part to the Purchasers or the Company, nor disqualify the Escrow Agent
from representing either party hereto in any dispute with the other, including
any dispute with respect to the Consideration. The parties understand that the
Escrow Agent has acted and will continue to act as counsel to the Company.
(i) The Escrow Agent represents that it is counsel to one of the
Purchasers. The parties agree that the Escrow Agent's engagement as provided for
herein is not and shall not be objectionable for any reason. The Escrow Agent
has delivered a letter disclosing its conflicts of interests to the Board of
Directors of Company, a copy of which is attached hereto as Exhibit B, and such
Board of Directors has consented to any actual or apparent conflict of interest
of the Escrow Agent in these transactions.
<PAGE>
(j) Upon the performance of this Agreement, the Escrow Agent shall be
deemed released and discharged of any further obligations hereunder.
4. Fees, Expenses and Commissions
(a) The Escrow Agent fee of $5,000, and all reasonable out-of-pocket
expenses paid or incurred by the Escrow Agent in the administration of its
duties hereunder, including, but not limited to, postage, all outside counsel to
the Escrow Agent and advisors' and agents' fees and all taxes or other
governmental charges, if any, shall be paid from the gross proceeds from the
sale of the Debentures held in escrow. The Escrow Agent shall retain the sum of
$350 from the gross proceeds from the sale of the Debentures for out-of-pocket
expenses, and the Company agrees to pay the Escrow Agent any out-of-pocket
expenses in excess of the $350, upon receipt of an invoice from the Escrow Agent
for such excess amount. The Escrow Agent is directed to pay itself such Escrow
Agent fee and out-of-pocket expenses in the amount of $350 from the escrow, at
Closing.
(b) A sales commission of an aggregate of seven percent (7%) of the
gross proceeds from the sale of the Debentures, will be paid to GEM Advisors,
Inc. ("GEM") from the funds held in escrow.
(c) The document production fee of $5,000 pursuant to the terms of the
retainer dated November 16, 1998 between Kaplan Gottbetter & Levenson, LLP
("KGL"), the Company and GEM, will be paid to KGL from the funds held in escrow.
5. Indemnification.
(a) The Purchasers hereby indemnify and hold free and harmless Escrow
Agent from any and all losses, expenses, liabilities and damages (including but
not limited to reasonable attorney's fees, and amounts paid in settlement)
resulting from claims asserted by the Company against Escrow Agent with respect
to the performance of any of the provisions of this Agreement.
(b) The Company hereby indemnifies and holds free and harmless Escrow
Agent from any and all losses, expenses, liabilities and damages (including but
not limited to reasonable attorney's fees, and amount paid in settlement)
resulting from claims asserted by the Purchasers against Escrow Agent with
respect to the performance of any of the provisions of this Agreement.
(c) The Purchasers and the Company, jointly and severally, hereby
indemnify and hold the Escrow Agent harmless from and against any and all
losses, damages, taxes, liabilities and expenses that may be incurred by the
Escrow Agent, arising out of or in connection with its acceptance of appointment
as the Escrow Agent hereunder and/or the performance of its duties pursuant to
this Agreement, the Purchase Agreement, the Debentures and the Warrants,
including, but not limited to, all legal costs and expenses of the Escrow Agent
incurred defending itself against any claim or liability in connection with its
performance hereunder, provided that the Escrow Agent shall not be entitled to
any indemnity for any losses, damages, taxes, liabilities or expenses that
directly result from its willful misconduct or gross negligence.
6. Miscellaneous.
(a) All notices, requests, demands and other communications hereunder
shall be in writing, with copies to all the other parties hereto, and shall be
deemed to have been duly given when (i) if delivered by hand, upon receipt, (ii)
if sent by telecopier, upon receipt of proof of sending thereof, (iii) if sent
by Express Mail, Federal Express or other express delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, upon receipt, in each
case if delivered to the following addresses:
<PAGE>
(i) If to the Company:
Mr. Michael Porter
President
Alottafun, Inc.
222 East Erie Street
Milwaukee, Wisconsin 53202
Tel: 414-226-400
Fax: 414-226-2410
(ii) If to the Purchasers:
At the address set forth in the Purchase Agreement
(iii) If to the Escrow Agent:
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue, 5th Floor
New York, NY 10017
Tel: 212-983-0532
Fax: 212-983-9210
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in accordance with
the law of the State of New York applicable to contracts entered into and
performed entirely within New York.
(c) This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
(d) This Escrow Agreement shall begin upon the date hereof and shall
terminate either pursuant to Section 2(a) (ii), (c) or (d) or upon the earlier
of (i) the conversion of the full amount of the Debentures and the exercise of
the total number of Warrants; or (ii) the Maturity Date of the Debentures and
the Expiration Date of the Warrants. Upon termination of the Escrow Agreement,
the Escrow Agent shall return any unconverted Escrow Shares to the Company.
[ SIGNATURE PAGE TO FOLLOW ]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed the day and year first above written.
Escrow Agent: Purchasers:
Kaplan Gottbetter & Levenson, LLP Gem Management Limited
________________________________ By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
The Company:
Alottafun, Inc.
By:__________________________
Name: Michael Porter
Title: President
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock, par value $.01 per share (the "Common Stock"), of
Alottafun, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. A fee of $350 will
be charged to the Holder for any conversion by the Escrow Agent. No other fees
will be charged to the Holder, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Interest to be Converted
Applicable Conversion Price (to the nearest
hundredth
Signature
Name
Address
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of
the Common Stock $.01 per value, of Alottafun, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as is specified
below:
3. The undersigned represents it is acquiring the shares
solely for its own account and not with a view toward the resale or distribution
thereof except in compliance with applicable securities laws.
- ---------------------------
(Signature)
- ---------------------------
(Date)
mydoc.10588
Exhibit 3(f)
Preferred Shareholder Agreement
<PAGE>
PREFERRED STOCKHOLDERS AGREEMENT
THIS PREFERRED STOCKHOLDERS AGREEMENT is made and entered into this 2nd
day of November, 1998, by and between MICHAEL PORTER (hereinafter "Mr. Porter")
and DAVID BEZALEL (hereinafter "Mr. Bezalel") (Mr. Porter and Mr. Bezalel being
hereinafter sometimes referred to individually as "Stockholder" and collectively
as "Stockholders") and ALOTTAFUN!, INC., a Delaware corporation (hereinafter the
"Corporation").
W I T N E S S E T H:
WHEREAS, the Stockholders shall each own 1,000,000 shares of Series A
Preferred Stock of the Corporation (the shares of Mr. Bezalel to be issued upon
his execution of this Agreement); and
WHEREAS, the Stockholders desire to assure and provide for continuity
in the management of the Corporation and to avoid the introduction of outside
investors who might interfere with said management; and
WHEREAS, the Stockholders desire to establish certain terms and
conditions with regard to their ownership of the shares of Series A Preferred
Stock of the Corporation and with regard to the management and operation of the
business of the Corporation;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and promises hereinafter set forth, the Stockholders and the
Corporation agree as follows:
1. Shareholdings.
Each Stockholder acknowledges that each of the outstanding shares of
Series A Preferred Stock of the Corporation will be validly issued, fully paid
and non-assessable, and that said outstanding shares of Series A Preferred Stock
will be held of record as follows:
Number of Shares
Name of Stockholder Held of Record Certificate No.
------------------- -------------- --------------
Michael Porter 1,000,000 P1
David Bezalel 1,000,000 P2
Each Stockholder represents that he is or will be the beneficial owner of all of
the shares registered in his name as set forth in the aforesaid schedule
("Preferred Stock").
<PAGE>
2. Preemptive Rights.
If in the future the Corporation issues new shares of stock of the same
kind, class and series as that which is already owned by the Stockholders,
including, without limitation, the issuance of previously authorized but
unissued shares, then each Stockholder shall have the preemptive right to
purchase his pro-rata share of the additional capital shares issued, and that
such preemptive rights may not be eliminated except with the written consent of
both of the Stockholders.
3. Restrictions on Conversion, Sale or Transfer.
Neither Stockholder shall convert his Preferred Stock to common stock
or gift, sell, transfer, hypothecate, pledge, assign or otherwise dispose of all
or any part of his shares of Preferred Stock or any beneficial interest therein
("Beneficial Interest") without the prior written consent of the other
Stockholder, which may be withheld for any reason in his sole discretion without
liability. However, a Stockholder may pledge or encumber his Preferred Stock if
the proceeds of such loan, which is secured by such stock, is used by or
advanced to the Corporation. It is the intention of the parties that no court in
any bankruptcy, divorce, competency or other proceeding shall have the right to
involuntarily force such transfer or encumbrance or any change in Beneficial
Interest without the prior written consent and waiver of the other Stockholder.
Such consent may be withheld for any reason in such Stockholder's sole
discretion without liability.
4. Right of First Refusal.
a. Offering Notice. If either Stockholder receives a bona-fide offer
for the purchase of all or any of the shares of the Preferred Stock owned by him
(the recipient of any such offer being hereinafter called the "Offeror"), which
is received during a period when sale of shares of the Preferred Stock is
allowed and which the Offeror desires and intends to accept, before accepting
such offer, he shall give notice (the "Offering Notice") to the other
Stockholder (the "Offeree") which shall include a true copy of such offer.
To constitute a bona-fide offer, any offer (i) shall be made by a
principal identified in the offer, and not an agent acting on behalf of an
undisclosed principal, (ii) shall be accompanied by a certified check of the
prospective purchaser for a sum equal to at least two (2%) percent of the
proposed purchase price, and (iii) the Offeror shall not prior to delivering the
Offering Notice have been in violation or default of any material provision of
this Agreement.
In the Offering Notice, the Offeror shall offer to the Offeree the
right to purchase the stock of the Offeror referred to in said offer at the same
price and subject to the same terms and conditions as set forth in said offer.
The Offeree shall notify the Offeror of his election within thirty (30) days of
the date of his receipt of the Offering Notice. If the offer is accepted by the
Offeree and notice in writing is given, the closing of the purchase shall take
place at the principal office of the Corporation, or other mutually agreeable
place on a mutually acceptable date, not more than sixty (60) days after receipt
by the Offeror of the Offeree's notice of election to purchase.
<PAGE>
b. Right to Sell to Third Party. If the Offeree has not timely accepted
the offer as provided in subparagraph a. above, the offer shall be deemed to
have been declined by the Offeree, and the Offeror shall be free to sell his
shares to the third-party maker of the offer at a price and upon terms and
conditions not less favorable than those set forth in the Offering Notice within
thirty (30) days from the expiration of the right of the Offeree to elect to
purchase, and all rights of the Offeree under this section with respect to such
stock shall be deemed void and of no further force or effect, but the Offeree
shall continue to enjoy the rights granted in this paragraph with respect to any
and all subsequent sales. If the said stock is not so sold and the transfer not
consummated within said sixty (60) day period, the said stock shall then again
become subject to all the provisions hereof.
5. Voting Rights Upon Death, Disability or Termination of Employment of
a Stockholder.
Upon the occurrence of any one of the following events ("Voting Trust
Event"), the shares of Preferred Stock owned by the affected Stockholder shall
automatically be transferred to the other Stockholder for the purpose of vesting
in such other Stockholder as voting trustee, pursuant to ss.218 of the Delaware
General Corporation Law, the exclusive right to vote such shares. Such right
shall remain in effect on a permanent basis in the event of the death of a
Stockholder, or for the period of time, as applicable, of the continuation of
any disability of a Stockholder or the period of time during which a Stockholder
is not employed by the Corporation.
Any one of the following shall be a Voting Trust Event:
a. Death. In the event of the death of a Stockholder.
b. Disability. In the event that a Stockholder shall become physically
or mentally disabled whereby he is unable to perform for the Corporation
substantially the same services as he performed before he became disabled and
such disability continues for at least one hundred and twenty (120) consecutive
days, or for shorter periods aggregating at least one hundred and twenty (120)
days during any consecutive twelve (12) month period.
c. Termination of Employment. In the event a Stockholder's employment
with the Corporation is terminated for any reason.
Upon the occurrence of a Voting Trust Event, the certificate or
certificates representing the shares of Preferred Stock owned by the
Stockholder affected by the Voting Trust Event shall be surrendered to the
Corporation by such Stockholder or by his personal representative, as
applicable, for cancellation by the Corporation and a new certificate for such
shares shall be issued to the other Stockholder as voting trustee with said
new certificate stating thereon that it is issued pursuant to the voting trust
provisions of this Agreement. Notwithstanding the foregoing, the owner of such
shares shall retain all other rights with respect to the shares, including,
but not limited to, the right to receive sales proceeds, dividends and
distributions.
<PAGE>
6. Voting Agreement.
Each Stockholder agrees to vote 100% of his shares of the Preferred
Stock at all applicable times to (i) elect Michael Porter and David Bezalel as
the sole directors of the Corporation and (ii) as recommended by the Board of
Directors of the Corporation from time to time on all other issues that are
submitted to a vote of the shareholders of the Corporation.
7. Covenant not to Compete, Solicit or Disclose.
a. Non-Competition. Mr. Porter and Mr. Bezalel each hereby individually
covenant and agree that during the term of this Agreement and for a period of
two (2) years after the sale or transfer of all of his Preferred Stock as
provided hereunder, he will not directly or indirectly as a sole proprietor,
independent contractor, employee, consultant, agent, partner or joint venturer,
or as an officer, director, stockholder, agent, servant or employee of any firm,
person, entity, partnership or corporation, or otherwise, engage or participate
in, or attempt to engage or participate in, any business that competes with the
products offered by the Corporation.
b. Enforcement.
(1) It is agreed and understood by and among the parties to this
Agreement that the restrictive covenants set forth in subparagraph (a) above is
an essential element of this Agreement. Further, Mr. Porter and Mr. Bezalel each
acknowledge that the restrictions contained in subparagraph (a) above are
reasonable and necessary to accomplish the mutual objectives of the parties and
to protect their legitimate interests and the Corporation's business and
business relationships. Mr. Porter and Mr. Bezalel further acknowledge that
enforcement of the restrictions contained herein will not deprive them of the
ability to earn a reasonable living and that any violation of the restrictions
contained in this Agreement will cause irreparable injury to the Corporation.
Such covenants shall be construed as an agreement independent of any other
provision of this Agreement. The existence of any claim or cause of action of a
Stockholder against the Corporation or the other Stockholder, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Corporation of such restrictive covenants.
(2) It is agreed by the parties hereto that if any provision of the
restrictive covenants set forth in subparagraph (a) is held to be invalid,
unreasonable, arbitrary or against public policy, then such provision shall be
considered divisible both as to time, geographical area and any other relevant
feature, with each month of a specified period being deemed a separate period of
time and each geographical market area being deemed a separate geographical
area, it being the intention of the parties that a lesser period of time,
geographical area or other relevant feature shall be enforced so long as the
same is not unreasonable, arbitrary or against public policy. The parties hereto
further agree that, in the event any court of competent jurisdiction determines
that a specified time period, a specified geographical area or any other
relevant feature is unreasonable, arbitrary or against public policy, a lesser
time period, geographical area or other relevant feature which is determined to
be reasonable, nonarbitrary and not against public policy may be enforced
against a Stockholder and such Stockholder agrees to be bound thereby.
<PAGE>
(3) The parties hereto agree that damages at law, including but not
limited to monetary damages, will be an insufficient remedy to the Corporation
and the other Stockholder in the event that the restrictive covenants of
subparagraphs (a) above are violated and that, in addition to any remedies or
rights that may be available to the Corporation, the Corporation and the other
Stockholder also shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief, including but not limited to a
temporary restraining order or temporary, preliminary or permanent injunction,
to enforce the provisions of this Section as well as an equitable accounting of
all profits or benefits arising out of any such violation.
c. Reasonableness of Restrictions. The Stockholders recognize that the
restrictions set forth in this Section are reasonable and properly required for
the adequate protection of the business of the Corporation.
8. Binding Agreement. This Agreement shall be binding upon the
Stockholders, their heirs, legal representatives, successors or assigns, upon
the Corporation, its successors or assigns and upon any person who may acquire
any shares of the Preferred Stock or any interests therein, whether by voluntary
transfer or by operation of law, and no person shall be permitted to become a
holder of record of any of the shares of the Preferred Stock or any interest
therein without first expressly acknowledging in writing that such shares will
continue to be subject to the terms and provisions of this Agreement.
9. Notices. Any notice or communication required or permitted to be
delivered to either Stockholder under the terms and provisions of this Agreement
shall be deemed to be delivered, whether actually received or not, when
deposited in the United States mail, postage prepaid, certified, return receipt
requested, addressed to such person at his most recent address shown on the
books of the Corporation.
10. Legend on Certificates. All certificates representing shares of the
Preferred Stock shall be endorsed as follows:
The shares of stock represented by this certificate are
subject to restrictions on transferability, voting and other
matters imposed by a Preferred Stockholders' Agreement dated
November __ , 1998, among the Corporation and certain of its
stockholders, which Agreement is available upon request at the
principal business office of the
Corporation.
<PAGE>
11. Applicable Law. This Agreement shall be governed by the laws of the
State of Delaware.
12. Complete Agreement; Amendment. This Agreement constitutes the
entire agreement between the parties and supersedes all prior agreements with
respect to the subject matter hereof. This Agreement may not be amended, altered
or modified except by a writing signed by the party against whom such amendment,
alteration, or modification is sought to be enforced.
13. Specific Enforcement. The parties hereby declare that it is
impossible to measure in money the damages that will accrue to a party hereto or
to personal representative of a deceased Stockholder by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if any party
hereto or the personal representative of a decedent shall institute any action
or proceeding to enforce any provision hereof, any person, including the
Corporation, against whom such action or proceeding is brought hereby waives a
claim or defense that such party or such personal representative has an adequate
remedy at law and shall not urge at such action or proceeding the claim or
defense that such a remedy at law exists.
INTENDING TO BE LEGALLY BOUND, the parties hereto have executed this
Agreement as of the date first above written.
- ---------------------- ALOTTAFUN!, INC.
Michael Porter
By:
-------------------
President
- ----------------------
David Bezalel
dr/175158
Exhibit 6(a)
Agreement by and between
Michael Porter and Brian Henke
<PAGE>
PROMISSORY NOTE
$270,000.00 July 26, 1996
FOR VALUE RECEIVED, the undersigned MICHAEL PORTER, an adult resident
of the State of Wisconsin ("Maker"), promises to pay to the order of BRIAN
HENKE, an adult resident of the State of Wisconsin ("Payee"), or his assigns, at
W283 N336 Lakeside Road, Pewaukee, Wisconsin 53072, or such other place as Payee
shall, from time to time, designate in writing to Maker, the principal sum of
Two Hundred and Seventy Thousand Dollars ($270,000.00), in lawful money of the
United States of America, plus interest as set forth below.
Principal is payable in quarterly installments of $67,500 each, due
January 1, 1997 and on the first day of each third month thereafter. Interest,
at the rate of 10% per year, is also payable at the time principal payments are
due, calculated on the unpaid principal amounts from July 26, 1996.
Notwithstanding the foregoing, Maker may prepay all or any part of the
unpaid balance of this Note at any time, and from time to time, without premium
or penalty, provided that no partial prepayment hereunder shall in any way
affect Maker's obligation to pay the remaining balance in full as required
herein.
In the event of a default hereunder all amounts due and payable shall,
at the option of Payee, without notice, become due, and shall accrue interest at
a default rate of fifteen percent (15%) per year. In addition, the undersigned
shall pay all costs of collection, including reasonable attorneys' fees.
Maker hereby waives presentment, protest, demand and notice of
dishonor. Maker acknowledges receipt of an exact copy of this Note.
-------------------------------
Michael Porter, personally
MTC/ej/186397
Exhibit 6(b)
Employment Contract with
Michael Porter dated 1/22/99
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is effective as of the ___ day of ____________, 1999
("Agreement") and is made by and between ALOTTAFUN, INC., a Delaware corporation
("Company") , and MICHAEL PORTER, a resident of the State of Wisconsin
("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions contained in this Agreement and to ensure the availability
of the Executive's services to the Company;
WHEREAS, the Executive desires to accept such employment and render his
services in accordance with the terms and conditions contained in this
Agreement;
WHEREAS, the Executive and the Company desire to enter into this
Agreement which will fully recognize the contributions of the Executive and
assure harmonious management of the Company's affairs.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Term of Employment
(a) Offer/Acceptance/Effective Date. The Company hereby offers
employment to the Executive and the Executive hereby accepts employment subject
to the terms and conditions set forth in this Agreement.
(b) Term. The term of this Agreement shall commence on the
date first indicated above and shall remain in effect until May 31, 2004
("Term").
2. Duties.
(a) Best Efforts. The Executive covenants to use his best
efforts to perform his duties and discharge his responsibilities pursuant to
this Agreement in a competent, diligent and faithful manner.
(b) Devotion of Time. The Executive shall devote substantially
all of his time, attention and energies during normal business hours to the
Company's affairs (exclusive of periods of sickness and disability and of such
normal holiday and vacation periods as have been established by the Company).
3. Compensation and Expenses.
(a) Base Salary. For the services of the Executive to be
rendered by him under this Agreement, the Company will pay the Executive for
each of the periods indicated below an annual base salary (the "Base Salary") as
follows:
<PAGE>
(i) From June 1, 1999 to May 31, 2000, the amount of $ 75,000;
(ii) From June 1, 2000 to May 31, 2001, the amount of $ 85,000;
(iii) From June 1, 2001 to May 31, 2002, the amount of $ 95,000;
(iv) From June 1, 2002 to May 31, 2003, the amount of $105,000;
(v) From June 1, 2003 to May 31, 2004, the amount of $115,000.
The Base Salary shall be prorated over the time period that
the Executive performs services under this Agreement in any year during which
this Agreement shall terminate before December 31st thereof.
The Company shall pay the Executive his Base Salary in equal
installments no less than semi-monthly.
The Executive shall have the right, at his election, to
receive compensation in the form of the Company's restricted common stock. Such
stock shall be valued at fifty percent (50%) of the closing bid price of the
Company's common stock as quoted on NASDAQ (or other established exchange) as of
the date of Executive's election. Such election may be for all or part of the
Executive's compensation. At the beginning of each quarter, Executive shall give
the Company notice of his election to exercise his option to receive restricted
common stock in lieu of cash compensation.
(b) Base Salary Adjustment. The Base Salary may not be
decreased hereunder during the term of this Agreement, but may be increased upon
review by, and at the sole discretion of, the Company's Board of Directors.
(c) Bonus. Executive shall be entitled to receive bonus
compensation in an amount as approved by the Company's Board of Directors based
upon the performance criteria as may be established by the Compensation
Committee from time to time. Such bonuses may be paid in cash or issued in
shares of the Company's common stock on such terms as recommended by the
Compensation Committee and approved by the Board of Directors.
(d) Expenses. In addition to any compensation received
pursuant to Section 3, the Company will reimburse the Executive for all
reasonable, ordinary and necessary travel, educational, seminar, trade shows,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement, provided that the Executive
properly accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement shall include travel, lodging and food
costs for Executive's immediate family to the extent they accompany Executive on
business related travel.
(e) Subsidiary and Affiliate Payments. In recognition of the
fact that in the course of the performance of his duties hereunder, the
Executive may provide substantial benefits to the Company's subsidiaries or
affiliated companies, the Executive and the Company may at any time and from
time to time agree that all or any portion of the compensation due the Executive
hereunder may be paid directly to the Executive by one or more of the Company's
subsidiaries or affiliated companies.
<PAGE>
(f) Stock Options. Upon execution of this Agreement, Executive
shall receive a nonqualified stock option to purchase 2,500,000 shares of the
common stock of Company with an exercise price of $.15 per share, which is the
fair market value of such shares as of the date of this Agreement. The options
granted hereunder will be immediately exercisable upon issuance. The options
shall have an exercise period of ten (10) years from the date of this Agreement.
(g) Additional Equity Based Incentive Compensation. Executive
shall be entitled to additional annual equity-based incentive compensation as
set forth in the Company's Management Incentive Compensation Plan as established
by the Compensation Committee of the Board of Directors.
4. Benefits.
(a) Vacation. For each calendar year during the Term during
which the Executive is employed, the Executive shall be entitled to 4 weeks
vacation (which shall accrue and vest, except as may be hereafter provided to
the contrary, on each January 1st thereof) without loss of compensation or other
benefits to which he is entitled under this Agreement
If the Executive is unable to take all of his vacation days
during a year for which he becomes vested therein, then the Executive, at his
sole option, may elect to (x) carry over any unused vacation to the next
calendar year to be used solely in that next year or (y) receive an appropriate
pro rata portion of his Base Salary corresponding to the year in which the
vacation days vested.
The Executive shall take his vacation at such times as the
Executive may select and the affairs of the Company or any of its subsidiaries
or affiliates may permit.
(b) Employee Benefit Programs. In addition to the compensation
to which the Executive is entitled pursuant to the provisions of Section 3
hereof, during the Term, the Executive will be entitled to participate in any
stock option plan, stock purchase plan, pension or retirement plan, and
insurance or other employee benefit plan that is maintained at that time by the
Company for its employees, including programs of life, disability, basic medical
and dental, and supplemental medical and dental insurance.
(c) Automobile Allowance. During the term of this Agreement,
the Company shall pay Executive an additional $800 per month as an automobile
allowance to be applied to any automobile expense incurred by Executive.
5. Termination.
(a) Termination for Cause. The Company may terminate the
Executive's employment pursuant to this Agreement at any time for cause upon
written notice. Such termination will become effective upon the giving of such
notice. Upon any such termination for cause, the Executive shall have no right
to compensation, bonus or reimbursement under Section 3 or to participate in any
employee benefit programs or other benefits to which he may be entitled under
Section 4 for any period subsequent to the effective date of termination. For
purposes of this Agreement, the term "cause" shall mean only:
<PAGE>
(i) the Executive's conviction of a felony and all appeals with
respect thereto have been extinguished or abandoned by the
Executive;
(ii) the Executive's conviction of misappropriating assets or
otherwise defrauding the Company or any of its subsidiaries or
affiliates;
(iii) material breach by the Executive of any provision of this
Agreement.
(b) Death or Disability. This Agreement and the Company's
obligations hereunder will terminate upon the death or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that for a
period of six (6) months in any twelve-month period, the Executive is incapable
of substantially fulfilling the duties set forth in this Agreement because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease as determined by an independent physician mutually acceptable to the
Company and the Executive. Upon any termination of this Agreement due to death
or disability, the Company will pay the Executive or his legal representative,
as the case may be, his Base Salary (which may include any accrued but unused
vacation time) at such time pursuant to Section 3(a) through the date of such
termination of employment (or, if terminated as a result of a disability, until
the date upon which the disability policy maintained pursuant to Section 4 (b)
(ii) begins payment of benefits) plus any other compensation that may be due and
unpaid. In the event of death or disability of the Executive, any obligations
that the Executive may owe the Company for repayment of loans or other amounts
shall be forgiven.
(c) Voluntary Termination. Prior to any other termination of
this Agreement, the Executive may, on sixty (60) day's prior written notice to
the Company given at any time, terminate his employment with the Company. Upon
any such termination, the Company shall pay the Executive his Base Salary at
such time pursuant to Section 3(a) through the date of such termination of
employment (which shall include any vested and accrued but unused vacation
time).
6. Restrictive Covenants.
(a) Competition with the Company. The Executive covenants and
agrees that, during the Term of this Agreement, the Executive will not, without
the prior written consent of the Company, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee or in any
other capacity as principal or agent), compete with the Company in the "Capsule
Toy" segment of toy industry. Notwithstanding this restriction, Executive shall
be entitled to invest in stock of other competing public companies so long as
his ownership is less than 5% of such company's outstanding shares.
(b) Disclosure of Confidential Information. The Executive
acknowledges that during his employment he will gain and have access to
confidential information regarding the Company and its subsidiaries and
affiliates. The Executive acknowledges that such confidential information as
acquired and used by the Company or any of its subsidiaries or affiliates
constitutes a special, valuable and unique asset in which the Company or any of
its subsidiaries or affiliates, as the case may be, holds a legitimate business
interest. All records, files, materials and confidential information (the
"Confidential Information") obtained by the Executive in the course of his
employment with the Company shall be deemed confidential and proprietary and
shall remain the exclusive property of the Company or any of its subsidiaries or
affiliates, as the case may be. The Executive will not, except in connection
with and as required by his performance of his duties under this Agreement, for
any reason use for his own benefit or the benefit of any person or entity with
which he may be associated, disclose any Confidential Information to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Board of Directors of the
Company, unless such information previously shall have become public knowledge
through no action by or omission of the Executive.
<PAGE>
(c) Subversion, Disruption or Interference. At no time during
the term of this Agreement shall the Executive, directly or indirectly,
interfere, induce, influence, combine or conspire with, or attempt to induce,
influence, combine or conspire with, any of the employees of, or consultants to,
the Company to terminate their relationship with or compete with or ally against
the Company or any of its subsidiaries or affiliates in the business in which
the Company or any of its subsidiaries or affiliates is then engaged in.
(d) Enforcement of Restrictions. The parties hereby agree that
any violation by Executive of the covenants contained in this Section 6 will
likely cause irreparable damage to the Company or its subsidiaries and
affiliates and may, as a matter of course, be restrained by process issued out
of a court of competent jurisdiction, in addition to any other remedies provided
by law.
7. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control"
shall be deemed to have taken place if any person other than Mr. Porter and Mr.
Bezalel, collectively or immediately, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner
or beneficial owner of the Company's securities, after the date of this
Agreement, having more than 50% of the combined voting power of the then
outstanding securities of the Company that may be cast for the election of
directors of the Company (other than as a result of an issuance of securities
specifically approved by Executive and specifically excluded from the provisions
of this Section 8 by subsequent written agreement of the Executive); provided,
however, that a Change of Control shall not be deemed to have occurred if the
person who becomes the owner of more that 50% of the combined voting power of
the Company is the Executive or an entity (or entities) controlled by the
Executive.
(b) The Company and Executive hereby agree that if Executive
is in the employ of the Company on the date on which a Change of Control occurs
(the "Change of Control Date"), the Company will continue to employ the
Executive and the Executive will remain in the employ of the Company for the
period commencing on the Change of Control Date and ending on the expiration of
the Term, to exercise such authority and perform such executive duties as are
commensurate with the authority being exercised and duties being performed by
the Executive immediately prior to the Change of Control Date. If after a Change
of Control, the Executive is requested, and, in his sole and absolute
discretion, consents to change his principal business location, the Company will
reimburse the Executive for his relocation expenses, including without
limitation, moving expenses, temporary living and travel expenses for a time
while arranging to move his residence to the changed location, closing costs, if
any, associated with the sale of his existing residence and the purchase of a
replacement residence at the changed location, plus an additional amount
representing a gross-up of any state or federal taxes payable by Executive as a
result of any such reimbursements. If the Executive shall not consent to change
his business location, the Executive may continue to provide the services
required of him hereunder in his current location, and the Company shall
continue to maintain an office for the Executive at that location commensurate
with the Company's office prior to the Change of Control Date.
<PAGE>
(c) During the remaining Term after the Change of Control
Date, the Company will (i) continue to honor the terms of this Agreement,
including Base Salary and other compensation set forth in Section 3 hereof, and
(ii) continue employee benefits as set forth in Section 4 hereof at levels in
effect on the Change of Control Date (but subject to such reductions as may be
required to maintain such plans in compliance with applicable federal law
regulating employee benefits).
(d) If during the remaining Term on or after the Change of
Control Date (i) the Executive's employment is terminated by the Company other
than for cause (as defined in Section 5 hereof), or (ii) there shall have
occurred a material reduction in Executive's compensation or employment related
benefits, or a material change in Executive's status, working conditions or
management responsibilities, or a material change in the business objectives or
policies of the Company and the Executive voluntarily terminates employment
within sixty (60) days of any such occurrence, or the last in a series of
occurrences, then the Executive shall be entitled to receive, subject to the
provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 299%
of Executive's current Base Salary in addition to any other compensation that
may be due and owing to the Executive under Section 3 hereof.
(e) The amounts payable to the Executive under any other
compensation arrangement maintained by the Company which became payable after
payment of the lump-sum provided for in paragraph (d), upon or as a result of
the exercise by Executive of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code 280G
and regulations thereunder), shall be reduced to the extent necessary so that
such amounts, when added to such lump-sum, do not exceed 299% of the Executive's
Base Salary (as computed in accordance with provisions of the Internal Revenue
Code of 1986, as amended and any regulations promulgated thereunder) for
determining whether the Executive has received an excess parachute payment. Any
such excess amount shall be deferred and paid in the next tax year.
(f) In the event of a proposed Change in Control, the Company
will allow the Executive to participate in all meetings and negotiations related
thereto.
8. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
rights and obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
9. Severability. If any provision of this Agreement is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding.
10. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or
telecopier to the following addresses:
<PAGE>
To the Company: Alottafun, Inc.
141 N. Main Street, Suite 207
West Bend, WI 53095
To the Executive: Michael Porter
c/o Alottafun, Inc.
141 N. Main Street, Suite 207
West Bend, WI 53095
Either party may, from time to time, designate any other
address to which any such notice to it or him shall be sent. Any such notice
shall be deemed to have been delivered upon the earlier of actual receipt or
four days after deposit in the mail, if by certified mail.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal, substantive laws of the
State of Delaware without giving effect to the conflict of laws rules thereof.
(b) Waiver/Amendment. The waiver by any party to this
Agreement of a breach of any provision hereof by any other party shall not be
construed as a waiver of any subsequent breach by any party. No provision of
this Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or modification is
sought.
(c) Attorney's Fees. In the event any action is commenced, the
prevailing party shall be entitled to reasonable attorneys' fee, costs and
expenses.
(d) Entire Agreement. This Agreement represents the entire
agreement between the parties with respect to the subject matter hereof and
replaces and supersedes any prior agreements or understandings.
(e) Counterparts. This Agreement may be executed in
counterparts, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
COMPANY:
-----------------------------
By:
--------------------------
Its:
--------------------------
EXECUTIVE:
-----------------------------
Typed or Printed Name
-----------------------------
Signature
MTC/ej/186320
Exhibit 6(c)
Employment Contract with
David Bezalel dated 1/22/99
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is effective as of the ___ day of ____________, 1999
("Agreement") and is made by and between ALOTTAFUN, INC., a Delaware corporation
("Company") , and DAVID BEZALEL, a resident of the State of Wisconsin
("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions contained in this Agreement and to ensure the availability
of the Executive's services to the Company;
WHEREAS, the Executive desires to accept such employment and render his
services in accordance with the terms and conditions contained in this
Agreement;
WHEREAS, the Executive and the Company desire to enter into this
Agreement which will fully recognize the contributions of the Executive and
assure harmonious management of the Company's affairs.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Term of Employment
(a) Offer/Acceptance/Effective Date. The Company hereby offers
employment to the Executive and the Executive hereby accepts employment subject
to the terms and conditions set forth in this Agreement.
(b) Term. The term of this Agreement shall commence on the
date first indicated above and shall remain in effect until May 31, 2004
("Term").
2. Duties.
(a) Best Efforts. The Executive covenants to use his best
efforts to perform his duties and discharge his responsibilities pursuant to
this Agreement in a competent, diligent and faithful manner.
(b) Devotion of Time. The Executive shall devote substantially
all of his time, attention and energies during normal business hours to the
Company's affairs (exclusive of periods of sickness and disability and of such
normal holiday and vacation periods as have been established by the Company).
3. Compensation and Expenses.
(a) Base Salary. For the services of the Executive to be
rendered by him under this Agreement, the Company will pay the Executive for
each of the periods indicated below an annual base salary (the "Base Salary") as
follows:
<PAGE>
(i) From June 1, 1999 to May 31, 2000, the amount of $ 75,000;
(ii) From June 1, 2000 to May 31, 2001, the amount of $ 85,000;
(iii) From June 1, 2001 to May 31, 2002, the amount of $ 95,000;
(iv) From June 1, 2002 to May 31, 2003, the amount of $105,000;
(v) From June 1, 2003 to May 31, 2004, the amount of $115,000.
The Base Salary shall be prorated over the time period that the
Executive performs services under this Agreement in any year during which this
Agreement shall terminate before December 31st thereof.
The Company shall pay the Executive his Base Salary in equal
installments no less than semi-monthly.
The Executive shall have the right, at his election, to receive
compensation in the form of the Company's restricted common stock. Such stock
shall be valued at fifty percent (50%) of the closing bid price of the Company's
common stock as quoted on NASDAQ (or other established exchange) as of the date
of Executive's election. Such election may be for all or part of the Executive's
compensation. At the beginning of each quarter, Executive shall give the Company
notice of his election to exercise his option to receive restricted common stock
in lieu of cash compensation.
(b) Base Salary Adjustment. The Base Salary may not be
decreased hereunder during the term of this Agreement, but may be increased upon
review by, and at the sole discretion of, the Company's Board of Directors.
(c) Bonus. Executive shall be entitled to receive bonus
compensation in an amount as approved by the Company's Board of Directors based
upon the performance criteria as may be established by the Compensation
Committee from time to time. Such bonuses may be paid in cash or issued in
shares of the Company's common stock on such terms as recommended by the
Compensation Committee and approved by the Board of Directors.
(d) Expenses. In addition to any compensation received
pursuant to Section 3, the Company will reimburse the Executive for all
reasonable, ordinary and necessary travel, educational, seminar, trade shows,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement, provided that the Executive
properly accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement shall include travel, lodging and food
costs for Executive's immediate family to the extent they accompany Executive on
business related travel.
(e) Subsidiary and Affiliate Payments. In recognition of the
fact that in the course of the performance of his duties hereunder, the
Executive may provide substantial benefits to the Company's subsidiaries or
affiliated companies, the Executive and the Company may at any time and from
time to time agree that all or any portion of the compensation due the Executive
hereunder may be paid directly to the Executive by one or more of the Company's
subsidiaries or affiliated companies.
<PAGE>
(f) Stock Options. Upon execution of this Agreement, Executive
shall receive a nonqualified stock option to purchase 2,500,000 shares of the
common stock of Company with an exercise price of $.15 per share, which is the
fair market value of such shares as of the date of this Agreement. The options
granted hereunder will be immediately exercisable upon issuance. The options
shall have an exercise period of ten (10) years from the date of this Agreement.
The Executive shall have a cashless exercise right.
(g) Additional Equity Based Incentive Compensation. Executive
shall be entitled to additional annual equity-based incentive compensation as
set forth in the Company's Management Incentive Compensation Plan as established
by the Compensation Committee of the Board of Directors.
4. Benefits.
(a) Vacation. For each calendar year during the Term during
which the Executive is employed, the Executive shall be entitled to 4 weeks
vacation (which shall accrue and vest, except as may be hereafter provided to
the contrary, on each January 1st thereof) without loss of compensation or other
benefits to which he is entitled under this Agreement
If the Executive is unable to take all of his vacation days during a
year for which he becomes vested therein, then the Executive, at his sole
option, may elect to (x) carry over any unused vacation to the next calendar
year to be used solely in that next year or (y) receive an appropriate pro rata
portion of his Base Salary corresponding to the year in which the vacation days
vested.
The Executive shall take his vacation at such times as the Executive
may select and the affairs of the Company or any of its subsidiaries or
affiliates may permit.
(b) Employee Benefit Programs. In addition to the compensation
to which the Executive is entitled pursuant to the provisions of Section 3
hereof, during the Term, the Executive will be entitled to participate in any
stock option plan, stock purchase plan, pension or retirement plan, and
insurance or other employee benefit plan that is maintained at that time by the
Company for its employees, including programs of life, disability, basic medical
and dental, and supplemental medical and dental insurance.
(c) Automobile Allowance. During the term of this Agreement,
the Company shall pay Executive an additional $800 per month as an automobile
allowance to be applied to any automobile expense incurred by Executive.
5. Termination.
(a) Termination for Cause. The Company may terminate the
Executive's employment pursuant to this Agreement at any time for cause upon
written notice. Such termination will become effective upon the giving of such
notice. Upon any such termination for cause, the Executive shall have no right
to compensation, bonus or reimbursement under Section 3 or to participate in any
employee benefit programs or other benefits to which he may be entitled under
Section 4 for any period subsequent to the effective date of termination. For
purposes of this Agreement, the term "cause" shall mean only:
<PAGE>
(i) the Executive's conviction of a felony and all appeals with
respect thereto have been extinguished or abandoned by the
Executive;
(ii) the Executive's conviction of misappropriating assets or
otherwise defrauding the Company or any of its subsidiaries or
affiliates;
(iii) material breach by the Executive of any provision of this
Agreement.
(b) Death or Disability. This Agreement and the Company's
obligations hereunder will terminate upon the death or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that for a
period of six (6) months in any twelve-month period, the Executive is incapable
of substantially fulfilling the duties set forth in this Agreement because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease as determined by an independent physician mutually acceptable to the
Company and the Executive. Upon any termination of this Agreement due to death
or disability, the Company will pay the Executive or his legal representative,
as the case may be, his Base Salary (which may include any accrued but unused
vacation time) at such time pursuant to Section 3(a) through the date of such
termination of employment (or, if terminated as a result of a disability, until
the date upon which the disability policy maintained pursuant to Section 4 (b)
(ii) begins payment of benefits) plus any other compensation that may be due and
unpaid. In the event of death or disability of the Executive, any obligations
that the Executive may owe the Company for repayment of loans or other amounts
shall be forgiven.
(c) Voluntary Termination. Prior to any other termination of
this Agreement, the Executive may, on sixty (60) day's prior written notice to
the Company given at any time, terminate his employment with the Company. Upon
any such termination, the Company shall pay the Executive his Base Salary at
such time pursuant to Section 3(a) through the date of such termination of
employment (which shall include any vested and accrued but unused vacation
time).
6. Restrictive Covenants.
(a) Competition with the Company. The Executive covenants and
agrees that, during the Term of this Agreement, the Executive will not, without
the prior written consent of the Company, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee or in any
other capacity as principal or agent), compete with the Company in the "Capsule
Toy" segment of toy industry. Notwithstanding this restriction, Executive shall
be entitled to invest in stock of other competing public companies so long as
his ownership is less than 5% of such company's outstanding shares.
(b) Disclosure of Confidential Information. The Executive
acknowledges that during his employment he will gain and have access to
confidential information regarding the Company and its subsidiaries and
affiliates. The Executive acknowledges that such confidential information as
acquired and used by the Company or any of its subsidiaries or affiliates
constitutes a special, valuable and unique asset in which the Company or any of
its subsidiaries or affiliates, as the case may be, holds a legitimate business
interest. All records, files, materials and confidential information (the
"Confidential Information") obtained by the Executive in the course of his
employment with the Company shall be deemed confidential and proprietary and
shall remain the exclusive property of the Company or any of its subsidiaries or
affiliates, as the case may be. The Executive will not, except in connection
with and as required by his performance of his duties under this Agreement, for
any reason use for his own benefit or the benefit of any person or entity with
which he may be associated, disclose any Confidential Information to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Board of Directors of the
Company, unless such information previously shall have become public knowledge
through no action by or omission of the Executive.
<PAGE>
(c) Subversion, Disruption or Interference. At no time during
the term of this Agreement shall the Executive, directly or indirectly,
interfere, induce, influence, combine or conspire with, or attempt to induce,
influence, combine or conspire with, any of the employees of, or consultants to,
the Company to terminate their relationship with or compete with or ally against
the Company or any of its subsidiaries or affiliates in the business in which
the Company or any of its subsidiaries or affiliates is then engaged in.
(d) Enforcement of Restrictions. The parties hereby agree that
any violation by Executive of the covenants contained in this Section 6 will
likely cause irreparable damage to the Company or its subsidiaries and
affiliates and may, as a matter of course, be restrained by process issued out
of a court of competent jurisdiction, in addition to any other remedies provided
by law.
7. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control"
shall be deemed to have taken place if any person other than Mr. Porter and Mr.
Bezalel, collectively or immediately, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner
or beneficial owner of the Company's securities, after the date of this
Agreement, having more than 50% of the combined voting power of the then
outstanding securities of the Company that may be cast for the election of
directors of the Company (other than as a result of an issuance of securities
specifically approved by Executive and specifically excluded from the provisions
of this Section 8 by subsequent written agreement of the Executive); provided,
however, that a Change of Control shall not be deemed to have occurred if the
person who becomes the owner of more that 50% of the combined voting power of
the Company is the Executive or an entity (or entities) controlled by the
Executive.
(b) The Company and Executive hereby agree that if Executive
is in the employ of the Company on the date on which a Change of Control occurs
(the "Change of Control Date"), the Company will continue to employ the
Executive and the Executive will remain in the employ of the Company for the
period commencing on the Change of Control Date and ending on the expiration of
the Term, to exercise such authority and perform such executive duties as are
commensurate with the authority being exercised and duties being performed by
the Executive immediately prior to the Change of Control Date. If after a Change
of Control, the Executive is requested, and, in his sole and absolute
discretion, consents to change his principal business location, the Company will
reimburse the Executive for his relocation expenses, including without
limitation, moving expenses, temporary living and travel expenses for a time
while arranging to move his residence to the changed location, closing costs, if
any, associated with the sale of his existing residence and the purchase of a
replacement residence at the changed location, plus an additional amount
representing a gross-up of any state or federal taxes payable by Executive as a
result of any such reimbursements. If the Executive shall not consent to change
his business location, the Executive may continue to provide the services
required of him hereunder in his current location, and the Company shall
continue to maintain an office for the Executive at that location commensurate
with the Company's office prior to the Change of Control Date.
<PAGE>
(c) During the remaining Term after the Change of Control
Date, the Company will (i) continue to honor the terms of this Agreement,
including Base Salary and other compensation set forth in Section 3 hereof, and
(ii) continue employee benefits as set forth in Section 4 hereof at levels in
effect on the Change of Control Date (but subject to such reductions as may be
required to maintain such plans in compliance with applicable federal law
regulating employee benefits).
(d) If during the remaining Term on or after the Change of
Control Date (i) the Executive's employment is terminated by the Company other
than for cause (as defined in Section 5 hereof), or (ii) there shall have
occurred a material reduction in Executive's compensation or employment related
benefits, or a material change in Executive's status, working conditions or
management responsibilities, or a material change in the business objectives or
policies of the Company and the Executive voluntarily terminates employment
within sixty (60) days of any such occurrence, or the last in a series of
occurrences, then the Executive shall be entitled to receive, subject to the
provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 299%
of Executive's current Base Salary in addition to any other compensation that
may be due and owing to the Executive under Section 3 hereof.
(e) The amounts payable to the Executive under any other
compensation arrangement maintained by the Company which became payable after
payment of the lump-sum provided for in paragraph (d), upon or as a result of
the exercise by Executive of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code 280G
and regulations thereunder), shall be reduced to the extent necessary so that
such amounts, when added to such lump-sum, do not exceed 299% of the Executive's
Base Salary (as computed in accordance with provisions of the Internal Revenue
Code of 1986, as amended and any regulations promulgated thereunder) for
determining whether the Executive has received an excess parachute payment. Any
such excess amount shall be deferred and paid in the next tax year.
(f) In the event of a proposed Change in Control, the Company
will allow the Executive to participate in all meetings and negotiations related
thereto.
8. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
rights and obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
9. Severability. If any provision of this Agreement is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding.
10. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or
telecopier to the following addresses:
<PAGE>
To the Company: Alottafun, Inc.
141 N. Main Street, Suite 207
West Bend, WI 53095
To the Executive: David Bezalel
1178 Frocan Court
Hewett, NY 11557
Either party may, from time to time, designate any other
address to which any such notice to it or him shall be sent. Any such notice
shall be deemed to have been delivered upon the earlier of actual receipt or
four days after deposit in the mail, if by certified mail.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal, substantive laws of the
State of Delaware without giving effect to the conflict of laws rules thereof.
(b) Waiver/Amendment. The waiver by any party to this
Agreement of a breach of any provision hereof by any other party shall not be
construed as a waiver of any subsequent breach by any party. No provision of
this Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or modification is
sought.
(c) Attorney's Fees. In the event any action is commenced, the
prevailing party shall be entitled to reasonable attorneys' fee, costs and
expenses.
(d) Entire Agreement. This Agreement represents the entire
agreement between the parties with respect to the subject matter hereof and
replaces and supersedes any prior agreements or understandings.
(e) Counterparts. This Agreement may be executed in
counterparts, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
COMPANY:
-----------------------------
By:
--------------------------
Its:
--------------------------
EXECUTIVE:
-----------------------------
Typed or Printed Name
-----------------------------
Signature
MTC/ej/186324
Exhibit 6(c)
Employment Contract with
Gerald Couture dated 1/22/99
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is effective as of the ___ day of ____________, 1999
("Agreement") and is made by and between ALOTTAFUN, INC., a Delaware corporation
("Company") , and GERALD COUTURE, a resident of the State of Florida
("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions contained in this Agreement and to ensure the availability
of the Executive's services to the Company;
WHEREAS, the Executive desires to accept such employment and render his
services in accordance with the terms and conditions contained in this
Agreement;
WHEREAS, the Executive and the Company desire to enter into this
Agreement which will fully recognize the contributions of the Executive and
assure harmonious management of the Company's affairs.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Term of Employment
(a) Offer/Acceptance/Effective Date. The Company hereby offers
employment to the Executive and the Executive hereby accepts employment subject
to the terms and conditions set forth in this Agreement.
(b) Term. The term of this Agreement shall commence on the
date first indicated above and shall remain in effect until May 31, 2004
("Term").
2. Duties.
(a) Best Efforts. The Executive covenants to use his best
efforts to perform his duties and discharge his responsibilities pursuant to
this Agreement in a competent, diligent and faithful manner.
(b) Devotion of Time. The Executive shall devote 480 hours per
year to the Company's affairs (exclusive of periods of sickness and disability
and of such normal holiday and vacation periods as have been established by the
Company). It is understood that the Executive will devote the remainder of his
time to his other businesses.
3. Compensation and Expenses.
(a) Base Salary. For the services of the Executive to be
rendered by him under this Agreement, the Company will pay the Executive for
each of the periods indicated below an annual base salary (the "Base Salary") as
follows:
<PAGE>
(i) From January 1, 1999 to May 31, 2004, the amount
of $ 60,000;
The Base Salary shall be prorated over the time period that the
Executive performs services under this Agreement in any year during which this
Agreement shall terminate before December 31st thereof.
The Company shall pay the Executive his Base Salary in equal
installments no less than semi-monthly.
The Executive shall have the right, at his election, to receive
compensation in the form of the Company's restricted common stock. Such stock
shall be valued at fifty percent (50%) of the closing bid price of the Company's
common stock as quoted on NASDAQ (or other established exchange) as of the date
of Executive's election. Such election may be for all or part of the Executive's
compensation. At the beginning of each quarter, Executive shall give the Company
notice of his election to exercise his option to receive restricted common stock
in lieu of cash compensation.
(b) Base Salary Adjustment. The Base Salary may not be
decreased hereunder during the term of this Agreement, but may be increased upon
review by, and at the sole discretion of, the Company's Board of Directors.
(c) Bonus. Executive shall be entitled to receive bonus
compensation in an amount as approved by the Company's Board of Directors based
upon the performance criteria as may be established by the Compensation
Committee from time to time. Such bonuses may be paid in cash or issued in
shares of the Company's common stock on such terms as recommended by the
Compensation Committee and approved by the Board of Directors.
(d) Expenses. In addition to any compensation received
pursuant to Section 3, the Company will reimburse the Executive for all
reasonable, ordinary and necessary travel, educational, seminar, trade shows,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement, provided that the Executive
properly accounts for such expenses to the Company in accordance with the
Company's practices. Such reimbursement shall include travel, lodging and food
costs for Executive's immediate family to the extent they accompany Executive on
business related travel.
(e) Subsidiary and Affiliate Payments. In recognition of the
fact that in the course of the performance of his duties hereunder, the
Executive may provide substantial benefits to the Company's subsidiaries or
affiliated companies, the Executive and the Company may at any time and from
time to time agree that all or any portion of the compensation due the Executive
hereunder may be paid directly to the Executive by one or more of the Company's
subsidiaries or affiliated companies.
(f) Stock Options. Upon execution of this Agreement, Executive
shall receive a nonqualified stock option to purchase 500,000 shares of the
common stock of Company with an exercise price of $.15 per share, which is the
fair market value of such shares as of the date of this Agreement. The options
granted hereunder will be immediately exercisable upon issuance. The options
shall have an exercise period of ten (10) years from the date of this Agreement.
The Executive shall have a cashless exercise right.
<PAGE>
(g) Additional Equity Based Incentive Compensation. Executive
shall be entitled to additional annual equity-based incentive compensation as
set forth in the Company's Management Incentive Compensation Plan as established
by the Compensation Committee of the Board of Directors.
4. Benefits.
(a) Vacation. For each calendar year during the Term during
which the Executive is employed, the Executive shall be entitled to 4 weeks
vacation (which shall accrue and vest, except as may be hereafter provided to
the contrary, on each January 1st thereof) without loss of compensation or other
benefits to which he is entitled under this Agreement
If the Executive is unable to take all of his vacation days during a
year for which he becomes vested therein, then the Executive, at his sole
option, may elect to (x) carry over any unused vacation to the next calendar
year to be used solely in that next year or (y) receive an appropriate pro rata
portion of his Base Salary corresponding to the year in which the vacation days
vested.
The Executive shall take his vacation at such times as the Executive
may select and the affairs of the Company or any of its subsidiaries or
affiliates may permit.
(b) Employee Benefit Programs. In addition to the compensation
to which the Executive is entitled pursuant to the provisions of Section 3
hereof, during the Term, the Executive will be entitled to participate in any
stock option plan, stock purchase plan, pension or retirement plan, and
insurance or other employee benefit plan that is maintained at that time by the
Company for its employees, including programs of life, disability, basic medical
and dental, and supplemental medical and dental insurance.
5. Termination.
(a) Termination for Cause. The Company may terminate the
Executive's employment pursuant to this Agreement at any time for cause upon
written notice. Such termination will become effective upon the giving of such
notice. Upon any such termination for cause, the Executive shall have no right
to compensation, bonus or reimbursement under Section 3 or to participate in any
employee benefit programs or other benefits to which he may be entitled under
Section 4 for any period subsequent to the effective date of termination. For
purposes of this Agreement, the term "cause" shall mean only:
(i) the Executive's conviction of a felony and all appeals with
respect thereto have been extinguished or abandoned by the
Executive;
(ii) the Executive's conviction of misappropriating assets or
otherwise defrauding the Company or any of its subsidiaries or
affiliates;
(iii) material breach by the Executive of any provision of this
Agreement.
<PAGE>
(b) Death or Disability. This Agreement and the Company's
obligations hereunder will terminate upon the death or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that for a
period of six (6) months in any twelve-month period, the Executive is incapable
of substantially fulfilling the duties set forth in this Agreement because of
physical, mental or emotional incapacity resulting from injury, sickness or
disease as determined by an independent physician mutually acceptable to the
Company and the Executive. Upon any termination of this Agreement due to death
or disability, the Company will pay the Executive or his legal representative,
as the case may be, his Base Salary (which may include any accrued but unused
vacation time) at such time pursuant to Section 3(a) through the date of such
termination of employment (or, if terminated as a result of a disability, until
the date upon which the disability policy maintained pursuant to Section 4 (b)
(ii) begins payment of benefits) plus any other compensation that may be due and
unpaid. In the event of death or disability of the Executive, any obligations
that the Executive may owe the Company for repayment of loans or other amounts
shall be forgiven.
(c) Voluntary Termination. Prior to any other termination of
this Agreement, the Executive may, on sixty (60) day's prior written notice to
the Company given at any time, terminate his employment with the Company. Upon
any such termination, the Company shall pay the Executive his Base Salary at
such time pursuant to Section 3(a) through the date of such termination of
employment (which shall include any vested and accrued but unused vacation
time).
6. Restrictive Covenants.
(a) Competition with the Company. The Executive covenants and
agrees that, during the Term of this Agreement, the Executive will not, without
the prior written consent of the Company, directly or indirectly (whether as a
sole proprietor, partner, stockholder, director, officer, employee or in any
other capacity as principal or agent), compete with the Company in the "Capsule
Toy" segment of toy industry. Notwithstanding this restriction, Executive shall
be entitled to invest in stock of other competing public companies so long as
his ownership is less than 5% of such company's outstanding shares.
(b) Disclosure of Confidential Information. The Executive
acknowledges that during his employment he will gain and have access to
confidential information regarding the Company and its subsidiaries and
affiliates. The Executive acknowledges that such confidential information as
acquired and used by the Company or any of its subsidiaries or affiliates
constitutes a special, valuable and unique asset in which the Company or any of
its subsidiaries or affiliates, as the case may be, holds a legitimate business
interest. All records, files, materials and confidential information (the
"Confidential Information") obtained by the Executive in the course of his
employment with the Company shall be deemed confidential and proprietary and
shall remain the exclusive property of the Company or any of its subsidiaries or
affiliates, as the case may be. The Executive will not, except in connection
with and as required by his performance of his duties under this Agreement, for
any reason use for his own benefit or the benefit of any person or entity with
which he may be associated, disclose any Confidential Information to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever without the prior written consent of the Board of Directors of the
Company, unless such information previously shall have become public knowledge
through no action by or omission of the Executive.
(c) Subversion, Disruption or Interference. At no time during
the term of this Agreement shall the Executive, directly or indirectly,
interfere, induce, influence, combine or conspire with, or attempt to induce,
influence, combine or conspire with, any of the employees of, or consultants to,
the Company to terminate their relationship with or compete with or ally against
the Company or any of its subsidiaries or affiliates in the business in which
the Company or any of its subsidiaries or affiliates is then engaged in.
<PAGE>
(d) Enforcement of Restrictions. The parties hereby agree that
any violation by Executive of the covenants contained in this Section 6 will
likely cause irreparable damage to the Company or its subsidiaries and
affiliates and may, as a matter of course, be restrained by process issued out
of a court of competent jurisdiction, in addition to any other remedies provided
by law.
7. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control"
shall be deemed to have taken place if any person other than Mr. Porter and Mr.
Bezalel, collectively or immediately, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the owner
or beneficial owner of the Company's securities, after the date of this
Agreement, having more than 50% of the combined voting power of the then
outstanding securities of the Company that may be cast for the election of
directors of the Company (other than as a result of an issuance of securities
specifically approved by Executive and specifically excluded from the provisions
of this Section 8 by subsequent written agreement of the Executive); provided,
however, that a Change of Control shall not be deemed to have occurred if the
person who becomes the owner of more that 50% of the combined voting power of
the Company is the Executive or an entity (or entities) controlled by the
Executive.
(b) The Company and Executive hereby agree that if Executive
is in the employ of the Company on the date on which a Change of Control occurs
(the "Change of Control Date"), the Company will continue to employ the
Executive and the Executive will remain in the employ of the Company for the
period commencing on the Change of Control Date and ending on the expiration of
the Term, to exercise such authority and perform such executive duties as are
commensurate with the authority being exercised and duties being performed by
the Executive immediately prior to the Change of Control Date. If after a Change
of Control, the Executive is requested, and, in his sole and absolute
discretion, consents to change his principal business location, the Company will
reimburse the Executive for his relocation expenses, including without
limitation, moving expenses, temporary living and travel expenses for a time
while arranging to move his residence to the changed location, closing costs, if
any, associated with the sale of his existing residence and the purchase of a
replacement residence at the changed location, plus an additional amount
representing a gross-up of any state or federal taxes payable by Executive as a
result of any such reimbursements. If the Executive shall not consent to change
his business location, the Executive may continue to provide the services
required of him hereunder in his current location, and the Company shall
continue to maintain an office for the Executive at that location commensurate
with the Company's office prior to the Change of Control Date.
(c) During the remaining Term after the Change of Control
Date, the Company will (i) continue to honor the terms of this Agreement,
including Base Salary and other compensation set forth in Section 3 hereof, and
(ii) continue employee benefits as set forth in Section 4 hereof at levels in
effect on the Change of Control Date (but subject to such reductions as may be
required to maintain such plans in compliance with applicable federal law
regulating employee benefits).
<PAGE>
(d) If during the remaining Term on or after the Change of
Control Date (i) the Executive's employment is terminated by the Company other
than for cause (as defined in Section 5 hereof), or (ii) there shall have
occurred a material reduction in Executive's compensation or employment related
benefits, or a material change in Executive's status, working conditions or
management responsibilities, or a material change in the business objectives or
policies of the Company and the Executive voluntarily terminates employment
within sixty (60) days of any such occurrence, or the last in a series of
occurrences, then the Executive shall be entitled to receive, subject to the
provisions of subparagraphs (e) and (f) below, a lump-sum payment equal to 299%
of Executive's current Base Salary in addition to any other compensation that
may be due and owing to the Executive under Section 3 hereof.
(e) The amounts payable to the Executive under any other
compensation arrangement maintained by the Company which became payable after
payment of the lump-sum provided for in paragraph (d), upon or as a result of
the exercise by Executive of rights which are contingent on a Change of Control
(and would be considered a "parachute payment" under Internal Revenue Code 280G
and regulations thereunder), shall be reduced to the extent necessary so that
such amounts, when added to such lump-sum, do not exceed 299% of the Executive's
Base Salary (as computed in accordance with provisions of the Internal Revenue
Code of 1986, as amended and any regulations promulgated thereunder) for
determining whether the Executive has received an excess parachute payment. Any
such excess amount shall be deferred and paid in the next tax year.
(f) In the event of a proposed Change in Control, the Company
will allow the Executive to participate in all meetings and negotiations related
thereto.
8. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the assets and business of the Company. The Executive's
rights and obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
9. Severability. If any provision of this Agreement is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding.
10. Notice. Notices given pursuant to the provisions of this Agreement
shall be sent by certified mail, postage prepaid, or by overnight courier, or
telecopier to the following addresses:
To the Company: Alottafun, Inc.
141 N. Main Street, Suite 207
West Bend, WI 53095
To the Executive: GERALD COUTURE
901 Chestnut Street, Suite A
Clearwater, Florida 33767
Either party may, from time to time, designate any other
address to which any such notice to it or him shall be sent. Any such notice
shall be deemed to have been delivered upon the earlier of actual receipt or
four days after deposit in the mail, if by certified mail.
<PAGE>
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal, substantive laws of the
State of Delaware without giving effect to the conflict of laws rules thereof.
(b) Waiver/Amendment. The waiver by any party to this
Agreement of a breach of any provision hereof by any other party shall not be
construed as a waiver of any subsequent breach by any party. No provision of
this Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or modification is
sought.
(c) Attorney's Fees. In the event any action is commenced, the
prevailing party shall be entitled to reasonable attorneys' fee, costs
and expenses.
(d) Entire Agreement. This Agreement represents the entire
agreement between the parties with respect to the subject matter hereof and
replaces and supersedes any prior agreements or understandings.
(e) Counterparts. This Agreement may be executed in
counterparts, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the day and year first above written.
COMPANY:
------------------------
By:
---------------------
Its:
---------------------
EXECUTIVE:
-----------------------
Typed or Printed Name
-----------------------
Signature
Exhibit 6(d)
Investment Agreement by and between the
Company and Swartz Private Equity, LLC.
Dated June 3, 1999
<PAGE>
ALOTTAFUN!, INC.
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 INVESTMENT AGREEMENT (this "Agreement") is made as of the
3rd day of June, 1999, by and between Alottafun!, Inc., a corporation duly
organized and existing under the laws of the State of Delaware (the "Company"),
and the undersigned Investor executing this Agreement ("Investor").
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 (the "Common Stock"), as part of an
offering of Common Stock by the Company to Investor, for a maximum aggregate
offering amount of Twenty Million Dollars ($20,000,000) (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 business.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month (the "Numeric Day") 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.
"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.
<PAGE>
"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.
"Common Shares" shall mean the shares of Common Stock of the Company.
"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 Stock" shall mean the common stock of the Company.
"Company" shall mean Alottafun!, Inc., a corporation duly organized and
existing under the laws of the State of Delaware.
"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 listed for 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 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.
"Excluded Day" shall have the meaning set forth in Section 2.3.7(b).
"Extended Put Period" shall mean the period of time between the
Advanced Put Notice Date until the Purchase Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
<PAGE>
"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.
"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
<PAGE>
(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 intra-day trade price for the
Common Stock on the Principal Market for the six (6) Business Days immediately
preceding the date of the applicable Purchase Notice.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (a) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean Twenty Million Dollars
($20,000,000).
"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.
"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.
"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 Notice" shall have the meaning set forth in Section 2.3.7(c),
in the form attached as Exhibit P.
"Purchase Notice Date" shall have the meaning set forth in Section
2.3.7(c).
"Purchase Period" shall have the meaning set forth in Section 2.3.7(b).
"Purchase Period End Date" shall mean the last Business Day of any
Purchase Period.
"Purchase Warrants" 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.
<PAGE>
"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.
"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.
<PAGE>
"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.
"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 date of this Agreement, 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.
"Termination Fee" shall have the meaning as 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 hereto 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).
"Truncated Purchase 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).
<PAGE>
"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) and 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:
(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 listed 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
<PAGE>
(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 during the Purchase Period (the "Intended Put
Share Amount").
The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed $2,000,000,
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 during the related
Purchase Period (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 Purchase 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, but shall in no event exceed 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
the twenty (20) Trading Days immediately preceding the Put Date (this
limitation, together with the limitation in (i) immediately above, are
collectively referred to herein as the "Volume Limitations"). The Investor, at
its option, may waive all or any portion of the Volume Limitations, and purchase
a number of Put Shares up to the full Intended Put Share Amount, subject only to
the Company Designated Maximum Put Dollar Amount.
<PAGE>
(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 $.10, or (ii) 91% 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
(which Put Date shall be no sooner than the Business Day immediately following
the last day of the previous Purchase Period), 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
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 Purchase 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.
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, including both Ineffective Periods and
Delisting Events, that lasts for an aggregate of four (4) months;
<PAGE>
(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 date of this Agreement, or (ii) the Put
Closing Date on which the aggregate of the Put Dollar Amounts for all Puts equal
the Maximum Offering Amount; and
(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 listed 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 listed, 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;
<PAGE>
(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;
(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 freely tradeable 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.
<PAGE>
(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 applicable), and any related prospectuses, contain 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 Statements,
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 Purchase 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 during the related Purchase Period a
number of Put Shares equal to the Put Share Amount, in the manner
described below.
(b) Purchase Period. For purposes hereof, the
"Purchase 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 Purchase Period for such Put
shall end at 6:00 p.m., New York City time, on the Put
Cancellation Date (a "Truncated Purchase Period").
For purposes of this Agreement:
"Trigger Price" for any Purchase Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $.10, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Evaluation Day" shall mean each Business Day during a
Purchase Period where the lowest intra-day trading price of the Common Stock is
greater than or equal to the Trigger Price.
An "Excluded Day" shall mean each Business Day where the
lowest intra-day trading price of the Common Stock is less than the Trigger
Price.
<PAGE>
(c) Delivery of Purchase Notices. To effect a
purchase of Put Shares, the Investor shall deliver one or more
written notices to the Company (each a "Purchase Notice") at any
time and from time to time during the Purchase Period. Each
Purchase Notice shall set forth (i) the number of Put Shares
being purchased pursuant to such Purchase Notice, (ii) the Put
Share Price per share, and (iii) the aggregate Put Dollar Amount
for the Put Shares being purchased by the Investor pursuant to
such Purchase Notice, as of the date of delivery of such Purchase
Notice. The "Purchase Notice Date" with respect to a Purchase
Notice shall be the date on which the Investor delivers a copy of
such Purchase Notice to the Company by facsimile transmission
prior to 11:59 p.m. Eastern Time on such date.
If prior to the last day of a Purchase Period the
Investor shall not have delivered Purchase Notices covering the
purchase of an aggregate number of Put Shares equal to at least
the Put Share Amount with respect to such Purchase Period, then
the Investor shall be deemed to have delivered a Purchase Notice
on the last day of such Purchase Period covering the purchase of
a number of Put Shares equal to the difference of (x) the Put
Share Amount with respect to such Purchase Period minus (y) the
aggregate number of Put Shares covered by Purchase Notices
delivered by the Investor to the Company during such Purchase
Period.
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 Purchase Notice 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 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%).
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 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").
2.3.12 [Intentionally Left Blank]
2.3.13 Put Cancellation.
<PAGE>
(a) Mechanics of Put Cancellation. If at any time during a Purchase
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, at the Investor's option,
shall remain effective with respect to the number of Put Shares (the "Truncated
Put Share Amount"), if any, that were included in Purchase Notices delivered by
the Investor on or before 11:59 PM, New York City time, on the Put Cancellation
Date.
(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 Purchase 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 9% 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 Purchase 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 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].
<PAGE>
2.6 Due 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 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,
<PAGE>
(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 5, 1999 between the
Company and the Investor, the Company issued and delivered to Subscriber or its
designated assignees warrants (the "First Commitment Warrants") in the form
attached hereto as Exhibit U, to purchase 225,000 shares of Common Stock. On the
date of the Investment Commitment Closing, the Company shall issue and deliver
to Subscriber or its designated assignees warrants (the "Second Commitment
Warrants," together with the First Commitment Warrants, collectively referred to
as the "Commitment Warrants) in the form attached hereto as Exhibit U, or such
other form as agreed upon by the parties, to purchase 225,000 additional shares
of Common Stock. Each Commitment Warrant shall be exerciseable at a price (the
"Commitment Warrant Exercise Price") which shall initially equal the average
closing bid price for the five (5) trading days immediately preceding April 5,
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
Subscriber, the Company shall deliver to the Subscriber 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 an 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.
Notwithstanding the above, no Semi-Annual Non-Usage Fee shall accrue
during any Commitment Evaluation Period where the Company completed six (6)
Puts, each of which was for the full amount of the Individual Put Limit.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. 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 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
<PAGE>
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.
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 Risk Factors,
attached as Exhibit J, (the "Risk Factors") (ii) the Capitalization Schedule,
attached as Exhibit K, (the "Capitalization Schedule") and (iii) 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 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.
<PAGE>
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 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.
<PAGE>
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;
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."
<PAGE>
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 Organization, Good Standing, and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, 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 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 Dealer, 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 no subsidiaries.
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 Company's Form 10 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.
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.
<PAGE>
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 will use its best efforts
to become subject to the reporting requirements of the Exchange Act, and to have
a class of securities registered under Section 12 of the Exchange Act not later
than six (6) months from the date hereof, and shall file all reports required by
the Exchange Act following the date the Company first becomes 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 listed 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 does not reasonably anticipate that the Common Stock will be
delisted 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
June 3, 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 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.
<PAGE>
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. 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.
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.
<PAGE>
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.
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 Delaware 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 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 25,000,000 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 25,000,000 shares of Common Stock for issuance under this
Agreement.
<PAGE>
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, once it becomes a "Reporting Issuer" (defined as a Company which files
periodic reports under the Exchange Act), remain a Reporting Issuer (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 cash or cash equivalent consideration and 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.
6.6.1 Capital Raising Limitations.
During the period from the date of this Agreement until the the Termination
Date, the Company shall not issue or sell, or agree to issue or sell Equity
Securities (as defined below), for cash in private capital raising transactions
without obtaining the prior written approval of the Investor of this Offering
(the limitations referred to in this subsection 6.6.1 are collectively referred
to as the "Capital Raising Limitations"), except that, provided that the Company
has completed at least one Put during each Calendar Month since the Effective
Date, the Company may issue and sell Equity Securities without the Investor's
written approval to the extent that the aggregate sum of all such placements of
Equity Securities do not exceed the difference of (x) $500,000 multiplied by the
number of Puts that the Company has completed since the Effective Date, minus
(y) the sum of the Individual Put Limits for the Puts that the Company has
completed since the Effective Date ((x) minus (y) being referred to hereafter as
the "Equity Line Shortfall").
For purposes hereof, the following shall be collectively
referred to herein as, the "Equity Securities": (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.
6.6.2 Investor's Right of First Refusal.
For any private capital raising transactions of Equity Securities 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.
<PAGE>
6.6.3 Exceptions to Rights of First Refusal.
Notwithstanding the above, 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.
6.7 Financial 10-KSB Statements, Etc. and Current Reports on
Form 8-K. Once the Company becomes a "reporting company" within the meaning of
the Exchange Act, the Company shall deliver to the Investor copies of its annual
reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver
to the Investor current reports on Form 8-K within two (2) days of filing for
the Term of this Agreement.
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 listed 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) an Investor transfers Securities, pursuant to Rule 144, to
an affiliate which is an accredited investor, 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.
<PAGE>
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 the Investor, the Investor, 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 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.
<PAGE>
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.
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.
9. Indemnification.
<PAGE>
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.
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.
[INTENTIONALLY LEFT BLANK]
<PAGE>
10. 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]
-----------------------------------------------------
<PAGE>
The undersigned hereby subscribes 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.
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 3rd day of June, 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
(if applicable) Street Address
- ----------------------------- ------------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
- ----------------------------- ------------------------------------
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: ______________________ ATTN: ______________________________
- ---------------------------- ------------------------------------
Street Address Street Address
- -------------------------------------------
- -------------------------------------------
City, State or Province, Country, City, State or Country, Offshore Postal
Offshore Postal Code Code
Telephone: _____________________ Telephone: ___________________________
Facsimile: _____________________ Facsimile: ___________________________
Facsimile: _____________________ Facsimile: ___________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 3rd DAY OF JUNE, 1999.
----
ALOTTAFUN!, INC.
By:
-------------------------
Michael Porter, CEO
Address:
Attn: Michael Porter
ALOTTAFUN!, INC.
141 N. Main St., #207
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
<PAGE>
ADVANCE PUT NOTICE
ALOTTAFUN!, 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 June 3, 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):
----------------------------------------.
ALOTTAFUN!, INC.
By:
------------------------------
Michael Porter, CEO
Address:
ALOTTAFUN!, INC.
141 N. Main St., #207
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
EXHIBIT E
<PAGE>
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
ALOTTAFUN!, 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 June 3, 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
ALOTTAFUN!, 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 June 3, 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.
ALOTTAFUN!, INC.
By:
-----------------------
Michael Porter, CEO
Address:
ALOTTAFUN!, INC.
141 N. Main St., #207
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
EXHIBIT G
<PAGE>
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Alottafun!, 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 June 3, 1999.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Purchase Period: _____ Business Days
INVESTOR(S)
-----------------------------------
Investor's Name
By: _________________________________
(Signature)
Address:____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT H
<PAGE>
PURCHASE NOTICE
_________________________________, the Investor, pursuant to Alottafun!, 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 set
forth 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 June 3, 1999, exercises its obligation to purchase the number of Put
Shares as set forth below.
Date of this Purchase Notice: ________________
Put Date for Applicable Put:_________________
Market Price for the Put Shares Being Purchased
under this Purchase Notice: ________.
(Explanation: _____________________________).
Put Share Price for the Put Shares Being Purchased
under this Purchase Notice: ________.
Number of Put Shares being Purchased Pursuant to
this Notice: _____________
Total Aggregate Number of Put Shares Purchased
under this Put to Date, Inclusive of the Put Shares
Being Purchased in this Notice: ____________
Total Aggregate Put Dollar Amount of Put Shares
Purchased under this Put to Date, Inclusive of the Put
Shares Being Purchased in this Notice:
------------.
Maximum Put Dollar Amount: $_______________.
(As specified by the Company in the Put Notice, if
applicable, or $2 million, whichever is less).
INVESTOR(S)
-----------------------------------
Investor's Name
By: _________________________________
(Signature)
Address:____________________________________
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
ALOTTAFUN!, INC.
By:
----------------------
Michael Porter, CEO
Address:
ALOTTAFUN!, INC.
141 N. Main St., #207
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
EXHIBIT P
<PAGE>
PUT CANCELLATION NOTICE
ALOTTAFUN!, 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 June 3,
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 with respect to which the Investor has delivered a
Purchase Notice by 11:59 PM, New York City time, on the date hereof.:
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.
ALOTTAFUN!, INC.
By:
-----------------------
Michael Porter, CEO
Address:
ALOTTAFUN!, INC.
141 N. Main St., #207
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
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 June 3, 1999, hereby confirms receipt of Alottafun!, 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
Exhibit 6(f)
Registration Rights Agreement by and between
the Company and Swartz Private Equity, LLC.
dated June 3, 1999
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of June 3, 1999, by and among Alottafun!, Inc., a corporation duly incorporated
and existing under the laws of the State of Delaware (the "Company") and the
subscriber as named on the signature page hereto (hereinafter referred to as
"Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up
to Twenty Million Dollars ($20,000,000), excluding any funds paid upon exercise
of the Warrants, of Common Stock of the Company pursuant to that certain
Investment Agreement of even date herewith (the "Investment Agreement") between
the Company and the Subscriber, the Company has agreed to sell and the
Subscriber has agreed to purchase, from time to time as provided in the
Investment Agreement, shares of the Company's Common Stock for a maximum
aggregate offering amount of Twenty Million Dollars ($20,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement,
the Company has agreed to issue to the Subscriber, from time to time, Commitment
Warrants and Purchase Warrants, each as defined in the Investment Agreement, to
purchase a number of shares of Common Stock, exercisable for five (5) years from
their respective dates of issuance (collectively, the "Subscriber Warrants" or
the "Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement,
the Company has agreed to provide the Subscriber with certain registration
rights with respect to the Common Stock to be issued in the Offering and the
Common Stock issuable upon exercise of the Subscriber Warrants as set forth in
this Registration Rights Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, 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 singular and plural forms of the terms
defined):
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Additional Registration Statement" shall have the meaning set
forth in Section 3(b).
"Amended Registration Statement" shall have the meaning set
forth in Section 3(b).
<PAGE>
"Business Day" shall have the meaning set forth in the
Investment Agreement.
"Closing Bid Price" shall have the meaning set forth in the
Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.01,
of the Company.
"Due Date" shall mean the date that is one hundred twenty
(120) days after the date the of this Agreement.
"Effective Date" shall have the meaning set forth in Section
2.4.
"Filing Date" shall mean the date that is forty five (45) days
after the date of this Agreement.
"Holder" shall mean Subscriber, and any other person or entity
owning or having the right to acquire Registrable Securities or any permitted
assignee thereof;
"Piggyback Registration" and "Piggyback Registration
Statement" shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment
Agreement.
"Register," "Registered," and "Registration" shall mean and
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Act"), and pursuant to Rule 415 under the Act or any successor
rule, and the declaration or ordering of effectiveness of such registration
statement or document;
"Registrable Securities" shall have the meaning set forth in
Section 2.1.
"Registration Statement" shall have the meaning set forth in
Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under
the Act.
"Subscriber" shall have the meaning set forth in the preamble
to this Agreement.
"Subscriber Warrants" shall have the meaning set forth in the
above Recitals.
"Investment Agreement" shall have the meaning set forth in the
Recitals hereto.
"Supplemental Registration Statement" shall have the meaning
set forth in Section 3(b).
"Warrants" shall have the meaning set forth in the above
Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable
upon exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall
mean those shares of the Common Stock of the Company together with any capital
stock issued in replacement of, in exchange for or otherwise in respect of such
Common Stock, that are: (i) issuable or issued to the Subscriber pursuant to the
Investment Agreement or in this Agreement, and (ii) issuable or issued upon
exercise of the Subscriber Warrants; provided, however, that notwithstanding the
above, the following shall not be considered Registrable Securities:
<PAGE>
(a) any Common Stock which would otherwise be deemed to be Registrable
Securities, if and to the extent that those shares of Common Stock may be resold
in a public transaction without volume limitations or other material
restrictions without registration under the Act, including without limitation,
pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
2.2 Filing of Initial Registration Statement. The Company
shall, by the Filing Date, file a registration statement ("Registration
Statement") on Form SB-2 (or other suitable form, at the Company's discretion,
but subject to the reasonable approval of Subscriber), covering the resale of a
number of shares of Common Stock as Registrable Securities equal to at least
Twenty Five Million (25,000,000) shares of Common Stock and shall cover, to the
extent allowed by applicable law, such indeterminate number of additional shares
of Common Stock that may be issued or become issuable as Registrable Securities
by the Company pursuant to Rule 416 of the Act.
2.3 [Intentionally Left Blank].
2.4 Registration Effective Date. The Company shall use its
best efforts to have the Registration Statement declared effective by the SEC
(the date of such effectiveness is referred to herein as the "Effective Date")
by the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to
such Registration Statement.
2.8 Supplemental Registration Statement. Anytime the
Registration Statement does not cover a sufficient number of shares of Common
Stock to cover all outstanding Registrable Securities, the Company shall
promptly prepare and file with the SEC such Supplemental Registration Statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all such Registrable Securities and shall use its best efforts to
cause such Supplemental Registration Statement to be declared effective as soon
as possible.
3. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a Registration Statement with respect to such Registrable
Securities and use its best efforts to cause such Registration Statement to
become effective and to remain effective until all Registrable Securities are
resold pursuant to such Registration Statement.
(b) Prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Supplemental
Registration Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
<PAGE>
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of the jurisdictions in which the Holders are located and of such
other jurisdictions as shall be reasonably requested by the Holders of the
Registrable Securities covered by such Registration Statement, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request.
(g) Provide Holders with notice of the date that a
Registration Statement or any Supplemental Registration Statement registering
the resale of the Registrable Securities is declared effective by the SEC, and
the date or dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity
and a reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity
to review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by
the SEC or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceeding for such purpose. The Company shall use its best efforts to
prevent the issuance of any stop order and, if any is issued, to obtain the
removal thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities
covered by the Registration Statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the American Stock Exchange, NASD and any other exchange or market
on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement)(but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
Common Stock under the Act (other than a registration relating solely for the
sale of securities to participants in a Company stock plan or a registration on
Form S-4 promulgated under the Act or any successor or similar form registering
stock issuable upon a reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities of the issuer or
another entity), the Company shall, at such time, promptly give each Holder
written notice of such registration (a "Piggyback Registration Statement"). Upon
the written request of each Holder given by fax within ten (10) days after
mailing of such notice by the Company, the Company shall cause to be included in
such registration statement under the Act all of the Registrable Securities that
each such Holder has requested to be registered ("Piggyback Registration") to
the extent such inclusion does not violate the registration rights of any other
security holder of the company granted prior to the date hereof; provided,
however, that nothing herein shall prevent the Company from withdrawing or
abandoning such registration statement prior to its effectiveness.
<PAGE>
5. Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
Piggyback Registration Statement, to the extent such Registrable Securities may
be included in such Piggyback Registration Statement, shall be allocated among
all Holders who had requested Piggyback Registration pursuant to the terms
hereof, in the proportion that the number of Registrable Securities which each
such Holder, seeks to register bears to the total number of Registrable
Securities sought to be included by all Holders. If required by the managing
underwriter of such an underwritten public offering, the Holders shall enter
into a reasonable agreement limiting the number of Registrable Securities to be
included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 by Holders do not
constitute "Registrable Securities" by virtue of Section 2.1 of this Agreement,
and the status of those shares as Registrable Securities is disputed, the
Company shall provide, at its expense, an Opinion of Counsel, reasonably
acceptable to the Holders of the Securities at issue (and satisfactory to the
Company's transfer agent to permit the sale and transfer), that those securities
may be sold immediately, without volume limitation or other material
restrictions, without registration under the Act, by virtue of Rule 144 or
similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied, except to the extent such information is not
permitted by law.
8. Expenses. All expenses, other than commissions and fees and expenses
of counsel to the selling Holders, incurred in connection with registrations,
filings or qualifications pursuant hereto, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners, legal counsel, and
accountants of each Holder, any underwriter (as defined in the Act, or as deemed
by the Securities Exchange Commission, or as indicated in a registration
statement) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements or omissions: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or (ii)
the omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, and
the Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person; provided however, that the above shall not relieve the Company from any
other liabilities which it might otherwise have.
<PAGE>
(b) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume, the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
(c) In the event that the indemnity provided in paragraph (a)
of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holders may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and the Holders in connection with the statements
or omissions which resulted in such Losses. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the Holders. The Company and the
Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation that does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 9,
each person who controls a Holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a Holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each director and officer of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (c).
(d) The obligations of the Company and Holders under this
Section 9 shall survive the resale, if any, of the Common Stock, the completion
of any offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
<PAGE>
10. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act.
11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Alottafun!, Inc., Attn: Michael Porter, CEO,
141 N. Main St., #207, West Bend, WI 53095; Telephone (414) 334-4500, Facsimile
(414) 334-4502 (or at such other location as directed by the Company in writing)
and (ii) the Holders at their respective last address as the party as shown on
the records of the Company. Any notice, except as otherwise provided in this
Agreement, shall be made by fax and shall be deemed given at the time of
transmission of the fax.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist (as that term is defined in Section 2.1
hereof); but without prejudice to (i) the parties' rights and obligations
arising from breaches of this Agreement occurring prior to such termination (ii)
other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file an
amended registration statement including such transferee or a selling security
holder thereunder; and provided further that the Company may transfer its rights
and obligations under this Agreement to a purchaser of all or a substantial
portion of its business if the obligations of the Company under this Agreement
are assumed in connection with such transfer, either by merger or other
operation of law (which may include without limitation a transaction whereby the
Registrable Securities are converted into securities of the successor in
interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
16. 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.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any
and all claims, damages (including reasonable attorney's fees), and expenses
arising out of the first party's breach of any of the terms of this Agreement.
<PAGE>
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, 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 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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 3rd day of June, 1999.
ALOTTAFUN!, INC.
By: ________________________________
Michael Porter, CEO
Address: Alottafun!, Inc.
Attn: Michael Porter, CEO,
141 N. Main St., #207,
West Bend, WI 53095
Telephone (414) 334-4500
Facsimile (414) 334-4502
SUBSCRIBER:
SWARTZ PRIVATE EQUITY, LLC.
By: ________________________________
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
Exhibit 6(g)
Stock Option Plan of the Company
dated May __, 1999
<PAGE>
1999
STOCK OPTION PLAN
OF
ALOTTAFUN!, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
I. PURPOSE 1
2. ADMINISTRATION
1
2.1 The Board 1
2.2. The Committee 1
2.3 No Liability 2
3. STOCK 2
4. ELIGIBILITY 2
5. EFFECTIVE DATE AND TERM OF THE PLAN 2
5.1. Effective Date 2
5.2. Term 3
6. GRANT OF OPTIONS 3
7. LIMITATION ON INCENTIVE STOCK OPTIONS 3
8. OPTION AGREEMENTS 3
9. OPTION PRICE 3
10. TERM AND EXERCISE OF OPTIONS 4
10.1. Term and Exercise 4
10.2. Option Period and Limitations on Exercise 4
10.3. Method of Exercise 4
11. TRANSFERABILITY 5
11.1. Transferability of Options 5
11.2. Transferability of Shares 6
11.3. Repurchase Rights 6
11.4. Put Rights 6
11.5. Legend Describing Restrictions and Obligations 6
12. TERMINATION OF EMPLOYMENT 7
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY 7
13.1. Death 7
13.2. Disability 8
14. USE OF PROCEEDS 8
15. SECURITIES ACT OF 1933 8
16. SECURITIES EXCHANGE ACT OF 1934: RULE 16B-3 9
16. 1. General 9
16.2. Stock Option Committee 9
16.3. Action by the Board 9
16.4. Additional Restriction on Transfer of Stock 9
16.5. Additional Requirement of Stockholders Approval 9
17. AMENDMENT AND TERMINATION OF THE PLAN 10
18. EFFECT OF CHANGES IN CAPITALIZATION 10
18.1. Changes in Stock 10
18.2. Reorganization With Corporation Surviving 10
18.3 Other Reorganizations; Sale of Assets/Stock 11
18.4 Adjustments 11
18.5 No Limitations on Corporation 11
19. DISCLAIMER OF RIGHTS 12
20. NONEXCLUSIVITY OF THE PLAN 12
<PAGE>
STOCK OPTION PLAN
Alottafun!, Inc., a Delaware corporation (the "Corporation"), sets
forth the terms of this Stock Option Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 4 below) an
opportunity to acquire (or increase) a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries and will encourage
such eligible individuals to remain in the employ or service of the Corporation
or that of one or more of its subsidiaries. Each stock option granted under the
Plan (an "Option") is intended to be an incentive stock option ("Incentive Stock
Option") within the meaning of Section 422 of the Internal Revenue Code of 1986,
or the corresponding provision of any subsequently enacted tax statute, as
amended from time to time (the "Code"), except to the extent that any such
Option would exceed the limitations set forth in Section 7 below and except for
Options specifically designated at the time of grant as not being "incentive
stock options."
2. ADMINISTRATION
2.1. The Board
The Plan shall be administered by the Board of Directors of
the Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for under
the Plan or any Option granted or Option Agreement (as defined in Section 8
below) entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. The interpretation
and construction by the Board of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final and
conclusive.
2.2. The Committee
The Board may from time to time appoint a Stock Option
Committee (the "Committee"). The Board, in its sole discretion, may provide that
the role of the Committee shall be limited to making recommendations to the
Board concerning any determinations to be made and actions to be taken by the
Board pursuant to or with respect to the Plan, or the Board may delegate to the
Committee such powers and authorities related to the administration of the Plan,
as set forth in Section 2.1 above, as the Board shall determine, consistent with
the Certificate of Incorporation and Bylaws of the Corporation and applicable
law. In the event that the Plan or any Option granted or Option Agreement
entered into hereunder provides for any action to be taken by or determination
to be made by the Board, such action may be taken by or such determination may
be made by the Committee if the power and authority to do so has been delegated
to the Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.
<PAGE>
2.3. No Liability
No member of the Board or of the Committee shall be liable for
any action or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Option granted or
Option Agreement entered into hereunder.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of common stock of the Corporation (such shares of common stock
being collectively referred to herein as the "Stock"), which shares may be
treasury shares or authorized but unissued shares. The number of shares of Stock
that may be issued pursuant to Options granted under the Plan shall not exceed
in the aggregate 10,000,000 shares of Stock, which number of shares is subject
to adjustment as provided in Section 18 below. If any Option expires, terminates
or is terminated for any reason prior to exercise in full, the shares of Stock
that were subject to the unexercised portion of such Option shall be available
for future Options granted under the Plan.
4. ELIGIBILITY
Options may be granted under the Plan to any employee of the
Corporation or any "subsidiary corporation" thereof within the meaning of
Section 424(f) of the Code (a "Subsidiary") (including any such employee who is
an officer or director of the Corporation or any Subsidiary) as the Board shall
determine and designate from time to time prior to expiration or termination of
the Plan. An individual may hold more than one Option, subject to such
restrictions as are provided herein. The maximum number of shares of Stock
subject to Options that may be granted under the Plan to any employee of the
Corporation or any Subsidiary is 200,000 shares in any calendar year (subject to
adjustment pursuant to Section 18 hereof).
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date
The Plan shall become effective as of the date of adoption by
the Board ("effective date"), subject to stockholders' approval of the Plan
within one year of such effective date by a majority of the votes cast at a duly
held meeting of the stockholders of the Corporation at which a quorum
representing a majority of all outstanding stock is present, either in person or
by proxy, and voting on the matter, or by written consent in accordance with
applicable state law and the articles of incorporation and by-laws of the
Corporation; provided, however, that upon approval of the Plan by the
stockholders of the Corporation as set forth above, all options granted under
the Plan on or after the effective date shall be fully effective as if the
stockholders of the Corporation had approved the Plan on the effective date. If
the stockholders fail to approve the Plan within one year of such effective
date, any options granted hereunder shall be null, void and of no effect.
5.2. Term
The Plan shall terminate on the date ten years after the
effective date.
<PAGE>
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time prior to the date of termination of the Plan, grant
to such eligible individuals as the Board may determine ("Optionees") Options to
purchase such number of shares of the Stock on such terms and conditions as the
Board may determine, including any terms or conditions which may be necessary to
qualify such Options as "incentive stock options" under Section 422 of the Code.
The date on which the Board approves the grant of an Option shall be considered
the date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option shall constitute an Incentive Stock Option only to the extent
that the aggregate fair market value (determined at the time the Option is
granted) of the Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee's employer corporation and its
parent and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements") to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Board and stated in each Option Agreement.
In the case of an Option that is intended to constitute an Incentive Stock
Option, the option price shall be not less than the fair market value of a share
of the Stock covered by the Option on the date the Option is granted (as
determined below); provided, however, that in the event the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock
ownership of more than ten percent), the Option Price of an Option which is
intended to be an Incentive Stock Option shall be not less than 110 percent of
the fair market value of a share of the Stock covered by the Option at the time
such Option is granted. In the event that the Stock is listed on an established
national or regional stock exchange, is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or is publicly
traded in an established securities market, in determining the fair market value
of the Stock, the Board shall use the closing price of the Stock on such
exchange or System or in such market (the highest such closing price if there is
more than one such exchange or market) on the date the Option is granted (or, if
there is no such closing price, then the Board shall use the highest bid price
on such date), or, if no sale of the Stock has been made on such day, on the
next preceding day on which any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
10.1. Term and Exercise
Each Option granted under the Plan shall terminate and all
rights to purchase shares thereunder shall cease upon the expiration of ten
years (ten years and 30 days, in the case of an Option which is not designated
as an Incentive Stock Option) from the date such Option is granted, or on such
date prior thereto as may be fixed by the Board and stated in the Option
Agreement relating to such Option; provided , however, that in the event the
Optionee would otherwise be ineligible to receive an Incentive Stock Option by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to stock ownership of more than ten percent), an Option granted to such Optionee
which is intended to be an Incentive Stock Option shall in no event be
exercisable after the expiration of five years from the date it is granted.
<PAGE>
10.2. Option Period and Limitations on Exercise
Each Option granted under the Plan shall be exercisable, in
whole or in part, at any time and from time to time over a period commencing on
or after the date of grant and ending upon the expiration or termination of the
Option, as the Board shall determine and set forth in the Option Agreement
relating to such Option. Without limiting the foregoing, the Board, subject to
the terms and conditions of the Plan, may in its sole discretion provide that an
Option may not be exercised in whole or in part for a stated period or periods
of time during which such Option is outstanding; provided, however, that any
such limitation on the exercise of an Option contained in any Option Agreement
may be rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the date of grant of such Option, so as to
accelerate the time at which the Option may be exercised. Notwithstanding any
other provisions of the Plan, no Option shall be exercisable in whole or in part
prior to the date the Plan is approved by the stockholders of the Corporation as
provided above.
10.3. Method of Exercise
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at its principal office
addressed to the attention of the President, of written notice of exercise,
which notice shall specify the number of shares with respect to which the Option
is being exercised and shall be accompanied by payment in full of the Option
Price of the shares for which the Option is being exercised. The minimum number
of shares of Stock with respect to which an Option may be exercised, in whole
or, in part, at any time shall be the lesser of 100 shares or the maximum number
of shares available for purchase under the Option at the time of exercise.
Payment of the Option Price for the shares of Stock purchased pursuant to the
exercise of an Option shall be made, as determined by the Board and set forth in
the Option Agreement pertaining to an Option, either (i) in cash or by check
payable to the order of the Corporation (which check may, in the discretion of
the Corporation, be required to be certified); (ii) through the tender to the
Corporation of shares of Stock, which shares shall be valued, for purposes of
determining the extent to which the Option Price has been paid thereby, at their
fair market value (determined in the manner described in Section 9 above) on the
date of exercise; or (iii) by a combination of the methods described in (i) and
(ii); provided, however, that the Board may in its discretion impose and set
forth in the Option Agreement pertaining to an Option such limitations or
prohibitions on the use of shares of Stock to exercise Options as it deems
appropriate. An attempt to exercise any Option granted hereunder other than as
set forth above shall be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Stock covered thereby, the individual exercising the Option shall be entitled
to the issuance of a Stock certificate or certificates evidencing his or her
ownership of such shares. A separate Stock certificate or certificates shall be
issued for any shares purchased pursuant to the exercise of an Option which is
an Incentive Stock Option, which certificate or certificates shall not include
any shares which were purchased pursuant to the exercise of an Option which is
not an Incentive Stock Option. An individual holding or exercising an Option
shall have none of the rights of a stockholder until the shares of Stock covered
thereby are fully paid and issued to him, and, except as provided in Section 18
below, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
<PAGE>
11. TRANSFERABILITY
11.1. Transferability of Options
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetency, the Optionee's guardian or legal
representative) may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
11.2. Transferability of Shares
An Optionee (or any other person who is entitled to exercise
an Option pursuant to the terms of this Plan) shall not sell, pledge, assign,
give or otherwise transfer or dispose of any Stock acquired pursuant to an
Option without first offering such Stock to the Corporation for purchase on the
same terms and conditions as those offered to the proposed transferee. Any
individual who proposes such a transfer (the "Transferor") shall notify the
Corporation, in writing of the identity of the proposed transferee and the terms
and conditions of the proposed transfer. The Corporation may exercise its right
of first refusal under this Subsection within 30 days after receiving such
notice of the proposed transfer. The Corporation may assign its right of first
refusal under this Subsection, in whole or in part, to a Stockholder, a Plan or
an Affiliate. The Corporation shall give reasonable written notice to the
Transferor of any such assignment of its rights. If the Corporation (or its
permitted assignee) fails to exercise such right of first refusal during this
30-day period, the Transferor may proceed with the proposed transfer at any time
within the next 45 days, and such transfer is not completed within such time,
the restrictions of this Subsection shall re-apply. These restrictions also
shall re-apply to any person to whom Stock that was originally acquired pursuant
to an Option is sold, pledged, assigned, bequeathed, given or otherwise
transferred, without regard to the number of such subsequent transferees or the
manner in which they acquire the Stock. Notwithstanding the foregoing, the
restrictions of this Subsection shall not apply to a transfer of Stock that
occurs as a result of the death of the Transferor or of any subsequent
transferee, as defined in the Code or the Employee Retirement Income Security
Act of 1974, as amended, but such restrictions shall apply to the executor,
administrator or personal representative, the estate and the legatees,
beneficiaries and assigns thereof.
11.3. Repurchase Rights
Upon the termination of employment with the Corporation of an
employee who has been granted one or more Option(s) hereunder, the Corporation
shall have the right, for a period of 60 days following such termination, to
repurchase any or all of the shares of Stock acquired by the employee pursuant
to such Option(s), at a price equal to the fair market value of such shares on
the date of termination (or at such lower price as shall have been specified by
the Board and set forth in the applicable Option Agreement(s)). Upon the
exercise of one or more Option(s) granted hereunder following termination of
employment, the Corporation shall have the right, for a period of 60 days
following such exercise, to repurchase any or all of the shares of Stock
acquired by the employee pursuant to such Option(s), at a price equal to the
fair market value of such shares on the date of exercise (or at such lower price
as shall have been specified by the Board and set forth in the applicable Option
Agreement(s)). In the event that the Corporation determines that it cannot or
will not exercise its right to purchase Stock pursuant to this Subsection, in
whole or in part, the Corporation may assign its rights hereunder, in whole or
in part, to (1) any stockholder of the Corporation who owns stock or securities
of the Corporation having more than 50% of the combined voting power of all
classes of stock of the Corporation (a "Stockholder"), (2) any employee benefit
plan (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended) maintained by the Corporation for the benefit
of employees of the Corporation (a "Plan"), or (3) any corporation or other
trade or business that is controlled by or under common control with the
Corporation (determined in accordance with the principles of Section 414(b) and
(c) of the Cod and the regulations thereunder) (an "Affiliate"). The Corporation
shall give reasonable written notice to the employee of any assignment of its
rights. "Fair market value," for purposes of this Subsection, shall be
determined by the Board in the same manner specified for determining the Option
Price pursuant to Section 9 above.
<PAGE>
11.4. Put Rights
The Board, by inclusion of appropriate language in an Option
Agreement, may grant the right to put Stock acquired pursuant to an Option to
the Corporation at the fair market value of such Stock (as determined by the
Board in the same manner specified for determining the Option Price pursuant to
Section 9 above) at the time of exercise of such put, or at such other value as
shall be specified in the Option Agreement. Any such put shall be subject to
such further terms and conditions as the Board shall include in the Option
Agreement.
11.5. Legend Describing Restrictions and Obligations
The Board may cause a legend to be placed prominently on
certificates representing Stock issued pursuant to this Plan in order to give
notice of the transferability restrictions and obligations imposed by this
Section.
12. TERMINATION OF EMPLOYMENT
On the 30th day following the termination of the employment of an
Optionee with the Corporation or a Subsidiary, other than by reason of the death
or "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) of such Optionee, any Option granted to an Optionee pursuant to the
Plan shall terminate, and such Optionee shall have no further right to purchase
shares of Stock pursuant to such Option; provided, however, that in the event
that such termination of employment is by reason of the Optionee's retirement
with the consent of the Corporation or a Subsidiary in accordance with the
normal retirement policies of the Corporation or a Subsidiary, as the case may
be, then such Optionee shall have the right (subject to the general limitations
on exercise set forth in Section 10 above), at any time within three months
after such retirement and prior to termination of the Option pursuant to Section
10 above, to exercise, in whole or in part, any Option held by such Optionee at
the date of such retirement, whether or not such Option was exercisable
immediately prior to such retirement; provide further, that the Board may
provide, by inclusion of appropriate language in any Option Agreement, that an
Optionee may (subject to the general limitations on exercise set forth in
Section 10 above), in the event of termination of employment of the Optionee
with the Corporation or a Subsidiary, exercise an Option, in whole or in part,
at any time subsequent to such termination of employment and prior to
termination of the Option pursuant to Section 10 above, either subject to or
without regard to any installment limitation on exercise imposed pursuant to
Section 10 above, as the Board, in its sole and absolute discretion, shall
determine and set forth in the Option Agreement. Whether a termination of
employment is to be considered by reason of retirement with the consent of the
Corporation or a Subsidiary in accordance with the normal retirement policies of
the Corporation, or a Subsidiary, as the case may be, and whether a leave of
absence or leave on military or government service shall constitute a
termination of employment for purposes of the Plan, shall be determined by the
Board, which determination shall be final and conclusive. For purposes of the
Plan, a termination of employment with the Corporation or a Subsidiary shall not
be deemed to occur if the Optionee is immediately thereafter employed with the
Corporation or any other Subsidiary.
<PAGE>
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
13.1. Death
If an Optionee dies while employed by the Corporation or a
Subsidiary, the executors or administrators or legatees or distributees of such
Optionee's estate shall have the right (subject to the general limitations on
exercise set forth in Section 10 above), at any time within one year after the
date of such Optionee's death and prior to termination of the Option pursuant to
Section 10 above, to exercise any Option held by such Optionee at the date of
such Optionee's death, whether or not such Option was exercisable immediately
prior to such Optionee's death; provided, however, that the Board may provide by
inclusion of appropriate language in any Option Agreement that, in the event of
the death of an Optionee, the executors or administrators or legatees or
distributees of such Optionee's estate may exercise an Option (subject to the
general limitations on exercise set forth in Section 10 above), in whole or in
part, at any time subsequent to such Optionee's death and prior to termination
of the Option pursuant to Section 10 above, either subject to or without regard
to any installment limitation on exercise imposed pursuant to Section 10 above,
as the Board, in its sole and absolute discretion, shall determine and set forth
in the Option Agreement.
13.2. Disability
If an Optionee terminates employment with the Corporation or a
Subsidiary by reason of the "permanent and total disability" (within the meaning
of Section 22(e)(3) of the Code) of such Optionee, then such Optionee shall have
the right (subject to the general limitations on exercise set forth in Section
10 above), at any time within one year after such termination of employment and
prior to termination of the Option pursuant to Section 10 above, to exercise, in
whole or in part, any Option held by such Optionee at the date of such
termination of employment, whether or not such Option was exercisable
immediately prior to such termination of employment; provided, however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that an Optionee may (subject to the general limitations on exercise set forth
in Section 10 above), in the event of the termination of employment of the
Optionee with the Corporation or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option, in whole or in part, at any time subsequent to
such termination of employment and prior to termination of the Option pursuant
to Section 10 above, either subject to or without regard to any installment
limitation on exercise imposed pursuant to Section 10 above, as the Board, in
its sole and absolute discretion, shall determine and set forth in the Option
Agreement. Whether a termination of employment is to be considered by reason of
"permanent and total disability" for purposes of this Plan shall be determined
by the Board, which determination shall be final and conclusive.
14. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Corporation
<PAGE>
15. SECURITIES ACT OF 1933
The Corporation shall not be required to sell or issue any shares of
Stock under any Option if the sale or issuance of such shares would constitute a
violation by the individual exercising the Option or the Corporation of any
provisions of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations.
Specifically in connection with the Securities Act of 1933, as amended (the
"Securities Act"), upon exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered by such
Option, the Corporation shall not be required to sell or issue such shares
unless the Corporation has received evidence satisfactory to it that the holder
of such Option may acquire such shares pursuant to an exemption from
registration under such Act. Any determination in this connection by the
Corporation shall be final, binding, and conclusive. The Corporation may, but
shall in no event be obligated to, register any securities covered hereby
pursuant to the Securities Act. The Corporation shall not be obligated to take
any affirmative action in order to cause the exercise of an Option or the
issuance of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
16. SECURITIES EXCHANGE ACT OF 1934: RULE 16b-3
16.1. General
The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and after the date on which the Corporation first registers a class of equity
security under Section 12 of the Exchange Act (the "Registration Date"). From
and after the Registration Date, any provision inconsistent with Rule 16b-3 (as
in effect on the Registration Date) shall, to the extent permitted by law and
determined to be advisable by the Committee (constituted in accordance with
Section 10) or the Board (acting pursuant to Section 10), be inoperative and
void. Moreover, in the event that the Plan does not include a provision required
by Rule 16b-3 to be stated therein, such provision (other than one relating to
eligibility requirements and the amount or timing of awards) shall be deemed
automatically to be incorporated into the Plan insofar as participants subject
to Section 16 are concerned. In addition, from and after the Registration Date
the provisions set forth in Sections 16.2 through 16.5 shall apply.
16.2. Stock Option Committee
From and after the Registration Date, the Committee appointed
pursuant to Section 2.2 shall consist of not fewer than two members of the
Board, neither of whom, during the twelve months prior to service on such
Committee, shall have been granted an Option under this Plan and each of whom
shall qualify (at the time of appointment to the Committee and during all
periods of service on the Committee) in all respects as a "disinterested person"
as defined in Rule 16b-3.
16.3. Action by the Board
From and after the Registration Date, the Board may act under
the Plan other than by, or in accordance with the recommendations of, the
Committee, constituted as set forth in Section 2.2 above, only if all members of
the Board are "disinterested persons" as defined in Rule 16b-3.
16.4. Additional Restriction on Transfer of Stock
From and after the Registration Date, no director, officer or
other "insider" of the Corporation subject to Section 16 of the Exchange Act
shall be permitted to sell Stock (which such "'insider" had received upon
exercise of an Option) during the six months immediately following the grant of
such Option.
<PAGE>
16.5. Additional Requirement of Stockholders' Approval
From and after the Registration Date, no amendment by the
Board shall, without approval by a majority of the votes cast at a duly held
meeting of the stockholders of the Corporation at which a quorum representing a
majority of all outstanding stock is present, either in person or by proxy, and
voting on the amendment, or by written consent in accordance with applicable
state law and the articles of incorporation and by-laws of the Corporation,
materially increase the benefits accruing to eligible individuals under the Plan
or take any other action that would require the approval of such stockholders
pursuant to Rule 16b-3.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of all
outstanding stock is present, either in person or by proxy, and voting on the
amendment, or by written consent in accordance with applicable state law and the
articles of incorporation and by-laws of the Corporation, materially change the
requirements as to eligibility to receive Options or increase the maximum number
of shares of Stock in the aggregate that may be sold pursuant to Options granted
under the Plan (except as permitted under Section 18 hereof. Except as permitted
under Section 18 hereof, no amendment, suspension or termination of the Plan
shall, without the consent of the holder of the Option, alter or impair rights
or obligations under any Option theretofore granted under the Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
18.l. Changes in Stock
If the outstanding shares of Stock are increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of the conversion of the outstanding
shares of Preferred Stock to shares of Common Stock of the Corporation pursuant
to the terms of the Certificate of Incorporation of the Corporation, or by
reason of any recapitalization, reclassification, stock split-up, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Corporation, occurring after the effective date
of the Plan, the number and kinds of shares for the purchase of which Options
may be granted under the Plan shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which Options
are outstanding shall be adjusted proportionately and accordingly, so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding shall include a corresponding proportionate adjustment
in the Option Price per share.
18.2. Reorganization With Corporation Surviving
Subject to Section 18.3 hereof, if the Corporation shall be
the surviving corporation in any reorganization, merger or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.
<PAGE>
18.3. Other Reorganizations; Sale of Assets/Stock
Upon the dissolution or liquidation of the Corporation, or
upon a merger, consolidation or reorganization of the Corporation with one or
more other corporations in which the Corporation is not the surviving
corporation, or upon a sale of substantially all of the assets of the
Corporation to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Corporation is the surviving
corporation) approved by the Board which results in any person or entity owning
80 percent or more of the combined voting power of all classes of stock of the
Corporation, the Plan and all Options outstanding hereunder shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan and/or the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
(subject to the general limitations on exercise set forth in Section 10 above),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Board in its sole discretion shall
designate, to exercise such Option in whole or in part, whether or not such
Option was otherwise exercisable at the time such termination occurs and without
regard to any installment limitation on exercise imposed pursuant to Section 10
above, but subject to any additional limitations that the Board may, in its sole
discretion, include in any Option Agreement. The Board shall send written notice
of an event that will result in such a termination to all individuals who hold
Options not later than the time at which the Corporation gives notice thereof to
its stockholders.
18.4. Adjustments
Adjustments under this Section related to stock or securities
of the Corporation shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. No fractional shares of Stock or
units of other securities shall be issued pursuant to any such adjustment, and
any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.
18.5. No Limitations on Corporation
The grant of an Option pursuant to the Plan shall not affect
or limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer any or an part of its business or assets.
<PAGE>
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ of the Corporation or any
Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary.
20. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
*******************
dr/185083
<PAGE>
ALOTTAFUN!, INC.
INCENTIVE, STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Option Agreement") is made as of
_______________________, by and between Alottafun!, Inc., a Delaware corporation
(the "Corporation"), and ___________________________ an employee of the
Corporation or one or more of its subsidiaries (the "Optionee").
WHEREAS, the Board of Directors of the Corporation have duly adopted
and approved the Stock Option Plan (the "Plan"), which authorizes the
Corporation to grant to eligible individuals options for the purchase of shares
of the Corporation's Common Stock (the "Stock"); and
WHEREAS, the Corporation has determined that it is desirable and in its
best interests to grant to the Optionee, pursuant to the Plan, an option to
purchase a certain number of shares of Stock, in order to provide the Optionee
with an incentive to advance the interests of the Corporation, all according to
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
Subject to the terms of the Plan, the Corporation hereby grants
to the Optionee the right and option (the "Option") to purchase from the
Corporation, on the terms and subject to the conditions set forth in the Plan
and in this Option Agreement, shares of Stock. The date of grant of this Option
is __________________________, the date on which the grant of the Option was
approved by the Board of Directors of the Corporation (the "Board") or by the
Board's Stock Option Committee.
2. TERMS OF PLAN
The Option granted pursuant to this Option Agreement is granted subject
to the terms and conditions set forth in the Plan (a copy of which is available
from the Corporation upon request and has previously been provided to the
Optionee or is attached hereto). All terms and conditions of the Plan, as may be
amended from time to time, are hereby incorporated into this Option Agreement by
reference and shall be deemed to be part of this Option Agreement, without
regard to whether such terms and conditions (including, for example, provisions
relating to exercise or termination of the Option following the Optionee's
termination of employment, disability, death, or retirement or certain changes
in capitalization of the Corporation) are not otherwise set forth in this Option
Agreement. In the event that there is any inconsistency between the provisions
of this Option Agreement and of the Plan, the provisions of the Plan shall
govern.
3. PRICE
The purchase price (the "Option Price") for the shares of Stock subject
to the Option granted by this Option Agreement is $_________ per share.
<PAGE>
4. EXERCISE OF OPTION
Except as otherwise provided herein, and subject to the provisions of
the Plan (including, for example, provisions relating to exercise or termination
of the Option following the Optionee's termination of employment, disability,
death, or retirement or certain changes in capitalization of the Corporation),
the Option granted pursuant to this Option Agreement shall be subject to
exercise as follows:
4.1. Time of Exercise of Option
The Optionee may exercise the Option (subject to the
limitations on exercise set forth in this Option Agreement and in the Plan), in
installments as follows: on the second anniversary of the date of grant of the
Option, as set forth in Section 1 above, the Option shall be exercisable in
respect of 50% of the number of shares specified in Section 1 above; the option
shall be exercisable in respect of an additional 25% of the number of shares
specified in Section 1 above on the third anniversary of the date of the grant;
and the option shall be exercisable in respect of the remaining 25% of the
number of shares specified in Section 1 above on the fourth anniversary of the
date of the grant. The foregoing installments, to the extent not exercised,
shall accumulate and be exercisable, in whole or in part, at any time and from
time to time, after becoming exercisable and prior to the termination of the
Option; provided, that no single exercise of the Option shall be for fewer than
100 shares, unless the number of shares purchased is the total number at the
time available for purchase under this Option.
4.2. Termination of Option
The Option shall terminate upon the earlier of (i) the
expiration of a period of ten years from the date of grant of the Option, as set
forth in Section 1 above, or (ii) the Optionee's termination of employment with
the Corporation or a subsidiary thereof, provided, however, that if such
termination of employment falls within the scope of one of the provisions of the
Plan providing for an extended exercise period, the Option shall terminate upon
the expiration of the period after the Optionee's termination of employment with
the Corporation or a subsidiary thereof within which the Option is exercisable
as specified in such provision.
4.3. Limitations on Exercise of Option
Notwithstanding the foregoing Subsections, in no event may the
Option be exercised, in whole or in part, prior to the date on which the Plan is
approved by the stockholders of the Corporation, or after ten years following
the date upon which the Option is granted, as set forth in Section 1 above, or
after the occurrence of an event that results in termination of the Option under
the Plan. In no event may the Option be exercised for a fractional share of
Stock.
4.4. Method of Exercise of Option
Subject to the terms and conditions of this Option Agreement,
the Option may be exercised by delivering written notice of exercise to the
Corporation, at its principal office, addressed to the attention of the
President, which notice shall specify the number of shares for which the Option
is being exercised, and shall be accompanied by payment in. full of the Option
Price of the shares for which the Option is being exercised. Payment of the
Option Price for the shares of Stock purchased pursuant to the exercise of the
Option shall be made either (i) in cash or by check payable to the order of the
Corporation; (ii) through the tender to the Corporation of shares of Stock,
which shares shall be valued, for purposes of determining the extent to which
the Option Price has been paid thereby, at their fair market value (determined
in the manner specified in the Plan) on the date of exercise; or (iii) by a
combination of the methods described in (i) and (ii). If the person exercising
the Option is not the Optionee, such person shall also deliver with the notice
of exercise appropriate proof of his or her right to exercise the Option. An
attempt to exercise the Option granted hereunder other than as set forth above
shall be invalid and of no force and effect. Promptly after exercise of the
Option as provided for above, the Corporation shall deliver to the person
exercising the Option a certificate or certificates for the shares of Stock
being purchased.
<PAGE>
4.5. Parachute Limitation
Notwithstanding any other provision of this Option Agreement
or of any other agreement, contract, or understanding heretofore or hereafter
entered into by the Optionee with the Corporation (or any subsidiary or
affiliate thereof), except an agreement, contract, or understanding hereafter
entered into that expressly modifies or excludes application of this Subsection
(the "Other Agreements"), and notwithstanding any formal or informal plan or
other arrangement heretofore or hereafter adopted by the Corporation (or any
such subsidiary or affiliate) for the direct or indirect compensation of the
Optionee (including groups or classes of participants or beneficiaries of which
the Optionee is a member), whether or not such compensation is deferred, is in
cash, or is in the form of a benefit to or for the Optionee (an "Other Benefit
Plan"), the Optionee shall not have any right to exercise an Option or to
receive any payment or other benefit under this Option Agreement, any Other
Agreement, or any Other Benefit Plan if such right to exercise, payment, or
benefit, taking into account all other rights, payments, or benefits to or for
the Optionee under this Option Agreement, all Other Agreements, and all Other
Benefit Plans would cause any right, payment, or benefit to the Optionee under
this Option Agreement to be considered a "parachute payment" within the meaning
of Section 28OG(b)(2) of the Internal Revenue Code as then in effect (a
"Parachute Payment"). In the event that the receipt of any such right to
exercise or any other payment or benefit under this Option Agreement, any Other
Agreement, or any Other Benefit Plan would cause the Optionee to be considered
to have received a Parachute Payment under this Option Agreement, then the
Optionee shall have the right, in the Optionee's sole discretion, to designate
those rights, payments, or benefits under this Option Agreement, any Other
Agreements, and/or any Other Benefit Plans, which should be reduced or
eliminated so as to avoid having the right, payment, or benefit to the Optionee
under this Option Agreement be deemed to be a Parachute Payment.
5. TRANSFERABILITY
5.1. Transferability of Options
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetence, the Optionee's guardian or legal
representative) may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
<PAGE>
5.2. Transferability of Shares
An Optionee (or any other person who is entitled to exercise
an option pursuant to the terms of this Plan) shall not sell, pledge, assign,
give, or otherwise transfer or dispose of any Stock acquired pursuant to an
Option without first offering such Stock to the Corporation for purchase on the
same terms and conditions as those offered to the proposed transferee. Any
individual who proposes such a transfer (the "Transferor") shall notify the
Corporation, in writing, of the identity of the proposed transferee and the
terms and conditions of the proposed transfer. The Corporation may exercise its
right of first refusal under this Subsection within 90 days after receiving such
notice of the proposed transfer. The Corporation may assign its right of first
refusal under this Subsection, in whole or in part, to (1) any stockholder of
the Corporation who owns stock or securities of the Corporation having more than
50% of -the combined voting power of all classes of stock of the Corporation (a
'Stockholder"); (2) any. employee benefit plan (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended)
maintained by the Corporation for the benefit of employees of the Corporation (a
"Plan"); or (3) any corporation or other trade or business that is controlled by
or under common control with the Corporation (determined in accordance with the
principles of Section 414(b) and (c) of the Code and the regulations thereunder)
(an "affiliate"). The Corporation shall give reasonable written notice to the
Transferor of any such assignment of its rights. If the Corporation (or its
permitted assignee) fails to exercise such right of first refusal during this
90-day period, the Transferor may proceed with the proposed transfer at any time
within the next 45 days, and if such transfer is not completed within such time,
the restrictions of this Subsection shall re-apply. These restrictions also
shall re-apply to any person to whom Stock that was originally acquired pursuant
to an Option is sold, pledged, assigned, bequeathed, given, or otherwise
transferred, without regard to the number of such subsequent transferees or the
manner in which they acquire the Stock. Notwithstanding the foregoing, the
restrictions of this Subsection shall not apply to a transfer of Stock that
occurs as a result of the death of the Transferor or of any subsequent
transferee, but such restrictions shall apply to the executor, administrator, or
personal representative, the estate, and the legatees, beneficiaries, and
assigns thereof.
5.3. Repurchase Rights
Upon the termination of employment with the Corporation or a
subsidiary thereof (including without limitation termination resulting from
death or disability of the Optionee) of an employee who has been granted one or
more Option(s) hereunder, the Corporation shall have the right, for a period of
six months following such termination, to repurchase any or all of the shares of
Stock acquired by such Optionee pursuant to such Option(s), at a price equal to
the fair market value of such shares on the date of such termination (or at such
lower price as shall have been specified by the Board and set forth in this
Option Agreement(s)). Upon the exercise, pursuant to the terms of the Plan, of
one or more Option(s) granted hereunder following such termination of the
Optionee's employment (including without limitation termination resulting from
death or disability of the Optionee), the Corporation shall have the right, for
a period of six months following such termination, to repurchase any or all of
the shares of Stock acquired pursuant to such Option(s), at a price equal to the
fair market value of such shares on the date of such exercise (or at such lower
price as shall have been specified by the Board and set forth in this Option
Agreement(s)). In the event that the Corporation determines that it cannot or
will not exercise its right to purchase Stock pursuant to this Subsection, in
whole or in part, the Corporation may assign its rights hereunder, in whole or
in part, to a Stockholder, a Plan, or an Affiliate. The Corporation shall give
reasonable written notice to the Optionee of any assignment of its rights under
this Subsection. "Fair market value," for purposes of this Subsection, shall be
determined by the Board in the same manner specified for determining the Option
Price pursuant to the Plan.
<PAGE>
5.4. Publicly Traded Stock
If the Stock is listed on an established national or regional
stock exchange or is admitted to quotation on the Nasdaq, or is publicly traded
in an established securities market (as determined by the Board), the foregoing
restrictions of this Section 5 shall terminate as of the first date that the
Stock is so listed, quoted, or publicly traded.
5.5. Installment Payments
In the case of any purchase of Stock pursuant to this Section
5, at the option of the Corporation or its permitted assignee or delegee, the
Corporation or its permitted assignee or delegee may pay the Optionee or other
registered owner of the Stock the purchase price in five or fewer annual
installments. Interest shall he credited on the installments at the applicable
federal rate (as determined for purposes of Section 1274 of the Code) in effect
on the date on which the purchase is made. The Corporation or its permitted
assignee or delegee shall pay at least one-fifth of the total purchase price
each year, plus interest on the unpaid balance, with the first payment being
made on or before the 60th day after the purchase.
5.6. Legend Describing Restrictions and Obligations
The Board may cause a legend to be placed prominently on
certificates representing Stock issued pursuant to this Plan, in order to give
notice of the transferability restrictions and obligations imposed pursuant to
this Section 5 and applicable securities laws.
6. RIGHT OF SUBSTITUTION
The Corporation reserves the right to replace the Option with options,
shares, or other rights having an equivalent value at the time of exchange and a
comparable potential for appreciation based on the Corporation's future
operations.
7. RIGHTS AS STOCKHOLDER
Neither the Optionee nor any executor, administrator, distributee, or
legatee of the Optionee's estate shall be, or have any of the rights or
privileges of, a stockholder of the Corporation in respect of any shares of
Stock issuable hereunder unless and until such shares have been fully paid for
and certificates representing such shares have been endorsed, transferred, and
delivered, and the name of the Optionee (or of such other person or entity) has
been entered as the stockholder of record on the books of the Corporation.
8. WITHHOLDING OF TAXES
The parties hereto recognize that the Corporation or a subsidiary
thereof may be obligated to withhold federal and local income taxes and Social
Security taxes to the extent that the Optionee realizes ordinary income in
connection with the exercise of the Option or in connection with a disposition
of any shares of Stock acquired by exercise of the Option. The Optionee agrees
that the Corporation or a subsidiary thereof may withhold amounts needed to
cover such taxes from payments otherwise due an owing to the Optionee, and also
agrees that upon demand the Optionee will promptly pay to the Corporation or a
subsidiary thereof having such obligation any additional amounts as may be
necessary to satisfy such withholding tax obligation. Such payment shall be made
in cash or by certified check payable to the order of the Corporation or a
subsidiary thereof.
9. NOTIFICATION OF DISPOSITION
The Optionee agrees to notify the Corporation in writing within 30 days
of any disposition of shares of Stock acquired by the Optionee pursuant to the
exercise of this Option, if such disposition occurs within two years of the date
of grant, or one year of the date of exercise, of the Option.
<PAGE>
10. DISCLAIMER OF RIGHTS
No provision in this Option Agreement shall be construed to confer upon
the Optionee the right to be employed by the Corporation or any subsidiary
thereof, or to interfere in any way with the right and authority of the
Corporation or any subsidiary thereof either to increase or decrease the
compensation of the Optionee at any time, or to terminate any employment or
other relationship between the Optionee and the Corporation or any subsidiary
thereof.
11. INTERPRETATION OF THIS OPTION AGREEMENT
This Option shall constitute an incentive stock option within the
meaning of Section 422 of the Code. All decisions and interpretations made by
the Board or the Stock Option Committee thereof with regard to any question
arising under the Plan or this Option Agreement shall be binding and conclusive
on the Corporation and the Optionee and any other person entitled to exercise
the Option as provided for herein.
12. GOVERNING LAW
This Option Agreement shall be governed by the laws of the State of
Delaware (but not including the choice of law rules thereof).
13. BINDING EFFECT
Subject to all restrictions provided for in this Option Agreement and
the Plan and by applicable law relating to assignment and transfer of this
Option Agreement and the Option provided for herein, this Option Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors, and assigns.
14. NOTICES
Any notice hereunder by the Optionee to the Corporation shall be in
writing and shall be deemed duly given if mailed or delivered to the
Corporation, at its principal office, addressed to the attention of the
President, or if so mailed or delivered to such other address as the Corporation
may hereafter designate by notice to the Optionee. Any notice hereunder by the
Corporation to the Optionee shall be in writing and shall be deemed duly given
if mailed or delivered to the Optionee at the address specified in this Option
Agreement, or if so mailed or delivered to such other address as the Optionee
may hereafter designate by written notice given to the Corporation.
15. ENTIRE AGREEMENT
This Option Agreement and the Plan together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term -hereof may be amended, waived, discharged,
or terminated except by a written instrument signed by the Corporation and the
Optionee; provided, however, that the Corporation unilaterally may waive any
provisions hereof in writing to the extent that such waiver does not adversely
affect the interests of the Optionee hereunder or otherwise cause the Option
granted hereunder not to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code, but no such waiver shall operate as or be
construed to be a subsequent waiver of the same provision or a waiver of any
other provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement, or caused this Option Agreement to be duly executed on their behalf,
as of
the day and year first above written.
Optionee Name:
---------------------
Date of Grant:
---------------------
Number of Shares:
------------------
Price per Share:
------------------
ALOTTAFUN!, INC.
By:
--------------------
Title:
-----------------
OPTIONEE:
Name:
-------------------
X
-----------------------
OPTIONEE ADDRESS:
------------------------
------------------------
dr/185083
Exhibit 10
Consent of Pender, Newkirk & Company, CPA
<PAGE>
Consent of Independent Auditors
We hereby consent to the use of our Auditors' opinion, dated May 9, 1999, except
for Note 13 as to which the date is June 1, 1999, in the June 9, 1999 Form 10-SB
to be filed by Alottafun!, Inc. accompanying the financial statements of
Alottafun!, Inc. as of December 31, 1998 and the results of operations and its
cash flows for the years ended December 31, 1998 and 1997.
Certified Public Accountants
Tampa, Florida
June 9, 1999
03351\wp\consent ltr
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