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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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OR
[ ] TRANSITION REPORT UNDER 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0561426
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
The Towers at South Towne II
10421 South 400 West, Suite 550,
Salt Lake City, Utah 84095
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(Address of principal executive offices) (Zip Code)
(801) 816-2500
Issuer's telephone number
Durwood, Inc. 4085 West 4715 South Kearns, Utah 84118
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(Former name or former address and former fiscal year,
if changed since last report.)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The Company's revenues for the fiscal year ending December 31, 1999 were
$1,452,919.
The aggregate market value of the Company's voting stock held by
non-affiliates computed by reference to the closing price as quoted on the NASD
Electronic Bulletin Board on March 1, 2000 was approximately $7,320,587. For
purposes of this calculation, voting stock held by officers, directors, and
affiliates has been excluded.
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 March 1, 2000, the
Company had outstanding 18,398,360 shares of common stock, par value $0.0001 per
share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on Friday, June 2, 2000, are incorporated by
reference in Part III of this Form 10-KSB to the extent stated herein.
Transitional Small Business Disclosure Format (check one) [ ] Yes [x] No
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TABLE OF CONTENTS
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Part I
Item 1 - DESCRIPTION OF BUSINESS........................................1
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS..............1
Item 2 - DESCRIPTION OF PROPERTY.......................................19
Item 3 - LEGAL PROCEEDINGS.............................................19
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........19
Part II
Item 5 - MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...........................................20
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................22
Item 7 - FINANCIAL STATEMENTS..........................................28
Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE......................................46
Part III
Item 9 - DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............46
Item 10 - EXECUTIVE COMPENSATION.......................................46
Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................46
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............46
Item 13 - EXHIBITS AND REPORTS ON FORM 8-K.............................46
</TABLE>
SIGNATURES...................................................................48
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FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-KSB, IN PARTICULAR "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"ITEM 1. BUSINESS," INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS CONCERNING, AMONG OTHER THINGS,
FUTURE REVENUE, EARNINGS, AND OTHER FINANCIAL RESULTS, PROPOSED ACQUISITIONS AND
NEW PRODUCTS, ENTRY INTO NEW MARKETS, FUTURE OPERATIONS AND OPERATING RESULTS,
FUTURE BUSINESS AND MARKET OPPORTUNITIES. THE COMPANY WISHES TO CAUTION AND
ADVISE READERS THAT THESE STATEMENTS INVOLVE RISK AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS AND BELIEFS
CONTAINED HEREIN. FOR A SUMMARY OF CERTAIN RISKS RELATED TO THE COMPANY'S
BUSINESS, SEE "RISK FACTORS." UNDER "ITEM 1. DESCRIPTION OF BUSINESS."
Unless the context requires otherwise, references to the Company are to
SportsNuts.com International, Inc. and its subsidiaries.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS (CAUTIONARY STATEMENTS UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995)
The disclosure and analysis set forth herein contains certain forward
looking statements, particularly statements relating to future actions,
performance or results of current and anticipated products and services, sales
efforts, expenditures, and financial results. From time to time, the Company
also provides forward-looking statements in other publicly-released materials,
both written and oral. Forward-looking statements provide current expectations
or forecasts of future events such as new products or services, product
approvals, revenues, and financial performance. These statements are identified
as any statement that does not relate strictly to historical or current facts.
They use words such as "anticipates," "intends," "plans," "expects," "will," and
other words and phrases of similar meaning. In all cases, a broad variety of
assumptions can affect the realization of the expectations or forecasts in those
statements. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially.
The Company undertakes no obligation to update any forward-looking
statements, but investors are advised to consult any further disclosures by the
Company on this subject in its subsequent filings pursuant to the Securities
Exchange Act of 1934. Furthermore, as permitted by the Private Securities
Litigation Reform Act of 1995, the Company provides these cautionary statements
identifying risk factors, listed below, that could cause the Company's actual
results to differ materially from expected and historical results. It is not
possible to foresee or identify all such factors. Consequently, this list should
not be considered an exhaustive statement of all potential risks, uncertainties
and inaccurate assumptions.
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RISK FACTORS
OPERATING RISKS
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the discontinuation
of its network marketing operations, the Company may be subject to liability for
sales of products and memberships to its independent distributors during the
previous twelve months. State and/or federal laws governing network marketing
may require the Company to refund all or part of the funds received from
distributors for product and membership sales in the event of a termination of
the distributor's independent sales agreement. If the Company were forced to
refund monies to its distributors and repurchase product inventory or
memberships, the Company's business, operating results, and financial condition
would be materially adversely affected. (See "RECENT
DEVELOPMENTS--Discontinuation of Line of Business").
DEPENDENCE ON KEY PERSONNEL. The Company's success depends, in large part,
upon the talents and skills of its management and key personnel. 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. 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 the "SportsNuts.com" brand name or if the Company incurs
significant expenses promoting and maintaining this 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 Company's 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 and services increases. Successfully promoting and positioning the
Company's brand will depend largely on the effectiveness of the Company's
marketing efforts and ability to attract a large number of amateur sports
enthusiasts to its Web site on a consistent basis. Consequently, the Company may
need to increase its financial commitment to creating and maintaining brand
awareness among consumers.
ADDITIONAL FINANCING REQUIREMENTS. The Company will likely require
substantial additional capital in the future for expansion, business
development, marketing, computer software and systems, overhead, administrative,
and other expenses. There is no assurance that the Company will be able to raise
additional funds or that financing will be available on acceptable terms. Lack
of additional funds could significantly affect the Company and its business.
Further, funds raised through future equity financing could be substantially
dilutive to existing shareholders.
DEVELOPMENT STAGE COMPANY. The Company was organized on July 12, 1996.
Since the date of its inception, the Company has incurred substantial losses 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 revenues, and there is no assurance that the Company will do so in
the future or that such revenue generation will ultimately lead to the Company
becoming profitable.
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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, increases in site traffic will likely correspond with the three
primary sports seasons (football, basketball, and baseball) and therefore
revenues 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 does not manufacture any
of the products sold from its Internet Web Site, and therefore relies upon the
Internet retail affiliates ("Affiliates") who sell these products through the
Web Site to manufacture and/or supply all of the products to its customers.
These Affiliates are primarily manufacturer's representatives. The Company's
profit margins and the ability for consumers to receive existing products on a
timely basis are substantially dependent upon these Affiliates. The development
of additional new products 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 from
the Company's Web Site and could have a material adverse affect on the Company's
financial condition and results of operations.
GROWTH MANAGEMENT. 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, management of Affiliates, employees and customers,
expansion of facilities and computer systems necessary to accommodate such
growth, and additions and modifications to the products and services 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.
REGULATION OF FUNDRAISING ACTIVITIES. Most states regulate fundraising
activities through "Charitable Solicitation" statutes. To the extent that the
Company is subject to such statutes, the Company may be required to file as a
paid solicitor or professional fundraiser and pay a filing fee in each state in
which it attempts to engage amateur sports teams and participants to sell
Internet advertising to local merchants and organizations. Moreover, inasmuch as
such statutes apply to any person engaged in such activities, every person who
engages in fundraising activities may be required to register as a paid
solicitor or professional fundraiser and pay a registration fee in each state in
which they attempt to sell banner advertising on behalf of the Company. Any
determination that would require state registration for amateur sports teams or
participants may have a material adverse effect on the Company's business,
financial condition, and results of operations.
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 Internet. Although
transmissions from the Company's Web Site will likely 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.
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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 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 relatively recent phenomenon, and the Company
relies on consumers who have historically used traditional means 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 Internet
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 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 DATA TRANSMISSION SECURITY RISKS. A significant barrier to the
electronic transmission of confidential data over the Internet is the perception
that such data may not be secure. 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 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,
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or if the Company's Web Site does not achieve market acceptance, the Company's
business, operating results, and financial condition would be adversely
affected.
NO PROPRIETARY PROTECTION FOR TECHNOLOGY. The Company's statistical
information system and the league management system (now in development) are not
protected by any copyright or patent, and the Company does not anticipate filing
an application with the United States Patent and Trademark Office ("USPTO") or
the United States Copyright Office for protection of these systems. Although the
Company believes that copyright and patent protection for these systems is
either cost prohibitive or unnecessary, it may be wrong. If the Company is
wrong, it could face unexpected expenses pursuing, defending, or otherwise
becoming involved in a copyright or patent dispute, any of which could have a
material adverse effect upon the Company's business, results of operations, and
financial condition.
UNCERTAIN PROTECTION OF TRADE NAMES AND RELATED INTANGIBLE ASSETS. The
Company has submitted applications to the USPTO for trademark protection for the
name "SportsNuts.com" with respect to the following classes of products and
services: (i) vitamins, minerals, and herbal supplements; (ii) sporting goods
and apparel; (iii) Internet communication, education, and entertainment; (iv)
miscellaneous goods and services. Currently the mark "E-Sports Mall" is pending
registration. The Company has also registered the Internet domain names,
"www.sportsnuts.com," and "www.sportsnuts.net." 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 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 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" causes 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, 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 a 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 infringements of the rights of
others.
COMPETITION AND TECHNOLOGICAL CHANGE. The market for Internet products,
services, and advertising within the amateur sports market is new, rapidly
evolving, and intensely competitive and will continue to undergo rapid
technological change. The Company must continue to enhance and improve the
functionality and features of its online services and sports information
management software. If new industry needs, standards, or practices emerge, the
Company's existing services, technology, and systems may become obsolete.
Developing and enhancing the Company's proprietary technology entails
significant technical and business risks, in addition to substantial costs. If
the Company faces delays in introducing new services, products and enhancements,
its users may forego the use of the Company's services and use those of its
competitors. The Company currently competes with many other amateur sports
information and product web sites and the Company anticipates competition to
intensify in the future. Barriers to entry may not be significant, and current
and new competitors may be able to launch new web sites quickly at a relatively
low cost. Accordingly, the Company believes that its success will depend heavily
upon achieving significant market acceptance before its competitors and
potential
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competitors introduce competing services. Many of the Company's competitors, as
well as potential entrants into the Internet amateur sports market, have longer
operating histories, larger customer or user bases, greater brand recognition
and significantly greater financial, marketing, and other resources than the
Company. Furthermore, several of the Company's competitors have acquired certain
key sponsorships and relationships with a few well-known amateur sports
organizations which may impede the Company's growth and thereby have a material
adverse effect upon the Company's business, results of operations, and financial
condition.
PRODUCT LIABILITY. Although the Company does not manufacture any of the
products purchased or sold through its Web Site, it may be subject to liability
for losses caused by such products. 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.
INVESTMENT RISKS
SPECULATIVE INVESTMENT. The shares of the Company's common stock are a
speculative investment. To date, the Company has generated substantial losses
and has yet to achieve a profit. If the Company fails to generate profits, it is
unlikely that the Company will be able to meet its financial obligations and
investors could lose their entire investments.
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. With respect to
the Company, 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 a material adverse effect on the Company's business, results
of operations, and financial condition.
NO ACTIVE MARKET. Although the Company's shares are traded on the NASD
Electronic Bulletin Board, the Company believes that the public trading price
may be an inaccurate representation of the value of the Company because there is
no active public market for the shares and no analysts or NASD market makers
actively follow the Company. Consequently, to the extent that the shares became
available for public sale, the public share price could fluctuate substantially
based upon a small volume of public transactions in the Company's Common Stock.
NO DIVIDENDS. 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 subsequent financing arrangements.
CONCENTRATION OF VOTING POWER. Certain shareholders of the Company acting
as a group 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 2/3% 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. However, the Company cannot guarantee that certain persons, either
collectively or individually, will not be able to
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control the election of the Board of Directors and that minority shareholders
will not be adversely affected as a result.
ANTI-TAKEOVER PROVISIONS. The Restated Certificate of Incorporation of the
Company 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 18,398,360 shares of the
Company's Common Stock outstanding at March 1, 2000, 2,441,713 are freely
tradeable or immediately eligible for resale under Rule 144 promulgated pursuant
to the Securities Act of 1933, as amended. Sales of substantial amounts of the
freely tradeable stock in the public market could adversely affect the market
price of the Common Stock. Moreover, the Company is currently exploring a
possible repricing of stock options issued under its 1999 stock option plan, and
the possible filing of an S-8 registration statement with respect to the plan,
the result of which could be the sale of a substantial number of shares in the
public market, and consequently, an adverse effect upon the public trading price
of the Company's Common Stock.
PRIVATE LIABILITY OF MANAGEMENT. The Company has adopted provisions in its
Certificate of Incorporation which limit the liability of its officers and
directors and provisions in its bylaws 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 of Incorporation 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 may reduce the
proportionate ownership and voting power of existing shareholders. The Company
is also 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 a dividend and liquidation preferences over 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 more 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.
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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- dealers'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.
RISKS RELATED TO NETWORK MARKETING OPERATIONS AND DISCONTINUANCE THEREOF
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the discontinuation
of its network marketing operations, the Company may be subject to liability for
sales of products and memberships to its independent distributors during the
previous twelve months. State and/or federal laws governing network marketing
may require the Company to refund all or part of the funds received from
distributors for product sales in the event of a termination of the
distributor's independent sales agreement. If the Company were forced to refund
monies to its distributors and repurchase product inventory, the Company's
business, operating results, and financial condition would be materially
adversely affected. (See "RECENT DEVELOPMENTS--Discontinuation of Line of
Business").
RELIANCE UPON INDEPENDENT DISTRIBUTORS. Prior to the discontinuation of
its network marketing operations, the Company's principal sales force consisted
of independent distributors ("Distributors") who were not employees of the
Company. Relationships with Distributors were voluntarily terminable by the
Distributors, or the Company at any time. The Company's revenue was
substantially dependent upon the efforts of these Distributors.
POTENTIAL NEGATIVE IMPACT OF DISTRIBUTOR ACTIONS. Although the Company has
discontinued its network marketing operations, actions by certain Distributors
may still negatively impact the Company and its products and services. The
publicity resulting from Distributor activities such as inappropriate earnings
claims and product representations by Distributors can have a material adverse
effect on the Company's future business or results of operations.
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
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date, the Company believes that its method of distribution was in compliance in
all material respects with the laws and regulations relating to direct selling
activities of the states in which the Company operated.
GOVERNMENTAL REGULATION OF NETWORK MARKETING IN GENERAL. The Company's
network marketing system (now discontinued) was 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 or determination that the
Company's network marketing operations were not in compliance with government
requirements could have a material adverse effect upon the Company's financial
condition and results of operations.
BUSINESS OVERVIEW
The Company was originally incorporated under the name of Durwood, Inc.
on July 12, 1996 under the laws of the State of Delaware. On April 6, 1999, the
Company acquired (the "Reorganization") approximately 81% of the outstanding
shares of SportsNuts.com, Inc.("SNC"), a privately held Delaware corporation. In
connection with the Reorganization, the Company changed its name to
SportsNuts.com International, Inc. Prior to the Reorganization with SNC, the
Company had not commenced active business operations and was considered a
development stage company. The financial information presented in this document
for the periods prior to the Reorganization have been presented as if the
entities had been combined on a consolidated basis. The transaction with SNC is
described in detail under "Summary of Reorganization" below.
SNC was incorporated in the state of Utah on November 13, 1996 and
began operations on January 1, 1997. Its primary business involved the sales and
distribution of sporting goods and health/nutritional products, using the
Internet, through a network marketing distribution strategy. The strategy also
included creating a personalized sports community offering a comprehensive
bundle of sports, outdoors and fitness-related products, services and
information in a club environment on its web site. The network marketing
distributor force sold club memberships with access to these products and
services on the Web Site. This business strategy had continued since its
inception and subsequent to the Reorganization until March 1, 2000, when the
Company determined to discontinue its network marketing operations.
On July 28, 1999 the Company acquired (the "Merger") 100% of the
outstanding stock of Sportzz.com, Inc. ("Sportzz"), a privately held Utah
corporation. This acquisition is described in detail under "Summary of Merger"
below. Sportzz was incorporated in the State of Utah on April 7, 1999.
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 amateur sports information from leagues,
schools, teams, and their player rosters, game schedules, game results,
photographs, articles, and statistics. The Merger with Sportzz provided the
Company with a distinct business opportunity to develop an Internet portal into
the amateur sports market, and to capitalize on the substantial growth in the
Internet industry. While expanding the business strategy to involve more a
"pure" play in the amateur sports industry, the Company also sought to
capitalize on synergies with its network marketing business by using its
distributor force to enroll teams, individual athletes, fans, supporters and
others as users to its amateur sports web site, thereby increasing site traffic
and creating greater revenue generating capacity through
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advertising, e-commerce, and other monetary activities.
RECENT DEVELOPMENTS
DISCONTINUATION OF LINE OF BUSINESS
Historically, the Company operated as an online sports community
offering a comprehensive bundle of sports, outdoors, and fitness-related
products, services, and information in a club environment. The Company attempted
to combine the forces of sports, the Internet, and network marketing to build
this sports community. Effective March 1, 2000, the Company has decided to
narrow this focus considerably, and has elected to discontinue its network
marketing operations and concentrate solely on building an Internet portal to
the amateur sports market. Because direct sales is intended to be an important
marketing channel to promote the SportsNuts.com site and its services, the
Company intends to either (i) license the Company's network marketing concepts
to a third party network marketing company and assign to such third party the
Company's existing distributor agreements, or (ii) enter into an agreement with
an established network marketing firm to promote the SportsNuts.com site.
SUMMARY OF MERGER
On July 28, 1999, the Company concluded an Agreement and Plan of
Merger (the "Merger Agreement") among Sportzz.com, Inc., a Utah corporation
("Sportzz"), SportsNuts Merger Sub., Inc., a Utah corporation and wholly-owned
subsidiary of the Company ("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.
Sportzz was incorporated in the State of Utah on April 7, 1999.
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 amateur sports information 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 all of the issued and
outstanding shares of 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 Securities and Exchange Commission on August 12, 1999.
SUMMARY OF REORGANIZATION
On April 6, 1999, the Company acquired (the "Reorganization")
approximately eighty-one percent (81%) of the outstanding capital stock from
accredited investors (the "Participating Shareholders") of SportsNuts.com, Inc.,
a privately held Delaware corporation ("SNC"). The Reorganization was accounted
for as a reverse merger into a non-operating public company, wherein SNC was
treated as the accounting acquirer. In conjunction with the Reorganization, the
Company changed its
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name from Durwood, Inc. to SportsNuts.com International, Inc. Prior to the
Reorganization, Durwood, Inc. conducted no active business. At the time of the
Reorganization, SNC was 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 SNC in exchange for
their collective 11,683,000 shares of SNC common stock. Each Participating
Shareholder of SNC received 0.654904748 shares of the Company's Common Stock in
exchange for each share of common stock of SNC. Additionally, the Company issued
to certain accredited holders of warrants in SNC (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
SNC common stock they were entitled to purchase pursuant to their SNC 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 SNC
that were held by the remaining shareholders (other than the Company) as of the
closing date of the Reorganization.
DESCRIPTION OF BUSINESS
SportsNuts.com International, Inc. (formerly Durwood, Inc.) (the
"Company") has been 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 had attempted to
combine the three forces of sports, the Internet, and network marketing in an
effort to build a targeted online customer base of 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.
Effective March 1, 2000, the Company has decided to narrow its focus
considerably, and has elected to discontinue its network marketing operations
and concentrate solely on building an Internet portal to the amateur sports
market. Because direct sales is intended to be an important marketing channel to
promote the SportsNuts.com site and its services, the Company intends to either
(i) license the Company's network marketing concepts to a third party network
marketing company and assign its existing distributor agreements to such third
party, or (ii) enter into an agreement with an established network marketing
firm to promote the SportsNuts.com site. The discussion that follows is directed
towards the Company's future business plans, which are substantially different
from its historical business operations.
SportsNuts.com International, Inc. is a Web-centric company with a
mission to build an Internet portal to the world of grass roots amateur sports.
The Company intends to achieve this result by marketing a set of unique
web-based solutions that leverage the Company's own comprehensive sports
information management system, and address the needs of various audiences
(athletes, parents, fans,
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coaches, officials, athletic directors, and administrators) in this large and
emotionally connected community. In short, the Company intends to bring together
the efficiency of the Internet and the stickiness of sports information with the
purchasing power and involvement of amateur sports participants and supporters
in an attempt to create the largest commercially viable, interactive community
of amateur sports enthusiasts on the Internet.
To build the ultimate portal for amateur sports, the Company intends to
offer schools, cities, leagues, organizations and sports teams of every kind,
online administrative efficiencies and free access to the Company's web-based
sports information management system. This system is supported by software that
seeks to streamline and integrate the cumbersome and costly team registration,
scheduling, and rostering process. The system also has the capability to
display, profile, query, archive, and maintain schedules, scores, highlights,
summaries, statistics, pictures, video, maps, articles, interviews and standings
relating to local, grass roots amateur sporting events. The scalability and
dynamic nature of the underlying databases in which the software was developed
allow for individual athletes, teams, schools, or regions to be compared against
any other like group in the system. The interactivity of the system is ideal for
amateur sports enthusiasts who want to track individual athletes, teams, or
leagues over time or against other similar groups, consequently increasing the
duration of time (commonly termed "stickiness") spent on the Company's site and
providing revenue opportunities within the site.
To complement its interactive amateur sports information management
system and to increase sticky time for site users, the Company intends to offer
a wide range of sports-related products and services through an online sports
mall. The Company intends to also provide up-to-date, quality sports- related
content and other online services targeted at consumers in the amateur sports
market.
PRODUCT SUMMARY
CORE TECHNOLOGY DEVELOPMENT
The Company's ability to create a robust and sustainable Internet
portal to the amateur sports market is linked to its ability to develop a unique
set of web-based solutions that solve current problems endemic to the amateur
sports market and/or increase consumer satisfaction as it relates to their
involvement in grass roots amateur sports. In keeping with this principle, the
Company has invested substantial resources to support the rapid and substantial
development of its two core technologies that form the sports information
management system and are the backbone of its business strategy: (i) the league
management system, and (ii) the statistical information system.
LEAGUE MANAGEMENT SYSTEM. The team and league management system being
created by the Company is intended to streamline the league administration
process by removing the most significant barriers to efficient league
management, namely event coordination and lack of standardization. Athletes,
coaches, and administrators will be able to register on-line at their
convenience providing critical standardized demographic information upon
registration that can be profiled throughout the system. Player rosters and
scheduling will likely be easily created and updated by league/team
administrators and posted on the Company's site and distributed electronically
to participants who possess Internet access.
STATISTICAL INFORMATION SYSTEM. The Company enhances the amateur sports
experience by providing a variety of individual and team information and
statistics to Internet users. The information is compiled in a relational
database that, when profiled over time or against comparable statistics of
another
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player, team, or league, produces tangible measurements on multiple levels that
are difficult to generate through any other medium. Other key material,
including game/contest summaries, commentary, photographs and video highlights,
in conjunction with such statistical data, enrich amateur sports for athletes,
recruiters, coaches, parents, and others who faithfully follow a team or
individual sports participant.
RELIABILITY AND SCALABILITY. The Company's senior technology staff
combine over 50 years of development and verification experience in database and
networking systems. The sports information management system is constantly
undergoing substantial testing at multiple levels of throughput (volume of data
exchanged between the databases and the end user) to ensure reliable performance
under conditions of heavy site traffic. The system has been configured to
provide near immediate server backup in the event of a failure of the Company's
primary Web server. Moreover, the Company's entire network security (firewalls,
authentication, and authorization) has been audited by independent experts, and
the Company believes that its security systems are robust, given the relatively
modest financial resources available to the Company to date. The Company has
instituted a caching method that allows its database server to work faster, more
efficiently, and handle a greater number of users without causing excessive
stress to the system. The entire system is highly scalable, and the Company
estimates that, with only the acquisition of additional hardware, it can
accommodate a substantial number of additional users and volume of data without
compromising the system or requiring significant programming costs.
PRODUCT DEVELOPMENT
TECHNOLOGY
DATABASES. The heart of the Company's operations and services is the
sports information management system user base. A database contains all the
detailed information that the Company gathers on every single registered
Internet user on its site. The database software holds and manipulates all such
information. This database is built with Oracle software, the most robust and
reliable Internet solution available. The Company has invested in Oracle
software in order to insure reliability as well as scalability. Oracle databases
are typically the fastest and are easily moved from one computer platform to
another. The database can efficiently provide any of the stored information when
it is automatically requested by the Company's Web site, software applications
or manually requested by an employee for corporate use. When the processing
demand of the database servers is being taxed to the pre-determined limits, the
database will be moved to more powerful, alpha processor-based computer systems
in order to maintain the efficiency, speed and quality of service the company
desires to provide.
SOFTWARE APPLICATIONS. A custom designed program comprises the backbone
of the Company's sports information management system. This program collects
information about athletes, teams and leagues, individual athlete statistics,
team statistics, and schedules. The program stores this information in the
database and posts it on the Company's Web site. An administrative part of the
program allows certain pre-established users to access the user interface and
upload the most up to date information to the Company's database and site.
Coaches and other administrators can upload biographical information, photos,
articles, announcements and other information about athletes, game results,
teams, schools, etc. so that it can be viewed on the Web.
The Company will be using custom-designed advertising software that
will allow local advertisers to use its Web site to selectively target the
advertising audience. The Company's Web site is intended to
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be one of few sites that will offer such a high degree of targeting for local
(maximum granularity is a single zip code) banner and/or email, "push"
advertising. Banner ads can be targeted to people based on their age, gender,
sport of interest and/or address. Over time the targeting abilities of this
software are intended to be improved in order to provide local advertisers with
even better Internet solutions to meet their local advertising needs. In the
near future the core of this software is intended to be used to provide the
Company's customers with personalized portals to the Internet.
LICENSES. The company has licensed Oracle Database Software to store
and manipulate all the information on the user/participant base as previously
described. The Oracle license is for the database servers as well as the
Internet interface. The Company has licensed SQLWorks(TM) from ObjectSelect to
provide web applications high volume, intelligent access to Oracle databases.
SQLWorks is highly optimized to avoid database bottlenecks and reduce database
I/O requirements.
HARDWARE. The Company's main database servers are Compaq computers
running the Windows NT operating system on the most powerful Intel processors
available. Each server can have up to four simultaneous processors. At this
time, each server is configured with a single processor. As server demand
increases, more processors will be added to each server. Once the Web site
outgrows the capacity of these servers (estimated to be about 1,500,000 page
views each day), the Intel based database computers will be replaced with more
powerful and scalable systems. The Intel processor based computers will then be
used to run applications only.
The internal, private network for the Company is served by a Compaq
computer running a Novell Netware network. This machine also runs the TCP/IP
network protocol, and therefore also serves as a link to the Internet for
employee access and Email.
FAULT TOLERANCE. Several redundancy and backup systems have been
implemented in order to assure continuous functionality of the Company's
computer systems. First, the Company uses two primary servers that contain
identical information. One server is used as the primary server for the
Company's sports information system and the Web site and the other server is
used primarily as a backup. Each of the servers are currently running below 50%
of their capacity and are intended to remain below this threshold in the future.
In the event that one server becomes inoperable, the other server is programmed
to continue to provide the functions of both servers until the problem is
resolved. Both servers are equipped with hard drive configurations built to
insure that if any one of the drives fails, no data will be lost. The systems
are also configured such that a faulty hard drive can be replaced with a new
one, without shutting down the computer server.
Each day a full backup is made of all the data on the computer servers.
All of the servers have hard drive configurations that add fault tolerance. Some
have two concurrent copies of all the data (mirrored hard drives). The main
database servers have hardware that allows for a hard drive to fail without
losing any of the data. Another data security measure is the battery backup. In
the event of a loss of electricity, all the computer systems can run from
battery backup for at least two and a half hours.
MARKET ANALYSIS/OPPORTUNITIES
Since its establishment, the Company's primary competitors were in the
direct sales industry, and more specifically among "network marketing
companies." The direct selling industry is characterized by intense competition
and numerous firms selling a broad range of goods and services. There are many
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firms that sell unbundled, competing sports-related products and services on the
Internet; however, the Company had no known competitors in the sports-based
network marketing business. Because the Company has since discontinued its
network marketing operations, its principal competitors have changed
accordingly. The market for Internet information resources is rapidly evolving
and intensely competitive with a large number of competitors in the Internet
sports industry. However, the niche market in which the Company competes
possesses relatively few Internet-based amateur sports organizations that
profile statistics for certain types of amateur sports teams and leagues. There
can be no assurance that the Company can maintain a competitive position against
current or future competitors as they enter the markets in which it competes,
particularly those with greater financial, marketing, service, support,
technical and other resources than those possessed by the Company. The Company's
failure to maintain a competitive position within the market could have a
material adverse effect on its business, financial condition, results of
operations and cash flows.
THE REACH OF AMATEUR SPORTS. Amateur sports in the United States has a
massive following, estimated at 135 million fans, 76 million active
participants, 4 million organized teams, and over $30 billion spent annually on
products and services. A recent Sporting Goods Manufacturing Association survey
notes that 53% of amateur sports participants have an annual household income in
excess of $50,000, which is 8% higher than the national average.
Amateur sports touches multiple audiences (athletes, fans, coaches,
officials, sports physicians, athletic directors, community sports writers) who
generally want to enhance the experience for themselves and the participants. At
the grass-roots level, amateur sports tends to generate more emotional
involvement than any other activity with the exception of academic education.
The dreams of millions of athletes are pursued through sports and many families
live vicariously through sports in various supporting roles. Amateur sports
typically require a substantial investment of time and money. The demographic
profile of amateur sports enthusiasts is therefore strong relative to
recreational spending.
THE INTERNET. Sports has been a core staple in the development of the
Internet. Over thirty million users in the United States access the Internet
each day for sports-related information. Some of the most popular sports sites
generate in excess of one million page views per day. The administration of
amateur sports and the information management of amateur sports data lend itself
to web-based solutions, but are currently not addressed efficiently by any
online organization.
A significant change in advertising placement on the Internet has
recently taken place and signals a trend that must be noted: Fewer than five
percent of company executives will renew advertising dollars with horizontal
portals such as America Online. These executives believe that category-specific
or vertical portals do a better job of targeting and give them a greater return
on in vestment. This trend in advertising follows a strong trend in Internet
consumer behavior toward accessing categories and communities of interest.
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MARKET SEGMENTATION/USER NEEDS
GENERALLY. The Company has divided the grass roots amateur sports
market into three specific segments: (i) Youth Sports (ages 5-13), (ii) High
School Sports (ages 14-18), and (iii) Adult Recreation Sports (ages 19+). As
discussed below, the Company believes that there are approximately 76 million
persons within these three categories, or roughly thirty percent of the U.S.
population. Each segment has specific interests and needs, but they all share
the common goal of improving the amateur athletic experience by strengthening
coaching and playing skills and providing easier access to reliable information
and quality products and services.
YOUTH SPORTS. There are roughly three million organized youth sports
teams in the United States. Each team has an average of 12 players (36 million
total players). However, since most children play more than one sport, the
Company estimates that the number of unique participants in this segment to be
24 million.
Youth sports are typically less organized and managed far less
efficiently than high school or adult recreational sports. The registration,
rostering, and scheduling process is costly and cumbersome for youth sports
organizations. In addition, game and event information is usually difficult to
obtain, including time and location of contest, profile of the opposing team,
and a summary of the event itself. Coaching at the youth sports level is often
highly erratic, with a large number of children either inspired by or alienated
toward organized sports for life during this period. Youth coaches require a
variety of resources necessary to improve the quality of the instructional
environment. Finally, youth sports are constantly in need of funding for
equipment, facilities, and transportation.
HIGH SCHOOL SPORTS. There are approximately 20,000 high schools in the
United States, with approximately 25 teams of 20 athletes each per school across
all sports and grade levels (10 million total players). As with youth sports,
since most teens play more than one sport, the Company estimates that the number
of unique participants, together with a significant number of non-athlete
participants (e.g. drill team members, cheerleaders, and equipment managers) in
this segment to be 8 million.
Competition becomes significantly more important relative to youth
sports as athletes reach their teenage years. Nevertheless, current methods of
tracking the history or performance of an individual or team are difficult or
impossible, and broad comparison and ranking systems are largely unavailable.
Moreover, the scouting process is often unreliable, time consuming, and cost
prohibitive. High school athletes desire the type of tangible performance
measurements and statistics available through the Company's sports information
management system. In addition, those prep athletes with aspirations to
participate in collegiate athletics are highly interested in scholarship and
college placement opportunities afforded by increased exposure to college
recruiters. As with youth sports, high school sports programs are also
chronically underfunded. Finally, because of the increased intensity level of
high school sports and the resulting injuries, these athletes will likely
require access to sports medicine services, which is currently not available
from any comprehensive source online.
Two out of three online teens and one of three younger children have
researched or purchased a product online. Industry publications forecast that
teens will account for $1.2 billion in e-commerce by 2002. The Company's online
sports mall and other complementary online services provided by the Company are
a natural place for teenagers to go when they have logged on to review data in
the sports information management system.
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PARENTS/ADULT RECREATION SPORTS. The Company estimates that the 32
million children and teens participating in amateur sports will have at least
one non-participant supporter, most likely a parent. Although most youth and
high school athletes have more than one parent who follows their activities,
many parents with children who play sports typically have more than one child
participating in organized amateur sports. Many of these adults also participate
in recreational sports themselves. The Company believes that an additional 12
million adults who participate in recreational sports do not currently have
children engaged in amateur sports. Accordingly, the Company estimates that 44
million U.S. adults follow a child who participates in amateur sports and/or
personally participate in adult recreational sports.
Because competition as well as exercise is at the heart of adult sports
participation, a source for statistical information is likely to be a
significant attraction within this category. These persons are also more likely
to utilize sports medicine services, given their increased susceptibility to
aches, soreness, and injury due to age and increasing fragility. Sports-oriented
adults have significant purchasing power relative to the youth sports and high
school sports segment, particularly with credit card transactions over the
Internet. Adults desire a wide range of and sufficient information concerning
products and services that cater to their interests.
INTELLECTUAL PROPERTY
The Company has submitted applications to the U.S. Patent and Trademark
Office ("USPTO") for trademark protection for the name "SportsNuts.com" with
respect to the following classes of services: (i) vitamins, minerals, and herbal
supplements; (ii) sporting goods and apparel; (iii) Internet communication,
education, and entertainment; (iv) miscellaneous goods and services. On January
4, 2000, the Company has been allowed use of the SportsNuts.com mark for the
dissemination of advertising for others via an online electronic communications
network, for which the Company is awaiting a registration number. The mark
"E-Sports Mall" is pending registration. The Company has also registered the
Internet domain names, "www.sportsnuts.com," and "www.sportsnuts.net."
The Company's statistical information system and the league management
system (now in development) are not protected by any copyright or patent, and
the Company does not anticipate filing an application with the USPTO or the
United States Copyright Office for protection of these systems. Although the
Company believes that copyright and patent protection for these systems is
either cost prohibitive or unnecessary, it may be wrong. If the Company is
wrong, it could face unexpected expenses pursuing, defending, or otherwise
becoming involved in a copyright or patent dispute, any of which could have a
material adverse effect upon the Company's business, results of operations, and
financial condition.
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 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 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" causes 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, 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
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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 a
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 infringements of the rights of others.
GOVERNMENT REGULATION
There are currently few laws or regulations directly applicable to
Internet information or 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 Internet. Although transmissions from the
Company's Web Site will likely 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, its affiliates, or
customers purchasing products or services through its Web Site.
Most states regulate fundraising activities through so-called
"Charitable Solicitation" statutes. To the extent that the Company is subject to
such statutes, the Company may be required to file as a paid solicitor or
professional fundraiser and pay a filing fee in each state in which it attempts
to engage amateur sports teams and participants to sell Internet advertising to
local merchants and organizations. Moreover, inasmuch as such statutes apply to
any person engaged in such activities, every person who engages in fundraising
activities may be required to register as a paid solicitor or professional
fundraiser and pay a registration fee in each state in which they attempt to
sell banner advertising on behalf of the Company. Any determination that would
require state registration for amateur sports teams or participants may have a
material adverse effect on the Company's business, financial condition, and
results of operations.
EMPLOYEES
As of December 31, 1999, the Company employed 35 full-time employees.
It also employs independent contractors in its technical and business
development departments. None of the Company's employees are represented by a
labor union, and the Company considers its employee relations to be good.
As of March 1, in connection with the discontinuation of its network
marketing operations, the Company employed approximately fifteen persons. In
order to execute the Company's new business strategy, however, the Company will
likely require a significant increase in employees and contract personnel.
Competition for qualified personnel in the Internet industry is intense,
particularly among technical personnel in the Salt Lake City metropolitan area.
The Company believes that its future success will depend in part on its
continued ability to attract, hire, and retain a sufficient number of highly
skilled personnel.
18
<PAGE> 22
ITEM 2: DESCRIPTION OF PROPERTY
The Company's executive offices are located in a 5,900 square foot
facility in south Salt Lake County, Utah, fifteen minutes from the Salt Lake
City International Airport and adjacent to Interstate 15. This facility is
currently being leased for $9,336 per month on a five-year lease beginning April
15, 1999. The Company has also leased distribution facilities in a 2,000 square
foot facility in Provo, Utah and leases an office in Phoenix, Arizona. The Provo
lease is $1,500 per month for a period of two years beginning April 1, 1998. The
Phoenix, Arizona lease is approximately $5,000 per month for a period of five
years beginning July 1, 1999. In connection with the Company's discontinuation
of its network marketing operations, the Company may terminate the Provo and
Phoenix leases or sublease these facilities to a third party.
The Company believes that the size of its executive offices are
adequate for its business, technology, and operational needs for the
intermediate future. In the aggregate, however, the Company believes that
additional office space may be necessary in the near future to accommodate its
growth. Management believes that the Company should not experience any
significant difficulty in procuring additional office space as needed.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE> 23
PART II.
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(1) MARKET INFORMATION.
The Company's Common Stock is listed on the NASD Electronic Bulletin Board
("Bulletin Board") under the symbol "STSN." The Company's stock has been traded
on the Bulletin Board since approximately January, 1997. As of March 1, 2000,
there was no active public market for the Company's Common Stock. The following
table sets forth, for the periods indicated, the high and low closing sales
prices, as to Bulletin Board prices of shares of the Company's Common Stock and
adjusted for a 2.213 for 1 forward stock split effective April 6, 1999:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fourth Quarter 1999 $ 2.8125 $ 0.75
Third Quarter 1999 $ 4.312 $ 2.125
Second Quarter 1999 $ 9.375 $ 3.50
First Quarter 1999 $ 5.76 $ 0.23
</TABLE>
(2) HOLDERS.
As of March 1, 2000, the Company had approximately 317 shareholders of
record.
(3) DIVIDENDS.
Because the Company is in its early growth stage, it has not paid any cash
dividends on its Common Stock since inception and does not anticipate paying
cash dividends in the foreseeable future. The Company anticipates that any
future earnings will be retained for use in developing and/or expanding the
business.
(b) RECENT SALES OF UNREGISTERED SECURITIES.
Effective April 6, 1999, the Company sold and issued 1,000,000 shares of
restricted Common Stock solely to accredited investors in exchange for $1
million in cash proceeds. No underwriting discounts or commissions were given or
paid in connection with the transaction. The Company believes that the
transaction was exempt from the registration provisions of the Securities Act of
1933 pursuant to Section 3(b) of such Act and Rule 504 promulgated thereunder.
Effective April 6, 1999, the Company issued 7,651,252 shares of restricted
Common Stock solely to various accredited investors in exchange for 11,683,000
shares of Common Stock of SportsNuts.com, Inc., a privately-held Delaware
corporation ("SNC'). In addition, the Company issued warrants to acquire
3,353,112 shares of the Company's common stock to fifteen accredited investors
in exchange for
20
<PAGE> 24
5,120,000 warrants held by such investors to acquire shares of SNC common stock.
No underwriting discounts or commissions were given or paid in connection with
these transactions. The Company believes that these transactions were exempt
from the registration provisions of the Securities Act of 1933 pursuant Section
4(2) of such Act.
Effective April 8, 1999, the Company issued 1,351,268 shares of restricted
Common Stock solely to accredited investors in connection with the exercise of
warrants to purchase shares of Common Stock of the Company. No underwriting
discounts or commissions were given or paid in connection with these
transactions. The Company believes that the transaction was exempt from the
registration provisions of the Securities Act of 1933 pursuant to Section 4(2)
of such Act.
Effective May 8, 1999 the Company sold and issued 2,807,000 shares of
restricted Common Stock solely to sixty accredited investors in exchange for
$2,807,000 in cash proceeds. The Company paid cash commissions of $269,100,
together with warrants to acquire 237,151 shares of Common Stock at an exercise
price of $1.00 per share, and 440,250 shares of restricted Common Stock. The
Company believes that the transaction was exempt from the registration
provisions of the Securities Act of 1933 pursuant to Section 4(2) of such Act
and Rule 506 promulgated thereunder.
Effective June 15, 1999, the Company sold and issued 750,000 shares of
restricted Common Stock solely to an accredited investor, domiciled in and a
citizen of Saudi Arabia, in exchange for $1,462,500 in cash proceeds. The
Company paid or is obligated to pay cash commissions of $131,625, together with
warrants to acquire 67,500 shares of Common Stock at an exercise price of $1.95
per share. The Company believes that the transaction was exempt from the
registration provisions of the Securities Act of 1933 pursuant to (i) Rule 903
promulgated pursuant to such Act and (ii) Section 4(2) of such Act and Rule 506
promulgated thereunder.
Effective July 1, 1999 the Company sold and issued 421,245 shares of
restricted Common Stock solely to 28 accredited investors in exchange for
$842,489 in cash proceeds. The Company paid cash commissions of $50,549,
together with warrants to acquire 24,051 shares of Common Stock, and 90,750
shares of restricted Common Stock. The Company believes that the transaction was
exempt from the registration provisions of the Securities Act of 1933 pursuant
to Section 4(2) of such Act and Rule 506 promulgated thereunder.
Effective July 28, 1999, the Company issued 944,882 shares of restricted
Common Stock solely to an accredited investor in exchange for all of the
outstanding capital stock of Sportzz.com, Inc., a Utah corporation ("Sportzz")
in a reverse triangular merger of Sportzz into a wholly-owned subsidiary of the
Company. No underwriting discounts or commissions were given or paid in
connection with the transaction. The Company believes that the transaction was
exempt from the registration provisions of the Securities Act of 1933 pursuant
to Section 4(2) of such Act.
Effective December 16, 1999, the Company granted an option to a consultant
of the Company to purchase 900,000 shares of the Company's Common Stock. The
Company believes that the transaction was exempt from the registration
provisions of the Securities Act of 1933 pursuant to Section 4(2) of such Act.
Effective January 1, 2000 the Company sold and issued 500,000 shares of
restricted Common Stock solely to one accredited investor in exchange for
$250,000 in cash proceeds. The Company paid cash commissions of $15,000 in
connection with the transaction. The Company believes that the transaction
21
<PAGE> 25
was exempt from the registration provisions of the Securities Act of 1933
pursuant to Section 4(2) of such Act and Rule 506 promulgated thereunder.
Effective February 1, 2000, the Company sold and issued a promissory note
secured by certain assets of the Company ("Note") to an accredited investor in
exchange for $450,000 in cash proceeds. The Note is convertible into shares of
Common Stock of the Company at the lesser of: (i) $0.50 per share, or (ii) the
price at which the Company may issue its Common Stock during the period between
February 1, 2000 and its date of maturity; April 1, 2000 ("Maturity Date").
After the Maturity Date, the Note is convertible into twice the number of shares
it would otherwise have been convertible prior to the Maturity Date. After sixty
days from the Maturity Date, the Note is convertible into five times the number
of shares it would otherwise have been convertible prior to the Maturity Date.
After ninety days from the Maturity Date, the Note is convertible into ten times
the number of shares it would otherwise have been convertible prior to the
Maturity Date. The Company believes that the transaction was exempt from the
registration provisions of the Securities Act of 1933 pursuant to Section 4(2)
of such Act.
Effective February 1, 2000, the Company sold and issued two promissory
notes secured by certain assets of the Company (the "Notes") to accredited
investors in exchange for $40,000 in cash proceeds. The Notes are convertible
into shares of Common Stock of the Company at the lesser of: (i) $0.50 per
share, or (ii) the price at which the Company may issue its Common Stock during
the period between February 1, 2000 and its date of maturity; April 1, 2000
("Maturity Date").
Beginning in April, 1999 and continuing throughout 1999 until the end of
the first quarter, 2000, the Company has granted options to various officers,
directors, employees, and service providers of the Company to purchase 7,954,103
shares of its Common Stock pursuant to the Company's 1999 Stock Option Plan
("Plan"). The Company believes that the options granted under the Plan are
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) of such Act.
ITEM 6: 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 Audited 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
previously 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.
It should be noted that the following discussion regarding the
Company's financial condition and results of operations primarily addresses the
Company's historical results. As noted previously in "RECENT DEVELOPMENTS" under
"Discontinuation of Line of Business," effective March 1, 2000, the Company has
decided to discontinue its network marketing operations and concentrate solely
on building an Internet portal to the amateur sports market. Therefore, the
Company's revenue/expense
22
<PAGE> 26
structure and financial results in future years are expected to vary
substantially from that of previous years, and the reader should be cautioned
that past performance is not related to, nor an indication of future results. In
addition to describing historical operations and results, the following
paragraphs provide a brief discussion of the anticipated effect of discontinuing
the network marketing business on future operations.
OVERVIEW
Historically, SportsNuts.com had been 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 had attempted to combine the three forces of sports, the Internet, and
network marketing in an effort to build a targeted online customer base of
sports enthusiasts. To date, the Company derived revenues principally from four
sources: (i) proceeds from enrollments of distributors and their customers, (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. Virtually all of
the revenues generated in the past two years have been through the Company's
network marketing operations. Effective March 1, 2000, with the discontinuation
of its network marketing operations, the Company anticipates focusing solely on
building an Internet portal to the amateur sports market. In connection with
this change in focus, the Company anticipates generating future revenues
primarily from the following four sources (i) online registration/administration
service fees, (ii) amateur sports organization fundraising and sponsorships,
(iii) website advertising, and (iv) e-commerce commissions. Therefore, future
sources of revenue are expected to be substantially different from those
realized through the end of 1999. The ability to generate revenues during the
year 2000 and beyond depends substantially upon the Company's ability to attract
users and traffic to its web site which, in turn, creates use of online
registration, fundraising, sponsorships, advertising and e-commerce. The
Company's ability to attract such traffic requires significant systems
development, marketing and personnel costs, which requires substantial funding.
If the Company is unable to obtain such funding, its ability to generate
revenues will be significantly impaired.
Cost of sales have historically been comprised 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 distribution force
and through e-commerce transactions. The Company anticipates that the expenses
which comprise cost of goods sold in the future will change dramatically, and
will no longer include distributor commissions, distributor kits, sales aids and
other such products sold through the network marketing business. Future expenses
which comprise cost of goods sold are expected to be principally comprised of
systems costs to administer the revenue generating features on the amateur
sports Internet site, as well as potential fee sharing expenses to organizations
involved in fundraising and online registration/administration.
General and administrative expenses have been comprised of
administrative wages and benefits; occupancy and office expenses; outside legal,
accounting and other professional fees; travel and other miscellaneous office
and administrative expenses. Selling and marketing expenses include
selling/marketing wages and benefits; advertising and promotional expenses;
network marketing sales team incentives; travel and other miscellaneous related
expenses. R&D expenses consist mainly of development expenses related to
creating new applications for the web site. All three categories of expenses
have increased significantly during 1999, due to the acquisition of Sportzz.com,
Inc. ("Sportzz") and the planned growth of the Company in both its network
marketing operations and in its development of the amateur sports Internet
business. In the coming year, the operating expense structure is expected to
23
<PAGE> 27
change with the discontinuation of network marketing operations. Wages and
benefits, promotional, marketing, sales, travel and other miscellaneous office
expenses related to network marketing will no longer continue after March 1,
2000. However, the Company anticipates that the decrease in such expenses will
be offset by increases in technology personnel and development costs related to
improving the amateur sports Internet site. In addition, in order to execute the
amateur sports Internet business, the Company anticipates significant
expenditures in business development to create strategic alliances with third
parties, and in developing a sales channel to the various amateur sports
organizations throughout the United States.
Because the Company has incurred losses, income tax expenses are
immaterial. No tax benefits have been booked related to operating loss
carryforwards, given the uncertainty of the Company being able to utilize such
loss carryforwards in future years. The Company anticipates incurring additional
losses during the coming year.
RESULTS OF OPERATIONS
Following is management's discussion of the relevant items affecting results of
operations for the periods ended December 31, 1999 and 1998.
REVENUES. The Company generated net revenues of $1,452,919 during the
year ended December 31, 1999, which represents a 171% increase from net revenues
of $535,634 during 1998. The increase was primarily due to increased spending by
the Company in marketing and sales during 1999, and the corresponding expansion
of the network marketing distributor force. Using sports radio programs as a
venue to reach prospective members, in April, 1999 and continuing sporadically
throughout the remainder of the year, the Company began airing thirty-second
radio advertisements in the Phoenix, Orange County and Salt Lake City
metropolitan areas. In addition, in August of 1999, the Company entered into a
contract with an advertising agency to aggressively promote the SportNuts.com
brand name. Approximately $1,263,500, or 87% of revenues for the year ended
December 31, 1999 were attributable to membership sales from new distributors
and customers.
Effective March 1, 2000, the Company discontinued its network marketing
operations. Therefore, revenues from membership sales will cease. The Company
therefore anticipates revenues to be negligible during the first half of the
year 2000, as it makes the transition to focusing solely on the amateur sports
Internet site. With respect to the amateur sports Internet site, the Company
anticipates receiving sufficient site traffic to generate (i)
registration/administration revenues, (ii) fundraising revenues, (iii)
advertising/sponsorship revenues and (iii) e-commerce revenues in modest amounts
by the end of 2000.
COST OF SALES. Cost of Sales for the year ended December 31, 1999 were
$1,787,821, a 153% increase from $707,256 during 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 171% 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.
By discontinuing its network marketing operations, future cost of sales
will no longer include network marketing commission payments or product costs
for distributor kits, sales aids and other
24
<PAGE> 28
products sold through the network marketing business. Future cost of sales
related to the amateur sports Internet business are expected to include systems
administration costs and amateur sports organization fee sharing programs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 1999 were $3,283,572 a 446% increase
from $601,648 during 1998. The increase was 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 $1,414,478 and
$499,393, respectively, of general and administrative expenses during 1999, as
compared to $127,970 and $131,780 during 1998. In addition, amortization of
intangible assets associated with the acquisition of Sportzz totaled $366,250
during 1999. Because the acquisition of Sportzz occurred in the fiscal year
1999, there was no such amortization expense during fiscal year 1998.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the
year ended December 31, 1999 were $2,513,220, a 344% increase from $566,541
during 1998. These increases were primarily attributable to (i) the Company's
advertising campaign, (ii) an increased focus during the year 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 of 1999, 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 end of 1999, 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 the Company in the short-term.
With the discontinuation of the network marketing operations as of
March 1, 2000, distributor related marketing expenses will be eliminated. The
Company anticipates that selling and marketing expenses in the future will
primarily include sales expenses in developing a sales channel to the amateur
sports organizations throughout the United States, and promotional/advertising
expenses to brand the Company name and promote its amateur sports Internet site.
PRODUCT DEVELOPMENT. Product research and development expenditures were
$437,857 during the year ended December 31, 1999, as compared to $163,633 during
1998, which represents an increase of 168%. 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, as well as through
additional hiring of information systems personnel during 1999. The Company
capitalizes new systems development costs where appropriate in accordance with
generally accepted accounting principles. For most of 1998, the Company's web
site was developed and hosted by an outside party. Therefore, product
development expenses were minimal.
The Company believes that significant investments in product/systems
development are required to remain competitive. Accordingly, the Company expects
to incur increased expenditures with respect to product development in future
periods.
25
<PAGE> 29
OTHER INCOME (EXPENSE). Net other expense totaled $3,422,935 for the
year ended December 31, 1999, compared to net expense of $55,395 for the year
ended December 31, 1998. The majority of other expense in 1999 was attributable
to the write down of the intangible assets related to the acquisition of
Sportzz, which totaled $3,474,035. The impairment in the value of these assets
was due to the decline in the overall valuation of the Company due to its lack
of funding and corresponding financial difficulties. The majority of other
expense during 1998 was attributable to interest expense. During most of 1998,
the Company relied on various loans to support its ongoing funding needs.
Therefore, it incurred interest expense of $59,563 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 net
interest income of $52,359 during the year.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999. The Company's primary source of liquidity
consisted of $258,647 in cash and cash equivalents, $75,000 of which has been
pledged as collateral for 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 on the year end
balance sheet, which included $301,618 as of December 31, 1998, and $25,000 as
of December 31,1999 have since been paid or converted to Common Stock.
Subsequent to December 31, 1999, the Company has booked additional short term
notes payable of $550,000 for borrowed funds.
The Company has sustained significant net losses which have resulted in
an accumulated deficit at December 31, 1999 of $11,940,918 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 years ended December 31, 1998 and 1999 was $1,598,540 and
$9,925,682 respectively. The Company anticipates continued losses for the year
ended December 31, 2000 and with the expected cash requirements for the coming
weeks, without additional cash inflows, there is substantial doubt as to the
Company's ability to continue operations during the year 2000.
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 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 unable to fund continuing
operations. Although efforts are presently underway to secure certain short term
financing to enable the Company to meet its 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 substantially
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.
26
<PAGE> 30
OUTLOOK
The Company anticipates substantial changes during the year 2000 due to
the discontinuation of its network marketing operations effective March 1, 2000.
The Company will no longer derive its revenues from membership sales in the
network marketing business, but will now concentrate on generating revenues
through the amateur sports Internet site. The transition in focus to the
Internet business will likely result in an overall decline in revenues in the
year 2000 from 1999 revenues. This is due to the fact that the revenues
generated through the Internet business are dependent upon further systems
development and in creating significant increases in user volume, or "traffic,"
to the Web Site. Because it takes time to generate substantial traffic to the
Web Site, the Company expects revenues to be minimal during the first half of
the year 2000, and begin growing modestly during the second half of the year.
The Company also expects net operating expenses during 2000 to increase
from 1999. The anticipated increase in expenses is due to significant systems
development costs needed for the Internet site, and plans for aggressive
promotion and branding of the Company name and its Internet site, along with
implementing a comprehensive sales channel to canvass the amateur sports
organizations throughout the United States. The Company also anticipates
aggressively seeking strategic alliances with third parties in the industry to
grow its business, along with pursuing key high profile athletes or other
individuals to endorse the Company's business. The overall net loss for the year
2000 is expected to decline from the net loss in 1999, due to the write down of
$3,474,035 of intangible assets during 1999, which is a non- recurring expense
for the upcoming year.
As discussed above under "Liquidity and Capital Resources", the
Company's ability to execute its business plan related to the amateur sports
Internet business in the coming months and years is currently dependent upon its
ability to obtain adequate funding. Without such funding available, there is
serious doubt about the Company's ability to continue as a going concern.
27
<PAGE> 31
ITEM 7. FINANCIAL STATEMENTS REQUIRED BY FORM 10-KSB
The Financial Statements of the Company are prepared as of December 31,
1999.
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Reports................................................ 29
Consolidated Balance Sheet................................................... 31
Consolidated Statements of Operations........................................ 33
Consolidated Statements of Stockholders' Equity.............................. 34
Consolidated Statements of Cash Flows........................................ 35
Notes to the Consolidated Financial Statements............................... 37
</TABLE>
28
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SportsNuts.com International, Inc.
(Formerly Durwood, Inc.)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of SportsNuts.com
International, Inc. (formerly Durwood, Inc.) as of December 31, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. The financial
statements for the year ended December 31, 1998 were audited by other auditors
whose report dated June 16, 1999 expressed an unqualified opinion on those
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SportsNuts.com International, Inc. as of December 31, 1999 and the consolidated
results of their operations and their cash flows for the year ended December 31,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company is a development stage company
with no significant operating results to date, which raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 7. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
March 23, 2000
29
<PAGE> 33
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of SPORTSNUTS.COM, Inc.
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of SPORTSNUTS.COM, Inc. (a Delaware corporation) for the year
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of
SPORTSNUTS.COM, Inc. for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company incurred a loss from operations, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in the notes to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Squire & Company
Orem, Utah
June 16, 1999
30
<PAGE> 34
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1999
-----------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 148,647
Accounts receivable, net (Note 1) 15,523
Inventory, net (Notes 1 and 2) 23,936
Prepaid expenses 53,067
-----------
Total Current Assets 241,173
-----------
PROPERTY AND EQUIPMENT (Note 1)
Computer hardware 564,018
Computer software 667,854
Furniture and office equipment 236,844
Less - accumulated depreciation (244,907)
-----------
Total Property and Equipment 1,223,809
-----------
OTHER ASSETS
Restricted cash (Note 1) 110,000
-----------
Total Other Assets 110,000
-----------
TOTAL ASSETS $ 1,574,982
===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
31
<PAGE> 35
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 766,214
Accrued expenses 228,865
Notes payable, related party (Note 3) 25,000
------------
Total Current Liabilities 1,020,079
------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 17,898,360 shares issued and outstanding 1,790
Additional paid-in capital 12,494,031
Accumulated deficit (11,940,918)
------------
Total Stockholders' Equity 554,903
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,574,982
============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
32
<PAGE> 36
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET SALES $ -- $ --
------------ ------------
EXPENSES
General and administrative 1,197,068 --
Selling and marketing 480,678 --
Research and development 134,818 --
------------ ------------
Total Expenses 1,812,564 --
------------ ------------
LOSS FROM OPERATIONS (1,812,564) --
------------ ------------
OTHER INCOME (EXPENSES)
Interest expense (63) --
Interest income 20,479 --
Impairment of intangibles (3,474,035) --
Loss on sale of assets (629) --
------------ ------------
Total Other Income (Expenses) (3,454,248) --
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,266,812) --
INCOME TAX EXPENSE -- --
------------ ------------
LOSS FROM CONTINUING OPERATIONS (5,266,812) --
LOSS FROM DISCONTINUED OPERATIONS (Note 9) (4,658,870) (1,598,540)
------------ ------------
NET LOSS $ (9,925,682) $ (1,598,540)
============ ============
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (0.36) $ --
Loss from discontinued operations (0.31) (0.16)
------------ ------------
Basic Loss Per Share $ (0.67) $ (0.16)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,772,410 9,696,093
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
33
<PAGE> 37
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------- Paid-In Accumulated Subscription Minority Stockholders'
Shares Amount Capital Deficit Receivable Interest Equity
-------- ------- ------------ -------------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,378,049 $ 538 $ 41,337 $ (416,696) $ (1,930) $ -- $ (376,751)
Issuance of common stock
for cash and subscription
receivable 1,369,724 137 991,363 -- (85,000) -- 906,500
Conversion of notes payable
and accrued interest to
common stock 813,684 81 553,955 -- -- -- 554,036
Issuance of common stock
for services 89,795 9 64,991 -- -- -- 65,000
Receipt of cash for
subscription receivable -- -- -- -- 1,930 -- 1,930
Net loss for the year
ended December 31, 1998 -- -- -- (1,598,540) -- -- (1,598,540)
---------- ------ ------------ ------------ -------- ------- -----------
Balance, December 31, 1998 7,651,252 765 1,651,646 (2,015,236) (85,000) -- (447,825)
Recapitalization (Note 1) 2,441,713 245 1,549,253 -- -- -- 1,549,498
Issuance of common stock for
cash (net of issuance costs
of $501,274) 4,978,245 498 5,610,218 -- -- -- 5,610,716
Issuance of common stock for
fund raising services (Note 4) 531,000 53 621,697 -- -- -- 621,750
Stock offering costs -- -- (621,750) -- -- -- (621,750)
Issuance of common stock for
purchase of Sportzz.com 944,882 94 3,749,906 -- -- -- 3,750,000
Issuance of common stock for
exercise of warrants issued for
fundraising services (Note 4 ) 1,351,268 135 1,026,829 -- -- -- 1,026,964
Stock offering costs -- -- (1,026,964) -- -- -- (1,026,964)
Receipt of cash for subscription
receivable -- -- -- -- 85,000 -- 85,000
Minority interest in Subsidiary
(Note 1) -- -- (66,804) -- -- 66,804 --
Net loss for the year ended
December 31, 1999 -- -- -- (9,925,682) -- (66,804) (9,992,486)
---------- ------ ------------ ------------ -------- ------- -----------
Balance, December 31, 1999 17,898,360 $1,790 $ 12,494,031 $(11,940,918) $ -- $ -- $ 554,903
========== ====== ============ ============ ======== ======= ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
34
<PAGE> 38
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(9,925,682) $(1,598,540)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 220,692 18,459
Amortization of intangible assets 366,250 -
Common stock issued for services and
marketing expenses 114,000 83,369
Deferred income taxes (1,258) 39,701
Minority interest (66,804) -
(Gain) loss on disposal of fixed assets 1,257 (4,168)
Write-down of intangible assets 3,474,035 -
Changes in operating assets and liabilities:
Increase in accounts receivable (15,523) -
(Increase) decrease in inventory (7,352) 68,344
Increase in restricted cash (110,000) -
Increase in other current assets (5,707) (37,645)
Increase in accounts payable 571,014 86,154
Increase in accrued expenses 181,520 45,034
----------- -----------
Net Cash Used in Operating Activities (5,203,558) (1,299,292)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,354,709) (46,283)
Purchase of subsidiary (100,000) -
----------- -----------
Net Cash Used in Investing Activities (1,454,709) (46,283)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft (47,683) 45,897
Proceeds from issuance of notes payable 25,000 797,950
Proceeds from issuance of common stock 7,647,489 906,500
Stock offering costs (601,274) -
Payments on stock subscription receivable 85,000 -
Principal payments of notes payable (301,618) (404,772)
----------- -----------
Net Cash Provided by Financing Activities $ 6,806,914 $ 1,345,575
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
35
<PAGE> 39
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1999 1998
---------- --------
<S> <C> <C>
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 148,647 $ --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR -- --
---------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 148,647 $ --
========== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 10,439 $ 47,078
Income taxes $ -- $ --
Non-Cash Financing Activities:
Common stock issued for acquisition of subsidiary $3,750,000 $ --
Common stock issued for services $ -- $ 65,000
Common stock issued for stock subscription receivable $ -- $ 85,000
Common stock issued for the conversion of notes
payable and accrued interest $ -- $554,036
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
36
<PAGE> 40
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
a. Organization and Description of Business
SportsNuts.com International, Inc. (formerly Durwood, Inc.) (the
"Company") was incorporated under the laws of the State of
Delaware on July 12, 1996. Prior to the reorganization with
SportsNuts.com, Inc. ("SportsNuts"), a privately held Delaware
corporation, on April 6, 1999, the Company had not commenced
active business operations and was considered a development stage
company. On March 1, 2000, the Company reentered the development
stage when it discontinued the operations of one of its segments
(see Note 9).
On April 6, 1999, the Company acquired (the "Reorganization")
approximately eighty-one percent (81%) of the outstanding capital
stock of SportsNuts, a privately held company. As a result of the
Reorganization, the Company recorded a minority interest of
$66,804 in 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.
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"). All references to common stock have
been retroactively restated. 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. 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, 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 they were entitled to purchase pursuant to
their 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.
SportsNuts was incorporated in the state of Utah on November 13,
1996 and began operations on January 1, 1997. Its primary business
involved the sales and distribution of sporting goods and
health/nutritional products, using the Internet, through a network
marketing distribution strategy. The strategy also included
creating a personalized sports community offering a comprehensive
bundle of sports, outdoors and fitness-related products, services
and information in a club environment on its web site. The network
marketing distributor force sold club memberships with access to
these products and services on the Web Site. This business
strategy had continued since its inception and subsequent to the
Reorganization until March 1, 2000, when the Company determined to
discontinue its network marketing operations (see Note 9).
37
<PAGE> 41
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
a. Organization and Description of Business (Continued)
On July 28, 1999, the Company issued 944,882 shares of its Common
Stock valued at $3.97 per share to Sportzz.com, Inc. (Sportzz) in
exchange for all of the issued and outstanding shares of Sportzz
common stock. In addition, cash consideration of $100,000 was paid
as part of the acquisition. The acquisition was accounted for as a
purchase per APB No. 16. The Company recorded an impairment of
goodwill of $3,474,035 because the estimated future cash flows
from the acquisition cannot be readily determined.
Sportzz was incorporated in the State of Utah on April 7, 1999.
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 amateur sports information from leagues, schools,
teams, and their player rosters, game schedules, game results,
photographs, articles, and statistics.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
c. Cash and Cash Equivalents
Cash Equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition.
d. Inventory
Inventory is stated at the lower of cost (computed on a first-in,
first-out basis) or market. The inventory cost includes all
expenses necessary to place the inventory in a saleable condition.
e. Property and Equipment
Property and equipment are stated at cost. Expenditures for
ordinary maintenance and repairs are charged to operations as
incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line and accelerated
methods over estimated useful lives as follows:
<TABLE>
<S> <C>
Computer hardware 3 years
Computer software 3 years
Office equipment 7 years
</TABLE>
Depreciation expense for the year ended December 31, 1999 was
$220,692.
38
<PAGE> 42
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful
accounts of $32,327 for the year ended December 31, 1999.
g. Sales Policy
Substantially all of the Company's sales are on a cash-for-service
basis. Occasionally, sales are made on account for the sale of
promotional merchandise.
h. 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 of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
i. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
j. Basic Loss Per Share
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Basic loss per share from continuing operations:
Loss (numerator) $ 5,266,812 $ --
Shares (denominator) 14,772,410 9,696,093
Per share amount $ (0.36) $ 0.00
Basic loss per share from discontinued operations:
Loss (numerator) $ 4,658,870 $ 1,598,540
Shares (denominator) 14,772,410 9,696,093
Per share amount $ (0.31) $ (0.16)
</TABLE>
The basic loss per share of common stock is based on the weighted
average number of shares issued and outstanding during the period
of the financial statements. Shares to be issued from warrants and
options are not included in the computation because they would
have an antidilutive effect on the net loss per common share.
k. Provision for Taxes
At December 31, 1999, the Company has net operating loss
carryforwards of approximately $11,900,000 which will expire in
2012 through 2014. No tax benefit has been reported in the
financial statements because future earnings against which to
offset the loss carryforwards are not assured.
39
<PAGE> 43
SPORTSNUTS.COM INTERNATIONAL, INC.
(Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Research and Development
The Company follows the policy of charging research and
development costs to expense as incurred.
m. New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial
statements.
n. Restricted Cash
The Company has $75,000 cash in a certificate of deposit pledged
as collateral for the lease of office space in Phoenix, Arizona.
The Company also has $35,000 cash in a certificate of deposit
pledged as collateral for certain credit cards of the Company. In
total, the Company had $110,000 in restricted cash as of December
31, 1999.
NOTE 2 - INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Finished goods $ 95,742
Reserve for obsolete inventory (71,806)
--------
Total $ 23,936
========
</TABLE>
NOTE 3 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Note payable to an individual, unsecured, interest at 10%,
principal and interest due January 2000 $ 25,000
--------
Total notes payable 25,000
Less: current portion (25,000)
--------
Long-term notes payable $ --
========
</TABLE>
40
<PAGE> 44
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 3 - NOTES PAYABLE - RELATED PARTY (Continued)
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $25,000
-------
Total $25,000
-------
</TABLE>
NOTE 4 - COMMON STOCK TRANSACTION
Effective April 6, 1999, the Company issued 1,000,000 shares of
common stock at a price of $1.00 per share. In connection with
this stock issuance the Company incurred $50,000 in fundraising
expenses.
Effective April 8, 1999, the Company issued 1,351,268 shares of
common stock in connection with the exercise of warrants with an
exercise price of $0.76. The warrant holder surrendered 119,799
warrants to pay for the 1,351,268 warrants that were exercised.
The common stock had a market value of $9.375 on the date of
exercise. The warrants were originally issued for commissions
related to raising money for the Company.
Effective April 8, 1999, the Company issued 2,807,000 shares of
common stock at a price of $1.00 per share. The Company paid
commissions of $269,100, together with warrants to purchase
237,151 shares of common stock at $1.00 per share and 440,250
shares of common stock.
Effective June 15, 1999, the Company issued 750,000 shares of
common stock at a price of $1.95 per share. The Company paid
commissions of $131,625, together with warrants to purchase 67,500
shares of common stock at an exercise price of $1.95 per share.
Effective July 1, 1999, the Company issued 421,245 shares of
common stock at a price of $2.00 per share. The Company paid
commissions of $50,549, together with warrants to purchase 24,051
shares of common stock at an exercise price of $2.00 per share and
90,750 shares of common stock.
Effective July 28, 1999, the Company issued 944,882 shares, valued
at $3,750,000, to acquire all of the issued and outstanding shares
of Sportzz. The shares were valued at the current market price on
the date of acquisition. In addition, cash consideration of
$100,000 was paid to the shareholder of Sportzz (See Note 1).
41
<PAGE> 45
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 5 - OUTSTANDING STOCK OPTIONS AND WARRANTS
During the year ended December 31, 1999, the Company issued to
various non-employee directors, employees, and service providers
options to purchase 8,834,103 shares of common stock at a weighted
average price of $2.46 per share. Such options were issued
pursuant to the Company's 1999 and 1998 Stock Option Plan. All
options issued during 1999 were issued at the current market value
of the common stock at the date the options were granted. All
options vest ratably over a three-year period from the date of
grant. At December 31, 1999, the total number of fully-vested
options was 2,637,375. All options expire five (5) years from the
date of grant.
At December 31, 1999, the Company had 2,325,745 outstanding
warrants to purchase common stock at the weighted average price of
$0.84 per share. These warrants have been issued as commissions
for stock sales and as incentive to purchase stock. As a result,
any difference between the market value and the exercise price on
the grant date has been classified as stock offering costs. The
warrants expire two (2) years from the date of grant.
NOTE 6 - OPERATING LEASES
The Company leases three (3) different office and warehouse
facilities under non-cancelable operating leases expiring in 2000
and 2004. Rental expense for the year ended December 31, 1999 was
$142,397.
The Company also has operating leases on certain office equipment.
Office equipment leases are generally for a term of 48 to 60
months. Lease expense was $9,472 for the year ended December 31,
1999.
Future minimum lease payments, by year and in the aggregate, under
the non-cancelable operating leases with initial or remaining
terms of one year or more are due as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 182,371
2001 179,069
2002 179,802
2003 176,783
2004 59,771
2005 and thereafter --
----------
Total minimum lease payments $ 777,796
==========
</TABLE>
42
<PAGE> 46
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - GOING CONCERN
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 December 31, 1999 of approximately
$11,900,000 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 years ended December 31, 1999 and 1998 was
$9,925,682 and $1,598,540, 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 another net loss for the year ended December 31, 2000
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 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 is attempting to improve these conditions by way of
financial assistance through issuances of additional equity and by
generating revenues through sales of products and services.
NOTE 8 - RELATED PARTY TRANSACTIONS
Effective January 10, 1999, the Company entered into a one-year
consulting agreement with RKD Consulting, L.C. to assist the
Company in designing and implementing its accounting system and
integrating the system with transactions occurring through its Web
site. The Company agreed to compensate RKD Consulting, L.C. with
an option to acquire 45,843 shares of common stock at an exercise
price of $0.76 per share. The option vested on a pro-rata
quarterly basis from the date of the agreement. A principal member
of RKD Consulting, L.C. is the brother of an Executive Officer and
Director of the Company.
Effective May 15, 1999, the Company entered into a consulting
agreement with Moore, Clayton & Co., a private investment and
advisory firm, to receive strategic financial and marketing
consulting services. The agreement provides for a retainer of
$5,000 per month, with consulting services to be drawn against the
retainer at the rate of $200 per hour. The agreement also provides
for the issuance of an option on a monthly basis to purchase 5,000
shares of common stock of the Company, at an exercise price of
$1.00 per share. An Executive Co-Chairman of the Company, is a
principal of Moore, Clayton & Co.
43
<PAGE> 47
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
Effective July 1, 1999, the Company entered into a second
consulting agreement with Moore, Clayton & Co., to run
concurrently with the first agreement described in the paragraph
above. The second agreement provides for a cash payment of $10,000
per month, with an option to purchase 986,250 shares of common
stock, vesting ratably over a two-year period, at an exercise
price of $2.63 per share. The second agreement also provides for
reimbursement of expenses as they are incurred, together with a
cash bonus equal to five percent (5%) of the gross value of
certain transactions involving the Company (defined as an
underwritten secondary public offering of at least $10 million or
a merger or acquisition with a company for cash or securities
traded on a national securities exchange). An Executive
Co-Chairman of the Company is a principal of Moore, Clayton & Co.
Effective June 1, 1999, the Company entered into an agreement with
a Co-Chairman of the Company. The agreement provides for a cash
bonus equal to five percent (5%) of the gross value of certain
transactions involving the Company (defined as an underwritten
secondary public offering of at least $10 million or a merger or
acquisition with a company for cash or securities traded on a
national securities exchange).
Effective September 17, 1999, the Company granted an option to
Moore, Clayton & Co. to purchase 200,000 shares of common stock at
a purchase price of $2.13 per share. The option vests ratably over
a three-year period from the date of grant. An Executive
Co-Chairman of the Company is a principal of Moore, Clayton & Co.
The Company is currently leasing certain of its equipment and is
providing fee-based computer network and web hosting services to a
third-party network marketing firm. The Company is also
contemplating entering into an agreement with such firm to promote
the SportsNuts.com site and its services. Two individuals who are
directors and principal shareholders of the Company, are directors
and shareholders of this network marketing firm.
During 1999, a director and officer of the Company advanced the
Company $43,942 on a short- term basis. The entire balance, along
with the balance of $27,582 due at December 31, 1998, was paid off
along with interest of $156 during 1999. The balance due this
individual at December 31, 1999 was $-0-.
NOTE 9 - SUBSEQUENT EVENTS
Effective February 1, 2000, the Company sold and issued a
promissory note secured by certain assets of the Company ("Note")
to an accredited investor in exchange for $450,000 in cash
proceeds. The Note is convertible into shares of common stock of
the Company at the lesser of: (1) $.50 per share, or (2) the price
at which the Company may issue its common stock during the period
between February 1, 2000 and its date of maturity of April 1, 2000
("Maturity Date"). After the Maturity Date, the Note is
convertible into twice the number of shares it would otherwise
have been convertible prior to the Maturity Date. After sixty days
from the Maturity Date, the Note is convertible into five times
the number of shares it would otherwise have been convertible
prior to the Maturity Date. After ninety days from the Maturity
Date, the Note is convertible into ten times the number of shares
it would otherwise have been convertible prior to the Maturity
Date.
44
<PAGE> 48
SPORTSNUTS.COM INTERNATIONAL, INC.
(Formerly Durwood, Inc.)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 9 - SUBSEQUENT EVENTS (Continued)
Effective February 1, 2000, the Company sold and issued two
promissory notes secured by certain assets of the Company (the
"Notes") in exchange for $40,000 in cash proceeds. The Notes are
convertible into shares of common stock of the Company at the
lesser of: (1) $.50 per share, or (2) the price at which the
Company may issue its common stock during the period between
February 1, 2000 and its date of maturity of April 1, 2000
("Maturity Date").
Loss From Discontinued Operations
Effective March 1, 2000, the Company has elected to discontinue
its network marketing operations and concentrate solely on
building an Internet portal to the amateur sports market. The
following is a summary of the loss from discontinued operations
resulting from the elimination of the network marketing segment of
the Company. The financial statements have been retroactively
restated to reflect this event.
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 1,452,919 $ 535,634
----------- -----------
OPERATING EXPENSES
Cost of sales 1,787,821 707,256
General and administrative 2,086,504 601,648
Selling and marketing 2,032,542 566,541
Research and development 303,039 163,633
----------- -----------
Total Operating Expenses 6,209,906 2,039,078
----------- -----------
LOSS FROM OPERATIONS (4,756,987) (1,503,444)
----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (4,423) (59,563)
Other income (expense) (630) 4,168
Interest income 36,366 --
----------- -----------
Total Other Income (Expense) 31,313 (55,395)
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE (4,725,674) (1,558,839)
DEFERRED INCOME TAX EXPENSE -- (39,701)
----------- -----------
LOSS BEFORE MINORITY INTEREST (4,725,674) (1,598,540)
MINORITY INTEREST 66,804 --
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS $(4,658,870) $(1,598,540)
=========== ===========
</TABLE>
45
<PAGE> 49
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9: DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this item is included under "Nominees for
Director," "Board of Directors Meetings and Committees," and "Executive Officers
of the Company" in the Company's Proxy Statement to be filed in connection with
its 2000 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 10: EXECUTIVE COMPENSATION.
The information required by this item is included under "Executive
Compensation" in the Company's Proxy Statement to be filed in connection with
its 2000 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under "Security
Ownership of Certain Beneficial Owners and Management," "Change of Control," and
"Possible Change of Control" in the Company's Proxy Statement to be filed in
connection with its 2000 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under "Certain
Relationships and Transactions" in the Company's Proxy Statement to be filed in
connection with its 2000 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS A PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
See "Item 7 - Financial Statements Required by Form 10-KSB."
(2) FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedules of the Company and
its subsidiaries, together with the report of Jones, Jensen & Co., the
Company's independent accountants, thereon are filed as part of this
Report on Form 10-KSB as listed below and should be read in conjunction
with the consolidated financial statements of the Company:
Report of Jones, Jensen & Co., Independent Accountants, on Financial
Statement Schedules.
(3) EXHIBITS
46
<PAGE> 50
See "Index to Exhibits."
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBITS
------ --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
SportsNuts.com International, Inc., a Delaware corporation.(1)
3.2 Amended and Restated Bylaws of SportsNuts.com International,
Inc., a Delaware corporation.
10.1 Convertible Promissory Note and Security Agreement among Gardner
Management Profit Sharing Plan and Trust, SportsNuts.com, Inc.,
Sportzz.com, Inc., and the Company, including amendments, dated
February 1, 2000.
10.2 Convertible Promissory Note and Security Agreement among Moore,
Clayton & Co., SportsNuts.com, Inc., and the Company, dated
February 4, 2000.
10.3 Convertible Promissory Note and Security Agreement among George
Napier, SportsNuts.com, Inc., and the Company, dated March 10,
2000.
10.4 Employment Agreement with Kenneth Denos dated November 16,
1998.(2)
10.5 Employment Agreement with David Hill dated September 1, 1999.(3)
10.6 Employment Agreement with Kenneth Forrest, dated October 1,
1999.
10.7 Employment Agreement with Timothy Shields, dated October 1,
1999.
10.8 Independent Contractor Agreement with Sharon Clayton dated April
15, 1999
10.9 Consulting Agreement with Moore, Clayton & Co. dated July 1,
1999.
10.10 Summary of Material Terms of Agreement between SportsNuts.com
International, Inc. and Pierre Boivin dated July 1, 1999.
10.11 Advertising Agreement between EURO RSCG/DSW Partners, LLC and
the Company, dated August 23, 1999(4).
10.12 Equipment Lease Agreement between The Player's Network, Inc. and
the Company, dated April 1, 2000.
10.13 Services Agreement between the Player's Network, Inc. and the
Company dated April 1, 2000.
10.14 SportsNuts.com International, Inc. 1999 Stock Option Plan (5)
21.1 Subsidiaries of the Registrant.
24.1 Power of Attorney (included on page 45)
27.1 Financial Data Schedule
</TABLE>
- ---------------
47
<PAGE> 51
(1) Filed as an Exhibit to the Company's report on Form 8-K, filed with the
Commission on April 20, 1999.
(2) Filed as an Exhibit to the Company's quarterly report on Form 10-QSB, filed
with the Commission on May 19, 1999.
(3) Filed as an Exhibit to the Company's quarterly report on Form 10-QSB, filed
with the Commission on November 15, 1999.
(4) Filed as an Exhibit to the Company's quarterly report on Form 10-QSB, filed
with the Commission on November 15, 1999.
(5) Filed as an Exhibit to the Company's quarterly report on Form 10-QSB, filed
with the Commission on November 15, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPORTSNUTS.COM INTERNATIONAL, INC
Dated: March 26, 2000 By: /s/ Kenneth I. Denos
-------------------------------------
Kenneth I. Denos
Executive Vice President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kenneth I. Denos Executive Vice President March 28, 2000
- ---------------------------- (Principal Executive Officer)
/s/ David M. Hill Chief Financial Officer March 28, 2000
- ---------------------------- (Principal Financial and Accounting
Officer)
</TABLE>
48
<PAGE> 52
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Kenneth I. Denos, his true and lawful
attorney in fact and agent, with full power of substitution for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this report on Form 10-KSB and to file the same, with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney in fact
or his substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony R. Moore Co-Chairman of the Board of Directors March 28, 2000
- ----------------------------
/s/ Pierre R. Boivin Co-Chairman of the Board of Directors March 28, 2000
- ----------------------------
/s/ Kenneth I. Denos Executive Vice President and Director March 28, 2000
- ---------------------------- (Principal Executive Officer)
/s/ David R. Bradford Director March 28, 2000
- ----------------------------
/s/ Kenneth E. Forrest Director March 28, 2000
- ----------------------------
/s/ Timothy R. Shields Director March 28, 2000
- ----------------------------
</TABLE>
49
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
SPORTSNUTS.COM INTERNATIONAL, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1.1. ANNUAL MEETINGS. An annual meeting of shareholders shall be
held for the election of directors on such date, and at such time and place from
time to time designate within four months after the end of the fiscal year of
the Corporation. Any other proper business may be transacted at an annual
meeting. If the annual meeting is not held on the date designated, it may be
held as soon thereafter as convenient and shall be called the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by the General Corporation
Law of the State of Delaware, may be called by the President or the Board of
Directors. The shareholders do not have the authority to call a special meeting
of the shareholders.
SECTION 1.3. SHAREHOLDER PROPOSALS/NOMINEES.
a. Shareholder Proposals. Shareholders seeking to place
shareholder proposals on the agenda for a shareholders' meeting must (i) notify
the Corporation of such proposal not less than 30 nor more than 60 days prior to
the date of the meeting; provided, however, that if the Corporation provides
shareholders with less than 40 days advance notice of the date of the meeting,
the shareholder notice must be given no later than the close of business on the
10th day following the day the Corporation's notice was mailed or publicly
disclosed. Such notice must provide the Corporation with adequate information
regarding the proposal.
b. Shareholder Director Nominees. Shareholders director
nominations must (i) be in writing and contain adequate information about the
nominee; and (ii) be received by the secretary of the Corporation not less than
30 nor more than 60 days prior to the date of the meeting at which Directors
will be elected; provided, however, that if the Corporation provides
shareholders with less than 40 days advance notice of the date of the meeting,
the shareholder notice must be given no later than the close of business on the
10th day following the day the Corporation's notice was mailed or publicly
disclosed.
SECTION 1.4. NOTICE OF MEETINGS. Whenever shareholders are required or
permitted to take any action at a meeting, a written notice of the meeting will
be given that states the place,
<PAGE> 2
date and hour of the meeting, and in the case of a special meeting, the
purpose(s) for which the meeting is called. Unless otherwise provided by law,
the Certificate of Incorporation or these Bylaws, the written notice of any
meeting will be given not less than ten nor more than sixty days before the date
of the meeting to each shareholder entitled to vote at such meeting. If mailed,
such notice will be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the shareholder at his or her address as it appears
in the records of the Corporation.
SECTION 1.5. WAIVER OF NOTICE. A shareholder may waive notice of any
meeting; provided that a shareholder's attendance at meeting shall constitute
waiver of notice of such meeting, except when the shareholder attends a meeting
for the express purpose of objecting to the transaction of any business to be
transacted at the meeting, and not for the purpose of objecting to this purpose
of the meeting.
SECTION 1.6. ADJOURNMENTS. Any meeting of shareholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if the adjournment a new record date is fixed for the adjourned
meeting, pursuant to Section 1.3, notice of the adjourned meeting will be given
to each shareholder of record entitled to vote at the meeting.
SECTION 1.7. RECORD DATE.
a. Determination of Record Date. For purposes of determining the
number and identity of shareholders for any purpose, the Board of Directors may
fix a date in advance as the record date for any such determination of
shareholders, provided that the record date may not precede the date of the
resolution fixing the record date. The record date may not be more than sixty
days prior to the date that the particular action requiring the determination of
shareholders is to occur. If to determine the shareholders entitled to notice
of, or to vote at, a meeting of shareholders, the record date may not be fewer
than ten days prior to the meeting. The record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of, or to vote at, a meeting of
shareholders will apply to any adjournment of the meeting; provided that the
Board of Directors may fix a new record date for the adjourned meeting.
b. Failure to Fix Record Date. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice or to vote, or to receive payment of a dividend, the date on
which the notice is mailed or the Board of Directors resolution declaring the
dividend is adopted, as the case may be, will be the record date for such
determination of shareholders.
2
<PAGE> 3
SECTION 1.8 LIST OF SHAREHOLDERS ENTITLED TO VOTE. At least ten days
before each meeting of shareholders, the officer or agent charged with
overseeing the stock transfer books of the Corporation will compile a complete
list of the shareholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list will be kept on file at the Corporation's
principal office for the ten days before the meeting and will be subject to the
inspection of any shareholder during that ten day period during normal business
hours for any purpose related to the meeting and during the meeting.
SECTION 1.9. QUORUM. Except as otherwise provided by law, the
Certificate of Incorporation, or these Bylaws, a majority of the outstanding
shares of the Corporation entitled to vote, represented in person or by proxy,
will constitute a quorum at a meeting of shareholders. If less than a majority
of the outstanding shares are represented at the meeting, a majority of the
shares so represented may adjourn the meeting from time to time without further
notice. If a quorum is present or represented at such adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
SECTION 1.10. VOTING.
a. One Vote Per Share. Unless otherwise provided by the
Certificate of Incorporation (or action of the Board of Directors as provided
therein) or these Bylaws, each outstanding share entitled to vote will be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
b. Required Vote. Article VIII of the Certificate of
Incorporation provides for super-majority voting in certain circumstances.
Except as set forth therein, or as provided in the General Corporation Law of
the State of Delaware, a majority vote of those shares present and voting at a
duly organized meeting will suffice to defeat or enact any proposal; provided
that with respect to votes to elect directors, a plurality of the votes cast
will be sufficient to elect.
c. Shares Held By Other Than the Record Owner. Shares held by an
administrator, executor, guardian or conservator may be voted by him or her, in
person or by proxy, without the transfer of such shares into his or her name.
Shares held in the name of a trustee may be voted by him or her, in person or by
proxy, only if the shares are transferred into the trustee's name. Shares held
in the name of, by or under the control of a receiver may be voted by the
receiver without transferring the shares into the receiver's name if authority
to do so is evidenced in an order from the court that appointed the receiver. A
shareholder whose shares are pledged shall be entitled to vote his or her shares
until the shares are transferred into the name of the pledgee, and thereafter,
the pledgee will be entitled to vote the shares so transferred. Shares belonging
to the Corporation or held by it in a fiduciary capacity may not be voted,
directly or
3
<PAGE> 4
indirectly, at any meeting, and will not be counted in determining the total
number of outstanding shares at any given time.
SECTION 1.11. PROXIES.
a. General. At all meetings of shareholders, a shareholder may
vote by proxy. Proxies must be written, signed by the shareholder or by his or
her duly authorized attorney-in-fact, and filed with the Secretary of the
Corporation before or at the time of a meeting where a proxy is granted. No
proxy is valid after six months from the date of its execution, unless otherwise
provided in the proxy or coupled with an interest.
b. Irrevocable Proxies. A proxy may be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power.
c. Revocation of a Proxy. A shareholder may revoke any proxy that
is not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy of by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary of the Corporation.
Section 1.12. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
a. Action. Any action required to be taken at any annual or
special meeting of shareholders of the Corporation, or any action that may be
taken at any annual or special meeting of such shareholders may be taken without
a meeting, without prior notice, and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
b. Notice. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
shareholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any Section
of the General Corporation Law of Delaware, if such action had been voted on by
shareholders at a meeting thereof, then the certificate filed under such Section
shall state, in lieu of any statement required by such Section concerning any
vote of shareholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
4
<PAGE> 5
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. NUMBER, QUALIFICATIONS. The Board of Directors shall
consist of that number of directors as are set from time to time by the
affirmative vote of a majority of the members of the Board of Directors. The
Board of Directors shall be divided into three classes, with only a single class
subject to re-election in a given year. Subject to Section 2.2, below, a
director will hold office until the next annual meeting of shareholders at which
his or her class is subject to re-election and until his or her successor is
elected and qualified. Directors need not be shareholders of the corporation.
SECTION 2.2. ELECTION; RESIGNATION; VACANCIES. The Board of Directors
will initially consist of the persons named as directors in the Certificate of
Incorporation, and each director so elected will hold office until the first
annual meeting of shareholders and until his or her successor is elected and
qualified. At the first annual meeting of shareholders, the shareholders will
elect directors to serve in all three classes of the Board of Directors as
provided by the Certificate of Incorporation. Thereafter, one class of directors
will be elected each year at either an annual or special meeting of the
shareholders to hold office for the period of time designated for that class. If
there is only one nominee for any directorship, it will be in order to move that
the Secretary cast the elective ballot to elect the nominee. A director may
resign at any time on written notice to the Corporation. Any vacancy occurring
in the Board of Directors, whether by reason or death, resignation, removal, or
an increase in the number of directors, may be filled by the affirmative vote of
the majority of the remaining directors, though less than a quorum of the Board
of Directors, or by election at an annual meeting or at a special meeting of the
shareholders called for that purpose. A director elected to fill a vacancy will
be elected for the unexpired term of his predecessor in office.
SECTION 2.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors for the election of officers and the transaction of any other business
that may properly come before the meeting shall be held immediately after, and
at the same place as, each annual meeting of shareholders, if a quorum of
directors is then present or as soon thereafter as may be convenient. Regular
meetings of the Board of Directors may be held at such places within or without
the State of Delaware and at such times as the Board of Directors may from time
to time determine. The Board of Directors may provide, by resolution, the date,
time and place for the holding of additional regular meetings without other
notice than such resolution.
SECTION 2.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President or any director.
The person(s) authorized to call special meetings of the Board of Directors may
fix any place, within or without the State of Delaware, to hold a special
meeting of the Board of Directors. Notice of a special meeting must be given to
each director by the person(s) calling the meeting at least two days before the
meeting.
5
<PAGE> 6
SECTION 2.5. WAIVER OF NOTICE. A director may waive notice of any
meeting. A director's attendance at meeting shall constitute waiver of notice of
such meeting; provided that, when a director attends a meeting for the express
purpose of objecting to the transaction of any business to be transacted at the
meeting, the director will not be deemed to have waived notice of such meeting.
SECTION 2.6. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of telephonic conference, or similar
communications equipment that permits all persons participating in the meeting
to hear each other, and participation in a meeting pursuant to this Bylaw will
constitute presence at such meeting.
SECTION 2.7. QUORUM. Voted Required for Action. At all meetings of the
Board of Directors, a majority of the whole Board of Directors will constitute a
quorum for the transaction of business. Unless required by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these Bylaws, the vote of a majority of the director present at a meeting at
which a quorum is present will be the act of the Board of Directors. If less
than a majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice. Once a quorum has
been established at a duly organized meeting, the Board of Directors may
continue to transact corporate business until adjournment, notwithstanding the
withdrawal of enough members to leave less than a quorum.
SECTION 2.8. PAYMENT OF EXPENSES. By resolution of the Board of
Directors, directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors. Directors may be paid also either a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. Such payment will not preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 2.9. DISSENT TO CORPORATE ACTION. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless he or she
(i) enters his or her dissent in the minutes of the meeting, (ii) files written
dissent to such action with the Secretary of the meeting before adjournment, or
(iii) expresses such dissent by written notice to the Secretary of the
Corporation within one (1) day after the adjournment of the meeting. The right
to dissent shall not apply to a director who voted in favor of such action.
SECTION 2.10. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at a meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors sign a written
consent with respect to such action. Such consent shall be filed with the
minutes of proceedings of the Board of Directors.
6
<PAGE> 7
ARTICLE III
COMMITTEES
SECTION 3.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each to consist of one or more of the directors. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of any such
absent or disqualified member. Any such committee, to the extent permitted by
the General Corporation Law of the State of Delaware and to the extent provided
in the resolution of the Board of Directors, will have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers that may require it.
SECTION 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee will conduct its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The officers of the Corporation are President,
Vice President, Secretary, and Treasurer. Other officers and assistant officers
may be authorized and elected or appointed by the Board of Directors. An
individual is permitted to hold more than one office.
SECTION 4.2. ELECTION. The officers of the Corporation will be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election of
officers is not held at such meeting, it will be held as soon thereafter as
convenient. Each officer will hold office until his or her successor is duly
elected and qualified, or until his or her death, resignation or removal.
SECTION 4.3. REMOVAL. Any officer, elected or appointed, may be removed
by the Board of Directors, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
7
<PAGE> 8
SECTION 4.4. VACANCY. A vacancy in any office for any reason may be
filled by majority vote of the Board of Directors, and any officer so elected
will serve for the unexpired portion of the term of such office.
SECTION 4.5. PRESIDENT. The President presides at all meetings of the
Board of Directors and of shareholders and has general charge and control over
the affairs of the Corporation subject to the Board of Directors. The President
signs or countersigns all certificates, contracts and other instruments of the
Corporation as authorized by the Board of Directors and performs such other
duties incident to the office or required by the Board of Directors.
SECTION 4.6. VICE PRESIDENT. The Vice President exercises the functions
of the President in the President's absence, and has such powers and duties as
may be assigned to him or her from time to time by the Board of Directors.
SECTION 4.7. SECRETARY. The Secretary issues all required notices for
meetings of the Board of Directors and of the shareholders, keeps a record of
the minutes of the proceedings of the meetings of the Board of Directors and of
the shareholders, has charge of the Corporate Seal and the corporate books, and
makes such reports and performs such other duties as are incident to the office
or required by the Board of Directors.
SECTION 4.8. TREASURER. The Treasurer has custody of all monies and
securities of the Corporation, keeps regular books of account, disburses the
funds of the Corporation, renders account to the Board of Directors of all
transactions made on behalf of the Corporation and of the financial condition of
the Corporation from time to time as the Board requires, and performs all duties
incident to the office or properly required by the Board of Directors.
SECTION 4.9. ADDITIONAL OFFICERS. The Corporation may have such
additional officers as the Board of Directors deems necessary or appropriate
including, without limitation, a Chairman of the Board, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Each such officer shall perform
those duties as determined or assigned by the Board of Directors.
SECTION 4.10. SALARIES. The salaries of all officers will be fixed by
the Board of Directors, and may be changed from time to time by a majority vote
of the Board of Directors.
ARTICLE V
Certificate of Shares
SECTION 5.1. CERTIFICATES. Certificates representing shares of the
Corporation will be in the form determined by the Board of Directors, and will
be signed by the President of the Corporation or any officers permitted by law,
certifying the number of shares owned by the
8
<PAGE> 9
shareholder in the Corporation. Any of or all the signatures on the certificate
may be a facsimile. If any officer, transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon, a certificate ceases to hold
that position before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer, transfer agent or registrar
continued to hold that position at the date of issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. If a certificate is lost, stolen or destroyed, a new one may
be issued on such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 6.1. DIRECTORS.
a. Right to Indemnification Insurance. Every person who was or is
a party to, or is threatened to be made a party to, or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she, or a person of whom he is
the legal representative, is or was a director, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, or as its representative in another enterprise (an "Indemnitee"),
shall be indemnified and held harmless by the Corporation to the fullest extent
legally permissible under the laws of the State of Delaware against all
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees and disbursements) actually and
reasonably incurred or suffered by him or her in connection therewith, subject
to the standards of conduct, the procedures, and other applicable provisions of
the General Corporation Law of the State of Delaware. Such right of
indemnification is a contract right which may be enforced in any manner desired
by such person. The Corporation may purchase and maintain insurance on behalf of
an Indemnitee against any liability arising out of such status, whether or not
the corporation would have the power to indemnify such person.
b. Inurement. The right to indemnification shall inure whether or
not the claim asserted is based on matters that predate the adoption of this
Article VII, will continue as to an Indemnitee who has ceased to hold the
position by virtue of which he or she was entitled to indemnification, and will
inure to the benefit of his or her heirs and personal representatives.
c. Non-exclusivity of Rights. The right to indemnification and to
the advancement of expenses conferred by this Section 6.1 are not exclusive of
any other rights that an Indemnitee may have or acquire under any statute,
bylaw, agreement, vote of shareholders or disinterested directors, this
Certificate of Incorporation or otherwise.
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d. Advancement of Expenses. The Corporation shall, from time to
time, reimburse or advance to any Indemnitee the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with defending any proceeding for which he or she is indemnified by the
Corporation, in advance of the final disposition of such proceeding; provided
that, if then required by the General Corporation Law of the State of Delaware,
the expenses incurred by or on behalf of an Indemnitee may be paid in advance of
the final disposition of a proceedings only upon receipt by the Corporation of
an undertaking by or on behalf of such Indemnitee to repay any such amount so
advanced if it is ultimately determined by a final and unappealable judicial
decision that the Indemnitee is not entitled to be indemnified for such
expenses.
SECTION 6.2. OFFICERS, EMPLOYEES AND AGENTS. The Board of Directors may,
on behalf of the Corporation, grant indemnification to any officer, employee,
agent or other individual to such extent and in such manner as the Board of
Directors in its sole discretion may from time to time and at any time
determine, in accordance with the General Corporation of the State of Delaware.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation will be
fixed by the Board of Directors.
SECTION 7.2. AMENDMENTS. These Bylaws may be amended or repealed or new
Bylaws may be adopted (i) at any regular or special meeting of shareholders at
which a quorum is present or represented, by the vote of the holders of a
majority of the shares entitled to vote in the election of any directors,
provided notice of the proposed alteration, amendment or repeal is contained in
the notice of such meeting; or (ii) by affirmative vote of a majority of the
Board of Directors at any regular or special meeting thereof.
SECTION 7.3. BOOKS AND RECORDS; EXAMINATION. Any records maintained by
the corporation in the regular course of its business, including its stock
ledger, books of account, and minute books, may be kept on, or be in any form of
information storage, provided that the record scan be converted into clearly
legible form within a reasonable time. The books and records of the Corporation
may be kept outside of the State of Delaware. Except as may otherwise be
provided by the General Corporation Law of the State of Delaware, the Board of
Directors will have the power to determine from time to time whether and to what
extent and at what times and places and under what conditions any of the
accounts, records and books of the Corporation are to be open to the inspection
of any shareholder.
SECTION 7.4. DIVIDENDS. Subject to the provisions, if any, of the
General Corporation Law of Delaware and the Certificate of Incorporation,
dividends on the capital shares of the
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Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of the capital
stock. Before payment of any dividend, the Board of Directors may set aside out
of any funds of the Corporation available for dividends such reserves for any
purpose that the directors will think conducive to the interests of the
Corporation.
SECTION 7.5. SEAL. The Corporation may or may not have a corporate seal,
as may from time to time be determined by resolution of the Board of Directors.
If a corporate seal is adopted, it will have inscribed thereon the name of the
corporation and the words "Corporate Seal" and "Delaware". The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced or by causing the word {SEAL}, in brackets, to appear where the seal
is required to be impressed or affixed.
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Exhibit 10.1
Gardner Management Convertible Note
NON-NEGOTIABLE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $450,000 Date: February 1, 2000
Salt Lake City, Utah
FOR VALUE RECEIVED, SPORTSNUTS.COM INTERNATIONAL, INC., a Delaware
corporation and SPORTSNUTS.COM, INC., a Delaware corporation (collectively,
"Maker"), hereby promises to pay to the order of Gardner Management Profit
Sharing Plan and Trust ("Holder"), in lawful money of the United States of
America, the principal sum of Four Hundred Fifty Thousand Dollars ($450,000.00)
(the "Principal Amount"), together with interest thereon as provided below.
1. Payment Terms. The entire Principal Amount together with all accrued
but unpaid interest shall be due and payable on April 1, 2000 (the "Maturity
Date"). Any payments made on this Note will be applied first to any costs and
expenses (including attorneys' fees as provided in paragraph 11) incurred by
Holder in connection with the collection of amounts owing pursuant to this Note,
then to accrued interest, and then to reduction of principal, or as otherwise
determined at Holder's discretion. The loan proceeds represented by this Note
shall be disbursed by the Holder, from time to time, pursuant to a schedule of
disbursements or draws approved by the Holder.
2. Interest. Interest will accrue on Principal Amount outstanding at the
rate per annum of sixteen percent (16%).
3. Grant of Security Interest. As security for the full and timely
payment of the Principal Amount of and interest on this Note whether now
existing or hereafter arising, Maker hereby grants to Holder a security interest
under the Utah Uniform Commercial Code ("UCC") for all of Maker's equipment,
furnishings, and fixed assets. Such security interest shall be set forth in a
separate Security Agreement of even date herewith duly executed by Maker and
Holder, substantially in the form attached hereto as Exhibit "A."
<PAGE> 2
4. Personal Guarantee. The obligation of Maker on this Note is
personally guaranteed by Kenneth Forrest, which guarantee is attached hereto as
Exhibit "B."
5. Warrants. As additional consideration for the loan represented by
this Note and concurrent with the execution hereof by Maker, SportsNuts.com
International, Inc. (sometimes referred to hereafter as the "Company"), shall
issue to Maker warrants to acquire 370,000 shares of the Company's Common Stock
at an exercise price equal to the lesser of: (i) $0.50 per share, or (ii) the
private placement offering price for the Company's Common Stock between the date
hereof and the Maturity Date. Such grant of warrants shall be evidenced by a
separate document prepared by the Company, substantially in the form attached
hereto as Exhibit "C" (the "Warrant").
6. Right of Conversion.
6.1 Election Right for Conversion Into Common Stock. This Note,
together with all accrued interest (the "Repayment Amount"), shall at
any time prior to the Maturity Date may be converted in its entirety
upon the election of the Holder into fully paid and non- assessable
shares of Common Stock of the Company at a conversion price equal to the
lesser of: (i) $0.50 per share, or (ii) the private placement offering
price for the Company's Common Stock between the date hereof and the
Maturity Date.
6.2 Conversion Rights if Penalty for Non-Payment.
(i) If the Note, together with all accrued and unpaid
interest, is not repaid by the Maturity Date, the Holder may
elect to convert the portion of the Repayment Amount outstanding
into two (2) times the number of shares of Common Stock into
which the Repayment Amount would have otherwise been convertible
pursuant to Section 6.1.
(ii) If the Note, together with all accrued and unpaid
interest, is not repaid within sixty (60) days following the
Maturity Date, the Holder may elect to convert the portion of
the Repayment Amount outstanding into five (5) times the number
of shares of Common Stock into which the Repayment Amount would
have otherwise been convertible pursuant to Section 6.1.
(iii) If the Note, together with all accrued and unpaid
interest, is not repaid within one hundred twenty (120) days
following the Maturity Date, the Holder may elect to convert the
portion of the Repayment Amount outstanding into ten(10) times
the number of shares of Common Stock with which the Repayment
Amount would have otherwise been convertible pursuant to Section
6.1.
6.3 Effect of Election to Convert. Election by the Holder to
convert the Repayment Amount into Common Stock shall be effective only
as to the conversion of all, but not less than all, of the total
principal amount of the Note plus all interest and other
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<PAGE> 3
amounts then outstanding. Such election shall be effected by the Holder
delivering to the Company this Note together with a written statement
electing such conversion. Such conversion shall be effective as of the
date on which the Company receives such written statement.
6.4 Mechanics of Conversion. Within two (2) business days after
receiving the Holder's consent and this Note, the Company shall issue
and deliver to the Holder a certificate or certificates, registered in
the name of Holder, for the number of full shares of Common Stock to
which Holder is entitled bearing such restrictive legends as may be
required by federal and state securities laws. To the extent permitted
by law, such conversion shall be deemed to have been effected as of the
close of business on the date on which the Holder shall have elected to
such conversion. At the time of the issuance of the certificate for the
shares of Common Stock, the rights of the Holder of the Note as such
Holder shall cease, and the Holder shall be deemed to have become the
holder or holders of record of the shares of Common Stock received upon
conversion.
6.5 Taxes on Conversion. The issue of stock certificates on
conversion of the Note shall be made without charge to the Holder for
any tax in respect of the issue thereof. The Company shall not, however,
be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in any name
other than that of the Holder of this Note, and the Company shall not be
required to issue or deliver any certificate in respect of such Common
Stock unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has
been paid.
6.6 No Rights as Stockholder. Prior to the conversion of the
Note, the Holder shall not be entitled to any right as a stockholder,
including without limitation the right to vote or to receive dividends
or other distribution, and shall not be entitled to receive any notice
of any proceeding of the Company, except as provided herein.
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<PAGE> 4
7. Adjustments. If at any time after this Note is executed, the Company
(i) declares a dividend or makes a distribution on the outstanding shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, (iv) effects a capital reorganization,
reclassification, or change in the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or (v) otherwise changes into the same or different number
of shares of any class or classes of stock, the Common Stock issuable upon the
conversion of this Note, the conversion price per share in effect at the time of
the record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification reorganization, other similar
changes in the capitalization of the Company shall be proportionately adjusted
so that the Holder of this Note after such time shall be entitled to receive the
aggregate number of shares of Common Stock which the Holder would have owned or
been entitled to receive had the Repayment Amount of this Note been converted
immediately prior to such record date or effective date and the resulting Common
Stock had been subject to such dividend, distribution, subdivision, combination
or reclassification or reorganization. Such adjustment shall be made
successively whenever any event specified above shall occur. No adjustments in
respect of interest or dividends, other than a stock dividend, will be made upon
conversion, but a payment in cash will be made by the Company in lieu of the
issuance of any such fractional shares.
8. Registration Rights. If the Company shall file a registration
statement with the Securities and Exchange Commission to register shares of its
Common Stock, excluding an S-8 or S-4 registration statement, the Company agrees
to register the shares of Common Stock issuable from the conversion of this
Note, subject to any underwriter's cutback or limitation in connection
therewith.
9. Representations and Warranties.
9.1 Representations and Warranties. The Maker represents and
warrants to the Holder that:
(a) The Maker (i) is a corporation duly organized and
validly existing under the laws of Delaware; and (ii) has all
requisite corporate power, and has all material governmental
licenses, authorizations, consents and approvals necessary to
own its assets and carry on its business as now being or as
proposed to be conducted;
(b) There are no legal or arbitrary proceedings, or any
proceedings by or before any governmental or regulatory
authority or agency now pending, or (to the knowledge of the
Maker) threatened against the Maker, which, if adversely
determined, could have a material advise effect on the financial
condition, operations or business of the Maker taken as a whole;
(c) The execution and delivery of this Note, or the
Security Agreement, or the Warrant, the consummation of the
transactions herein contemplated, or the
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<PAGE> 5
compliance with the terms and provisions hereof will conflict
with, or result in a breach of, or require any consent under the
Articles of Incorporation or By-Laws of the Maker, or any
applicable law or regulation, or any agreement or instrument to
which the Maker is a party, or by which it is bound, or to which
it is subject, or constitute a default under any such agreement
or instrument, or result in the creation or imposition of any
lien upon any of the revenues or assets of the Maker, pursuant
to the terms of any such agreement or instrument.
(d) The Maker has all necessary corporate power and
authority to execute, deliver and perform its obligations under
this Note, the Warrant and the Security Agreement to which it is
a party; the execution, delivery and performance by the Maker of
the Note, the Security Agreement and the Warrant to which it is
a party, has been duly authorized by all necessary corporate
action on its party; and this Note has been duly and validly
executed and delivered by the Maker and constitutes, and the
Security Agreement and the Warrant to which the Maker is a party
when executed and delivered, will constitute, its legal, valid
and binding obligation, enforceable in accordance with its
terms.
9.2 Covenants. The Maker covenants and agrees with the Holder
that so long as any amount remains unpaid on the Note, the Company shall
deliver to the Holder the following:
(a) As soon as available, and in any event within
fifteen (15) days after the end of each month, statements of
income, retained earnings and cash flow of the Maker for such
period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related balance
sheet of the Maker as of the end of such period.
10. Default.
10.1 Any one of the following occurrences shall constitute an
"Event of Default" under this Note:
(a) The failure of Maker to make any payment of
principal or accrued interest upon this Note when the same
becomes due and payable in accordance with the terms hereof
without further notice or passage of time; provided however,
that Maker shall have thirty (30) days to cure such default.
(b) The entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Maker in
any involuntary case or proceedings under the Federal bankruptcy
law, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
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<PAGE> 6
similar official) of the Maker or for any substantial part of
its property, or ordering the winding-up or liquidation of its
affairs; or
(c) The commencement by the Maker of a voluntary case or
proceeding under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or
any other case or proceeding to be adjudicated bankrupt or
insolvent, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Maker
or of any substantial part of its property, or the making by it
of any assignment for the benefit of creditors, or the taking of
corporation action by the Maker in furtherance of any of the
foregoing.
10.2 Upon the happening of any Event of Default, (i) the entire
principal and any unpaid accrued interest shall become due immediately
and payable in full in cash with interest accruing thereon until paid in
full, and (ii) Holder shall have and may exercise any and all rights and
remedies available hereunder, at law and in equity.
10.3 The remedies of Holder, as provided herein, shall be
cumulative and concurrent, and may be pursued singularly, successively
or together, at the sole discretion of Holder, and may be exercised as
often as occasion therefor shall arise. Any act, omission or commission
of Holder, including, specifically, any failure to exercise any right,
remedy or recourse, shall be released and be effected only through a
written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to any
one event shall not be construed as continuing, as a bar to, or as a
waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
11. Attorneys' Fees. If one or more Events of Default shall occur (or
any act which with notice or passage of time or both would constitute an Event
of Default) under this Note, Maker promises to pay all collection costs,
including but not limited to all reasonable attorneys' fees, court costs, and
expenses of every kind incurred by Holder in connection with such collection or
the protection or enforcement of any or all of the security for this Note,
whether or not any lawsuit is filed with respect thereto.
12. Notices. All payments and any notice required or permitted to be
served hereunder shall be in writing and shall be delivered personally, or by
express, overnight or courier service, by regular or certified mail, or by
facsimile transmission (with a confirming copy sent by U.S. Mail, registered or
certified, return receipt requested) addressed as follows, or to such other
address as any party hereto may for itself designate by written notice in
accordance herewith:
TO MAKER: SPORTSNUTS.COM
10421 South 400 West, Suite 550
South Jordan, Utah 84095
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<PAGE> 7
Attn: Kenneth Forrest
Facsimile No.: 801-816-2599
TO HOLDER: GARDNER MANAGEMENT PROFIT SHARING PLAN AND TRUST
4301 East McKellips Road
Mesa, Arizona 85215
Attn: Mr. Al Gardner
Facsimile No.: 480-807-3023
Notice shall be deemed properly given on the date received or postmarked,
whichever is earlier.
13. Transfer. Provided that Maker's written consent is not provided in
writing (which consent shall not be unreasonably withheld), this Note may not be
sold, pledged, hypothecated, or transferred in any manner, and is a
non-negotiable instrument having no value whatsoever except to the Holder while
the Note bears a principal balance outstanding.
Notwithstanding the foregoing sentence to the contrary, the Holder may,
without the consent of the Maker, assign or transfer its right, title or
interest in this Note (including but not limited to the conversion rights under
the provisions hereof) to Elbert W. Gardner or any trust, partnership, limited
partnership, corporation or limited liability company in which Elbert W. Gardner
holds an interest.
14. Waiver. Maker, for itself, its successors, transferees and assigns
and all guarantors, endorsers and signers, hereby waives all valuation and
appraisement privileges, presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Note and notice of
the intention to accelerate, the release of any liable party, the release of any
security for the debt, the taking of any additional security and any other
indulgence or forbearance, and is and shall be directly and primarily, liable
for the amount of all sums owing and to be owed hereon, and agrees that this
Note and any or all payments coming due hereunder may be extended or renewed
from time to time by mutual consent without in any way affecting or diminishing
Maker's liability hereunder.
15. Surety. To the extent any Maker's execution of the Note of Security
Agreement, Warrant or financing statement (collectively the "Obligation") or
grant of any security interest pursuant to the Security Agreement, does or will
constitute a contract of indemnity, suretyship or guarantee by such Maker,
constitute such Maker, a co-maker or accommodation maker, or create in such
Maker analogous status, such Maker: (a) waives all provisions of A.R.S. Sections
12-1641 through 12-1646, 47-3419 and 47-3605, Arizona Rule of Civil Procedure
17(f), and any similar or analogous present or future procedural or substantive
statutory or common law rules and rights; (b) waives (except as is provided by
any statutory notice right which may not be waived with respect to any security
interest, or in any other specific written notice commitment provided by Holder
to such Maker) any right to receive any demand or notice with respect to any
Obligation; (c) waives any right to cause Holder to proceed first or
simultaneously against any other obligor on or guarantor of or collateral for
all or any portion of any Obligation before proceeding against any Maker or any
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<PAGE> 8
of the collateral described in the Note or Security Agreement; (d) waives any
defense of statute of limitations, incapacity, lack of authority, dissolution,
involvement in any bankruptcy case or reorganization proceeding, or other
similar occurrence or happening with respect to any other obligor on or
guarantor of or collateral for all of any portion of any Obligation; (e) agrees
that Holder may, without notice to or consent from such Maker (except to any
extent such Maker is a primary obligor whose joinder is required for any
modification of a specific relevant Obligation) (i) take and hold or release or
waiver any collateral for any Obligation, and/or (ii) release or substitute any
person or entity who or which (or whose property) is directly or indirectly
liable for any Obligation; (f) acknowledges and agrees that additional
Obligations may exist or arise or be created in the future without notice to or
consent from such Maker; and (g) agrees that its agreements, waivers,
acknowledgments and obligations in this Section 15 are and will remain
irrevocable until such time as no Obligation remains unmatured, undetermined,
unpaid or unsatisfied.
16. Illegality and Severability. In no event shall the amount paid or
agreed to be paid hereunder (including all interest and the aggregate of any
other amounts taken, reserved or charged pursuant to this Note which under
applicable law is deemed to constitute interest on the indebtedness evidenced by
this Note) exceed the highest lawful rate permissible under applicable law; and
if under any circumstances whatsoever, fulfillment of any provision of this Note
at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any circumstances Holder should receive as interest an
amount which would exceed the highest lawful rate allowable under law, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under this Note and not to the payment of
interest, or if such excess interest exceeds the unpaid balance of principal,
the excess shall be refunded to Maker. If any provision of this Note or any
payments pursuant to the terms hereof shall be invalid or unenforceable to any
extent, the remaining provisions of this Note and any other payments hereunder
shall not be affected thereby and shall be enforceable to the greatest extent
permitted by law.
17. Governing Law. This Note shall be governed by and construed under
the laws of the State of Arizona without regard to the conflict of laws
provisions.
18. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Note shall be brought in the federal or state courts in
Maricopa County, in the State of Arizona, and Maker and Holder each consent to
the jurisdiction of said courts.
19. Costs and Expenses. All costs and expenses of the Holder in
connection with this Note, the Security Agreement and Warrant (including
attorneys' fees) shall be paid by the Maker from Maker's own funds prior to the
disbursement of any proceeds of this Note to Maker.
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IN WITNESS WHEREOF, the parties have executed this Note as of the date
first above written.
"Maker"
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
-----------------------------------------
Kenneth Denos
Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
-----------------------------------------
Kenneth Denos
Executive Vice President
"Holder"
GARDNER MANAGEMENT
PROFIT SHARING PLAN AND TRUST
By /s/ Elbert W. Gardner
------------------------------------------
Elbert W. Gardner, Trustee
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Exhibit 10.1 (b) Exhibit A to Gardner Convertible Promissory Note
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 1st day of
February, 2000, among Gardner Management Profit Sharing Plan and Trust ("Secured
Party"), and SportsNuts.com International, Inc., a Delaware corporation, and
SportsNuts.com, Inc., a Delaware corporation (collectively, the "Debtor").
1. Security Interest. Debtor hereby grants to Secured Party a security
interest ("Security Interest") in the equipment listed in Exhibit A attached
hereto, including any contract rights, leases or leasehold interests (as such
terms are defined by the Utah Uniform Commercial Code (the "Uniform Commercial
Code") in which the Debtor, both individually and collectively, now has or
hereafter acquires an interest and the proceeds therefrom relating to the
Debtor's business ("Collateral"). The Security Interest shall secure the payment
and performance of Debtor's Convertible Promissory Note of even date herewith in
the original principal amount of Four Hundred Fifty Thousand Dollars
($450,000.00) (the "Note"), together with interest as accrued thereon.
2. Financing Statements and Other Action. Debtor agrees to comply with
Secured Party's reasonable requests to protect the Security Interest or to
otherwise carry out the provisions of this Agreement including, but not limited
to, the execution of financing, continuation, amendment and termination
statements. The Debtor shall execute the financing statement in the form
attached hereto as Exhibit "B" concurrently with the execution hereof.
3. Encumbrances. Debtor warrants that Debtor has title to the Collateral
and that there are no other claims, liens, security interests or other
encumbrances against the Collateral with the exception of a Sixty Five Thousand
One Hundred Forty-seven Dollars and fifty-six cents ($65,147.56) purchase money
security interest in the collateral in favor of Aroma Computers, Contract
Furniture Gallery, Micron Computers and IKON Office Solutions. Debtor covenants
to notify Secured Party of any claim, lien, security interest or other
encumbrance made against the Collateral and shall defend the Collateral against
any claim, lien, security interest or other encumbrance adverse to Secured
Party.
4. Maintenance of Collateral. Debtor shall preserve the Collateral for
the benefit of Secured Party. Without limiting the generality of the foregoing,
Debtor shall: (i) make all repairs, replacements, additions and improvements
necessary to maintain equipment in good working order and condition; (ii)
maintain any inventory sufficient, in Debtor's opinion, to meet the needs of its
business; (iii) take commercially reasonable steps to collect all accounts; and
(iv) pay all taxes, assessments, or other charges on the Collateral when due.
Debtor may not sell, lease, assign, sublease or otherwise dispose of any item of
the Collateral without the prior written consent of Secured Party, which consent
shall not be unreasonably withheld. Debtor shall not use the Collateral in
violation of any law.
<PAGE> 11
5. Inspection and Information . Debtor covenants to keep accurate and
complete records listing and describing the Collateral. When reasonably
requested by Secured Party, Debtor shall give Secured Party a certificate on a
form to be supplied by Secured Party listing and describing the Collateral and
setting forth the amounts of the accounts and the face value of any instruments.
Secured Party shall have the right upon reasonable notice and at reasonable
times during business hours to inspect the Collateral and to audit and make
copies of any records or other writings which relate to the Collateral or the
general financial condition of Debtor. All records and information furnished by
Debtor to Secured Party pursuant to this Agreement shall constitute confidential
information and shall not be disclosed by Secured Party except to the extent
expressly permitted by Debtor, except in the event of a default (as described
herein), such information may be used as necessary in as is reasonably necessary
for Secured Party to exercise its rights and remedies against Debtor, including
in any action or proceeding instituted by Secured Party against Debtor.
6. Fixtures. It is the intention of Debtor and Secured Party that none
of the Collateral shall become fixtures except to the extent that Collateral
presently constitutes fixtures.
7. Default. While the Note is outstanding, any one or more of the
following events shall be cause for Debtor's default:
a. Debtor fails to pay any amounts due under the Note.
b. Debtor fails to observe or perform any material covenant,
warranty or agreement to be performed by Debtor under (i) this Agreement
or (ii) under any other document executed by Debtor in connection with
the Note; or
c. The failure of Debtor to make any payment of principal or
accrued interest under the Note when the same becomes due and payable in
accordance with the terms hereof without further notice of passage of
time, provided however, that Debtor shall have thirty (30) days to cure
such default; or
d. Debtor files a voluntary petition for bankruptcy, an
involuntary petition in bankruptcy is filed against Debtor, a petition
is filed seeking appointment of receiver or trustee, or Debtor is unable
to pay its debts as they become due or defaults under any other
obligation to which Debtor is a party.
8. Rights on Default. In the event of a default under this Agreement and
after a written notice from Secured Party after which Debtor has thirty (30)
days to cure, Secured Party may:
a. At any time thereafter and at the election of Secured Party,
all obligations of Secured Party shall be terminated and Secured Party
may, without presentment,
2
<PAGE> 12
protest, demand or notice of any kind whatsoever, declare immediately
due and payable any indebtedness of Debtor under the Note to Secured
Party;
b. Exercise the rights and remedies accorded a secured party by
the Uniform Commercial Code or by any document securing the Note and
without limiting the generality of the foregoing and notwithstanding
anything herein, Secured Party shall have full power to and it may (but
shall not be obligated to);
(1) sell, assign or deliver and dispose of the whole or
any part of the Collateral at public or private sale, either for
cash or upon credit or for future delivery, upon such notice and
in such manner as may be required by law;
(2) at any such sale or disposition, Secured Party may
apply the proceeds of such sale or disposition first (i) to the
expense of disposition, sale or collection, including broker's
commissions and reasonable attorney's fees (including those fees
incurred in either a trial or appellate court or without suit),
court costs and other legal expenses, and all other charges and
expenses without limitation incurred by Secured Party in
connection with such disposition or sale; (ii) to the
indebtedness of Debtor to Secured Party under the Note and
secured by this Agreement in such order as Secured Party may
elect and with such priorities between them as Secured Party may
elect (applying proceeds first to accrued interest, then to
unpaid principal.
(3) In the event a deficiency remains, Debtor agrees to
pay to Secured Party or its assigns, immediately to Secured
Party in connection with the Note and without notice or demand,
any such deficiency in Debtor's obligations. Any public or
private sale may be held at any office of Secured Party, or at
any other place designated by Secured Party.
c. Perform any warranty, covenant or agreement which Debtor has
failed to perform under this Agreement;
d. Take any other action which Secured Party deems reasonably
necessary or reasonably desirable to protect the Collateral or the
Security Interest.
9. No Waiver. The rights, powers and remedies given to the Secured Party
by this Agreement and associated documents and arrangements shall be in addition
to all rights, powers and remedies given to Secured Party by virtue of any
statute or rule of law. Any forbearance, failure to delay by Secured Party in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of any such right, power or remedy; and any single or partial exercise of
any right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Secured Party shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Secured Party.
3
<PAGE> 13
10. Exercise of Rights. Secured Party may exercise its creditor's lien
and rights of setoff with respect to the Indebtedness at any time, whether
secured or unsecured, whether before or after default, and whether or not due,
to payments of the indebtedness hereunder.
11. Notices. Any notice under this Agreement shall be in writing and
shall be deemed delivered if mailed, postage prepaid, to a party at the
addresses specified in the Note or such other address as may be specified by
notice given after the date hereof.
12. Successors and Assigns. Debtor may not sell, transfer, assign or
encumber any part of or all of the Collateral without the prior written consent
of Secured Party which consent shall not unreasonably be withheld. In the event
consent to assign the collateral is granted by the Secured Party, this Agreement
shall inure to the benefit of and shall bind the heirs, executors,
administrators, legal representatives, successors or assigns of the parties.
13. Attorneys' Fees. Should any legal proceeding be commenced between
the parties hereto concerning any provision of this Agreement, or rights and
obligations of either in relation thereto, the party prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum of attorneys' fees, to be fixed by the court in the
same action.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof, and supersedes
all prior or contemporaneous agreements and negotiations with respect to such
subject matter, and shall not be modified except in writing and signed by the
Parties hereto.
15. Governing Law. This Agreement shall be governed by any construed
under the laws of the State of Utah, without regard to the conflicts of laws.
16. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Security Agreement shall be brought in Maricopa County, the
State of Arizona and the Debtor and Secured Party each consent to the
jurisdiction of said courts.
4
<PAGE> 14
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above. This Agreement may be signed in counterparts, all of
which together shall constitute one and the same instrument.
DEBTOR:
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SECURED PARTY:
GARDNER MANAGEMENT
PROFIT SHARING PLAN AND TRUST
By /s/ Elbert W. Gardner
--------------------------------------------
Elbert W. Gardner, Trustee
5
<PAGE> 15
EXHIBIT A
EQUIPMENT LIST TO SECURITY AGREEMENT DATED FEBRUARY 1, 2000 AMONG
SPORTSNUTS.COM INTERNATIONAL, INC., SPORTSNUTS.COM, INC. AND GARDNER MANAGEMENT
PROFIT SHARING PLAN AND TRUST, CONSISTING PRIMARILY OF COMPUTER HARDWARE, OFFICE
FURNITURE, FURNISHINGS AND EQUIPMENT, AND MORE PARTICULARLY SET FORTH ON EXHIBIT
A-1 ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.
6
<PAGE> 16
Exhibit 10.1 Exhibit B to Gardner Convertible Promissory Note
PERSONAL GUARANTY
This Personal Guaranty (the "Guaranty") is made this 1st day of
February, by Kenneth Forrest and Holli Forrest, husband and wife (collectively
the "Guarantor") in favor of Gardner Management Profit Sharing Plan and Trust
("Holder").
FACTUAL BACKGROUND
A. Guarantor is executing this Guaranty to induce Holder to make a loan
("Loan") to SportsNuts.com International, a Delaware corporation and its
subsidiary, SportsNuts.com, Inc., a Delaware corporation (collectively the
"Maker"), pursuant to the terms and conditions of that certain Convertible
Promissory Note in the original amount of $450,000.00 (the "Note").
B . Maker's obligations under the Agreement are secured by a Security
Agreement of even date hereof covering certain personal property as described
therein (the "Collateral"). 'fhe Security Agreement and the Note are sometimes
collectively referred to as the "Loan Agreement".
GUARANTY
1 . Guarantor hereby unconditionally guaranties to Holder the full payment of
all amounts due to Holder under the Loan Agreement and the performance of all of
the obligations of the Maker thereunder (the "Obligations"), and unconditionally
agree to pay Holder the full amount of the amounts due under the Loan Agreement
after the expiration of all applicable cure periods. This is a guaranty of
payment, not of collection. If Maker defaults in the payment when due of all or
any part of the Obligations after all applicable grace and cure periods,
Guarantor shall, in lawful money of the United States, pay to Holder or order,
on demand, all sums due and owing under the Loan Agreement, including all
interest, charges, fees and other sums, costs and expenses.
2. The obligations of Guarantor hereunder are continuing, absolute and
unconditional. The foregoing guaranty is a guaranty of payment of the guaranteed
obligation and not of collectibility, and is not conditioned or contingent upon
the genuineness, validity, regularity or enforceability of the Loan Agreement.
No Guarantor's obligations hereunder will be or become diminished if recourse
with respect to any portion of the guaranteed obligation as against or any other
guarantor of any portion of the guaranteed obligation may be or become limited,
barred or otherwise unenforceable for any reason. The obligations of Guarantor
hereunder is independent of the obligations of Maker, and a separate action or
actions may be brought and prosecuted against any Guarantor whether or not any
action is brought (or nonjudicial action taken) simultaneously, before or after
any action against Maker or against any other guarantors of the guaranteed
obligation or any portion thereof. Holder will have no obligation to enforce any
right or remedy described in the Loan Agreement, or to pursue an action against
Maker under the Loan Agreement for any claim, including but not limited to, a
claim that Maker mitigate its damages under the Loan Agreement. No performance
made by or on behalf of Maker by Holder will
<PAGE> 17
discharge or diminish the Guarantor's liability hereunder.
3. The Guarantor waives and agrees not to assert or take advantage of: (a) the
provisions of Arizona Revised Statutes (0)(0) 12-1641 through 12-1646 inclusive
and 44-142, Rule 17(f) of the Arizona Rules of Civil Procedure and any similar
or analogous other statutory or common laws or procedural rules of any
jurisdiction relevant to guarantors, indemnitors, sureties, co-makers or
accommodation parties; (b) any right to require Holder to proceed against Maker
or any other person or entity, to proceed against or exhaust any security held
by Maker at any time, or to pursue any other remedy in Holder's power before
proceeding against such Guarantor; (c) any defense of any statute of limitations
or laches which may be asserted by Maker; (d) any defense that may arise by
reason of the incapacity, lack of authority, death, disability, dissolution or
termination of, involvement in any bankruptcy or reorganization proceeding
(including any rejection or disaffirmance of the Loan Agreement in such
proceeding) by, or other similar occurrence or happening with respect to Maker
or any successor in interest to Maker; (e) any "one" action or "anti-
deficiency" law, or any other law which may prevent Holder from bringing any
action, including a claim for deficiency, against the Guarantor, before or after
Holder's commencement or completion of any action to foreclose its security
interest; or (f) any right to receive any demand or any notice, including any
notice of any default under the Loan Agreement.
4. The Guarantor authorizes Holder, without notice to or demand upon, and
without affecting the liability of, such Guarantor hereunder, but with any
necessary consent or joinder of Maker, from time to time, to: (a) renew,
compromise, extend, accelerate or otherwise change the time for payment of, or
otherwise change the terms of, the Loan Agreement (other than the amount of the
Obligations) or all or any part of the guaranteed obligation; (b) take and hold,
release or waive any security provided under the Loan Agreement; (c) release or
substitute any person that is or may be directly or indirectly liable for
satisfaction of all or any portion of the guaranteed obligation; (d) release or
substitute any Collateral that was provided by Maker as security for the
repayment of its obligations under the Loan Agreement; and/or (e) accept or make
compositions or other arrangements, or file or refrain from filing a claim in
any bankruptcy proceeding of Maker or any other guarantor; and/or (f) otherwise
deal with maker or any other guarantor.
5. The Guarantor confirms to Holder that he is and will remain fully conversant
with the financial status and situation of Maker, and agrees that Holder has no
duty to disclose to such Guarantor any facts or information it may now have or
may hereafter obtain about or with respect to Maker or any other guarantors of
the Obligation or any portion thereof.
6. Notwithstanding the provisions of Arizona Revised Statutes (0) 12-1643 or any
other statutory or common law or procedural rule, until the Obligations have
been paid in full: (a) Guarantor will not have any right of subrogation or
reimbursement with respect to any of the guaranteed obligation or any remedy of
Holder to collect any of the guaranteed obligation, regardless of any payment
directly or indirectly made by the Guarantor pursuant to the provisions of this
Guaranty or otherwise; and (b) no Guarantor will have any right of contribution
against any other guarantor. The Guarantor acknowledges that Holder does not and
will not make any
<PAGE> 18
representation or warranty of any nature as to the existence, value, priority or
non-impairment of any such rights, and waives any and all claims of any nature
that it may now have or hereafter acquire against Holder that may result from
the nonexistence, lack or loss of value or priority or impairment of any such
rights.
7. All existing and future obligations of Maker to any Guarantor (including any
right of indemnification) are hereby subordinated and made junior and inferior
to all rights of Holder to have the Obligations fully paid and satisfied.
8. Notwithstanding any other provision ofthis Guaranty or the Loan Agreement to
the contrary, if all or any portion of the Obligations are paid or performed,
the obligations of the Guarantor hereunder will continue and remain in full
force and effect if all or any part of such payment or performance is avoided or
recovered directly or indirectly from Holder as a preference, fraudulent
transfer or otherwise, regardless of whether the Obligations had theretofore
been paid in full or whether such Guarantor had provided notice of revocation of
this Guaranty to Holder prior to such avoidance or recovery.
9. All rights and remedies of Holder and all Obligations of Maker under the Loan
Agreement, and all obligations of the Guarantor hereunder, will be cumulative
and not duplicative. Holder may take any actions and resort to any rights and
remedies under this Guaranty and/or the Loan Agreement, in such order as Holder
in its sole discretion elects, provided that Holder will have no duty or
obligation to take any such actions or resort to any such rights or remedies.
Holder may, in its sole discretion, exercise any rights and remedies available
to it against Maker or any other guarantor without impairing Holder's rights and
remedies under this Guaranty. Holder shall have no obligation to proceed against
any collateral (including the Security Agreement provided under the Loan
Agreement) securing all or any portion of the obligation of Maker under the Loan
Agreement, and shall have no obligation to enforce any right or remedy as set
forth or described in or evidenced by either the Loan Agreement or the Security
Agreement. The Guarantor acknowledges that Holder's exercise of certain rights
or remedies may impair or eliminate such Guarantor's right of subrogation or
recovery against Maker, and that the Guarantor may incur a partially or totally
non-reimbursable liability under this Guaranty.
10. This Guaranty is irrevocable.
11. The Guarantor warrants and represents to and agrees with Holder that he: (a)
has reviewed and approved the Loan Agreement; (b) acknowledges that the Loan
Agreement may be amended without his/her knowledge or consent, but with any
required consent of Maker; (c) waives any notice of acceptance of this Guaranty;
(d) acknowledges that the guaranteed obligation is or will be created in
consideration of and in reliance upon this Guaranty; and (e) is not and will not
be, as a consequence of the execution and delivery of this Guaranty, impaired or
rendered insolvent or otherwise rendered unable to pay its debts as the same
mature and will not have thereby undertaken liabilities in excess of the present
fair value of its assets.
12. This Guaranty will be binding upon Guarantor, their respective separate
property, and their respective marital communities, successors, assigns and
legal representatives, and will inure to
<PAGE> 19
the
- -3-
benefit of Holder, its successors and assigns, whether or not formally assigned.
The Guarantor's liability hereunder will be unaffected by changes in the name of
Maker.
13. No waiver of any provision of this Guaranty by Holder, no amendment of this
Guaranty, and no release of any Guarantor will be effective unless it is in
writing and signed by an authorized officer of Holder.
14. If suit or other judicial proceeding is brought, or any other action is
taken, by Holder to enforce its rights under this Guaranty, Guarantor promises
to pay upon demand Holder's reasonable attorneys' fees and court costs incurred
therein, which fees and costs will be determined in the sole discretion of the
judge in such action, together with interest thereon at the rate of 16% per
annum. until paid.
15. This Guaranty relates to a loan made in, and will be governed by and
construed in accordance with the substantive laws and judicial decisions of the
State of Arizona (regardless of Arizona conflict of law principles or the
residence, location, domicile or place of business of Holder, the Guarantor or
Maker or their respective constituent principals) and applicable federal laws,
rules and regulations. The Guarantor expressly acknowledges and agrees that any
judicial action to enforce any right of Holder under this Guaranty may be
brought and maintained in the venue(s) described in the Note, and submits to the
process, jurisdiction and venue of any such court. The Guarantor waives, and
agrees not to assert, any claim that he/she is not personally subject to the
jurisdiction of the foregoing courts or that any action or proceeding brought in
compliance with this paragraph (15) is brought in an inconvenient forum. The
Guarantor also waives the right to protest the domestication or collection of
any judgment obtained against such Guarantor with respect to this Guaranty in
any jurisdiction where such Guarantor may now or hereafter maintain assets.
16. This Guaranty will apply to the parties hereto according to the context
hereof, without regard to the number or gender of words or expressions used
herein. This Guaranty will be construed as a whole, in accordance with the fair
meaning of its language, and, as each party has been represented by legal
counsel of its choice in the negotiation of this Guaranty or deliberately chosen
not to be so represented, neither this Guaranty nor any provision thereof will
be construed for or against either party by reason of the identity of the party
drafting this Guaranty.
17. All notices or demands that are required or permitted to be given or served
hereunder will be given in the manner provided in the Loan Agreement. The
Guarantor acknowledges that his address for notice will be the addresses set
forth below with their names. The Guarantor may change its address from time to
time by giving ten (10) days' prior written notice to Holder.
18. The Guarantor is a founder and principal shareholder of SportsNuts.corn
International, Inc. and holds an ownership interest in the same. The Guarantor,
as a principal shareholder of SportsNuts.com International, Inc., will receive
benefit from Maker entering into the Loan
<PAGE> 20
Agreement with Holder, and as a result, have received good and valuable
consideration for providing this Guaranty to Holder.
IN WITNESS WHEREOF, the undersigned has executed this Personal Guaranty as of
the date set forth above.
Kenneth Forrest, a married man
/s/ Kenneth Forrest /s/ Holli Forrest
- ---------------------------- -----------------------------
Kenneth Forrest Holli Forrest
Address: 2255 North University Parkway S-15
Provo, UT 84604
<PAGE> 21
Exhibit 10.1 Exhibit C to Gardner Convertible Promissory Note
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
Void after 5:00 p.m., Mountain Standard Time
on January 31, 2002
SPORTSNUTS.COM INTERNATIONAL, INC.
WARRANT
This certifies that, for value received, Gardner Management Profit
Sharing Plan and Trust, or registered assigns (the "Holder"), is entitled to
purchase at a price the lessser of: (i) $0.50 per share, or (ii) the private
placement offering price for the Company's Common Stock between the date hereof
and the Maturity Date as set forth in that certain Convertible Promissory Note
of even date between Holder and the Company (the "Exercise Price"), subject to
the provisions of this Warrant, from SPORTSNUTS.COM INTERNATIONAL, INC., a
Delaware corporation, (the "Company"), Three Hundred Seventy Thousand (370,000)
shares of fully paid and non-assessable unregistered Common Stock of the Company
(the "Warrant Stock"). The issuance of this Warrant is in partial consideration
of Holder agreeing to make that certain loan to the Company as evidenced by that
certain Convertible Promissory Note of even date herewith the Company, which is
dated February 1, 2000, wherein the Company is the "Maker" and Holder is the
"Holder," all on the terms and conditions of said Convertible Promissory Note.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time or from time to time on or after the date hereof, but not later
than 5:00 p.m., Mountain Standard Time, on January 31, 2002, or if such date is
a day on which federal or state chartered banking institutions are authorized by
law to close, then on the next succeeding day which shall not be such a day, by
presentation and surrender thereof to the Company at its principal office or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment, in cash or by certified or
official bank check, payable to the order of the Company, of the Exercise Price
for the number of shares of Warrant Stock specified in such form, together with
all taxes applicable upon such exercise. If this Warrant should be exercised in
part only, the Company shall upon surrender of this Warrant for
1
<PAGE> 22
cancellation, execute and deliver a new Warrant of the same tenor evidencing the
right of the Holder to purchase the balance of the shares of Warrant Stock
purchasable hereunder upon the same terms and conditions as herein set forth.
Upon and as of receipt by the Company of this Warrant at the office or stock
transfer agent of the Company, in proper form for exercise, and accompanied by
payment as herein provided, the Holder shall be deemed to be the holder of
record of the shares of Warrant Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Warrant Stock shall not
then be actually delivered to the Holder.
2. Reservation of Shares and Impairment. The Company hereby covenants
and agrees that at all times during the period this Warrant is exercisable it
shall reserve from its authorized and unissued shares of Common Stock for
issuance and delivery upon exercise of this Warrant such number of shares of its
Warrant Stock as shall be required for issuance and delivery upon exercise of
this Warrant. The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the shares of Warrant Stock upon the exercise of this Warrant. The Company will
not, by amendment of its Articles of Incorporation (or similar documents) or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of the Warrant.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of the Warrant Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
4. Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be assigned or transferred except as
provided herein and in accordance with and subject to the provisions of the
Securities Act of 1933 and the Rules and Regulations promulgated thereunder
(said Act and such Rules and Regulations being hereinafter collectively referred
to as the "Act"). Any purported transfer or assignment made other than in
accordance with this Section 4 and Section 8 hereof shall be null and void and
of no force and effect.
(b) This Warrant may be transferred or assigned only with the
written consent of the Company, which shall not be unreasonably withheld. In
addition, this Warrant shall be transferable only upon the opinion of counsel
satisfactory to the Company, which may be counsel to the Company, that (i) the
transferee is a person to whom the Warrant may be legally transferred without
registration under the Act; and (ii) such transfer will not violate any
applicable law or
2
<PAGE> 23
governmental rule or regulation including, without limitation, any applicable
federal or state securities law, as further referenced in Section 8 below. Prior
to the transfer or assignment, the assignor or transferor shall reimburse the
Company for its reasonable expenses, including attorneys' fees, incurred in
connection with the transfer or assignment.
(c) Notwithstanding anything contained in this Section 4 to the
contrary, the Holder may, without the consent of the Company and without the
necessity of complying with the provisions of Section 4(b) hereof assign or
transfer this Warrant to Elbert W. Gardner or any trust, partnership,
corporation or limited liability company in which Elbert W. Gardner holds an
interest (the "Permitted Assignment"). In connection with such Permitted
Assignment, the Holder shall have no obligation to reimburse or pay the Company
for any expenses incurred in connection therewith.
(d) Any assignment permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax. In
such event the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be cancelled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation thereof at the
principal office of the Company together with a written notice signed by the
Holder thereof, specifying the names and denominations in which new Warrants are
to be issued. The terms "Warrant" and "Warrants" as used herein includes any
Warrants in substitution for or replacement of this Warrant, or into which this
Warrant may be divided or exchanged.
(e) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(f) Each Holder of this Warrant, the shares of Warrant Stock
issued hereunder or any other security issued or issuable upon the exercise of
this Warrant shall indemnify and hold harmless the Company, its directors and
officers, and each person, if any, who controls the Company, against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or any such person may become subject under the Act or
statute or common law, insofar as such losses, claims, damages or liabilities,
or actions in respect thereof, arise out of or are based upon the disposition by
such Holder of the Warrant, the shares of Warrant Stock acquired under the
Warrant, or other such securities in violation of this Warrant.
3
<PAGE> 24
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant and the Exercise
Price of such securities shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive without payment therefor, other or additional stock
of the Company by way of dividend, then and in each case, the Holder of this
Warrant shall, upon the exercise hereof be entitled to receive, in addition to
the number of shares of Warrant Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of such other or additional
stock of Company which such Holder would hold on the date of such exercise had
it been the holder of record of such shares of Warrant Stock on the date hereof
and had thereafter, during the period from the date hereof to and including the
additional stock receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by paragraphs (a) and (b) of
this Section 6.
(b) Adjustment for Reclassification, Reorganization or Merger. In
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior to such record date or effective
date. In each such case, the terms of this Section 6 shall be applicable to the
shares of stock or other securities properly receivable upon the exercise of
this Warrant after such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or
after the date hereof the Company shall subdivide its outstanding shares of
Warrant Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares of Warrant Stock receivable upon exercise of the
Warrant shall thereby be proportionately increased; and, conversely, if at any
time on or after
4
<PAGE> 25
the date hereof the outstanding number of shares of Warrant Stock shall be
combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall thereby be proportionately increased
and the number of shares of Warrant Stock receivable upon exercise of the
Warrant shall thereby be proportionately decreased.
7. Officer's Certificate. Whenever the Exercise Price or the number of
shares of Warrant Stock that may be acquired under the Warrant shall be adjusted
as required by the provisions of Section 6 hereof, the Company shall forthwith
file with its Secretary or an Assistant Secretary at its principal office, and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price and shares of Warrant Stock determined as herein
provided and setting forth in reasonable detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder, and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the Holder.
8. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the shares of Warrant Stock issued hereunder
or any other security issued or issuable upon exercise of this Warrant may not
be sold, transferred or otherwise disposed of, except to a person who, in the
opinion of counsel reasonably satisfactory to the Company, is a person to whom
this Warrant or such shares of Warrant Stock may legally be transferred pursuant
to Section 4 hereof without registration and without the delivery of a current
prospectus under the Act with respect thereto and then only against receipt of
an agreement of such person to comply with the provision of this Section 8 with
respect to any resale or other disposition of such securities unless, in the
opinion of such counsel, such agreement is not required.
(b) The Company may cause the following legend to be set forth on
each certificate representing shares of Warrant Stock acquired under this
Warrant or any other security issued or issuable upon exercise of this Warrant,
unless counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
9. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of "Arizona without regard to conflict of
laws provisions.
5
<PAGE> 26
10. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Warrant shall be brought in the federal or state courts in
Maricopa County, the State of Arizona and the Company and Holder each consent to
the jurisdiction of said courts.
11. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand or
mailed, postage prepaid, to Gardner Management Profit Sharing Plan and Trust,
4301 East McKellips Road, Mesa, Arizona 85215, attn: Mr. Al Gardner, or such
other address as the Holder shall have designated by written notice to the
Company as provided herein. Notices or other communications to the Company shall
be deemed to have been sufficiently given if delivered by hand or mailed postage
prepaid to the Company at The Towers at South Towne II, 10421 South 400 West,
Salt Lake City, UT 84095, attn: Kenneth I. Denos, or such other address as the
Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed given when deposited in the
United States mail, postage prepaid, as herein provided.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the 1st
day of February, 2000.
SPORTSNUTS.COM INTERNATIONAL, INC.
By: /s/ Kenneth Denos
------------------------------------
Its: Executive Vice President
6
<PAGE> 27
PURCHASE FORM
Dated:__________________________
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _________ shares of Warrant Stock, and hereby makes
payment of $________ in payment of the actual exercise price thereof.
________________________________
Signature
________________________________________________________________________________
ASSIGNMENT FORM
Dated:__________________________
FOR VALUE RECEIVED, ________________________________________ hereby
sells, assigns and transfers unto ______________________________________________
(please type or print)
________________________________________________________________________________
(address)
the right to purchase shares of Warrant Stock represented by this Warrant to the
extent of __________ shares as to which such right is exercisable, and does
hereby irrevocably constitute and appoint the Company and/or its transfer agent
as attorney to transfer the same on the books of the Company with full power of
substitution in the premises.
7
<PAGE> 28
________________________________
Signature
8
<PAGE> 29
Exhibit 10.1 (e) Amendment to Exhibit A to Gardner Convertible Note
FIRST AMENDMENT TO SECURITY AGREEMENT
This First Amendment to Security Agreement (the "Agreement") is made and
entered into this 17th day of March, 2000 (the "Effective Date"), between and
among Gardner Management Profit Sharing Plan and Trust ("Secured Party") and
SportsNuts.com International, Inc., a Delaware corporation, SportsNuts.com,
Inc., a Delaware corporation, and Sportzz.com. Inc., a Delaware corporation
(individually and collectively "Debtor").
Recitals
Debtor, other than Sportzz.com Inc. ("Sportzz"), has entered into a
Security Agreement with Secured Party dated February 1, 2000.
In consideration of Secured Party agreeing to advance an additional
$50,000 to Debtor to assist Debtor in making its payroll, Debtor has agreed (i)
to add Sportzz as a Debtor under the Agreement and as a party granting the
Secured Party a security interest in certain equipment, general intangibles, and
accounts and (ii) to modify and amend the Security Agreement as more
particularly set forth below.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agrees as follows:
Amendment
1 . Paragraph 1 of the Security Agreement is hereby deleted and the
following provisions substituted therefor, effective as of the Effective Date:
1. Security Interest. Debtor hereby grants to Secured Party a security
interest (the "Security Interest") in each Debtor's equipment, general
intangibles, and accounts, including, but not limited to, the equipment and
general intangibles listed in Exhibit A to the Agreement and Exhibit A-2 hereto
and all proceeds thereof and accessions thereto; each Debtor agrees that the
Security Interest shall include any contract rights, leases or leasehold
interests, as such terms are defined by the Utah Uniform Commercial Code (the
"Uniform Commercial Code") in which Debtor, individually and collectively, now
of hereafter acquires, and all proceeds therefrom. The term "Collateral" when
used in this Agreement shall refer to any property of any Debtor in which the
Secured Party has a Security Interest under this Agreement. Each Debtor agrees
that the Security Interest shall secure the payment and performance of Debtor's
Convertible Promissory Note dated February 1, 2000, in the original principal
amount of $450,000 (the "Note"), together with any interest accrued thereon, and
all other debts or obligations of any Debtor to Secured Party. The Security
Interest shall also secure each Debtor's obligations to the Secured Party under
this Agreement.
(a) Debtor Sportzz.com, Inc. ("Sportzz") has executed this First
Amendment to the
<PAGE> 30
Agreement for the purpose of becoming a Debtor hereunder and hereby agrees to be
and is bound by all terms and conditions of this Agreement, as if Debtor Sportzz
were an original signatory hereto.
(b) Each Debtor agrees that a loan made to Debtor by Moore, Clayton &
Co. pursuant to a Convertible Promissory Note dated February 4, 2000, in the
original principal amount of $20,000 (the "Moore-Note") and a loan made to
Debtor by George Napier pursuant to a Convertible Promissory Note dated March
10, 2000, in the original principal amount of $20,000, (the "Napier Note") shall
be deemed to be part of the indebtedness secured by this Agreement from the date
such loans were made; provided, however, that Secured Party shall have the sole
and exclusive right to deal with Debtor in connection with the resolution of all
obligations secured by this Agreement, including, without limitation,
obligations evidenced by the Moore Note and the Napier Note.
(c) Debtor agrees to provide Secured Party with any and all information
necessary to perfect the Security Interest granted hereby, including, without
limitation, providing to Secured Party the United States Patent and Trademark
Office Registration (the "PTO Office") numbers for any trademarks, tradenames,
or other intellectual property owned by any Debtor which are registered with the
PTO Office. Each Debtor agrees to execute and deliver to Secured Party such
additional documents as may be necessary, from time to time, to cause the
Security Interest to be or remain perfected. Each Debtor agrees to execute such
collateral assignments and to obtain the consent of each licensor of any
licenses described in Exhibit I -A in which Secured Party has or is to have a
Security Interest, which assignment or consent is necessary to assure the grant
and perfection of the Secured Party's Security Interest.
(d) Each Debtor hereby grants to Secured Party an irrevocable power of
attorney to execute any document in the name of each Debtor necessary to perfect
or maintain the perfection of the Security interest granted hereby and Secured
Party is specifically authorized to execute the name of each Debtor, in that
connection, for and on its behalf, as its lawful attorney-in-fact. The power of
attorney granted hereby is coupled with an interest and shall be irrevocable.
(e) Each Debtor agrees that the advance of funds pursuant to the Note
(including, the Moore Note and the Napier Note) have benefitted each Debtor
directly, including Sportzz. Each Debtor further agrees that all references to
"Debtor" in the Agreement shall refer to each one of the Debtors, regardless
whether any reference to Debtor is to an individual Debtor.
2. The terms and conditions of such Security Agreement, except as
modified hereby, shall continue in force and effect as originally executed by
Debtor.
3. This Amendment to the Security Agreement shall not cause the release
of the Security Interest granted under the Agreement as of February 1, 2000, and
Security Party's Security Interest remains in force and effect from the date of
original grant.
4. Debtor agrees to pay all of Secured Party's attorneys' fees and costs
incurred in connection with this Amendment and Secured Party may withhold from
the $50,000 advanced to
<PAGE> 31
Debtor up to $3,000 for payment of Secured Party's attorneys fees and costs. Any
amount withheld from Debtor and paid to Secured Party's attorneys for fees and
costs shall be deemed to have been advanced to Debtor by Secured Party for the
benefit of Debtor and shall be part of the Note obligation secured by the
Agreement. Each Debtor agrees that Secured Party has given new value in
consideration for this First Amendment.
5. Each Debtor agrees that the obligations evidenced by the Note, the
Moore Note and the Napier Note are valid, binding, enforceable, and owing and
that none of the Debtors has any defenses or setoffs to the payment of such
Debtor's obligations under such notes or under the Agreement, as amended hereby.
6. Each Debtor, and the officers of Debtor executing this First
Amendment, jointly and severally represents and warrants to Secured Party that
all necessary corporate action has been taken to authorize this First Amendment
and the Agreement and the Note, and that the obligations of each Debtor
hereunder are valid, binding and enforceable according to their terms.
7. The obligations of each Debtor under this Agreement are joint and
several.
DATED as of this 17th day of March, 2000.
"DEBTOR" SPORTSNUTS.COM INTERNATIONAL, INC.
By: /s/ Kenneth Denos
-------------------------------------------
Kenneth Denos, Executive Vice President
SPORTSNUTS.COM, INC.
By: /s/ Kenneth Denos
-------------------------------------------
Kenneth Denos, Executive Vice President
SPORTZZ.COM, INC.
By: /s/ Kenneth Denos
-------------------------------------------
Kenneth Denos, President
"SECURED PARTY" GARDNER MANAGEMENT PROFIT SHARING PLAN
AND TRUST
By: /s/ Elbert W. Gardner
-------------------------------------------
Elbert W. Gardner, Trustee,
on behalf of the Trust
<PAGE> 32
EXHIBIT A-2
The following table describes the intellectual property owned or used by the
Debtor:
<TABLE>
<CAPTION>
Item Description
<S> <C>
Oracle 8 database server Database management software provided by Oracle
license for Windows NT
Visual Wave Server 3.0 Internet application server software provided by
license for Windows NT ObjectShare.
Netscape Fastrack Server HTTP server software provided by Netscape
license for Windows NT
Windows NT BackOffice 2.5 A suite of server applications including Windows NT Server
server license 4.0 provided by Microsoft
3 VisualWorks 5i developer Application development tool/environment provided by
licenses for Windows ObjectShare which is based on the Smalltalk object-oriented
programming language. An annual support/maintenance
contract entitles the licensee to technical support and a 50%
discount on upgrades.
TeamWorks source code An add-on tool for VisualWorks used to simplify sharing
management tool unlimited code and managing releases which was developed by
user license ObjectSelect and licensed to Sportzz.com.
WidgetWorks user interface Extensions to the Visual Works user interface construction
construction framework components and tools which was developed by ObjectSelect
unlimited user license and licensed to Sportzz.com.
SQL Works database access A sophisticated VisualWorks framework which simplifies
framework unlimited user and manages access to and storage of data in relational
license databases (such as Oracle and Sybase) designed for use in
both client and server applications developed by
ObjectSelect and licensed to Sportzz.com.
ApplicationWorks application ObjectSelect has developed both client-server and web-based
frameworks unlimited user frameworks within VisualWorks to simplify and standardize
license the development of applications. These frameworks were
used to develop the Internet sports application. Developed
by ObjectSelect and licensed to Sportzz.com.
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
Acrobat, Image Ready, and These products are provided by Adobe and have been used
Illustrator licenses for the creation of static content published on the
Sportzz.com web site such as graphics and game
report forms.
www.sportsuts.com domain The internet domain name "www.sportsnuts.com." An
and trade name annual fee must be paid to renew this domain name, if
desired, from year to year.
www.sportsnuts.net domain The internet domain name "www.sportsnuts.net." An annual
and trade name fee must be paid to renew this domain name, if desired, from
year to year.
www.sportsnuts.org domain The internet domain name "www.sportsnuts.org." An
and trade name annual fee must be paid to renew this domain name, if
desired, from year to year.
www.sportsUplay.com domain The internet domain name "www.sportUplay.com." An
and trade name annual fee must be paid to renew this domain name, if
desired, from year to year.
www.sportzz.com domain The internet domain name "www.sportzz.com." An annual
name fee must be paid to renew this domain name, if desired, from
year to year.
Sportzz.com trademark Sportzz.com does not yet have a
registered trademark for "Sportzz.com.";
however, application to register "sportzz.com"
as a trademark on the Supplemental Register
was made in March 1999 and a Certificate of
Registration was issued on August 3, 1999
under Registration No.
2,267,913
SportNuts.com Internet sports The website, database design, computer programs, HTML
application documents, and graphics created by ObjectSelect and
subsequently transferred to Sportzz.com which
constitute the SportsNuts.com web site and
enable the input, searching, and retrieval of
sports information including, but not limited
to, leagues, schools, teams, player rosters,
game schedules, game results, photographs,
articles, and statistics. This also includes
the advertising server which is capable of
targeting the display of advertising banners
based on a user's age, gender, location, and
the sport associated with the content being
viewed.
"The Business of Sports" Registered mark
"E-sports Mall" Registered mark
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
"Paid to Play" Registered mark
"Connecting the world of Registered mark
Amateur Sports"
SportsNuts.com website The databases and applications that comprise the
Application "SportsNuts.com" website, including the code that executes
on the web application server to produce the web pages that
are accessed by the end user.
Amateur Sports Statistics Database containing and applications for processing
Database information for sports, teams, organizations, leagues,
tournaments, participants, members, games,
schools, team statistics, participant
statistics, clubhouses, and news.
Advertising Database Database containing and applications
for processing information for advertisers,
advertisers' ad campaigns, banners and audit
detail.
Advertising Server The application containing the code that executes on the web
Application application server to serve banner advertisements to the
SportsNuts.com web pages and respond to banner
click- throughs.
</TABLE>
<PAGE> 1
Exhibit 10.2
Moore, Clayton & Co. Convertible Promissory Note
NON-NEGOTIABLE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $20,000.00 Date: February 4, 2000
Salt Lake City, Utah
FOR VALUE RECEIVED, SPORTSNUTS.COM INTERNATIONAL, INC., a Delaware
corporation and SPORTSNUTS.COM, INC., a Delaware corporation (collectively,
"Maker"), hereby promises to pay to the order of MOORE,CLAYTON & CO. ("Holder"),
in lawful money of the United States of America, the principal sum of Twenty
Thousand Dollars ($20,000.00) (the "Principal Amount"), together with interest
thereon as provided below.
1. Payment Terms. The entire Principal Amount together with all accrued
but unpaid interest shall be due and payable on May 4, 2000 (the "Maturity
Date"). Any payments made on this Note will be applied first to any costs and
expenses (including attorneys' fees as provided in paragraph 10) incurred by
Holder in connection with the collection of amounts owing pursuant to this Note,
then to accrued interest, and then to reduction of principal, or as otherwise
determined at Holder's discretion. The loan proceeds represented by this Note
shall be disbursed by the Holder, from time to time, pursuant to a schedule of
disbursements or draws approved by the Holder.
2. Interest. Interest will accrue on Principal Amount outstanding at the
rate per annum of sixteen percent (16%).
3. Grant of Security Interest. As security for the full and timely
payment of the Principal Amount of and interest on this Note whether now
existing or hereafter arising, Maker hereby grants to Holder a security interest
under the Utah Uniform Commercial Code ("UCC") for all of Maker's equipment,
furnishings, and fixed assets. Such security interest shall be set forth in a
separate Security Agreement of even date herewith duly executed by Maker and
Holder, substantially in the form attached hereto as Exhibit "A."
1
<PAGE> 2
4. Right of Conversion.
4.1 Election Right for Conversion Into Common Stock. This Note,
together with all accrued interest (the "Repayment Amount"), shall at
any time prior to the Maturity Date may be converted in its entirety
upon the election of the Holder into fully paid and non- assessable
shares of Common Stock of SportsNuts.com International, Inc. (the
"Company") at a conversion price equal to the lesser of: (i) $0.50 per
share, or (ii) the private placement offering price for the Company's
Common Stock between the date hereof and the Maturity Date.
4.2 Effect of Election to Convert. Election by the Holder to
convert the Repayment Amount into Common Stock shall be effective only
as to the conversion of all, but not less than all, of the total
principal amount of the Note plus all interest and other amounts then
outstanding. Such election shall be effected by the Holder delivering to
the Company this Note together with a written statement electing such
conversion. Such conversion shall be effective as of the date on which
the Company receives such written statement.
4.3 Mechanics of Conversion. Within two (2) business days after
receiving the Holder's written election to convert and this Note, the
Company shall issue and deliver to the Holder a certificate or
certificates, registered in the name of Holder, for the number of full
shares of Common Stock to which Holder is entitled bearing such
restrictive legends as may be required by federal and state securities
laws. To the extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date on which the
Holder shall have elected to such conversion. At the time of the
issuance of the certificate for the shares of Common Stock, the rights
of the Holder of the Note as such Holder shall cease, and the Holder
shall be deemed to have become the holder or holders of record of the
shares of Common Stock received upon conversion.
4.4 Taxes on Conversion. The issue of stock certificates on
conversion of this Note shall be made without charge to the Holder for
any tax in respect of the issue thereof. The Company shall not, however,
be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in any name
other than that of the Holder of this Note, and the Company shall not be
required to issue or deliver any certificate in respect of such Common
Stock unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has
been paid.
4.5 No Rights as Stockholder. Prior to the conversion of the
Note, the Holder shall not be entitled to any right as a stockholder,
including without limitation the right to
2
<PAGE> 3
vote or to receive dividends or other distribution, and shall not be
entitled to receive any notice of any proceeding of the Company, except
as provided herein.
5. Adjustments. If at any time after this Note is executed, the Company
(i) declares a dividend or makes a distribution on the outstanding shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, (iv) effects a capital reorganization,
reclassification, or change in the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or (v) otherwise changes into the same or different number
of shares of any class or classes of stock, the Common Stock issuable upon the
conversion of this Note, the conversion price per share in effect at the time of
the record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification reorganization, other similar
changes in the capitalization of the Company shall be proportionately adjusted
so that the Holder of this Note after such time shall be entitled to receive the
aggregate number of shares of Common Stock which the Holder would have owned or
been entitled to receive had this Debenture been converted immediately prior to
such record date or effective date and the resulting Common Stock had been
subject to such dividend, distribution, subdivision, combination or
reclassification or reorganization. Such adjustment shall be made successively
whenever any event specified above shall occur. No adjustments in respect of
interest or dividends, other than a stock dividend, will be made upon
conversion, but a payment in cash will be made by the Company in lieu of the
issuance of any such fractional shares.
6. Registration Rights. If the Company shall file a registration
statement with the Securities and Exchange Commission to register shares of its
Common Stock, excluding an S-8 or S-4 registration statement, the Company agrees
to register the shares of Common Stock issuable from the conversion of this
Note, subject to any underwriter's cutback or limitation in connection
therewith.
7. Representations and Warranties.
7.1 Representations and Warranties. The Maker represents and
warrants to the Company that:
(a) The Maker (i) is a corporation duly organized and
validly existing under the laws of Delaware; and (ii) has all
requisite corporate power, and has all material governmental
licenses, authorizations, consents and approvals necessary to
own its assets and carry on its business as now being or as
proposed to be conducted;
(b) There are no legal or arbitrary proceedings, or any
proceedings by or before any governmental or regulatory
authority or agency now pending, or (to the knowledge of the
Maker) threatened against the Maker, which, if adversely
3
<PAGE> 4
determined, could have a material advise effect on the financial
condition, operations or business of the Maker taken as a whole;
(c) The execution and delivery of this Note, or the
Security Agreement, or the Warrant, the consummation of the
transactions herein contemplated, or the compliance with the
terms and provisions hereof will conflict with, or result in a
breach of, or require any consent under the Articles of
Incorporation or By-Laws of the Maker, or any applicable law or
regulation, or any agreement or instrument to which the Maker is
a party, or by which it is bound, or to which it is subject, or
constitute a default under any such agreement or instrument, or
result in the creation or imposition of any lien upon any of the
revenues or assets of the Maker, pursuant to the terms of any
such agreement or instrument.
(d) The Maker has all necessary corporate power and
authority to execute, deliver and perform its obligations under
this Note, the Warrant and the Security Agreement to which it is
a party; the execution, delivery and performance by the Maker of
the Note, the Security Agreement and the Warrant to which it is
a party, has been duly authorized by all necessary corporate
action on its party; and this Note has been duly and validly
executed and delivered by the Maker and constitutes, and the
Security Agreement and the Warrant to which the Maker is a party
when executed and delivered, will constitute, its legal, valid
and binding obligation, enforceable in accordance with its
terms.
7.2 Covenants. The Maker covenants and agrees with the Holder
that so long as any amount remains unpaid on this Note, the Company
shall deliver to the Holder the following:
(a) As soon as available, and in any event within
fifteen (15) days after the end of each month, statements of
income, retained earnings and cash flow of the Maker for such
period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related balance
sheet of the Maker as of the end of such period.
8. Default.
8.1 Any one of the following occurrences shall constitute an
"Event of Default" under this Note:
(a) The failure of Maker to make any payment of
principal or accrued interest upon this Note when the same
becomes due and payable in accordance with
4
<PAGE> 5
the terms hereof without further notice or passage of time;
provided however, that Maker shall have thirty (30) days to cure
such default.
(b) The entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Maker in
any involuntary case or proceedings under the Federal bankruptcy
law, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Maker or for any substantial part of
its property, or ordering the winding-up or liquidation of its
affairs; or
(c) The commencement by the Maker of a voluntary case or
proceeding under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or
any other case or proceeding to be adjudicated bankrupt or
insolvent, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Maker
or of any substantial part of its property, or the making by it
of any assignment for the benefit of creditors, or the taking of
corporation action by the Maker in furtherance of any of the
foregoing.
8.2 Upon the happening of any Event of Default, (i) the entire
principal and any unpaid accrued interest shall become due immediately
and payable in full in cash with interest accruing thereon until paid in
full, and (ii) Holder shall have and may exercise any and all rights and
remedies available hereunder, at law and in equity.
8.3 The remedies of Holder, as provided herein, shall be
cumulative and concurrent, and may be pursued singularly, successively
or together, at the sole discretion of Holder, and may be exercised as
often as occasion therefor shall arise. Any act, omission or commission
of Holder, including, specifically, any failure to exercise any right,
remedy or recourse, shall be released and be effected only through a
written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to any
one event shall not be construed as continuing, as a bar to, or as a
waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
9. Attorneys' Fees. If one or more Events of Default shall occur (or any
act which with notice or passage of time or both would constitute an Event of
Default) under this Note, Maker promises to pay all collection costs, including
but not limited to all reasonable attorneys' fees, court costs, and expenses of
every kind incurred by Holder in connection with such collection or the
protection or enforcement of any or all of the security for this Note, whether
or not any lawsuit is filed with respect thereto.
5
<PAGE> 6
10. Notices. All payments and any notice required or permitted to be
served hereunder shall be in writing and shall be delivered personally, or by
express, overnight or courier service, by regular or certified mail, or by
facsimile transmission (with a confirming copy sent by U.S. Mail, registered or
certified, return receipt requested) addressed as follows, or to such other
address as any party hereto may for itself designate by written notice in
accordance herewith:
TO MAKER: SPORTSNUTS.COM
10421 South 400 West, Suite 550
South Jordan, Utah 84095
Attn: Kenneth Forrest
Facsimile No.: 801-816-2599
TO HOLDER: MOORE, CLAYTON & CO.
23852 Pacific Coast Highway, PMB 792
Malibu, CA 90265
Attn: Anthony Moore
Facsimile No.: 310-317-9605
Notice shall be deemed properly given on the date received or postmarked,
whichever is earlier.
11. Transfer. Provided that Maker's written consent is not provided
(which consent shall not be unreasonably withheld), this Note may not be sold,
pledged, hypothecated, or transferred in any manner, and is a non-negotiable
instrument having no value whatsoever except to the Holder while the Note bears
a principal balance outstanding.
12. Waiver. Maker, for itself, its successors, transferees and assigns
and all guarantors, endorsers and signers, hereby waives all valuation and
appraisement privileges, presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Note and notice of
the intention to accelerate, the release of any liable party, the release of any
security for the debt, the taking of any additional security and any other
indulgence or forbearance, and is and shall be directly and primarily, liable
for the amount of all sums owing and to be owed hereon, and agrees that this
Note and any or all payments coming due hereunder may be extended or renewed
from time to time by mutual consent without in any way affecting or diminishing
Maker's liability hereunder.
13. Illegality and Severability. In no event shall the amount paid or
agreed to be paid hereunder (including all interest and the aggregate of any
other amounts taken, reserved or charged pursuant to this Note which under
applicable law is deemed to constitute interest on the indebtedness evidenced by
this Note) exceed the highest lawful rate permissible under applicable law; and
if under any circumstances whatsoever, fulfillment of any provision of this Note
at the time performance of
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<PAGE> 7
such provision shall be due, shall involve transcending the limit of validity
prescribed by applicable law, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any circumstances
Holder should receive as interest an amount which would exceed the highest
lawful rate allowable under law, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance due under this
Note and not to the payment of interest, or if such excess interest exceeds the
unpaid balance of principal, the excess shall be refunded to Maker. If any
provision of this Note or any payments pursuant to the terms hereof shall be
invalid or unenforceable to any extent, the remaining provisions of this Note
and any other payments hereunder shall not be affected thereby and shall be
enforceable to the greatest extent permitted by law.
14. Governing Law. This Note shall be governed by and construed under
the laws of the State of Utah without regard to the conflict of laws provisions.
15. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Note shall be brought in the federal or state courts in the
State of Utah, and Maker and Holder each consent to the jurisdiction of said
courts.
IN WITNESS WHEREOF, the parties have executed this Note as of the date
first above written.
"Maker"
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
------------------------------------
Kenneth Denos
Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
------------------------------------
Kenneth Denos
Executive Vice President
"Holder"
MOORE, CLAYTON & CO.
By /s/ Anthony Moore
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<PAGE> 8
------------------------------------
Anthony Moore
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<PAGE> 9
Exhibit 10.2
Exhibit A to Moore, Clayton Convertible Promissory Note
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 4th day of
February, 2000, among Moore, Clayton & Co. ("Secured Party"), and SportsNuts.com
International, Inc., a Delaware corporation, and SportsNuts.com, Inc., a
Delaware corporation (collectively, the "Debtor").
1. Security Interest. Debtor hereby grants to Secured Party a security
interest ("Security Interest") in the equipment listed in Exhibit A attached
hereto, including any contract rights, leases or leasehold interests (as such
terms are defined by the Utah Uniform Commercial Code (the "Uniform Commercial
Code") in which the Debtor, both individually and collectively, now has or
hereafter acquires an interest and the proceeds therefrom relating to the
Debtor's business ("Collateral"). The Security Interest shall secure the payment
and performance of Debtor's Convertible Promissory Note of even date herewith in
the original principal amount of Twenty Thousand Dollars ($20,000.00) (the
"Note"), together with interest as accrued thereon.
2. Financing Statements and Other Action. Debtor agrees to comply with
Secured Party's reasonable requests to protect the Security Interest or to
otherwise carry out the provisions of this Agreement including, but not limited
to, the execution of financing, continuation, amendment and termination
statements. The Debtor shall execute the financing statement in the form
attached hereto as Exhibit "B" concurrently with the execution hereof.
3. Encumbrances. Debtor warrants that Debtor has title to the Collateral
and that there are no other claims, liens, security interests or other
encumbrances against the Collateral with the exception of the following:
(a) a Sixty Five Thousand One Hundred Forty-seven Dollars and
fifty-six cents ($65,147.56) purchase money security interest in the
Collateral in favor of Aroma Computers, Contract Furniture Gallery,
Micron Computers and IKON Office Solutions; and
(b) a Convertible Promissory Note in the amount of Four Hundred
Fifty Thousand Dollars ($450,000.00) secured by a security interest in
the Collateral in favor of Gardner Management Profit Sharing Plan and
Trust.
Debtor covenants to notify Secured Party of any claim, lien,
security interest or other encumbrance made against the Collateral and shall
defend the Collateral against any claim, lien, security interest or other
encumbrance adverse to Secured Party; and
<PAGE> 10
4. Maintenance of Collateral. Debtor shall preserve the Collateral for
the benefit of Secured Party. Without limiting the generality of the foregoing,
Debtor shall: (i) make all repairs, replacements, additions and improvements
necessary to maintain equipment in good working order and condition; (ii)
maintain any inventory sufficient, in Debtor's opinion, to meet the needs of its
business; (iii) take commercially reasonable steps to collect all accounts; and
(iv) pay all taxes, assessments, or other charges on the Collateral when due.
Debtor may not sell, lease, assign, sublease or otherwise dispose of any item of
the Collateral without the prior written consent of Secured Party, which consent
shall not be unreasonably withheld. Debtor shall not use the Collateral in
violation of any law.
5. Inspection and Information . Debtor covenants to keep accurate and
complete records listing and describing the Collateral. When reasonably
requested by Secured Party, Debtor shall give Secured Party a certificate on a
form to be supplied by Secured Party listing and describing the Collateral and
setting forth the amounts of the accounts and the face value of any instruments.
Secured Party shall have the right upon reasonable notice and at reasonable
times during business hours to inspect the Collateral and to audit and make
copies of any records or other writings which relate to the Collateral or the
general financial condition of Debtor. All records and information furnished by
Debtor to Secured Party pursuant to this Agreement shall constitute confidential
information and shall not be disclosed by Secured Party except to the extent
expressly permitted by Debtor, except in the event of a default (as described
herein), such information may be used as necessary in as is reasonably necessary
for Secured Party to exercise its rights and remedies against Debtor, including
in any action or proceeding instituted by Secured Party against Debtor.
6. Fixtures. It is the intention of Debtor and Secured Party that none
of the Collateral shall become fixtures except to the extent that Collateral
presently constitutes fixtures.
7. Default. While the Note is outstanding, any one or more of the
following events shall be cause for Debtor's default:
(a) Debtor fails to pay any amounts due under the Note.
(b) Debtor fails to observe or perform any material covenant,
warranty or agreement to be performed by Debtor under (i) this Agreement
or (ii) under any other document executed by Debtor in connection with
the Note; or
(c) The failure of Debtor to make any payment of principal or
accrued interest under the Note when the same becomes due and payable in
accordance with the terms hereof without further notice of passage of
time, provided however, that Debtor shall have thirty (30) days to cure
such default; or
(d) Debtor files a voluntary petition for bankruptcy, an
involuntary petition in bankruptcy is filed against Debtor, a petition
is filed seeking appointment of receiver or
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trustee, or Debtor is unable to pay its debts as they become due or
defaults under any other obligation to which Debtor is a party.
8. Rights on Default. In the event of a default under this Agreement and
after a written notice from Secured Party after which Debtor has thirty (30)
days to cure, Secured Party may:
(a) At any time thereafter and at the election of Secured Party,
all obligations of Secured Party shall be terminated and Secured Party
may, without presentment, protest, demand or notice of any kind
whatsoever, declare immediately due and payable any indebtedness of
Debtor under the Note to Secured Party;
(b) Exercise the rights and remedies accorded a secured party by
the Uniform Commercial Code or by any document securing the Note and
without limiting the generality of the foregoing and notwithstanding
anything herein, Secured Party shall have full power to and it may (but
shall not be obligated to);
(1) sell, assign or deliver and dispose of the whole or
any part of the Collateral at public or private sale, either for
cash or upon credit or for future delivery, upon such notice and
in such manner as may be required by law;
(2) at any such sale or disposition, Secured Party may
apply the proceeds of such sale or disposition first (i) to the
expense of disposition, sale or collection, including broker's
commissions and reasonable attorney's fees (including those fees
incurred in either a trial or appellate court or without suit),
court costs and other legal expenses, and all other charges and
expenses without limitation incurred by Secured Party in
connection with such disposition or sale; (ii) to the
indebtedness of Debtor to Secured Party under the Note and
secured by this Agreement in such order as Secured Party may
elect and with such priorities between them as Secured Party may
elect (applying proceeds first to accrued interest, then to
unpaid principal.
(3) In the event a deficiency remains, Debtor agrees to
pay to Secured Party or its assigns, immediately to Secured
Party in connection with the Note and without notice or demand,
any such deficiency in Debtor's obligations. Any public or
private sale may be held at any office of Secured Party, or at
any other place designated by Secured Party.
(c) Perform any warranty, covenant or agreement which Debtor has
failed to perform under this Agreement;
(d) Take any other action which Secured Party deems reasonably
necessary or reasonably desirable to protect the Collateral or the
Security Interest.
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9. No Waiver. The rights, powers and remedies given to the Secured Party
by this Agreement and associated documents and arrangements shall be in addition
to all rights, powers and remedies given to Secured Party by virtue of any
statute or rule of law. Any forbearance, failure to delay by Secured Party in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of any such right, power or remedy; and any single or partial exercise of
any right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Secured Party shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Secured Party.
10. Exercise of Rights. Secured Party may exercise its creditor's lien
and rights of setoff with respect to the Indebtedness at any time, whether
secured or unsecured, whether before or after default, and whether or not due,
to payments of the indebtedness hereunder.
11. Notices. Any notice under this Agreement shall be in writing and
shall be deemed delivered if mailed, postage prepaid, to a party at the
addresses specified in the Note or such other address as may be specified by
notice given after the date hereof.
12. Successors and Assigns. Debtor may not sell, transfer, assign or
encumber any part of or all of the Collateral without the prior written consent
of Secured Party which consent shall not unreasonably be withheld. In the event
consent to assign the collateral is granted by the Secured Party, this Agreement
shall inure to the benefit of and shall bind the heirs, executors,
administrators, legal representatives, successors or assigns of the parties.
13. Attorneys' Fees. Should any legal proceeding be commenced between
the parties hereto concerning any provision of this Agreement, or rights and
obligations of either in relation thereto, the party prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum of attorneys' fees, to be fixed by the court in the
same action.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof, and supersedes
all prior or contemporaneous agreements and negotiations with respect to such
subject matter, and shall not be modified except in writing and signed by the
Parties hereto.
15. Governing Law. This Agreement shall be governed by any construed
under the laws of the State of Utah, without regard to the conflicts of laws.
16. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Security Agreement shall be brought in the State of Utah and
the Debtor and Secured Party each consent to the jurisdiction of said courts.
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<PAGE> 13
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above. This Agreement may be signed in counterparts, all of
which together shall constitute one and the same instrument.
DEBTOR:
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SECURED PARTY:
MOORE, CLAYTON & CO.
By /s/ Anthony Moore
--------------------------------------------
Anthony Moore
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<PAGE> 14
EXHIBIT A
EQUIPMENT LIST TO SECURITY AGREEMENT DATED FEBRUARY 4, 2000 AMONG
SPORTSNUTS.COM INTERNATIONAL, INC., SPORTSNUTS.COM, INC. AND MOORE, CLAYTON &
CO., CONSISTING PRIMARILY OF COMPUTER HARDWARE, OFFICE FURNITURE, FURNISHINGS
AND EQUIPMENT, AND MORE PARTICULARLY SET FORTH ON EXHIBIT A-1 ATTACHED HERETO
AND INCORPORATED HEREIN BY REFERENCE.
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Exhibit 10.3
George Napier Convertible Promissory Note
NON-NEGOTIABLE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $20,000.00 Date: March 10, 2000
Salt Lake City, Utah
FOR VALUE RECEIVED, SPORTSNUTS.COM INTERNATIONAL, INC., a Delaware
corporation and SPORTSNUTS.COM, INC., a Delaware corporation (collectively,
"Maker"), hereby promises to pay to the order of GEORGE NAPIER ("Holder"), in
lawful money of the United States of America, the principal sum of Twenty
Thousand Dollars ($20,000.00) (the "Principal Amount"), together with interest
thereon as provided below.
1. Payment Terms. The entire Principal Amount together with all accrued
but unpaid interest shall be due and payable on the earlier of the following:
(i) the receipt by the Company of not less than $1,000,000 in investment
proceeds; or (ii) May 1, 2000 (the "Maturity Date").
Notwithstanding the foregoing, to the extent any payments are
made on that certain $450,000 Convertible Promissory Note in favor of Gardner
Management Profit Sharing Plan and Trust (the "Gardner Note"), then payments
shall be made hereunder in pari passu with such Gardner Note. Any payments made
on this Note will be applied first to any costs and expenses (including
attorneys' fees as provided in paragraph 9) incurred by Holder in connection
with the collection of amounts owing pursuant to this Note, then to accrued
interest, and then to reduction of principal, or as otherwise determined at
Holder's discretion. The loan proceeds represented by this Note shall be
disbursed by the Holder, from time to time, pursuant to a schedule of
disbursements or draws approved by the Holder.
2. Interest. Interest will accrue on Principal Amount outstanding at the
rate per annum of sixteen percent (16%).
3. Grant of Security Interest. As security for the full and timely
payment of the Principal Amount of and interest on this Note whether now
existing or hereafter arising, Maker hereby grants to Holder a security interest
under the Utah Uniform Commercial Code ("UCC") for all of Maker's equipment,
furnishings, and fixed assets. Such security interest shall be set forth in
<PAGE> 2
a separate Security Agreement of even date herewith duly executed by Maker and
Holder, substantially in the form attached hereto as Exhibit "A."
4. Right of Conversion.
4.1 Election Right for Conversion Into Common Stock. This Note,
together with all accrued interest (the "Repayment Amount"), shall at
any time prior to the Maturity Date may be converted in its entirety
upon the election of the Holder into fully paid and non- assessable
shares of Common Stock of SportsNuts.com International, Inc. (the
"Company") at a conversion price equal to the lesser of: (i) $0.25 per
share, or (ii) the private placement offering price for the Company's
Common Stock between the date hereof and the Maturity Date.
4.2 Effect of Election to Convert. Election by the Holder to
convert the Repayment Amount into Common Stock shall be effective only
as to the conversion of all, but not less than all, of the total
principal amount of the Note plus all interest and other amounts then
outstanding. Such election shall be effected by the Holder delivering to
the Company this Note together with a written statement electing such
conversion. Such conversion shall be effective as of the date on which
the Company receives such written statement.
4.3 Mechanics of Conversion. Within two (2) business days after
receiving the Holder's written election to convert and this Note, the
Company shall issue and deliver to the Holder a certificate or
certificates, registered in the name of Holder, for the number of full
shares of Common Stock to which Holder is entitled bearing such
restrictive legends as may be required by federal and state securities
laws. To the extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date on which the
Holder shall have elected to such conversion. At the time of the
issuance of the certificate for the shares of Common Stock, the rights
of the Holder of the Note as such Holder shall cease, and the Holder
shall be deemed to have become the holder or holders of record of the
shares of Common Stock received upon conversion.
4.4 Taxes on Conversion. The issue of stock certificates on
conversion of this Note shall be made without charge to the Holder for
any tax in respect of the issue thereof. The Company shall not, however,
be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in any name
other than that of the Holder of this Note, and the Company shall not be
required to issue or deliver any certificate in respect of such Common
Stock unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has
been paid.
4.5 No Rights as Stockholder. Prior to the conversion of the
Note, the Holder shall not be entitled to any right as a stockholder,
including without limitation the right to
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vote or to receive dividends or other distribution, and shall not be
entitled to receive any notice of any proceeding of the Company, except
as provided herein.
5. Adjustments. If at any time after this Note is executed, the Company
(i) declares a dividend or makes a distribution on the outstanding shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, (iv) effects a capital reorganization,
reclassification, or change in the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or (v) otherwise changes into the same or different number
of shares of any class or classes of stock, the Common Stock issuable upon the
conversion of this Note, the conversion price per share in effect at the time of
the record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification reorganization, other similar
changes in the capitalization of the Company shall be proportionately adjusted
so that the Holder of this Note after such time shall be entitled to receive the
aggregate number of shares of Common Stock which the Holder would have owned or
been entitled to receive had this Debenture been converted immediately prior to
such record date or effective date and the resulting Common Stock had been
subject to such dividend, distribution, subdivision, combination or
reclassification or reorganization. Such adjustment shall be made successively
whenever any event specified above shall occur. No adjustments in respect of
interest or dividends, other than a stock dividend, will be made upon
conversion, but a payment in cash will be made by the Company in lieu of the
issuance of any such fractional shares.
6. Registration Rights. If the Company shall file a registration
statement with the Securities and Exchange Commission to register shares of its
Common Stock, excluding an S-8 or S-4 registration statement, the Company agrees
to register the shares of Common Stock issuable from the conversion of this
Note, subject to any underwriter's cutback or limitation in connection
therewith.
7. Representations and Warranties.
7.1 Representations and Warranties. The Maker represents and
warrants to the Holder that:
(a) The Maker (i) is a corporation duly organized and
validly existing under the laws of Delaware; and (ii) has all
requisite corporate power, and has all material governmental
licenses, authorizations, consents and approvals necessary to
own its assets and carry on its business as now being or as
proposed to be conducted;
(b) There are no legal or arbitrary proceedings, or any
proceedings by or before any governmental or regulatory
authority or agency now pending, or (to the knowledge of the
Maker) threatened against the Maker, which, if adversely
determined, could have a material advise effect on the financial
condition, operations or business of the Maker taken as a whole;
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<PAGE> 4
(c) The execution and delivery of this Note, or the
Security Agreement, or the Warrant, the consummation of the
transactions herein contemplated, or the compliance with the
terms and provisions hereof will not conflict with, or result in
a breach of, or require any consent under the Articles of
Incorporation or By-Laws of the Maker, or any applicable law or
regulation, or any agreement or instrument to which the Maker is
a party, or by which it is bound, or to which it is subject, or
constitute a default under any such agreement or instrument, or
result in the creation or imposition of any lien upon any of the
revenues or assets of the Maker, pursuant to the terms of any
such agreement or instrument.
(d) The Maker has all necessary corporate power and
authority to execute, deliver and perform its obligations under
this Note, the Warrant and the Security Agreement to which it is
a party; the execution, delivery and performance by the Maker of
the Note, the Security Agreement and the Warrant to which it is
a party, has been duly authorized by all necessary corporate
action on its party; and this Note has been duly and validly
executed and delivered by the Maker and constitutes, and the
Security Agreement and the Warrant to which the Maker is a party
when executed and delivered, will constitute, its legal, valid
and binding obligation, enforceable in accordance with its
terms.
7.2 Covenants. The Maker covenants and agrees with the Holder
that so long as any amount remains unpaid on this Note, the Company
shall deliver to the Holder the following:
(a) As soon as available, and in any event within
fifteen (15) days after the end of each month, statements of
income, retained earnings and cash flow of the Maker for such
period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related balance
sheet of the Maker as of the end of such period.
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<PAGE> 5
8. Default.
8.1 Any one of the following occurrences shall constitute an
"Event of Default" under this Note:
(a) The failure of Maker to make any payment of
principal or accrued interest upon this Note when the same
becomes due and payable in accordance with the terms hereof
without further notice or passage of time; provided however,
that Maker shall have thirty (30) days to cure such default.
(b) The entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Maker in
any involuntary case or proceedings under the Federal bankruptcy
law, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Maker or for any substantial part of
its property, or ordering the winding-up or liquidation of its
affairs; or
(c) The commencement by the Maker of a voluntary case or
proceeding under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or
any other case or proceeding to be adjudicated bankrupt or
insolvent, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Maker
or of any substantial part of its property, or the making by it
of any assignment for the benefit of creditors, or the taking of
corporation action by the Maker in furtherance of any of the
foregoing.
8.2 Upon the happening of any Event of Default, (i) the entire
principal and any unpaid accrued interest shall become due immediately
and payable in full in cash with interest accruing thereon until paid in
full, and (ii) Holder shall have and may exercise any and all rights and
remedies available hereunder, at law and in equity.
8.3 The remedies of Holder, as provided herein, shall be
cumulative and concurrent, and may be pursued singularly, successively
or together, at the sole discretion of Holder, and may be exercised as
often as occasion therefor shall arise. Any act, omission or commission
of Holder, including, specifically, any failure to exercise any right,
remedy or recourse, shall be released and be effected only through a
written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to any
one event shall not be construed as continuing, as a bar to, or as a
waiver or release of, any subsequent right, remedy or recourse as to a
subsequent event.
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<PAGE> 6
9. Attorneys' Fees. If one or more Events of Default shall occur (or any
act which with notice or passage of time or both would constitute an Event of
Default) under this Note, Maker promises to pay all collection costs, including
but not limited to all reasonable attorneys' fees, court costs, and expenses of
every kind incurred by Holder in connection with such collection or the
protection or enforcement of any or all of the security for this Note, whether
or not any lawsuit is filed with respect thereto.
10. Notices. All payments and any notice required or permitted to be
served hereunder shall be in writing and shall be delivered personally, or by
express, overnight or courier service, by regular or certified mail, or by
facsimile transmission (with a confirming copy sent by U.S. Mail, registered or
certified, return receipt requested) addressed as follows, or to such other
address as any party hereto may for itself designate by written notice in
accordance herewith:
TO MAKER: SPORTSNUTS.COM
10421 South 400 West, Suite 550
South Jordan, Utah 84095
Attn: Kenneth Forrest
Facsimile No.: 801-816-2599
TO HOLDER: GEORGE NAPIER
12791 Normandy Lane
Los Altos Hills, California 94022
Facsimile No.: 650-559-9993
Notice shall be deemed properly given on the date received or postmarked,
whichever is earlier.
11. Transfer. Provided that Maker's written consent is not provided
(which consent shall not be unreasonably withheld), this Note may not be sold,
pledged, hypothecated, or transferred in any manner, and is a non-negotiable
instrument having no value whatsoever except to the Holder while the Note bears
a principal balance outstanding.
12. Waiver. Maker, for itself, its successors, transferees and assigns
and all guarantors, endorsers and signers, hereby waives all valuation and
appraisement privileges, presentment and demand for payment, protest, notice of
protest and nonpayment, dishonor and notice of dishonor, bringing of suit, lack
of diligence or delays in collection or enforcement of this Note and notice of
the intention to accelerate, the release of any liable party, the release of any
security for the debt, the taking of any additional security and any other
indulgence or forbearance, and is and shall be directly and primarily, liable
for the amount of all sums owing and to be owed hereon, and agrees that this
Note and any or all payments coming due hereunder may be extended or renewed
from time to time by mutual consent without in any way affecting or diminishing
Maker's liability hereunder.
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<PAGE> 7
13. Illegality and Severability. In no event shall the amount paid or
agreed to be paid hereunder (including all interest and the aggregate of any
other amounts taken, reserved or charged pursuant to this Note which under
applicable law is deemed to constitute interest on the indebtedness evidenced by
this Note) exceed the highest lawful rate permissible under applicable law; and
if under any circumstances whatsoever, fulfillment of any provision of this Note
at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any circumstances Holder should receive as interest an
amount which would exceed the highest lawful rate allowable under law, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under this Note and not to the payment of
interest, or if such excess interest exceeds the unpaid balance of principal,
the excess shall be refunded to Maker. If any provision of this Note or any
payments pursuant to the terms hereof shall be invalid or unenforceable to any
extent, the remaining provisions of this Note and any other payments hereunder
shall not be affected thereby and shall be enforceable to the greatest extent
permitted by law.
14. Governing Law. This Note shall be governed by and construed under
the laws of the State of Utah without regard to the conflict of laws provisions.
15. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Note shall be brought in the federal or state courts in the
State of Utah, and Maker and Holder each consent to the jurisdiction of said
courts.
IN WITNESS WHEREOF, the parties have executed this Note as of the date
first above written.
"Maker"
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
----------------------------------
Kenneth Denos
Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
----------------------------------
Kenneth Denos
Executive Vice President
"Holder"
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<PAGE> 8
/s/ George Napier
----------------------------------
GEORGE NAPIER
8
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Exhibit 10.3 Exhibit A to Napier Convertible Promissory Note
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 10th day
of March, 2000, among George Napier ("Secured Party"), and SportsNuts.com
International, Inc., a Delaware corporation, and SportsNuts.com, Inc., a
Delaware corporation (collectively, the "Debtor").
1. Security Interest. Debtor hereby grants to Secured Party a security
interest ("Security Interest") in the equipment listed in Exhibit A attached
hereto, including any contract rights, leases or leasehold interests (as such
terms are defined by the Utah Uniform Commercial Code (the "Uniform Commercial
Code") in which the Debtor, both individually and collectively, now has or
hereafter acquires an interest and the proceeds therefrom relating to the
Debtor's business ("Collateral"). The Security Interest shall secure the payment
and performance of Debtor's Convertible Promissory Note of even date herewith in
the original principal amount of Twenty Thousand Dollars ($20,000.00 ) (the
"Note"), together with interest as accrued thereon.
2. Financing Statements and Other Action. Debtor agrees to comply with
Secured Party's reasonable requests to protect the Security Interest or to
otherwise carry out the provisions of this Agreement including, but not limited
to, the execution of financing, continuation, amendment and termination
statements. The Debtor shall execute the financing statement in the form
attached hereto as Exhibit "B" concurrently with the execution hereof.
3. Encumbrances. Debtor warrants that Debtor has title to the Collateral
and that there are no other claims, liens, security interests or other
encumbrances against the Collateral with the exception of the following:
(a) a Sixty Five Thousand One Hundred Forty-seven Dollars and
fifty-six cents ($65,147.56) purchase money security interest in the
Collateral in favor of Aroma Computers, Contract Furniture Gallery,
Micron Computers and IKON Office Solutions;
(b) a Convertible Promissory Note in the amount of Four Hundred
Fifty Thousand Dollars ($450,000.00) dated February 1, 2000 secured by a
security interest in the Collateral in favor of Gardner Management
Profit Sharing Plan and Trust (the "Gardner Note"), with repayment terms
requiring that payments made on the Secured Party's Note be made in pari
passu with the Gardner Note.
(c) a Convertible Promissory Note in the amount of Twenty
Thousand Dollars ($20,000.00) dated February 4, 2000 secured by a
security interest in the Collateral in favor of Moore, Clayton & Co.
<PAGE> 10
Debtor covenants to notify Secured Party of any claim, lien,
security interest or other encumbrance made against the Collateral and shall
defend the Collateral against any claim, lien, security interest or other
encumbrance adverse to Secured Party.
4. Maintenance of Collateral. Debtor shall preserve the Collateral for
the benefit of Secured Party. Without limiting the generality of the foregoing,
Debtor shall: (i) make all repairs, replacements, additions and improvements
necessary to maintain equipment in good working order and condition; (ii)
maintain any inventory sufficient, in Debtor's opinion, to meet the needs of its
business; (iii) take commercially reasonable steps to collect all accounts; and
(iv) pay all taxes, assessments, or other charges on the Collateral when due.
Debtor may not sell, lease, assign, sublease or otherwise dispose of any item of
the Collateral without the prior written consent of Secured Party, which consent
shall not be unreasonably withheld. Debtor shall not use the Collateral in
violation of any law.
5. Inspection and Information . Debtor covenants to keep accurate and
complete records listing and describing the Collateral. When reasonably
requested by Secured Party, Debtor shall give Secured Party a certificate on a
form to be supplied by Secured Party listing and describing the Collateral and
setting forth the amounts of the accounts and the face value of any instruments.
Secured Party shall have the right upon reasonable notice and at reasonable
times during business hours to inspect the Collateral and to audit and make
copies of any records or other writings which relate to the Collateral or the
general financial condition of Debtor. All records and information furnished by
Debtor to Secured Party pursuant to this Agreement shall constitute confidential
information and shall not be disclosed by Secured Party except to the extent
expressly permitted by Debtor, except in the event of a default (as described
herein), such information may be used as necessary in as is reasonably necessary
for Secured Party to exercise its rights and remedies against Debtor, including
in any action or proceeding instituted by Secured Party against Debtor.
6. Fixtures. It is the intention of Debtor and Secured Party that none
of the Collateral shall become fixtures except to the extent that Collateral
presently constitutes fixtures.
7. Default. While the Note is outstanding, any one or more of the
following events shall be cause for Debtor's default:
(a) Debtor fails to pay any amounts due under the Note.
(b) Debtor fails to observe or perform any material covenant,
warranty or agreement to be performed by Debtor under (i) this Agreement
or (ii) under any other document executed by Debtor in connection with
the Note; or
(c) The failure of Debtor to make any payment of principal or
accrued interest under the Note when the same becomes due and payable in
accordance with the terms
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<PAGE> 11
hereof without further notice of passage of time, provided however, that
Debtor shall have thirty (30) days to cure such default; or
(d) Debtor files a voluntary petition for bankruptcy, an
involuntary petition in bankruptcy is filed against Debtor, a petition
is filed seeking appointment of receiver or trustee, or Debtor is unable
to pay its debts as they become due or defaults under any other
obligation to which Debtor is a party.
8. Rights on Default. In the event of a default under this Agreement and
after a written notice from Secured Party after which Debtor has thirty (30)
days to cure, Secured Party may:
(a) At any time thereafter and at the election of Secured Party,
all obligations of Secured Party shall be terminated and Secured Party
may, without presentment, protest, demand or notice of any kind
whatsoever, declare immediately due and payable any indebtedness of
Debtor under the Note to Secured Party;
(b) Exercise the rights and remedies accorded a secured party by
the Uniform Commercial Code or by any document securing the Note and
without limiting the generality of the foregoing and notwithstanding
anything herein, Secured Party shall have full power to and it may (but
shall not be obligated to);
(1) sell, assign or deliver and dispose of the whole or
any part of the Collateral at public or private sale, either for
cash or upon credit or for future delivery, upon such notice and
in such manner as may be required by law;
(2) at any such sale or disposition, Secured Party may
apply, in pari passu with the Gardner Note, the proceeds of such
sale or disposition first (i) to the expense of disposition,
sale or collection, including broker's commissions and
reasonable attorney's fees (including those fees incurred in
either a trial or appellate court or without suit), court costs
and other legal expenses, and all other charges and expenses
without limitation incurred by Secured Party in connection with
such disposition or sale; (ii) to the indebtedness of Debtor to
Secured Party under the Note and secured by this Agreement in
such order as Secured Party may elect and with such priorities
between them as Secured Party may elect (applying proceeds first
to accrued interest, then to unpaid principal).
(3) In the event a deficiency remains, Debtor agrees to
pay to Secured Party or its assigns, immediately to Secured
Party in connection with the Note and without notice or demand,
any such deficiency in Debtor's obligations. Any public or
private sale may be held at any office of Secured Party, or at
any other place designated by Secured Party.
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<PAGE> 12
(c) Perform any warranty, covenant or agreement which Debtor has
failed to perform under this Agreement;
(d) Take any other action which Secured Party deems reasonably
necessary or reasonably desirable to protect the Collateral or the
Security Interest.
9. No Waiver. The rights, powers and remedies given to the Secured Party
by this Agreement and associated documents and arrangements shall be in addition
to all rights, powers and remedies given to Secured Party by virtue of any
statute or rule of law. Any forbearance, failure to delay by Secured Party in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of any such right, power or remedy; and any single or partial exercise of
any right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power and remedy of Secured Party shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Secured Party.
10. Exercise of Rights. Secured Party may exercise its creditor's lien
and rights of setoff with respect to the Indebtedness at any time, whether
secured or unsecured, whether before or after default, and whether or not due,
to payments of the indebtedness hereunder.
11. Notices. Any notice under this Agreement shall be in writing and
shall be deemed delivered if mailed, postage prepaid, to a party at the
addresses specified in the Note or such other address as may be specified by
notice given after the date hereof.
12. Successors and Assigns. Debtor may not sell, transfer, assign or
encumber any part of or all of the Collateral without the prior written consent
of Secured Party which consent shall not unreasonably be withheld. In the event
consent to assign the collateral is granted by the Secured Party, this Agreement
shall inure to the benefit of and shall bind the heirs, executors,
administrators, legal representatives, successors or assigns of the parties.
13. Attorneys' Fees. Should any legal proceeding be commenced between
the parties hereto concerning any provision of this Agreement, or rights and
obligations of either in relation thereto, the party prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum of attorneys' fees, to be fixed by the court in the
same action.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof, and supersedes
all prior or contemporaneous agreements and negotiations with respect to such
subject matter, and shall not be modified except in writing and signed by the
Parties hereto.
15. Governing Law. This Agreement shall be governed by any construed
under the laws of the State of Utah, without regard to the conflicts of laws.
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<PAGE> 13
16. Venue and Jurisdiction. Any action or proceeding arising out of or
relating to this Security Agreement shall be brought in the State of Utah and
the Debtor and Secured Party each consent to the jurisdiction of said courts.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above. This Agreement may be signed in counterparts, all of
which together shall constitute one and the same instrument.
DEBTOR:
SPORTSNUTS.COM INTERNATIONAL, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SPORTSNUTS.COM, INC.
By /s/ Kenneth Denos
--------------------------------------------
Kenneth Denos, Executive Vice President
SECURED PARTY:
/s/ George Napier
--------------------------------------------
GEORGE NAPIER
5
<PAGE> 14
EXHIBIT A
EQUIPMENT LIST TO SECURITY AGREEMENT DATED MARCH 10, 2000 AMONG
SPORTSNUTS.COM INTERNATIONAL, INC., SPORTSNUTS.COM, INC. AND GEORGE NAPIER,
CONSISTING PRIMARILY OF COMPUTER HARDWARE, OFFICE FURNITURE, FURNISHINGS AND
EQUIPMENT, AND MORE PARTICULARLY SET FORTH ON EXHIBIT A-1 ATTACHED HERETO AND
INCORPORATED HEREIN BY REFERENCE.
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<PAGE> 1
Exhibit 10.6
Employment Agreement with Kenneth Forrest
SPORTSNUTS.COM INTERNATIONAL, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of this
1st day of October, 1999, by and between SportsNuts.com International, Inc., a
Delaware corporation (the "Company"), and Kenneth Forrest, 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
President of the Company's network marketing operations. 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 Fifty Five Thousand ($155,000) 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.
4.2 Grant of Option. Effective August 24, 1999 (the "Grant Date"), the
Company hereby grants to Employee an option ("Option") to acquire 986,250 shares
of its common stock at an exercise price
<PAGE> 2
of $2.53 per share. Effective with the commencement of the Employment Term, the
Option shall vest immediately with respect to 493,125 shares. The remainder of
the Option shall vest in two (2) successive annual installments of 246,562 and
246,563 shares, respectively, 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 all shares
of Common Stock subject to the Option, including any and all options granted by
the Company or any of its subsidiaries in connection with Employee's employment.
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 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.
4.5 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.
4.6 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 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.
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<PAGE> 3
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 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
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<PAGE> 4
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 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
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<PAGE> 5
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.
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.
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<PAGE> 6
9. No Conflicts
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 13.
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.
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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 judgement.
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: Kenneth Forrest
2255 North University Parkway S-15
Provo, Utah 84604
(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/ Kenneth Forrest
- ----------------------------------- -----------------------------------
Kenneth Denos Kenneth Forrest
Executive Vice President
7
<PAGE> 1
Exhibit 10.7
Employment Agreement with Timothy Shields
SPORTSNUTS.COM INTERNATIONAL, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into as of this
1st day of October, 1999, by and between SportsNuts.com International, Inc., a
Delaware corporation (the "Company"), and Timothy Shields, 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 Vice
President of the Company's network marketing operations. 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 Thousand ($100,000) 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 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.
4.3 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.
4.4 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.
4.5 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 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
2
<PAGE> 3
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 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. In
addition, if Employee's employment is terminated by the Company without
Cause (as defined below), any and all options granted by the Company or
any of its subsidiaries to Employee in connection with his employment
shall immediately vest and become exercisable.
(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
3
<PAGE> 4
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 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.
4
<PAGE> 5
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
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.
5
<PAGE> 6
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 13.
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.
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 judgement.
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.
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<PAGE> 7
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: Timothy Shields
168 West 3300 North
Provo, UT 84604
(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/ Timothy Shields
- ----------------------------------- -----------------------------------
Kenneth Denos Timothy Shields
Executive Vice President
7
<PAGE> 1
Exhibit 10.8
Independent Contractor Agreement with Sharon Clayton dated April 15, 1999
SPORTSNUTS.COM, INC.
INDEPENDENT CONTRACTOR AGREEMENT
This Independent Contractor Agreement (this "Agreement") is entered into
as of this 15th day of April, 1999, by and between SportsNuts.Com, Inc. a
Delaware corporation (the "Company") and Sharon Clayton ("Contractor"),
collectively referred to hereinafter as the "Parties" or individually as a
"Party."
WHEREAS, the Company is engaged in the business of creating a
sports-based membership organization that provides sports, outdoor, and
fitness-related products and services through an Internet portal and through a
network of independent sales representatives; and
WHEREAS, the Company seeks to utilize the services of Contractor to
provide marketing research and general business consulting services (hereafter,
the "Services") in furtherance of the development and promotion of such
membership organization.
NOW, THEREFORE, In consideration of the foregoing premises and the
mutual covenants contained herein, the Parties hereto agree as follows:
1. Services. For a minimum of eighteen (18) hours per week, Contractor agrees to
provide the Services as requested by the Company and in accordance with accepted
industry practices and guidelines and all applicable federal, state and local
laws, rules and regulations. Contractor also agrees to provide the Services
pursuant to the guidelines and requirements promulgated by the Company from time
to time and provided to Contractor by the Company.
2. Term. This Agreement will become effective on the date stated above, and will
continue in effect for one (1) year unless terminated by either Party as
provided herein.
3. Obligations of Contractor.
3.1 Licenses and Education. Contractor shall be responsible for
obtaining and maintaining Contractor's professional licenses, and/or
certifications, if any, and obtaining any continuing education or certification
that is required or is prudent to remain current and knowledgeable in
Contractor's field.
3.2 Taxes. Contractor shall be responsible for paying federal, state and
local income, Social Security, unemployment, and all other taxes upon amounts
earned by or paid to Contractor pursuant to this Agreement.
3.3 Expenses. Except as agreed by the Company in writing, Contractor
shall be responsible for providing Contractor's own transportation, lodging,
meals, insurance, and any and all other employment-related expenses.
<PAGE> 2
4. Compensation. Unless otherwise set forth in writing and signed by both
Parties, the Company shall pay and Contractor hereby accepts as full
compensation for Services rendered hereunder, the following amounts:
4.1 Cash. The Company agrees to pay Contractor Five Thousand Dollars
($5,000) per month. Payment with respect thereto shall be made on the last day
of each month for which Services have been rendered under this Agreement.
4.2 Grant of Option. Effective as of the date hereof, the Company hereby
grants to Contractor an option ("Option") to acquire sixty thousand (60,000)
shares of its common stock at an exercise price of $1.00 per share. The Option
shall vest in twelve (12) successive equal monthly installments of 5,000 shares
each, with the first installment vesting May 15, 1999. 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 1998 Stock Option Plan ("Plan"). The Company shall prepare and
deliver to Contractor a separate grant of the Option in accordance with the Plan
in the form attached hereto as Exhibit "A."
5. Termination.
5.1 Right of Termination. This Agreement may be terminated by either
Party, without cause, upon thirty (30) days prior written notice to the other
Party. This Agreement may be terminated by the Company for cause at any time and
without prior notice. For purposes of this Agreement, "cause" shall include,
without limitation, violations by Contractor of the terms of this Agreement or
the failure of Contractor to timely fulfill assignments given by management of
the Company under this Agreement.
5.2 Effect of Termination. In the event this Agreement is terminated,
all obligations of the Company and all obligations of Contractor shall cease
except as provided in Sections 6-16 below. Upon such termination, Contractor or
Contractor's representative or estate shall be entitled to receive only such
compensation earned or accrued by Contractor under Section 4 above prior to the
date of termination, computed pro rata up to and including the date of
termination, but shall not be entitled to any further compensation from such
date, provided however, that the Company may withhold any amounts under this
Agreement as a set-off against damages incurred from Contractor's breach of this
Agreement, and that any amounts payable hereunder shall be conditioned upon the
receipt by the Company of all Company materials and property from Contractor to
which Contractor has been entrusted or of which Contractor is in possession.
6. Covenant Not to Compete
6.1 Covenant. Contractor hereby agrees that during the term of this
Agreement and during the one (1) year period following the termination of this
Agreement, Contractor will not directly or indirectly compete (as defined in
Section 6.2 below) with the Company in any geographic area in which the Company
does or has done business, and will not (i) induce or attempt to induce any
employee of the Company to leave the employ of the Company or in any was
interfere with the relationship between the Company and any employee thereof,
(ii) hire directly or through another entity any person who was an employee of
the Company at any time during the six month period preceding the termination of
this Agreement, (iii) induce or attempt to induce any customer, supplier,
licensee, or other business relation of the Company to cease doing business with
the Company or in any way interfere with the relationship between any such
customer, supplier, licensee, or business relation and the Company, or (v)
authorize or assist in the taking of any of the foregoing actions by any third
party.
<PAGE> 3
6.2 Direct and Indirect Competition. As used herein, the phrase
"directly or indirectly compete" shall include owning, managing, operating or
controlling, or participating in the ownership, management, operation or control
of, or being connected with or having any interest in, as a stockholder,
director, officer, employee, contractor, agent, consultant, assistant,
instructor, advisor, sole proprietor, partner or otherwise, any business (other
than the Company's) which is the same as or competitive with any business
conducted or to be conducted by the Company; provided, however, that this
prohibition shall not apply to ownership of less than one percent (1%) of the
voting stock in companies whose stock is traded on a national securities
exchange or in the over-the-counter market.
6.3 Enforceability. If any of the provisions of this Section 6 is held
unenforceable, the remaining provisions shall nevertheless remain enforceable,
and the court making such determination shall modify, among other things, the
scope, duration, or geographic area of this Section to preserve the
enforceability hereof to the maximum extent then permitted by law. In addition,
the enforceability of this Section is also subject to the injunctive and other
equitable powers of a court as described in Section 10 below.
7. Confidential Information. Contractor acknowledges that during the term of
this Agreement, Contractor will develop, discovery, have access to, and become
acquainted with technical, financial, marketing, personnel, and other
information relating to the present or contemplated products or the conduct of
business of the Company which is of a confidential and proprietary nature
("Confidential Information"). Contractor agrees that all files, records,
documents, and the like relating to such Confidential Information, whether
prepared by him or otherwise coming into Contractor's possession, shall remain
the exclusive property of the Company, and Contractor hereby agrees to promptly
disclose such Confidential Information to the Company upon request and hereby
assigns to the Company any rights which Contractor may acquire in any
Confidential Information. Contractor further agrees not to disclose or use any
Confidential Information and to use Contractor's best efforts to prevent the
disclosure or use of any Confidential Information either during the term of this
Agreement or at any time thereafter, except as may be necessary in the ordinary
course of performing Contractor's duties under this Agreement. Upon termination
of this Agreement for any reason, Contractor 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
Contractor shall not take from the Company's premises, without its prior written
consent, any such material or equipment or any reproduction thereof.
8. No Conflicts. Contractor hereby represents that, to the best of Contractor's
knowledge, Contractor's performance of all the terms of this Agreement and work
as an independent contractor for the Company does not breach any oral or written
agreement which Contractor has made prior to the effective date of this
Agreement.
9. Equitable Remedies. Contractor acknowledges that Contractor's obligations
hereunder are special, unique, and extraordinary, and that a breach by
Contractor of certain provisions of this Agreement, including without limitation
Sections 6 and 7 above, would cause irreparable harm to the Company for which
damages at law would be an inadequate remedy. Accordingly, Contractor 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.
<PAGE> 4
10. Assignment. This Agreement is for the unique personal services of Contractor
and is not assignable or delegable in whole or in part by Contractor without the
consent of an authorized representative 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.
11. 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.
12. Independent Contractor. The Parties agree that Contractor is an independent
contractor with respect to the Company and that no employment relationship
exists between the Parties hereto. Contractor shall use Contractor's own
professional discretion in performing the services called for hereunder. As an
independent contractor, Contractor shall have no power to act for, bind, or
otherwise create or assume any obligation on behalf of the Company, for any
purpose whatsoever.
13. 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.
14. 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.
15. 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 Contractor at: ________________________
________________________
________________________
(b) To the Company at: 2255 North University Parkway, Suite 15
Provo, Utah 84604
Attention: Kenneth I. Denos
16. 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.
<PAGE> 5
IN WITNESS WHEREOF, Contractor has signed this Agreement personally and
the Company has caused this Agreement to be executed by its duly authorized
representative.
SPORTSNUTS.COM CONTRACTOR
/s/ Kenneth I. Denos /s/ Sharon Clayton
- ------------------------------ --------------------------------
Kenneth I. Denos Sharon Clayton
Executive Vice President and
General Counsel
<PAGE> 1
Exhibit 10.9
Consulting Agreement with Moore, Clayton & Co. dated July 1, 1999
CONSULTING AGREEMENT
This Agreement is entered into as of July 1, 1999 (the "Effective Date")
by and between SportsNuts.com International, Inc., a Delaware corporation, and
Moore, Clayton & Co., a Nevada limited liability company ("Consultant"),
collectively referred to hereinafter as the "Parties" and individually as a
"Party."
RECITALS
WHEREAS, the Company is an Internet sports community seeking to provide
the most comprehensive offering of sports, outdoors and fitness related products
and services and information within a "club" environment (hereafter the
"Business"); and
WHEREAS, the Company desires to engage Consultant as an independent
contractor to the Company performing consulting services as more particularly
described herein (hereafter the "Services"), and Consultant is willing and able
to provide the Services to the Company on the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the representations and mutual
covenants contained herein, the parties hereto agree as follows:
1. Consulting Services
Consultant shall perform the Services for the Company with due diligence
and skill and in a prompt and professional manner. Consultant's duties shall
include consulting and advisory services with respect to management, strategic
partnerships, capital structure of the Company, capitalization and sources of
capital, and general corporate advice. Consultant shall perform such duties
subject to the general supervision and control of the Company's Board of
Directors. Consultant agrees that during the consultancy period, it 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
Consultant's duties and responsibilities hereunder. Consultant will devote to
the Company at least one (1) week per month on a full-time basis, and such
additional time as is necessary for Consultant to effectively perform its duties
hereunder.
2. Consultancy Period
Consultant's performance of the Services for the Company shall begin the
Effective Date of this Agreement and shall continue at the discretion of either
party, and until this Agreement is terminated pursuant to Section 6 below.
<PAGE> 2
3. Compensation for Services
a. In consideration of Consultant's performance of the Services,
the Company shall pay Consultant $10,000 per month unless otherwise agreed by
the parties hereto. The Company shall pay Consultant this amount on the last day
of each calendar month, in arrears, subject to Consultant's delivery to the
Company of an invoice for services rendered during the immediately preceding
month.
b. Grant of Option. Effective as of August 24, 1999 (the "Grant
Date"), the Company hereby grants to Consultant an option ("Option") to acquire
986,250 shares of its common stock at an exercise price of $2.63 per share. The
Option shall vest as of the Grant Date with respect to 493,125 shares. With
respect to the remainder of the Option, the Option shall vest in two (2)
successive annual installments of 246,562 and 246,563 shares, respectively, with
the first installment vesting one (1) year from the Grant Date. Notwithstanding
the foregoing, if Consultant's consultancy is terminated by the Company for
Cause (as defined below), the Option shall immediately terminate with respect to
all unvested shares of Common Stock subject to the Option, all as more
particularly described in the Grant (as defined below). 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 "Plan"). As Consultant
is not a full time employee of the Company, the Option will not be qualified
under the Internal Revenue Code. The Company shall prepare and deliver to
Consultant a separate grant of the Option (the "Grant") in accordance with the
Plan in the form attached hereto as Exhibit "A." For purposes hereof, "Cause"
shall mean (i) Consultant's material breach of any of the terms, covenants,
representations, or warranties contained in this Agreement; (ii) the Consultant
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) Consultant's
being found guilty or entering a plea of guilty or nolo contendre in a criminal
court of a felony; or (iv) Consultant's willful breach of duty or habitual
neglect of duty, or refusal to comply with any reasonable or proper direction
given by or on behalf of the Board of Directors.
4. Bonus.
The parties have agreed that Consultant will receive a bonus of five
percent (5%) (the "Bonus"), upon a successful closing (i) of the net proceeds
from an underwritten public offering of the Company's securities (with net
proceeds to the Company of at least $10 Million), or (ii) of the total
transaction value of a sale, merger, or other acquisition of the Company and/or
all or substantially all of its stock or assets by an entity traded on a
national securities exchange as defined pursuant to Section 6 of the Securities
Exchange Act of 1934 (a "Transaction"). The Bonus will be paid to Consultant at
a reasonable time following the closing of a Transaction. The obligation of the
Company to pay the Bonus will terminate in the event that a Transaction has not
closed on or before the date which is two years from the date first set forth
above, or earlier, in the event that this Agreement is terminated pursuant to
<PAGE> 3
Section 6, below.
5. Reimbursement for Expenses
The Company shall promptly reimburse Consultant for all reasonable
out-of-pocket business expenses incurred in fulfilling Consultant's duties
hereunder, in accordance with the general policy of the Company in effect from
time to time, provided that Consultant 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
a. Terminable at Will. Either the Company or Consultant may
terminate this Agreement at anytime for any reason (or for no reason) by giving
written notice to the other of such termination at least thirty (30) days in
advance of the date of such termination.
b. Effect of Termination. Upon termination of this Agreement, all
obligations of the Company and all obligations of Consultant shall cease, except
that Consultant shall continue to be obligated to the Company pursuant to
Sections 12 through 14 below and the miscellaneous provisions of the Agreement
contained in Sections 16 through 23 below shall continue in effect, as
appropriate. All liability of either party for any breach of this Agreement
shall also survive termination hereof. Upon any such termination, Consultant
shall promptly return to the Company all Confidential Information (as defined in
Section 13 below). Upon such termination, Consultant shall be entitled to
compensation earned by him prior to the date of termination computed pro rata up
to and including the date of termination, but shall not be entitled to any
further compensation or reimbursement following such date.
7. Relationship of Parties
Consultant is an independent contractor and shall perform the Services
in the manner and by the means determined in Consultant's sole discretion,
subject at all times, however, to the general direction of the Company.
Consultant is not an agent or employee of the Company and shall have no
authority to bind the Company by contract or otherwise.
8. Pre-existing Obligations
Consultant represents and warrants to the Company that Consultant does
not have any pre-existing obligations, contractual or otherwise, that are
inconsistent with the provisions of this Agreement or that might prevent or
impair Consultant's ability to perform the Services hereunder.
<PAGE> 4
9. Licenses
Consultant now possesses and shall maintain at all times during the term
of this Agreement all such licenses, permits, or other governmental approvals as
may be necessary for Consultant to perform the Services hereunder.
10. Insurance
During the term of this Agreement, Consultant shall maintain adequate
insurance to protect himself from all claims under worker's compensation and
state disability laws.
11. Employment Taxes and Benefits
Consultant shall report all compensation received by Consultant pursuant
to this Agreement as self-employment income in his tax returns, and Consultant
shall indemnify the Company and hold it harmless to the extent of any obligation
imposed by law on the Company to pay any withholding taxes, social security,
unemployment or disability insurance, or similar items in connection with any
payments made to Consultant by the Company pursuant to this Agreement.
Consultant shall not be entitled to participate in any plans, arrangements or
distributions by the Company pertaining to any bonus, stock option, profit
sharing, insurance, or similar benefits for employees of the Company, except as
expressly provided for herein.
12. Indemnification
Each party shall indemnify the other party and hold him or it harmless
from and against all claims, damages, losses, liabilities, costs and expenses,
including without limitation reasonable attorneys' fees, caused by any act or
omission or willful conduct of either party under this Agreement.
13. Confidential Information
Consultant acknowledges that during Consultant's consultancy with the
Company, Consultant will develop, discover, 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 thereof, 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"). Consultant agrees that all
files, data, records, reports, documents, and the like relating to such
Confidential Information, whether prepared by him or otherwise coming into
Consultant's possession, shall remain the exclusive property of the Company (or
its affiliates as the case may be), and Consultant hereby agrees to promptly
disclose such Confidential Information to the Company upon request and hereby
<PAGE> 5
assigns to the Company any rights which Consultant may acquire in any
Confidential Information. Consultant further agrees not to disclose or use any
Confidential Information and to use Consultant's best efforts to prevent the
disclosure or use of any Confidential Information either during the term hereof
or at any time thereafter, except as may be necessary in the ordinary course of
performing Consultant's duties under this Agreement. Upon termination of
Consultant's consultancy with the Company for any reason, Consultant 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 Consultant shall not take from the Company's
premises any such material or equipment or any reproduction thereof.
14. Invention Assignment
a. Disclosure of Inventions. Consultant 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 engaged by the Company, he will
promptly disclose such Inventions to the Company or to any person designated by
the Company.
b. 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 Consultant 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. Consultant hereby
assigns to the Company any rights which Consultant has acquired or which
Consultant may acquire in such Inventions. Furthermore, Consultant 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, Consultant 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. Consultant's
obligations under this paragraph shall continue beyond the termination of his
consultancy with the Company, but the Company shall compensate Consultant at a
reasonable rate after such termination for the time which Consultant actually
spends at the Company's request in rendering such assistance. In the event the
Company is unable for any reason whatsoever to secure Consultant'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, Consultant
hereby irrevocably and severally designates and appoints the Company and its
duly authorized officers and agents as Consultant's agents and attorneys-in-fact
to act in Consultant'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
Consultant hereby declares that such documents or such acts shall have the same
legal force
<PAGE> 6
and effect as if such documents were executed by Consultant or such acts were
done by Consultant.
c. Exclusion of Prior Inventions. Consultant has identified on
Exhibit B attached hereto a complete list of all Inventions which Consultant has
conceived, learned, made or first reduced to practice, either alone or jointly
with others, prior to Consultant's consultancy with the Company and which
Consultant desires to exclude from the operation of this Agreement. If no
Inventions are listed on this Exhibit B, Consultant represents that he has made
no such Inventions at the time of signing this Agreement.
15. Authorization
The Company represents and warrants to Consultant that this Agreement
has been duly authorized by its board of directors and that this Agreement
constitutes a valid and binding obligation of the Company.
16. Equitable Remedies
Each of the parties acknowledges and agrees that the breach by the other
party of certain provisions of this Agreement would cause irreparable harm to
the non-breaching party for which money damages would be an inadequate remedy.
Accordingly, as a material inducement to the other party to enter into this
Agreement, each party hereby agrees that, upon a breach or threatened breach of
such provisions, the non-breaching party shall be entitled to seek injunctive or
other equitable relief in addition to any other remedy to which it may be
entitled, including the recovery of money damages.
17. Successors and Assigns
The rights and liabilities of the parties hereto shall bind and inure to
the benefit of their respective successors, heirs, executors, administrators,
and assigns, as the case may be; provided, however, that this Agreement is for
the personal services of Consultant and is not assignable or delegable in whole
or in part by Consultant without the prior written consent of the Company.
18. 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 is signed by the party against whom enforcement
thereof is sought.
19. 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> 7
20. Severability
The provisions of this Agreement are intended to be severable, and a
finding that any provision hereof is invalid shall not affect the validity of
the remaining provisions hereof.
21. Notices
Any notice required hereunder to be given by either party shall be in
writing and shall be delivered personally, by overnight courier, by telefax, or
sent by certified or registered mail, postage prepaid, return receipt requested,
to the other party as set forth below. Notices delivered by telefax shall be
deemed delivered on dispatch, notices sent by courier or delivered personally
shall be deemed delivered upon receipt, and notices sent by certified or
registered mail shall be deemed delivered on the date indicated on the return
receipt. Notices shall be sent to the following addresses, until changed by
notice as aforesaid:
If to the Company: Kenneth Denos
Executive Vice President
SportsNuts.com International, Inc.
The Towers at South Towne II
10421 South 400 West
Suite 550
Salt Lake City, UT 84095
Telefax: 801-816-2594
With a copy to: Ronald Poelman, Esq.
Jones, Waldo, Holbrook & McDonough
170 South Main St.
Suite 1500
Salt Lake City, UT 84101
Telefax: 801-328-0537
If to the Consultant: Anthony Moore
23852 Pacific Coast Highway,
PMB 792
Malibu, CA 90265
Telefax: (310) 317-4872
22. Dispute Resolution. Except as set forth in Section 19, above, all
disputes hereunder shall be resolved first, though mediation, and if
unsuccessful, then though binding arbitration before a single arbitrator in
accordance with the applicable rules of the American Arbitration Association
then in effect. The venue for mediation and arbitration shall be Salt Lake City,
UT. Judgment of the arbitrator may be entered in any court having jurisdiction
over the non-prevailing party.
<PAGE> 8
23. Governing Law
This Agreement shall be governed and construed in accordance with the
laws of the State of Utah, without giving effect to the conflict of laws
provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE> 9
IN WITNESS WHEREOF, Consultant has personally signed below and the
Company has caused this Agreement to be executed by its duly authorized
representative.
SportsNuts.com International, Inc. Consultant
By /s/ Kenneth Denos /s/ Anthony Moore
- ----------------------------- ------------------------------
Kenneth Denos, Executive Anthony Moore
Vice President
<PAGE> 10
EXHIBIT A
OPTION GRANT
<PAGE> 11
EXHIBIT B
PRE-EXISTING INVENTIONS
<PAGE> 1
Exhibit 10.10
SUMMARY OF MATERIAL TERMS OF AGREEMENT
BETWEEN SPORTSNUTS.COM INTERNATIONAL, INC.
AND PIERRE BOIVIN
The parties have agreed that Mr. Boivin will receive a bonus of five
percent (5%) (the "Bonus"), upon a successful closing (i) of the net proceeds
from an underwritten public offering of the Company's securities (with net
proceeds to the Company of at least $10 Million), or (ii) of the total
transaction value of a sale, merger, or other acquisition of the Company and/or
all or substantially all of its stock or assets by an entity traded on a
national securities exchange as defined pursuant to Section 6 of the Securities
Exchange Act of 1934 (a "Transaction"). The Bonus will be paid to Consultant at
a reasonable time following the closing of a Transaction. The obligation of the
Company to pay the Bonus will terminate in the event that a Transaction has not
closed on or before July 1, 2001, unless this Agreement is sooner terminated by
giving thirty (30) days notice to either party.
<PAGE> 1
Exhibit 10.12 Equipment Lease Agreement
EQUIPMENT LEASE AGREEMENT
This Equipment Lease Agreement (this "Lease") is made as of the first
day of April, 2000, by and between SportsNuts.com International, Inc., a
Delaware corporation ("Lessor"), and The Player's Network, Inc., a Delaware
corporation ("Lessee"), collectively referred to herein as the "Parties" and
individually as a "Party."
R E C I T A L S
WHEREAS, Lessor owns the equipment ("Equipment") listed on the Equipment
Schedule attached hereto as Exhibit "A" and incorporated herein by reference
("Equipment Schedule"); and
WHEREAS, Lessor desires to lease the Equipment to Lessee according to
the terms described herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Lease and Purchase Option.
1.1 Lease. Lessor hereby leases the Equipment to Lessee, and Lessee
hereby leases the Equipment from Lessor, upon and subject to all of the
provisions herein.
1.2 Purchase Option. Provided no event of default has occurred and is
continuing, Lessor hereby grants to Lessee an option to purchase the Equipment.
Such option shall be exercised by Lessee by providing written notice thereof to
Lessor. The purchase price for the Equipment shall be the fair market value of
the Equipment on the date such option is exercised (the "Option Price"). In the
event that Lessee exercises this purchase option, Lessor shall, upon receipt of
the Option Price, transfer title to the Equipment by bill of sale in its "as is"
condition and without warranty except as to title. The bill of sale shall be
substantially in the form attached hereto as Exhibit B.
2. Term. The term of the Lease shall be one (1) year from the effective date
hereof.
3. Rent; Late Charges; Option Price.
3.1 Payment. During the Term, Lessee shall pay rent for the Lease at
such place as designated by Lessor in the amount of Two Thousand Dollars
($2,000.00) per month. Rent shall be payable on the 1st day of each month. If
any rent date shall fall due on a Saturday, Sunday or holiday, the rental
payment shall be made on the next business day. Lessee shall pay rent without
demand from Lessor. The Lease shall be a "net" lease and, therefore, Lessee
shall pay all taxes (other than federal, state or local franchise or income
taxes based on or measured by the net income to Lessor), fees or other charges
of any nature now or hereafter imposed against Lessee or Lessor during the Term
arising from any of the transactions contemplated pursuant to the Lease.
3.2 Late Charges. If any rent payment is not made within fifteen (15)
days of when due, such payment shall bear interest at the rate of eighteen
percent (18%) per annum until paid in full.
4. Taxes and Maintenance. Lessee shall be responsible for all taxes incurred in
connection with the Equipment. Lessee shall be free to conduct any maintenance
or repairs on the Equipment necessary in its
1
<PAGE> 2
discretion to keep the Equipment operating properly. Lessor shall have no
obligation or responsibility with respect to the maintenance or operation of the
Equipment under this Agreement.
5. Ownership, Security, and Default.
5.1 Ownership. Nothing with respect to the Lease shall transfer or
convey to Lessee any right, title or interest in or to the Equipment, except as
Lessee has set forth herein and Lessee represents and agrees that it shall hold
the Equipment subject and subordinate to the rights of Lessor.
5.2 Security. Lessor shall be responsible for the execution, delivery,
and filing of UCC-1 financing statements under the Uniform Commercial Code,
showing Lessor as secured party, Lessee as debtor, and providing notice of the
Lease.
5.3 Default. In the event that Lessee fails to pay any sum payable
hereunder within thirty (30) days after the date such payment is due, Lessor
shall then, and at any time thereafter, have the right to (i) proceed by court
action or other actions in law or in equity to enforce this Lease and recover
from Lessee any and all damages and expenses, together with interest thereon at
the rate of eighteen percent (18%) per annum, or the highest legal rate of
interest, whichever is lower, from the date such amounts are due until paid,
(ii) without notice or demand, accelerate the balance of the monthly rental
thereafter accruing under the Lease, which, together with all rent and other
amounts then due, shall become immediately due and payable as liquidated damages
and not as a penalty, (iii) to retake immediate possession of the Equipment
without any process of law and without notice and to sell, lease or otherwise
dispose of the Equipment, with the privilege of being the purchaser thereof, at
public or private sale, for cash or on credit and without notice except as may
be required by law, and/or (ii) terminate this Lease and the Lease upon written
notice to Lessee. No remedy shall be deemed exclusive or in lieu of any other
remedy available to Lessor at law or in equity.
6. Waiver. The waiver of either Party of any default in the performance of the
other Party of any covenant contained herein shall not be construed to be a
waiver of any preceding or subsequent default of the same or any other covenants
contained herein.
7. Attorneys' Fees. In the event either Party brings or commences a legal
proceeding to enforce any of the terms of this Lease, the prevailing Party in
such action shall have the right to recover reasonable attorneys' fees and costs
from the other Party to be fixed by the court if pursuant to a legal proceeding.
8. Insurance and Indemnification.
8.1 Insurance. Lessee shall maintain throughout the Term of this Lease
at its expense: (i) adequate public liability and property damage insurance and
standard fire and extended coverage insurance to cover the full replacement cost
of the Equipment. In the event of damage or destruction to the Equipment, the
proceeds of such insurance shall be available for the repair or replacement of
the Equipment.
8.2 Indemnification. During the Term of this Lease, each Party agrees to
indemnify, hold harmless and defend the other from all claims, actions,
liabilities, damages, expenses and judgments (including but not limited to
attorneys' fees, reasonable investigative and discovery costs and all other
sums) on account of such Party's breach of this Lease and any injury to persons,
loss of life or damage to property occurring with respect to the Equipment
arising out of such Party's negligent actions or negligent failure to act.
9. Notices. All notices, requests, demands, and other communications hereunder
shall be in writing
2
<PAGE> 3
and shall be given (1) by Federal Express (or other established express delivery
service which maintains delivery records), (2) by hand delivery, or (3) by
postage prepaid certified or registered mail (return receipt requested), to the
Parties at the following addresses, or at such other address as the Parties may
designate by written notice in the manner aforesaid:
To Lessor: To Lessee:
SportsNuts.com International, Inc. The Player's Network, Inc.
10421 South 400 West, Suite 550 754 North, 1890 West
Salt Lake City, Utah 84095 Provo, Utah 84601
Attention: Kenneth I. Denos Attention: Martin Moreno
Such communications may also be given by facsimile transmission,
provided any such communication is concurrently given by one (1) of the three
(3) methods used above. Notices shall be deemed effective upon receipt, or upon
attempted delivery thereof if delivery is refused by the intended recipient or
if delivery is impossible because the intended recipient has failed to provide a
reasonable means for accomplishing delivery. The person and place to which
notices are given may be changed by a Party by giving written notice to the
other Party. Any required payments under this Lease shall be paid to Lessor at
the address set forth in this Section.
10. Severability. Each provision hereof shall be separate and independent and
breach of any such provision by Lessor shall not discharge or relieve Lessee
from the obligation to perform the same. If any provision hereof or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remaining provisions hereof, or the application of
such provisions to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the extent permitted by law.
11. Miscellaneous.
11.1 Entire Agreement. This Lease constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes any
and all other agreements relating to the subject matter hereof, either oral or
in writing, between the Parties and contains all the covenants and agreements
between the Parties with respect to the subject matter herein.
11.2 Successors and Assigns. All the rights and obligations of the
Parties under this Lease shall bind and the benefits shall inure to their heirs,
legal representatives, successors and assigns.
11.3 Counterparts. This Lease may be executed in counterparts, each of
which when executed and delivered shall be an original, but which together shall
constitute one and the same instrument.
11.4 Governing Law. This Lease shall be construed in accordance with the
laws of the State of Utah and the Parties agree that jurisdiction with respect
to any controversy regarding this Lease shall lie solely in the state or federal
courts within the State of Utah and the Parties consent to the exercise of
personal jurisdiction over the Parties and their officers by such courts.
3
<PAGE> 4
IN WITNESS WHEREOF, the Parties have executed this Lease as of the day
and year first above written.
"Lessor" "Lessee"
SPORTSNUTS.COM INTERNATIONAL, INC. THE PLAYER'S NETWORK, INC.
/s/ Kenneth Denos /s/ Martin Moreno
- --------------------------------- -----------------------------------------
Kenneth Denos Martin Moreno
Executive Vice President President
4
<PAGE> 5
EXHIBIT A
EQUIPMENT SCHEDULE TO
LEASE DATED JUNE 1, 1998
BETWEEN REP, INC. AND BHS MARKETING L.L.C.
5
<PAGE> 6
EXHIBIT B
BILL OF SALE
6
<PAGE> 1
Exhibit 10.13 Services Agreement with The Player's Network, Inc.
SPORTSNUTS.COM INTERNATIONAL, INC.
SERVICES AGREEMENT
This Services Agreement (this "Agreement") is made and entered into as
of this first day of April, 2000 by and between SportsNuts.com International,
Inc., a Delaware corporation (the "Company"), and The Player's Network, Inc., a
Delaware corporation ("TPN"). The Company and TPN are collectively referred to
hereinafter as the "Parties" or individually, a "Party."
1. SERVICES PROVIDED. The Company agrees to perform and provide TPN the
following services (collectively, "Services"): (i) maintenance of TPN's internal
computer network; and (iii) use of the Company's T-1 access line.
2. FEES. TPN shall pay to the Company One Thousand One Hundred Dollars
($1,100.00) per month in exchange for the Services. Any amounts due to the
Company for Services provided herein shall be invoiced by the Company to TPN on
a monthly basis for services rendered and expenses incurred during the current
month. Terms of payment for each invoice are net 10 days from date of invoice.
3. DEFAULT. In the event that TPN (i) fails to pay any sum payable
hereunder within ten (10) days after the date such payment is due, (ii) breaches
any other provision of this Agreement, (iii) files a voluntary petition in
bankruptcy or commences any other state or federal insolvency proceeding, makes
an assignment for the benefit of its creditors or admits in writing its
inability to pay its debts when they become due, or (iv) an involuntary petition
in bankruptcy, petition or answer seeking a reorganization, arrangement,
composition, readjustment, liquidation or other relief is filed against TPN and
not stayed or dismissed within thirty (30) days of filing, the Company shall
then, and at any time thereafter, have the right to (i) proceed by court action
or other actions in law or in equity to enforce this Agreement and recover from
TPN any and all damages and expenses, together with interest thereon at the rate
of twelve percent (12%) per annum, or the highest legal rate of interest,
whichever is lower, from the date such amounts are due until paid, (ii) without
notice or demand, accelerate the balance of the monthly Fees thereafter accruing
under this Agreement, which, together with all other amounts then due, shall
become immediately due and payable as liquidated damages and not as a penalty,
and/or (iii) terminate this Agreement upon written notice to TPN. No remedy
shall be deemed exclusive or in lieu of any other remedy available to the
Company at law or in equity.
4. LIMITATIONS. The Company specifically disclaims all implied
warranties, including the implied warranties of merchantability or fitness for a
particular purpose. In no event will the Company be liable to TPN or to a third
party for special, collateral, exemplary, indirect, incidental, or consequential
damages (including, without limitation, loss of good will, profits, revenues, or
savings, loss of use, interruption of business, or claims of customers of TPN)
whether such damages occurred prior or subsequent to, or are alleged as a result
of tortious conduct or breach of any of the provisions of this Agreement, even
if the Company had been advised of the possibility of such damages.
5. TERMINATION. Either Party may terminate this Agreement upon thirty
(30) days written notice.
6. NO JOINT VENTURE OR PARTNERSHIP. This Agreement is a contract for the
provision of services only. It does not, and shall not be construed, to create a
joint venture or partnership between the Parties. 1.
7. COSTS AND ATTORNEY'S FEES. In the event either Party commences a
legal proceeding to enforce any of the terms of this Agreement, the prevailing
Party in such action shall recover reasonable attorney's fees and costs from the
other Party, to be fixed by the court in the same action. The term "legal
<PAGE> 2
proceeding" shall include appeals from a lower court judgment as well as
proceedings in the bankruptcy court, whether or not such proceedings are
contested matters. In addition, if the Company engages the services of an
attorney to collect any delinquent payment by TPN, TPN agrees to pay the
Company's reasonable attorney's fees, whether or not a legal proceeding is
commenced.
8. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be given by express delivery service,
hand deliver, or by certified mail, postage prepaid, return receipt requested,
to the Parties at the addresses set forth below, or at such other address as the
Parties may designate by written notice:
If to the Company: If to TPN:
SportsNuts.com International, Inc. The Player's Network, Inc.
10421 South 400 West, Suite 550 754 North, 1890 West
Salt Lake City, Utah 84095 Provo, Utah 84601
Attention: Kenneth Denos Attention: Martin Moreno
Notices shall be deemed effective upon receipt or upon attempted
delivery if delivery is refused by the intended recipient or if delivery is
impossible because the intended recipient has failed to provide a reasonable
means for accomplishing delivery.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding and shall
inure to the benefit of the Parties' respective heirs, successors, assigns,
executors, or personal representatives.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
with regard to the subject matter hereto, and shall not be modified, amended, or
superseded without the express written consent of the Parties.
11. WAIVER. The waiver of either Party of any default in the performance
of the other Party of any covenant contained herein shall not be construed to be
a waiver of any preceding or subsequent default of the same or any other
covenants contained herein.
12. GOVERNING LAW. This Agreement shall be governed and construed
according to the laws of the State of Utah unless superseded by the laws of the
United States.
IN WITNESS WHEREOF, this Agreement is executed as of the day and year
first written above.
SPORTSNUTS.COM INTERNATIONAL, INC.
/s/ Kenneth Denos
-----------------------------------------
Kenneth Denos
Executive Vice President
THE PLAYER'S NETWORK, INC.
/s/ Martin Moreno
-----------------------------------------
Martin Moreno
President
2
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF SPORTSNUTS.COM INTERNATIONAL, INC.
SportsNuts.com, Inc., a Delaware corporation
Sportzz.com, Inc., a Delaware corporation
SportsNuts.com Network, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE INFORMATION IN THE 1998 FINANCIAL DATA SCHEDULE IS INCLUDED TO REFLECT THE
REVERSE MERGER BETWEEN SPORTSNUTS.COM AND THE COMPANY, WHICH OCCURRED ON APRIL
6, 1999.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 0 258,647
<SECURITIES> 0 0
<RECEIVABLES> 0 47,850
<ALLOWANCES> 0 32,327
<INVENTORY> 0 23,936
<CURRENT-ASSETS> 0 351,173
<PP&E> 0 1,468,716
<DEPRECIATION> 0 244,907
<TOTAL-ASSETS> 0 1,574,982
<CURRENT-LIABILITIES> 0 1,020,079
<BONDS> 0 0
0 0
0 0
<COMMON> 0 1,790
<OTHER-SE> 0 553,113
<TOTAL-LIABILITY-AND-EQUITY> 0 1,574,982
<SALES> 0 0
<TOTAL-REVENUES> 0 20,479
<CGS> 0 0
<TOTAL-COSTS> 0 1,812,564
<OTHER-EXPENSES> 0 3,442,337
<LOSS-PROVISION> 0 32,327
<INTEREST-EXPENSE> 0 63
<INCOME-PRETAX> 0 (5,266,812)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 (5,266,812)
<DISCONTINUED> (1,598,540) (4,658,870)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,598,540) (9,925,682)
<EPS-BASIC> (.16) (.67)
<EPS-DILUTED> (.16) (.67)
</TABLE>
