<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
AFFILIATED NETWORKS, INC.
(Name of Small Business Issuer in its Charter)
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FLORIDA 65-0354269
------------------------------- -------------------
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
2701 SOUTH BAYSHORE DRIVE, SUITE #403
COCONUT GROVE, FLORIDA 33133
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(Address Of Principal Executive Offices) (Zip Code)
(305) 285-2003
--------------------------------
(Issuer's Telephone Number)
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
Title Of Each Class Name Of Each Exchange On
To Be So Registered Which Each Class Is To Be Registered
------------------- ------------------------------------
None
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of Class)
None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY
Affiliated Networks, Inc. (the "Company") is developing proprietary
internet based trading exchanges for the wholesale trade of equipment, parts
and supplies in selected industries. In addition, the Company publishes
financial and strategic corporate information for use in evaluating and
operating various companies on an industry by industry basis through a number
of publications and on-line services.
The electronic commerce ("E-Commerce") division of the Company's
operations focuses on creating proprietary internet based wholesale trading
exchanges (the "Exchanges") for the marine, medical and dental industries. The
Exchanges, when fully operational, will allow buyers to solicit quotes on-line
from sellers for specific equipment, parts and supplies. The Exchanges will
display to the buyer the best price available, including shipping information
and delivery dates, which will be updated on a real-time basis as bids are
posted. The Exchanges seek to provide a nationwide search capability to buyers
for hard-to-find equipment, parts and supplies and create a lowest price forum
for buyers to take advantage of spot market pricing of sellers' overstocked and
available inventory. Sellers utilizing the Exchanges will gain access to an
expanded wholesale customer base and have greater opportunity to resell slow
moving inventory. The Company anticipates that Exchange members may act as
sellers and buyers on a daily basis to take advantage of differences in
regional pricing and supply availability. Certain types of inventory, such as
outboard engines, are seasonal in most parts of the country as weather
precludes recreational boating in winter months. The Company believes that the
marine Exchange ("MAREX") will facilitate boat dealers' ability to reduce
inventory levels during slower periods and maintain lower in-stock inventory
levels during peak periods because of greater purchasing power.
The Exchanges are designed to create a low price and low risk
environment for both buyers and sellers. Members must satisfy certain credit
standards based on one of three parameters: (1) participating in a credit
protection option; (2) having annual revenues in excess of $25 million and
having been in business for 10 years or more, or (3) having cash or credit in
an established trading account. Buyers using the Exchange will request quotes
for equipment, parts and supplies by stock keeping unit ("SKU") or
manufacturer, make or model, quantity and color, and will set a deadline for
posting quotes. Sellers will receive requests for bids on their terminals
through a flashing icon and have the opportunity to underbid posted quotes on a
real time basis up to the buyer's deadline. The buyer selects the desired quote
and electronically confirms the purchase, thereby notifying the seller of
acceptance of the quote. The seller ships the goods via the selected common
carrier to the buyer, who must accept delivery prior to the purchase price (net
of commission) being released to the seller.
The Financial Information Services ("FIS") division of the Company,
which operates through Sovereign Financial Information Services, Inc., a wholly
owned subsidiary, is developing a number of industry specific stock handbooks
and periodicals that provide financial
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and corporate information on public companies within selected industries. The
Company's publications include research reports, stock handbooks and global
industry guides and are supplemented with information accessed via the internet.
The Company intends to generate revenue through the sale of the Company's
research reports, stock handbooks and global industry guides.
INDUSTRY OVERVIEW
The internet has emerged as a global medium enabling millions of
people worldwide to share information, communicate and conduct business
electronically. International Data Corporation ("IDC") estimates that the
number of worldwide web (the "Web") users will grow from approximately 69
million worldwide in 1997 to approximately 320 million worldwide by the end of
the year 2002. This growth is expected to be driven by the large and growing
number of personal computers ("PCs") installed in homes and offices, the
decreasing cost of PCs, easier, faster and cheaper access to the internet,
improvements in network infrastructure, the proliferation of internet content
and the increasing familiarity and acceptance of the internet by businesses and
consumers. The internet possesses a number of unique characteristics that
differentiate it from traditional media: users communicate or access
information without geographic or temporal limitations; users access dynamic
and interactive content on a real-time basis; and users communicate and
interact instantaneously with a single individual or with entire groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow rapidly.
The growing adoption of the Web represents an enormous opportunity for
businesses to conduct commerce over the internet. IDC estimates that commerce
over the internet will increase from approximately $32 billion worldwide in
1998 to approximately $130 billion worldwide in 2000. The internet offers for
the first time the opportunity to create a compelling global marketplace that
overcomes the inefficiencies associated with traditional trading while offering
the benefits of internet-based commerce to the wholesale trading market. An
internet-based centralized trading place facilitates buyers and sellers
meeting, listing items for sale, exchanging information, interacting with each
other and, ultimately, consummating transactions. It allows buyers and sellers
to trade directly, bypassing traditional intermediaries and lowering costs for
both parties. This trading place is global in reach, offering buyers a
significantly broader selection of goods to purchase and providing sellers the
opportunity to sell their goods efficiently to a broader base of buyers. It
offers significant convenience, allowing trading at all hours and providing
continually-updated information. By leveraging the interactive nature of the
internet, this trading place also facilitates a sense of community through
direct buyer and seller communication, thereby enabling the interaction between
parties with mutual interests. As a result, there exists a significant market
opportunity for an internet-based centralized trading place that applies the
unique attributes of the internet to facilitate business-to-business trading.
Page 3 of 43
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BUSINESS STRATEGY
GROWTH OF E-COMMERCE BUSINESS - Initially, the Company intends to
market the Exchanges to retailers, distributors and exporters within the
marine, medical and dental industries. The Company intends to market the
Exchanges to each such industry segment by advertising in industry
publications, utilizing direct mail, telemarketing and attending trade shows.
Once the Exchanges are operational, the Company hopes to capitalize on
significant referral business.
TARGET SPECIFIC INDUSTRIES - The Company is currently focusing the
development of its Exchanges on the marine, medical and dental industries. Once
the MAREX and Medx Exchanges are operating, the Company will evaluate expansion
into other industries. Such expansion would be geared towards industries
similar to those mentioned above which, due to their size, fragmented nature
and purchasing inefficiencies, would most benefit from the use of the
Exchanges.
CUSTOMER ASSURANCE PROGRAMS - The Exchanges are designed to create a
low risk environment for members to buy and sell equipment, parts and supplies
without the risks typically associated with wholesale trade. Buyers utilizing
the Exchange will have the right to inspect and accept the purchased goods
prior to remitting payment. Sellers will automatically participate in the
Company's "SUREPAY" program in which a payment in excess of a designated amount
will be insured by an insurance carrier. "SUREPAY" is an accounts receivable
insurance program insured by a nationally recognized insurance company that
pays the Seller the invoice amount of the sale in the event the Buyer fails to
make the payment for certain specified reasons. By reducing the risk of
utilizing the Exchange in this manner, the Company seeks to reduce member's
concerns about nationwide transactions with new sources of business.
CUSTOMER SERVICE - The Company intends to provide a lowest price and
user friendly environment, staffed with high quality customer service.
STRATEGIC RELATIONSHIPS - The Company has strategic relationships with
such companies as Federal Express, Roadway Express, RPS, UPS and Yellow
Freight. These relationships allow the Company to offer its customers a number
of shipment options which will be tracked by the Company, enhancing timely
delivery of orders. The Company has also formed a marketing relationship with
GTE Intelligent Network Services Incorporated d/b/a GTE Internetworking
("GTE").
PRODUCTS AND SERVICES - E-COMMERCE
MAREX - THE NATIONAL MARINE EXCHANGE
MAREX - The National Marine Exchange is an on-line service designed to
provide the marine industry with an Exchange to purchase virtually any
equipment, parts and supplies in the marine industry that would be used on a
recreational or commercial vessel. The service is accessed via the internet @
www.marex.com. The Company has focused initially on the marine industry because
of its size, fragmented nature and purchasing inefficiencies. MAREX is
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designed to speed up the purchasing process, simplify payment procedures and
provide a low cost forum for the marine industry, which is predominantly
operated by small business owners. Data provided by The National Marine
Manufacturers Association and Dun & Bradstreet suggests that there are an
estimated 48,000 marine-related businesses, of which more than 1,800 are boat
builders, 8,500 are boat yards and marinas, 15,000 are boat dealers, and over
15,000 are exporters.
MEDX
The Company is also developing an on-line Exchange for the medical and
dental industries which will be similar to MAREX and will be known as MEDx. The
system is designed to provide the medical and dental industries with an
Exchange to purchase virtually any equipment, parts and supplies used in the
medical and dental industries. The medical and dental industries, like the
marine industry, are highly fragmented, with a large number of small businesses
requiring medical and dental equipment and supplies. According to Dun &
Bradstreet, it is estimated that there are more than 113,000 dental offices,
2,000 dental equipment suppliers and wholesalers, 130,000 dentists and 11,000
dental laboratories in the United States. Similarly, Dun & Bradstreet estimates
that there are currently over 250,000 practicing physicians and surgeons,
13,000 hospitals, 14,000 hospital equipment and supplies wholesalers, 8,000
physicians and surgeons' equipment and supplies businesses and approximately
8,000 medical laboratories in the United States.
PRODUCT AND SERVICES - FINANCIAL INFORMATION SERVICES
The Company also provides financial information services for certain
industries through its research reports, its stock handbooks and its global
industry guides. The research reports, which currently consist of THE NATURAL
RESOURCES RESEARCH REPORT and THE TECHNOLOGY RESEARCH REPORT, are biannual
publications that provide financial and other strategic information on North
American publicly traded companies. The stock handbooks will be published
annually and provide, among other things, company profiles, corporate
backgrounds, stock charts, earnings, industry data, historical research and
competitive intelligence information relating to industries including mining,
oil & gas, high technology and biotechnology. It is anticipated that each stock
handbook will be accompanied by an internet access code which will enable the
user to access updated information in such areas. The global industry guides
will be published annually and will initially focus on industry information in
Latin America and the Caribbean. The Company has cultivated strategic
relationships with certain private and public entities which it feels will
allow it to provide valuable and timely information regarding legal
developments, finance policies, tax and accounting practices, political
assessments, regional news, competition and industry specific data. These
relationships include those with Data Broadcasting Corporation, PR Newswire,
Baker & McKenzie, Kroll Associates and 17 foreign government ministries. The
Company expects to publish the first series of stock handbooks and global
industry guides during the first quarter of 1999.
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MARKETING
The Company's primary marketing efforts for its E-Commerce business
include advertising in industry publications, utilizing direct mail,
telemarketing and attending trade shows. The Company's strategy is to use
telemarketing to identify industry participants that have a desire to expand
their sales by the use of the internet. The marketing focus is to encourage
potential new members to visit the Exchange online, take a virtual tour, and
encourage the business to become a registered member. Upon the registration of a
business, a customer service representative will call the new member to describe
the available services and to qualify such member. In addition, the Company
advertises its E-Commerce services in industry publications such as the MARINE
BUSINESS JOURNAL, BOAT & MOTOR DEALER, BOATING INDUSTRY, MARINA/DOCK AGE, MARINE
BUSINESS JOURNAL, PROFESSIONAL BOAT BUILDER AND SOUNDINGS TRADE ONLY.
INTELLECTUAL PROPERTY
The Company regards the protection of its copyrights, service marks,
trademarks, trade dress and trade secrets as critical to its future success and
relies on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect its proprietary
rights in products and services. The Company has entered into confidentiality
and invention assignment agreements with its employees and contractors, and
nondisclosure agreements with its suppliers and entities with which it has
strategic relationships in order to limit access to and disclosure of its
proprietary information. There can be no assurance that these contractual
arrangements or the other steps taken by the Company to protect its
intellectual property will prove sufficient to prevent misappropriation of the
Company's technology or to deter independent third-party development of similar
technologies. The Company pursues the registration of its trademarks and
service marks when appropriate.
To date, the Company has not been notified that its technologies
infringe the proprietary rights of third parties, but there can be no assurance
that third parties will not claim infringement by the Company with respect to
past, current or future technologies. The Company expects that participants in
its markets will be increasingly subject to infringement claims as the number
of services and competitors in the Company's industry segment grows. Any such
claim, whether meritorious or not, could be time-consuming, result in costly
litigation, cause service upgrade delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to the Company or at all. As a result, any
such claim could have a material adverse effect upon the Company's business,
results of operations and financial condition.
SOFTWARE DEVELOPMENT
The Company has invested approximately $300,000 on proprietary
software development for both its internal needs and E-commerce products under
development. To date, the Company has developed several internal proprietary
softwares that include a full suite of administrative, data collections and
sorting, and marketing management tools. All of these programs are maintained
in-house. The Company's databases contain data on more than 25,000 companies on
a global basis that may be accessed by the sales force on both an intranet and
internet pass-coded
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protected basis. The Company has developed a proprietary electronic commerce
software program. The software has been designed to enable the easy migration to
other industry platforms with relatively little, if any, changes.
COMPETITION
E-Commerce has attracted numerous new businesses and many established
businesses are expanding to take advantage of this medium. Many companies are
using electronic data systems to facilitate production and shipping schedules.
Other companies are focusing on direct access to the consumer through on-line
retail sales and catalogs. While the Company is not aware of any services
equivalent to the Exchanges currently being offered to the wholesale marine,
medical and dental trade, there can be no assurance that other businesses are
not developing similar technology that will compete directly with the Company's
Exchanges. Many of the companies that currently participate in the E-Commerce
market are larger, more established and have greater financial resources than
the Company. There can be no assurance that direct competition with the
Company's products will not be quickly developed and operated by such
companies. Additionally, since the electronic commerce industry is in its
infancy, many companies are attempting to enter this industry. The field is,
and will remain for a period of time, extremely competitive.
There are several on-line companies providing products and service
competing with those offered by the Company. Some of these companies are
larger, more established and have greater financial resources than the Company.
GOVERNMENT REGULATION
The Company is not currently subject to direct federal, state or local
regulation, and laws or regulations applicable to access to or commerce on the
internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. In addition, applicability to the internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent
of the internet and related technologies and, as a result, do not contemplate
or address the unique issues of the internet and related technologies. In
addition, numerous states have regulations regarding the manner in which
"auctions" may be conducted and the liability of "auctioneers" in conducting
such auctions. Although the Company has received no communications from any
state, no legal determination has been made with respect to the applicability
of the state regulations to the Company's business to date and little precedent
exists in this area. There can be no assurance, however, that a state will not
attempt to impose these regulations upon the Company in the future or that such
imposition will not have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, because the
Company's services are accessible
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worldwide, other jurisdictions may claim that the Company is required to qualify
to do business as a foreign corporation in a particular state or foreign
country. While the Company believes that it is qualified to do business in every
jurisdiction in which a failure to be registered could have a material adverse
effect, the failure by the Company to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject the Company to taxes
and penalties for the failure to qualify and could result in the inability of
the Company to enforce contracts in such jurisdictions. Any such new legislation
or regulation, or the application of laws or regulations from jurisdictions
whose laws do not currently apply to the Company's business could have a
material adverse effect on the Company's business, results of operations and
financial condition.
EMPLOYEES
The Company currently has 17 full-time employees. The Company
considers its relations with its employees to be good. The Company believes
that its future success will depend in part on its continued ability to
attract, integrate, retain and motivate highly qualified technical and
managerial personnel, and upon the continued service of its senior management
and key technical personnel, none of whom is bound by an employment agreement.
Competition for qualified personnel in the Company's industry and geographical
location is intense, and there can be no assurance that the Company will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified personnel to conduct its business in the future.
RECENT HISTORY
The Company conducts its business from its offices at The Coconut
Grove Bank Building, 2701 South Bayshore Drive, Coconut Grove, Florida 33133.
The internet address for the Company is http://www.an.net. The Company was
formally incorporated in the State of Florida in 1992 under the name of Florida
Marine Management, Inc. Originally, the Company provided strategic data and
information, and marketing and management services to the marine industry. By
1995, the Company was providing research and data to other industries including
mining, oil & gas and high technology. In order to more appropriately reflect
the Company's broadened business objectives, the Company changed its name to
Affiliated Networks, Inc.
AVAILABLE INFORMATION
Upon the effectiveness of this Form 10-SB, the Company will become
subject to the reporting requirements of the Securities Exchange Act of 1934 as
amended and will file periodic reports with the Securities and Exchange
Commission (the "Commission"). Copies of any documents that the Company files
with the Commission may be obtained from the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. The Commission also maintains a World Wide Web site on
internet at http://www.sec.gov that contains reports, proxy and information
statements an other information filed electronically with the Commission.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements that have been certified by its
independent public accountants, and quarterly
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reports containing unaudited summary financial information for each of the first
three quarters of each fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis reflects management's assessment
and understanding of the Company's results of operations and financial
condition and should be read in conjunction with the Company's financial
statements and the notes thereto.
OVERVIEW
Affiliated Networks has two primary business segments: E-commerce and
the FIS business. Since late 1997, the Company's activities have consisted of
raising capital, recruiting personnel and developing and enhancing the software
and hardware for its internet based proprietary trading exchanges. The Exchanges
are in the development stage and therefore have not generated revenues to date.
The Company expects to generate revenues from its E-Commerce operations by
charging a commission to buyers of goods utilizing the Exchange. Since
inception, the Company has expended approximately $300,000 on researching and
developing proprietary software, including a prototype Exchange, which research
and development has been funded primarily by capital raising transactions and
bank borrowings.
The FIS business generates revenues by charging customers a fee to
appear in its research reports which include THE NATURAL RESOURCES RESEARCH
REPORT and THE TECHNOLOGY RESEARCH REPORT. The Company publishes its research
reports biannually and recognizes revenue over the life of the contract.
Beginning in the first half of 1998, the Company has focused its publishing
efforts on developing FIS products such as stock handbooks, global industry
guides, and a supplementary online service which will generate revenues upon
sales to customers.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
SALES. Through September 30, 1998, all of the Company's sales
were generated by its FIS business as its E-Commerce business had not yet become
operational. Sales for the period ending September 30, 1998 decreased
approximately 67.9% to $115,349 from $359,416 in 1997. The overall decrease in
sales was primarily due to the re-distribution of sales personnel to the
development of two new product lines which now include the Company's stock
handbooks, and global industry guides. Also contributing to the decline was the
lack of renewals from existing clients of the Company's mining and oil & gas
research report products due to a near all time low in the price of gold and oil
prices.
DIRECT COSTS. Direct Costs are comprised of production costs
for the research reports. The Company's direct costs decreased 17.2% to $60,220
in 1998 from approximately $72,734 in 1997. This decrease resulted from the
consolidation of three research reports into two research reports and a
reallocation of sales personnel and related reduction in commissions.
Page 9 of 43
<PAGE> 10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses ("SG&A") increased approximately 47.0% to
$788,937 for the period ending September 30, 1998 from $536,632 in 1997. The
increase in SG&A was attributed to purchases in new equipment, costs associated
with professionals including but not limited to attorney and accounting fees,
and hiring of additional employees for the development and subsequent sales of
new products. In addition, advertising expenses increased dramatically as the
Company sought to introduce several new products in different markets.
NET LOSSES. The Company's losses increased approximately
314.1% to $733,808 for the period ending September 30, 1998 from $177,216 in
1997. The increase in losses was primarily due to an increase in selling,
general and administrative expenses as well as a re-distribution of sales
personnel to the development of new products.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
SALES. The Company's sales increased 90.6%, from $202,414 in
1996 to $385,765 in 1997. The Company attributes this increase primarily to
increased sales of research reports.
TRADING ACCOUNT LOSSES. In 1997, the Company experienced
trading account losses in the amount of $23,213. These losses were due to
prevailing market conditions.
DIRECT COSTS. The Company's direct costs increased 64.1%, from
$78,274 in 1996 to $128,473 in 1997. This increase resulted from increases in
commissions and paper and postage costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's
SG&A expenses increased 98.0 %, from $449,508 in 1996 to $889,936 in 1997. The
increase resulted primarily from increases in personnel and equipment costs and
rent relating to the Company's expansion.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private sale of common stock, short-term borrowing from banks and
the largest shareholder and CEO of the Company. In December of 1995, the
Company issued 30,000 shares of common stock at $10 per share in a Regulation D
offering. During the first quarter of 1997, the Company undertook a private
placement of 300,000 shares of common stock at $5.00 per share in a Regulation
D and Regulation S offering. As of September 30, 1998, proceeds of
approximately $800,000 had been deposited by the Company. The proceeds were
primarily used to fund operations, as well as the research, development and
marketing of new products.
The Company currently maintains lines of credit or term loans with
several banks which total $141,329 as of September 30, 1998. All bank loans are
personally guaranteed by the majority shareholder and CEO of the Company. Loans
to the Company from an entity owned by the majority shareholder and CEO total
$403,113. As of September 30, 1998 the total loans to the Company were
$544,442. Interest rates for all loans fluctuate from prime plus 2.5% to prime
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plus 6.75%. Management believes that existing working capital and funds from
operations are not sufficient to meet the Company's anticipated capital needs
in connection with its present and proposed activities and plans to pursue
additional sources of equity and debt financings. There has been no firm
commitment of any kind with regard to such financings and no assurance can be
given that such financings will be obtained, and if obtained, whether they will
be obtained on terms favorable to the Company.
SEASONALITY
The Company's revenues and operating results experience a small
decrease in the late second and early third quarters as a result of decreased
demand for the Company's FIS products.
YEAR 2000 ISSUES
Many computer systems and software products are coded to accept only
two-digit entries in the date code field and cannot reliably distinguish dates
beginning on January 1, 2000 from dates prior to the year 2000. Many companies'
software and computer systems may need to be upgraded or replaced in order to
correctly process dates beginning in 2000. The Company has reviewed its
internal programs and determined that there are no significant Year 2000 issues
within the Company's programs or services. However, the Company utilizes
third-party equipment and software that may not be Year 2000 compliant although
the Company believes that the third-party systems that are material to its
business are Year 2000 compliant based on representations made by these
suppliers. Failure of the Company's or such third-party equipment or software
to properly process dates for the year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any such problems, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases office space (2281 sq. ft.) in Coconut Grove,
Florida, pursuant to a lease agreement that expires September 30, 2000.
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<PAGE> 12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of November 20, 1998, certain
information known by the Company with respect to the ownership of shares of
Common Stock as to (i) all persons who are beneficial owners of more than 5% of
the Common Stock of the Company, (ii) each director of the Company, (iii) each
executive officer of the Company and (iv) the directors and registrants of the
Company as a group. Each person's address is c/o the Company's principal
offices at 2701 South Bayshore Drive, Suite #403, Coconut Grove, Florida 33133.
<TABLE>
<CAPTION>
Amount and Nature of
the Beneficial
Name and Address of Ownership of Ownership
Beneficial Owner Common Stock Percentage
-------------------- -------------------- ----------
<S> <C> <C>
David A. Schwedel 2,763,000(1) 46.64%
Alexander E. Gomez 6,180 *
Roger A. Baumann 432,000(2) 7.29%
Roger A. Trombino 48,000(3) *
Dan Gallagher 48,000(4) *
George Glazer 60,000(5) 1.01%
Leonard Wien 603,000(6) 10.18%
--------- -----
All officers and directors 3,357,180 56.67%
========= ======
</TABLE>
- -----------------------
* Less than 1%.
(1) The number of shares includes (i) fully vested options held by David
Schwedel to purchase 600,000 shares of common stock and (ii) warrants
issued to DAS Consulting, Inc., a corporation wholly owned by David
Schwedel, exercisable at any time for 3,000 shares of common stock.
(2) The number of shares includes fully vested options to purchase 132,000
shares of common stock.
(3) This number reflects fully vested options to purchase 48,000 shares of
common stock.
(4) This number reflects fully vested options to purchase 48,000 shares of
common stock.
(5) This number reflects fully vested options to purchase 60,000 shares of
common stock.
(6) These shares are held by the Wien Family Holdings Limited Partnership. Mr.
Wien, a private investor, is the general partner of the partnership and has
both voting and investment power over the partnership. The number reflected
includes warrants exercisable at any time for 3,000 shares of common stock.
Mr. Wien is related to Roger A. Baumann.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following sets forth certain information with respect to the
directors and officers of the Company.
Name Age Title
- ---- --- -----
David A. Schwedel 33 Chief Executive Officer,
President and Director
Alexander E. Gomez 32 Chief Financial Officer
Roger A. Baumann 31 Chief Information Officer
Roger A. Trombino 59 Director
Dan Gallagher 52 Director
George Glazer 68 Director
All Directors hold office until the Company's 1999 Annual Meeting of
Shareholders or until their successors are elected and qualified. Executive
officers serve at the discretion of the Board of Directors. No compensation is
paid to the Board members for attendance at each Board meeting. For information
on the ownership of shares by directors and officers see, "Security Ownership of
Certain Beneficial Owners and Management."
DAVID A. SCHWEDEL, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr.
Schwedel has served as a Director and President of the Company since 1992, when
he founded the Company. Mr. Schwedel has over ten years of hands-on experience
in the business development and corporate communications profession.
ALEXANDER E. GOMEZ, CHIEF FINANCIAL OFFICER. Mr. Gomez joined the
Company in 1992. Prior to that time, Mr. Gomez served as a commercial lending
officer with First Union National Bank from 1988 to 1992. Mr. Gomez is currently
serving as a part-time employee of the Company.
ROGER A. BAUMANN, CHIEF INFORMATION OFFICER. Mr. Baumann has served as
Chief Information Officer of the Company since January of 1997. For the past six
years, Mr. Baumann has been an independent information technology consultant,
developing business systems for use on mainframe, mini and personal computer
systems. Mr. Baumann joined the Company on a part-time basis in 1994 and became
a full-time consultant to the Company in 1995.
ROGER A. TROMBINO, DIRECTOR. Mr. Trombino has served as a Director of
the Company since 1992. Mr. Trombino has over 30 years of diversified experience
with an investment bank, a multi-national Fortune 500 company, a group of
private companies, and a Big Six accounting firm. He served on the Board of
Directors of the Bon Secours Health System and several charitable organizations.
Page 13 of 43
<PAGE> 14
DAN GALLAGHER, DIRECTOR. Mr. Gallagher joined the Board of Directors of
the Company in November, 1997. Mr. Gallagher is currently the Director of New
Business Development for GTE, where he has been for over 22 years.
GEORGE GLAZER, DIRECTOR. Mr. Glazer has served as a director of the
Company since February 1998. Mr. Glazer recently retired from Hill & Knowlton,
an international public affairs, public relations firm where he had been Senior
Vice President and Executive Director of worldwide broadcast and satellite
services. Mr. Glazer currently serves as the President of Broadcast Media, Inc.,
headquartered in Boynton Beach, Florida.
ITEM 6. EXECUTIVE COMPENSATION.
The following is the aggregate annual remuneration of the Company's
Chief Executive Officer (the "Named Officer") for the last three fiscal years.*
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
----------------------------------------- ----------------------
Fiscal Number of Options
Name and Principal Position Year Salary Granted
--------------------------------------- ------------------- ------------------ ----------------------
<S> <C> <C> <C>
David A. Schwedel 1997 $75,000 450,000(2)
Chief Executive Officer, President 1996 $65,000 420,000
and Director 1995 $65,000 --
</TABLE>
- -----------------
* No officer or director is paid more than $100,000 by the Company per year.
(1) The columns for "Bonus" and "Other Annual Compensation" have been omitted
because there is no bonus or compensation required to be reported in such
columns.
(2) See "Options Grant Table" below for additional information about these
options.
OPTION GRANTS TABLE
The following table sets forth certain information concerning grants
of stock options made during fiscal 1997 to the Named Officer.
<TABLE>
<CAPTION>
Individual Option Grants in 1997 Fiscal Year
--------------------------------------------------------------------------
% of Total
Number of Options Granted Exercise
Options to Employees in Price Per
Name Granted Fiscal 1997 Share Expiration Date
- ----------------------------------- -------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
David A. Schwedel 150,000* 12.82% $ .37 January 2002
300,000* 25.64% $1.83 January 2002
</TABLE>
- -----------------
(*) Options were granted pursuant to the Company's 1997 Incentive Stock Option
Plan.
Page 14 of 43
<PAGE> 15
STOCK OPTION PLANS
1996 INCENTIVE STOCK OPTION PLAN. The Company's 1996 Incentive Stock
Option plan, as amended, allows the Company to issue, in the aggregate, options
for up to 300,000 shares (prior to giving effect to the 3-for-1 stock split) of
the Company's common stock to selected employees. The options may be exercised
at a price that is the greater of one dollar per share, the fair market value
of the common stock on the date of grant, or the book value per share on the
date of grant Each option is 100% vested as of the date of the grant and
expires on the fifth anniversary of the date of grant unless terminated
earlier.
1997 INCENTIVE STOCK OPTION PLAN. The Company's 1997 Incentive Stock
Option Plan, as amended, allows the Company to issue, in the aggregate, options
for up to 660,000 shares (prior to giving effect to the 3-for-1 stock split) of
the Company's common stock to selected employees. The options may be exercised
at a price that is the greater of one dollar per share, the fair market value
of the common stock on the date of grant, or the book value per share on the
date of grant The options vest over a period of four years with an initial
vesting of 20% or the date of grant with an additional 20% vesting on each
anniversary thereafter. Each option shall expire on the fifth anniversary of
the date of grant unless terminated earlier.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN. The Company's Amended and
Restated 1997 Stock Option Plan allows the Company to issue, in the aggregate,
options for up to 2,000,000 shares (post 3-for-1 stock split) of the Company's
common stock to selected employees, directors or consultants of the Company.
The options may be exercised at a price that is the greater of one dollar per
share, the fair market value of the common stock on the date of grant, or the
book value per share on the date of grant The options vest over a period of
four years with an initial vesting of 20% or the date of grant with an
additional 20% vesting on each anniversary thereafter. Each option shall expire
on the fifth anniversary of the date of grant unless terminated earlier.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has entered into an Affinity Marketing Agreement with GTE
Intelligent Network Services Incorporated d/b/a GTE Interworking ("GTE"), a
company which provides internet access, web hosting and other internet-related
services. Dan Gallagher, one of the Company's directors, is the Director of New
Business Development for GTE.
Renee Schwedel, the mother of David Schwedel, the Company's President,
served on the Board of Directors of the Company until June 1998.
DAS Consulting, Inc., a corporation wholly owned by David Schwedel, has
entered into a loan agreement with the Company pursuant to which there are
currently $403,112 outstanding. The loans bear interest at a rate of 2.5% over
the prime rate.
Page 15 of 43
<PAGE> 16
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of (i) 25,000,000
shares of common stock, par value $.01 (the "Common Stock") of which 4,803,180
are issued and outstanding as of November 20, 1998, and (ii) 1,000,000 shares
of preferred stock, par value $.01 ("Preferred Stock); none of which are issued
or outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock which may
be outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding preferred stock. Each holder of Common Stock is entitled to one
vote for each share held of record on the applicable record date on all matters
presented to a vote of shareholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights
to purchase or subscribe for any stock or other securities and there are no
conversion rights or redemption or sinking fund provisions with respect to such
stock. All outstanding shares of Common Stock are fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Florida
Atlantic Stock Transfer Co., Tamarac, Florida.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Preferred Stock would reduce the
amount of funds available for the payment of dividends on shares of Common
Stock. Holders of shares of Preferred Stock may be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up
of the Company before any payment is made to the holders of shares of Common
Stock. Under certain circumstances, the issuance of shares of Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management. The Board of
Directors of the Company, without shareholder approval, may issue shares of
Preferred Stock with voting and conversion rights which would adversely affect
the holders of shares of Common Stock. There are currently no shares of
Preferred Stock outstanding, and the Company has no present intention to issue
any shares of Preferred Stock.
The State of Florida has enacted legislation that may deter or
frustrate takeovers of Florida corporations. The Florida Control Share Act
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority of a corporation's disinterested shareholders. The
Florida Affiliated
Page 16 of 43
<PAGE> 17
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and the Company's Articles also authorize the
Company to indemnify the Company's directors, officers, employees and agents
under certain circumstances and presently limit the personal liability of
corporate directors for monetary damages, except where the directors (i) breach
their fiduciary duties and (ii) such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct. The Company may also indemnify
any person who was or is a party to any proceeding by reason of the fact that he
is or was a director, officer, employee or agent of such corporation (or is or
was serving at the request of such corporation in such a position for another
entity) against liability to be in the best interests of such corporation and,
with respect to criminal proceedings, had no reasonable cause to believe his
conduct was unlawful.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON STOCK AND OTHER
SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq Bulletin Board
under the symbol "AFNT" and commenced its trading on February 4, 1998. The
following table sets forth the high and low bid quotations for the Common Stock
for the periods indicated. These quotations reflect prices between dealers, do
not include retail mark-ups, mark-downs, commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1998 High Low
- ---- --------- ------
<S> <C> <C>
First Quarter (commencing February 4) $18 (pre 3-for-1 split) $16.50 (pre 3-for-1 split)
Second Quarter $ 5.28125 $ 5.25
Third Quarter $ 5.00 $ 4.50
Fourth Quarter (ending November 20) $ 6.625 $ 6.375
</TABLE>
As of November 20, 1998, there were approximately 323 holders of
record of the Company's Common Stock, of which 4,803,180 shares were issued and
outstanding. The closing bid price for the Common Stock was $6.50 per share.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on
the Company's earnings, capital requirements, expansion plans, financial
condition and other relevant factors.
Page 17 of 43
<PAGE> 18
ITEM 2. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the Company
is a party or which any of its property is the subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1995, the Company raised $300,000 through the sale of
30,000 shares of Common Stock at an average per share price of $10.00 through
individual private placement. The proceeds of these sales were used for
operational expenses of the Company. Mr. Schwedel, the President of the
Company, purchased 5,000 of these shares. In June 1996, the Company effectuated
a 10-for-1 stock split. During 1997, the Company raised $700,000 through its
efforts to sell 300,000 shares of Common Stock at an average per share price of
$5.00 to accredited investors under Rule 504 of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act") and to non-United
States residents pursuant to Regulation S under the Securities Act. In March
1998, the Company effectuated a 3-for-1 stock split.
During 1997, the Company received two loans from entities owned or
controlled by current shareholders in the amounts of $15,000 and $50,000,
respectively. The maximum amount to be borrowed from these lenders is $100,000.
As partial consideration for these loans, the Company has issued 6,000 warrants
to the above lenders. Each warrant is convertible into one share of the
Company's common stock and is exercisable at $1.83 per share (these warrants
were to be exercisable at $5.50 per share prior to the 3-for-1 stock split).
The warrants are valid for a period of five years. The Company has also issued
warrants converting into 27,000 shares of Common Stock to Beloyan Investment
Securities ("BIS"), each with an exercise price of $1.83, in consideration of
BIS having acted as a placement agent for the private placement of a portion of
the 300,000 shares.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under the Florida Business Corporation Act
to indemnify its directors and officers to the extent provided in such statute.
The Company's Articles of Incorporation provide that the Company shall
indemnify its executive officers and directors to the fullest extent permitted
by law either now or hereafter. The Company has also entered into an agreement
with each of its directors and certain of its officers wherein the Company
agreed to indemnify each of them to the fullest extent permitted by law. In
general, Florida law permits a Florida corporation to indemnify its directors,
officers, employees and agents, and persons serving at the corporation's
request in such capacities for another enterprise against liabilities arising
from conduct that such persons reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
Page 18 of 43
<PAGE> 19
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for (a) violations of
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a
conscious disregard for the best interests of the Company in a proceeding by or
in the right of the Company to procure a judgment in its favor or in a
proceeding by or in the right of a shareholder. The statute does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought
from the Company, nor is the Company aware of any threatened litigation that
may result in claims for indemnification from the Company by any officer or
director. The Company has directors and officers insurance in place, which
insures claims up to $1 million per occurrence.
Page 19 of 43
<PAGE> 20
PART F/S
Page 20 of 43
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Affiliated Networks, Inc.
Miami, Florida
We have audited the accompanying balance sheet of Affiliated Networks, Inc. as
of December 31, 1997, and the related statements of income from operating
activities, shareholders' deficit, and cash flows for the years ended December
31, 1997 and 1996. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Affiliated Networks, Inc. as
of December 31, 1997 and the results of its operations, changes in its
shareholders' deficit, and its cash flows for the years ended December 31, 1997
and 1996, in conformity with generally accepted accounting principles.
June 10, 1998
MCCLAIN & COMPANY, LLP
/s/ MCCLAIN & COMPANY, LLP
Page 21 of 43
<PAGE> 22
AFFILIATED NETWORKS, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1997
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
1997
----
<S> <C>
CURRENT ASSETS
Cash $ 28,778
Receivables (net) 32,556
Trading securities 34,875
-----------
Total current assets 96,209
-----------
NET PROPERTY, EQUIPMENT, AND EQUIPMENT
HELD UNDER CAPITAL LEASES 62,951
-----------
OTHER ASSETS
Copyright (net) 6,000
Software development costs (net) 216,589
Deposits 5,039
-----------
Total other assets 227,628
-----------
Total assets $ 386,788
===========
CURRENT LIABILITIES
Current maturities of notes payable $ 140,047
Current portion of capital lease obligations 10,748
Accounts payable and accrued expenses 67,869
Customer deposits 103,745
-----------
Total current liabilities 322,409
-----------
LONG TERM LIABILITIES
Notes payable, net of current portion 75,792
Capital lease obligations, net of current portion 16,423
-----------
Total long-term liabilities 92,215
-----------
Total liabilities 414,624
-----------
SHAREHOLDERS' DEFICIT
Common stock, par value $.01 per share, 25,000,000
shares authorized, 1,420,060 shares issued and
outstanding 42,602
Additional paid-in capital 974,698
Accumulated deficit (1,045,136)
-----------
Total shareholders' deficit (27,836)
-----------
Total liabilities and shareholders' deficit $ 386,788
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 22 of 43
<PAGE> 23
AFFILIATED NETWORKS, INC.
STATEMENTS OF INCOME FROM OPERATING ACTIVITIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
SALES $ 385,765 $ 202,414
OTHER INCOME
Trading account losses (23,213) --
---------- ----------
Total income 362,552 202,414
---------- ----------
COSTS AND EXPENSES
Direct costs 128,473 78,274
Selling, general, and administrative expenses 889,936 449,508
---------- ----------
Total costs and expenses 1,018,409 527,782
---------- ----------
Net loss $ (655,857) $ (325,368)
========== ==========
Primary Earnings per Common Share $(.16) $(.09)
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 23 of 43
<PAGE> 24
AFFILIATED NETWORKS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
YEARS ENDED DECEMBER 31, 1997 AND 1996
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(655,857) $(325,368)
Adjustments to reconcile net loss to net cash used in
operations
Depreciation 24,794 21,408
Amortization 68,655 2,000
Reserve for bad debts 101,647 --
Increase in receivables (52,623) (81,580)
Decrease in deposits -- 699
Increase in accounts payable 31,508 46,493
Increase in customer deposits 4,453 99,292
Net increase in trading securities (34,875) --
--------- ---------
Net cash used in operating activities (512,298) (237,056)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,811) (40,302)
Additions to software development costs and
equipment (203,278) (79,966)
Shareholder loan (net) (50,820) 13,125
--------- ---------
Net cash used in investing activities (260,909) (107,143)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 83,155 165,988
Principal payments on borrowings, net (41,222) (52,731)
Principal payments on capital lease obligations (9,306) --
Proceeds from stock issuance 700,300 300,000
--------- ---------
Net cash provided by financing activities 732,927 413,257
--------- ---------
(Decrease) increase in cash (40,280) 69,058
CASH, beginning of year 69,058 --
--------- ---------
CASH, end of year $ 28,778 $ 69,058
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the year ended December 31, 1997 and 1996, interest paid was approximately
$31,000 and $17,000, respectively.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES: During the year ended December 31, 1996, software development costs
incurred but not paid were $120,000.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 24 of 43
<PAGE> 25
AFFILIATED NETWORKS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Shareholders'
Stock Capital Deficit Deficit
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $10,000 $ -- $ (63,911) $ (53,911)
Issuance of common stock and
contribution of additional paid-in
capital 29,000 278,000 -- 307,000
Net loss -- -- (325,368) (325,368)
------- -------- ----------- ---------
Balance, December 31, 1996 39,000 278,000 (389,279) (72,279)
Issuance of common stock and
contribution of additional paid-in
capital 3,602 696,698 -- 700,300
Net loss -- -- (655,857) (655,857)
------- -------- ----------- ---------
Balance, December 31, 1997 $42,602 $974,698 $(1,045,136) $ (27,836)
======= ======== =========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 25 of 43
<PAGE> 26
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND
BALANCE SHEET
SEPTEMBER 30, 1997
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 4,174 $ 480,743
Receivables 61,521 128,462
Stock subscription receivable 700,000 --
----------- ----------
Total Current Assets 765,695 609,205
----------- ----------
NET PROPERTY, EQUIPMENT AND EQUIPMENT HELD UNDER
CAPITAL LEASES 73,236 73,617
----------- ----------
OTHER ASSETS
Copyright, net 4,500 6,500
Software development costs 174,717 271,221
Deposits 5,039 5,039
----------- ----------
Total Other Assets 184,256 282,760
----------- ----------
Total Assets $ 1,023,187 $ 965,582
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of notes payable $ 488,822 $ 102,965
Current portion of capital lease obligations 2,565 10,376
Accounts Payable and accrued expenses 244,481 315,116
Customer deposits 72,783 63,684
Loans from shareholders 0 13,962
----------- ----------
Total Current Liabilities 808,651 506,103
----------- ----------
LONG TERM LIABILITIES
Notes Payable 55,620 87,835
Capital lease obligations 15,578 20,839
----------- ----------
Total Long Term Liabilities 71,198 108,674
----------- ----------
Total Liabilities $ 879,849 $ 614,777
----------- ----------
SHAREHOLDERS EQUITY
Common stock, par value $0.01 per share:
25,000,000 shares authorized(1) 48,032 42,600
Additional paid-in capital 1,874,250 874,700
Accumulated deficit (1,778,944) (566,495)
----------- ----------
Total shareholders' equity 143,338 350,805
----------- ----------
Total liabilities and shareholders' equity $ 1,023,187 $ 965,582
=========== ==========
</TABLE>
- ----------------
(1) 4,803,180 shares issued and outstanding as of September 30, 1998 and
4,260,000 shares issued and outstanding as of September 30, 1997
The accompanying notes to financial statements are an integral part of this
statement.
Page 26 of 43
<PAGE> 27
CONSOLIDATED STATEMENT OF INCOME FROM OPERATING ACTIVITIES
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
STATEMENT OF INCOME FROM OPERATING ACTIVITIES
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES $ 115,349 $ 359,416
------------ ----------
COST AND EXPENSES
Direct costs 60,220 72,734
Selling, general and administrative expenses 788,937 463,898
------------ ----------
Total Costs and Expenses 844,157 536,632
------------ ----------
Net loss $ (733,808) $ (177,216)
============ ==========
PRIMARY EARNINGS PER COMMON SHARE $ (.16) $ (.05)
============ ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 27 of 43
<PAGE> 28
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Shareholders'
Stock Capital Deficit Equity
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $39,000 $ 278,000 $ (389,279) $ (72,279)
Issuance of common stock and
contribution of additional paid-in
capital 3,600 596,700 -- 600,300
Net loss for nine month period ended -- -- (177,216) (177,216)
------- ---------- ----------- ---------
Balance, September 30, 1997 $42,600 $ 874,700 $(566,495) $ 350,805
======= ========== =========== =========
Balance, December 31, 1997 $42,602 $ 974,698 $(1,045,136) $ (27,836)
Issuance of common stock and
contribution of additional paid-in
capital 5,430 899,552 -- 904,982
Net loss for nine month period ended -- -- (733,808) (733,808)
------- ---------- ----------- ---------
Balance, September 30, 1998 $48,032 $1,874,250 $(1,778,944) $ 143,338
======= ========== =========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 28 of 43
<PAGE> 29
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
STATEMENT OF CASH FLOWS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
INCREASE (DECREASE) IN CASH
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(733,808) $(177,216)
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation 24,696 17,000
Amortization 51,500 1,500
Bad debt expense 4,470 --
Increase in receivables (33,435) (46,882)
Increase in trading securities 34,875 --
Increase in accounts payable 115,574 53,937
Increase (Decrease) in customer deposits 30,962 (35,608)
--------- ---------
Net cash used in operating activities $(567,090) $(187,269)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (34,981) (9,683)
Additions to Software development costs (8,128) (27,475)
Net cash used in investing activities (43,109) (37,158)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from related parties 464,151 24,180
Proceeds from borrowings -- 50,000
Principal payments on borrowing (74,510) (38,368)
Principal payments as capital lease obligations (9,028) 600,300
Proceeds from stock issuance 204,982 600,300
--------- ---------
Net cash provided by financing activities 685,595 636,112
--------- ---------
(Decrease) Increase in cash (24,604) 411,685
CASH, Beginning of Period 28,778 69,058
--------- ---------
CASH, End of Period $ 4,174 $ 480,743
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the nine months ended September 30, 1998 and 1997, interest paid was approximately $16,000 and
$18,000, respectively.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1998, $700,000 of stock subscriptions were received in exchange
for 420,000 shares of Common Stock.
During the nine months ended September 30, 1997, software development costs incurred but not paid were
$43,780.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Page 29 of 43
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Affiliated Networks, Inc. (the "Company") is developing proprietary
internet based trading exchanges for the wholesale trade of
equipment, parts and supplies in selected industries. In addition,
the Company publishes financial and strategic corporate information
for use in evaluating and operating various companies on an industry
by industry basis through a number of publications and on-line
services.
The electronic commerce ("E-Commerce") division of the Company's
operations (in development stage) focuses on creating proprietary
internet based wholesale trading exchanges (the "Exchanges") for the
marine, medical and dental industries. The Exchanges, when fully
operational, will allow buyers to solicit quotes on-line from sellers
for specific equipment, parts and supplies. The Exchanges will
display to the buyer the best price available, including shipping
information and delivery dates, which will be updated on a real-time
basis as bids are posted. The Exchanges seek to provide a nationwide
search capability to buyers for hard-to-find equipment, parts and
supplies and create a lowest price forum for buyers to take advantage
of spot market pricing of sellers' overstocked and available
inventory. Sellers utilizing the Exchanges will gain access to an
expanded wholesale customer base and have greater opportunity to
resell slow moving inventory. The Company anticipates that Exchange
members may act as sellers and buyers on a daily basis to take
advantage of differences in regional pricing and supply availability.
Certain types of inventory, such as outboard engines, are seasonal in
most parts of the country as weather precludes recreational boating
in winter months. The Company believes that the marine Exchange
("MAREX") will facilitate boat dealers' ability to reduce inventory
levels during slower periods and maintain lower in-stock inventory
levels during peak periods because of greater purchasing power.
The Exchanges are designed to create a low price and low risk
environment for both buyers and sellers. Members must satisfy certain
credit standards based on one of three parameters: (1) participating
in a credit protection option; (2) having annual revenues in excess
of $25 million and having been in business for 10 years or more, or
(3) having cash or credit in an established trading account. Buyers
using the Exchange will request quotes for equipment, parts and
supplies by stock keeping unit ("SKU") or manufacturer, make or
model, quantity and color, and will set a deadline for posting
quotes. Sellers will receive requests for bids on
Page 30 of 43
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
their terminals through a flashing icon and have the opportunity to
underbid posted quotes on a real time basis up to the buyer's
deadline. The buyer selects the desired quote and electronically
confirms the purchase, thereby notifying the seller of acceptance of
the quote. The seller ships the goods via the selected common carrier
to the buyer, who must accept delivery prior to the purchase price
(net of commission) being released to the seller. Accordingly, the
portion of the Company's activities related to this division has been
reflected as a development stage in these financial statements under
the classification of software development costs.
The Financial Information Services ("FIS") division of the Company,
which operates through Sovereign Financial Information Services,
Inc., a wholly owned subsidiary, publishes a number of industry
specific stock handbooks and periodicals that provide financial and
corporate information on public companies within selected industries.
The Company's publications include research reports, stock handbooks
and global industry guides and are supplemented with information
accessed via the internet. The Company intends to generate revenue
through the sale of the Company's stock handbooks and global industry
guides to corporations and investors, and through fees charged to
clients to appear in the Company's research reports.
PRINCIPLES OF CONSOLIDATION
During June of 1998, Sovereign Financial Information Services, Inc.
was formed as a wholly owned subsidiary of Affiliated Networks, Inc.
The accompanying consolidated financial statements include the
accounts of Affiliated Networks, Inc. and Sovereign Financial
Information Services, Inc. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial
statements.
TRADING SECURITIES
The Company's securities investments that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities. Trading securities are recorded at
fair value on the balance sheet in current assets with the change in
fair value during the period included in earnings.
DEPRECIABLE ASSETS
Property and equipment are stated at cost and depreciated using
straight-line methods over the estimated useful lives of the assets.
Page 31 of 43
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company is in the process of developing an online proprietary
software for medical, dental and marine industries that will allow
both buyers and sellers to transact in an online environment. All
costs incurred subsequent to the Company establishing technological
feasibility have been capitalized. Capitalization of the software
development costs will be discontinued once the service is ready to
be marketed.
Included in software development costs are approximately $200,000 of
capitalized development costs associated with Investors Research
Network, an on-line internet research service used for internal
purposes and as a supplement to the mining research, oil and gas, and
high technology reports. Amortization commenced in 1997 using the
straight-line method over the remaining estimated useful life of
three years. Amortization for the year ending December 31, 1997 was
approximately $66,000.
COPYRIGHTS
The cost of copyrights acquired is being amortized using the
straight-line method over five years.
INCOME TAXES
The Company utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to effect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
in deferred tax assets and liabilities during the period.
CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1997 and 1996 and during the nine
month periods ended September 30, 1998 and 1997, the Company
maintained deposits with financial institutions in excess of the
$100,000 insured by the Federal Deposit Insurance Corporation.
Page 32 of 43
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Notes Payable
The fair values of notes payable are estimated based upon current
rates offered to the Company for debt of the same remaining
maturities. The carrying amounts of notes payable are reasonable
estimates of their fair values.
Obligations Under Capital Lease
The fair value of capital lease obligations is estimated based upon
current rates offered to the Company for debt of the same remaining
maturities. The carrying amounts of capital lease obligations are
reasonable estimates of their fair values.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2 - RECEIVABLES
Receivables consist of open trade accounts. During the last quarter
of 1997, Management applied an allowance of $101,647 on these trade
accounts due to a decline in the mining industry. As such, management
is delaying its collection efforts towards these receivables until
the mining industry economy recovers.
NOTE 3 - NET PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and as of
September 30, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Equipment held under capital
leases $ 60,800 $ 60,800 $ 50,084
Office furniture and
equipment 103,826 68,845 82,433
-------------------- ------------------ ------------------
164,626 129,645 132,517
Less accumulated
depreciation (91,390) (66,694) (58,900)
-------------------- ----------------- ------------------
Net property and
equipment $ 73,236 $ 62,951 $ 73,617
==================== ================== ==================
</TABLE>
Depreciation expense charged to operations for the years ended
December 31, 1997 and 1996 and for the nine month periods ended
December 30, 1998 and 1997 was approximately $25,000, $21,000,
$24,000 and $17,000, respectively.
Page 33 of 43
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 4 - NOTES PAYABLE
At September 30, 1998, December 31, 1997 and September 30, 1997,
notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Note payable to bank, interest
at 11.7%, payable in
monthly installments
including interest of $1,657
through December 1999,
secured by accounts
receivable, equipment, and
general intangibles of the
Company, personally
guaranteed by the majority
shareholder. $24,573 $35,308 $39,151
Note payable to bank, interest
at prime plus 2.5%,
payable in monthly
installments of $1,388 plus
interest through November
1999, secured by accounts
receivable, equipment, and
general intangibles of the
Company, personally
guaranteed by the majority
shareholder. 14,075 33,333 37,500
Line of credit with bank,
interest at prime plus 3.0%,
payable monthly, principal
due on demand, secured by
accounts receivable,
equipment, and general
intangibles of the
Company, personally
guaranteed by the majority
shareholder. 50,000 50,000 50,000
</TABLE>
Page 34 of 43
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 4 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Line of credit with finance
company, interest at prime
plus 6.75%, payable in
minimum monthly
installments of 2% of
outstanding balance,
cancelable at any time,
personally guaranteed by
the majority shareholder. $ 22,400 $ 24,721 $ 19,959
Line of Credit with related
party interest at prime plus
2.5% accruing monthly,
principal and interest due
on demand and unsecured 403,113 -- --
Note payable to bank, interest
at 12.5%, payable in
monthly installments
including interest of $1,677
through March 2000,
secured by equipment,
accounts receivable, and
general intangibles of the
Company, personally
guaranteed by the majority
shareholder. 30,281 39,322 44,190
</TABLE>
Page 35 of 43
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 4 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Margin account, interest at
9.5%, payable monthly,
principal due on demand,
secured by trading
securities with a carrying
value of approximately
$35,000 -- 33,155 --
-------- -------- --------
Total 544,442 215,839 190,800
Less current portion 488,822 140,047 102,965
-------- -------- --------
$ 55,620 $ 75,792 $ 87,835
======== ======== ========
</TABLE>
As of September 30, 1998, principal payments on notes payable
including lines of credit for the remaining three months of 1998 and
each calendar year thereafter and in the aggregate are as follows:
October through December 1998 $488,822
1999 50,891
2000 4,729
--------
$544,442
========
Interest expense charged to operations on notes payable was
approximately $26,600 and $10,000, respectively, for the year ended
December 31, 1997 and 1996, and 14,500 and 18,000, respectively, for
the nine months ended September 30, 1998 and 1997.
NOTE 5 - CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases
expiring in various years through the year 2000. The assets and
liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the
asset and are included in net property, equipment, and equipment held
under capital leases. The assets are depreciated over their estimated
useful lives. Depreciation of assets under capital leases is included
in depreciation expense for the years ended December 31, 1997 and
1996 and for the nine months ended September 30, 1998 and 1997.
Page 36 of 43
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 5 - CAPITAL LEASES (CONTINUED)
Minimum future lease payments under capital leases for the remaining
three months of 1998 and each of the subsequent calendar years and in
the aggregate are:
October through December 1998 $ 3,320
1999 13,268
2000 4,702
-------
Total minimum lease payments 21,290
Less amount representing interest (3,147)
-------
Present value of net minimum lease payment $18,143
=======
Interest rates on capitalized leases vary from 12.0% to 19.6% and are
imputed based on the lower of the Company's incremental borrowing
rate at the inception of each lease or the lessor's implicit rate of
return. Imputed interest expense for the years ended December 31,
1997 and 1996 and for the nine months ended September 30, 1998 and
1997 was approximately $6,200, $6,800, $2,300 and $4,000,
respectively.
NOTE 6 - CUSTOMER DEPOSITS
Customer deposits primarily represent unearned fee income from
customers subscribing to the Mining Research Report.
NOTE 7 - INCOME TAXES
The provision for income taxes for the nine month periods ended
September 30, 1998 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current $ -- $ --
Deferred - Federal (246,736) (60,253)
Deferred - Florida (39,913) (9,747)
Less valuation allowance applied to total provision 286,649 70,000
---------- ---------
$ -- $ --
========== =========
</TABLE>
Page 37 of 43
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 7 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allowance for bad debt $ 40,151 $ --
Accrual to cash adjustment (net) 72,269 98,884
Net operating and capital loss carryforward 550,888 152,491
Less valuation allowance (663,308) (251,375)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the statutory federal and state income tax rates to income
before income taxes. The sources and tax effects of the difference
are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Expected tax benefit at 39.5% $ 289,854 $ 70,000
Net accrual to cash adjustments (37,416) (6,015)
Less valuation allowance applied to current timing
differences (252,438) (63,985)
--------- ---------
$ -- $ --
========= =========
</TABLE>
At September 30, 1998 and 1997, the Company's net operating loss
carryforwards for income tax purposes amounted to approximately
$1,390,000 and $390,000, respectively, and are available to offset
future taxable income through the year 2012.
The provision for income taxes for the year ended December 31, 1997
and 1996, is summarized as follows:
CURRENT PROVISION
The Company's current provision for income taxes for the years
ended December 31, 1997 and 1996, is zero due to the operating
loss incurred.
DEFERRED PROVISION
The principal timing differences that result in deferred tax
assets and liabilities are accelerated depreciation methods,
the availability of operating loss carryovers, and the use of
the cash basis method of accounting for income tax purposes.
At December 31, 1997 and 1996, the Company's deferred tax assets
exceeded any deferred tax liabilities. Due to the uncertainty of the
realization of the deferred tax asset, the entire amount has been
reduced by a 100% valuation allowance.
Page 38 of 43
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 7 - INCOME TAXES (CONTINUED)
The Company's net operating loss carryforward for income tax purposes
amounted to approximately $796,000 and $224,000 at December 31, 1997
and 1996, respectively, and is available to offset future taxable
income through the year 2011.
NOTE 8 - OPERATING LEASES
The Company leases its office space under an operating lease which
has expired. Management is currently seeking alternative sites for
office space. The expired lease is currently on a month-to-month
basis.
During the years ended December 31, 1997 and 1996 and during the nine
months ended September 30, 1998 and 1997, total rental expense for
all operating leases was approximately $55,000, $40,000, $29,500 and
$33,000 respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996 and during the nine
month period ended September 30, 1997, certain shareholders paid
$25,000, $30,000 and $84,000, respectively, of professional services
and commissions on behalf of the Company. In addition, approximately
$100,000 is due to a related party by common ownership as of
September 30, 1997. These amounts are included in the balance sheets
under the caption of accounts payable and accrued expenses as of the
respective balance sheet dates.
NOTE 10 - SHAREHOLDER'S EQUITY
The Company effected a three-for-one stock split to stockholders of
record as of the close of business on March 24, 1998. Share and per
share amounts presented have been adjusted to reflect the stock
split.
STOCK OPTION PLAN
During January 1997, the Company approved a 1996 and 1997 Incentive
Stock Option Plan (ISO). The 1996 and 1997 plans provide options for
900,000 and 1,980,000 shares, respectively, to be purchased for the
greater of $.33 or the fair market value.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for these plans; accordingly, no compensation cost has
been recognized. The Company's net loss would not have been
materially affected had the Company's determined compensation cost
consistent with the method prescribed by SFAS No. 123, Accounting for
Stock Based Options.
Page 39 of 43
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 10 - SHAREHOLDER'S EQUITY (CONTINUED)
The following is a summary of the status of the 1996 and 1997 ISO
plan during the interim periods ending September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997 420,000 $ .37
Granted 1,680,000 $ 1.33
Exercised -- --
----------
Outstanding at September 30, 1997 2,100,000 $ 1.33
Weighted average fair value of options ==========
granted during period $ --
==========
Outstanding at January 1, 1998 2,100,000 $ 1.33
Granted -- --
Exercised -- --
Outstanding at September 30, 1998 2,100,000 $ 1.33
==========
Weighted average fair value of options $ --
granted during period
==========
</TABLE>
The following is a summary of the status of the 1996 and 1997 ISO
plan options outstanding at September 30, 1998
<TABLE>
<CAPTION>
Outstanding Options Vested Options
------------------------------------------------------ -------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Remaining Exercise Remaining Exercise
Price Range Number Life Price Number Life Price
----------- --------- ---------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
$1.33-$5.50 2,100,000 4.25 years $1.33 1,184,700 4.25 $1.02
</TABLE>
The Company estimates that based on a vesting schedule of 25% per
year, approximately 95% of such options will eventually vest.
As of December 31, 1997 and 1996, options for 450,000 shares of the
1996 ISO and 1,650,000 shares of the 1997 ISO had been granted at an
option price of ranging from $.33 to $5.50.
Page 40 of 43
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 10 - SHAREHOLDER'S EQUITY (CONTINUED)
In the event an optionee under the Plans owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or, if applicable, of its parent
or subsidiary corporation at the time an option is granted, the
purchase price shall be the greater of one dollar ten cents ($1.10)
per share or one hundred ten percent (110%) of the fair market value
per share of the Corporation's common stock on the date of granting
the option or one hundred ten percent (110%) of the book value per
share of the Corporation's common stock on the date of the granting
of the Option.
COMMON STOCK
Pursuant to a 1997 stock offering, the Company made available for
sale a total of 900,000 shares of common stock at $1.67 per share. As
of September 30, 1998, the Company had been paid or received
subscription agreements of approximately $1,500,000 for these shares.
PREFERRED STOCK
During 1998, the articles of incorporation of the Company were
amended. Such amendment authorized 1,000,000 shares of preferred
stock of $.01 par value with preferences to be determined by the
Board of Directors upon issuance. As of September 30, 1998, no
preferred stock had been issued.
WARRANTS
During 1997, the Company received two loans from entities owned or
controlled by current shareholders in the amounts of $15,000 and
$50,000, respectively. The maximum amount to be borrowed from these
lenders is $100,000. As partial consideration for these loans, the
lenders were granted stock warrants.
Effective July 28, 1997, the Company has issued 6,000 warrants to the
above lenders. Each warrant is convertible into one share of the
Company's common stock and is exercisable at $1.83 per share. The
warrants are valid beginning on the effective date and for a period
of five years from the effective date. The Company has also issued
warrants converting into 27,000 shares of Common Stock to Beloyan
Investment Securities ("BIS"), each with an exercise price of $1.83,
in consideration of BIS having acted as a placement agent for the
private placement of a portion of the 300,000 shares.
NOTE 11 - UNCERTAINTY
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplates continuation of the
Page 41 of 43
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
AFFILIATED NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTE 11 - UNCERTAINTY (CONTINUED)
Company as a going concern. However, the Company has incurred
recurring operating losses, has a working capital deficit and minimal
remaining equity. Realization of the major portion of the assets in
the accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's ability
to meet its financing requirements and the success of future
operation. Management is restructuring the Company's operations
towards the development of E-Commerce Solutions for Business.
Additionally, the Company is embarking on a private placement of up
to $5,000,000. Management believes these actions will generate future
sales and position the Company to be more competitive. If these
actions do not generate the capital necessary to maintain the
Company's operations, its majority shareholder has expressed his
intention of providing the necessary capital to keep the Company
operating through September 30, 1999.
NOTE 12 - EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. The number of shares
used in the computation were $3,995,719 and $3,612,411 for the years
ending December 31, 1997 and 1996 and 4,694,938 and 3,906,597 for the
nine months ending September 30, 1998 and 1997, respectively. Fully
diluted earnings per share amounts are not presented for the years
ending December 31, 1997 and 1996 and for the nine month periods
ended September 30, 1998 and 1997 because they are anti-dilutive.
Page 42 of 43
<PAGE> 43
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibits Description Of Document
- -------- -----------------------
3.1(a) Form of Amended and Restated Articles of Incorporation
of the Company
3.2(a) Form of Amended and Restated Bylaws of the Company
4.1 Form of Warrant
10.1 1996 Incentive Stock Option Plan, as amended
10.2 1997 Incentive Stock Option Plan, as amended
10.3 Amended and Restated 1997 Stock Option Plan
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
AFFILIATED NETWORKS, INC.
By: /s/ David A. Schwedel
-------------------------------
David A. Schwedel, President
Page 43 of 43
<PAGE> 1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AFFILIATED NETWORKS, INC.
ARTICLE I
NAME
The name of this Corporation is AFFILIATED NETWORKS, INC. and
its principal place of business is The Coconut Grove Bank Building, Suite 403,
2701 South Bayshore Drive, Coconut Grove, Florida 33133.
ARTICLE II
DURATION
This Corporation shall have perpetual existence which shall
commence at the date of the filing of these Articles with the Secretary of
State.
ARTICLE III
PURPOSES
The Corporation may engage in any activity or business
permitted under the laws of the United States and of the State of Florida.
ARTICLE IV
AUTHORIZED SHARES
The capital stock of this Corporation shall be (i) 25,000,000
Shares of Common Stock of One Cent ($.01) par value each (the "Common Stock")
and (ii) 1,000,000 Shares of Preferred Stock of One Cent ($.01) par value each
(the "Preferred Stock"), all or part of said
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stock to be issued from time to time as may be determined by the Board of
Directors. There shall be no pre-emptive right granted to the stockholders with
respect to the shares of the Corporation.
A. PROVISIONS RELATING TO THE COMMON STOCK.
1. VOTING RIGHTS. Except as otherwise required by law or as
may be provided by the resolutions of the Board authorizing the issuance of any
class or series of the Preferred Stock, all rights to vote and all voting power
shall be vested exclusively in the holders of the Common Stock, with each share
of Common Stock entitled to one vote.
2. DIVIDENDS. Subject to the rights of the holders of the
Preferred Stock, the holders of the Common Stock shall be entitled to receive,
when, as and if declared by the Board, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
3. LIQUIDATING DISTRIBUTIONS. Upon any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
and after the holders of the Preferred Stock shall have been paid in full the
amounts to which they shall be entitled (if any) or a sum sufficient for such
payment in full share have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests to the exclusion of the
holders of the Preferred Stock.
B. PROVISIONS RELATING TO PREFERRED STOCK.
1. GENERAL. The Preferred Stock may be issued from time to
time, in one or more classes or series, the shares of each class or series to
have such designations and powers, preferences and rights, and qualifications,
limitations and restrictions as are stated and expressed herein and in the
resolution or resolutions providing for the issuance of such class or series
adopted by the Board of Directors (the "Board") as hereinafter prescribed.
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2. PREFERENCES. Subject to the rights of the holders of the
Corporation's Common Stock, authority is hereby expressly granted to and vested
in the Board to authorize the issuance of the Preferred Stock from time to
time, in one or more classes or series, to determine and take necessary
proceedings fully to effect the issuance, conversion and redemption of any such
Preferred Stock and, with respect to each class or series of the Preferred
Stock, to fix and state by the resolution or resolutions from time to time
adopted providing for the issuance thereof the following:
a) whether or not the class or series is to have voting
rights, special or conditional, full or limited, or is to be without
voting rights;
b) the number of shares to constitute the class or series and
the designations thereof;
c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
d) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the
time or times at which and the terms and conditions upon which, such
shares shall be redeemable and the manner of redemption;
e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied
to the purchase or redemption of such shares for retirement, and if
such retirement or sinking fund or funds be established, the periodic
amount thereof and the terms and provisions relative to the operation
thereof;
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f) the dividend rate, whether dividends are payable in cash,
stock or other property of the Corporation, the conditions upon which
and the times when such dividends are payable, the preference to or
the relation to the payment of the dividends payable on any other
class or classes or series of stock, whether or not such dividend
shall be cumulative or noncumulative, and if cumulative, the date or
dates from which such dividends shall accumulate;
g) the preferences, if any, and the amounts thereof that the
holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the Corporation;
h) whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class
or classes or of any other series of the same or any other class or
classes of the Corporation and the conversion price or prices or ratio
or ratios or the rate or rates at which such conversion or exchange
may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
i) such other special rights and protective provisions with
respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of the
foregoing respects. The Board may increase the number of shares of Preferred
Stock designated for any existing class or series by a resolution adding to
such class or series authorized and unissued shares of the Preferred Stock not
designated for any other class or series. The Board may decrease the number of
shares of the
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Preferred Stock designated for any existing class or series by a
resolution, subtracting from such series unissued shares of the Preferred Stock
designated for such class, or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of the Preferred Stock.
ARTICLE V
REGISTERED AGENT AND OFFICE
The registered agent of this Corporation and his address are
as follows: David A. Schwedel, The Coconut Grove Bank Building, Suite 403, 2701
South Bayshore Drive, Coconut Grove, Florida 33133.
ARTICLE VI
BOARD OF DIRECTORS
The number of Directors of this Corporation shall not be less
than two (2) nor more than eleven (11). The By-Laws may provide for the
increase or decrease in the number thereof, provided that the number of
Directors, from time to time, shall never be less than two (2).
The name and address of the Directors as of the date hereof
are as follows:
David A. Schwedel c/o Affiliated Networks
2701 S. Bayshore Drive
Suite 403
Miami, FL 33133
Roger T. Trombino c/o IPC Independent Purchasing Corp.
9200 South Dadeland Blvd.
Suite 705
Miami, FL 33156
Dan Gallagher c/o GTE
600 Hidden Road
Box #HQE03G73
Irvine, TX 75038
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George Glazer c/o Broadcast Media Inc.
11589 Puerto Blvd.
Boynton Beach, FL 33437
ARTICLE VII
ADDITIONAL PROVISIONS
The following additional provisions for the regulation of the
business and for the conduct of the affairs of the Corporation and creating,
dividing, limiting, and regulating the powers of the Corporation, its
stockholders, and Directors are hereby adopted as a part of these Articles of
Incorporation:
1. The Board of Directors from time to time shall determine
whether and to what extent, and at what times and places, and under what
conditions and regulations, the accounts and books of the Corporation, or any
of them, shall be opened to the inspection of the stockholders, and no
stockholder shall have the right to inspect any account or document of the
Corporation except as conferred by a statute or authorized by the Board of
Directors or by resolution of the stockholders.
2. No person shall be required to own, hold, or control stock
in the Corporation as a condition precedent to holding an office in the
Corporation.
3. Except as otherwise provided by law, the Directors may
prescribe a method or methods for replacement of lost certificates, and may
prescribe reasonable conditions by way of security upon the issuance of new
certificates therefor.
4. This Corporation shall indemnify any officer or Director,
and any former officer or Director to the full extent provided by law. This
Corporation may provide such indemnification, or a portion thereof, through the
purchase of insurance.
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5. The power to adopt, alter, and repeal By-Laws shall be in
the Board of Directors of the Corporation or in the stockholders; By-Laws
adopted by the Board of Directors may be altered or repealed by the
stockholders and vice versa, except that the stockholders may prescribe in any
By-Law made by them that such By-Law shall not be altered, amended, or repealed
by the Board of Directors.
IN WITNESS WHEREOF, the undersigned, has made and subscribed
these Amended and Restated Articles of Incorporation at Coconut Grove, Dade
County, Florida, for the uses and purposes aforesaid this ____ day of
___________, 1998.
---------------------------
DAVID A. SCHWEDEL
President
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AMENDED AND RESTATED
CORPORATE BYLAWS
OF
AFFILIATED NETWORKS, INC.
ARTICLE I.
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual shareholders' meeting
of this corporation (the "Corporation") will be held at such time and place as
designated by the Board of Directors of the Corporation. Business transacted at
said meeting will include the election of directors of the Corporation.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders will be held when directed by the President, Board of Directors,
or the holders of not less than one-third of all the shares entitled to be cast
on any issue proposed to be considered at the proposed special meeting;
provided that said persons sign, date and deliver to the Corporation one or
more written demands for the meeting describing the purpose(s) for which it is
to be held. A meeting requested by shareholders of the Corporation will be
called for a date not less than ten (10) nor more than sixty (60) days after
the request is made, unless the shareholders requesting the meeting designate a
later date. The call for the meeting will be issued by the Secretary, unless
the President, Board of Directors or shareholders requesting the meeting
designate another person to do so.
Section 3. PLACE. Meetings of shareholders will be held at
the principal place of business of the Corporation or at such other place as is
designated by the Board of Directors.
Section 4. RECORD DATE AND LIST OF SHAREHOLDERS. For the
purpose of determining shareholders entitled to notice of or to vote at a
shareholders' meeting, to demand a special
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meeting, to act by written consent or to take any other action, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy (70) days nor, in the case of a shareholders' meeting, 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
shareholders' meeting, then the record date for such shall be the close of
business on the day before the first notice is delivered to shareholders.
After fixing a record date for a meeting, the Secretary shall
prepare an alphabetical list of the names of all the Corporation's
shareholders, who are entitled to notice of a shareholders' meeting, arranged
by voting group with the address of and the number and class and series, if
any, of shares held by each. Said list shall be available for inspection in
accordance with Florida law.
Section 5. NOTICE. The Corporation shall notify each
shareholder entitled to vote at the meeting of the date, time and place of each
annual and special shareholders' meeting no fewer than ten (10) or more than
sixty (60) days before the meeting date. Notice of a special meeting shall
describe the purpose(s) for which the meeting is called. A shareholder may
waive any notice required hereunder either before or after the date and time
stated in the notice; however, the waiver must be in writing, signed by the
shareholder entitled to the notice and be delivered to the Corporation for
inclusion in the minutes or filing in the corporate records.
Neither the business to be transacted at, nor the purpose of,
any shareholders' meeting need be specified in any written waiver of notice.
Attendance of a person at a shareholders' meeting shall constitute a waiver of
notice of such meeting, unless the shareholder
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at the beginning of the meeting objects to holding the meeting or transacting
business at the meeting.
Section 6. NOTICE OF ADJOURNED MEETING. When a meeting is
adjourned to another time or place, it will not be necessary to give any notice
of the adjourned meeting provided that the time and place to which the meeting
is adjourned are announced at the meeting at which the adjournment is taken. At
such an adjourned meeting, any business may be transacted that might have been
transacted on the original date of the meeting. If, however, a new record date
for the adjourned meeting is made or is required, then, a notice of the
adjourned meeting will be given on the new record date as provided in this
Article to each shareholder of record entitled to notice of such meeting.
Section 7. SHAREHOLDER QUORUM AND VOTING. A majority of the
shares entitled to vote, represented in person or by proxy, will constitute a
quorum at a meeting of shareholders. If a quorum is not present or represented
at a meeting of shareholders, the holders of a majority of the shares
represented, and who would be entitled to vote at a meeting if a quorum were
present, may adjourn the meeting from time to time. Once a quorum has been
established at a shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity
of any action taken at the meeting or any adjournment thereof.
If a quorum, as herein defined, is present, the affirmative
vote of a majority of the shares represented at the meeting and entitled to
vote on the subject matter thereof will be the act of the shareholders unless
otherwise provided by law. Notwithstanding the foregoing, directors shall be
elected by plurality vote.
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Section 8. VOTING OF SHARES. Each outstanding share will be
entitled to one (1) vote on each matter submitted to a vote at a meeting of
shareholders, unless otherwise provided under the Articles of Incorporation or
any resolution authorizing any class or series of Preferred Stock.
Section 9. PROXIES. A shareholder may vote either in person
or by proxy provided that any and all proxies are executed in writing by the
shareholder or his or her duly authorized attorney-in-fact. No proxy will be
valid after the duration of eleven (11) months from the date thereof unless
otherwise provided in the proxy.
Section 10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any
action required or permitted by law, these Bylaws, or the Articles of
Incorporation of this Corporation to be taken at any annual or special meeting
of shareholders may be taken without a meeting, without prior notice and
without a vote, provided that the action is taken by the holders of outstanding
stock of each voting group entitled to vote thereon having not less than the
minimum number of votes with respect to each voting group that would be
necessary to authorize or take such action at a meeting at which all voting
groups and shares entitled to vote thereon were present and voted, as provided
by law. The foregoing action(s) shall be evidenced by written consents
describing the action taken, dated and signed by approving shareholders having
the requisite number of votes of each voting group entitled to vote thereon and
delivered to the Corporation in accordance with Florida law. Within ten (10)
days after obtaining such authorization by written consent, notice shall be
given to those shareholders who have not consented in writing or who are not
entitled to vote. Said notice shall fairly summarize the material features of
the authorized action and if the action requires the providing of dissenters'
rights, said notice shall comply with the disclosure requirements pertaining to
dissenters' rights of Florida law.
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Section 11. INSPECTOR OF ELECTION. The Board of Directors, in
advance of any meeting, may, but need not, appoint one or more inspectors of
election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not so appointed, the person presiding at the meeting may, but
need not, appoint one or more inspectors. In case any person who may be
appointed as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting
by the person presiding thereat. Each inspector, if any, before entering upon
the discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all Stockholders. On request of the person presiding at the
meeting, the inspector or inspectors, if any, shall make a report in writing of
any challenge, question or matter determined by such inspector or inspectors
and execute a certificate of any fact found by such inspector or inspectors.
Section 12. ADVANCE NOTICE OF SHAREHOLDER PROPOSED BUSINESS
AT ANNUAL MEETING. At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly
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brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that less
than seventy (70) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article I, Section 12; provided, however, that
nothing in this Article I Section 12 shall be deemed to preclude discussion by
shareholder of any business properly brought before the annual meeting in
accordance with said procedure.
The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance
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with the provisions of this Article I Section 12, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Notwithstanding anything contained in the Bylaws to the
contrary, this Article I Section 12 shall not be altered, amended or repealed
except by an affirmative vote of at least two-thirds of the outstanding shares
of capital stock of the Corporation entitled to vote thereon.
ARTICLE II.
DIRECTORS
Section 1. FUNCTION. All corporate powers, business, and
affairs will be exercised, managed and directed under the authority of the
Board of Directors.
Section 2. QUALIFICATION. Directors must be natural persons
of eighteen (18) years of age or older, but need not be residents of this state
and need not be shareholders of this Corporation.
Section 3. COMPENSATION. The Board of Directors will have
authority to fix the compensation for directors of this Corporation.
Section 4. PRESUMPTION OF ASSENT. A director of the
Corporation, who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken, will be presumed to have assented to
the action taken unless such director votes against such action or abstains
from voting in respect thereto because of an asserted conflict of interest.
Section 5. NUMBER. The authorized number of directors shall
not be less than two (2) nor more than eleven (11). The number of directors may
be increased by amendment of these Bylaws, by affirmative vote of a majority in
interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be
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chosen at such meeting to hold office until the next annual election and until
their successors are elected and qualify.
Section 6. ELECTION AND TERM. Each director will hold office
for a term for which said director is elected until said director's successor
will have been qualified and elected, said director's prior resignation, said
director's removal from office or said director's death.
Section 7. VACANCIES. If the office of any director, member
of a committee or other officer becomes vacant, including a vacancy resulting
from an increase in the numbers of directors, the remaining directors in
office, though less than a quorum, by a majority vote, may appoint any
qualified person to fill such vacancy, who shall hold office for the unexpired
term and until his or her successor shall be duly chosen.
Section 8. REMOVAL AND RESIGNATION OF DIRECTORS. At a meeting
of shareholders called expressly for that purpose, any director or the entire
Board of Directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
directors.
A director may resign at any time by delivering written
notice to the Board of Directors or its chairman or to the Corporation by and
through one of its officers. Such a resignation is effective when the notice is
delivered unless a later effective date is specified in said notice.
Section 9. QUORUM AND VOTING. A majority of the number of
directors fixed by these Bylaws shall constitute a quorum for the transaction
of business. The act of a majority of the directors present at a meeting at
which a quorum is present will be the act of the Board of Directors.
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Section 10. EXECUTIVE AND OTHER COMMITTEES. A resolution,
adopted by a majority of the full Board of Directors, may designate from among
its members an executive committee and/or other committee(s) which will have
and may exercise all the authority of the Board of Directors to the extent
provided in such resolution, except as is provided by law. Each committee must
have two (2) or more members who serve at the pleasure of the Board of
Directors. The Board may, by resolution adopted by a majority of the full Board
of Directors, designate one or more directors as alternate members of any such
committee who may act in the place and stead of any absent member or members at
any meeting of such committee.
Section 11. PLACE OF MEETING. Special or regular meetings of
the Board of Directors will be held within or without the State of Florida.
Section 12. NOTICE, TIME AND CALL OF MEETINGS. Regular
meetings of the Board of Directors will be held without notice on such dates as
are designated by the Board of Directors. Written notice of the time and place
of special meetings of the Board of Directors will be given to each director by
either personal delivery, telegram or cablegram at least two (2) days before
the meeting, or by notice mailed to the director at least five (5) days before
the meeting.
Notice of a meeting of the Board of Directors need not be
given to any director who signs a waiver of notice either before or after the
meeting. Attendance of a director at a meeting will constitute a waiver of
notice of such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting, or the manner in which it has been called or
convened, except when a director states, at the beginning of the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
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Neither the business to be transacted nor the purpose of
regular or special meetings of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the Board of Directors to another time and
place. Notice of any such adjourned meeting will be given to the directors who
were not present at the time of the adjournment.
Meetings of the Board of Directors may be called by the
Chairman of the Board, the President of the Corporation or any two (2)
directors.
Members of the Board of Directors may participate in a
meeting of such Board by means of a conference telephone or similar
communications' equipment by means of which all persons participating in the
meeting can hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
Section 13. ACTION WITHOUT A MEETING. Any action required to
be taken at a meeting of the Board of Directors, or any action which may be
taken at a meeting of the Board of Directors or a committee thereof, may be
taken without a meeting if a consent, in writing, setting forth the action to
be so taken, signed by all the directors, or all the members of the committee,
as the case may be, is filed in the minutes of the proceedings of the Board or
of the committee. Such consent will have the same effect as a unanimous vote.
Section 14. SHAREHOLDER NOMINATIONS FOR DIRECTOR CANDIDATES.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for
election to the Board of Directors of the Corporation may be made at a meeting
of shareholders by or at the direction of the Board of Directors or by any
nominating committee or person appointed by the Board of Directors or by any
shareholder of
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the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Article II, Section
14. Such nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy
(70) days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the tenth (10th) day
following the date on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the persons, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the person, (iv) the consent of each nominee to serve as a director of the
Corporation if so elected, and (v) any other information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as
amended; and (b) as to the shareholder giving the notice, (i) the name and
record address of shareholder, and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
shareholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of
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the Corporation unless nominated in accordance with the procedures set forth
herein.
The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III.
OFFICERS
Section 1. OFFICERS. The officers of this Corporation will
consist of a president, a vice president, a secretary and a treasurer, each of
whom will be elected by the Board of Directors. Such other officers and
assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors from time to time. Any two (2) or more
offices may be held by the same person.
Section 2. DUTIES. The officers of this Corporation will have
the following duties:
The President will be the chief executive officer of the
Corporation, who generally and actively manages the business and affairs of the
Corporation, subject to the directions of the Board of Directors. Said officer
will preside at all meetings of the shareholders and Board of Directors.
The Vice President will, in the event of the absence or
inability of the President to exercise his or her office, become acting
president of the organization with all the rights, privileges and powers as if
said person had been duly elected present.
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The Secretary will have custody of, and maintain all of, the
corporate records except the financial records. Furthermore, said person will
record the minutes of all meetings of the shareholders and Board of Directors,
send all notices of meetings and perform such other duties as may be prescribed
by the Board of Directors or the President. Furthermore, said officer shall be
responsible for authenticating records of the Corporation.
The Treasurer shall retain custody of all corporate funds and
financial records, maintain full and accurate accounts of receipts and
disbursements and render accounts thereof at the annual meetings of
shareholders and whenever else required by the Board of Directors or the
President, and perform such other duties as may be prescribed by the Board of
Directors or the President.
Section 3. REMOVAL AND RESIGNATION OF OFFICERS. An officer or
agent elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever in the Board's judgment the best interests of the
Corporation will be served thereby.
Any officer may resign at any time by delivering notice to
the Corporation. Said resignation is effective upon delivery unless the notice
specifies a later effective date.
Any vacancy in any office may be filled by the Board of
Directors.
ARTICLE IV.
STOCK CERTIFICATES
Section 1. ISSUANCE. Every holder of share(s) in this
Corporation will be entitled to have a certificate representing all share(s) to
which he or she is holder. No certificate representing share(s) will be issued
until such share(s) is/are fully paid.
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Section 2. FORM. Certificates representing share(s) in this
Corporation will be signed by the President or Vice President and the Secretary
or an Assistant Secretary and will be sealed with the seal of this Corporation.
Section 3. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON
TRANSFER. If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, provided that, except as otherwise provided by
law, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge to each shareholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
A written restriction on the transfer or registration of
transfer of a security of the Corporation, if permitted by law and noted
conspicuously on the certificate representing the security may be enforced
against the holder of the restricted security or any successor or transferee of
the holder including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing the
security, a restriction, even though permitted by law, is ineffective except
against a person with actual knowledge of the restriction.
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<PAGE> 15
Section 4. TRANSFER OF STOCK. The Corporation will register a
stock certificate presented for transfer if the certificate is properly
endorsed by the holder of record or by his or her duly authorized agent.
Section 5. LOST, STOLEN, OR DESTROYED CERTIFICATES. If a
shareholder claims that a stock certificate representing shares issued and
recorded by the Corporation has been lost or destroyed, a new certificate will
be issued to said shareholder, provided that said shareholder presents an
affidavit claiming the certificate of stock to be lost, stolen or destroyed. At
the discretion of the Board of Directors, said shareholder may be required to
deposit a bond or other indemnity in such amount and with such sureties, if
any, as the Board may require.
ARTICLE V.
BOOKS AND RECORDS
Section 1. BOOKS AND RECORDS. The Corporation shall keep, as
permanent records, minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee
of the Board of Directors in place of the Board of Directors on behalf of the
Corporation. Furthermore, the Corporation shall maintain accurate accounting
records. Furthermore, the Corporation shall maintain the following:
(i) a record of its shareholders in a form that permits
preparation of a list of the names and addresses of
all shareholders in alphabetical order by class of
shares showing the number and series of shares held
by each;
(ii) the Corporation's Articles or Restated Articles of
Incorporation and all amendments thereto currently
in effect;
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<PAGE> 16
(iii) the Corporation's Bylaws or Restated Bylaws and all
amendments thereto currently in effect;
(iv) resolutions adopted by the Board of Directors
creating one or more classes or series of shares and
fixing their relative rights, preferences and
limitations if shares issued pursuant to those
resolutions are outstanding;
(v) the minutes of all shareholders' meetings and
records of all actions taken by shareholders without
a meeting for the past three (3) years;
(vi) written communications to all shareholders
generally, or all shareholders of a class or series
within the past three (3) years, including the
financial statements furnished for the past three
(3) years to shareholders as may be required under
Florida law;
(vii) a list of the names and business street addresses of
the Corporation's current directors and officers;
and
(viii) a copy of the Corporation's most recent annual
report delivered to the Department of State.
Any books, records and minutes may be in written form or in
any other form capable of being converted into written form.
Section 2. SHAREHOLDER'S INSPECTION RIGHTS. A shareholder of
the Corporation (including a beneficial owner whose shares are held in a voting
trust or a nominee on behalf of a beneficial owner) may inspect and copy,
during regular business hours at the Corporation's principal office, any of the
corporate records required to be kept pursuant to Section 1, of this Article of
these Bylaws, if said shareholder gives the Corporation written notice of such
demand at least five (5) business days before the date on which the shareholder
wishes to inspect and
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<PAGE> 17
copy. The foregoing right of inspection is subject, however, to such other
restrictions as are applicable under Florida law, including, but not limited
to, the inspection of certain records being permitted only if the demand for
inspection is made in good faith and for a proper purpose (as well as the
shareholder describing with reasonable particularity the purpose and records
desired to be inspected and such records are directly connected with the
purpose).
Section 3. FINANCIAL INFORMATION. Unless modified by
resolution of the shareholders within one hundred twenty (120) days of the
close of each fiscal year, the Corporation shall furnish the shareholders
annual financial statements, which may be consolidated or combined statements
of the Corporation and one or more of its subsidiaries as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flow for that year. If financial
statements are prepared on the basis of generally accepted accounting
principles, the annual financial statements must also be prepared on that
basis. If the annual financial statements are reported on by a public
accountant, said accountant's report shall accompany said statements. If said
annual financial statements are not reported on by a public accountant, then
the statements shall be accompanied by a statement of the president or the
person responsible for the Corporation's accounting records: (a) stating his or
her reasonable belief whether the statements were prepared on the basis of
generally accepted accounting principles and, if not, describing the basis of
preparation; and (b) describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year. The annual financial statements shall be mailed to each
shareholder of the Corporation within one hundred twenty (120) days after the
close of each fiscal year or within such additional time as is reasonably
necessary to enable the Corporation to
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prepare same, if, for reasons beyond the Corporation's control, said annual
financial statement cannot be prepared within the prescribed period.
Section 4. OTHER REPORTS TO SHAREHOLDERS. The Corporation
shall report any indemnification or advanced expenses to any director, officer,
employee, or agent (for indemnification relating to litigation or threatened
litigation) in writing to the shareholders with or before the notice of the
next shareholders' meeting, or prior to such meeting if the indemnification or
advance occurs after the giving of such notice but prior to the time such
meeting is held, which report shall include a statement specifying the persons
paid, the amounts paid, and the nature and status, at the time of such payment,
of the litigation or threatened litigation.
Additionally, if the Corporation issues or authorizes the
issuance of shares for promises to render services in the future, the
Corporation shall report in writing to the shareholders, the number of shares
authorized or issued and the consideration received by the Corporation, with or
before the notice of the next shareholders' meeting.
ARTICLE VI.
DIVIDENDS
The Board of Directors of this Corporation may, from time to
time, declare dividends on its shares in cash, property or its own shares,
except when the Corporation is insolvent or when the payment thereof would
render the Corporation insolvent, subject to Florida law.
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ARTICLE VII.
CORPORATE SEAL
The Board of Directors will provide a corporate seal which
will be in circular form, embossing in nature and stating "Corporate Seal",
"Florida", year of incorporation and the name of said Corporation.
ARTICLE VIII.
AMENDMENT
These Bylaws may be altered, amended or repealed, and
altered, amended or new Bylaws may be adopted by a majority vote of the full
Board of Directors.
ARTICLE IX.
CORPORATE INDEMNIFICATION PLAN
Section 1. INDEMNIFICATION. The Corporation shall, and does
hereby, indemnify and hold harmless to the fullest extent permitted or
authorized by current or future legislation or current or future judicial or
administrative decisions (but, in the case of any such future legislation or
decisions, only to the extent that it permits the Corporation to provide
broader indemnification rights than permitted prior to such legislation or
decisions), each person (including here and hereinafter, the heirs, executors,
administrators, personal representatives or estate of such person) who was or
is a party, or is threatened to be made a party, or was or is a witness, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), from, against and
in respect of any liability (which for purposes of this Article shall include
any judgment, settlement, penalty or fine) or cost, charge or expense
(including attorneys' fees and expenses) asserted against him or incurred by
him by reason of the fact that such indemnified person (1) is or was a director
or
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officer of the Corporation or (2) is or was an employee or agent of the
Corporation as to whom the Corporation has agreed in writing to grant such
indemnity or (3) is or was serving, at the request of the Corporation, as a
director, officer, employee or trustee of another corporation, partnership,
joint venture, trust or other enterprise (including serving as a fiduciary of
an employee benefit plan) or is or was serving as an agent of such other
corporation, partnership, joint venture, trust or other enterprise, in each
case, as to whom the Corporation has agreed in writing to grant such indemnity.
Each director, officer, employee or agent of the Corporation as to whom
indemnification rights have been granted under this Section 1 of this Article
shall be referred to as an "Indemnified Person".
Notwithstanding the foregoing, except as specified in Section
3 of this Article, the Corporation shall not be required to indemnify an
Indemnified Person in connection with a Proceeding (or any part thereof)
initiated by such Indemnified Person unless the authorization for such
Proceeding (or any part thereof) was not denied by the Board of Directors of
the Corporation within sixty (60) days after receipt of notice thereof from
such Indemnified Person stating his intent to initiate such Proceeding and then
only upon such terms and conditions as the Board of Directors may deem
appropriate.
Section 2. ADVANCE OF COSTS, CHARGES AND EXPENSES. Costs,
charges and expenses (including attorneys' fees and expenses) incurred by an
officer or director who is an Indemnified Person in defending a Proceeding
shall be paid by the Corporation, to the fullest extent permitted or authorized
by current or future legislation or current or future judicial or
administrative decisions (but, in the case of any such future legislation or
decisions, only to the extent that it permits the Corporation to provide
broader rights to advance costs, charges and expenses than permitted prior to
such legislation or decisions), in advance of the final disposition
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<PAGE> 21
of such Proceeding, upon receipt of an undertaking by or on behalf of the
Indemnified Person to repay all amounts so advanced in the event that it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Article. The Corporation may, upon
approval of the Indemnified Person, authorize the Corporation's counsel to
represent such person in any Proceeding, whether or not the Corporation is a
party to such Proceeding. Such authorization may be made by the Chairman of the
Board, unless he is a party to such Proceeding, or by the Board of Directors by
majority vote, including directors who are parties to such Proceeding.
Section 3. PROCEDURE FOR INDEMNIFICATION. Any indemnification
or advance under this Article shall be made promptly and in any event within
forty-five (45) days upon the written request of the Indemnified Person. The
right to indemnification or advances as granted by this Article shall be
enforceable by the Indemnified Person in any court of competent jurisdiction,
if the Corporation denies such request under this Article, in whole or in part,
or if no disposition thereof is made within forty-five (45) days. Such
Indemnified Person's costs and expenses incurred in connection with
successfully establishing his right to indemnification or advances, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action that the claimant has not met the
standard of conduct, if any, required by current or future legislation or by
current or future judicial or administrative decisions for indemnification
(but, in the case of any such future legislation or decisions, only to the
extent that it does not impose a more stringent standard of conduct than
permitted prior to such legislation or decision), but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its shareholders) to have made a determination
prior to the
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<PAGE> 22
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct, if
any, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, or its shareholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 4. RIGHTS NOT EXCLUSIVE: CONTRACT RIGHT: SURVIVAL.
The indemnification provided by this Article shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any
agreement, vote of shareholders or disinterested directors or otherwise, both
as to actions in such person's official capacity and as to actions in another
capacity while holding such office, and shall continue as to an Indemnified
Person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors, administrators, personal
representatives and estate of such person. All rights to indemnification and
advances under this Article shall be deemed to be a contract between the
Corporation and each Indemnified Person who serves or served in such capacity
at any time while this Article is in effect and, as such, are enforceable
against the Corporation. Any repeal or modification of this Article or any
repeal or modification of relevant provisions of Florida's corporation law or
any other applicable laws shall not in any way diminish these rights to
indemnification of or advances to such Indemnified Person, or the obligations
of the Corporation arising hereunder, for claims relating to matters occurring
prior to such repeals or modification.
Section 5. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, trustee or agent
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<PAGE> 23
of another corporation, partnership, joint venture, trust or other enterprise
(including serving as a fiduciary of an employee benefit plan), with respect to
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article or the applicable provisions of Florida law.
Section 6. SAVINGS CLAUSE. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and hold
harmless, and make advances to, each Indemnified Person as to costs, charges
and expenses (including attorneys' fees), liabilities, judgments, fines and
amounts paid in settlement with respect to any Proceeding, including any action
by or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and as
otherwise permitted by applicable law.
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<PAGE> 1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS ("STATE LAWS"), AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED
PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE
WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
____________, 199__
AFFILIATED NETWORKS, INC.
FORM OF
REDEEMABLE WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
-----------------------------------
NO. W - __
FOR VALUE RECEIVED, AFFILIATED NETWORKS, INC., a Florida corporation
(the "Company"), hereby certifies that ________________________, or its assigns
(the "Holder"), is entitled, subject to the provisions of this Warrant, to
purchase from the Company, up to _____ fully paid and non-assessable shares of
Common Stock at a price of $______ per share (the "Exercise Price").
The term "Common Stock" means the Common Stock, par value $___ per
share, of the Company as constituted on ____________, 199__ (the "Issue Date").
The number of shares of Common Stock to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such exercise, and as adjusted from time to
time, are hereinafter referred to as "Warrant Stock." The term "Other
Securities" means any other equity or debt securities that may be issued by the
Company in addition thereto or in substitution for the Warrant Stock.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender, if mutilated, and cancellation of this Warrant, the Company
shall execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
<PAGE> 2
1. EXERCISE OF WARRANT. (A) This Warrant may be exercised in whole or
in part at any time, or from time to time, during the period commencing on the
date hereof and expiring 5:00 p.m. Eastern Time on the fifth anniversary of the
Issue Date (the "Expiration Date") or, if such day is a day on which banking
institutions in New York are authorized or required by law to close, then on the
next succeeding day that shall not be such a day, by presentation and surrender
of this Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company) of the Exercise Price
for the number of shares specified in such form and instruments of transfer, if
appropriate, duly executed by the Holder or his or her duly authorized attorney.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder. Upon receipt by the Company or the stock transfer
agent of the Company of this Warrant, together with the Exercise Price, at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock upon exercise of this Warrant.
(B) The Holder hereby acknowledges that neither this Warrant nor any of
the securities that may be acquired upon exercise of this Warrant have been
registered under the Securities Act or under the securities laws of any state.
The Holder acknowledges that, upon exercise of this Warrant, the securities to
be issued upon such exercise may be subject to applicable federal and state
securities (or other) laws requiring registration, qualification or approval of
governmental authorities before such securities may be validly issued or
delivered upon notice of such exercise. The Company's sole obligation to any
Holder upon exercise hereof shall be to use its best efforts to obtain
exemptions from registration or qualification for the issuance of such
securities under applicable state and federal securities laws, and the Holder
further agrees that the issuance of such securities shall be deferred until such
exemption shall have been obtained; and it is further agreed that the Company
shall have no other obligation to the Holder for the non-issuance of such
securities except to return the Warrant so rendered and to refund to the Holder
any consideration tendered in respect of the exercise price. With respect to any
such securities, this Warrant may not be exercised by, and securities shall not
be issued, to any Holder in any state in which such exercise would be unlawful.
Any restrictions imposed by this section upon the exercise of this Warrant shall
cease and terminate as to any particular shares of Common Stock (a) when such
securities shall have been registered under the Securities Act and all
applicable state securities laws, or (b) when, in the opinion of Counsel to the
Company, such restrictions are no longer required in order to ensure compliance
with the Securities Act or any applicable state securities laws.
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<PAGE> 3
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares (and Other
Securities) shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all preemptive
rights.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional share of Common Stock in lieu of each fraction of a share otherwise
called for upon any exercise of this Warrant. For purposes of this Warrant, the
fair market value of a share of Common Stock shall be determined as follows:
(a) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange or system; or
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations, entitling the
Holder or Holders thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.
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<PAGE> 4
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. ANTI-DILUTION PROVISIONS.
6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at
any time subdivide its outstanding shares of Common Stock (or Other Securities
at the time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common Stock to its stockholders, the number of
shares of Common Stock subject to this Warrant immediately prior to such
subdivision shall be proportionately increased, and if the Company shall at any
time combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of Common Stock
subject to this Warrant immediately prior to such combination shall be
proportionately decreased. Any such adjustment and adjustment to the Exercise
Price pursuant to this Section 6.1 shall be effective at the close of business
on the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.
Whenever the number of shares of Common Stock purchasable upon
the exercise of this Warrant is adjusted, as provided in this Section 6.1, the
Exercise Price shall be adjusted to the nearest cent by multiplying such
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise immediately prior to such adjustment, and (y) the denominator
of which shall be the number of shares of Common Stock so purchasable
immediately thereafter.
6.2 CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment in the number of shares of Common Stock receivable on the exercise of
the Warrant, the Company at its expense shall promptly compute such adjustment
in accordance with the terms of the Warrant and prepare a certificate executed
by two executive officers of the Company setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall forthwith mail a copy of each such certificate to each Holder.
6.3 NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of
its Common Stock (or Other Securities at the time receivable upon the exercise
of the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities,
or to receive any other right; or
(b) of any capital reorganization of the Company any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into
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<PAGE> 5
another corporation, or any conveyance of all or substantially all of the assets
of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, and in each such case, the
Company shall mail or cause to be mailed to each Holder of the Warrant at the
time outstanding a notice specifying, as the case may be, (i) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the time, if any, is to be fixed, as to which the holders of record of Common
Stock (or such other securities at the time receivable upon the exercise of the
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least 20
days prior to the date therein specified and the Warrant may be exercised prior
to said date during the term of the Warrant.
7. REDEMPTION. The Company shall have the right, upon the giving of at
least 30 days prior written notice to the Holders of all the Warrants, to redeem
all of the Warrants at a price of $.05 per Warrant at any time after 90 days
following the date that the Company completes a public offering of its Common
Stock at an offering price of not less than $5 per share; provided, however,
that the Holder shall have the right to exercise the unexercised portion of the
Warrant up to the business day before the date set for redemption by giving the
Company a Notice of Exercise and delivering an amount equal to the aggregate
Exercise Price for the number of shares of Common Stock as to which this Warrant
is then being exercised.
Such notice of redemption shall (a) designate the date of
redemption which date shall be not less than 30 or more than 60 days from the
date of such notice, (b) state the redemption price and that payment therefor
will be made upon surrender of the Warrant of the offices of the Company and (c)
indicate that the right to exercise the Warrant will terminate at the close of
business on the business day prior to the redemption date. If the giving of
notice of redemption shall be given as aforesaid, the right to exercise the
Warrant shall terminate at the close of business on the business day preceding
the date fixed for redemption and the Holder of this Warrant shall thereafter be
entitled upon surrender of this Warrant to receive the redemption price without
interest.
8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. The Company shall be
under no obligation to transfer this Warrant, or any of the Common Stock issued
upon exercise of this Warrant, unless and until the Company shall have received
an opinion of counsel, reasonably acceptable to the Company, that such transfer
does not require registration of any such securities under the Securities Act or
any applicable state securities laws. This Warrant and any Warrant Stock or
Other Securities may not be sold, transferred, pledged, hypothecated or
otherwise disposed of except as follows: (a) to a person who, in the opinion of
counsel to the Company, is a
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<PAGE> 6
person to whom this Warrant or the Warrant Stock or Other Securities may legally
be transferred without registration and without the delivery of a current
prospectus under the Securities Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
Section 8 with respect to any resale or other disposition of such securities; or
(b) to any person upon delivery of a prospectus then meeting the requirements of
the Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
9. LEGEND. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of the Warrants
and the issuance of any of the shares of Warrant Stock, all certificates
representing shares shall bear on the face thereof substantially the following
legend:
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 LAWS ("STATE LAWS"), AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT
SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
10. NOTICES. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company or the Holder, as the case may be, for whom such
notice is intended, at the address of such party as set forth on the first page,
or at such other address of which the Company or the Holder has been advised by
notice hereunder.
11. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Florida.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
----------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-6-
<PAGE> 1
1996 INCENTIVE STOCK OPTION PLAN
1. THE PLAN. The purpose of this Plan is to promote the interest of
Affiliated Networks, Inc. (the "Corporation") and its shareholders by
permitting the Corporation to award to selected groups of employees of the
Corporation rights or options to purchase shares of the common stock of the
Corporation, the award to be based upon relative profit contribution achieved
during the fiscal year preceding each such award. The Plan will serve as a
direct incentive to each member of the participating groups to increase the
profitability of his or her employer.
2. STOCK. The total number of shares of common stock subject to option
under the Plan shall be One Hundred Fifty Thousand (150,000) at One Cent ($.01)
par value, which shares may be either authorized but unissued or reacquired
shares of common stock of the Corporation. If any option or portion thereof
shall expire or terminate for any reasons without having been exercised in
full, the unpurchased shares covered thereby shall be added to the shares
otherwise available for option.
3. ADMINISTRATION. The Board of Directors of the Corporation shall
appoint a committee of not less than three (3) of its members (hereinafter
called the "Committee") to administer the Plan. The Committee shall have full
and final authority in its discretion, but subject to the express provisions of
the Plan:
(a) To determine and specify the classes or groups of the
employees of the Corporation who will be entitled to participate, the
minimum profit performance qualifying individual members of such
groups to receive options, and the formula by which the number of
shares for which each option shall be granted shall be determined. The
formula for determining the number of shares optioned to the
respective members of each group or class shall take into account
profit performance of the Corporation for the year prior to the grant
in the case of both operating personnel and management and staff
personnel.
(b) To determine the time or times, not more than once each
calendar year, as to any group or class, at which options shall be
granted under the Plan.
(c) The initial offering price shall be the greater of One
and No/100 Dollar ($1.00) per share or the fair market value per share
of the Corporation's common stock on the date of granting the option
or the book value per share of the Corporation's common stock on the
date of granting the option. In the event an optionee under this Plan
owns stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the Corporation or,
if applicable, of its parent or subsidiary corporation at the time an
option is granted, the purchase price shall be the greater of One
Dollar Ten Cents ($1.10) per share or one hundred ten (110%) percent
of the fair market value per share of the Corporation's common stock
on the date of granting the option or one hundred ten (110%) percent
of the book value per share of the Corporation's common stock on the
date of the granting of the option.
<PAGE> 2
(d) To interpret the Plan and prescribe, amend and rescind
rules and regulations relating to the Plan.
(e) To determine the terms and conditions of the respective
options granted.
(f) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
4. EXPIRATION AND TERMINATION OF OPTIONS.
(a) Each option shall expire on the fifth (5th) anniversary
of the date of grant, and shall terminate earlier:
(i) immediately on notice of termination of
employment of the Optionee with the Corporation, if the
termination is for cause;
(ii) thirty (30) days after termination of
employment of the Optionee with the Corporation if the
termination is involuntary on the part of the Optionee and is
not for cause or if it is a result of retirement under the
Retirement Plan of the Corporation; or
(iii) at the end of the period specified in
Paragraph 5.(c) for the exercise of an option in the event of
death of the Optionee during employment by the Corporation or
his or her death within thirty (30) days of a termination of
employment covered by (ii) preceding.
(b) For purposes of Paragraph 4.(a), it shall not be
considered a termination of employment when an Optionee leaves the employ of
one of the Corporation's subsidiaries for immediate re-employment with the
Corporation or another of Corporation's subsidiaries or leaves the employ of
the Corporation for immediate reemployment with one of its subsidiaries; or
when an Optionee is placed by the Corporation or one of its subsidiaries on
military or sick leave or such other type of leave of absence which is
considered for the purposes of this provision as continuing intact the
employment relationship of the Optionee.
5. EXERCISE OF OPTIONS.
(a) Each option, prior to its expiration as specified in
Paragraph 4., shall become exercisable in installments as follows:
one hundred (100%) percent of the shares subject to the
option from and after the date of grant.
Installments not exercised shall accumulate and be exercisable at any time on
or before the expiration or termination of the option. The Committee may, in
its discretion, grant to a particular group or class options which by their
terms are not subject to the installment provisions hereof but which are
exercisable in their entirety from the date of grant.
-2-
<PAGE> 3
(b) An option may be exercised with respect to a part or all
of the shares covered by the option as to which exercise is permitted under
Paragraph 5.(a) and the purchase of such shares shall be effected by payment of
the option price for such shares.
(c) An option may be exercised, during the Optionee's
lifetime, only by the Optionee, and shall not be transferable other than by
will or the laws of descent and distribution. In the event of the Optionee's
death during his or her employment or within thirty (30) days after a
termination of employment covered under Paragraph 4.(a)(ii), the option shall
be exercisable by the executor or administrator of his or her estate or a
distributee within twelve (12) months after the date of death of the Optionee,
or nine (9) months after the date of qualification of the executor or
administrator, whichever period is longer, to the full extent theretofore not
exercised and, in the case of death during employment only, regardless of the
installment provisions provided in Paragraph 5.(a) hereof.
6. OPTION ADJUSTMENTS.
(a) In the event the Corporation shall effect a subdivision
or consolidation of shares or other capital readjustment, the payment of a
stock dividend or other increase or reduction of the number of shares of the
common stock outstanding, without receipt of payment or consideration therefor
in money, services or property, the number of shares of common stock then
optioned and the price per share applicable thereto and the number of shares
which are available for grant thereafter shall be proportionately adjusted;
provided that in any such adjustment, fractional shares will be deleted with
respect to any option.
(b) In the event of a merger or consolidation in which the
Corporation shall be the surviving corporation, or upon the sale of all or
substantially all of the assets of the Corporation to one other corporation,
upon any exercise thereafter of an option hereunder, an optionee shall, at no
additional cost, be entitled to receive in lieu of the number of shares of
common stock as to which such option shall then be so exercised, the number and
class of shares of stock or other securities to which the Optionee would have
been entitled pursuant to the terms of the agreement of merger, consolidation
or sale of assets if, immediately prior to such merger, consolidation or sale
of assets, the Optionee had been the holder of record of a number of shares of
common stock of the Corporation equal to the number of shares as to which such
option shall be so exercised. Upon the dissolution or liquidation of the
Corporation, or upon any merger or consolidation where the Corporation is not
the surviving corporation, all options granted shall terminate and become of no
further effect unless the corporation receiving assets on dissolution or
liquidation or the surviving corporation in the case of a merger or
consolidation assumes the obligations of options previously granted under this
Plan; provided, however, the Optionee shall have the right, immediately prior
to such dissolution, liquidation, merger or consolidation, to exercise any
option granted hereunder to the full extent theretofore not exercised and
regardless of the installment provisions provided in Paragraph 5.(a) hereof.
(c) The issue by the Corporation of shares of stock of any
class, or securities convertible into shares of stock of any class, for cash or
property, or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon
-3-
<PAGE> 4
conversion of shares or obligations of the Corporation convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the shares of common stock subject to
option under this Plan.
7. AMENDMENT OF PLAN. The Board of Directors, without further approval
of the shareholders, may, at any time and from time-to-time, suspend or
terminate this Plan, in whole or in part, or amend it from time-to-time, in
such respect as the Board may deem advisable, provided that no such amendment
shall, without shareholder approval, increase the aggregate number of shares
for which options may be granted under the Plan. No amendment, suspension or
termination of this Plan shall, without the Optionee's consent, alter or impair
any of the rights under any option theretofore granted to him or her hereunder.
8. GOVERNMENTAL AND OTHER REGULATIONS. The obligations of the
Corporation to issue or transfer and deliver shares under options granted under
the Plan shall be subject to:
(a) compliance with all applicable laws, governmental rules
and regulations and administrative action;
(b) until such time as an effective Registration Statement is
in effect, all shares issued will be restricted shares and shall
contain an appropriate restrictive legend.
9. CONSTRUCTION. The grant of an option hereunder shall not be
construed as giving any Optionee the right to be retained in the employ of the
Corporation, and the Corporation expressly reserves the right at any time to
dismiss an Optionee with or without cause, free from any claim or liability
under the Plan, except as expressly provided herein or in the instrument
evidencing a grant hereunder.
10. This Plan shall terminate on the earlier of December 1, 2006 or
ten (10) years from the date this Plan is approved by the Corporation's
stockholders.
-4-
<PAGE> 5
AMENDMENT NO. 1 TO 1996 INCENTIVE STOCK OPTION PLAN
OF AFFILIATED NETWORKS, INC.
Paragraph 2 of the Plan is hereby amended to increase the
total number of shares of common stock subject to option under the Plan from
One Hundred Fifty Thousand (150,000) to Three Hundred Thousand (300,000) at One
Cent ($.01) par value, which shares may be either authorized but unissued or
reacquired shares of common stock of Affiliated Networks, Inc.
All other terms of the Plan remain unchanged.
<PAGE> 1
1997 INCENTIVE STOCK OPTION PLAN
1. THE PLAN. The purpose of this Plan is to promote the interest of
Affiliated Networks, Inc. (the "Corporation") and its shareholders by
permitting the Corporation to award to selected groups of employees of the
Corporation rights or options to purchase shares of the common stock of the
Corporation, the award to be based upon relative profit contribution achieved
during the fiscal year preceding each such award. The Plan will serve as a
direct incentive to each member of the participating groups to increase the
profitability of his or her employer.
2. STOCK. The total number of shares of common stock subject to option
under the Plan shall be Four Hundred Thousand (400,000) at One Cent ($.01) par
value, which shares may be either authorized but unissued or reacquired shares
of common stock of the Corporation. If any option or portion thereof shall
expire or terminate for any reasons without having been exercised in full, the
unpurchased shares covered thereby shall be added to the shares otherwise
available for option.
3. ADMINISTRATION. The Board of Directors of the Corporation shall
appoint a committee of not less than three (3) of its members (hereinafter
called the "Committee") to administer the Plan. The Committee shall have full
and final authority in its discretion, but subject to the express provisions of
the Plan:
(a) To determine and specify the classes or groups of the
employees of the Corporation who will be entitled to participate, the
minimum profit performance qualifying individual members of such
groups to receive options, and the formula by which the number of
shares for which each option shall be granted shall be determined. The
formula for determining the number of shares optioned to the
respective members of each group or class shall take into account
profit performance of the Corporation for the year prior to the grant
in the case of both operating personnel and management and staff
personnel.
(b) To determine the time or times, not more than once each
calendar year, as to any group or class, at which options shall be
granted under the Plan.
(c) The initial offering price shall be the greater of One
and No/100 Dollar ($1.00) per share or the fair market value per share
of the Corporation's common stock on the date of granting the option
or the book value per share of the Corporation's common stock on the
date of granting the option. In the event an optionee under this Plan
owns stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the Corporation or,
if applicable, of its parent or subsidiary corporation at the time an
option is granted, the purchase price shall be the greater of One
Dollar Ten Cents ($1.10} per share or one hundred ten (110%) percent
of the fair market value per share of the Corporation's common stock
on the date of granting the option or one hundred ten (110%) percent
of the book value per share of the Corporation's common stock on the
date of the granting of the option.
<PAGE> 2
(d) To interpret the Plan and prescribe, amend and rescind
rules and regulations relating to the Plan.
(e) To determine the terms and conditions of the respective
options granted.
(f) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
4. EXPIRATION AND TERMINATION OF OPTIONS.
(a) Each option shall expire on the fifth (5th) anniversary
of the date of grant, and shall terminate earlier:
(i) immediately on notice of termination of
employment of the Optionee with the Corporation, if the
termination is for cause;
(ii) thirty (30) days after termination of
employment of the Optionee with the Corporation if the
termination is involuntary on the part of the Optionee and is
not for cause or if it is a result of retirement under the
Retirement Plan of the Corporation; or
(iii) the end of the period specified in Paragraph
5.(c) for the exercise of an option in the event of death of
the Optionee during employment by the Corporation or his or
her death within thirty (30) days of a termination of
employment covered by (ii) preceding.
(b) For purposes of Paragraph 4.(a), it shall not be
considered a termination of employment when an Optionee leaves the
employ of one of the Corporation's subsidiaries for immediate
re-employment with the Corporation or another of Corporation's
subsidiaries or leaves the employ of the Corporation for immediate
reemployment with one of its subsidiaries; or when an Optionee is
placed by the Corporation or one of its subsidiaries on military or
sick leave or such other type of leave of absence which is considered
for the purposes of this provision as continuing intact the employment
relationship of the Optionee.
5. EXERCISE OF OPTIONS.
(a) Each option, prior to its expiration as specified in
Paragraph 4., shall become exercisable in installments as follows:
(i) twenty (20%) percent of the shares subject to
the option from and after the date of grant;
(ii) an additional twenty (20%) percent of the
shares subject to the option after the first (1st)
anniversary of the date of grant;
-2-
<PAGE> 3
(iii) an additional twenty (20%) percent of the
shares subject to the option after the second (2nd)
anniversary of the date of grant;
(iv) an additional twenty (20%) percent of the
shares subject to the option after the third (3rd)
anniversary of the date of grant; and
(v) the remaining twenty (20%) percent of the shares
subject to the option after the fourth (4th) anniversary of
the date of grant.
Installments not exercised shall accumulate and be exercisable at any time on
or before the expiration or termination of the option. The Committee may, in
its discretion, grant to a particular group or class options which by their
terms are not subject to the installment provisions hereof but which are
exercisable in their entirety from the date of grant.
(b) An option may be exercised with respect to a part or all
of the shares covered by the option as to which exercise is permitted
under Paragraph 5.(a) and the purchase of such shares shall be
effected by payment of the option price for such shares.
(c) An option may be exercised, during the Optionee's
lifetime, only by the Optionee, and shall not be transferable other
than by will or the laws of descent and distribution. In the event of
the Optionee's death during his or her employment or within thirty
(30) days after a termination of employment covered under Paragraph
4.(a)(ii), the option shall be exercisable by the executor or
administrator of his or her estate or a distributee within twelve (12)
months after the date of death of the Optionee, or nine (9) months
after the date of qualification of the executor or administrator,
whichever period is longer, to the full extent theretofore not
exercised and, in the case of death during employment only, regardless
of the installment provisions provided in Paragraph 5.(a) hereof.
6. OPTION ADJUSTMENTS.
(a) In the event the Corporation shall effect a subdivision
or consolidation of shares or other capital readjustment, the payment
of a stock dividend or other increase or reduction of the number of
shares of the common stock outstanding, without receipt of payment or
consideration therefor in money, services or property, the number of
shares of common stock then optioned and the price per share
applicable thereto and the number of shares which are available for
grant thereafter shall be proportionately adjusted; provided that in
any such adjustment, fractional shares will be deleted with respect to
any option.
(b) In the event of a merger or consolidation in which the
Corporation shall be the surviving corporation, or upon the sale of
all or substantially alt of the assets of the Corporation to one other
corporation, upon any exercise thereafter of an option hereunder, an
optionee shall, at no additional cost, be entitled to receive in lieu
of the number of shares of common stock as to which such option shall
then be so exercised, the number and class of shares of stock or other
securities to which the Optionee would have been entitled pursuant to
the terms of the agreement of merger, consolidation or sale of
-3-
<PAGE> 4
assets if, immediately prior to such merger, consolidation or sale of
assets, the Optionee had been the holder of record of a number of
shares of common stock of the Corporation equal to the number of
shares as to which such option shall be so exercised. Upon the
dissolution or liquidation of the Corporation, or upon any merger or
consolidation where the Corporation is not the surviving corporation,
all options granted shall terminate and become of no further effect
unless the corporation receiving assets on dissolution or liquidation
or the surviving corporation in the case of a merger or consolidation
assumes the obligations of options previously granted under this Plan;
provided, however, the Optionee shall have the right, immediately
prior to such dissolution, liquidation, merger or consolidation, to
exercise any option granted hereunder to the full extent theretofore
not exercised and regardless of the installment provisions provided in
Paragraph 5.(a) hereof.
(c) The issue by the Corporation of shares of stock of any
class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the
shares of common stock subject to option under this Plan.
7. AMENDMENT OF PLAN. The Board of Directors, without further approval
of the shareholders, may, at any time and from time-to-time, suspend or
terminate this Plan, in whole or in part, or amend it from time-to-time, in
such respect as the Board may deem advisable, provided that no such amendment
shall, without shareholder approval, increase the aggregate number of shares
for which options may be granted under the Plan. No amendment, suspension or
termination of this Plan shall, without the Optionee's consent, alter or impair
any of the rights under any option theretofore granted to him or her hereunder.
8. GOVERNMENTAL AND OTHER REGULATIONS. The obligations of the
Corporation to issue or transfer and deliver shares under options granted under
the Plan shall be subject to:
(a) compliance with all applicable laws, governmental rules
and regulations and administrative action;
(b) until such time as an effective Registration Statement is
in effect, all shares issued will be restricted shares and shall
contain an appropriate restrictive legend.
9. CONSTRUCTION. The grant of an option hereunder shall not be
construed as giving any Optionee the right to be retained in the employ of the
Corporation, and the Corporation expressly reserves the right at any time to
dismiss an Optionee with or without cause, free from any claim or liability
under the Plan, except as expressly provided herein or in the instrument
evidencing a grant hereunder.
10. This Plan shall terminate on the earlier of December 1, 2006 or
ten (10) years from the date this Plan is approved by the Corporation's
stockholders.
-4-
<PAGE> 5
AMENDMENT NO. 1 TO 1997 INCENTIVE STOCK OPTION PLAN
OF AFFILIATED NETWORKS. INC.
Paragraph 2 of the Plan is hereby amended to increase the
total number of shares of common stock subject to option under the Plan from
Four Hundred Thousand (400,000) to Six Hundred and Sixty Thousand (660,000) at
One Cent ($ 01 ) par value, which shares may be either authorized but unissued
or reacquired shares of common stock of Affiliated Networks, Inc.
All other terms of the Plan remain unchanged.
<PAGE> 1
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
AFFILIATED NETWORKS, INC.
1. PURPOSE. The purpose of the Affiliated Networks, Inc. 1997
Stock Option Plan, as amended and restated effective as of November 1, 1998, is
to promote the interest of Affiliated Networks, Inc. (the "Company"), and its
Subsidiaries and shareholders by permitting the Company to award to selected
groups of employees, directors or consultants of the Company and its
Subsidiaries options to purchase shares of the common stock of the Company, the
award to be based upon relative profit contribution achieved during the fiscal
year preceding such award. The Plan will serve as a direct incentive to each
member of the participating groups to increase the profitability of the Company
and its Subsidiaries.
2. DEFINITIONS. As used in the Plan, the following
capitalized terms shall have the meanings set forth below:
(a) "AGREEMENT" - a stock option award agreement or letter
evidencing an Option.
(b) "BOARD" - the Board of Directors of the Company.
(c) "CODE" - the Internal Revenue Code of 1986, as it may be
amended from time to time, including regulations and rules thereunder and
successor provisions and regulations and rules thereto.
(d) "COMMITTEE" - the Compensation Committee of the Board, or
such other Board committee as may be designated by the Board to administer the
Plan.
(e) "COMPANY" - Affiliated Networks, Inc., a Florida
corporation, or any successor entity.
(f) "FAIR MARKET VALUE" of a share of Stock as of a given
date shall be: (i) the mean of the highest and lowest reported sale prices for
a share of Stock, on the principal exchange on which the Stock is then listed
or admitted to trading, for such date, or, if no such prices are reported for
such date, the most recent day for which such prices are available shall be
used; (ii) if the Stock is not then listed or admitted to trading on a stock
exchange, the mean of the closing representative bid and asked prices for the
Stock on such date as reported by Nasdaq National Market (or any successor or
similar quotation system regularly reporting the market value of the Stock in
the over-the-counter market), or, if no such prices are reported for such date,
the most recent day for which such prices are available shall be used; or (iii)
in the event
<PAGE> 2
each of the methods provided for in clauses (i) and (ii) above shall not be
practicable, the fair market value determined by such other reasonable
valuation method as the Committee shall, in its discretion, select and apply in
good faith as of the given date; PROVIDED, HOWEVER, that for purposes of
paragraphs (a) and (g) of Section 6, such fair market value shall be determined
subject to Section 422(c)(7) of the Code.
(g) "ISO" or "INCENTIVE STOCK OPTION" - an option to purchase
Stock granted to an Optionee under the Plan in accordance with the terms and
conditions set forth in Section 6 and which conforms to the applicable
provisions of Section 422 of the Code.
(h) "NOTICE" - written notice actually received by the
Company at its executive offices on the day of such receipt, if received on or
before 1:30 p.m., on a day when the Company's executive offices are open for
business, or, if received after such time, such notice shall be deemed received
on the next such day, which notice may be delivered in person to the Company's
Chief Financial Officer or sent by facsimile to the Company, or sent by
certified or registered mail or overnight courier, prepaid, addressed to the
Company at The Coconut Grove Bank Building, 2701 South Bayshore Drive, Suite
403, Coconut Grove, Florida 33133, Attention: Chief Financial Officer.
(i) "OPTION" - an option to purchase Stock granted to an
Optionee under the Plan in accordance with the terms and conditions set forth
in Section 6. Options may be either ISOs or stock options other than ISOs.
(j) "OPTIONEE"- an individual who is eligible, pursuant to
Section 5, and who has been selected, pursuant to Section 3(c), to participate
in the Plan, and who has been granted an Option under the Plan in accordance
with the terms and conditions set forth in Section 6.
(k) "PLAN" - this Affiliated Networks, Inc. 1997 Stock Option
Plan, as amended and restated effective November 1, 1998.
(l) "SECURITIES ACT" - the Securities Act of 1933, as it may
be amended from time to time, including regulations and rules thereunder and
successor provisions and regulations and rules thereto.
(m) "STOCK" - the $0.01 par value common stock of the
Company.
(n) "SUBSIDIARY" shall mean (i) any present or future
corporation which is or would be a "subsidiary corporation" of the Company as
the term is defined in Section 424(f) of the Code and (ii) for purposes of
Options which are not ISOs, any partnership, limited liability company or
unincorporated entity in which the Company presently or in the future owns,
directly or indirectly, an aggregate profits interest or capital interest of
fifty percent (50%) or more, which the Committee in its discretion determines
will be a "Subsidiary" for purposes of the Plan.
3. ADMINISTRATION OF THE PLAN. (a) The Committee shall have
exclusive authority to operate, manage and administer the Plan in accordance
with its terms and conditions. Notwithstanding the foregoing, in its absolute
discretion, the Board may at any time and from
-2-
<PAGE> 3
time to time exercise any and all rights, duties and responsibilities of the
Committee under the Plan, including, but not limited to, establishing
procedures to be followed by the Committee, except with respect to matters
which under any applicable law, regulation or rule, are required to be
determined in the sole discretion of the Committee.
(b) The Committee shall be appointed from time to time by the
Board, and the Committee shall consist of not less than three (3) members of
the Board. Appointment of Committee members shall be effective upon their
acceptance of such appointment. Committee members may be removed by the Board
at any time either with or without cause, and such members may resign at any
time by delivering notice thereof to the Board. Any vacancy on the Committee,
whether due to action of the Board or any other reason, shall be filled by the
Board.
(c) The Committee shall have all authority that may be
necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the foregoing sentence
or paragraph (a) of this Section 3, and in addition to the powers otherwise
expressly designated to the Committee in the Plan, the Committee shall have the
exclusive right and discretionary authority to: interpret the Plan and the
Agreements; construe any ambiguous provision of the Plan and/or the Agreements;
determine and specify (A) the classes or groups of eligible employees,
directors and consultants to whom Options shall be granted under the Plan,
which may be based upon information furnished to the Committee by the Company's
management, (B) any minimum profit performance of the Company or a Subsidiary
necessary to qualify individual members of such classes or groups to receive
Options, (C) the formula by which the number of shares of Stock to be included
in each Option shall be determined (such formula shall take into account profit
performance of the Company for the year prior to the grant in the case of both
operating personnel and management and staff personnel), (D) the periods for
which Options will be outstanding, and (E) the time or times, not more than
once each calendar year, as to any group or class, at which Options may be
granted under the Plan; decide all questions concerning eligibility for and the
amount of Options granted under the Plan; determine whether an Option shall
take the form of an ISO or Option other than an ISO; establish, amend, waive
and/or rescind rules and regulations and administrative guidelines for carrying
out the Plan; to the extent permitted under the Plan and the applicable
Agreement, grant waivers of terms, conditions, restrictions and limitations
under the Plan or applicable to any Option; to the extent permitted under the
applicable Agreement, permit the transfer of an Option or the exercise of an
Option by one other than the Optionee who received the grant of such Option
(other than any such a transfer or exercise which would cause any ISO to fail
to qualify as an "incentive stock option" under Section 422 of the Code);
correct any errors, supply any omissions or reconcile any inconsistencies in
the Plan and/or any Agreement or any other instrument relating to any Option;
to the extent permitted by the Plan, amend or adjust the terms and conditions
of any outstanding Option and/or adjust the number and/or class of shares of
Stock subject to any outstanding Option; in accordance with the terms of the
Plan, establish and administer any terms, conditions, performance goals,
performance targets, restrictions, limitations and other provisions of any
Options; at any time and from time to time after the granting of an Option,
specify such additional terms, conditions and restrictions with respect to any
such Option as may be deemed necessary or appropriate to ensure compliance with
any and all applicable laws or rules, including, but not limited to, terms,
restrictions and conditions for
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compliance with applicable securities laws, regarding an Optionee's exercise of
Options by tendering shares of Stock or under a "cashless exercise" program
established by the Committee, and methods of withholding or providing for the
payment of required taxes; adopt such procedures and subplans and grant Options
on such terms and conditions as the Committee determines necessary or
appropriate to permit participation in the Plan by individuals otherwise
eligible to so participate who are foreign nationals or employed outside of the
United States, or otherwise to conform to applicable requirements or practices
of jurisdictions outside of the United States; and take any and all such other
actions it deems necessary or advisable for the proper operation and/or
administration of the Plan. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan. Decisions and actions by the
Committee with respect to the Plan and any Agreement shall be final, conclusive
and binding on all persons having or claiming to have any right or interest in
or under the Plan and/or any Agreement.
(d) Each Option shall be evidenced by an Agreement, which
shall be executed by the Company and the Optionee to whom such Option has been
granted, unless the Agreement provides otherwise; HOWEVER, two or more Options
to a single Optionee may be combined in a single Agreement. An Agreement shall
not be a precondition to the granting of an Option; HOWEVER, no person shall
have any rights under any Option unless and until the Optionee to whom the
Option shall have been granted (i) shall have executed and delivered to the
Company an Agreement or other instrument evidencing the Option, unless such
Agreement provides otherwise, and (ii) has otherwise complied with the
applicable terms and conditions of the Option. The Committee shall prescribe
the form of all Agreements, and, subject to the terms and conditions of the
Plan, shall determine the content of all Agreements. Any Agreement may be
supplemented or amended in writing from time to time as approved by the
Committee; PROVIDED that the terms and conditions of any such Agreement as
supplemented or amended are not inconsistent with the provisions of the Plan.
(e) A majority of the members of the entire Committee shall
constitute a quorum and the actions of a majority of the members of the
Committee in attendance at a meeting at which a quorum is present, or actions
by a written instrument signed by all members of the Committee, shall be the
actions of the Committee.
(f) The Committee may consult with counsel who may be counsel
to the Company. The Committee may, with the approval of the Board, employ such
other attorneys or consultants, accountants, appraisers, brokers or other
persons as it deems necessary or appropriate. In accordance with Section 12,
the Committee shall not incur any liability for any action taken in good faith
in reliance upon the advice of such counsel or such other persons.
(g) In serving on the Committee, the members thereof shall be
entitled to indemnification as directors of the Company, and to any limitation
of liability and reimbursement as directors with respect to their services as
members of the Committee.
(h) Except to the extent prohibited by applicable law or the
applicable rules of a stock exchange, the Committee may, in its discretion,
allocate all or any portion of its
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<PAGE> 5
responsibilities and powers under this Section 3 to any one or more of its
members and/or delegate all or any part of its responsibilities and powers
under this Section 3 to any person or persons selected by it; PROVIDED,
HOWEVER, the Committee may not delegate its authority to correct errors,
omissions or inconsistencies in the Plan. Any such authority delegated or
allocated by the Committee under this paragraph (h) of Section 3 shall be
exercised in accordance with the terms and conditions of the Plan and any
rules, regulations or administrative guidelines that may from time to time be
established by the Committee, and any such allocation or delegation may be
revoked by the Committee at any time.
4. SHARES OF STOCK SUBJECT TO THE PLAN. (a) The shares of
stock subject to Options granted under the Plan shall be shares of Stock. Such
shares of Stock subject to the Plan may be either authorized and unissued
shares (which will not be subject to preemptive rights) or previously issued
shares acquired by the Company or any Subsidiary. The total number of shares of
Stock that may be delivered pursuant to Options granted under the Plan is
2,000,000.
(b) Notwithstanding any of the foregoing limitations set
forth in this Section 4, the numbers of shares of Stock specified in this
Section 4 shall be adjusted as provided in Section 10.
(c) Any shares of Stock subject to an Option which for any
reason expires or is terminated without having been fully exercised may again
be granted pursuant to an Option under the Plan, subject to the limitations of
this Section 4.
(d) Any shares of Stock delivered under the Plan in
assumption or substitution of outstanding stock options, or obligations to
grant future stock options, under plans or arrangements of an entity other than
the Company or a Subsidiary in connection with the Company or a Subsidiary
acquiring such another entity, or an interest in such an entity, or a
transaction otherwise described in Section 6(i), shall not reduce the maximum
number of shares of Stock available for delivery under the Plan.
5. ELIGIBILITY. Executive and other employees, including
officers, of the Company and the Subsidiaries, directors (whether or not also
employees) of the Company or any Subsidiary; and consultants to the Company and
the Subsidiaries, shall be eligible to become Optionees and receive Options in
accordance with the terms and conditions of the Plan.
6. TERMS AND CONDITIONS OF STOCK OPTIONS. All Options granted
under the Plan shall be either ISOs or Options other than ISOs, as stated in
the applicable Agreement or a resolution of the Committee applicable to such
Options. Each Option shall be subject to all the applicable provisions of the
Plan, including the following terms and conditions, and to such other terms and
conditions not inconsistent therewith as the Committee shall determine and
which are set forth in the applicable Agreement. Options need not be uniform as
to all grants and recipients thereof.
(a) The option exercise price per share of shares of Stock
subject to each Option shall be determined by the Committee and stated
in the Agreement; PROVIDED, HOWEVER, that, subject to paragraphs
(g)(C) and/or (i) of this Section 6, if applicable, such
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<PAGE> 6
price applicable to any ISO shall not be less than the greater of (A)
thirty three cents ($.33), (B) 100% of the Fair Market Value of a
share of Stock at the time that the ISO is granted, and (C) 100% of
the book value (as determined by the Committee in its good faith
discretion) of a share of Stock at the time the ISO is granted.
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<PAGE> 7
(b) Each Option shall be exercisable, in whole or in part, on
or after the date such Option is granted, in accordance with the
following chart:
Percentage Of Option
Dates First Exercisable Shares
----------------------- --------------------
Date of Grant 20%
First Anniversary of Date of Grant 20%
Second Anniversary of Date of Grant 20%
Third Anniversary of Date of Grant 20%
Fourth Anniversary of Date of Grant 20%
unless the Committee, in its discretion, determines at the time any
Option is granted and specifies in the Agreement, that the Option
shall be exercisable at any other times or in any other installments,
and/or pursuant to any other conditions, subject to Section 14. To the
extent not exercised, exercisable installments of Options shall be
exercisable, in whole or in part, in any subsequent period ending not
later than five (5) years from the date such Option was granted,
unless the Committee specifies another period, not in excess of ten
(10) years from the date such Option was granted, in the Agreement,
subject, in all events, to paragraph (g)(C) of this Section 6 and the
other terms and conditions of the Plan and the Agreement.
(c) An Option shall not be exercisable with respect to a
fractional share of Stock or the lesser of fifty (50) shares or the
full number of shares of Stock then subject to the Option. No
fractional shares of Stock shall be issued upon the exercise of an
Option.
(d) Each Option may be exercised by giving Notice to the
Company specifying the number of shares of Stock to be purchased,
which shall be accompanied by payment in full including applicable
taxes, if any, in accordance with Section 9. Payment shall be made:
(i) in United States dollars by personal check, bank
draft, money order or wire transfer;
(ii) if permitted by applicable law, by tendering to
the Company shares of Stock, duly endorsed for transfer to
the Company, already owned by the person exercising the
Option (or by such person and his or her spouse jointly) for
at least six (6) months prior to the tender thereof and not
used for another such exercise during such six (6) month
period, and having a Fair Market Value on the date on which
the Option is exercised equal to the cash exercise price of
the shares purchased under such Option;
(iii) in accordance with any "cashless exercise"
program established by the Committee; or
(iv) by any combination of the consideration
provided in the foregoing clauses (i), (ii) and (iii);
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<PAGE> 8
or in any other manner permitted by applicable law and prescribed by
the Committee, in its discretion, and set forth in the Agreement.
(e) No Optionee or other person shall become the beneficial
owner of any shares of Stock subject to an Option, nor have any rights
to dividends or other rights of a shareholder with respect to any such
shares until he or she has exercised his or her Option in accordance
with the provisions of the Plan and the applicable Agreement.
(f) An Option may be exercised only if at all times during
the period beginning with the date of the granting of the Option and
ending on the date of such exercise, the Optionee was an employee,
director or consultant of the Company, a Subsidiary or of another
corporation referred to in Section 422(a)(2) of the Code; PROVIDED,
HOWEVER:
(i) a former employee of the Company, a Subsidiary
or such other corporation may exercise his or her Option
within the period of thirty (30) days immediately following
involuntary termination of such employment without "cause" or
termination of such employment due to retirement under the
Retirement Plan of the Company (all as determined by the
Committee, in its discretion), or the stated period of the
Option, if shorter, to the extent such Option was
exercisable, in accordance with paragraph (b) of this Section
6 or similar installment exercise provisions contained in the
applicable Agreement, as of the date of such termination of
employment;
(ii) if an employee dies while employed by the
Company, a Subsidiary or such other corporation, the deceased
employee's unexercised Option may be exercised, in accordance
with Section 11(b), in whole or in part, irrespective of
satisfaction of the installment exercise provisions under
paragraph (b) of this Section 6, or similar installment
exercise provisions contained in the applicable Agreement,
within the period of twelve (12) months following his or her
death, or nine (9) months after the date of qualification of
the executor or administrator of the deceased Optionee's
estate, if later, but, in any case, not later than expiration
of the stated period of the Option; and
(iii) if a former employee dies during the thirty
(30)-day period immediately following termination of his or
her employment within which such deceased employee's Option
is exercisable pursuant to clause (i) above of this Section
6(f), such Option, to the extent not previously exercised,
may be exercised, in accordance with Section 11(b), in whole
or in part, to the extent such Option was exercisable in
accordance with such clause (i) above as of the date of such
former employee's death, within the period of twelve (12)
months following his or her death, or nine (9) months after
the date of qualification of the executor or administrator of
the deceased Optionee's estate, if later, but, in any case,
not later than expiration of the stated period of the Option.
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<PAGE> 9
Notwithstanding the foregoing, the Committee may determine in its
discretion that an Option may be otherwise exercised prior to
expiration of such Option following termination of such continuous
employment, directorship or consultancy, whether or not exercisable at
such time, to the extent provided in the applicable Agreement.
(g) (A) No ISO shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of
the Code. No ISO shall be granted to any individual otherwise eligible
to participate in the Plan who is not an employee of the Company or
any of its Subsidiaries on the date of granting of such Option. Any
ISO granted under the Plan shall contain such terms and conditions,
consistent with the Plan, as the Committee may determine to be
necessary to qualify such Option as an "incentive stock option" under
Section 422 of the Code. Any ISO granted under the Plan may be
modified by the Committee to disqualify such Option from treatment as
an "incentive stock option" under Section 422 of the Code.
(B) Notwithstanding any intent to grant ISOs, an
Option granted under the Plan will not be considered an ISO to the
extent that it, together with any other "incentive stock options"
(within the meaning of Section 422 of the Code, but without regard to
subsection (d) of such Section) under the Plan or any other "incentive
stock option" plans of the Company and any Subsidiary, are exercisable
for the first time by any Optionee during any calendar year with
respect to Stock having an aggregate Fair Market Value in excess of
$100,000 (or such other limit as may be required by the Code) as of
the time the Option with respect to such Stock is granted. The rule
set forth in the preceding sentence shall be applied by taking Options
into account in the order in which they were granted.
(C) No ISO shall be granted to an individual
otherwise eligible to participate in the Plan who owns (within the
meaning of Section 424(d) of the Code), at the time the Option is
granted, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or a Subsidiary. This
restriction does not apply if at the time such ISO is granted the
Option exercise price per share of Stock subject to the Option is not
less than the greater of (A) one dollar ten cents ($1.10), (B) 110% of
the Fair Market Value of a share of Stock on the date such ISO is
granted, and (C) 110% of the book value of a share of Stock (as
determined by the Committee in its good faith discretion) on the date
such ISO is granted, and the ISO by its terms is not exercisable after
the expiration of five (5) years from such date of grant.
(h) An Option and any shares of Stock received upon the
exercise of an Option shall be subject to such other transfer and/or
ownership restrictions and/or legending requirements as the Committee
may establish in its discretion and which are specified in the
Agreement and may be referred to on the certificates evidencing such
shares of Stock. The Committee may require an Optionee to give prompt
Notice to the Company concerning any disposition of shares of Stock
received upon the exercise of an ISO within: (i) two (2) years from
the date of granting such ISO to such Optionee or (ii) one (1) year
from the transfer of such shares of Stock to such Optionee or (iii)
such other period as the Committee may from time to time determine.
The Committee may direct
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<PAGE> 10
that an Optionee with respect to an ISO undertake in the applicable
Agreement to give such notice described in the preceding sentence, at
such time and containing such information as the Committee may
prescribe, and/or that the certificates evidencing shares of Stock
acquired by exercise of an ISO refer to such requirement to give such
notice.
(i) In the event that a transaction described in Section
424(a) of the Code involving the Company or a Subsidiary is
consummated, such as the acquisition of property or stock from an
unrelated corporation, individuals who become eligible to participate
in the Plan in connection with such transaction, as determined by the
Committee, may be granted Options in substitution for stock options
granted by another corporation that is a party to such transaction. If
such substitute Options are granted, the Committee, in its discretion
and consistent with Section 424(a) of the Code, if applicable, and the
terms of the Plan, though notwithstanding paragraph (a) of this
Section 6, shall determine the option exercise price and other terms
and conditions of such substitute Options.
7. TRANSFER, LEAVE OF ABSENCE. For purposes of the Plan, a
transfer of an employee from the Company to a Subsidiary, whether or not
incorporated, or vice versa, or from one Subsidiary to another, and a leave of
absence, duly authorized in writing by the Company or a Subsidiary, shall not
be deemed a termination of employment of the employee.
8. RIGHTS OF EMPLOYEES AND OTHER PERSONS. (a) No person shall
have any rights or claims under the Plan except in accordance with the
provisions of the Plan and the applicable Agreement.
(b) Nothing contained in the Plan or in any
Agreement shall be deemed to (i) give any employee or director the right to be
retained in the service of the Company or the Subsidiaries nor restrict in any
way the right of the Company or any Subsidiary to terminate any employee's
employment or any director's directorship at any time with or without cause or
(ii) confer on any consultant any right of continued relationship with the
Company or the Subsidiaries, or alter any relationship between them, including
any right of the Company or a Subsidiary to terminate its relationship with
such consultant.
(c) The adoption of the Plan shall not be deemed to
give any employee of the Company or any Subsidiary or any other person any
right to be selected to participate in the Plan or to be granted an Option.
(d) Nothing contained in the Plan or in any
Agreement shall be deemed to give any employee the right to receive any bonus,
whether payable in cash or in Stock, or in any combination thereof, from the
Company or any Subsidiary, nor be construed as limiting in any way the right of
the Company or any Subsidiary to determine, in its sole discretion, whether or
not it shall pay any employee bonuses, and, if so paid, the amount thereof and
the manner of such payment.
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<PAGE> 11
9. TAX WITHHOLDING OBLIGATIONS. (a) The Company and/or any
Subsidiary are authorized to take whatever actions are necessary and proper to
satisfy all obligations of Optionees (including, for purposes of this Section
9, any other person entitled to exercise an Option pursuant to the Plan or an
Agreement) for the payment of all Federal, state, local and foreign taxes in
connection with any Options (including, but not limited to, actions pursuant to
the following paragraph (b) of this Section 9).
(b) Each Optionee shall (and in no event shall
Stock be delivered to such Optionee with respect to an Option until), no later
than the date as of which the value of the Option first becomes includible in
the gross income of the Optionee for income tax purposes, pay to the Company in
cash, or make arrangements satisfactory to the Company, as determined in the
Committee's discretion, regarding payment to the Company of, any taxes of any
kind required by law to be withheld with respect to the Stock subject to such
Option, and the Company and any Subsidiary shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to such Optionee. Notwithstanding the above, the Committee may,
in its discretion and pursuant to procedures approved by the Committee, permit
the Optionee to (i) elect withholding by the Company of Stock otherwise
deliverable to such Optionee pursuant to such Option (PROVIDED, HOWEVER, that
the amount of any Stock so withheld shall not exceed the minimum required
withholding obligation taking into account the Optionee's effective tax rate
and all applicable Federal, state, local and foreign taxes) and/or (ii) tender
to the Company Stock owned by such Optionee (or by such Optionee and his or her
spouse jointly) and acquired more than six (6) months prior to such tender in
full or partial satisfaction of such tax obligations.
10. CHANGES IN CAPITAL. (a) Upon changes in the outstanding
Stock by reason of a stock dividend, stock split, reverse stock split,
subdivision, recapitalization, merger, consolidation (whether or not the
Company is a surviving corporation), combination or exchange of shares of
Stock, separation, or reorganization, or in the event of an extraordinary
dividend, "spin-off," liquidation, other substantial distribution of assets of
the Company or acquisition of property or stock or other change in capital of
the Company, or the issuance by the Company of shares of its capital stock
without receipt of full consideration therefor, or rights or securities
exercisable, convertible or exchangeable for shares of such capital stock, the
aggregate number, class and kind of shares of stock available under the Plan as
to which Options may be granted and the number, class and kind of shares under
each outstanding Option and/or the option price per share applicable to any
such Options shall be appropriately adjusted by the Committee in its discretion
to preserve the benefits or potential benefits intended to be made available
under the Plan or with respect to any outstanding Options.
(b) In the event of (i) a stock sale, merger,
consolidation, combination, reorganization or other transaction (other than
through a public offering of common stock of the Company) resulting in less
than fifty percent (50%) of the combined voting power of the surviving or
resulting entity being owned by the shareholders of the Company immediately
prior to such transaction, (ii) the liquidation or dissolution of the Company
or the sale or other disposition of all or substantially all of the assets or
business of the Company (other than, in the case of either clause (i) or (ii)
above, in connection with any employee benefit plan of the
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<PAGE> 12
Company or a Subsidiary), or (iii) a public offering of common stock of the
Company pursuant to a registration statement declared effective under the
Securities Act:
(1) In its discretion and on such terms and
conditions as it deems appropriate, the Committee may provide, either
by the terms of the Agreement applicable to any Option or by a
resolution adopted prior to the occurrence of such event, that any
outstanding Option shall be accelerated and become immediately
exercisable as to all or a portion of the shares of Stock covered
thereby, notwithstanding anything to the contrary in the Plan or the
Agreement.
(2) In its discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide, either
by the terms of the Agreement applicable to any Option or by
resolution adopted prior to the occurrence of such event, that any
outstanding Option shall be adjusted by substituting for Stock subject
to such Option stock or other securities of the surviving corporation
or any successor corporation to the Company, or a parent or subsidiary
thereof, or that may be issuable by another corporation that is a
party to the transaction whether or not such stock or other securities
are publicly traded, in which event the aggregate exercise price shall
remain the same and the amount of shares or other securities subject
to the Option shall be the amount of shares or other securities which
could have been purchased on the closing date or expiration date of
such transaction with the proceeds which would have been received by
the Optionee if the Option had been exercised in full (or with respect
to a portion of such Option, as determined by the Committee, in its
discretion) prior to such transaction or expiration date and the
Optionee exchanged all of such shares in the transaction.
(3) In its discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide, either
by the terms of the Agreement applicable to any Option or by
resolution adopted prior to the occurrence of such event, any
outstanding Option shall, in each case, be converted into a right to
receive cash following the closing date or expiration date of the
transaction in an amount equal to the highest value of the
consideration to be received in connection with such transaction for
one share of Stock, or, if higher, the highest Fair Market Value of
the Stock during the 30 consecutive business days immediately prior to
the closing date or expiration date of such transaction, less the per
share exercise price of such Option, multiplied by the number of
shares of Stock subject to such Option, or a portion thereof.
(4) The Committee may, in its discretion, provide
that an Option cannot be exercised after such an event, to the extent
that such Option becomes subject to any acceleration, adjustment or
conversion in accordance with the foregoing paragraphs (1), (2) or (3)
of this subsection 10(b).
No Optionee shall have any right to prevent the consummation of any of the
foregoing acts affecting the number of shares of Stock available to such
Optionee. Any actions or determinations of the Committee under this Subsection
10(b) need not be uniform as to all outstanding Options, nor treat all
Optionees identically. Notwithstanding the foregoing
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<PAGE> 13
adjustments, in no event may any Option be exercised after ten (10) years from
the date it was originally granted, and any changes to ISOs pursuant to this
Section 10 shall, unless the Committee determines otherwise, only be effective
to the extent such adjustments or changes do not cause a "modification" (within
the meaning of Section 424(h)(3) of the Code) of such ISOs or adversely affect
the tax status of such ISOs.
11. MISCELLANEOUS PROVISIONS. (a) The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of assets to assure the issuance of shares of
Stock or the payment of cash upon exercise or payment of any Option. Proceeds
from the sale of shares of Stock pursuant to Options granted under the Plan
shall constitute general funds of the Company. The expenses of the Plan shall
be borne by the Company.
(b) Except as otherwise provided in this paragraph
(b) of Section 11 or by the Committee, an Option by its terms shall be personal
and may not be sold, transferred, pledged, assigned, encumbered or otherwise
alienated or hypothecated otherwise than by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of an Optionee only
by him or her. At the Committee's discretion, an Agreement may permit the
exercise of an Optionee's Option (or any portion thereof) after his or her
death by the beneficiary most recently named by such Optionee in a written
designation thereof filed with the Company, or, in lieu of any such surviving
beneficiary, as designated by the Optionee by will or by the laws of descent
and distribution. In the event any Option is exercised by the executors,
administrators, heirs or distributees of the estate of a deceased Optionee, or
such an Optionee's beneficiary, or the transferee of an Option, in any such
case pursuant to the terms and conditions of the Plan and the applicable
Agreement and in accordance with such terms and conditions as may be specified
from time to time by the Committee, the Company shall be under no obligation to
issue Stock thereunder unless and until the Committee is satisfied that the
person or persons exercising such Option is the duly appointed legal
representative of the deceased Optionee's estate or the proper legatees or
distributees thereof or the named beneficiary of such Optionee, or the valid
transferee of such Option, as applicable.
(c) If at any time the Committee shall determine,
in its discretion, that the listing, registration and/or qualification of
shares of Stock upon any securities exchange or under any state or Federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
shares of Stock hereunder, no Option may be exercised in whole or in part
unless and until such listing, registration, qualification, consent and/or
approval shall have been effected or obtained, or otherwise provided for, free
of any conditions not acceptable to the Committee.
(d) The Committee may require each person receiving
Stock in connection with any Option under the Plan to represent and agree with
the Company in writing that such person is acquiring the shares of Stock for
investment without a view to the distribution thereof. The Committee, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares of Stock purchasable or otherwise receivable by
any person under any Option as it deems appropriate. Any such restrictions
shall be set forth in the
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<PAGE> 14
applicable Agreement, and the certificates evidencing such shares may include
any legend that the Committee deems appropriate to reflect any such
restrictions.
(e) The Committee may, in its discretion, extend
one or more loans to Optionees who are key employees of the Company or a
Subsidiary in connection with the exercise or receipt of an Option granted to
any such employees. The terms and conditions of any such loan shall be set by
the Committee.
(f) By accepting any benefit under the Plan, each
Optionee and each person claiming under or through such Optionee shall be
conclusively deemed to have indicated their acceptance and ratification of, and
consent to, all of the terms and conditions of the Plan and any action taken
under the Plan by the Committee, the Company or the Board.
(g) Neither the adoption of the Plan nor anything
contained herein shall affect any other compensation or incentive plans or
arrangements of the Company or any Subsidiary, or prevent or limit the right of
the Company or any Subsidiary to establish any other forms of incentives or
compensation for their employees or consultants or directors, or grant or
assume options or other rights otherwise than under the Plan.
(h) The Plan shall be governed by and construed in
accordance with the laws of the State of Florida, except as superseded by
applicable Federal law.
(i) The words "Section" and "paragraph" shall refer
to provisions of the Plan, unless expressly indicated otherwise.
(j) Notwithstanding any other provision of the Plan
to the contrary, no provision of the Plan (including, without limitation,
Section 10) shall be applied to give any Optionee to whom the Company granted
an ISO prior to November 1, 1998, under the terms and conditions of the Plan as
in effect at the time of such grant, any additional benefits under such ISO
which would result in a "modification" of such ISO within the meaning of
Section 424 of the Code.
12. LIMITS OF LIABILITY. (a) Any liability of the Company or
a Subsidiary to any Optionee with respect to any Option shall be based solely
upon contractual obligations created by the Plan and the Agreement.
(b) Neither the Company nor a Subsidiary nor any member of
the Committee or the Board, nor any other person participating in any
determination of any question under the Plan, or in the interpretation,
administration or application of the Plan, shall have any liability, in the
absence of bad faith, to any party for any action taken or not taken in
connection with the Plan, except as may expressly be provided by statute.
13. AMENDMENTS AND TERMINATION. The Board may, at any time
and with or without prior notice, amend, alter, suspend, or terminate the Plan;
PROVIDED, HOWEVER, no such amendment, alteration, suspension, or termination
shall be made which would impair the previously accrued rights of any holder of
an Option theretofore granted without his or her
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<PAGE> 15
written consent or which, without first obtaining approval of the stockholders
of the Company (where such approval is necessary to satisfy (i) any
requirements under the Code relating to ISOs or (ii) any applicable law,
regulation or rule), would:
(a) except as is provided in Section 10, increase the maximum
number of shares of Stock which may be sold or awarded under the Plan;
(b) except as is provided in Section 10, decrease the minimum
option exercise price requirements of Section 6(a);
(c) change the class of persons eligible to receive Options
under the Plan; or
(d) extend the duration of the Plan or the period during
which Options may be exercised under Section 6(b).
The Committee may amend the terms of any Option theretofore
granted, including any Agreement, retroactively or prospectively, but no such
amendment shall impair the previously accrued rights of any Optionee without
his or her written consent.
14. DURATION. Following the adoption of the Plan by the
Board, the Plan shall become effective as of the date on which it is approved
by the holders of a majority of the Company's outstanding Stock which is
present and voted at a meeting, or by written consent in lieu of a meeting,
which approval must occur within the period ending twelve (12) months after the
date the Plan is adopted by the Board. The Plan shall terminate upon the
earliest to occur of:
(a) the effective date of a resolution adopted by the Board
terminating the Plan;
(b) the date all shares of Stock subject to the Plan are
delivered pursuant to the Plan's provisions;
(c) ten (10) years from the date the Plan is approved by the
Company's shareholders; or
(d) December 1, 2006.
No Option may be granted under the Plan after the earliest to occur of the
events or dates described in the foregoing paragraphs (a) through (c) of this
Section 14; HOWEVER, Options theretofore granted may extend beyond such date.
No such termination of the Plan shall affect the previously
accrued rights of any Optionee hereunder and all Options previously granted
hereunder shall continue in force and in operation after the termination of the
Plan, except as they may be otherwise terminated in accordance with the terms
of the Plan or the Agreement.
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