<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 333-14477
SPORTSNUTS.COM INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 87-0561426
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
The Towers at South Towne II, Suite 550,
10421 South 400 West,
Salt Lake City, Utah 84095
(Address of principal executive offices) (Zip Code)
</TABLE>
(801) 816-2500
Issuer's telephone number
------------------------------------------------------
(Former name or former address and former fiscal year,
if changed since last report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of September 30, 1999, the Company
had outstanding 17,873,359 shares of common stock, par value $0.0001 per share.
Transitional Small Business Disclosure Format (check one) [ ] Yes [X] No
<PAGE> 2
PART I
FINANCIAL INFORMATION
The Financial Statements of the Company are prepared as of September 30, 1999.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
SPORTSNUTS.COM INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,106,996
Accounts receivable 22,831
Inventory 35,733
Other current assets 45,452
------------
Total current assets 2,211,012
Property and equipment, net 941,039
LSN database, net 3,162,500
Goodwill, net 531,285
------------
Total assets $ 6,845,836
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 184,117
Accrued liabilities 94,605
Accrued compensation and other benefits 102,360
Contingent deposit 50,000
------------
Total current liabilities 431,082
Shareholders' equity: 1,787
Common stock, 50,000,000 shares authorized, par value $.0001, 17,873,359 issued
and outstanding at September 30, 1999
Additional paid-in capital 12,469,785
Accumulated deficit (6,031,818)
Subscription receivable (25,000)
------------
Total shareholders' equity 6,414,754
Total liabilities and shareholders' equity $ 6,845,836
============
</TABLE>
See accompanying notes
<PAGE> 3
SPORTSNUTS.COM INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 560,030 $ 158,721
Operating expenses:
Cost of sales 718,613 222,021
General and administrative 1,169,517 239,127
Selling and marketing 924,418 182,455
Research and development 171,789
------------ ------------
Total operating expense 2,984,337 643,603
Operating loss (2,424,307) (484,882)
Other income (expenses):
Interest Income 40,715
Interest expense (126) (3,896)
------------ ------------
Total other income (expense) 40,589 (3,896)
------------ ------------
Loss from continuing operations before income taxes (2,383,718) (488,778)
Income tax benefit
------------ ------------
Net loss (2,383,718) (488,778)
------------ ------------
Loss per common share - basic and diluted $ (.14) $ (.07)
============ ============
Weighted average number of common and common equivalent shares 17,145,413 7,471,598
============ ============
</TABLE>
See accompanying notes
<PAGE> 4
SPORTSNUTS.COM INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 1,023,471 $ 463,104
Operating Expenses:
Cost of sales 1,163,029 452,882
General and administrative 1,954,506 553,408
Selling and marketing 1,732,075 269,159
Research and development 296,426
------------ ------------
Total operating expense 5,146,036 1,275,449
Operating loss (4,122,565) (812,345)
Other income (expenses):
Gain on Sale of Assets 5,040
Interest income 43,666
Interest expense (4,486) (64,661)
------------ ------------
Total other income (expense) 39,180 (59,621)
------------ ------------
Loss from continuing operations before income taxes (4,083,385) (871,966)
Income tax benefit 32,457
------------ ------------
Net loss after taxes (4,083,385) (839,509)
Minority interest 66,804
------------ ------------
Net loss $ (4,016,581) $ (839,509)
============ ============
Loss per common share - basic and diluted $ (.29) $ (.12)
============ ============
Weighted average number of common and common equivalent shares 13,718,653 6,956,754
============ ============
</TABLE>
See accompanying notes
<PAGE> 5
SPORTSNUTS.COM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,016,581) $ (839,509)
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation 192,343 19,871
Amortization of intangible assets 146,500
Non cash marketing expenses 114,000
Deferred income taxes (1,258) (32,745)
Minority interest (66,804)
Gain on disposal of fixed assets (5,040)
Changes in operating assets and liabilities:
Accounts receivable (22,831)
Inventory (19,149) (16,490)
Other current assets 1,908
Accounts payable (11,083) 38,733
Other liabilities 65,745 (2,424)
----------- -----------
Net cash used in operating activities (3,617,210) (837,604)
Cash flows from investing activities:
Purchases of property and equipment (1,042,333) (67,126)
Purchase of Subsidiary (100,000)
----------- -----------
Net cash used in investing activities (1,142,333) (67,126)
Cash flows from financing activities:
Increase (decrease) in cash overdraft (47,683) (2,306)
Proceeds from issuance of long-term debt 439,163
Net proceeds from issuance of common stock 7,130,840 821,500
Payments on stock subscription receivable 85,000 1,930
Principal payments of long-term debt (301,618) (359,121)
----------- -----------
Net cash provided by financing activities 6,866,539 901,166
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,106,996 (3,564)
Cash and cash equivalents at the beginning of period 15,762
----------- -----------
Cash and cash equivalents at the end of period $ 2,106,996 $ 12,198
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 6
SPORTSNUTS.COM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SportsNuts.com International, Inc. (formerly Durwood, Inc.) (the "Company") is
an online, personalized sports community offering a comprehensive bundle of
sports, outdoors, and fitness-related products, services, and information in a
club environment. The Company has combined the three powerful forces of sports,
the Internet, and network marketing in an effort to build the largest, targeted
online customer base of global sports enthusiasts. To date, the Company has
derived revenues principally from four sources: (i) proceeds from enrollments of
club members, (ii) recurring monthly purchases of promotional products offered
by the Company, (iii) purchases of sales aids by independent distributors, and
(iv) purchases of sports, outdoors, and fitness-related products and services.
The Company was incorporated under the laws of the State of Delaware on July 12,
1996. Prior to the reorganization with SportsNuts.com, Inc., a privately held
Delaware corporation ("SportsNuts"), on April 6, 1999, the Company had not
commenced active business operations and was considered a development stage
company.
FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-B.
Accordingly, certain information and footnote disclosures normally included in
complete financial statements have been condensed or omitted. In addition,
certain reclassifications have been made to the prior period to conform with the
current presentation. These financial statements should be read in conjunction
with the financial statements and footnotes thereto included in the Company's
1999 filing on Form 8-K/A.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and these accompanying
notes. Actual results could differ from those estimates.
NET LOSS PER COMMON SHARE
Net loss per common share is calculated by dividing the net loss by the weighted
average number of
<PAGE> 7
SPORTSNUTS.COM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS CONTINUED
SEPTEMBER 30, 1999
(UNAUDITED)
shares of common stock issued and outstanding during the period. The Company
excluded 16,038,553 and 4,040,762 options from the weighted average shares
outstanding computation at September 30, 1998 and 1999, respectively, because
their effect would be anti-dilutive. In addition, the Company excluded 2,961,003
and 622,160 warrants from the weighted average shares outstanding computation at
September 30, 1998 and 1999, respectively, because their effect would be
anti-dilutive.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. There have been no items of other comprehensive income to
date.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
Company has sustained significant net losses which have resulted in an
accumulated deficit at September 30, 1999 of approximately $6,031,818 and has
experienced periodic cash flow difficulties, all of which raise substantial
doubt regarding the Company's ability to continue as a going concern.
The net loss for the year ended December 31, 1998 and the nine months ended
September 30, 1999 was $1,624,074 and $4,016,581 respectively. To date the
Company has funded its operations through a combination of short and long-term
loans and the private placement of its common stock. The Company anticipates a
significant net loss for the year ended December 31, 1999 and with the expected
cash requirements for the coming year, there is substantial doubt as to the
Company's ability to continue operations.
The Company believes these conditions have resulted from the inherent risks
associated with small startup technology-oriented companies. Such risks include,
but are not limited to, the ability to (i) generate membership revenues and
sales of its products and services at levels sufficient to cover its costs and
provide a return for investors, (ii) attract additional capital in order to
finance growth, (iii) further develop and successfully market commercial
products and services, and (iv) successfully compete with other comparable
companies having financial,
<PAGE> 8
SPORTSNUTS.COM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS CONTINUED
SEPTEMBER 30, 1999
(UNAUDITED)
production and marketing resources significantly greater than those of the
Company.
The Company is attempting to improve these conditions by way of financial
assistance through issuances of additional equity and through membership
revenues and sales of products and services.
3. REORGANIZATION
On April 6, 1999, the Company acquired a controlling interest in SportsNuts.com,
Inc. ("SportsNuts") a privately held company (hereafter, the "Reorganization"),
wherein, the Company issued its shares to accredited investors (the
"Participating Shareholders") for approximately eighty-one percent (81%) of the
outstanding capital stock of SportsNuts. The Reorganization was accounted for as
a reverse merger into a non-operating public company, wherein SportsNuts was
treated as the accounting acquirer. In conjunction with the Reorganization, the
Company changed its name from Durwood, Inc. to SportsNuts.com International,
Inc. Prior to the Reorganization, the Company conducted no active business.
SportsNuts is an internet-based, online sports club and retail distributor of
sports, outdoor, and fitness related products, services, and information.
In connection with the Reorganization, the Company effected a 2.213 for 1
forward stock split (the "Forward Split") of all then currently outstanding
shares of its common stock, $0.0001 par value (the "Common Stock"). The Forward
Split resulted in an increase in the outstanding shares of the Company's Common
Stock from 1,103,500 to 2,441,713 shares. Immediately prior to the
Reorganization, the Company sold to accredited investors 1,000,000 post Forward
Split shares of Common Stock at $1.00 per share to raise gross proceeds of
$1,000,000. As part of the Reorganization, the Company issued 7,651,252 shares
of Common Stock to the Participating Shareholders of SportsNuts in exchange for
their collective 11,683,000 shares of SportsNuts common stock. Each
Participating Shareholder of SportsNuts received 0.654904748 shares of the
Company's Common Stock in exchange for each share of common stock of SportsNuts.
Additionally, the Company issued to holders of warrants in SportsNuts who were
also accredited investors (each a "Participating Warrant Holder") warrants for
the purchase of 3,353,113 shares of the Company's Common Stock. Each
Participating Warrant Holder received the right to purchase 0.654904748 shares
of the Company's Common Stock in exchange for each share of SportsNuts common
stock it was entitled to purchase pursuant to its SportsNuts warrants. In the
future, the Company may issue up to an additional 1,808,192 shares of Common
Stock to acquire the remaining 2,761,000 shares of Common Stock of SportsNuts
that were held by the remaining shareholders (other than the Company) as of the
closing date of the Reorganization. As compared to prior statements describing
the Reorganization on Forms 8-K and 10-QSB filed previously
<PAGE> 9
SPORTSNUTS.COM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS CONTINUED
SEPTEMBER 30, 1999
(UNAUDITED)
with the Commission, the number of shares and warrants issued to Participating
Shareholders and Participating Warrant Holders has been increased to reflect
conversions by certain SportsNuts shareholders of their shares and warrants for
shares and warrants of the Company during the second quarter, subsequent to the
closing of the Reorganization. These transactions were treated by the company as
being effective as of April 6, 1999.
4. STOCKHOLDERS EQUITY
ISSUANCE OF COMMON STOCK
Effective July 1, 1999, the Company issued 90,750 shares to certain individuals
as compensation for fund raising activities.
Effective July 15, 1999, the Company issued 396,245 shares at a price of $2.00
per share, net of issuance costs of $47,549.
Effective July 28, 1999 the Company issued 944,882 shares, valued at $3,750,000,
to acquire the 100,000 shares of the issued and outstanding shares of
Sportzz.com, Inc. ("Sportzz"), a Utah Corporation. In addition, cash
consideration of $100,000 was paid to the Shareholder of Sportzz. See further
discussion in the Summary of Recent Merger section of this filing.
Effective August 18, 1999 the Company issued 750,000 shares at a price of $1.95
per share, net of issuance costs of $131,625. This was booked as a subscription
receivable at the end of the second quarter of 1999, with the receipt of funds
and issuance of shares occurring in the third quarter.
ISSUANCE OF WARRANTS AND OPTIONS
During the three-month period ended September 30, 1999, the Company issued
warrants to acquire 91,551 shares of Common Stock at a weighted-average exercise
price of $1.96 per share. The warrants expire two years from the date of grant.
Also during the three-month period ended September 30, 1999, the Company issued
to various non-employee directors, employees, and service providers options to
purchase 6,796,005 shares of Common Stock at a weighted-average exercise price
of $2.57 per share. Such options were issued pursuant to the Company's 1999
Stock Option Plan and expire five years from the date of grant.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of SportsNuts.com International, Inc. (hereafter, "SportsNuts.com" or
the "Company") should be read in conjunction with the Unaudited Financial
Statements and related Notes thereto included herein. This discussion may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934, including,
without limitation, statements regarding the Company's expectations, beliefs,
intentions, or future strategies that are signified by the words "expects,"
"anticipates," "intends," "believes," or similar language. Actual results could
differ materially from those projected in the forward looking statements.
Prospective investors should carefully consider the information set forth below
under the caption "Risk Factors" in addition to the other information set forth
herein. The Company cautions investors that its business and financial
performance is subject to substantial risks and uncertainties.
OVERVIEW
SportsNuts.com is an online, personalized sports community offering a
comprehensive bundle of sports, outdoors, and fitness-related products,
services, and information in a club environment. The Company has combined the
three powerful forces of sports, the Internet, and network marketing in an
effort to build the largest, targeted online customer base of global sports
enthusiasts. To date, the Company has derived revenues principally from four
sources: (i) proceeds from enrollments of club members, (ii) recurring monthly
purchases of promotional products offered by the Company, (iii) purchases of
sales aids by independent distributors, and (iv) purchases of sports, outdoors,
and fitness-related products and services.
INTERNET REVENUE MODEL
Electronic Commerce. The e-commerce revenue model is generally
characterized by four types of Internet retailers: (i) traditional retailers
which possess existing internal fulfillment and customer service capabilities
and have developed their own web site and reporting systems as an additional
venue to market their products and services, (ii) traditional retailers which
possess internal fulfillment and customer service capabilities but have formed
partnerships with Internet-based companies to outsource the Web promotion of
their products and services, (iii) retailers which market their products and
services exclusively through the Internet and have developed internal
fulfillment and customer service capabilities, and (iv) retailers which market
their products and services exclusively through the Internet and have outsourced
fulfillment and customer service obligations to third parties. These four models
suggest that strategic alliances are likely to be formed between retailers
possessing fulfillment and customer service capability without an e-commerce
presence and Internet-based retailers, such as SportsNuts.com, desiring to focus
on site promotion and implementation of systems but outsourcing fulfillment and
customer service obligations. In any event, the complete e-commerce business
model is similar to a traditional retailer inasmuch as Internet retailers
generate a gross profit margin and have incidental expenses related to the
electronic transaction.
<PAGE> 11
Advertising. Although continuously evolving, the advertising model for
Internet-based companies relies heavily upon user demographics being captured to
provide advertisers return-on-investment feedback. Most Internet-based
advertising comes in the form of banner ads or identifying icons. Banner ads are
usually sold in blocks of 1,000 impressions (referred to as CPMs or "cost per
1,000 impressions"), averaging $30.00 per CPM. Targeted advertising (page
specific or user specific) can typically generate $60.00 per CPM. Advertisers
generally reward originating sites for "click throughs" (users following an
electronic link or pursuing an activity via their Web browser in order to
receive a prescribed economic benefit). Advertisers are constantly developing
new rate determinative criteria that allows advertisers to more precisely gauge
the level of exposure for their ads, including advertisements which appear
immediately while a new page is being loaded in the background of the Web
browser. Of available advertising space, most Internet sites sell less than 20%.
The Company anticipates that its emphasis on Web site development, together with
the increase in membership (in terms of sports enthusiasts and participants in
its network marketing operations) will likely generate advertising revenues
within the next twelve months.
NETWORK MARKETING REVENUE MODEL
Distributor and Customer Enrollments. Companies which use network
marketing successfully are typically characterized by a sharp increase in
distributor enrollment once these companies achieve a critical mass of active
distributors within a geographic area. The Company's use of an aggressive media
promotion campaign is intended to accelerate the enrollment of distributors and
customers to achieve critical mass at an earlier stage.
Product Sales. Product sales in companies involved in network marketing
are primarily a function of the number of distributors and customers affiliated
with the company. Because a certain level of product sales are generally
required for distributors to receive commissions, revenue projections can be
fairly predictable once an activity rate among all distributors is known.
Sales Aids. Most companies involved in network marketing view
distributor sales aids as a significant profit center. Similar to product sales,
revenue from sales aids is primarily a function of the number of active
distributors affiliated with the company.
RESULTS OF OPERATIONS
Following is management's discussion of the relevant items affecting results of
operations for the periods ended September 30, 1999 and 1998.
REVENUES. The Company generated net revenues of $560,030 during the
three month period ended September 30, 1999, a 353% increase from $158,721
during the third quarter of 1998. For the nine months ended September 30, 1999,
net revenues were $1,023,471, a 221% increase from $463,104 during the nine
months ended September 30, 1998. These increases were primarily due to
increased spending by the Company in marketing and sales, and the corresponding
expansion of the network marketing distributor force. Using sports radio
programs as a venue to reach prospective members, in April, 1999, the Company
began airing thirty-second radio advertisements in the Phoenix, Arizona
metropolitan area, using a well-known sports personality as a sponsor. The
Company has also begun airing additional advertisements on sports radio stations
in Orange County, California and Salt Lake City, Utah. In
<PAGE> 12
addition, in August of 1999, the Company entered into a contract with an
advertising agency to aggressively promote the SportNuts.com brand name.
Approximately $505,971 and $872,775, or 90% and 85% of revenues for the third
quarter and nine months ended September 30, 1999 were attributable to membership
sales from new distributors and customers. The Company anticipates that
membership sales will continue to grow, but as a percentage of overall revenues
will decline slightly over time as the Company launches its brokered Internet
service and continues to develop its Web site. With respect to the Web site,
over the next six months, the Company expects to begin receiving sufficient site
traffic to generate (i) advertising revenues, (ii) electronic commerce sales,
and (iii) revenues from other paid electronic services.
COST OF SALES. Cost of Sales for the three month period ended September
30, 1999 were $718,613, a 321% increase from $222,021 during the third quarter
of 1998. Cost of sales for the nine month period ended September 30, 1999 were
$1,163,029, a 257% increase from $452,882 during the nine months ended September
30, 1998. Such costs consist primarily of commission payments to the network
marketing distribution force, as well as the cost of the distributor kits, sales
aids, and products sold through the distributor force and through e-commerce
transactions. The increase from the prior year is directly related to the
corresponding 353% increase in revenues, primarily in the network marketing
business, as described above. Cost of Sales are currently greater than revenues
due to a temporary structuring of the commission payments in the network
marketing business to provide a higher payout to distributors as an incentive to
generate a larger distributor base. The Company anticipates that cost of sales
will decline as a percentage of sales, and it will generate a positive gross
margin within the next six months as it restructures commissions within its
network marketing operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three-months ended September 30, 1999 were $1,169,517, a 489% increase
from $239,127 during the third quarter of 1998. For the nine months ended
September 30, 1999, general and administrative expenses were $1,954,506, a 353%
increase from $553,408 during the nine months ended September 30, 1998. These
increases were principally due to significant increases in personnel salaries
and benefits, professional fees, contract labor, amortization of intangible
assets, and rent and occupancy-related expense. Payroll expense and professional
fees accounted for approximately $433,106 and $248,209, respectively, of this
amount during the third quarter, as compared to $23,214 and $35,429 during the
third quarter of 1998. For the nine months ended September 30, 1999, payroll
expense and professional fees totaled $869,899 and $307,689 compared to $87,733
and $78,321 during the nine months ended September 30, 1998. In addition,
amortization of intangible assets associated with the acquisition of
Sportzz.com, Inc. totaled $146,500 during the third quarter.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the
three month period ended September 30, 1999 were $924,418, a 507% increase from
$182,455 during the third quarter of 1998. Selling and marketing expenses for
the nine month period ended September 30, 1999 were $1,732,075, a 644% increase
from $269,159 during the nine months ended September 30, 1998. These increases
were primarily attributable to (i) the Company's advertising campaign, (ii) an
increased focus during the third quarter in promoting the amateur sports
community feature on its web site, and (iii) promotional efforts with respect to
the Company's direct sales force in an attempt to increase branding awareness
and promote involvement in the network marketing operations of the Company.
During the third quarter, the Company entered into a contract with an
advertising agency to aggressively promote the SportsNuts.com brand name. Also
during this quarter, the Company created a sales force consisting of both
internal personnel and independent contractors to aggressively pursue
organizations in the amateur sports community to sign up to the amateur sports
administration and community feature on its web site. In addition, during the
second quarter and continuing through the third quarter, the Company initiated a
system-wide increase in sales bonuses available to distributors. The sales bonus
increases were intended to create incentives for distributors to enroll
additional customers with
<PAGE> 13
the Company in the short-term. Over the long term, the Company expects that
expenses incurred in connection with its sales force in the amateur sports
arena, as well as with its network marketing distribution force will constitute
a majority of the Company's selling expenses.
PRODUCT DEVELOPMENT. Product research and development expenditures were
$171,789 and $296,426 during the third quarter and nine months ended September
30, 1999, as compared to none in the third quarter and nine months ended
September 30, 1998. Product development expenses related to the Company's web
site consist primarily of payroll, software and systems, and related costs for
programmers and software developers. The Company acquired such personnel
primarily through the acquisition of Sportzz.com, Inc., as well as through
additional hiring of information systems personnel during 1999. In the prior
year, the Company's web site was developed and hosted by an outside party. The
Company believes that significant investments in product development are
required to remain competitive. Accordingly, the Company expects to incur
increased expenditures with respect to product development in future periods.
OTHER INCOME (EXPENSE). Net other income totaled $40,589 for the three
months ended September 30, 1999, compared to net expense of $3,896 for the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
net other income was $39,180, compared to net expense of $59,921 for the nine
months ended September 30, 1998. During most of 1999, the Company relied on
various loans to support its ongoing funding needs. Therefore, it incurred
interest expense during the year. During 1999, the Company was able to raise
equity capital, which resulted in having cash on deposit at various financial
institutions. Therefore, the Company realized interest income on these cash
balances during the year.
EXPENSES RELATING TO PRIVATE OFFERINGS. During the third quarter 1999,
the Company conducted a private offering of its Common Stock solely to
accredited persons, receiving approximately $792,000 in gross proceeds (the
"Offering"). The Company has paid or is obligated to pay out approximately
$48,000 in cash commissions with respect to this Offering.
SUMMARY OF RECENT MERGER
On July 28, 1999, the Company concluded an Agreement and Plan of Merger
with Sportzz.com, Inc., (the "Merger Agreement") a Utah corporation ("Sportzz"),
with a wholly-owned subsidiary of the Company, SportsNuts Merger Sub., Inc., a
Utah corporation ("Merger Sub"), ObjectSelect, L.C., a Utah limited liability
company, being the sole shareholder of Sportzz (the "Shareholder"), and the
members thereof, providing for a reverse triangular merger of Merger Sub into
Sportzz (collectively, the "Merger"), with the result that Sportzz became a
wholly-owned subsidiary of the Company. Immediately prior to the Merger, Sportzz
was engaged in the development of internet based database management and
application development software, and it maintained an internet web site
employing its products for purposes of inputting, searching, and retrieving
local sports information including from leagues, schools, teams, and their
player rosters, game schedules, game results, photographs, articles, and
statistics.
As part of the Merger, the Company issued 944,882 shares of its Common
Stock to the Shareholder of Sportzz, in consideration for the 100,000 shares of
the issued and outstanding Sportzz common stock. In addition, cash consideration
of $100,000 was paid to the Shareholder. Of this consideration $10,000 of the
cash, and one half of the shares of Common Stock were placed in escrow pending
completion of certain post closing covenants described in the Merger Agreement.
The Merger is more particularly described in the Company's Form 8-K filing made
with the Commission on August 12, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999. The Company's primary source of liquidity
consisted of $2,106,996 in cash and cash equivalents, $75,000 of which has been
pledged as collateral for
<PAGE> 14
the lease of office space in Phoenix, Arizona, and $35,000 of which has been
pledged as collateral for certain credit cards issued in the name of the Company
for business use. The Company holds most of its cash reserves in local sweep
accounts with various local financial institutions. Since inception,
SportsNuts.com has financed its operations through a combination of short and
long-term loans, and through the private placement of its Common Stock. All of
SportsNuts.com's loans outstanding have since been converted to Common Stock as
of September 30, 1999.
The Company has sustained significant net losses which have resulted in
an accumulated deficit at September 30, 1999 of $6,031,818 and is currently
experiencing a substantial shortfall in operating capital which raises
considerable doubt about the Company's ability to continue as a going concern.
The net loss for the year ended December 31, 1998 and the nine months ended
September 30, 1999 was $1,624,074 and $4,016,581, respectively. The Company
anticipates a substantial net loss for the year ended December 31, 1999 and with
the expected cash requirements for the coming weeks, without additional cash
inflows from investors, there is substantial doubt as to the Company's ability
to continue operations after the end of 1999.
The Company believes these conditions have resulted from the inherent
risks associated with the small startup technology-oriented companies. Such
risks include, but are not limited to, the ability to (i) generate membership
revenues and sales of its products and services at levels sufficient to cover
its costs and provide a return for investors, (ii) attract additional capital in
order to finance growth, (iii) further develop and successfully market
commercial products and services, and (iv) successfully compete with other
comparable companies having financial, production and marketing resources
significantly greater than those of the Company.
The Company believes that its capital requirements are insufficient for
ongoing operations, with current cash reserves available to fund only the next
45 days of operations. Although efforts are presently underway to secure certain
short term financing to enable the Company to meet its ongoing obligations, the
Company requires considerable amounts of financing to make any significant
advancements in its business strategy. There is no agreement in place with any
source of financing, and there can be no assurance that the Company will be able
to raise any additional funds, or that such funds will be available on
acceptable terms. Funds raised through future equity financing will likely be
dilutive to current shareholders. Lack of additional funds will materially
affect the Company and its business, and may cause the Company to cease
operations. Consequently, shareholders could incur a loss of their entire
investment in the Company.
YEAR 2000 COMPLIANCE
The Company has assessed the impact of the Year 2000 on its information
technology ("IT") and non-IT systems. The Company believes it has allocated
sufficient resources from its operating capital to upgrade and test existing
systems so that they are Year 2000 compatible. The Company has tested all of its
IT systems and found them to be Year 2000 compliant in accordance with
manufacturer's standards. Based on its testing, management of the Company is not
aware of any instances of non-compliance with Year 2000 standards which would
materially impact the Company's business operations. The Company does not
anticipate significant further expenditures in connection with Year 2000
compliance efforts.
<PAGE> 15
The Company's servers have all been tested for Year 2000 compliance and
each has been found to meet the National Software Testing Laboratories Standard.
All of the Company's operating systems have also been updated for Year 2000
compliance. With respect to the Company's hubs, switches, and PIX Firewall, each
have been found to meet the Information Technology Association of America
standards for Year 2000 compliance. Management has tested all of its IT systems
for Year 2000 compliance, and intends to work with its Internet retail
affiliates over the remainder of the year to monitor their Year 2000 compliance
activities. The Company also intends to continue to test and upgrade its IT
systems throughout the remainder of the year. Nevertheless, significant
uncertainty exists concerning the potential impact of the Year 2000 on computer
systems generally. Any year 2000 compliance problems of the Company or any of
its customers or such affiliates could have a material adverse effect upon the
Company's business, results of operations, or financial condition. (See "Risk
Factors - Year 2000 Compliance").
FORWARD LOOKING STATEMENTS AND RISK FACTORS
FORWARD LOOKING STATEMENTS
When used in this report, the words, "believe," "plan," "expects," and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking statements
speak only as of the date hereof. All of these forward-looking statements are
based on estimates and assumptions made by management of the Company, which
although believed to be reasonable, are inherently uncertain and difficult to
predict. There can be no assurance that the benefits anticipated in these
forward-looking statements will be achieved.
RISK FACTORS
The risk factors described below are based on the Company following the
Reorganization of SportsNuts.com with the Company pursuing the business
conducted by SportsNuts.com and so the risk factors should be read in that
light.
ADDITIONAL FINANCING REQUIREMENTS; POSSIBLE CESSATION OF Business. The
Company is currently experiencing a substantial shortage of operating capital,
with current cash reserves available to fund only the next 45 days of
operations. Although efforts are presently underway to secure certain short term
financing to enable the Company to meet its ongoing obligations, the Company
requires considerable amounts of financing to make any significant advancements
in its business strategy. There is no agreement in place with any source of
financing, and there can be no assurance that the Company will be able to raise
any additional funds, or that such funds will be available on acceptable terms.
Funds raised through future equity financing will likely be dilutive to current
shareholders. Lack of additional funds will materially affect the Company and
its business, and may cause the Company to cease operations. Consequently,
shareholders could incur a loss of their entire investment in the Company.
<PAGE> 16
LACK OF EXTENSIVE OPERATING HISTORY. The SportsNuts.com business was
formed in 1996 and is subject to all risks inherent in the creation of a new
business and the development of new products and services, including the absence
of a history of significant operations and of proven products and services which
have been produced and sold over a significant period of time. SportsNuts.com is
continuing to establish many functions which are necessary to conduct business,
including without limitation, managerial and administrative structure, marketing
activities, financial systems and personnel recruitment. SportsNuts.com has a
limited operating history and limited sales revenues.
DEVELOPMENT STAGE COMPANY. Since the date of its inception, the Company
has operated on a small scale and has not yet generated a profit. To achieve any
significant measure of profitability, the Company must create substantial
activity through its Web Site to generate advertising revenues, product sales,
and the enrollment of distributors, with each such distributor attracting
additional customers to participate in the SportsNuts.com club or otherwise
purchase products and services from the Company. Although the Company has
generated increased activity on its Web Site and has increased the number of
distributors and customers on a monthly basis over the course of 1999, there can
be no assurance that the Company will continue to do so in the future or that
such increases will ultimately lead to the Company becoming profitable.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends, in large
part, upon the talents and skills of its management. To the extent that any of
its key personnel are unable or refuse to continue their association with the
Company, a suitable replacement would have to be found. In addition, the
competition for qualified personnel in the computer software and Internet
markets is intense, and there are limited numbers of such qualified personnel in
the metropolitan Salt Lake City area. There is no assurance that the Company
would be able to find suitable replacements for its existing management
personnel or technical personnel or that such replacements could be obtained for
an amount affordable to the Company.
DEPENDENCE ON MARKET AWARENESS OF BRAND. If the Company fails to
successfully promote its brand name or if the Company incurs significant
expenses promoting and maintaining its brand name, there could be a material
adverse effect on the Company's business, results of operations, and financial
condition. Due in part to the emerging nature of the market for Internet
management solutions and the substantial resources available to many of the
Company's competitors, there may be a time-limited opportunity to achieve and
maintain a significant market share. Developing and maintaining awareness of the
"SportsNuts" brand name is critical to achieving widespread acceptance of the
Company's management and reporting systems. Furthermore, the importance of brand
recognition will increase as competition in the market for the Company's
products increases. Successfully promoting and positioning the SportsNuts brand
will depend largely on the effectiveness of the Company's marketing efforts and
ability to promote a sufficient variety and high quality of useful Products at
competitive prices. Consequently, the Company may need to increase its financial
commitment to creating and maintaining brand awareness among potential
customers.
RELIANCE UPON INDEPENDENT DISTRIBUTORS. The Company's principal sales
force consists of independent distributors ("Distributors") who are not
employees of the Company. Relationships with Distributors are voluntarily
terminable by the Distributors, or the Company at any time. The Company's
revenue is substantially dependent upon the efforts of the Distributors,
<PAGE> 17
and any growth in future sales volume will require an increase in the
productivity of existing Distributors and/or growth in the total number of
Distributors. As is typical in the direct selling industry, there is turnover in
distributors from year to year, which requires the sponsoring and training of
new distributors by existing distributors to maintain or increase the overall
distributor force and motivate new and existing distributors. With respect to
the Company, the size of the distribution force can also be particularly
impacted by general economic and business conditions and a number of intangible
factors such as adverse publicity regarding the Company, or the public's
perception of products and services sold through the Company or its Web Site,
the content of the material and the overall theme of the Web Site, product
ingredients or components, the Distributors themselves, the Internet or
Internet-based companies in general, or network marketing. Because of the number
of factors that impact the sponsoring of new Distributors, and the fact that the
Company has little or no control over the level of sponsorship of new
Distributors, the Company cannot predict the timing or degree of those
fluctuations. There can be no assurance that the number or productivity of the
distributors will be sustained at current levels or increased in the future. In
addition, the number of Distributors as a percent of the population in a given
market could theoretically reach levels that become difficult to exceed due to
the finite number of persons inclined to pursue a network marketing business
opportunity. Since Distributors are independent contractors, the Company is not
in a position to provide the same level of direction, motivation and oversight
as it would with respect to its own employees.
SEASONALITY. While neither seasonal nor cyclical variations have
materially affected the Company's results of operations in the past, the
Company's short operating history may have suppressed these factors. For
example, with respect to product sales, the use of sports, outdoor, and fitness
equipment and apparel is generally seasonal and therefore demand for these items
can fluctuate greatly depending upon the time of year. There can be no assurance
that seasonal or cyclical variations will not materially adversely affect the
Company's results of operations in the future.
RELIANCE UPON MANUFACTURER-SUPPLIERS. The Company produces only a small
number of products sold from its Internet Web Site, and therefore relies upon
its electronic commerce retail vendors ("Affiliates") which sell products and
services through the Web Site to manufacture and/or supply all of the products
and services to SportsNuts.com customers. These Affiliates are primarily
manufacturer's representatives. The Company's profit margins and the ability for
consumers to receive existing products and services on a timely basis are
substantially dependent upon these Affiliates. The development of additional new
products and services in the future will likewise be dependent in part on the
services of suitable Affiliates. The failure of any one of the Company's
Affiliates to produce and deliver quality products and services in a timely
manner on a consistent basis could negatively affect the sale of products and
services from the Company's Web Site and could have a material adverse affect on
the Company's financial condition and results of operations.
POTENTIAL EFFECTS OF ADVERSE PUBLICITY. The size of the distribution
force and the results of the Company's operations can be particularly impacted
by adverse publicity regarding the Company, including publicity regarding the
content of material displayed on the Web Site, activities and events sponsored
by the Company, the legality of the Company's distribution system, the quality
of the products and services distributed through the Company's Web Site,
regulatory investigations of the Company and the products distributed by
Affiliates who sell such
<PAGE> 18
products and services through the Web Site, actions by certain Distributors, and
the public's perception of the Distributors as representatives of the Company
and of direct selling and network marketing-based businesses generally.
POTENTIAL NEGATIVE IMPACT OF DISTRIBUTOR ACTIONS. Actions by certain
Distributors can negatively impact the Company and its products and services.
The publicity resulting from Distributor activities such as inappropriate
earnings claims and product or service representations by Distributors can make
the sponsoring and retaining of Distributors more difficult, thereby negatively
impacting sales. There can be no assurance that these or actions of other
Distributors will not have a material adverse effect on the Company's business
or results of operations.
MANAGEMENT OF GROWTH. The Company anticipates that it will experience
rapid growth in the next few years of operations. The management challenges
imposed by this growth include entry into new markets, growth in the number of
persons accessing the Web Site, Affiliates, employees, Distributors, and
customers, expansion of facilities and computer systems necessary to accommodate
such growth, and additions and modifications to the Product lines offered
through the Company's Web Site. To manage these changes effectively, the Company
may be required to hire additional management and operations personnel and to
improve its operational, financial, computer, and management systems. If the
Company is unable to manage growth effectively or hire or retain qualified
personnel, the Company's business and results of operations could be materially
adversely affected.
GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling
activities are regulated by various governmental agencies. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes,
often referred to as "pyramid" or "chain sales" schemes, that promise quick
rewards for little or no effort, require high entry costs, use high pressure
recruiting methods and/or do not involve legitimate products. As is the case
with most companies which are involved in network marketing, the Company may
receive inquiries from various government regulatory authorities regarding the
nature of its business and other issues such as compliance with local business
opportunity and securities laws. Although the Company has not received any such
inquiry to date, there can be no assurance that the Company will not face such
inquiries in the future which, either as a result of findings adverse to the
Company or as a result of adverse publicity resulting from the instigation of
such inquiries, could have a material adverse effect on the Company's business
and results of operations. While the regulations governing network marketing are
complex and vary from state to state, based on research conducted to date, the
Company believes that its method of distribution is in compliance in all
material respects with the laws and regulations relating to direct selling
activities of the states in which the Company currently operates, and intends to
modify its network marketing system to comply with various regulatory
authorities. The failure to comply in any one state could cause the Company to
pay fines as well as cease operations in that state, which in turn could
influence the decisions of regulatory authorities in other states and could have
a material adverse effect upon the Company's financial condition and results of
operations.
<PAGE> 19
GOVERNMENTAL REGULATION OF NETWORK MARKETING IN GENERAL. The Company's
network marketing system is or may be subject to or affected by extensive
government regulation of marketing practices and federal and state regulation of
the offer and sale of business franchises, business opportunities, and
securities. In addition, the Internal Revenue Service and state taxing
authorities in any of the states or U.S. territories where the Company has
distributors could classify the distributors as employees of the Company (as
opposed to independent contractors). Any assertion of determination that the
Company's business is not in compliance with government requirements could have
a material adverse effect upon the Company's financial condition and results of
operations.
GOVERNMENT REGULATION OF PRODUCTS AND MARKETING. The Company is subject
to or affected by extensive governmental regulations not specifically addressed
to network marketing. Such regulations govern, among other things, (i) content
of material displayed on the Internet, (ii) product formulation, labeling,
packaging and importation, (iii) product claims and advertising, whether made by
the Company, the Company's Affiliates or Distributors of the Company, (iv) fair
trade and Distributor practices, and (v) taxes. Based on the Company's
experience and research (including assistance from legal counsel), the Company
believes that it is in material compliance with all regulations applicable to
the Company. Despite this belief, the Company could be found not to be in
material compliance with existing regulations as a result of, among other
things, the considerable interpretative and enforcement discretion given to
regulators or misconduct by its Distributors. Any assertion or determination
that the Company or any of its Distributors are not in compliance with existing
laws or regulations could potentially have a material adverse effect on the
Company's business and results of operations. In addition, in any jurisdiction,
the adoption of new laws or regulations or changes in the interpretation of
existing laws or regulations could generate negative publicity and/or have a
material adverse effect on the Company's business and results of operations. The
Company cannot determine the effect, if any, that future governmental
regulations or administrative orders may have on the Company's business and
results of operations. Regulatory action, whether or not it results in a final
determination adverse to the Company, has the potential to create negative
publicity, with detrimental effects on the retention, motivation, and
recruitment of distributors and, consequently, on the Company's sales and
earnings.
GOVERNMENT REGULATION OF THE INTERNET. There are currently few laws or
regulations directly applicable to electronic commerce. Due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet which could materially
increase the cost of transacting business on the World Wide Web. Although
transmissions from the Company's Web Site will originate from the States of Utah
and California, the government of the United States and the governments of other
states and foreign countries might attempt to regulate such transmissions or
assess taxes, fees, tariffs, duties, or other payments against the Company, the
Company's Affiliates, or customers purchasing products or services through the
Web Site.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET. The Company's
future success is substantially dependent upon continued growth in the use of
the Internet and the World Wide Web in order to support the volume of activity
necessary to generate advertising revenue and the sale of its products and
services. Rapid growth in the use of the Internet is a recent phenomenon, and
the Company relies on consumers who have historically used traditional means
<PAGE> 20
of media and commerce for entertainment and the purchase of goods and services.
For the Company to be successful, these consumers must accept and utilize novel
ways of conducting business and exchanging information. There can be no
assurance that communication or commerce over the Internet will become more
widespread or that the Internet will otherwise become a viable commercial
marketplace. Moreover, to the extent that the Internet continues to experience
significant growth in the number of users and frequency of use, there can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed upon it by such growth, or that the performance or
reliability of the World Wide Web will not be adversely affected thereby. In
addition, certain factors such as Internet commerce security and the speed of
Internet transmissions may deter existing as well as potential SportsNuts.com
customers from engaging in transactions on the Internet. The occurrence of any
of these risks could adversely affect the Company's business, operating results,
and financial condition.
RISK OF COMPUTER SYSTEM FAILURE. The success of the Company is
substantially dependent upon its ability to deliver high quality, uninterrupted
access to its Web site, which requires that the Company protect its computer
hardware and software systems and the data and information stored in connection
therewith. The Company's systems are vulnerable to damage by fire, natural
disaster, power loss, telecommunications failures, unauthorized intrusion, and
other catastrophic events. Any substantial interruption in the Company's systems
would have a material adverse effect on the Company's business, operating
results, and financial condition. Although the Company carries general
commercial insurance coverage, such coverage may not be adequate to compensate
for the losses that may occur. In addition, the Company's systems may be
vulnerable to computer viruses, physical or electronic break-ins, sabotage, or
other problems caused by third parties which could lead to interruptions,
delays, loss of data, or cessation in service to persons desiring to access the
Company's Web site. The occurrence of any of these risks could have a material
adverse effect upon the Company's business, results of operations, and financial
condition.
ELECTRONIC COMMERCE SECURITY RISKS. A significant barrier to electronic
commerce is the secure transmission of confidential information over the
Internet. The Company relies upon encryption and authentication technology to
provide the security necessary to effect secure transmissions of confidential
information. There can be no assurance that advances in decryption technology,
computer espionage, and other developments will not result in a breach or
compromise of the algorithms used by the Company to protect transaction data of
persons accessing the Web Site, and therefore lead to the misappropriation of
such data by third parties. Any such breach, compromise, or misappropriation
could damage the Company's reputation and expose the Company to a risk of loss
or litigation and possible liability, and could have a material adverse effect
upon the Company's business, results of operations, or financial condition.
RAPID TECHNOLOGICAL CHANGE. The Internet and on-line commerce industries
are characterized by rapid technological change, changing market conditions and
customer demands, and the emergence of new industry standards and practices that
could render the Company's existing Web site and the services provided pursuant
thereto obsolete. The Company's future success will substantially depend on its
ability to enhance its existing services, develop new services, and otherwise
respond to technological advances in a timely and cost-effective manner. If the
Company is unable, for technical, legal, financial, or other reasons, to adapt
in a timely manner in response to changing market conditions or customer
requirements, or if the Company's
<PAGE> 21
Web site does not achieve market acceptance, the Company's business, operating
results, and financial condition would be adversely affected.
RELIANCE ON CERTAIN DISTRIBUTORS. The Company's compensation plan allows
existing Distributors to sponsor new Distributors. The sponsoring of new
Distributors creates multiple Distributor levels in the network marketing
structure. Sponsored Distributors are referred to as "downline" Distributors
within the sponsoring Distributor's "downline network." If downline Distributors
also sponsor new Distributors, additional levels of downline Distributors are
created, with the new downline Distributors also becoming part of the original
sponsor's "downline network." As a result of this network marketing distribution
system, Distributors develop relationships with other Distributors. A few key
distributorships comprise the Company's highest Distributor levels. These
distributorships have developed extensive downline networks which consist of
many sub-networks. Together with such networks, these distributorships account
for substantially all of the Company's revenue attributable to direct sales.
Consequently, the loss of such a key Distributor together with a group of
leading Distributors in such Distributor's downline network, or the loss of a
significant number of distributors for any reason, could adversely affect sales
of products and services, impair the Company's ability to attract new
Distributors and adversely impact earnings and the business, and financial
condition of the Company.
NO PROPRIETARY PRODUCTS/NON-EXCLUSIVE LICENSE FOR PRODUCT SALES. The
Company does not offer products or services through its Web Site that enjoy any
significant proprietary protection for the benefit of the Company. Moreover,
because written distribution agreements are not common for firms which sell
sporting goods, apparel, and outdoor products, many of the Company's Affiliates
distribute most of these products or services without licenses from the
manufacturer. The lack of proprietary protection and exclusive licenses
substantially diminishes the barriers to entry for potential competitors of the
Company, and could adversely affect the Company's future prospects for growth
and profitability.
FAILURE TO EXPAND SALES OPERATIONS AND CHANNELS OF DISTRIBUTION WOULD
LIMIT COMPANY GROWTH. In order to maintain and increase the Company's current
and future market share and revenue, it will need to expand its direct and
indirect sales operations and channels of distribution. Failure to do so could
have a material adverse effect on the Company's business, results of operations,
and financial condition. The Company needs to expand its relationships with
domestic and international channel partners, product and service distribution
partners, value-added resellers, systems integrators, on-line and other
resellers, Internet service providers, and maintain strategic relationships with
key hardware and software vendors, its Distributors, and its customers.
NO TRADEMARK REGISTRATION. Although the Company has submitted
applications for trademark protection for the name "SportsNuts.com" name and
related slogans, the U.S. Patent and Trademark Office ("USPTO") has not approved
the Company's applications for use of the name "SportsNuts.com," the Company's
logo, and such other related terms and slogans. If the Company is unsuccessful
in obtaining the right of full usage of its name from the USPTO, other companies
with names, marks, or slogans similar to those of SportsNuts.com could seek to
require that the Company obtain a license from them or require the Company to
change its name, either of which could entail substantial costs. Additionally,
if the Company were required to
<PAGE> 22
change its name, it could lose all goodwill associated with the "SportsNuts.com"
mark. In addition, future products and services offered by the Company may need
to be marketed under different names if the mark "SportsNuts.com" or similar
name is likely to cause confusion with another trade name being used by another
company. The Company could also incur substantial costs to defend any legal
action taken against the Company pursuant to a trademark or service mark
dispute. If, in any legal action against the Company, its asserted trademarks,
or service marks should be found to infringe upon intellectual property rights
of a third party, the Company could be enjoined from further infringement and
could be required to pay damages. In the event a third party were to sustain a
valid claim against the Company, and in the event any required license were not
available on commercially reasonable terms, the Company's financial operations
and results of operations could be materially adversely affected. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may also be necessary to enforce intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others.
COMPETITION. The Company competes with other sports-themed Internet
sites, sports clubs, and direct selling and electronic commerce-based
organizations, many of which have longer operating histories and higher
visibility, name recognition, and financial resources. Management envisions the
entry of many more direct selling organizations into the marketplace as this
channel of distribution expands over the next several years. Moreover, as use of
the Internet grows, Management also anticipates a rapid increase in the number
of firms selling goods and services over the Internet. There can be no assurance
that the Company will be able to successfully meet the challenges posed by this
increased competition. The Company's Affiliates compete in the intensely
competitive market for sports, outdoor, and fitness goods and apparel and
compete directly with companies that manufacture and market these goods and
services. Many competitors of the Company's Affiliates have much greater name
recognition and financial resources than the Company's Affiliates. While the
Company believes that consumers appreciate the convenience of ordering products
on the Internet, the buying habits of many consumers accustomed to purchasing
products through traditional retail channels are difficult to change. The
Company's offerings on its Web Site in each Product category are also relatively
small compared to the wide variety of products and services offered by other
electronic commerce companies. There can be no assurance that the Company's
business and results of operations will not be affected materially by market
conditions and competition in the future.
PRODUCT LIABILITY. Although the Company does not manufacture any of the
products or services purchased or sold through its Web Site, it may be subject
to liability for losses caused by such products or services. While the Company
maintains a general commercial liability insurance policy, there is no guarantee
that this policy will provide coverage for or that any such coverage will be
sufficient to satisfy the claims of a successful product liability claim.
Accordingly, a successful products liability claim against the Company could
have a material adverse effect on the Company's business, results of operations,
and financial condition.
SECURITIES CLASS ACTION CLAIMS BASED UPON PRICE FLUCTUATION. Securities
class action claims have been brought against issuing companies in the past
after volatility in the market price of a company's securities. Such litigation
could be very costly and divert the Company's management's attention and
resources, and any adverse determination in such litigation could also subject
the Company to significant liabilities, any or all of which could have
<PAGE> 23
a material adverse effect on the Company's business, results of operations, and
financial condition.
NO DIVIDENDS. To date, the Company has not paid a dividend on its Common
Stock. The Company does not anticipate paying dividends on its Common Stock in
the foreseeable future, and may be restricted from paying dividends in the
future pursuant to future financing arrangements.
CONCENTRATION OF VOTING POWER. Kenneth Forrest, the founder of the
Company, and certain other shareholders of the Company, may be able to control
the election of the Company's Board of Directors. In addition, pursuant to the
Company's Certificate of Incorporation, the Board of Directors has been divided
into three classes, with only one class subject to reelection in a given year.
The Certificate of Incorporation requires a vote of 66% of the shares of the
Company to amend the provision governing the election of directors.
Consequently, even if a shareholder or group of shareholders were to acquire a
majority of the outstanding shares of the Company, such acquisition would not
necessarily lead to a change in control of the Company. Although current
shareholders of the Company do not hold preemptive rights to acquire additional
shares of Common Stock and, consequently, share amounts as a percentage of
Common Stock outstanding for existing shareholders are expected to decline after
consummation of the Offering, the Company cannot guarantee that certain persons,
either collectively or individually, will not be able to control the election of
the Board of Directors and that minority shareholders will not be adversely
affected as a result.
PRIVATE CAPITAL/NEED FOR ADDITIONAL CAPITAL. SportsNuts.com presently
has limited operating capital with which to engage in its business. The amount
of capital available to SportsNuts.com is limited and is not be sufficient to
enable it to conduct its business operations without additional fund-raising.
The Company will likely be required to raise additional capital in order to fund
its anticipated growth. If the Company seeks new equity investors in order to
raise additional capital, it will dilute the ownership of the Company's
stockholders, and such dilution could be significant.
ANTI-TAKEOVER PROVISIONS. The Restated Certificate of Incorporation of
the Company ("Certificate") contains certain provisions which could be an
impediment to a non-negotiated change in control of the Company, namely an
ability, without stockholder approval, to issue up to 5,000,000 shares of
preferred stock with rights and preferences determined by the board of
directors, staggered terms for directors, and super-voting requirements. These
provisions could impede a non-negotiated change in control and thereby prevent
stockholders from obtaining a premium for their Common Stock.
SECURITIES ELIGIBLE FOR PUBLIC TRADING. Of the 17,873,359 shares of the
Company's Common Stock outstanding at September 30, 1999, 2,441,713 are freely
tradeable or immediately eligible for resale under Rule 144 promulgated pursuant
to the Securities Act of 1933. Sales of substantial amounts of the freely
tradeable stock in the public market could adversely affect the market price of
the Common Stock.
PRIVATE LIABILITY OF MANAGEMENT. The Company has adopted provisions in
its Certificate which limit the liability of its Officers and Directors and
provisions in its bylaws
<PAGE> 24
which provide for indemnification by the Company of its Officers and Directors
to the fullest extent permitted by Delaware corporate law. The Company's
Certificate generally provides that its directors shall have no personal
liability to the Company or its stockholders for monetary damages for breaches
of their fiduciary duties as directors, except for breaches of their duties of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, acts involving unlawful payment of
dividends or unlawful stock purchases or redemptions, or any transaction from
which a director derives an improper personal benefit. Such provisions
substantially limit the shareholders' ability to hold directors liable for
breaches of fiduciary duty.
POTENTIAL ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK. The Company
is authorized to issue up to 50,000,000 shares of Common Stock. To the extent of
such authorization, the Board of Directors of the Company will have the ability,
without seeking shareholder approval, to issue additional shares of common stock
in the future for such consideration as the Board of Directors may consider
sufficient. The issuance of additional Common Stock in the future will reduce
the proportionate ownership and voting power of the Common Stock offered hereby.
The Company will also be authorized to issue up to 5,000,000 shares of preferred
stock, the rights and preferences of which may be designated in series by the
Board of Directors. To the extent of such authorization, such designations may
be made without shareholder approval. The designation and issuance of series of
preferred stock in the future would create additional securities which would
have dividend and liquidation preferences over the common stock.
VOLATILITY OF STOCK PRICES. In the event that there is an established
public market for the Company's Common Stock, market prices will be influenced
by many factors and will be subject to significant fluctuations in response to
variations in operating results of the Company and other factors such as
investor perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, developments with regard
to the Company's activities, future financial condition and management.
APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS. The
Common Stock of the Company may be considered a low priced security under rules
promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers participating in transactions in low priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealer's duties, the customer's rights and remedies, and
certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the customer's
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer, obtain specific
written consent of the customer, and provide monthly account statements to the
customer. With all these restrictions, the likely effect of designation as a low
priced stock will be to decrease the willingness of broker-dealers to make a
market for the stock, to decrease the liquidity of the stock and to increase the
transaction cost of sales and purchases of such stock compared to other
securities.
YEAR 2000 COMPLIANCE. Although the Company believes that it is Year 2000
compliant, it may be wrong. If the Company is wrong, it could face unexpected
expenses fixing Year 2000 problems or unanticipated Web site outages related to
the Year 2000, either of which
<PAGE> 25
could have a material adverse effect upon the Company's business, results of
operations, and financial condition. Furthermore, the Company's Web site is
integrated with equipment provided by third parties that may not be Year 2000
compliant. The Company is unable to make contingency plans covering the
possibility that a significant number of computers constituting the Internet may
fail to properly process dates for the year 2000 and that there may be a system
wide slowdown or breakdown. Any interruption or significant degradation of
Internet operations, whether due to Year 2000 problems or otherwise, could have
a material adverse effect upon the Company's business, results of operations, or
financial condition.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The following document is incorporated by reference from the Form 8-K of
the Company filed August 12, 1999:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of July 28, 1999 among
SportsNuts.com International, Inc., SportsNuts Merger Sub.,
Inc., Sportzz.com, Inc., ObjectSelect, L.C., and individual
members thereof.
</TABLE>
<PAGE> 26
The following documents are filed as exhibits to this Form 10-QSB:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Exhibit 10.1 Advertising Agency Services Agreement, dated August 23, 1999
between EURO RSCG/DSW Partners, LLC, and SportsNuts.com
International, Inc.
Exhibit 10.2 Software Licence Agreement, dated September 30, 1999 between
Brookline Technologies, Inc. and SportsNuts.com International,
Inc.
Exhibit 10.3 Executive Employment Agreement dated September 1999 between
David M. Hill and SportsNuts.com International, Inc.
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999 By /s/ DAVID M. HILL
---------------------------------
David M. Hill
Chief Financial Officer
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Exhibit 10.1 Advertising Agency Services Agreement, dated August 23, 1999
between EURO RSCG/DSW Partners, LLC, and SportsNuts.com
International, Inc.
Exhibit 10.2 Software Licence Agreement, dated September 30, 1999 between
Brookline Technologies, Inc. and SportsNuts.com International,
Inc.
Exhibit 10.3 Executive Employment Agreement dated September 1999 between
David M. Hill and SportsNuts.com International, Inc.
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
ADVERTISING AGENCY SERVICES AGREEMENT
THIS ADVERTISING AGENCY SERVICES AGREEMENT (the Agreement), dated
effective as of August 16, 1999, is between EURO RSCG/DSW Partners, LLC a
Delaware Limited Liability Company (the Agency), and SportsNuts.com
International Inc., a Delaware corporation (the Client).
Recitals
A. The Client desires to engage the Agency as its exclusive agent for its
product and business advertising needs.
B. The Agency desires to perform advertising services for the Client,
subject to the terms and conditions of this Agreement.
Agreement
In consideration of the mutual promises contained herein, the Client and
the Agency agree as follows:
1. Appointment of Agent. The Client hereby appoints and engages the
Agency as its agent for all product and business advertising, and the Agency
hereby accepts such engagement. During the term of this Agreement, the Client
agrees not to engage the service of any other advertising Agency without first
obtaining the Agency's written consent, and the Agency agrees to refrain from
having any of its key employees (those team members who affect or influence the
advertising strategy, creative message or media selection) who work on the
Client's advertising provide the same advertising services for any other
competing products without first obtaining the Client's written consent.
2. Agency Services. The Agency agrees to provide advertising services
rendered by an advertising Agency, including such services as are from time to
time specified in work authorizations with the Client for each project. The
Agency agrees to obtain the Client's approval of all expenditures incurred by
the Agency in connection with the Client's advertising. The Client agrees to aid
the Agency in this undertaking by making available to the Agency needed
information pertaining to its business and to cooperate with the Agency in
expediting work by means of promptly signing work authorizations.
3. Term and Notice of Termination. This Agreement shall become effective
as of the date first written above, and shall continue in force until terminated
by 90 day's prior notice in writing given by either party to the other.
4. Care of Client's Property. The Agency will take every reasonable
precaution to safeguard any and all of the Client's property entrusted to the
Agency's custody and control, but in the absence of gross negligence or willful
disregard to the Client's property on the part of the Agency, the Agency will
not be held responsible for any loss, damage, destruction or unauthorized use by
others of any such property.
5. Cancellation of Plans. The Client reserves the right, in its
<PAGE> 2
best interests, to modify, reject, cancel, or stop any and all plans, schedules,
or work in process, and in such event the Agency shall immediately take proper
steps to carry out the Client's instructions, but the Client agrees to assume
the Agency's liability for all commitments, and to reimburse the Agency for any
losses derived therefrom and for all expenses incurred in connection with the
Client's advertising on its authorization in writing, and to pay the Agency any
reasonable service charges and reimbursements as described in Attachment A
relating thereto.
6. Failure of Suppliers to Perform. The Agency will endeavor to the best
of its knowledge and ability to guard any loss to the Client through failure of
media or suppliers to properly execute their commitments, but the Agency shall
not be held responsible for any failure on the part of media or suppliers.
7. Confidentiality. In the performance of the service contemplated by
this Agreement, the Agency agrees to hold in strict confidence all confidential
or proprietary information that it receives relating to the Client's business,
and the Agency will not divulge or otherwise communicate such information to a
third party without the Client's prior consent. Confidential or proprietary
information shall include all information obtained by the Agency from the
Client, or disclosed to the Agency by the Client, and which relates to the
Client's past, present, or future research, development, and business
activities, except for previously obtained or publicly disclosed information.
8. Authorizations. The Agency shall obtain releases, licenses, permits,
or other authorizations to use photographs, copyrighted materials, art work, or
any other property or rights belonging to third parties obtained by the Agency
for use in performing services for the Client. The Client shall obtain the same
for any such items obtained by the Client that are used by the Agency in
performing such service and shall be responsible for any claims with respect to
such use. The Client shall be responsible for the accuracy, completeness, and
propriety of information concerning the Client's products and services that the
Client furnishes to the Agency in connection with the performance of this
Agreement.
9. Indemnification. The Agency agrees to exercise in its best judgment
in the preparation and placing of all advertising and publicity for the Client,
with a view to avoid in any claims, proceedings, or suits being made or
instituted against the Client or the Agency. It is mutually agreed, however that
the Client will indemnify the Agency against any loss the Agency may incur as
the result of any claim, suit, or proceeding made or brought against the Agency
based upon any advertising or publicity that the Agency prepared for the Client
and that the Client approved before its publication or broadcast, provided that
such claim, suit, or proceeding made or brought against the Agency is
attributable to the negligence or willful misconduct of the Client. The Client
will also indemnify the Agency against any loss the Agency may sustain resulting
from any claim, suit, or proceeding made or brought against the Agency for use
of any Agency-produced commercials by the Client's dealers or by anyone else,
when such claim, suit, or proceeding arises out of the Agency's obligations
under the applicable union codes or contracts relating to the
<PAGE> 3
production of commercials, provided that such claim, suit, or proceeding made or
brought against the Agency is attributable to the negligence or willful
misconduct of the Client. The Client's duty to indemnify the Agency under this
provision attaches to all commercials made pursuant to this Agreement and will
survive the termination of this Agreement.
Notwithstanding the foregoing, the Agency will indemnify the
Client against any loss the Client may incur as the result of any claim, suit,
or proceeding made or brought against the Client based upon any advertising or
publicity that the Agency prepared for the Client and that the Client approved
before its publication or broadcast, provided that such claim, suit, or
proceeding is attributable to the negligence or willful misconduct of the
Agency. The Agency will also indemnify the Client against any loss the Client
may sustain resulting from any claim, suit, or proceeding made or brought
against the Client for use of any Agency-produced commercials by the Client's
dealers or by anyone else, provided that such claim, suit, or proceeding is
attributable to the negligence or willful misconduct of the Agency. The Agency's
duty to indemnify the Client under this provision attaches to all commercials
made pursuant to this Agreement and will survive the termination of this
Agreement.
10. Misleading Advertising. Nothing herein contained shall be deemed to
require that the Agency undertake any campaign, prepare any advertising material
or publicity, or cause publication of any advertisement or article that, in the
Agency's judgment, would be misleading, indecent, libelous, unlawful, or
otherwise prejudicial to the Client's interests or to the Agency's interests.
11. Compensation. The Client agrees to compensate the Agency for its
services hereunder as specified in Attachment A hereto, which attachment is a
part of this Agreement.
12. Advertising Outside the U.S. Since conditions vary from company to
company and from country and country, it is not feasible to establish a firm
policy regarding compensation to the Agency for advertising that the Client may
wish to adapt, translate, or use in part or whole outside the U.S. When, and if,
this problem arises, it is agreed that there will be a review of compensation
practices and amounts to determine what compensation should be paid to the
Agency for the use of advertising created by the Agency.
13. Payment of Invoices. The Client agrees to pay the Agency's invoices
within 30 days from the date of receipt thereof. If such invoices are not paid
within 30 days from the date of receipt, all unpaid amounts will bear interest
at the rate of 18% per annum until paid in full. The Agency reserves the right
in case of delinquency in the Client's payments, or such impairment of the
Client's credit as in the Agency's opinion might endanger future payments, to
change the requirements as to the terms of payment under this Agreement.
14. 60 Day Rule. Should the time arise when any Agency invoice ages 60
days past due, the Agency has the right to stop work on all projects for the
Client. Work will resume when all past due amounts are
<PAGE> 4
paid in full. The Client further agrees to provide quarterly financial
statements at the request of the Agency.
15. Disposition of Client's Property and Transfer of Contracts with
Media. Upon the termination of this Agreement, the Agency shall transfer,
assign, and make available to the Client, or the Client's representative, all
property and materials in the Agency's possession or control belonging to and
paid for by the Client, and all information regarding the Client's advertising.
The Agency also agrees to give all reasonable cooperation toward transferring
with approval of third parties in interest all reservations, contracts, and
arrangements with advertising media, or others, for advertising space,
broadcasting time, or materials yet to be used (including non-cancelable
contracts) and all right and claims thereto and therein, upon being duly
released from the obligation thereof. However, at termination, unused
advertising plans and ideas prepared by the Agency, or any advertisements not
already published or broadcast, shall remain the Agency's property, regardless
of whether or not the physical embodiment of the creative work is in the
Client's possession in the form of copy, art work, plates, recordings, film,
videotape, etc.
16. Examination of Records. It is understood that the Client may at any
time during this Agreement, and upon reasonable notice, examine the Agency's
files and records pertaining to the handling of the Client's advertising.
17. Notices. All notices under this Agreement shall be delivered by hand
or by registered or certified mail and, if intended for the Agency, shall be
addressed to:
EURO RSCG/DSW Partners, LLC
4 Triad Center, Suite 400
Salt Lake City, UT 84180
Attn.: John Dahlin
or at such other address as the Agency shall designate by written notice to the
Client, and if intended for the Client, shall be addressed to it at:
SportsNuts.com International Inc.
10421 South 400 West, Suite 550
Salt Lake City, Utah 84095
Attn.: Kenneth I. Denos
or at as such other addresses the Client shall designate by written notice to
the Agency. All notice shall be effective upon actual delivery if by hand or, if
by mail, five days after being deposited in the United States mail, postage
prepaid and addressed as required by this paragraph.
18. Miscellaneous Provisions.
(a) This Agreement contains the entire Agreement between the
parties and supersedes all prior agreements; it shall not be amended or
otherwise modified in any manner except by an instrument in writing executed by
both parties.
<PAGE> 5
(b) Neither this Agreement nor any rights or duties under this
Agreement may be assigned or delegated by either party unless the other party
consents in writing.
(c) Except as otherwise provided in this Agreement, this
Agreement shall be binding upon the inure to the benefit of the parties and
their respective heirs, personal representatives, successors and assigns.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(e) This Agreement shall be governed by and in accordance with
the laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below, to be effective for all purposes as of the date first
written above.
THE AGENCY: THE CLIENT:
EURO RSCG/DSW Partners, LLC SportsNuts.com International Inc.,
a Delaware Limited Liability Company a Delaware Corporation
By: /s/ Alan K. Reingard By: /s/ Rodger Smith
- ------------------------------- ----------------------------------
Alan K. Reingard, Partner Rodger Smith, VP of Marketing
Date: August 23, 1999 Date: August 23, 1999
Attachment A
Compensation:
(a) General. The Client agrees to compensate the Agency for its services
hereunder as specified in the work authorizations for each project or as may
otherwise be set forth in a separate compensation agreement between the Agency
and the Client. The Client further agrees to reimburse the Agency for all
expenditures it incurs in connection with the Client's advertising, including
the cost of all materials and services purchased for the Client on the Client's
authorization.
(b) Vendor Mark-up. All outside services contracted by the Agency to be
performed on behalf of the Client with no mark-up. These services typically
include photography, printing, color separations, modeling fees and other
services not provided directly by the Agency.
(c) Agency Time. The Agency charges the Client for all employee time,
excluding business operation employees, at an hourly rate in 15
<PAGE> 6
minute increments. Media and account service time will be included in the
monthly retainer as described in (d) below. All other Agency time will be billed
on a project by project basis. Hourly rates currently range from $110 - $325. As
hourly rates increase, the Client will be notified of such increases. The Client
agrees to pay the Agency for employee time as described herein.
(d) Monthly Retainer. The Client agrees to pay the Agency a monthly
retainer beginning August 1999 in the amount of $30,000 which covers all media,
account service and creative time for advertising projects. The Agency
acknowledges that all time associated with the Tagline/Brand Strategy project
will not be charged to the Client and will include an analysis of the Client's
brand naming system and recommendations on the core communications platform
including tagline usage. A reconciliation of all media, account service and
creative time spent compared to the retainer amount will take place ninety (90)
days following the commencement date and any amounts above or below the
allowance will be billed or credited.
(e) Interactive Projects. All interactive projects will be billed on a
project by project basis and no Agency time is covered by the retainer.
(f) Six Month Retainer Review. Six months from the date of this
Agreement, the Client and Agency will review the monthly retainer amount to
evaluate its fairness and make any necessary adjustments.
(g) Travel Costs. All travel hard costs including transportation, hotel
accommodations and meals will be billed to the Client at cost with no mark-up.
<PAGE> 1
EXHIBIT 10.2
SOFTWARE LICENSE AGREEMENT
1 AGREEMENT
1.1 This Software License Agreement ("Agreement") along with its
attached initialed, signed and dated Addendums, Attachments, Covenants,
Exhibits, Schedules and/or Work Orders covering the Software ("SOFTWARE")
developed and marketed by Brookline Technologies, Inc., is a legal and binding
Agreement between Brookline Technologies, Inc., Sandy, Utah ("BROOKLINE") and
LICENSEE ("LICENSEE") whose name appears in Section 2.1 below.
2 INTRODUCTION
2.1 This Agreement is between BROOKLINE and SportsNuts.com
International, Inc. its LICENSEE, under which the SOFTWARE is being licensed on
a non-exclusive basis for the LICENSEE's own use under the terms and conditions
as set forth in this Agreement.
3 DEFINITIONS
As used in this Agreement, the following definitions shall apply:
3.1 "Agreement" shall mean this Agreement between BROOKLINE and
LICENSEE, including all initialed, signed and dated Addendums, Attachments,
Covenants, Exhibits, Schedules and/or Work Orders of this Agreement, whether
executed as part of this Agreement when initially initialed, signed and dated or
added, modified or deleted at a later date.
3.2 "BROOKLINE" shall mean Brookline Technologies, Inc.
3.3 "LICENSEE" shall mean the party so designated in Section 2.1 of this
Agreement.
3.4 "Confidential Information" shall mean any information relating to or
disclosed in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing party.
"Confidential Information" shall not include information (a) already lawfully
known to the receiving party, (b) disclosed in published materials, (c)
generally known to the public or (d) lawfully obtained from any third party.
3.5 "TeleNow IVR Flow Charts" shall mean the flow charts prepared and
edited by BROOKLINE to document and detail LICENSEE's TeleNow IVR (Interactive
Voice Response) SOFTWARE functionality.
3.6 "Specifications" shall mean the Momentum Compensation Plan
Specifications Document, and/or the TeleNow IVR Flow Charts, and/or any other
documents, charts or analysis necessary for BROOKLINE to program the SOFTWARE to
the LICENSEE's particular requirements.
3.7 "Effective Date" shall mean the date upon which authorized personnel
of BROOKLINE initials, signs and dates this Agreement and receives initial
payment from LICENSEE as set forth in this Agreement
<PAGE> 2
after which LICENSEE has initialed, signed and dated this Agreement.
3.8 "Documentation Sign-off Date(s)" shall mean the date(s) when
LICENSEE signs-off as completed, the Specifications necessary for BROOKLINE to
program the SOFTWARE to LICENSEE's particular requirements as set forth in this
Agreement.
3.9 "Delivery Date" shall mean the date that BROOKLINE physically
delivers, installs, and sets up the SOFTWARE on LICENSEE's equipment.
3.10 "Acceptance Date" shall mean the date that LICENSEE and BROOKLINE
agree in writing that the software has been properly installed and is
functioning in a manner acceptable to the LICENSEE.
3.11 "Test Period" shall mean the period between the Delivery Date and
the Acceptance Date when the LICENSEE, with assistance from BROOKLINE personnel,
shall review, test, and verify the completeness and accuracy of the SOFTWARE
according to the Specifications. BROOKLINE and LICENSEE expect the Test Period
to last no more than 10 Business Days unless LICENSEE notifies BROOKLINE of
defects that require correction by BROOKLINE, in which case the Test Period
shall be extended by the same number of days required by BROOKLINE to correct
such defects.
3.12 "Termination Date" shall mean the date that the Agreement is
terminated as set forth in this Agreement.
3.13 "Calendar Days" shall mean Sunday through Saturday of each week.
3.14 "Business Days" shall mean Monday through Friday, less any holidays
during those days.
3.15 "Documentation" shall mean the user manual(s) and any other
materials supplied by BROOKLINE or its third party vendor(s) for use with the
SOFTWARE or any Release of the SOFTWARE.
3.16 "License Fee" shall mean the fee for licensing the SOFTWARE as
specified in "Attachment M SOFTWARE Order And Payment Terms".
3.17 "SOFTWARE" shall mean the machine-readable binary code, including
any modifications, fixes and additional Releases developed and delivered by
BROOKLINE to LICENSEE under the terms of this Agreement.
3.18 "Source Code" shall mean the non-compiled, modifiable programming
code of the SOFTWARE, or portions thereof, developed and written by BROOKLINE.
3.19 "Release" shall mean any version of the SOFTWARE or Documentation
supplied by BROOKLINE upon or after the Delivery Date.
3.20 "Customizations" shall mean all custom programming changes,
additions, and modifications to the SOFTWARE requested by LICENSEE.
3.21 "Payment Terms" shall mean the provisions, conditions, and terms
for payment as set forth in this Agreement and the SOFTWARE Order
<PAGE> 3
Form and Payment Terms, Attachment M of this Agreement.
3.22 "Current Services Fee Schedule" shall mean BROOKLINE's published
schedule of fees for products and services or subsequently updated versions
thereof.
4 GRANT OF LICENSE
4.1 BROOKLINE hereby grants to LICENSEE, and LICENSEE hereby accepts, a
non-exclusive license to use the SOFTWARE subject to the terms and provisions of
this Agreement.
4.2 The license granted herein permits the LICENSEE to install a single
copy of the SOFTWARE on a single server computer for a single company subject to
the terms of this Agreement.
5 PAYMENT OF SOFTWARE LICENSE FEE
5.1 In consideration of the license granted under this Agreement,
LICENSEE shall pay to BROOKLINE the License Fee(s) as set forth in this
Agreement. Any payments not received on or before the their respective due date
as set forth in this Agreement, or any payment made by LICENSEE which is
returned for insufficient funds, shall constitute a violation of this Agreement
and BROOKLINE may proceed, at its sole discretion, with appropriate remedies as
set forth in this Agreement.
6 ACKNOWLEDGMENT OF BROOKLINE'S OWNERSHIP RIGHTS
6.1 LICENSEE acknowledges that it obtains no ownership rights in the
SOFTWARE under the terms of this Agreement. All rights in the SOFTWARE,
including, but not limited to, Confidential Information, trade secrets,
trademarks, service marks, patents, and copyrights are, shall be and will remain
the property of BROOKLINE or any third party from whom BROOKLINE has licensed
software or technology. All copies of the SOFTWARE or third party software or
technology delivered to LICENSEE or made by LICENSEE remain the property of
BROOKLINE.
7 ACKNOWLEDGMENT OF LICENSEE'S OWNERSHIP RIGHTS
7.1 BROOKLINE acknowledges that it obtains no ownership rights to
LICENSEE's data and confidential business information and practices under the
terms of this Agreement. All rights including but not limited to LICENSEE's
Confidential Information, trade secrets, trademarks, service marks, patents,
copyrights, client lists, client account histories, compensation models,
confidential business relationships, confidential business practices, service
cost models, and proprietary technologies are, shall be, and will remain the
property of LICENSEE or any third party from whom LICENSEE has obtained license.
8 RESTRICTION AGAINST THIRD PARTY USE
8.1 The SOFTWARE may be used for LICENSEE's internal business use only
and only to process information or data of LICENSEE. LICENSEE may not process
information or data belonging to other parties.
<PAGE> 4
9 DATA CONVERSION
9.1 BROOKLINE shall provide LICENSEE with data import format
specifications and BROOKLINE shall import LICENSEE's data into the SOFTWARE for
no cost. BROOKLINE shall use its best efforts to accurately and completely
convert the data; however, all converted data files shall be supplied "AS IS"
AND BROOKLINE DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH REGARD TO CONVERTED DATA FILES. LICENSEE accepts
complete responsibility for verifying the accuracy and completeness of all
converted files and data and informing BROOKLINE, as set forth in this
Agreement, of any defects or omissions detected by LICENSEE prior to the
Delivery Date.
10 DELIVERY AND ACCEPTANCE
10.1 This Agreement, along with its attached and initialed, signed and
dated Addendums, Attachments, Covenants, Exhibits, Schedules and/or Work Orders,
together with the initial payment, must be initialed, signed and dated by
LICENSEE and received by BROOKLINE within 5 business days from the hand
delivered date or post marked date on the envelope mailed or expressed to
LICENSEE by BROOKLINE.
10.2 BROOKLINE and LICENSEE shall work together to complete the
Specifications in a timely and efficient manner as set forth in this Agreement.
Should BROOKLINE deem it necessary for certain LICENSEE personnel to visit
BROOKLINE's offices in order to expedite the sign off of the Specifications,
LICENSEE agrees to consent to such a request.
10.3 Should LICENSEE require that changes be made to the Specifications
after LICENSEE has signed off the Specifications but before or on the Delivery
Date, BROOKLINE reserves the right to renegotiate the Delivery Date to
accommodate such changes.
10.4 Should LICENSEE become dilatory in responding to BROOKLINE's
inquiries regarding the LICENSEE's Specifications, BROOKLINE shall notify
LICENSEE in writing as set forth in this Agreement of LICENSEE's delinquency.
Once LICENSEE has received notification of its delinquency, LICENSEE shall have
ten (10) Business Days to respond and become in compliance. If LICENSEE's
delinquency, in BROOKLINE's opinion, has caused any delays in BROOKLINE's
ability to meet the Delivery Date, then BROOKLINE reserves the right to
renegotiate the Delivery Date to accommodate the such delays.
10.5 Should BROOKLINE become dilatory in responding to LICENSEE's
inquiries regarding LICENSEE's Specifications, or in the delivery thereof,
LICENSEE shall notify BROOKLINE in writing, as set forth in this Agreement of
BROOKLINE's delinquency. Once BROOKLINE has received notification of its
delinquency, BROOKLINE shall have ten (10) business days to respond and become
in compliance or become in breach of this Agreement.
11 INSTALLATION
<PAGE> 5
11.1 LICENSEE assumes complete responsibility for ensuring that its
computer hardware, network, and related software are suitable to operate the
SOFTWARE with satisfactory performance and reliability.
11.2 If LICENSEE elects to install the SOFTWARE, LICENSEE accepts full
responsibility for the correct installation and configuration of the SOFTWARE
according to the Documentation and support provided by BROOKLINE.
11.3 Prior to the SOFTWARE being installed on LICENSEE's computer
hardware, LICENSEE shall install and maintain the latest version of pcANYWHERE,
and/or any other data communication software recommended and approved by
BROOKLINE, on its network or server, or provide an equivalent approved means of
remote access to provide BROOKLINE the ability to connect to LICENSEE's network
for SOFTWARE diagnostics, maintenance and support purposes. BROOKLINE
understands that for security reasons, BROOKLINE's access to unrelated software
and hardware of LICENSEE will necessarily be restricted.
12 TRAINING AND SOFTWARE SUPPORT
12.1 BROOKLINE includes up to 8 hours of free SOFTWARE training with
this Agreement at BROOKLINE's training facility if this training is scheduled to
occur within 10 Business Days prior to the Delivery Date or 30 Business Days
after the Delivery Date. Additional training may be purchased from BROOKLINE.
13 COPIES OF THE SOFTWARE
13.1 Upon the Delivery Date, BROOKLINE shall provide LICENSEE with one
copy of the SOFTWARE on CD-ROM media.
13.2 BROOKLINE shall provide one copy of the latest version of Source
Code including Customizations to be held in escrow at BROOKLINE's attorneys'
offices. BROOKLINE shall place a copy of the LICENSEE's Source Code in escrow
within thirty (30) Calendar days after Acceptance Date. BROOKLINE shall replace
the copy of the LICENSEE's Source Code in escrow with a copy of the then most
current Release within thirty (30) Calendar days after BROOKLINE makes any
modifications to the LICENSEE's Source Code. The Source Code shall be released
from Escrow to LICENSEE in the event that BROOKLINE files for bankruptcy, or
does not respond to LICENSEE's requests for support within 60 consecutive days
after support is requested by LICENSEE in written notice as prescribed in this
Agreement.
13.3 In the event that BROOKLINE and/or its SOFTWARE assets are acquired
by or merged into another entity, this Agreement in its entirety shall continue
with that entity without prejudice to LICENSEE.
13.4 In the event that BROOKLINE and/or its SOFTWARE assets are acquired
by or merged into another entity and that entity elects not to continue
supporting the SOFTWARE, the SOFTWARE Source Code shall be immediately released
to LICENSEE.
14 LICENSEE'S OBLIGATION FOR DATA PROTECTION
<PAGE> 6
14.1 LICENSEE shall be solely responsible for the protection, security
and backup of all data related to or used by the SOFTWARE.
15 CONFIDENTIAL INFORMATION
15.1 BROOKLINE and LICENSEE acknowledge that this Agreement, the
SOFTWARE and the LICENSEE. BROOKLINE and LICENSEE agree to keep this Agreement,
the SOFTWARE and Documentation in confidence and to take all reasonable
precautions to ensure that no unauthorized persons have access to this
Agreement, the SOFTWARE and Documentation and that no unauthorized copies are
made. Breach of this provision shall be grounds for immediate termination of
this Agreement subject to the RIGHTS UPON TERMINATION clause of this Agreement.
15.2 LICENSEE may not alter any proprietary markings on the SOFTWARE,
including copyright, trade mark, trade secret, and patent legends.
15.3 LICENSEE may not decompile, disassemble, or reverse engineer the
SOFTWARE.
16 WARRANTY
16.1 BROOKLINE warrants that the SOFTWARE will perform substantially in
accordance with accompanying Documentation for a period of one year from the
Acceptance Date ("Warranty Period").
16.2 BROOKLINE AND ANY THIRD PARTY FROM WHOM BROOKLINE HAS LICENSED
SOFTWARE OR TECHNOLOGY DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NON- INFRINGEMENT, WITH RESPECT TO THE
SOFTWARE AND THE ACCOMPANYING WRITTEN MATERIALS.
16.3 BROOKLINE AND ANY THIRD PARTY FROM WHOM BROOKLINE HAS LICENSED
SOFTWARE OR TECHNOLOGY WILL NOT BE LIABLE FOR LOST PROFITS, LOST OPPORTUNITIES
OR INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES.
16.4 EXCLUSIVE REMEDY: LICENSEE'S EXCLUSIVE REMEDY AGAINST ANY PARTY FOR
BREACH OF THIS AGREEMENT IN THE PERFORMANCE OF THE SOFTWARE SHALL BE, AT
BROOKLINE'S CHOICE, (A) CORRECTION OF ANY ERROR OR DEFECT IN THE SOFTWARE AS TO
WHICH LICENSEE HAS GIVEN NOTICE AT NO CHARGE TO LICENSEE, (B) REPLACEMENT OF THE
SOFTWARE INVOLVED, OR (C) IN THE EVENT THE SOFTWARE DEFECT IS NOT REMEDIED BY
CORRECTION OR REPLACEMENT WITHIN 90 DAYS OF LICENSEE NOTIFYING BROOKLINE IN
WRITTEN DETAIL OF THE DEFECT(S) AT ISSUE, LICENSEE SHALL BE REFUNDED IN FULL ANY
AND ALL PAYMENTS MADE FOR THE SOFTWARE AND WHEREUPON THIS AGREEMENT SHALL BE
TERMINATED.
16.5 If any problem, operational failure or error of the SOFTWARE has
resulted from any alteration of the SOFTWARE, accident, abuse, or
misapplication, then this warranty shall be null and void, at BROOKLINE's
option.
17 OVERALL LIMITATION OF DAMAGES
<PAGE> 7
17.1 IN NO CASE SHALL THE AGGREGATE AMOUNT OF DAMAGES PAYABLE TO
LICENSEE FROM ANY AND ALL PARTIES FOR ANY CLAIM ARISING FROM THE SOFTWARE OR
THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, ITS WARRANTY AND INDEMNIFICATION
PROVISIONS) EXCEED THE AMOUNT PAID BY LICENSEE TO BROOKLINE FOR THE SOFTWARE
LICENSED UNDER THIS AGREEMENT, WHICH AGGREGATE AMOUNT SHALL EXCLUDE ALL SERVICE
BUREAU TRANSACTION FEES, IVR USAGE FEES, AND SOFTWARE MAINTENANCE AND SUPPORT
FEES.
18 TERM AND TERMINATION
18.1 BROOKLINE may immediately terminate this Agreement with cause in
the event LICENSEE (a) fails to make, when due, any License Fee payments or any
other payments required under this Agreement; (b) commits a material breach of
any of its obligations concerning scope of use or the protection of the
SOFTWARE, Documentation, intellectual property of BROOKLINE, and Confidential
Information; or (c) materially breaches any of its other obligations under any
provision of this Agreement, which breach is not remedied within thirty (30)
Calendar days after notice thereof by BROOKLINE to LICENSEE, unless otherwise
provided in this Agreement.
18.2 LICENSEE may terminate this Agreement with cause if BROOKLINE
commits a material breach of any of the provisions of this agreement and fails
to remedy such breach within thirty (30) Calendar days after written notice by
LICENSEE of such breach, unless otherwise provided in this Agreement.
18.3 Either party may terminate this Agreement immediately with cause if
such other party becomes insolvent, makes a general assignment for the benefit
of creditors, suffers, or permits the appointment of a receiver for its business
or assets, becomes subject to any proceedings under bankruptcy or insolvency law
or ceases to do business for any reason. The parties agree to provide immediate
notice to each other upon the occurrence of any of the above events.
19 RIGHTS UPON TERMINATION
19.1 Upon termination of this Agreement as a result of the LICENSEE
defaulting on this Agreement, LICENSEE's license to use the SOFTWARE shall
terminate, and LICENSEE shall immediately turn over to BROOKLINE all copies of
the SOFTWARE and Documentation, and any other Confidential Information relating
to the SOFTWARE and Documentation and shall remove and erase completely any
copies of the SOFTWARE installed or recorded on any hard disk or other storage
medium except as may be required to satisfy legal or financial historical
reporting requirements. LICENSEE shall promptly certify to BROOKLINE in writing
that it has complied with this requirement.
19.2 Upon termination of this Agreement, BROOKLINE shall immediately
turn over to LICENSEE all copies of LICENSEE's customer data, any property, and
any proprietary material of LICENSEE, as set forth in this Agreement that may be
in the possession of BROOKLINE. BROOKLINE shall promptly certify to LICENSEE in
writing that it has complied with this requirement.
<PAGE> 8
19.3 Upon termination of this Agreement, BROOKLINE's right to the public
use of LICENSEE's name as a LICENSEE of BROOKLINE, on a verbal or written basis,
shall terminate.
19.4 Upon termination of this Agreement as a result of LICENSEE
defaulting on this Agreement, all payments for SOFTWARE not yet paid and fees
not yet collected, shall be immediately due and payable by LICENSEE and all
payments and service fees collected or accrued prior to the Termination Date
shall be retained by BROOKLINE without any pro rata refund to LICENSEE.
19.5 Upon termination of this Agreement as a result of BROOKLINE
defaulting on this Agreement, only payments for services rendered and accepted
by LICENSEE shall be immediately due and payable by LICENSEE.
19.6 Upon termination of this Agreement, LICENSEE and BROOKLINE agree to
keep confidential all Confidential Information, as set forth in this Agreement,
for a period of two (2) years from the Termination Date.
20 ASSIGNMENT
20.1 LICENSEE may assign some or all of its rights granted in this
Agreement as part of the sale or transfer to an acquiring entity of any or all
of the assets of the LICENSEE's business operations in which the SOFTWARE is
employed only with the express written consent of BROOKLINE, which consent shall
not be unreasonably withheld. Any purported assignment, except as provided for
in this paragraph, shall be null and void and a material breach of this
Agreement.
20.2 LICENSEE may assign some or all of its rights granted in this
Agreement to an entity to act in agency on LICENSEE's behalf in the execution of
LICENSEE's obligations and privileges as set forth in this Agreement, only with
the express written consent of BROOKLINE, which consent shall not be
unreasonably withheld. Any purported assignment, except as provided for in this
paragraph, shall be null and void and a material breach of this Agreement.
20.3 Any assignment of this Agreement shall be invalid unless BROOKLINE
has agreed in writing to such assignment.
21 GENERAL PROVISIONS
21.1 Applicable Law. This Agreement shall be construed pursuant to
substantive law of the State of Utah. Any dispute arising out of this Agreement
that cannot be settled amicably between the parties shall be settle by
arbitration as set forth in this Agreement.
21.2 Risk of Loss. Upon delivery and installation of the SOFTWARE and
the Documentation to LICENSEE's place of business, LICENSEE shall assume all
risk of loss and damage to the SOFTWARE and the Documentation. In the event of
loss or damage, duplicate copies of the SOFTWARE and Documentation will be
available to LICENSEE for nominal media costs.
<PAGE> 9
21.3 Taxes. LICENSEE shall pay, in addition to the other amounts payable
under this Agreement, all local, state and federal excise, sales, use, personal
property, gross receipts and similar taxes (excluding taxes imposed on or
measured by BROOKLINE's net income) levied or imposed by reason of the
transactions under this Agreement. LICENSEE shall, upon demand, pay to BROOKLINE
an amount equal to any such tax(es) actually paid or required to be collected or
paid by BROOKLINE.
21.4 Licensing Responsibility. LICENSEE warrants that it takes all
responsibility regarding proper and legal licensing of software being used in
order to operate SOFTWARE on LICENSEE's computer system.
21.5 Public Reference. LICENSEE consents to the public use of its name
as a LICENSEE of BROOKLINE on a verbal or written basis.
21.6 Modification. This Agreement may not be modified or amended except
in writing, which is signed by authorized representatives of each of the
parties.
21.7 No Waiver. The failure of either party to exercise any right or the
waiver by either party of any breach, shall not prevent a subsequent exercise of
such right or be deemed a waiver of any subsequent breach of the same of any
other term of the Agreement.
21.8 Notice. Any notice required or permitted to be sent hereunder shall
be in writing and shall be sent to the other party's designated Project Manager
in a manner requiring a signed receipt, such as Federal Express, courier
delivery, or certified mail. Notice is deemed received on the date of delivery
if by certified mail or overnight delivery service or courier.
21.9 Force Majeure. Neither party shall be deemed in default of this
Agreement to the extent that performance of their obligations or attempts to
cure any breach are delayed or prevented by reason of any act of God, fire,
natural disaster, accident, act of government, shortages of materials or
supplies or any other cause beyond the control of such party ("Force Majeure")
provided that such party gives the other party written notice thereof promptly
and, in any event, within fifteen (15) Business days of discovery thereof and
uses its best efforts to cure the delay. In the event of such Force Majeure, the
time for performance or cure shall be extended for a period equal to the
duration of the Force Majeure but not in excess of three (3) months.
21.10 Independent Contractor. BROOKLINE and LICENSEE agree to perform
their individual services hereunder as an independent contractors, and in no
event shall the employees or agents of BROOKLINE or LICENSEE be deemed employees
or agents of BROOKLINE or LICENSEE.
21.11 Hold Harmless. BROOKLINE and LICENSEE agree to defend, indemnify,
and hold harmless each other and their employees or agents from and against any
and all damages, claims, costs, expenses, and liabilities arising out of injury
or death of third parties or damage to property of
<PAGE> 10
third parties (including the employees of BROOKLINE and LICENSEE) and arising
out of or in connection with this Agreement or the performance of the services
hereunder.
21.12 Entire Agreement. This Agreement along with its attached and
initialed Addendums, Attachments, Covenants, Exhibits, Schedules and/or Work
Orders constitutes the sole and entire agreement of the parties with respect to
the subject matter hereof and supersedes any prior oral or written promises or
agreements. There are no promises, covenants or undertakings other than those
expressly set forth in this Agreement.
21.13 The following Addendums, Attachments, Covenants, Exhibits,
Schedules and/or Work Orders are attached and considered part of this Agreement
if so checked as "Required" and initialed by BROOKLINE.
<TABLE>
<CAPTION>
ATTACHMENTS SIGNATURES
Letter Name Required LICENSEE BROOKLINE
<S> <C> <C> <C>
A. Momentum License
and Product Description Yes KID RAM
C. Momentum Compensation
Plan Business Rules Yes KID RAM
F. Current Services Fee
Schedule Yes KID RAM
M. SOFTWARE Order and
Payment Terms Yes KID RAM
N. Dispute Resolution Policy Yes KID RAM
0. Completion Incentive and Penalty Yes KID RAM
</TABLE>
SIGNATURE SECTION: This Agreement is so agreed between the parties signing
below.
LICENSEE: SPORTSNUTS.COM INTERNATIONAL, INC.
ADDRESS: 10421 South 400 West, Ste 550, Salt Lake City, UT 84095
AUTHORIZED SIGNATURE: /s/ Kenneth I. Denos
PRINT NAME: Kenneth I. Denos
TITLE: Executive Vice President Date: 9/30/99
TEL: 801-816-2500 FAX:###-##-#### E-MAIL:----------------
BROOKLINE TECHNOLOGIES, INC.
ADDRESS: 9149 S. Monroe Plaza Way
AUTHORIZED SIGNATURE: /S/ Richard A. Mikesell
PRINT NAME: Richard A. Mikesell
TITLE: President/C.E.O. Date: 9/30/99
TEL: 801-984-7800 FAXL 801-984-7844
E-MAIL: [email protected]
Attachment A
- - - - - - -
DataNow tm License Specifics and Product Description
1 DataNow SOFTWARE License Specifics
1.1 The DataNow SOFTWARE to be licensed consists of the Multi-
<PAGE> 11
Level-Marketing software product described herein, customized to LICENSEE's
distributor and/or customer compensation plan as specified in the Compensation
Plan Specifications Document.
1.2 The DataNow License fee and other fees shall be the amount(s) stated
in Software Order and Payment Terms Attachment.
1.3 The License Fee includes, modifications to implement a single
compensation plan that includes commission calculations and processing, standard
commission reports, standard downline reports, and standard check printing. The
License Fee does not include the following, which may be subject to additional
license fees and/or hourly billing charges:
. Any on-site work other than installation, training, and
assistance with testing.
. Database server and client license fees.
. SOFTWARE modifications.
1.4 The SOFTWARE License provides for installation and use of the
SOFTWARE on a single server at a single Authorized Location with a single
compensation plan.
1.5 The DataNow SOFTWARE License Term shall be indefinite, subject to
the Term And Termination Clause of this Agreement.
2 DataNow Product Description
DataNow is a software system developed particularly for the Multi-Level/Network
Marketing and/or Direct Sales industry. DataNow functionality supports the
following business processes:
. Commission Processing. Support for typical multilevel/network marketing
commission plan, including unilevel, binary, matrix, and stairstep breakaway.
Commission plans may incorporate rollup/compression, infinity commissions,
one-time qualifications, periodic qualifications, auto-purchase requirements,
and payouts for any time period (monthly, bi-monthly, weekly, or daily).
. Customer Management. Customer management database with lookups by name,
customer ID, tax ID, zip code, phone number. Name, ID, or other lookup methods
can make sponsorship assignments, and multiple Business Centers per customer arp
provided for appropriate market plans. Other Customer Management features
include the ability to track names, mailing and shipping addresses, contact
information and contact name for businesses. Other customer information
maintained includes customer type, price type, federal and state tax numbers and
exemption data, and unlimited notes per customer.
. Order Entry. Order entry is optimized for the rapid response
requirements of a call center environment. During order entry, products can be
selected by name or part number. All pricing, discounts, shipping rates, etc.
are calculated and displayed automatically, eliminating the need for manual
calculations. Separate fields are provided for sales price, qualification value,
and commission payout value, allowing use of
<PAGE> 12
partial and non-commissionable items. An order can contain both discountable and
non-discountable items. Other Order Entry features include:
. TeleNow IVR Interface. DataNow includes a complete IVR interface with
Automated Communications Group TeleNow IVR services, providing all necessary
data import and export processes required to implement touch tone telephone
enrollment, ordering, and customer service features. The interface supports
import of new customers, customer modifications and orders from the IVR, and
downline report requests from IVR. It also exports customer records, pricing
status, product information and pricing, and call center schedule to the IVR;
distributor qualification and downline information to the IVR.
. Payment Processing. DataNow tracks the balance owed on an order
(including credit balances). Payment processing handles authorized (credit card,
check by phone, etc.) and non-authorized (cash, check, etc.) payments -
authorized payments not posted until authorization code is received. It also
supports an unlimited number of payments and/or charges per order. Payment
information (credit card with address data, check-by-phone information, etc.)
can be permanently stored on file for future orders. One time only payment
information can be entered as needed.
. Shipping and Warehousing. DataNow provides full support for companies
with in-house shipping departments, as well as for companies using third party
fulfillment centers. Shipping features include automated packing slip release
and printing or batch export file creation. Packing slips released can be
separated on priority basis (rush orders, will call orders, next day shipments,
etc.) to multiple printers or warehouse locations. Packing slip batches recorded
for recreation during printer error recovery. Exports order file for UPS Online
shipping system, eliminating the need to manually re-enter address data. Imports
daily shipment information including date shipped, weight, cost, and package
tracking numbers.
. Inventory Management. DataNow inventory management supports inventory
tracking with alarm/reorder levels, product Bill of Materials for
packaged/grouped products, Alarm/reorder reports, product status of available,
temporarily unavailable, or discontinued, with product status and availability
notes displayed for order entry users.
. Autopurchase Orders. DataNow allows customers to sign up for monthly
autopurchase order(s) with an unlimited number of autopurchase orders per
customer. Autopurchase orders can be scheduled for any day of the month.
Autopurchase orders can be based on packages, individual products, or both, and
it includes management reports for tracking and inventory preparation.
. Other Reports. Customer reports, lists, and labels with wide variety of
sort and filtering options. Sales reports. Daysheet reports provides balancing
information for sales and payments, payments classified by type. Product sales
and analysis reports. Onshipped and late order reports.
. 1099 Form and File Creation. DataNow Prints data on pre-printed,
<PAGE> 13
continuous feed 1099 forms. Creates 1099 file for floppy disk or electronic
transmittal to IRS (required by IRS for most companies depending upon number of
1099's).
. Security. User logon required to enter the system. Access to records,
reports, processes, etc., defined by user security profile. Unlimited number of
user security profiles provide extensive security configuration options. Session
tracking records beginning and ending date/time usage of the system by each
user. Transactions are automatically stamped with session data, recording the
user performing the transaction and the date and time the transaction was
entered (for orders, payments, customer creation, etc.).
. Hardware Requirements
Windows NTServer. Server requirements depend upon the number of DataNow
workstations that will be accessing the DataNow database server. Please check
with BROOKLINE for hardware requirements before purchasing your server and
workstation equipment.
Minimum server specifications are:
a) Dedicated server with 20OMhz Pentium CPU(s) dr faster (I CPU up to 19
workstations and 2-CPU's for 20 or more stations).
b) 128 Megabytes of RAM, expandable to over I Gigabytes of RAM
(depending on number of workstations).
c) Fault tolerant 2 Gigabyte or larger RAID Hard Drives (using a RAID
level that will prevent data loss in the event of a hard disk failure).
d) 28.8 bps modem.
Workstations. PC workstation computers with 10OMhz Pentium CPU or
faster, minimum 32 Megs of RAM, 17" or larger monitors capable of comfortable
1024 x 768 viewing for customer service and commission processing users.
. Software Requirements
a) Windows NT Server version 4.0 for the DataNow server.
b) Borland Interbase 5.0 for Windows NT, unless other database has been
selected by LICENSEE and authorized by BROOKLINE. This must be licensed and
installed on the server and for each DataNow workstation prior to the
installation of DataNow.
. Network Requirements
a) 10 Mbps or faster Ethernet network running TCP/IP and/or NetBUI.
b) Uninterruptible Power Supplies for all hubs or other network devices.
c) pcANYWHERE software program for interactive software diagnostics and
support between BROOKLINE and Client.
Features and system requirements are subject to change without notice prior to
the signing of the Software License Agreement.
Attachment C
- - - - - - -
Compensation Plan Specifications
<PAGE> 14
Client: SportsNuts.com
Document: Compensation Plan Specification
Version: 9/24/1999
Note: All numeric parameters (for volume requirements, counters, commission
percentages, etc.) will be user configurable.
Customer Types
. Player: A Player is a full participant in the market plan. A Player can
earn Commissions and Bonuses (when qualified), can sponsor other
Players, and can sponsor Fans. Players purchase at the retail price level.
. Fan: A Fan is a retail customer. A Player sponsors each Fan. Fans can
purchase, but do not earn commissions or bonuses and cannot sponsor Players.
Fans can refer (sponsor) other Fans and their CV would roll up to the sponsoring
Fan's upline Player as if the Player sponsored them. Fans do participate in the
Annual Rebate. Fans purchase at the retail price level. The QV of all purchases
by a Fan is assigned directly to the sponsoring Player as if the Player made the
purchase directly. The CV of purchases by a Fan stays with the Fan.
. MPP Customer: In addition to Players and Fans, the systems will track
records and purchases of MPP Customers. These are people who purchase MPPs but
they are neither Players nor Fans. MPP Customers do not earn commissions or
bonuses, do not participate in the annual rebate, and cannot sponsor others. An
MPP Customer can purchase product and can participate in the MPP. A Player
sponsors each MPP Customer. The QV of all purchases by an MPP Customer is
assigned directly to the sponsoring Player as if the Player made the purchase
directly. The CV of purchases by a MPP Customer stays with the MPP Customer.
. Fund Raiser Organization (FRO): An organization that signs up as a
Player with certain benefits and restrictions. A FRO will be a Starter that is
exempt from Qualification requirements that gets a $15 bonus for each Fan
membership they sell and register. (The Sponsor of the FRO gets a $2 bonus for
each fan Membership sold). The FRO will never be paid Fast Break Bonuses nor
Advanced Team Bonuses. The FRO will be paid Commissions on all CV just as other
Starters. FROs must meet the qualification to be paid on the 7th level.
Definition of Terms
. Commission Period: There are three commission periods:
1. Monthly Commissions and Advance Team Bonuses (Monthly).
2. Fast Break (Daily).
3. Annual Rebate (Yearly).
. Sales Price: Each product has a sales price. This sales price is not
used in any way for commission or bonus calculations.
. QV (Qualification Value): Each product has a QV that is used for all
qualification requirement calculations (including personal and group volume
requirements). QV is used only for qualification requirement evaluation - it is
not used for commission or bonus payment calculations.
. CV (Commission Value): Each product has a CV. that is used for all
<PAGE> 15
commission and bonus payout calculations. When commissions or bonuses are paid
as a percentage of volume, CV is used for this calculation.
. MPP (Monthly Purchase Program): Players and Fans can sign up to
participate in the MPP. MPP is a monthly autopurchase program. Only selected
products will be available for use in the MPP.
. Title: As a Player advances through qualification requirements, they
attain a Title that does not slip back based on lack of qualification
requirements. A Title is permanent until the Player advances to the next title.
Since placement into teams is dependent upon Title, Title should be evaluated in
real time.
. Qualification Level: For a given commission period, each Player attains
a certain Qualification Level based on requirements evaluated for that period.
Commissions and Bonuses are paid out only if the Player is Qualified for the
requirements specified by their Title. If the Player does not satisfy the
requirements for their Title, they earn nothing: no commissions, no Fast Start,
and no Team Bonuses.
. Registered Fan: A Registered Fan is a fan that has stayed current with
their annual membership fee.
. Qualifying MPP: Each of the Qualification Levels has a requirement that
counts MPP's. When evaluating this requirement, the software will count MPP's
from the following: (1) the actual Player being evaluated, (2) Fans directly
sponsored by the Player, and (3) MPP Customers directly sponsored by the Player.
Each of these types of customers can have more than one MPP counted towards the
requirement (with certain limitations for the number of MPP's that can be
counted for the Player, described on each Qualification Level). When evaluating
for Qualifying MPP's, the software will evaluate actual orders produced by the
MPP process (as opposed to evaluating the MPP templates which may or may not
have successfully produced an order).
. Commission Level: Commission Levels are based on actual sponsorship
level, with no rollup or compression.
. Grace Period: Each commission level has requirements for Fans and MPP's.
Each 12 months, each Player is allowed a Grace Period in which one or the other
(or both) of these requirements are waived. This is an automatically triggered
event - it is not done upon request. This grace period does not apply to Fast
Break Bonuses nor entitle a Player to be paid on his/her 7th level.
Sponsorship Structure
. Business Centers: No Business Centers
. Sponsor: All commissions, bonuses, qualification requirements, etc. are
based on the sponsorship tree unless otherwise specified. Sponsorship is tracked
for both Players and Fans.
. Recruiter: In addition to tracking sponsorship, the software will also
track the identity of the Player that recruited the new sign up. When signing up
a new Player, it is possible for the Recruiter to be the same as the Sponsor, or
different than the Sponsor. When signing up a new Fan, the Recruiter is the same
as the Sponsor.
. Organization width limit(s): None o Organization depth limit(s): None
<PAGE> 16
Teams
. Note: Placement upon teams is dependent upon Title (see definition of
Title in the "Definition of Terms" section above.).
. Starter Team: The first 4 Players that enter a given Player's
sponsorship organization (regardless of who the recruiter is) make up the
beginning of that Player's Starter Team. All players sponsored by anyone in the
Starter Team are part of the Starter Team.
. All Star Team: Once the 4 Players that define the beginning of the
Starter Team are identified, the next 15 Players that are sponsored (provided
that they are not part of the Starter Team) make up the beginning of my All Star
Team. All players sponsored by the Player him/herself or anyone in the All Star
Team are part of the All Star Team.
. MVP Team: All players that are part of my organization (that are not
part of my Starter Team or All Star Team) are part of my MVP team until I have 5
MVP's within the first 7 levels of my downline. After this point, newly
sponsored Players become part of my Captain Team. All players sponsored by
anyone in the MVP Team are part of the MVP Team.
. Captain Team: All players that are part of 'my organization (that are
not part of my Starter, All Star, or MVP team) are part of my Captain Team until
I have 5 directly sponsored Captains (of which at least two must be on my
Captain Team). After this point, newly sponsored Players become part of my Hall
of Fame Team. All players sponsored by anyone in my Hall of Fame team are part
of my Hall of Fame team.
. Hall of Fame Team: All players that are part of my organization (that
are not part of my other teams) are part of my Hall of Fame Team until I have 4
directly sponsored Hall of Fames (of which at least one must be on my Hall of
Fame Team). After this point, newly sponsored Players become part of my Legend
Team. All players sponsored by anyone in my Legend Team are part of my Legend
Team.
. Legend Team: All remaining players that are part of my organization
(that are not part of my other teams) are part of my Legend Team.
. Team membership is relevant from the perspective of upline sponsors only
(for example, a given Player may be in the Starter Team of their immediate
sponsor, but in the All Star Team of their sponsor's sponsor.).
. Team Bonus Payout: Whenever a newly signed up Player becomes a Starter
and personally registers at least 3 Fans before the end of the calendar month
following the month they signed up in a Team Bonus Payout is triggered. Team
Bonuses are paid out monthly along with regular commissions.
. Note: Once someone within one of my teams begins building their team at
the same level, those Players will no longer be included in my team. A Player
can only be a member of each team type once.
Commission Period: Monthly Commissions and Advance Team Bonuses (Monthly)
Note: No bonuses nor commissions are paid on a Players first 400 CV.
Qualification Level: Rookie Player
. Qualification Requirements
1. Be a Player (monthly requirement).
2. Purchase a Player Kit (one time requirement).
3. Have at least 5 qualifying MPPs of which only I can come from
the
<PAGE> 17
Player (monthly requirement).
4. Have at least 5 personally sponsored Registered Fans (monthly
requirement).
5. Grace Period: A Player is automatically qualified and paid as a
Rookie during the calendar month that they sign up and during
the entire following calendar month.
. Benefits
1. Earn 10% commission on all personal CV (level 0).
2. Earn 10% commission on CV of all directly sponsored Fans (level
0).
3. Earn 10% commission on CV of all directly sponsored MPP
Customers (level 0).
4. Earn 5% Level 1 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
Qualification Level: Starter
. Qualification Requirements
1. Be a Player (monthly requirement).
2. Purchase a Player Kit (one time requirement).
3. Have at least 5 qualifying MPP's of which only I can come from
the Player (monthly requirement).
4. Have at least 5 personally sponsored Registered Fans (monthly
requirement).
5. Have QV of 400 or more within any 12 consecutive calendar months
(one time requirement).
. Benefits
1. Earn Fast Break Bonuses (see separate Commission Period section
for details).
2. Earn 10% commission on all personal CV (level 0).
3. Earn 10% commission on CV of all directly sponsored Fans (level
0).
4. Earn 10% commission on CV of all directly sponsored MPP
Customers (level 0).
5. Earn 5% Level 1 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
6. Earn 5% Level 2 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
7. Earn 5% Level 3 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
8. Earn 5% Level 4 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
9. Earn 5% Level 5 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
10. Earn 5% Level 6 commission on CV of all directly sponsored
Players and
<PAGE> 18
on the level 0 volume of those Players.
11. Earn 10% Level 7 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players. (Note: This
occurs only if the Starter has at least 20 personally sponsored
registered fans and has at least 20 qualifying MPPs, of which
only 4 can be personal.)
Qualification Level: All-Star
. Qualification Requirements
1. Satisfy all requirements for Starter (monthly requirement).
2. Have at least 5 qualifying MPP's of which only I can come from
the Player (monthly requirement).
3. Have at least 16 personally sponsored Registered Fans (monthly
requirement).
4. Have at least 4 Starters (by title) anywhere in your downline.
(one time requirement).
. Benefits
1. Earn Fast Break Bonuses (see separate Commission Period section
for details).
2. Earn 10% commission on all personal CV (level 0).
3. Earn 10% commission on CV of all directly sponsored Fans (level
0).
4. Earn 10% commission on CV of all directly sponsored MPP
Customers (level 0).
5. Earn 5% Level 1 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
6. Earn 5% Level 2 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
7. Earn 5% Level 3 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
8. Earn 5% Level 4 commissions on CV of all directly sponsored
Players and on the level 0 volume of those Players.
9. Earn 5% Level 5 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
10. Earn 5% Level 6 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players.
11. Earn 10% Level 7 commission on CV of all directly sponsored
Players and on the level 0 volume of those Players. (Note: This
occurs only if the Starter has at least 20 personally sponsored
registered fans and has at least 20 qualifying MPP's, of which
only 4 can be personal.)
<PAGE> 19
12. Earn $60.00 Team Bonus on Team Bonus payout within All Star
Team.
Qualification Level: WP
. Qualification Requirements
1. Have Title or monthly qualification requirements of All-Star or
better (monthly requirement).
2. Have at least 10 qualifying MPP's of which only 3 can come from
the Player (monthly requirement).
3. Have at least 20 personally sponsored Registered Fans (monthly
requirement).
4. Have at least 15 Starters (by title) on your All Star Team (one
time requirement)
. Benefits
1. Earns same benefits as an All-Star.
2. Earn 2% override on all volume in your organization (including
your own and your level 0), down to (but not including) the 2nd
MVP (by title) in each branch of your organization.
3. Earn $50.00 Team Bonus on Team Bonus payout within MVP Team.
Qualification Level: Captain
. Qualification Requirements
1. Have Title or monthly qualification requirements of MVP or
better (monthly requirement).
2. Have at least 15 qualifying MPP's of which only 4 can come from
the Player (monthly requirement).
3. Have at least 25 personally sponsored Registered Fans (monthly
requirement).
4. Have at least 5 MVP's (by title) within the first 7 levels of
your MVP Team (one time requirement).
. Benefits
1. Earns same benefits as an MVP.
2. Earn 1% override on all volume in your organization (including
your own and your level 0), down to (but not including) the 2nd
Captain (by title) in each branch of your organization.
3. Earn $45.00 Team Bonus on Team Bonus payout within Captain Team.
Qualification Level: Hall of Fame
. Qualification Requirements
1. Have Title or monthly qualification requirements of Captain or
better (monthly requirement).
2. Have at least 20 qualifying MPP's of which only 6 can come from
the Player (monthly requirement).
<PAGE> 20
3. Have at least 50 personally sponsored Registered Fans (monthly
requirement).
4. Have at least 5 directly sponsored Captains (by title), two of
which must be in your Captain Team (one time requirement).
. Benefits
1. Earns same benefits as a Captain.
2. Earn 1% override on all volume in your organization (including
your own and your level 0), down to (but not including) the 2nd
Hall of Fame (by title) in each branch of your organization.
3. Earn $40.00 Team Bonus on Team Bonus payout within Hall of Fame
Team.
Qualification Level: Legend
. Qualification Requirements
1. Have Title or monthly qualification requirements of Hall of Fame
or better (monthly requirement).
2. Have at least 25 qualifying MPP's of which only 7 can come from
the Player (monthly requirement).
3. Have at least 100 personally sponsored Registered Fans (monthly
requirement).
4. Have at least 4 directly sponsored Hall of Fame (by title), one
of which must be in your Hall of Fame Team. (one time
requirement)
. Benefits
1. Earns same benefits as a Hall of Fame.
2. Earn 1% override on all volume in your organization (including
your own and your level 0), down to (but not including) the 2nd
Legend (by title) in each branch of your organization.
3. Earn $25.00 Team Bonus on Team Bonus payout within Legend Team.
Commission Period: Fast Break (Daily)
When Qualified (as a Qualified Starter or better) any time a Player is
personally recruited, becomes a Starter, and personally registers at least 3
fans within 14 days of their sign up date, the recruiter earns a $200.00 Fast
Break bonus. This Bonus is triggered as soon as the newly recruited Player has
registered 3 Fans (not at the end of the 14 day period).
Qualification for the Fast Break Bonus is calculated daily and is based on
requirements for the title of the Recruiter.
Commission Period: Annual Rebate
Any Fan that has annual CV of 100: or more receives a 5% annual rebate on all
purchases. This rebate is not applied to 1099's. This process will be run
monthly along with regular commissions. The process will trigger based on the
anniversary date of the Fan.
<PAGE> 21
Commission Reports and Checks
. Checks: (Prototype later)
. Reports: (Prototype later)
Misc.
. Maintenance/Processing Fee: $3.00 processing fee charged on all
commission checks and Fast Break Bonuses.
. The minimum amount paid in a monthly Commission/Bonus check is $18.00
(minus the Processing Fee).
. The minimum amount paid in an annual Fan Rebate check is $5.00. There is
no processing fee on Annual Fan Rebate checks.
. Commissions/bonuses are paid on all orders in the appropriate commission
period, regardless of payment status. If an order is not adequately paid
for, it should be manually canceled prior to final commission
processing.
Attachment F
- - - - - - -
Brookline Technologies Current Services Fee Schedule
Effective through 9/30/2000
Following is BROOKLINE's Current SERVICES Fee Schedule:
. Basic SOFTWARE Customizations, Data
Conversion and Training Fees $125.00/hour
. Fees for Customizations which require $150.00/hour
Architectural and/or Data Structure modifications
. Fees for Customizations which require $175.00/hour
Commission Analysis and Modifications
after the Commission Plan Specifications
Document has been signed off
. ** Expedited Programming Fees $200.00/hour
. Additional Flow Charting Fees $100.00/hour
. Additional Voice Recording Fees $350.00/session
*When ordered by the customer, some programming tasks can be expedited. Please
get in touch with your Project Manager at BROOKLINE should you need to
expedite some of your programming requirements or Work Orders.
<PAGE> 22
Current SERVICES Fee Schedule, Page I of I BROOKLINE Confidential and
Proprietary Information
SERVICES Fee Schedule is subject to change without notice
Current SERVICES Fee Schedule, Page 2 of 1
BROOKLINE Confidential and Proprietary Information
Attachment M - Software Order and Payment Terms
Customer Information
Company Name SportsNuts.com
Address, Suite No. 10421 South 400 West, Suite 550
City Salt Lake City State UT Zip/Postal 84095
Customer Contacts Name Phone/Ext. No. Fax No. E-Mail Address
Project Manager Martin Moreno
Comp. Plan Contact Martin Moreno
System Administrator
Software.& Services Order Information
DataNow tm - Service Bureau: Yes/No Qty InterBase SQL Oracle 8 Extended Price
1 DataNow License (includes 5 Stations) 1 35,000 35,000
2 15 Additional Station License 1 20,000 N/C
3 ZipSales Tax Database Interface 1 3,500 N/C
4 Credit Card Authorization Interface 1 4,500 4,500
5 Federal Express Shipping Interface 1 4,500 4,500
6 UPS Shipping Interface 1 4,500 4,500
7 Check-By-Phone Interface 1 1,500 1,500
8 DataNow Business Objects 1 25,000 N/C
9 DataNow License Fee Total Add Lines 1 through 8 50,000
10 Complex Commission Plan Surcharge 5,000 to 15,000 10,000
11 Annual Maintenance Fee DataNow License Fee Total N/C
12 State Tax 6.35% 3,810
13 DataNow Total $63,810
TeleNow IVR Services License Fees Extended Price
14 TeleOrder, TeleSponsor, TeleServices 25,000 0
15 TeleSelling 7,500 0
16 TeleRegistration 7,500 0
17 Transcription service 1,000 0
18 Credit Card Authorization Interface 4,500 0
19 Check-By-Phone 1,500 0
<PAGE> 23
20 DataNow-TeleNow Real Time Interface 7,500 0
21 Security Payment See TeleNow License Specifics
and Service Description Attachment 0
22 Security Payment Tax 6.35% of Security Payment (line 21) 0
23 TeleNow Total $ 0
On-site Implementation Services Rate per Day Days Extended Price
24 Site Analysis, Installation and Setup 1200
25 System Administrator Training 1200
26 User Training 1200
27 On-site Services Subtotal Add lines 24, 25, 26
28 On-site Services Tax 6.35% of On-site Services Subtotal (line 27)
29 On-site Services Total Add lines 27 and 28
30 Total Order Amount Add lines 13, 23 and 29 $ 63,810
Software Order and Payment Terms - Page 1 of 2; BROOKLINE Proprietary and
Confidential Information
Payment Terms
50% upon execution of the Software License Agreement.
50% upon installation and acceptance of SOFTWARE.
Brookline Technologies Contacts
<TABLE>
<CAPTION>
BROOKLINE Contacts Name Phone/Ext. Fax No. E-mail Address
<S> <C> <C> <C> <C>
Account Manager Richard Mikesell 801.984.7866 801.984.7844 [email protected]
Project Manager Leslie Holmes 801.984.8066 801.984.7844 [email protected]
Comp. Plan Analyst Clint Lord 801.984.7883 801.984.7844 [email protected]
Technical Support Rep Janae Bennett 801.984.8100 801.984.7844 [email protected]
</TABLE>
Software Order and Payment Terms -Page 2 of 2; BROOKLINE Proprietary and
Confidential Information
Attachment N
- - - - - - -
Dispute Resolution Policy
If a dispute arises relating to any relationship between LICENSEE and BROOKLINE,
it is expected that the Parties will attempt in good faith to resolve any such
dispute in an amicable and mutually satisfactory manner.
In the event such efforts are unsuccessful, either Party may serve a notice of
mediation/arbitration ("Notice of Mediation/Arbitration") on the
<PAGE> 24
other Party. Notice of Mediation/Arbitration shall be personally delivered or
sent by prepaid registered airmail or air courier, and shall be effective on
receipt thereof by the Party to whom it is addressed. Proof of receipt shall be
a receipt signed by any officer or responsible official of the Party to whom it
is addressed. The Notice of Mediation/Arbitration shall be dated and without
prejudice to any right under the Rules permitting subsequent modifications,
shall specify the claims or issues which are to be subjected to
mediation/arbitration.
IF DIFFERENCES CANNOT BE RESOLVED BY MEDIATION THE PARTIES AGREE THAT IN ORDER
TO PROMOTE TO THE FULLEST EXTENT REASONABLY POSSIBLE A MUTUALLY AMICABLE
RESOLUTION OF THE DISPUTE IN A TIMELY, EFFICIENT AND COST-EFFECTIVE MANNER, THEY
WILL WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY AND SETTLE THEIR DISPUTE
BY SUBMITTING TT-IE CONTROVERSY TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL
RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("A.A.A.") EXCEPT THAT ALL PARTIES
SHALL BE ENTITLED TO ALL DISCOVERY RIGHTS ALLOWED UNDER THE FEDERAL RULES OF
CIVIL PROCEDURE AS THOSE RULES EXIST IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF UTAH.
The Parties shall attempt to select a mutually agreeable mediator/arbitrator
from A.A.A.'s Panel of Mediators/Arbitrators. If no agreement is reached within
fifteen (15) Calendar days of the first written notice of intent to
mediate/arbitrate, the current Director of Professional Services for A.A.A. in
Utah shall serve as the mediator/arbitrator.
The Arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Paragraph 1 et seq., and the judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. Either Party may elect
to participate in the arbitration telephonically. Any substantive or procedural
rights other than the enforceability of the arbitration agreement shall be
governed by Utah law, without regards to Utah's conflict of laws principles.
The Parties further expressly agree that (i) the arbitrator shall only,reach his
decision in applying strict rules of law to the facts, (ii) the arbitration
shall be conducted in the English language, in Salt Lake County, Utah, (iii) the
Party in whose favor the arbitration award is rendered shall be entitled to
recover costs and expenses of the arbitration including: but not limited to,
attorney's fees and the cost and expense of administration of the arbitration
proceedings, and any costs and attorney's fees incurred in executing on or
enforcing the arbitration award, and (iv) the arbitration award shall be issued
in Salt Lake County, Utah.
Dispute Resolution Policy, Page 1 of 2 Brookline Technologies - Confidential
and Proprietary Information
Except as provided in the following sentences, no party shall be entitled to
commence or maintain any action in a court of law upon any matter in dispute
until such matter shall have been submitted and determined as provided herein
and then only for the enforcement of such arbitration
<PAGE> 25
award. Provided that, notwithstanding this dispute resolution policy, either
party may apply to a court of competent jurisdiction in Salt Lake County, Utah,
to seek injunctive relief before or after the pendency of any arbitration
proceeding. The institution of any action for injunctive relief shall not
constitute a waiver of the right of obligation of any party to submit any claim
seeking relief other than injunctive relief to arbitration. Judgment upon the
award may be entered by the United States District Court or Salt Lake County
Superior Court located in the State of Utah, or application may be made to such
court for the judicial acceptance of the award and order of enforcement, as the
case may be, if the Arbitrator's award or decision is not complied with within
seven (7) Calendar days of the Arbitrator's decision.
Arbitration shall be the sole and exclusive procedure for resolution of disputes
between the parties, including any disputes that might arise after termination
of this Agreement.
Dispute Resolution Policy, Page 2 of 2 Brookline Technologies - Confidential
and Proprietary Information
Attachment 0
------------
Completion Incentive and Penalty
1.0 LICENSEE and BROOKLINE agree that the SOFTWARE shall be completed and
installed on November 1, 1999.
2.0 LICENSEE agrees to pay BROOKLINE a graduated incentive fee for early
completion of the SOFTWARE.
3.0 The early completion incentive fee paid to BROOKLINE shall be calculated
and paid as follows:
3.1 For each day that,the SOFTWARE is completed prior to November 1,
1999, LICENSEE shall pay BROOKLINE the amount of $600.00 (six
hundred dollars and no cents) per day.
3.2 The early completion incentive fee shall not exceed $6,000.00
(six thousand dollars and no cents).
3.3 If BROOKLINE earns the early completion incentive fee, it shall
be added to the final payment amount due to BROOKLINE upon
completion and acceptance of the SOFTWARE subject to the terms
of this Agreement.
4.0 BROOKLINE agrees to credit LICENSEE a late completion discount for late
completion of the SOFTWARE.
5.0 The late completion penalty discount shall be calculated and charged to
BROOKLINE as follows:
5.1 For each day that the SOFTWARE is completed after November 1,
1999, BROOKLINE shall discount the SOFTWARE License Fee the
amount of $600.00 (six hundred dollars and no cents) per day.
5.2 The late completion penalty shall not exceed $6,000.00 (six
thousand dollars and no cents).
<PAGE> 26
5.3 Any late completion penalty fees owed to LICENSEE shall be
deducted from the final payment amount due to BROOKLINE upon
completion and acceptance of the SOFTWARE subject to the terms
of this Agreement.
6.0 A "day", as used in 3.1 and 5.1 shall be one full Calendar Day, and
shall not be subject to hourly pro-rata calculation.
Completion Incentive and Penalty, Page 1 of 1 Brookline Technologies -
Proprietary and Confidential Information
<PAGE> 1
EXHIBIT 10.3
SPORTSNUTS.COM INTERNATIONAL, INC
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of this
1st day of September, 1999, by and between SportsNuts.com International, Inc., a
Delaware corporation (the "Company"), and David Hill, a resident of the State of
Utah (the "Employee"), collectively referred to hereinafter as the "Parties" or
individually as a "Party."
In consideration of the foregoing and of the promises and mutual
covenants contained herein, the Parties hereto agree as follows:
1. Employment; Location
The Company hereby employs Employee and Employee hereby accepts such
employment in Salt Lake and Summit Counties, State of Utah, or in such other
location or locations as may be mutually agreed between the Parties.
2. Term
Employee's employment hereunder has no specified term or length and,
Subject to Section 6 below, either the Company or Employee can terminate the
employment at any time, with or without Cause (as defined herein) and with or
without prior notice.
3. Duties
Employee's employment hereunder shall be in the capacity of the Chief
Financial Officer of the Company. Employee hereby agrees to faithfully execute,
to the best of his ability, such duties in connection with such office and to
otherwise devote his full time, skills, and best efforts to such duties.
Employee shall perform such duties subject to the general supervision and
control of the Company's Chief Executive Officer and Board of Directors.
Employee agrees that during the period of his employment, he shall not carry on
outside work of any nature (including, without limitation, charitable work,
civic activities, consulting work, or directorships) that is reasonably
determined by the Board of Directors to substantially interfere with Employee's
duties and responsibilities hereunder.
4. Compensation and Benefits
During the Employment Term, the Company shall pay Employee, and Employee
accepts as full compensation for all services to be rendered to the Company, the
following compensation and benefits:
4.1 Salary. The Company shall pay Employee a base salary equal to One
Hundred Five Thousand ($105,000) per year ("Base Salary") plus such annual
additional compensation or performance bonus as may be determined by the Chief
Executive Officer at the end of each fiscal year. Such compensation shall be
paid to Employee in accordance with the Company's payroll practices in effect
from time to time during the Employment Term.
<PAGE> 2
4.2 Grant of Option. Effective at the commencement of the Employment
Term, the Company hereby grants to Employee an option ("Option") to acquire
200,000 shares of its common stock at an exercise price of $2.25 per share.
Effective with the commencement of the Employment Term, the Option shall vest
immediately with respect to 50,000 shares. The remainder of the Option shall
vest in three (3) successive annual installments of 50,000 shares each, with the
first installment vesting one (1) year from the date of this Agreement.
Notwithstanding the foregoing, if Employee's employment is terminated by the
Company without Cause (as defined below), the Option shall immediately vest and
become exercisable with respect to those shares that would have become vested in
the year of termination. The Option or any portion thereof shall expire if not
exercised within five (5) years from the date hereof. The Option shall be
governed by and shall be subject to the provisions of the Company's 1999 Stock
Option Plan. The Company shall prepare and deliver to Employee a separate grant
of the Option in accordance with the Plan in the form attached hereto as Exhibit
"A."
4.3 Vehicle Allowance. The Company shall reimburse Employee for up to
$500 per month for expenses incurred from the operation and maintenance of a
vehicle to be used in connection with Employee's duties herein. Employee hereby
agrees to provide such evidence of expenses as may reasonably be required by the
Company.
4.4 Continuing Education and Accountancy Association Membership. The
Company shall pay all expenses for Employee to attend such continuing education
seminars as are necessary for Employee to maintain Employee's professional
licenses and to become proficient in such areas as are reasonably determined by
the Chief Executive Officer to be necessary to the performance of Employee's
duties hereunder. The Company shall also pay any and all fees necessary to
maintain Employee's membership in the UACPA and the AICPA.
4.5 Additional Benefits. Employee shall be eligible to participate in
the Company's employee benefit plans for employees, including any such benefits
made available to similarly situated executives of the Company, if and when any
such plans may be adopted. Such benefit plans may include, without limitation,
the following: bonus plans, pension or profit sharing plans, incentive stock
plans and those plans covering life, disability, health, and dental insurance in
accordance with the rules established in the discretion of the Board of
Directors for individual participation in any such plans as may be in effect
from time to time.
4.6 Vacation, Sick Leave, and Holidays. During the Employment Term,
Employee shall be entitled to vacation and sick leave at full pay for a minimum
of the (3) weeks per year, or such other period as established by the Board of
Directors, in addition to the usual and customary holidays as established by
Company from time to time.
4.7 Deductions. During the Employment Term, the Company shall have the
right to deduct from Employee's Base Salary and other compensation due to
Employee hereunder any and all sums required for social security and withholding
taxes and for any other federal, state, or local tax or charge which may be
hereafter enacted or required by law as a charge on any such
<PAGE> 3
amounts paid to Employee.
5. Business Expenses
The Company shall promptly reimburse Employee for all reasonable
out-of-pocket business expenses incurred in fulfilling Employee's duties
hereunder, in accordance with the general policy of the Company in effect from
time to time, provided that Employee furnishes to the Company adequate records
and other documentary evidence required by all federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation
of each such business expense as a deduction on the federal or state income tax
returns of the Company.
6. Termination
6.1 Generally. During the Employment Term, either the Company or
Employee may terminate Employee's employment with the Company hereunder at any
time, without or without Cause or Good Reason, in its or his sole discretion,
upon thirty (30) days prior written notice. Without limiting the foregoing,
Employee may immediately terminate his employment with the Company at any time
for Good Reason, and the Company may immediately terminate Employee's employment
for Cause. In the event Employee's employment is terminated hereunder, all
obligations of the Company and all obligations of Employee shall cease except as
provided in this Section 6 and in Sections 7-18 below. For purposes of this
Agreement:
(a) "Cause" shall mean (i) Employee's material breach of any of
the terms, covenants, representations, or warranties contained in this Agreement
which continues following not less than two (2) weeks written notice from the
Company of such breach; (ii) the Executive being guilty of willful misconduct on
the Company's premises or elsewhere, whether during the performance of his
duties or not, which materially and negatively affects the business or
reputation of the Company; (iii) Employee's being found guilty or entering a
plea of guilty or nolo contendre in a criminal court of a felony; or (iv)
Employee's willful breach of duty or habitual neglect of duty, or refusal to
comply with any reasonable or proper direction given by on behalf of the
President, Chief Executive Officer, or Board of Directors.
(b) "Good Reason" shall mean the termination of employment by
Employee as a result of (i) a material breach of this Agreement by the Company,
or (ii) a relocation of Employee outside Utah, Salt Lake, and Summit Counties.
(c) "Termination Date" shall mean (i) if this Agreement is
terminated on account of death, the date of death; (ii) if this Agreement is
terminated for Disability (as defined below), the date on which a notice of
termination due to Disability is delivered to the Employee (or such later date
as may be set forth in such notice); (iii) if this Agreement is terminated by
the Company, the date on which a notice of termination is delivered to the
Employee (or such later date as may be set forth in such notice); (iv) if the
Agreement is terminated by the Employee, the earlier of (x) the date on which
the Employee delivers the notice of termination (or such later date as may be
set forth in such
<PAGE> 4
notice) to the Company and (y) the date he ceases work; or (v) if this Agreement
expires by its terms, on the last day of the term of this Agreement.
(d) "Disability" shall mean the Employee is unable to perform the
essential functions of his job and render services of the character previously
performed in the ordinary course and that such inability continues for a period
of at least three (3) consecutive months (or for shorter periods totaling more
than four (4) months during any period of twelve (12) consecutive months).
6.2 Severance Pay.
(a) If (i) the Company terminates the employment of the Employee
without Cause, or (ii) the Employee terminates his employment for Good Reason,
the Employee shall be entitled to receive Base Salary until six (6) months
following the Termination Date, or until such time as the Employee has obtained
new employment at an annual salary equal to or greater than ninety percent (90%)
of Employee's Base Salary hereunder, whichever comes first (such payment after
the Termination Date is referred to as "Severance Pay"). During this time, the
Employee agrees to make a good faith effort to find new employment. The
Severance Pay outlined above shall be paid in accordance with the Company's
regular payroll schedule in effect at the time that Severance Pay is due.
(b) If (i) the Employee voluntarily terminates his employment
other than for Good Reason, or (ii) the Employee is terminated by the Company
for Cause, then the Employee shall be entitled to receive Base Salary (excluding
any accrued vacation) through the Termination Date only, and no other
compensation shall be payable.
(c) If the Employee's employment is terminated due to death or
Disability, the Employee shall be entitled to receive Base Salary and accrued
vacation through the Termination Date only, and no other compensation shall be
payable.
(d) In addition to the provisions of Section 6.2(a) and 6.2(b)
hereof, to the extent COBRA shall be applicable to the Company, the Employee
shall be entitled to continuation of group health plan benefits for such period
as may then be required by law if the Employee satisfies all applicable
conditions to the receipt of such continuation of benefits, including any
required elections or payments.
(e) Employee acknowledges that, upon termination of his
employment, he is entitled to no other compensation, severance or other benefits
other than those specifically set forth in this Agreement.
(f) The provisions of this Section 6.2 are intended to be and are
exclusive and in lieu of any other rights or remedies to which the Employee or
the Company may otherwise be entitled, either at law, tort or contract, in
equity, or under this Agreement, as a result of any termination of the
Employee's employment. The Employee shall be entitled to no benefits,
compensation or other payments or rights upon termination of employment other
than those benefits expressly set forth in this
<PAGE> 5
Section 6.2.
6.3 Option to Retain as Consultant. Upon termination of Employee's
employment, other than for reason of Employee's death, the Company shall have an
option to retain the services of Employee as a consultant for a period of one
year from the Termination Date. The Company shall exercise such option by giving
written notice thereof to Employee within ten (10) days after the Termination
Date, and the obligations of Employee as a consultant upon such exercise shall
be effective from the Termination Date. If the Company elects to exercise such
option, Employee shall make himself available to the Company during the period
of consultancy at least 2 hours during any one-month period. Employee agrees to
accept as consideration for such services as a consultant a fee of $100 per
hour. In addition, the Company shall reimburse Employee for any reasonable
expenses paid or incurred by Employee in connection with the performance of
duties as a consultant of the Company. Employee shall be entitled to no
compensation as a consultant other than the above fees and expenses. Employee
acknowledges and agrees to be bound by the obligation not to compete with the
Company as set forth in Section 7 below during the period for which Employee is
a consultant for the Company.
7. Confidential Information
Employee acknowledges that during Employee's employment or consultancy
with the Company, Employee will develop, discovery, have access to, and become
acquainted with technical, financial, marketing, personnel, and other
information relating to the present or contemplated products, services
(including prices, costs, sales, or content), or the conduct of business of the
Company or an Affiliate, computer programs, computer systems, operations,
processes, knowledge of the organization or the industry, research and
development operations, future business plans, customers (including identities
of customers and prospective customers, identities of individual contracts at
business entities which are customers or potential customers), business
relationships, or other information, which is of a confidential and proprietary
nature ("Confidential Information"). Employee agrees that all files, data,
records, reports, documents, and the like relating to such Confidential
Information, whether prepared by him or otherwise coming into Employee's
possession, shall remain the exclusive property of the Company (or its
Affiliates as the case may be), and Employee hereby agrees to promptly disclose
such Confidential Information to the Company upon request and hereby assigns to
the Company any rights which Employee may acquire in any Confidential
Information. Employee further agrees not to disclose or use any Confidential
Information and to use Employee's best efforts to prevent the disclosure or use
of any Confidential Information either during the term of employment or
consultancy or at any time thereafter, except as may be necessary in the
ordinary course of performing Employee's duties under this Agreement. Upon
termination of Employee's employment or consultancy with the Company for any
reason, Employee shall promptly deliver to the Company all materials, documents,
data, equipment, and other physical property of any nature containing or
pertaining to any Confidential Information, and Employee shall not take from the
Company's premises any such material or equipment or any reproduction thereof.
<PAGE> 6
8. Invention Assignment
8.1 Disclosure of Inventions. Employee hereby agrees that if he
conceives, learns, makes, or first reduces to practice, either alone or jointly
with others, any inventions, improvements, original works of authorship,
formulas, processes, computer programs, sales or marketing techniques, know-how,
or data (hereinafter referred to as "Inventions") relating to the business
and/or technology of the Company while he is employed by the Company, he will
promptly disclose such Inventions to the Company or to any person designated by
the Company.
8.2 Ownership, Assignment, Assistance, and Power of Attorney. All
Inventions relating to the Company's business, operations, or research and
development which result from work performed by Employee for the Company shall
be the sole and exclusive property of the Company, and the Company shall have
the right to use and to apply for patents, copyrights, or other statutory or
common law protections for such Inventions in any country. Employee hereby
assigns to the Company any rights which Employee has acquired or which Employee
may acquire in such Inventions. Furthermore, Employee agrees to assist the
Company in every proper way at the Company's expense to obtain patents,
copyrights, and other statutory or common law protections for such Inventions in
any country and to enforce such rights from time to time. Specifically, Employee
agrees to execute all documents as the Company may use in applying for and in
obtaining or enforcing such patents, copyrights, and other statutory or common
law protections, together with any assignments thereof to the Company or to any
person designated by the Company. Employee's obligations under this paragraph
shall continue beyond the termination of his employment with the Company, but
the Company shall compensate Employee at a reasonable rate after such
termination for the time which Employee actually spends at the Company's request
in rendering such assistance. In the event the Company is unable for any reason
whatsoever to secure Employee's signature to any lawful document required to
apply for or to enforce any patent, copyright, or other statutory or common law
protections for such Inventions, Employee hereby irrevocably and severally
designates and appoints the Company and its duly authorized officers and agents
as Employee's agents and attorneys-in-fact to act in Employee's stead to execute
such documents and to do such other lawful and necessary acts to further the
issuance or prosecution of such patents, copyrights, and other statutory or
common law protections, and Employee hereby declares that such documents or such
acts shall have the same legal force and effect as if such documents were
executed by Employee or such acts were done by Employee.
8.3 Exclusion of Prior Inventions. Employee has identified on Exhibit B
attached hereto a complete list of all Inventions which Employee has conceived,
learned, made or first reduced to practice, either alone or jointly with others,
prior to Employee's employment with the Company and which Employee desires to
exclude from the operation of this Agreement. If no Inventions are listed on
this Exhibit B, Employee represents that he has made no such Inventions at the
time of signing this Agreement.
9. No Conflicts
<PAGE> 7
Employee hereby represents that, to the best of Employee's knowledge,
Employee's performance of all the terms of this Agreement and work as an
employee or consultant of the Company does not breach any oral or written
agreement which Employee has made prior to employment with the Company
hereunder.
10. Equitable Remedies
Employee acknowledges that Employee's obligations hereunder are special,
unique, and extraordinary, and that a breach by Employee of certain provisions
of this Agreement, including without limitation Sections 7 and 8 above, would
cause irreparable harm to the Company for which damages at law would be an
inadequate remedy. Accordingly, Employee hereby agrees that in any such instance
the Company shall be entitled to seek injunctive or other equitable relief in
addition to any other remedy to which it may be entitled. All of the rights of
the Company from whatever source derived, shall be cumulative and not
alternative.
11. Assignment
This Agreement is for the unique personal services of Employee and is
not assignable or delegable in whole or in part by Employee without the consent
of the Board of Directors of the Company. This Agreement may be assigned or
delegated in whole or in part by the Company and, in such case, the terms of
this Agreement shall inure to the benefit of, be assumed by, and be binding upon
the entity to which this Agreement is assigned.
12. Waiver or Modification
Any waiver, modification, or amendment of any provision of this
Agreement shall be effective only if in writing in a document that specifically
refers to this Agreement and such document is signed by the Parties hereto.
13. Resolution of Disputes
The Parties hereby agree that all disputes concerning this Agreement
shall be subject to binding arbitration by an independent arbitrator to be
jointly selected and agreed upon by the Parties hereto. In the event that the
Parties cannot agree upon an independent arbitrator, the Parties hereby consent
to subject any such dispute to binding arbitration in accordance with the rules
of the American Arbitration Association. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The Parties
agree that the Company and Employee shall equally bear the costs of any such
arbitration under this Section 14.
14. Entire Agreement
This Agreement constitutes the full and complete understanding and
agreement of the Parties hereto with respect to the subject matter covered
herein and supersedes all prior oral or written understandings and agreements
with respect thereto.
<PAGE> 8
15. Employee Acknowledgment.
Employee acknowledges that (i) he was consulted with or has had the
opportunity to consult with independent counsel of his own choice concerning
this Agreement, and has been advised to do so by the Company, and (ii) that he
has read and understands the Agreement, is fully aware of its legal effect, and
has entered into it freely based upon his own judgment.
16. Severability
If any provision of this Agreement is found to be unenforceable by a
court of competent jurisdiction, the remaining provisions shall nevertheless
remain in full force and effect.
17. Notices
Any notice required hereunder to be given by either party shall be in
writing and shall be delivered personally or sent by certified or registered
mail, postage prepaid, or by private courier, with written verification of
delivery, or by facsimile transmission to the other party to the address or
telephone number set forth below or to such other address or telephone number as
either party may designate from time to time according to this provision. A
notice delivered personally shall be effective upon receipt. A notice sent by
facsimile transmission shall be effective twenty-four hours after the dispatch
thereof. A notice delivered by mail or by private courier shall be effective on
the third day after the day of mailing.
(a) To Employee at: David M. Hill
1402 West, Fairway Circle
Farmington, Utah 84025
(b) To the Company at: SportsNuts.com International, Inc.
10421 South 400 West
Salt Lake City, Utah 84095
Attention: Kenneth I. Denos
18. Governing Law; Venue
This Agreement shall be governed by and construed in accordance with the
laws of the State of Utah without regard to the conflict of laws. The Parties
further agree that proper venue and jurisdiction for any dispute under this
agreement shall be the courts in the State of Utah.
IN WITNESS WHEREOF, Employee has signed this Agreement personally and
the Company has caused this Agreement to be executed by its duly authorized
representative to be effective as of the date first given above.
SPORTSNUTS.COM INTERNATIONAL, INC. EMPLOYEE
/s/ Kenneth Denos /s/ David Hill
- --------------------------------- ---------------------------------
Kenneth Denos David Hill
Executive Vice President
<PAGE> 9
EXHIBIT "A"
SPORTSNUTS.COM INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
ARTICLE 1.
GENERAL PROVISIONS
1.1 PURPOSE OF THE PLAN
This 1999 Stock Option Plan (the "Plan") is intended to promote the
interests of SPORTSNUTS.COM INTERNATIONAL, INC., a Delaware corporation, (the
"Corporation") by providing eligible persons with the opportunity to acquire or
increase their proprietary interest in the Corporation as an incentive for them
to remain in the Service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
1.2 ADMINISTRATION OF THE PLAN
a. Prior to the Section 12(g) Registration Date, the Plan shall be
administered by the Board or a committee of the Board.
b. Beginning with the Section 12(g) Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the Plan with
respect to Section 16 Insiders. Administration of the Plan with respect to all
other persons eligible under the Plan may, at the Board's discretion, be vested
in the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer the Plan with respect to all such persons.
c. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also terminate the functions of any
Secondary Committee at any time and reassume all powers and authority previously
delegated to such committee.
d. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
provisions of the Plan and any outstanding options thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator within the scope of
its administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Plan under its jurisdiction or any option
thereunder.
e. Service on the Primary Committee or the Secondary Committee
<PAGE> 10
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.
f. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine which eligible persons are to receive option grants, the
time or times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
option is to become exercisable, the vesting schedule (if any) applicable to the
option shares, the acceleration of such vesting schedule, the maximum term for
which the option is to remain outstanding, whether the option shares shall be
subject to rights of repurchase and/or rights of first refusal, and all other
terms and conditions of the option grants.
1.3 ELIGIBILITY
The following persons shall be eligible to participate in the
Plan:
a. Employees,
b. non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
c. consultants and other independent advisors who provide
Services to the Corporation or any Parent or Subsidiary.
1.4 STOCK SUBJECT TO THE PLAN
a. The stock issuable under the Plan shall be shares of
authorized but unissued Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed twenty million
(20,000,000) shares, which number of shares may be changed from time to time in
accordance with Section 3.4 below.
b. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
2. However, should the Exercise Price be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised, and not by the net number of
shares of Common Stock issued to the holder
<PAGE> 11
of such option.
c. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options per calendar year, and (iii) the number and/or
class of securities and the Exercise Price in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding,
and conclusive.
ARTICLE 2.
OPTION GRANT PROGRAM
2.1 OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of Section
2.2 of the Plan, below.
a. Exercise Price
(1) The Exercise Price shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the Grant Date.
(2) The Exercise Price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article 3.1, and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(a) cash or check made payable to the Corporation,
(b) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(c) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
Purchased Shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the Purchased Shares plus all applicable federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the Purchased Shares
<PAGE> 12
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized, payment of the Exercise Price for the Purchased Shares must be made on
the Exercise Date.
b. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the Grant Date.
c. Effect of Termination of Service
(1) The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service:
(a) Any option outstanding at the time of the
Optionee's cessation of Service for any reason except death, Permanent
Disability or Misconduct shall remain exercisable for a three (3) month period
thereafter, provided no option shall be exercisable after the Expiration Date.
(b) Any option outstanding at the time of the
Optionee's cessation of Service due to death or Permanent Disability shall
remain exercisable for a twelve (12) month period thereafter, provided no option
shall be exercisable after the Expiration Date. Subject to the foregoing, any
option exercisable in whole or in part by the Optionee at the time of death may
be exercised subsequently by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
(c) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(d) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of shares for which the option is exercisable on the date of the
Optionee's cessation of Service; the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable. Upon the expiration
of the applicable exercise period or (if earlier) upon the Expiration Date, the
option shall terminate and cease to be outstanding for any shares for which the
option has not been exercised.
(2) The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(a) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of
<PAGE> 13
time as the Plan Administrator shall deem appropriate, but in no event beyond
the Expiration Date, and/or
(b) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
shares of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more additional
shares that would have vested under the option had the Optionee continued in
Service.
d. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the Exercise Price, and become a
holder of record of the Purchased Shares.
e. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options may be exercised only by the Optionee, and shall not
be assignable or transferable except by will or the laws of descent and
distribution following the Optionee's death. Non-Statutory Options may be
assigned or transferred in whole or in part only (i) during the Optionee's
lifetime if in connection with the Optionee's estate plan to one or more members
of the Optionee's immediate family (spouse and children) or to a trust
established exclusively for the benefit of one or more such immediate family
members, or (ii) by will or the laws of descent and distribution following the
Optionee's death. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
2.3 INCENTIVE OPTIONS
The terms specified below shall apply to all Incentive Options.
Except as modified by the provisions of this Section 2.2, all the provisions of
this Plan shall apply to Incentive Options. Options specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to the
terms of this Section 2.2.
a. Eligibility. Incentive Options may only be granted to
Employees.
b. Exercise Price. The Exercise Price shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
Grant Date.
c. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or
<PAGE> 14
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
Incentive Options shall be applied in the order in which such options are
granted.
d. 10% Stockholder. If an Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the Exercise Price shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the Grant Date, and the option term shall not exceed five (5) years measured
from the Grant Date.
e. Holding Period. Shares purchased pursuant to an option shall
cease to qualify for favorable tax treatment as Incentive Option Shares if and
to the extent Optionee disposes of such shares within two (2) years of the Grant
Date or within one (1) year of Optionee's purchase of said shares.
2.3 CORPORATE TRANSACTION/CHANGE IN CONTROL
a. In the event of any Corporate Transaction, the Board of
Directors shall have the sole discretion to elect that each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The Board may exercise its discretion to accelerate the vesting of options
whether or not (i) such option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation or Parent thereof or to be
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation or Parent thereof, (ii) such option is to be replaced with
a cash incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option, except to the extent that the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant. The determination of option comparability under clause
(i) above shall be made by the Plan Administrator, whose determination shall be
final, binding and conclusive.
b. In the event of any Corporate Transaction, the Board of
Directors shall have sole discretion to elect that all outstanding repurchase
rights may also be terminated automatically whether or not those repurchase
rights are to be assigned to the successor corporation (or Parent thereof) in
connection with such Corporate Transaction.
c. The Plan Administrator's discretion under Sections 2.3.a. and
b. above shall be exercisable either at the time the option is granted or at any
time while the option remains outstanding, whether or not those options are to
be assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction. The Plan Administrator shall also have the discretion to
grant options which do not accelerate whether or not such options are assumed
(and to provide for repurchase rights that do not terminate whether or not such
rights are
<PAGE> 15
assigned) in connection with a Corporate Transaction.
d. If the Board of Directors elects the automatic acceleration of
some or all of the outstanding options upon the occurrence of a Corporate
Transaction, all such outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) immediately following the consummation of the Corporate
Transaction.
e. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities that would have been
issuable to the Optionee in consummation of such Corporate Transaction had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options.
f. The Plan Administrator shall have the discretion, exercisable
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options assumed or
replaced in a Corporate Transaction that do not otherwise accelerate at that
time (and the termination of any of the Corporation's outstanding repurchase
rights that do not otherwise terminate at the time of the Corporate Transaction)
in the event the Optionee's Service should subsequently terminate by reason of
an Involuntary Termination within eighteen (18) months following the effective
date of such Corporate Transaction. Any options so accelerated shall remain
exercisable for shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
g. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights) upon the occurrence of a Change in Control or (ii) condition
any such option acceleration (and the termination of any outstanding repurchase
rights) upon the subsequent Involuntary Termination of the Optionee's Service
within a specified period (not to exceed eighteen (18) months) following the
effective date of such Change in Control. Any options accelerated in connection
with a Change in Control shall remain fully exercisable until the expiration or
sooner termination of the option term.
h. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such
<PAGE> 16
option shall be exercisable as a Non-Statutory Option under the federal tax
laws.
i. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
2.4 CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an Exercise Price based on the Fair Market Value per share
of Common Stock on the new Grant Date.
ARTICLE 3.
MISCELLANEOUS
3.1 FINANCING
a. The Plan Administrator may permit any Optionee to pay the
option Exercise Price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option Exercise Price payable for the
Purchased Shares plus (ii) the amount of any federal, state and local income and
employment tax liability incurred by the Optionee in connection with the option
exercise.
b. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
3.2 TAX WITHHOLDING
a. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the satisfaction
of all applicable federal, state and local income and employment tax withholding
requirements.
b. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options under the Plan with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(1) Stock Withholding: The election to have the
<PAGE> 17
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
(2) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
3.3 EFFECTIVE DATE AND TERM OF THE PLAN
a. The Plan shall become effective on the Plan Effective Date.
However, no shares shall be issued under the Plan pursuant to Incentive Options
until the Plan is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the Plan
Effective Date, then all Incentive Options previously granted under this Plan
shall automatically convert into Non-Statutory Options.
b. The Plan shall terminate upon the earliest of (i) June 30,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued, or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all
outstanding options shall continue to have force and effect in accordance with
the provisions of the documents evidencing such options.
3.4 AMENDMENT OF THE PLAN
a. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations with
respect to options at the time outstanding under the Plan unless each affected
Optionee consents to such amendment or modification. In addition, amendments to
the Plan shall be subject to approval of the Corporation's stockholders to the
extent required by applicable laws or regulations.
a. Options to purchase shares of Common Stock may be granted
under the Plan that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until there is obtained Board approval (and
shareholder approval if required by applicable laws or regulations) of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan.
3.5 USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
<PAGE> 18
3.6 REGULATORY APPROVALS
a. The implementation of the Plan, the granting of any option
under the Plan, and the issuance of any shares of Common Stock upon the exercise
of any option shall be subject to the Corporation's obtaining all approvals and
permits required by regulatory authorities having jurisdiction over the Plan and
the options granted under it, and the shares of Common Stock issued pursuant to
the Plan.
b. No shares of Common Stock shall be issued or delivered under
the Plan unless and until there shall have been compliance with all applicable
requirements of federal and state securities laws and all applicable listing
requirements of any stock exchange (or the Nasdaq market, if applicable) on
which Common Stock is then listed for trading.
3.7 EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
APPENDIX
The following definitions shall be in effect under the Plan and the Plan
Documents:
1. Board shall mean the Corporation's Board of Directors.
2. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders, which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.
3. Code shall mean the Internal Revenue Code of 1986, as amended.
4. Common Stock shall mean the Corporation's common stock.
<PAGE> 19
5. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
6. Eligible Director shall mean a non-employee Board member eligible to
participate in the Plan.
7. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
8. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
9. Exercise Price shall mean the exercise price per share as specified in
the Stock Option Grant.
10 Expiration Date shall mean the date on which the option expires as
specified in the Stock Option Grant.
11. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is traded at the time on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is not listed on any Stock Exchange nor traded
on the Nasdaq National Market, then the Fair Market Value shall be determined by
the Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
(iv) For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is sold in the initial public offering pursuant to the
Underwriting Agreement.
12. First Refusal Right shall mean the right granted to the Corporation in
Section E of the Stock Option Exercise Notice and Purchase Agreement.
<PAGE> 20
13. Grant Date shall mean the date on which the option is granted to
Optionee as specified in the Stock Option Grant.
14. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
15. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.
16. Market Stand Off shall mean the market stand off restriction on
disposition of the Purchased Shares as specified in Section F of the Stock
Option Exercise Notice and Purchase Agreement.
17. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
18. 1933 Act shall mean the Securities Act of 1933, as amended.
19. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
20. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
21. Optionee shall mean any person to whom an option is granted under Plan.
22. Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Stock Option Grant.
23. Owner shall mean Option and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
24. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one or the other corporations
in such chain.
25. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment
<PAGE> 21
expected to result in death or to be of continuous duration of twelve (12)
months or more.
26. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
Shares, provided and only if Optionee obtains the Corporation's prior written
consent to such transfer, (ii) a transfer of title to the Purchased Shares
effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death, or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
27. Plan Administrator shall mean the particular entity, whether the Board
or a committee of the Board, which is authorized to administer the Plan with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.
28. Plan Documents shall mean the Plan, the Stock Option Grant, and Stock
Option Exercise Notice and Purchase Agreement, collectively.
29. Plan Effective Date shall mean July 1, 1998, the date as of which the
Plan was adopted by the Board.
30. Primary Committee shall mean the committee of two (2) or more
non-employee Board members (as defined in the regulations to Section 16 of the
1934 Act) appointed by the Board to administer the Plan with respect to Section
16 Insiders.
31. Purchased Shares shall mean the shares purchased upon exercise of the
Option.
32. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other charge
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
33. Reorganization shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not the
surviving entity;
(ii) a sale, transfer, or other disposition of all or substantially all
of the Corporation's assets;
(iii) a reverse merger in which the Corporation is the surviving entity
but in which the Corporation's outstanding voting securities are transferred in
whole or in part to a person or persons different from the persons holding those
securities immediately prior to the merger; or
(iv) any transaction effected primarily to change the state in which the
Corporation is incorporated or to create a holding company structure.
34. Repurchase Right shall mean the Corporation's right to repurchase
Purchased Shares as set forth in Section D of the Stock Option Exercise Notice
and Repurchase Agreement.
35. SEC shall mean the Securities Exchange Commission.
36. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Plan with respect to eligible
persons other than Section 16 Insiders.
37 Section 12(g) Registration Date shall mean the date on which the Common
Stock is first registered under Section 12(g) of the 1934 Act.
<PAGE> 22
38. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
39. Service shall mean the performance of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
40. Stock Exchange shall mean either the American Stock Exchange, the New
York Stock Exchange, or another regional stock exchange.
41. Stock Option Exercise Notice and Purchase Agreement shall mean the
agreement of said title in substantially the form of Exhibit A to the Stock
Option Grant, pursuant to which Optionee gives notice of his intent to exercise
the option and purchase Shares.
42. Stock Option Grant shall mean the Stock Option Grant document, pursuant
to which Optionee has been informed of the basic terms of the option granted
under the Plan.
43. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
44. Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options in connection with
the exercise of those options.
45. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
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