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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
E.COM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Oregon 91-1600822
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(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7737 S.W. Cirrus Drive, Beaverton, Oregon 97008
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 671-9900
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Securities to be registered pursuant to Section 12(b) of the Act:
Name of each
exchange on which each class is to be
Title of each class to be so registered registered
Not Applicable Not Applicable
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Warrants to purchase common stock
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(Title of class)
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TABLE OF CONTENTS
Page
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Item 1. Business..............................................................1
Item 2. Financial Information................................................15
Item 3. Properties...........................................................17
Item 4. Security Ownership of Certain Beneficial Owners and Management.......17
Item 5. Directors and Executive Officers.....................................17
Item 6. Executive Compensation...............................................19
Item 7. Certain Relationships and Related Transactions.......................20
Item 8. Legal Proceedings....................................................21
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters..........................................21
Item 10. Recent Sales of Unregistered Securities..............................21
Item 11. Description of Registrant's Securities to be Registered..............21
Item 12. Indemnification of Directors and Officers............................24
Item 13. Financial Statements and Supplementary Data..........................25
Item 14. Changes in and Disagreements With Accountants or Accounting
and Financial Disclosure.............................................25
Item 15. Financial Statements and Exhibits....................................25
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ITEM 1. BUSINESS
E.Com International, Inc., an Oregon corporation established in 1996,
develops, manufactures and markets integrated wireless mobile computing
products for mobile computer users. The Company's Discovery I is a fully
integrated smart handheld device that enables the user to send and receive
wireless e-mail and faxes and access and retrieve certain information from
the Internet, corporate networks and remote databases. The Company's
Discovery II is a lower cost fixed memory handheld device that permits
pen-based wireless messaging, e-mail and faxes. The Company's PDxpress is a
mobile, compact docking station that provides integrated wireless
communications capabilities and related battery management functions for
certain Hewlett Packard handheld personal computers. The Company has
completed development of these products and expects first commercial sales in
the first quarter of 1998. E.Com's products are designed to exploit the
rapid response capabilities of wireless data communications in industries
with mobile employees and time-sensitive information requirements, such as
field sales and service, public safety, health care, financial services and
delivery and courier services.
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INDUSTRY OVERVIEW
Demand for wireless communications products, primarily cellular phones
and paging and messaging devices, has exploded in recent years. At the same
time, computer hardware and software in laptop, notebook and handheld
computers have made significant advances in computer memory, speed,
functionality and miniaturization. To date, however, the successful
integration of wireless communications products with computers has been
relatively slow to occur due to the complexities involved in developing and
integrating (1) wireless networks over which data can be transmitted; (2)
wireless network "gateways" to integrate and facilitate data communications
between networks; and (3) easy to use, cost-effective wireless computing
products for the end-user. The following diagram illustrates the critical
components of a wireless data communications solution.
Diagram contains four interconnected elements: (1) wireless client;
(2) wireless network; (3) wireless gateway; and (4) internet or
intranet servers.
Most wireless networks, which have grown rapidly in recent years, were
designed and optimized for voice, rather than data communications. In
anticipation of growing demand for efficient wireless data communications,
several radio networks were developed for data transmission and deployed by
joint ventures of large computer and telecommunications firms in the United
States. Two of the largest networks, ARDIS and RAM Mobile Data, were
developed by joint ventures of International Business Machines Corporation
("IBM") and Motorola Inc., and BellSouth Corporation and RAM Broadcast
Systems, Inc., respectively. These networks, known as "packet radio
networks," operate on different frequencies from cellular phone networks and
send and receive data through highly condensed "packets" of information,
rather than through the continuous stream of transmissions necessary for
cellular phones. As a result, packet radio networks transmit significant
volumes of data in seconds (or microseconds) at a lower cost per kilobyte of
data, for small to medium file sizes, than competing networks now in
operation. Users can be in continuous contact on a packet radio network for
an entire day, but accrue charges only when actual data packets move over the
network.
Packet radio networks have extensive geographic coverage in the United
States. The ARDIS network, for example, covers the largest 425 metropolitan
areas which includes more than 90% of all businesses and 80% of the total
United States population. The packet radio networks were designed from the
outset for data transmission and incorporate reliability and security
features of critical importance to users, including: (1) rapid data delivery
to users 24 hours a day requiring no end-user action; (2) automatic roaming
capabilities among different geographical areas through unified national
networks at no additional cost; (3) fully encrypted two-way communication
providing data reliability and security; (4) information storage and
forwarding when a user logs on (messages are retained in the system until
confirmation of receipt); (5) continuous network monitoring with minimum
power consumption; and (6) extensive user capacity. Other networks are being
developed, modified or expanded to compete with the packet radio networks,
including overlays to cellular networks (known as CDPD), expansion of paging
systems to encompass two-way communications and other new networks. To date,
these alternative data communications networks offer only limited coverage,
service and availability.
In addition to the United States, packet radio networks are becoming
more established in Asia-Pacific countries where traditional telephone land
lines are often economically and geographically impractical and telephone
service may be non-existent, or spotty at best. Singapore Telecommunications
("Singtel"), the largest network in Asia, and Telstra Corporation Limited
("Telstra"), the dominant Australian network, have established packet radio
networks in their regions as an alternative to land line data communications.
Other countries without extensive land line telephone systems are also
exploring establishing packet radio networks.
With the establishment of the packet radio networks by the mid-nineties
and with cellular phones increasingly commonplace, many industry observers
have predicted rapid expansion of wireless data communications. Sales of
wireless computing products, however, have continued to lag far behind sales
of cellular phones, in large part because end-users have been frustrated by
problems resulting from the difficulties of integrating wireless tools, a
wireless network gateway and corporate network and related
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systems. Unlike cellular phones, for which the integration of technology has
been virtually transparent to users and the operation identical to
traditional wireline phones, to date, wireless data products have required
sophisticated programming to integrate computer hardware to wireless network
gateways to corporate networks. Except for users of high-price custom
systems, prospective users of wireless computing solutions have had few
assurances of operational reliability. Recently, however, several larger
computer systems integrators, such as IKON Office Solutions, Inc. ("IKON")
and others, have established reputations for integrating the hardware,
software and wireless network links for wireless data communications at
reasonable cost with performance guarantees. E.Com believes that advances in
systems integration will continue to reduce operational glitches in wireless
data communications.
Finally, most wireless computing tools have been paging devices or
laptop or handheld computers modified to become wireless. Although Norand,
Telxon and Symbol Technologies produce integrated high-performance, custom
systems, their products are generally priced at between $3,000 and $6,000 per
unit and therefore have not enjoyed wide-spread market penetration. Several
companies such as Motorola WDG, Ericsson, U.S. Robotics and Socket
Communications provide PC card products that enable wireless messaging and
paging features in laptop or handheld computers. Although operational as an
add-on or accessory, the wireless features typically have operational
deficiencies such as short battery life or software integration issues that
frustrate most mobile computer users. Laptop computers, although available at
dramatically reduced prices in the last few years, also have drawbacks with
respect to size, weight, ease of use and lack of durability. Similarly,
handheld personal computers have in recent years become increasingly
powerful; however, PC card wireless modems that provide wireless connectivity
generally occupy a critical expansion slot usually needed for extra memory or
application plug-ins. Consequently, the wireless mobile computing market has
not had available an affordable end-user product designed and engineered
specifically as a wireless computing device.
THE E.COM SOLUTION
E.Com's products are wireless communications devices that primarily rely
on the computing power and memory of corporate computer networks. This
mobile platform optimizes performance and minimizes costs by reducing memory
requirements and eliminating the need for a hard drive contained in the
devices. E.Com's products offer its customers the following advantages:
- - SEAMLESS INTEGRATED WIRELESS CONNECTIVITY. By incorporating proprietary
software, integrated hardware, application software and packet radio
modems, E.Com's products permit seamless integration with a wireless
network, resulting in wireless communication that is as easy as using a
fax machine or network-wired computer.
- - REASONABLE PRICE. E.Com's products are priced from the low-end to lower-
mid-range of wireless communications and wireless computing devices. For
example, the Company's flagship product, the Discovery I, is generally
priced at between $1,400 and $2,000 depending upon configuration,
components and customization. Monthly airtime costs are not included.
Competing wireless mobile computing devices range from $500 for radio
network adapters (not including the price of the portable computer) up to
$6,000 for high performance, customized products.
- - E-MAIL, FAX AND INTERNET ACCESS. All of E.Com's products enable the
mobile user to send and receive wireless e-mail and faxes, while the
Discovery I and PDxpress permit the mobile user to access and retrieve
certain information from the Internet, corporate networks and remote
databases.
- - LIGHTWEIGHT, COMPACT PRODUCT. The Discovery I and Discovery II weigh 28
ounces and 26 ounces, respectively. Each product measures 4.3" x 7.3" x
1.4," or slightly larger than a typical handheld personal computer, and is
about twice as thick as typical handheld computers. The Discovery I opens
to allow access to a full keyboard and backlighted screen with touch
screen capabilities for pen-based applications. The Discovery II opens to
provide only pen-based touch screen capabilities. The PDxpress is
slightly larger and weighs 26 ounces (without the HP 100/200LX Palmtop
computer).
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- - DURABLE PRODUCT DESIGN. E.Com's products are designed to withstand many
of the occasional accidents that accompany mobility, such as being dropped
on the floor.
- - HIGHER CAPACITY AND LONGER BATTERY LIFE. E.Com's proprietary power
management systems, including power save mode, enable its products to (1)
use less energy for functions; (2) extend the capacity of the batteries
for up to 30 hours without recharging; and (3) increase the life of the
battery, reducing significantly the need for costly battery replacements.
The following table summarizes key features of the Company's products:
<TABLE>
<CAPTION>
FEATURE DISCOVERY I PDXPRESS DISCOVERY II
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<S> <C> <C> <C>
Windows-based operating system X X
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Wireless network capability DataTac DataTac or Mobitex DataTac
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Data collection applications X
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Data transfer X
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E-mail and fax X X
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Corporate network access X
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Internet access X
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Paging X X
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Power management X X
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Power-save mode X X
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Battery life 30+ hours operation 30+ hours operation 30+ hours operation
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Resolution 480 x 320 LCD 480 x 320 LCD
1/2 VGA display 1/2 VGA display
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Backlighting X
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Durable design X X X
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Dimensions 4.3 x 6.7 x 1.4" 7.9 x 5.2 x 1.1" 4.3 x 6.7 x 1.4"
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Weight 28 ounces 22 ounces (without 26 ounces
HP100/200LX
Palmtop)
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Price $1,400 - $2,000 $895 $1,100 - $1,300
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</TABLE>
STRATEGY
The Company's objective is to develop and market highly functional,
reasonably priced, integrated, wireless mobile computing products. By
incorporating modular designs in its products to facilitate customizing or
upgrading its products, E.Com intends to be a low-cost producer with the
ability to respond quickly to customer demand and technological and market
developments in wireless communications. E.Com integrates its product
designs and proprietary software with components manufactured by leading
technology companies to produce high quality communication and computing
products. Key elements of E.Com's strategy are as follows:
- - OPTIMIZE COMPUTING AND COMMUNICATION PERFORMANCE E.Com has designed its
products to provide flexible mobile computing functions at a significantly
lower price than products with comparable features. E.Com's products
require less processing power than laptop computers because intensive
computing functions are performed by a remote server connected through the
wireless network; therefore, E.Com's products are lighter weight and lower
cost than laptops equipped with a wireless modem. E.Com believes that
this approach will significantly expand the market for wireless mobile
computing products. E.Com's products are designed to provide the user
with high-demand features, such as the ability to send and receive e-mail
and faxes and access and retrieve certain information from the Internet,
corporate networks and remote databases.
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- - EMPHASIZE COST-EFFECTIVE WIRELESS SOLUTIONS. E.Com's modular component
design simplifies and reduces the cost of incorporating enhancements and
upgrades to software or critical components, thereby reducing the risk of
early product obsolescence. In addition, modular design allows E.Com to
customize its products at reasonable cost for volume purchasers of its
products. This modular design reduces manufacturing costs and allows the
Company to respond quickly to changes in market conditions without the
need to completely redesign its products. E.Com uses contract
manufacturers to fabricate and assemble its products so as to avoid the
investment in facilities, equipment and personnel.
- - EXPAND MARKET BY PROVIDING INTEGRATED WIRELESS SOLUTIONS. Most wireless
mobile computing devices available today fail to provide seamless wireless
connectivity. While high performance, customized wireless computing
products provide excellent wireless connectivity, E.Com believes that such
devices have not enjoyed widespread acceptance by business customers due
to the high price (generally $3,000 per unit or higher) of highly
functional products and the poor product functionality of lower-priced
products. E.Com's products, and the Discovery I in particular, bridge
that gap to provide mobility and highly-functional connectivity at a
reasonable price. E.Com believes that lower-priced wireless computing
devices with reliable wireless connectivity will significantly expand the
market for wireless mobile computing products.
- - OFFER CUSTOMER SUPPORT SERVICE. Users of laptop or handheld computers
have faced significant challenges in integrating the software, hardware
and wireless technology necessary to achieve reliable wireless operation.
E.Com has designed its products to provide seamless wireless connectivity
by integrating the features of its products with an advanced wireless
radio modem. Further, E.Com is able to provide single-source technical
support to end-users to solve problems relating to its products' software,
hardware or radio modems.
- - TARGET MOBILE TIME-SENSITIVE APPLICATIONS. E.Com has targeted its
products at industries with mobile employees with time-sensitive
information requirements. Likely users include field sales and services,
public safety, health care, financial services and delivery and courier
services. E.Com's products, and the Discovery I in particular, are
designed for such users who may be dependent on rapidly changing mission-
critical data or who operate in rapidly changing environments. For such
users, the fast response capabilities of E.Com's wireless products are
crucial.
- - ESTABLISH STRATEGIC ALLIANCES TO CREATE DISTRIBUTION CHANNELS. The
Company has established strategic alliances to enhance its product
marketing efforts with leading participants in the wireless data
communications markets, including ARDIS, the largest packet radio network
in the United States, and Motorola WDG, the largest supplier of packet
radio modems. All of E.Com's wireless products are equipped with a
Motorola WDG radio modem. The Company is also pursuing alliances with the
largest wireless computer systems integrators as well as other
distribution arrangements with software vendors and distributors. The
Company believes these alliances and relationships will enable it to take
advantage of the superior distribution systems, financial resources and
market presences of these companies in establishing and eventually
maintaining E.Com's products in the wireless data industry.
SALES AND MARKETING
E.Com's portable products are targeted at mobile users who require fast
reliable access to data in time-sensitive environments, such as field sales
and service, public safety, health care, financial services and delivery and
courier services. Targeted likely users of the Company's products are away
from their offices at least 20% of the time and have information processing
and transmission requirements that extend beyond the capabilities of standard
cellular phones and pagers, but require less memory and processing
capabilities than standard laptop or handheld personal computers.
E.Com's sales and marketing activities are focused primarily on two
geographic regions, the United States and the Asia-Pacific countries of
Singapore, Australia, Malaysia, Hong Kong, Korea and
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Japan. As described above, these regions have (or will soon have)
operational packet radio networks and E.Com believes that many businesses and
mobile employees in these markets want affordable, reliable, easy to use
wireless products.
The Company has established strategic relationships with leading
participants in the wireless data communications markets and is pursuing
alliances with the largest systems integrators as well as other distribution
arrangements with independent software vendors and distributors. Important
distribution channels for E.Com are the packet radio network operators, such
as ARDIS and RAM Mobile Data in the United States, Singtel in Singapore,
Hanse Telecom in Korea and Telstra in Australia. The packet radio network
operators, with substantial available capacity and facing increasing
competition, are willing to promote and distribute E.Com's products in
conjunction with promoting their own networks. All of E.Com's products have
been designed to operate on DataTac networks, the worldwide Motorola
standard. Currently, only the PDxpress can also be configured for the RAM
Mobile Data network in the United States. RAM Mobile Data operates on
Mobitex, an Ericsson worldwide network standard similar to DataTAC. The
Company has plans to incorporate Mobitex radio modems into its Discovery I
and Discovery II products in the future.
E.Com is working with systems integrators such as IKON, to develop joint
promotion, distribution and representation arrangements for its Discovery I
and Discovery II products, as well as independent software vendors to develop
other distribution channels for these products. The Company has also
established relationships with authorized resellers of Hewlett Packard
handheld personal computer products to resell E.Com's PDxpress products.
To further strengthen its position in the market, E.Com has entered into
an agreement with Motorola WDG in which Motorola WDG has agreed to provide
wireless radio modems for the Company's products. Motorola WDG has also
agreed to undertake joint product and business development and marketing
activities such as distributor training and advertising. The agreement is
terminable without cause by either party on ten day's notice. If the
agreement is terminated by Motorola WDG, there can be no assurance that the
Company will be able to obtain substitute radio modems on favorable terms or
on a timely basis. E.Com also plans to establish a focused direct sales force
to market its products to distributors of communications products and mobile
computer professionals within major corporate accounts to create product
awareness, assist in product evaluations, and provide ongoing education and
support.
E.Com's marketing activities to date have been to position the Company
as a manufacturer of reasonably priced, integrated wireless mobile computing
products and to create product awareness. E.Com intends to expend
significant resources to create end user demand, establish brand name
recognition and provide reseller support. As of December 15, 1997, the
Company had two and a half persons in sales, marketing and support. The
Company intends to increase its sales and marketing activities by adding two
additional personnel and increasing promotional activities.
Consistent with industry practice, the Company expects to provide its
distributors with stock balancing and price protection rights which permit
these distributors to return slow moving products to the Company for credit
and price adjustments and for inventories of the Company's products held by
distributors if the Company lowers the price of those products. Actual
returns and price protection may have a material adverse effect on future
operating results, particularly since the Company seeks to continually
introduce new and enhanced products and is likely to face increasing price
competition. The Company expects its agreements with its distributors will
generally have terms of one to two years with automatic renewal provisions
and typically provide for the termination of the agreement by either party
upon 60 to 90 days notice.
MANUFACTURING
E.Com is establishing internal procurement, materials resource planning,
incoming test and battery conditioning, parts kitting, and final test
procedures in its facilities, while outsourcing all printed circuit board
fabrication, board assembly and final integration. E.Com has contracted with
CB-RAM Electronics
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of Beaverton, Oregon for the initial manufacture of the PDxpress and
Discovery I, and Millennium Technology Services of White City, Oregon for the
higher volume manufacturing of the Discovery I. The Company expects to enter
into written agreements with these and possibly other manufacturers, to
provide for written warranties, service, and other terms of the manufacturing
arrangement. In July 1997, Millennium Technology Services filed a voluntary
petition for Chapter 11 bankruptcy. While the Company expects Millennium
Technology Services to continue to meet its needs, it is exploring
alternative manufacturers for its Discovery I product and believes it would
require approximately two to four weeks to commence production with another
manufacturer, if necessary.
COMPETITION
The Company competes directly with established manufacturers of high-end
wireless mobile computing products, including Norand, Telxon and Symbol
Technologies, all of which have substantially greater financial, technical
and other resources than the Company Such companies have high volume
manufacturing and extensive marketing and distribution capabilities and may
succeed in establishing technology standards or strategic alliances in the
data communications or mobile computer market, obtain more rapid market
acceptance for their products, or otherwise gain a competitive advantage.
The Company competes indirectly with other established manufacturers of
wireless PC modem products, including Ericsson and U.S. Robotics.
The Company also faces competition from companies that manufacture
pagers (including Motorola WDG, Research in Motion and Socket Communications)
or offer extended paging services and paging networks. Such companies may
seek to expand the capabilities of the paging networks to match or exceed the
capabilities of the packet radio networks. The Company also faces
competition from alternative methods of downloading information into a mobile
computer, primarily over telephone lines. In addition to competition from
companies that offer wireless data communications devices, the Company could
face competition from companies that offer alternative wired or wireless
communications solutions, or from large computer and network equipment
companies.
The overall market for communications products is increasingly
competitive, and the Company expects competition in each of its market areas
to intensify. There can be no assurance that the Company will be able to
compete successfully against existing and new competitors as the market
evolves and the level of competition increases. See "Risk
Factors--Competition and Technological Advances."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
E.Com has developed power and battery management systems, software to
integrate such systems and other components to enhance its ability to develop
new hardware and software products quickly, to offer products which run on
multiple host platforms and to manufacture and package products at low cost.
The Company has also developed a software development kit for Windows 3.1 or
PenRight! applications which is used to reduce product development time and
maximize platform independence.
In June 1997 the Company was granted a design patent for its PDxpress
compact docking station. The Company's utility patent for the PDxpress is
currently under consideration. Otherwise, the Company relies on unpatented
proprietary technology and there can be no assurance that others may not
independently develop the same or similar technology or otherwise obtain
access to the Company's proprietary technology. To protect its rights in
these areas, the Company requires all employees and most consultants,
advisors and collaborators to enter into assignment of invention and
nondisclosure agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. The Company has had no experience
in enforcing its confidentiality agreements. See "Risk Factors--Limited
Protection of Proprietary Technology, Infringement on Competitors' Patents."
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GOVERNMENT REGULATION
The Company is subject to various Federal Communications Commission
("FCC") regulations. The Company has received certification that its
products comply with certain FCC regulations, and the Company's wireless
communications products operate at frequencies based upon these regulations.
Current FCC regulations permit license-free operation of certain
FCC-certified wireless products; however, there can be no assurance that
licensing will not be imposed by the FCC or if imposed, that the Company
would meet the requirements of such a licensing scheme. In addition, the
Company's products are dependent on the availability of certain wireless
communications frequencies. However, due to recent and ongoing auctions by
the FCC of frequencies for use by communications infrastructures and products
and changes in the allocation of available frequency spectrum, the future of
remote wireless communications is highly volatile. There can be no assurance
the Company will be able to adapt its products on a timely and cost-effective
basis to adapt to this changing environment.
EMPLOYEES
As of December 15, 1997, E.Com had twelve full-time employees and three
part-time consulting or contract employees. E.Com is actively seeking
additional qualified personnel where appropriate. The Company's employees
are not subject to any collective bargaining agreements and management
regards its relations with employees to be good. See "Risk
Factors--Dependence on Key Personnel."
RISK FACTORS
THE INFORMATION SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND ELSEWHERE
IN THIS FORM INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND
INFORMATION APPEARING ELSEWHERE IN THIS FORM.
UNCERTAIN MARKET ACCEPTANCE OF E.COM'S PRODUCTS. The Company is
currently focusing on developing and delivering wireless data products for
the specific needs of mobile users in a number of market segments with
time-sensitive information requirements, including field sales and service,
public safety, financial services and delivery and courier services. The
Company believes that reliance by such market segments on full performance
laptop or notebook computers to communicate limited amounts of data incurs
unnecessary costs. However, there can be no assurance the Company will be
able to convince these market segments of the relative benefits of its
wireless products, that such products will gain widespread commercial
acceptance or that adoption of such products will drive increased purchases.
In addition, due to the unique nature of such products, which combine certain
technologies and features of packet radio and mobile computing, the Company
believes it will be required to incur significant expenses for sales and
marketing, including advertising, to educate potential customers.
The mobile computer market represents only a small percentage of the
installed base of personal computers, and there can be no assurance that the
mobile computer market will continue to grow. Because all of the Company's
products are used in mobile computing applications, the Company's future
operating results would be materially adversely affected by any reduction in
the rate of growth of the mobile computer market. See "Business--Industry
Overview."
DEVELOPMENT STAGE ENTERPRISE; EXPECTATION OF LOSSES; NEGATIVE CASH
FLOWS. The Company was founded in April 1996 and, as a development stage
enterprise, has not yet generated significant revenues from product sales.
As of September 30, 1997, the Company had an accumulated deficit since
inception of $1,956,075. The Company expects to continue to incur substantial
losses and negative cash flow at least through most of 1997 and possibly
thereafter. There can be no assurance that the Company will become profitable
or cash flow positive at any time in the future. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Operating results will depend, in part, on matters over which the Company
has no control, including, without limitation, competition, technological and
other developments in the wireless communications and computing industries
and general economic conditions.
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See "Financial Information-Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EMERGING MARKET FOR WIRELESS MOBILE COMPUTING PRODUCTS. The market for
wireless mobile computing products is only beginning to emerge, and there can
be no assurance that it will develop sufficiently to enable the Company to
achieve broad commercial acceptance of its products. It is difficult to
predict the rate at which this market will grow, if at all, because this
market is relatively new. There are competing technologies and current and
future competitors are likely to introduce a variety of competing wireless
mobile computing solutions. If the wireless mobile computing market fails to
grow, or grows more slowly than anticipated, the Company's business,
operating results and financial condition will be materially adversely
affected. Although the Company intends to conform its products to meet
emerging standards in the wireless mobile computing market, there can be no
assurance that industry standards will emerge or, if they become established,
that the Company will be able to conform to these new standards in a timely
fashion.
CAPITAL REQUIREMENTS. The Company's capital requirements will depend on
many factors, including, but not limited to, the costs and expense of
commercializing its products, and the market acceptance and competitive
position of its products. There can be no assurance that the Company will be
able to obtain financing, or that if it is able to obtain financing, it will
be able to do so on satisfactory terms or on a timely basis. If additional
funds are raised through the issuance of equity, convertible debt or similar
securities, shareholders may experience additional dilution and such
securities may have rights or preferences senior to those of the Common
Stock. Moreover, if adequate funds were not available to satisfy the
Company's short-term or long-term capital requirements, the Company would be
required to limit its operations significantly. See "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT; PRODUCT
DEFECTS. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and short product life
cycles. Accordingly, the Company's success will be substantially dependent on
a number of factors, including its ability to identify emerging trends in the
wireless mobile computing field, enhance its products by adding features to
provide a more complete solution and differentiate its products from those of
its competitors, maintain a competitive price performance ratio in its
products and bring products to market quickly. Given the emerging nature of
the wireless mobile computing market, there can be no assurance that the
Company's products or technology will not be rendered obsolete by alternative
technologies. Further, short product life cycles expose the Company's
products to the risk of obsolescence and require frequent new product
introductions. If the Company is unable to develop or obtain access to
advanced wireless mobile computing technologies as they become available, or
is unable to design, develop, contract for the manufacturing of and introduce
competitive new products on a timely basis, its future operating results will
be materially adversely affected. Any significant delays in the design,
development, manufacture or shipment of new or enhanced products would also
materially adversely affect the Company's results of operations.
The markets for mobile computers and their peripherals and for wireless
mobile computing products are extremely competitive and characterized by
rapidly advancing technology, frequent changes in user preferences and
frequent product introductions. The future success of the Company will
depend in large part on its ability, and that of its strategic partners, to
keep pace with advances in software and hardware technologies for wireless
mobile computing. There can be no assurance that the Company will be able to
respond effectively to these technological changes or to new product
introductions by others.
Although the Company performs testing prior to new product
introductions, the Company's hardware and software products may contain
undetected flaws, which may not be discovered until the products have been
used by customers. From time to time, the Company may temporarily suspend or
delay shipments or divert development resources from other projects to
correct a particular product deficiency. Such efforts to identify and
correct errors and make design changes may be expensive and time consuming.
Failure to discover product deficiencies in the future could delay product
introductions or shipments, require the Company to recall previously shipped
products to make design modifications or cause
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<PAGE>
unfavorable publicity, any of which could have a material adverse effect on
the Company's operating results.
PACKET RADIO NETWORKS FAIL TO GAIN MARKET ACCEPTANCE. The Company's
products are designed to operate on the worldwide DataTAC and Mobitex packet
radio networks, and operate on the FCC-approved frequencies for messaging
technologies in the United States. New competitive wireless technologies,
such as Cellular Digital Packet Data ("CDPD") in the United States and Global
System for Mobile Communications Packet Radio Service ("GSM-GPRS") in Europe,
being developed by various market participants are not compatible with the
DataTAC or Mobitex packet radio networks and may be at different frequencies.
If these new technologies succeed, carriers may cease to support DataTAC and
Mobitex, and, while the Company expects to be able to upgrade its radio
modems as necessary, there is no assurance that the Company will be able to
develop future products based upon these new technologies. In addition, such
developments could significantly affect the Company's operations by diverting
the Company's efforts or increasing the opportunity for additional
competition.
COMPETITION AND TECHNOLOGICAL ADVANCES. The overall market for
communications products is increasingly competitive, and the Company expects
competition in each of its market areas to intensify. Wireless mobile
computing products are currently available in the market, although at prices
significantly higher than the Company's targeted prices. The Company's
products compete directly with those of established manufacturers of high-end
wireless mobile computing products, including companies such as Norand
Corporation ("Norand"), Telxon Corporation ("Telxon") and Symbol
Technologies, Inc. ("Symbol Technologies"), all of which have substantially
greater financial, technical and other resources than the Company. The
Company also competes indirectly with other established manufacturers of
wireless PC modem products, including Ericsson, Inc. ("Ericsson") and U.S.
Robotics Corporation ("U.S. Robotics"). If another wireless mobile computing
product competitive to the Company's products were introduced prior to the
Company's products and acquired significant market share, the Company's
business could be adversely affected.
The Company also faces competition from companies that manufacture
pagers (including Motorola, Inc. ("Motorola"), Research in Motion Limited
("Research in Motion") and Socket Communications, Inc. ("Socket
Communications")) or offer extended paging services and paging networks.
Such companies may seek to expand the capabilities of the paging networks to
match or exceed the capabilities of the packet radio networks. The Company
also faces competition from alternative methods of downloading information
into a mobile computer, primarily over telephone lines.
In addition to competition from companies that offer wireless data
communications devices, the Company could face competition from companies
that offer alternative wired or wireless communications solutions, or from
large computer and network equipment companies. The Company's business plan
does not, at this time, envision its products becoming available as consumer
electronics products; however, if products similar to the Company's products
were to become the focus of the consumer electronics industry, the Company
would then have to compete with companies that dominate that industry such as
Casio Inc., Compaq Computer Corporation, and NEC America Inc.
The Company's competitors and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company
and may succeed in establishing technology standards or strategic alliances
in the wireless mobile computing market, obtain more rapid market acceptance
for their products, or otherwise gain a competitive advantage. There can be
no assurance that the Company will succeed in developing products or
technologies that are more effective or better accepted in the market than
those developed by its competitors. In addition, there can be no assurance
that the Company's competitors will not succeed in developing wireless mobile
computing products that would render the Company's products and proposed
products obsolete. The Company will also be competing with companies that
have high volume manufacturing and extensive marketing and distribution
capabilities, areas in which the Company has limited or no experience.
Increased competition, direct and indirect, could materially adversely affect
the Company's revenues and profitability through pricing pressure and loss of
market share. There can be no assurance that the Company will be able to
compete successfully against
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<PAGE>
existing and new competitors as the market evolves and the level of
competition increases. See "Business--Competition."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; INFRINGEMENT ON
COMPETITORS' PATENTS. Except for a design patent granted for its compact
docking station, the Company relies on unpatented proprietary technology.
Third parties could develop the same or similar technology or otherwise
obtain access to the Company's proprietary technology. The Company has
filed, and intends to continue to file, applications as appropriate for
patents covering its products; however, there can be no assurance that
patents will issue from any of its pending applications or, if patents do
issue, that the claims allowed will be sufficiently broad to protect the
Company's technology. Furthermore, there can be no assurance that any
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to the Company. Since United States patent applications are
maintained in secrecy until patents issue, and since the publication of
inventions in technical or patent literature tend to lag behind such
inventions by several months, the Company cannot be certain that it was the
first creator of inventions covered by its pending patent applications, that
it was the first to file patent applications for such inventions or that the
Company is not infringing on the patents of others. The Company has also
trademarked some of its proprietary product names and logos and claims
copyright protection for its proprietary software.
Although the Company continues to implement protective measures and
intends to defend its proprietary rights vigorously, there can be no
assurance that these efforts will be successful. There can also be no
assurance that third parties will not assert intellectual property
infringement claims against the Company. Litigation may be necessary to
enforce the Company's patents, trademarks, copyrights or other intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. The defense and prosecution of such patent suits
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business and results of operations
regardless of the final outcome of such litigation. This is particularly
true in foreign countries where the expenses associated with such proceedings
can be prohibitive. An adverse outcome in the defense of a patent suit could
subject the Company to significant liabilities to third parties, require the
Company and others to cease selling its products, or require disputed rights
to be licensed from third parties. Such licenses may not be available on
satisfactory terms, or at all. Moreover, if claims of infringement are
asserted against future co-development partners or customers of the Company,
those partners or customers may seek indemnification from the Company for
damages or expenses they incur.
To protect its rights, the Company requires all employees and most
consultants, advisors and collaborators to enter into assignment of invention
and nondisclosure agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. To date, the Company has had no
experience in enforcing such agreements. See "Business--Intellectual
Property and Proprietary Rights."
DEPENDENCE ON FUTURE COLLABORATIONS; DEPENDENCE ON THIRD PARTIES. The
Company's strategy for the manufacture of existing and proposed products and
distribution of its products includes entering into manufacturing contracts,
supply contracts and/or distribution agreements with participants in various
segments of the wireless mobile computing markets. The Company's success
will depend not only on the Company's continued relationships with these
parties, but also on its ability to enter into additional strategic
arrangements with new partners on commercially reasonable terms. The Company
believes that, in particular, relationships with application software
developers and systems integrators are extremely important in creating
commercial uses for the Company's products necessary to achieve growth.
There can be no assurance that the Company will be able to negotiate such
alliances on acceptable terms, if at all. See "Financial
Information-Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Strategy."
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<PAGE>
The Company will rely significantly on its distributors and resellers
for the marketing and distribution of its products. The Company's agreements
with distributors and resellers, in large part, will be non-exclusive and may
be terminated on short notice by either party without cause. The Company's
distributors and resellers will not be within the control of the Company,
will not be obligated to purchase products from the Company and may represent
other lines of products. These distributors and resellers may give higher
priority to the sale of other products, which could include products of
competitors. A reduction in sales effort or discontinuance of sales of the
Company's products by its distributors and resellers could lead to reduced
sales and could materially adversely affect the Company' operating results.
The Company may be unable to recruit distributors and resellers in the
future. Moreover, the distribution industry has been characterized from time
to time by financial difficulties experienced by resellers and distributors.
Any such problems could lead to reduced sales and could materially adversely
affect the Company's operating results.
RELIANCE ON THIRD PARTY CONTRACT MANUFACTURERS AND COMPONENT SUPPLIERS.
The Company subcontracts the manufacture of substantially all of its products
to independent, third party contract manufacturers on a sole source basis,
but it expects to engage additional sources in the future. E.Com has
contracted with CB-RAM Electronics of Beaverton, Oregon for the initial
manufacture of the PDxpress and Discovery I, and Millennium Technology
Services, Inc. ("Millennium Technology Services") of White City, Oregon for
the higher volume manufacturing of the Discovery I. The Company performs the
final product testing on a sampled basis at its Beaverton, Oregon facility.
In July 1997, Millennium Technology Services filed a voluntary petition for
Chapter 11 bankruptcy. While the Company expects Millennium Technology
Services to continue to meet its needs, it is exploring alternative
manufacturers for its Discovery I product and believes it would require
approximately two to four weeks to commence production with another
manufacturer, if necessary. There can be no assurance, however, that the
Company will be able to contract with an alternative manufacturer on
favorable terms and on a timely basis.
E.Com relies on sole source components including radio modems
manufactured by Motorola Wireless Data Group ("Motorola WDG"), 386 chips
manufactured by Advanced Micro Devices, Inc. and wireline fax/modems
manufactured by Rockwell International Corporation. In addition, the Company
purchases standardized commodities electronics products from a number of
independent suppliers. Currently, the Company has a supply contract with
Motorola WDG for the purchase of radio modems used in its products. The
contract is terminable at will by either party upon ten days' notice. If
this contract is terminated by Motorola WDG, there can be no assurance that
the Company will be able to obtain substitute radio modems on favorable terms
or on a timely basis. Certain components used in the Company's products may
not be available without a long lead-time. If market demand develops for any
of the Company's products, the Company may experience some delay in
responding to such demand since production will be subject to time
constraints inherent in obtaining the necessary components. The Company has
already experienced delays in obtaining supplies of display boards and
plastics for its PDxpress and Discovery I products. There is no assurance
that the Company will not experience such problems and/or delays in future
production.
Although to date the Company has generally been able to obtain adequate
supplies of all components, certain of these components are purchased on a
purchase order basis, and the Company does not have long-term supply
contracts for many of its components. There can be no assurance that the
Company will not be affected by component shortages. Although the Company's
suppliers are generally large, well financed organizations, a supplier
experiencing financial or operational difficulties that resulted in a
reduction or interruption in supply to the Company would materially adversely
affect the Company's results of operations until the Company established
sufficient manufacturing supply through an alternative source. The Company's
inability in the future to obtain sufficient limited source components, or to
develop alternative sources, could result in delays in product introductions
or shipments, which could have a material adverse effect on the Company's
results of operations.
FUTURE PRODUCT DEVELOPMENT REQUIRED. Although the Company has developed
the PDxpress, Discovery I and Discovery II and is ready to manufacture
PDxpress and Discovery I units, the Company will need to conduct further
limited testing of the PDxpress, Discovery I and Discovery II prior to full
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<PAGE>
production. There can be no assurance that the Company will be successful in
developing its line of products or that the development will occur on a
timely basis before competing products acquire significant market share. In
addition, delays in the testing and debugging of products may delay the
introduction of, or prevent the Company from introducing, new, follow-on
products to the marketplace and adversely affect the Company's competitive
position, financial condition and results of operations. See "Business."
LACK OF MANUFACTURING EXPERIENCE. In order for the Company to be
successful as a product or component manufacturer, its products must be
manufactured to meet high quality standards in commercial quantities at
competitive prices. The Company currently has limited experience and
capability to manufacture products in commercial quantities and has
contracted with two electronics manufacturers for initial manufacture of the
PDxpress and Discovery I. The Company is establishing internal procurement,
materials resource planning, incoming test and battery conditioning, parts
kitting and final test procedures in its facilities to better manage its
capacity and reduce costs; however, it outsources all printed circuit board
fabrication, board assembly and final integration. There can be no assurance
that the Company will meet its manufacturing targets as expected or that it
will be able to obtain its objective of reducing costs while achieving high
volume development. See "Business--Strategy" and "--Manufacturing."
CONTROL BY EXISTING SHAREHOLDERS. Currently, the Company's executive
officers, directors and 5% shareholders and their affiliates beneficially own
approximately 38.6%, of the Company's outstanding shares of Common Stock.
Accordingly, these individuals will have the ability to influence the
election of the Company's directors as well as significant corporate matters
requiring approval by the shareholders of the Company. Such concentration of
ownership and the lack of cumulative voting also may have the effect of
delaying or preventing a change in control of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's development and operations
to date have been, and are expected in the immediate future to be,
substantially dependent on the services of its President and Chief Executive
Officer, William F. Stephens. The loss of Mr. Stephens' services could
materially and adversely affect the Company's business prospects. The
Company is also dependent on the continued service of certain other key
management as well as its hardware and software engineering personnel, the
loss of whose services could significantly delay the achievement of the
Company's planned development objectives. The Company has not purchased key
man life insurance on any of its personnel. Achievement of the Company's
business objectives will require substantial additional expertise in the
areas of technology, finance, manufacturing and marketing. The Company is
actively seeking additional qualified personnel. Competition for qualified
personnel is intense, and the loss of key personnel, or the inability to
attract and retain the additional highly skilled personnel required for the
expansion of the Company's activities, could have a material adverse effect
on the Company's business and results of operations. See
"Business--Employees."
REGULATION. The Company is subject to various FCC regulations. Current
FCC regulations permit license-free operation of certain FCC-certified
wireless products. There can be no assurance that licensing will not be
imposed by the FCC or if imposed, that the Company would meet its licensing
requirements. The Company's products comply with certain FCC regulations,
and the Company's wireless communications products operate at frequencies
based upon these regulations. Due to recent and ongoing auctions by the FCC
of frequencies for use by communications infrastructures and products and
changes in the allocation of available frequency spectrum the future of
remote wireless communications is highly volatile.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Bylaws
contain certain procedural requirements that could have the effect of
delaying the ability of some shareholders to bring matters before a meeting
of the shareholders or to nominate directors. In addition, certain
provisions of Oregon law could have the effect of delaying, deterring or
preventing a change in control of the Company. See "Description of
Registrant's Securities to be Registered--Provisions Affecting Acquisitions
and Business Combinations."
ABSENCE OF DIVIDENDS. The Company has not paid cash dividends since its
inception. The Company currently intends to retain all of its earnings, if
any, for use in its business and does not anticipate
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paying any cash dividends in the foreseeable future. The payment of
dividends is subject to the discretion of the Company's Board of Directors.
REDEMPTION OF WARRANTS. As described in greater detail elsewhere in the
Form, outstanding Warrants are subject to redemption at $0.25 per Warrant on
30 days written notice at any time the Common Stock closes at at least $5.00
per share as reported by the OTC Bulletin Board for each of ten consecutive
trading days immediately preceding the date of the notice of redemption. In
the event the Company exercises the right to redeem the Warrants, a holder
will be forced either to exercise the Warrants or accept the redemption
price. See "Description of Registrant's Securities to be Registered-- Unit
Warrants."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS. Purchasers of Units will be able to exercise the Warrants included
therein only if a current prospectus relating to the Common Stock underlying
such Warrants is then in effect, and only if such Common Stock is qualified
for sale or exempt from qualification under applicable state securities laws
of the states in which such holders of the Warrants reside. The value of the
Warrants may be impaired if a current prospectus covering the Common Stock
issuable upon exercise of the Warrants is not kept effective, or if such
Common Stock is not qualified or exempt from qualification in the states in
which the holders of Warrants reside.
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ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
Statement of Operations Data:
<TABLE>
<CAPTION>
Period from
April 4, 1996
Period from (date of
April 4, 1996 (date Nine months ended inception) to
of inception) to September 30, December 31,
September 30, 1997 1997 1996
-------------------- -------------------- -----------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
-------------------- -------------------- -----------------
Sales......................................... -- 1,650 1,650
-------------------- -------------------- -----------------
Loss from operations.......................... 563,688 1,370,047 1,933,735
-------------------- -------------------- -----------------
Loss before provision for income taxes........ 567,210 1,388,865 1,956,075
-------------------- -------------------- -----------------
Loss from operations per common share......... (1.50) -- (1.12)
-------------------- -------------------- -----------------
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1996 1997
------------------------ ------------------------
<S> <C> <C>
Total Assets.......................................... 136,019 927,190
------------------------ ------------------------
Working Capital (Deficit)............................. (298,871) 245,310
------------------------ ------------------------
Total Long-Term Obligations, less Current Maturities.. 11,650
------------------------ ------------------------
Total Shareholders (Deficit) Equity................... (195,825) 433,669
------------------------ ------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company commenced operations in April 1996 and then acquired key
product designs and technologies from EnBloc. Since its formation, the
Company has been in the development stage with its principal activities
consisting of assembling a qualified technical and executive management team,
continuing the development of its products, commencing pre-introduction
marketing activities and raising capital. The Company has generated no
significant revenues and has incurred substantial losses since its inception.
The Company expects to continue to incur significant losses in 1997.
The Company expects revenues to be derived primarily from the sale of
its wireless mobile computing products. The Company does not expect to have
any significant revenues until late 1997 at the earliest. The Company
expects to continue development of its products through 1997 and thereafter
to continue development of enhancements, upgrades, software and other new
products. Future revenues, profits and cash flow will depend primarily on
market acceptance of wireless communications through the packet radio
networks, acceptance of the Company's products, competition and other
factors. See "Risk Factors."
PLAN OF OPERATION
During December 1997, the Company plans to commence commercial
production and shipment of its first three products. The Company intends to
purchase certain manufacturing, tooling and test equipment to support its
move to commercial production. In addition, the Company expects to add to
its engineering, marketing and sales staff to support its shift into
commercial product sales. During 1998, the Company expects to invest in
continuing development of enhancements, upgrades and software for its current
products as well as developing additional new products.
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<PAGE>
RESULTS OF OPERATIONS AND GOING CONCERN
The Company is in the development stage and has not generated any
significant revenues. As of September 30, 1997, the Company had an
accumulated deficit since inception of $1,956,075. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses since inception have consisted
primarily of payments to engineering consultants, payments of salaries and
fringe benefits of employees and purchase of engineering parts and materials.
To date, the Company has expensed all such costs. Research and development
expenses from inception to September 30, 1997 were $989,378. The Company
expects research and development expenses to decline in the near-term, but
this decline will be offset by higher costs incurred to support higher
engineering costs as the Company begins commercial manufacturing of its
initial products. Accordingly, the Company anticipates that it will devote
substantial resources to product development and hiring additional personnel.
SALES, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, marketing, general and administrative expenses include payroll
and related costs for the Company's administrative and executive personnel,
costs related to the Company's marketing and promotional efforts, office
lease expenses and other overhead costs, including legal and accounting costs
and fees of consultants and professionals. Sales, marketing, general and
administrative expenses from inception through September 30, 1997 were
approximately $944,841. The Company expects sales, marketing, general and
administrative expenses to increase substantially in future periods as the
Company invests in marketing activities to promote its family of products and
as it increases its number of employees and level of corporate and
administrative activities.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through
private placements of common stock. As of September 30, 1997, amounts raised
in private equity transactions, net of issuance costs, totaled $1,402,875.
Through September 30, 1997, the Company had incurred an accumulated deficit
of $1,956,075, of which $779,657 represented expenses of employee
compensation. The Company had cash and cash equivalents of $372,232 at
September 30, 1997.
The Company's future expenditures and capital requirements will depend
on numerous factors, including the progress of its product development,
manufacturing, sales and marketing programs and sales growth. The Company
expects its cash requirements to increase significantly each year as it
expands its activities and operations to finance increased personnel costs,
inventory and accounts receivable.
RECENT DEVELOPMENTS
From September through December 1997, the Company raised an additional $3.8
million in an exempt private offering. The net proceeds from this offering
together with its existing cash and cash equivalent balances and anticipated
revenues will enable the Company to complete production tooling and setup for
both the PDxpress and the Discovery-TM-; hire additional staff in marketing,
manufacturing and engineering; expand marketing, sales and applications
support necessary to book initial orders for these products; initiate
development on next generation products; and provide working capital as the
Company experiences revenue growth. The Company expects that cash raised
from the recent offering together with anticipated revenues will fund the
Company for at least the next nine to twelve months. See "Risk
Factors--Capital Requirements."
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ITEM 3. PROPERTIES
E.Com currently leases approximately 6,200 square feet of combined use
office, testing and warehouse space at 7737 SW Cirrus Drive in Beaverton,
Oregon. The lease term is three years and expires in September 1999. The
Company believes that the current facilities are adequate but that it will
require additional space in the Spring of 1998 to accommodate planned growth.
The Company anticipates that additional space will be available on reasonable
terms if needed.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 1997 by (i) each
person known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock ("Principal Shareholder"); (ii) each of the
Company's directors; (iii) the Named Executive Officer; and (iv) all
executive officers and directors of the Company as a group.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME NUMBER PERCENT(2)
------------------------------------ --------- ----------
Paulson Investment Company Inc. 290,000 12.2
Barclay Armitage....................... 250,000 10.5
Steven A. Larson(3).................... 211,667 8.8
William F. Stephens(4) 103,334 4.3
James M. Sapp(5) 55,000 2.3
Lawrence C. Neitling 12,500 *
Max E. Toy(6).......................... 5,000 *
Jonathan D. Birck...................... -- --
Barry Rahimian(7)...................... 10,000 *
All executive officers and directors
as a group (seven persons)(8)........ 397,501 16.4
- -------------------
* less than one percent
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days are treated as
outstanding for determining the amount and percentage of Common Stock owned
by such individual. To the Company's knowledge, each person has sole
voting and sole investment power with respect to the shares shown,
subject to community property laws, where applicable.
(2) Rounded to the nearest 1/10th of one percent, based on 2,375,577 shares of
Common Stock outstanding and assuming no exercise of any warrants or any
outstanding options.
(3) Includes 16,667 shares issuable upon exercise of options exercisable
within 60 days after December 15, 1997.
(4) Includes 16,667 shares issuable upon exercise of options exercisable
within 60 days after December 15, 1997.
(5) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
(6) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days after December 15, 1997.
(7) Includes 10,000 shares issuable upon exercise of options exercisable
within 60 days after December 15, 1997.
(8) Includes 53,334 shares issuable upon exercise of options exercisable
within 60 days after December 15, 1997.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors and executive officers of
the Company as of the date hereof are as follows:
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NAME AGE POSITION
- ---- --- --------
William F. Stephens 49 President, Chief Executive Officer and Director
Jonathan D. Birck 49 Executive Vice President
Barry Rahimian 34 Vice President of Sales and Marketing
Steven A. Larson 48 Chairman of the Board and Vice President of
Corporate Development
Lawrence C. Neitling 49 Director
James M. Sapp 46 Director
Max E. Toy 49 Director
- -----------------------
WILLIAM F. STEPHENS, a co-founder of the Company, has served as its
President and Chief Executive Officer and as a Director since its formation
in April 1996. From October 1995 to April 1996, Mr. Stephens was the
President and Chief Executive Officer of EnBloc. Mr. Stephens was the
founder and from April 1993 to October 1995 served as the President of
Scientific Imaging Technologies, Inc., a developer of advanced electronic
imaging devices and systems. From December 1990 to April 1993, he was
President of Photonics Marketing Associates. Mr. Stephens holds a B.S. and
M.S. in electrical engineering from Texas Tech University.
JONATHAN D. BIRCK joined the Company in November 1997 as Executive Vice
President. From 1984 to 1997, Mr. Birck served as President of Virtual
Corporation, a manufacturer of diagnostic hearing test equipment. From 1981
to 1984, Mr. Birck was President of Northwest Instrument Systems, Inc., a
manufacturer of electronic test instrumentation. Mr. Birck holds a BSEE
degree from Purdue University and an MSEE degree from Stanford University.
BARRY RAHIMIAN has been Vice President of Sales and Marketing since July
1996. Prior to joining the Company, Mr. Rahimian served as Division
Marketing Manager of Electro Scientific Industries, Inc. from October 1992 to
June 1994, and Director of Worldwide Sales and Marketing for Scientific
Imaging Technologies, Inc. from June 1994 to June 1996. Mr. Rahimian holds a
B.S. in mechanical engineering from Oregon State University and an M.B.A.
from Stanford University.
STEVEN A. LARSON, a co-founder of the Company, has been Chairman of the
Board since its formation in April 1996 and Vice President of Corporate
Development since August 1997. From 1987 to the present, Mr. Larson has been
Chairman and Chief Executive Officer of Decision Point Data, Inc., a provider
of software development and data processing services.
LAWRENCE C. NEITLING joined the Company as a director in August 1997.
Since July 1997 he has been Vice President and General Manager Grass Valley
Products, a division of Tektronix, Inc., a leading producer of electronic
products for television stations and cable companies. From April 1994 to May
1997 Mr. Neitling was President and Chief Operating Officer of Merix
Corporation, a developer and manufacturer of high performance printed circuit
boards. Mr. Neitling is a graduate of Portland State University and serves
as a member of its Engineering Advisory Board.
JAMES M. SAPP has served as a director of the Company since September
1996. Mr. Sapp is the founder and has served as Chairman of Planned
Marketing Solutions of California, Inc. since April 1979. He is also the
founder and has served as Chairman of Championship Sport Games Inc. since
June 1987, and was the founder and Chairman of Slamma Jamma Inc. from
February 1992 to January 1997. Mr. Sapp has also been a business agent for
Clyde Drexler of the NBA Houston Rockets since 1993.
-18-
<PAGE>
MAX E. TOY joined the Company as a director in November 1996. Since
1991, Mr. Toy has been the President and Chief Executive Officer of Paladin
Associates, Inc., a high-technology service business providing sales and
marketing services.
The Company's Board of Directors consists of five directors. Directors
of the Company hold office until the next annual meeting of shareholders or
until their successors have been elected and duly qualified. The Company's
1997 Incentive Compensation Plan provides for the grant of options to
directors under certain circumstances. See "Management--Benefit Plan." In
accordance with the Company's Bylaws, directors may be paid for their
expenses of attendance at each meeting of the Board of Directors and may be
paid a fee for such attendance or a stated salary as director. Currently,
non-employee directors receive 5,000 options per year for their services and
for their participation at Board meetings. In addition, Mr. Larson, Chairman
of the Board, serves as Vice President of Corporate Development and receives
compensation from the Company for his services. All directors are reimbursed
for reasonable travel and other out-of-pocket expenses incurred in attending
meetings of the Board of Directors.
Executive officers are elected by the Board of Directors of the Company
at the first meeting after each annual meeting of shareholders and hold
office until their successors are elected and duly qualified.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth compensation earned during the fiscal
year ended December 31, 1996 by the Company's President and Chief Executive
Officer. No executive officer received total salary and bonus during such
year in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Principal Securities Underlying
position Year Salary Bonus Options (#)
- ----------------------------------------------------------------------------------------------------------
William F. Stephens
President and CEO 1996 $84,000 - 50,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS
The following table sets forth information concerning option grants held
by the Company's officers as of December 15, 1997. The Company has not
issued any stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENTAGE OF
SECURITIES TOTAL OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES AS OF PRICE EXPIRATION
NAME OPTIONS GRANTED DECEMBER 15, 1997 PER SHARE DATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William F. Stephens 50,000 7.5% $ 3.00 July 26, 2006
- -------------------------------------------------------------------------------------------------------------------------------
100,000 14.9% 3.50 August 22, 2007
- -------------------------------------------------------------------------------------------------------------------------------
Steven A. Larson 50,000 7.5% 3.00 July 27, 2006
- -------------------------------------------------------------------------------------------------------------------------------
100,000 14.9% 3.50 August 22, 2007
- -------------------------------------------------------------------------------------------------------------------------------
Jonathan D. Birck 100,000 14.9% 3.50 November 25, 2007
- -------------------------------------------------------------------------------------------------------------------------------
Barry Rahimian 30,000 4.5% 3.00 January 1, 2007
- -------------------------------------------------------------------------------------------------------------------------------
45,000 6.7% 3.50 August 22, 2007
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table sets forth information concerning the value of
unexercised options as of December 15, 1997 held by the Company's officers.
No options were exercised by the Company's officers as of December 15, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT DECEMBER 15, 1997 IN-THE-MONEY OPTIONS
AT DECEMBER 15, 1997 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William F. Stephens 16,667 133,333 $ 8,334 $ 16,667
- ---------------------------------------------------------------------------------------------------------------
Steven A. Larson 16,667 133,333 8,334 16,667
- ---------------------------------------------------------------------------------------------------------------
Jonathan D. Birck -- 100,000 -- --
- ---------------------------------------------------------------------------------------------------------------
Barry Rahimian 10,000 65,000 5,000 10,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Based upon the difference between the fair market value of the
securities underlying the option at December 15, 1997 ($3.50 per share as
determined by the Board of Directors) and the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with William F.
Stephens, the Company's President and Chief Executive Officer, effective May
1, 1996, whereby Mr. Stephens receives a monthly base salary and certain
benefits. Mr. Stephens' employment may be terminated by the Company at any
time, for any reason upon 30 days advance written notice. If the Company
terminates Mr. Stephens' employment without cause, Mr. Stephens will receive
severance payments for six months, and if his employment is terminated as a
result of his death or disability, he will receive any severance or
disability payments to which he may be entitled under the Company's standard
benefit plans then in effect. In July 1996, the Company's Board of Directors
resolved that Mr. Stephens' base salary of $7,000 would increase to $9,000
commencing February 1, 1997. In addition, pursuant to an addendum to the
employment agreement dated December 2, 1996, Mr. Stephens is eligible for a
1997 annual cash performance bonus of $25,000 plus an additional bonus equal
to 2% of that portion of net revenue which exceeds the Company's expected
goal for 1997. On August 22, 1997, the Board of Directors authorized a grant
to Mr. Stephens of 100,000 incentive stock options that will vest over three
years.
On November 26, 1997, the Company entered into an employment agreement
with Jonathan D. Birck, Executive Vice President, whereby Mr. Birck receives
a monthly base salary of $7,500 and certain benefits. Mr. Birck's employment
may be terminated by the Company at any time, for any reason upon 30 days
advance written notice. If the Company terminates Mr. Birck's employment
without cause, Mr. Birck will receive severance payments for three months,
and if his employment is terminated as a result of his death or disability,
he will receive any severance or disability payments to which he may be
entitled under the Company's standard benefit plans then in effect. In
connection with his employment, Mr. Brick was granted 100,000 stock options
that will vest over three and half years. Mr. Birck is also eligible for a
$10,000 bonus during his first year of employment based on attaining certain
objectives.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into several demand notes with a principal balance of
$195,000 as of December 15, 1997 with A&B Partnership and W.B. Armitage
Trust, both affiliated with Barclay Armitage, a principal shareholder, in
exchange for cash advances to provide working capital for the Company. All
notes are term notes payable on the earlier of (i) 180 days after the Escrow
Closing or (ii) February 22, 1999; and interest is payable monthly at an
annual rate of 10%.
-20-
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
Not applicable.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since inception (April 1996), the Company has sold and issued the
following unregistered securities:
1. In early April 1996, the Company sold 1,668,028 shares of Common
Stock to 24 investors at prices ranging from $0.01 to $0.21 per share for
aggregate cash consideration of $116,680.
2. Between May and August 1996, the Company sold 220,340 shares of
Common Stock to eight investors at a price of $1.50 per share for
aggregate cash consideration of $330,501.
3. In December 1996, the Company sold 30,000 shares of Common Stock to
two investors at a price of $2.00 per share for aggregate cash
compensation of $60,000.
4. From January 1997 to July 1997, the Company sold 674,500 Units in an
exempt private placement to accredited investors only. The Selling Agent
for this private placement was Blackwell Donaldson & Co. Each Unit
consisted of one share of Common Stock and one warrant to purchase one
share of Common Stock at a price of $2.00 per Unit for aggregate cash
consideration of $1,349,000. The exercise price for each such warrant is
$3.50.
5. From September 1997 to December 1997, the Company sold 1,077.1 Units
in an exempt private placement to accredited investors only. The Selling
Agent for this private placement was Paulson Investment Company, Inc. Each
Unit consisted of one thousand shares of Common Stock and one thousand
warrants each to purchase one share of Common Stock ("Warrant") at a price
of $3,500 per Unit. The minimum subscription amount was $10,500 or 3 Units
per investor. Aggregate cash consideration of $3,770,000 was received.
The exercise price for each such warrant is $3.50.
6. From time to time, the Company has issued a total of 65,000
non-qualified options to officers and directors. Each option allows the
holder to purchase one share of the Company's Common Stock at exercise
prices ranging from $3.00 to $3.50.
With respect to sales made, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). The Company
employed no advertising or general solicitation in offering the securities.
The securities were offered to a limited number of persons and the transfer
thereof was appropriately restricted by the Company. All shareholders were
accredited investors as that term is defined in Rule 501 of Regulation D
under the Securities Act, and were capable of analyzing the merits and risks
of their investment and acknowledged in writing that they were acquiring the
securities for investment purposes only, and not with a view toward
distribution or resale. Each investor represented in writing that he/she
understood the speculative nature of his/her investment.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
UNIT WARRANTS. As of December 15, 1997, the Company had issued warrants
to acquire up to 1,571,093 shares of Common Stock at an exercise price of
$3.50, subject to the warrant. Each Warrant entitles the holder thereof to
purchase from the Company, subject to the terms and conditions set forth in
-21-
<PAGE>
the Warrant Agreement, dated as of September 1997 ("Warrant Agreement"),
between the Company and TranSecurities International, Inc., warrant agent of
the Company ("Warrant Agent"),one fully paid and non-assessable share of
Common Stock upon presentation and surrender of a Warrant Certificate with
the instructions for the registration and delivery of Common Stock filled in,
at any time prior to 5:20 P.M., Pacific time, on December 31, 2002 or, if
such Warrant is redeemed as provided in the Warrant Agreement, at any time
prior to the effective time of such redemption, at the stock transfer office
in Spokane, Washington, of the Warrant Agent or of its successor warrant
agent or, if there be no successor warrant agent, at the corporate offices of
the Company, and upon payment of the Exercise Price (as defined in the
Warrant Agreement) and any applicable taxes paid either in cash, or by
certified or official bank check, payable in lawful money of the United
States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $3.50, subject
to reduction by $0.01 per day for each day after the 90th day following the
last day on which Warrants are sold by the Company on which a registration
relating in part to the Warrants and the Common Stock obtainable on exercise
thereof is not effective under the Securities Act of 1933, as amended. The
number and kind of securities or other property for which the Warrants are
exercisable (and the rate of reduction, if any, in the Exercise Price) are
subject to further adjustment in certain events, such as mergers, splits,
stock dividends, recapitalizations and the like, to prevent dilution. The
Company may redeem any or all outstanding and unexercised Warrants at any
time if the Daily Price has exceeded $5.00 for twenty consecutive trading
days immediately preceding the date of notice of such redemption, upon 30
days notice, at a price equal to $0.25 per Warrant. For the purpose of the
foregoing sentence, the term "Daily Price" shall mean, for any relevant day,
the closing bid price on that day as reported by the principal exchange or
quotation system on which prices for the Common Stock are reported, provided,
however, that, if the principal quotation system publishes a range of bid
prices, the highest closing bid price shall be used. All Warrants not
exercised or redeemed prior to December 31, 2002 will automatically expire.
The Warrants are issued subject to all of the terms, provisions and
conditions of the Warrant Agreement. Reference is made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Warrant Agent, the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company at 7737 Cirrus
Drive, Beaverton, Oregon 97008, Attention: Chief Financial Officer.
The Company shall not be required upon the exercise of the Warrants
evidenced by a Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but may make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in
the Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use its
best efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Act, and
to take such action under the laws of various states as may be required to
cause the sale of securities upon exercise to be lawful. However, the
Company will not be required to honor the exercise of Warrants if, in the
opinion of the Board of Directors, upon advice of counsel, the sale of
securities upon such exercise would be unlawful. In certain cases, the
Company may, but is not required to, purchase Warrants submitted for exercise
for a cash price equal to the difference between the market price of the
securities obtainable upon such exercise and the exercise price of such
Warrants.
A Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the
absence of any successor warrant agent, at the corporate offices of the
Company, may be exchanged for another Warrant Certificate or Certificates
evidencing in the aggregate the same number of Warrants as the Warrant
Certificate or Certificates so surrendered. If the Warrants evidenced by a
Warrant Certificate shall be exercised in part, the holder hereof shall be
entitled to receive upon surrender hereof another Warrant Certificate or
Certificates evidencing the number of Warrants not so exercised.
-22-
<PAGE>
No holder of Warrants, as such, shall be entitled to vote, receive
dividends or be deemed the holder of Common Stock or any other securities of
the Company which may at any time be issuable on the exercise of Warrants for
any purpose whatever, nor shall anything contained in the Warrant Agreement
be construed to confer upon the holder of a Warrant Certificate, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof or give or withhold consent to any corporate action (whether
upon any matter submitted to stockholders at any meeting thereof, or give or
withhold consent to any merger, recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or
otherwise until the Warrants shall have been exercised and the Common Stock
purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If a Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or
other class of stock purchasable upon the exercise of the Warrants are closed
for any purpose, the Company shall not be required to make delivery of
certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of Warrants by accepting the same consents and agrees with
the Company, the Warrant Agent, and with every other holder of Warrants that:
(a) Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name a Warrant Certificate is registered as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice
to the contrary.
The Company shall not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Warrants
until any tax which may be payable in respect thereof by the holder thereof
pursuant to the Warrant Agreement shall have been paid, such tax being
payable by such holder at the time of surrender.
REPRESENTATIVES' WARRANT. In connection with an exempt private
offering, the Company issued a warrant to the Representatives thereof (the
Representatives' Warrant) and reserved up to 213,400 shares of Common Stock
for issuance upon exercise of the Representatives' Warrant (including the
Warrants issuable upon exercise of the Representatives' Warrant). The
Representatives' Warrant entitles the holder to acquire 106.7 Units equal to
10% of the number of Units sold in the exempt private offering (including
Units purchased by the Representatives) at an exercise price of $3,500 per
Unit. The Representatives' Warrant is exercisable at any time until December
5, 2002.
OTHER WARRANTS. As of December 15, 1997, the Company has issued
warrants to acquire up to 352,250 shares of Common Stock at an exercise price
of $3.50 subject to the warrant. The warrants expire in January 1999, unless
earlier redeemed. The Company may redeem the warrants, at $0.50 per warrant,
upon at least 30 days prior written notice by the Company to the holders, if
(1) the Company files a registration statement with the Commission for an
initial public offering of the Company's Common Stock; (2) an initial public
offering of the Company's Common Stock closes on or before the expiration of
the warrants at a price of at least $4.00 per share; or (3) the Company
achieves revenues of at least $4 million. The Company has also issued
warrants to acquire up to 35,000 shares of Common Stock at an exercise price
of $2.00 per share which will expire on the fifth anniversary after the date
of the Company's initial public offering. Such warrants contain no call
option.
-23-
<PAGE>
STOCK OPTIONS
The Company has reserved 1,000,000 shares for issuance upon the exercise
of options granted under the 1997 Incentive Compensation Plan. As of
December 15, 1997, the Company had stock options outstanding to purchase up
to 670,000 shares of Common Stock at exercise prices ranging from $3.00 to
$4.00 per share. These options were granted under the 1997 Incentive
Compensation Plan. As of December 15, 1997, 76,667 options were exercisable.
Outstanding options will vest, if at all, beginning May 1, 1997 through May
25, 2001 and will expire during the period between May 1, 2006 and November
25, 2007.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13.1 of the Company's Bylaws (the "Bylaws"), requires
indemnification of directors or officers of the Company to the fullest extent
not prohibited by the Oregon Business Corporation Act (the "Act"). The effects
of the Bylaws and the Act (the "Indemnification Provisions") are summarized as
follows:
(a) The Indemnification Provisions grant a right of indemnification
in respect of any action, suit or proceeding (other than an action by or
in the right of the Company) against expenses (including attorney fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred, if the person concerned acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests
of the Company, was not adjudged liable on the basis of receipt of an
improper personal benefit and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
The termination of an action, suit or proceeding by judgment, order,
settlement, conviction or plea of nolo contendere does not, of itself,
create a presumption that the person did not meet the required standards
of conduct.
(b) The Indemnification Provisions grant a right of indemnification
in respect of any action or suit by or in the right of the Company against
the expenses (including attorney fees) actually and reasonably incurred if
the person concerned acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, except that no right of indemnification will be granted if the
person is adjudged to be liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification
as a matter of right.
(d) Because the limits of permissible indemnification under Oregon
law are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
(e) The Company may advance to a director or officer the expenses
incurred in defending any action, suit or proceeding in advance of its
final disposition if the director or officer affirms in writing in good
faith that he or she has met the standard of conduct to be entitled to
indemnification as described in (a) or (b) above and furnishes the company
a written undertaking to repay any amount advanced if it is determined
that the person did not meet the required standard of conduct.
The Company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive
of any other rights of indemnification to which the persons indemnified may
be entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company
-24-
<PAGE>
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. The Company believes that its
Articles of Incorporation and Bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and
officers.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning the financial statements filed as part of
this Registration Statement, see "Item 15. Financial Statements and Exhibits."
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 27, 1997, the Company engaged the accounting firm of KPMG Peat
Marwick LLP ("KPMG") as principal accountants for the year ending December
31, 1997. KPMG replaced BDO Seidman LLP ("BDO") as of the date reported
above. The change in the Company's independent accountants was the result of
the Company's decision to terminate their relationship with BDO. The Company
solicited a formal proposal from KPMG due to KPMG's excellent reputation and
expertise in high-technology start-up companies.. The Company's Board of
Directors approved the engagement of KPMG on June 27, 1997.
During the most recent fiscal year, there have been no disagreements
with BDO on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
BDO's report on the financial statements for the period ended November
30, 1996 contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report..............................F-2
Balance Sheets............................................F-3
Statements of Operations..................................F-4
Statements of Shareholders' (Deficit) Equity..............F-5
Statements of Cash Flows..................................F-6
Notes to Financial Statements.............................F-7
-25-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Warrant Number One for Purchase of Common
Stock
4.2 Form of Warrant Number Two for Purchase of Common
Stock
4.3 Warrant Agreement including Form of Warrant
4.4 Form of Warrant for Purchase of Units
10.1 Employment Agreement between the Company and
William F. Stephens
10.2 Employment Agreement between the Company and
Jonathan D. Birck
10.3 Contract between Company and Motorola Wireless Data
Group
10.4 Agreement between Company and L.G. Zangani, Inc.
10.5 1997 Incentive Compensation Plan
10.6 Lease with Gateway Columbia Properties
27.1 Financial Data Schedule
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
E.COM INTERNATIONAL, INC.
Date: December 24, 1997 By /s/ William F. Stephens
------------------------------------------
Name: William F. Stephens
Title: President and Chief Executive
Officer
-27-
<PAGE>
FINANCIAL STATEMENTS
KPMG PEAT MARWICK
MARLENE ERICKSON
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
E.Com International, Inc.:
We have audited the accompanying balance sheet of E.Com International, Inc. (a
company in the development stage) as of December 31, 1996, and the related
statements of operations, shareholders' deficit, and cash flows for the period
from April 4, 1996 (date of inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E.Com International, Inc. (a
company in the development stage) as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Portland, Oregon
July 18, 1997, except as to note 10
which is as of August 15, 1997
F-2
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1997
- ------------ --------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,190 372,232
Inventories 8,916 307,104
Prepaid expenses and other assets 7,907 47,845
---------- ----------
Total current assets 33,013 727,181
---------- ----------
Property and equipment, net 87,739 138,017
Intangible assets, net 9,767 21,242
Prepaid software royalties - 40,750
Other assets 5,500 -
---------- ----------
$ 136,019 927,190
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable 59,026 119,073
Accrued liabilities 45,818 165,725
Notes payable to shareholder 195,000 195,000
Contract payable 32,000 -
Current portion of capital lease obligations - 2,073
---------- ----------
Total current liabilities 331,844 481,871
---------- ----------
Capital lease obligations, less current portion - 11,650
Commitments
Shareholders (deficit) equity:
Common stock, no par value, authorized 10,000,000
shares; 951,684 and 1,588,434 (unaudited) issued
and outstanding at December 31, 1996 and
September 30, 1997, respectively 377,181 1,752,073
Warrants outstanding - 637,671
Subscriptions receivable from sale of stock (5,796) -
Deficit accumulated during the development stage (567,210) (1,956,075)
---------- ----------
Total shareholders (deficit) equity (195,825) 433,669
---------- ----------
$ 136,019 927,190
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 4, APRIL 4,
1996 (DATE OF NINE MONTHS 1996 (DATE OF
INCEPTION) TO ENDED INCEPTION) TO
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales $ - 1,650 1,650
---------- ---------- ----------
Cost of sales - 1,166 1,166
---------- ---------- ----------
Gross profit - 484 484
---------- ---------- ----------
Operating expenses:
Research and development 230,525 758,853 989,378
Sales and marketing 89,649 166,707 256,356
General and administrative 243,514 444,971 688,485
---------- ---------- ----------
563,688 1,370,531 1,934,219
---------- ---------- ----------
Loss from operations (563,688) (1,370,047) (1,933,735)
Other income (expense):
Interest income - 4,976 4,976
Interest expense (3,522) (23,794) (27,316)
---------- ---------- ----------
Loss before provision for
income taxes (567,210) (1,388,865) (1,956,075)
Provision for income taxes - - -
---------- ---------- ----------
Net loss $ (567,210) (1,388,865) (1,956,075)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
Notes Deficit
Common stock Receivable accumulated Total
---------------------- Warrants sale of development Shareholders'
Shares Amount outstanding stock stage (deficit) equity
-------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
April 4, 1996 (date of inception) - $ - - - - -
Issuance of common shares 951,684 377,181 - (5,796) - 371,385
Net loss - - - - (567,210) (567,210)
--------- ----------- ----------- ---------- ------------ -----------
Balance at December 31, 1996 951,684 377,181 - (5,796) (567,210) (195,825)
Issuance of common shares and
warrants, net (unaudited) 636,750 1,374,892 637,671 - - 2,012,563
Payments received on receivable
(unaudited) - - - 5,796 - 5,796
Net loss (unaudited) - - - - (1,388,865) (1,388,865)
--------- ----------- ----------- ---------- ------------ -----------
Balance at September 30, 1997
(unaudited) 1,588,434 $ 1,752,073 637,671 - (1,956,075) 433,669
--------- ----------- ----------- ---------- ------------ -----------
--------- ----------- ----------- ---------- ------------ -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
April 4, April 4,
1996 (date of Nine months 1996 (date of
inception) to ended inception) to
December 31, September 30, September 30,
1996 1997 1997
---- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (567,210) (1,388,865) (1,956,075)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 11,335 78,589 89,924
Write off of acquired products in development 39,098 - 39,098
Changes in operating assets and liabilities:
Inventories (6,990) (298,188) (305,178)
Prepaid expenses and other assets (25,964) (92,430) (118,394)
Accounts payable and accrued liabilities 104,844 179,954 284,798
------------ ------------ ------------
Net cash used in operating activities (444,887) (1,520,940) (1,965,827)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (73,765) (108,592) (182,357)
Acquisition of EnBloc assets (31,543) - (31,543)
------------ ------------ ------------
Net cash used in investing activities (105,308) (108,592) (213,900)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock and warrants, net 371,385 1,912,563 2,283,948
Proceeds from issuance of notes payable to shareholders 195,000 225,000 420,000
Repayment of notes payable to shareholders - (125,000) (125,000)
Principal payments under capital lease obligation - (785) (785)
Repayment of contract payable - (32,000) (32,000)
Payments received on subscriptions receivable from sale of stock - 5,796 5,796
------------ ------------ ------------
Net cash provided by financing activities 566,385 1,985,574 2,551,959
------------ ------------ ------------
Net change in cash and cash equivalents 16,190 356,042 372,232
Cash and cash equivalents at beginning of period - 16,190 -
------------ ------------ ------------
Cash and cash equivalents at end of period $ 16,190 372,232 372,232
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,148 23,794 25,942
------------ ------------ ------------
------------ ------------ ------------
Supplemental schedule of noncash investing and financing activities:
Effective May 1, 1996, the Company purchased certain
assets of EnBloc for $63,543. In conjunction with the
acquisition, a contract payable was incurred as follows:
Fair value of assets acquired $ 63,543 - 63,543
Cash consideration 31,543 - 31,543
------------ ------------ ------------
Contract payable incurred $ 32,000 - 32,000
------------ ------------ ------------
------------ ------------ ------------
Sale of common stock for subscriptions receivable $ 5,796 - 5,796
Capital lease obligation incurred for purchase of equipment - 14,508 14,508
Warrants issued for partial compensation to selling agent - 53,241 53,241
Note payable to shareholder converted to common stock - 100,000 100,000
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Business
The financial statements include the accounts of E.Com International, Inc.
(E.Com or the Company). The Company was incorporated on April 4, 1996 as E.B.I
Acquisition, Inc. and changed its name as of January 10, 1997. It is a
development stage company which plans to develop, manufacture and market
integrated wireless mobile computing products for the mobile computer market.
Since inception the Company has primarily been engaged in product development,
market development and organizational development activities.
On May 1, 1996, the Company acquired key product designs and technologies from
EnBloc, Inc. (EnBloc). The acquisition was accounted for using the purchase
method, and the estimated fair values of the assets purchased and liabilities
assumed were recorded in the financial statements on the date of acquisition.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments having an original maturity
of three months or less to be cash equivalents.
(c) Inventory
Inventory, consisting principally of raw materials, parts and supplies, are
valued at the lower of cost (first in, first out method) or market.
(d) Property and Equipment
Property and equipment is stated at cost. Equipment under capital lease is
stated at the present value of minimum lease payments.
Depreciation is provided using the straight
line method over the following estimated useful lives:
Years
Furniture and fixtures 5 to 7
Computers and equipment 3 to 7
Leasehold improvements 5
(Continued)
F-7
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
Depreciation for tooling is provided using the straight-line method over the
estimated useful life of the asset or the product life, whichever is shorter;
generally one year.
Equipment under capital lease is amortized straight-line over five years which
is the shorter of the estimated useful life of the asset or the lease term.
(e) Intangible Assets
Intangible assets include the E.Com trademark and logo, and patents acquired in
the purchase of EnBloc. These intangible assets are being amortized using the
straight-line method over the three year estimated useful life of the assets.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(g) Interim Financial Statements
The accompanying unaudited financial statements for the nine months ended
September 30, 1997 have been prepared on substantially the same basis as the
audited financial statements, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information set forth therein.
(h) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts of 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) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents. Cash and cash equivalents
consist of deposits and money market funds placed with various high credit
quality financial institutions.
(Continued)
F-8
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(2) Development Stage Business and Going Concern
E.Com has been in development stage since its inception on April 4, 1996. The
Company has no significant operating revenues, has accumulated a deficit during
the development stage of $567,210, and has negative working capital of $298,831
at December 31, 1996. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management of the Company has
initiated the following actions to address these conditions.
The Company is in the process of developing and introducing a series of
integrated wireless mobile communications and computing products for the mobile
computer market. Since acquiring product designs and technologies from EnBloc
in 1996 (see note 3 - Business Acquisition), the Company has focused on
assembling a qualified technical and executive management team, developing key
modular product designs, improving battery management technology, refining
manufacturing technology for mobile computing docking stations and fully
integrated wireless handheld personal computers and raising capital. The
Company completed a private offering of common stock and warrants during early
1997, expects to complete an additional private offering of common stock and
warrants during the third quarter of 1997 and expects to generate product sales
revenue during the second half of 1997. See notes 10(b) and 11.
The Company's initial products include the PDxpress, a lightweight compact
docking station, and the Discovery I and Discovery II, integrated palmtop mobile
computing products. These products will allow the user wireless access to files
and databases via the Internet as well as corporate intranets, and to send and
receive wireless e-mail and faxes, as well as order entry, status checks and
remote data base queries. The Company's products are designed for the growing
markets of field sales and services organizations, financial services
representatives, health services providers, and the transportation industry.
(Continued)
F-9
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(3) Business Acquisition
The Company acquired key product designs and technologies from EnBloc, effective
May 1, 1996 for a promise to pay $32,000 in cash and the assumption of certain
vendor liabilities. At December 31, 1996, the Company had paid or settled
substantially all of the vendor liabilities assumed from EnBloc for $31,543, and
had recorded a payable of $32,000 to EnBloc. The $63,543 total purchase price
was allocated to assets acquired based upon preliminary estimates of fair values
as follows:
Products in development $ 39,098
Furniture and fixtures 20,169
Computers and equipment 2,350
Inventory 1,926
-----------
Total $ 63,543
-----------
-----------
The acquired products in development were considered not to have attained
technological feasibility and were expensed subsequent to the acquisition.
(4) Property and Equipment
December 31, September 30,
1996 1997
(Unaudited)
------------ -------------
Leasehold improvements $ 9,928 9,928
Furniture and fixtures 47,870 49,932
Computers and equipment 38,486 44,919
Tooling - 100,097
Equipment under capital lease - 14,508
---------- ---------
96,284 219,384
Less accumulated depreciation and amortization (8,545) (81,367)
---------- ---------
$ 87,739 138,017
---------- ---------
---------- ---------
(Continued)
F-10
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(5) Intangible Assets
December 31, September 30,
1996 1997
------------ -----------
(Unaudited)
Trademark and logo $ 12,242 21,193
Patents and other 315 8,606
---------- -----------
12,557 29,799
Accumulated amortization (2,790) (8,557)
---------- -----------
Intangible assets, net $ 9,767 21,242
---------- -----------
---------- -----------
(6) Related Party Transactions
Notes payable to shareholder consists of several unsecured demand notes issued
to one of the Company's principal shareholders in exchange for cash advances to
provide working capital for the Company. The notes are payable on demand and
interest is payable monthly at an annual rate of 10%. At December 31, 1996, the
Company was current in its payment and obligations on all notes, the principal
balance of the notes totaled $195,000 and accrued interest totaled $1,374.
The Company has a contract with Steven A. Larson, a significant shareholder who
is also a director, for Mr. Larson to perform research and develop equity
financing resources for the Company and to assist with corporate strategy and
related issues. Under the contract, dated August 1, 1996, the Company will pay
Mr. Larson $3,000 per month until July 31, 1997 for these services. At December
31, 1996, the Company had paid Mr. Larson a total of $9,000 pursuant to this
agreement and accrued the remaining $6,000. Effective July 26, 1996, the
Company granted Mr. Larson options to acquire 50,000 shares of the Company's
common stock at $3.00 per share vesting one third as of May 31, 1997, 1998 and
1999, respectively.
At December 31, 1996, the Company had received common stock subscription
agreements from various shareholders who had not yet paid for the shares. The
amount due from these shareholders at December 31, 1996 was $5,796.
(Continued)
F-11
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(7) Income Taxes
The actual benefit differs from the "expected" benefit computed by applying the
U.S. federal corporate rate are as follows:
December 31,
1996
Computed "expected" income tax benefit (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit (4)
Increase in valuation allowance 38
Actual tax benefit -%
The tax effects of temporary differences and net operating loss carryforwards
which give rise to significant portions of deferred tax assets and deferred tax
liabilities are as follows:
December 31,
1996
----------
Deferred tax assets:
Net operating loss carryforwards $ 200,992
Tax basis intangible assets, due to differences
in amortization 14,548
Accrued vacation 2,373
----------
Total gross deferred tax assets 217,913
----------
Less valuation allowance (216,326)
----------
Net deferred tax assets 1,587
----------
Deferred tax liabilities:
Property and equipment, due to differences
in depreciation 1,587
----------
Total deferred tax liabilities 1,587
----------
Net deferred tax liability (asset) $ -
----------
----------
(Continued)
F-12
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
The valuation allowance for the deferred tax assets as of April 9, 1996 (date of
inception) was $-0-. The net change in the total valuation allowance for the
period ended December 31, 1996 was an increase of $216,326.
At December 31, 1996, the Company has a net operating loss carryforwards of
approximately $524,000 to offset future income for federal and state purposes
which will expire in 2011.
(8) Commitments
The Company leases office space under an operating lease which expires September
30, 1999 and leases certain office equipment under an operating lease which
expires October 29, 1998. Future minimum rental commitments under the existing
leases are as follows:
Year ending December 31,
1997 $ 54,981
1998 56,663
1999 40,995
-----------
Total $ 152,639
-----------
-----------
Rent expense for the period from April 4, 1996 (date of inception) to December
31, 1996 and the nine months ended September 30, 1997 was $27,489 and $48,858
(unaudited), respectively.
(9) Incentive Compensation Plan
The Company has an Incentive Compensation Plan (the Incentive Plan), under which
shares of the Company's common stock may be made available to the Company's
employees, officers, directors and selected nonemployee agents, consultants,
advisors, persons involved in the sale of distribution of the Company's
products and independent contractors of the Company.
(Continued)
F-13
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
(SFAS 123), which defines a fair value based method of accounting for an
employee stock option and similar equity instrument. As permitted under SFAS
123, the Company has elected to continue to account for its stock-based
compensation plan under Accounting Principal Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related interpretations.
Accordingly, no compensation expense has been recognized for the Plan. The
Company has computed, for pro forma disclosure purposes, the value of options
granted under the Incentive Plan using the minimum value method as prescribed by
SFAS 123. The following weighted average assumptions for grants used in the
calculation are as follows: a risk-free interest rate of 6.3%, an expected
dividend yield of 0%, and an expected life of five years.
Using the minimum value method, the total value of options granted during 1996
was $78,948, which would be amortized on a pro forma basis over the vesting
period of the options. If the Company had accounted for its stock-based
compensation plan in accordance with SFAS 123, the Company's net loss for the
period from April 4, 1996 (date of inception) to December 31, 1996 would
approximate the pro forma disclosure as follows:
Net loss:
As reported $ (567,210)
-------------
Pro forma $ (574,045)
-------------
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts and additional awards are anticipated in future years.
(Continued)
F-14
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
The following is a summary of stock option activity:
Weighted
average
Number price per
of shares share
--------- ---------
Options outstanding at April 4, 1996 - $ -
Granted 100,000 3.00
Exercised - -
Canceled - -
--------
Options outstanding at December 31, 1996 100,000 3.00
Granted (unaudited) 475,000 3.42
Exercised (unaudited) -
Canceled (unaudited) 25,000 3.00
--------
Options outstanding at September 30, 1997
(unaudited) 550,000 3.35
--------
--------
Options become exercisable over a period of generally four years from the date
of grant as determined by the Board, at prices generally not less than the fair
market value at the date of grant. At December 31, 1996, no options were
exercisable. As of December 31, 1996, the Company had reserved 500,000 shares
for issuance under the Incentive Plan, with 400,000 shares available for future
grant. See note 10(b).
(10) Subsequent Events
(a) Amendment of Articles of Incorporation
On January 10, 1997, the Company amended its articles of incorporation to
increase the authorized capital of the Company to 20,000,000 shares of common
stock, and to change the Company's name to E.Com International, Inc.
On August 15, 1997, in conjunction with a 1 for 2 reverse stock split (see note
10(c)), the Company amended its articles of incorporation to decrease the
authorized capital of the Company to 10,000,000 shares of common stock.
(Continued)
F-15
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(b) Private Offerings
Beginning in February 1997, the Company conducted a private offering of the
Company's common stock, offering to sell up to 350,000 investment units at a
price of $4.00 per unit, generating gross proceeds of up to $1.4 million (the
Offering). Each Unit consisted of one share of the Company's common stock and
one warrant to purchase an additional share of common stock at a price of $8.00
per share. The warrants may be redeemed for $.50 per share under certain
conditions. The Company used the services of an underwriter as a selling agent
to facilitate the Offering on a best efforts basis. The underwriter was
compensated by a combination of cash commissions, reimbursement of expenses and
additional warrants. Through June 30, 1997, the Company had sold 306,000 units,
generating gross proceeds of $1,224,000 and net proceeds of approximately
$991,000 after deducting offering expenses of $233,000. At June 30, 1997, the
Company also held $25,000 in cash from an Offering subscription received but not
yet closed. The Company has issued 35,000 warrants to the underwriter as
compensation and 15,000 warrants to previous shareholders.
In August 1997, the Company signed a letter of intent with a different
underwriter to conduct another private offering of the Company's common stock
(the Proposed Offering). Under the terms of the Proposed Offering, the Company
has agreed to 1) effect a 1 for 2 reverse split of its common stock; 2) offer
to sell 1,000 to 1,500 Units at a price of $3,500 per Unit, generating gross
proceeds of up to $5.25 million; and 3) increase the number of shares reserved
for its Incentive Compensation Plan by 500,000 share to 1,000,000 shares. Each
Unit in the Proposed Offering will consist of 1,000 shares of the Company's
common stock and warrants to purchase up to 1,000 additional shares of common
stock at a price of $3.50 per share. Unexercised warrants may be redeemed by
the Company at $.25 per share if certain conditions are met. In addition, the
Company and underwriter have agreed to reduce the exercise price of the warrants
issued in the Offering to $3.50 per share.
The Company plans to use the services of the underwriter as a selling agent to
facilitate the sale of Units on a best efforts basis. In August 1997 the
underwriter made an initial purchase for its own account of 90 Units from the
Proposed Offering and has agreed to purchase up to 200 additional Units
following completion of the private placement memorandum for the Proposed
Offering. The underwriter will be compensated by a combination of cash
commissions, reimbursements of expenses and additional warrants.
The net proceeds of the Proposed Offering available to the Company, if any, will
be reduced by the underwriter's compensation and by other legal, accounting and
administrative expenses related to the Proposed Offering. The Company intends
to use these net proceeds to fund marketing, production tooling, additional
product and software development, addition of personnel and expansion of
facilities, repayment of debt and for working capital.
(Continued)
F-16
<PAGE>
E.COM INTERNATIONAL, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(c) Stock Split
On August 15, 1997, the shareholders of the Company approved a 1 for 2 reverse
stock split and the Proposed Offering. The share amounts in these statements
have been restated to reflect the split.
(11) Unaudited Recent Developments
Pursuant to the Proposed Offering discussed in note 10(b), the Company has sold
1,067 units as of December 16, 1997. The Company has received approximately
$3,361,000, net of the underwriter's commission.
F-17
<PAGE>
ARTICLES OF INCORPORATION
OF
E.B.I. ACQUISITION, INC.
I, Gregory J. Englund, the undersigned person of the age of eighteen years
or more, acting as incorporator under the laws of the State of Oregon, adopt the
following Articles of Incorporation.
ARTICLE I.
NAME
The name of the Corporation is E.B.I. Acquisition, Inc.
ARTICLE II.
CAPITALIZATION
The Corporation is authorized to issue 2,000,000 shares of common stock.
Each shareholder of common stock shall have one vote for each share held of
record on all matters submitted for shareholder approval.
ARTICLE III.
REGISTERED OFFICE AND AGENT
The initial registered office of the Corporation in the State of Oregon is
Suite 1507 Standard Plaza, 1100 S. W. Sixth Avenue, Portland, Oregon 97204, and
the initial registered agent for the Corporation is Gregory J. Englund.
ARTICLE IV.
NOTICES
The address where the Corporation Division may mail notices is:
ATTENTION: Gregory J. Englund
Suite 1507 Standard Plaza
1100 S. W. Sixth Avenue
Portland, Oregon 97204
<PAGE>
ARTICLE V.
INCORPORATOR
The name and address of the incorporator is:
Gregory J. Englund
Suite 1507 Standard Plaza
1100 S. W. Sixth Avenue
Portland, Oregon 97204
ARTICLE VI.
CONTRACTS
No contracts or other transactions between the Corporation and any other
corporation, and no act of the Corporation shall in any way be affected or
invalidated by the fact that any of the Directors of the Corporation are
pecuniarily or otherwise interested in, or are directors or officers of, such
other corporation; and any Director individually, or any firm of which any
Director may be a member, may be a party to, or may pecuniarily or otherwise
interested in, any contracts or transactions of the Corporation, provided that
the fact that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof.
ARTICLE VII.
CHANGE IN NUMBER OF DIRECTORS
The number of Directors may at any time be increased or decreased by the
Directors at any annual or special meeting. Any directorship to be filled by
reason of an increase in the number of Directors may be filled by the Board of
Directors for a term of office continuing only until the next election of
Directors.
PAGE 2 - ARTICLES OF INCORPORATION
<PAGE>
ARTICLE VIII.
RESERVES AND WORKING CAPITAL
The Board of Directors shall have power to determine the amount to be set
aside from the earnings of the Corporation as working capital before paying any
dividends or distributing any profits. The Board shall have absolute discretion
to determine amounts to be set aside from the profits of the Corporation. Such
amounts may be used as additional working capital, as a fund for the payment and
retirement of the indebtedness of the Corporation, whether funded or otherwise,
or as a surplus fund for such beneficial corporate purposes as the Board may
determine.
ARTICLE IX.
QUORUM OF SHAREHOLDERS
A quorum at a meeting of shareholders is constituted by the representation
in person or by proxy of a majority of the shares entitled to vote. Shares
shall not be counted to make up a quorum for a meeting if voting of them at the
meeting has been enjoined or for any reason they cannot be lawfully voted at the
meeting. The shareholders present at a duly held meeting at which a quorum is
present may continue to do business until adjournment in spite of the withdrawal
of enough shareholders to leave less than a quorum.
ARTICLE X.
ISSUANCE OF SHARES IN SERIES
The shares of any preferred or special class may be divided into and issued
in series. If not otherwise determined by these Articles, the Board of
Directors shall have authority to divide any or all classes into series, and fix
and determine the preferences, limitations and relative rights of the shares of
any series so established.
PAGE 3 - ARTICLES OF INCORPORATION
<PAGE>
ARTICLE XI.
DIRECTORS' LIABILITY
No Director shall be personally liable to the Corporation or its
stockholders for monetary damages as a Director provided that this Article shall
not limit the liability of a Director for:
1. Any breach of the Director's duty of loyalty to the Corporation;
2. Acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of the law;
3. Any unlawful distribution of corporate assets; or
4. Any transaction from which the Director derives an improper
personal benefit.
Dated this 4th day of April, 1996.
/s/ Gregory J. Englund
-------------------------------------------------
Gregory J. Englund, Incorporator
Person to contact about this filing:
Gregory J. Englund
Suite 1507 Standard Plaza
1100 S. W. Sixth Avenue
Portland, Oregon 97204
(503) 226-0500
PAGE 4 - ARTICLES OF INCORPORATION
<PAGE>
REGISTRY NUMBER:
509939-80
ARTICLES OF AMENDMENT
(BY SHAREHOLDERS)
OF
E.B.I. ACQUISITION, INC.
1. Name of the Corporation prior to amendment:
E.B.I. Acquisition, Inc.
----------------------------------------
2. State the article number(s) and set forth the article(s) as it is amended
to read. (Attach additional sheets, if necessary).
ARTICLE I.
The name of the Corporation is E. COM International, Inc.
ARTICLE II.
The Corporation is authorized to issue 20,000,000 shares of common stock.
Each shareholder of common stock shall have one vote for each share held of
record on all matters submitted for shareholder approval.
The amendment was adopted on January 10, 1997. (If more than one amendment
was adopted, identify the date of adoption of each amendment.)
4. Shareholder action was required to adopt the amendment. The shareholder
vote was as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
CLASS OR SERIES SHARES VOTES ENTITLED NUMBER OF VOTES VOTES CAST
OF SHARES OUTSTANDING TO BE CAST CAST FOR AGAINST
- --------------- ----------- -------------- --------------- ----------
<S> <C> <C> <C> <C>
Common 1,918,361 1,918,361 1,369,649 -0-
</TABLE>
5. Other provisions, if applicable (Attach additional sheets, if necessary).
Execution:/s/ William F. Stephens William F. Stephens President
---------------------------------------------------------------------
Signature Printed Name Title
Person to contact about this filing: Gregory J. Englund (503) 226-0500
----------------------------------------
Name Phone Number
Submit the original and a true copy to the Corporation division, 158 12th Street
NE, Salem, Oregon 97310. There is no fee required. If you have questions,
please call (503) 378-4166.
<PAGE>
Registry Number:
509939-80
ARTICLES OF AMENDMENT
(BY SHAREHOLDERS)
OF
E.COM INTERNATIONAL, INC.
1. Name of the Corporation prior to amendment:
E.Com International, Inc.
2. State the article number(s) and set forth the article(s) as it is amended
to read:
ARTICLE II.
The Corporation has effectuated a one-for-two reverse stock split. As a
result of the reverse stock split, (i) the Corporation is authorized to issue
10,000,000 shares of common stock, and (ii) the Corporation has 1,065,184 shares
of common stock presently issued and outstanding. Each shareholder of common
stock shall have one vote for each share held of record on all matters submitted
for shareholder approval.
3. The amendment was adopted on August 15, 1997.
4. Shareholder action was required to adopt the amendment. The shareholder
vote was as follows:
Number of
Votes Number of
Class or Number of Entitled Number of Votes
Series of Shares To be Votes Cast
Shares Outstanding Cast Cast for Against
--------- ----------- --------- --------- ---------
Common 2,534,361 2,534,361 1,303,214 0
5. Other provisions, if applicable (attach additional sheets, if necessary).
Execution:/s/ William F. Stephens, William F. Stephens Jr. President
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Signature Printed Name Title
Person to contact about this filing: Sophie Hager Hume (206) 467-7609
----------------------------------------
Name Phone Number
Submit the original and a true copy to the Corporation Division, 158 12th Street
NE, Salem, Oregon 97310. There is no fee required. If you have questions,
please call (503) 378-4166.
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INDEX TO
BYLAWS
OF
E.B.I. ACQUISITION, INC.
1.0 Offices
2.0 Shareholders
3.0 Board of Directors
4.0 Officers
5.0 Contracts, Corporate Funds, Loans, Checks, Deposits
6.0 Certificates for Shares; Transfers
7.0 Fiscal Year
8.0 Dividends
9.0 Seal
10.0 Notice and Consent
11.0 Restrictions on Transfer
12.0 Amendments
13.0 Indemnification and Liability
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BYLAWS
OF
E.B.I. ACQUISITION, INC.
An Oregon Corporation
Adopted April 4, 1996
1.0 OFFICES
1.1 The principal office of E.B.I. Acquisition, Inc. shall be located at
2057 Riverknoll Court, West Linn, Oregon 97068. The Board of Directors shall
have the power and authority to establish and maintain branch or subordinate
offices at any other locations within or without the State of Oregon.
2.0 SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders of E.B.I.
Acquisition, Inc. shall be held on the second Friday of November in each year,
beginning with the year 1996, at 2:00 p.m., for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in
the State of Oregon or on Sunday, such meeting shall be held on the next
succeeding business day. If the election of Directors is not held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as is convenient.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or by the Board of Directors, and
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shall be called by the President at the request of the holders of not less than
10% of all the outstanding shares of the Corporation entitled to vote at the
meeting, provided the shareholders sign, date and deliver to the Corporation's
Secretary one or more written demands for the meeting describing the purpose or
purposes for which it is to be held.
2.3 PLACE OF MEETING. The Board of Directors may designate any place
within or without the State of Oregon, as the place of meeting for any annual
meeting or for any special meeting called by the Board of Directors. If no
designation is made the place of meeting shall be at the principal office of the
Corporation.
2.4 NOTICE OF MEETING. Written or printed notice stating the place, day,
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid.
2.5 FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of, or to vote at, any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or to make a determination of shareholders for any other proper
purpose, including for solicitation of proxies, the Board of Directors of the
Corporation may fix in advance a date as the record date for any such
determination of shareholders, such date in any event to
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be not more than seventy (70) days, and in case of a meeting of shareholders,
not less than ten (10) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders
entitled to notice of, or to vote at, a meeting of shareholders, or of
shareholders entitled to receive payment of a dividend, the date that notice of
the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
unless the Board of Directors fixes a new record date, which it must do if the
meeting is adjourned to a date more than 120 days after the date fixed for the
original meeting. After fixing a record date for a meeting, the Board of
Directors shall direct the Secretary of the Corporation to prepare an
alphabetical list of the names of all its shareholders who are entitled to a
notice of a shareholders' meeting. The list shall be arranged by voting group
(if there are different classes of shares), by class or series, and show the
address of and number of shares held by each shareholder.
2.6 QUORUM. A majority of the outstanding shares of E.B.I. Acquisition,
Inc. entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If less than a majority of such
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized
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meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
2.7 PROXIES. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting. Any solicitation of proxies by the Directors or
management of the Corporation shall be made by mailing the proxies by Certified
Mail or providing them to the shareholder in an alternative acceptable manner at
least sixty (60) days before the date of the meeting for which the proxies are
solicited. Each shareholder as of the record date shall receive a proxy.
Proxies shall describe the location and purpose of the meeting and the matter or
business for which the proxy is solicited. No proxy shall be valid after eleven
(11) months from the date of its execution unless otherwise provided in the
proxy.
2.8 VOTING OF SHARES. Subject to the provisions of any applicable law (or
any provision of the Articles of Incorporation regarding separate classes of
shares or cumulative voting), each outstanding share entitled to vote shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
shareholders.
2.9 ACTION OF SHAREHOLDERS BY COMMUNICATIONS EQUIPMENT.
Shareholders may participate in a meeting of shareholders by means of a
conference telephone or similar communication equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
3.0 BOARD OF DIRECTORS
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3.1 GENERAL POWERS AND DUTIES. The business and affairs of E.B.I.
Acquisition, Inc. shall be managed by its Board of Directors. All the powers of
the Corporation are vested in the Board of Directors unless specifically
expressed to be vested in the Stockholders by statute or by the Articles or by
these Bylaws. The Board of Directors may elect any member of the Board as
Chairman. The Chairman may be an officer. He shall, if present, preside at all
meetings of the Board of Directors. He shall have such other powers and duties
as the Board may prescribe.
3.2 NUMBER, TENURE, AND QUALIFICATIONS. The number of Directors of the
Corporation shall be three (3). The number of Directors may at any time be
increased or decreased by the Directors at any regular or special meeting of
Directors provided that no decrease shall have the effect of shortening the term
of any incumbent Director except as otherwise provided in these Bylaws.
Directors shall be elected at the annual meeting of shareholders, and the term
of office of each Director shall be until the next annual meeting of
shareholders and the election and qualification of his successor. Directors
need not be residents of the State of Oregon and need not be shareholders of the
Corporation.
3.3 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held without notice other than these Bylaws immediately after and at the same
place as the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place for holding additional regular
meetings without other notice than such resolution. Additional regular meetings
shall be held at the principal office of the Corporation in the absence of any
designation in the resolution.
3.4 TELEPHONIC MEETINGS. Any regular or special meeting of the Directors
may be called and held over telephone or other electronic means, and
communication from such a contacted Director
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constitutes attendance at the meeting so held.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the President or any two (2) Director, and shall
be held at the principal office of the Corporation or at such other place as the
Directors may determine.
3.6 NOTICE. Notice of any special meeting shall be given at least
twenty-four (24) hours before the time fixed for the meeting, by written notice
delivered personally or mailed to each Director at his business address, or by
telegram. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid, not less
than five (5) days prior to the commencement of the above-stated notice period.
If notice is given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any Director may waive
notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
3.7 QUORUM. A majority of the number of Directors fixed by these Bylaws
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if a quorum is not present at a meeting, a majority of
the Directors present may adjourn the meeting from time to time without further
notice. The Directors present may continue to transact business,
notwithstanding the withdrawal of a Director that would cause a loss of quorum.
3.8 BOARD DECISIONS. The act of the majority of the Directors present at
a meeting at
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which a quorum is present shall be the act of the Board of Directors. All the
powers of the Corporation are vested in the Board of Directors unless
specifically expressed to be vested in the shareholders by statute or by the
Articles or by these Bylaws.
3.9 VACANCIES. Any vacancy occurring in the Board of Directors including
one created by an increase in the number of Directors shall be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors. A Director elected to fill a vacancy not
created by an increase in the number of Directors shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of Directors shall be filled by the
affirmative vote of a majority of the remaining Directors, though less than a
quorum of the Board of Directors, for a term of office continuing until the next
election of Directors.
3.10 COMPENSATION. By resolution of the Board of Directors, the Directors
may be paid for their expenses if any, of attendance at each meeting of the
Board of Directors, and may be paid affixed sum for attendance at each meeting
of the Board of Directors or a stated salary as Director. No such payment shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
3.11 PRESUMPTION OF ASSENT. A Director of E.B.I. Acquisition, Inc. 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
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent or abstention to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall deliver such dissent or
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abstention by registered mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent or abstention
shall not apply to a Director who voted in favor of such action.
3.12 EXECUTIVE COMMITTEE. The Board of Directors, by resolution may
designate two or more Directors to constitute an executive committee, which
committee, to the extent provided in such resolution shall have and may exercise
all the authority of the Board of Directors in the management of the
Corporation, but no such committee shall have the authority of the Board of
Directors in reference to authorizing distributions; filling vacancies on the
Board of Directors or any committee; amending the Articles of Incorporation;
adopting a plan of merger or consolidation not requiring shareholder approval;
recommending to the shareholders the sale, lease, exchange, mortgage, pledge, or
other disposition of all or substantially all the property and assets of the
Corporation otherwise than in the usual and regular course of its business;
authorizing or approving the issuance or sale or contract for sale of shares or
determine the designation and relative rights, preferences and limitations of a
class or series of shares, except within limits specifically prescribed by the
Board of Directors; authorizing or approving reacquisition of shares except
according to a formula or method prescribed by the Board of Directors;
recommending to the shareholders a voluntary dissolution of the Corporation or a
revocation thereof; or amending the Bylaws of the Corporation. The designation
of such committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, or any responsibility
imposed upon it or him by law.
4.0 OFFICERS
4.1 NUMBER. The officers of E.B.I. Acquisition, Inc. shall be a
President, one or more
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Vice-Presidents (the number thereof to be determined by the Board of Directors),
a Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors.
4.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation to be
elected by the Board of Directors shall be elected annually 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, such election shall be
held as soon thereafter as is convenient. Each officer shall hold office until
his successor has been duly elected and qualifies or until his death or until he
resigns or is removed in the manner hereinafter provided.
4.3 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
4.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
4.5 STANDARDS OF CONDUCT FOR OFFICERS.
(1) Officers shall discharge their duties:
(a) in good faith;
(b) with the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
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(c) in a manner the officer reasonably believes to be in the
best interests of the Corporation.
(2) In discharging the duties of an officer, an officer is entitled
to rely on information, opinions, reports or statements, including financial
statements and other financial data, if prepared or presented by:
(a) one or more officers or employees of the Corporation whom
the officer reasonably believes to be reliable and competent in the matters
presented; or
(b) legal counsel, public accountants or other persons as to
matters the officer reasonably believes are within the person's professional or
expert competence.
(3) An officer is not acting in good faith if the officer has
knowledge concerning the matter in question that make reliance unwarranted.
(4) An officer is not liable for any action taken as an officer, or
any failure to take any action, if the officer performed the duties of the
office in compliance with this section.
4.6 POWERS AND DUTIES OF THE PRESIDENT. The President shall preside at
all meetings of the shareholders and shall have such authority and perform such
other duties as the Board of Directors authorizes or directs.
4.7 DUTIES OF THE VICE-PRESIDENT(S). The Vice-President(s) shall have
such authority and perform such duties as the Board of Directors may authorize
or direct.
4.8 DUTIES OF THE SECRETARY. The Secretary shall subscribe the minutes of
all meetings of the shareholders and the Board of Directors. He shall prepare
the shareholder list and shall mail notices to both the shareholders and the
Directors of the holding of any meeting as prescribed by these Bylaws,
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shall be the custodian of the seal of the Corporation and shall affix the seal
to the minutes and notices. He shall likewise attest and affix the seal to
other instruments executed by the Corporation as required, and shall otherwise
authenticate the records of the Corporation. He shall have such authority and
perform such other duties as the Board of Directors may authorize or direct.
4.9 DUTIES OF THE ASSISTANT SECRETARY. The Assistant Secretary, in the
event of the appointment thereof by the Board of Directors, shall, in the
Secretary's absence or in the case of his inability to act or in case it shall
be inconvenient for him to so act, perform such duties of the Secretary as may
be necessary. He shall have such authority and perform such other duties as the
Board of Directors may authorize or direct.
4.10 DUTIES OF THE TREASURER. The Treasurer shall have charge of all funds
belonging to the Corporation and shall keep and deposit the same for and on
behalf of the Corporation in a bank or banks to be designated by the Board of
Directors. In the absence of such designation he may select the bank or banks
in which to deposit such funds. He shall have such authority and perform such
other duties as the Board of Directors may authorize or direct.
4.11 DUTIES OF THE BOARD OF DIRECTORS. The Board of Directors may create
such subordinate offices and employ such subordinate officers or agents as it
may from time to time deem expedient and may fix the compensation of such
officers or agents and define their powers and duties, provided such powers and
duties do not constitute a delegation of such authority as is reposed in the
Directors by law, which shall be exercised and performed exclusively by them.
The Board of Directors shall also have the power to appoint a general manager,
who shall hold office at the pleasure of the Board. The Board of Directors
shall have the power to delegate to the general manager such executive power
and
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authority as they may deem necessary to facilitate the handling and management
of the Corporation's property and interests.
4.12 SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors, and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.
5.0 CONTRACTS, CORPORATE FUNDS, LOANS, CHECKS, AND DEPOSITS
5.1 CONTRACTS. Without limiting any powers elsewhere granted by these
Bylaws to the President or other officer of the Corporation, the Board of
Directors may authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances. No loan shall be made to any Director without complying with
applicable law.
5.2 CORPORATE FUNDS. All funds of the Corporation shall be under the
supervision of the Board of Directors and shall be handled and disposed of in
such manner and by such officers or agents of this Corporation as provided in
these Bylaws or as the Board of Directors may authorize by proper resolutions
from time to time.
5.3 CHECKS, DRAFTS, OR ORDERS. All checks, drafts, or other orders for
the payment of money, notes, or other evidence of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
5.4 DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies, or other depositaries
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as the Board of Directors may select.
6.0 CERTIFICATES FOR SHARES; TRANSFERS
6.1 CERTIFICATES FOR SHARES. Certificates representing shares of E.B.I.
Acquisition, Inc. shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President, if any, and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor on such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
6.2 TRANSFER OF SHARES. Transfer of shares of the Corporation shall be
made in the manner specified in the Uniform Commercial Code. The Corporation
shall maintain stock transfer books, and any transfer shall be registered
thereon only on request and surrender of the stock certificate representing the
transferred shares, duly endorsed. The Corporation shall have the absolute
right to recognize as the owner of any shares of stock issued by it, the person
or persons in whose name the certificate representing such shares stands
according to the books of the Corporation for all proper corporate purposes,
including the voting of the shares represented by the certificate at a regular
or special meeting of shareholders, and the issuance and payment of dividends on
such shares.
6.3 SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another
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corporation, domestic or foreign, may be voted by such officer, agent or proxy
as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
6.4 SUBSCRIPTIONS. Subscriptions to the shares shall be paid at such
times and in such installments as the Board of Directors may determine. The
Board of Directors may adopt Bylaws prescribing penalties for default on
subscription agreements. The Board of Directors shall establish an escrow for
shares where payment is made by note or by a contract for future service. If
the payment is not made or the contract for further services is not performed,
the Board of Directors may authorize suit for payment or, at its option, rescind
the subscription agreement and cancel the shares.
7.0 FISCAL YEAR
7.1 The fiscal year of E.B.I. Acquisition, Inc. shall be the calendar year.
8.0 DIVIDENDS
8.1 The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by law and its Articles of Incorporation.
9.0 SEAL
9.1 The Board of Directors may adopt a corporate seal, which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the year incorporated, and the state of incorporation and the words "Corporate
Seal." The seal shall be stamped or affixed to such documents as may be
prescribed by law or by the Board of Directors.
10.0 NOTICE AND CONSENT
10.1 WAIVER OF NOTICE. Whenever any notice is required to be given to any
shareholder or
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Director of the Corporation under the provisions of these Bylaws or under the
provisions of the Articles of Incorporation or under the provisions of law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice and delivered to the Corporation for inclusion, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
10.2 CONSENT TO ACTION. Any action which may be taken at a meeting of the
shareholders or Directors, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders or Directors entitled to vote with respect to the subject matter
thereof. Such consent shall have the same force and effect as a unanimous vote
of such shareholders or Directors. Such action is effective when the last
shareholder or Director signs the consent unless the consent specifies an
earlier or later effective date. All consents shall be delivered to the
Secretary of the Corporation for inclusion in the minutes or filing with the
corporate records.
11.0 RESTRICTIONS ON TRANSFER
11.1 TRANSFER OF SHARES. No securities of this Corporation or certificates
representing such securities shall be transferred in violation of any law or of
any restriction on such transfer set forth in the Articles of Incorporation or
amendments thereto, or the Bylaws; or contained in any buy-sell agreement, right
of first refusal, or other agreement restricting such transfer which agreement
has been executed by the Corporation, or filed with the Secretary of the
Corporation and signed by the parties to the agreement. The Corporation shall
not be bound by any restrictions not so filed and noted.
11.2 RESTRICTIVE LEGEND. The Corporation and any party to any such
agreement shall have the right to have a restrictive legend imprinted upon any
such certificates and any certificates issued in replacement or exchange
therefor or with respect thereto.
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12.0 AMENDMENTS
12.1 BOARD. Unless otherwise provided herein, these Bylaws may be altered,
amended, or repealed and new Bylaws may be adopted by the Board of Directors at
any regular or special meeting of the Board.
12.2 REPORT TO SHAREHOLDERS. Changes in and additions to the Bylaws by the
Board of Directors shall be reported to the shareholders at their next regular
meeting and shall be subject to the approval or disapproval of the shareholders
at such meeting. If no action is then taken by the shareholders on a change in
or addition to the Bylaws, such change or addition shall be deemed to be fully
approved and ratified by the shareholders.
13.0 INDEMNIFICATION AND LIABILITY
13.1 INDEMNITY. The Corporation shall indemnify officers and Directors to
the full extent possible under the applicable statute. The Corporation may
advance expenses to the Director provided the Director complies with the
requirements of applicable law.
13.2 RELIANCE ON PROFESSIONALS. Neither the Corporation, its Directors nor
its officers will be liable to the shareholders as to matters where the officer
or Director has reasonably relied upon the advice of legal counsel, public
accountants or other such professional persons.
13.3 NO INDEMNIFICATION. The Corporation may not indemnify a Director in
connection with a proceeding in which the Director was:
(a) adjudged liable to the Corporation; or
(b) in connection with a proceeding charging improper personal
benefit to the Director in which the Director was adjudged liable on the basis
that personal benefit was improperly
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received by the Director.
13.4 ADVANCE FOR EXPENSES. The Corporation may pay for or reimburse the
reasonable expenses incurred by a Director who is a party to a proceeding in
advance of final disposition of the proceeding if:
(a) the Director furnishes the Corporation a written affirmation of
the Director's good faith belief that the Director has met the standard of
conduct described in Section 13.2;
(b) the Director furnishes the Corporation with a written
undertaking, executed by the Director or his representative, to repay the
advance if it is ultimately determined that the Director did not meet the
standard of conduct; and
(c) this undertaking must be an unlimited general obligation of the
Director but need not be secured, and the Corporation may accept it without
reference to the Director's financial ability to make repayment.
13.5 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION. The determination
that indemnification of the Director is permissible shall be made:
(a) By the Board of Directors by majority vote of a quorum consisting
of Directors not at the time parties to the proceeding.
(b) If a quorum cannot be obtained under 13.4(a), by majority vote of
a committee duly designated by the Board of Directors. The committee shall
consist solely of two or more Directors not at the time parties to the
proceeding.
(c) By special legal counsel selected by the Board of Directors or
the above-mentioned committee in the manner described in (a) or (b) above, or if
a quorum cannot be
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determined under (a) or (b), then by a majority of the Board of Directors
including Directors who are a party to the proceeding.
(d) By the shareholders.
13.6 REASONABLENESS OF EXPENSES. The authorization of indemnification and
evaluation as to reasonableness of expenses shall be made in the same manner as
the determination that indemnification is permissible, except that if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those
authorized to select counsel in 13.5(c) above.
13.7 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The Corporation
may indemnify officers, employees and agents and/or advance expenses to the same
extent as a Director.
13.8 REPORT TO SHAREHOLDERS. If the Corporation indemnifies or advances
expenses to a Director, the Corporation shall report the indemnification or
advance in writing to the shareholders with or before the notice of the next
shareholders meeting.
PAGE 18 - BYLAWS
<PAGE>
NO. __________
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
E.COM INTERNATIONAL, INC.
COMMON STOCK WARRANT
THIS IS TO CERTIFY THAT FOR GOOD AND VALUABLE CONSIDERATION, ___________
(the "Holder") is entitled to subscribe for and purchase from E.COM
INTERNATIONAL, INC. (the "Company"), up to _______ fully paid and non-assessable
shares of common stock of the Company, no par value (the "Warrant Shares"), at
the price of $____ per share ("Exercise Price"), subject to certain adjustments
as hereinafter provided.
This Common Stock Warrant (hereinafter, this "Warrant") was originally
issued on ___________, 1997 (the "Original Issue Date").
ARTICLE I. EXERCISE OF WARRANT.
1.1. EXERCISE OF WARRANT. Subject to the provisions of this Article I,
the Holder may exercise this Warrant in whole, or in part, at any time before
January 31, 1999, unless earlier redeemed.
1.2. METHOD OF EXERCISE. Subject to Section 1.6 herein, the Holder shall
exercise this Warrant by surrendering it at the offices of the Company at the
address designated for notice purposes under Section 6.2 below, together with
(i) a duly executed subscription notice/election to purchase in substantially
the form of ANNEX A hereto, and (ii) cash or check payable to the Company or
wire transfer funds in the amount equal to the aggregate Exercise Price for the
number of Warrant Shares being purchased. As soon as practicable after the
Warrant has been so exercised, the Company shall issue and deliver, in such name
or names as the Holder may direct, a certificate or certificates for the number
of Warrant Shares for which the Holder subscribed. A surrendered Warrant shall
be canceled by or on behalf of the Company, except that if the Warrant is
exercised in part, the Company shall execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the Warrant
Shares.
1.3. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall round up the number of shares to the nearest whole
share.
1.4. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
agreement with respect to indemnity and such other terms as reasonably requested
by the Company, satisfactory in form and substance to the Company or, in the
case of mutilation, on surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver in lieu of this Warrant, a Warrant of
like tenor and amount.
1.5. RIGHTS OF THE HOLDER. The Holder shall not be entitled to vote or
receive dividends or be deemed the Holder of common stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company until the Warrant shall have been exercised as provided herein.
-1-
<PAGE>
1.6. PUBLIC OFFERING. In the event that the Company shall make an
initial public offering of its securities through underwriters prior to the
expiration of this Warrant or its exercise for the total number of Warrant
Shares and the Company does not redeem the Warrants as provided in Article 4
herein, the Holder may exercise this Warrant in whole or in part at any time on
or prior to 5:00 p.m., Pacific Time, on the ninetieth (90th) day following the
effective date of the registration statement filed by the Company with the
Securities and Exchange Commission ("SEC"); PROVIDED HOWEVER, that if the
representative of the underwriters certifies that such exercise period would
materially and adversely affect the orderly sale and distribution of the
securities to be sold under the registration statement, the Holder may exercise
this Warrant within a period of ninety (90) days to be mutually determined
between the Company and the representative of the underwriters, PROVIDED that
such period may not be later than one year from the effective date of the
registration statement filed with the SEC. In the event this Section 1.6
becomes operative, this Warrant shall expire at 5:00 p.m., Pacific Time, on such
ninetieth (90th) day. The Company shall notify the Holder of its intention to
make an initial public offering promptly after the first public announcement of
such intention.
ARTICLE 2. COMPLIANCE WITH SECURITIES LAWS.
Neither this Warrant nor the Warrant Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. This Warrant has been acquired for investment purposes and not
with a view to distribution or resale and may not be pledged, hypothecated, sold
or otherwise transferred without an effective registration statement for such
Warrant under the Securities Act or any applicable state securities laws or an
opinion of counsel provided by the Holder or other evidence reasonably
satisfactory to the Company that registration is not required thereunder. Each
certificate representing the Warrant Shares initially issued upon the exercise
of this Warrant, and each certificate for Warrant Shares issued to any
subsequent transferee of any such certificate, shall bear a legend substantially
in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED,
OR SOLD, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE, NOR MAY THESE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT OPINION
OF COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT SUCH
PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
ARTICLE 3. PROVISIONS FOR PROTECTION OF THE HOLDER.
3.1. RESERVATION OF SHARES. The Company shall at all times reserve such
number of shares of its authorized but unissued common stock as necessary to
permit the exercise of the Warrant for all of the Warrant Shares. If at any
time an insufficient number of shares is authorized for such purpose, the
Company will take such action as, in the opinion of its counsel, may be
necessary to increase its authorized but unissued common stock to such number of
shares as shall be sufficient for such purpose.
3.2. ADJUSTMENT FOR DIVIDENDS, STOCK SPLITS, OR RECLASSIFICATION. In case
at any time prior to the complete exercise of this Warrant, its redemption as
provided in Article 4 herein or its expiration the Company shall:
(i) declare a dividend of common stock (or other securities of the
Company) on its common stock;
(ii) subdivide outstanding common stock into a larger number of shares of
common stock by reclassification or otherwise; or
(iii) combine outstanding common stock into a smaller number of shares of
common stock by reclassification or otherwise,
2
<PAGE>
the Exercise Price in effect immediately prior to such subdivision or stock
dividend shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision or
stock dividend shall be proportionately increased, and conversely, in case at
any time the Company shall combine its outstanding shares of common stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced. An adjustment made pursuant to
this paragraph shall become effective immediately after the record date in the
case of a dividend and shall become effective immediately after the effective
date in the case of a subdivision or combination. The determination of an
adjustment that is made by the Board of Directors in good faith and absent
manifest error shall be final, conclusive and binding.
3.3. ADJUSTMENTS FOR MERGERS AND REORGANIZATIONS. If, prior to the
complete exercise of this Warrant, its redemption as provided in Article 4
herein or its expiration, the Company shall at any time consolidate or merge
with another corporation (other than a merger or consolidation in which the
Company is the surviving corporation), the Holder hereof will thereafter be
entitled to receive, upon the exercise hereof, the securities or property to
which a holder of the number of shares of common stock then deliverable upon the
exercise hereof would have been entitled upon such consolidation or merger, and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure that the provisions hereof shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of this Warrant.
3.4. DISSOLUTION, LIQUIDATION OR WIND UP. In case the Company shall, at
any time prior to the complete exercise of this Warrant, its redemption as
provided in Article 4 herein or its expiration, dissolve, liquidate or wind up
its affairs, the Company shall provide written notice thereof to the Holder
hereof and the holders of the Warrant Shares at least 30 days prior to such
dissolution, liquidation or winding up, and the Holder hereof and the holders of
the Warrant Shares may exercise such Warrants within 10 days after the date of
such notice or such Warrants will expire. In the event of any such dissolution,
liquidation or winding up of its affairs, the Holder hereof shall be entitled,
upon the exercise of this Warrant, to receive, in lieu of the Warrant Shares
which the Holder would have been entitled to receive, the same kind and amount
of assets as would have been issued, distributed or paid to such Holder upon any
such dissolution, liquidation or winding up with respect to such Warrant Shares,
had such Holder hereof been the holder of record of the Warrant Shares
receivable upon the exercise of this Warrant on the record date for the
determination of those persons entitled to receive any such liquidating
distribution.
ARTICLE 4. REDEMPTION BY THE COMPANY.
This Warrant may be redeemed by the Company at a price of $0.25 per Warrant
Share ("Redemption Price"), upon at least 30 days prior written notice
("Redemption Notice") to the Holder, if (i) the Company files a registration
statement with the Securities and Exchange Commission (the "Commission") for an
initial public offering of the Company's Common Stock, (ii) an initial public
offering of the Company's Common Stock closes on or before the expiration of
this Warrant at a price of at least $4.00 per share, or (iii) the Company
achieves revenues of at least $4,000,000. If the Company gives notice of its
intention to redeem this Warrant, the Holder shall either (i) exercise this
Warrant before the date specified in the Redemption Notice, or (ii) accept the
Redemption Price.
ARTICLE 5. PIGGYBACK REGISTRATION.
If prior to the exercise of this Warrant, its expiration or its redemption
as provided in Article 4 herein, the Company proposes to file a registration
statement with the Commission for a public offering and sale of Common Stock of
the Company (other than a registration statement on Forms S-4 or S-8 or in
connection with an exchange offering), not less than 20 days prior to such
registration, the Company shall give notice to the Holder hereof and the holders
of the Warrant Shares of its intention to do so, and, upon the written request
of the Holder hereof or any holder of Warrant Shares given within 10 days after
the date of any such notice, include in such registration statement such Warrant
Shares issued or issuable upon the exercise of this Warrant as have been
requested by any
3
<PAGE>
such Holder to be included in such registration, PROVIDED that such Holder (i)
enters into an underwriting agreement with the underwriters of the offering and
(ii) agrees to lock up any Warrant Shares not being registered as requested by
the underwriters. Unless the Company determines in its sole discretion not to
proceed with the offering, the Company will in each instance use its best
efforts to cause any Warrant Shares issued or issuable (but not for when-issued
trading) hereunder (the holders of which shall have so requested registration
thereof) to be registered under the Securities Act and qualified under the
securities or blue sky laws of any jurisdiction where the Company proposes to
file; PROVIDED that in the event such registration is an underwritten primary
offering on behalf of the Company and the managing underwriters advise the
Company in writing that, in their opinion, the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the aggregate
number of securities to be issued by the Company, (ii) second, the Warrant
Shares issued or issuable hereunder requested to be included in such
registration, and (iii) third, other securities requested to be included in such
registration; and provided further, however, that to the extent such priority
violates any agreement of the Company outstanding prior to the Original Issue
Date with respect to registration of its equity securities, the shares covered
in any such agreement shall be treated on a pro rata basis with the Warrant
Shares issued or issuable hereunder requested to be included in such
registration.
ARTICLE 6. MISCELLANEOUS PROVISIONS.
6.1. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Oregon.
6.2. NOTICES. Any notice or other document required or permitted to be
given in connection with this Warrant shall be sufficiently given if sent by
first class mail, postage prepaid, addressed to the Company as follows:
E.Com International, Inc.
7737 SW Cirrus Drive
Beaverton, Oregon 97008
(until notice of another address is given in writing by the Company to the
Holder of this Warrant) and to the Holder at the last address shown on the books
of the Company or its transfer agent maintained for the registry and transfer of
Warrants.
6.3. SUCCESSORS. All covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its respective
successors and assigns.
6.4. BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed
to give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or claim under this Warrant. This Warrant
shall be for the sole and exclusive benefit of the Company and the Holder.
6.5. HEADINGS. The headings used herein are for convenience only, are not
a part of this Warrant and shall not affect the interpretation hereof.
Attest: E.COM INTERNATIONAL, INC.
- -------------------------- -------------------------------------
Steven A. Larson William F. Stephens
Secretary President and Chief Executive Officer
4
<PAGE>
ANNEX A
SUBSCRIPTION NOTICE/ELECTION TO PURCHASE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned, the registered holder of Warrant __ (the "Warrant"),
issued by E.Com International, Inc. hereby (1) irrevocably subscribes for
_________ shares of common stock which the undersigned is entitled to purchase
under the terms and conditions of the Warrant, (2) makes payment of $___________
in full [in cash/by certified check/by wire transfer] therefor as called for by
the Warrant, and (3) directs that the certificates for such shares of common
stock issuable upon exercise of the Warrant be issued in the name of and
delivered to ________________ whose address is
- -------------------------------------------------------------.
----------------------------------------------
Print Name of Investor
----------------------------------------------
Signature of Investor
----------------------------------------------
Print name of partnership, corporation
trust or other entity
By:
--------------------------------------------
Signature of authorized representative
-----------------------------------------------
Capacity of authorized representative
Dated: , 199
----------------- ---
NOTICE: The signature on this Subscription Notice/Election to Purchase must
correspond with the name as written upon the face of the Warrant in
every particular, without alteration or enlargement or any change
whatsoever.
-5-
<PAGE>
NO. __________
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
E.COM INTERNATIONAL, INC.
COMMON STOCK WARRANT
THIS IS TO CERTIFY THAT FOR GOOD AND VALUABLE CONSIDERATION, __________
(the "Holder") is entitled to subscribe for and purchase from E.COM
INTERNATIONAL, INC. (the "Company"), up to _________ fully paid and
non-assessable shares of common stock of the Company, no par value (the "Warrant
Shares"), at the price of $____ per share ("Exercise Price"), subject to certain
adjustments as hereinafter provided.
This Common Stock Warrant (hereinafter, this "Warrant") was originally
issued on ____________, 1997 (the "Original Issue Date").
ARTICLE 1. EXERCISE OF WARRANT.
1.1. EXERCISE OF WARRANT. Subject to the provisions of this Article I,
the Holder may exercise this Warrant in whole, or in part, at any time for a
period of five years from the date of the Company's initial public offering.
1.2. METHOD OF EXERCISE. Subject to Section 1.6 herein, the Holder shall
exercise this Warrant by surrendering it at the offices of the Company at the
address designated for notice purposes under Section 4.2 below, together with
(i) a duly executed subscription notice/election to purchase in substantially
the form of Annex A hereto, and (ii) cash or check payable to the Company or
wire transfer funds in the amount equal to the aggregate Exercise Price for the
number of Warrant Shares being purchased. As soon as practicable after the
Warrant has been so exercised, the Company shall issue and deliver, in such name
or names as the Holder may direct, a certificate or certificates for the number
of Warrant Shares for which the Holder subscribed. A surrendered Warrant shall
be canceled by or on behalf of the Company, except that if the Warrant is
exercised in part, the Company shall execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the Warrant
Shares.
1.3. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall round up the number of shares to the nearest whole
share.
1.4. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
agreement with respect to indemnity and such other terms as reasonably requested
by the Company, satisfactory in form and substance to the Company or, in the
case of mutilation, on surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver in lieu of this Warrant, a Warrant of
like tenor and amount.
1.5. RIGHTS OF THE HOLDER. The Holder shall not be entitled to vote or
receive dividends or be deemed the Holder of common stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company until the Warrant shall have been exercised as provided herein.
-1-
<PAGE>
ARTICLE 2. COMPLIANCE WITH SECURITIES LAWS.
Neither this Warrant nor the Warrant Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. This Warrant has been acquired for investment purposes and not
with a view to distribution or resale and may not be pledged, hypothecated, sold
or otherwise transferred without an effective registration statement for such
Warrant under the Securities Act or any applicable state securities laws or an
opinion of counsel provided by the Holder or other evidence reasonably
satisfactory to the Company that registration is not required thereunder. Each
certificate representing the Warrant Shares initially issued upon the exercise
of this Warrant, and each certificate for Warrant Shares issued to any
subsequent transferee of any such certificate, shall bear a legend substantially
in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED,
OR SOLD, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE, NOR MAY THESE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT OPINION
OF COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT SUCH
PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
ARTICLE 3. PROVISIONS FOR PROTECTION OF THE HOLDER.
3.1. RESERVATION OF SHARES. The Company shall at all times reserve such
number of shares of its authorized but unissued common stock as necessary to
permit the exercise of the Warrant for all of the Warrant Shares. If at any
time an insufficient number of shares is authorized for such purpose, the
Company will take such action as, in the opinion of its counsel, may be
necessary to increase its authorized but unissued common stock to such number of
shares as shall be sufficient for such purpose.
3.2. ADJUSTMENT FOR DIVIDENDS, STOCK SPLITS, OR RECLASSIFICATION. In case
at any time prior to the complete exercise of this Warrant or its expiration the
Company shall:
(i) declare a dividend of common stock (or other securities of the
Company) on its common stock;
(ii) subdivide outstanding common stock into a larger number of shares of
common stock by reclassification or otherwise; or
(iii) combine outstanding common stock into a smaller number of shares of
common stock by reclassification or otherwise,
the Exercise Price in effect immediately prior to such subdivision or stock
dividend shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision or
stock dividend shall be proportionately increased, and conversely, in case at
any time the Company shall combine its outstanding shares of common stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced. An adjustment made pursuant to
this paragraph shall become effective immediately after the record date in the
case of a dividend and shall become effective immediately after the effective
date in the case of a subdivision or combination. The determination of an
adjustment that is made by the Board of Directors in good faith and absent
manifest error shall be final, conclusive and binding.
2
<PAGE>
3.3. ADJUSTMENTS FOR MERGERS AND REORGANIZATIONS. If, prior to the
complete exercise of this Warrant or its expiration, the Company shall at any
time consolidate or merge with another corporation (other than a merger or
consolidation in which the Company is the surviving corporation), the Holder
hereof will thereafter be entitled to receive, upon the exercise hereof, the
securities or property to which a holder of the number of shares of common stock
then deliverable upon the exercise hereof would have been entitled upon such
consolidation or merger, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or property thereafter deliverable upon the
exercise of this Warrant.
3.4. DISSOLUTION, LIQUIDATION OR WIND UP. In case the Company shall, at
any time prior to the complete exercise of this Warrant or its expiration,
dissolve, liquidate or wind up its affairs, the Company shall provide written
notice thereof to the Holder hereof and the holders of the Warrant Shares at
least 30 days prior to such dissolution, liquidation or winding up, and the
Holder hereof and the holders of the Warrant Shares may exercise such Warrants
within 10 days after the date of such notice or such Warrants will expire. In
the event of any such dissolution, liquidation or winding up of its affairs, the
Holder hereof shall be entitled, upon the exercise of this Warrant, to receive,
in lieu of the Warrant Shares which the Holder would have been entitled to
receive, the same kind and amount of assets as would have been issued,
distributed or paid to such Holder upon any such dissolution, liquidation or
winding up with respect to such Warrant Shares, had such Holder hereof been the
holder of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution.
ARTICLE 4. PIGGYBACK REGISTRATION.
If prior to the complete exercise of this Warrant or its expiration, the
Company proposes to file a registration statement with the Commission for a
public offering and sale of Common Stock of the Company (other than a
registration statement on Forms S-4 or S-8 or in connection with an exchange
offering), not less than 20 days prior to such registration, the Company shall
give notice to the Holder hereof and the holders of the Warrant Shares of its
intention to do so, and, upon the written request of the Holder hereof or any
holder of Warrant Shares given within 10 days after the date of any such notice,
include in such registration statement such Warrant Shares issued or issuable
upon the exercise of this Warrant as have been requested by any such Holder to
be included in such registration, PROVIDED that such Holder (i) enters into an
underwriting agreement with the underwriters of the offering and (ii) agrees to
lock up any Warrant Shares not being registered as requested by the
underwriters. Unless the Company determines in its sole discretion not to
proceed with the offering, the Company will in each instance use its best
efforts to cause any Warrant Shares issued or issuable (but not for when-issued
trading) hereunder (the holders of which shall have so requested registration
thereof) to be registered under the Securities Act and qualified under the
securities or blue sky laws of any jurisdiction where the Company proposes to
file; PROVIDED that in the event such registration is an underwritten primary
offering on behalf of the Company and the managing underwriters advise the
Company in writing that, in their opinion, the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the aggregate
number of securities to be issued by the Company, (ii) second, the Warrant
Shares issued or issuable hereunder requested to be included in such
registration, and (iii) third, other securities requested to be included in such
registration; and provided further, however, that to the extent such priority
violates any agreement of the Company outstanding prior to the Original Issue
Date with respect to registration of its equity securities, the shares covered
in any such agreement shall be treated on a pro rata basis with the Warrant
Shares issued or issuable hereunder requested to be included in such
registration.
ARTICLE 5. MISCELLANEOUS PROVISIONS.
5.1. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Oregon.
3
<PAGE>
5.2. NOTICES. Any notice or other document required or permitted to be
given in connection with this Warrant shall be sufficiently given if sent by
first class mail, postage prepaid, addressed to the Company as follows:
E.Com International, Inc.
7737 SW Cirrus Drive
Beaverton, Oregon 97008
(until notice of another address is given in writing by the Company to the
Holder of this Warrant) and to the Holder at the last address shown on the books
of the Company or its transfer agent maintained for the registry and transfer of
Warrants.
5.3. SUCCESSORS. All covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its respective
successors and assigns.
5.4. BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed
to give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or claim under this Warrant. This Warrant
shall be for the sole and exclusive benefit of the Company and the Holder.
5.5. HEADINGS. The headings used herein are for convenience only, are not
a part of this Warrant and shall not affect the interpretation hereof.
Attest: E.COM INTERNATIONAL, INC.
- -------------------------- -----------------------------
Steven A. Larson William F. Stephens
Secretary President and Chief Executive Officer
4
<PAGE>
ANNEX A
SUBSCRIPTION NOTICE/ELECTION TO PURCHASE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned, the registered holder of Warrant __ (the "Warrant"),
issued by E.Com International, Inc. hereby (1) irrevocably subscribes for
_________ shares of common stock which the undersigned is entitled to purchase
under the terms and conditions of the Warrant, (2) makes payment of $__________
in full [in cash/by certified check/by wire transfer] therefor as called for by
the Warrant, and (3) directs that the certificates for such shares of common
stock issuable upon exercise of the Warrant be issued in the name of and
delivered to ________________ whose address is
_____________________________________________________________.
-----------------------------------------------
Print name of partnership, corporation
trust or other entity
By:--------------------------------------------
Signature of authorized representative
-----------------------------------------------
Capacity of authorized representative
Dated: , 199
----------------- ---
NOTICE: The signature on this Subscription Notice/Election to Purchase must
correspond with the name as written upon the face of the Warrant in
every particular, without alteration or enlargement or any change
whatsoever.
5
<PAGE>
WARRANT AGREEMENT
between
E.COM INTERNATIONAL, INC.
and
TRANSECURITIES INTERNATIONAL, INC.
Dated as of September 9, 1997
<PAGE>
This Agreement, dated as of September 9, 1997, is between
E.COM International, Inc., an Oregon corporation (the "Company"), and
TranSecurities International, Inc., a Washington corporation, (the "Warrant
Agent").
The Company, at or about the time that it is entering
into this Agreement, proposes to issue and sell to certain accredited
investors up to 1,500 Units ("Units"). Each Unit consists of one thousand
(1,000) shares of common stock of the Company ("Common Stock") and one
thousand (1,000) Warrants (collectively, the "Warrants"), each Warrant
exercisable to purchase one share of Common Stock for $3.50, upon the terms
and conditions and subject to adjustment in certain circumstances, all as set
forth in this Agreement.
The Company proposes to issue to the Selling Agent in the
placement of Units referred to above warrants to purchase up to 150
additional Units.
The Company wishes to retain the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in
connection with the issuance, transfer, exchange and replacement of the
certificates evidencing the Warrants to be issued under this Agreement (the
"Warrant Certificates") and the exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this
Agreement to set forth the terms and conditions of the Warrants and the
rights of the holders thereof ("Warrantholders") and to set forth the
respective rights and obligations of the Company and the Warrant Agent. Each
Warrantholder is an intended beneficiary of this Agreement with respect to
the rights of Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT
The Company appoints the Warrant Agent to act as agent
for the Company in accordance with the instructions in this Agreement and the
Warrant Agent accepts such appointment.
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Section 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES
The Warrant Certificates (and the Form of Election to
Purchase and the Form of Assignment to be printed on the reverse thereof)
shall be in registered form only and shall be substantially of the tenor and
purport recited in Exhibit A hereto, and may have such letters, numbers or
other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law, or with any rule or
regulation made pursuant thereto, or with any rule or regulation of any stock
exchange on which the Common Stock or the Warrants may be listed or any
automated quotation system, or to conform to usage. Each Warrant Certificate
shall entitle the registered holder thereof, subject to the provisions of
this Agreement and of the Warrant Certificate, to purchase, on or before the
close of business on December 31, 2002 (the "Expiration Date"), one fully
paid and non-assessable share of Common Stock for each Warrant evidenced by
such Warrant Certificate, subject to adjustments as provided in Sections 6
hereof, for $3.50 (the "Exercise Price"). Each Warrant Certificate issued as
a part of a Unit offered to the public as described in the recitals, above,
shall be dated September ____, 1997; each other Warrant Certificate shall be
dated the date on which the Warrant Agent receives valid issuance
instructions from the Company or a transferring holder of a Warrant
Certificate or, if such instructions specify another date, such other date.
For purposes of this Agreement, the term "close of
business" on any given date shall mean 5:20 p.m., Pacific time, on such date;
provided, however, that if such date is not a business day, it shall mean
5:20 p.m., Pacific time, on the next succeeding business day. For purposes
of this Agreement, the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in Oregon are
authorized or obligated by law to be closed.
Each Warrant Certificate shall be executed on behalf of
the Company by the Chairman of the Board or its President or a Vice
President, either manually or by facsimile signature printed thereon, and
have affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. Each Warrant Certificate shall be
manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any Warrant Certificate shall cease to be such officer of the
Company before countersignature by the Warrant Agent and issue and delivery
thereof by the Company, such Warrant Certificate, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificate had not
ceased to be such officer of the Company.
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Section 3. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES
Subsequent to their original issuance, no Warrant
Certificates shall be reissued except (i) Warrant Certificates issued upon
transfer thereof in accordance with Section 4 hereof, (ii) Warrant
Certificates issued upon any combination, split-up or exchange of Warrant
Certificates pursuant to Section 4 hereof, (iii) Warrant Certificates issued
in replacement of mutilated, destroyed, lost or stolen Warrant Certificates
pursuant to Section 5 hereof, (iv) Warrant Certificates issued upon the
partial exercise of Warrant Certificates pursuant to Section 7 hereof, and
(v) Warrant Certificates issued to reflect any adjustment or change in the
Exercise Price or the number or kind of shares purchasable thereunder
pursuant to Section 22 hereof. The Warrant Agent is hereby irrevocably
authorized to countersign and deliver, in accordance with the provisions of
said Sections 4, 5, 7 and 22, the new Warrant Certificates required for
purposes thereof, and the Company, whenever required by the Warrant Agent,
will supply the Warrant Agent with Warrant Certificates duly executed on
behalf of the Company for such purposes.
Section 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES
The Warrant Agent will keep or cause to be kept books for
registration of ownership and transfer of the Warrant Certificates issued
hereunder. Such registers shall show the names and addresses of the
respective holders of the Warrant Certificates and the number of Warrants
evidenced by each such Warrant Certificate.
The Warrant Agent shall, from time to time, register the
transfer of any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender of the Warrant Certificate
evidencing such Warrants, with the Form of Assignment duly filled in and
executed with such signature guaranteed by a banking institution or NASD
member and such supporting documentation as the Warrant Agent or the Company
may reasonably require, to the Warrant Agent at its stock transfer office in
Spokane, Washington at any time on or before the Expiration Date, and upon
payment to the Warrant Agent for the account of the Company of an amount
equal to any applicable transfer tax. Payment of the amount of such tax may
be made in cash, or by certified or official bank check, payable in lawful
money of the United States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of
Assignment duly filled in and executed, accompanied by payment of an amount
equal to any applicable transfer tax, the Warrant Agent shall promptly cancel
the surrendered Warrant Certificate and countersign and deliver to the
transferee a new Warrant Certificate for the number of full Warrants
transferred to such transferee; PROVIDED, HOWEVER, that in case the
registered holder of any Warrant Certificate shall elect to transfer fewer
than all of the Warrants evidenced by such Warrant Certificate, the Warrant
Agent in addition
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shall promptly countersign and deliver to such registered holder a new Warrant
Certificate or Certificates for the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged
at the option of the holder thereof for another Warrant Certificate or
Certificates of different denominations, of like tenor and representing in
the aggregate the same number of Warrants, upon surrender of such Warrant
Certificate or Certificates, with the Form of Assignment duly filled in and
executed, to the Warrant Agent, at any time or from time to time after the
close of business on the date hereof and prior to the close of business on
the Expiration Date. The Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and deliver the new Warrant Certificate pursuant to the
provisions of this Section.
Section 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES
Upon receipt by the Company and the Warrant Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of any Warrant Certificate, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and
reimbursement to them of all reasonable expenses incidental thereto, and, in
the case of mutilation, upon surrender and cancellation of the Warrant
Certificate, the Warrant Agent shall countersign and deliver a new Warrant
Certificate of like tenor for the same number of Warrants.
Section 6. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND EXERCISE
PRICE
The number and kind of securities or other property
purchasable upon exercise of a Warrant shall be subject to adjustment from
time to time upon the occurrence, after the date hereof, of any of the
following events:
A. If, at any time after the close of business on the date
that is ninety (90) days after the last date on which the Warrants subject
to this Agreement are sold by the Company (the "Final Closing Date"), there
shall not be effective a registration statement under the Securities Act of
1933, as amended, (the "Act") with respect to the Common Stock and Warrants
comprising the Units and the Common Stock issuable on exercise of the
Warrants then, commencing on the ninety-first day the Exercise Price shall be
reduced by $0.01 (or such adjusted amount as may be appropriate in light of
any other adjustment of the Exercise Price pursuant to this Section 6) and
shall be further reduced by an additional $0.01 (or such adjusted amount as
may be appropriate in light of any other adjustment of the Exercise Price
pursuant to this Section 6) for each subsequent day until such registration
statement is declared effective. If the Company fails to deliver Common
Stock on exercise of any Warrants within five (5) business days following the
valid exercise of such Warrants in reliance on the provisions of Section 9
and does not elect to redeem such Warrants for cash as provided in Section 9,
then
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commencing on the sixth business day following such exercise, the Exercise Price
shall be reduced by $0.01 (or such adjusted amount as may be appropriate in
light of any other adjustment of the Exercise Price pursuant to this Section 6)
for each day until such Common Stock is delivered; PROVIDED, HOWEVER, that no
adjustment to the Exercise Price shall occur (1) if the Company determines in
good faith that due to subsequent events or developments, statements in the
registration statement which were accurate at the time the registration
statement became effective have become materially misleading or the registration
statement contains material omissions which did not exist at the time the
registration statement became effective, and as a result the Company is unable
to deliver a valid prospectus in accordance with Section 7, PROVIDED that the
Company shall make all reasonable efforts and take all reasonable steps to
correct such material misstatement or material omission as soon as practicable;
or (2) if, in the opinion of the Board of Directors of the Company, upon advice
of counsel, a prospectus to be delivered in accordance with Section 7 would
require the disclosure of some fact or circumstance which has not otherwise been
disclosed in the registration statement, and the Board of Directors determines
in good faith that disclosure of such fact or circumstance is not in the best
interest of the Company, PROVIDED that the Board of Directors may do so not more
than twice and for not more than 90 days. If, as a result of the application of
this Section 6A, the Exercise Price is reduced to zero, the Warrants will be
deemed exercised on the first date on which the Exercise Price is zero without
further action by any Holder and the Company will issue and deliver Common Stock
issuable upon such exercise to the record holders as of the close of business on
such date.
B. In case the Company shall (1) pay a dividend in, or make a
distribution of, shares of capital stock on its outstanding Common Stock, (2)
subdivide its outstanding shares of Common Stock into a greater number of such
shares or (3) combine its outstanding shares of Common Stock into a smaller
number of such shares, the total number of shares of Common Stock purchasable
upon the exercise of each Warrant outstanding immediately prior thereto shall be
adjusted so that the holder of any Warrant Certificate thereafter surrendered
for exercise shall be entitled to receive at the same aggregate Exercise Price
the number of shares of capital stock (of one or more classes) which such holder
would have owned or have been entitled to receive immediately following the
happening of any of the events described above had such Warrant been exercised
in full immediately prior to the record date with respect to such event. Any
adjustment made pursuant to this Subsection shall, in the case of a stock
dividend or distribution, become effective as of the record date therefor and,
in the case of a subdivision or combination, be made as of the effective date
thereof. If, as a result of an adjustment made pursuant to this Subsection, the
holder of any Warrant Certificate thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive and shall be evidenced by a Board resolution filed with the Warrant
Agent) shall determine the allocation of the adjusted Exercise Price between or
among shares of such classes of capital stock.
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C. In the event of a capital reorganization or a
reclassification of the Common Stock (except as provided in Subsection B.
above or Subsection F. below), any Warrantholder, upon exercise of Warrants,
shall be entitled to receive, in substitution for the Common Stock to which
he would have become entitled upon exercise immediately prior to such
reorganization or reclassification, the shares (of any class or classes) or
other securities or property of the Company (or cash) that he would have been
entitled to receive at the same aggregate Exercise Price upon such
reorganization or reclassification if such Warrants had been exercised
immediately prior to the record date with respect to such event; and in any
such case, appropriate provision (as determined by the Board of Directors of
the Company, whose determination shall be conclusive and shall be evidenced
by a certified Board resolution filed with the Warrant Agent) shall be made
for the application of this Section 6 with respect to the rights and
interests thereafter of the Warrantholders (including but not limited to the
allocation of the Exercise Price between or among shares of classes of
capital stock), to the end that this Section 6 (including the adjustments of
the number of shares of Common Stock or other securities purchasable and the
Exercise Price thereof) shall thereafter be reflected, as nearly as
reasonably practicable, in all subsequent exercises of the Warrants for any
shares or securities or other property (or cash) thereafter deliverable upon
the exercise of the Warrants.
D. Whenever the number of shares of Common Stock or other
securities purchasable upon exercise of a Warrant is adjusted as provided in
this Section 6, the Company will promptly file with the Warrant Agent a
certificate signed by a Chairman or co-Chairman of the Board or the President
or a Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company setting
forth the number and kind of securities or other property purchasable upon
exercise of a Warrant, as so adjusted, stating that such adjustments in the
number or kind of shares or other securities or property conform to the
requirements of this Section 6, and setting forth a brief statement of the
facts accounting for such adjustments. Promptly after receipt of such
certificate, the Company, or the Warrant Agent at the Company's request, will
deliver, by first-class, postage prepaid mail, a brief summary thereof (to be
supplied by the Company) to the registered holders of the outstanding Warrant
Certificates; PROVIDED, HOWEVER, that failure to file or to give any notice
required under this Subsection, or any defect therein, shall not affect the
legality or validity of any such adjustments under this Section 6; and
PROVIDED, FURTHER, that, where appropriate, such notice may be given in
advance and included as part of the notice required to be given pursuant to
Section 12 hereof. Whenever the Exercise Price of a Warrant is adjusted as
provided in this Section 6, the Company will promptly file with the Warrant
Agent a certificate signed by a Chairman or co-Chairman of the Board or the
President or a Vice President of the Company and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth the Exercise Price of the Warrant, as so adjusted, stating that
such adjustment in the Exercise Price conforms to the requirements of this
Section 6.
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<PAGE>
E. In case of any consolidation of the Company with, or
merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the corporation formed by such consolidation or merger or the
corporation which shall have acquired such assets, as the case may be, shall
execute and deliver to the Warrant Agent a supplemental warrant agreement
providing that the holder of each Warrant then outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, solely the kind and amount of shares of stock and
other securities and property (or cash) receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock
of the Company for which such Warrant might have been exercised immediately
prior to such consolidation, merger, sale or transfer. Such supplemental
warrant agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided in this Section.
The above provision of this Subsection shall similarly apply to successive
consolidations, mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility
to determine the correctness of any provision contained in any such
supplemental warrant agreement relating to either the kind or amount of
shares of stock or securities or property (or cash) purchasable by holders of
Warrant Certificates upon the exercise of their Warrants after any such
consolidation, merger, sale or transfer or of any adjustment to be made with
respect thereto, but subject to the provisions of Section 20 hereof, may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, a certificate of a firm of independent
certified public accountants (who may be the accountants regularly employed
by the Company) with respect thereto.
F. Irrespective of any adjustments in the number or kind of
shares issuable upon exercise of Warrants, Warrant Certificates theretofore
or thereafter issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrant Certificates initially
issuable pursuant to this Warrant Agreement.
G. The Company may retain a firm of independent public
accountants of recognized standing, which may be the firm regularly retained
by the Company, selected by the Board of Directors of the Company or the
Executive Committee of said Board, and not disapproved by the Warrant Agent,
to make any computation required under this Section, and a certificate signed
by such firm shall, in the absence of fraud or gross negligence, be
conclusive evidence of the correctness of any computation made under this
Section.
H. For the purpose of this Section, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock in the Articles
of Incorporation of the Company, as amended, at the date of this Agreement,
or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting
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solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time as a result of an
adjustment made pursuant to this Section, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, thereafter the number of
such other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section, and all other provisions of this Agreement, with respect to the Common
Stock, shall apply on like terms to any such other shares.
I. The Company may, from time to time and to the extent
permitted by law, reduce the exercise price of the Warrants by any amount for
a period of not less than 20 days. If the Company so reduces the exercise
price of the Warrants, it will give not less than 15 days' notice of such
decrease, which notice may be in the form of a press release, and shall take
such other steps as may be required under applicable law in connection with
any offers or sales of securities at the reduced price.
Section 7. EXERCISE AND REDEMPTION OF WARRANTS
Unless the Warrants have been redeemed as provided in
this Section 7, the registered holder of any Warrant Certificate may exercise
the Warrants evidenced thereby, in whole at any time or in part from time to
time at or prior to the close of business, on the Expiration Date, subject to
the provisions of Section 9, at which time the Warrant Certificates shall be
and become wholly void and of no value. Warrants may be exercised by their
holders or redeemed by the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender
of the Warrant Certificate evidencing such Warrants, with the Form of
Election to Purchase on the reverse side thereof duly filled in and executed,
to the Warrant Agent at its stock transfer office in Spokane, Washington,
together with payment of the Exercise Price (as of the date of such
surrender) of the Warrants then being exercised and an amount equal to any
applicable transfer tax and, if requested by the Company, any other taxes or
governmental charges which the Company may be required by law to collect in
respect of such exercise. Payment of the Exercise Price and other amounts
may be made by wire transfer of good funds, or by certified or bank cashier's
check, payable in lawful money of the United States of America to the order
of the Company. No adjustment shall be made for any cash dividends, whether
paid or declared, on any securities issuable upon exercise of a Warrant.
B. Upon receipt of a Warrant Certificate, with the Form of
Election to Purchase duly filled in and executed, accompanied by payment of
the Exercise Price of the Warrants being exercised (and of an amount equal to
any applicable taxes or government charges as aforesaid), the Warrant Agent
shall promptly request from the Transfer Agent with respect to the securities
to be issued and within five (5) business
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days following the valid exercise of such Warrants deliver to or upon the order
of the registered holder of such Warrant Certificate, in such name or names as
such registered holder may designate, a certificate or certificates for the
number of full shares of the securities to be purchased, together with cash made
available by the Company pursuant to Section 8 hereof in respect of any fraction
of a share of such securities otherwise issuable upon such exercise. The
Company will take such action as may be required to cause all of the securities
of the Company issuable upon exercise of Warrants to be freely tradable under
the Act and applicable state securities laws by the Exercising Warrantholder
immediately upon such delivery. If it is required by law and upon instruction
by the Company, the Warrant Agent will deliver to each Warrantholder a
prospectus which complies with the provisions of Section 9 of the Act and the
Company agrees to supply Warrant Agent with sufficient number of prospectuses to
effectuate that purpose. If the Warrant is then exercisable to purchase
property other than securities, the Warrant Agent shall take appropriate steps
to cause such property to be delivered to or upon the order of the registered
holder of such Warrant Certificate.
C. In case the registered holder of any Warrant Certificate
shall exercise fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent shall promptly countersign and deliver to the
registered holder of such Warrant Certificate, or to his duly authorized
assigns, a new Warrant Certificate or Certificates evidencing the number of
Warrants that were not so exercised.
D. Each person in whose name any certificate for securities
is issued upon the exercise of Warrants shall for all purposes be deemed to
have become the holder of record of the securities represented thereby as of,
and such certificate shall be dated, the date upon which the Warrant
Certificate was duly surrendered in proper form and payment of the Exercise
Price (and of any applicable taxes or other governmental charges) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date
on which the stock transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares as of, and
the certificate for such shares shall be dated, the next succeeding business
day on which the stock transfer books of the Company are open (whether
before, on or after the Expiration Date) and the Warrant Agent shall be under
no duty to deliver the certificate for such shares until such date. The
Company covenants and agrees that it shall not cause its stock transfer books
to be closed for a period of more than 20 consecutive business days except
upon consolidation, merger, sale of all or substantially all of its assets,
dissolution or liquidation or as otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may
be redeemed at the option of the Company, in whole or in part on a pro-rata
basis, at any time if, at the time notice of such redemption is given by the
Company as provided in Paragraph F, below, the Daily Price has exceeded $5.00
for the twenty consecutive trading days immediately preceding the date of
such notice, at a price equal to $0.25 per Warrant (the "Redemption Price").
For the purpose of the foregoing sentence, the term "Daily Price" shall mean,
for any relevant day, the closing or closing bid price on that day as
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reported by the principal exchange or quotation system on which prices for the
Common Stock are reported, provided, however, that, if the principal quotation
system publishes a range of bid prices, the highest closing bid price shall be
used. On the redemption date the holders of record of redeemed Warrants shall
be entitled to payment of the Redemption Price upon surrender of such redeemed
Warrants to the Company at the principal office of the Warrant Agent in Spokane,
Washington.
F. Notice of redemption of Warrants shall be given at least
30 days prior to the redemption date by mailing, by registered or certified
mail, return receipt requested, a copy of such notice to the Warrant Agent
and to all of the holders of record of Warrants at their respective addresses
appearing on the books or transfer records of the Company or such other
address designated in writing by the holder of record to the Warrant Agent
not less than 40 days prior to the redemption date.
G. From and after the redemption date, all rights of the
Warrantholders (except the right to receive the Redemption Price) shall
terminate, but only if (a) no later than one day prior to the redemption date
the Company shall have irrevocably deposited with the Warrant Agent as paying
agent a sufficient amount to pay on the redemption date the Redemption Price
for all Warrants called for redemption and (b) the notice of redemption shall
have stated the name and address of the Warrant Agent and the intention of
the Company to deposit such amount with the Warrant Agent no later than one
day prior to the redemption date.
H. The Warrant Agent shall pay to the holders of record of
redeemed Warrants all monies received by the Warrant Agent for the redemption
of Warrants to which the holders of record of such redeemed Warrants who
shall have surrendered their Warrants are entitled.
I. Any amounts deposited with the Warrant Agent that are not
required for redemption of Warrants may be withdrawn by the Company. Any
amounts deposited with the Warrant Agent that shall be unclaimed after six
months after the redemption date may be withdrawn by the Company, and
thereafter the holders of the Warrants called for redemption for which such
funds were deposited shall look solely to the Company for payment. The
Company shall be entitled to the interest, if any, on funds deposited with
the Warrant Agent and the holders of redeemed Warrants shall have no right to
any such interest.
J. If the Company fails to make a sufficient deposit with
the Warrant Agent as provided above, the holder of any Warrants called for
redemption may at the option of the holder (a) by notice to the Company
declare the notice of redemption a nullity as to such holder, or (b) maintain
an action against the Company for the Redemption Price. If the holder brings
such an action, the Company will pay reasonable attorneys' fees of the
holder. If the holder fails to bring an action against the Company for the
Redemption Price within 60 days after the redemption date, the holder shall
be deemed to have elected to declare the notice of redemption to be a nullity
as to such holder and
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such notice shall be without any force or effect as to such holder. Except as
otherwise specifically provided in this Paragraph J, a notice of redemption,
once mailed by the Company as provided in Paragraph F shall be irrevocable.
Section 8. FRACTIONAL INTERESTS
The Company shall not be required to issue any Warrant
Certificate evidencing a fraction of a Warrant or to issue fractions of
shares of securities on the exercise of the Warrants. If any fraction
(calculated to the nearest one-hundredth) of a Warrant or a share of
securities would, except for the provisions of this Section, be issuable on
the exercise of any Warrant, the Company shall, at its option and upon notice
to the Warrant Agent, either purchase such fraction for an amount in cash
equal to the current value of such fraction computed on the basis of the
closing market price (as quoted on the principal exchange or quotation system
on which prices for the Common Stock are reported) on the trading day
immediately preceding the day upon which such Warrant Certificate was
surrendered for exercise in accordance with Section 7 hereof or issue the
required fractional Warrant or share. By accepting a Warrant Certificate,
the holder thereof expressly waives any right to receive a Warrant
Certificate evidencing any fraction of a Warrant or to receive any fractional
share of securities upon exercise of a Warrant, except as expressly provided
in this Section 8.
Section 9. RESERVATION OF EQUITY SECURITIES
The Company covenants that it will at all times reserve
and keep available, free from any preemptive rights, out of its authorized
and unissued equity securities, solely for the purpose of issue upon exercise
of the Warrants, such number of shares of equity securities of the Company as
shall then be issuable upon the exercise of all outstanding Warrants ("Equity
Securities"). The Company covenants that all Equity Securities which shall
be so issuable shall, upon such issue, be duly authorized, validly issued,
fully paid and non-assessable.
The Company covenants that if any equity securities,
required to be reserved for the purpose of issue upon exercise of the
Warrants hereunder, require registration with or approval of any governmental
authority under any federal or state law before such shares may be issued
upon exercise of Warrants, the Company will use all commercially reasonable
efforts to cause such securities to be duly registered, or approved, as the
case may be, and, to the extent practicable, take all such action in
anticipation of and prior to the exercise of the Warrants, including, without
limitation, filing any and all post-effective amendments to the Company's
registration statement filed as described in Section 6A. necessary to permit
a public offering of the securities underlying the Warrants at any and all
times during the term of this Agreement, PROVIDED, HOWEVER, that in no event
shall such securities be issued, and the Company is authorized to refuse to
honor the exercise of any Warrant, if such exercise would result
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in the opinion of the Company's Board of Directors, upon advice of counsel, in
the violation of any law; and PROVIDED FURTHER that, in the case of a Warrant
exercisable solely for securities listed on a securities exchange or for which
there are at least two independent market makers, in lieu of obtaining such
registration or approval, the Company may elect to redeem Warrants submitted to
the Warrant Agent for exercise for a price equal to the difference between the
aggregate low asked price, or closing price, as the case may be, of the
securities for which such Warrant is exercisable on the date of such submission
and the Exercise Price of such Warrants; in the event of such redemption, the
Company will pay to the holder of such Warrants the above-described redemption
price in cash within 10 business days after receipt of notice from the Warrant
Agent that such Warrants have been submitted for exercise.
Section 10. REDUCTION OF CONVERSION PRICE BELOW PAR VALUE
Before taking any action that would cause an adjustment
pursuant to Section 6 hereof reducing the portion of the Exercise Price
required to purchase one share of capital stock below the then par value (if
any) of a share of such capital stock, the Company will use its best efforts
to take any corporate action which, in the opinion of its counsel, may be
necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of such capital stock.
Section 11. PAYMENT OF TAXES
The Company covenants and agrees that it will pay when
due and payable any and all federal and state documentary stamp and other
original issue taxes which may be payable in respect of the original issuance
of the Warrant Certificates, or any shares of Common Stock or other
securities upon the exercise of Warrants. The Company shall not, however, be
required (i) to pay any tax which may be payable in respect of any transfer
involved in the transfer and delivery of Warrant Certificates or the issuance
or delivery of certificates for Common Stock or other securities in a name
other than that of the registered holder of the Warrant Certificate
surrendered for purchase or (ii) to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of any Warrant
Certificate until any such tax shall have been paid, all such tax being
payable by the holder of such Warrant Certificate at the time of surrender.
Section 12. NOTICE OF CERTAIN CORPORATE ACTION
In case the Company after the date hereof shall propose
(i) to offer to the holders of Common Stock, generally, rights to subscribe
to or purchase any additional shares of any class of its capital stock, any
evidences of its indebtedness or assets, or any other rights or options or
(ii) to effect any reclassification of Common Stock (other
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<PAGE>
than a reclassification involving merely the subdivision or combination of
outstanding shares of Common Stock) or any capital reorganization, or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or other
disposition of its property and assets substantially as an entirety, or the
liquidation, voluntary or involuntary dissolution or winding-up of the Company,
then, in each such case, the Company shall file with the Warrant Agent and the
Company, or the Warrant Agent on its behalf, shall mail (by first-class, postage
prepaid mail) to all registered holders of the Warrant Certificates notice of
such proposed action, which notice shall specify the date on which the books of
the Company shall close or a record be taken for such offer of rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation, voluntary
or involuntary dissolution or winding-up shall take place or commence, as the
case may be, and which shall also specify any record date for determination of
holders of Common Stock entitled to vote thereon or participate therein and
shall set forth such facts with respect thereto as shall be reasonably necessary
to indicate any adjustments in the Exercise Price and the number or kind of
shares or other securities purchasable upon exercise of Warrants which will be
required as a result of such action. Such notice shall be filed and mailed in
the case of any action covered by clause (i) above, at least ten days prior to
the record date for determining holders of the Common Stock for purposes of such
action or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record are to be entitled to such offering; and, in
the case of any action covered by clause (ii) above, at least 20 days prior to
the earlier of the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation, voluntary
or involuntary dissolution or winding-up is expected to become effective and the
date on which it is expected that holders of shares of Common Stock of record on
such date shall be entitled to exchange their shares for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, transfer, other disposition, liquidation, voluntary or involuntary
dissolution or winding-up.
Failure to give any such notice or any defect therein
shall not affect the legality or validity of any transaction listed in this
Section 12.
Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT CERTIFICATES, ETC.
The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay to the Company all
moneys received by the Warrant Agent for the purchase of securities or other
property through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement
available for inspection by Warrantholders during normal business hours at
its stock transfer office.
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<PAGE>
Copies of this Agreement may be obtained upon written request addressed to the
Warrant Agent at its stock transfer office in Spokane, Washington.
Section 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER
No Warrantholder, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
of the Warrants represented thereby for any purpose whatever, nor shall
anything contained herein or in any Warrant Certificate be construed to
confer upon any Warrantholder, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change
of stock to no par value, consolidation, merger, conveyance or otherwise), or
to receive notice of meetings or other actions affecting stockholders (except
as provided in Section 12 hereof), or to receive dividend or subscription
rights, or otherwise, until such Warrant Certificate shall have been
exercised in accordance with the provisions hereof and the receipt of the
Exercise Price and any other amounts payable upon such exercise by the
Warrant Agent.
Section 15. RIGHT OF ACTION
All rights of action in respect to this Agreement are
vested in the respective registered holders of the Warrant Certificates; and
any registered holder of any Warrant Certificate, without the consent of the
Warrant Agent or of any other holder of a Warrant Certificate, may, in his
own behalf for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company suitable to enforce, or
otherwise in respect of, his right to exercise the Warrants evidenced by such
Warrant Certificate, for the purchase of shares of the Common Stock in the
manner provided in the Warrant Certificate and in this Agreement.
Section 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES
Every holder of a Warrant Certificate by accepting the
same consents and agrees with the Company, the Warrant Agent and with every
other holder of a Warrant Certificate that:
A. the Warrant Certificates are transferable on the registry
books of the Warrant Agent only upon the terms and conditions set forth in
this Agreement; and
B. the Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the absolute
owner of the Warrant
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<PAGE>
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Section 17. CANCELLATION OF WARRANT CERTIFICATES
In the event that the Company shall purchase or otherwise
acquire any Warrant Certificate or Certificates after the issuance thereof,
such Warrant Certificate or Certificates shall thereupon be delivered to the
Warrant Agent and be canceled by it and retired. The Warrant Agent shall
also cancel any Warrant Certificate delivered to it for exercise, in whole or
in part, or delivered to it for transfer, split-up, combination or exchange.
Warrant Certificates so canceled shall be delivered by the Warrant Agent to
the Company from time to time, or disposed of in accordance with the
instructions of the Company.
Section 18. CONCERNING THE WARRANT AGENT
The Company agrees to pay to the Warrant Agent from time
to time, on demand of the Warrant Agent, reasonable compensation for all
services rendered by it hereunder and also its reasonable expenses, including
counsel fees, and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent for, and
to hold it harmless against, any loss, liability or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Warrant
Agent, arising out of or in connection with the acceptance and administration
of this Agreement.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Warrant Agent shall be a party,
or any corporation succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor warrant agent under the provisions of Section 21
hereof. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, any of the Warrant
Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrant Certificates so countersigned; and in
case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such
Warrant
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<PAGE>
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall
be changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
Section 20. DUTIES OF WARRANT AGENT
The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant Certificates, by their
acceptance thereof, shall be bound:
A. The Warrant Agent may consult with counsel satisfactory
to it (who may be counsel for the Company or the Warrant Agent's in-house
counsel), and the opinion of such counsel shall be full and complete
authorization and protection to the Warrant Agent as to any action taken,
suffered or omitted by it in good faith and in accordance with such opinion;
PROVIDED, HOWEVER, that the Warrant Agent shall have exercised reasonable
care in the selection of such counsel. Fees and expenses of such counsel, to
the extent reasonable, shall be paid by the Company.
B. Whenever in the performance of its duties under this
Agreement, the Warrant Agent shall deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by a Chairman or
co-Chairman of the Board or the President or a Vice President or the
Secretary of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in
the Warrant Certificates (except its countersignature on the Warrant
Certificates and such statements or recitals as describe the Warrant Agent or
action taken or to be taken by it) or be required to
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<PAGE>
verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in respect
of the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the making of any change
in the number of shares of Common Stock for which a Warrant is exercisable
required under the provisions of Section 6 or responsible for the manner,
method or amount of any such change or the ascertaining of the existence of
facts that would require any such adjustment or change (except with respect
to the exercise of Warrant Certificates after actual notice of any adjustment
of the Exercise Price); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock to be issued pursuant to this Agreement or any Warrant
Certificate or as to whether any shares of Common Stock will, when issued, be
validly issued, fully paid and non-assessable.
F. The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or take any other action
likely to involve expense unless the Company or one or more registered
holders of Warrant Certificates shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may be
incurred. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any
of the Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any recovery
of judgment shall be for the ratable benefit of the registered holders of the
Warrant Certificates, as their respective rights or interests may appear.
G. The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested
in any transaction in which the Company may be interested, or contract with
or lend money to or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
H. The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from a Chairman or co-Chairman of the Board or President or a Vice President
or the Secretary or the Chief Financial Officer of the Company, and to apply
to such officers for advice or instructions in connection with the Warrant
Agent's duties, and it shall not be liable for
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<PAGE>
any action taken or suffered or omitted by it in good faith in accordance with
instructions of any such officer.
I. The Warrant Agent will not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys, agents or employees and the Warrant
Agent shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys, agents or employees or for any loss to the
Company resulting from such neglect or misconduct; PROVIDED, HOWEVER, that
reasonable care shall have been exercised in the selection and continued
employment of such attorneys, agents and employees.
K. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of
the Company in a ministerial capacity, and its duties will be determined
solely by the provisions hereof. The Warrant Agent will not be liable for
anything which it may do or refrain from doing in connection with this
Agreement except for its own negligence, bad faith or willful conduct.
Section 21. CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from its
duties under this Agreement upon 30 days' prior notice in writing mailed, by
registered or certified mail, to the Company. The Company may remove the
Warrant Agent or any successor warrant agent upon 30 days' prior notice in
writing, mailed to the Warrant Agent or successor warrant agent, as the case
may be, by registered or certified mail. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Warrant Agent and shall, within 15 days
following such appointment, give notice thereof in writing to each registered
holder of the Warrant Certificates. If the Company shall fail to make such
appointment within a period of 15 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Warrant Agent, then the Company agrees to
perform the duties of the Warrant Agent hereunder until a successor Warrant
Agent is appointed. After appointment and execution of a copy of this
Agreement in effect at that time, the successor Warrant
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<PAGE>
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent, within a reasonable time, any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
however, or any defect therein shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be.
Section 22. ISSUANCE OF NEW WARRANT CERTIFICATES
Notwithstanding any of the provisions of this Agreement
or the several Warrant Certificates to the contrary, the Company may, at its
option, issue new Warrant Certificates in such form as may be approved by its
Board of Directors to reflect any adjustment or change in the Exercise Price
or the number or kind of shares purchasable under the several Warrant
Certificates made in accordance with the provisions of this Agreement.
Section 23. NOTICES
Notice or demand pursuant to this Agreement to be given
or made on the Company by the Warrant Agent or by the registered holder of
any Warrant Certificate shall be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as
follows:
E.Com International, Inc.
7737 SW Cirrus Drive
Beaverton, Oregon 97008
Attn: William F. Stephens, President and Chief Executive
Officer
Subject to the provisions of Section 21, any notice
pursuant to this Agreement to be given or made by the Company or by the
holder of any Warrant Certificate to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class or registered mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
TranSecurities Inc.
North 2510 Pines Road, Suite 202
Spokane, Washington 99206
Attn: Carolyn S. Tedesco, President
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<PAGE>
Any notice or demand authorized to be given or made to
the registered holder of any Warrant Certificate under this Agreement shall
be sufficiently given or made if sent by first-class or registered mail,
postage prepaid, to the last address of such holder as it shall appear on the
registers maintained by the Warrant Agent.
Section 24. MODIFICATION OF AGREEMENT
The Warrant Agent may, without the consent or concurrence
of the Warrantholders, by supplemental agreement or otherwise, concur with
the Company in making any changes or corrections in this Agreement that the
Warrant Agent shall have been advised by counsel (who may be counsel for the
Company) are necessary or desirable to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or
manifest error herein contained, or to make any other provisions in regard to
matters or questions arising hereunder and which shall not be inconsistent
with the provisions of the Warrant Certificates and which shall not adversely
affect the interests of the Warrantholders. As of the date hereof, this
Agreement contains the entire and only agreement, understanding,
representation, condition, warranty or covenant between the parties hereto
with respect to the matters herein, supersedes any and all other agreements
between the parties hereto relating to such matters, and may be modified or
amended only by a written agreement signed by both parties hereto pursuant to
the authority granted by the first sentence of this Section.
Section 25. SUCCESSORS
All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 26. OREGON CONTRACT
This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State
of Oregon and for all purposes shall be construed in accordance with the laws
of said State.
Section 27. TERMINATION
This Agreement shall terminate as of the close of
business on the Expiration Date, or such earlier date upon which all
Warrants shall have been exercised or redeemed, except that the Warrant Agent
shall account to the Company as to all Warrants outstanding and all cash held
by it as of the close of business on the Expiration Date.
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<PAGE>
Section 28. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement or in the Warrant Certificates
shall be construed to give to any person or corporation other than the
Company, the Warrant Agent, and their respective successors and assigns
hereunder and the registered holders of the Warrant Certificates any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant
Agent, their respective successors and assigns hereunder and the registered
holders of the Warrant Certificates.
Section 29. DESCRIPTIVE HEADINGS
The descriptive headings of the several Sections of this
Agreement are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
Section 30. COUNTERPARTS
This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
E.COM INTERNATIONAL, INC.
By: /s/ William F. Stephens
------------------------------
William F. Stephens
President and Chief Executive Officer
TRANSECURITIES INTERNATIONAL, INC.
By: /s/ Carolyn S. Tedesco
------------------------------
Carolyn S. Tedesco
President
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<PAGE>
EXHIBIT A
VOID AFTER 5 P.M. PACIFIC TIME ON DECEMBER 31, 2002
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
E.COM INTERNATIONAL, INC.
CUSIP _______________
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from E.Com International, Inc., a corporation incorporated under the
laws of the State of Oregon ("Company"), subject to the terms and conditions set
forth hereinafter and in the Warrant Agreement hereinafter more fully described
(the "Warrant Agreement") referred to, one fully paid and non-assessable share
of Common Stock of the Company ("Common Stock") upon presentation and surrender
of this Warrant Certificate with the instructions for the registration and
delivery of Common Stock filled in, at any time prior to 5:20 P.M., Pacific
time, on December 31, 2002 or, if such Warrant is redeemed as provided in the
Warrant Agreement, at any time prior to the effective time of such redemption,
at the stock transfer office in Spokane, Washington, of TranSecurities
International, Inc., Warrant Agent of the Company ("Warrant Agent") or of its
successor warrant agent or, if there be no successor warrant agent, at the
corporate offices of the Company, and upon payment of the Exercise Price (as
defined in the Warrant Agreement) and any applicable taxes paid either in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company. Each Warrant initially entitles
the holder to purchase one share of Common Stock for $3.50 (the "Exercise
Price"), subject to reduction by $0.01 per day for each day after the 90th day
following the last day on which Warrants are sold by the Company until a
registration relating in part to the Warrants and the Common Stock obtainable on
exercise thereof has been declared effective under the Securities Act of 1933,
as amended (the "Act"). A reduction of the Exercise Price by $0.01 per day will
also occur if the Company invokes its right (described below) to fail to deliver
securities upon any exercise of Warrants or to redeem such exercised Warrants
for cash; PROVIDED, HOWEVER that no adjustment to the Exercise Price shall occur
(1) if the Company determines in good faith that due to subsequent events or
developments, statements in
<PAGE>
the registration statement which were accurate at the time the registration
statement became effective have become materially misleading or the registration
statement contains material omissions which did not exist at the time the
registration statement became effective, and as a result the Company is unable
to deliver a valid prospectus in accordance with the terms of the Warrant
Agreement, PROVIDED that the Company shall make all reasonable efforts and take
all reasonable steps to correct such material misstatement or material omission
as soon as practicable; or (2) if, in the opinion of the Board of Directors of
the Company, upon advice of counsel, a prospectus to be delivered in accordance
with the terms of the Warrant Agreement would require the disclosure of some
fact or circumstance which has not otherwise been disclosed in the registration
statement, and the Board of Directors determines in good faith that disclosure
of such fact or circumstance is not in the best interest of the Company,
PROVIDED that the Board of Directors may do so not more than twice and for not
more than 90 days. The number and kind of securities or other property for
which the Warrants are exercisable (and the rate of reduction in the Exercise
Price described in the foregoing two sentences) are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may redeem any
or all outstanding and unexercised Warrants at any time if the Daily Price has
exceeded $5.00 for twenty consecutive trading days immediately preceding the
date of notice of such redemption, upon 30 days notice, at a price equal to
$0.25 per Warrant. For the purpose of the foregoing sentence, the term "Daily
Price" shall mean, for any relevant day, the closing bid price on that day as
reported by the principal exchange or quotation system on which prices for the
Common Stock are reported, provided, however, that, if the principal quotation
system publishes a range of bid prices, the highest closing bid price shall be
used. All Warrants not theretofore exercised or redeemed will expire on
December 31, 2002.
This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, dated as of September ___, 1997
("Warrant Agreement"), between the Company and the Warrant Agent, to all of
which terms, provisions and conditions the registered holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is
incorporated herein by reference and made a part hereof and reference is made to
the Warrant Agreement for a full description of the rights, limitations of
rights, obligations, duties and immunities of the Warrant Agent, the Company and
the holders of the Warrant Certificates. In the event of any discrepancy
between the provisions of this Warrant Certificate and of the Warrant Agreement,
the Warrant Agreement shall control. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company at 7737 Cirrus
Drive, Beaverton, Oregon 97008, Attention: Chief Financial Officer.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
<PAGE>
In certain cases, the sale of securities by the Company upon
exercise of Warrants would violate the securities laws of the United States,
certain states thereof or other jurisdictions. The Company has agreed to use
its best efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Act, and
to take such action under the laws of various states as may be required to
cause the sale of securities upon exercise to be lawful. However, the Company
will not be required to honor the exercise of Warrants if, in the opinion of
the Board of Directors, upon advice of counsel, the sale of securities upon
such exercise would be unlawful. In certain cases, the Company may, but is not
required to, purchase Warrants submitted for exercise for a cash price equal to
the difference between the market price of the securities obtainable upon such
exercise and the exercise price of such Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Company's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced by
this Warrant Certificate are closed for any purpose, the Company shall not be
required to make
<PAGE>
delivery of certificates for shares purchasable upon such transfer until the
date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same
consents and agrees with the Company, the Warrant Agent, and with every other
holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of
the Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any
certificate for shares of Common Stock or other securities upon the exercise of
Warrants evidenced by this Warrant Certificate until any tax which may be
payable in respect thereof by the holder of this Warrant Certificate pursuant
to the Warrant Agreement shall have been paid, such tax being payable by the
holder of this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
<PAGE>
WITNESS the facsimile signatures of the proper officers of the
Company and its corporate seal.
Dated: September ____, 1997
E.COM INTERNATIONAL, INC.
By:
----------------------------
William F. Stephens
President and Chief Executive Officer
Attest:
-------------------------
Steven A. Larsen
Secretary
Countersigned
TRANSECURITIES INTERNATIONAL, INC.
By:
-------------------------
Carolyn S. Tedesco
President
<PAGE>
VOID AFTER 5 P.M. PACIFIC TIME ON DECEMBER 31, 2002
WARRANTS TO PURCHASE UNITS
W_____ _________ Warrants
E.COM INTERNATIONAL, INC.
CUSIP _______________
THIS CERTIFIES THAT
PAULSON INVESTMENT COMPANY INC.
or registered assigns, is the registered holder of the number of Warrants ("Unit
Warrants") set forth above. Each Unit Warrant entitles the holder thereof to
purchase from E.COM International, Inc., a corporation incorporated under the
laws of the State of Oregon ("Company"), subject to the terms and conditions set
forth hereinafter and in the Warrant Agreement hereinafter more fully described
(the "Warrant Agreement") referred to, one Unit consisting of one fully paid and
non-assessable share of Common Stock of the Company ("Common Stock") and one
warrant to purchase Common Stock (each, a "Warrant") upon presentation and
surrender of this Warrant Certificate with the instructions for the registration
and delivery of Common Stock filled in, at any time prior to 5:20 P.M., Pacific
time, on December 31, 2002 or, if such Warrant is redeemed as provided in the
Warrant Agreement, at any time prior to the effective time of such redemption,
at the stock transfer office in Spokane, Washington, of TranSecurities
International, Inc., Warrant Agent of the Company ("Warrant Agent") or of its
successor warrant agent or, if there be no successor warrant agent, at the
corporate offices of the Company, and upon payment of the Exercise Price (as
defined in the Warrant Agreement) and any applicable taxes paid either in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company. Each Warrant initially entitles
the holder to purchase one share of Common Stock for $3.50 (the "Exercise
Price"), subject to reduction by $0.01 per day for each day after the 90th day
following the last day on which Warrants are sold by the Company until a
registration relating in part to the Warrants and the Common Stock obtainable on
exercise thereof has been declared effective under the Securities Act of 1933,
as amended (the "Act"). A reduction of the Exercise Price by $0.01 per day will
also occur if the Company invokes its right (described below) to fail to deliver
securities upon any exercise of Warrants or to redeem such exercised Warrants
for cash; PROVIDED, HOWEVER that no adjustment to the Exercise Price shall occur
(1) if the Company
<PAGE>
determines in good faith that due to subsequent events or developments,
statements in the registration statement which were accurate at the time the
registration statement became effective have become materially misleading or the
registration statement contains material omissions which did not exist at the
time the registration statement became effective, and as a result the Company is
unable to deliver a valid prospectus in accordance with the terms of the Warrant
Agreement, PROVIDED that the Company shall make all reasonable efforts and take
all reasonable steps to correct such material misstatement or material omission
as soon as practicable; or (2) if, in the opinion of the Board of Directors of
the Company, upon advice of counsel, a prospectus to be delivered in accordance
with the terms of the Warrant Agreement would require the disclosure of some
fact or circumstance which has not otherwise been disclosed in the registration
statement, and the Board of Directors determines in good faith that disclosure
of such fact or circumstance is not in the best interest of the Company,
PROVIDED that the Board of Directors may do so not more than twice and for not
more than 90 days. The number and kind of securities or other property for
which the Warrants are exercisable (and the rate of reduction in the Exercise
Price described in the foregoing two sentences) are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may redeem any
or all outstanding and unexercised Warrants at any time if the Daily Price has
exceeded $5.00 for twenty consecutive trading days immediately preceeding the
date of notice of such redemption, upon 30 days notice, at a price equal to
$0.25 per Warrant. For the purpose of the foregoing sentence, the term "Daily
Price" shall mean, for any relevant day, the closing bid price on that day as
reported by the principal exchange or quotation system on which prices for the
Common Stock are reported, provided, however, that, if the principal quotation
system publishes a range of bid prices, the highest closing bid price shall be
used. All Warrants not theretofore exercised or redeemed will expire on
December 31, 2002.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of September 9, 1997 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. In the event of any discrepancy between the provisions of this
Warrant Certificate and of the Warrant Agreement, the Warrant Agreement shall
control. Copies of the Warrant Agreement are available for inspection at the
stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at 7737 Cirrus Drive, Beaverton, Oregon 97008,
Attention: Chief Financial Officer.
The Company shall not be required upon the exercise of the Unit Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or
ii
<PAGE>
other securities, but shall make adjustment therefor in cash on the basis of the
current market value of any fractional interest as provided in the Warrant
Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Unit Warrants or Warrants would violate the securities laws of the United
States, certain states thereof or other jurisdictions. The Company has agreed
to use its best efforts to cause a registration statement to continue to be
effective during the term of the Unit Warrants or Warrants with respect to such
sales under the Act, and to take such action under the laws of various states as
may be required to cause the sale of securities upon exercise to be lawful.
However, the Company will not be required to honor the exercise of Unit Warrants
or Warrants if, in the opinion of the Board of Directors, upon advice of
counsel, the sale of securities upon such exercise would be unlawful. In
certain cases, the Company may, but is not required to, purchase Warrants
submitted for exercise for a cash price equal to the difference between the
market price of the securities obtainable upon such exercise and the exercise
price of such Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Unit Warrants as the Warrant Certificate or
Certificates so surrendered. If the Unit Warrants evidenced by this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Certificates
evidencing the number of Unit Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Unit Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Unit Warrants evidenced by
this Warrant
iii
<PAGE>
Certificate are closed for any purpose, the Company shall not be required to
make delivery of certificates for shares purchasable upon such transfer until
the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in whose
name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Unit Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
iv
<PAGE>
WITNESS the facsimile signatures of the proper officers of the Company and
its corporate seal.
Dated: December ____, 1997
E.COM INTERNATIONAL, INC.
By:
---------------------------------------
William F. Stephens
President and Chief Executive Officer
Attest:
-------------------------
Steven A. Larson
Secretary
Countersigned
TRANSECURITIES INTERNATIONAL, INC.
By:
--------------------------------
Carolyn S. Tedesco
President
v
<PAGE>
EMPLOYMENT AGREEMENT
DATE: June 6, 1996
BETWEEN: E.B.I. ACQUISITION, INC., "EMPLOYER"
an Oregon corporation
AND: WILLIAM F. STEPHENS, JR. "EMPLOYEE"
RECITALS
WHEREAS, Employer desires to employ Employee as its President according to
the terms and conditions of this Agreement; and,
WHEREAS, Employee has the skills, ability, background and desire to be
employed as President of Employer;
IT IS HEREBY AGREED:
1.0 EMPLOYMENT
1.1 Employer agrees to employ Employee, and Employee agrees to continue
to be employed by Employer, as President of Employer, pursuant to the terms and
conditions set forth herein.
2.0 TERM
2.1 The term of this Agreement commences on May 1, 1996, and this
Agreement shall continue indefinitely until terminated by either party as
provided herein.
3.0 DUTIES
3.1 Employee shall carry out such duties as are typically performed by a
president of a company and will work under the direction of Employer's Board of
Directors. Employee will serve Employer faithfully, professionally, and to the
best of his ability. Employee will devote his entire working time and best
efforts working for Employer on a full-time basis. Employee shall be the
principal executive officer of Employer and shall in general supervise and
control all of the business and affairs of Employer. Employee shall have the
following duties and responsibilities, without limitation:
3.1.1 Provide for Employer's current profitability and long range
goals;
-1-
<PAGE>
3.1.2 Provide leadership for the management staff;
3.1.3 Design policies, plans and procedures in coordination with
the Board of Directors and implement such policies, plans and procedures;
3.1.4 Appoint and terminate employees as he may, in his
discretion, decide as appropriate to assist in the conduct of the affairs of the
Employer;
3.1.5 Coordinate activities to affect operational efficiency and
economy, as determined in his discretion;
3.1.6 Buy, lease or otherwise acquire for the Employer, equipment,
supplies and inventory determined necessary subject to any operating and/or
capital expenditure budgets which may be in effect;
3.1.7 Enter into contracts for Employer;
3.1.8 Design, review, implement and recommend financial
strategies, policies and procedures for Employer; and
3.1.9 Carry out such additional executive services and duties as
are customarily carried out by a president and chief executive officer of a
corporation.
3.2 Employee shall not be precluded from engaging in appropriate civic,
charitable or religious activities or from devoting a reasonable amount of time
to private investments, as long as such activities and service do not interfere
or conflict with his responsibilities to Employer and are consistent with
Employer's policies.
4.0 COMPENSATION
4.1 BASE SALARY. Employee shall be entitled to a base salary of
$5,000.00 per month commencing May 1, 1996, for the first three (3) months of
employment hereunder; $6,000.00 per month commencing August 1, 1996; and
$7,000.00 per month commencing November 1, 1996 and thereafter.
4.2 BONUS. Employee will be eligible for bonuses paid pursuant to any
bonus program which may be implemented by Employer's Board of Directors.
4.3 STOCK OPTION PLAN. While Employer has not yet established an
incentive stock option plan, it contemplates doing so. Accordingly, Employee
will be entitled to participate in Employer's incentive stock option plan as
determined by the Board of Directors in its sole discretion.
4.4 BENEFITS. During his period of employment, Employee shall be
entitled to all benefits in effect from time to time which Employer provides to
its other employees.
-2-
<PAGE>
5.0 EXPENSES AND TRAVEL
5.1 During the term of his employment under this Agreement, Employee is
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. Employer shall
reimburse Employee for such expenses upon presentation of an itemized account
and appropriate supporting documents all in accordance with Employer's general
applicable policies. Expenses must be reasonable and customary, have a business
purpose, be comparable to the same type of expense incurred by similarly sized
and related businesses, and meet the requirement of deductibility as business
expenses under Federal tax law.
6.0 TRADE SECRETS
6.1 Employee acknowledges and agrees that Employer's Proprietary
Information constitutes trade secrets developed by Employer and constitutes the
exclusive property of Employer. Employee, therefore, agrees that for and during
the entire term of this Agreement any Proprietary Information shall be
considered and kept as the private, privileged and proprietary records of
Employer, and Employee will not divulge the contents of such records to any
firm, individual or institution except upon the direct authorization of Board of
Directors of Employer.
6.2 Upon termination of this Agreement for any cause, Employee agrees he
will continue to treat as private and privileged Employer's Proprietary
Information and will not release any such information to any person, firm or
institution, either by statement, deposition or witness, or use Employer's
Proprietary Information for his own monetary gain, except upon the direct
written authority of the Board of Directors of Employer, and Employer shall be
entitled to an injunction by any competent court to enjoin and restrain the
unauthorized disclosure of such information. Any and all copies of any
Proprietary Information shall be returned to Employer by Employee upon
termination for whatever cause.
6.3 "Proprietary Information" is defined as all inventions, products,
techniques, processes, experimental or developmental work, marketing
information, customer lists and other such information disclosed to Employee
including, but not limited to, any idea, invention, patent or product derived
from or arising out of such information or from Employee's performance under
this Agreement. Proprietary Information shall not include any product,
discovery or information which is known or available to the general public or in
the public domain as of the date of this Agreement, or is known by Employee from
sources other than Employer, or which becomes known to Employee or publicly
known other than from Employer, unless the Proprietary Information includes a
new application or use for any product, discovery or information known or
available to the general public in which case the new use or application will
constitute Proprietary Information.
7.0 TERMINATION
7.1 DEFINITIONS. As used herein, the following definitions shall apply:
7.1.1 "Cause" shall mean the termination of the employment of
Employee as a result of (i) fraud or dishonesty in connection with the business
of Employer; (ii) gross negligence as to the
-3-
<PAGE>
performance of Employee's duties for Employer; (iii) willful failure of Employee
to carry out his duties as an employee of Employer; (iv) any act or acts of
dishonesty undertaken by Employee and intended to result in gain or personal
enrichment of Employee at the expense of Employer; (v) persistent failure by
Employee to perform the duties and obligations of Employee's employment which
are not remedied in a reasonable period of time after receipt of written notice
from Employer; or (vi) Employee's conviction, after exhaustion of all appeals,
of a felony involving moral turpitude whether or not in connection with the
business of Employer.
7.1.2 "Disability" shall mean that Employee, at the time notice is
given, has been unable to perform his duties under this Agreement for a period
of not less than 45 consecutive days as a result of his incapacity due to
physical or mental illness. In the event that Employee resumes the performance
of substantially all of his duties hereunder before the termination of his
employment, the notice of termination shall automatically be deemed to have been
revoked.
7.1.3 "Voluntary Termination of Employment" shall mean Employee
voluntarily terminates his employment with Employer.
7.2 TERMINATION BY EMPLOYER. Employer may terminate Employee's
employment at any time for cause. Employer may terminate Employee's employment
at any time, for any reason, or for no reason, provided thirty (30) days'
advance notice in writing of termination is given to Employee.
7.3 TERMINATION ON DEATH OR DISABILITY. If Employer terminates
Employee's employment as a result of Employee's death or disability (as defined
in paragraph 7.1.2), Employee shall receive any severance or disability payments
to which he may be entitled under Employer standard benefit plans then in
effect. Employee acknowledges that Employer has no existing severance or
disability benefit plans in effect as of the date of this Agreement.
7.4 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate his
employment voluntarily by giving Employer thirty (30) days advance notice in
writing.
7.5 WIND UP AND TRANSFER. Following any notice of termination of
employment, Employee shall fully cooperate with Employer in all matters relating
to the winding up of his pending work on behalf of Employer and the orderly
transfer of any such pending work to other employees of Employer as may be
designated by Employer. Employer shall be entitled to such full or part-time
services of Employee as Employer may reasonably require during all or any part
of the thirty (30) day period following any notice of termination.
7.6 RETURN OF EMPLOYER PROPERTY. On termination or whenever requested by
Employer, Employee shall immediately return to Employer all of Employer's
property used by Employee in rendering services hereunder or otherwise, that is
in Employee's possession or under his control.
8.0 NOTICE
8.1 Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or five (5) days after being mailed by U.S. Registered or Certified
Mail, Return Receipt Requested, and postage pre-paid. In
-4-
<PAGE>
the case of Employee, mailed notices shall be addressed to him at the home
address which he most recently communicated to Employer in writing. In the case
of Employer, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of Employer's Corporate
Secretary, with a copy to Gregory J. Englund, Hooper, Englund & Weil, Suite 1507
Standard Plaza, 1100 S.W. Sixth Avenue, Portland, Oregon 97204.
9.0 MISCELLANEOUS
9.1 WAIVER. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by representative of Employer authorized by the
Board of Directors to sign for Employer (other than Employee). No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered the waiver of any other
condition or provision or of the same condition or provision at another time.
9.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing, signed by the party against whom the enforcement of any
waiver, change, modification, extension or discharge is sought.
9.3 INVALID PROVISION. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed as if such invalid or
unenforceable provisions were omitted.
9.4 ASSIGNMENT. This Agreement shall be binding and inure to the benefit
of Employer, Employee and their respective heirs, legal representatives,
executors, administrators, successors and assigns; provided, however, that
Employee may not assign or delegate any of the rights or obligations hereunder
without first obtaining the written consent of Employer.
9.5 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Oregon.
9.6 EMPLOYMENT TAXES. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
9.7 PARAGRAPH HEADINGS. The paragraph headings contained herein are for
convenience only and shall in no manner be construed as part of the Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and together shall constitute one and
the same Agreement with one counterpart being delivered to each party hereto.
9.9 INCORPORATION OF RECITALS. The recitals are intended to be
contractual in nature and are incorporated herein by reference.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
herein first above written.
E.B.I. ACQUISITION, INC.
By: /s/ Steve Larson /s/ William F. Stephens
-------------------------- -----------------------
Name: Steve Larson William F. Stephens, Jr.
-------------------------- 6/6/96
Title: Chairman
--------------------------
-6-
<PAGE>
ADDENDUM TO
EMPLOYMENT AGREEMENT
DATE: December 12, 1996
BETWEEN: E.B.I. ACQUISITION, INC., "EMPLOYER"
an Oregon corporation
AND: WILLIAM F. STEPHENS, JR. "EMPLOYEE"
RECITALS
WHEREAS, Employer and Employee entered into an Employment Agreement dated
May 1, 1996 ("Agreement") whereby Employee became employed by Employer as
President; and,
WHEREAS, the Board of Directors of Employer has approved certain changes
and additions to the Agreement, which are set forth in this Addendum;
IT IS HEREBY AGREED:
1.0 BONUS
1.1 PAYMENT. Prior to 1997, Employer's Board of Directors shall
establish a Net Revenue goal for 1997. In the event Employer meets or exceeds
that revenue goal, Employee shall be entitled to payment of a bonus of $25,000,
payable on or before January 15, 1998. In addition, Employee shall be paid an
additional bonus of 2 % of that portion of Net Revenue which exceeds the
established goal for 1997.
1.2 DEFINITIONS.
1.2.1 "Net Revenue" consists of gross revenue minus freight and
adjustments for discounts.
2.0 SEVERANCE COMPENSATION
2.1 In the event Employee's employment is terminated for any reason other
than (i) Employee's voluntary resignation, (ii) death, (iii) disability, or (iv)
for "Cause" as defined in paragraph 7.1.1 of the Agreement, Employee shall be
paid, as Employee's exclusive remedy for such termination, Employee's base
salary in effect as of the date of termination, and shall continue to receive
health and other insurance benefits as otherwise provided in this Agreement, for
a period of six (6) months from the date of termination of employment.
-1-
<PAGE>
3.0 MISCELLANEOUS
3.1 WAIVER. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by representative of Employer authorized by the
Board of Directors to sign for Employer (other than Employee). No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered the waiver of any other
condition or provision or of the same condition or provision at another time.
3.2 ENTIRE AGREEMENT. The Agreement, as amended by this Addendum,
constitutes the entire understanding of the parties. It may not be changed
orally, but only by an agreement in writing, signed by the party against whom
the enforcement of any waiver, change, modification, extension or discharge is
sought.
3.3 INVALID PROVISION. The invalidity or unenforceability of any
particular provision of this Addendum shall not affect the other provisions
hereof, and this Addendum shall be construed as if such invalid or unenforceable
provisions were omitted.
3.4 ASSIGNMENT. This Addendum shall be binding and inure to the benefit
of Employer, Employee and their respective heirs, legal representatives,
executors, administrators, successors and assigns; provided, however, that
Employee may not assign or delegate any of the rights or obligations hereunder
without first obtaining the written consent of Employer.
3.5 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Addendum shall be governed by the laws of the State of
Oregon.
3.6 EMPLOYMENT TAXES. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
3.7 PARAGRAPH HEADINGS. The paragraph headings contained herein are for
convenience only and shall in no manner be construed as part of the Agreement.
3.8 COUNTERPARTS. This Addendum may be executed in two counterparts,
each of which shall be deemed an original and together shall constitute one and
the same Agreement with one counterpart being delivered to each party hereto.
3.9 INCORPORATION OF RECITALS. The recitals are intended to be
contractual in nature and are incorporated herein by reference.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum on the date
herein first above written.
E.B.I. ACQUISITION, INC.
By: /s/ Steve Larson /s/ William F. Stephens
-------------------------- ------------------------
Name: Steve Larson William F. Stephens, Jr.
--------------------------
Title: Chairman
--------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
DATE: November 26, 1997
BETWEEN: E.COM INTERNATIONAL, INC., an Oregon corporation "Employer"
AND: JONATHAN D. BIRCK "Employee"
R E C I T A L S
WHEREAS, Employer desires to employ Employee as its Executive Vice
President according to the terms and conditions of this Agreement; and,
WHEREAS, Employee has the skills, ability, background and desire to be
employed as Executive Vice President of Employer;
IT IS HEREBY AGREED:
1.0 EMPLOYMENT
1.1 Employer agrees to employ Employee, and Employee agrees to become
employed by Employer, as Executive Vice President of Employer, pursuant to the
terms and conditions set forth herein.
2.0 TERM
2.1 The term of this Agreement commences on November 25, 1997, the date
Employee commenced his period of employment, and this Agreement shall continue
indefinitely until terminated by either party as provided herein.
3.0 DUTIES
3.1 Employee shall work under the direction of Employer's President.
Employee will serve Employer faithfully, professionally, and to the best of his
ability. Employee will devote his entire working time and best efforts working
for Employer on a full-time basis. Employee shall be charged with the
management of Employer's finance and accounting functions, purchasing
department, and of management of Employer's engineering and manufacturing
departments. Employee shall carry out such additional services and duties as
may be assigned to him by Employer's President.
3.2 Employee shall not be precluded from engaging in appropriate civic,
charitable or religious activities or from devoting a reasonable amount of time
to private investments, as long as such activities and service do not interfere
or conflict with his responsibilities to Employer and are consistent with
Employer's policies.
-1-
<PAGE>
4.0 COMPENSATION
4.1 BASE SALARY. Employee shall be entitled to a base salary of $7,500
per month commencing on the date specified in paragraph 2.0.
4.2 BONUS. Additionally, Employee shall be eligible for payment of
$10,000 bonus during his first year of employment based on specific objectives
to be set forth in writing by Employee and Employer's President. Employee must
remain employed continuously during the entire first year of employment to be
eligible for the bonus. The terms of such objectives are incorporated herein by
reference.
4.3 STOCK OPTION PLAN. Upon execution of this Agreement, Employee will
be granted a qualified incentive stock option to acquire 100,000 shares of
common stock at the market rate for such shares as of the date of grant pursuant
to the E.Com International, Inc. 1997 Incentive Compensation Plan. The option
grant will be memorialized by an Incentive Stock Option Agreement to be entered
into between Employer and Employee. The option shall be exercisable as to
40,000 shares of common stock on the six (6) month anniversary of this
Agreement, assuming Employee remains continuously employed by Employer during
that 6-month period. The option as to the remaining 60,000 shares shall be
exercisable at a rate of 20,000 shares per year. The 3-year term for the
exercise of the additional 60,000 shares shall commence when the option has
become exercisable as to the first 40,000 shares.
4.4 BENEFITS. During his period of employment, Employee shall be
entitled to such other benefits in effect from time to time which Employer
provides to its other employees.
5.0 EXPENSES AND TRAVEL
5.1 During the term of his employment under this Agreement, Employee is
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. Employer shall
reimburse Employee for such expenses upon presentation of an itemized account
and appropriate supporting documents all in accordance with Employer's general
applicable policies. Expenses must be reasonable and customary, have a business
purpose, be comparable to the same type of expense incurred by similarly sized
and related businesses, and meet the requirement of deductibility as business
expenses under Federal tax law.
6.0 TRADE SECRETS
6.1 Employee acknowledges and agrees that Employer's Proprietary
Information constitutes trade secrets developed by Employer and constitutes the
exclusive property of Employer. Employee, therefore, agrees that for and during
the entire term of this Agreement any Proprietary Information shall be
considered and kept as the private, privileged and proprietary records of
Employer, and Employee will not divulge the contents of such records to any
firm, individual or institution except upon the direct authorization of Board of
Directors of Employer.
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<PAGE>
6.2 Upon termination of this Agreement for any cause, Employee agrees he
will continue to treat as private and privileged Employer's Proprietary
Information and will not release any such information to any person, firm or
institution, either by statement, deposition or witness, or use Employer's
Proprietary Information for his own monetary gain, except upon the direct
written authority of the Board of Directors of Employer, and Employer shall be
entitled to an injunction by any competent court to enjoin and restrain the
unauthorized disclosure of such information. Any and all copies of any
Proprietary Information shall be returned to Employer by Employee upon
termination for whatever cause.
6.3 "Proprietary Information" is defined as all inventions, products,
techniques, processes, experimental or developmental work, marketing
information, customer lists and other such information disclosed to Employee
including, but not limited to, any idea, invention, patent or product derived
from or arising out of such information or from Employee's performance under
this Agreement. Proprietary Information shall not include any product,
discovery or information which is known or available to the general public or in
the public domain as of the date of this Agreement, or is known by Employee from
sources other than Employer, or which becomes known to Employee or publicly
known other than from Employer, unless the Proprietary Information includes a
new application or use for any product, discovery or information known or
available to the general public in which case the new use or application will
constitute Proprietary Information.
7.0 COVENANT NOT TO COMPETE
7.1 Employee agrees that during the term of this Agreement he will not
compete directly or indirectly with Employer's business activities.
7.2 Except as may be allowed pursuant to paragraph 7.3, in the event
either Employer or Employee should terminate Employee's employment relationship
with Employer, with or without cause, Employee agrees that he will not, for a
period of one (1) year after the termination of such employment relationship,
engage in any business or enterprise which competes with the business of
Employer, anywhere in the world, as an individual proprietor, partner,
stockholder of a closely-held corporation, director or officer of any
corporation, as an agent or employee of any other party, or by any other direct
or indirect means. In the event Employee should compete with Employer during
the time period stated above, such time period shall be extended by a period of
time equal to the time Employee is so engaged in competition.
7.3 In the event Employee's employment relationship with Employer is
terminated, Employee shall give Employer ten days written notice if Employee
proposes to engage in any business or enterprise which could be construed as
violating paragraph 7.2. Any notice provided under this subparagraph shall
include a description of the new business or enterprise in which Employee, or
his new employer, is engaged. Employer will advise Employee within the ten-day
period if it objects or consents to Employee's proposed new employment or
business enterprise. Any failure by Employer to respond within the ten-day
period will be construed as an objection to Employee's proposed new competing
business or enterprise in which case paragraph 7.2 will
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<PAGE>
remain fully enforceable. Employer agrees it will not, however, unreasonably
withhold its consent to any new business or enterprise in which Employee
proposes to be engaged.
7.4 Employee agrees that, during the one-year time period provided in
paragraph 7.2, he will not solicit any customers or suppliers of Employer with
whom he had contact in person, by telephone, or by any other means while
employed by Employer, or whose names or business locations were contained on any
customer or supplier list of Employer to which Employee had access during his
period of employment.
7.5 During the one-year term beginning on the termination of his
employment with Employer, Employee agrees not to solicit for hire or participate
in the solicitation for hire of any employee of Employer.
7.6 Employer may assign this Agreement in connection with the transfer of
Employer's business, or in connection with the transfer of that portion of
Employer's business operations in which Employee is employed, and this Agreement
shall inure to the benefit of Employer's successors and assigns.
7.7 The provisions of this Agreement shall continue to be effective
notwithstanding any change in Employee's duties or change in the amount or
method of determining Employee's compensation.
7.8 If the length of time or the areas covered by this Agreement shall be
determined to be unreasonable, this Agreement shall be enforceable for a
reasonable time and within a reasonable area, as determined by a court. If
Employee violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction enjoining and restraining Employee from continuing
such violation, and in addition, Employer shall be entitled to recover such
damages as Employer may have suffered as a result of such violation.
8.0 TERMINATION
8.1 DEFINITIONS. As used herein, the following definitions shall apply:
8.1.1 "Cause" shall mean the termination of the employment of
Employee as a result of (i) fraud or dishonesty in connection with the business
of Employer; (ii) gross negligence as to the performance of Employee's duties
for Employer; (iii) willful failure of Employee to carry out his duties as an
employee of Employer; (iv) any act or acts of dishonesty undertaken by Employee
and intended to result in gain or personal enrichment of Employee at the expense
of Employer; (v) persistent failure by Employee to perform the duties and
obligations of Employee's employment which are not remedied in a reasonable
period of time after receipt of written notice from Employer; or (vi) Employee's
conviction, after exhaustion of all appeals, of a felony involving moral
turpitude whether or not in connection with the business of Employer.
8.1.2 "Disability" shall mean that Employee, at the time notice is
given, has been unable to perform his duties under this Agreement for a period
of not less than 45 consecutive
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days as a result of his incapacity due to physical or mental illness. In the
event that Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment, the notice of termination
shall automatically be deemed to have been revoked.
8.1.3 "Voluntary Termination of Employment" shall mean Employee
voluntarily terminates his employment with Employer.
8.2 TERMINATION BY EMPLOYER. Employer may terminate Employee's
employment at any time for cause. Employer may terminate Employee's employment
at any time, for any reason, or for no reason, provided thirty (30) days'
advance notice in writing of termination is given to Employee.
8.3 TERMINATION ON DEATH OR DISABILITY. If Employer terminates
Employee's employment as a result of Employee's death or disability (as defined
in paragraph 8.1.2), Employee shall receive any severance or disability payments
to which he may be entitled under Employer's standard benefit plans then in
effect. Employee acknowledges that Employer has no existing severance or
disability benefit plans in effect as of the date of this Agreement except as
otherwise set forth in this Agreement.
8.4 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate his
employment voluntarily by giving Employer thirty (30) days advance notice in
writing.
8.5 WIND UP AND TRANSFER. Following any notice of termination of
employment, Employee shall fully cooperate with Employer in all matters relating
to the winding up of his pending work on behalf of Employer and the orderly
transfer of any such pending work to other employees of Employer as may be
designated by Employer. Employer shall be entitled to such full or part-time
services of Employee as Employer may reasonably require during all or any part
of the thirty (30) day period following any notice of termination.
8.6 RETURN OF EMPLOYER PROPERTY. On termination or whenever requested by
Employer, Employee shall immediately return to Employer all of Employer's
property used by Employee in rendering services hereunder or otherwise, that is
in Employee's possession or under his control.
8.7 SEVERANCE COMPENSATION. In the event Employee's employment is
terminated for any reason other than (i) Employee's voluntary resignation, (ii)
death, (iii) disability, or (iv) "cause" as defined in paragraph 7.1.1 hereof,
Employee shall be paid, as Employee's exclusive remedy for such termination,
Employee's base salary in effect as of the date of termination for a period of
three (3) months from the date of termination, and shall continue to receive any
health or other insurance benefits in effect as of the date of termination
during the same three (3) month period. Such severance compensation shall be
payable in three equal monthly installments; provided, however, that such
installments shall be reduced by the amount of any compensation paid to or
earned by Employee during such three month period.
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9.0 NOTICE
9.1 Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or five (5) days after being mailed by U.S. Registered or Certified
Mail, Return Receipt Requested, and postage prepaid. In the case of Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to Employer in writing. In the case of Employer, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of Employer's President, with a copy to Gregory J.
Englund, Hooper, Englund & Well LLP, Suite 1507 Standard Plaza, 1100 S.W. Sixth
Avenue, Portland, Oregon 97204.
10.0 MISCELLANEOUS
10.1 WAIVER. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by the President of Employer. No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered the waiver of any other
condition or provision or of the same condition or provision at another time.
10.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing, signed by the party against whom the enforcement of any
waiver, change, modification, extension or discharge is sought.
10.3 INVALID PROVISION. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed as if such invalid or
unenforceable provisions were omitted.
10.4 ASSIGNMENT. This Agreement shall be binding and inure to the benefit
of Employer, Employee and their respective heirs, legal representatives,
executors, administrators, successors and assigns; provided, however, that
Employee may not assign or delegate any of the rights or obligations hereunder
without first obtaining the written consent of Employer.
10.5 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Oregon.
10.6 EMPLOYMENT TAXES. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
10.7 PARAGRAPH HEADINGS. The paragraph headings contained herein are for
convenience only and shall in no manner be construed as part of the Agreement.
10.8 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and together shall constitute one and
the same Agreement with one counterpart being delivered to each party hereto.
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<PAGE>
10.9 INCORPORATION OF RECITALS. The recitals are intended to be
contractual in nature and are incorporated herein by reference.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
herein first above written.
E.COM INTERNATIONAL, INC.
By: /s/ William F. Stephens /s/ Jonathan D. Birck
----------------------- ---------------------------
Name: William F. Stephens Jonathan D. Birck
-----------------------
Title: President
-----------------------
Date: 11/26/97 Date: November 26, 1997
----------------------- ----------------------
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<PAGE>
Exhibit 10.3
MOTOROLA
WIRELESS DATA GROUP
NETWORK ADAPTER AGREEMENT
BETWEEN
MOTOROLA, INC.
WIRELESS DATA GROUP
50 EAST COMMERCE DRIVE
SCHAUMBURG, ILLINOIS 60173
("WDG")
AND
E.COM INCORPORATED
7905 SW CIRRUS DRIVE
BEAVERTON, OREGON 97008
("E.COM")
Effective Date: September 1, 1996
WHEREAS:
A. WDG develops and markets advanced wireless RF components for use in
devices that enable wireline and wireless users to remotely access computer
databases and files;
B. E.COM develops and markets advanced wireless mobile computing tools
(known as "network adapters") with integrated wireless RF components,
software, battery management and other connectivity devices that provide
remote access to the same devices and users as WDG;
C. WDG has determined to cease production of its own form of
800/900Mhz network adapter known as the "InfoTAC";
D. To ensure that wireless data customers continue to have access to
network adapter devices which integrate WDG's advanced radio modem
technology, WDG and E.COM have determined to collaborate on the development
and marketing of a new line of network adapters incorporating WDG's radio
modem components;
E. WDG and E.COM have agreed to enter into this Agreement to set out
their respective rights and obligations in respect of the matters set out
above.
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NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby mutually acknowledged, the parties hereto
agree as follows:
1. SCOPE
1.1 GOALS. In entering into this Agreement, the goals of the parties
are as follows:
(a) to develop a product to replace WDG's discontinued InfoTAC by
creating a product incorporating the Modems and having other attributes,
including advanced battery management;
(b) to provide the wireless data market with a low cost unit that
will be distributed worldwide;
(c) to identify for E.COM potential distribution channels and
volume demand forecast for 2-Way Messager Units;
(d) to provide E.COM with a reliable source of radio modem
components and technology for next generation network adapter products;
(e) to establish a standard product development process between
E.COM and WDG in respect of next generation wireless network adapters.
Nothing in the foregoing is intended to provide a guarantee by either
party to the other of any particular business result and is specifically not
intended to guarantee either party that the project to be undertaken
hereunder will be successful.
1.2 TWO-PHASED EFFORT. This Agreement sets forth the terms and
conditions governing the following two-phased effort:
(a) Phase I-the development by E.COM of certain products described
as "2-Way Messager Units"; and
(b) Phase II-the appointment by WDG of E.COM an OEM integrator of
the Modems forming part of the 2-Way Messager Units.
2. INTERPRETATION
2.1 DEFINITIONS. In this Agreement:
(a) "2-Way Messager Units" means the network adapter devices,
incorporating the Modems, to be developed by E.COM in accordance with the
terms of this Agreement.
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(b) "Confidential Information" means confidential or proprietary
information of either party or any of its Affiliates which is disclosed in
oral, written or any other form by one party to the other and which is
clearly designated or marked as confidential or proprietary at the time of
disclosure. In order for information disclosed orally to be considered
Confidential Information it shall be confirmed in writing by the disclosing
party within 90 days after such disclosure.
(c) "Modems" means WDG's IWM5x5 radiomodem components having the
specifications set out in Schedule A hereto.
(d) "Specifications" means the functional and environmental
specifications for the 2-Way Messager Units to be agreed upon by WDG and
E.COM.
(e) "Term" means the term of this Agreement as defined in Section
3.1.
(f) "Trademarks" means trademarks, tradenames, logs, service
marks, quality designations or other proprietary words and symbols.
2.2 CURRENCY. All references in this Agreement to "$" or dollars are
to the lawful currency of the United States.
2.3 SCHEDULES. The Schedules which form part of this Agreement are as
follows:
A-IWM5x5 Specifications.
3. TERM
3.1 TERM OF AGREEMENT. This Agreement will begin on the Effective Date
listed above and will terminate on August 31, 1998 (the "Term"), unless
either party terminates the Agreement earlier under the provisions of this
Agreement.
3.2 EXPIRATION OF TERM. At the expiration of the Term, the parties may
agree to extend this Agreement for one or more additional periods of one year
each. Except as otherwise specifically provided herein, neither the
expiration nor earlier termination of this Agreement shall relieve either
party of any obligation it may owe to the other which may have accrued as of
the date of such termination.
4. PHASE I-DEVELOPMENT
4.1 SPECIFICATIONS. E.COM and WDG will meet together to:
(a) identify 2-Way Messager Unit requirements for network
operators, including ARDIS in the United States and international network
operators;
(b) develop the Specifications for the 2-Way Messager Unit; and
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(c) define the development program for the 2-Way Messager Units,
including milestones, projected costs and deliverables.
4.2 NON-RECURRING DEVELOPMENT COSTS. E.COM and WDG agree as follows in
respect of the costs and expenses of developing the 2-Way Messager Units;
(a) all 2-Way Messager Units development costs relating to the
design, layout, prototyping and conversion to commercial units shall be borne
by E.COM;
(b) WDG will sell to E.COM and E.COM will purchase from WDG twenty
(20) Modems, at a purchase price of US$305 per unit, to be used by E.COM as
development units for incorporation into prototype 2-Way Messager Units; and
(c) WDG shall provide, at no charge to E.COM, development support
for development of the 2-Way Messager Units for RF testing, characterization,
coverage, FCC component certification and component integration.
4.3 OWNERSHIP. E.COM shall be the sole owner of the developed 2-Way
Messager Units.
4.4 NEXT GENERATION DEVELOPMENT. In the course of developing the first
generation of 2-Way Messager Units, the project management of both parties
will work together to outline a process which will serve as a baseline for
development in respect of next generation wireless network adapters.
5. PURCHASE OF MODEMS
5.1 Subject to the terms and conditions hereof, and particularly to the
provisions of Section 7, E.COM intends to purchase ten thousand (10,000)
Modems in 1997 and twenty thousand (20,000) Modems in 1998 for a purchase
price of US$250.00 per modem.
5.2 WDG's sale and E.COM's purchase of the Modems shall be subject to
the parties mutual agreement subsequent to the execution hereof regarding the
particulars of the dates on which Modems are to be shipped, E.COM's ability
to cancel or reschedule orders (and the consequences thereof), minimum order
quantities and the warranty provisions that will be applicable to the Modems.
6. MODEMS SUPPORT
6.1 WDG will provide technical documentation and sales literature for
the Modems. WDG personnel will also provide sales training on the Modems to
introduce E.COM's sales organization to the product, its functionality and
features. The details and costs for such efforts will be mutually agreed
between the parties.
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7. MARKETING AND BUSINESS AND CHANNEL DEVELOPMENT
7.1 E.COM and WDG intend to target markets for the sale of the 2-Way
Messager Units in Germany, Malaysia, Australia, Korea, Japan, Singapore,
Canada, Hong Kong, and Thailand and the United States. To that end, E.COM
and WDG intend to conduct a forecast analysis in respect of the sale of 2-Way
Messager Units into those markets.
7.2 E.COM and WDG intend to jointly undertake the following marketing
activities:
(a) in the first quarter of 1997, to jointly meet with wireless
data network operators and other InfoTAC distributors to introduce them to
the 2-Way Messager Units and to provide training on the use of the units;
(b) in the fourth quarter of 1997, to undertake developing
marketing collateral, i.e., data sheets, targeted at wireless data network
operators, resellers and end-user customers. In addition E.COM and WDG will
investigate opportunities for joint advertising and co-marketing. Motorola
cannot commit to funding for such activities.
8. PATENT INDEMNITY
8.1 At its expense, each party will defend the other against any claim
that any activity to be undertaken hereunder (including without limitation,
the supply by each party of any products to be supplied by it hereunder)
infringe a United States or Canadian patent or copyright. The infringing
party will pay all costs, damages and attorney's fees that a court finally
awards as a result of such a claim. But the other party must give the
infringing party prompt written notice of the claim, cooperate fully with
infringing party in its defense, and give the infringing party sole authority
to control the case and any related settlement negotiations. The infringing
party will not be responsible for any settlement made without its written
consent.
9. LIABILITY ON TERMINATION
9.1 Either party may terminate this Agreement upon giving to the other
party ten (10) business days notice of termination. Except as expressly
stated in this Agreement, neither of E.COM or WDG will be liable to the other
for any damages or compensation due to the termination of this Agreement.
This waiver includes any possible claims for the loss of present or future
profits, for reimbursement for any investments or expenditures made in
connection with this Agreement, or for any goodwill of a business.
10. PROPRIETARY INFORMATION
10.1 During the course of the parties' relationship under this
Agreement, each party may be given access to certain Confidential Information
of the other. WDG and E.COM will each exercise due diligence to maintain in
confidence any such information disclosed by one to the other. As used here,
the term "due diligence" means the same precaution and standard of care
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<PAGE>
which the receiving party uses to safeguard its own confidential proprietary
information, but in no event less than reasonable care.
10.2 The party receiving Confidential Information from the other will
use due diligence to prevent any unauthorized use, disclosure, publication or
dissemination. The receiving party may not reproduce, distribute or disclose
any of the other's Confidential Information to a third party, or use it for
any commercial purpose outside this Agreement, without first obtaining
written permission from the party which furnished it. In particular, WDG and
E.COM will each ensure that any of its employees who are given access to the
Confidential Information of the other will have a need to know and will be
required to hold that information in confidence and to use it only in the
course of their employer's business.
10.3 This section does not impose any obligation on either of the
parties if the information is: (1) publicly known at the time of disclosure;
(2) already known to the receiving party at the time; (3) furnished by the
disclosing party to others without restrictions on its use or disclosure; or
(4) independently developed by the receiving party without use of the
Confidential Information.
10.4 WDG and E.COM each recognize that each party (or its corporate
affiliates) may be engaged in the development of hardware or software
products which may be competitive with those of the other party to this
Agreement. Nothing in this Agreement will be construed to prohibit either
party from engaging in the research, development, marketing, sale or
licensing of any product which is independently developed and produced
without the use of the other's Confidential Information.
11. USE OF TRADEMARKS AND COPYRIGHTED MATERIALS
11.1 The parties acknowledge that:
(a) E.COM owns all right, title and interest in the E.COM name and
logotype, as well as certain other Trademarks and tradenames which E.COM uses
in connection with its product lines;
(b) WDG owns all right, title and interest in the WDG name and
logotype, as well as certain other Trademarks and tradenames which it uses in
connection with its product lines; and
(c) except as otherwise specifically stated herein, neither party will
acquire any interest in any of the Trademarks or tradenames of the other by
virtue of this Agreement, its activities under it, or any relationship which
may be created under this Agreement.
12. DISPUTE RESOLUTION
12.1 The laws of the State of Illinois governs this Agreement. WDG and
E.COM will attempt to settle any claim or controversy arising out of it
through consultation and negotiation in food faith and a spirit of mutual
cooperation. If those attempts fail, then the dispute will be
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mediated by a mutually-acceptable mediator to be chosen by WDG and E.COM
within 45 days after written notice by one of the parties demanding
mediation. Neither of the parties may unreasonably withhold consent to the
selection of a mediator, and WDG and E.COM will share the costs of the
mediation equally. By mutual agreement, however, WDG and E.COM may postpone
mediation until each has completed some specified but limited discovery about
the dispute. The parties may also agree to replace mediation with some other
form of non-binding alternative dispute resolution, such as neutral
fact-finding or a minitrial.
12.2 Any dispute which the parties cannot resolve between themselves
through negotiation or mediation within six months of the date of the initial
demand by either of them may then be submitted to the courts within the State
of Illinois for resolution. The use of any alternative dispute resolution
procedure will not be construed under the doctrines of laches, waiver or
estoppel to affect adversely the rights of either party. And nothing in this
paragraph will prevent either party from resorting to judicial proceedings if
(a) good faith efforts to resolve the dispute under these procedures have
been unsuccessful or (b) interim relief from a court is necessary to prevent
serious and irreparable injury to one party or to others.
13. RELATIONSHIP OF THE PARTIES
13.1 Each of the parties will be deemed to be an independent contractor
and not an agent, joint venturer, or representative of the other, and neither
of the parties may create any obligations or responsibilities on behalf of or
in the name of the other. Under no circumstances may either party hold
itself out to be a partner, employee, franchisee, representative, servant or
agent of the other. The parties also agree that neither of them will make
false or misleading statements, claims or representations about the other or
the other's products.
14. ASSIGNMENT
14.1 Neither party may assign this Agreement to any third party, or
delegate its performance under this Agreement to another, without the prior
written consent of the other party.
15. GENERAL
15.1 Notices under this Agreement must be sent by courier, facsimile or
registered or certified mail to the appropriate party at its address stated
on the first page of this Agreement (or to a new address if the other has
been properly notified of the change). A notice will not be effective until
the addressee actually receives it. In respect to any notice sent by
facsimile, such notice should be followed by a hard copy sent by mail or by
courier.
15.2 This contract represents the entire agreement between the parties
regarding this subject. It supersedes any terms or conditions contained on
printed forms submitted with purchase orders, sales acknowledgments or
invoices; it also supersedes all pervious oral or written communications
between E.COM and WDG regarding the subject. This Agreement may not be
modified or waived except in writing and signed by an officer or other
authorized representative
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of each party. If any provision is held invalid, all other provisions shall
remain valid, unless such validity would frustrate the purpose of this
Agreement.
15.3 Finally, EACH PARTY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS
THIS AGREEMENT AND AGREES TO BE BOUND BY ITS TERMS.
All of which is signed by and on behalf of E.COM and WDG.
MOTOROLA INC. WIRELESS DATA GROUP E.COM INCORPORATED
By /s/ Robert Molnar By /s/ William F. Stephens
----------------------------------- -----------------------------------
(Authorized Signatory) (Authorized Signatory)
Name: Robert Molnar Name: William F. Stephens
-------------------------------- --------------------------------
Title: Vice President & General Mgr. Title: President/CEO
------------------------------- -------------------------------
Date: 11/15/96 Date: 11/5/96
-------------------------------- --------------------------------
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SCHEDULE A
IWM5X5 SPECIFICATIONS
GRACKLE OEM MODULE (SERIAL INTERFACE)
SPECIFICATIONS
GENERAL
Form Factor PC Card Type III
Network Capability Ardis, DataTAC 5000
Protocol Capability MDC 4800 and/or RD-LAP 19,200
PHYSICAL
Dimensions PCMCIA Type III form factor
(85.6 X 54 X 10.5 [mm])
Mounting Fastener thru holes (M2 4 positions)
Host Serial and Power Connection 30 line flex 0.5 [mm] spacing
Host RF Connection MMCX Miniature Coaxial
Housings High Impact Polycarbonate frame
Stainless Steel outer shell
Grounding Per PCMCIA spec V2.0 (2 places)
REGULATORY COMPLIANCE
The Motorola Grackle shall comply with FCC Part 15 (B) and FCC Part 90. The
Grackle performance characteristics will facilitate approvals in any country
in which the Motorola Personal Messenger 100D is approved.
HOST ELECTRICAL INTERFACE (SERIAL)
Host Interface RS232 9 pin asynchronous serial interface
3.3V CMOS & 5V TTL compatible
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Interface Signal Support
Signal Name Description
- ----------- -----------
DCD Data Carrier Detect
RXD Receive Data
TXD Transmit Data
DTR Data Transmit Ready
DSR Data Set Ready
RTS Request to Send
CTS Clear to Send
RI Ring Indicator
GND Ground
Host Supplied Interface Signals
<TABLE>
<CAPTION>
Host Voltage Voltage Voltage Current Current Ripple Note
Supply (min) (nom) (max) (Typ) (Max) (Max)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
H7.2V 5.75V 7.2V 9V 600 mA 750 mA 5 mV Grackle Radio Supply
- -----------------------------------------------------------------------------------------------------------------------------
H5.0V 4.5V 5.0V 5.5V 90 mA 150 mA 5 mV Grackle Logic Supply
- -----------------------------------------------------------------------------------------------------------------------------
VSRAM 2.7V 3.3V 3.5V 2 uA 20 uA 1 mV Battery Backup of Grackle SRAM
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Host Generated Control Signals
<TABLE>
<CAPTION>
Host Provided Host o/p Host o/p Host o/p Host o/p Output Host o/p Note
Signal Type (Vol max) (Vol max) (Vol min) Iol (Typ.) (Iol max)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HOSTPWR_ON TTL or CMOS 0.4V 3.3V* 2.0V 100 uA 125 uA Controls Grackle Power
On/Off
- ---------------------------------------------------------------------------------------------------------------------------------
CRESET Open drain NA 3.3V* 2.0V 3.3 mA 5 mA CRESET is internally pulled
to 3.3V using by 1K. The
Grackle may also assert this
line.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Note that the Grackle device will clamp the input line to 3.3V .5V TTL lines
are acceptable but will increase current consumption through the interface.
Electrostatic Discharge max 10KV
SRAM Backup Supply 3.3V continuous
HOST ELECTRICAL INTERFACE (STATUS SEND FEATURE)
Inputs 4 Binary Encoded lines
Input Range Logic Low (Vil max) Less than or equal
to 0.6V (-.3V min)
Logic High greater that or equal
to 2.0V (7V max)
-10-
<PAGE>
HOST LOGICAL INTERFACE (SERIAL)
Protocol Native Command Language (NCL) V1.2
HOST LOGICAL INTERFACE (STATUS SEND FEATURE)(1)
Protocol Continuous polled status inputs (X4)
POWER MANAGEMENT
The host device shall provide continuous 5V & 7.2V supply. The Grackle will
endeavor to exist in the lowest power state possible while still providing
un-interrupted service. The Grackle is fully compliant with
DataTAC-Registered Trademark- Power Windows power management system. By
de-asserting the HOSTPWR_ON, the modem will dis-connect from the network,
then enter a zero power state. The modem will reset if the power source is
cycled. This potentially creates network service issues since the modem may
not have had a chance to de-register. The Grackle modem will spend the
majority of time in sleep mode, drawing a current in the of 15 - 20 mA.
ENVIRONMENTAL
Operating Range 0 - 50 degrees Celcius
Storage Range -35 - +85 degrees Celcius
RADIO PERFORMANCE
TRANSMITTER
Frequency Range 806 to 825MHz
RF Output Power 1.0 W
TTO Time 5 mS
Duty Cycle 5% normal operating, over any five minute period
RECEIVER
Frequency Range 851 to 870MHz
Power Off to Receive 5ms
Receiver Settling Time 20 ms
Channel Scan Time (30 ms within 15MHz)
- -----------------------------
(1) Status Send and NCL operation are mutually exclusive
-11-
<PAGE>
Sensitivity, 0.01 BER-112 dBm MDC4800 - 108 dBm RD-LAP 19.2
Fading Sensitivity no more than 15 dB degradation 50 Km/Hr flat
Rayleigh
Selectivity 55 dB (EIA) 45 dB over full temp range
Intermod 55 dB (EIA) at room temperature
45 dB over full temperature range
Spurious Response Atten 55 dB (EIA)
Image Rejection 45 dB (EIA)
Hum and Noise 30 dB
RX Spurious Emissions To meet FCC and DOC rules
Allowable host desense(2) 9 dB
- ---------------------------------
(2) Host desense is created by host EMI impacting the modem via conducted
and radiated mechanisms.
-12-
<PAGE>
AGREEMENT
This Agreement is made and entered into effective the 1st day of October,
1997, by and between L.G. ZANGANI, INC. ("LGZI") and E.COM INTERNATIONAL, INC.
("COMPANY").
1. LGZI shall serve as financial public relations consultant to COMPANY
during the term of this Agreement. In such capacity, LGZI shall (a) introduce
COMPANY to segments of the financial community where it is not presently known;
(b) disseminate information regarding COMPANY, the content and form of which is
approved by COMPANY, to the financial community; (c) prepare or review on
behalf of COMPANY press releases, reports and other communications with and to
shareholders, the investment community and the general public, the content and
form of which is approved by COMPANY; and (d) arrange meetings between COMPANY
officials and brokers, dealers, analysts, institutional investors and other
investment community professionals.
COMPANY acknowledges and agrees that LGZI will be serving other clients
during the term of this Agreement and that the COMPANY shall not be entitled to
the exclusive time and attention of the LGZI in the performance of its services
hereunder. LGZI agrees to use its best efforts and professional expertise in
performing services for COMPANY hereunder. The COMPANY further acknowledges and
agrees that LGZI has the right to conduct such due diligence on COMPANY as it
deems necessary. COMPANY and any of its officers and agents agree to fully
cooperate with LGZI with regard to such due diligence. COMPANY agrees to
provide LGZI with "10b-5" statement reasonably acceptable to LGZI for each
dissemination of information intended for the public or reasonably likely to be
disseminated to the public.
2. The term of this Agreement shall commence on October 1, 1997, and end
on March 31, 1998. The Agreement shall automatically be renewed for like terms
unless and until terminated by either party, in writing, no later than 60 days
before the end of the term. Notwithstanding anything to the contrary, LGZI may
terminate this agreement at any time if in its opinion COMPANY has provided or
caused to be provided false or misleading information to LGZI.
3. As compensation for consulting services hereunder, COMPANY shall pay
to LGZI on the first date of each month the sum of three thousand dollars
($3,000.00) per month, with the payment for each month of service to be made
prior to the commencement of such service month. In addition, COMPANY shall
reimburse LGZI for its reasonably out-of-pocket expenses incurred on behalf of
and for the benefit of COMPANY, provided that COMPANY shall have the right to
approve in advance any expenses proposed to be incurred which would involve
reimbursement of more than $500.00 for any item or related group of items.
4. In addition, COMPANY shall issue to Leonardo G. Zangani warrants to
purchase up to a total of 50,000 shares of COMPANY common stock, subject to the
following conditions:
-1-
<PAGE>
(a) Exercise price shall equal the closing price of the common stock
on the trading day preceding the date of this agreement.
(b) The warrants will expire at the close of business on
September 30, 2002; and
(c) The COMPANY will issue the warrants in increments of 10,000, the
first of which will be issued on the date of this Agreement. Thereafter the
COMPANY will issue warrants every six months so long as the COMPANY engages
LGZI. If COMPANY terminates this Agreement, the COMPANY will issue a pro rata
portion of warrants to LGZI up to the effective date of the termination.
5. By executing hereof, Leonardo G. Zangani hereby agrees and
acknowledges that the warrants to be issued by COMPANY hereunder and the shares
of COMPANY Common Stock issueable upon exercise of such warrants are being
offered and will be issued without registration or qualification under federal
and state securities laws as pursuant to applicable exemptions from such
registration and qualification requirements. In connection with the foregoing,
Leonardo G. Zangani hereby represents and warrants to COMPANY as follows:
(i) by reason of such his business and financial experience and
knowledge, he has the capacity to evaluate the merits and risks of an investment
in COMPANY and to protect his interests in connection with the issuance of
warrants, the exercise of warrants and the issuance of Common Stock in
connection herewith.
(ii) he is acquiring the warrants and upon exercise of the warrants
will acquire shares of Common Stock for his own account and not with a view to
or for the sale in connection with any distribution of COMPANY's securities.
(iii) he has received no offer of COMPANY securities by any form of
general solicitation or general advertising including, but not limited to, any
advertisement, article notice or any other communication published in any
newspaper, magazine, or similar medium or broadcast over television or radio or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(iv) he is an accredited investor, as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended.
(v) he will not offer, sell or otherwise transfer the warrants or
the shares of Common Stock issuable upon exercise of the warrants unless such
securities are registered or qualified under the Securities Act of 1933, as
amended, and relevant state securities laws or an exemption from such
registration or qualification requirements is applicable to such offer, sale or
transfer.
6. This Agreement contains the entire agreement and understanding of the
parties concerning the subject matter hereof and supersedes and replaces all
prior and contemporaneous
-2-
<PAGE>
negotiations, proposed agreements and agreements, whether written or oral. This
agreement may be amended or altered and rights hereunder may be waived only by a
written instrument signed by the party to be bound thereby.
7. This Agreement shall be interpreted in accordance with the laws of the
State of New Jersey applicable to contracts that are negotiated, executed and
performed wholly within said state and without regard to any choice of laws
principles applied under the laws of such state. THE PARTIES HEREBY CONSENT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW JERSEY FOR ANY AND ALL
DISPUTES ARISING UNDER THIS AGREEMENT AND THE PARTIES HEREBY WAIVE ANY AND ALL
DEFENSES BASED ON PERSONAL JURISDICTION OF NEW JERSEY.
8. This Agreement may be executed in one or more counterparts, each of
which shall be considered an original and all of which together shall constitute
one and the same agreement.
In Witness Whereof, the undersigned have executed this Agreement and as of
the 1st day day of October, 1997.
L.G. Zangani, Inc. E.Com International, Inc.
By:/s/ Leonardo G. Zangani By:/s/ William F. Stephens
----------------------------- ------------------------------
Name: Leonardo G. Zangani Name: William F. Stephens
------------------- -------------------
Title: President Title: President & CEO
--------- ---------------
-3-
<PAGE>
E.COM INTERNATIONAL, INC
1997 INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the E.Com International, Inc. 1997 Incentive
Compensation Plan (the "Plan") is to enhance the long-term profitability and
shareholder value of E.Com International, Inc., an Oregon corporation (the
"Company"), by offering incentives and rewards to those employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company and its Subsidiaries (as defined in Section 2 below) who are key to
the Company's growth and success, and to encourage them to remain in the
service of the Company and its Subsidiaries and to acquire and maintain stock
ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following term shall be defined as set
forth below:
2.1 AWARD
"Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, awards or grants of Options, Stock
Appreciation Rights, Stock Awards, Performance Awards, Other Stock-Based
Awards or any combination of the foregoing (including any Dividend Equivalent
Rights granted in connection with such Awards).
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each
case as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
-1-
<PAGE>
2.5 COMMON STOCK
"Common Stock" means the common stock of the Company.
2.6 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any
merger or consolidation of the Company (i) in which the Company is not the
continuing or surviving corporation, (ii) pursuant to which shares of the
Common Stock are converted into cash, securities or other property, or (iii)
if following such merger or consolidation, the shareholders of the Company
immediately prior to such merger or consolidation own less than 50% of the
voting equity of the surviving entity, other than, in the case of clauses (i)
and (ii), a merger of the Company in which the holders of the Common Stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger;
(b) Approval by the holders of the Common Stock of any
sale, lease, exchange or other transfer in one transaction or a series of
related transactions of all or substantially all of the Company's assets
other than a transfer of the Company's assets to a majority-owned subsidiary
(as the term "subsidiary" is defined in Section 8.3 of the Plan) of the
Company; or
(c) Approval by the holders of the Common Stock of any
plan or proposal for the liquidation or dissolution of the Company.
2.7 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 DIVIDEND EQUIVALENT RIGHT
"Dividend Equivalent Right" means an Award granted under Section 13 of
the Plan.
2.9 EARLY RETIREMENT
"Early Retirement" means retirement as that term is defined by the Plan
Administrator from time to time for purposes of the Plan.
2.10 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-2-
<PAGE>
2.11 FAIR MARKET VALUE
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (i) if the Common Stock is listed on the Nasdaq National
Market, the closing price for the Common Stock as reported by the Nasdaq
National Market on the trading day or (ii) if the Common Stock is listed on
the New York Stock Exchange, the mean of the high and low per share trading
prices for the Common Stock as reported in THE WALL STREET JOURNAL for the
New York Stock Exchange--Composite Transaction (or similar successor
consolidated transactions reports) for a single trading day.
2.12 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction of the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the
Holder's reasonable judgment, are inconsistent with such status, title,
position or responsibilities; or any removal of the Holder from or failure to
reappoint or reelect the Holder to any of such positions, except in
connection with the termination of the Holder's employment for Cause, for
Disability or as a result of his or her death, or by the Holder other than
for Good Reason.
(b) a reduction in the Holder's annual base salary;
(c) the Company's requiring the Holder (without the Holder's
consent) to be based at any place outside a 35-mile radius of his or her
place of employment prior to a Corporate Transaction, except for reasonably
required travel on the Company's business that is not materially greater than
such travel requirements prior to the Corporate Transaction;
(d) the Company's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof)
in which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Corporate
Transaction (or as in effect following the Corporate Transaction, if greater);
(e) any material breach by the Company of any provision of
the Plan; or
(f) any purported termination of the Holder's employment or
service for Cause by the Company that does not comply with the terms of the
Plan.
2.13 GRANT DATE
-3-
<PAGE>
"Grant Date" means the date designated in a resolution of the Plan
Administrator as the date an Award is granted. If the Plan Administrator
does not designate a Grant Date in the resolution, the Grant Date shall be
the date the Plan Administrator adopted the resolution.
2.14 HOLDER
"Holder" means the Participant to whom an Award is granted, or the
personal representative of a Holder who has died.
2.15 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan with the intention that it qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
2.16 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan other than Incentive Stock Option.
2.17 OPTION
"Option" means the right to purchase Common Stock granted under
Section 7 of the Plan.
2.18 OTHER STOCK-BASED AWARD
"Other Stock-Based Award" means an Award granted under Section 12 of
the Plan.
2.19 PARTICIPANT
"Participant" means an individual who is a Holder of an Award or, as
the context may require, any employee, director, officer, consultant, agent,
advisor or independent contractor of the Company or a Subsidiary who has been
designated by the Plan Administrator as eligible to participate in the Plan.
2.20 PERFORMANCE AWARD
"Performance Award" means an Award granted under Section 11 of the
Plan, the payout of which is subject to achievement through a performance
period of performance goals prescribed by the Plan Administrator.
2.21 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer
-4-
<PAGE>
the Plan under Section 3.1 of the Plan.
2.22 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under
Section 10 of the Plan, the rights of ownership of which are subject to
restrictions prescribed by the Plan Administrator.
2.23 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement
date under the Company's employee policy applicable to salaried employees.
2.24 STOCK APPRECIATION RIGHT
"Stock Appreciation Right" means an Award granted under Section 9 of
the Plan.
2.25 STOCK AWARD
"Stock Award" means an Award granted under Section 10 of the Plan.
2.26 SUBSIDIARY
"Subsidiary," except as expressly provided otherwise, means an entity
that is directly or indirectly controlled by the Company or in which the
Company has a significant ownership interest, as determined by the Plan
Administrator, and any entity that may become a direct or indirect parent of
the Company
2.27 WINDOW PERIOD
"Window Period" means a period of 10 days on which there is trading in
the Common Stock on the Nasdaq National Market or the New York Stock
Exchange, beginning with the third trading day after disclosure by the
Company to the public of its earnings for the fiscal period just ended and
ending with the twelfth such day.
2.28 WINDOW PERIOD FAIR MARKET VALUE
"Window Period Fair Market Value" means the highest Fair Market Value
during a Window Period.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
-5-
<PAGE>
The Plan shall be administered by the Board or a committee or
committees (which term includes subcommittees) appointed by, and consisting
of two or more members of, the Board. The Board may delegate the
responsibility for administering the Plan with respect to designated classes
of eligible Participants to different committees, subject to such limitations
as the Board deems appropriate. Committee members shall serve for such term
as the Board may determine, subject to removal by the Board at any time. The
composition of any committee responsible for administering the Plan with
respect to officers and directors of the Company who are subject to Section
16 of the Exchange Act with respect to securities of the Company shall comply
with the requirements of Rule 16b-3 under Section 16(b) of the Exchange Act.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the
selection of individuals to be granted Awards, the type of Awards, the number
of shares of Common Stock subject to an Award, all terms, conditions,
restrictions and limitations, if any, of an Award and the terms of any
instrument that evidences the Award. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt,
and change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the
Plan Administrator pursuant to the Plan, shall be conclusive and binding on
all parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 16.1 of
the Plan, a maximum of 1,000,000 shares of Common Stock shall be available
for issuance under the Plan. Shares issued under the Plan shall be drawn
from authorized and unissued shares or shares now held or subsequently
acquired by the Company as treasury shares.
4.2 LIMITATIONS
Subject to adjustment from time to time as provided in Section 16.1 of
the Plan, not more than 100,000 shares of Common Stock may be made subject to
Awards under the Plan to any individual Participant in the aggregate over the
term of the Plan, such limitation to be applied in a manner consistent with
the requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
4.3 REUSE OF SHARES
-6-
<PAGE>
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment
of the Award to the extent it is exercised for or settled in shares),
including, without limitation, in connection with the cancellation of an
Award and the grant of a replacement Award, shall again be available for
issuance in connection with future grants of Awards under the Plan. Shares
that are subject to tandem Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors
and key employees of the Company and its Subsidiaries as the Plan
Administrator from time to time selects. Awards may also be made to
consultants, agents, advisors and independent contractors who provide
services to the Company and its Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole
discretion, to determine the type or types of Awards to be made under the
Plan. Such Awards may include, but are not limited to, Incentive Stock
Options, Nonqualified Stock Options, Stock Appreciation Rights, Stock Awards,
Performance Awards, Other Stock-Based Awards and Dividend Equivalent Rights.
Awards may be granted singly, in combination or in tandem so that the
settlement or payment of one automatically reduces or cancels the other.
Awards may also be made in combination or in tandem with, in replacement of,
as alternatives to, or as the payment form for, grants or rights under any
other employee or compensation plan of the Company.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards
issued under other plans, or assume under the Plan awards issued under other
plans, if the other plans are or were plans of other entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger,
consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is
approved by the Board and said agreement sets forth the terms and conditions
of the substitution for or assumption of outstanding awards of the Acquired
Entity, said terms and conditions shall be deemed to be the action of the
Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange
Act, and the persons holding such Awards shall be deemed to be Participants
and Holders.
SECTION 7. AWARDS OF OPTIONS
-7-
<PAGE>
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified
Stock Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified
by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will become exercisable
according to the following schedule, which may be waived or modified by the
Plan Administrator at any time:
-8-
<PAGE>
Period of Holder's Continuous Employment Percent of Total
or Service With the Company or Its Option That Is
Subsidiaries From the Option Grant Date Exercisable
After 1 year 25%
After 2 years 50%
After 3 years 75%
After 4 years 100%
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the
Company, in accordance with procedures established by the Plan Administrator,
setting forth the number of shares with respect to which the Option is being
exercised and accompanied by payment in full as described in Section 7.5 of
the Plan. The Plan Administrator may determine that an Option may not be
exercised as to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid
in full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or check, except that the Plan Administrator may, either
at the time the Option is granted or at any time before it is exercised and
subject to such limitations as the Plan Administrator may determine,
authorize payment in cash and/or one or more of the following alternative
forms: (i) Common Stock already owned by the Holder for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings
for financial reporting purposes) having a Fair Market Value on the day prior
to the exercise date equal to the aggregate Option exercise price; (ii) a
promissory note authorized pursuant to Section 14 of the Plan; (iii) if the
Common Stock is publicly traded, delivery of a properly executed exercise
notice, together with irrevocable instructions, to (a) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise
and (b) the Company to deliver the certificates for such purchased shares
directly to such brokerage firm, all in accordance with regulations of the
Federal Reserve Board; or (iv) such other consideration as the Plan
Administrator may permit.
-9-
<PAGE>
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable,
and the terms and conditions of such exercise, if a Holder ceases to be
employed by, or to provide services to, the Company or its Subsidiaries,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the
Option will be exercisable according to the following terms and conditions,
which may be waived or modified by the Plan Administrator at any time. In
case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of
the number of shares purchasable by the Holder at the date of such
termination, only: (i) within one year if the termination of the Holder's
employment or services are coincident with Disability or (ii) within three
months after the date the Holder ceases to be an employee, director, officer,
consultant, agent, advisor or independent contractor of the Company or a
Subsidiary if termination of the Holder's employment or services is for any
reason other than Disability, but in no event later than the remaining term
of the Option. Any Option exercisable at the time of the Holder's death may
be exercised, to the extent of the number of shares purchasable by the Holder
at the date of the Holder's death, by the personal representative of the
Holder's estate entitled thereto at any time or from time to time within one
year after the date of death, but in no event later than the remaining term
of the Option. In case of termination of the Holder's employment or services
for Cause, the Option shall automatically terminate upon first notification
to the Holder of such termination, unless the Plan Administrator determines
otherwise. If a Holder's employment or services with the Company are
suspended pending an investigation of whether the Holder shall be terminated
for Cause, all the Holder' rights under any Option likewise shall be
suspended during the period of investigation. A transfer of employment or
services between or amongst the Company and its Subsidiaries shall not be
considered a termination of employment or services. Unless the Plan
Administrator determines otherwise, a leave of absence approved in accordance
with Company procedures shall not be considered a termination of employment
or services, except that with respect to Incentive Stock Options such leave
of absence shall be subject to any requirements of Section 422 of the Code.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:
-10-
<PAGE>
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and
all other stock option plans of the Company) exceeds $100,000, such portion
in excess of $100,000 shall be treated as a Nonqualified Stock Option. In
the event the Participant holds two or more such Options that become
exercisable for the first time in the same calendar year, such limitation
shall be applied on the basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If a Participant owns 10% or more of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of the Common Stock on the Grant Date and Option term shall not exceed five
years.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3 of the Plan, "parent corporation"
and "subsidiary corporation" shall have the meanings attributed to those
terms for purposes of Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
An Option designated as an Incentive Stock Option must be exercised
within three months after termination of employment for reasons other than
death to qualify for Incentive Stock Option tax treatment, except that in the
case of termination of employment due to Disability, such Option must be
exercised within one year after such termination to qualify for Incentive
Stock Option tax treatment.
8.6 TAXATION OF INCENTIVE STOCK OPTION
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Participant must hold the shares
issued upon the exercise of an Incentive Stock Option for two years after the
date of grant of the Incentive Stock Option and one year from the date of
exercise. A Participant may be subject to the alternative minimum tax at the
time of exercise of an Incentive Stock Option. The Committee may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the
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<PAGE>
expiration of such holding periods.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 GRANT OF STOCK APPRECIATION RIGHTS
The Plan Administrator may grant a Stock Appreciation Right separately
or in tandem with a related Option.
9.2 TANDEM STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of
Common Stock or cash or any combination of shares and cash, as the Plan
Administrator shall determine at any time) in an amount equal to the excess
of the Fair Market Value for the date the Stock Appreciation Right is
exercised over the exercise price per share of the right, which shall be the
same as the exercise price of the related Option, except that if the right is
exercised during a Window Period, the amount will be equal to the excess of
the Window Period Fair Market Value for the Window Period during which the
Stock Appreciation Right is exercised over the exercise price per share of
the right. A tandem Stock Appreciation Right will have the same other terms
and provisions as the related Option. Upon and to the extent a tandem Stock
Appreciation Right is exercised, the related Option will terminate.
9.3 STAND-ALONE STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution
in an amount equal to the excess of the Fair Market Value for the date the
Stock Appreciation Right is exercised over the exercise price per share of
the right, except that if the right is exercised during a Window Period, the
amount will be equal to the excess of the Window Period Fair Market Value for
the Window Period during which the right is exercised over the exercise price
per share of the right. A stand-alone Stock Appreciation Right will have
such terms as the Plan Administrator may determine, except that the exercise
price per share of the right must be at least equal to 85% of the Fair Market
Value on the Grant Date and term of the right, if not otherwise established
by the Plan Administrator, shall be 10 years from the Grant Date.
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9.4 EXERCISE OF STOCK APPRECIATION RIGHTS
Unless otherwise provided by the Plan Administrator in the instrument
that evidences the Stock Appreciation Right, the provisions of Section 7.6 of
the Plan relating to the termination of a Holder's employment or services
shall apply equally, to the extent applicable, to the Holder of a Stock
Appreciation Right. Stock Appreciation Rights held by Participants who are
subject to Section 16 of the Exchange Act may be exercised solely in
accordance with the requirements for compliance with Rule 16b-3 under the
Exchange Act.
SECTION 10. STOCK AWARDS
10.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions,
if any (whether based on performance standards, periods of service or
otherwise), as the Plan Administrator shall determine, which terms,
conditions and restrictions shall be set forth in the instrument evidencing
the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held
during the period they are subject to restrictions and the circumstances
under which forfeiture of Restricted Stock shall occur by reason of
termination of the Holder's services.
10.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions
prescribed in respect to a Stock Award, or upon the Holder's release from any
terms, conditions and restrictions of a Stock Award, as determined by the
Plan Administrator, the Company shall deliver, as soon as practicable, to the
Holder or, in the case of the Holder's death, to the personal representative
of the Holder's estate or as the appropriate court directs, a stock
certificate for the appropriate number of shares of Common Stock.
10.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan
Administrator may, in its sole discretion, waive the forfeiture period and
any other terms, conditions or restrictions on any Restricted Stock under
such circumstances and subject to such terms and conditions as the Plan
Administrator shall deem appropriate.
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SECTION 11. PERFORMANCE AWARDS
11.1 PLAN ADMINISTRATOR AUTHORITY
Performance Awards may be denominated in cash, shares of Common
Stock or any combination thereof. The Plan Administrator is authorized to
grant Performance Awards and shall determine the nature, length and starting
date of the performance period for each Performance Award and the performance
objectives to be used in valuing Performance Awards and determining the
extent to which such Performance Awards have been earned. Performance
objectives and other terms may vary from Participant to Participant and
between groups of Participants. Performance objectives shall be based on
profits, profit growth, profit-related return ratios, cash flow or total
return to shareholders, whether applicable to the Company or any relevant
Subsidiary or business unit, comparisons with competitor companies or groups
and with stock market indices, or any combination thereof, as the Plan
Administrator may deem appropriate. Additional performance measures may be
used to the extent their use would comply with the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.
Performance periods may overlap and Participants may participate
simultaneously with respect to Performance Awards that are subject to
different performance periods and different performance factors and criteria.
The Plan Administrator shall determine for each Performance Award the range
of dollar values or number of shares of Common Stock (which may, but need
not, be shares of Restricted Stock pursuant to Section 10 of the Plan), or a
combination thereof, to be received by the Participant at the end of the
performance period if and to the extent that the relevant measures of
performance for such Performance Awards are met. The performance measures
must include a minimum performance standard below which no payment will be
made and maximum performance level above which no increased payment will be
made, and no Performance Awards having an aggregate maximum dollar value in
excess of $500,000 shall be granted to any individual Participant in any one
fiscal year of the Company, such limitations to be applied in a manner
consistent with the requirements of, and to the extent required for
compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code. The earned portion of a
Performance Award may be paid currently or on a deferred basis with such
interest or earnings equivalent as may be determined by the Plan
Administrator. Payment shall be made in the form of cash, whole shares of
Common Stock (which may, but need not, be shares of Restricted Stock pursuant
to Section 10 of the Pan), Options or any combination thereof, either in a
single payment or in annual installments, all as the Plan Administrator shall
determine.
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<PAGE>
11.2 ADJUSTMENT OF AWARDS
The Plan Administrator may adjust the performance goals and
measurements applicable to Performance Awards to take into account changes in
law and accounting and tax rules and to make such adjustments as the Plan
Administrator deems necessary or appropriate to reflect the inclusion or
exclusion of the impact of extraordinary or unusual items, events or
circumstances, except that, to the extent required for compliance with the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code, no adjustment shall be made that would result in an
increase in the compensation of any Participant whose compensation is subject
to the limitation on deductibility under Section 162(m) of the Code for the
applicable year. The Plan Administrator also may adjust the performance
goals and measurements applicable to Performance Awards and thereby reduce
the amount to be received by any Participant pursuant to such Awards if and
to the extent that the Plan Administrator deems it appropriate.
11.3 PAYOUT UPON TERMINATION
The Plan Administrator shall establish and set forth in each
instrument that evidences a Performance Award whether the Award will be
payable, and the terms and conditions of such payment, if a Holder ceases to
be employed by, or to provide services to, the Company or its Subsidiaries,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Performance
Award, the Award will be payable according to the following terms and
conditions, which may be waived or modified by the Plan Administrator at any
time. If during a performance period a Participant's employment or services
with the Company terminate by reason of the Participant's Retirement, Early
Retirement at the Company's request, Disability or death, such Participant
shall be entitled to a payment with respect to each outstanding Performance
Award at the end of the applicable performance period (i) based, to the
extent relevant under the terms of the Award, on the Participant's
performance for the portion of such performance period ending on the date of
termination and (ii) prorated for the portion of the performance period
during which the Participant was employed by the company, all as determined
by the Plan Administrator. The Plan Administrator may provide for an earlier
payment in settlement of such Performance Award discounted at a reasonable
interest rate and otherwise in such amount and under such terms and
conditions as the Plan Administrator deems appropriate. Except as otherwise
provided in Section 16 of the Plan or in the instrument evidencing the
Performance Award, if during a performance period a Participant's employment
or services with the Company terminate other than by reason of the
Participant's Retirement, Early Retirement at the Company's request,
Disability or death, then such Participant shall not be entitled to any
payment with respect to the Performance Awards relating to such performance
period, unless the Plan Administrator shall otherwise determine. Te
provisions of Section 7.6 of the Plan regarding leaves of absence and
termination for Cause shall apply to Performance Awards.
SECTION 12. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan
pursuant to which shares of
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Common Stock (which may, but need not, be shares of Restricted Stock pursuant
to Section 10 of the Plan) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in
addition to or in tandem with any Award of any type granted under the Plan
and must be consistent with the Plan's purpose.
SECTION 13. DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's discretion,
earn Dividend Equivalent Rights. In respect of any Award that is outstanding
on the dividend record date for Common Stock, the Participant may be credited
with an amount equal to the cash or stock dividends or other distributions
that would have been paid on the shares of Common Stock covered by such Award
had such covered shares been issued and outstanding on such dividend record
date. The Plan Administrator shall establish such rules and procedures
governing the crediting of Dividend Equivalent Rights, including the timing,
form of payment and payment contingencies of such Dividend Equivalent Rights
as it deems are appropriate or necessary.
SECTION 14. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
To assist a Holder (including a Holder who is an officer or director of
the Company) in acquiring shares of Common Stock pursuant to an award granted
under the Plan, the Plan Administrator may authorize, either at the Grant
Date or at any time before the acquisition of Common Stock pursuant to the
Award, (i) the extension of a loan to the Holder by the Company, (ii) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (iii) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or
guarantees, including the interest rate and terms of repayment, will be
subject to the Plan Administrator's discretion. Loans, installment payments
and guarantees may be granted with or without security. The maximum credit
available is the purchase price, if any, of the Common Stock acquired plus
the maximum federal and state income and employment tax liability that may be
incurred in connection with the acquisition.
SECTION 15. ASSIGNABILITY
No Option, Stock Appreciation Right, Performance Award, Other
Stock-Based Award or Dividend Equivalent Right granted under the Plan may be
assigned or transferred by the Holder other than by will or by the laws of
descent and distribution, and during the Holder's lifetime, such Awards may
be exercised only by the Holder. Notwithstanding the foregoing, and to the
extent permitted by Rule 16b-3 under the Exchange Act and Section 422 of the
Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such
Awards to designate a beneficiary who may exercise the Award or receive
compensation under the Award after the Holder's death.
SECTION 16. ADJUSTMENTS
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16.1 ADJUSTMENT OF SHARES
In the event that at any time or from time to time a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (i) the outstanding shares, or any securities exchanged therefor
or received in their place, being exchanged for a different number or class
of securities of the Company or of any other corporation or (ii) new,
different or additional securities of the Company or of any other corporation
being received by the holders of shares of Common Stock of the Company, then
the Plan Administrator, in its sole discretion, shall make such equitable
adjustments as it shall deem appropriate in the circumstances in (a) the
maximum number of and class of securities subject to the Plan as set forth in
Section 4.1 of the Plan, (b) the maximum number and class of securities that
may be made subject to Awards to any individual Participant as set forth in
Section 4.2 of the Plan, and (c) the number and class of securities that are
subject to any outstanding Award and the per share price of such securities,
without any change in the aggregate price to be paid therefor. The
determination by the Plan Administrator as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
16.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the
Award, in the event of any Corporate Transaction, each Option, Stock
Appreciation Right or Stock Award that is at the time outstanding shall
automatically accelerate so that each such Award shall, immediately prior to
the specified effective date for the Corporate Transaction, become 100%
vested. All such Awards shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except
to the extent assumed by the successor corporation or its parent corporation.
Notwithstanding the foregoing, no Incentive Stock Option shall become
exercisable pursuant to this Section 16.2 without the Holder's consent, if
the result would be to cause such Option not to be treated as an Incentive
Stock Option (whether by reason of the annual limitation described in Section
8.1 of the Plan or otherwise).
16.3 FURTHER ADJUSTMENT OF AWARDS
Without limiting the preceding Section 16.2 of the Plan, and subject to
the limitations set forth in Section 11 of the Plan, the Plan Administrator
shall have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the
Company, as defined by the Plan Administrator, to take such further action as
it determines to be necessary or advisable, and fair and equitable to
Participants, with respect to Awards. Such authorized action may include
(but shall not be limited to) establishing, amending or waiving the type,
terms, conditions or duration of, or restrictions on, Awards so as to provide
for earlier, later, extended or additional time for exercise, payment or
settlement or lifting restrictions, differing methods for calculating
payments or settlements, alternate forms and amounts of payments and
settlements and other modifications, and the Plan Administrator may take such
actions with respect to all Participants, to certain categories of
Participants or only to individual Participants.
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The Plan Administrator may take such actions before or after granting Awards
to which the action relates and before or after any public announcement with
respect to such sale, merger, consolidation, reorganization, liquidation or
change in control that is the reason for such action.
16.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
SECTION 17. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect
to the grant, exercise, payment or settlement of any Award. In such
instances, the Plan Administrator may, in its discretion and subject to the
Plan and applicable law, permit the Holder to satisfy withholding
obligations, in whole or in part, by paying cash, by electing to have the
Company withhold shares of Common Stock or by transferring shares of Common
Stock to the Company, in such amounts as are equivalent to the Fair Market
Value of the withholding obligation.
SECTION 18. AMENDMENT AND TERMINATION OF PLAN
18.1 AMENDMENT OF PLAN
The Plan may be amended by the shareholders of the Company. The Board
may also amend the Plan in such respects as it shall deem advisable; however,
to the extent required for compliance with Rule 16b-3 under the Exchange Act,
Section 422 of the Code or any applicable law or regulation, shareholder
approval will be required for any amendment that will (i) increase the total
number of shares as to which Options may be granted or which may be used in
payment of Stock Appreciation Rights, Performance Awards, Other Stock-Based
Awards or Dividend Equivalent Rights under the Plan or that may be issued as
Restricted Stock, (ii) materially modify the class of persons eligible to
receive Awards, (iii) materially increase the benefits accruing to
Participants under the Plan, or (iv) otherwise require shareholder approval
under any applicable law or regulation.
18.2 TERMINATION OF PLAN
The Company's shareholders or the Board may suspend or terminate the
Plan at any time. The Plan will have no fixed expiration date; provided,
however, that no Incentive Stock Options may be granted more than 10 years
after the Plan's effective date.
18.3 CONSENT OF HOLDER
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The amendment or termination of the Plan shall not, without the consent
of the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 19. GENERAL
19.1 NOTIFICATION
The Plan Administrator shall promptly notify a Participant of an Award,
and a written grant shall promptly be executed and delivered by or on behalf
of the Company.
19.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
Neither the Plan, participation in the Plan as a Participant nor any
action of the Plan Administrator taken under the Plan shall be construed as
giving any Participant or employee of the Company any right to be retained in
the employ of the Company or limit the Company's right to terminate the
employment or services of the Participant.
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19.3 REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan. The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
19.4 NO RIGHTS AS A SHAREHOLDER
No Option, Stock Appreciation Right, Performance Award or Other
Stock-Based Award shall entitle the Holder to any dividend (except to the
extent provided in an Award of Dividend Equivalent Rights), voting or other
right of a shareholder unless and until the date of issuance under the Plan
of the shares that are the subject of such Awards, free of all applicable
restrictions.
19.5 COMPLIANCE WITH LAWS AND REGULATIONS
It is the Company's intention that, if and so long as any of the
Company's equity securities are registered pursuant to Section 12(b) or 12(g)
of the Exchange Act, the Plan shall comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Rule, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Participants who are officers or directors subject to Section 16 of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants. Additionally, in interpreting and applying the
provisions of the Plan, any Option granted as an Incentive Stock Option
pursuant to the Plan shall, to the extent permitted by law, be construed as
an "incentive stock option" within the meaning of Section 422 of the Code.
19.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing
contained herein shall require the Company to segregate any monies or other
property, or shares of Common Stock, or to create any trusts, or to make any
special deposits for any immediate or deferred amounts payable to any
Participant, and no Participant shall have any rights that are greater than
those of a general unsecured creditor the Company.
19.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform
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to applicable laws, or if it cannot be so construed or deemed amended
without, in the Plan Administrator's determination, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award, and the remainder of the Plan and any such
Award shall remain in full force and effect.
SECTION 20. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption or, if earlier, and to the extent required
for compliance with Rule 16b-3 under the Exchange Act, at the next annual
meeting of the Company's shareholders after adoption of the Plan by the Board.
ADOPTED BY THE BOARD ON JULY 26, 1996 AND APPROVED BY THE COMPANY'S
SHAREHOLDERS ON JANUARY 10, 1997.
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LEASE
LANDLORD
GATEWAY COLUMBIA PROPERTIES, INC.
TENANT
E.B.I. ACQUISITIONS, INC.,
DBA ENBLOC INCORPORATED
<PAGE>
MULTI-TENANT INDUSTRIAL NET LEASE
REFERENCE PAGE
PROPERTY: PARKSIDE BUSINESS CENTER
LANDLORD: GATEWAY COLUMBIA PROPERTIES, INC., a
California corporation
LANDLORD'S ADDRESS: c/o RREEF Management Company
8275 SW Cirrus Drive
Beaverton, OR 97008
LEASE REFERENCE DATE: August 5, 1996
TENANT: E.B.I. ACQUISITIONS, INC., an Oregon
corporation dba ENBLOC INCORPORATED
TENANT'S ADDRESS: 7737 SW Cirrus Drive
Beaverton, OR 97008
NOTICES: ENBLOC INCORPORATED
7737 SW Cirrus Drive
Beaverton, OR 97008
PREMISES IDENTIFICATION: Space Number: 30/G, H (for outline of
Premises, see Exhibit A)
PREMISES RENTABLE AREA: Approximately 6,190 square feet
USE: General offices, warehouse and testing for
wireless mobile computing products and for no
other use or purpose
SCHEDULED COMMENCEMENT DATE: October 1, 1996
TERMINATION DATE: September 30, 1999
TERM OF LEASE: Three (3) years and Sixteen (16) days
beginning on the Commencement Date and ending
on the Termination Date
INITIAL ANNUAL RENT (Article 3) SEE ARTICLE 40, RENT SCHEDULE
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<PAGE>
INITIAL MONTHLY INSTALLMENT OF
ANNUAL RENT (Article 3): SEE ARTICLE 40, RENT SCHEDULE
TENANT'S PROPORTIONATE SHARE: CAM/ESC: 0.98% TAX: 0.98% INS: 0.98%
SECURITY DEPOSIT: Landlord currently holds $2,177.00 as
security deposit. Tenant shall deposit an
additional $2,326.00, for a total security
deposit of $4,503.00
ASSIGNMENT/SUBLETTING FEE: $300.00
BROKER DUE COMMISSION: N/A
The Reference Page Information is incorporated and made a part of the Lease. In
the event of any conflict between any Reference Page information and the Lease,
the Lease shall control. This Lease includes Exhibits A, A-1, B, and C, all of
which are made a part of this Lease.
LANDLORD: TENANT:
GATEWAY COLUMBIA PROPERTIES, INC., E.B.I ACQUISITIONS, INC.,
a California corporation an Oregon corporation
dba ENBLOC INCORPORATED
By: RREEF Management Company,
a California corporation
By: /s/ William F. Stephens
------------------------
William F. Stephens
By: /s/ David J. Levich Title: President
-----------------------
David J. Levich
Title: District Manager Date: 8/13/96
----------------------- ------------------------
Date: 8/13/96
-----------------------
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TABLE OF CONTENTS
ARTICLE PAGE
1. USE AND RESTRICTIONS ON USE. . . . . . . . . . . . . . .1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. RENT . . . . . . . . . . . . . . . . . . . . . . . . . .2
4. RENT ADJUSTMENTS . . . . . . . . . . . . . . . . . . . .3
5. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . .5
6. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . .5
7. REPAIR . . . . . . . . . . . . . . . . . . . . . . . . .6
8. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . .8
9. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . .8
10. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 10
11. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 11
12. WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . 11
13. SERVICES AND UTILITIES . . . . . . . . . . . . . . . . 12
14. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . 12
15. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . 12
16. RULES AND REGULATIONS. . . . . . . . . . . . . . . . . 13
17. REENTRY BY LANDLORD. . . . . . . . . . . . . . . . . . 13
18. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 13
19. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 14
20. TENANT'S BANKRUPTCY OR INSOLVENCY. . . . . . . . . . . 18
21. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . 19
22. DAMAGE BY FIRE, ETC. . . . . . . . . . . . . . . . . . 19
23. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . 20
24. SALE BY LANDLORD . . . . . . . . . . . . . . . . . . . 21
25. ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . 21
26. SURRENDER OF PREMISES. . . . . . . . . . . . . . . . . 21
27. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 22
28. TAXES PAYABLE BY TENANT. . . . . . . . . . . . . . . . 22
29. RELOCATION OF TENANT . . . . . . . . . . . . . . . . . 23
30. DEFINED TERMS AND HEADINGS . . . . . . . . . . . . . . 23
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31. TENANT'S AUTHORITY . . . . . . . . . . . . . . . . . . 24
32. COMMISSIONS. . . . . . . . . . . . . . . . . . . . . . 24
33. TIME AND APPLICABLE LAW. . . . . . . . . . . . . . . . 24
34. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . 24
35. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . 24
36. EXAMINATION NOT OPTION . . . . . . . . . . . . . . . . 24
37. RECORDATION. . . . . . . . . . . . . . . . . . . . . . 25
38. LIMITATION OF LANDLORD'S LIABILITY . . . . . . . . . . 25
39. ELECTRICAL ROOM CREDIT . . . . . . . . . . . . . . . . 25
40. RENT SCHEDULE. . . . . . . . . . . . . . . . . . . . . 26
41. EARLY OCCUPANCY. . . . . . . . . . . . . . . . . . . . 26
EXHIBIT A - PREMISES
EXHIBIT A-1 - FLOOR PLAN
EXHIBIT B - INITIAL ALTERATIONS
EXHIBIT C - RULES AND REGULATIONS
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LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord the
Premises in the Building as set forth and described on the Reference Page. The
Reference Page, including all terms defined thereon, is incorporated as part of
this Lease.
1. USE AND RESTRICTIONS ON USE.
1.1 The Premises are to be used solely for the purposes stated on the
Reference Page. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building or injure, annoy, or disturb them or
allow the Premises to be used for any improper, immoral, unlawful, or
objectionable purpose. Tenant shall not do, permit or suffer in, on, or about
the Premises the sale of any alcoholic liquor without the written consent of
Landlord first obtained, or the commission of any waste. Tenant shall comply
with all governmental laws, ordinances and regulations applicable to the use of
the Premises and its occupancy and shall promptly comply with all governmental
orders and directions for the correction, prevention and abatement of any
violations in or upon, or in connection with, the Premises, all at Tenant's sole
expense. Tenant shall not do or permit anything to be done on or about the
Premises or bring or keep anything into the Premises which will in any way
increase the rate of, invalidate or prevent the procuring of any insurance
protecting against loss or damage to the Building or any of its contents by fire
or other casualty or against liability for damage to property or injury to
persons in or about the Building or any part thereof.
1.2 Tenant shall not, and shall not direct, suffer or permit any of its
agents, contractors, employees, licensees or invitees to at any time handle,
use, manufacture, store or dispose of in or about the Premises or the Building
any (collectively "Hazardous Materials") flammables, explosives, radioactive
materials, hazardous wastes or materials, toxic wastes or materials, or other
similar substances, petroleum products or derivatives or any substance subject
to regulation by or under any federal, state and local laws and ordinances
relating to the protection of the environment or the keeping, use or disposition
of environmentally hazardous materials, substances, or wastes, presently in
effect or hereafter adopted, all amendments to any of them, and all rules and
regulations issued pursuant to any of such laws or ordinances (collectively
"Environmental Laws"), nor shall Tenant suffer or permit any Hazardous Materials
to be used in any manner not fully in compliance with all Environmental Laws, in
the Premises or the Building and appurtenant land or allow the environment to
become contaminated with any Hazardous Materials. Notwithstanding the
foregoing, and subject to Landlord's prior consent, Tenant may handle, store,
use or dispose of products containing small quantities of Hazardous Materials
(such as aerosol cans containing insecticides, toner for copiers, paints, paint
remover and the like) to the extent customary and necessary for the use of the
Premises for general office purposes; provided that Tenant shall always handle,
store, use, and dispose of any such Hazardous Materials in a safe and lawful
manner and never allow such Hazardous Materials to contaminate the Premises,
Building and appurtenant land or the environment. Tenant shall protect, defend,
indemnify and hold each and all of the Landlord Entities (as defined in Article
30) harmless from and against any and all loss, claims, liability or costs
(including court costs and attorney's fees) incurred by reason
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of any actual or asserted failure of Tenant to fully comply with all applicable
Environmental Laws, or the presence, handling, use or disposition in or from the
Premises of any Hazardous Materials (even though permissible under all
applicable Environmental Laws or the provisions of this Lease), or by reason of
any actual or asserted failure of Tenant to keep, observe, or perform any
provision of this Section 1.2.
2. TERM.
2.1 The Term of this Lease shall begin on the date ("Commencement Date")
which shall be the later of the Scheduled Commencement Date as shown on the
Reference Page and the date that Landlord shall tender possession of the
Premises to Tenant. Landlord shall tender possession of the Premises with all
the work, if any, to be performed by Landlord pursuant to Exhibit B to this
Lease substantially completed. Tenant shall deliver a punch list of items not
completed within 30 days after Landlord tenders possession of the Premises and
Landlord agrees to proceed with due diligence to perform its obligations
regarding such items. Landlord and Tenant shall execute a memorandum setting
forth the actual Commencement Date and Termination Date.
2.2 Tenant agrees that in the event of the inability of Landlord to
deliver possession of the Premises on the Scheduled Commencement Date, Landlord
shall not be liable for any damage resulting from such inability, but Tenant
shall not be liable for any rent until the time when Landlord can, after notice
to Tenant, deliver possession of the Premises to Tenant. No such failure to
give possession on the Scheduled Commencement Date shall affect the other
obligations of Tenant under this Lease, except that if Landlord is unable to
deliver possession of the Premises within one hundred twenty (120) days of the
Scheduled Commencement Date (other than as a result of strikes, shortages of
materials or similar matters beyond the reasonable control of Landlord and
Tenant is notified by Landlord in writing as to such delay), Tenant shall have
the option to terminate this Lease unless said delay is as a result of: (a)
Tenant's failure to agree to plans and specifications; (b) Tenant's request for
materials, finishes or installations other than Landlord's standard except
those, if any, that Landlord shall have expressly agreed to furnish without
extension of time agreed by Landlord; (c) Tenant's change in any plans or
specifications; or, (d) performance or completion by a party employed by Tenant.
If any delay is the result of any of the foregoing, the Commencement Date and
the payment of rent under this Lease shall be accelerated by the number of days
of such delay.
2.3 In the event Landlord shall permit Tenant to occupy the Premises prior
to the Commencement Date, such occupancy shall be subject to all the provisions
of this Lease. Said early possession shall not advance the Termination Date.
3. RENT.
3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time
to time by paying the Monthly Installment of Rent then in effect on or before
the first day of each full calendar month during the Term, except that the first
month's rent shall be paid upon the execution of this Lease. The Monthly
Installment of Rent in effect at any time shall be one-
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twelfth of the Annual Rent in effect at such time. Rent for any period during
the Term which is less than a full month shall be a prorated portion of the
Monthly Installment of Rent based upon a thirty (30) day month. Said rent shall
be paid to Landlord, without deduction or offset and without notice or demand,
at the Landlord's address, as set forth on the Reference Page, or to such other
person or at such other place as Landlord may from time to time designate in
writing.
3.2 Tenant recognizes that late payment of any rent or other sum due under
this Lease will result in administrative expense to Landlord, the extent of
which additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if rent or any other sum is not paid
when due and payable pursuant to this Lease, a late charge shall be imposed in
an amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) a sum
equal to five percent (5%) per month of the unpaid rent or other payment. The
amount of the late charge to be paid by Tenant shall be reassessed and added to
Tenant's obligation for each successive monthly period until paid. The
provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay
rent or other payments on or before the date on which they are due, nor do the
terms of this Section 3.2 in any way affect Landlord's remedies pursuant to
Article 19 in the event said rent or other payment is unpaid after date due.
Any payments of any kind returned for insufficient funds will be subject to an
additional handling charge of $25.00, and thereafter, Landlord may require
Tenant to pay all future payments of rent or other sums due by money order or
cashier's check.
4. RENT ADJUSTMENTS.
4.1 For the purpose of this Article 4, the following terms are defined as
follows:
4.1.1 Lease Year: Each calendar year falling partly or wholly within
the Term.
4.1.2 Direct Expenses shall mean: All costs and expenses of the
ownership, operation, maintenance, repair or replacement, and insurance of the
Project, including without limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used in
or related to the operation and maintenance of the Project;
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without limitation, air
conditioning systems, sidewalks, landscaping, service areas,
driveways, parking areas (including resurfacing and restriping parking
areas), walkways, building exteriors (including painting), signs and
directories, repairing and replacing roofs, walls, etc. These costs
may be included either based on actual expenditures or the use of an
accounting reserve based on past cost experience for the Project.
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(d) Amortization (along with reasonable financing charges) of capital
improvements made to the Project which Landlord determines are
required by any law, regulation, or government authority or which will
improve the operating efficiency of the Project (provided, however,
that the amount of such amortization for improvements not mandated by
government authority shall not exceed in any year the amount of costs
reasonably determined by Landlord in its sole discretion to have been
saved by the expenditure either through the reduction or minimization
of increases which would have otherwise occurred).
4.1.3 Taxes: Real estate taxes and any other taxes, charges and
assessments which are levied with respect to the Building or the land
appurtenant to the Building, or with respect to any improvements, fixtures and
equipment or other property of Landlord, real or personal, located in the
Building and used in connection with the operation of the Building and said
land, any payments to any ground lessor in reimbursement of tax payments made by
such lessor; and all fees, expenses and costs incurred by Landlord in
investigating, protesting, contesting or in any way seeking to reduce or avoid
increase in any assessments, levies or the tax rate pertaining to any Taxes to
be paid by Landlord in any Lease Year. Taxes shall not include any corporate
franchise, or estate, inheritance or net income tax, or tax imposed upon any
transfer by Landlord of its interest in this Lease or the Building.
4.2 Tenant shall pay as additional rent for each Lease Year Tenant's
Proportionate Share of Direct Expenses and Taxes Incurred for such Lease Year.
4.3 The annual determination of Direct Expenses shall be made by Landlord
and, if certified by a nationally recognized firm of public accountants selected
by Landlord, shall be binding upon Landlord and Tenant. Tenant may review the
books and records supporting such determination in the office of Landlord, or
Landlord's agent, during normal business hours, upon giving Landlord five (5)
days advance written notice within sixty (60) days after receipt of such
determination, but in no event more often than once in any one year period. In
the event that during all or any portion of any Lease Year, the Building is not
fully rented and occupied Landlord may make any appropriate adjustment in
occupancy-related Direct Expenses for such year for the purpose of avoiding
distortion of the amount of such Direct Expenses to be attributed to Tenant by
reason of variation in total occupancy of the Building, by employing sound
accounting and management principles to determine Direct Expenses that would
have been paid or incurred by Landlord had the Building been fully rented and
occupied, and the amount so determined shall be deemed to have been Direct
Expenses for such Lease Year.
4.4 Prior to the actual determination thereof for a Lease Year, Landlord
may from time to time estimate Tenant's liability for Direct Expenses and/or
Taxes under Section 4.2, Article 6 and Article 29 for the Lease Year or portion
thereof. Landlord will give Tenant written notification of the amount of such
estimate and Tenant agrees that it will pay, by increase of its Monthly
Installments of Rent due in such Lease Year, additional rent in the amount .of
such estimate. Any such increased rate of Monthly Installments of Rent pursuant
to this Section 4.4 shall remain in effect until further written notification to
Tenant pursuant hereto.
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4.5 When the above mentioned actual determination of Tenant's liability
for Direct Expenses and/or Taxes is made .for any Lease Year and when Tenant is
so notified in writing, then:
4.5.1 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
less than Tenant's liability for Direct Expenses and/or Taxes, then Tenant shall
pay such deficiency to Landlord as additional rent in one lump sum within thirty
(30) days of receipt of Landlord's bill therefor; and
4.5.2 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
more than Tenant's liability for Direct Expenses and/or Taxes, then Landlord
shall credit the difference against the then next due payments to be made by
Tenant under this Article 4. Tenant shall not be entitled to a credit by reason
of actual Direct Expenses and/or Taxes in any Lease Year being less than Direct
Expenses and/or Taxes in the Base Year (Direct Expenses and/or Taxes).
4.6 If the Commencement Date is other than January 1 or if the Termination
Date is other than December 31, Tenant's liability for Direct Expenses and Taxes
for the Lease Year in which said Date occurs shall be prorated based upon a
three hundred sixty-five (365) day year.
5. SECURITY DEPOSIT.
Tenant shall deposit the Security Deposit with Landlord upon the execution
of this Lease. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease
to be kept and performed by Tenant and not as an advance rental deposit or as a
measure of Landlord's damage in case of Tenant's default. If Tenant defaults
with respect to any provision of this Lease, Landlord may use any part of the
Security Deposit for the payment of any rent or any other sum in default, or for
the payment of any amount which Landlord may spend or become obligated to spend
by reason of Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
is so used, Tenant shall within five (5) days after written demand therefor,
deposit with Landlord an amount sufficient to restore the Security Deposit to
its original amount and Tenant's failure to do so shall be a material breach of
this Lease. Except to such extent, if any, as shall be required by law,
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the Security Deposit or any balance thereof shall be returned
to Tenant at such time after termination of this Lease when Landlord shall have
determined that all of Tenant's obligations under this Lease have been
fulfilled.
6. ALTERATIONS.
6.1 Except for those, if any, specifically provided for in Exhibit B to
this Lease, Tenant shall not make or suffer to be made any alterations,
additions, or improvements, including, but not
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limited to, the attachment of any fixtures or equipment in, on, or to the
Premises or any part thereof or the making of any improvements as required by
Article 7, without the prior written consent of Landlord. When applying for
such consent, Tenant shall, if requested by Landlord, furnish complete plans and
specifications for such alterations, additions and improvements.
6.2 In the event Landlord consents to the making of any such alteration,
addition or improvement by Tenant, the same shall be made using Landlord's
contractor (unless Landlord agrees otherwise) at Tenant's sole cost and expense.
If Tenant shall employ any Contractor other than Landlord's Contractor and such
other Contractor or any Subcontractor of such other Contractor shall employ any
non-union labor or supplier, Tenant shall be responsible for any and all delays,
damages and extra costs suffered by Landlord as a result of any dispute with any
labor unions concerning the wage, hours, terms or conditions of the employment
of any such labor. In any event Landlord may charge Tenant a reasonable charge
to cover its overhead as it relates to such proposed work.
6.3 All alterations, additions or improvements proposed by Tenant shall be
constructed in accordance with all government laws, ordinances, rules and
regulations and Tenant shall, prior to construction, provide the additional
insurance required under Article 11 in such case, and also all such assurances
to Landlord, including but not limited to, waivers of lien, surety company
performance bonds and personal guaranties of individuals of substance as
Landlord shall require to assure payment of the costs thereof and to protect
Landlord and the Building and appurtenant land against any loss from any
mechanic's, materialmen's or other liens. Tenant shall pay in addition to any
sums due pursuant to Article 4, any increase in real estate taxes attributable
to any such alteration, addition or improvement for so long, during the Term, as
such increase is ascertainable; at Landlord's election said sums shall be paid
in the same way as sums due under Article 4.
6.4 All alterations, additions, and improvements in, on, or to the
Premises made or installed by Tenant, including carpeting, shall be and remain
the property of Tenant during the Term but, excepting furniture, furnishings,
movable partitions of less than full height from floor to ceiling and other
trade fixtures, shall become a part of the realty and belong to Landlord without
compensation to Tenant upon the expiration or sooner termination of the Term, at
which time title shall pass to Landlord under this Lease as by a bill of sale,
unless Landlord elects otherwise. Upon such election by Landlord, Tenant shall
upon demand by Landlord, at Tenant's sole cost and expense, forthwith and with
all due diligence remove any such alterations, additions or improvements which
are designated by Landlord to be removed, and Tenant shall forthwith and with
all due diligence, at its sole cost and expense, repair and restore the Premises
to their original condition, reasonable wear and tear and damage by fire or
other casualty excepted.
7. REPAIR.
7.1 Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Premises, except as specified in Exhibit B if attached to
this Lease and except that Landlord shall repair and maintain the structural
portions of the roof, walls and foundation of the Building. By taking
possession of the Premises, Tenant accepts them as being in good order,
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condition and repair and in the condition in which Landlord is obligated to
deliver them. It is hereby understood and agreed that no representations
respecting the condition of the Premises or the Building have been made by
Landlord to Tenant, except as specifically set forth in this Lease. Landlord
shall not be liable for any failure to make any repairs or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant.
7.2. Tenant shall at its own cost and expense keep and maintain all parts
of the Premises and such portion of the Building and improvements as are within
the exclusive control of Tenant in good condition, promptly making all necessary
repairs and replacements, whether ordinary or extraordinary, with materials and
workmanship of the same character, kind and quality as the original (including,
but not limited to, repair and replacement of all fixtures installed by Tenant,
water heaters serving the Premises, windows, glass and plate glass, doors,
exterior stairs, skylights, any special office entries, interior walls and
finish work, floors and floor coverings, heating and air conditioning systems
serving the Premises, electrical systems and fixtures, sprinkler systems, dock
boards, track doors, dock bumpers, plumbing work and fixtures, and performance
of regular removal of trash and debris). Tenant as part of its obligations
hereunder shall keep the Premises in a clean and sanitary condition. Tenant
will, as far as possible keep all such parts of the Premises from deterioration
due to ordinary wear and from falling temporarily out of repair, and upon
termination of this Lease in any way Tenant will yield up the Premises to
Landlord in good condition and repair, loss by fire or other casualty excepted
(but not excepting any damage to glass). Tenant shall, at its own cost and
expense, repair any damage to the Premises or the Building resulting from and/or
caused in whole or in part by the negligence or misconduct of Tenant, its
agents, employees, invitees, or any other person entering upon the Premises as a
result of Tenant's business activities or caused by Tenant's default hereunder.
7.3 Except as provided in Article 22, there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or to
fixtures, appurtenances and equipment in the Building. Except to the extent, if
any, prohibited by law, Tenant waives the right to make repairs at Landlord's
expense under any law, statute or ordinance now or hereafter in effect.
7.4 Landlord, as part of common area maintenance charges paid by Tenant,
shall enter into a regularly scheduled preventive maintenance/service contract
with a maintenance contractor for servicing all heating and air conditioning
systems and equipment serving the Premises. The service contract must include
all services suggested by the equipment manufacturer in the
operation/maintenance manual and must become effective within thirty (30) days
of the date Tenant takes possession of the Premises. Landlord may, upon notice
to Tenant, enter into such a maintenance/service contract on behalf of Tenant or
perform the work and in either case, charge Tenant the cost thereof along with a
reasonable amount for Landlord's overhead.
7.5 Landlord shall coordinate any repairs and other maintenance of any
railroad tracks serving the Building and, if Tenant uses such rail tracks,
Tenant shall reimburse Landlord or the railroad company from time to time upon
demand, as additional rent, for its share of the costs of
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such repair and maintenance and for any other sums specified in any agreement to
which Landlord or Tenant is a party respecting such tracks, such costs to be
borne proportionately by all tenants in the Building using such rail tracks,
based upon the actual number of rail cars shipped and received by such tenant
during each calendar year during the Term.
8. LIENS.
Tenant shall keep the Premises, the Building and appurtenant land and
Tenant's leasehold interest in the Premises free from any liens arising out of
any services, work or materials performed, furnished, or contracted for by
Tenant, or obligations incurred by Tenant. In the event that Tenant shall not,
within ten (10) days following the imposition of any such lien, either cause the
same to be released of record or provide Landlord with insurance against the
same issued by a major title insurance company or such other protection against
the same as Landlord shall accept, Landlord shall have the right to cause the
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith shall be considered additional
rent and shall be payable to it by Tenant on demand.
9. ASSIGNMENT AND SUBLETTING.
9.1 Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Premises whether voluntarily or by operation
of law, or permit the use or occupancy of the Premises by anyone other than
Tenant, and shall not make, suffer or permit such assignment, subleasing or
occupancy, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld, and said restrictions shall be binding upon any
and all assignees of the Lease and subtenants of the Premises. In the event
Tenant desires to sublet, or permit such occupancy of, the Premises, or any
portion thereof, or assign this Lease, Tenant shall give written notice thereof
to Landlord at least ninety (90) but no more than one hundred eighty (180) days
prior to the proposed commencement date of such subletting assignment, which
notice shall set forth the name of the proposed subtenant or assignee, the
relevant terms of any sublease or assignment and copies of financial reports and
other relevant financial reports and other relevant financial information of the
proposed subtenant or assignee.
9.2 Notwithstanding any assignment or subletting, permitted or otherwise,
Tenant shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent specified in this Lease and for compliance
with all of its other obligations under the terms, provisions and covenants of
this Lease. Upon the occurrence of an Event of Default, if the Premises or any
part of them are then assigned or sublet, Landlord, in addition to any other
remedies provided in this Lease or provided by law, may, at its option, collect
directly from such assignee or subtenant all rents due and becoming due to
Tenant under such assignment or sublease and apply such rent against any sums
due to Landlord from Tenant under this Lease, and no such collection shall be
construed to constitute a novation or release of Tenant from the further
performance of Tenant's obligations under this Lease.
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9.3 In addition to Landlord's right to approve of any subtenant or
assignee, Landlord shall have the option, in its sole discretion, in the event
of any proposed subletting or assignment, to terminate this Lease, or in the
case of a proposed subletting of less than the entire Premises, to recapture the
portion of the Premises to be sublet, as of the date the subletting or
assignment is to be effective. The option shall be exercised, if at all, by
Landlord giving Tenant written notice given by Landlord to Tenant within sixty
(60) days following Landlord's receipt of Tenant's written notice as required
above. If this Lease shall be terminated with respect to the entire Premises
pursuant to this Section, the Term of this Lease shall end on the date stated in
Tenant's notice as the effective date of the sublease or assignment as if that
date had been originally fixed in this Lease for the expiration of the Term. If
Landlord recaptures under this Section only a portion of the Premises, the rent
to be paid from time to time during the unexpired Term shall abate
proportionately based on the proportion by which the approximate square footage
of the remaining portion of the Premises shall be less than that of the Premises
as of the date immediately prior to such recapture. Tenant shall, at Tenant's
own cost and expense, discharge in full any outstanding commission obligation on
the part of Landlord with respect to this Lease, and any commissions which may
be due and owing as a result of any proposed assignment or subletting, whether
or not the Premises are recaptured pursuant to this Section 9.3 and rented by
Landlord to the proposed tenant or any other tenant.
9.4 In the event that Tenant sells, sublets, assigns or transfers this
Lease, Tenant shall pay to Landlord additional rent an amount equal to fifty
percent (50%) of any Increased Rent (as defined below) when and as such
Increased Rent is received by Tenant. As used in this Section, "Increased Rent"
shall mean the excess of (i) all rent and other consideration which Tenant is
entitled to receive .by reason of any sale, sublease, assignment or other
transfer of this Lease, over (ii) the rent otherwise payable by Tenant under
this Lease at such time. For purposes of the foregoing, any consideration
received by Tenant in form other than cash shall be valued at its fair market
value as determined by Landlord in good faith.
9.5 Notwithstanding any other provision hereof, Tenant shall have no right
to make (and Landlord shall have the absolute right to refuse consent to) any
assignment of this Lease or sublease of any portion of the Premises if at the
time of either Tenant's notice of the proposed assignment or sublease or the
proposed commencement date thereof, there shall exist any uncured default of
Tenant or matter which will become a default of Tenant with passage of time
unless cured, or if the proposed assignee or sublessee is an entity: (a) with
which Landlord is already in negotiation as evidenced by the issuance of a
written proposal; (b) is already an occupant of the Building unless Landlord is
unable to provide the amount of space required by such occupant; (c) is a
governmental agency; (d) is incompatible with the character of occupancy of the
Building; or (e) would subject the Premises to a use which would: (i) involve
increased personnel or wear upon the Building; (ii) violate any exclusive right
granted to another tenant of the Building; (iii) require any addition to or
modification of the Premises or the Building in order to comply with building
code or other governmental requirements; or, (iv) involve a violation of Section
1.2. Tenant expressly agrees that Landlord shall have the absolute right to
refuse consent to any such assignment or sublease and that for the purposes of
any statutory or other requirement of reasonableness on the part of Landlord
such refusal shall be reasonable.
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9.6 Upon any request to assign or sublet, Tenant will pay to Landlord the
Assignment/Subletting Fee plus, on demand, a sum equal to all of Landlord's
costs, including attorney's fees, incurred in investigating and considering any
proposed or purported assignment or pledge of this Lease or sublease of any of
the Premises, regardless of whether Landlord shall consent to, refuse consent,
or determine that Landlord's consent is not required for, such assignment,
pledge or sublease. Any purported sale, assignment, mortgage, transfer of this
Lease or subletting which does not comply with the provisions of this Article 9
shall be void.
9.7 If Tenant is a corporation, partnership or trust, any transfer or
transfers of or change or changes within any twelve month period in the number
of the outstanding voting shares of the corporation, the general partnership
interests in the partnership or the identity of the persons or entities
controlling the activities of such partnership or trust resulting in the persons
or entities owning or controlling a majority of such shares, partnership
interests or activities of such partnership or trust at the beginning of such
period no longer having such ownership or control shall be regarded as
equivalent to an assignment of this Lease to the persons or entities acquiring
such ownership or control and shall be subject to all the provisions of this
Article 9 to the same extent and for all intents and purposes as though such an
assignment.
10. INDEMNIFICATION.
None of the Landlord Entities shall be liable and Tenant hereby waives all
claims against them for any damage to any property or any injury to any person
in or about the Premises or the Building by or from any cause whatsoever
(including without limiting the foregoing, rain or water leakage of any
character from the roof, windows, walls, basement, pipes, plumbing works or
appliances, the Building not being in good condition or repair, gas, fire, oil,
electricity or theft), except to the extent caused by or arising from the gross
negligence or willful misconduct of Landlord or its agents, employees or
contractors. Tenant shall protect, indemnify and hold the Landlord Entities
harmless from and against any and all loss, claims, liability or costs
(including court costs and attorney's fees) incurred by reason of (a) any damage
to any property (including but not limited to properly of any Landlord Entity)
or any injury (including but not limited to death) to any person occurring in,
on or about the Premises or the Building to the extent that such injury or
damage shall be caused by or arise from any actual or alleged act, neglect,
fault, or omission by or of Tenant, its agents, servants, employees, invitees,
or visitors to meet any standards imposed by any duty with respect to the injury
or damage; (b) the conduct or management of any work or thing whatsoever done by
the Tenant in or about the Premises or from transactions of the Tenant
concerning the Premises; (c) Tenant's failure to comply with any and all
governmental laws, ordinances and regulations applicable to the condition or use
of the Premises or its occupancy; or (d) any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of the Tenant
to be performed pursuant to this Lease. The provisions of this Article shall
survive the termination of this Lease with respect to any claims or liability
accruing prior to such termination.
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11. INSURANCE.
11.1 Tenant shall keep in force throughout the Term: (a) a Commercial
General Liability insurance policy or policies to protect the Landlord Entities
against any liability to the public or to any invitee of Tenant or a Landlord
Entity incidental to the use of or resulting from any accident occurring in or
upon the Premises with a limit of not less than $1,000,000.00 per occurrence and
not less than $2,000,000.00 in the annual aggregate, or such larger amount as
Landlord may prudently require from time to time, covering bodily injury and
property damage liability and $1,000,000 products/completed operations
aggregate; (b) Business Auto Liability covering owned, non-owned and hired
vehicles with a limit of not less than $1,000,000 per accident; (c) insurance
protecting against liability under Worker's Compensation Laws with limits at
least as required by statute; (d) Employers Liability with limits of $500,000
each accident, $500,000 disease policy limit, $500,000 disease--each employee;
(e) All Risk or Special Form coverage protecting Tenant against loss of or
damage to Tenant's alterations, additions, improvements, carpeting, floor
coverings, paneling, decorations, fixtures, inventory and other business
personal property situated in or about the Premises to the full replacement
value of the property so insured; and, (f) Business Interruption Insurance with
limit of liability representing loss of at least approximately six months of
income.
11.2 Each of the aforesaid policies shall (a) be provided at Tenant's
expense; (b) name the Landlord and building management company, if any, as
additional insureds; (c) be issued by an insurance company with a minimum Best's
rating of "A:VII" during the Term; and (d) provide that said insurance shall not
be cancelled unless thirty (30) days prior written notice (ten days for non-
payment of premium) shall have been given to Landlord; and said policy or
policies or certificates thereof shall be delivered to Landlord by Tenant upon
the Commencement Date and at least thirty (30) days prior to each renewal of
said insurance.
11.3 Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid insurance
protection must extend to and include injuries to persons and damage to property
arising in connection with such Work, without limitation including liability
under any applicable structural work act, and such other insurance as Landlord
shall require; and the policies of or certificates evidencing such insurance
must be delivered to Landlord prior to the commencement of any such Work.
12. WAIVER OF SUBROGATION.
So long as their respective insurers so permit, Tenant and Landlord hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage, All Risks or other insurance now or
hereafter existing for the benefit of the respective party but only to the
extent of the net insurance proceeds payable under such policies. Each party
shall obtain any special endorsements required by their insurer to evidence
compliance with the aforementioned waiver.
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13. SERVICES AND UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, telephone, sewer,
sprinkler system charges and other utilities and services used on or from the
Premises, together with any taxes, penalties, and surcharges or the like
pertaining thereto and any maintenance charges for utilities. Tenant shall
furnish all electric light bulbs, tubes and ballasts, battery packs for
emergency lighting and fire extinguishers. If any such services are not
separately metered to Tenant, Tenant shall pay such proportion of all charges
jointly metered with other premises as determined by Landlord, in its sole
discretion, to be reasonable. Any such charges paid by Landlord and assessed
against Tenant shall be immediately payable to Landlord on demand and shall be
additional rent hereunder. Landlord shall in no event be liable for any
interruption or failure of utility services on or to the Premises.
14. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the
Premises or part of them after termination of this Lease by lapse of time or
otherwise at the rate ("Holdover Rate") which shall be 150% of the greater of:
(a) the amount of the Annual Rent for the last period prior to the date of such
termination plus all Rent Adjustments under Article 4; and, (b) the then market
rental value of the Premises as determined by Landlord assuming a new lease of
the Premises of the then usual duration and other terms, in either case prorated
on a daily basis, and also pay all damages sustained by Landlord by reason of
such retention. If Landlord gives notice to Tenant of Landlord's election to
that effect, such holding over shall constitute renewal of this Lease for a
period from month to month or one year, whichever shall be specified in such
notice, in either case at the Holdover Rate, but if the Landlord does not so
elect, no such renewal shall result notwithstanding acceptance by Landlord of
any sums due hereunder after such termination; and instead, a tenancy at
sufferance at the Holdover Rate shall be deemed to have been created. In any
event, no provision of this Article 14 shall be deemed to waive Landlord's right
of reentry or any other right under this Lease or at law.
15. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to ground or underlying leases and to the lien of any
mortgages or deeds of trust now or hereafter placed on, against or affecting the
Building, Landlord's interest or estate in the Building, or any ground or
underlying lease; provided, however, that if the lessor, mortgagee, trustee, or
holder of any such mortgage or deed of trust elects to have Tenant's interest in
this Lease be superior to any such instrument, then, by notice to Tenant, this
Lease shall be deemed superior, whether this Lease was executed before or after
said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to
execute and deliver upon demand such further instruments evidencing such
subordination or superiority of this Lease as may be required by Landlord.
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16. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with all the rules and
regulations as set forth in Exhibit C to this Lease and all reasonable
modifications of and additions to them from time to time put into effect by
Landlord. Landlord shall not be responsible to Tenant for the non-performance
by any other tenant or occupant of the Building of any such rules and
regulations.
17. REENTRY BY LANDLORD.
17.1 Landlord reserves and shall with 24 hours prior notice except in the
event of an emergency have the right to re-enter the Premises to inspect the
same, to show said Premises to prospective purchasers, mortgagees or tenants,
and to alter, improve or repair the Premises and any portion of the Building,
without abatement of rent, and may for that purpose erect, use and maintain
scaffolding, pipes, conduits and other necessary structures and open any wall,
ceiling or floor in and through the Building and Premises where reasonably
required by the character of the work to be performed, provided entrance to the
Premises shall not be blocked thereby, and further provided that the business of
Tenant shall not be interfered with unreasonably.
17.2 Landlord shall have the right at any time to change the arrangement
and/or locations of entrances, or passageways, doors and doorways, and
corridors, windows, elevators, stairs, toilets or other public parts of the
Building and to change the name, number or designation by which the Building is
commonly known. In the event that Landlord damages any portion of any wall or
wall covering, ceiling, or floor or floor covering within the Premises, Landlord
shall repair or replace the damaged portion to match the original as nearly as
commercially reasonable but shall not be required to repair or replace more than
the portion actually damaged.
17.3 Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned by any action
of Landlord authorized by this Article 17. Tenant agrees to reimburse Landlord,
on demand, as additional rent, for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease.
17.4 For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency to obtain entry to
any portion of the Premises. As to any portion to which access cannot be had by
means of a key or keys in Landlord's possession, Landlord is authorized to gain
access by such means as Landlord shall elect and the cost of repairing any
damage occurring in doing so shall be borne by Tenant and paid to Landlord as
additional rent upon demand.
18. DEFAULT.
18.1 Except as otherwise provided in Article 20, the following events shall
be deemed to be Events of Default under this Lease:
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18.1.1 Tenant shall fail to pay when due any sum of money becoming
due to be paid to Landlord under this Lease, whether such sum be any installment
of the rent reserved by this Lease, any other amount treated as additional rent
under this Lease, or any other payment or reimbursement to Landlord required by
this Lease, whether or not treated as additional rent under this Lease, and such
failure shall continue for a period of five days after written notice that such
payment was not made when due, but if any such notice shall be given, for the
twelve month period commencing with the date of such notice, the failure to pay
within five days after due any additional sum of money becoming due to be paid
to Landlord under this Lease during such period shall be an Event of Default,
without notice.
18.1.2 Tenant shall fail to comply with any term, provision or
covenant of this Lease which is not provided for in another Section of this
Article and shall not cure such failure within twenty (20) days (forthwith, if
the failure involves a hazardous condition) after written notice of such failure
to Tenant.
18.1.3 Tenant shall fail to vacate the Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only.
18.1.4 Tenant shall become insolvent, admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency statute, make an
assignment for the benefit of creditors, make a transfer in fraud of creditors,
apply for or consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws, as now in
effect or hereafter amended, or any other applicable law or statute of the
United States or any state thereof.
18.1.5 A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of
Tenant, or of the whole or any substantial part of its property, without the
consent of Tenant, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the bankruptcy laws of the United
States, as now in effect or hereafter amended, or any state thereof, and such
order, judgment or decree shall not be vacated or set aside or stayed within
thirty (30) days from the date of entry thereof.
19. REMEDIES.
19.1 Except as otherwise provided in Article 20, upon the occurrence of any
of the Events of Default described or referred to in Article 18, Landlord shall
have the option to pursue any one or more of the following remedies without any
notice or demand whatsoever, concurrently or consecutively and not
alternatively:
19.1.1 Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease.
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19.1.2 Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises in such event and to repossess Landlord of the Premises as of
Landlord's former estate and to expel or remove Tenant and any others who may be
occupying or be within the Premises and to remove Tenant's signs and other
evidence of tenancy and all other property of Tenant therefrom without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom, Tenant
waiving any right to claim damages for such re-entry and expulsion, and without
relinquishing Landlord's right to rent or any other right given to Landlord
under this Lease or by operation of law.
19.1.3 Upon any termination of this Lease, whether by lapse of time
or otherwise, Landlord shall be entitled to recover as damages, all rent,
including any amounts treated as additional rent under this Lease, and other
sums due and payable by Tenant on the date of termination, plus as liquidated
damages and not as a penalty, an amount equal to the sum of: (a) an amount equal
to the then present value of the rent reserved in this Lease for the residue of
the stated Term of this Lease including any amounts treated as additional rent
under this Lease and all other sums provided in this Lease to be paid by Tenant,
minus the fair rental value of the Premises for such residue; (b) the value of
the time and expense necessary to obtain a replacement tenant or tenants, and
the estimated expenses described in Section 19.1.4 relating to recovery of the
Premises, preparation for reletting and for reletting itself; and (c) the cost
of performing any other covenants which would have otherwise been performed by
Tenant.
19.1.4 Upon any termination of Tenant's right to possession only
without termination of the Lease:
19.1.4.1 Neither such termination of Tenant's right to
possession nor Landlord's taking and holding possession thereof as provided in
Section 19.1.2 shall terminate the Lease or release Tenant, in whole or in part,
from any obligation, including Tenant's obligation to pay the rent, including
any amounts treated as additional rent, under this Lease for the full Term, and
if Landlord so elects Tenant shall pay forthwith to Landlord the sum equal to
the entire amount of the rent, including any amounts treated as additional rent
under this Lease, for the remainder of the Term plus any other sums provided in
this Lease to be paid by Tenant for the remainder of the Term.
19.1.4.2 Landlord may, but need not, relet the Premises or any
part thereof for such rent and upon such terms as Landlord, in its sole
discretion, shall determine (including the right to relet the premises for a
greater or lesser term than that remaining under this Lease, the right to relet
the Premises as a part of a larger area, and the right to change the character
or use made of the Premises). In connection with or in preparation for any
reletting, Landlord may, but shall not be required to, make repairs, alterations
and additions in or to the Premises and redecorate the same to the extent
Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the
cost thereof, together with Landlord's expenses of reletting, including, without
limitation, any commission incurred by Landlord. If Landlord decides to relet
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the Premises or a duty to relet is imposed upon Landlord by law, Landlord and
Tenant agree that nevertheless Landlord shall at most be required to use only
the same efforts Landlord then uses to lease premises in the Building generally
and that in any case that Landlord shall not be required to give any preference
or priority to the showing or leasing of the Premises over any other space that
Landlord may be leasing or have available and may place a suitable prospective
tenant in any such other space regardless of when such other space becomes
available. Landlord shall not be required to observe any instruction given by
Tenant about any reletting or accept any tenant offered by Tenant unless such
offered tenant has a credit-worthiness acceptable to Landlord and leases the
entire Premises upon terms and conditions including a rate of rent (after giving
effect to all expenditures by Landlord for tenant improvements, broker's
commissions and other leasing costs) all no less favorable to Landlord than as
called for in this Lease, nor shall Landlord be required to make or permit any
assignment or sublease for more than the current term or which Landlord would
not be required to permit under the provisions of Article 9.
19.1.4.3 Until such time as Landlord shall elect to terminate
the Lease and shall thereupon be entitled to recover the amounts specified in
such case in Section 19.1.3, Tenant shall pay to Landlord upon demand the full
amount of all rent, including any amounts treated as additional rent under this
Lease and other sums reserved in this Lease for the remaining Term, together
with the costs of repairs, alterations, additions, redecorating and Landlord's
expenses of reletting and the collection of the rent accruing therefrom
(including attorney's fees and broker's commissions), as the same shall then be
due or become due from time to time, less only such consideration as Landlord
may have received from any reletting of the Premises; and Tenant agrees that
Landlord may file suits from time to time to recover any sums falling due under
this Article 19 as they become due. Any proceeds of reletting by Landlord in
excess of the amount then owed by Tenant to Landlord from time to time shall be
credited against Tenant's future obligations under this Lease but shall not
otherwise be refunded to Tenant or inure to Tenant's benefit.
19.2 Landlord may, at Landlord's option, enter into and upon the Premises
if Landlord determines in its sole discretion that Tenant is not acting within a
commercially reasonable time to maintain, repair or replace anything for which
Tenant is responsible under this Lease and correct the same, without being
deemed in any manner guilty of trespass, eviction or forcible entry and detainer
and without incurring any liability for any damage or interruption of Tenant's
business resulting therefrom. If Tenant shall have vacated the Premises,
Landlord may at Landlord's option re-enter the Premises at any time during the
last six months of the then current Term of this Lease and make any and all such
changes, alterations, revisions, additions and tenant and other improvements in
or about the Premises as Landlord shall elect, all without any abatement of any
of the rent otherwise to be paid by Tenant under this Lease.
19.3 If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies arising
under this Lease, Tenant agrees to pay all Landlord's attorney's fees so
incurred. Tenant expressly waives any right to: (a) trial by jury; and (b)
service of any notice required by
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any present or future law or ordinance applicable to landlords or tenants but
not required by the terms of this Lease.
19.4 Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies provided in this Lease or any other remedies provided
by law (all such remedies being cumulative), nor shall pursuit of any remedy
provided in this Lease constitute a forfeiture or waiver of any rent due to
Landlord under this Lease or of any damages accruing to Landlord by reason of
the violation of any of the terms, provisions and covenants contained in this
Lease.
19.5 No act or thing done by Landlord or its agents during the Term shall
be deemed a termination of this Lease or an acceptance of the surrender of the
Premises, and no agreement to terminate this Lease or accept a surrender of said
Premises shall be valid, unless in writing signed by Landlord. No waiver by
Landlord of any violation or breach of any of the terms, provisions and
covenants contained in this Lease shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease. Landlord's acceptance of the payment of
rental or other payments after the occurrence of an Event of Default shall not
be construed as a waiver of such Default, unless Landlord so notifies Tenant in
writing. Forbearance by Landlord in enforcing one or more of the remedies
provided in this Lease upon an Event of Default shall not be deemed or construed
to constitute a waiver of such Default or of Landlord's right to enforce any
such remedies with respect to such Default or any subsequent Default.
19.6 To secure the payment of all rentals and other sums of money becoming
due from Tenant under this Lease, Landlord shall have and Tenant grants to
Landlord a first lien upon the leasehold interest of Tenant under this tease,
which lien may be enforced in equity, and a continuing security interest upon
all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract
rights, chattel paper and other personal property of Tenant situated on the
Premises, and such property shall not be removed therefrom without the consent
of Landlord until all arrearages in rent as well as any and all other sums of
money then due to Landlord under this Lease shall first have been paid and
discharged. In the event of a Default under this Lease, Landlord shall have, in
addition to any other remedies provided in this Lease or by law, all rights and
remedies under the Uniform Commercial Code, including without limitation the
right to sell the property described in this Section 19.6 at public or private
sale upon five (5) days' notice to Tenant. Tenant shall execute all such
financing statements and other instruments as shall be deemed necessary or
desirable in Landlord's discretion to perfect the security interest hereby
created.
19.7 Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of this Lease or of law, to which Tenant is
or may be entitled, may be handled, removed and/or stored, as the case may be,
by or at the direction of Landlord but at the risk, cost and expense of Tenant,
and landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall,
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at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease
as by a bill of sale without further payment or credit by Landlord to Tenant.
20. TENANT'S BANKRUPTCY OR INSOLVENCY.
20.1 If at any time and for so long as Tenant shall be subjected to the
provisions of the United States Bankruptcy Code or other law of the United
States or any state thereof for the protection of debtors as in effect at such
time (each a "Debtor's Law"):
20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or
receiver of Tenants assets (each a "Tenant's Representative") shall have no
greater right to assume or assign this Lease or any interest in this Lease, or
to sublease any of the Premises than accorded to Tenant in Article 9, except to
the extent Landlord shall be required to permit such assumption, assignment or
sublease by the provisions of such Debtor's Law. Without limitation of the
generality of the foregoing, any right of any Tenant's Representative to assume
or assign this Lease or to sublease any of the Premises shall be subject to the
conditions that:
20.1.1.1 Such Debtor's Law shall provide to Tenant's
Representative a right of assumption of this Lease which Tenant's Representative
shall have timely exercised and Tenant's Representative shall have fully cured
any default of Tenant under this Lease.
20.1.1.2 Tenant's Representative or the proposed assignee, as
the case shall be, shall have deposited with Landlord as security for the timely
payment of rent an amount equal to the larger of: (a) three months' rent and
other monetary charges accruing under this Lease; and (b) any sum specified in
Article 5; and shall have provided Landlord with adequate other assurance of the
future performance of the obligations of the Tenant under this Lease. Without
limitation, such assurances shall include, at least, in the case of assumption
of this Lease, demonstration to the satisfaction of the Landlord that Tenant's
Representative has and will continue to have sufficient unencumbered assets
after the payment of all secured obligations and administrative expenses to
assure Landlord that Tenant's Representative will have sufficient funds to
fulfill the obligations of Tenant under this Lease; and, in the case of
assignment, submission of current financial statements of the proposed assignee,
audited by an independent certified public accountant reasonably acceptable to
Landlord and showing a net worth and working capital in amounts determined by
Landlord to be sufficient to assure the future performance by such assignee of
all of the Tenant's obligations under this Lease.
20.1.1.3 The assumption or any contemplated assignment of this
Lease or subleasing any part of the Premises, as shall be the case, will not
breach any provision in any other lease, mortgage, financing agreement or other
agreement by which Landlord is bound.
20.1.1.4 Landlord shall have, or would have had absent the
Debtor's Law, no right under Article 9 to refuse consent to the proposed
assignment or sublease by reason of the identity or nature of the proposed
assignee or sublessee or the proposed use of the Premises concerned.
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21. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements contained in this Lease, shall peaceably and
quietly have, hold and enjoy the Premises for the Term without hindrance or
molestation from Landlord subject to the terms and provisions of this Lease.
Landlord shall not be liable for any interference or disturbance by other
tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference or disturbance.
22. DAMAGE BY FIRE, ETC.
22.1 In the event the Premises or the Building are damaged by fire or other
cause and in Landlord's reasonable estimation such damage can be materially
restored within two hundred fifty (250) days, Landlord shall forthwith repair
the same and this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate abatement in rent from the date of
such damage. Such abatement of rent shall be made pro rata in accordance with
the extent to which the damage and the making of such repairs shall interfere
with the use and occupancy by Tenant of the Premises from time to time. Within
forty-five (45) days from the date of such damage, Landlord shall notify Tenant,
in writing, of Landlord's reasonable estimation of the length of time within
which material restoration can be made, and Landlord's determination shall be
binding on Tenant, For purposes of this Lease, the Building or Premises shall be
deemed "materially restored" if they are in such condition as would not prevent
or materially interfere with Tenant's use of the Premises for the purpose for
which it was being used immediately before such damage.
22.2 If such repairs cannot, in Landlord's reasonable estimation, be made
within two hundred fifty (250) days, Landlord and Tenant shall each have the
option of giving the other, at any time within sixty (60) days after such
damage, notice terminating this Lease as of the date of such damage. In the
event of the giving of such notice, this Lease shall expire and all interest of
the Tenant in the Premises shall terminate as of the date of such damage as if
such date had been originally fixed in this Lease for the expiration of the
Term. In the event that neither Landlord nor Tenant exercises its option to
terminate this Lease, then Landlord shall repair or restore such damage, this
Lease continuing in full force and effect, and the rent hereunder shall be
proportionately abated as provided in Section 22.1.
22.3 Landlord shall not be required to repair or replace any damage or loss
by or from fire or other cause to any panelings, decorations, partitions,
additions, railings, ceilings, floor coverings, office fixtures or any other
property or improvements installed on the Premises or belonging to Tenant. Any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.
22.4 In the event that Landlord should fail to complete such repairs and
material restoration within sixty (60) days after the date estimated by Landlord
therefor as extended by this
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Section 22.4, Tenant may at its option and as its sole remedy terminate this
Lease by delivering written notice to Landlord, within fifteen (15) days after
the expiration of said period of time, whereupon the Lease shall end on the date
of such notice or such later date fixed in such notice as if the date of such
notice was the date originally fixed in this Lease for the expiration of the
Term; provided, however, that if construction is delayed because of changes,
deletions or additions in construction requested by Tenant, strikes, lockouts,
casualties, Acts of God, war, material or labor shortages, government regulation
or control or other causes beyond the reasonable control of Landlord, the period
for restoration, repair or rebuilding shall be extended for the amount of time
Landlord is so delayed.
22.5 Notwithstanding anything to the contrary contained in this Article:
(a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or
restore the Premises when the damages resulting from any casualty covered by the
provisions of this Article 22 occur during the last twelve (12) months of the
Term or any extension thereof, but if Landlord determines not to repair such
damages Landlord shall notify Tenant and if such damages shall render any
material portion of the Premises untenantable Tenant shall have the right to
terminate this Lease by notice to Landlord within fifteen (15) days after
receipt of Landlord's notice; and (b) in the event the holder of any
indebtedness secured by a mortgage or deed of trust covering the Premises or
Building requires that any insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon this Lease shall end on the date of such
damage as if the date of such damage were the date originally fixed in this
Lease for the expiration of the Term.
22.6 In the event of any damage or destruction to the Building or Premises
by any peril covered by the provisions of this Article 22, it shall be Tenant's
responsibility to properly secure the Premises and upon notice from Landlord to
remove forthwith, at its sole cost and expense, such portion of all of the
Property belonging to Tenant or its licensees from such portion or all of the
Building or Premises as Landlord shall request.
23. EMINENT DOMAIN.
If all or any substantial part of the Premises shall be taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, or conveyance in lieu of such appropriation, either party to this Lease
shall have the right, at its option, of giving the other, at any time within
thirty (30) days after such taking, notice terminating this Lease, except that
Tenant may only terminate this Lease by reason of taking or appropriation, if
such taking or appropriation shall be so substantial as to materially interfere
with Tenant's use and occupancy of the Premises. If neither party to this Lease
shall so elect to terminate this Lease, the rental thereafter to be paid shall
be adjusted on a fair and equitable basis under the circumstances. In addition
to the rights of Landlord above, if any substantial part of the Building shall
be taken or appropriated by any public or quasi-public authority under the power
of eminent domain or conveyance in lieu thereof, and regardless of whether the
Premises or any part thereof are so taken or appropriated, Landlord shall have
the right, at its sole option, to terminate this Lease. Landlord shall be
entitled to any and all income, rent, award, or any interest whatsoever in or
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upon any such sum, which may be paid or made in connection with any such public
or quasi-public use or purpose, and Tenant hereby assigns to Landlord any
interest it may have in or claim to all or any part of such sums, other than any
separate award which may be made with respect to Tenant's trade fixtures and
moving expenses; Tenant shall make no claim for the value of any unexpired Term.
24. SALE BY LANDLORD.
In event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, expressed or implied, contained in this Lease in favor
of Tenant, and in such event Tenant agrees to look solely to the responsibility
of the successor in interest of Landlord in and to this Lease. Except as set
forth in this Article 24, this Lease shall not be affected by any such sale and
Tenant agrees to attorn to the purchaser or assignee. If any security has been
given by Tenant to secure the faithful performance of any of the covenants of
this Lease, Landlord may transfer or deliver said security, as such, to
Landlord's successor in interest and thereupon Landlord shall be discharged from
any further liability with regard to said security.
25. ESTOPPEL CERTIFICATES.
Within ten (10) days following any written request which Landlord may make
from time to time, Tenant shall execute and deliver to Landlord or mortgagee or
prospective mortgagee a sworn statement certifying: (a) the date of
commencement of this Lease; (b) the fact that this Lease is unmodified and in
full force and effect (or, if there have been modifications to this Lease, that
this lease is in full force and effect, as modified, and stating the date and
nature of such modifications); (c) the date to which the rent and other sums
payable under this Lease have been paid; (d) the fact that there are no current
defaults under this Lease by either Landlord or Tenant except as specified in
Tenant's statement; and (e) such other matters as may be requested by Landlord.
Landlord and Tenant intend that any statement delivered pursuant to this Article
25 may be relied upon by any mortgagee, beneficiary or purchaser and Tenant
shall be liable for all loss, cost or expense resulting from the failure of any
sale or funding of any loan caused by any material misstatement contained in
such estoppel certificate. Tenant irrevocably agrees that if Tenant fails to
execute and deliver such certificate within such ten (10) day period Landlord or
Landlord's beneficiary or agent may execute and deliver such certificate on
Tenant's behalf, and that such certificate shall be fully binding on Tenant.
26. SURRENDER OF PREMISES.
26.1 Tenant shall, at least thirty (30) days before the last day of the
Term, arrange to meet Landlord for a joint inspection of the Premises. In the
event of Tenant's failure to arrange such joint inspection to be held prior to
vacating the Premises, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
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26.2 At the end of the Term or any renewal of the Term or other sooner
termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises, together with all improvements or additions upon or
belonging to the same, by whomsoever made, in the same conditions received or
first installed, broom clean and free of all debris, excepting only ordinary
wear and tear and damage by fire or other casualty. Tenant may, and at
Landlord's request shall, at Tenant's sole cost, remove upon termination of this
Lease, any and all furniture, furnishings, movable partitions of less than full
height from floor to ceiling, trade fixtures and other property installed by
Tenant, title to which shall not be in or pass automatically to Landlord upon
such termination, repairing all damage caused by such removal. Property not so
removed shall, unless requested to be removed, be deemed abandoned by the Tenant
and title to the same shall thereupon pass to Landlord under this Lease as by a
bill of sale. All other alterations, additions and improvements in, on or to
the Premises shall be dealt with and disposed of as provided in Article 6.
26.3 All obligations of Tenant under this Lease not fully performed as of
the expiration or earlier termination of the Term shall survive the expiration
or earlier termination of the Term. In the event that Tenant's failure to
perform prevents Landlord from releasing the Premises, Tenant shall continue to
pay rent pursuant to the provisions of Article 14 until such performance is
complete. Upon the expiration or earlier termination of the Term, Tenant shall
pay to Landlord the amount, as estimated by Landlord, necessary to repair and
restore the Premises as provided in this Lease and/or to discharge Tenant's
obligation for unpaid amounts due or to become due to Landlord. All such
amounts shall be used and held by Landlord for payment of such obligations of
Tenant, with Tenant being liable for any additional costs upon demand by
Landlord, or with any excess to be returned to Tenant after all such obligations
have been determined and satisfied. Any otherwise unused Security Deposit shall
be credited against the amount payable by Tenant under this Lease.
27. NOTICES.
Any notice or document required or permitted to be delivered under this
Lease shall be addressed to the intended recipient, shall be transmitted
personally, by fully prepaid registered or certified United States Mail return
receipt requested, or by reputable independent contract delivery service
furnishing a written record of attempted or actual delivery, and shall be deemed
to be delivered when tendered for delivery to the addressee at its address set
forth on the Reference Page, or at such other address as it has then last
specified by written notice delivered in accordance with this Article 27, or if
to Tenant at either its aforesaid address or its last known registered office or
home of a general partner or individual owner, whether or not actually accepted
or received by the addressee.
28. TAXES PAYABLE BY TENANT.
In addition to rent and other charges to be paid by Tenant under this
Lease, Tenant shall reimburse to Landlord, upon demand, any and all taxes
payable by Landlord (other than net income taxes) whether or not now customary
or within the contemplation of the parties to this Lease: (a) upon, allocable
to, or measured by or on the gross or net rent payable under this Lease,
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<PAGE>
including without limitation any gross income tax or excise tax levied by the
State, any political subdivision thereof, or the Federal Government with respect
to the receipt of such rent; (b) upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy of the Premises or any portion thereof, including any sales, use or
service tax imposed as a result thereof; (c) upon or measured by the Tenant's
gross receipts or payroll or the value of Tenant's equipment, furniture,
fixtures and other personal property of Tenant or leasehold improvements,
alterations or additions located in the Premises; or (d) upon this transaction
or any document to which Tenant is a party creating or transferring any interest
of Tenant in this Lease or the Premises. In addition to the foregoing, Tenant
agrees to pay, before delinquency, any and all taxes levied or assessed against
Tenant and which become payable during the term hereof upon Tenant's equipment,
furniture, fixtures and other personal property of Tenant located in the
Premises.
29. RELOCATION OF TENANT.
Landlord, at its sole expense, on at least ninety (90) days prior written
notice, may require Tenant to move from the Premises to other space of
comparable size and decor in order to permit Landlord to consolidate the space
leased to Tenant with other adjoining space leased or to be leased to another
tenant. In the event of any such relocation, Landlord will pay all expenses of
preparing and decorating the new premises so that they will be substantially
similar to the Premises from which Tenant is moving, and Landlord will also pay
the expense of moving Tenant's furniture and equipment to the relocated
premises. In such event this Lease and each and all of the terms and covenants
and conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new space except that a revised Reference Page and a
revised Exhibit A shall become part of this Lease and shall reflect the location
of the new premises.
30. DEFINED TERMS AND HEADINGS.
The Article headings shown in this Lease are for convenience of reference
and shall in no way define, increase, limit or describe the scope or intent of
any provision of this Lease. Any indemnification or insurance of Landlord shall
apply to and inure to the benefit of all the following "Landlord Entities",
being Landlord, Landlord's investment manager, and the trustees, boards of
directors, officers, general partners, beneficiaries, stockholders, employees
and agents of each of them. Any option granted to Landlord shall also include
or be exercisable by Landlord's trustee, beneficiary, agents and employees, as
the case may be. In any case where this Lease is signed by more than one
person, the obligations under this Lease shall be joint and several. The terms
"Tenant" and "Landlord" or any pronoun used in place thereof shall indicate and
include the masculine or feminine, the singular or plural number, individuals,
firms or corporations, and each of their respective successors, executors,
administrators and permitted assigns, according to the context hereof. The term
"rentable area" shall mean the rentable area of the Premises or the Building as
calculated by the Landlord on the basis of the plans and specifications of the
Building including a proportionate share of any common areas. Tenant hereby
accepts and agrees to be bound by the figures for the rentable space footage of
the Premises and Tenant's Proportionate Share shown on the Reference Page.
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<PAGE>
31. TENANT'S AUTHORITY.
If Tenant signs as a corporation each of the persons executing this Lease
on behalf of Tenant represents and warrants that Tenant has been and is
qualified to do business in the state in which the Building is located, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. If Tenant signs as a partnership, trust or other
legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that Tenant has complied with all applicable laws, rules
and governmental regulations relative to its right to do business in the state
and that such entity on behalf of the Tenant was authorized to do so by any and
all appropriate partnership, trust or other actions. Tenant agrees to furnish
promptly upon request a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization of
Tenant to enter into this Lease.
32. COMMISSIONS.
Each of the parties represents and warrants to the other that it has not
dealt with any broker or finder in connection with this Lease, except as
described on the Reference Page.
33. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease
shall in all respects be governed by the laws of the state in which the Building
is located.
34. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 9, the terms, covenants and conditions
contained in this Lease shall be binding upon and inure to the benefit of the
heirs, successors, executors, administrators and assigns of the parties to this
Lease.
35. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the
parties to this Lease and supersedes any previous negotiations. There have been
no representations made by the Landlord or understandings made between the
parties other than those set forth in this Lease and its exhibits. This Lease
may not be modified except by a written instrument duly executed by the parties
to this Lease.
36. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound by this Lease until it has received a
copy of this Lease duly executed by Tenant and has delivered to Tenant a copy of
this Lease duly executed by Landlord, and until such delivery Landlord reserves
the right to exhibit and lease the Premises to other prospective
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<PAGE>
tenants. Notwithstanding anything contained in this Lease to the contrary,
Landlord may withhold delivery of possession of the Premises from Tenant until
such time as Tenant has paid to Landlord any security deposit required by
Article 5, the first month's rent as set forth in Article 3 and any sum owed
pursuant to this Lease.
37. RECORDATION.
Tenant shall not record or register this Lease or a short form memorandum
hereof without the prior written consent of Landlord, and then shall pay all
charges and taxes incident such recording or registration.
38. LIMITATION OF LANDLORD'S LIABILITY.
Redress for any claims against Landlord under this Lease shall be limited
to and enforceable only against and to the extent of Landlord's interest in the
Building. The obligations of Landlord under this Lease are not intended to and
shall not be personally binding on, nor shall any resort be had to the private
properties of, any of its trustees or board of directors and officers, as the
case may be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Landlord or the investment
manager.
39. ELECTRICAL ROOM CREDIT.
The Leased Premises, Space 30/G,H, contains a common area Electrical Room
totaling seventy-eight (78) square feet. Tenant shall be credited in the amount
of $27.00 per month, calculated as follows:
Electrical Room: 78 square feet
6,190 DIVIDED BY 16,160 = 0.38%
Tenant Total Tenant's Proportionate
Space Building Share of Building
Sq. Ft. Sq. Ft.
78 Sq. Ft. x 0.38 = 30 Square Feet
Electrical Tenant's Share of
Room Sq. Ft. Electrical Room
78 Sq. Ft. - 30 Sq. Ft. = 48 Square Feet
Electrical Share of Electrical Room
Room Sq. Ft. Attributable to Balance of Building
48 Sq. Ft. x $0.35 = $17.00
Base
Rent
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<PAGE>
48 Sq. Ft. x $0.19 = $10.00
Estimated
Operating
Expenses
$17.00 + $10.00 = $27.00
40. RENT SCHEDULE.
Rent shall be paid pursuant to Article 3 in accordance with the following
schedule:
<TABLE>
<CAPTION>
Monthly Base Rent Credit Amortized Tenant
Monthly w/Electrical Room Improvement Total Adjusted
Period Base Rent (Article 39.) Payment Monthly Base Rent Annual Rent
------ --------- ------------- ------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Months 1-12 $4,085.00 NNN ($27.00) $81.00 $4,139.00 NNN $49,668.00 NNN
Months 13-24 $4,289.00 NNN ($28.00) $81.00 $4,342.00 NNN $52,104.00 NNN
Months 25-36 $4,503.00 NNN ($29.00) $81.00 $4,555.00 NNN $54,660.00 NNN
</TABLE>
41. EARLY OCCUPANCY.
Tenant is to be allowed to occupy the premises on September 15, 1996. Rent
is to begin on October 1, 1996 prorated at the same rate as stated in the Lease.
Landlord and Tenant agree that all the terms and conditions of the above
referenced Lease are to be in full force and effect as of the date of Tenant's
possession of the premises. Tenant accepts premises in their present
condition.. Landlord agrees to complete all tenant improvements as set forth in
the Lease. Tenant understands that this early occupancy may cause some delay in
the construction of the tenant improvements and that such delay will not be a
cause for forgiveness of any rent due. It is further understood that prior to
any improvements of the leased premises by the Tenant which may result in the
delay in construction of tenant improvements or the obtaining of a building
permit without written consent of Landlord is hereby prohibited. Any such
violation may cause the termination of this Lease.
In the event Tenant takes possession of the Premises prior to completion of
any construction, Tenant agrees to hold Landlord harmless from any and all
claims for damages to goods, equipment or inconvenience or interruption of
Tenant's business.
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LANDLORD: TENANT:
GATEWAY COLUMBIA PROPERTIES, INC., E.B.I. ACQUISITIONS, INC., an Oregon
a California corporation corporation dba ENBLOC INCORPORATED
By: /s/ David J. Levich By: /s/ William F. Stephens
------------------------- -----------------------------
David J. Levich William F. Stephens
Title: District Manger Title: President
--------------------- -------------------------
Date: 8/13/96 Date: 8/13/96
--------------------- -------------------------
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EXHIBIT A
attached to and made a part of Lease bearing the
Lease Reference Date of August 5, 1996, between
GATEWAY COLUMBIA PROPERTIES, INC., as Landlord
and E.B.I. ACQUISITIONS, INC., dba ENBLOC INCORPORATED, as Tenant,
for the Premises located at 7737 SW Cirrus Drive
Beaverton, Oregon 97008
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Article 17.2 with respect to arrangements and/or
locations of public parts of the Building and changes in such arrangements
and/or locations. It is not to be scaled; any measurements or distances shown
should be taken as approximate.
A-1
<PAGE>
EXHIBIT A-1
attached to and made a part of Lease bearing the
Lease Reference Date of August 5, 1996, between
GATEWAY COLUMBIA PROPERTIES, INC., as Landlord
and E.B.I. ACQUISITIONS, INC., dba ENBLOC INCORPORATED, as Tenant,
for the Premises located at 7737 SW Cirrus Drive
Beaverton, Oregon 97008
FLOOR PLAN
Exhibit A-1 is intended only to show the general layout of the Premises as of
the beginning of the term of this Lease. It does not in any way supersede any
of Landlord's rights set forth in Article 17.2 with respect to arrangements
and/or locations of public parts of the Building and changes in such
arrangements and/or locations. It is not to be scaled; any measurements or
distances shown should be taken as approximate.
A-1-1
<PAGE>
EXHIBIT B
attached to and made a part of Lease bearing the
Lease Reference Date of August 5, 1996, between
GATEWAY COLUMBIA PROPERTIES, INC., as Landlord
and E.B.I. ACQUISITIONS, INC., dba ENBLOC INCORPORATED, as Tenant,
INITIAL ALTERATIONS
Notwithstanding anything to the contrary contained herein or any Exhibits
attached hereto, both parties agree that the premises are to be delivered to
Tenant in an "as-is" condition and by execution hereof, Tenant confirms its
inspection and acceptance of the premises. Landlord is in no way responsible
for any alterations, additions, or renovations to the premises with the
exception of the following:
Landlord, at its sole cost, shall perform the following improvements to the
Premises using building standard materials:
- install gray mini-blinds;
- install drywall over wood paneling;
- demo half-wall in reception area;
- remove cabinets in break room;
- repair ceiling grid and replace ceiling tiles, as necessary;
- spray texture over walls with wall covering;
- repair fluorescent lenses as necessary and make all bulbs consistent
throughout suite;
- change all wall plates and switches to "white";
- install new carpet in office area;
- paint office area throughout using building standard colors;
- install new vinyl tile in break room and copy room;
- remove over exposed studs in warehouse and fire tape; and
- seal warehouse floor.
Tenant shall contribute $7,500.00 toward the above referenced tenant
improvement work, payable upon signing of this Lease.
Landlord will provide an additional $2,500.00 to be used for the above
referenced tenant improvements which all be amortized over three (3) years at an
interest rate of ten percent (10%). Tenant shall pay to Landlord the amount of
$81.00 per month for the first thirty-six (36) months of the Lease Term in
addition to the monthly base rent.
THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK.
B-1
<PAGE>
EXHIBIT C
attached to and made a part of Lease bearing the
Lease Reference Date of August 5, 1996, between
GATEWAY COLUMBIA PROPERTIES, INC., as Landlord
and E.B.I. ACQUISITIONS, INC., dba ENBLOC INCORPORATED, as Tenant,
RULES AND REGULATIONS
l. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person or vendor chosen by Landlord. In addition, Landlord reserves
the right to change from time to time the format of tire signs or lettering and
to require previously approved signs or lettering to be appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or door of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the right
to control and prevent access to the Building of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants provided that nothing
contained in this rule shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenant and no employee or
invitee of any tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only and Landlord reserves the right
to exclude any other names therefrom.
5. All cleaning and janitorial services for the Premises shall be
provided exclusively by Tenant at Tenant's sole cost and expense. Landlord
shall not in any way be responsible to any Tenant for any loss of property on
the Premises, however occurring, or for any damage to any Tenant's property by
the janitor or any other employee or any other person.
C-1
<PAGE>
6. Landlord will furnish Tenant free of charge with two keys to each door
in the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys, and Tenant shall
not alter any lock or install a new or additional lock or bolt on any door of
its Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord s instructions in
their installation.
8. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall not place a load upon any floor which exceeds the load
per square foot which such floor was designed to carry and which is allowed by
law. Landlord shall have the right to prescribe the weight, size and position
to all equipment, materials, furniture or other property brought into the
Building. Heavy objects shall, stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight. Business machines
and mechanical equipment belonging to Tenant which cause noise or vibration that
may be transmitted to the structure of the Building or to any space in the
Building to such a degree as to be objectionable to Landlord or to any tenants
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration. The
persons employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss of, or damage
to, any such equipment or other property from any cause, and all damage done to
the Building by maintaining or moving such equipment or other property shall be
repaired at the expense of Tenant.
10. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord. Tenant shall not waste electricity, water or
air conditioning. Tenant shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays any
person unless that person is known to the person or employee in charge of the
Building or is properly identified. Tenant shall be responsible for all poisons
for whom it requests passes and shall be liable to Landlord for all acts of such
persons. Landlord shall not be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
C-2
<PAGE>
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown into
any of them, and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, shall have caused it.
14. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Building.
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
16. Tenant shall not install, maintain or operate upon the Premises any
vending machine.
17. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the Premises,
except by the Tenant of Underwriters' Laboratory approved microwave oven or
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted provided that such equipment and use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
19. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material-handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building.
20. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's address.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instruction form Landlord. and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
C-3
<PAGE>
22. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
23. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
24. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment and from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order in and about the Building. Tenant agrees to abide by all such
rules and regulations in this Exhibit C stated and any additional rules and
regulations which are adopted.
25. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
26. Landlord grants to Tenant and Tenant's customers, suppliers, employees
and invitees, a nonexclusive license to use the designated parking areas in the
Project for the use of motor vehicles during the term of this Lease. Landlord
reserves the right at any time to grant similar nonexclusive use to other
tenants, to promulgate rules and regulations relating to the use of such parking
areas, including reasonable restrictions on parking by tenants and employees, to
designate specific spaces for the use of any tenant, to make changes in the
parking layout from time to time, and to establish reasonable time limits on
parking. Overnight parking is prohibited and any vehicle violating this or any
other vehicle regulation adopted by Landlord is subject to removal at the
owner's expense.
C-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF E.COM INTERNATIONAL, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> APR-04-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 16,190 372,232
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 8,916 307,104
<CURRENT-ASSETS> 33,013 727,181
<PP&E> 96,284 219,384
<DEPRECIATION> (8,545) (81,367)
<TOTAL-ASSETS> 136,019 927,190
<CURRENT-LIABILITIES> 331,844 481,871
<BONDS> 0 0
0 0
0 0
<COMMON> 371,385 1,752,073
<OTHER-SE> (567,210) (1,318,404)
<TOTAL-LIABILITY-AND-EQUITY> 136,019 927,190
<SALES> 0 1,650
<TOTAL-REVENUES> 0 1,650
<CGS> 0 1,166
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (3,522) (23,794)
<INCOME-PRETAX> (567,210) (1,388,865)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (567,210) (1,388,865)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (567,210) (1,388,865)
<EPS-PRIMARY> (0.63) (1.15)
<EPS-DILUTED> (0.63) (1.15)
</TABLE>
