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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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STUPIDPC, INC.
(Name of Small Business Issuer in its Charter)
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GEORGIA 3571 58-2321232
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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3010-E BUSINESS PARK DRIVE
NORCROSS, GEORGIA 30071
(770) 448-4150
(770) 448-2356 (FACSIMILE)
(Address and Telephone Number of Principal Executive Offices)
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STEPHEN B. BRANNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STUPIDPC, INC.
3010-E BUSINESS PARK DRIVE
NORCROSS, GEORGIA 30071
(770) 448-4150
(770) 448-2356 (FACSIMILE)
(Name, Address and Telephone Number of Agent for Service)
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COPIES TO:
MICHAEL R. SIAVAGE, ESQ.
JON H. KLAPPER, ESQ.
RED HOT LAW GROUP OF ASHLEY LLC
THE BILTMORE, SUITE 400
817 W. PEACHTREE STREET
ATLANTA, GEORGIA 30308-1138
(404) 575-1900
(404) 575-1901 (FACSIMILE)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common stock, no par value per share 1,200,000(2) $5.06 $6,072,000 $1,688.02
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Common stock, no par value per share 220,000(3) $5.50 $1,210,000 $336.38
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Total -- -- -- $2,024.40
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Represents shares that may be acquired by the Selling Securityholders
named herein (the "Selling Securityholders") upon conversion of the
Registrant's Convertible 8% Debentures (the "Debentures"), assuming a
conversion price of $1.00 per share. The number of shares of Common
Stock issuable upon conversion of the Debentures is equal to the lower
of (a) 80% of the market price at the conversion date (as defined) or
(b) $6.25 per share. The conversion price would have been $4.21 if the
date of conversion was September 13, 1999.
(3) Represents shares issuable upon exercise of warrants (the "Warrants")
issued to the Selling Securityholders in connection with the issuance
and sale of the Debentures. Includes an indeterminate number of shares
which may become issuable in the event of a stock split, stock dividend
or similar transaction involving the Common Stock pursuant to the
antidilution provisions of the Warrants.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITHOUT THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
STUPIDPC, INC.
1,420,000 SHARES
COMMON STOCK
The selling securityholders named in this prospectus are offering and
selling up to 1,420,000 shares of the common stock of StupidPC, Inc. They may
acquire 1,200,000 of those shares upon conversion of our 8% convertible
debentures and 220,000 shares upon exercise of warrants.
The selling securityholders may offer the shares from time to time in
public or private transactions on or off the Nasdaq "bulletin board," at
prevailing market prices or privately negotiated prices. Sales may be made
through brokers, dealers or other agents who may receive compensation in the
form of commissions, discounts or concessions.
Our common stock is quoted on Nasdaq's over-the-counter bulletin board
under the symbol "STPX." On September 13, 1999, the last closing sales price of
our common stock was $5.13.
We will not receive any proceeds from the sale of the common stock, but
will receive the exercise price of the warrants.
YOU SHOULD READ THE DESCRIPTION OF CERTAIN RISKS UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 5 BEFORE PURCHASING OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________, 1999.
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TABLE OF CONTENTS
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PAGE
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Summary................................................................................................. 3
Risk Factors............................................................................................ 5
Special Note Regarding Forward-Looking Statements....................................................... 16
Market for Common Equity and Related Stockholder Matters................................................ 17
Capitalization.......................................................................................... 18
Selected Financial Data................................................................................. 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................... 20
Business................................................................................................ 25
Management.............................................................................................. 31
Principal and Selling Shareholders...................................................................... 33
Description of Capital Stock............................................................................ 36
Shares Eligible for Future Sale......................................................................... 39
Plan of Distribution.................................................................................... 41
Legal Matters........................................................................................... 42
Experts................................................................................................. 42
Where You Can Find More Information..................................................................... 42
Index to Consolidated Financial Statements.............................................................. F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. SHARES OF COMMON STOCK MAY ONLY BE SOLD IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION IN THIS
PROSPECTUS MAY BE ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF
THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
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SUMMARY
You should read the following summary together with the more detailed
information regarding StupidPC, our common stock and our financial information
and accompanying notes that appear in other places in this prospectus.
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We also provide a broad range of related services,
including installation, consulting, training, networking and customer support.
The retail price of most of our computer systems does not exceed $900 and
includes one hour of in-home computer installation and training conducted by a
StupidPC sales technician. Our primary target market consists of cost-conscious,
first time and/or "computer-phobic" personal computer purchasers who may be
intimidated by the high-cost and multitude of computer products and services
currently available. We market our products and services from two retail
locations in the Atlanta area. In addition, we recently began offering consumers
an e-commerce Internet-based method for ordering and paying for our products and
services through our web site at www.stupidpc.com.
StupidPC was incorporated in Georgia in May 1997. In December 1998, we
participated in a recapitalization through a reverse merger with World Net
Holdings, Inc. Our principal executive offices are located at 3010-Business Park
Drive, Norcross, Georgia 30071, and our telephone number is (770) 448-4150. You
may view our website at www.stupidpc.com, but this prospectus does not
incorporate by reference any information on our website.
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SUMMARY FINANCIAL DATA
You should read the following summary financial data in conjunction
with our financial statements and the other financial information which
appears later in this prospectus.
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SEVENTEEN WEEKS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
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1997 1998 1999 1998
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(unaudited)
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STATEMENTS OF OPERATIONS DATA:
Product sales ........................ $ 1,441,401 $ 4,034,002 $ 1,843,654 $ 1,998,545
Costs of product sales ............... 1,359,858 3,623,688 1,523,006 1,779,619
Selling, general and administrative
expenses .......................... 253,939 841,169 578,087 356,697
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Operating loss ....................... (172,396) (430,855) (257,439) (137,771)
Net loss ............................. $ (172,259) $ (436,387) $ (258,172) $ (137,704)
=========== =========== =========== ===========
Net loss per common share (basic and
diluted) ............................. $ (0.05) $ (0.12) $ (0.04) $ (0.04)
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AS OF JUNE 30,
1999
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BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 6,803
Working capital (deficit) ...... (523,401)
Total assets ................... 465,835
Total debt, including current
maturities .................. 131,115
Total shareholders' deficit .... (473,478)
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RISK FACTORS
You should carefully consider the risk factors described below before
purchasing our common stock. The risks described below are not the only risks we
face. If any of the following risks actually occurs, our business, financial
condition and operating results could be adversely affected. If that happens,
the trading price of our common stock could decline, and you could lose part or
all of your investment.
RISKS RELATED TO STUPIDPC.COM
WE ARE IN AN EARLY STAGE OF DEVELOPMENT WITH AN UNPROVEN BUSINESS MODEL AND THIS
LIMITED OPERATING HISTORY CREATES FINANCIAL RISKS AND MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS.
We were incorporated in May 1997 and our business model continues to
evolve. As a result, your evaluation of us and our prospects is based on a
limited operating history and an unproven business model. You must consider the
risks, expenses and difficulties frequently encountered by companies like us
that are in their early stage of development. To address these risks, we must,
among other things:
- execute our unproven business model and strategy and revise
them as necessary;
- rapidly expand market share and geographic coverage;
- maintain and enhance our product delivery and installation
systems;
- attract and retain additional qualified personnel;
- establish brand recognition and a reputation for value with
consumers;
- provide effective customer support and service;
- further develop business relationships with low cost computer
component manufacturers and suppliers;
- enhance and expand our Internet-based e-commerce distribution
solution; and
- respond to our competition, which may seek to adopt some of
our strategies.
We cannot be certain that we will successfully address these risks. If
we cannot do so, our business operations and financial results will be seriously
harmed.
WE MAY NOT BE ABLE TO ATTRACT CONSUMERS TO PURCHASE OUR PRODUCTS, WHICH IS OUR
EXCLUSIVE SOURCE OF REVENUES.
Our business is in the highly competitive market of personal computer
assembly and sales. We must widely market our products and accomplish acceptance
of the value-added services which we offer in a market that has become
exceedingly cost driven. We cannot predict whether we will achieve the
wide-scale acceptance of our products that will be required for us to achieve
our plans and the revenues and margins required for the success of these plans.
Because of these and other factors, we cannot forecast revenues or the rate at
which we will attract new customers with any degree of accuracy. The failure to
achieve or sustain desired pricing levels or achieve or sustain broad market
acceptance will result in serious harm to our business operations and financial
results.
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WE MAY NOT BE PROFITABLE IN THE FUTURE.
We may never be profitable. Since we began our operations in September
1997, we have incurred significant start-up and other expenses and have incurred
substantial losses as a result. We incurred a net loss of approximately $436,000
in 1998 and $258,000 for the first six months of 1999. At June 30, 1999, we had
an accumulated deficit of over $866,000.
We expect to continue to incur substantial losses for the foreseeable
future because we intend to continue to invest heavily in inventory, marketing,
advertising and promotion, rapidly increase the number of our employees and
acquire additional technology. We will not become profitable unless the number
of consumers who purchase our products at acceptable gross margins significantly
increases.
OUR FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY NOT MEET EXPECTATIONS
WHICH MAY CAUSE THE PRICE OF OUR STOCK TO FALL.
Our future operating results will depend on many factors, some of which
are beyond our control. These factors include:
- rate and price at which customers purchase our products;
- amount and timing of capital expenditures and other costs
relating to the expansion of our services and infrastructure;
- the introduction of new products and services by us or our
competitors;
- price competition by competitors;
- unavailability of product components;
- loss of key employees and the time required to train
replacements;
- the overall and long-term acceptance of the Internet by
individuals and organizations for e-commerce; and
- general economic conditions that might cause a decrease in
personal computer sales;
In addition, we plan to increase significantly our operating expenses
to quickly expand our inventory, personnel and infrastructure, open new retail
outlets and improve our operational and financial systems. If our revenues do
not increase along with these expenses, our financial condition could be
seriously harmed.
Our future operating results are likely to be adversely affected by
these and other factors. Accordingly, we believe that quarter-to-quarter
comparisons of operating results for prior periods are not meaningful. You
should not rely on the results of any one quarter as an indication of our future
performance. If our financial results are below the expectations of securities
analysts or our investors in some future quarter, it is likely our stock price
will decline, perhaps significantly. For more information, see "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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WE FACE CHALLENGES MANAGING OUR GROWTH.
Our planned growth will place great demands on our business,
particularly our administrative, technical, fulfillment and financial personnel
and systems. Our future operating results will substantially depend on the
ability of our officers and key employees to manage changing business conditions
and to implement and improve our technical, administrative, financial control
and reporting systems. If we are unable to respond to and manage changing
business conditions as we expand, then the quality of our products and services,
our ability to retain key personnel and our operating results could be seriously
harmed.
WE MUST ATTRACT AND RETAIN ADDITIONAL PERSONNEL IN ORDER TO EXECUTE OUR BUSINESS
MODEL.
Our future success depends on our ability to attract, retain and
motivate highly skilled technical, managerial, sales and marketing and customer
service personnel. In particular, our growth strategy and future success is
heavily dependent on rapidly increasing the size of our sales force, including
skilled sales management. Competition for such sales and other personnel is
extremely intense, not only in the Atlanta area, where our headquarters are
located, but also nation-wide. The computer industry is also characterized by a
high level of employee mobility and aggressive recruiting of skilled personnel.
As a result, we may be unsuccessful in attracting, training or retaining
qualified personnel. The failure to attract, train and retain the necessary
personnel, especially for our sales force, could seriously harm our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO ESTABLISH OUR BRAND NAME.
We believe that establishing and maintaining the goodwill associated
with our brand name is a critical aspect of attracting and expanding our
customer base, as well as maintaining and building upon the competitive
advantage of being one of the first companies to provide an Internet-based
e-commerce solution for providing low-cost, affordably priced personal computer
systems. We have not yet developed a strong brand name and if we fail to do so
it could seriously harm our business. The importance of brand recognition will
increase with competition. Promotion and enhancement of our brand will depend
largely on our success in continuing to provide high quality and affordably
priced products and services, which cannot be assured. If users do not perceive
our products and services to be comprehensive and of high quality, or if we
introduce new features, or enter into new business ventures that are not
favorably received by users, we will risk diluting the value of our brand name.
If we are unable to provide high quality products and services, or otherwise
fail to promote and maintain our brand name, or if we incur excessive expenses
in an attempt to improve our products and services, or promote and maintain our
brand name, our future results of operations and financial condition could be
seriously harmed. Our operating results depend on our relationship with a
limited number of suppliers.
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OUR OPERATING RESULTS DEPEND ON OUR RELATIONSHIP WITH A LIMITED NUMBER OF
SUPPLIERS.
We currently purchase all of our equipment and components from
relatively few suppliers, most of which are located abroad, particularly in
Taiwan. Although multiple manufacturers currently produce or are developing
equipment that will meet our current and anticipated requirements there can be
no assurance that our suppliers will be able to manufacture and deliver the
amount of equipment ordered or that such supply will be sufficient to meet
demand. In addition, the pricing of the equipment purchased by us may
substantially increase over time, increasing the costs paid in the future by us
or decrease over time, providing later market entrants with a cost advantage
over us. The availability and pricing of the equipment purchased by us may be
adversely affected if our suppliers enter into competition with us, or if our
competitors enter into exclusive or restrictive arrangements with suppliers. Any
interruptions in the supply of this equipment resulting from natural, political
or commercial causes could seriously harm our business, financial condition and
results of operations.
WE ARE SUBJECT TO INVENTORY RISK.
We purchase computer components from third-party vendors. As a result
of the purchases, we assume the risk of inventory damage and theft.
OUR CURRENT WAREHOUSE AND FULFILLMENT FACILITY, WHICH IS OUR SOLE LOCATION FOR
OUR PRODUCT INVENTORY, MAY BE INADEQUATE TO SUPPORT OUR GROWTH STRATEGY AND WE
MAY NEED TO SPEND SIGNIFICANT CAPITAL TO EXPAND THIS FACILITY OR BUILD-OUT A NEW
FACILITY.
Our current warehouse and fulfillment facility may be too small to
support our planned rapid growth. If this is the case, then we will either be
forced to expand our current facility or move our warehouse and fulfillment
facility and corporate offices to a larger space. Such an expansion or move
could prove to be expensive and time consuming. We might not be able to obtain
the required capital for a move or expansion. In the event we experience a
temporary interruption of our business due to any expansion or move, our
business, financial condition and results of operations could be seriously
harmed.
In addition, all of our product inventory is stored at this single
facility. If all or a substantial portion of this inventory is damaged from
fire, flood, tornado or other similar catastrophic event, our business,
financial condition and results of operation will be seriously harmed.
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BECAUSE WE RELY HEAVILY ON TECHNOLOGY DEVELOPED AND MAINTAINED BY THIRD PARTIES,
OUR INABILITY TO PREVENT INTERRUPTIONS AND IMPLEMENT NEW TECHNOLOGY COULD CREATE
A COMPETITIVE DISADVANTAGE.
The industry in which we compete is subject to rapid and significant
changes in technology. The effect of technological changes on our business, such
as continuing developments in computer chip architecture cannot be predicted. We
rely in part on third parties, including certain of our competitors and
potential competitors, for the development of and access to technology. We
cannot predict the effect technological changes will have on our business. We
believe our future success will depend, in part, on our ability to anticipate or
adapt to such changes and to offer, on a timely basis, services that meet
customer demands and evolving industry standards. There can be no assurance that
we will obtain access to new technology on a timely basis or on satisfactory
terms or that we will be able to adapt to such technological changes, offer such
services on a timely basis, or establish or maintain a competitive position. Any
technological change, obsolescence or failure to obtain access to important
technologies could seriously harm our business.
In addition, our success, in particular our ability to successfully
receive and fulfill online orders and provide high-quality customer service,
largely depends on the efficient and uninterrupted operation of our computer
software and hardware systems, most of which are owned and maintained by third
parties. These third parties' systems may experience interruptions in service or
be vulnerable to damage from power loss, fire, flood or similar catastrophic
events. Because we do not control the software or hardware systems owned by
these third parties, we may have difficulties in implementing new and enhanced
technology on a timely basis in the future to remain competitive. Our failure to
do so could seriously harm our business, financial condition and operating
results.
WE MAY ACQUIRE TECHNOLOGY OR COMPUTER COMPONENTS THAT BECOME OUTDATED FASTER
THAN WE ANTICIPATE OR THAT DOES NOT WORK AS WE EXPECT.
We acquire technology components by purchasing or licensing it. We may
be unable to use the technology or components effectively if it becomes outdated
or because it does not perform as well as we thought it would. Dealing with
unexpected technology or component problems may distract our management or
impair our ability to provide our products or the e-commerce solution we have
promised our clients. Any of these problems could seriously harm our business.
POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR BUSINESS.
Our failure or the failure by third parties that provide our computer
hardware and software to correct any programs or hardware with a year 2000
problem could result in system failures or miscalculations causing disruptions
of our operations. We may do business with and communicate electronically with
suppliers that also face year 2000 problems. We cannot guarantee that they will
remediate any year 2000 problems they have in a timely manner. If they fail to
remediate their year 2000 problems, they may experience material disruptions in
their business, which could seriously harm our ability to provide products and
services to our customers and would seriously
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harm our business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000 Compliance" for a more detailed explanation of what we
are doing to address this problem.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.
Our future success depends, in significant part, upon the continued
services of our senior management and other key personnel. The loss of the
services of Stephen B. Brannon, our President and Chief Executive Officer, or
one or more of our other key employees could seriously harm our business.
Neither Mr. Brannon, nor any of our other employees have employment agreements
with us. In addition, we do not have "key person" life insurance policies on Mr.
Brannon or any other employee. For more information, see "Management --
Executive Officers and Directors."
OUR INDUSTRY IS VERY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE GREATER
RESOURCES THAN WE DO.
The e-commerce market is new, rapidly evolving and intensely
competitive. The personal computer manufacturing and sales industry is more
mature but is also very competitive as well as highly fragmented. We expect
competition to persist and intensify in the future from existing competitors and
companies that enter our existing or future markets. Barriers to entry into the
e-commerce market are relatively low. Moreover, all of the products that we sell
are available through traditional distribution methods. In addition, recently,
with the growth in the use of the Internet, certain of our competitors have
begun to offer low-price computer systems bundled with long-term commitments
with Internet service providers. Accordingly, we must compete with both
companies in the e-commerce market and in the traditional retail distribution of
personal computers.
Most of our competitors and potential competitors have longer operating
histories, more customers, greater brand recognition and substantially greater
financial and other resources than we do. Our competitors may be able to acquire
merchandise from vendors on more favorable terms. In addition, our competitors
may be able to respond more quickly to changes in customer preferences, spend
more on marketing and promotional campaigns, adopt more aggressive pricing and
inventory policies and devote more resources to developing their e-commerce
solutions for the sale of personal computers.
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WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL WE NEED IN THE FUTURE.
The expansion and development of our business will require significant
capital to fund capital expenditures, working capital and operating losses.
While we currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the next 12 months, we will need to raise additional
funds through public or private financings. We may be unable to obtain
sufficient additional financing on favorable terms, if at all. If we raise
additional funds by selling our equity securities, the relative ownership of our
existing investors could be diluted or the new investors could obtain terms more
favorable than those of our existing investors. If we raise additional funds
through debt financing, we could incur significant borrowing costs. If
sufficient financing is not available or is not available on favorable terms,
our business, financial condition and results of operations would be seriously
harmed.
OUR SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO PROTECT AND DEFEND OUR
INTELLECTUAL PROPERTY.
Legal standards relating to the protection of intellectual property
rights in Internet-related industries are uncertain and still evolving. As a
result, the future viability or value of our intellectual property rights, as
well as those of other companies in the Internet industry, is unknown. We cannot
be certain that the steps we have taken to protect our intellectual property
rights will be adequate or that third parties will not infringe or
misappropriate our proprietary rights. Any such infringement or misappropriation
could seriously harm our future financial results. In addition, we cannot be
certain that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us. We might be forced to pay substantial costs to prosecute or defend
any litigation of this nature, which could divert the attention of our
management from other important matters.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS.
Our articles of incorporation and bylaws, and Georgia law could make it
more difficult for another company to acquire us, even if a change in control
would benefit our shareholders. For more information, see "Description of
Capital Stock -- Certain Provisions of the Articles, Bylaws and Georgia Law."
IF CERTAIN LITIGATION IN WHICH STUPIDPC IS INVOLVED IS RESOLVED
UNFAVORABLY, OUR BUSINESS AND OPERATING RESULTS COULD BE SERIOUSLY HARMED.
We have received a claim by a former officer and director alleging
entitlement to the exercise of 750,000 options of our common stock. We believe
we have adequate defenses to this claim, but if it is resolved adversely to us,
it could seriously harm our business, operating results and financial condition.
For more information, see "Business - Legal Proceedings."
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RISKS RELATED TO E-COMMERCE COMPANIES
THE POSSIBLE SLOW ADOPTION OF INTERNET SOLUTIONS BY CONSUMERS COULD HARM OUR
BUSINESS.
In order for us to be successful, consumers must continue to adopt the
Internet as the means of buying and selling products and services. Because
Internet usage is continuing to evolve, it is difficult to estimate with any
assurance the size of this market and its growth rate, if any. To date, many
consumers have been deterred from utilizing the Internet for a number of
reasons, including:
- security concerns;
- limited access to the Internet;
- lack of availability of cost-effective, high-speed service;
and
- inconsistent quality of service.
THE INTERNET MAY NOT BE ABLE TO ACCOMMODATE GROWTH IN E-COMMERCE FOR COMPANIES
SUCH AS STUPIDPC.
We expect that in the future we will depend more significantly upon the
Internet to conduct our business and any problems in the functioning of the
Internet could adversely affect our business. To the extent that the Internet
continues to experience significant growth in the number of users, their
frequency of use or their speed and quality-of-service requirements, it is
possible that the infrastructure for the Internet will not be able to support
the demands placed upon it. If the infrastructure for the Internet does not
effectively support growth that may occur, our future financial results will be
seriously harmed. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of the Internet
generally and our services in particular. Even if the required Internet
infrastructure, standards and protocols are developed, we may be required to
incur substantial expenditures in order to adapt our services to changing or
emerging technologies, which could seriously harm our future results of
operations and financial condition.
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<PAGE> 14
POTENTIAL IMPOSITION OF GOVERNMENT REGULATION ON INTERNET-BASED E-COMMERCE AND
LEGAL UNCERTAINTIES COULD LIMIT OUR GROWTH.
Few laws or regulations currently are directly applicable to access to
or commerce on the Internet and we are not subject to direct government
regulation, other than regulations applicable to businesses generally. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase the cost of our doing business or otherwise
seriously harm our future results of operations and financial condition. A
number of legislative and regulatory proposals relating to Internet commerce are
under consideration by federal, state, local and foreign governments and, as a
result, a number of laws or regulations may be adopted with respect to Internet
user privacy, taxation, pricing, quality of products and services and
intellectual property ownership. There is also uncertainty as to how existing
laws will be applied to the Internet in areas such as state and local sales tax,
property ownership, copyright, trademark, trade secret, obscenity and
defamation.
POSSIBLE E-COMMERCE SECURITY BREACHES COULD HARM OUR BUSINESS.
We rely on encryption and authentication technology to effect secure
transmission of confidential information, such as payment instruction sets. It
is possible that the security measures we use to protect our clients'
confidential information will not prevent security breaches due to advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments. If any such compromise of our security were to occur, it
could seriously harm our reputation and future results of operations and
financial condition, and expose us to litigation and possible liability.
RISKS RELATED TO THE OFFERING
OUR STOCK HAS A LIMITED PUBLIC MARKET AND ITS PRICE MAY BE VOLATILE.
While our common stock trades on the over-the-counter bulletin board,
any trades that take place are sporadic. Our market capitalization is relatively
small, and we cannot predict how liquid the market for our shares will be. For
that reason and because our business is to a significant degree
technology-related, the trading price of our common stock could be subject to
significant fluctuations. Volatility in our stock price could also result from
the following factors, among others:
- quarterly variations in operating results;
- announcements of technological innovations or new services or
products by us or our competitors;
- changes in financial estimates by securities analysts;
- the operating and stock price performance of other companies;
and
- general economic conditions.
In particular, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of companies within
certain industry groups, such as technology companies. These fluctuations may
materially affect the trading price of our common stock. We
13
<PAGE> 15
cannot guarantee that you will be able to sell your shares at or above the
initial public offering price. In the past, following periods of volatility in
the market price for a company's securities, shareholders have often instituted
securities class action litigation. Litigation of that type could result in
substantial costs and the diversion of management's attention and resources,
which could seriously harm our business, financial condition and operating
results.
OUR EXISTING SHAREHOLDERS WILL BE ABLE TO CONTROL SHAREHOLDER ACTIONS AFTER THIS
OFFERING.
When this offering is completed, our present directors, executive
officers and current holders of more than 5% of the common stock will
beneficially own enough shares to control the outcome of any shareholder vote if
they vote as a group. Specifically, these persons will own approximately 81.9%
of the outstanding common stock. They could use this power to delay or prevent a
change in control, even if a majority of the other shareholders desired such a
change. For more information, see "Principal and Selling Shareholders."
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE.
Current shareholders hold a substantial number of shares that currently
are freely tradeable or that they may be able to sell in the public market in
the near future. If our shareholders sell large amounts of our common stock in
the public market, the market price of our common stock could fall. Those sales
also could make it harder for us to sell equity securities in the future at a
time or price that we believe is fair. For more information, see "Shares
Eligible for Future Sale."
THE CONVERSION OF OUR 8% CONVERTIBLE DEBENTURES WILL HAVE A DILUTIVE IMPACT ON
OUR SHAREHOLDERS.
In July 1999 we sold $1.2 million of our 8% convertible debentures to
certain of the selling securityholders. The issuance of shares of our common
stock upon the conversion of these debentures will have a dilutive impact on our
shareholders. As a result, our net income or loss per share could be materially
decreased in future periods, and the market price of our common stock could
drop.
The debentures provide for a conversion price that equals the lesser of
$6.25 or 80% of the market price, which is determined by taking the average of
the three lowest closing bid prices of our common stock during the 10 trading
day period ending of the day prior to the day of determination. As of the date
of this prospectus, the conversion price would have been $4.21 per share. On
September 13, 1999, the last closing sale price of our common stock was $5.13
per share. The table below sets forth the number of shares and the percentages
of our common stock that the holders of the debentures would own if they elect
to convert the entire $1.2 million of debentures. The table assumes a conversion
price of $4.21 per share and then prices of $3.16, $2.11 and $1.05, which prices
represent a 25%, 50% and 75% decline, respectively, in the conversion price from
the current conversion price of $4.21. The percentages are based on 5,853,516
shares of our common stock outstanding on the date of this prospectus.
14
<PAGE> 16
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
PERCENTAGE DECLINE IN ASSUMED CONVERSION PRICE SHARES OF COMMON STOCK OUTSTANDING COMMON STOCK
CONVERSION PRICE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- $4.21 285,035 4.6%
- -------------------------------------------------------------------------------------------------------------
25% $3.16 379,746 6.1%
- -------------------------------------------------------------------------------------------------------------
50% $2.11 568,720 8.9%
- -------------------------------------------------------------------------------------------------------------
75% $1.05 1,142,857 16.3%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus, including some statements in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," are
forward-looking statements about what may happen in the future. They include
statements regarding our current beliefs, goals and expectations about matters
such as our expected financial position and operating results, our business
strategy and our financing plans, These statements can sometimes be identified
by our use of forward-looking words such as "anticipate," "estimate," "expect,"
"intend," "may," "will" and similar expressions. We cannot guarantee that our
forward-looking statements will turn out to be correct or that our beliefs and
goals will not change. Our actual results could be very different from and worse
than our expectations for various reasons. including those discussed in "Risk
Factors."
16
<PAGE> 18
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded over-the-counter on the Nasdaq bulletin
board under the symbol "STPX.". The reported high- and low-bid prices for our
common stock are shown below for the period from December 14, 1998 (the date of
our merger with World Net Holdings):
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
1999
- ----
<S> <C> <C>
First Quarter................................................ $4.13 $2.00
Second Quarter................................................ 9.75 1.95
Third Quarter (through September 13, 1999)................... 7.56 4.00
1998
- ----
Fourth Quarter (from December 14, 1998)....................... $4.63 $3.75
</TABLE>
The last reported sale price of our common stock as of September 13,
1999 was $5.13 per share, as reported by Nasdaq. The prices represented above
are bid and ask prices which represent prices between broker-dealers, do not
include retail mark-ups, mark-downs or any commissions to broker-dealers and do
not reflect prices in actual transactions. As of September 13, 1999, there were
approximately 48 record owners of our common stock.
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the development and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
17
<PAGE> 19
CAPITALIZATION
The following table describes our capitalization as of June 30, 1999.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Shares Eligible for
Future Sale," our financial statements and the related notes to them and the
other financial information appearing in other places in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999 (1)
-----------------
(unaudited)
<S> <C>
Short-term debt:
Notes payable ........................................................ $ 100,873
Current maturities of long-term debt ................................. 7,321
---------
Total short-term debt ............................................ 108,194
---------
Long-term debt, net of current maturities ............................ 22,921
---------
Shareholders' deficit(1):
Common stock and paid-in capital, no par value per share, 95,000,000
shares authorized: 6,190,250 shares issued and outstanding(2)........ 393,340
Accumulated deficit................................................... (866,818)
---------
Total shareholders' deficit....................................... (473,478)
---------
Total capitalization ........................................... $(342,363)
=========
</TABLE>
(1) The information provided above presumes that our shareholders will
approve amendments to our articles of incorporation modifying our
capital structure at a special meeting to be held on September 23,
1999. For more information, see "Description of Capital Stock."
(2) Does not include shares to be issued upon conversion of the debentures
as well as 2,770,323 shares to be issued pursuant to outstanding
options and warrants.
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<PAGE> 20
SELECTED FINANCIAL DATA
You should read the following data along with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes to them included at the end of this prospectus. Our
selected financial data for the seventeen weeks ended December 31, 1997 and the
year ended December 31, 1998 are derived from our consolidated financial
statements, which have been audited by Grant Thornton LLP, independent auditors.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEVENTEEN WEEKS YEAR ENDED JUNE 30,
ENDED DECEMBER 31, DECEMBER 31, ----------------------------
1997 1998 1999 1998
------------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Product sales ........................ $ 1,441,401 $ 4,034,002 $ 1,843,654 $ 1,998,545
Costs of product sales ............... 1,359,858 3,623,688 1,523,006 1,779,619
Selling, general and administrative
expenses .......................... 253,939 841,169 578,087 356,697
----------- ----------- ----------- -----------
Operating loss ....................... (172,396) (430,855) 257,439 (137,771)
Net loss ............................. $ (172,259) $ (436,387) $ 258,172 $ (137,704)
=========== =========== =========== ===========
Net loss per common share (basic and
diluted) ............................. $ (0.05) $ (0.12) $ (0.04) $ (0.04)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1999
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 6,803
Working capital (deficit) ...... (523,401)
Total assets ................... 465,835
Total debt, including current
maturities .................. 131,115
Total shareholders' deficit .... (473,478)
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed in these forward-looking statements as a result of various
factors, including those set forth in "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read in conjunction with the
financial statements and accompanying notes included elsewhere in this
prospectus.
OVERVIEW
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We provide the intimidated consumer a means for
entering the high-tech world of computers without apprehension of investing in
machinery and peripherals in which they have little or no experience. We market
our products and services from two retail locations in the Atlanta area as well
as on our web site at www.stupidpc.com.
RESULTS OF OPERATIONS
Since our inception in June 1997, we have engaged principally in the
development of the technology and activities related to the commencement of our
business operations. Accordingly, our historical results of operations are not
indicative of, and should not be relied upon as an indicator of, our future
performance.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues for the six months ended June 30, 1999 were
approximately $1.8 million, a 10% decrease from revenues of approximately $2.0
million for the six months ended June 30, 1998. Revenues decreased during this
period as a result of a decrease in average sales price per unit.
Cost of Product Sales. Cost of products were approximately $1.5 million
for the first six months of 1999, a decrease of 17% from cost of product sales
of approximately $1.8 million for the first six months of 1998. We were able to
lower our product costs during the first six months of 1999 as a result of
decreasing computer chip prices and other hardware costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $578,000 for the first six months of
1999, an increase of 62% from selling, general and administrative costs of
approximately $357,000 for the first six months of 1998. These expenses
increased as a result of increased costs for additional personnel, accounting
and legal services.
Income Taxes. Income taxes will consist of federal, state and local
taxes, when applicable. We expect significant net losses for the foreseeable
future which should generate net
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<PAGE> 22
operating loss carryforwards. However, utilization of NOLs is subject to
substantial annual limitations. In addition, income taxes may be payable during
this time due to operating income in certain tax jurisdictions. We recognized
no provision for taxes for the six months ended June 30, 1999 and 1998 as we
generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of
approximately $258,000, or $0.04 per share, for the six months ended June 30,
1999 compared with a net loss of approximately $138,000, or $0.04 per share, for
the six months ended June 30, 1998.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SEVENTEEN WEEKS ENDED
DECEMBER 31, 1997
Revenues. We commercially introduced our services in August 1997.
Revenues were first recognized in October 1997. Revenues for 1998 were
approximately $4.0 million. Revenues for the 17 weeks ended December 31, 1997
were approximately $1.4 million. Revenues for 1998 were significantly higher due
to our operations during the entire year as compared to only 17 weeks of 1997.
Cost of Product Sales. Cost of products were approximately $3.6 million
in 1998 and $1.4 million for the 17 weeks ended December 31, 1997. These costs
consisted primarily of the purchase of components for personal computer systems
acquired for resale to our customers. The increase during 1998 was due to sales
activity for all of 1998 compared to only 17 weeks of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $840,000 in 1998 and $254,000 for the
17 weeks ended December 31, 1997. These expenses consist primarily of salaries
and related expenses for the development of our business, technology and
software, the establishment of our management team, the development of corporate
identification, promotional and advertising materials and the commencement of
our operations. These expenses are expected to continue to significantly
increase as we expand our business.
Income Taxes. Income taxes will consist of federal, state and local
taxes, when applicable. We expect significant net losses for the foreseeable
future which should generate net operating loss carryforwards. However,
utilization of NOLs is subject to substantial annual limitations. In addition,
income taxes may be payable during this time due to operating income in certain
tax jurisdictions. We recognized no provision for taxes for 1998 and 1997 as we
generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of
approximately $436,000 for the year ended December 31, 1998, or $0.12 per share,
compared with a net loss of approximately $172,000, or $0.05 per share, for the
17 weeks ended December 31, 1997.
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<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of June 30, 1999, we had an
accumulated deficit of approximately $867,000 and cash and cash equivalents of
approximately $7,000.
Net cash used in our operating activities was $322,882 and $151,925 for
the first six months of 1999 and the year ended December 31, 1998, respectively.
The net cash used in operations during these periods was primarily due to net
losses and increases in current assets, offset by increases in accounts payable
and accrued liabilities.
We believe that the net proceeds from the sale of our 8% debentures and
cash from operations will be sufficient to fund our aggregate capital
expenditures and working capital requirements, including operating losses, for
at least the next 12 months. While we believe that these funds will be
sufficient to finance our current needs, we may need to secure additional
financing to open new retail locations or to meet higher-than-expected product
sales. We may obtain additional funding through the sale of public or private
debt and/or equity securities or through securing a bank credit facility. We
cannot guarantee that we will be able to obtain additional financing, or that it
will be on satisfactory terms. For a description of our 8% debentures, see
"Description of Capital Stock."
We expect to experience substantial negative cash flow for at least the
next several months due to continued development of our products and our
Internet distribution channel, including the costs of advertising and marketing
associated with these. Our future cash requirements, as well as our revenues,
will depend on a number of factors including (1) the number of retail locations
opened, the timing of the opening and products offered; (2) the rate at which
customers purchase our products and the pricing of such products; (3) the level
of marketing required to attract and retain customers and to attain a
competitive position in the marketplace; (4) the success or failure of any joint
marketing programs; and (5) the rate at which we invest in engineering and
development and intellectual property with respect to existing and future
technology. In addition, we may decide to selectively pursue possible
acquisitions of businesses, technologies or products complementary to those of
ours in the future in order to expand our geographic presence and achieve
operating efficiencies. There can be no assurance that we will have sufficient
liquidity, or be able to obtain additional debt or equity financing on favorable
terms or at all, in order to finance such an acquisition. However, no
acquisitions are currently contemplated. See "Risk Factors -- We may be unable
to obtain additional capital we need in the future."
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<PAGE> 24
YEAR 2000 COMPLIANCE
Some computers, software and other equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if, for example, "00" is interpreted to mean 1900,
rather than 2000. These problems are widely expected to increase in frequency
and severity as the year 2000 approaches and are commonly referred to as the
"Year 2000 problem."
Assessment. The Year 2000 problem could affect computers, software and
other equipment that we use. Accordingly, we are reviewing our internal computer
programs and systems to determine if they will be Year 2000 compliant. We
believe that our computer systems will be Year 2000 compliant in a timely
manner. Although we do not expect the cost of these efforts to be material to
our financial position or any year's operating results, we cannot assure you of
that result.
Internal Infrastructure. We believe that we have identified
substantially all of the major computers, software applications and related
equipment used in connection with our internal operations that must be modified,
upgraded or replaced to minimize the possibility of a material disruption to our
business. We have begun modifying, upgrading and replacing systems that we have
identified as potentially being adversely affected and expect to complete this
process before the end of the third quarter of 1999. We do not expect the costs
related to these efforts to be material to our business, financial condition or
operating results.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of our office and facilities
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
problem. We are currently assessing the potential effect of, and costs of
remediating, the Year 2000 problem on this equipment. We estimate that our total
cost of completing any required modifications, upgrades or replacements of these
internal systems will not have a material adverse effect on our business,
financial condition or operating results.
Suppliers. We have been gathering information from and have initiated
communications with our suppliers to identify and, to the extent possible,
resolve issues involving the Year 2000 problem. We have limited or no control,
however, over the actions of our suppliers. Thus, while we expect that we will
be able to resolve any significant Year 2000 problems with our systems, we
cannot guarantee that our suppliers will resolve any or all Year 2000 problems
with their systems before our business is materially disrupted. Any failure of
these third parties to resolve Year 2000 problems with their systems in a timely
manner could have a material adverse effect on our business, financial condition
or operating results.
Most Likely Consequences of Year 2000 Problems. We expect to identify
and resolve all internal Year 2000 problems that could materially adversely
affect our business, financial condition or operating results. We believe that
it is not possible, however, to determine with complete certainty that we have
identified or corrected all Year 2000 problems affecting us. The number of
devices that could be affected and the interactions among these devices are
simply too
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<PAGE> 25
numerous. In addition, we cannot accurately predict how many failures related
to the Year 2000 problem will occur or the severity, duration or financial
consequences of such failures. As a result, we could possibly suffer the
following consequences:
- a significant number of operational inconveniences and
inefficiencies for us, our suppliers and our customers may
divert our time and attention and financial and human
resources from our ordinary business activities; and
- a lesser number of serious system failures may require
significant efforts by us, our suppliers and our customers to
prevent or alleviate material business disruptions.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the third quarter of 1999. Depending on the systems affected, these
plans could include (a) accelerated replacement of affected equipment or
software; (b) short to medium-term use of backup equipment and software; (c)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 problems which arise or to provide
manual workarounds for information systems; and (d) other similar approaches. If
we are required to implement any of these contingency plans, such plans could
have a material adverse effect on our business, financial condition or operating
results.
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<PAGE> 26
BUSINESS
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We also provide a broad range of related services,
including installation, consulting, training, networking and customer support.
The retail price of most of our computer systems does not exceed $900 and
includes one hour of in-home computer installation and training conducted by a
StupidPC sales technician. Our primary target market consists of cost-conscious,
first time and/or "computer-phobic" personal computer purchasers who may be
intimidated by the high-cost and multitude of computer products and services
currently available. We market our products and services from two retail
locations in the Atlanta area. In addition, we recently began offering consumers
an e-commerce Internet-based method for ordering and paying for our products and
services through our web site at www.stupidpc.com.
INDUSTRY BACKGROUND
The Personal Computer Industry. During the last decade, the personal
computer industry has grown rapidly as increased functionality combined with
lower pricing have made personal computers valuable and affordable tools for
business and personal use. Recent advances in technology, including the
development of high-speed CD-ROM drives, high-speed data transmission hardware,
multimedia, graphics and animation, have increased the potential market
dramatically. This trend has been further augmented by the introduction of
faster microprocessors and the introduction of high performance chips, new
caching techniques and low power consumption features. In addition, many older
machines are no longer adequate to deal with state-of-the-art software, and many
existing computer owners will be upgrading their equipment over the next few
years. A large number of the currently installed computer user base consists of
older 486 and lower version personal computers. As much as 40 to 50% of sales
over the next five years will be replacements of existing equipment. We believe
that the growth in the personal computer industry will continue for the
foreseeable future.
Growth of the Internet and Business-to-Consumer e-Commerce. The
Internet has emerged as the fastest growing communication medium in history and
is dramatically changing how businesses and individuals communicate and share
information. International Data Corporation, a leading technology/Internet
industry research organization, estimates that over the next four years the
number of Internet users worldwide will grow at a compound annual rate of 34.8%,
reaching 320 million in 2002 from 97 million in 1998. The widespread acceptance
of the Internet as a business communication platform has created opportunities
for business-to-business electronic commerce that enables organizations to
streamline processes, lower costs and improve productivity.
Potential economic benefits of the Internet have driven and should
continue to drive the growth in online commerce, including business-to-consumer
or person-to-person electronic commerce. According to Forrester Research, U.S.
consumers will spend $184 billion online by 2004, an increase from $20 billion
in 1999.
25
<PAGE> 27
STRATEGY
As part of our operating strategy, we will endeavor the following:
Expansion of Inventory. We intend to expand our inventory in an amount
sufficient to keep pace with our expected sales volume. We believe that
increased purchases of certain products will permit us to realize economies of
scale as a result of more favorable pricing.
Expansion of Direct Marketing Program Through the Internet. We
originally focused our marketing for computer equipment and related products on
a traditional retail distribution method in the Atlanta area. With the
development of our e-commerce ordering solution, we are committed to moving even
greater volumes of product sales, service and support to the Internet through
our web site. The use of the Internet to research and purchase our products
provides greater convenience and efficiency to our customers. We intend to
leverage our e-commerce business model to become one of the lowest cost
providers of personal computer systems in the industry. We believe our
Internet-based delivery model gives us broad access to new customers, which will
enable us to drive down customer acquisition costs and drive up the revenue
yield from the acquisition efforts. By utilizing an e-commerce solution for
ordering and purchasing and by automating the fulfillment of our clients'
orders, our solution allows us to achieve significant cost savings and
productivity enhancements.
Expansion of Distribution Channels. We intend to continue to develop
our Internet-based distribution channel as well as plan to increase our
traditional retail distribution outlets in Atlanta and other southeastern U.S.
cities.
Identification of Products. We will continue to identify high
technology products for which substantial demand exists or can be created. We
continually evaluate new products, the demand for our current products, and our
overall product mix, and seek to develop distribution relationships with vendors
that will enhance our product offerings
Establishment of the Company's Brands and Trade Names. We intend to
further establish our StupidPC(TM) and other brand and trade names as recognized
and reliable brands for personal computer systems.
Further Enhance Site Functionality. We currently believe that the
design of our web site makes the purchase of personal computer systems extremely
easy and efficient. However, we intend to further enhance the shopping
experience by adding technology driven enhancements that will increase the
functionality of our web site and make the user interface more intuitive,
efficient and cost-effective.
PRODUCTS AND SERVICES
We are totally committed to customer satisfaction and currently provide
our products and services based on a high value, low cost price model, with the
largest degree of current and future technical customizing possible to the
consumer. Only nationally known brand name components are used in assembly. Our
personal computers are assembled in a number of
26
<PAGE> 28
different configurations using standard component parts. Customization enables
us to accommodate customer computer needs with respect to storage capacity,
speed, price, applications, size, configuration and a range of other
considerations that can be accommodated in whole or in part by the selection of
appropriate components. We believe that delivering custom built computers is
the best method for providing solutions that are truly relevant to a customer's
needs. This method also allows us to achieve faster inventory turnover and
reduced inventory levels. It also assists us to rapidly incorporate new
technologies and components into our products.
We currently assemble the computer systems at our facility in Norcross,
Georgia and as sales volume increases will assemble at independently owned
companies capable of following our requirements as to technological advances and
price changes rapidly at competitive cost and acceptable profit margins to us.
These companies would be required to be responsible for their own risk
management and product development and could become candidates for acquisition
if they complement our business plans. Our facility currently has a capacity to
produce between 500 and 1,000 computers a month.
We offer a full complement of services which are designed to meet our
goals of providing a turnkey solution to our customers. The services offered
include installation and set up, consulting, training, networking and customer
support. Our services begin with a free one hour in-home installation and
training session conducted by one of our sales technicians.
PROCUREMENT
We stock most of the component parts used in the manufacture of our
computer systems. We purchase from numerous sources that meet our strict quality
and delivery standards. We generally select suppliers based on cost, quality and
responsiveness. All of the computer components we purchase are protected by
various basic patents owned by others and which are produced by licensed
domestic and foreign manufacturers under their own trademarks in the United
States or abroad. We do not own any patents or trademarks that protect such
components and the cost for research and development of these components are
born by the patent holders and the various manufacturers. At this time we are
not involved in research and development for new components. The cost of design
and development of various computer configurations we use in our marketing
efforts are minimal and have no material impact upon the cost of doing business.
We do not have any long term agreements with our suppliers with respect
to the price or supply of components purchased by us. The cost of some
components used in the computers, such as central processing units and memory,
can fluctuate from week to week or from one day to the next, and for this
reason, we try not to stock these items for use over a long period of time. We
generally seek to purchase these price sensitive items within about two weeks
advance of use. To date, we have not experienced any difficulty in receiving the
needed items on connection with the computers are obtained from a number of
different sources. We believe that we are not dependent on any single source, as
alternative sources are available.
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<PAGE> 29
SALES AND MARKETING
Our products and services are marketed and sold principally through our
retail locations in Marietta and Norcross, Georgia, suburbs of Atlanta. Orders
received at the retail location are transmitted to our headquarters, where
products are ordered or assembled for delivery. Our other method of distribution
is through our website. Through our web site, customers and potential customers
can access a wide range of information about our products and services, can
configure and purchase systems online and can access customer support
information. Although we have adopted a "just in time" inventory management
system, we have been successful in delivering products ordered by customers in
an average of three to seven days. If required, we can have components delivered
by overnight delivery, at an additional charge to the customer.
We market our products and services by advertising on radio stations,
in newspapers, on billboards and by direct marketing mailings. Our radio
campaigns have proved to be the most effective method of publicizing our brand
and products.
QUALITY ASSURANCE AND CUSTOMER SERVICE
We address quality assurance at all stages of the production process.
First, components considered for use in standard systems are tested for
compatibility by our technical staff. Second, incoming components receive a
physical damage inspection on receipt and again at the start of the production
process. A statistical sampling of components in every category is
electronically tested prior to assembly. Each complete unit is then functionally
tested at the end of the production process to demonstrate that all components
are engaged and fully operational.
Thereafter, each complete unit is "burned-in" for a period of time.
This process involves running a test program which sequentially tests each
component to verify prescribed operation.
Through an agreement with Integrated Automation International, Inc. of
California, we offer 24-hour a day, seven days a week toll-free telephone
support service to our customers. We also offer an on-site service to our
customers for a fee.
COMPETITION
There are many companies selling computers that may be regarded as our
competitors. Computers are sold directly by manufacturers such as IBM, Hewlett
Packard, Dell, Compaq, Gateway and Apple, by large retail outlets such as Best
Buy, Circuit City, Office Depot and Staples, by mail order houses, electronic
equipment catalogues and by assemblers and entities like us selling computers
under their own names. Many of these companies have substantially greater
financial, sales, marketing, technical and other competitive resources than we
do. As a result, these competitors may be able to devote greater resources than
we can to the sale and service of computer products. Some of these companies, by
themselves, have the economic power to control prices and the technical
expertise to develop and bring to market improved versions of existing products
long before they become available to us. Our market share represents a small
percentage of the market. We believe that existing competitors are likely to
expand their product and service offerings and that new competitors are likely
to enter the
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<PAGE> 30
market and attempt to integrate electronic commerce and other services,
resulting in greater competition for us. Such competition could seriously harm
our business, financial condition and results of operations.
INTELLECTUAL PROPERTY RIGHTS
We seek to protect its proprietary rights by obtaining nondisclosure
and confidentiality agreements from our employees and consultants. We protect
our intellectual property through cease and desist letters to potential
infringers. We have trademark registrations for "StupidPC" and a pending
application for "StudentPC." None of our principal products enjoys patent
protection.
EMPLOYEES
We employ 21 persons, consisting of four persons at the corporate
level, six in the actual production of computers, six persons in computer sales,
two in administration, and three in sales and marketing.
FACILITIES
We currently occupy under a lease which expires on December 31, 1999,
approximately 5,000 square feet in an office/warehouse building in which we use
for manufacturing computers and as our corporate headquarters. This lease
provides for an annual rent of approximately $40,000. We also lease an aggregate
of 1,000 square feet in Marietta, Georgia for our second retail location. The
lease for this space, which ends on December 31, 2000, provides for an annual
rent of approximately $12,000.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business.
Gary German v. StupidPC, Inc., Superior Court of Gwinnett County Civil
Action File No. 99-A-5697-4. Gary German was one of our co-founders, and is a
former officer, director and shareholder. Mr. German also entered into a stock
option agreement with us, entitling him to exercise an additional 750,000 shares
of our stock under certain conditions. Later, pursuant to a Stock Repurchase
Contract dated April 10, 1998, we repurchased 2,280,000 shares of our stock from
him for $6,000 and Mr. German resigned his position as our Chief Executive
Officer. After the repurchase, Mr. German still held 270,000 shares and remained
on our board of directors until his removal in May 1998.
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<PAGE> 31
The dispute concerns whether Mr. German is still entitled to exercise
750,000 stock options that were available to him in the stock option agreement.
Paragraph 6 of the stock option agreement provides that Mr. German's options
shall terminate once he ceases his continuous status (as defined).
Mr. German filed suit seeking to recover the options and attorneys'
fees. We answered and filed a counterclaim, alleging independent claims against
Mr. German for misappropriation of our assets, conversion, breach of fiduciary
duty and injury to our name and business reputation. We seek to recover damages
based on these claims as well as attorneys' fees. At this point we are unable to
conclude that an unfavorable result is either probable or remote.
We are not a party to any other material legal proceedings.
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<PAGE> 32
MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen B. Brannon...................... 38 President, Chief Executive Officer and Director
</TABLE>
Stephen B. Brannon, one of our founders, has since June 1997 served as
our President and Chief Executive Officer. From August 1995 until December 1997,
he served as the President of 3rd Wave Technologies, Inc., a regional computer
distribution company. From May 1993 to August 1995, he was the Director of Sales
and Marketing for Krowten Distribution. From August 1991 to April 1993, he was
the Vice President Sales and Marketing for Computrak Distributors. From January
1985 to May 1991, he served as the Area Sales Manager for Americom Distributors.
From January 1984 to December 1984, he was the Systems Support Manager for
American Micro Distributors.
Other than Mr. Brannon, we have no other executive officers or
directors. Our directors serve one-year terms until elections are held at each
annual meeting of shareholders. Our board of directors elects executive officers
on an annual basis. Executive officers hold their offices until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. There are no family relationships among any of our executive officers
or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
There are currently no committees of our board of directors.
EXECUTIVE COMPENSATION
The following table provides all compensation awarded to, earned by or
paid for services rendered to us in all capacities during the fiscal year ended
December 31, 1998 by our Chief Executive Officer, Stephen B. Brannon.
We did not grant Mr. Brannon any options in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING ALL OTHER
- --------------------------- SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
-------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen B. Brannon ...................... $50,000 -- -- 2,303,080(1) --
President and Chief Executive Officer
</TABLE>
- --------------------------
(1) For more information, see footnote number 1 in "Principal and Selling
Shareholders."
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<PAGE> 33
EMPLOYMENT AGREEMENTS
Mr. Brannon does not have an employment agreement with us.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Our articles of incorporation provide that no director shall be
personally liable to us or any of our shareholders for any breach of the duties
of such position, except that such elimination of liability does not apply to:
- appropriations of business opportunities in violation of such
director's duties;
- knowing or intentional misconduct or violation of law;
- liability for assent to distributions which are illegal or
improper under the Georgia Code or our articles; and
- liability for any transaction in which an improper personal
benefit is derived.
In addition, our articles state that if the Georgia Business
Corporation Code is ever amended to allow for greater exculpation of directors
than presently permitted, the directors will be relieved from liabilities to the
fullest extent provided by the Georgia Code, as so amended. No further action by
the board of directors or our shareholders is required, unless the Georgia Code
provides otherwise. No modification or repeal of this provision will adversely
affect the elimination or reduction in liability provided by it with respect to
any alleged act occurring before the effective date of such modification or
repeal.
We have entered into indemnification agreements with each of our
directors and certain of our officers that provide these individuals with
similar rights to indemnification and contribution.
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<PAGE> 34
PRINCIPAL AND SELLING SHAREHOLDERS
As of September 13, 1999, there were approximately 48 record holders of
our common stock. The following table sets forth certain information with
respect to the beneficial ownership of our outstanding common stock as of the
date of this prospectus by:
- each person or entity known by us to be the beneficial owner
of more than 5% of the outstanding shares of common stock;
- each director and each of our named executive officers; and
- our directors and executive officers as a group.
The following table has been prepared assuming that our 8% debentures have not
been converted into common stock.
Except as indicated, each shareholder's address is in care of StupidPC
at 3010-E Business Park Drive, Norcross, Georgia 30071 The right to acquire
column in the table reflects all shares of common stock that each individual has
the right to acquire through the exercise of options or warrants within 60 days
of the date of this prospectus. Under SEC rules, options or warrants in the
Right to Acquire column are deemed to be outstanding and to be beneficially
owned by the person or group holding such options or warrants when computing the
percentage ownership of that person or group, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person or
group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER SHARES OWNED RIGHT TO ACQUIRE BENEFICIALLY OWNED
- --------------------------- ------------ ---------------- -----------------------------
<S> <C> <C> <C>
Stephen B. Brannon.......................... 3,208,525 2,303,080(1) 67.6%
Donald H. Sigler(2)......................... 848,521 -- 14.5
Gary L. German(3)........................... 268,017 190,880(4) 7.6
River Rapids, Ltd. (5)...................... -- 307,828 5.0
PC-U, Inc.(5)............................... -- 307,828 5.0
All directors and executive officers
as a group (1 person)....................... 3,208,525 2,303,080 67.6%
</TABLE>
- ---------------------------
(1) Includes (i) options to purchase 1,802,757 shares of common stock from
StupidPC that are currently exercisable at $0.20 per share, (ii) options to
purchase 340,073 shares of common stock from a current shareholder for a
one-year period ending on December 14, 1999 at $1.50 per share and (iii)
options to purchase 160,250 shares of common stock from another shareholder
for a one-year period ending on December 14, 1999 at a price ranging from
$1.50 to $2.25 per share.
(2) Mr. Sigler's address is 3243 Dunlap Drive, Gainesville, Georgia 30506.
(3) Mr. German's address is 1215 Hopewell Crest, Alpharetta, Georgia 30022.
(4) Represents options that are currently exercisable at $0.20 per share.
(5) Represents options to purchase shares of common stock from a current
shareholder for a one-year period ending on December 14, 1999 at $1.50 per
share. Such shareholders' address is 4 Piedmont Center, Suite 200, Atlanta,
Georgia 30305.
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<PAGE> 35
The following table sets forth the names of the selling
securityholders, the number of shares of common stock beneficially owned by each
selling securityholder as of the date of this prospectus, and the number of
shares that each may offer, and the number of shares of common stock
beneficially owned by each selling securityholder upon completion of the
offering, assuming all of the shares offered are sold. The number of shares sold
by each selling securityholder may depend upon a number of factors, including,
among other things, the market price of the common stock. None of the selling
securityholders has, or within the past three years has had, any position,
office or other material relationship with us or any of our predecessors or
affiliates.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING (1) OFFERING(1) AFTER CLOSING
------------------- ----------- -------------
NAME OF SELLING
SECURITYHOLDER NUMBER PERCENT(2) NUMBER NUMBER PERCENT
- -------------- ------ ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
AMRO International, S.A.(3) 660,000(4) 9.2% 660,000 0 --
Esquire Trade & Finance, Inc. 275,000(4) 3.8% 275,000 0 --
Austinvest Anstalt Balzers 275,000(4) 3.8% 275,000 0 --
Minerva Asset Management, Ltd. 55,000(4) * 55,000 0 --
Scott Financial, Ltd. 55,000(4) * 55,000 0 --
First Atlanta Securities, LLC 100,000(5) 1.4% 100,000 0 --
</TABLE>
- ---------------------------
* Represents less than 1%
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of computing the percentage
of outstanding shares held by each selling securityholder, any security which
such person has the right to acquire within 60 days after such date is deemed to
be outstanding for the purpose of computing the percentage ownership for such
person, but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Except as otherwise stated, calculated based upon 7,153,516 shares of common
stock outstanding, and assumes that all debentures will be converted at a
conversion price of $1.00 per share. The actual conversion price will be the
lower of 80% of market price or $6.25 per share, which would have been $4.21 as
of September 13, 1999.
(3) The address of the principal business office of the selling securityholder
is c/o Ultra Finanz AG, Grossmensterplatz 6, Zurich CH-8022, Switzerland.
(4) Represents the maximum number of shares into which the debentures may be
converted, based upon an assumed conversion price of $1.00 per share and upon
the exercise of warrants at an exercise price of $5.50 per share. The debentures
are not convertible for any number of shares of common stock in excess of that
number which would render a selling securityholder the beneficial owner of more
than 9.9% of the then issued and outstanding shares of common stock.
(5) Represents shares that may be acquired upon the exercise of warrants at an
exercise price of $5.50 per share.
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<PAGE> 36
We are registering the shares for resale by the selling securityholders
in accordance with registration rights granted to the selling securityholders.
We will pay the registration and filing fees, printing expenses, listing fees,
blue sky fees, if any, and fees and disbursements of our counsel in connection
with this offering, but the selling securityholders will pay any underwriting
discounts, selling commissions and similar expenses relating to the sale of the
shares, as well as the fees and expenses of their counsel. In addition, we have
agreed to indemnify the selling securityholders, underwriters who may be
selected by the selling securityholders and certain affiliated parties, against
certain liabilities, including liabilities under the Securities Act, in
connection with the offering. The selling securityholders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares against certain liabilities, including liabilities under the
Securities Act. The selling securityholders have agreed to indemnify us and our
directors and officers, as well as any person controlling the company, against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities under the Securities Act may be permitted to our
directors or officers, or persons controlling the company, we have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
A special meeting of our shareholders has been called for September 23,
1999 to approve and adopt revised and restated articles of incorporation and
bylaws that will reflect what is described in this section of the prospectus.
Our authorized capital stock consists of 95,000,000 shares of common stock and
5,000,000 shares of preferred stock. As of the date of this prospectus, 1999,
5,853,516 shares of common stock were outstanding, excluding 451,458 shares held
in escrow pending the outcome of certain litigation, held of record by
approximately 48 shareholders, and no shares of preferred stock were
outstanding. See "Business - Legal Proceedings" and note G to the financial
statements.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record for matters on which they are entitled to vote. There are no
sinking fund provisions or any cumulative voting, preemptive, redemption or
conversion rights applicable to the common stock. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of holders of any shares of the Series A preferred stock
and of any other series of preferred stock that our board of directors may
designate from time to time in the future. Subject to the preference rights of
the holders of any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends and other distributions, if
any, as the board of directors may declare out of funds legally available for
that purpose. Subject to the rights of the holders of any outstanding shares of
preferred stock, on the liquidation, dissolution or winding up of StupidPC,
holders of common stock are entitled to share ratably in all assets of StupidPC
after the payment of its debts and other liabilities, subject to the rights of
holders of preferred stock. The outstanding shares of common stock are fully
paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority under our articles of
incorporation, without the approval of or any action by the shareholders, to
issue up to 5,000,000 shares of preferred stock in such series and with such
preferences, powers, limitations and relative rights as the board of directors
may determine from time to time. The terms of the voting, conversion, dividend,
liquidation, preemptive and redemption rights and preferences, and other
qualifications, powers and privileges conferred upon the holders of any
preferred stock, may be more favorable than those granted to holders of common
stock. The designation of any preferred stock with greater rights, privileges
and preferences than those applicable to the common stock may adversely affect
the voting power, market price and other rights and privileges of the common
stock, and may hinder or delay the removal of directors, attempted tender
offers, proxy contests or takeovers, or other attempts to change control of
StupidPC, some or all of which the holders of common stock may desire.
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<PAGE> 38
8% CONVERTIBLE DEBENTURES
In July 1999 we sold $1.2 million of our 8% convertible debentures to
five of the selling securityholders. These debentures carry an interest rate of
8% per year and are due on June 30, 2001. Interest is payable at our option in
cash or in shares of our common stock. At any time, the selling securityholders
may convert the debentures into shares of our common stock. The conversion price
is equal to the lesser of 80% of the market price of our common stock on the
conversion date or $6.25. The market price is determined by taking the average
of the three lowest closing bid prices of our common stock during the 10 trading
day period ending on the day prior to the date of determination. In the event
that the conversion price is less than $2.00 per share, we have the option to
give the holder wishing to convert either cash, shares or a combination of the
two. We are subject to certain cash penalties in the event that we delay the
issuance of a stock certificate beyond four days of the date of notice of the
conversion. In addition, if we refuse or reject a notice of conversion or we are
prevented from honoring a conversion notice under certain circumstances by a
court, we are required to redeem the debentures for 130% of the outstanding
principal amount, including all accrued and unpaid interest.
As part of the sale of the debentures, the selling securityholders
received warrants to purchase up 120,000 shares of our common stock. The
exercise price of these warrants is $5.50 per share. The warrants are
immediately exercisable and expire on July 30, 2002.
CERTAIN PROVISIONS OF OUR BYLAWS AND GEORGIA LAW
Number, Term and Removal of Directors. Our bylaws provide that the
number of directors is set by resolution of the board of directors in accordance
with our bylaws. Currently, we have one director. Upon a vacancy created in the
board of directors, a successor or new director may be appointed by the
affirmative vote of a majority of the directors then in office.
Special Shareholder Meetings. Our bylaws provide that special meetings
of shareholders or a class or series of shareholders may be called at any time
by the board of directors, the chairman of the board or our chief executive
officer, and that such meetings shall be called upon the written request of the
holders of shares representing at least 25% of the votes entitled to be cast on
each issue presented at such meeting.
Georgia Anti-Takeover Statutes. Some provisions of the Georgia Business
Corporation Code may be considered to have anti-takeover effects and may hinder,
delay, deter or prevent a tender offer, proxy contest or other attempted
takeover that a shareholder may deem to be in his best interest. Those
provisions might allow the board of directors to defend against an attempted
transaction that might otherwise result in payment of a premium over the market
price for shares the shareholder holds.
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REGISTRATION RIGHTS
After an initial public offering of our stock, one holder of options to
purchase 50,000 shares of common stock and common stock is entitled to certain
piggyback rights concerning the registration of their shares under the
Securities Act.
In this instance, we must notify this holder of our intent to register
common stock under the Securities Act and allow him an opportunity to include
his shares of common stock in our registration. These registration rights are
subject to certain limitations and restrictions, including the right of the
underwriters to limit the number of shares offered in a registration if an
underwriter determines that the number of shares requested to be registered
cannot be underwritten. We are generally required to bear all of the expenses of
all registrations under these agreements, except underwriting discounts and
commissions. We are also obligated to indemnify the holder whose shares are
included in any of our registrations against certain losses and liabilities,
including liabilities under the Securities Act and state securities laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Holladay Stock
Transfer, Inc., Phoenix, Arizona.
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<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market could
adversely affect the market price of the common stock and adversely affect our
ability to raise capital at times and on terms favorable to us. Of the 7,153,516
shares outstanding as of the date of this prospectus, including shares to be
issued on the conversion of the debentures and exercise of the warrants granted
with such debentures, but excluding 451,458 shares held in escrow pending the
outcome of certain litigation, the 1,420,000 shares of common stock offered by
this prospectus and an additional 513,098 shares of common stock will be freely
tradeable without restriction in the public market unless such shares are held
by "affiliates." See "Business - Legal Proceeding" and note G to the financial
statements. An "affiliate" of an issuer is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such issuer.
The remaining shares of common stock to be outstanding after the
offering are "restricted securities" under the Securities Act of 1933 and may be
sold in the public market upon the expiration of certain holding periods under
Rule 144, subject to the volume, manner of sale and other limitations. In
general, under Rule 144 as currently in effect, a person who has beneficially
owned shares for at least one year, including an "affiliate," as that term is
defined in the Securities Act, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
- one percent of the then outstanding shares of our common
stock (approximately 58,535 shares immediately following the
offering), or
- (if our common stock trades on the Nasdaq Stock Market or
other stock exchange) the average weekly trading volume
during the four calendar weeks preceding filing of notice of
such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A shareholder who is deemed not to have been an
"affiliate" of ours at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least two years, would be entitled
to sell shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions or public information requirements.
We cannot estimate the number of shares that will be sold under Rule
144, since this will depend on the market price of our common stock, the
personal circumstances of the sellers and other factors. A limited public market
for our common stock exists, but we cannot assure you that a significant public
market for the common stock will develop or be sustained. Any future sale of
substantial amounts of the common stock in the open market may adversely affect
the market price of the common stock.
Any employee or consultant of StupidPC who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and which permits affiliates
to sell their Rule 701 shares without having to comply with the Rule 144
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<PAGE> 41
holding period restrictions. In either case, sales may be made under Rule 701
beginning 90 days after the date of this prospectus.
In addition, some shareholders have registration rights with respect to
their shares of common stock and common stock equivalents. See "Description of
Capital Stock -- Registration Rights" and "Risk Factors -- We may have
substantial sales of our common stock after the offering."
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<PAGE> 42
PLAN OF DISTRIBUTION
The selling securityholders (or, subject to applicable law,
their pledgees, donees, distributees, transferees or other successors in
interest) may sell shares from time to time in public transactions, on or off
the Nasdaq over-the-counter bulletin board, or private transactions, at
prevailing market prices or at privately negotiated prices, including but not
limited to the following types of transactions:
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus; and
- face-to-face transactions between sellers and purchasers
without a broker-dealer.
In effecting sales, brokers or dealers engaged by the selling
securityholders may arrange for other brokers or dealers to participate in the
resales. The selling securityholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling securityholders also may enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of the shares, which the broker-dealer may resell pursuant
to this prospectus. The selling securityholders also may pledge the shares to a
broker or dealer and upon a default, the broker or dealer may effect sales of
the pledged shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling securityholders in amounts to
be negotiated in connection with the sale. The selling securityholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters who may be selected by the
selling securityholders, or any other broker-dealer, are acting as principal or
agent for the selling securityholders, the compensation to be received by
underwriters who may be selected by the selling securityholders, or any
broker-dealer, acting as principal or agent for the selling securityholders and
the compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
prospectus. Any dealer or broker participating in any distribution of the shares
may be required to deliver a copy of this prospectus, including a prospectus
supplement, if any, to any person who purchases any of the shares from or
through such dealer or broker.
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<PAGE> 43
We have advised the selling securityholders that during such time as
they may be engaged in a distribution of the shares they are required to comply
with Regulation M promulgated under the Securities Exchange Act of 1934. With
certain exceptions, Regulation M precludes any selling securityholder, any
affiliated purchasers and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the common stock.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for StupidPC by Red Hot Law Group of Ashley LLC, Atlanta, Georgia.
EXPERTS
The financial statements included in this prospectus, to the extent and
for the periods indicated in their reports, have been audited by Grant Thornton
LLP, independent public accountants, as indicated in their reports with respect
to the financial statements. These financial statements and the information
derived from the report referenced in them are included in this prospectus in
reliance upon the authority of Grant Thornton LLP as an expert in giving these
kinds of reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits thereto. Statements contained in this
prospectus about any contract or other document referred to are not necessarily
complete, and in each instance where a copy of such contract or other document
has been filed as an exhibit to the registration statement, reference is made to
the copy so filed, each such statement being qualified in all respects by such
reference. A copy of the registration statement and the exhibits thereto may be
inspected without charge at the Public Reference Room of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; and copies of
all or any part of the registration statement may be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, upon payment of the fees prescribed by the SEC. The SEC also
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements, and registration statements and other information
electronically filed with the SEC.
42
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF SHAREHOLDERS' DEFICIT F-6
STATEMENTS OF CASH FLOWS F-7
NOTES TO FINANCIAL STATEMENTS F-9
</TABLE>
F-1
<PAGE> 45
Report of Independent Certified Public Accountants
Board of Directors
StupidPC, Inc.
We have audited the balance sheet of StupidPC, Inc. as of December 31,
1998, and the related statements of operations, shareholders' equity, and cash
flows for the year ended December 31, 1998 and the seventeen weeks (from
commencement of operations) ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 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 StupidPC, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the seventeen weeks ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has experienced net losses of $436,387 and
$172,259 for the year ended December 31, 1998 and the seventeen weeks ended
December 31, 1997, respectively. Additionally, the Company's current liabilities
exceeded its current assets by $516,691 and the Company had a shareholders'
deficit of $473,146 at December 31, 1998. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note C. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 19, 1999 (except for Note K,
as to which the date is July 31, 1999)
F-2
<PAGE> 46
StupidPC, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 June 30,
1998 1999
----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 72,540 $ 6,803
Trade accounts receivable, less allowance of $5,115 122,616 167,088
Inventories 213,247 218,260
Prepaid expenses and other current assets 840 840
--------- ---------
Total current assets 409,243 392,991
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 32,878 43,648
Vehicles 43,002 43,002
--------- ---------
75,880 86,650
Less accumulated depreciation (8,835) (17,093)
--------- ---------
Net property and equipment 67,045 69,557
OTHER ASSETS
Deposits 2,985 3,287
--------- ---------
$ 479,273 $ 465,835
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 47
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- ---------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 6,715 $ 7,321
Notes payable -- 100,873
Trade accounts payable 723,551 583,150
Accrued expenses 195,668 225,048
--------- ---------
Total current liabilities 925,934 916,392
COMMITMENTS AND CONTINGENCIES (Note G) -- --
LONG-TERM DEBT, net of current maturities 26,485 22,921
SHAREHOLDERS' DEFICIT
Capital stock (Note J) -- --
Additional paid-in capital 135,500 393,340
Accumulated deficit (608,646) (866,818)
--------- ---------
Total shareholders' deficit (473,146) (473,478)
--------- ---------
$ 479,273 $ 465,835
========= =========
</TABLE>
F-4
<PAGE> 48
StupidPC, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seventeen Six months
Year ended weeks ended ended June 30,
December 31, December 31, -------------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Product sales $ 4,034,002 $ 1,441,401 $ 1,843,654 $ 1,998,545
----------- ----------- ----------- -----------
Costs and expenses
Cost of product sales 3,623,688 1,359,858 1,523,006 1,779,619
Selling, general and
administrative 841,169 253,939 578,087 356,697
----------- ----------- ----------- -----------
4,464,857 1,613,797 2,101,093 2,136,316
----------- ----------- ----------- -----------
Loss from Operations (430,855) (172,396) (257,439) (137,771)
Other income (expense)
Interest and financing costs (6,293) -- (898) (483)
Other 761 137 165 550
----------- ----------- ----------- -----------
Net loss before
income taxes (436,387) (172,259) (258,172) (137,704)
Income tax expense (benefit) -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (436,387) $ (172,259) $ (258,172) $ (137,704)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.12) $ (0.05) $ (0.04) $ (0.04)
=========== =========== =========== ===========
Diluted $ (0.12) $ (0.05) $ (0.04) $ (0.04)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 49
StupidPC, Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the year ended December 31, 1998 and the
seventeen weeks ended December 31, 1997
<TABLE>
<CAPTION>
Additional
Number of paid-in Accumulated
shares capital deficit Total
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, September 1, 1997
(commencement of operations) 3,358,000 $ 500 $ -- $ 500
Net loss for the year -- -- (172,259) (172,259)
--------- -------- --------- ---------
Balance, December 31, 1997 3,358,000 500 (172,259) (171,759)
Merger with World Net Holdings, Inc. 642,000 -- -- --
Conversion of World Net
Holdings, Inc. stock on a
1 for 1 basis 1,489,250 -- -- --
Issuance of common shares
for consulting related to the merger 500,000 -- -- --
Issuance of common shares for
private placement 75,000 135,000 -- 135,000
Net loss for the year -- -- (436,387) (436,387)
--------- -------- --------- ---------
Balance, December 31, 1998 6,064,250 $135,500 $(608,646) $(473,146)
========= ======== ========= =========
</TABLE>
F-6
<PAGE> 50
StupidPC, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seventeen Six months
Year ended weeks ended ended June 30,
December 31, December 31, ---------------------------
1998 1997 1999 1998
------------ ------------ --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(436,387) $(172,259) $(170,333) $(137,704)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation 7,213 4,782 8,258 5,728
Provision for doubtful accounts
receivable 5,115 -- -- --
Loss on trade-in of property
and equipment 2,251 -- -- --
Common stock issued to employees -- -- 87,840 --
Change in assets and liabilities:
Accounts receivable 10,631 (138,362) (44,472) (13,049)
Inventories (124,031) (89,216) (5,013) (100,956)
Prepaid expenses and other
current assets (840) -- -- (7,000)
Other assets (550) (2,435) (302) --
Trade accounts payable 216,661 506,890 (140,401) 78,153
Accrued expenses 168,012 27,656 29,380 49,255
--------- --------- --------- ---------
Net cash (used in) provided by
operating activities (151,925) 137,056 (322,882) (125,573)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (56,262) (25,029) (10,770) --
--------- --------- --------- ---------
Net cash used in investing
activities (56,262) (25,029) (10,770) --
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 33,200 14,000 -- --
Repayment of long-term debt (14,000) -- (2,958) (954)
Proceeds from notes payable -- -- 100,873 --
Proceeds from issuance of common
stock 135,000 500 170,000 --
--------- --------- --------- ---------
Net cash provided by financing
activities 154,200 14,500 267,915 (954)
--------- --------- --------- ---------
</TABLE>
F-7
<PAGE> 51
StupidPC, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Seventeen Six months
Year ended weeks ended ended June 30,
December 31, December 31, ----------------------------
1998 1997 1999 1998
------------ ------------ -------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and
short-term investments (53,987) 126,527 (65,737) (126,527)
Cash and short-term investments
at beginning of year 126,527 -- 72,540 126,527
--------- -------- -------- ---------
Cash and short-term investments
at end of year $ 72,540 $126,527 $ 6,803 $ --
========= ======== ======== =========
Supplementary Cash Flow Disclosures
Interest paid $ 1,044 $ -- $ 898 $ 483
Income taxes paid $ 840 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 52
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
StupidPC, Inc. was incorporated in Georgia in May, 1997 and commenced
operations on September 1, 1997. Effective December 14, 1998, StupidPC,
Inc. ("Company") completed a merger with and into World Net Holdings,
Inc. The merger is in effect a reverse acquisition and is accounted for
as a recapitalization of StupidPC, Inc. with StupidPC, Inc. as the
acquirer (see Note D). Effective December 14, 1998, the name of World
Net Holdings, Inc. was changed to StupidPC, Inc. with the Certificate
of Incorporation being duly amended to reflect the change of name.
StupidPC, Inc. assembles personal computer systems for consumers and
small office users in the Atlanta, Georgia market. The Company also
operates computer retail stores predominantly in the Atlanta, Georgia
market.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make certain
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Revenue Recognition
Revenue from product sales of computer systems and related hardware is
recognized upon shipment.
3. Cash and Short-Term Investments
For purposes of reporting cash flows, cash and short-term investments
include cash on hand, cash in banks and short-term investments with
original maturities of less than 90 days. The Company had cash in an
escrow account of $6,275 held by a third party at December 31, 1998.
The escrow account is used to pay professional fees incurred in
conjunction with the private placement offering.
F-9
<PAGE> 53
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method. Inventories consist primarily
of spare parts and computer components.
5. Property, Equipment, and Depreciation
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives on a
straight-line basis. Depreciation expense related to property and
equipment charged to operations was $7,213 and $4,782 for 1998 and
1997, respectively. Estimated services lives are as follows:
<TABLE>
<S> <C>
Office furniture and equipment 5 years
Vehicles 5 years
</TABLE>
6. Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates applied to taxable
income. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided for deferred tax
assets when it is more likely than not that the asset will not be
realized (Note E).
7. Advertising
The Company expenses the cost of advertising as incurred. Advertising
expense was approximately $124,000 and $97,000 for the year ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively.
F-10
<PAGE> 54
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Loss Per Share
Basic net loss per common share is based upon the weighted average
number of common shares outstanding during the period. Diluted net loss
per common share is based upon the weighted average number of common
shares outstanding plus dilutive potential common shares, including
options and warrants outstanding during the period.
Although the agreement called for 4,000,000 shares to be issued at the
time of the reverse acquisition, the transfer agent is holding 451,458
of these shares in escrow pending the outcome of certain litigation
(see Note G). For purposes of loss per share calculations, these shares
are considered as issued on the effective date of the reverse
acquisition.
9. Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents
and long-term debt. The carrying value of cash and cash equivalents
approximates fair value due to the relatively short period to maturity
of the instruments. The carrying amount of the Company's long-term debt
approximates fair value based on borrowing rates currently available to
the Company for borrowings with comparable terms and conditions.
NOTE C - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has sustained a net loss of $436,387 and $172,259 for the year ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively. In addition, at December 31, 1998, the Company's current
liabilities exceeded its current assets by $516,691 and the Company has
used, rather than provided, cash in its operations for the year ended
December 31, 1998.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown
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 on a continuing
basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
F-11
<PAGE> 55
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE C - REALIZATION OF ASSETS - Continued
In response to the matters described in the preceding paragraphs,
management is pursuing additional equity financing. Management believes
that this additional financing will allow the Company to rigorously
pursue its expansion efforts in the upcoming year and that this
expansion will strengthen the Company's cash flow position to provide
the Company with the ability to continue in existence. On July 31,
1999, the Company received $1,067,500 in proceeds from the issuance of
convertible debentures (see Note K).
NOTE D - MERGER
Effective December 14, 1998, StupidPC, Inc. ("Company") completed a
merger with and into World Net Holdings, Inc. The merger is in effect a
reverse acquisition and is accounted for as a recapitalization of
StupidPC, Inc. with StupidPC, Inc. as the acquirer. The merger was
effected by World Net Holdings, Inc. issuing 4,000,000 common shares
for all of the outstanding common shares of StupidPC, Inc. In addition,
the shareholders of StupidPC, Inc. were granted 2,000,000 options to
purchase common stock of the Company at $0.20 per share. These options
vested immediately upon the merger and were granted to shareholders in
proportion to their original ownership in StupidPC, Inc. The options
expire in November 2003. At the date of the merger, StupidPC, Inc. had
3,358,000 common shares issued and outstanding. StupidPC, Inc. and
World Net Holdings, Inc. executed the merger transaction as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue code of 1986, as amended. StupidPC, Inc. and World Net
Holdings, Inc. did not recognize any gain or loss as a result of the
merger. Effective December 14, 1998, the name of World Net Holdings,
Inc. was changed to StupidPC, Inc. with the Certificate of
Incorporation being duly amended to reflect the change of name. Also,
for consulting services regarding the merger, the Company issued fifty
thousand warrants to purchase the Company's common stock at $3.00 per
share. These warrants expire in May 2009.
F-12
<PAGE> 56
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE E - INCOME TAXES
The Company's temporary differences result in a net deferred income tax asset
which is reduced to zero by a related valuation allowance at December 31,
1998 summarized as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 223,324
Allowance for doubtful accounts 1,969
----------
Gross deferred tax asset 225,293
Deferred tax asset valuation allowance (225,293)
----------
Net deferred tax asset $ -
==========
</TABLE>
At December 31, 1998 the Company had operating loss carryforwards for income
tax purposes of approximately $580,000 available to reduce future taxable
income which expires as follows:
<TABLE>
<CAPTION>
Year Net Operating Loss
---- ------------------
<S> <C>
2012 $ 172,000
2013 408,000
</TABLE>
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Note Payable with a bank, payable in monthly
installments of $385 with the final payment
due January 1, 2003. Interest is paid
monthly at an interest rate of 8.25%. The
note is collateralized by a vehicle. $ 15,600
Note Payable with a bank, payable in monthly
installments of $433 with the final payment
due January 1, 2003. Interest is paid monthly
at an interest rate of 8.25%. The note is
collateralized by a vehicle. 17,600
------------
33,200
Less current portion 6,715
------------
$ 26,485
============
</TABLE>
F-13
<PAGE> 57
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - LONG-TERM DEBT - Continued
Future maturities of long-term debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1999 $ 6,715
2000 7,927
2001 8,606
2002 9,344
2003 608
-------
$33,200
=======
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases space and office equipment under noncancelable
leases which expire at various dates through December 2001. Approximate
minimum lease payments under the leases are as follows: 1999, $37,000;
2000, $4,000; 2001, $3,000.
Rent expense was approximately $30,000 and $7,000 for the years ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively.
Litigation
The Company is involved in a lawsuit where the plaintiff is alleging
ownership of certain shares of StupidPC, Inc. prior to the merger. The
Company's transfer agent is holding these shares in escrow pending the
outcome of the lawsuit. Based on the outcome of this lawsuit, all of
these shares will be issued, either to the plaintiff in the lawsuit or
to the original shareholders of StupidPC, Inc. in proportion to their
ownership prior to the merger.
The Company has also received a claim by a former director to alleged
entitlement to the exercise of 750,000 options on common stock at a
nominal exercise price. Management of the Company believes it has an
adequate defense to this claim, but if it is resolved unfavorably to
the Company, it could result in the exercise of these options and the
issuance of these shares of common stock.
The Company is also involved in various claims and legal actions. In
the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial
position or results of operations.
F-14
<PAGE> 58
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE H - PRIVATE PLACEMENT OFFERINGS
During 1998, the Company entered into an agreement to sell up to
200,000 common shares at $1.80 per share in a private placement
offering. At December 31, 1998, 75,000 shares have been sold and the
Company has received $135,000 in proceeds. Subsequent to year end an
additional 50,000 of common shares were sold at $1.80 resulting in net
proceeds of $90,000. Also subsequent to year end, an additional 40,000
common shares were sold at $2.00 resulting in additional proceeds of
$80,000.
NOTE I - NET LOSS PER SHARE
Loss per common share was computed as follows:
<TABLE>
<CAPTION>
Seventeen Six months
Year ended weeks ended ended June 30,
December 31, December 31, -------------------------------
1998 1997 1999 1998
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
Numerator for basic and diluted
loss per share - net loss $ (436,387) $ (172,259) $ (258,172) $ (137,704)
========== ========== ========== ==========
Denominator for basic loss per
share - weighted average shares 3,756,273 3,358,000 6,190,250 3,358,000
Effect of dilutive stock options
and warrants -- -- -- --
---------- ---------- ---------- ----------
Denominator for diluted loss per
share - adjusted weighted
average shares 3,756,273 3,358,000 6,190,250 3,358,000
========== ========== ========== ==========
Basic loss per share $ (0.12) $ (0.05) $ (0.04) $ (0.04)
========== ========== ========== ==========
Diluted loss per share $ (0.12) $ (0.05) $ (0.04) $ (0.04)
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 59
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE J - CAPITAL STOCK
At December 31, 1998, the company has the following classes of capital
stock:
Common stock - authorized 30,000,000 shares of no par value with
6,064,250 shares issued and outstanding.
Class B common stock - authorized 10,000,000 shares of no par value
with no shares issued and outstanding.
Class C common stock - authorized 20,000,000 shares of no par value
with no shares issued and outstanding.
Preferred stock - authorized 20,100,000 shares of no par value with
no shares issued and outstanding.
NOTE K - SUBSEQUENT EVENT
On July 31, 1999, the Company issued $1,200,000 of 8% Convertible
Debentures due June 30, 2001 (the "Debentures"), the proceeds of which
are being utilized for working capital purposes. Proceeds were
$1,200,000, less debt issuance costs of $132,500. In addition, the
company issued 120,000 common stock purchase warrants to the holders of
the Debentures. The warrants, which expire on July 30, 2002, entitle
the holder to purchase one common share of the common stock of the
company at the price of $5.50. The Debentures are convertible into
shares of common stock of the Company at the lesser of (i) $6.25 per
share or (ii) 80% of the market price of the common stock at the
conversion date.
F-16
<PAGE> 60
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Georgia Business Corporation Code permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of duty of care or other duty
as a director, provided that a corporation cannot eliminate or limit the
liability of a director for:
- an appropriation, in violation of his duties, of any business
opportunity of the corporation;
- acts or omissions which involve intentional misconduct or a
knowing violation of law;
- unlawful corporate distributions; or
- any transaction from which the director received an improper
personal benefit.
This provision relates only to breaches of duty by directors in their
capacity as directors, and not in any other corporate capacity, such as
officers. It limits liability only for breaches of fiduciary duties under the
Georgia Code, and not for violation of other laws, such as the federal
securities laws. Our articles of incorporation exonerate our directors from
monetary liability to the extent described above.
In addition to the rights provided by law, our bylaws provide broad
indemnification rights to our directors and the officers, employees and agents
as the directors may select, with respect to various civil and criminal
liabilities and losses that may be incurred by the director, officer, agent or
employee in any pending or threatened litigation or other proceedings. This
indemnification does not apply in the same situations described above with
respect to the exculpation from liability of our directors. We are also
obligated to reimburse such directors and other parties for expenses, including
legal fees, court costs and expert witness fees, incurred by those persons in
defending against any of these liabilities and losses, as long as the person in
good faith believes that he or she acted in accordance with the applicable
standard of conduct with respect to the underlying accusations giving rise to
such liabilities or losses and agrees to repay to us any advances made under the
bylaws. Any amendment or other modification to the bylaws which limits or
otherwise adversely affects the rights to indemnification currently provided in
the bylaws shall apply only to proceedings based upon actions and events
occurring after such amendment and delivery of notice of it to the indemnified
parties.
We believe that the above protections are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to these provisions, or otherwise, the SEC has advised us that in its opinion
such indemnification provisions described is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or
II-1
<PAGE> 61
paid by our director, officer or controlling person in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
our indemnification is against public policy as expressed in the Securities
Act, and we will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering described in the registration statement. All amounts are estimates
except the SEC registration fee, the NASD fees and the Nasdaq listing fees:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ............ $ 2,024.40
Printing and engraving expenses.. 2,000.00
Legal fees and expenses ......... 75,000.00
Accounting fees and expenses .... 25,000.00
Transfer agent fees ............. 2,500.00
Miscellaneous expenses .......... 1,000.00
--------------
Total ..................... $ 107,524.40
==============
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From November 1997 to February 1998, StupidPC sold 9,000 shares of
common stock at $2.50 per share to four investors for a total amount of $22,500.
In October 1998, World Net sold 75,000 shares of common stock at $1.80
per share for a total of $135,000. Subsequent to year end an additional 50,000
of common shares were sold at $1.80 resulting in net proceeds of $90,000.
In December 1998, StupidPC issued 3,559,265 shares of common stock in
exchange for the shares held by its shareholders before the share exchange with
World Net Holdings.
In March 1999, StupidPC granted thirty 36,000 shares of common stock
to eight employees. Also in February, StupidPC sold 40,000 shares of common
stock at $2.00 per share to two investors.
In July 1999, the StupidPC issued $1,200,000 of 8% convertible
debentures due June 30, 2001. In addition, the company issued an aggregate of
220,000 common stock purchase warrants to the holders of the debentures and to a
broker of the debenture transaction.
Each issuance of securities described above was made in reliance on one
or more of the exemptions from registration provided by Sections 3(b), 4(2) and
4(6) of the Securities Act and Regulation D, as promulgated by the SEC pursuant
to the Securities Act. Recipients of securities in these transactions
represented their intention to acquire the securities for investment purposes
II-2
<PAGE> 62
only and not with a view to or for the sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates issued
in such transactions. All recipients of these securities had adequate access,
through their relationships with us, to information about us.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Amended Agreement and Plan of Share Exchange, dated November
12, 1998, by and between StupidPC, Inc., World Net Holdings,
Inc., Bart Brannon, Donald H. Sigler, Herb Harris, River
Rapids, Ltd.
and PC-U, Inc.
3.1 Revised and Restated Articles of Incorporation of StupidPC, Inc.
3.2 Revised and Restated Bylaws of StupidPC, Inc.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and the Bylaws defining the rights of the
holders of common stock of StupidPC, Inc.
4.2 Specimen common stock certificate.
5.1 Opinion of Red Hot Law Group of Ashley LLC.
10.1 Convertible Debenture and Warrants Purchase Agreement dated
as of July 15, 1998
10.2 StupidPC, Inc. Stock Purchase Warrant, dated May 14, 1999,
issued to Gerald Sullivan for 50,000 shares of common stock.
10.3 Stock Repurchase Contract, dated April 10, 1998, by and
between StupidPC, Inc. and Gary L. German.
10.4 Stock Option Agreement, dated July 25, 1997, issued to Gary
L. German for 750,000 shares of common stock.
10.5 Sublease Agreement, dated July 24, 1998, by and between
Stricor, Inc. and StupidPC, Inc.
10.6 Commercial Lease, dated December 28, 1998, between Deborah L.
Deavers and StupidPC, Inc.
23.1 Consent of Red Hot Law Group of Ashley LLC (included as part of Exhibit 5.1)
23.2* Consent of Grant Thornton LLP.
24.1 Power of Attorney (included on signature pages hereto).
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- -----------------
* To be filed by amendment.
** Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities Act.
In accordance with Rule 406, these confidential portions have been
omitted from this exhibit and filed separately with the SEC.
+ The Company agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the SEC upon request, as provided in Item
601(b)(2) of Regulation S-K.
(b) Financial Statement Schedules
II-3
<PAGE> 63
Report of Independent Certified Public Accountants on Schedule
Valuation and Qualifying Accounts Schedule
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
StupidPC pursuant to the foregoing provisions, or otherwise, StupidPC has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by StupidPC of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, StupidPC will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
StupidPC hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 64
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Atlanta,
State of Georgia, on this 16th day of September, 1999.
STUPIDPC, INC.
By: /s/ Stephen B. Brannon
-----------------------------
Stephen B. Brannon
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned
officers and directors of StupidPC, Inc., a Georgia corporation, for himself and
not for one another, does hereby constitute and appoint Stephen B. Brannon, his
true and lawful attorney-in-fact and agent with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments, including post-effective amendments, to this
registration statement, and to sign any registration statement for the same
offering covered by this registration statement that is to be effective upon
filing pursuant to Section 462(b) of the Securities Act of 1933, and all
post-effective amendments thereto, and to cause the same (together with all
Exhibits thereto and all documents in connection therewith) to be filed with the
Securities and Exchange Commission, granting unto said attorneys and each of
them full power and authority to do and perform each and every act and thing
necessary and proper to be done in and about the premises, as fully to all
intents and purposes as the undersigned could do if personally present, and each
of the undersigned for himself hereby ratifies and confirms all that said
attorneys-in-fact and agents or any one of them, or his or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Stephen B. Brannon President, Chief Executive Officer and September 16, 1999
- -------------------------------------------- and Director
Stephen B. Brannon (Principal Executive Officer
and Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE> 65
Report of Independent Certified Public Accountants on Schedule
Board of Directors
StupidPC, Inc.
In connection with our audit of the financial statements of StupidPC, Inc.
referred to in our report dated February 19, 1999 (except for Note K, as to
which the date is July 31, 1999), which is included in the annual report to
security holders and incorporated by reference in Part II of this form, we
have also audited Schedule II for the year ended December 31, 1998 and the
seventeen weeks (from commencement of operations) ended December 31, 1997. In
our opinion, the schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 19, 1999
<PAGE> 66
StupidPC, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended December 31, 1998 and the
Seventeen weeks ended December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------- ------------ ------------ ----------- -----------
Balance at Balance at
beginning of Deductions - end of
Description period Additions describe (a) period
- --------------------------------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful
accounts receivable $ - $ 5,115 $ - $ 5,115
Deferred tax asset allowance $ 66,320 $ 158,973 $ - $ 225,293
Seventeen weeks ended December 31, 1997
Allowance for doubtful
accounts receivable $ - $ - $ - $ -
Deferred tax asset allowance $ - $ 66,320 $ - $ 66,320
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AMENDED AGREEMENT AND
PLAN OF SHARE EXCHANGE
THIS AMENDED AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement") dated this
12th day of November 1998, by and between WORLD NET HOLDINGS, INC., a Florida
corporation ("WNET"), STUPID PC, INC., a Georgia corporation ("SPC"), Bart
Brannon ("Brannon"), Donald H. Sigler ("Sigler"), Herb Harris ("Harris"), River
Rapids, Ltd. ("RRL") and PC-U, Inc. ("PCU").
WHEREAS, WNET and SPC deem it advisable and in the best interests of each of
the corporations and their shareholders that WNET acquire all of the issued and
outstanding common stock of SPC (the "Share Exchange") in return for newly
issued shares of common stock of WNET; and
WHEREAS, WNET and SPC have approved and adopted this Agreement as a "plan of
reorganization" within the meaning of Section 368(a)(l)(B) of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
provisions, and conditions contained herein, and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree that WNET shall acquire all of the issued and outstanding
common stock of SPC, upon and subject to the following terms and conditions:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings, unless the context shall otherwise require:
"WNET COMMON STOCK" shall mean the common stock of WNET.
"SPO STOCK" shall mean the Common Stock of SPC.
"EFFECTIVE DATE" shall mean a date selected by the mutual agreement of SPC and
WNET for the completion of the transactions described in Article II herein.
"EXCEPTIONS SCHEDULE" shall mean Exhibit A in the case of WNET and Exhibit B in
the case of SPC, both of which are attached hereto as Exhibits.
ARTICLE 2
GENERAL TERMS AND PROVISIONS
SECTION 2.01 EFFECTIVENESS. At the Effective Date, WNET shall issue new WNET
Common Stock in exchange for all, and not less than all, of the outstanding
shares of SPC stock on the terms provided herein.
SECTION 2.02 DIRECTORS AND OFFICERS OF WNET. At the Effective Date the existing
officers and members of the Board of Directors of WNET shall resign and new
directors shall be
1
<PAGE> 2
appointed by Brannon to fill the vacant Board seats of WNET until the next
annual meeting of the Board of Directors of WNET. The Chairman of the Board
shall be Brannon.
SECTION 2.03 OPTION AGREEMENTS. On the Effective Date, certain parties will
enter into the following option agreements:
(a) Donald Sigler will grant Brannon an option to purchase
340,073 shares of his common stock in WNET (out of a total of 955,729 shares
after giving effect to the proposed one for four reverse stock split) for $1.50
per share for one year following the Effective Date, Brannon shall have the
right to extend the option for an additional year upon payment of $50,000 to
Sigler on or before the expiration date of the option. Sigler's option shall be
in the form of that option agreement which is attached hereto as Exhibit C.
(b) Donald Sigler will grant RRL and PCU an option to purchase
307,828 shares each of his common stock (for a total to RRL and PCU of 615,656
shares) in WNET (out of a total 955,729 shares after giving effect to the
proposed one for four reverse stock split) for $1.50 per share for one year
following the Effective Date. Sigler's option shall be in the form of that
option agreement which is attached hereto as Exhibit C.
(c) Herb Harris will grant Brannon an option to purchase his
shares of common stock in WNET (being 160,250 shares after giving effect to the
proposed one for four reverse stock split) for $1.50 per share if exercised
within 90 days following the Effective Date, for $1.75 per share if exercised
between 91 and 180 days following the Effective Date, for $2.00 per share if
exercised between 181 and 270 days following the Effective Date, and for $2.25
per share if exercised between 271 and 365 days following the Effective Date.
Harris' option shall be in the form of that option agreement which is attached
hereto as Exhibit D.
SECTION 2.04 DUE DILIGENCE PERIOD. Each party shall promptly provide the
other with such books, records, documents and consents that the other may
reasonably request to investigate the representations, warranties and financial
condition of the party, including all articles of incorporation and amendments,
bylaws and amendments, minutes of all incorporators, directors and shareholders
meetings or consent minutes with respect to actions taken by incorporators,
directors, or shareholders, all financial statements, tax returns, and all
material contracts, leases, and agreements to which it is a party or an
intended beneficiary within ten (10) days of the date of this Agreement. WNET
and SPC shall have the right, in their sole and absolute discretion, until ten
days after receipt of the above information from the other, to terminate this
Agreement on the grounds that the completion of the transactions contemplated
by this Agreement is not feasible.
SECTION 2.05 EXCHANGE ACT REGISTRATION. Within a reasonable period of time
after the Effective Date, WNET shall tile with the Securities and Exchange
Commission an application to register its common stock under Section 12 of the
Securities Exchange Act of 1934, and shall diligently prosecute such
application.
SECTION 2.06 TAKING OF NECESSARY ACTION. WNET and SPC shall take all such
actions as may be necessary or appropriate in order to effectuate the
transactions contemplated by this Agreement. If, at any time after the
Effective Date, any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest WNET with title to any or all of the SPC
Stock, the officers and directors of WNET, and its subsidiaries, at the expense
of WNET, shall take such necessary or desirable action.
2
<PAGE> 3
ARTICLE 3
EXCHANGE OF SHARES
SECTION 3.01 EXCHANGE RATIO. On the Effective Date, WNET shall issue a total of
4,000,000 shares of its WNET Common Stock to all of the shareholders of SPC in
exchange for all of the issued and outstanding SPC Stock. Each holder of shares
of SPC Stock shall be entitled to receive that number of shares of WNET Common
Stock equal to (a) the number of shares of SPC Stock held by the holder (b)
multiplied by 4,000,000 and (c) divided by the sum of the total number of
shares of SPC Stock (i) which are outstanding as of the Effective Date, (ii)
which are issuable upon the conversion of any other securities of SPC which are
convertible into shares of SPC Stock, or (iii) which are issuable upon the
exercise of any other securities of SPC which may be exercised or exchanged for
shares of SPC Stock, assuming all such securities were converted or exercised
immediately prior to the Effective Date.
On the Effective Date, WNET shall grant options for a total of 2,000,000 shares
of WNET Common Stock with an exercise price of $0.20 per share to all the
shareholders of SPC. Each SPC Shareholder shall be entitled to and granted an
Option for the purchase of WNET Common Stock shares equal to (a) the number of
shares of SPC Stock held by the holder (b) multiplied by 2,000,000 and (c)
divided by the sum of the total number of shares of SPC Stock (i) which are
outstanding as of the Effective Date, (ii) which are issuable upon the
conversion of any securities other (than these securities) of SPC which are
convertible into shares of SPC Stock or (iii) which are issuable upon the
exercise of any securities of SPC (other than these securities) which may be
exercised or exchanged for shares of SPC Stock, assuming all such securities
were converted or exercised immediately prior to the Effective Date. Such
Options shall be immediately vested and exercisable for a five (5) year period
following the Effective Date.
There shall be no fractional shares issued, and the actual number of shares to
be issued shall be rounded up to the nearest whole number of shares. Any
securities of SPC which are convertible into or exercisable for shares of SPC
Stock shall be exchanged for the type and number of shares of WNET Common Stock
equal to the number of shares of WNET Common Stock which the holder of such
securities would receive if it converted or exercised its securities into shares
of SPC Stock, as applicable, immediately prior to the Effective Date. The shares
of SPC Common Stock, if any, held in the treasury of SPC ("Treasury Shares")
shall be cancelled and shall not be exchanged or combined in accordance with the
provisions of this Section 3.01.
SECTION 3.02 EXCHANGE OF CERTIFICATES. As soon as practicable after the
Effective Date, each holder of a certificate for shares of SPC Stock, upon
surrender of same to Holladay Stock Transfer, Inc. (the "Transfer Agent"),
shall be entitled to receive, in exchange therefor, a certificate or
certificates representing the number of full shares of WNET Common Stock for
and into which the shares of SPC Stock, represented by the certificate or
certificates so surrendered, shall have been exchanged, as provided in Section
3.01 hereinabove. As soon as practicable after the Effective Date, WNET shall
send a notice and transmittal form to each holder of record of an outstanding
certificate which, immediately prior to the Effective Date evidenced shares of
SPC Stock, advising such shareholder of the terms of exchange and combination
effected by the Share Exchange and the procedure for surrendering to the
Transfer Agent such certificate or certificates in exchange for one or more
certificates representing the full number of shares of WNET Common Stock, as
determined by Section 3.01 hereinabove.
SECTION 3.03 UNEXCHANGED CERTIFICATES. Until surrendered in accordance with
Section 3.02 hereinabove, each outstanding certificate which, prior to the
Effective Date of the Share Exchange, evidenced shares of SPC Stock, for all
corporate purposes of WNET shall be deemed
3
<PAGE> 4
to evidence ownership of the number of shares of WNET Common Stock for and into
which shares of SPC Stock represented thereby will have been exchanged and
combined; provided, however, that until each such outstanding certificate is
surrendered and exchanged, no dividend or distribution payable to the holders
of record of WNET Common Stock as of any date subsequent to the Effective Date
of the Share Exchange shall be paid to the holder of such outstanding
certificate which shall not have been surrendered with respect thereto. After
the Effective Date of the Share Exchange, there shall be no further registry of
transfers of SPC Stock on the books of SPC and, if a certificate representing
such shares or warrants is presented for transfer to WNET it shall be cancelled
and exchanged for a certificate representing shares of WNET Common Stock, as
provided for herein.
SECTION 3.04 CERTIFICATES IN OTHER NAMES. If any certificate representing
shares of WNET Common Stock is to be issued in a name other than that in which
the certificate surrendered in exchange therefor is registered, it shall be a
condition precedent to the issuance thereof that the certificate so surrendered
be properly endorsed and otherwise in proper form for transfer, that the person
requesting the exchange pay to the Transfer Agent any transfer or other taxes
required by reason of such issuance, and that counsel to WNET approve such
transfer.
SECTION 3.05 STOCK LEGENDS. The certificates representing shares of WNET Common
Stock issuable pursuant to Section 3.01 herein shall bear a legend restricting
transfer of the shares of WNET Common Stock represented by such certificate in
substantially the form set forth below:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred, nor will
any assignee or endorsee hereof be recognized as an owner hereof by
the issuer for any purpose, unless a registration statement under the
Securities Act of 1933, as amended, with respect to such shares shall
then be in effect or unless the availability of an exemption from
registration with respect to any proposed transfer or disposition of
such shares shall be established to the satisfaction of counsel for
the issuer."
WNET shall, from time to time, make stop transfer notations in its records to
ensure compliance in connection with any proposed transfer of the shares with
the Act, and all applicable state securities laws.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The following representations and warranties are hereby made (i) by WNET to SPC
with respect to WNET (but excluding its wholly owned subsidiary, Home Alert
Security Corporation) and (ii) by SPC to WNET with respect to SPC.
SECTION 4.01 ORGANIZATION.
(a) It is a corporation duly organized, validly existing, and in
good standing under the laws of the state or country of its incorporation and
has full corporate power and authority to own or hold under lease the assets
and properties which it owns or holds under lease, to conduct its business as
currently conducted, to perform all its obligations under the agreements to
which it is a party, including, without limitation, this Agreement, and to
consummate the transactions contemplated thereby. It is in good standing in
each other jurisdiction wherein the failure so to qualify, individually or in
the aggregate, would have a Material Adverse Effect (as hereinafter defined).
The copies of its certificate of incorporation and by-laws, each as currently
in effect, which have been delivered to the other and are complete and correct.
4
<PAGE> 5
(b) For purposes of this Agreement.
(i) "Material Adverse Effect" with respect to a party
shall mean any change in, or effect on such party or any subsidiary thereof (as
hereinafter defined) which is, or with reasonable probability might be,
materially adverse to the business, properties, operations, income, assets,
prospects or condition, financial or otherwise of such party and its
subsidiaries, taken as a whole; and
(ii) each reference to a "subsidiary" or "subsidiaries" of
any means any corporation, partnership, joint venture or other legal entity of
which such person (either alone or through or together with any subsidiary),
owns, directly or indirectly, more than 50% of the stock other equity interests
the holder of which are generally entitled to for the election of the board of
directors or other governing body of corporation or other legal entity, provided
that subsidiary shall exclude Home Alert Security Corporation when used in
reference to WNET.
SECTION 4.02 AUTHORIZATION. The execution and delivery of this Agreement, the
performance by each of its covenants and agreements hereunder and the
consummation by each of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of the party. When executed and
delivered by a party, this Agreement shall constitute the valid and legally
binding obligation of the party, enforceable against the party in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies.
SECTION 4.03 CONFLICTS. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated herein, will violate any
provision of the party's certificate of incorporation or by-laws, as currently
in effect, or any law, rule, regulation, writ, judgment, injunction, decree,
determination, award or other order of any court, government or governmental
agency or instrumentality, domestic or foreign, binding upon the party or any
of its subsidiaries and other than any such conflicts, breaches, creation,
imposition or termination which would not have a Material Adverse Effect,
conflict with or result in any breach of any of the terms of or the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature pursuant to, or create any cause for
termination under, the terms of any contract or agreement to which the party or
any subsidiary is a party or by which the party or any subsidiary or any of
their, respective properties or assets is bound, other than the approval of
this Agreement by the holders of SPC Common Stock and except for compliance
with the federal Securities Act of 1933, as amended (the "Securities Act"), the
securities or blue sky laws of the various states, the federal Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any such consents
approvals, authorizations, filings or registrations with or notices to any such
person or entity other than any governmental agency or instrumentality the
failure to effectuate which would not have a Material Adverse Effect, no
consents, approvals or authorizations, or registrations with any governmental
agency or authority or any other person or entity and, filings with or notices
to any such person or entity, are required in connection with the execution and
delivery of this Agreement by the party or the consummation by the party of the
transactions contemplated hereby.
SECTION 4.04 EXAMINATION OF DOCUMENTS. All original documents and other
information relating to its affairs will be made available, and copies of any
such documents will be furnished, upon request to the other party and its
counsel. Included among the documents to be made available are all articles of
incorporation and amendments, bylaws and amendments, minutes of all
incorporators, directors and shareholders meetings or consent minutes with
respect to actions
5
<PAGE> 6
taken by incorporators, directors, or shareholders, all financial statements,
tax returns and all material contracts, leases, and agreements to which it is a
party or an intended beneficiary.
SECTION 4.05 TITLE TO ASSETS. It and its Subsidiaries have good and marketable
title to all of their respective assets and properties, in each case, except as
set forth on the Exceptions Schedule, free and clear of all Liens. It and the
Subsidiaries lease or own all properties and assets necessary for the operation
of their respective businesses as presently conducted, and the assets and
properties of it and its Subsidiaries include all of the assets, of ever kind
and nature, whether tangible or intangible, and wherever located, which are
utilized by it or its Subsidiaries in the conduct of their respective
businesses. Neither it nor its Subsidiaries have received notice of any
violation of, or default under, any law, ordinance, order, regulation, or
governmental or contractual requirement relating to the assets and properties of
it or its Subsidiaries which remains uncured or has not been dismissed, other
than with respect to any violation which, individually or in the aggregate,
would not have a Material Adverse Effect. All leases and licenses pursuant to
which it or the Subsidiaries lease or license personal and intangible property
from others, are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases or licenses, any
existing default, or event of default (or event which with notice or lapse of
time, or both, would constitute a default, or would constitute a basis for a
claim of force majeure or other claim of excusable delay or non-performance)
caused by it or any Subsidiary or, to the best of its knowledge, any other
party. All the tangible personal property owned or leased by it or its
Subsidiaries is in good operating condition and repair, subject only to ordinary
wear and tear, and conforms in all respects to all applicable laws, ordinances,
orders, regulations or governmental or contractual requirements relating to
their operation, except for any such non-conformity which, individually or in
the aggregate, would not have a Material Adverse Effect.
SECTION 4.06 TAX RETURNS AND PAYMENTS. Except as disclosed on the Exceptions
Schedule, it and each Subsidiary have filed or caused to be filed all foreign,
federal, state, provincial, municipal and other tax returns, reports and
declarations required to be filed by it so as to prevent any Lien of any nature
on the assets or properties of it or any of the Subsidiaries, and have paid or
shall pay all taxes which have been or shall become due with respect to the
periods covered by said returns or pursuant to any assessment received by it in
connection therewith. Except as set forth on the Exceptions Schedule, the
Internal Revenue Service has not examined the federal tax returns of it or any
of the Subsidiaries for any period subsequent to December 31, 1995; and only
periods subsequent to December 31, 1995 remain open for examination and
assessment of additional federal income taxes. All assessments and charges
(including penalties and interest, if any) related to periods ended on or
before December 31, 1995 have been paid by it and each Subsidiary, including
any necessary adjustments with state and local tax authorities, and, except as
set forth on the Exceptions Schedule, no deficiency in payment of any taxes for
any period has been asserted by any taxing authority which remains unsettled at
the date hereof. Adequate provision has been made in the party's financial
statements for the payment of all then accrued and unpaid federal and other
taxes of it and its Subsidiaries, whether or not yet due and payable and
whether or not disputed by it. Neither it nor any Subsidiary has agreed to the
extension of the statute of limitations with respect to any tax return for any
open year.
SECTION 4.07 NO LITIGATION. Except as disclosed in the Exceptions Schedule:
(a) there is no action, proceeding, claim, or investigation
pending or threatened against it or to which any of its assets or properties
are subject before any court or any governmental department, commission, board,
bureau, agency, or instrumentality which involves
6
<PAGE> 7
the possibility of any judgment or liability or which might adversely affect
its assets, business, or goodwill and, after investigations it knows of no
basis or grounds for any such action, proceeding, claim, or investigation; and
(b) there is no outstanding order, writ, injunction, or decree of
any court, government department, commission, board, bureau, government agency,
or instrumentality, or any arbitration award against it.
SECTION 4.08 NO ADVERSE CHANGES. Between the date of this Agreement and the
Effective Date, as a condition precedent to the obligations hereunder, it will
not, without the other party's prior written consent, take any of the following
actions: it will not engage in any material transaction not in the ordinary
course of its business, make or declare any dividends or distributions of its
capital surplus, or profits, or redeem or issue any shares of its common stock
or other securities. There will be no changes in its assets, properties,
liabilities, or financial condition from those shown in its financial
statements or in its condition, other than changes which do not materially
affect, singly or in the aggregate, its business, assets, properties, or
financial condition. Other than as set forth in the Exceptions Schedule, it
will not borrow any amounts or incur any liabilities other than pursuant to
contracts entered into in the ordinary course of business: discharge any lien
or encumbrance or satisfy any liabilities other than current liabilities
incurred in the ordinary course of business: mortgage, pledge, or subject to
lien or charge or any other encumbrance any of its assets or properties: sell,
assign, or transfer any of its assets except in the ordinary course of
business: waive any rights of substantial value: or loan money to any of its
directors, officers, or shareholders.
SECTION 4.09 FINANCIAL STATEMENTS: BOOKS AND RECORDS.
(a) The consolidated financial statements for it and its
Subsidiaries provided to the other are true and correct and have been prepared
in conformity with generally accepted accounting principles consistently
applied throughout the periods to which such financial statements relate. The
financial statements fully and fairly present the consolidated financial
position and results of operations and cash flows of it and its Subsidiaries,
at the dates shown and for the periods therein specified, subject to normal
year-end adjustments in accordance with generally accepted accounting
principles and except as described therein.
(b) Both it and each Subsidiary: (i) make and keep books,
records, and accounts, which, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of their respective assets; and (ii)
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are recorded
as necessary (I) to permit preparation of financial statements in conformity
with generally accepted accounting principles or any other criteria applicable
to such statements, and (II) to maintain accountability for assets; (C) access
to assets is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. Its books and records are accurate and
complete and there are no matters for which proper entry has not been made in
such books and records.
SECTION 4.10 INSURANCE. Except as set forth in the Exceptions Schedule, it
and its Subsidiaries maintain insurance policies, and bonding arrangements,
covering all of their respective assets and properties and in each case the
various occurrences which may arise in connection with the operation of their
respective businesses, except those occurrences which, individually or in the
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aggregate, would not have a Material Adverse Effect. The Exceptions Schedule
accurately summarizes the principal terms of all such policies and bonding
arrangements. Such policies and bonding arrangements are in full force and
effect, all premiums and other amounts due thereon have been paid, and it and
the Subsidiaries have complied with the provisions of such policies and bonding
arrangements. Such insurance and such bonding arrangements are of comparable
amounts and coverage as that which companies engaged in similar businesses
would maintain in accordance with good business practice. There are no notices
of any pending or threatened terminations or premium increases with respect to
any such policies or bonding arrangements, and such policies and bonding
arrangements will not be modified as a result of or terminate or lapse by
reason of, the transactions contemplated by this Agreement.
SECTION 4.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
Exceptions Schedule, neither it nor any of its Subsidiaries has any
liabilities, whether accrued, absolute, contingent, or otherwise, whether due
or to become due and whether the amount thereof is readily ascertainable or
not, other than liabilities which, individually or in the aggregate, would not
have a Material Adverse Effect, or any unrealized or anticipated losses from
any unfavorable commitments or sales of products, other than those which,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.12 REAL ESTATE AND LEASES
(a) There is no real estate now or previously owned by it, and it
does not hold or operate any real estate owned by any third party. Neither it
nor any Subsidiary is in default under any such lease or agreement, nor, to the
best of the knowledge of it, is any other party to any such lease or agreement
in default thereunder, and no event has occurred, or is alleged to have
occurred, which constitutes, or with lapse of time or giving of notice or both
would constitute, a default by it or any Subsidiary or, to the best of the
knowledge of it, any other party to any such lease or agreement, or a basis for
a claim of force majeure or other claim of excusable delay or non-performance
thereunder by it or any Subsidiary or, to the best of the knowledge of it, any
other party, other than with respect to any default, event or claim which,
individually or in the aggregate, would not have any Material Adverse Effect.
(b) There are no condemnation or eminent domain proceedings
pending or threatened with respect to the properties owned or leased by it or
any Subsidiary, all required certificates of occupancy and other government
permits necessary to utilize such properties as they are presently utilized
have been obtained, and such properties, and the operation thereof, conform to
all existing building, zoning, and other laws and ordinances relating to their
use or occupancy, in each case except insofar as would not, individually or in
the aggregate, have a Material Adverse Effect.
SECTION 4.13 INTELLECTUAL PROPERTY. It and its Subsidiaries, respectively,
own all right, and title and interest in and to all Intellectual Property, if
any, free and clear of all Liens. Neither it nor any of its Subsidiaries has
granted any outstanding licenses or other rights, and has no obligations to
grant licenses or other rights, under any such Intellectual Property. No dispute
has arisen, with respect to any of Intellectual Property, and the operations of
it and each Subsidiary and the use of the Intellectual Property would not
involve infringement or claimed infringement of any patent, trademark, service
mark, trade name, copyright, license or similar right, except for any such
infringement which, individually or in the aggregate, would not have a Material
Adverse Effect. No license or other right has in any manner been granted by it
or any of its Subsidiaries which constrains it or any Subsidiary from utilizing
or commercializing any patent, registered or common law trademark, service
name, trade name, copyright, license or other
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similar right. To the best of the knowledge of it, and except as would not have
a Material Adverse Effect, neither it nor any subsidiary has suffered any of
its trade secrets, know-how or other confidential intellectual or intangible
property rights utilized in connection with the Business to enter into the
public domain.
SECTION 4.14 CONTRACTUAL AND OTHER OBLIGATIONS.
(a) As used in this Agreement, the term the "Agreements" shall
mean all mortgages, indentures, notes, agreements, contracts, leases, licenses,
franchises, obligations, instruments or other commitments, arrangements or
understandings of any kind, whether written or oral, binding or non-binding, to
which it or any of the Subsidiaries is a party or by which it or any of the
Subsidiaries or any of their respective properties may be bound or affected,
other than those which by their terms have expired prior to the date hereof.
There is no Agreement which is material to its business or condition and which
is not otherwise listed on the Exceptions Schedule which meets the following
criteria. (i) any mortgage, indenture, note, or other instrument, arrangement
or arrangement for or relating to any borrowing of money by it or any
Subsidiary, or any other installment obligation in excess, individually, of
$10,000 per year; (ii) any guaranty, direct or indirect, by it or any
Subsidiary of any obligation for borrowings; (iii) any Agreement made other
than in the ordinary course of its business or providing for the grant of any
preferential rights to purchase or lease any assets of it or any Subsidiary,
except for such agreements which, individually and in the aggregate, are not
material to its business or condition; (iv) any obligation to make payments,
contingent or otherwise, arising out of the prior acquisition of the business,
assets or stock of other companies; (v) any collective bargaining agreement
with any trade or labor union; (vi) any Agreement to which any officer or
director of it or any stockholder (herein referred to collectively as the
"Insiders") of it beneficially owning (within the meaning of Section 13(d) of
the Exchange Act) more than 5% of the outstanding shares of its common stock is
a party; (vii) any Agreement containing noncompetition or other limitations
restricting the conduct of the business of it or any Subsidiary: (viii) any
license agreements to which it or any Subsidiary is a party relating to any
intellectual Property (as hereinafter defined); and (ix) any partnership,
shareholder agreement, joint venture or similar agreement.
(b) No event has occurred, or, is alleged to have occurred, which
constitutes or with lapse of time or giving of notice or both, would constitute
a default or a basis for a claim of force majeure or other claim of excusable
delay or non-performance by it or any Subsidiary, under any Agreements, except
for any such default or claim which, individually or in the aggregate, would
not have a Material Adverse Effect. To the best of its knowledge, no party with
whom it or any Subsidiary has any Agreement is in default in the performance of
any covenant or condition thereunder or has failed in performance thereunder by
reason of a claim of force majeure or other claim of excusable delay or
non-performance thereunder, except for any such default or claim which,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) Except as set forth in the Exceptions Schedule, none of its
officers or employees has any claim against it except for salaries or other
ordinary expenses, and it is not obligated to any of such persons in any way or
for any amount except for salaries, wages, or ordinary expenses.
SECTION 4.15 COMPENSATION. Neither it nor any Subsidiary has any agreement
with any employee with regard to compensation, whether individually or
collectively, except agreements
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terminable by it at will without penalty, or oral agreements terminable by it
on not more than 30 days' notice without penalty. Set forth in the Exceptions
Schedule is a list of all employees of it and each Subsidiary other than hourly
employees subject to collective bargaining agreements, entitled to receive
annual compensation in excess of $50,000 and their respective positions and
salaries. No union or other collective bargaining unit has been certified or
recognized by it or any Subsidiary as representing any of their respective
employees. It will not incur any liability with respect to any payment due or
damage suffered by any employee of it or any Subsidiary, including but not
limited to, any claims for severance, termination benefits or similar claims,
by virtue of the operation of the transactions contemplated hereby.
SECTION 4.16 EMPLOYEE BENEFIT PLANS. Neither it nor its Subsidiaries
maintain or sponsor and are not required to make contributions to any pension,
profit-sharing bonus, incentive, welfare, or other employee benefit plan. All
pension, profit-sharing, bonus, incentive, welfare, or other employee benefit
plans within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (hereinafter referred to as "ERISA"), in which
the employees of it or its Subsidiaries participate, or with respect to which it
or the Subsidiaries have any liability or obligation such plans and related
trusts, insurance, and annuity contracts;, funding media, and related agreements
and arrangements, other than any "multi-employer plan" (within the meaning of
Section 3(37) of ERISA) being hereinafter referred to as the "Benefit Plans",
and such multi-employer plans being hereinafter referred to as the
"Multi-employer Plans") comply in form and as administered in all material
respects with all requirements of the U.S. Department of Labor, the Internal
Revenue Service and the Pension Benefit Guaranty Corp, (hereinafter referred to
as "PBQC") promulgated under ERISA and with all other applicable law (including,
without limitation, the health care continuation coverage requirements of
Section 4980B of the Code). Neither it nor any of its Subsidiaries has taken or
failed to take any action with respect to either the Benefit Plans or the
Multi-employer Plans which might create any material liability on the part of it
or any. Each "fiduciary" (within the meaning of section 3(21)(a) of ERISA) as to
each Benefit Plan and, to the best of the knowledge of it, as to each
Multi-employer Plan has complied in all material respects with the requirements
of ERISA and all other applicable law in respect of each such Plan. All required
employer and employee contribution and premiums under the Benefit Plans and the
Multi-employer Plans to the date hereof have been paid, the respective fund or
funds established under the Benefit Plans and the Multi-employer Plans are
funded in accordance with all applicable laws and such plans, and no material
past service funding liabilities exist thereunder. It has furnished to the other
copies of all Benefit Plans, if any, and of all documents relating thereto
required by it, including, without limitation, annual reports and financial
statements with respect to such Benefit Plans for all periods ended on a date
subsequent to December 31, 1997 during which it or any Subsidiary was a sponsor
or participating employer in or was required to make contributions to such
Benefit Plans. Such financial statements are true and correct in all material
respects, and none of the actuarial assumptions underlying such statements have
changed since the respective dates thereof. In addition, as of the date hereof:
(i) No Benefit Plan which is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA) (hereinafter referred to as the "Defined
Benefit Plans") or, to the best of the knowledge of it, Multi-employer Plan has
incurred an "accumulated funding deficiency" (within the meaning of section
412(a) of the Code), whether or not waived, and there are no excise taxes due
or hereafter to become due, based upon current facts and circumstances, under
section 4971 of the Code with respect to the funding of any Benefit Plan;
(ii) No "reportable event" (within the meaning of section 4043 of
ERISA) has occurred with respect to any Defined Benefit Plan or, to the best of
the knowledge of it, any Multi-employer Plan; there have been no terminations of
any Defined Benefit Plan or, to the best
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of the knowledge of it, any Multi-employer Plan or any related trust: no such
termination of any of the foregoing reasonably can be expected to occur, whether
as a consequence of the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, or otherwise;
(iii) Neither it nor any Subsidiary has withdrawn (partially or
totally within the meaning of ERISA) from any Benefit Plan or any
Multi-employer Plan: and neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein will result in the
withdrawal (partial or total within the meaning of ERISA) from any Benefit Plan
or Multi-employer Plan, or in any withdrawal or other liability of nature to
it, any Subsidiary, or any Multi-employer Plan;
(iv) No "prohibited transaction" (within the meaning of section
406 of ERISA or section 4975(c) of the Code) has occurred with respect to any
Benefit Plan or, to the best of the knowledge of it, any Multi-employer Plan;
(v) There is no excess of the aggregate present value of accrued
benefits on a termination basis over the aggregate value of the assets of the
Defined Benefit Plans, and no withdrawal liability of it and the Subsidiaries
with respect to the Multi-employer Plans;
(vi) There are no contributions which are, or hereafter will be,
required to have been made to trusts in connection with "defined contribution
plans" (within the meaning of Section 3(34) of ERISA) with respect to services
rendered by employees of it or the Subsidiaries prior to the date hereof, and
all PBGC premiums due on or before the date of this Agreement by it or any
Subsidiary have been paid in full, including any late fees, interest and
penalties;
(vii) Other than claims in the ordinary course for benefits with
respect to the Benefit Plans or the Multi-employer Plans, there are no actions,
suits, or claims pending with respect to any Benefit Plan or any Multi-employer
Plan or any circumstances known to it which might give rise to any such action,
suit or claims; and there are presently no outstanding judgments, decrees or
orders of any court or any government or administrative agency against or
affecting any Benefit Plan, the assets of any Benefit Plan or any Benefit Plan
fiduciary; and
(viii) Neither it nor any Subsidiary is under any obligation to
provide benefits or coverage under a Benefit Plan to retirees of it or any
Subsidiary or other former employees of it or any Subsidiary (or the
beneficiaries of such retirees or former employees), including but not limited
to retiree health care coverage (except as may be mandated by the Consolidated
Omnibus Budget Reconciliation Act of 1985).
SECTION 4.17 LABOR RELATIONS. There are no controversies pending or
threatened between it and any Subsidiary and any of their respective employees
which, individually or in the aggregate, are reasonably likely to result in a
Material Adverse Effect, and, there are no organizational efforts currently
being made or threatened involving any of such employees. It and its
Subsidiaries have complied with all laws relating to the employment of labor,
including without limitation, any provisions thereof relating to wages, hours,
collective bargaining and the payment of social security and similar taxes, and
is not liable for any arrearage of wages or any taxes or penalties for failure
to comply with any of the foregoing, except for any such non-compliance or such
amounts which, individually or in the aggregate, would not have a Material
Adverse Effect.
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SECTION 4.18 LICENSES: FRANCHISES; RIGHTS.
(a) Each of it and its Subsidiaries has (or has made timely
application for) all franchises, licenses, permits and other governmental and
non-governmental approvals necessary to enable it to carry on its business as
currently conducted, and the employees and agents of it and its subsidiaries
also have all such franchises, licenses, permits, governmental and other
approvals required of them in carrying out their duties on behalf of it and the
Subsidiaries, except for such franchises, licenses, permits and other approvals
the failure to hold which, individually or in the aggregate, would not have a
Material Adverse Effect. All such franchises, licenses, permits, and
governmental and other approvals are in full force and effect, there has been
no default or breach thereunder, and there is no pending or threatened
proceeding under which any may be revoked, terminated or suspended, except
insofar as would not, individually or in the aggregate, have a Material Adverse
Effect. The execution and delivery of this Agreement, and the consummation of
the Agreement, will not adversely affect or otherwise impair the ability of it
fully to enjoy the benefits of any such franchises, licenses, permits or
governmental and other approvals. Neither it nor any Subsidiary has violated,
or is alleged to have violated, any law, rule, regulation, judgment,
stipulation, injunction, decree, determination, award or other order of any
government, or governmental agency or instrumentality, domestic or foreign,
binding upon it or any Subsidiary which violation, individually or in
aggregate, would have a Material Adverse Effect.
(b) Without limiting the generality of the foregoing, neither it
nor any Subsidiary: (i) has filed any notice under any Environmental Law (as
hereinafter defined) indicating past or present treatment, storage, or disposal
of a hazardous waste or reporting a spill or release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment, or
(ii) has any liability, contingent or otherwise, under any Environmental Law in
connection with any release of any hazardous or toxic waste, substance or
constituent, or other substance on property, now or formerly owned or leased by
it or any of its Subsidiaries, which, individually or in the aggregate, would
have a Material Adverse Effect. No hazardous materials and no hazardous
substances have been generated, treated, stored or disposed of or placed in
violation of any Environmental Law on any property owned or leased by it or any
Subsidiary or on or into any waste disposal site owned or operated by a third
party except for violations which, individually or in the aggregate, would not
have a Material Adverse Effect.
(c) For purposes hereof, "Environmental Laws" shall mean any and
all federal, state or local laws, statutes, ordinances, rules, regulations,
orders, or determinations of any federal, state or local governmental authority
pertaining to health or the environment, including with limitations, the
federal Clean Air Act, as amended, Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, Water Pollution Control
Act, as amended, Occupational Safety and Health Act of 1970, as amended,
Resource Conservation and Recovery Act of 1976, as amended, Safe Drinking Water
Act, as amended, Toxic Substances Control Act, as amended, Superfund Amendments
and Reauthorization Act of 1986, as amended, Hazardous Materials Transportation
Act, as amended, and all other environmental, conservation or protection laws.
SECTION 4.19 NO BROKERAGE FEES. No agent, broker, investment banker,
person, or firm acting on its behalf, to the best of its knowledge, is or will
be entitled to any broker's or finder's fee or any other commission or fee,
directly or indirectly, in connection with any other transactions contemplated
hereby, except for certain shares issuable to RRL and PCU pursuant to a
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Consulting Agreement dated October 15, 1998 and certain warrants issuable to
Gerald Sullivan in accordance with a Consulting Agreement dated April 15, 1999.
SECTION 4.20 COMPLIANCE WITH CERTAIN LAWS. It is in full compliance with:
(i) all federal, state, and local laws regulating atmospheric, water, and other
pollution or damage to the environment, and (ii) all federal, State, and local
laws prohibiting discrimination based on race, creed, color, sex, age,
disability, or national origin.
SECTION 4.21 AUTHORIZATION OF BOARD OF DIRECTORS. Its Board of Directors
has duly authorized the execution and delivery of this Agreement and all
documents and transactions called for hereunder, and, subject to the requisite
approval and authorization by the holders of its capital stock, this Agreement
constitutes a valid and binding obligation of the corporation in accordance with
the Agreement's terms. Each shall deliver to the other a certified copy of
resolutions of its Board of Directors pertaining to the foregoing. It has taken
or will exert its best efforts to take, prior to the Effective Date, all action
required by law, its Articles of Incorporation and Bylaws, and otherwise to
authorize the execution, delivery, and performance of this Agreement.
SECTION 4.22 CAPITALIZATION. Except as set forth in the Exceptions
Schedule, each party represents and warrants individually and as to itself, as
applicable, as follows:
(a) SPC. SPC represents and warrants that its authorized capital
stock consists of 80,000,100 shares of Common stock, of which 3,154,000 are
issued and outstanding. All of the issued and outstanding shares of SPC Stock
are validly issued, fully paid, and non-assessable.
(b) WNET. WNET represents and warrants that its authorized
capital stock consists of 12,500,000 shares of common stock, $.001 par value
per share, of which 1,716,642 shares are issued and outstanding (which includes
the shares issued pursuant to the private offering described in Section 4.26
herein), and 5,000,000 shares of preferred stock, par value $0.10 per share, of
which none are issued and outstanding. All of the issued and outstanding shares
of WNET Common Stock are validly issued, fully paid, and non-assessable.
(c) It has not, within the last two years, sold or issued any of
its securities in a transaction which was not exempt from registration under
the 1933 Act (or issued without a restrictive legend) or any applicable state
securities law.
(d) There are no preemptive rights with respect to any of its
securities.
(e) No shares of any class or series of its capital stock held as
treasury stock.
(f) All of the outstanding shares of its common stock are duly
authorized, validly issued and fully paid and non-assessable, issued without
violation of the preemptive rights of any person.
(g) There are no subscriptions, warrants, options, calls,
commitments by or agreements to which the party is bound relating to the
issuance, conversion, or purchase of any shares of its common stock, or any
other capital stock, on the date hereof.
(h) It is not a party to any agreement or arrangement relating to
the voting or control of any of its capital stock, or obligating it, directly
or indirectly, to sell any assets in a transaction which is not in the ordinary
course or which, taken as a whole, is otherwise material to its and its
Subsidiaries' businesses, financial conditions, results of operations or
prospects, except for this Agreement.
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(i) It has no currently outstanding obligations to register any
securities under the Securities Act, under any arrangements that would require
any such registration as a result of this agreement or the transactions
contemplated hereby or under any arrangements that would permit any party to
such arrangements other than it to require it to file a registration statement
under the Securities Act.
SECTION 4.23 NO SUBSIDIARIES. Except as set forth in the Exceptions
Schedule or otherwise herein, it has no subsidiaries, except that WNET has a
subsidiary called Home Alert Security Corporation, a Georgia corporation.
Furthermore, the Exceptions Schedule sets forth the name of each corporation,
partnership, joint venture, business trust or other legal entity in which it,
directly or indirectly, beneficially or legally owns or holds any capital stock
or other proprietary interest (herein referred to, individually, as a
"Subsidiary" and, collectively, as the "Subsidiaries"), the jurisdiction of its
incorporation or formation, and its direct or indirect ownership thereof. Each
Subsidiary (excluding Home Alert Security Corporation in the case of WNET) is a
corporation duly organized and in good standing under the laws of the
jurisdiction of its incorporation, and has full corporate power and authority to
own or hold under lease the assets and properties which it owns or holds under
lease and to perform all its obligations under the agreements to which it is a
party and to conduct such Subsidiary's business. Each Subsidiary consisting of a
joint venture, partnership, or limited liability partnership is duly organized,
validly existing and, in the case of any limited liability partnership, in good
standing as such entity under the laws of the jurisdiction of its formation, and
has full partnership authority to own or hold under lease the assets or
properties which it owns or holds under lease and to perform all of its
obligations under the agreements to which it is a party and to conduct such
Subsidiary's business. Each Subsidiary is in good standing in each other
jurisdiction wherein the failure so to qualify would, individually or in the
aggregate, have a Material Adverse Effect. All of the outstanding shares of the
capital stock of each Subsidiary are so owned and are duly authorized and
validly issued, fully paid and non-assessable, issued without violation of the
preemptive rights of any person, and, are owned free and clear of any mortgages,
deeds of trust, pledges, liens, security interests or any charges or
encumbrances of any nature. No shares of capital stock or other proprietary
interest of any Subsidiary is subject to any option, call, commitment or other
agreement of any nature, and there are no subscriptions, warrants, options,
calls, commitments by or agreements to which it or any Subsidiary is bound
relating to the issuance or purchase of any shares of capital stock of any
Subsidiary. Neither it nor any Subsidiary is party to any agreement or
arrangement relating to the voting or control of any capital stock of any
Subsidiary, or obligating it or any Subsidiary to sell any assets of any
Subsidiary in a transaction which is not in the ordinary course or which is
otherwise material to its business or condition. The copies of the certificates
of incorporation and by-laws, or other instruments of formation, as currently in
effect, of each such Subsidiary, which have been delivered or made available to
the other party by it are complete and correct.
SECTION 4.24 SECURITIES FILINGS. NON-REPORTING ISSUER. It is not subject to
the requirements to file reports pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934. It and each Subsidiary have made all filings
with the SEC that it has been required to make under the Securities act, and the
rules and regulations promulgated thereunder, and the Exchange Act, and the
rules and regulations promulgated thereunder. It has provided the other with
complete and correct copies of all reports, registration statements, final
prospectuses, definitive proxy statements and other filings made by it or any
Subsidiary with the SEC, and all such documents
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comply in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and neither any of the documents (as of
the date of their respective filing with the SEC), or any information relating
to it or any of its Subsidiaries contained in this Agreement or any schedule
hereto, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.25 REPRESENTATIONS TRUE. No representation or warranty contained
herein, nor any statement or certificate furnished hereunder or in connection
herewith, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
SECTION 4.26 PRIVATE PLACEMENT. Notwithstanding any representations and
warranties herein to the contrary, SPC acknowledges and agrees that WNET has
entered into a Subscription Agreement, under which WNET has agreed to issue
800,000 shares of its common stock at $0.45 per share (the number of shares and
the offering price are before the effect of the proposed one for four reverse
stock split), in three tranches of 300,000 shares, 300,000 shares and 200,000
shares. SPC further acknowledges that under the terms of the Subscription
Agreement, $35,000 of the first tranche and $15,000 from subsequent tranches is
to be retained in escrow to pay the legal costs incurred by WNET with respect to
this Agreement, the costs of an audit of the WNET and SPC following the
Effective Date, and the cost of registering WNET's common stock under Section 12
of the Securities and Exchange Act of 1934.
ARTICLE 5
COVENANTS
SECTION 5.01 SHAREHOLDER MEETINGS. Except as set forth in the Exceptions
Schedule, WNET covenants and agrees that it does not need approval from its
shareholders to enter into or perform under this Agreement under its Articles of
Incorporation, By-Law or the law of its state of incorporation. SPC shall
promptly obtain the written consent to all of their shareholders to the
transactions contemplated by this Agreement, and if such written consent is not
obtained within ten (10) days of the date of this Agreement, then said
corporation shall submit this Agreement to its shareholders for approval, as
provided for in its Articles of Incorporation and Bylaws, at a special or annual
meeting of shareholders (the "Shareholder Meeting") to be held on the earliest
practicable date.
SECTION 5.02 PRESERVATION OF BUSINESS: Access to Documents. From and after
the date of this Agreement and until the Effective Date, WNET and SPC covenant
and agree with each other that each corporation shall.
(a) use its best efforts to preserve its business organization,
goodwill, and business relationships intact and to retain the services of its
officers and key employees.
(b) provided the same does not violate any statute, order,
decree, rule, Regulation, or contract, give each other and its authorized
agents full access, during normal business hours, upon reasonable notice, to
all of its assets, properties, books, records, agreements, and commitments and
furnish such representatives during such period with all such information
concerning its affairs as the other may reasonably request; provided, however
that each party and
15
<PAGE> 16
its authorized agents shall hold in confidence all documents and information
thus acquired or learned concerning the parties and, if the transactions
contemplated by this Agreement are not consummated, all such documents shall
immediately thereafter be returned to the appropriate parties;
(c) take all necessary corporate and any other action, and use
its best efforts to obtain all consents, approvals, and agreements required to
carry out the transactions contemplated in this Agreement and to satisfy, or
cause to be satisfied, the conditions specified herein; and
(d) maintain in full force and effect insurance policies
providing coverages and amount of coverage as now provided.
SECTION 5.03 BUSINESS IN ORDINARY COURSE. WNET and SPC further covenant and
agree with each other that each of the representations and warranties set forth
in Article IV will be true and correct on the Effective Date. Except as set
forth on the Exceptions Schedule or as specifically authorized by this
Agreement, until the Effective Date, neither WNET nor SPC shall do any of the
following except with the prior written consent of the other party:
(a) effect any general salary increase except in line with its
past practices;
(b) enter into any written employment agreement;
(c) increase the base compensation or other benefits of any
employee by more than 10%;
(d) make any contribution to any trust or plan for the benefit of
employees not required by the present terms thereof or in accordance with its
past practices;
(e) make any change in any employee benefit plan which would
materially increase the cost thereof or adopt any new employee benefit plan;
(f) issue or commit to issue any capital stock or other ownership
interests,
(g) grant or omit to grant any options, warrants, or other rights
to subscribe for or purchase or otherwise acquire any, shares of capital stock
or other ownership interests or issue or commit to issue any securities
convertible into or exchangeable for shares of its common stock or other
ownership interests;
(h) declare, set aside, or pay any dividend or distribution with
respect to its common stock or other ownership interests;
(i) directly or indirectly redeem purchase, or otherwise acquire
or commit to acquire any of its common stock or other ownership interest or
directly or indirectly terminate or reduce or commit to terminate or reduce any
bank line of credit or the availability of any funds under any loan or
financing agreement;
(j) effect a split or reclassification of any capital stock or
recapitalization;
(k) change its articles of incorporation, bylaws, or other
governing instruments, except to effectuate the transactions contemplated by
this Agreement;
(l) borrow or agree to borrow any funds except pursuant to
existing bank lines of credit or other existing loan agreements or financing
arrangements; or
16
<PAGE> 17
(m) waive or commit to waive any right of substantial value,
SECTION 5.04 EXCLUSIVITY. So long as this Agreement remains in effect, SPC
will not market, negotiate for the sale of, or convey or encumber any portion
of SPC or its assets nor enter into any agreement granting to any person or
entity any right with respect to SPC or its assets.
SECTION 5.05 CONFIDENTIALITY. Each party agrees that the any information
which each provides the other pursuant to this Agreement shall be confidential
and shall not be disclosed or used except as necessary in connection with the
party's due diligence investigation or as otherwise required by the party to
complete the transactions described by this Agreement. The provisions of this
Paragraph shall survive the Effective Date or the termination of this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO THE SHARE EXCHANGE
The obligations of the parties under this Agreement are subject to the
satisfaction of the following express conditions precedent at or before the
Effective Date:
SECTION 6.01 COMPLIANCE WITH LAWS. All statutory requirements for the valid
consummation by it of the transactions contemplated by this Agreement shall
have been fulfilled.
SECTION 6.02 BLUE SKY FILINGS. All Blue Sky filings and permits or orders
required to carry out the transactions contemplated by this Agreement shall
have been made and received containing no term or condition reasonably
unacceptable to it.
SECTION 6.03 DOCUMENTS. All corporate and other proceedings in connection
with the transactions contemplated herein and all documents incident thereto
shall be reasonably satisfactory in form and substance to it and its counsel.
SECTION 6.04 SHAREHOLDER APPROVALS: LIMIT ON DISSENTING SHARES. To the
extent shareholder approval is required by any party to this Agreement, this
Agreement and the transactions contemplated hereby shall have been approved by
the written consent of all shareholders of the corporation, or the corporation
shall have received the requisite approval and authorization of its
shareholders at a duly held special or annual meeting of the corporation's
shareholders. No holders of any outstanding shares of each party to this
Agreement shall dissent from the transactions contemplated by this Agreement.
SECTION 6.05 REVERSE SPLIT. WNET shall have effected a one-for-four
reverse split of the WNET Common Stock.
SECTION 6.06 PRIVATE PLACEMENT PROCEEDS. WNET shall have received at least
$135,000 in escrow from the private placement described in Section 4.26 herein,
of which at least $100,000 may be released to WNET on the Effective Date under
the terms of the escrow.
SECTION 6.07 COMMITMENT. SPC shall have obtained a commitment to raise at
least $1,000,000 and not more than $1,400,000, less the amount raised under the
private placement described in Section 4.26 herein, in equity capital after the
Effective Date on a best efforts basis on terms acceptable to SPC.
SECTION 6.08 DUE DILIGENCE. WNET and SPC shall have each determined that
the completion of the transactions contemplated by this Agreement are feasible
after conducting the due diligence review described in Section 2.04 herein.
17
<PAGE> 18
SECTION 6.09 NO ADVERSE CHANGE. Between the date of execution of this
Agreement and the Effective Date, WNET and SPC, (a) except in the ordinary
course of its business shall not have incurred any liabilities or obligations
(direct or contingent) or disposed of any of its assets, or entered into any
material transaction or suffered or experienced any materially adverse change
in its condition, financial or otherwise, and (b) shall not have increased its
issued and outstanding shares of common stock or any other securities.
ARTICLE 7
ACTIONS ON OR AFTER EFFECTIVE DATE
SECTION 7.01 EFFECTIVE DATE. On the Effective Date, the following acts and
transactions will take place:
(a) The holders of SPC Common Stock will exchange their SPC
Stock for an total of 4,000,000 shares of WNET Common Stock;
(b) WNET will file Articles of Share Exchange with the
Secretaries of State of the States of Georgia and Florida;
(c) The Board of Directors of WNET will be reconstituted as set
forth in Section 2.02 herein;
(d) Brannon, Harris, Sigler, PCU and RRL will execute the option
agreements attached hereto as Exhibits C and D;
(e) WNET shall execute and file such documents that WNET may
reasonably require to insure that the issuance of WNET Stock to the holders of
SPC Common Stock pursuant to this Agreement complies with Section 4(2) of the
Securities Act of 933 (and the regulations promulgated thereunder) and any blue
sky laws applicable to them;
(f) All shares subject to the option agreements described in
Section 2.03 shall be placed in escrow with Mottern, Fisher & Rosenthal P.C.
for the term of the applicable option agreement;
(g) WNET shall establish a nonvoting advisory board to advise the
Purchaser on financial and strategic matters following the Effective Date, at
least four members of which will be designees of Gordon Mundy;
(h) WNET shall issue to SPC shareholders the options described in
paragraph 2 of Section 3.01 herein;
(i) SPC shall have delivered to WNET, in a form acceptable to
WNET an opinion of counsel for SPC as of the Effective Date that SPC's
corporate existence, good standing, and authorization to enter into and perform
under this Agreement are as stated in Section 4.01 herein. WNET shall have
delivered to SPC, in a form acceptable to SPC, an opinion of counsel for WNET
as of the Effective Date that WNET's corporate existence, good standing, and
authorization to enter into and perform under this Agreement are as stated in
Section 4.01 herein. In rendering its opinion, counsel for WNET and SPC may
rely on such certificates and written representations as are appropriate.
18
<PAGE> 19
SECTION 7.02 POST-EFFECTIVE DATE. Immediately after the Effective Date WNET
will convey its wholly-owned subsidiary, Home Alert Security Corporation, a
Georgia corporation, to Don Sigler for $10.
ARTICLE 8
TERMINATION, FURTHER ASSURANCES, AND MISCELLANEOUS
SECTION 8.01 TERMINATION AND POSTPONEMENT. WNET and SPC contemplate that the
Effective Date shall occur within fourteen (14) days from the execution of this
Agreement. If for any reason the Effective Date does not occur by November 30,
1998, then this Agreement shall terminate unless such date is extended in
writing by WNET and SPC. In addition this Agreement may be terminated at any
time by the mutual consent of the Boards of Directors of WNET and SPC.
SECTION 8.02 DEFAULTS. In the event of a termination of this Agreement due to
the exercise by a party of an express right to cancel or terminate as provided
herein or the failure of any of the conditions to the Effective Date to be
satisfied or waived or by the deadline therefor, then neither party shall have
any liability to the other, including particularly for any incidental or
consequential damages which each may have incurred or suffer as consequence of
the party's entry into this Agreement. In view of the difficulty of determining
SPC's damages in the event of default by WNET if the Effective Date does not
occur because of WNET's default (as distinguished from the exercise by WNET of
an express right to cancel or terminate as provided herein or the failure of
any of the conditions to the Effective Date to be satisfied or waived), then
SPC shall be entitled to $15,000 as full and complete liquidated damages, and
not as a penalty and. thereupon no party shall have any further obligation or
liability hereunder nor any other remedy at law or in equity. In view of the
difficulty of determining WNET's damages in the event of default by SPC if the
Effective Date does not occur because of SPC's default (as distinguished from
the exercise by WNET of an express right to cancel or terminate as provided
herein or the failure of any of thc conditions to the Effective Date to be
satisfied or waived), then WNET shall be entitled to $15,000 as full and
complete liquidated damages, and not as a penalty and, thereupon, no party
shall have any further obligation or liability hereunder nor any other remedy
at law or in equity.
SECTION 8.03 SURVIVAL. This Agreement and the representations, warranties and
covenants contained herein shall survive consummation of the transactions
herein contemplated for a period of one (1) year.
SECTION 8.04 ASSIGNMENT. This Agreement may not be assigned nor any of the
performances hereunder delegated by operation of law or otherwise by any party
hereto, and any purported assignment or delegation shall be void.
SECTION 8.05 HEADINGS. The article and section headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement.
SECTION 8.06 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives, assigns, and transferors.
SECTION 8.07 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof. There are no
representations, warranties,
19
<PAGE> 20
conditions, or other obligations except as herein specifically provided. Any
waiver, amendment, or modification hereof must be in writing. A waiver in one
instance shall not be deemed to be a continuing waiver or waiver in any other
instance.
SECTION 8.08 COUNTERPARTS. This Agreement may be executed in counterparts and
each counterpart hereof shall be deemed to be an original, but all such
counterparts together shall constitute but one agreement an original, but all
such counterparts together shall constitute but one agreement.
SECTION 8.09 NOTICES. All notices, requests, instructions, or other documents
to be given hereunder shall be deemed given if in writing, sent registered
mail:
IF TO WNET:
Donald H. Sigler
Home Alert Security Corporation
3475 Holcomb Bridge Rd. N.W.
P.O. Box 923535
Norcross, Georgia 30010-3535
Phone: (770) 209-9229
Fax: (770) 209-9921
and
Robert J. Mottern
Mottern, Fisher & Rosenthal, P.C.
2300 Northlake Centre Drive
Suite 200
Tucker, Georgia 30084
Phone: (770) 496-4565
Fax: (770) 496-4560
IF TO SPC:
Bart Brannon
Stupid PC, Inc.
3010-E Business Park Drive
Norcross, Georgia 30071
Phone: (770) 448-4150
Fax: (770) 448-2356
And
Christa Keamey
John McManus & Associates, P.C.
1117 Perimeter Center West
Suite N-320
Atlanta, Georgia 30338
Phone: (770) 96-1117
Fax: (770) 671-8947
20
<PAGE> 21
IF TO PCU:
PC-U, Inc.
2951 Stanstead Circle
Norcross, Georgia 30071
IF TO RRL:
River Rapids, Ltd. [address]
IF TO SIGLER:
Donald H. Sigler
2100 Four Mile Drive
Kalispell, Montana 59901
Phone: (406) 257-4471
Fax: (406) 257-4471
IF TO HARRIS:
Herb Harris
Home Alert Security Corporation
3475 Holcomb Bridge Rd., N.W.
P.O. Box 923535
Norcross, Georgia 30010-3535
Phone: (770) 209-9229
Fax: (770) 209-9921
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
WORLD NET HOLDINGS, INC., a Florida corporation
/s/ Donald H. Sigler
-------------------------------------------------
By: Donald H. Sigler, President
STUPID PC, INC., a Georgia corporation
/s/ Bart Brannon
-------------------------------------------------
By: Bart Brannon, President
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<PAGE> 22
/s/ Bart Brannon
-------------------------------------------------
Bart Brannon, Individually
/s/ Donald H. Sigler
-------------------------------------------------
Donald H. Sigler, Individually
/s/ Herbert G. Harris
-------------------------------------------------
Herb Harris, Individually
RIVER RAPIDS LTD., a Utah limited partnership
/s/ Gary Hatch
-------------------------------------------------
By: Gary Hatch, President of RRL
Managing General Partner
PC-U. INC.
-------------------------------------------------
By: , President
22
<PAGE> 23
EXHIBIT A
EXCEPTIONS SCHEDULE FOR WNET:
1. WNET has not filed tax returns for 1997.
2. WNET does not have insurance, and historically has not carried
insurance.
3. All issued shares were either issued with restrictive legend or exempt
from registration under Rule 504D provision.
4. WNET did not file a Form D with the SEC for a private offering of
70,000 shares of its common in 1998.
5. WNET has not filed documents with Standard & Poor's to obtain manual
exemption or conducted any blue sky filings or any other filings which
provide exemptions for secondary market trading.
6. In 1997, WNET sold 2,000,000 shares of its common stock for $0.10 per
share to 12 purchasers under Rule 504. Each purchaser gave a
promissory note rather than cash for their shares, and to date none of
the promissory notes have been paid. To date, shareholders holding
1,525,000 shares have returned their shares to the company in
consideration for cancellation of their promissory note.
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<PAGE> 24
EXHIBIT D
OPTION AGREEMENT
THIS OPTION AGREEMENT made this ___ day of_________________ 1998 (the
"Effective Date"), between Bart Brannon ("Brannon") and Herb Harris ("Harris").
WHEREAS, Harris owns 160,250 shares (the "Common Shares") of common
stock in World Net Holdings, Inc. (the "Corporation");
WHEREAS, Harris has agreed to grant Brannon the option to purchase part or all
of the Common Shares on the terms and conditions set forth herein;
WHEREAS, the Common Shares are held by Mottern, Fisher & Rosenthal, P.C. as
Escrow Agent pursuant to the Escrow Agreement of even date herewith.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth
and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION. Harris hereby hereby irrevocably grants to Brannon
the right and option, hereinafter called the Option, to purchase all or any
part of the Common Shares on the terms and conditions set forth herein at the
following prices: (a) $1.50 per share, if exercised within 90 days following
the Effective Date, (b) $1.75 per share, if exercised between 91 and 180 days
following the Effective Date, (c) $2.00 per share, if exercised between 181 and
270 days following the Effective Date, and (d) $2.25 per share, if exercised
between 271 and 365 days following the Effective Date.
2. TERM OF OPTION. The Option may be exercised at anytime from time to
time as to any part of or all the Common Shares until a date 365 days after the
Effective Date; provided, however, that the Option may not be exercised as to
less than 100 shares at any one time (or the remaining shares then purchasable
under the Option, if less than 100 shares). Harris shall have all rights of a
shareholder with respect to the Common Shares covered by the Option prior to
the date of exercise of this Option with respect to such Common Shares.
3. CHANGES IN CAPITAL STRUCTURE. If all or any portion of the Option
shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization, or liquidation occurring after the date hereof, as
a result of which shares of any class shall be issued in respect of outstanding
Common Shares or Common Shares shall be changed into the same or a different
number of shares of the same or another class or classes, the person or persons
so exercising the Option shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of shares which, if Common Shares (as
authorized at the date hereof) had been purchased at the date hereof for the
same aggregate price (on the basis of the price per share set forth in
Paragraph 2 hereof) and had not been disposed of, such person or persons would
be holding, at the time of such exercise, as a result of such purchase and all
such share dividends, split-ups, recapitalization mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations, or
liquidations; provided, however, that no factional share shall be issued upon
any such exercise, and the aggregate price paid shall be appropriately reduced
on account of any fractional share not
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<PAGE> 25
issued. No adjustment shall be made in the minimum number of shares which may
be purchased at any one time, as fixed by Paragraph 2 hereof.
4. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, the Option may be exercised by written notice to Harris and the
Escrow Agent. Such notice shall state the election to exercise the Option and
the number of Common Shares in respect of which it is being exercised, and
shall be signed by Brannon. Such notice shall be accompanied by payment of the
lull purchase price of such Common Shares, in which event the Escrow Agent
shall, as soon as practicable after the notice and payment shall have been
received, deliver a certificate or certificates representing such Common Shares
to Brannon and the purchase price to Harris. Payment of such purchase price
shall, in all cases, be made by certified check or wire transfer to the order
of the Escrow Agent.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be duly
executed by its officers thereunto duly authorized, and the Optionholder has
hereunto set his hand and seal, all on the day and year first above written.
- -------------------------
Herb Harris
- -------------------------------------------
Bart Brannon
25
<PAGE> 1
EXHIBIT 3.1
REVISED AND RESTATED
ARTICLES OF INCORPORATION
OF
STUPIDPC, INC.
I.
The name of the corporation is "StupidPC, Inc." (the "Corporation").
II.
The aggregate number of shares of all classes of capital stock that
this Corporation shall have authority to issue is One Hundred Million
(100,000,000), consisting of (i) Ninety Five Million (95,000,000) shares of
common stock, no par value (the "Common Stock"), and (ii) Five Million
(5,000,000) shares of preferred stock, no par value (the "Preferred Stock").
The designations and the preferences, limitations and relative rights
of the Common Stock and the Preferred Stock of the Corporation are as follows:
A. Common Stock
1. Voting Rights
(a) Except as otherwise required by law or as may be
provided by the resolutions of the Board of Directors authorizing the issuance
of any class or series of preferred stock as provided in Section B of this
Article II, all rights to vote and all voting power shall be vested exclusively
in the holders of the Common Stock.
(b) The holders of the Common Stock shall be entitled to
one vote per share on all matters submitted to a vote of shareholders,
including, without limitation, the election of directors.
2. Dividends. Except as otherwise provided by law or as may be
provided by the resolutions of the Board of Directors authorizing the issuance
of any class or series of preferred stock as provided in Section B of this
Article II, the holders of the Common Stock shall be entitled to receive when,
as and if provided by the Board of Directors, 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
payment or provision for payment of the debts and other liabilities of the
Corporation, and except as may be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or series of preferred stock as
provided in Section B of this Article II, the remaining assets of the
Corporation shall be distributed pro-rata to the holders of the Common Stock.
<PAGE> 2
B. 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, powers, preferences, rights, qualifications, limitations and
restrictions thereof as are stated and expressed herein and in the resolution
or resolutions providing for the issue of such class or series adopted by the
Board of Directors as hereinafter prescribed.
2. Preferences. Authority is hereby expressly granted to and
vested in the Board of Directors 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 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, 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 annual amount thereof and the terms
and provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, 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;
2
<PAGE> 3
(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 of Directors 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 of Directors 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 of Directors may
decrease the number of shares of the Preferred Stock designated for any
existing class or series by a resolution, subtracting from such class or 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.
III.
The registered office of the Corporation is 817 West Peachtree Street,
Suite 400, Atlanta, Georgia 30308. The registered agent of the Corporation at
such office is Michael R. Siavage.
IV.
The mailing address of the initial principal office of the Corporation
is:
3010 East Business Park Drive
Norcross, Georgia 30071
VI.
No director shall have any personal liability to the Corporation or to
its shareholders for monetary damages for breach of duty of care or other duty
as a director, by reason of any act or omission occurring subsequent to the
date when this provision becomes effective, except that this provision shall
not eliminate or limit the liability of a director for (a) any appropriation,
in violation of his duties, of any business opportunity of the Corporation; (b)
acts or omissions which involve intentional misconduct or a knowing violation
of law; (c) liabilities of a director imposed by Section 14-2-832 of the
Georgia Business Corporation Code; or (d) any transaction from which the
director derived an improper personal benefit.
3
<PAGE> 4
If at any time the Code shall have been amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of each director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders.
Any repeal or modification of the foregoing provisions of this Article
VI shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of any director of the Corporation for or
with respect to any alleged act or omission of the director occurring prior to
such repeal or modification.
VII.
Any action required by law or by the Bylaws of the Corporation to be
taken at a meeting of the shareholders of the Corporation, and any action which
may be taken at a meeting of the shareholders, may be taken without a meeting
if a written consent, setting forth the action so taken, shall be signed by
persons entitled to vote at a meeting those shares having sufficient voting
power to cast not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted. Notice of such action without a meeting by less
than unanimous written consent shall be given within ten (10) days of the
taking of such action to those shareholders of record on the date when the
written consent is first executed and whose shares were not represented on the
written consent.
VIII.
The Corporation shall have the power, acting through its Board of
Directors, to make distributions of its assets to its shareholders out of its
capital surplus and to repurchase its shares out of its unreserved and
unrestricted capital surplus available therefor.
IX.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation,
the Board of Directors, committee of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and its
subsidiaries are located, and all other factors such directors consider
pertinent. This provision solely grants discretionary authority to the
directors and shall not be deemed to provide any constituency any right to be
considered.
IN WITNESS WHEREOF, the undersigned, Incorporator of the Corporation,
has caused these Articles of Incorporation to be executed this ___ day of
September, 1999.
4
<PAGE> 5
STUPIDPC, INC.
By:
---------------------------------
Stephen B. Brannon
President
5
<PAGE> 1
EXHIBIT 3.2
===============================================================================
REVISED AND RESTATED
BYLAWS
OF
STUPIDPC, INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF GEORGIA
Adopted as of September ___, 1999
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
ARTICLE I.........................................................................................................1
Section 1. Registered Office and Agent...................................................................1
Section 2. Other Offices.................................................................................1
ARTICLE II........................................................................................................1
Section 1. Annual Meetings...............................................................................1
Section 2. Special Meetings..............................................................................1
Section 3. Notice of Meetings............................................................................2
Section 4. Quorum........................................................................................2
Section 5. Voting........................................................................................2
Section 6. Consent of Shareholders.......................................................................2
Section 7. List of Shareholders..........................................................................3
Section 8. Shareholder Notice Procedures.................................................................3
Section 9. Limitations on Right of Inspection............................................................3
Section 10. Record Date for Action by Consent of Shareholders............................................4
ARTICLE III.......................................................................................................4
Section 1. Powers........................................................................................4
Section 2. Number, Election, and Term....................................................................4
Section 3. Vacancies.....................................................................................5
Section 4. Meetings and Notice...........................................................................5
Section 5. Quorum........................................................................................5
Section 6. Consent of Directors..........................................................................5
Section 7. Committees....................................................................................5
Section 8. Removal of Directors..........................................................................6
Section 9. Compensation of Directors.....................................................................6
ARTICLE IV........................................................................................................6
Section 1. Number........................................................................................6
Section 2. Compensation..................................................................................6
Section 3. Term of Office................................................................................6
Section 4. Removal.......................................................................................7
Section 5. Vacancies.....................................................................................7
Section 6. Powers and Duties.............................................................................7
Section 7. Voting Securities of Corporation..............................................................8
ARTICLE V.........................................................................................................8
Section 1. Form of Certificate...........................................................................8
Section 2. Lost Certificates.............................................................................8
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 3. Transfers.....................................................................................8
Section 4. Record Date...................................................................................9
Section 5. Transfer Agent and Registrar..................................................................9
ARTICLE VI........................................................................................................9
Section 1. Dividends.....................................................................................9
Section 2. Fiscal Year..................................................................................10
Section 3. Seal.........................................................................................10
ARTICLE VII......................................................................................................10
Section 1. Basis for Indemnification....................................................................10
Section 2. Right to Indemnification.....................................................................11
Section 3. Expenses.....................................................................................11
Section 4. Non-exclusivity..............................................................................11
Section 5. Insurance....................................................................................12
Section 6. Right to Participate in Defense..............................................................12
Section 7. Continuation of Right of Indemnification.....................................................12
ARTICLE VIII.....................................................................................................12
</TABLE>
<PAGE> 4
BYLAWS
OF
STUPIDPC, INC.
ARTICLE I
OFFICES
Section 1. Registered Office and Agent. The registered office
of the Corporation shall be in the State of Georgia and the Corporation shall
at all times maintain a registered agent at the address of the registered
office.
Section 2. Other Offices. The Corporation may also have offices
at such other places both within and without the State of Georgia as the Board
of Directors may from time to time determine and the business of the
Corporation may require or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
Section 1. Annual Meetings. A meeting of the shareholders of
the Corporation shall be held annually. The annual meeting of the shareholders
of the Corporation shall be held at the principal office of the Corporation or
at such other place in the United States as may be determined by the Board of
Directors, on such date following the close of the fiscal year as shall be
determined by the Board of Directors, for the purpose of electing Directors and
transacting such other business as may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the
shareholders shall be held at the principal office of the Corporation or at
such other place in the United States as may be designated in the notice of
said meetings, upon call of the chairman of the Board of Directors or the
president and shall be called by the president or the secretary when so
directed by the Board of Directors or at the request (in compliance with
applicable requirements of the Code) in writing of shareholders owning at least
25% of the issued and outstanding capital stock of the Corporation entitled to
vote thereat. Any such request shall state the purposes for which the meeting
is to be called and the business that may be transacted at any special meeting
of shareholders shall be limited to that proposed in the notice of special
meeting given (including related or incidental matters that may be necessary or
appropriate to effectuate the proposed business).
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Section 3. Notice of Meetings. Written notice of every meeting
of shareholders, stating the place, date and hour of the meeting, shall be
given personally or by mail to each shareholder of record entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States Mail with first class postage thereon prepaid addressed to
the shareholder at his address as it appears on the Corporation's record of
stockholders. Attendance of a shareholder at a meeting of shareholders, in
person or by proxy, shall constitute a waiver of notice of such meeting and of
all objections to the place or time of meeting, or the manner in which it has
been called or convened, except when a shareholder attends a meeting solely for
the purpose of stating, at the beginning of the meeting, any such objection to
the transaction of any business. Notice need not be given to any shareholder
who signs a waiver of notice, in person or by proxy, either before or after the
meeting.
Section 4. Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the shareholders except as otherwise provided by statute, by
the articles of incorporation, or by these bylaws. If a quorum is not present
or represented at any meeting of the shareholders, a majority of the
shareholders entitled to vote thereat, present in person or represented by
proxy, may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting.
Section 5. Voting. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law or
of the articles of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
Each shareholder shall at every meeting of the shareholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power registered in his name on the books of the Corporation, but no proxy
shall be voted or acted upon after 11 months from its date, unless otherwise
provided in the proxy.
Section 6. Consent of Shareholders. Any action required or
permitted to be taken at any meeting of the shareholders may be taken without a
meeting if written consent, setting forth the action so taken, shall be signed
by persons who would be entitled to vote at a meeting those shares having
voting power to cast not less than the minimum number (or numbers, in the case
of voting by classes) of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote were present and
voted. The action must be evidenced by one or more written consents describing
the action taken, signed by shareholders entitled to take action without a
meeting, and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. Such consent shall have the same force and
effect as a meeting vote of shareholders. Where required by Section 14-2-704 or
other applicable provision of the Georgia
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Business Corporation Code, the Corporation shall provide shareholders with
written notice of actions taken without a meeting.
Section 7. List of Shareholders. The Corporation shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving their names
and addresses and the number, class and series, if any, of the shares held by
each. The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, before every meeting of shareholders or any adjournment
thereof, a complete list of the shareholders entitled to vote at the meeting or
any adjournment thereof, arranged in alphabetical order, with the address of
and the number and class and series, if any, of shares held by each. The list
shall be produced and kept open at the time and place of the meeting and shall
be subject to inspection by any shareholder during the whole time of the
meeting for the purposes thereof. The said list may be the Corporation's
regular record of shareholders if it is arranged in alphabetical order or
contains an alphabetical index.
Section 8. Shareholder Notice Procedures. Only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
shareholder who has given timely written notice containing information as
specified by the Board of Directors to the secretary of the Corporation prior
to the meeting at which Directors are to be elected, will be eligible for
election as Directors of the Corporation. At annual meetings, only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the chairman of the Board of Directors or by a shareholder who
has given timely written notice to the secretary of the Corporation of such
shareholder's intention to bring such business before such meeting. For notice
of shareholder nominations or business to be conducted at an annual meeting to
be timely, such notice must be received by the Corporation not less than sixty
(60) nor more than ninety (90) days prior to the first anniversary of the
previous year's annual meeting.
Section 9. Limitations on Right of Inspection. The right of
inspection enumerated in subsection (c) of Section 14-2-1602 of the Georgia
Business Corporation Code, or any successor provision, may be exercised by a
shareholder owning in excess of two percent (2%) of the issued and outstanding
shares of the Corporation if such shareholder otherwise meets the requirements
of subsection (d) of such section. With respect to a shareholder owning two
percent (2%) or less of the issued and outstanding shares of the Corporation,
the right of inspection granted by such subsection shall be denied by the
Corporation to any shareholder unwilling to agree in writing to abstain
(i) from purchasing or selling any shares of the Corporation;
(ii) from soliciting any proxies over shares of the Corporation,
or seeking to persuade any person to grant or withhold a
proxy or vote with respect to any shares of the Corporation;
and
(iii) from sharing with any third person any undisclosed
information concerning the Corporation disclosed in such
inspection or otherwise learned by such shareholder
exercising such inspection right,
for so long as any information disclosed in such inspection is material and
remains undisclosed by the Corporation, and in any event, for one year from the
date of the exercise of such inspection
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<PAGE> 7
right. The agreements required by this Section 9 shall be required of the
inspecting shareholder and all agents and attorneys for such shareholder.
Section 10. Record Date for Action by Consent of Shareholders.
In order that the Corporation may determine the shareholders entitled to
consent to any action required or permitted to be taken at any meeting of the
shareholders in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
shareholder of record seeking to have the shareholders authorize or take any
action by written consent shall, by written notice to the secretary of the
Corporation, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within ten (10) days
of such request, then the record date for determining the shareholders entitled
to consent to action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Georgia, its principal place of business, or an officer or agent
of the Corporation having custody of the books in which proceedings of
shareholders meetings are recorded, to the attention of the secretary of the
Corporation. Delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action of the Board of Directors is required by applicable
law, the record date for determining shareholders entitled to consent to action
in writing without a meeting shall be at the close of business on the date on
which the Board of Directors adopts the resolution taking such prior action.
ARTICLE III
DIRECTORS
Section 1. Powers. Except as otherwise provided by any legal
agreement among shareholders, the property, affairs, and business of the
Corporation shall be managed and directed by its Board of Directors, which may
exercise all powers of the Corporation and do all lawful acts and things which
are not by law, by any legal agreement among shareholders, by the articles of
incorporation, or by these bylaws directed or required to be exercised or done
by the shareholders.
Section 2. Number, Election, and Term. The number of Directors
of the Corporation shall be fixed by resolution of the Board of Directors from
time to time. No decrease in the number of Directors shall have the effect of
shortening the term of an incumbent Director. The Directors shall be elected by
plurality vote at the annual meeting of shareholders, except as hereinafter
provided, and each Director elected shall hold office until his successor is
elected and qualified or until his earlier resignation, removal from office, or
death. Directors shall be natural persons who have attained the age of 18
years, but need not be residents of the State of Georgia or shareholders of the
Corporation.
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Section 3. Vacancies. Vacancies, including vacancies resulting
from any increase in the number of Directors, but not including vacancies
resulting from removal from office by the shareholders, may be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director, and a Director so chosen shall hold office until the
next annual election and until his successor is duly elected and qualified
unless sooner displaced. If there are no Directors in office, then vacancies
shall be filled through election by the shareholders.
Section 4. Meetings and Notice. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Georgia. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by resolution of the board. Special meetings of the board may be
called by the chairman of the board or president or by any two Directors on one
days oral, telegraphic, or written notice duly given or served on each Director
personally or by facsimile transmission, or four days notice deposited, first
class postage prepaid, in the United States mail. Such notice shall state a
reasonable time, date, and place of meeting, but the purpose need not be stated
therein. Notice 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 shall
constitute a waiver of notice of such meeting and waiver of all objection to
the place and time of the meeting, or the manner in which it has been called or
convened, except when the Director states, at the beginning of the meeting, any
such objection or objections to the transaction of business.
Section 5. Quorum. At all meetings of the board a majority of
Directors shall constitute a quorum for the transaction of business, and the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the board, except as may be otherwise specifically
provided by law, by the articles of incorporation, or by these bylaws. If a
quorum shall not be present at any meeting of the board, the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Consent of Directors. Unless otherwise restricted by
the articles of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, setting forth the
action so taken, and the writing or writings are filed with the minutes of the
proceedings of the board or committee. Such consent shall have the same force
and effect as a unanimous vote of the board.
Section 7. Committees. The Board of Directors may by resolution
passed by a majority of the whole board, designate from among its members one
or more committees, each committee to consist of two or more Directors. The
board may designate one or more Directors as alternate members of any
committee, who may replace any absent member at any meeting of such committee.
Any such committee, to the extent provided in the resolution, shall have and
may exercise all of the authority of the Board of Directors in the management
of the business and affairs of the Corporation, except that it shall have no
authority with respect to (1) amending the articles of incorporation or these
bylaws; (2) adopting a plan of merger or consolidation; (3) the sale, lease,
exchange or other disposition of all or substantially all the property and
assets of the Corporation; and (4) a voluntary dissolution of the Corporation
or a revocation thereof. Such committee or
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<PAGE> 9
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. A majority of each committee
may determine its action and may fix the time and places of its meetings,
unless otherwise provided by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 8. Removal of Directors. At any shareholders' meeting
with respect to which notice of such purpose has been given, any Director may
be removed from office, with or without cause by the vote of shareholders
representing a majority of the issued and outstanding capital stock entitled to
vote for the election of Directors, and his successor may be elected at the
same or any subsequent meeting of shareholders; provided that to the extent any
vacancy created by such removal is not filled by such an election within 60
days after such removal, the remaining Directors shall, by majority vote, fill
any such vacancy.
Section 9. Compensation of Directors. Directors shall be
entitled to such reasonable compensation for their services as Directors or
members of any committee of the board as shall be fixed from time to time by
resolution adopted by the board, and shall also be entitled to reimbursement
for any reasonable expenses incurred in attending any meeting of the board or
any such committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a president, a secretary, and a
treasurer. The Board of Directors may choose one or more vice presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person. The Board of Directors may appoint such other officers
and agents as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 2. Compensation. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors or a committee or officer
appointed by the board. Salary payments may be made at such intervals as may be
determined by the Board of Directors or such officer or committee. In addition
to salaries the Board of Directors may pay bonuses to officers and other
employees, the persons who may receive such bonuses and the amount and time of
payment being within the discretion of the Board of Directors.
Section 3. Term of Office. Unless otherwise provided by
resolution of the Board of Directors, the principal officers shall be chosen
annually by the board at the first meeting of the board following the annual
meeting of shareholders of the Corporation, or as soon thereafter as is
conveniently possible. Subordinate officers may be elected from time to time.
Each officer shall serve until his successor shall have been chosen and
qualified, or until his death, resignation, or removal.
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Section 4. Removal. Any officer may be removed from office at
any time, with or without cause, by the Board of Directors whenever in its
judgment the best interest of the Corporation will be served thereby.
Section 5. Vacancies. Any vacancy in an office resulting from
any cause may be filled by the Board of Directors.
Section 6. Powers and Duties. Except as hereinafter provided,
the officers of the Corporation shall each have such powers and duties as
generally pertain to their respective offices, as well as such powers and
duties as from time to time may be conferred by the Board of Directors.
(a) President. The president shall be the chief
executive officer of the Corporation, shall preside at all meetings of the
shareholders and (unless the board shall have created an office of chairman of
the board) the Board of Directors, shall have general and active management of
the business of the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. He shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
(b) Secretary. The secretary shall attend all meetings
of the Board of Directors and all meetings of the shareholders and record all
the proceedings of the meetings of the Corporation and of the Board of
Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he shall be. He shall
have custody of the corporate seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
(c) Treasurer. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
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(d) Assistant Officers. Vice presidents and assistants to
the secretary and treasurer, if any, shall perform such duties and have such
powers as the Board of Directors may from time to time prescribe.
Section 7. Voting Securities of Corporation. Unless otherwise
ordered by the Board of Directors, the president shall have full power and
authority on behalf of the Corporation to attend and to act and vote at any
meetings of security holders of corporations in which the Corporation may hold
securities, and at such meetings shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Corporation might have possessed and exercised if it had been present. The Board
of Directors by resolution from time to time may confer like powers upon any
other person or persons.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form of Certificate. Every holder of fully paid
stock in the Corporation shall be entitled to have a certificate in such form
as the Board of Directors may from time to time prescribe.
Section 2. Lost Certificates. The Board of Directors may direct
that a new certificate be issued in place of any certificate theretofore issued
by the Corporation and alleged to have been lost, stolen, or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen, or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and to give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
Section 3. Transfers.
(a) Transfers of shares of the capital stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as in Section 5 of this Article
provided, and on surrender of the certificate or certificates for such shares
properly endorsed and the payment of all taxes thereon.
(b) The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and for all other purposes, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
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(c) Shares of capital stock may be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificates or by separate written power of
attorney to sell, assign, and transfer the same, signed by the record holder
thereof, or by his duly authorized attorney in fact, but no transfer shall
affect the right of the Corporation to pay any dividend upon the stock to the
holder of record as the holder in fact thereof for all purposes, and no
transfer shall be valid, except between the parties thereto, until such
transfer shall have been made upon the books of the Corporation as herein
provided.
(d) The board may from time to time, make such
additional rules as it may deem expedient and not inconsistent with these
bylaws or the articles of incorporation, concerning the issue, transfer, and
registration of certificates for shares of the capital stock of the
Corporation.
Section 4. Record Date. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than 60 days and, in case of
a meeting of shareholders, not less than 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, the record
date shall be at the close of business on the day next preceding the day on
which the notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. If no record date
is fixed for other purposes, the record date shall be at the close of business
on the day next preceding the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record entitled
to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the Board of Directors shall fix a new record
date for the adjourned meeting.
Section 5. Transfer Agent and Registrar. The Board of Directors
may appoint one or more transfer agents or one or more transfer clerks and one
or more registrars, and may require all certificates of stock to bear the
signature or signatures of any of them.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the articles of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the Corporation's capital stock, subject to the provisions of the
articles of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall think conducive to the interest
of the Corporation, and the Directors may modify or abolish any such reserve in
the manner in which it was created.
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Section 2. Fiscal Year. The fiscal year of the Corporation
Shall be fixed by resolution of the Board of Directors.
Section 3. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the
words "Corporate Seal" and "Georgia". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise. In the
event it is inconvenient to use such a seal at any time, the signature of the
Corporation followed by the word "Seal" enclosed in parentheses shall be deemed
the seal of the Corporation.
ARTICLE VII
INDEMNIFICATION
Section 1. Basis for Indemnification.
(a) Under the circumstances prescribed in Section 2 of
this Article, the Corporation shall indemnify and hold harmless any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, or conduct was
unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself create a presumption that the person did not
act in a manner which he reasonably believed to be in or not opposed to the
best interest of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) Under the circumstances prescribed in Section 2 of
this Article, the Corporation shall indemnify and hold harmless any person who
was or is a party or it threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact he is or was a director,
officer, employee or agent of the Corporation, or is or was a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, but in view
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of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 2. Right to Indemnification. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 1 of this Article, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. Except as
provided in the preceding sentence and except as may be ordered by a court, any
indemnification under Section 1 of this Article shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 1 of this Article. Such a determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) by independent
legal counsel employed by the Corporation, in a written opinion, if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, or (iii) by the affirmative vote of a majority of the
shares entitled to vote thereon.
Section 3. Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such proceeding as authorized by the Board of
Directors generally or as to a specific case or as to a specific person or
persons (designated by name, title or class of persons), upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount of it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article VII.
Section 4. Non-exclusivity. The provisions for indemnification
and advancement of expenses provided by this Article VII shall not be deemed
exclusive of any other rights, in respect of indemnification or otherwise, to
which those seeking indemnification may be entitled under any bylaw, agreement,
either specifically or in general terms, resolution, or approved by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon taken at a meeting the notice of which specified that such bylaw,
resolution or agreement would be placed before the shareholders, both as to
action by a director, officer, employee or agent in his official capacity and
as to action in another capacity while holding such office or position, except
that no such other rights, in respect to indemnification or otherwise, to which
those seeking indemnification may be entitled under any bylaw, agreement,
either specifically or in general terms, resolution, or approved by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon taken at a meeting the notice of which specified that such bylaw,
resolution or agreement would be placed before the shareholders, both as to
action by a director, officer, employee or agent in his official capacity and
as to action in another capacity while holding such office or position, except
that no such other rights, in respect to indemnification or otherwise, may be
provided or granted with respect to the liability of any director, officer,
employee or agent for (a) any appropriation, in violation of his duties, of any
business opportunity of the Corporation; (b) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(c) liabilities of a director imposed by Section 14-2-832 of the Georgia
Business Corporation Code; or (d) any transaction from which the director,
officer, employee, or agent derived an improper personal benefit.
-11-
<PAGE> 15
Section 5. Insurance.
(a) 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, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against 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 VII.
(b) If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the Corporation,
the Corporation shall, not later than the next annual meeting of shareholders
unless such meeting is held within 3 months from the date of such payment, and,
in any event, within 15 months from the date of such payment, send by first
class mail (or if the Corporation shall have at the time more than 500
shareholders entitled to vote, by such other means as may be authorized by the
Georgia Business Corporation Code for notices of meetings of shareholders) to
its shareholders of record at the time entitled to vote for the election of
directors 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.
Section 6. Right to Participate in Defense. As a condition to
any such right of indemnification, or to receive advancement of expenses, the
Corporation may require that it be permitted to participate in the defense of
any such action or proceeding through legal counsel designated by the
Corporation and at the expense of the Corporation.
Section 7. Continuation of Right of Indemnification. The rights
to indemnification and advancement of expenses provided in this Article VII
shall continue notwithstanding that a person who would otherwise have been
entitled to indemnification or advancement of expenses hereunder shall have
ceased to be a director, officer, employee or agent, and shall insure to the
benefit of the heirs, executors and administrators of such persons.
ARTICLE VIII
AMENDMENTS
The Board of Directors shall have power to alter, amend, or repeal
these bylaws or adopt new bylaws by majority vote of all of the Directors, but
any bylaws adopted by the Board of Directors may be altered, amended, or
repealed and new bylaws adopted, by the shareholders by majority vote of all of
the shares having voting power.
-12-
<PAGE> 1
EXHIBIT 4.2
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
STUPIDPC, INC. CUSIP NO. 864023 10 6
[NUMBER] [SHARES]
AUTHORIZED COMMON STOCK: 12,500,000 SHARES - PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of STUPID PC, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/
- -------------------------- --------------------
Secretary President
[CORPORATE SEAL]
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
Countersigned Registered:
HOLLADAY STOCK TRANSFER, INC.
2939 North 67th Place
Scottsdale, AZ 85251
[SEALS] By
--------------------
Authorized Signature
<PAGE> 2
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT - as tenants by the entireties ---------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------
------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE> 1
EXHIBIT 5.1
[RED HOT LAW GROUP (SM) OF ASHLEY LLC LETTERHEAD]
September 16, 1999
Stupid PC, Inc.
3010-E Business Park Drive
Norcross, Georgia 30071
Ladies and Gentlemen:
We have acted as counsel to Stupid PC, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, covering the
offering of up to 1,420,000 shares (the "Shares') of the Company's common
stock, no par value per share by the selling securityholders named in the
Registration Statement, including (i) up to 1,200,000 shares that they may
acquire upon conversion of the Company's 8% convertible debentures and (ii) up
to 220,000 shares that they may acquire upon exercise of warrants to purchase
shares of common stock. In connection therewith, we have examined such
corporate records, certificates of public officials and other documents and
records as we have considered necessary or proper for the purpose of this
opinion.
This opinion is limited by and is in accordance with the January 1,
1992, edition of the Interpretive Standards applicable to Legal Opinions to
Third Parties in Corporate Transactions adopted by the Legal Opinion Committee
of the Corporate and Banking Law Section of the State Bar of Georgia, which is
incorporated herein by reference.
Based on the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that the Shares, when issued and
delivered as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Red Hot Law Group of Ashley LLC
Red Hot Law Group of Ashley LLC
<TABLE>
<S> <C> <C> <C> <C>
The Biltmore * 817 West Peachtree Street, Suite 400 * Atlanta, Georgia 30308-1138 * Tel: 404.575.1901 * www.redhotlaw.com
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT
BETWEEN
STUPIDPC, INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT dated as of July
15, 1999 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and StupidPC, Inc., a corporation
organized and existing under the laws of the State of Georgia (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $1,200,000 principal
amount of a Convertible Debenture (as defined below) and (ii) Warrants (as
defined below) to purchase up to 120,000 shares of the Common Stock (as defined
below) at $5.50 per share.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities
Act and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Convertible Debenture and Warrants pursuant to Section 2.1.
<PAGE> 2
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock issuable
upon conversion of the Convertible Debenture and any shares of Common Stock
issued as interest upon the Convertible Debenture.
Section 1.7. "Convertible Debenture" shall mean the $1,200,000 principal amount
of 8% Convertible Debentures due June 30, 2001, in the form of Exhibit A
hereto.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.14. "Market Price" on any given date shall mean the average of the
three lowest closing bid prices on the Principal Market (as reported by
Bloomberg L.P.) of the Common Stock on any Trading Day during the ten Trading
Day period ending on the Trading Day immediately prior to the date for which
the Market Price is to be determined.
Section 1.15. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.16. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
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<PAGE> 3
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.17. "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
Section 1.18. "Principal Market" shall mean the American Stock Exchange, the
New York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap
Market or the OTC Bulletin Board, whichever is at the time the principal
trading exchange or market for the Common Stock, based upon share volume.
Section 1.19. "Purchase Price" shall mean the principal amount of the
Convertible Debenture.
Section 1.20. "Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Conversion Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing
a restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.21. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Closing Date in the form annexed hereto as Exhibit C.
Section 1.22. "Registration Statement" shall mean a registration statement on
Form SB-2 or S-1 (if use of such form is then available to the Company pursuant
to the rules of the SEC and, if not, on such other form promulgated by the SEC
for which the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the resale by the
Investors of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement, the Registration Rights
Agreement and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.23. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
3
<PAGE> 4
Section 1.26. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.27. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.28. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.29. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
Section 1.30. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURE AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Investors agree to purchase the Convertible
Debenture together with the Warrants at the Purchase Price on the Closing Date
as follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall
deliver the Convertible Debenture certificates and
the Warrants to the Escrow Agent, in each case to be
held by the Escrow Agent pursuant to the Escrow
Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the Closing ("Closing") shall occur
at the offices of the Escrow Agent at which the
Escrow Agent (x) shall release the Convertible
Debenture and the Warrants to the Investors and (y)
shall release the Purchase Price (after all fees
have been paid as set forth in the Escrow
Agreement), pursuant to the terms of the Escrow
Agreement.
(b) The Closing is subject to the satisfaction of the following
conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits
hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the Convertible Debenture and the Warrants, as
more fully set forth in the Escrow Agreement;
4
<PAGE> 5
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Investors'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Debenture and Warrants,
or shall have the availability of exemptions
therefrom;
(vi) the sale and issuance of the Convertible Debenture
and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of the
Common Stock underlying the Convertible Debenture
and the Warrants upon the conversion or exercise
thereof shall be legally permitted by all laws and
regulations to which the Investors and the Company
are subject and there shall be no ruling, judgment
or writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debenture certificates and Warrants certificates to
the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Red
Hot Law Group of Ashley L.L.C., counsel to the
Company, in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F; and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections
bear a reasonable proportion and are not plainly or grossly disproportionate to
the probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
5
<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Convertible Debenture, the Warrants,
any Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at
any time in accordance with federal and state securities laws applicable to
such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Convertible Debenture, the Warrants
and the underlying Common Stock. The Investor acknowledges that an investment
in the Convertible Debenture, the Warrants and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an
Exhibit hereto which is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof
and thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or
6
<PAGE> 7
legal obligation to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by the Investor and the
Investor has had the opportunity to question management on its plans and
operations and those questions have been answered to the satisfaction of the
Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Georgia and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity. The Company is duly qualified and is in good standing as
a foreign corporation to do business in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to conduct its business as now conducted, to enter into and
perform its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, and the Warrants and to issue the Convertible
Debenture, the Conversion Shares, the Warrants and the Warrant Shares pursuant
to their respective terms, (ii) the execution, issuance and delivery of this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debenture and the Warrants by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debenture and the Warrants have been duly executed and delivered by
the Company and at the Closing shall constitute valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of the
Convertible Debenture and for the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive
7
<PAGE> 8
effect to the Common Stock of the issuance of the Conversion Shares. The
Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Convertible Debenture and Warrant Shares upon exercise
of the Warrants in accordance with this Agreement and the Convertible Debenture
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C. ss.
101 et seq. (the "Bankruptcy Code"). The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under
11 U.S.C. ss. 362 in respect of the conversion of the Convertible Debenture and
the exercise of the Warrants. The Company agrees, without cost or expense to
the Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, $0.001 par value per share, of
which 6,064,250 shares of Class B (one vote-one share) are issued and
outstanding as of June 25, 1999 and 20,100,000 shares of Preferred Stock, par
value $0.001 per share, none of which are issued and outstanding. Except as
described on Schedule 4.3(b), there are no outstanding Capital Shares
Equivalents nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. The Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities except for certain "piggyback"
registration rights granted in two consulting agreements which would be
inapplicable to this transaction. All of the outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are fully
paid and non-assessable and have been issued pursuant to valid exemptions from
registration under the Securities Act and all applicable state "blue sky" laws.
The capital stock is further described in Schedule 4.3(a). The Board of
Directors has duly and validly waived the provisions of the Company's Articles
of Incorporation with respect to the ownership of 10% or more of the Company's
Common Stock by the Investors and their respective successors and assigns.
Section 4.4. Financial Statements. The Company has provided to the Investors
financial statements of the Company for the seventeen weeks ended December 31,
1997 and the twelve months ended December 31, 1998. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments). Neither the Company nor any of its subsidiaries has any material
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that would
have been required to be reflected in, reserved against or otherwise described
in the financial statements or in the notes thereto in accordance with GAAP,
which was not fully reflected in, reserved against or otherwise described in
the financial statements or the notes thereto included in the financial
statements or was not incurred in the ordinary course of business consistent
with the Company's past practices since
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the last date of such financial statements. No indebtedness of the Company is
secured by any lien on any assets of the Company.
Section 4.5. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debenture, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Debenture, the Conversion Shares and the Warrant Shares will be
duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Debenture, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under,
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Debenture or the Warrants will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the
Convertible Debenture, the Conversion Shares, the Warrants or the Warrant
Shares or, except as contemplated herein, any of the assets of the Company, or
(ii) entitle the holders of Outstanding Capital Shares to preemptive or other
rights to subscribe for or acquire the Capital Shares or other securities of
the Company. The Convertible Debenture, the Conversion Shares, the Warrants and
the Warrant Shares shall not subject the Investors to personal liability to the
Company or its creditors by reason of the possession thereof.
Section 4.6. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their behalf (i) has
conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale of
the Convertible Debenture or the Warrants, or (ii) made any offers or sales of
any security or solicited any offers to buy any security under any
circumstances that would require registration of the Convertible Debenture, the
Conversion Shares, the Warrants or the Warrant Shares under the Securities Act.
Section 4.7. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
and payment of interest upon the Convertible Debenture, the Conversion Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of
any underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is
not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not have a Material Adverse Effect. The Company is not
required under any Federal, state or
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local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Debenture or the Warrants in
accordance with the terms hereof (other than any SEC or state securities
filings that may be required to be made by the Company subsequent to Closing,
any registration statement that may be filed pursuant hereto); provided that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.8. No Material Adverse Change. Since December 31, 1998, no Material
Adverse Effect has occurred or exists with respect to the Company. Except as
set forth in Schedule 4.8, no material supplier has given notice, oral or
written, that it intends to cease or reduce the volume of its business with the
Company from historical levels.
Section 4.9. No Undisclosed Events or Circumstances. Since December 31, 1998,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under any applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in writing to the Investors.
Section 4.10. No Integrated Offering. The Company has filed an application with
the Georgia Securities Department for the sale of $400,000 of Common Stock at
market; other than that and the facts disclosed on Schedule 4.10, or pursuant
to the issuance or exercise of employee stock options, or pursuant to its
discussion with the Investors in connection with the transactions contemplated
hereby, the Company has not issued, offered or sold the Convertible Debenture,
the Warrants or any shares of Common Stock (including for this purpose any
securities of the same or a similar class as the Convertible Debenture, the
Warrants or Common Stock, or any securities convertible into a exchangeable or
exercisable for the Convertible Debenture or Common Stock or any such other
securities) within the six-month period next preceding the date hereof, and the
Company shall not permit any of its directors, officers or affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any Person of the Convertible Debenture, Warrants or shares of
Common Stock), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Convertible Debenture (and the Conversion Shares) or the
Warrants (and the Warrant Shares) as contemplated by this Agreement.
Section 4.11. Litigation and Other Proceedings. Except as set forth in Schedule
4.11, there are no lawsuits or proceedings pending or, to the knowledge of the
Company, threatened, against the Company or any subsidiary, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. No judgment, order, writ, injunction or decree or award has been issued
by or, to the knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
Section 4.12. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debenture or the Warrants in
connection with the transaction contemplated
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by this Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which
they were made, not misleading.
Section 4.13. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.14. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.15. Tax Matters.
(a) The Company and each subsidiary have filed all Tax Returns which
it is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor
or other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated
as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method,
or has any application pending
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with any taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The Company
has not been a United States real property holding corporation within the
meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable
period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under ss.
280G of the Internal Revenue Code.
(d) For purposes of this Section 4.15:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance,
stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.16. Property. Neither the Company nor any of its subsidiaries owns
any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property and buildings held under lease by the Company as
tenant are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property and buildings by the Company. The
Company's present facilities are adequate for the Company's reasonably
foreseeable needs.
Section 4.17. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no
adverse
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claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.18. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company or any subsidiary is a party or
by which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance
with U.S. generally accepted accounting principles.
Section 4.19. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has
(i) used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.20. Related Party Transactions. Except as set forth in Schedule
4.3(b), the Company is not a party to any agreement or transaction with any of
its officers, directors, greater than 5% shareholders or any Affiliate (as
defined in SEC Rule 405) of any of said persons that would require disclosure
under Item 404 of Regulation S-K.
Section 4.21. Employment Issues. The Company is not subject to any collective
bargaining agreements and maintains no employee benefit plan which is subject
to ERISA. The Company does not have any written or oral employment agreements
with any person which provide for an annual salary in excess of $100,000.
Section 4.22. Permits and Licenses. The Company holds all necessary permits and
licenses to conduct its business as presently conducted. All of such permits
and licenses are in full force and effect and the Company is not in material
violation of any thereof.
Section 4.23. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall
comply in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debenture or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any conversion of the Convertible
Debenture or exercise of the Warrants and the number of shares so reserved
shall be increased or decreased to reflect potential increases or decreases in
the Common Stock that the Company may thereafter be obligated to issue by
reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and Warrant Shares to be listed on
such other Principal Market as promptly as possible. The Company will take all
action to continue the listing and trading of its Common Stock on a Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the Principal Market and
shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
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Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to be registered under Section 12(b) or (g) of the Exchange Act no late than
the effective date of the Registration Statement, will use its best efforts to
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act until the Investors have disposed of all of their
Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Amendment of Charter; Corporate Existence; Conflicting Agreements.
The Company will cause its Articles of Incorporation to be amended within
forty-five (45) days of the Closing Date to eliminate all restrictions on the
ownership of the Company's capital stock and to eliminate all subclasses of
Common Stock, leaving only one class of Common Stock, all of which shall have
equal rights to vote and to receive distributions. The Company will take all
steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company
to, another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investors such shares of
stock and/or securities as the Investors are entitled to receive pursuant to
this Agreement and the Convertible Debenture.
Section 6.8. Issuance of Convertible Debenture and Warrant Shares. The sale of
the Convertible Debenture and the Warrants and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and the Conversion Shares upon
conversion of the Convertible Debenture shall be made in accordance with the
provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will
not enter into any sale of its securities for cash at a discount to Market
Price until 180 days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders or any other
presently existing options and warrants set forth in Schedule 4.3(b), (ii)
pursuant to any compensatory plan for a full-time employee or key consultant,
or (iii) with the prior approval of a majority in interest of the Investors,
which will not be unreasonably withheld, in connection with a strategic
partnership or other business transaction, the principal purpose of which is
not simply to raise money.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse
the Investor Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any
of them, by any stockholder of the Company who is not an Affiliate of
an Investor, with respect to any of the transactions contemplated by
this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse
the Company Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of
any of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or
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exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement or any instrument, certificate
or agreement entered into or delivered by the Investor pursuant to
this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If
the Indemnified Party employs separate legal counsel in circumstances other
than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable for the fees and
expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Indemnifying Party. If the Indemnified Party disputes the
claim, such dispute shall be resolved by mutual agreement of the Indemnified
Party and the Indemnifying Party or by binding arbitration conducted in
accordance
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with the procedures and rules of the American Arbitration Association as set
forth in Article X. Judgment upon any award rendered by any arbitrators may be
entered in any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all proposed filings with the SEC, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and
other inquiries reasonably made or submitted by any of them), prior to and from
time to time after the filing and effectiveness of the Registration Statement
for the sole purpose of enabling the Investors and such representatives,
advisors and underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the Company and the
accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) From and after the filing of the Registration Statement, the
Company shall not disclose material non-public information to the Investors,
advisors to or representatives of the Investors unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. Other than disclosure of any comment letters received from the SEC
staff with respect to the Registration Statement, the Company may, as a
condition to disclosing any non-public information hereunder, require the
Investors' advisors and representatives to enter into a confidentiality
agreement in form and content reasonably satisfactory to the Company and the
Investors.
(b) The Company will promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or the
existence of any circumstance of which it becomes aware, constituting material
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading.
18
<PAGE> 19
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect
thereto other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
19
<PAGE> 20
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet
on consecutive business days in New York City, New York, and shall reach and
render a decision in writing (concurred in by a majority of the members of the
Board of Arbitration) with respect to the amount, if any, which the losing
party is required to pay to the other party in respect of a claim filed. In
connection with rendering its decisions, the Board of Arbitration shall adopt
and follow the laws of the State of New York unless the matter at issue is the
corporation law of the company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the parties
to the dispute, and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. The Board of
Arbitration shall be authorized and is hereby directed to enter a default
judgment against any party failing to participate in any proceeding hereunder
within the time periods set forth in the AAA rules. The non-prevailing party to
any arbitration (as determined by the Board of Arbitration) shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Convertible Debenture or Warrants purchased or acquired by any
Investor hereunder with respect to the Convertible Debenture or Warrants held
by such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any
other person or entity (including any Affiliate of the
20
<PAGE> 21
Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage
prepaid, (iii) delivered by reputable air courier service with charges prepaid,
or (iv) transmitted by facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
first business day following the date of sending by reputable courier service,
fully prepaid, addressed to such address, or (c) upon actual receipt of such
mailing, if mailed. The addresses for such communications shall be:
If to the Company: StupidPC, Inc.
3010-E Business Park Drive
Norcross, GA 30071
Attention: Bart Brannon
Telephone: 770-448-4150
Facsimile: 770-560-1249
with a copy to (shall not constitute Red Hot Law Group of Ashley L.L.C.
notice): 817 West Peachtree Street,
The Biltmore, Suite 400
Atlanta, GA 30308
Attention: Mike Siavage
Telephone: 404-575-1900
Facsimile: 404-474-1901
if to the Investors: As set forth on the signature pages
hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
21
<PAGE> 22
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving written notice of such
changed address or facsimile number to the other party hereto as provided in
this Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debenture, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by
this reference and shall constitute part of this Agreement as is fully set
forth herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
22
<PAGE> 23
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debenture or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees
to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Epstein Becker & Green, P.C., counsel to AMRO International,
S.A., in an amount equal to $12,500, all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except for
First Atlanta Securities of Norcross, Georgia whose fee shall be paid by the
Company. The Company on the one hand, and the Investors, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees
on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
StupidPC, Inc.
By: /s/ Bart Brannon
----------------
Bart Brannon, President
AMRO International, S.A.
By: /s/ H.U. Bachofen
-----------------
H. U. Bachofen, Director
Principal Amount subscribed for: $600,000
Address for notices:
c/o Ultra Finanz AG
Grossmuensterplatz 6
Zurich CH-8022
Switzerland
Fax: 011-411-262-5515
[continued]
24
<PAGE> 25
[STPX Purchase Agreement signatures continued]
Minerva Asset Management, Ltd.
By: /s/ Gordon Mundy
----------------
Gordon Mundy, Director
Principal Amount subscribed for: $50,000
Address for notices:
c/o Trident Trust BVI, Ltd.
Trident Chambers
Wickhams Cay
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Fax: (809) 494-3754
Scott Financial, Ltd.
By: /s/ Gordon Mundy
----------------
Gordon Mundy, Director
Principal Amount subscribed for: $50,000
Address for notices:
c/o Trident Trust BVI, Ltd.
Trident Chambers
Wickhams Cay
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Fax: (809) 494-3754
[signatures continued]
25
<PAGE> 26
[STPX Purchase Agreement signatures continued]
Esquire Trade & Finance Inc.
By: /s/ Roland Winiger
------------------
Roland Winiger, Authorized Signatory
Principal Amount subscribed for: $250,000
Address for notices:
P.O. Box 2154
6342 Baar
Switzerland
Fax: 011-41-41-760-1031
Austinvest Anstalt Balzers
By: /s/ Dr. Walter Grill
--------------------
Dr. Walter Grill, Authorized Signatory
Principal Amount subscribed for: $250,000
Address for notices:
Landstrasse 938
9494 Furstenturns
Balzers, Liechtenstein
Fax: 011-411-262-5515
26
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT HAS BEEN, AND THE WARRANT SHARES ISSUABLE UPON EXERCISE
HEREOF WILL BE, ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") AND OF THE GEORGIA SECURITIES ACT OF 1973 (THE "GEORGIA
SECURITIES ACT"). THE WARRANT SHARES ARE RESTRICTED SECURITIES. SUCH
RESTRICTED SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR
TRANSFERRED OTHER THAN (I) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN
EXEMPTION THEREFROM UNDER THE 1933 ACT AND THE GEORGIA SECURITIES ACT,
AND (II) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF
COMPLIANCE WITH THE 1933 ACT, THE GEORGIA SECURITIES ACT AND THE
APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL
BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE LAWS.
STUPID PC, INC.
STOCK PURCHASE WARRANT
COMMON STOCK
Warrant No. ______
Original Issue Date: May 14, 1999 50,000 shares
THIS CERTIFIES THAT, FOR VALUE RECEIVED, GERALD SULLIVAN, a resident
of the State of Georgia or assigns (the "Holder"), shall be entitled, subject
to the terms and conditions hereof, any time or from time to time on or after
the Original Issue Date until 5:00 p.m., Eastern Time, on the tenth (10th)
anniversary of the Original Issue Date set forth above, or if such date is not
a day on which the Company is open for business, then the next succeeding day
on which the Company is open for business (such date is the "Expiration Date"),
but not thereafter, to purchase up to FIFTY THOUSAND (50,000) shares of Common
Stock of STUPID PC, INC. a Georgia corporation (the "Company"), for the price
per share of THREE DOLLARS ($3.00) (the "Exercise Price"), such number of
shares being subject to adjustment upon the occurrence of the contingencies set
forth in this Warrant. The shares of Common Stock issuable from time to time
upon exercise hereof are sometimes referred to herein as the "Warrant Shares."
This Warrant is subject to the following additional terms and
conditions:
SECTION 1. TIME OF EXERCISE. This warrant is exercisable at any
time within ten years from the date of its issue
SECTION 2. MANNER OF EXERCISE.
(a) Subject to Section 1 above, this Warrant may, at the
option of the Holder, be exercised in whole or in part from time to
time by delivery to the Company at its office at 330 8th Street
Atlanta, Georgia 30309, Attention: President, or to any transfer agent
for the Common Stock, on or before 5:00 p.m., Eastern Time, on the
Expiration Date, (i) a written notice of such registered Holder's
election to exercise this Warrant (the "Exercise Notice"), which
notice may be in the form of the Notice of Exercise attached hereto,
properly executed and completed by the registered Holder or an
authorized officer thereof, (ii) a check payable to the order of the
Company, in an amount equal to the product of the Exercise Price
MULTIPLIED BY the number of Warrant Shares specified in the Exercise
Notice, AND (iii) this Warrant (the items specified in (i), (ii), and
(iii) are collectively the "Exercise Materials").
-1-
<PAGE> 2
(b) Upon timely receipt of the Exercise Materials, the
Company shall, as promptly as practicable, and in any event within
five (5) business days after its receipt of the Exercise Materials,
execute or cause to be executed and delivered to Holder a certificate
or certificates representing the number of Warrant Shares specified in
the Exercise Notice, together with cash in lieu of any fraction of a
share, and, (x) if the Warrant is exercised in full, a copy of this
Warrant marked "Exercised," or (y) if the Warrant is partially
exercised, a copy of this Warrant marked "Partially Exercised"
together with a new Warrant on the same terms for the unexercised
balance of the Warrant Shares. The stock certificate or certificates
shall be registered in the name of the registered Holder of this
Warrant or such other name or names as shall be designated in the
Exercise Notice. The date on which the Warrant shall be deemed to have
been exercised (the "Effective Date"), and the date the person in
whose name any certificate evidencing the Common Stock issued upon the
exercise hereof is issued shall be deemed to have become the holder of
record of such shares, shall be the date the Company receives the
Exercise Materials, irrespective of the date of delivery of a
certificate or certificates evidencing the Common Stock issued upon
the exercise hereof, except that, if the date on which the Exercise
Materials are received by the Company is a date on which the stock
transfer books of the Company are closed, the Effective Date shall be
the date the Company receives the Exercise Materials, and the date
such person shall be deemed to have become the holder of the Common
Stock issued upon the exercise hereof shall be the next succeeding
date on which the stock transfer books are open. All shares of Common
Stock issued upon the exercise of this Warrant will, upon issuance, be
fully paid and nonassessable and free from all taxes, liens, and
charges with respect thereto.
SECTION 3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
The Exercise Price and the number of Warrant Shares issuable upon exercise
hereof shall be subject to adjustment from time to time in accordance with the
following provisions:
(a) If the Company shall at any time subdivide the
outstanding shares of its Common Stock (including any stock split
which increases the number of shares outstanding), the Exercise Price
in effect immediately prior to such subdivision shall be
proportionately decreased, and in case the Company shall at any time
combine the outstanding shares of its Common Stock (including any
stock split which reduces the number of shares outstanding), the
Exercise Price in effect immediately prior to such combination shall
be proportionately increased, effective from and after the record date
of such subdivision or combination, as the case may be.
(b) If the Company shall issue any shares of Common Stock
as a dividend, from and after the date which is the record date for
the determination of shareholders entitled to such dividend, the
number of Warrant Shares issuable upon exercise of this Warrant shall
be increased to a number which is the product of (i) the Warrant
Shares issuable upon exercise hereof immediately prior to said record
date MULTIPLIED BY (ii) a fraction, the numerator of which is the sum
of the total number of shares of Common Stock outstanding immediately
prior to said record date (assuming the exercise of all outstanding
options, warrants, and rights to purchase Common Stock and the
conversion into or exchange for Common Stock of all outstanding
convertible or exchangeable securities) PLUS the number of shares of
Common Stock issued as a dividend, and the denominator of which is the
total number of shares of Common Stock outstanding immediately prior
to said record date (assuming the exercise of all outstanding options,
warrants, and rights to purchase Common Stock and the conversion into
or exchange for Common Stock of all outstanding convertible or
exchangeable securities).
-2-
<PAGE> 3
SECTION 4. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION OR
MERGER. If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the Common Stock of the Company (other
than a subdivision or combination of shares provided for in Section 3(a)
above), or any consolidation, share exchange, or merger of the Company with
another corporation, the holder of this Warrant shall thereafter be entitled to
receive, during the term hereof and upon payment of the Exercise Price, the
number of shares of stock or other securities or property of the Company or of
the successor corporation resulting from such consolidation, share exchange, or
merger, as the case may be, to which a holder of the Common Stock of the
Company, deliverable upon the exercise of this Warrant, would have been
entitled upon such reorganization, reclassification, consolidation, share
exchange, or merger if this Warrant had been exercised immediately prior to
such reorganization, reclassification, consolidation, share exchange, or
merger; and in any such case, appropriate adjustment (as determined by
agreement of the registered holder and the Board of Directors of the Company)
shall be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holder of this Warrant to
the end that the provisions set forth herein (including the adjustment of the
Exercise Price and the number of shares issuable upon the exercise of this
Warrant) shall thereafter be applicable, as near as reasonably may be, in
relation to any shares or other property thereafter deliverable upon the
exercise hereof.
SECTION 5. NOTICE OF ADJUSTMENTS. Upon any adjustment of the
Default or Exercise Price and any increase or decrease in the number of shares
of Common Stock purchasable upon the exercise of this Warrant, then, and in
each such case, the Company, within 30 days after any such adjustment, shall
give written notice thereof to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Default or Exercise Price as adjusted and the increased or decreased
number of shares issuable upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation of each.
SECTION 6. CHARGES, TAXES AND EXPENSES. The issuance of
certificates for shares of Common Stock upon any exercise of this Warrant shall
be made without charge to the Holder hereof for any tax or other expense in
respect to the issuance of such certificates, all of which shall be paid by the
Company. Certificates evidencing the Common Stock issued upon exercise hereof
shall be issued in the name of, or in such name or names as may be directed by,
the Holder of this Warrant; provided, however, that in the event that
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by an instrument of transfer in form satisfactory
to the Company, duly executed by the Holder hereof in person or by an attorney
duly authorized in writing, and the holder shall pay all stock transfer taxes,
if any, payable upon the transfer of this Warrant.
SECTION 7. CERTAIN OBLIGATIONS OF THE COMPANY.
(a) The Company agrees that it will not establish or
increase the par value of the shares of any Common Stock which are
issuable upon exercise of this Warrant above the then prevailing
Exercise Price hereunder and that, before taking any action which
would cause an adjustment reducing the Exercise Price hereunder below
the then par value, if any, of the shares of any Common Stock issuable
upon exercise hereof, the Company will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and non assessable
shares of Common Stock at the Exercise Price as so adjusted.
-3-
<PAGE> 4
(b) Commencing with the initial public offering, the
Holder shall be entitled to two (2) piggy back registrations until all
shares of Common Stock issued or issuable upon the exercise of this
Warrant have been registered. The Company agrees to give the
registered Holder of this Warrant notice of its intent to file a
registration statement with the Securities and Exchange Commission
relating to any equity securities of the Company at least 45 days
prior to the date of filing with the Securities and Exchange
Commission of any such registration statement, and to include in such
registration statement all shares of Common Stock issuable upon
exercise hereof which Holder requests be included in such
registration. Holder will bear customary selling expenses such as
underwriter's discount and commissions and the Company will bear all
other costs associated with the registration and sale of the shares
included in such registration.
SECTION 8. MISCELLANEOUS.
(a) The Company covenants that it will at all times
reserve and keep available, solely for the purpose of issuance upon
the exercise hereof, a sufficient number of shares of Common Stock to
permit the exercise hereof in full.
(b) This Warrant is not cancelable by the Company. The
terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the Holder
hereof and of the Common Stock issued or issuable upon the exercise
hereof. The provisions of Section 7(b) shall survive the exercise of
this Warrant, until all shares of Common Stock issued upon the
exercise hereof have been registered or are tradable under Rule 144.
(c) No holder of this Warrant, as such, shall be entitled
to vote or receive dividends (except as provided in paragraph 3(a)
hereof) or be deemed to be a stockholder of the Company for any
purpose.
(d) This Warrant may be divided into separate Warrants
covering one Warrant Share or any whole multiple thereof, for the
total number of Warrant Shares then issuable upon exercise of this
Warrant at any time, or from time to time, upon the request of the
registered holder of this Warrant and the surrender of the same to the
Company for such purpose. Such subdivided Warrants shall be issued
promptly by the Company following any such request and shall be of the
same form and tenor as this Warrant, except for any requested change
in the name of the registered Holder stated herein.
(e) Except as otherwise provided herein, this Warrant and
all rights hereunder are transferable by the registered Holder hereof
in person or by duly authorized attorney on the books of the Company
upon surrender of this Warrant, properly endorsed, to the Company. The
Company may deem and treat the registered Holder of this Warrant at
any time as the absolute owner hereof for all purposes and shall not
be affected by any notice to the contrary.
(f) Notwithstanding any provision herein to the contrary,
the Holder hereof may not exercise, sell, transfer, or otherwise
assign this Warrant unless the Company is provided with an opinion of
counsel satisfactory in form and substance to the Company, to the
effect that such exercise, sale, transfer, or assignment does not
violate the Securities Act of 1933 or applicable state securities
laws.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officers and its corporate seal to be affixed hereto.
STUPID PC, INC.
By:/s/ Bart Brannon
----------------
Bart Brannon, President
-5-
<PAGE> 6
ASSIGNMENT
(To be Executed by the Registered Holder to effect a Transfer of the
foregoing Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and
transfers unto _____________________________________________________________ the
foregoing Warrant and the rights represented thereto to purchase shares of
Common Stock of STUPID PC, INC. in accordance with terms and conditions
thereof, and does hereby irrevocably constitute and appoint ________________
Attorney to transfer the said Warrant on the books of the Company, with full
power of substitution.
Holder:
-----------------------------
Address:
-----------------------------
Dated:__________________, 19__
In the presence of:
-----------------------------
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<PAGE> 7
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of Warrant]
To: STUPID PC, INC.
The undersigned registered Holder of the attached Warrant hereby
irrevocably elects to exercise the Warrant for, and to purchase thereunder,
___________ shares of Common Stock of STUPID PC, INC. issuable upon exercise of
said Warrant and hereby surrenders said Warrant and delivers to STUPID PC,
Inc., $_________ representing the Purchase Price for such shares. The
undersigned herewith requests that the certificates for such shares be issued
in the name of, and delivered to the undersigned, whose address is
________________________ and social security or tax identification number is
______________.
Signed:
----------------------------
Dated:
-----------------------------
NOTICE
The signature above must correspond to the name as written upon the
face of the within Warrant in every particular, without alteration or
enlargement or any change whatsoever.
-7-
<PAGE> 1
EXHIBIT 10.3
STOCK REPURCHASE CONTRACT
The undersigned, Gary L. German, henceforth "Shareholder", having
possession of Two Million, Five Hundred Fifty Thousand (2,550,000) shares of
common stock of Stupid PC, Inc., and being desirous of selling Two Million, Two
Hundred Eighty Thousand (2,280,000) shares of the same, and Stupid PC, Inc.,
henceforth "Company", being desirous of repurchasing said stock, do HEREBY
enter into this Stock Repurchase Contract, and in exchange of mutual covenants
and consideration, set forth the terms of this agreement as follows:
1. Shareholder warrants and covenants that he has full right and title
to sell said stock, ownership of which is documented in Stock Certificate #2.
2. Shareholder further warrants that said stock is not subject to any
liens, claims, or other encumbrances, and that he stands ready to surrender
Stock Certificate #2 upon execution of this Stock Repurchase Contract.
3. Shareholder and Company agree that the purchase price for said
stock shall be Six Thousand ($6000.00) dollars.
4. Shareholder agrees that this agreement also serves as his
resignation as the CEO of the Company.
5. Shareholder shall retain his seat on the Board of Directors.
6. Company shall issue a new Stock Certificate, #10, to Shareholder
upon completion of this agreement.
7. Company agrees to indemnify and hold harmless Shareholder against,
and in respect of, any and all claims, losses, expenses, costs, obligations,
and liabilities of prior ownership. Shareholder's liability shall be limited to
ownership of stock in effect after execution of this agreement.
8. Shareholder and Company agree that said purchase price should be
paid by check in the amount of Six thousand dollars ($6,000.00).
<PAGE> 2
9. Tax liability shall be the responsibility of the respective
parties.
10. The parties further agree that any disputes arising out of this
Stock Repurchase Contract shall be resolved by binding arbitration following
GAMA's Rules of Arbitration and by submission of the same to GAMA, Inc. In so
agreeing the parties explicitly waive any right they may have had to a jury
trial on these issues and further agree that the award of the arbitrator shall
be final and binding upon them as if rendered by a court of law and enforceable
in any court having jurisdiction over the same.
11. This agreement shall be interpreted according to the laws of the
State of Georgia.
12. Shareholder and Company agree that this Contract constitutes the
entire agreement of the parties and cannot be varied orally.
13. This agreement is subject to approval of the Board of Directors of
Stupid PC, Inc.
14. [handwritten insert as initialed] Stock options are still
available per original agreement (750,000) shares.
So agreed and executed, this 10 day of April, 1998.
/s/ Gary L. German
- ----------------------------------
GARY L. GERMAN
SHAREHOLDER
/s/ Stephen B. Brannon
- ----------------------------------
STEPHEN B. BRANNON
PRESIDENT
STUPID PC, INC.
2
<PAGE> 1
EXHIBIT 10.4
STOCK OPTION AGREEMENT
(NOT ISSUED UNDER ANY STOCK OPTION PLAN)
THIS STOCK OPTION AGREEMENT is issued to Gary L. German by Stupid PC,
Inc., a Georgia corporation (the "Company").
1. OPTIONEE; BASIC TERMS. The Optionee is hereby granted an
option to purchase the number of fully paid and non-assessable shares of the
Common Stock, with pre-emptive rights, of the Company at the option price
hereinbelow set forth, subject to the following additional terms and
Conditions:
A. GRANT OF OPTION.
The Company hereby grants to the Optionee an option (the "Option") to
purchase 750,000 shares of the Common Stock of the Company, upon the terms and
conditions set forth below. The date of grant of the Option is JULY 25, 1997
(the "Grant Date"). This Option is intended to be a non-qualified option, the
exercise of which generally results in an immediate taxable event under the
Internal Revenue Code.
B. DURATION OF OPTION.
This Option shall have a term of five (5) years from the Grant Date
and shall expire on JULY 25, 2002, unless terminated earlier as provided
herein.
C. PURCHASE PRICE.
The purchase price for the shares subject to the Option shall be $.05
per share, which is equal to one-hundred percent (100%) of fair market value,
as determined by the Board of Directors, on the Grant Date.
2. EXERCISABILITY. Subject to Section 6 regarding termination of
Optionee's employment, consulting or other relationship with the Company, as
currently applicable, and unless otherwise accelerated by action of the Board
of Directors or pursuant to Section 7(b), this Option shall become fully vested
and exercisable on August 1, 1997.
3. METHOD OF EXERCISE AND PAYMENT. This Option may be exercised
from time to time, in whole or in part, to the extent exercisable, only by
delivery to an officer of the Company of the original of this Option with an
appropriate Notice of Exercise duly signed by the holder, together with the
full purchase price of the shares purchased pursuant to the exercise of the
Option; provided, however, that this Option may not be exercised if such
exercise would violate any law or governmental order or regulation. If the
offer and sale of the shares subject to the Option has not been registered
under the Securities Act of 1933, as amended (the "Act"), Optionee shall
deliver to the Company, at the time of exercise, an Appropriate "investment
letter" in form and content satisfactory to the Company unless, in the opinion
of counsel for the Company, the shares issued would not be deemed "restricted
securities" within the meaning of such Act or the rules and regulations
promulgated thereunder. Payment for the shares purchased pursuant to any
exercise shall be made in full at the time of such exercise in cash or by check
payable to the order of the Company or in Common Stock of the Company, having
been owned by the Optionee for a period of six (6) months prior to such
exercise, valued as of the date of exercise of the Option at Fair Market Value.
Optionee agrees to have withheld from any remuneration payable to him by the
Company and/or to pay to the Company, at the time of exercise of the Option, an
amount which is required to be withheld or paid pursuant to any Federal, State
or local tax or revenue laws or regulations, as may be determined by the
Company. The Optionee may satisfy such tax withholding by instructing the
Company to withhold such number of option shares exercised which, when valued
at Fair Market Value on the date of Exercise, equal the total tax obligations
required to be withheld.
Stock Option Agreement
(Not Issued Under Any Stock Option Plan)
Stupid PC, Inc.
<PAGE> 2
4. NON-TRANSFERABILITY. This Option shall not be transferred,
sold, pledged, assigned, hypothecated, or disposed of in any manner by Optionee
other than by will or the laws of descent and distribution to the extent
hereinafter set forth. This Option may be exercised during the holder's
lifetime only by the holder hereof or, upon the holder's legal incapacity to
act on his/her own behalf, by the holder's conservator or other lawful
representative. The Option shall be null and void and without effect upon any
attempted assignment or transfer, except as hereinabove provided, including
without limitation, any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar process,
whether legal or equitable, upon the Option.
5. TERMINATION. To the extent that this Option shall not have
been exercised in full prior to its termination or expiration date, whichever
shall be sooner, it shall terminate and become void and of no effect.
6. CESSATION OF CONTINUOUS STATUS -- TERMINATION, RETIREMENT,
DEATH OR DISABILITY. If the holder shall voluntarily or involuntarily cease
his/her Continuous Status (defined herein as failure to maintain employment or
consulting status with the Company or severance of the relationship with the
Company which gave rise to the grant of this Option) (hereinafter referred to
as a "Termination"), the Option of the holder shall terminate forthwith, except
that the holder shall have ninety days (90) following the Termination to
exercise this Option or any portion hereof which the holder could have
exercised on the date of Termination; provided, however, that if the
Termination is due to retirement by the holder on or after attaining the age of
sixty-two (62) years, the disability of the holder or the death of the holder,
the holder or the representative of the estate of the holder shall have the
privilege of exercising the entire unexercised portion of this Option, provided
that such exercise be accomplished (i) prior to the expiration of this Option
and (ii) either within six (6) months of the holder's retirement, within six
(6) months of the holder's disability, or within twelve (12) months after the
date of death of the holder, as the case may be. Notwithstanding any of the
foregoing, in the event of (i) willful refusal to perform the normal duties and
responsibilities delegated to him as an employee of or consultant to the
Company, (ii) his expropriation of Company property (including but not limited
to trade secrets or other proprietary rights), (iii) his leaving the employment
of the Company in order to directly or indirectly (as an employee or agent of
another business or business entity) compete with the Company or (iv) his
violation of the provisions of Section 10 of this Option Agreement, the
existence of which shall be determined by the Board of Directors (such decision
to be made by the Board in its sole discretion and which determination shall be
conclusive), this Option shall terminate immediately upon the happening of such
event, and the holder shall have hereupon no right thereafter to exercise any
unexercised Option he might have exercised on or prior thereto.
7. ADJUSTMENT OF SHARES AND ACCELERATION OF EXERCISABILITY.
A. STOCK SPLITS AND CAPITAL ADJUSTMENTS. If, prior to
the complete exercise of this Option, there shall be declared and paid a stock
dividend upon the Common Stock of the Company or if such stock shall be split
up, converted, exchanged or reclassified, this Option, to the extent that it
has not been exercised, shall entitle the holder, upon the future exercise of
this Option, to such number and kind of securities or other property, subject
to the terms of the Option, to which the holder would be entitled had he
actually owned the stock subject to the unexercised portion of the Option at
the time of the occurrence of such stock dividend, split up, conversion,
exchange, reclassification or substitution; and the aggregate purchase price
upon the future exercise of the Option shall be the same as if shares of Common
Stock of the Company originally optioned were being purchased as provided
herein.
B. ACELERATION OF EXERCISABILITY UPON "CHANGE IN
CONTROL."
(i) Ten (10) days prior to a "Change in Control" (as
defined below), this Option, if not then presently
exercisable shall immediately vest and become exercisable,
regardless of the original vesting schedule in Section 2. A
"Change in Control" of the Company shall be deemed to have
occurred if (a) any "person" or "group" (as defined in or
pursuant to Sections 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")),
becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly,
of securities of the Company
2
Stock Option Agreement
(Not Issued Under Any Stock Option Plan)
Stupid PC, Inc.
<PAGE> 3
representing 40% or more of the voting power of the common
stock outstanding which votes generally for the election of
directors; (b) as a result of market or corporate
transactions or shareholder action, the individuals who
constitute the Board of Directors of the Company at the
beginning of any period of 12 consecutive months (but
commencing not earlier than July 1, 1995), plus any new
directors whose election or nomination was approved by a vote
of at least two-thirds of the directors still in office who
were directors at the beginning of such period of 12
consecutive months, cease for any reason during such period
of 12 consecutive months to constitute at least two-thirds of
the members of such Board; or (c) the Company sells, through
merger, sale, transfer, assignment or otherwise, in one or
more transactions other than in the ordinary course of
business, assets which provided at least 2/3 of the revenues
or pre-tax net income of the Company and its subsidiaries on
a consolidated basis during the most recently completed
fiscal year.
(ii) Notwithstanding paragraph (i) above, the
following events shall not constitute a Change in Control:
any acquisition of beneficial ownership pursuant to (a) a
reclassification, however effected, of the Company's
authorized common stock, or (b) a corporate reorganization
involving the Company or any of its subsidiaries which does
not result in a material change in the ultimate ownership by
the shareholders of the Company (through their ownership of
the Company or its successor resulting from the
reorganization) of the assets of the Company and its
subsidiaries, but only if such reclassification or
reorganization has been approved by the Company's Board of
Directors.
8. COMPLIANCE WITH SECURITIES LAWS.
A. POSTPONE ISSUANCE. Notwithstanding any provision of
this Option to the contrary, the Company may postpone the issuance and delivery
of shares upon any exercise of this Option until one of the following
conditions shall be met:
(i) The shares with respect to which such Option has
been exercised are at the time of the issue of such shares
effectively registered under applicable Federal and state
securities laws now in force or hereafter enacted or amended;
or
(ii) Counsel for the Company shall have given an
opinion that registration of such shares under applicable
Federal and state securities laws, as now in force or
hereafter enacted or amended, is not required.
B. INVESTMENT REPRESENTATION. In the event that for any
reason the shares to be issued upon exercise of the Option shall not be
effectively registered under the Securities Act of 1933 (the "1933 Act"), upon
any date on which the Option is exercised in whole or in part, the Company
shall be under no further obligation to issue shares covered by the Option,
unless the Optionee shall give a written representation to the Company, in form
satisfactory to the Company, that such person is acquiring the shares issued
pursuant to such exercise of the Option for investment and not with a view to,
or for sale in connection with, the distribution of any such shares, and that
he/she will make no transfer of the same except in compliance with the 1933 Act
and the rules and regulations promulgated thereunder and then in force, and in
such event, the Company may place an "investment legend" upon any certificate
for the shares issued by reason of such exercise.
9. NO AGREEMENT OF EMPLOYMENT. Neither the grant of this Option
nor this Agreement shall be deemed to create any agreement with, or obligation
by, the Company to employ the Optionee for any period of time. By accepting
this Option, the Optionee acknowledges that his employment, if he is an
employee of the Company, is strictly "at will," and such person understands
that his employment may be terminated by the Company at any time, with or
without cause.
3
Stock Option Agreement
(Not Issued Under Any Stock Option Plan)
Stupid PC, Inc.
<PAGE> 4
10. ASSIGNMENT OF INVENTIONS, ETC,; NON-DISCLOSURE OF CONFIDENTIAL
INFORMATION.
A. ASSIGNMENT OF INVENTIONS. As further consideration
for the issuance of the Option, the Optionee, if he is an Employee of the
Company, agrees that any and all inventions, processes, discoveries, "know-how"
and improvements (collectively "Inventions") (regardless of whether the
Inventions are patentable), and any and all patent rights, letters patent,
copyrights, trademarks, trade name, applications therefor in the United Sates
and all other countries and any and all rights and interests in, to and under
the same, now possessed by the Optionee (except those, if any, listed next to
Optionee's signature on this Agreement) or acquired after the date of this
Agreement, conceived, reduced to practice, acquired, or possessed by him
(either solely or jointly with others) during the Optionee's employment by the
Company or any of its subsidiaries, relating in any way to the work or services
performed by Optionee for the Company, or made with the Company's assets or the
business and activities of, or the equipment, devices, processes, and formulae
connected with the Company's business or any other business conducted by the
Company or any of its subsidiaries shall be assigned to, and become the
absolute property of, the Company and shall at all times and for all purposes
be regarded as acquired and held by the Optionee in a fiduciary capacity for
the sole benefit of the Company, and the Optionee agrees that, upon request, he
will promptly make all disclosures, execute all instruments and papers, and
perform all acts whatsoever necessary or desired by the Company to vest and
confirm in it, its successors, assigns and nominees, fully and completely, all
rights created or contemplated by this subparagraph A and which may be
necessary or desirable to enable the Company, its successors, assigns, and
nominees to secure and enjoy the full benefits and advantages thereof.
B. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The
Optionee, regardless of whether he is an employee or consultant, shall not at
any time, directly or indirectly use, divulge, furnish or make accessible to
anyone other than the Company, its directors and officers other than in the
regular course of the business of the Company or any of its subsidiaries, any
knowledge or information with respect to (i) confidential or secret processes,
plans, formulae, data (including cost data), machinery, devices, drawings,
specifications, manufacturing procedures and techniques, methods, technology,
"know how," or material relating to the business, products (whether existing or
under development) or activities of the Company or its subsidiaries, (ii) any
confidential or secret engineering, development or research work of the Company
or its subsidiaries, (iii) any other confidential or secret aspect of the
business, products or activities of the Company or its subsidiaries, or (iv)
any customer usages and requirements or any customer lists of the Company or
its subsidiaries.
C. REMEDIES. The Optionee acknowledges that a breach of
him of the provisions of this Agreement will cause the Company irreparable
injury for which the Company cannot be reasonably or adequately compensated in
damages. Such breach shall cause an immediate termination of this Option, and
the Company shall be entitled, in addition to all other remedies available to
it, to injunctive and/or other equitable relief to prevent a continuing breach
of this Agreement, or any part of it, and to secure its enforcement.
D. SEVERABILITY. If any condition, term or provision of
this Agreement is determined by a court to be illegal or in conflict with any
law, state or Federal, the validity of the remaining portions or provisions
shall not be affected, and the rights and obligations of the parties shall be
construed and enforced as if this Agreement did not contain the particular
condition, term or provision determined to be unenforceable.
E. ENTIRE AGREEMENT; GEORGIA LAW. This Agreement
contains the entire understanding and agreement between the parties hereto
respecting the within subject matter, and there are no representations,
agreements, arrangements or understandings, oral or written, between the
parties hereto relating to the subject matter of this Agreement that are not
fully expressed herein. The Company is a Georgia corporation, and this
Agreement shall be governed by and construed in accordance with the laws of the
State of Georgia.
4
Stock Option Agreement
(Not Issued Under Any Stock Option Plan)
Stupid PC, Inc.
<PAGE> 5
WITNESS the signature of its duly authorized officer of the Company as
of the date of grant hereof.
By: /s/ Stephen B. Brannon
----------------------------------
Title: President
-------------------------------
Acknowledged and Agreed to:
/s/ Gary L. German
- -------------------------------------
GARY L. GERMAN
1039 FAIRWAY VALLEY DRIVE
WOODSTOCK, GA 30062
###-##-####
- -------------------------------------
Social Security No.
5
Stock Option Agreement
(Not Issued Under Any Stock Option Plan)
Stupid PC, Inc.
<PAGE> 1
EXHIBIT 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease"), made and entered into as of
the 24th day of July, 1998, by and between STRICOR, INC., a Georgia corporation
(Sub-Landlord, hereinafter called "Sublessor") and STUPID PC, INC., a Georgia
corporation (Sub-Tenant, hereinafter called "Sublessee").
WITNESSETH:
WHEREAS, Sublessor is the Tenant of certain premises (the "Premises")
described as covering approximately 5,179 square feet of office and warehouse
known as 3010 Business Park Drive, Suite E, Norcross, Georgia 30071 under that
certain Lease Agreement dated December 19, 1996 between Stricor, Inc. and T.
Rowe Price Realty Income Fund I a copy of which Lease is attached hereto as
Exhibit "A" and made a part hereof; and
WHEREAS, Sublessor desires to sublease the Premises to Sublessee, and
Sublessee desires to sublease the Premises from Sublessor, upon the terms and
conditions hereinafter set forth; and
NOW, THEREFORE, for and in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby covenant and agree as follows:
1. Sublessor does sublease to Sublessee and Sublessee does hereby sublease
from Sublessor, the Premises described in Exhibit "A" attached hereto
and made a part hereof for a term commencing on August 1, 1998 and
terminating on December 31, 1999 (the "Sublease Term").
2. Sublessee covenants and agrees to pay directly to Sub-Landlord without
demand, deduction, or set off, a monthly rental of $2,778.32 on the
first day of each calendar month during the term of Sublease.
3. Sublessee covenants and agrees to undertake and perform all of the
obligations, terms, conditions, and responsibilities of Sublessor under
the Lease with respect to the Premises.
4. Sublessor shall be, and hereby agrees to be, responsible for all acts
or omissions of Sublessee; the within Sublease shall in no way release
Sublessor from any of its duties, obligations, or liabilities under the
Lease.
5. The obligations and responsibilities herein shall be binding upon and
the rights and benefits shall inure to the parties hereto and their
respective successors and assigns.
<PAGE> 2
6. It is expressly agreed Sublessor and Sublessee that there is no verbal
understanding or agreement which in any way changes the terms,
covenants, and conditions herein set forth, and that no modification of
this Sublease and no waiver of any of its terms and conditions shall be
effective unless made in writing and duly executed by the parties
hereto.
7. If any provision of this Sublease or the application thereof to any
person or circumstance shall to any extent be invalid, the remainder of
this Sublease or the application of such provisions to persons or
circumstances other than those as to which it is held invalid shall not
be affected therein and each provision of this Sublease shall be valid
and enforced to the fullest extent, permitted by law.
8. The address of Sublessor is:
1775 Corporate Drive
Suite 140
Norcross, GA 30093
The address of Sublessee is:
3010-E Business Park Drive
Norcross, GA 30071
9. Special Stipulations:
A. Operating Costs. If the Overlease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the
building and/or project of which the Premises are a part
("Operating Costs"), including but not limited to taxes,
utilities, or insurance, then Sublessee shall pay to Sublessor
as additional rent one hundred percent (100%) of the amounts
payable by Sublessor for Operating Costs incurred during the
Term. Such additional rent shall be payable as and when
Operating Costs are payable by Sublessor to Overlandlord. If
the Overlease provides for the payment by Sublessor of
Operating Costs on the basis of an estimate thereof, then as
and when adjustments between estimated and actual Operating
Costs are made under the Overlease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like
manner, and if any such adjustment shall occur after the
expiration or earlier termination of the term of this sublease
Agreement, then the obligations of Sublessor and sublessee
under this Section shall survive such expiration or
termination. Sublessor shall, upon request by Sublessee,
furnish Sublessee with copies of all statements submitted by
Overlandlord of actual or estimated Operating Costs during the
term.
B. Rental. Rental under this Sublease shall increase January 1, 1999
to $2,861.40 per month.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
duly executed by their proper offices as of the day and year first above
written.
Signed, sealed, and delivered in SUBLESSOR:
the presence of:
[illegible] By: [illegible]
- ------------------------------------ ----------------------------------
Witness
Signed, sealed, and delivered in SUBLESSEE:
the presence of:
/s/ Peggy Fidler By:/s/ Stephen B. Brannon
- ------------------------------------ ----------------------------------
Witness
3
<PAGE> 4
LANDLORD'S CONSENT TO SUBLEASE
Glenborough Properties, L.P., successor in interest to T. Rowe Price Realty
Income Fund I, hereby consents to this Sublease dated July 24, 1998, between
Stricor, Inc., as Sublessor, and Stupid PC, Inc., as Sublessee, without waiver
of any restriction in the Lease concerning further assignment or subletting and
without waiver of any of its rights in the Lease as to Stricor, Inc.
GLENBOROUGH PROPERTIES, L.P.,
A California limited partnership
By: Glenborough Realty Trust Incorporated,
a Maryland corporation
Its General Partner
By: [illegible]
----------------------------------------
Its: Senior Vice President
--------------------------------------
Commercial Property Management
4
<PAGE> 5
EXHIBIT "A"
UPDATED 12/18/96
FUND I
LEASE AGREEMENT
THIS LEASE MADE this 19th day of December, 1996, by and between T. ROWE
PRICE REALTY INCOME FUND I, A NO-LOAD LIMITED PARTNERSHIP, a Maryland limited
partnership ("LESSOR"), by LA SALLE ADVISORS LIMITED, as agent for LESSOR, and
Stricor, Inc., a Georgia corporation ("Lessee").
WITNESSETH:
1. PREMISES
LESSOR, for and in consideration of the rents, covenants, agreements
and stipulations hereinafter mentioned, reserved, and contained, to be kept,
paid, and performed by LESSEE, has leased and rented, and by these presents does
lease and rent unto LESSEE, and LESSEE hereby agrees to lease and take upon the
term and conditions hereinafter set forth, approximately 5,179 square feet of
office and warehouse space in a building (the "Building") on property of LESSOR
known as 3010 Business Park Drive, Suite E, Norcross, Georgia (hereinafter
referred to as the "Premises"), which Premises is more particularly depicted on
the floor plan hereto attached, marked "Exhibit A" and made a part hereof; and
subject to Rules and Regulations hereto attached, marked "Exhibit B" and made a
part hereof; and subject to Improvements hereto attached, marked "Exhibit C" and
made a part hereof; and subject to the Guaranty of Lease attached hereto, marked
"Exhibit D" and made a part hereof by this reference and subject to Special
Stipulations attached, marked "Exhibit E" and made a part hereof.
2. RENTAL
(a) Lessee shall pay to LESSOR at 3050 Business Park Drive, Suite E,
Norcross, GA 30071, or to such other address as LESSOR may from time to time
designate by written notice to LESSEE, promptly on the first (1st) day of each
month, in advance, during the term of this Lease, in lawful money of the United
States of America, without offset or deduction, a monthly rental as follows:
(a) From January 1, 1997, through December 31, 1997, Two Thousand Six
Hundred Ninety-seven and 40/100ths Dollars ($2,697.40) per month;
(b) From January 1, 1998, through December 31, 1998, Two Thousand Seven
Hundred Seventy-eight and 32/100ths Dollars ($2,778.32) per month; and
(c) From January 1, 1999, through December 31, 1999, Two Thousand Eight
Hundred Sixty-one and 67/100ths Dollars ($2,861.67) per month;
(b) LESSEE shall, as additional rental, also pay to LESSOR LESSEE's pro
rata share of (i) amount by which the ad valorem taxes and other taxes levied or
assessed by any municipality, county, or other governmental agency against the
property in which the Premises are located or against the rental paid to LESSOR
or against the income and other revenues derived by LESSOR hereunder (excepting
any federal, state or local income taxes) (hereinafter, the "Taxes") exceeds the
Taxes paid in 1997 (the "Base Year"); (ii) the amount of any increase in the
insurance premiums for fire and extended coverage and for public liability on
the property in which the Premises are located over the insurance premiums paid
during the Base Year regardless of the reason for such increase; and (iii) the
cost to LESSOR of the common area maintenance related to the property in which
the Premises are located. LESSOR will promptly notify LESSEE of the total taxes,
insurance premiums, or common area maintenance charges each year as determined
(which billing of common maintenance charges shall be made to LESSEE monthly).
LESSOR will attach to first said billing, if applicable, a copy of the tax or
special assessment bill or a copy of the insurance invoice related thereto and
shall specify LESSEE's prorata share of the amount thereof. LESSEE's prorata
share shall be based upon the ratio of the square footage of the Premises to the
total square footage of leasable space in the entire park in which the Premises
are located, which is 157,153 square feet. LESSEE shall pay the sum so specified
to LESSOR within fifteen (15) days following the date of LESSOR's written
notice. If any portion of the term of this Lease does not coincide with the
period for which the taxes are assessed or the insurance is rated or the common
area maintenance costs are incurred, the amount otherwise due from LESSEE shall
be prorated according to the number of months during which LESSEE is in
possession of the Premises. The provisions hereof shall survive the termination
of the Lease or any extension or renewal thereof. As used herein, common area
maintenance costs include, but are not limited to, costs and expenses for the
following: gardening and landscaping; utilities, water and sewage charges;
maintenance of signs (other than tenants' signs); premiums for liability,
property damage, fire and other types of casualty insurance on common areas and
worker's compensation insurance; all property taxes and assessments levied on or
attributable to common areas and all common area improvements; all personal
property taxes levied on or attributable to personal property used in connection
with the common areas; fees for required licenses and permits; repairing,
resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse
removal, security and similar items; and a reasonable allowance to LESSOR for
LESSOR's supervision of common areas (not to exceed five percent (5%) of the
gross rents of the park in which the Premises are located for the calendar
year). LESSOR may cause any or all of such services to be provided by third
parties and the cost of such services shall be included in common areas costs.
Common area costs shall not include depreciation of real property which forms
part of the common areas.
<PAGE> 6
(c) Landlord acknowledges receipt, subject to collection, of the
security deposit of Two Thousand Six Hundred Ninety-seven and 40/100ths Dollars
($2,697.40) and receipt of the first month's rent of Two Thousand Six Hundred
Ninety-seven and 40/100ths Dollars ($2,697.40) and first month's additional
charges of Three Hundred Nineteen and 37/100ths Dollars ($319.37), totaling Five
Thousand Seven Hundred Fourteen and 17/100ths Dollars ($5,714.17) which is paid
to Landlord. These monies shall be deposited in Landlord's rental escrow account
within five (5) banking days of final execution of this agreement by all parties
and disbursed upon occupancy in accordance with the terms of this Lease.
3. TERM
The term of this Lease shall be for thirty-six (36) months and shall
commence January 1, 1997, and shall expire December 31, 1999. LESSEE hereby
acknowledges and confirms that LESSEE shall accept the Premises in "as-is"
condition as of the date of commencement of the term of this Lease except for
punch list items.
4. REPAIRS BY LESSOR
During the term of this Lease, LESSOR shall maintain the foundation,
roof and exterior walls (exclusive of all glass and exterior doors), except for
repairs rendered necessary by the gross negligent or willful acts of LESSEE,
LESSEE's agents, employees and invitees. LESSOR shall keep in good order and
repair the paved parking areas and paved driveways to include truck court.
LESSOR shall maintain all landscaped areas. LESSOR shall be under no obligation
to inspect the Premises and LESSEE shall promptly report to LESSOR in writing
any defective condition known to LESSEE which LESSOR is required under this
paragraph to repair. Failure by LESSEE to so report such condition shall make
LESSEE responsible to LESSOR for any liability arising out of such condition.
5. REPAIRS BY LESSEE
LESSEE shall maintain, repair, and/or replace components as needed and
keep in clean and good working order the electrical and interior plumbing
fixtures, the electrical switches and receptacles, the commode and basins, the
heating and air conditioning units, including thermostatic controls and filters
and the sprinkler system. LESSEE shall maintain and repair to match all masonry,
truck door and drainage downspouts damaged by LESSEE, LESSEE's agents, employees
or invitees. LESSEE shall make all other repairs and perform all other
maintenance which may be necessary to keep the Premises in clean and good
working order other than those hereinabove set forth as the responsibility of
LESSOR. It shall be the Landlord's responsibility to have the HVAC, electrical,
lighting fixtures and plumbing fixtures in satisfactory working condition at the
beginning of the lease term, and for ninety (90) days thereafter it shall be the
Landlord's responsibility to keep it in good working order. After the ninety
(90) day period it becomes Tenant's full and complete responsibility per the
terms of this lease. LESSEE, at its sole cost and expense, shall enter into a
regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air conditioning systems and
equipment within the Premises. LESSEE shall provide a certificate of coverage to
LESSOR. The service contract must include all services suggested by the
equipment manufacturer in its operations/maintenance manual and an executed copy
of such contract must be provided to LESSOR prior to the date LESSEE takes
possession of the Premises. The effective date of the service contract would be
90 days from the lease commencement date. If any repairs or maintenance
described in this Paragraph 5 is not undertaken, LESSOR shall have the right
(but not the obligation) to coordinate all repairs and maintenance and all costs
so incurred by LESSOR shall be added to the rental of the Premises and be
immediately due and payable by LESSEE to LESSOR.
6. UTILITY BILLS
LESSEE shall pay all utility bills incurred by it, including gas,
electricity, fuel, light, heat and power bills for the Premises. If LESSEE does
not pay the same, LESSOR may (but shall not be obligated to) pay the same and
such payment shall be added to the rental of the Premises and be immediately due
and payable by LESSEE to LESSOR.
7. USE OF PREMISES; ALTERATIONS
(a) The Premises shall be used for office and warehouse purposes only.
LESSEE will permit no liens to attach or exist against the Premises, nor commit
any waste. The Premises shall not be used for any illegal purposes, nor in any
manner to create any nuisance or trespass, nor in any way which would violate
any law, ordinance, or subdivision restrictions affecting the Premises, nor in
any manner which would cause cancellation of, prevent the use of, or increase
the rate of the standard form of fire and extended coverage insurance policy to
be carried by LESSOR. LESSEE shall use the Premises only in full compliance with
all ordinances, statutes, rules and regulations of any applicable governmental
authorities, Board of Fire Underwriters, LESSOR or any other entity having
jurisdiction over the Premises. LESSEE, at LESSEE's expense, shall comply with
all laws, rules, orders, ordinances, directions, regulations and requirements of
federal, state, county and municipal authorities, and all rules and requirements
of the Board of Fire Underwriters, pertaining to LESSEE's use of the Premises
and with the recorded covenants, conditions and restrictions, if any, now or
hereafter affecting the Premises, regardless of when they become effective,
including, without limitation, all applicable federal, state and local laws,
regulations and ordinances pertaining to air and water quality, Hazardous
Material (as hereinafter defined), waste disposal, air emissions and other
environmental matters, all zoning and other land use matters, and with any
direction of any public officer or officers, pursuant to law, which shall impose
duty upon LESSOR or LESSEE with respect to the use or occupation of the
Premises. To the extent that any of such ordinances, statutes, rules or
regulations require repairs, alterations, changes or additions are necessitated
by the manner or nature of LESSEE's specific use of the Premises, all such
repairs, alterations, changes or additions shall be made, subject to the terms
hereof, at the sole expense of
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<PAGE> 7
LESSEE. LESSEE shall use the Premises only in full compliance with those certain
Rules and Regulations attached hereto as Exhibit B and made a part hereof
(LESSEE hereby agrees to comply in full with such Rules and Regulations and any
and all reasonable modifications thereof or amendments thereto with respect to
which LESSOR notifies LESSEE, which are applied on a non-discriminatory basis to
all tenants in the area in which the Premises are located, and which will not
unreasonably interfere with LESSEE's use of the Premises as herein provided).
(b) LESSEE shall make no alterations or modifications of the exterior
or interior of the Premises without the prior written consent of LESSOR, which
shall not be unreasonably withheld or delayed. LESSEE's request for consent
shall be in writing and accompanied by plans and specifications describing the
proposed alterations or modifications. LESSEE shall fully comply with all
applicable governmental laws, ordinances, regulations and other requirements
with respect to any such alterations. All such alterations shall be accomplished
in a first-class workmanlike manner using first-quality materials in connection
therewith. All such alterations erected by LESSEE shall be and remain the
property of LESSEE during the term of this Lease, and LESSEE shall, unless
LESSOR otherwise elects, remove all such alterations erected by LESSEE and
restore the Premises to their original conditions by the expiration date of this
Lease or upon the earlier termination of the Lease; provided, however, that if
LESSOR elects prior to such expiration date or earlier termination of this
Lease, such alterations shall become the property of LESSOR as of the expiration
date or earlier termination of this Lease and shall be delivered up to LESSOR
with the Premises. All shelves, bins, machinery, movable partitions and trade
fixtures installed by LESSEE shall be removed by LESSEE prior to the expiration
date or earlier termination of this Lease if required by LESSOR; upon any such
removal, LESSEE shall restore the Premises to their original condition.
8. INSURANCE, INDEMNITY AND LIABILITY
(a) LESSOR shall procure and, at all times during the term of this
Lease, maintain in full force and effect for the benefit of LESSOR and any
mortgagee of LESSOR or other holder of any deed to secure debt, mortgage or
similar security instrument encumbering the Premises (herein such security
instruments are referred to individually as a "Deed to Secure Debt" and the
holder thereof is sometimes referred to as a "mortgagee"), as their interest may
appear, the following kinds of insurance on the Building and other improvements
of which the Premises are a part, in the full amount of their replacement value:
property insurance written on an "all-risk" basis inclusive of the perils
commonly associated with the fire and extended coverage policy endorsements and
rental insurance covering interruption in the payment of rents by reason of any
insured casualty for a period of one year.
(b) LESSEE, at LESSEE's sole cost and expense, shall obtain and
maintain for the entire term of this Lease insurance policies providing the
following coverage: (1) property insurance covering LESSEE's fixtures,
equipment, furnishings, inventory, merchandise, improvements and betterments,
and other contents in the Premises, for the full replacement value of said
items; such coverage shall be written on an "all-risk" basis inclusive of the
perils commonly associated with the fire and extended coverage policy
endorsements; (ii) business interruption insurance with a minimum limit equal to
LESSEE's annual rental expense; (iii) commercial general liability insurance
including contractual liability insurance covering LESSEE's obligations under
subparagraph 8(e) hereinbelow, with limits equal to or greater than One Million
and No/100 dollars ($1,000,000) per occurrence and in the aggregate for property
damage, personal injuries or bodily injury or death of persons occurring in or
about the Premises; LESSEE shall include T. Rowe Price Realty Income Fund 1, a
No-Load Limited Partnership, LaSalle Advisors Limited, LaSalle Partners
Management Limited, and any other entity which LESSOR may reasonably designate,
including the holder of any Deed to Secure Debt covering the Premises, as
additional insured on all such liability policies; (iv) workers' compensation
insurance with limits as statutorily defined in the State of Georgia; (v)
employer's liability insurance with limits not less than $100,000 for each
accident, $500,000 for each disease - policy limit, and $100,000 each disease -
each employee; and (vi) automobile liability insurance with a combined single
limit of not less than $1,000,000 for each accident/person. All such policies
shall (i) be acceptable to LESSOR in form and content and licensed to do
business in the State of Georgia; (ii) contain an express waiver of any right of
subrogation by the insurance company against LESSOR, LESSOR's agents and
employees, and LESSOR's mortgagees and ground lessors; (iii) contain a provision
that it shall not be canceled, materially changed, or not renewed unless LESSOR
has received at least thirty (30) days prior written notice of such
cancellation, material change or non-renewal; and (iv) LESSEE shall deliver to
LESSOR certificates of insurance evidencing the coverage required hereunder,
together with evidence of payment of premiums thereon, upon commencement of the
term of this Lease and upon each renewal and/or modification of said insurance.
(c) LESSEE shall not do, nor permit to be done, any act or omission
which will invalidate or be in conflict with the casualty policy covering the
Premises or any other insurance referred to in this Lease. If the acts or
omissions of LESSEE or its employees or agents, or LESSEE's particular use of
the Premises, shall increase the rate of insurance, such increases shall be
immediately paid by LESSEE as additional rent.
(d) LESSOR and LESSEE each hereby waives any claim which may arise in
its favor against the other party hereto arising out of this Lease (or any
renewal or extension thereof), for any loss or damage to any of its property
located within, upon, or constituting a part of the Premises. LESSOR and LESSEE
each agree to have its own insurance company properly endorse the fire and
extended coverage insurance policies for the Premises, or anything located
therein (i) to waive any subrogation claims against the other party, and (ii) to
prevent the invalidation of said insurance coverage by reason of this mutual
waiver.
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<PAGE> 8
(e) LESSEE indemnifies and shall hold LESSOR, T. Rowe Price Income Fund
I, a No-Load Limited Partnership, LaSalle Advisors Limited, LaSalle Partners
Management Limited, and their respective affiliates, partners, representatives,
directors, trustees, officers, employees, lenders, successors and assigns
(collectively, the "Affiliates") harmless from and defend LESSOR, and the
Affiliates from and against any and all liability, loss, damage, costs, expenses
(including court costs and attorneys' fees), claim, demand and cause of action,
at law or in equity, for any injury or death to any person or damage to any
property whatsoever:
(i) either (1) occurring in, on, or about the Premises, or (2)
occurring in, on, or about any facilities the use of which
LESSEE may have in conjunction with other tenants of the
Building or park in which the Premises are located, when such
injury, death or damage shall be caused in part or in whole by
the willful or negligent acts or omissions of LESSEE, its
agents, employees, contractors, invitees, tenants, successors
or assignees;
(ii) arising from any work or thing whatsoever done by or
benefitting LESSEE in or about the Premises or from
transactions of LESSEE concerning the Premises or from the
occupancy or use of the Premises by LESSEE;
(iii) arising from any breach or default on the part of LESSEE in
the performance of any covenant or agreement on the part of
LESSEE to be performed pursuant to the terms of this Lease; or
(iv) Otherwise arising from any act or neglect of LESSEE, or any of
its agents, employees, contractors, invitees, tenants,
successors or assignees;
Furthermore, in case any action or proceeding be brought against
LESSEE, T. Rowe Price Income Fund I, a No-Load Limited Partnership, LaSalle
Advisors Limited, LaSalle Partners Management Limited, or any of the
Affiliates by reason of any such claims or liability, LESSEE agrees to cause
such action or proceeding to be defended at LESSEE's sole expense by counsel
reasonably satisfactory to LESSOR. The provisions of this Lease with respect
to any claims or liability occurring or caused prior to any expiration or
termination of this Lease shall survive the expiration or termination of
this Lease.
(f) Except with respect to any damages resulting from the gross
negligence or willful misconduct of LESSOR, its agents, or employees, LESSOR
shall not be liable to LESSEE, its agents, employees, customers or guests for
any damages, losses, liability, compensation, claims or causes of actions
whatsoever.
9. DESTRUCTION OF OR DAMAGE TO PREMISES
(a) If the Premises are totally destroyed by storm, fire, lightning,
earthquake or any other casualty, this Lease shall terminate as of the date of
such destruction, and rental shall be accounted for as between LESSOR and LESSEE
as of that date.
(b) If the Premises, to include all truck courts and parking areas, are
partially destroyed by any of the casualties described hereinabove, LESSOR shall
notify LESSEE in writing whether the damage to the Premises is so extensive that
the same cannot be reasonably repaired and restored within six (6) months' time
from the date of such casualty. If LESSOR shall notify LESSEE that such damage
cannot be reasonably repaired within six (6) months' time, then, within fourteen
(14) calendar days of LESSEE's receipt of such notice, LESSOR and LESSEE shall
each have the right to terminate this Lease as of the thirtieth (30th) calendar
day following delivery to the other party of written notice of such termination.
If either LESSOR or LESSEE shall so terminate the Lease, then rental shall be
paid up to the date of such termination.
(c) If neither LESSOR nor LESSEE shall so terminate this Lease or if
LESSOR shall notify LESSEE that the damage can be reasonably repaired within six
(6) months' time, then rental shall abate in such proportion (based upon the
square footage) as use of the Premises has been destroyed, and LESSOR shall
restore the Premises to substantially the same condition as before the
occurrence of such casualty as speedily as practicable, whereupon full rental
shall recommence. LESSEE shall pay to LESSOR the "deductible amount" (if any)
under LESSOR's insurance policies and, if the damage was due to an act or
omission of LESSEE, its employees, agents, contractors or invitees, LESSEE shall
pay to LESSOR the difference between the actual costs of. repair and any
insurance proceeds received by LESSOR.
(d) In no event shall LESSOR have any liability to LESSEE with respect
to damage to LESSEE's property or fixtures.
10. CONDEMNATION
(a) If the whole of the Premises, or such substantial portion thereof,
to include all truck courts and parking areas, as will make the Premises
unusable for the purposes herein leased, be condemned by any legally constituted
authority for any public use or purpose, then this Lease shall terminate as of
the time when possession thereof is taken by public authorities, and rental
shall be accounted for between LESSOR and LESSEE as of that date. In the event
the portion condemned is such that the remaining portion can, after restoration
and repair, be made usable for LESSEE's purposes, then this Lease shall not
terminate; however, the rent shall be reduced proportionately to the amount
(based
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upon square footage) of the Premises taken. In such event, LESSOR shall make any
necessary repairs as soon as they can be reasonably accomplished. Any
termination or obligation to repair, however, shall be without prejudice to the
rights of either LESSOR or LESSEE, or both, to recover from the condemnor
compensation and damages caused by such condemnation. LESSOR and LESSEE
acknowledge that LESSEE shall have the right to apply for and collect the value
of its trade fixtures and special equipment installed by it in the Premises and
any other compensable damages resulting from such condemnation not affecting
LESSOR's settlement with the condemning authority; provided, however, that
LESSEE shall have no claim against LESSOR or against the condemnor for the value
of any unexpired portion of the term of this Lease or otherwise. Neither the
LESSEE nor the LESSOR shall have any rights in any award made to the other by
any condemnation authority.
11. ASSIGNMENT AND SUBLETTING
LESSEE shall not, without the prior written consent of LESSOR, which
consent shall not be unreasonably withheld or delayed, assign this Lease or any
interest hereunder, or sublet the Premises or any part thereof, or permit the
use of the Premises by any party other than LESSEE; provided, however, it shall
not be unreasonable for LESSOR to withhold its consent to any proposed
assignment, sublease, or other transfer if a proposed transferee's anticipated
use of the Premises involves the generation, storage, use, treatment or disposal
of any Hazardous Material, or if the proposed transferee is an existing, tenant
at the park in which the Premises is located. If LESSEE is a corporation,
partnership, joint venture or other entity, any transfer, sale or other
disposition of the stock or interest of LESSEE which may or does cause a change
in control of LESSEE shall be deemed an assignment of this Lease; provided,
however, that if the stock of any such corporation is regularly traded on any
recognized securities market, the transfer of such stock shall not be subject to
the terms hereof. LESSOR shall have the right (but not the obligation), if it
does not consent to the proposed assignment or sublease submitted by LESSEE, to
terminate this Lease by written notice to LESSEE, which termination shall take
effect ninety (90) days after LESSOR has so notified LESSEE; notwithstanding the
foregoing, in the event LESSOR so notifies LESSEE that LESSOR does not consent
to any such proposed assignment or sublease submitted by LESSEE, then in such
event LESSEE shall have the right by written notice delivered to LESSOR within
ten (10) calendar days of the date of delivery of such written notice from
LESSOR to LESSEE to withdraw such proposed assignment or sublease and to verify
that this Lease shall remain in full force and effect in accordance with its
terms without any such proposed assignment or sublease, in which event LESSOR's
notice of termination shall be null and void and of no force or effect. Consent
to any assignment or sublease shall not destroy this provision and all later
assignments or subleases shall be made likewise only on the prior written
consent of LESSOR (on the same basis as aforesaid) and subject to LESSOR's right
to terminate. Each assignee of LESSEE shall become directly liable to LESSOR for
all obligations of LESSEE hereunder. No sublease or assignment by LESSEE shall
relieve LESSEE of any liability hereunder. To the extent LESSEE receives rents
or other payments from any such sublessee or assignee in excess of the rental
payable to LESSOR hereunder, LESSEE shall immediately pay such excess amount to
LESSOR as additional rent hereunder, and LESSEE shall and does hereby authorize
LESSOR directly to collect any and all such sums from such assignee or
sublessee, as the case may be.
12. SUBSTITUTION OF PREMISES
LESSOR shall have the right, at its sole option and upon giving at
least forty-five (45) days' prior written notice to LESSEE, to relocate LESSEE
at any time during the term of this Lease to substitute space within the park in
which the Premises is located approximately similar to the Premises in terms of
size and amenities and at such time, LESSEE shall execute such reasonable
amendments and documents necessary to evidence such substitution of the
Premises. LESSOR shall pay all reasonable moving expenses of LESSEE incidental
to such substitution of premises.
13. REMOVAL OF FIXTURES
LESSEE may, if not in default hereunder, and shall, if so requested by
LESSOR, prior to the expiration of this Lease, or any extension thereof, remove
all fixtures and equipment which it has placed in the Premises, provided LESSEE
repairs all damage to the Premises caused by such removal. If LESSEE is in
default hereunder, LESSEE shall not, unless requested by LESSOR, remove the
fixtures and equipment which it has placed in the Premises.
14. DEFAULT BY LESSEE
(a) If LESSEE shall default in the payment of rent and other sums and
charges herein reserved, when due, and shall fail to make such payment within
ten (10) calendar days after the due date thereof,
(b) if LESSEE is adjudicated bankrupt;
(c) if LESSEE shall file a petition in bankruptcy under any section or
provision of the bankruptcy law;
(d) if any involuntary petition in bankruptcy shall be filed against
LESSEE, and same not be withdrawn or dismissed within sixty (60) days from the
filing thereof,
(e) if a receiver or trustee shall be appointed for LESSEE's property
and the order appointing such receiver or trustee shall remain in force for
thirty (30) days after the entry of such order;
(f) if, whether voluntarily or involuntarily, LESSEE shall take
advantage of any debtor relief proceedings under any present or future law,
whereby the rent or any part thereof is, or is proposed to be, reduced or
payment thereof deferred;
(g) if LESSEE shall make an assignment for benefit of creditors;
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<PAGE> 10
(h) if LESSEE's effects shall be levied upon or attached under process
against LESSEE, and such levy or attachment not be satisfied or dissolved within
thirty (30) days after such levy or attachment;
(i) if LESSEE shall vacate or abandon the Premises unless Tenant is not
in default in the payment of rent or other charges, terms on conditions of the
Lease; or
(j) if LESSEE shall default under any other covenant, agreement, or
condition to be performed or kept by the LESSEE under the terms and provisions
of this Lease and shall fail to cure such default within thirty (30) calendar
days of the date of written notice from LESSOR to LESSEE, then and in any such
event LESSOR shall have the right, at the option of LESSOR, then or at any time
thereafter while any such default shall continue, to elect to do any one or more
of the following:
(1) to cure such default or defaults at the expense of LESSEE and
without prejudice to any other remedies which it might otherwise have,
any payment made or expenses incurred by LESSOR in curing such default
with interest thereon at the Default Rate (as defined below) to be and
become additional rent to be paid by LESSEE with the next installment
of rent falling due thereafter; or
(2) re-enter the Premises by force or otherwise, without notice, and
dispossess LESSEE and anyone claiming under LESSEE, by summary
proceedings or otherwise, and remove their effects, and take complete
possession of the Premises. In such re-entry LESSOR may, with or
without process of law, remove all persons from the Premises, and in
such event, LESSEE hereby covenants, for itself and all others
occupying the Premises under LESSEE, to peacefully yield up and
surrender the Premises to the LESSOR. Either before or after such
reentering, dispossessing, removing and taking possession, LESSOR may:
(i) declare this Lease forfeited and the term ended whereupon
LESSOR shall be entitled to recover from LESSEE the rental and all
other sums due and owing by LESSEE up to the date of termination, plus
the costs of curing all of LESSEE's defaults existing at or prior to
the date of termination, plus the unamortized costs of any tenant
improvements made to the Premises in connection with this Lease, plus
the amount of any brokerage commission paid in advance (based on
projected rentals) representing payment for the period following such
default, plus liquidated damages for failure of LESSEE to observe and
perform the covenants of this Lease equal to the deficiency, if any,
between LESSEE's Rental (and all other charges that otherwise would
have become due hereunder) and the rental (less LESSOR's costs and
expenses including brokers' commissions related thereto) obtained by
LESSOR for the balance of the term remaining under this Lease from any
reletting of the Premises. In the event of termination of this Lease,
LESSEE waives any and all rights to redeem the Premises given by any
statute now in effect or hereafter enacted. No receipt of money by
LESSOR from LESSEE after the termination of this Lease or after service
of any notice or after the commencement of any suit or after final
judgment for possession of the Premises shall reinstate, continue or
extend the term of this Lease or affect any such termination, notice,
suit or judgment; or
(ii) declare this Lease forfeited and the term ended and
declare the entire amount of rental and all other sums which would have
otherwise become due and payable during the remainder of the term of
this Lease, plus the unamortized costs of any tenant improvements made
to the Premises in connection with this Lease, plus the amount of any
brokerage commission paid in advance (based on projected rentals)
representing payment for the period following such default, to be due
and payable immediately, in which event LESSEE agrees to pay the same
at once, together with all rental and other sums theretofore due and
payable; provided, however, that such payment shall not constitute a
penalty or forfeiture or liquidated damages, but shall merely
constitute payment in advance of the rental for the remainder for the
said term. Upon making such payment, LESSEE shall from time to time
receive from LESSOR on account of the Premises during the term of this
Lease, after deducting from gross receipts any and all of LESSOR's
costs and expenses, including brokers' commissions related thereto, the
excess of such gross receipts (after deduction of such costs and
expenses) over the rentals otherwise due and payable hereunder;
provided, however, that the monies to which LESSEE shall so become
entitled shall in no event exceed the entire amount payable by LESSEE
to LESSOR hereunder; or
(iii) continue this Lease in full force and effect, but with
the right at any time thereafter to elect Option (1) immediately
hereinabove, whereupon LESSOR shall use its reasonable efforts to rent
the Premises on the best terms available for the remainder of the term
hereof, or for such longer or shorter periods as LESSOR shall deem
advisable. LESSEE acknowledges that LESSOR shall have no obligation to
rent the Premises prior to LESSOR's renting any other available space
owned by LESSOR in the park in which the Premises are located. LESSEE
shall remain liable for payment of all rentals and other charges and
costs imposed on LESSEE herein, in the amounts, at the times and upon
the conditions as herein provided, but LESSOR shall credit against such
liability of LESSEE all amounts received by LESSOR from such reletting
after first reimbursing itself for all costs incurred in curing
LESSEE's defaults, preparing and refinishing the Premises for
reletting, and reletting the Premises.
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If this Lease provides for a postponement of any monthly rental
payments, a period of "free" rent or other rent concession (herein referred to
as "Abated Rent"), LESSEE shall be credited with having paid all of the Abated
Rent on the expiration of the term of this Lease only if LESSEE has fully,
faithfully and punctually performed all of LESSEE's obligations hereunder,
including the payment of all other rent and additional rent and the surrender of
the Premises in the physical condition required by this Lease. If a default
shall occur hereunder and be continuing beyond any applicable notice and cure
period, the Abated Rent shall immediately become due and payable in full and
this Lease shall be enforced as if there were no such rent abatement or other
rent concession. In such case, Abated Rent shall be calculated based on the full
initial rent payable under this Lease. No right or remedy granted to LESSOR
herein is intended to be exclusive of any other right or remedy, and each and
every right and remedy herein provided shall be cumulative and in addition to
any other right or remedy hereunder, or now or hereafter existing at law or in
equity or by statute. In the event of termination of this Lease, LESSEE waives
any and all rights to redeem the Premises either given by any statute now in
effect or hereafter enacted.
In the event LESSEE fails to pay any installment of rent hereunder
within ten (10) calendar days after written notice that such installment is due,
to help defray the additional cost to LESSOR for processing such late payments,
LESSEE shall pay to LESSOR on demand a late charge in an amount equal to
interest accrued on such installment at a rate of two (2%) percent per annum.
above the prime rate of Trust Company Bank, Atlanta, Georgia (the "Default
Rate") from the date such installment was due through the date of payment
thereof. The provision for such late charge shall be in addition to all of
LESSOR's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting LESSOR's remedies in any manner.
No receipt of money by LESSOR from LESSEE after the termination of this
Lease or after service of any notice or after the commencement of any suit or
after final judgment for possession of' the Premises shall reinstate, continue
or extend the term of this Lease or affect any such termination, notice, suit or
judgment.
15. RE-ENTRY BY LESSOR
No re-entry by LESSOR or any action brought by LESSOR to oust LESSEE
from the Premises shall operate to terminate this Lease unless LESSOR shall give
written notice of termination to LESSEE, in which event LESSEE's liability shall
be as above provided.
16. EXTERIOR SIGNS
LESSEE, with LESSOR's approval, is hereby given permission to erect its
customary sign used to identify its company on the exterior walls of the
Premises, provided any such sign shall conform to all laws, ordinances and
regulations pertaining thereto, and provided further that LESSEE shall be
responsible for any damage to the Building occasioned by the installation and/or
removal of such sign. LESSEE shall place no sign upon the roof of the Premises
nor shall LESSEE allow such signs as are permitted hereunder to be attached to
any part of the roof, including the flashing of the Premises. LESSEE shall
remove such sign upon the termination of this Lease and repair all damages to
the Premises caused by such removal. During the term of this Lease, LESSEE
shall, at LESSEE's expense maintain such sign in such a manner as not to detract
from the overall appearance of the Building and in conformance with standards
associated with a first-class office and warehouse facility.
17. AMERICANS WITH DISABILITIES ACT
LESSEE agrees, at its sole cost and expense, to promptly comply with
all requirements of the Americans with Disabilities Act of 1990, 42 U.S.C. ss.
12101 et seq., as amended from time to time (the "Act"), and to promptly furnish
to LESSOR copies of all notices received by LESSEE from time to time regarding
compliance with the Act from any person whatsoever, including, without
limitation, disabled persons, governmental agencies or federal or state courts.
18. LESSOR'S LIEN
In addition to any statutory lien for rent in LESSOR's favor, LESSOR
shall have and LESSEE hereby grants to LESSOR a continuing security interest for
all rentals and other sums of money becoming due hereunder from LESSEE, upon all
goods, wares, equipment, fixtures, furniture, inventory, accounts, contract
rights, chattel paper and other personal property of LESSEE situated on the
Premises, and such property shall not be removed therefrom without the consent
of LESSOR until all arrearages in rent as well as any and all other sums of
money then due to LESSOR hereunder all first have been paid and discharged. In
the event of a default under this Lease, LESSOR shall have, in addition to any
other remedies provided herein or by law, all rights and remedies under the
Uniform Commercial Code of the State of Georgia. LESSEE hereby agrees to execute
such financing statements and other instruments necessary or desirable in
LESSOR's discretion to perfect the security interest hereby created.
19. ENTRY FOR CARDING
LESSOR may card the Premises "For Rent" or "For Sale" one hundred
eighty (180) days before the termination of this Lease. At any time during the
term of the Lease, LESSOR may enter the Premises at reasonable hours to exhibit
same to prospective purchasers or tenants, and to make repairs required of
LESSOR under the terms hereof, or to make repairs to LESSOR's adjoining
property, if any.
20. EFFECT OF TERMINATION OF LEASE
No termination of this Lease prior to the normal ending thereof, by
lapse of time or otherwise, shall affect LESSOR's right to collect rent for the
period prior to termination hereof.
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21. NO ESTATE IN LAND
This contract shall create the relationship of landlord and tenant
between LESSOR and LESSEE; no estate shall pass out of LESSOR; LESSEE has only a
usufruct, not subject to levy or sale, and not assignable by LESSEE except by
LESSOR's consent.
22. HOLDING OVER
LESSEE shall pay to LESSOR the monthly Rent computed on a per month
basis for each month or part thereof (without reduction for any such partial
month) LESSEE retains possession of the Premises or any part thereof after the
expiration of the Term, by lapse of time or otherwise, at double the amount the
Rent then required by the terms hereof for the last monthly period prior to the
date of such expiration and also pay all damages, direct or indirect, sustained
by LESSOR by reason of such retention, or, if LESSOR gives notice in writing to
LESSEE (and not otherwise), such holding over shall constitute renewal of this
Lease at LESSOR's election for one (1) Year at either (i) two hundred percent
(200%) of the then current Rent (including Additional Rent); or (ii) that amount
set forth in a written notice from LESSOR to LESSEE prior to the holding over,
but acceptance by LESSOR of Rent after such expiration shall not constitute a
renewal or extension nor waive LESSOR'S right of re-entry or any other right of
LESSOR.
23. RIGHTS CUMULATIVE
All rights, powers and privileges conferred hereunder upon the parties
hereto shall be cumulative, but not restrictive to those given by law.
24. NOTICES
Any and all notices, elections, demands, requests, and responses
thereto permitted or required to be given under this Lease shall be in writing,
signed by or on behalf of the party giving the same, and shall be deemed to have
been properly given or served and shall be effective, upon being personally
delivered or upon being deposited in the United States Mail, postage prepaid,
certified mail, return receipt requested, to the other party at the address of
such other party set forth below or at such other address as such other party
may designate by notice specifically designated as a notice of change of address
and given in accordance herewith; provided, however, that the time period in
which a response to any such notice, election, demand or request must be given
shall commence on the date of receipt thereof, and provided further that no
notice of change of address shall be effective until the date of receipt
thereof. Personal delivery to a party or to any officer, partner, agent or
employee of such party at said address shall constitute receipt. Rejection or
other refusal to accept or inability to deliver because of changed address of
which no notice has been received shall also constitute receipt. Any such
notice, demand, or request shall be addressed as follows:
(a) LESSOR: LaSalle Partners Management Limited, Suite E, 3050 Business
Park Drive, Norcross, Georgia 30071, or to such other address as LESSOR may
hereafter designate in writing to LESSEE. A copy of all such notices shall also
be sent to: T. Rowe Price Income Fund I, a No-Load Limited Partnership, c/o La
Salle Advisors Limited, 11 South LaSalle Street, Chicago, Illinois 60603,
Attention: Portfolio Manager.
(b) LESSEE: 3010 Business Park Drive, Suite E, Norcross, GA 30071
(c) The holder of any Deed to Secure Debt at such address as may be
furnished to LESSEE by LESSOR.
25. WAIVER OF RIGHTS
No failure of LESSOR or LESSEE to exercise any power given LESSOR or
LESSEE hereunder, or to insist upon strict compliance by LESSOR or LESSEE with
its obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of LESSOR's or LESSEE's right to
demand exact compliance with the terms hereof.
26. STRIKES, WARS, OR ACTS OF GOD
The time within which LESSOR or LESSEE is obligated hereunder to
construct, repair, or perform any other act required under the terms of this
Lease shall be extended and the performance excused when the delay is occasioned
by strikes, threats of strikes, lockouts, war, threats of war, bombing,
insurrection, invasion, acts of God, calamity, violent action of the elements,
fire, action or regulation or any government agencies laws, or ordinances,
impossibility of obtaining materials, and other things beyond the reasonable
control of the obligated party.
27. QUIET POSSESSION
LESSOR warrants that LESSEE, on paying the monthly rental installments
and other payments provided for hereby and on keeping, observing and performing
all other terms, conditions and provisions herein contained on the part of the
LESSEE to be kept, observed and performed, shall during the full Lease term,
peaceably and quietly have, hold and enjoy the Premises for the full term of
years in this Lease, subject to the terms, conditions and provisions hereof.
28. TIME OF ESSENCE
Time is of the essence of this Agreement.
29. SURRENDER OF PREMISES
At termination of this Lease, LESSEE shall surrender the Premises and
keys thereof to LESSOR in the same condition as at commencement of term, normal
wear and tear only excepted.
30. DEFINITIONS
"LESSOR" as used in this Lease shall include first parties, their
heirs, representatives, assigns, and successor in title to the Premises.
"LESSEE" shall include second parties, their heirs, representatives and
successors, and if this Lease shall be validly assigned or sublet, shall include
LESSEE's assignees or sublessees, as to the premises covered by such assignment
or sublease. "LESSOR"
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and "LESSEE" include male and female, singular and plural, corporation,
partnership, or individual, as may be appropriate for the particular parties.
31. SUBORDINATION
(a) This Lease and all of the rights of LESSEE hereunder are subject
and subordinate at all times to any Deed to Secure Debt which may now or
hereafter affect the real property of which the Premises form a part, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required by any holder of a Deed to Secure Debt. In confirmation of
such subordination, LESSEE shall execute promptly any certificate that LESSOR
may reasonably request related thereto.
(b) If LESSOR elects to have this Lease superior to any applicable Deed
to Secure Debt and its election is signified in some recorded instrument, then
this Lease shall be superior to such Deed to Secure Debt, notwithstanding any
other provision hereof.
(c) LESSEE agrees that if it sends any notice to LESSOR concerning
LESSOR's obligations hereunder, LESSEE will also send a copy of any such notice
to the holder of any Deed to Secure Debt (so long as LESSEE has been previously
notified in writing of the name and address of such holder), and in the event
any notice specifies some default on the part of LESSOR, LESSEE agrees to afford
the holder of any Deed to Secure Debt a reasonable time to effect a cure of such
default for and on behalf of LESSOR, if the LESSOR fails to cure the default.
LESSEE agrees to execute such documents with respect thereto as may be
reasonably required by such holder.
(d) Within ten (10) days after request therefor by LESSOR, LESSEE
agrees to execute and deliver in recordable form, an estoppel certificate to any
holder of a Deed to Secure Debt or proposed mortgagee or proposed purchaser or
to LESSOR or to such other party as LESSOR may request certifying (if such be
the case) that this Lease is unmodified and in full force and effect (and if
there has been modification, that the same is in full force and effect as
modified and stating the modifications); that there are no defenses or offsets
against the enforcement thereof or stating those claimed by LESSEE; and stating
the date to which rentals and other sums due hereunder are paid. Such
certificate shall also include such other information as may be required or
requested by LESSOR or the addressee thereof. The failure by LESSEE to deliver
any such certificate within 10 days after request therefor shall be deemed to
constitute the certification by LESSEE that this Lease is in full force and
effect and has not been modified except as may be represented by LESSOR, that
there are no defenses or offsets against the enforcement thereof, and that
LESSOR is in full and timely compliance with all of its obligations thereunder.
If LESSEE fails to deliver such estoppel certificate within said 10 days, LESSEE
shall and does hereby irrevocably appoint LESSOR as LESSEE's attorney in fact to
execute and deliver such certificate.
(e) LESSEE shall, in the event any proceedings are brought for the
foreclosure of or in the event of the exercise of power of sale under any Deed
to Secure Debt made by LESSOR covering the Premises, attorn to the purchaser at
any such sale and recognize the purchaser as LESSOR hereunder.
32. LESSOR'S LIABILITY
(a) Upon the sale of the Premises by LESSOR, all obligations of LESSOR
under this Lease, including but not limited to those specified in Paragraph 27
above, shall terminate.
(b) Notwithstanding anything to the contrary contained in this Lease,
LESSEE agrees and understands that LESSEE shall look solely to the estate and
property of LESSOR in the building of which the Premises is part for the
enforcement of any judgment (or other judicial decree) requiring the payment of
money by LESSOR to LESSEE by reason of any default or breach by LESSOR in the
performance of its obligations under this Lease, it being intended hereby that
no other assets of LESSOR shall be subject to levy, execution, attachment or any
other legal process for the enforcement or satisfaction of the remedies pursued
by LESSEE in the event of such default of breach.
33. EFFECT OF SUBMISSION
Submission of this Lease for examination and consideration does not
constitute a reservation of or option for the Premises. This instrument shall
become effective as a Lease only upon the full execution and delivery of this
instrument by both LESSOR and LESSEE.
34. TAX ON RENTAL
If at any time hereafter, any applicable governmental authority or
agency shall assess against LESSOR a tax (other than income tax) on rental
income and other revenues derived from leases, whether such tax be in
replacement of real estate ad valorem taxes or otherwise, and payment by LESSEE
of such tax or taxes shall be in violation of any then applicable law or
regulation, then in such event LESSOR shall have the right to terminate this
Lease by written notice thereof to LESSEE, such notice to be delivered within
thirty (30) calendar days of the later to occur of (a) the date upon which such
tax is assessed against LESSOR; or (b) the date upon which it is determined that
LESSEE's payment of such tax (or reimbursement to LESSOR therefor) is a
violation, and this Lease shall thereupon terminate at 11:59 P.M., local
Atlanta, Georgia time, on the sixtieth (60th) calendar day following the date of
such notice from LESSOR to LESSEE.
35. MECHANICS LIEN
LESSEE shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of LESSOR in the Premises or to charge the rentals payable
hereunder for any claim in favor of any person dealing with LESSEE, including
those who may furnish materials or perform labor for any construction or
repairs, and each such claim shall effect and each such lien shall attach to, if
at all, only the leasehold interest granted to LESSEE by this instrument. LESSEE
covenants and agrees that it will pay or cause to be paid all sums
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<PAGE> 14
legally due and payable by it on account of any labor performed or material
furnished in which any lien is or can be validly and legally asserted against
its leasehold interest in the Premises or the improvements thereon and that it
will save and hold LESSOR harmless from and against any and all loss, cost or
expense (including court costs and attorney's fees) based on or arising out of
asserted claims or liens against the leasehold estate or the right, title and
interest of LESSOR in the Premises or under the terms of this Lease.
36. BROKERAGE INDEMNITY
LESSOR hereby indemnifies and holds LESSEE harmless from any claim,
demand, liability or cause of action for any brokerage commission, fee or other
similar compensation or cost arising out of the acts of LESSOR in connection
with this Lease or the leasehold estate created hereby. Pursuant to Georgia Real
Estate Commission Reg. 520-1-.08, Spectrum Realty Advisors, Inc. ("LESSOR's
Broker") represents LESSOR and Carter & Associates ("LESSEE's Broker")
represents LESSEE (herein, LESSOR's Broker and LESSEE's Broker are collectively
referred to as "Brokers"). Brokers shall receive their compensation exclusively
from LESSOR. Except for Brokers, LESSEE hereby indemnifies and holds LESSOR
harmless from any claim, demand, liability or cause of action for any brokerage
commission, fee or other similar compensation or cost arising out of the acts of
LESSEE in connection with this Lease or the leasehold estate created hereby.
37. HAZARDOUS MATERIALS
LESSEE agrees that it will not place, hold, or dispose of any Hazardous
Material (as hereinafter defined) on, under or at the Premises or the Building
and that it will not use the Premises or any other portion of the Building as a
treatment, storage, or disposal (whether permanent or temporary) site for any
Hazardous Material. LESSEE further agrees that it will not cause or allow any
asbestos to be incorporated into any improvements or alterations which it makes
or causes to be made to the Premises. LESSEE hereby agrees to indemnify LESSOR
and its officers, directors, shareholders, partners, employees, joint venturers,
affiliates, agents, successors and assigns from and against all losses,
liabilities, damages, costs (including without limitation, court costs and
attorneys' fees), and claims of any kind whatsoever (including, without
limitation, diminution in the value of the Premises, damages for the loss of or
restriction on use of rentable or usable space or any amenity of the Premises,
damages arising from any adverse impact on marketing of the Premises, sums paid
in settlement of claims, attorneys' fees, consultants' fees and experts' fees,
and claims asserted or arising under any of the Environmental Laws [as
hereinafter defined]), which are paid, incurred or suffered by, or asserted
against LESSOR as a direct or indirect result of (i) any breach by LESSEE of the
foregoing covenants or (ii) to the extent caused or allowed by LESSEE or any
agent, contractor, employee, invitee, or licensee of LESSEE, the presence on or
under, or the escape, seepage, leakage, spillage, discharge, emission, or
release from, onto, or into the Premises, the atmosphere, or any watercourse,
body of water, or groundwater, of any Hazardous Material. The provisions of and
undertakings and indemnification set out in this Paragraph 37 shall survive the
early termination or expiration of this Lease, and shall continue to be the
personal liability, obligation and indemnification of LESSEE, binding upon
LESSEE forever. The provisions of the preceding sentence shall govern and
control over any inconsistent provision of this Lease. The foregoing
indemnification of LESSOR by LESSEE includes without limitation, costs incurred
in connection with any investigation of site conditions or any clean-up,
remedial, removal or restoration work whether or not required by any Federal,
State or local governmental agency or political subdivision resulting from the
presence of Hazardous Material on the Premises or in the soil or groundwater or
under the Premises caused or permitted by LESSEE. Without limiting the
foregoing, if the presence of any Hazardous Material on the Premises caused or
permitted by LESSEE results in any contamination of the Premises, LESSEE shall
promptly take all actions, at its sole expense, as are necessary to return the
Premises to the condition existing prior to the introduction of such Hazardous
Material to the Premises; provided that LESSOR's approval of such actions shall
be first obtained, which approval shall not be unreasonably withheld so long as
such actions would not potentially have any material adverse effect on the
Premises.
For purposes of this Lease, "Hazardous Material" means and includes any
hazardous substances, hazardous waste, toxic materials or any pollutants or
contaminant defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et
seq., as amended, Comprehensive Environmental Response Compensation, and
Liability Act, 42 U.S.C. ss. 6901 et seq., as amended, the Toxic Substance
Control Act, as amended, any so-called "Superfund" or "Superlien" law or any
other Federal, State or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect (collectively, the
"Environmental Laws"), or any other hazardous, toxic or dangerous waste,
substance or material.
LESSOR and its authorized agents shall have the right, but not the
duty, to inspect the Premises, including taking samples and performing tests, at
any time to determine whether LESSEE is complying with the terms of this Lease.
If LESSEE is not in compliance with this Lease, LESSOR shall have the right to
immediately enter upon the Premises to remedy any contamination or condition
caused by LESSEE's failure to comply, notwithstanding any other provision of
this Lease. LESSOR shall use reasonable efforts to minimize interference with
LESSEE's' business, but shall not be liable for any damages caused by the
exercise of LESSOR's right under this provision.
Any default under this Section 37 shall be a default enabling LESSOR to
exercise any of the remedies set forth in this Lease.
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38. TENANT IMPROVEMENTS
Tenant improvements will include those items specified in Exhibit "C"
hereto attached. Subject to delay occasioned by causes beyond Landlord's
reasonable control, including but not limited to the obtaining of the required
governmental construction permits and obtaining all governmental approvals and
the certificate of occupancy, Landlord agrees, at Landlord's cost and expense,
to commence the construction of the interior improvements and perform its
obligations pursuant to Exhibit "C" and to complete the same in a reasonable
time.
After the Landlord has completed construction of the Facilities
substantially in accordance with Exhibit "C" and notified Tenant in writing of
the completion, Tenant shall have ten (10) days or until Tenant's occupancy
date, whichever occurs first, in which to inspect the Premises. If Tenant finds
that the Premises have not been constructed in accordance with Exhibit "C", it
shall notify Landlord of such fact, indicating the particular items which are
incomplete or improperly constructed, and Landlord shall complete or correct
such work. Upon the completion of such work or in the event Tenant does not
notify the Landlord within such ten (10) day period that the Premises are not
satisfactory or if the Tenant occupies the Premises, Tenant shall be deemed to
have accepted the Premises in its then condition "as is", "where is", without
any warranties of any kind.
Landlord shall be responsible for no other improvements of any kind
whatsoever. In the event the leased premises should not be ready for occupancy
by the commencement date for any reason whatsoever, Landlord shall not be liable
or responsible for any claims, damages or liabilities in connection therewith
or, by reason thereof.
39. SECURITY DEPOSIT
LESSOR acknowledges that it has received from LESSEE the sum of $
2,697.40 (the "Security Deposit"), which amount shall be security for the full
and faithful performance and observance by LESSEE of its covenants and
obligations under this Lease. No interest shall be payable on the Security
Deposit, and it is agreed and acknowledged by LESSEE that the Security Deposit
is not an advance payment of rent or a measure of LESSOR's damages in the case
of default by LESSEE. Upon the occurrence of a default under this Lease, LESSOR
may, but shall not be obligated to, use, apply, or retain the whole or any part
of the Security Deposit to the extent required for the payment of any rental and
additional rent or any other sums to which LESSEE is in default or for the
payment of any other damage, injury, expense, or liability resulting from any
default. Following any such application of the Security Deposit, LESSEE shall
pay to LESSOR on demand the amount necessary to restore the Security Deposit to
its original amount. In the event that LESSEE shall fully and faithfully comply
with all of its covenants and obligations under this Lease, the Security Deposit
shall be returned to LESSEE within thirty (30) days after the expiration of the
term of this Lease and after delivery of possession of the Premises of LESSOR in
accordance with the terms hereof. In the event of a sale or lease of the
Building, subject to this Lease, LESSOR shall be released from all liability for
the return of the Security Deposit and LESSEE shall look to the new lessor for
the return of the Security Deposit. This provision shall apply to every transfer
or assignment made of the Security Deposit to a new lessor. Any mortgagee or
ground lessor shall not be responsible to LESSEE for the return or application
of the Security Deposit, whether or not it succeeds to the position of LESSOR
hereunder, unless the Security Deposit shall have been received in hand by such
mortgagee or ground lessor.
40. MISCELLANEOUS
(a) The failure by the parties hereto to insist in any one or more
cases upon the strict performance of any term, covenant or condition of this
Lease to be performed or cured by any party hereto shall not constitute a waiver
or a relinquishment for the future of any such term, covenant or condition.
(b) Paragraph captions herein are for LESSOR's and LESSEE's convenience
only and neither limit nor amplify the provisions of this Lease.
(c) If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in such event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties hereto that in lieu of each clause or provision of this
Lease that is so illegal, invalid or unenforceable, there shall be added as part
of this Lease a clause or provision as similar in form and substance to such
illegal, invalid or unenforceable clause or provision as may be possible and as
will be legal, valid and enforceable.
(d) This Lease constitutes the total agreement between LESSOR and
LESSEE with respect to the Premises and incorporates all prior written and oral
agreements between the parties related thereto, and no modification hereof shall
be binding unless set forth in writing, signed by all parties hereto.
(e) Georgia law shall govern and control the construction and
application of this Lease.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease
Agreement as of the day and year first above written.
LESSEE: Stricor, Inc.,
a Georgia Corporation
-------------------------------------
By: [illegible]
-------------------------------------
Title: President
-------------------------------------
(AFFIX CORPORATE SEAL) Attest: [illegible]
------------------------------------
Title: Vice President
------------------------------------
LESSOR:
By: T. ROWE PRICE REALTY INCOME FUND I,
A NO-LOAD LIMITED PARTNERSHIP, A
MARYLAND LIMITED PARTNERSHIP
By: LaSalle Advisors Limited, as Agent
for LESSOR
By: /s/ James M. Riordan
------------------------------------
Name: James M. Riordan
------------------------------------
Title: Vice President
------------------------------------
*Note - If LESSEE is a corporation, lease must be signed by an authorized
officer of the corporation and attested by a secretary or assistant secretary of
the corporation who must also affix the corporate seal.
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EXHIBIT "A"
FLOOR PLAN
[Graphic of floor plan of Premises]
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EXHIBIT "B"
RULES AND REGULATIONS
1. The sidewalks, and public portions of the building, such as
entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls, and the streets, alleys or ways surrounding or in the vicinity of the
building shall not be obstructed, even temporarily, or encumbered by LESSEE or
used for any purpose other than ingress and egress to and from the Premises.
2. No awnings or other projections shall be attached to the outside
walls of the building. No curtains, blinds, shades, louvered openings or screens
shall be attached to or hung in, or used in connection with, any window or door
of the Premises, without the prior written consent of LESSOR, unless installed
by LESSOR.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by LESSEE on any part of the Premises
or building or on corridor walls, without LESSOR's prior written consent. In the
event of the violation of the foregoing by LESSEE, LESSOR may remove same
without any liability, and may charge the expense incurred by such removal to
LESSEE.
4. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the building, nor placed in the public halls,
corridors, or vestibules without the prior written consent of LESSOR.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by LESSEE.
6. No bicycles, vehicles, or animals of any kind shall be brought into
or kept in or about the Premises.
7. LESSEE shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. LESSEE shall not throw anything out of
the doors, windows or skylights or down the passageways.
8. Neither LESSEE, nor any of LESSEE's servants, employees, agents,
visitors, or licensees, shall at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, or chemical substance, other than
reasonable amounts of cleaning fluids or solvents required in the normal
operation of LESSEE's business offices.
9. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by LESSEE, nor shall any changes be made in existing locks
or the mechanism thereof, without the prior written approval of LESSOR and
unless and until a duplicate key is delivered to LESSOR. LESSEE shall, upon the
termination of its tenancy, return to LESSOR all keys of stores, offices and
toilet rooms, either furnished to, or otherwise procured by, LESSEE, and in the
event of the loss of any keys so furnished, LESSEE shall pay to LESSOR the cost
thereof.
10. LESSEE shall not overload any floor.
11. LESSEE shall not engage or pay any employees on the Premises,
except those actually working for LESSEE on said Premises, nor advertise for
laborers giving an address at the building.
12. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
13. Canvassing, soliciting, and peddling in the buildings are
prohibited and LESSEE shall cooperate to prevent the same.
14. LESSOR shall not be responsible to any LESSEE for the
non-observance or violation of any of these Rules and Regulations by any other
lessee.
Whenever the above rules conflict with any of the rights or obligations
of LESSEE pursuant to the provisions of the Lease, the provisions of the Lease
shall govern
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EXHIBIT "C"
TENANT IMPROVEMENTS
1. LESSEE hereby accepts the Premises in their present condition on an
"as-is" basis except that LESSOR shall warrant that all mechanical
systems in the space including heating, air conditioning, plumbing and
electrical shall be in good working order upon commencement of this
Lease.
2. LESSEE shall be permitted access to the Premises prior to the
commencement date to install data and telephone cables provided that
the insurance requirements of LESSEE, per Paragraph 8 of this Lease,
are met.
15
<PAGE> 20
EXHIBIT "D"
LEASE GUARANTY
FOR VALUE RECEIVED AND IN CONSIDERATION FOR and as an inducement to T.
ROWE' PRICE REALTY INCOME FUND I, A NO-LOAD LIMITED PARTNERSHIP, a Maryland
limited partnership ("LESSOR"), by LA SALLE ADVISORS LIMITED, as agent for
LESSOR, and by LA SALLE PARTNERS MANAGEMENT LIMITED, as agent for LA SALLE
ADVISORS LIMITED, to enter into a Lease of even date herewith (the 'Lease") with
Stricor, Inc. (hereinafter "LESSEE"), covering certain real property located at
Suite E, 3010 Business Park Drive, Norcross, Georgia, the undersigned, Young Kim
- - ("Guarantor"), unconditionally guarantees the full performance and observance
of all the covenants, conditions and agreements therein provided to be performed
and observed by LESSEE and LESSEE's legal representatives, successors and
permitted assigns, and expressly agrees that the validity of this Agreement and
the obligations of Guarantor hereunder shall not be terminated, affected or
impaired by reason of the granting by LESSOR of any indulgences to LESSEE or by
reason of the assertion by LESSOR against LESSEE of any of the rights or
remedies reserved to LESSOR pursuant to the provisions of the Lease or by the
release of LESSEE from any of LESSEE's obligations under the Lease, by operation
of law or otherwise (including, but without limitation to, the rejection of the
Lease in connection with proceedings under the bankruptcy laws now or
hereinafter enacted); Guarantor hereby waiving all suretyship defenses, rights
of reimbursement from LESSEE, rights of subrogation and contribution from LESSEE
and the right to receive any payment whatsoever from LESSEE concerning payments
made by Guarantor for and on LESSEE's behalf pursuant to the terms hereof.
Guarantor further covenants and agrees that this Guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of the Lease, whether or not Guarantor shall have received any notice of or
consented to such renewal, modification or extension. Guarantor further agrees
that his liability under this Guaranty shall be primary, and that in any right
of action which shall accrue to LESSOR under the Lease, the LESSOR may, at
LESSOR's option, proceed against Guarantor and LESSEE, jointly or severally, and
may proceed against Guarantor without having commenced any action against or
having obtained any judgment against LESSEE.
It is agreed that the failure of LESSOR to insist in any one or more
instances upon a strict performance or observance of any of the terms,
provisions or covenants of the Lease or to exercise any right therein contained
shall not be construed or deemed to be a waiver or relinquishment for the future
of such term, provision, covenant or right but the same shall continue and
remain in full and force and effect.
No subletting, assignment or other transfer of the Lease or any
interest therein shall operate to extinguish or diminish the liability of
Guarantor under this Guaranty; and wherever reference is made to the liability
of LESSEE named in the Lease, such reference shall be deemed likewise to refer
to Guarantor.
If there is a default by LESSEE in the payment of any amounts due to
LESSOR under the Lease, this Guaranty shall constitute evidence of Guarantor's
indebtedness to LESSOR for such amounts. Guarantor shall pay to LESSOR the
reasonable attorney fees actually incurred by LESSOR In the collection of such
indebtedness plus all other reasonable expenses actually incurred by LESSOR in
exercising any of LESSOR's rights and remedies under the Lease and/or this
Guaranty.
Notwithstanding the terms of this Lease Guaranty, Guarantor's liability
under this Agreement shall be $25,000. This Lease Guaranty shall be of no
further force and effect at the end of eighteen (18) months of this Lease
provided LESSEE shall not be in default of any of the terms and conditions of
this Lease.
IT IS FURTHER AGREED that all of the terms and provisions hereof shall
inure to the benefit of LESSOR and its heirs, legal representatives, successors
and assigns, and shall bind Guarantor and its heirs, legal representatives,
successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this
Guaranty this 19th day of December, 1996.
GUARANTOR:
Signed, sealed and delivered (SEAL)
in the presence of: -----------------------------
Name: [illegible]
-----------------------------
[illegible]
- ---------------------------
Unofficial Witness
/s/ Dominique M. Guillard
- ----------------------------
Notary Public (affix seal and state date of expiration
of commission)
16
<PAGE> 21
EXHIBIT "E"
SPECIAL STIPULATIONS
1. The common area maintenance charges specified in Paragraph 2(b)(iii) shall
not increase by more than ten (10%) percent per year.
17
<PAGE> 1
EXHIBIT 10.6
COMMERCIAL LEASE
This lease is made between Deborah L. Deavers of ____________________
herein called Lessor, and Stupid PC of 48 Polk Street, herein called Lessee.
Lessee hereby offers to lease from Lessor the premises situated in the
City of Marietta, County of Cobb, State of Georgia, described as
_______________________________________________________________________, upon
the following TERMS AND CONDITIONS:
1. TERM AND RENT. Lessor demises the above premises for a term of Two (2) years,
commencing January 1st, 1999, and terminating on December 31, 2000, or sooner as
provided herein at the annual rental of Twelve Thousand Dollars ($12,000),
payable in equal installments in advance on the first day of each month for that
month's rental, during the term of this lease. All rental payments shall be made
to Lessor, at the address specified above.
2. USE. Lessee shall use and occupy the premises for ________________________.
The premises shall be used for no other purpose. Lessor represents that the
premises may lawfully be used for such purpose. RENT COLLECTED AFTER THE TENTH
OF MONTH WILL BE ASSESSED A TEN (10) PERCENT LATE CHARGE.
3. CARE AND MAINTENANCE OF PREMISES. Lessee acknowledges that the premises are
in good order and repair, unless otherwise indicated herein. Lessee shall, at
his own expense and at all times, maintain the premises in good and safe
condition, including plate glass, electrical wiring, plumbing and heating
installations and any other system or equipment upon the premises and shall
surrender the same, at termination hereof, in as good condition as received,
normal wear and tear excepted. Lessee shall be responsible for all repairs
required, excepting the roof, exterior walls, structural foundations, and:
_____________________________________________________________________________
_______________________________________________________________________, which
shall be maintained by Lessor. Lessee shall also maintain in good condition such
portions adjacent to the premises, such as sidewalks, driveways, lawns and
shrubbery, which would otherwise be required to be maintained by Lessor.
4. ALTERATIONS. Lessee shall not, without first obtaining the written consent of
Lessor, make any alterations, additions, or improvements in, to or about the
premises.
5. ORDINANCES AND STATUTES. Lessee shall comply with all statutes, ordinances
and requirements of all municipal, state and federal authorities now in force,
or which may hereafter be in force, pertaining to the premises, occasioned by or
affecting the use thereof by Lessee.
6. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this lease or sublet any
portion of the premises without prior written consent of the Lessor, which shall
not be
<PAGE> 2
unreasonably withheld. Any such assignment or subletting without consent shall
be void and, at the option of the Lessor, may terminate this lease.
7. UTILITIES. All applications and connections for necessary utility services on
the demised premises shall be made in the name of Lessee only, and Lessee shall
be solely liable for utility charges as they become due, including those for
sewer, water, gas, electricity, and telephone services.
8. ENTRY AND INSPECTION. Lessee shall permit Lessor or Lessor's agents to enter
upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Lessor at any time within sixty
(60) days prior to the expiration of this lease, to place upon the premises any
usual "To Let" or "For Lease" signs, and permit persons desiring to lease the
same to inspect the premises thereafter.
9. POSSESSION. If Lessor is unable to deliver possession of the premises at the
commencement hereof, Lessor shall not be liable for any damage caused thereby,
nor shall this lease be void or voidable, but Lessee shall not be liable for any
rent until possession is delivered. Lessee may terminate this lease if
possession is not delivered within fifteen (15) days of the commencement of the
term hereof.
10. INDEMNIFICATION OF LESSOR. Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on the
demised premises or any part thereof, and Lessee agrees to hold Lessor harmless
from any claims for damages, no matter how caused.
11. INSURANCE. Lessee, at his expense, shall maintain plate glass and public
liability insurance including bodily injury and property damage insuring Lessee
and Lessor with minimum coverage as follows:
Lessee shall provide Lessor with a Certificate of Insurance showing
Lessor as additional insured. The Certificate shall provide for a ten-day
written notice to Lessor in the event of cancellation or material change of
coverage. To the maximum extent permitted by insurance policies which may be
owned by Lessor or Lessee, Lessee and Lessor, for the benefit of each other,
waive any and all rights of subrogation which might otherwise exist.
11A. Advertising for the Stupid PC Marietta location will include "Hair By The
Square" as the land mark. (When possible)
12. EMINENT DOMAIN. If the premises or any part thereof or any estate therein,
or any other part of the building materially affecting Lessee's use of the
premises, shall be taken by eminent domain, this lease shall terminate on the
date when title vests pursuant to such taking. The rent, and any additional
rent, shall be apportioned as of the termination date, and any rent paid for any
period beyond that date shall be repaid to Lessee. Lessee shall not be entitled
to any part of the award for such taking or any
2
<PAGE> 3
payment in lieu thereof, but Lessee may file a claim for any taking of fixtures
and improvements owned by Lessee, and for moving expenses.
13. DESTRUCTION OF PREMISES. In the event of a partial destruction of the
premises during the term hereof, from any cause, Lessor shall forthwith repair
the same, provided that such repairs can be made within sixty (60) days under
existing governmental laws and regulations, but such partial destruction shall
not terminate this lease, except that Lessee shall be entitled to a
proportionate reduction of rent while such repairs are being made, based upon
the extent to which the making of such repairs shall interfere with the business
of Lessee on the premises. If such repairs cannot be made within said sixty (60)
days, Lessor, at his option, may make the same within a reasonable time, this
lease continuing in effect with the rent proportionately abated as aforesaid,
and in the event that Lessor shall not elect to make such repairs which cannot
be made within sixty (60) days, this lease may be terminated at the option of
either party. In the event that the building in which the demised premises may
be situated is destroyed to an extent of not less than one-third of the
replacement costs thereof, Lessor may elect to terminate this lease whether the
demised premises be injured or not. A total destruction of the building in which
the premises may be situated shall terminate this lease.
14. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of rent, or
any additional rent, or defaults in the performance of any of the other
covenants or conditions hereof, Lessor may give Lessee notice of such default
and if Lessee does not cure any such default within fifteen (15) days after the
giving of such notice (or if such other default is of such nature that it cannot
be completely cured within such period, if Lessee does not commence such curing
within such 15 days and thereafter proceed with reasonable diligence and in good
faith to cure such default), then Lessor may terminate this lease on not less
than ______ days notice to Lessee. On the date specified in such notice the term
of this lease shall terminate and Lessee shall then quit and surrender the
premises to Lessor, but Lessee shall remain liable as hereinafter provided. If
this lease shall have been so terminated by Lessor, Lessor may at any time
thereafter resume possession of the premises by any lawful means and remove
Lessee or other occupants and their effects. No failure to enforce any term
shall be deemed a waiver.
15. SECURITY DEPOSIT. Lessee shall deposit with Lessor on the signing of this
lease the sum of One Thousand Dollars ($1,000) as security for the performance
of Lessee's obligations under this lease, including without limitation, the
surrender of possession of the premises to Lessee's obligations under this lease
including without limitation the surrender of the premises to Landlord.
3
<PAGE> 4
/s/ Stephen B. Brannon /s/ Deborah L. Deavers
- -------------------------- -----------------------------------
Bart Brannon Deborah L. Deavers
President Lessor
Stupid PC, Inc.
Lessee
December 28, 1998 December 28, 1998
- -------------------------- -----------------------------------
Date Date
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SEVENTEEN WEEKS ENDED DECEMBER 31, 1997, THE YEAR ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1998
<PERIOD-START> SEP-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1 1
<CASH> 126,527 72,540 6,803
<SECURITIES> 0 0 0
<RECEIVABLES> 138,362 127,731 172,203
<ALLOWANCES> (0) (5,115) (5,115)
<INVENTORY> 89,216 213,247 218,260
<CURRENT-ASSETS> 354,105 409,243 392,991
<PP&E> 25,028 75,880 86,650
<DEPRECIATION> (4,782) (8,835) (17,093)
<TOTAL-ASSETS> 376,786 479,273 465,835
<CURRENT-LIABILITIES> 548,545 925,934 916,392
<BONDS> 0 26,485 22,921
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> (171,759) (473,146) (473,478)
<TOTAL-LIABILITY-AND-EQUITY> 376,786 479,273 465,835
<SALES> 0 0 0
<TOTAL-REVENUES> 1,441,401 4,034,002 1,843,654
<CGS> 0 0 0
<TOTAL-COSTS> 1,359,858 3,623,688 1,523,006
<OTHER-EXPENSES> 254,076 841,930 578,252
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (0) (6,293) (898)
<INCOME-PRETAX> (172,259) (436,387) (258,172)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (172,259) (436,387) (258,172)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (172,259) (436,387) (258,172)
<EPS-BASIC> (0.05) (0.12) (0.04)
<EPS-DILUTED> (0.05) (0.12) (0.04)
</TABLE>
