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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2000
Registration No. 333-87353
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
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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6690 JONES MILL COURT, SUITE A
NORCROSS, GEORGIA 30092
(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.
6690 JONES MILL COURT, SUITE A
NORCROSS, GEORGIA 30092
(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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Common stock, no par value per share 115,710 $1.69 $ 195,550 $ 51.63
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Common stock, no par value per share 31,953 $1.09 $ 34,829 $ 9.19
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Total -- -- -- $2,085.22(4)
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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 $1.07 if the
date of conversion was December 20, 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.
(4) $2,076.03 was previously paid.
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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 JANUARY 28, 2000
STUPIDPC, INC.
1,567,663 SHARES
COMMON STOCK
The selling securityholders named in this prospectus are offering and
selling up to 1,567,663 shares of the common stock of StupidPC, Inc.
Our common stock is quoted on the over-the-counter bulletin board under
the symbol STPX.
YOU SHOULD READ THE DESCRIPTION OF CERTAIN RISKS UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 4 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.
______________________, 2000.
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TABLE OF CONTENTS
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Summary................................................................................................. 3
Risk Factors............................................................................................ 4
Special Note Regarding Forward-Looking Statements....................................................... 14
Market for Common Equity and Related Stockholder Matters................................................ 15
Capitalization.......................................................................................... 16
Selected Financial Data................................................................................. 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................... 18
Business................................................................................................ 23
Management.............................................................................................. 29
Principal and Selling Shareholders...................................................................... 31
Certain Transactions.................................................................................... 33
Description of Capital Stock............................................................................ 34
Shares Eligible for Future Sale......................................................................... 37
Plan of Distribution.................................................................................... 39
Legal Matters........................................................................................... 40
Experts................................................................................................. 40
Where You Can Find More Information..................................................................... 40
Index to Consolidated Financial Statements.............................................................. F-1
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SUMMARY
STUPIDPC, INC.
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.
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 and one in Charlotte, North Carolina. In addition, consumers may order and
pay for our products and services through our web site at www.stupidpc.com.
Our principal executive offices are located at 6690 Jones Mill Court,
Suite A, Norcross, Georgia 30092, and our telephone number is (770) 448-4150.
This prospectus does not incorporate by reference any information on our
website.
THE OFFERING
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Common stock to be offered by the
selling securityholders ................................ 1,567,663 shares, 1,200,000 of
which will be issued upon
conversion of our 8% convertible
debentures, 220,000 of which will
be issued upon exercise of
warrants and 147,663 of which are
currently outstanding.
Proceeds to be received by StupidPC ...................... None, except for proceeds on the
exercise of the warrants, if any.
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RISK FACTORS
You should carefully consider the risk factors described below before
purchasing our common stock. 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 FOR
YOU TO EVALUATE OUR BUSINESS AS FUTURE PROSPECTS AND WHETHER YOU SHOULD INVEST
IN OUR COMMON STOCK.
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. Some of the risks, which we may
face as an early stage company include our ability to:
- maintain and enhance our product delivery and installation
systems;
- 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 and
other risks. If we cannot do so, our business operations and financial results
will be seriously harmed and you could lose all or a portion of your investment
if the price of our stock falls.
IF WE ARE UNABLE TO ATTRACT CONSUMERS TO PURCHASE OUR PRODUCTS, WHICH IS OUR
EXCLUSIVE SOURCE OF REVENUES, OUR BUSINESS AND OPERATING RESULTS WILL BE
SERIOUSLY HARMED, WHICH MAY CAUSE THE PRICE OF OUR STOCK TO FALL.
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 HAVE A HISTORY OF LOSSES AND MAY NEVER BE PROFITABLE IN THE FUTURE, WHICH
COULD CAUSE OUR STOCK PRICE TO FALL.
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 $1.0 million for the first nine months of 1999. At September 30,
1999, we had an accumulated deficit of over $1.6 million. Because of our losses,
our independent certified public accountants have added an explanatory paragraph
to their report on our financial statements for the year ended December 31, 1998
which makes reference to the uncertainties regarding our ability to continue as
a going concern.
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. 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. Factors that affect our
operating results may 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.
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THE SKILLED EMPLOYEES THAT WE NEED MAY BE DIFFICULT AND EXPENSIVE TO HIRE AND
RETAIN IN TODAY'S TIGHT LABOR MARKET MAKING IT DIFFICULT TO MANAGE AND EXPAND
OUR BUSINESS.
Our future success depends on our ability to attract, retain and
motivate highly skilled technical, managerial, sales and marketing and customer
service personnel. The failure to attract, train and retain the necessary
personnel could seriously harm our business, financial condition and results of
operations. 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.
BECAUSE WE ARE SMALLER THAN THE MAJORITY OF OUR COMPETITORS, WE MUST INCREASE
BRAND AWARENESS OF STUPIDPC TO REMAIN COMPETITIVE.
Establishing and maintaining the goodwill associated with the StupidPC
brand name is a critical aspect of attracting and expanding our customer base.
Because we are still a relatively young company, we have not yet developed a
strong brand recognition 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 we cannot guarantee. 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.
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BECAUSE WE DEPEND ON OUR RELATIONSHIP WITH A LIMITED NUMBER OF SUPPLIERS WE
CANNOT GUARANTEE THAT WE WILL BE ABLE TO MEET CONSUMER DEMAND IF PROBLEMS
OCCUR WITH THE SUPPLY OF COMPUTER EQUIPMENT AND COMPONENTS.
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 we cannot
guarantee 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.
BECAUSE WE PURCHASE COMPUTER COMPONENTS FROM THIRD PARTY VENDORS, WE ARE SUBJECT
TO INVENTORY RISK.
A significant portion of our total assets consists of computer
components we purchase from third-party vendors. As a result of the purchases,
we assume the risk of inventory damage, theft and obsolescence.
IF A CATASTROPHIC EVENT OCCURS AT OUR CURRENT WAREHOUSE AND FULFILLMENT
FACILITY, WHICH IS OUR SOLE LOCATION FOR OUR PRODUCT INVENTORY, OUR BUSINESS
WOULD BE SERIOUSLY HARMED.
All of our product inventory is stored at our sole warehouse and
fulfillment facility. If all or a substantial portion of this inventory is
damaged from fire, flood, tornado or other similar catastrophic event, we could
experience significant delays in filling purchase orders. This could result in
harm to our reputation as well as to our business, financial condition and
results of operation.
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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 HARM OUR BUSINESS.
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. We cannot guarantee 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 WHICH MAY HARM THE DEMAND
FOR OUR PRODUCTS.
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.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN STEPHEN B. BRANNON AND OTHER KEY
PERSONNEL.
Our future success depends, in significant part, upon the continued
services of Stephen B. Brannon, our President and Chief Executive Officer and
other key personnel. The loss of the services of Mr. Brannon, or one or more of
our other key employees could seriously harm our business by increasing our
costs of operations and by preventing us from effectively managing and
expanding 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.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES THAT MAY HAVE GREATER
RESOURCES THAN WE DO.
We compete with both companies in the e-commerce market and in the
traditional retail distribution of personal computers. The e-commerce market is
new, rapidly evolving and intensely competitive. The traditional 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.
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. Increased competition may result
in price reductions, lower gross margins and loss of market share. This could
harm our business, financial condition and results of operations.
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TO EXECUTE OUR STRATEGY WE WILL REQUIRE ADDITIONAL CAPITAL THAT MAY NOT BE
AVAILABLE ON FAVORABLE TERMS OR AT ALL.
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 through the first quarter of 2000, 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, your ownership interest could
be significantly diluted and any additional equity securities may have rights,
preferences or privileges senior to your rights. 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, we
may be forced to sell assets or seek to refinance our outstanding obligations.
We may also be unable to:
* purchase computer components and equipment;
* take advantage of future opportunities, such as opening a new
retail outlet; or
* respond to changing consumer needs and technological innovations.
Any of these events could seriously harm our business, financial condition and
results of operations would be seriously harmed.
WE ARE INVOLVED IN A LAWSUIT THAT IF RESOLVED UNFAVORABLY, COULD CAUSE
US TO PAY SIGNIFICANT MONETARY DAMAGES.
We have received a claim by a former officer and director alleging
entitlement to the exercise of 750,000 options of our common stock and $6.5
million. 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.
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RISKS RELATED TO E-COMMERCE COMPANIES
THE POSSIBLE SLOW ADOPTION OF INTERNET SOLUTIONS BY CONSUMERS COULD HARM OUR
BUSINESS.
We will not be successful unless consumers continue to adopt the
Internet as a 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.
If consumers do not continue to adopt the Internet as a means of
purchasing StupidPC's products, it will cause our growth to slow, which will
harm our operating results.
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, sales through our web site would be
negatively affected and 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
the sale of our products through our web site 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 web site to
changing or emerging technologies, which could seriously harm our future results
of operations and financial condition.
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POSSIBLE E-COMMERCE SECURITY BREACHES ON OUR WEBSITE COULD HARM OUR BUSINESS.
We rely on encryption and authentication technology to effect secure
transmission of confidential information on our website, 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, ITS PRICE MAY BE VOLATILE AND YOU MAY
EXPERIENCE INVESTMENT LOSSES.
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 which
might make it difficult for you to sell the StupidPC stock that you own at the
time and price you desire. Because of this potential lack of liquidity 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
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cannot guarantee that you will be able to sell your shares at or above the
price you paid for it. 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 over 80% of the
outstanding common stock. They could use this power to make decisions regarding
StupicPC which you may disagree or they may delay or prevent a change in
control, even if a majority of the other shareholders desired such a change.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE CAUSING INVESTOR LOSSES.
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. It might also make it less desirable for
you to sell your shares if the market price of our common stock falls or there
is not sufficient demand by purchasers at the time you wish to sell.
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. In addition, the number of shares issued on conversion of the
debentures will increase if the market price of our common stock decreases. As a
result, our net income per share could be materially decreased in future
periods, and the market price of our common stock could drop.
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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."
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<PAGE> 16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded over-the-counter on the over-the-counter
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
---- ---
2000
- ----
<S> <C> <C>
First Quarter (through January 25, 2000)...................... $1.69 $1.06
1999
- ----
First Quarter................................................. $4.13 $2.00
Second Quarter................................................ 9.75 1.95
Third Quarter................................................. 7.56 2.06
Fourth Quarter................................................ 3.88 1.25
1998
- ----
Fourth Quarter (from December 14, 1998)....................... $4.63 $3.75
</TABLE>
The last reported sale price of our common stock as of January 25, 2000
was $1.13 per share. 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 the date of this prospectus, there were approximately
50 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.
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<PAGE> 17
CAPITALIZATION
The following table describes our capitalization as of September 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. The
information provided below describes our capital structure after our
shareholders approved amendments to our articles of incorporation modifying our
capital structure at a special meeting held on September 23, 1999. The
information provided below 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.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(unaudited)
<S> <C>
Short-term debt:
Notes payable ........................................................ $ 100,873
Current maturities of long-term debt ................................. 7,675
-----------
Total short-term debt ............................................ 108,548
-----------
Long-term debt, net of current maturities ............................ 925,180
-----------
Shareholders' deficit:
Capital stock, no par value per share, 95,000,000 shares
authorized: 6,210,250 shares issued and outstanding.................. 1,431,859
Accumulated deficit................................................... (1,601,715)
-----------
Total shareholders' deficit....................................... (169,856)
-----------
Total capitalization ........................................... $ 863,872
===========
</TABLE>
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<PAGE> 18
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>
NINE MONTHS ENDED
SEVENTEEN WEEKS YEAR ENDED SEPTEMBER 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 $ 2,727,455 $ 2,870,987
Costs of product sales ............... 1,359,858 3,623,688 2,253,134 2,570,613
Selling, general and administrative
expenses .......................... 253,939 841,169 1,093,828 613,536
----------- ----------- ----------- -----------
Operating loss ....................... (172,396) (430,855) (619,507) (313,165)
Net loss ............................. $ (172,259) $ (436,387) $ (993,069) $ (313,397)
=========== =========== =========== ===========
Net loss per common share (basic and
diluted) ............................. $ (0.05) $ (0.12) $ (0.16) $ (0.09)
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 338,220
Working capital ................ 174,976
Total assets ................... 1,389,872
Total debt, including current
maturities .................. 1,033,728
Total shareholders' deficit .... (169,856)
</TABLE>
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<PAGE> 19
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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues for the nine months ended September 30, 1999 were
approximately $2.7 million, a 5% decrease from revenues of approximately $2.9
million for the nine months ended September 30, 1998. Revenues decreased during
this period as a result of a decrease in the number of units sold. During the
1999 period, we sold approximately 2,100 units compared with approximately 2,400
during the 1998 period, a 13% decrease. The average price for a unit for the
same periods increased from $1,183 in 1998 to $1,299 in 1999, a 10% increase. We
attribute the increase in average price per unit sold to consumers purchasing
higher priced units. We believe that the decrease in the number of units sold is
a result of purchase referrals due to Year 2000 fears, increased competition in
the lower end retail computer market and offers of significant rebates by large
retailers. We do not believe that the lower sales volume is a trend that will
continue in future periods.
Cost of Product Sales. Cost of products were approximately $2.3 million
for the first nine months of 1999, a decrease of 12% from cost of product sales
of approximately $2.6 million for the first nine months of 1998. We were able to
lower our product costs during the first nine 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 $1.1 million for the first nine
months of 1999, an increase of 78% from selling, general and administrative
costs of approximately $614,000 for the first nine months of 1998. These
expenses increased primarily as a result of increased costs for additional
personnel, accounting and legal services. In addition, we incurred additional
nonrecurring expenses during the 1999 period including the installation of
new telephone, accounting and computer systems. We do not believe that the
increase in these expenses is a trend that will continue in future periods.
Other Income (Expense). During the nine months ended September 30,
1999, we incurred $375,000 of interest and financing costs related to the July
1999 issuance of our 8% convertible debentures. We did not incur a similar
expense during the nine months ended September 30, 1998.
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> 20
operating loss carryforwards ("NOL"). However, utilization of NOL's 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 nine months ended September 30, 1999
and 1998 as we generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of
approximately $993,000, or $0.16 per share, for the nine months ended September
30, 1999 compared with a net loss of approximately $313,000, or $0.09 per share,
for the nine months ended September 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.
During 1998 we sold approximately 3,300 units at an average unit price of
$1,036. During the 17 weeks of 1997 we sold approximately 1,050 units at an
average unit price of $1,365.
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> 21
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of September 30, 1999, we had
an accumulated deficit of approximately $1.6 million and cash and cash
equivalents of approximately $338,000.
Net cash used in our operating activities was $1.0 million and $151,925
for the first nine 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,
only through the first quarter of 2000. As a result, we will 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:
- - the number of retail locations opened, the timing of the opening
and products offered;
- - the rate at which customers purchase our products and the pricing of
such products;
- - the level of marketing required to attract and retain customers and to
attain a competitive position in the marketplace;
- - the success or failure of any joint marketing programs, including our
agreement with Cable & Wireless; and
- - the rate at which we invest in engineering and development and
intellectual property with respect to existing and future technology.
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<PAGE> 22
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." Other than the costs described below, we have not and do
not expect Year 2000 problems to have a material impact on our operations or
financial results.
OUR STATE OF READINESS
The Year 2000 problem could affect computers, software and other
equipment that we use. Accordingly, we have reviewed our internal computer
programs and systems to determine if they will be Year 2000 compliant. We
believe that our computer systems are Year 2000 compliant.
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 modified, upgraded and replaced systems that we have
identified as potentially being adversely affected and completed this process.
The costs related to these efforts have been less than $25,000.
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 have assessed the potential effect of the Year 2000 problem and have
completed a compliance program with regard to remediating known non-compliance.
We estimate that our total cost of completing any required modifications will be
less than $5,000.
Suppliers. We acquire our technology components by purchasing the
hardware and software components and licensing certain software components from
third parties. It is possible that certain hardware components, the operating
software or other software loaded on a computer by us would not be Year 2000
compliant. If this were to occur, it could result in significant disruption of
our business in that our products could be defective in the users' hands and/or
alternate supplies of hardware and software products which were Year 2000
compliant would have to be obtained by us with resulting disruption. In
addition, our supply chain is comparatively elongated in that many of the
components placed into our computers originate in Asia. Disruptions in
transportation and delivery, therefore, as a result of Year 2000 non-compliance
by third party suppliers and vendors could have a serious disruption of our
ability to sell our products.
We have gathered information from our suppliers on their state of Year
2000 readiness. The computer operating systems themselves and much of the
software loaded on the computers are produced by Microsoft, Inc. which has
confirmed categorically that its products have been rendered compliant. In
addition, our hardware suppliers have advised that any of the internal hardware
components, such as the computer time clock, have been tested and comply.
We have not confirmed, however, the effect Year 2000 problems may cause
on the transportation supply chain. While the major carriers in this chain have
confirmed that there will not be Year 2000 difficulty, there are most probably
links in this chain which have not been checked by us and, in fact, cannot be
identified.
COSTS TO ADDRESS OUR YEAR 2000 ISSUES
Current expenditures on Year 2000 issues have been directed as internal
operations and total less than $30,000. If we were to experience customer
warranty issues arising from the sale of non-compliant components, the
components would be replaced and there would be a significant impact and cost
estimated at up to $500,000. As of the date of this prospectus, we have not
incurred any warranty issues or supply chain breaks.
If a supplier-related non-compliance created a break in our supply
chain, an alternate supplier would be selected, but the disruption could have
a negative impact estimated at up to $100,000.
THE RISKS OF OUR YEAR 2000 ISSUES
We believe that we have resolved all internal Year 2000 problems that
could materially adversely affect our business, financial condition or operating
results. In addition, all of our current products have been tested for Year 2000
compliance and have passed the tests performed. 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> 23
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.
We believe the most likely consequences of a failure by us to make our
products Year 2000 compliant would be a decrease in sales of our products, an
increase in allocation of resources to address Year 2000 problems without
additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered due to such Year 2000
problems. We believe the most likely consequences of a failure of our internal
systems or the systems of third-party suppliers or service providers would be
our inability to process orders, issue invoices, and develop products. Should
any of these problems occur, we could be required to devote significant
resources to correct them.
OUR CONTINGENCY PLANS
We have completed our contingency planning. These contingency plans
could include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software;
- 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;
- plans to quickly change from any supplier whose goods we
found to be non-compliant, or whose supply of goods has been
disrupted by Year 2000 problems, to a supplier whose compliance
alleviates these problems;
- plans to replace non-compliant hardware and software in StupidPC
products in customer hands which are under warranty; and
- 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.
The estimates and conclusions included in this discussion contain
forward-looking statements and are based on our management's best estimates of
future events. Our expectations about risks, future costs and the timely
completion of our required Year 2000 modifications may turn out to be incorrect
and any variance from these expectations could cause actual results to differ
materially from our above discussion. Factors that could influence risks, amount
of future costs and the effective timing of remediation efforts include our
success in identifying and correcting potential Year 2000 issues and the ability
of third parties to address their Year 2000 issues. The discussion above is a
"Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and
Readiness Disclosure Act of 1998, however, compliance with this act does not
preclude any claims against us that arise under the federal securities laws.
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<PAGE> 24
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 and one in Charlotte, North Carolina. 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.
CORPORATE HISTORY
StupidPC was incorporated in June 1997 in the State of Georgia. In
December 1998, we participated in a recapitalization through the reverse merger
described below with World Net Holdings, Inc., formerly known as Handyphone,
Inc.
Handyphone, Inc., was incorporated under the laws of the State of
Florida in May 1996. Handyphone was in the business of providing an
informational service link between handicapped and other impaired people in
various service, medical, and transportation professionals. On July 11, 1997,
Handyphone changed its name to World Net Holdings, Inc.
In September 1997, Home Alert Security Corporation of Georgia agreed to
sell all of its assets to World Net in return for shares of World Net stock.
Home Alert Security Corporation of Georgia was in the business of engaging in
home automation and security alarm monitoring.
In November 1998, World Net sold the assets of Home Alert Security
Systems to Donald H. Sigler. Later in November 1998, StupidPC and World Net
entered into a share exchange agreement whereby World Net issued shares of its
common stock to all the shareholders of StupidPC in exchange for all the issued
and outstanding stock of StupidPC.
In December 1998, World Net merged itself into its wholly owned
subsidiary, StupidPC. StupidPC issued sufficient shares to effect a one-for-one
share exchange for shares of World Net.
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. We believe that a significant portion of the currently installed computer
user base consists of older 486 and lower version personal computers and that as
much as half 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.
We believe that the 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.
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STRATEGY
As part of our operating strategy, we will endeavor the following:
Expansion of Inventory and Products. 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. We continually evaluate new
products in the industry and the demand for our current products, and seek to
develop distribution relationships with vendors that will enhance our product
offerings. With respect to the expansion of inventory and products, we evaluate
all possible sources of market informational data to develop opportunities for
new products. This information is gathered from trade shows, industry
informational magazines, networking, strategic relationships and other sources
of information. When possible strategic new products are identified, we evaluate
the revenue producing potential of the product and the potential market against
cost of production.
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 believe that
sales from our website will help us to become one of the lowest cost providers
of personal computer systems in the industry. We believe our website 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, we believe we can achieve
significant cost savings and productivity enhancements. We also plan to pursue
strategic relationships with other Internet shopping websites to carry our
products.
Expansion of Retail 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. We recently opened a retail store in Charlotte, North Carolina. We plan
to assess the viability of additional retail outlets in Atlanta and elsewhere in
the southeastern U.S. as opportunities arise, based on the demand for our
products and our ability to purchase inventory and publicize our brand.
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. Our marketing efforts to
establish brand recognition have included and will continue to involve
advertising on the radio, in newspapers, on billboards and through direct
marketing mailings.
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.
We have no current plans to pursue any acquisitions.
PRODUCTS AND SERVICES
We custom build each computer system as it is ordered by our customers.
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
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<PAGE> 26
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 also recently began a pilot program of offering Internet access
through Cable & Wireless, a leading global telecommunications company. This
program permits us to resell Internet access as a stand alone product or as part
of the package in purchasing one of our systems. We believe that offering
Internet access is an extension of our core mission of targeting first time
users by providing them one place to purchase their computer and Internet
access. We will offer unlimited Internet access through this program for only
$17.95 per month, which is less than other Internet service providers. Our goal
is to serve 15,000 subscribers by the end of the third quarter of 2000. Our
agreement with Cable & Wireless terminates in December 2001.
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 around 2,000 computers a month.
Our customers are primarily individuals, although a small portion of
our sales are to small businesses. 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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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 and warranty options to our customers. Our agreement with
Integrated Automation is for a three year period ending in April 2002. We pay
them a minimum monthly fee of $2,500 and an additional $25 flat rate per
computer system per year in excess of 100 which we sell. 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> 28
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.
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.
EMPLOYEES
We employ 16 persons full-time, consisting of four persons at the
corporate level, four in the actual production of computers, three persons in
computer sales, three in administration, and three delivery drivers. We also
employ five part-time delivery drivers.
FACILITIES
We currently occupy under a lease which expires on October 31, 2002,
approximately 12,000 square feet in an office/warehouse building located in
Norcross, Georgia in which we use for manufacturing computers and as our
corporate headquarters. This lease provides for an annual rent of $51,000 the
first year, $58,704 the second year and $60,468 the third. This facility has the
capacity to assemble up to 2,000 computers per month, which is well within our
current growth projections. We also lease an aggregate of 1,000 square feet in
Marietta, Georgia for our second Atlanta area retail location. This is a
free-standing retail location with heavy automobile traffic and dense retail
activities in the immediate area. The lease for this space, which ends on
December 31, 2000, provides for an annual rent of approximately $12,000. We
recently opened a sales office in Charlotte, North Carolina. This office is
approximately 2,500 square feet and is located in an office park. When our
products are sold in the Charlotte area, they are assembled in the Norcross
facility and shipped to the Charlotte office for delivery. The Charlotte office
also contains retail capability to handle walk-in customers. The lease for this
space, which ends in December 2004 provides for annual rent of approximately
$125,000. We believe that our facilities will be adequate for needs for the
forseeable future.
GOVERNMENT REGULATION
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. A number of legislative and
regulatory proposals relating to Internet commerce are under consideration by
federal, state, local and foreign 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.
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> 29
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, $6.5 million 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> 30
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. For more information regarding options
owned by Mr. Brannon, see footnote number 1 in "Principal and Selling
Shareholders."
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 --
President and Chief Executive Officer
</TABLE>
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<PAGE> 31
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
as a director, except in cases of:
- appropriations of business opportunities in violation of such
director's duties;
- knowing or intentional misconduct or violation of law;
- liability for approving illegal or improper distributions
under the Georgia Code or our articles; and
- liability for any transaction in which a director receives an
improper personal benefit.
In addition, our articles provide that if the Georgia Business
Corporation Code is ever amended to allow for greater elimination of liability
of directors than presently permitted, the directors will be relieved from
liabilities to the fullest extent provided by the Georgia Code, as amended. No
further action by the board of directors or shareholders is required, unless the
Georgia Code provides otherwise.
We have entered into indemnification agreements with our sole director
and officer that provides him with similar rights to indemnification and
contribution.
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<PAGE> 32
PRINCIPAL AND SELLING SHAREHOLDERS
As of the date of this prospectus, there were approximately 50 record
holders of our common stock. The following table sets forth information on the
beneficial ownership of our outstanding common stock as of the date of this
prospectus by:
- each shareholder known by us to be the beneficial owner
of more than 5% of the outstanding shares of common stock;
- our sole director and executive officer; and
- our directors and executive officers as a group.
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 shareholder
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 shareholder holding the options or warrants when computing the
percentage ownership of that shareholder, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other shareholder.
Except for a shareholder who has options disclosed below, calculated based on
7,029,986 shares of common stock outstanding and assumes that all debentures
will be converted at a conversion price of $1.02, which would have been the
conversion price on January 25, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER SHARES OWNED BENEFICIALLY OWNED
- --------------------------- ------------ ---------------------------
<S> <C> <C>
Stephen B. Brannon.......................... 5,423,354(1) 58.1%
Donald H. Sigler(2)......................... 848,521 12.1
Gary L. German(3)........................... 458,897(4) 6.4
Amro International, S.A.(5)................. 648,235 9.1
All directors and executive officers
as a group (1 person)....................... 5,423,354 58.1%
</TABLE>
- ---------------------------
(1) Includes (1) options to purchase 1,802,757 shares of common stock from
StupidPC that are currently exercisable at $0.20 per share and (2) options
to purchase 340,073 shares of common stock from a current shareholder for a
one-year period ending on December 14, 2000 at $1.50 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) Includes options to purchase 190,880 shares of common stock that are
currently exercisable at $0.20 per share.
(5) The address of the principal business office of the selling securityholder
is c/o Ultra Finanz AG, Grossmensterplatz 6, Zurich CH-8022, Switzerland.
The natural persons with the voting and dispositive power over these shares
are H.U. Bachofen and Michael Klee. Represents shares into which the
debentures may be converted, based upon a conversion price of $1.02 per
share. Also includes warrants to purchase 60,000 shares that are exercisable
at an exercise price of $5.50 per share.
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<PAGE> 33
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,
- 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. 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.
Except as otherwise stated, calculated based upon 7,029,986 shares of common
stock outstanding, and assumes that all debentures will be converted at a
conversion price of $1.02, which would have been the conversion price on
January 25, 2000.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING OFFERING AFTER CLOSING
------------------ -------------- ------------------
NAME OF SELLING
SECURITYHOLDER NUMBER PERCENT(2) NUMBER NUMBER PERCENT
- -------------- ------ ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
AMRO International, S.A. 648,235(1) 9.1% 648,235 0 --
Esquire Trade & Finance, Inc. 270,098(1) 3.8% 270,098 0 --
Austinvest Anstalt Balzers 270,098(1) 3.8% 270,098 0 --
Minerva Asset Management, Ltd. 54,019(1) * 54,019 0 --
Scott Financial, Ltd. 54,019(1) * 54,019 0 --
Vincent Sbarra 20,000(2) * 20,000 0 --
Andrew S. Reckles 40,000(2) * 40,000 0 --
Paul T. Mannion, Jr. 170,163(3) 2.4% 170,163 0 --
Keith Fetter 17,500 * 17,500 0 --
</TABLE>
- ---------------------------
* Represents less than 1%
(1) Represents the shares into which the debentures may be converted, based upon
a conversion price of $1.02 per share. Also includes warrants that are
exercisable 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.
(2) Represents shares that may be acquired upon the exercise of warrants at an
exercise price of $5.50 per share. Each selling securityholder is affiliated
with First Atlanta Securities, LLC, a registered broker-dealer, who assisted
with our sale of the debentures. Mr. Reckles is a managing partner of First
Atlanta Securities and Mr. Sbarra is a vice president.
(3) Includes (1) 124,292 share currently owned by Mr. Mannion and (2) 40,000
shares that may be acquired upon the exercise of warrants at an exercise price
of $5.50 per share.
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<PAGE> 34
We are registering the shares for resale by the selling securityholders
in accordance with registration rights granted to them. We will pay the fees and
expenses 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 various 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 various 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 various liabilities, including liabilities
under the Securities Act. We have been informed that in the opinion of the SEC
indemnification for various liabilities under the Securities Act is against
public policy and is unenforceable.
CERTAIN TRANSACTIONS
In November 1998, we completed a merger with and into World Net
Holdings, Inc. The merger was a reverse acquisition and is accounted for as a
recapitalization of StupidPC with StupidPC as the acquirer. In the merger, World
Net issued 4,000,000 common shares for all of the outstanding common shares of
StupidPC. In addition, the shareholders of StupidPC, Inc. were granted 2,000,000
options to purchase common stock of StupidPC 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. The options expire in
November 2003.
Bart Brannon, our sole officer and director and principal shareholder,
received 3,280,524 shares and 1,802,757 options from the merger. Other principal
shareholders who received shares were Donald H. Sigler, who received 848,521
shares, and Gary L. German, who received 268,017 shares. In December 1998,
World Net merged itself into its wholly-owned subsidiary, StupidPC, as part of
a one-for-one share exchange.
StupidPC was incorporated in May 1997 and commenced operations in
September 1997. The promoters of StupidPC were Bart Brannon and Gary L. German.
At the time of incorporation, Mr. German was our Chief Executive Officer and a
director and Mr. Brannon was our President, Secretary and a Director. Each of
these individuals received 2,550,000 shares of StupidPC common stock upon our
incorporation. Other than salary and benefits paid to these individuals and the
shares disclosed above, none of these individuals has received or will receive
anything else of value directly or indirectly from StupidPC. StupidPC has also
received a verbal representation from Mr. Sigler that neither he nor John
Giardina, the promoters of World Net, received anything of value directly or
indirectly from World Net other than salary and benefits.
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<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
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, 5,853,516 shares of common stock were outstanding, excluding 440,735
shares held in escrow pending the outcome of certain litigation, held of record
by approximately 50 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> 36
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. Although the market price might decline and
require us to issue more shares, we were contractually obligated and only
registered 1.2 million shares to be issued on conversion, a conversion price of
$1.00 per share. 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.
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. On January 25,
2000, the conversion price would have been $1.02 per share. On January 25,
2000, the last closing sale price of our common stock was $1.13 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 $1.02
per share and then prices of $0.77, $0.51 and $0.26, which prices represent a
25%, 50% and 75% decline, respectively, in the conversion price from the current
conversion price of $1.02. The percentages are based on 5,853,516 shares of our
common stock outstanding on the date of this prospectus.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
PERCENTAGE DECLINE IN ASSUMED CONVERSION PRICE SHARES OF COMMON STOCK OUTSTANDING COMMON STOCK
CONVERSION PRICE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- $1.02 1,176,470 16.7%
- -------------------------------------------------------------------------------------------------------------
25% $0.77 1,558,441 21.0%
- -------------------------------------------------------------------------------------------------------------
50% $0.51 2,352,941 28.7%
- -------------------------------------------------------------------------------------------------------------
75% $0.26 4,615,384 44.1%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As part of the sale of the debentures, certain of the selling
securityholders received warrants to purchase up 220,000 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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<PAGE> 37
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> 38
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 7,029,986
shares outstanding as of the date of this prospectus, including shares to be
issued on the conversion of the debentures assuming a conversion price of $1.02
per share, and exercise of the warrants granted with such debentures, but
excluding 440,735 shares held in escrow pending the outcome of certain
litigation, the 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
37
<PAGE> 39
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 -- Substantial sales of
our common stock could cause the market price of our common stock to decline
causing investor losses."
38
<PAGE> 40
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.
39
<PAGE> 41
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.
40
<PAGE> 42
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> 43
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> 44
StupidPC, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 September 30,
1998 1999
----------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 72,540 $ 338,220
Trade accounts receivable, less allowance of $5,115 122,616 192,993
Inventories 213,247 277,071
Prepaid expenses and other current assets 840 1,240
--------- ----------
Total current assets 409,243 809,524
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 32,878 59,219
Vehicles 43,002 43,002
--------- ----------
75,880 102,221
Less accumulated depreciation (8,835) (21,222)
--------- ----------
Net property and equipment 67,045 80,999
OTHER ASSETS
Deferred financing costs -- 496,064
Deposits 2,985 3,285
--------- ----------
$ 479,273 $1,389,872
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 45
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
----------- ---------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 6,715 $ 7,675
Notes payable -- 100,873
Trade accounts payable 723,551 329,720
Accrued expenses 195,668 196,280
--------- ---------
Total current liabilities 925,934 634,548
COMMITMENTS AND CONTINGENCIES (Note G) -- --
CONVERTIBLE DEBENTURES (Note K) -- 904,439
LONG-TERM DEBT, net of current maturities 26,485 20,741
SHAREHOLDERS' DEFICIT
Capital stock (Note J) 135,500 1,431,859
Accumulated deficit (608,646) (1,601,715)
--------- ---------
Total shareholders' deficit (473,146) (169,856)
--------- ---------
$ 479,273 $1,389,872
========= =========
</TABLE>
F-4
<PAGE> 46
StupidPC, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 30,
December 31, December 31, -------------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Product sales $ 4,034,002 $ 1,441,401 $2,727,455 $ 2,870,987
----------- ----------- ----------- -----------
Costs and expenses
Cost of product sales 3,623,688 1,359,858 2,253,134 2,570,613
Selling, general and
administrative 841,169 253,939 1,093,828 613,536
----------- ----------- ----------- -----------
4,464,857 1,613,797 3,346,962 3,184,149
----------- ----------- ----------- -----------
Loss from Operations (430,855) (172,396) (619,507) (313,165)
Other income (expense)
Interest and financing costs (6,293) -- (375,394) (232)
Other 761 137 1,832 --
----------- ----------- ----------- -----------
Net loss before
income taxes (436,387) (172,259) (993,069) (313,397)
Income tax expense (benefit) -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (436,387) $ (172,259) $ (993,069) $ (313,397)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.12) $ (0.05) $ (0.16) $ (0.09)
=========== =========== =========== ===========
Diluted $ (0.12) $ (0.05) $ (0.16) $ (0.09)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 47
StupidPC, Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the year ended December 31, 1998 and the
seventeen weeks ended December 31, 1997
<TABLE>
<CAPTION>
Number of Capital Accumulated
shares stock 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 1,989,250 -- -- --
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)
Unaudited
- ---------
Net loss for the nine months
ended September 30, 1999 -- -- (993,069) (993,069)
Issuance of common shares for
private placement 90,000 170,000 -- 170,000
Issuance of stock to employees 36,000 87,840 -- 87,840
Beneficial conversion feature of
convertible debentures -- 300,000 -- 300,000
Warrants issued to debenture
holders and broker -- 734,519 -- 734,519
Exercise of stock options 20,000 4,000 -- 4,000
--------- ---------- ----------- ----------
Balance, September 30, 1999 (unaudited) 6,210,250 $1,431,859 $(1,601,715) $ (169,856)
========= ========== =========== ==========
</TABLE>
F-6
<PAGE> 48
StupidPC, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 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) $ (993,069) $(313,397)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 7,213 4,782 387,781 8,825
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) (70,377) (20,728)
Inventories (124,031) (89,216) (63,824) (100,956)
Prepaid expenses and other
current assets (840) -- (400) (7,280)
Other assets (550) (2,435) (300) (550)
Trade accounts payable 216,661 506,890 (393,831) 212,251
Accrued expenses 168,012 27,656 611 110,637
--------- --------- ----------- ----------
Net cash (used in) provided by
operating activities (151,925) 137,056 (1,045,569) 61,328
--------- --------- ----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (56,262) (25,029) (26,341) (24,282)
--------- --------- ----------- ----------
Net cash used in investing
activities (56,262) (25,029) (26,341) (24,282)
--------- --------- ----------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 33,200 14,000 -- --
Repayment of long-term debt (14,000) -- (4,783) (1,542)
Proceeds from notes payable -- -- 100,873 --
Proceeds from issuance of common
stock 135,000 500 170,000 --
Proceeds from exercise of options -- -- 4,000 --
Proceeds from convertible debentures -- -- 1,200,000 --
Financing costs -- -- (132,500) --
--------- --------- ----------- ---------
Net cash provided by financing
activities 154,200 14,500 1,337,590 (1,542)
--------- --------- ----------- ---------
</TABLE>
F-7
<PAGE> 49
StupidPC, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 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) 126,527 265,680 (87,152)
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 $338,220 $ 39,375
========= ======== ======== =========
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> 50
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.
The interim financial statements as of September 30, 1999 and for the
nine months ended September 30, 1999 and 1998, included in the
financial statements, have been prepared by the Company without audit.
These statements reflect all adjustments which are, in the opinion of
management, necessary to present fairly the financial position, results
of operations and cash flows for the interim periods presented. All
such adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted for these interim periods. The Company
believes that the interim financial statements and disclosures are
adequate to make the information not misleading.
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> 51
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> 52
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> 53
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, World Net Holdings, Inc. (a shell
company), acquired all of the outstanding common stock of StupidPC,
Inc. For accounting purposes, the acquisition has been treated as a
recapitalization of StupidPC with StupidPC as the acquiror (reverse
acquisition). The historical financial statements prior to December
14, 1998 are those of StupidPC. 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> 54
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>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <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 $ 13,481
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 14,935
----------- -----------
33,200 28,416
Less current portion 6,715 7,675
----------- -----------
$ 26,485 $ 20,741
=========== ===========
</TABLE>
F-13
<PAGE> 55
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>
Notes Payable - Unaudited
Subsequent to year end, the Company received loans totaling $100,873
at an interest rate of 10%. Principal and accrued interest on these
loans is due on June 21, 2000.
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> 56
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 Nine months
Year ended weeks ended ended September 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) $ (993,069) $ (313,397)
========== ========== ========== ==========
Denominator for basic loss per
share - weighted average shares 3,756,273 3,358,000 6,144,726 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 6,144,726 3,358,000
========== ========== ========== ==========
Basic loss per share $ (0.12) $ (0.05) $ (0.16) $ (0.09)
========== ========== ========== ==========
Diluted loss per share $ (0.12) $ (0.05) $ (0.16) $ (0.09)
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 57
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE J - CAPITAL STOCK
At December 31, 1998 and June 30, 1999, the Company has the following
classes of capital stock:
Common stock - authorized 30,000,000 shares of no par value with
6,064,250 and 6,190,250 shares issued and outstanding on December
31, 1998 and June 30, 1999, respectively.
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.
Unaudited - Subsequent to year end, the Company issued 36,000 common
shares to certain key employees. Compensation expense in the amount of
$87,840 was recorded for the nine months ended September 30, 1999
related to this issuance. Also, shareholders exercised options to
purchase 20,000 shares at $0.20 per share resulting in $4,000 of
proceeds to the Company.
NOTE K - SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
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 and 100,000 purchase warrants to a broker of the
debenture transaction. 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.
In connection with the issuance of the convertible debentures, $300,000
of the debt issuance proceeds was allocated to capital stock to
recognize the beneficial conversion feature of the debentures. This
debt discount was recorded as financing costs on July 31, 1999 based on
the convertible debentures being immediately convertible at the option
of the holder.
In connection with the issuance of 120,000 stock purchase warrants to
debenture holders, the Company valued the warrants in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, and allocated
$323,710 of the proceeds to Capital Stock in accordance with APB 14,
Accounting for Convertible Debt issued with Stock Purchase Warrants.
This warrant value will be amortized to interest expense over the
stated term of the debt which is 23 months. The 100,000 warrants issued
to a broker of the debenture transaction were valued at $410,809 using
the Black Sholes option pricing model. This value was recorded as
deferred financing costs.
The related deferred financing costs is included as "Other Assets" in
the Company's balance sheet and will be amortized over the stated term
of the debt, which is 23 months.
CAPITAL STRUCTURE (UNAUDITED)
In September 1999, the Company's shareholders approved amendments to
the Articles of Incorporation modifying the Company's capital structure
increasing the number of authorized common stock to 95,000,000 and
decreasing the authorized number of preferred stock to 5,000,000. In
addition, the amendments eliminated the Class B and Class C common
stock.
F-16
<PAGE> 58
STUPIDPC, INC.
1,567,663 Shares
Common Stock
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.
<PAGE> 59
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> 60
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 ............ $ 2,085.22
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 ..................... $ 107,585.22
==============
</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.
We sold these shares in reliance on Regulation D, Rule 504 of the Securities
Act.
In October 1998, World Net sold 75,000 shares of common stock at $1.80
per share for a total of $135,000. World Net Holdings sold these shares in
reliance on Regulation D, Rule 504 of the Securities Act.
In November 1998, shareholders of StupidPC were issued 3,559,265
shares of common stock as part of the share exchange with World Net Holdings.
The remaining 440,735 shares were held in escrow pending certain litigation. We
issued these securities in reliance on Section 4(2) of the Securities Act to
persons who were either accredited investors or sophisticated purchasers. These
persons were given the opportunity to speak with our executive officers and ask
questions about our business and plans. No placement agent was engaged and no
commissions were paid. No general solicitation or advertising was utilized for
this offering.
In January and February 1999, StupidPC sold 90,000 shares of common
stock for aggregate consideration of $170,000 to 10 investors. We sold these
shares in reliance on Regulation D, Rule 504 of the Securities Act. A Form D
covering this transaction was filed in December 1999.
In March 1999, StupidPC granted 36,000 shares of common stock to eight
employees. We issued these shares in reliance on Section 4(2) of the Securities
Act to investors who were either accredited investors or sophisticated
purchasers. These persons were given the opportunity to speak with our executive
officers and ask questions about our business and plans. No placement agent was
engaged and no commissions were paid. No general solicitation or advertising was
utilized for this offering.
In July 1999, the StupidPC issued $1,200,000 of 8% convertible
debentures due June 30, 2001. In addition, Stupid PC issued an aggregate of
220,000 common stock purchase warrants to the holders of the debentures and to a
broker of the debenture transaction. We issued these securities solely to
accredited investors in reliance on Regulation D, Rule 506 of the Securities
Act. A Form D covering this transaction was filed in September 1999. These
persons were given the opportunity to speak with our executive officers and ask
questions about our business and plans. No general solicitation or advertising
was utilized for this offering.
II-2
<PAGE> 61
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* Business Lease, dated September 23, 1999, by and between
D & B No. 3, LLP and StupidPC, Inc.
10.6* Commercial Lease, dated December 28, 1998, between Deborah L.
Deavers and StupidPC, Inc.
10.7* Maintenance Service Agreement, dated April 9, 1999, by and between
Integrated Automation International and StupidPC, Inc.
10.8 Virtual Internet Service Provider (ISP) Full Suite Solution Agreement, dated
as of November 12, 1999, by and between Cable & Wireless USA, Inc. and StupidPC, Inc.
10.9 Office Warehouse Lease Agreement, dated as of December, 1999, by and between AP Southeast
Portfolio Partners, L.P. 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>
- -----------------
* Previously filed.
(b) Financial Statement Schedules
II-3
<PAGE> 62
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 it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registrant statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time to be the initial bona fide offering
thereof.
(3) Remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
II-4
<PAGE> 63
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 26th day of January, 2000.
STUPIDPC, INC.
By: /s/ Stephen B. Brannon
-----------------------------
Stephen B. Brannon
President and Chief Executive Officer
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 January 26, 2000
- -------------------------------------------- and Director
Stephen B. Brannon (Principal Executive Officer
and Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE> 64
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> 65
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 5.1
[RED HOT LAW GROUP (SM) OF ASHLEY LLC LETTERHEAD]
January 27, 2000
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 1,567,663 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, (ii) up to 220,000 shares
that they may acquire upon exercise of warrants to purchase shares of common
stock and (iii) 147,663 shares that are currently issued and outstanding. 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.
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 10.8
VIRTUAL INTERNET SERVICE PROVIDER (ISP)
FULL SUITE SOLUTION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the
date of signature of the last party to sign (the "Effective Date"), by and
between Cable & Wireless USA, Inc., a District of Columbia corporation with its
principal place of business at 8219 Leesburg Pike, Vienna, Virginia 22132 ("C&W
USA") and StupidPC, a Georgia corporation with offices at 6690 Jones Mill Court,
Suite A, Norcross, Georgia ("Virtual ISP") (each being referred to individually
as a "Party" and together as the "Parties").
WHEREAS, C&W USA provides certain Internet services including Internet
access, transport, interconnection, web hosing, support, and other related
services.
WHEREAS, Virtual ISP desires to offer its members, subscribers, and/or
other end users ("End Users") certain of C&W USA's Internet services ("Service")
as defined herein, for which Virtual ISP may be identified or co-branded as the
Internet Service Provider to End Users in accordance with the terms set out
herein;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, the Parties hereby agree as follows:
1 DEFINITIONS:
1.1 "Virtual ISP", as used herein, means a sole proprietorship,
partnership, corporation, or other legal entity that offers the Service to End
Users for whom C&W USA will act as an Internet Service Provider ("ISP").
1.2 "End User", as used herein, means a user or subscriber to whom the
Service is made available by C&W USA offered by Virtual ISP, and who incurs
usage charges to C&W USA for the Service, including members of Virtual ISP's
organization such as, without limitation, individuals, corporations or other
legal entities.
1.3 "C&W USA", as used herein, means Cable & Wireless USA Inc.
1.4 "Service" as used herein, means the Internet services provided by
C&W USA to End Users offered by Virtual ISP as well as the Internet-related
services provided by C&W USA to Virtual ISP for the purposes of customizing,
adapting, administering, and collecting End User payments for Virtual ISP with
respect to the Internet services offered to End Users, as set forth herein and
in Exhibit B attached hereto.
2 SERVICE:
2.1 C&W USA INTERNET SERVICES. C&W USA will provide to End Users,
through reprovisioning by Virtual ISP to End Users, analog or digital dial
access to the Internet, and services related thereto, as follows and as
described in Exhibit B, according to Virtual ISP's agreed customization and
service level as described in Exhibit A.
2.1.1 INTERNET DOMAIN NAME. In providing the Service to End
Users, C&W USA shall use the domain name determined as follows:
(a) USE OF EXISTING VIRTUAL ISP DOMAIN NAME. At the
Virtual ISP's option, C&W USA shall use an existing domain
name provided by Virtual ISP, or a new domain name procured by
Virtual ISP, for purposes of allowing C&W USA to provide the
Service under this Agreement.
Page 1 of 7
<PAGE> 2
(b) C&W USA PROCUREMENT OF NEW DOMAIN NAME. At the
Virtual ISP's option, C&W USA shall procure and establish a
new domain name for purposes of C&W USA providing the Service
under this Agreement, for which Virtual ISP agrees to pay the
domain name reservation fee set forth in Exhibit A attached
hereto.
(c) LIMITATIONS ON CHOICE OF DOMAIN NAME. Domain
names are subject to availability, and Virtual ISP
acknowledges that C&W USA is not responsible for the failure
to obtain a requested domain name. Furthermore, C&W USA
reserves the right to reject the use of a domain name if C&W
USA determines that the use of such domain name may either:
(i) infringe on another party's trademark; (ii) be misleading
or deceptive; (iii) constitute objectionable or otherwise
offensive words or language or (iv) subject C&W USA to civil
or criminal liability.
2.1.2 SERVICE LIMITATIONS. Virtual ISP hereby acknowledges
that the Services are subject to certain conditions generally beyond
the control of C&W USA, including the type and condition of the
equipment (personal computer, modem, etc.) of End Users. The Service
may be temporarily unavailable or limited because of capacity
limitations and may be temporarily interrupted or curtailed due to
equipment modifications, upgrades, relocations, repairs, and similar
activities necessary for the proper operation of the Service.
2.1.3 ACCOUNT ACTIVITY RECORDS. C&W USA shall provide periodic
account activity reports to Virtual ISP coinciding with C&W USA's
payment to Virtual ISP of Virtual ISP's royalty share as provided in
section 4 of this Agreement. Account activity reports shall set forth
End User information in detail sufficient only to allow Virtual ISP to
verify its royalty share and in compliance with any applicable consumer
privacy laws. Account activity reports shall be and remain the sole
property of C&W USA.
2.1.4 OTHER SERVICES. C&W USA reserves the right to market
other C&W USA Internet services and related services apart from and in
addition to the Services provided herein to End Users using the Service
hereunder or otherwise, including, without limitation, broadcast or
distribution via the Service (e.g., email) of marketing communications
designed to inform End Users of C&W USA services promotions or events.
2.1.5 END USER SERVICE ACCESS. Service access will be provided
to End Users via a local telephone number where coverage is available.
C&W USA is not responsible for any toll or other fee or charge. The
Service may be remotely accessed via a toll-free number at an
additional charge to be agreed upon by the Parties or End Users.
2.2 VIRTUAL ISP RESPONSIBILITIES.
2.2.1 GENERAL OBLIGATIONS. Virtual ISP hereby agrees to: (i)
Comply with the terms and conditions set forth herein and as more fully
described in Exhibits A and B attached hereto; (ii) provide notice
within 45 days with respect to any disputed royalty payment or other
item contained in any billing report or invoice received from C&W USA
for prompt resolution; (iii) comply fully with all applicable federal,
state and local laws, regulations, and ordinances relating to the
Service to be provided hereunder and the reprovisioning of the Service
to the End Users, and (iv) otherwise comply with the terms and
conditions as set forth herein.
2.2.2 GRANT OF LICENSE TO DOMAIN NAME. In consideration of the
royalty sharing provisions set forth herein and in Exhibit A attached
hereto and in addition to any fees due to C&W USA hereunder, Virtual
ISP hereby grants to C&W USA a fully paid-up,
Page 2 of 7
<PAGE> 3
worldwide, exclusive, and irrevocable license to use the domain name in
connection with providing the Service under this Agreement, as
described in section 2.1, for the duration of this Agreement and
according to the Termination provisions contained herein. To the extent
that such license depends on any use rights to Virtual ISP's name,
Virtual ISP hereby grants to C&W USA a fully paid-up, worldwide,
exclusive, and irrevocable license to use Virtual ISP's name in
connection with providing the Service under this Agreement.
2.2.3 END USER TERMS AND CONDITIONS. In the event that Virtual
ISP enters into a separate agreement with the End Users with respect to
the Services hereunder, Virtual ISP warrants that it will require each
End User to whom Virtual ISP resells the Service to agree in writing to
acknowledge and comply with the terms and conditions as set forth in
section 8 herein and in Exhibit C attached hereto, unless such End User
agreement is otherwise executed by C&W USA directly with End Users.
2.2.4 COLLECTION ASSISTANCE. The Virtual ISP shall, if and
when requested by C&W USA, assist C&W USA with respect to collecting
amounts owed to C&W USA by End Users ("Collection Assistance").
Collection Assistance shall be limited to making a reasonable number of
calls to an End User to request amounts due C&W USA. If the Virtual ISP
fails to provide Collection Assistance for a particular End User, in
addition to any other remedies available to C&W USA, C&W USA may, upon
ten (10) days' prior written notice to the Virtual ISP, suspend its
payment of royalties to the Virtual ISP for such End User until such
time as the Virtual ISP provides such assistance. In addition, C&W USA
reserves the right to discontinue paying royalties to the Virtual ISP
for any End User that fails to pay C&W USA for C&W USA's services in
accordance with C&W USA's payment terms for such services. C&W USA
shall provide the Virtual ISP with ten (10) days' advance written
notice prior to any such discontinuance of royalties to the Virtual
ISP.
3 PRICING:
Payments to C&W USA from End Users received in connection with
the Service hereunder shall be apportioned between C&W USA and Virtual
ISP in accordance with Exhibit A attached hereto. Fees to be paid by
Virtual ISP to C&W USA associated with the Service plan including, but
not limited to, any optional services to be provided by C&W USA are set
forth in Exhibit A attached hereto. If service access is not provided
via a local telephone number, End User will be responsible for toll or
other charges. Notwithstanding anything to the contrary herein, C&W USA
may upon advance written notice adjust its rates or charges or impose
additional rates and charges in order to recover amounts it may be
required by governmental or quasi-governmental authorities to
collection or pay to others to support statutory or regulatory programs
during the term of this Agreement (e.g., the "Universal Service Fund").
4 PAYMENT:
Virtual ISP shall pay C&W USA fees for services provided as
set forth in Exhibit A attached hereto in accordance with the terms set
forth therein and in Exhibit B attached hereto. C&W USA shall pay
Virtual ISP the royalty share as set forth in Exhibit A attached hereto
on a monthly basis in accordance with the terms set forth therein, C&W
USA reserves the right to apply Virtual ISP's royalties due to any
outstanding payment from Virtual ISP due C&W USA, under this Agreement
or otherwise, before providing the remaining portion thereof to Virtual
ISP in payment of the royalties set forth in Exhibit A attached hereto.
Amounts attributable to Federal, state and local taxes, fees, and
surcharges of any kind shall be excluded from the End User payment
basis used for determining the royalties due to Virtual ISP under this
Agreement and Exhibit B attached hereto.
5 TERM AND TERMINATION:
5.1 TERM. This Agreement becomes effective as of its Effective Date and
shall remain in effect for the period indicated in Exhibit A attached hereto or
until terminated as provided herein. This Agreement shall continue in effect for
successive consecutive additional terms as provided in Exhibit A following the
Page 3 of 7
<PAGE> 4
initial Term until either Party gives the other party notice of termination as
set forth in section 5.2 below.
5.2 TERMINATION. Either Party may terminate this Agreement without
cause by giving notice to the other Party at least thirty (30) days prior to the
expiration of the then-current term. In the event of termination, each Party
hereby agrees to not disclose to any third party the confidential information of
the other Party obtained under this Agreement, including, without limitation,
End User confidential information or privacy information, business plans and
operations, including marketing plans, pricing strategies, and service costs,
and technical information and intellectual property of any kind associated with
any network element, whether or not protected through patent or copyright or
other form of protection.
5.2.1 TERMINATION FOR CAUSE. In addition to any other
termination provision set forth herein, a Party may terminate this
Agreement for cause upon the other Party's Default as specified in
section 10 herein. C&W USA shall have the right to terminate this
Agreement if: (i) after twelve (12) months following the Effective Date
of this Agreement the total number of active End Users acquired under
this Agreement falls below 5,000 End Users, or (ii) Virtual ISP
violates the non-compete provision set forth in section 5.2.2(b).
5.2.2 C&W USA END USERS. In the event of termination by either
Party, C&W USA hereby reserves the right to continue to provide the
Service to End Users as follows:
(a) CONTINUITY OF SERVICE. In the event of
termination, C&W USA shall have the right to continue to provide
Service to End Users in C&W USA's sole discretion.
(b) NON-COMPETE. Notwithstanding applicable law, in
no event shall Virtual ISP be entitled to migrate or move C&W USA's End
Users acquired under this Agreement or otherwise to another service,
nor shall Virtual ISP attempt to solicit End Users to another service
or offer to End Users the Service as set forth herein provided by a
third party, for the longer of: (i) the duration of this Agreement,
(ii) the time during which C&W USA pays royalties of any amount to
Virtual ISP. However, C&W USA will optionally provide to Virtual ISP
the ability to broadcast or distribute via the Service (e.g., email) to
End Users, in accordance with its privacy policy. Marketing
communications designed to inform End Users of Virtual ISP promotions
or similar Virtual ISP sales events for services other than the
Service.
5.2.3 SURVIVABLE DOMAIN NAME LICENSE. In the event that: (i)
C&W USA terminates this Agreement for cause, or (ii) Virtual ISP
terminates this Agreement without cause, Virtual ISP's fully paid-up,
worldwide, exclusive, irrevocable, and perpetual license grant to C&W
USA to use the domain name in connection with providing the Service
under this Agreement, as described in section 2.1. shall survive
termination of this Agreement and shall continue in effect for at least
one (1) year form the date of termination or for as long as C&W USA
pays royalties of any amount to Virtual ISP for Service hereunder,
whichever is longer.
5.2.4 EFFECT OF TERMINATION ON ROYALTIES. In the event of
termination for cause by C&W USA, C&W USA shall cease to pay royalties
to Virtual ISP for Service to any End User beyond the billing period in
which termination occurs. In the event of termination by C&W USA
without cause, C&W USA shall continue to pay royalties to Virtual ISP
as set forth in Exhibit A attached hereto for one (1) year following
the date of termination; C&W USA shall cease to pay royalties to
Virtual ISP for Service to any End User thereafter.
5.2.5 RIGHT TO TERMINATE INDIVIDUAL END USERS. C&W USA hereby
reserves the right to terminate Service to any one or more particular
End Users that violate C&W USA's Acceptable Use Policies.
Page 4 of 7
<PAGE> 5
6 COMPLIANCE ASSURANCE:
6.1 COLLATERAL. C&W USA shall have the right to review all Virtual ISP
sales collateral descriptions of the Service offering, and other material,
including webpages containing the name, logo, or any other reference or
identifying mark associated with C&W USA. Virtual ISP shall not publish or
distribute such materials without having first received the prior consent of C&W
USA, which shall not be unreasonably withheld.
6.2 OPERATIONS. C&W USA further reserves the right to review Virtual
ISP's sales or reprovisioning operations generally to confirm Virtual ISP
compliance with the terms of this Agreement in C&W USA's sole discretion.
7 LIMITATION OF LIABILITY:
7.1 SERVICE. C&W USA SHALL NOT BE LIABLE FOR OMISSIONS, INTERRUPTIONS,
DELAYS, ERRORS, DEFECTS OR CURTAILMENTS IN THE SERVICE INTERRUPTIONS CAUSED BY
FAILURE OF EQUIPMENT OR SERVICES NOT PROVIDED BY C&W USA, FAILURE OF
COMMUNICATIONS, POWER OUTAGES, OR OTHER INTERRUPTION NOT WITHIN THE COMPLETE
CONTROL OF C&W USA, NOR SHALL C&W USA BE LIABLE FOR PERFORMANCE DEFICIENCIES
CAUSED OR CREATED BY VIRTUAL ISP'S REPRESENTATIONS OR END USERS' EQUIPMENT.
7.2 CONTENT. C&W USA SHALL HAVE NO LIABILITY TO VIRTUAL ISP, END USERS,
OR OTHER THIRD PARTIES WITH RESPECT TO ITS OBLIGATIONS UNDER THIS AGREEMETN OR
OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, INCIDENTAL, INDIRECT OR
PUNITIVE DAMAGES ARISING OUT OF ANY CONTENT TRANSMITTED UNDER THE TERMS OF THIS
AGREEMENT. VIRTUAL ISP HEREBY RELEASES C&W USA FROM LIABILITY ARISING FROM ANY
CONTENT ACCESSED VIA THE SERVICE.
7.3 FORCE MAJEURE. C&W USA's performance under this Agreement shall be
excused in case of labor difficulties, governmental orders, civil commotions,
acts of god, or other conditions or circumstances beyond its reasonable control.
7.4 IN NO EVENT SHALL C&W USA BE LIABLE FOR ANY INCIDENTAL, SPECIAL,
CONSEQUENTIAL, OR PUNITIVE DAMAGES INCLUDING BUT NOT LMITED TO LOSS OF PROFITS,
LOSS OF BUSINESS OR BUSINESS OPPORTUNITY, LOSS OF USE, ETC. THE LIABILITY OF C&W
USA FOR ACTUAL PROVEN DAMAGES FOR ANY CAUSE WHATSOEVER, INCLUDING BUT NOT
LIMITED TO ANY FAILURE OF OR DISRUPTION OF SERVICE, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, INCLUDING NEGLIGENCE, SHALL
BE LIMITED TO AN AMOUNT EQUIVALENT TO FEES PAYABLE BY VIRTUAL ISP UNDER THIS
AGREEMENT FOR THE SERVICE DURING THE PERIOD SUCH DAMAGES OCCUR.
7.5 NO WARRANTIES. EXCEPT AS SET FORTH IN THIS AGREEMENT, C&W USA MAKES
NO WARRANTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, CONCERNING THE
SERVICE, AND EXPRESSLY DISCLAIMS WARRANTIES OF FITNESS FOR A PARTICULAR USE OR
PURPOSE. THE WARRANTY OF MERCHANTABILITY AND ANY OTHER WARRANTY IMPLIED BY LAW.
8 INDEMNIFICATION:
8.1 GENERAL. Virtual ISP shall protect, indemnify, and hold harmless
C&W USA and its officers, directors, employees, agents and third party suppliers
along with any parties from whom C&W USA obtains network services from and
against any loss, cost, claim, liability, damage, or expense (including
reasonable attorneys' fees) to third parties, relating to or arising from: (i)
the representations made by Virtual ISP, including sales collateral regarding
the Service or regarding C&W USA, End User, or
Page 5 of 7
<PAGE> 6
any of their personnel, whether or not Virtual ISP or End User has knowledge of
such representations, including, without limitation, claims for libel, slander,
invasion of privacy, infringement of copyright, patent infringement (where
Virtual ISP or End User has used, connected, or combined the Service with the
products or services of others), negligence, or tortious behavior; (ii) content
including, without limitation, any claims arising out of dilution and/or (iv)
physical injury or death to persons, damage to property, Virtual ISP's breach of
any of the terms of this Agreement, or Virtual ISP's misrepresentation, fraud,
or negligence with respect to any End User. Virtual ISP acknowledges and agrees
that C&W USA shall have no obligation to Virtual ISP, End User, or any member of
Virtual ISP's organization other than as expressly set forth in this Agreement.
8.2 VIRTUAL ISP INTELLECTUAL PROPERTY. Virtual ISP represents and
warrants that it or End User owns or has a license to use all copyrights,
licenses, trademarks, service marks, and intellectual property rights for (i)
all elements of its sales material related to the Service and (ii) all
trademarks, copyrights and other intellectual property rights with respect to
any Virtual ISP supplied or chosen domain name or content, and that there is no
geographic restriction on Virtual ISP or End User use of any of these
intellectual property elements, Virtual ISP specifically grants C&W USA the
worldwide right to transmit, download, copy or cache all such intellectual
property elements necessary for Virtual ISP to market the Service using C&W
USA's network elements. Virtual ISP agrees to defend and/or handle at its own
expense any claim or action against C&W USA or any of its affiliated entities
for actual or alleged infringement of any US or international intellectual or
industrial property right, including, without limitation, trademarks, service
marks, patents, copyrights, misappropriation of trade secrets or any similar
proprietary rights arising out of Virtual ISP's particular use of the Service.
8.3 C&W USA INTELLECTUAL PROPERTY. C&W USA shall, at its own expense,
defend any suit or claim instituted against Virtual ISP and indemnify Virtual
ISP against any award of damages and costs entered against Virtual ISP by a
final judgment of a court of competent jurisdiction in any such suit insofar as
the same is based on a claim that the C&W USA furnished equipment and/or the C&W
USA services constitute an infringement of any United States patent, copyright,
trademark or similar proprietary right of a third party; provided that Virtual
ISP gives C&W USA prompt written notice of the institution of such suit or the
assertion of such claim and permits C&W USA to defend the same and gives C&W USA
all reasonably available information and assistance and authority to enable C&W
USA to do so. C&W USA shall have control of the defense of any such suit,
including appeals and all negotiations thereof, including the right to effect
settlement or upon the use of the C&W USA furnished equipment or the C&W USA
services with any service, equipment or software not made or furnished by C&W
USA. The foregoing states the entire liability of C&W USA with respect to
infringement of patents, copyrights, trademarks or similar proprietary rights of
a third party by the C&W USA furnished equipment and/or the C&W USA services and
any resulting unavailability of such services and/or equipment.
8.4 END USER PRIVACY. Virtual ISP hereby represents and warrants that
any End User information provided by Virtual ISP to C&W USA is: (i) authorized
by the End User(s) for dissemination to C&W USA, and (ii) provided in lawful
compliance with any applicable consumer privacy laws, including, without
limitation, consumer safety laws for the applicable jurisdiction, foreign
privacy laws, as well as any private agreements between Virtual ISP and End
Users. Virtual ISP shall protect, indemnify, and hold harmless C&W USA and its
officers, directors, employees, agents and third party suppliers along with any
parties from whom C&W USA obtains network services from and against any loss,
cost, claim, liability, damage, or expense (including reasonable attorneys'
fees) to End Users and third parties, relating to or arising Virtual ISP's
failure to maintain End User information in compliance with all applicable
privacy laws and agreements. C&W USA shall not provide End User account or other
information to third parties except in compliance with an order issuing from a
court of competent jurisdiction.
9 END USER USE OF SERVICE:
9.1 ACCEPTABLE USE POLICY. In the event that Virtual ISP enters into a
separate agreement with the End Users with respect to the Services hereunder,
Virtual ISP agrees to require End Users to acknowledge their compliance to the
terms of C&W USA's Internet Acceptable Use Policy, which is set forth at
http://www.cwusa.com/internet_aup.htm.
Page 6 of 7
<PAGE> 7
9.2 EXPORT COMPLIANCE. In the event that Virtual ISP enters into a
separate agreement with the End Users with respect to the Services hereunder,
Virtual ISP further agrees to require End Users to acknowledge their compliance
to U.S. export laws concerning the transmission of technical data and other
regulated materials via the Services.
10 DEFAULT:
In the event a Party fails to comply with any material term of this
Agreement, including, without limitation, failure to make timely payment of any
amount due the other Party or mischaracterization of C&W USA and/or the Service,
that Party shall be in Default ("Default") of this Agreement. In the event of a
non-payment Default, the defaulting Party shall be provided a notification of
default ("Notice of Default"). In the event of Default, C&W USA shall continue
to provide Service to End Users in C&W USA's sole discretion.
11 GOVERNING LAW AND FORUM SELECTION:
This Agreement shall be governed by, construed under, and enforced in
accordance with, the laws of the Commonwealth of Virginia, exclusive of its
conflict of laws rules. Any legal action of whatever nature by or against the
Parties arising out of or related in any respect to the Agreement shall be
brought solely, in either the United States District Court for the Eastern
District of Virginia or the appropriate court of the Commonwealth of Virginia
located in the jurisdiction where C&W USA has its principal place of business.
Virtual ISP hereby consents to (and waives any challenge or objection to)
personal jurisdiction in Virginia and consents to legal process by mail in
accordance with the provisions of Code of Virginia Annotated and the Virginia
rules of procedure.
12 MISCELLANEOUS:
In the event of a conflict between this Agreement and any applicable
tariff, the tariff shall prevail. If any provision of this Agreement shall be
held to be invalid or unenforceable, the validity and enforceability of the
remaining provisions of this Agreement shall not be affected thereby. This
Agreement embodies the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
whether written or oral and all contemporaneous oral agreements and
understandings relating to the subject matter hereof. Neither Party shall issue
a news release, public announcement, advertisement, or other form of publicity
concerning the existence or the terms of this Agreement without obtaining prior
written approval from the other Party. This Agreement is subject to modification
by any authorized regulatory agency. C&W USA reserves the right to withhold
certain End User information in compliance with state, federal and foreign
privacy laws. Virtual ISP may not assign this Agreement without C&W USA's prior
written consent. This Agreement shall be binding on the parties hereto and their
respective personal and legal representatives, successors, and permitted
assigns.
IN WITNESS WHEREOF, C&W USA and StupidPC have caused this Agreement to
be executed by their duly authorized representatives as of the date first
written above.
Virtual ISP Cable & Wireless USA, Inc.
By: /s/ Bart Brannon By: /s/ Tina Corner
----------------------------- -----------------------------
Name: Bart Brannon Name: Tina Corner
--------------------------- ---------------------------
Title: President Title: Senior Vice President
--------------------------- ---------------------------
Date: November 12, 1999 Date:
--------------------------- ---------------------------
Page 7 of 7
<PAGE> 1
Exhibit 10.9
LEASE PROVISIONS & EXHIBITS
LANDLORD: AP SOUTHEAST PORTFOLIO PARTNERS, L.P.
TENANT: STUPIDPC, INC. LEASE DATE:
BUILDING ADDRESS: 8702-B RED OAK BOULEVARD, CHARLOTTE, NORTH CAROLINA
NOTICES ADDRESS TENANT: 3010-E BUSINESS PARK DRIVE, NORCROSS, GEORGIA
NOTICES ADDRESS LANDLORD: 4944 PARKWAY PLAZA BOULEVARD, SUITE 250,
CHARLOTTE, NORTH CAROLINA
RENTABLE SQUARE FOOTAGE: 2,875 LEASE TERM: 60 MONTHS
- ----------------------- ----------
RENT COMMENCEMENT ON OR ABOUT: DECEMBER 1, 1999
MONTHLY RENT: ANNUAL RENT: PRICE PSF:
------------- ------------ ----------
12/1/99 TO 11/30/00 $ 2,036.46 $ 24,437.50 $ 8.50
12/1/00 TO 11/30/01 $ 2,098.75 $ 25,185.00 $ 8.76
12/1/01 TO 11/30/02 $ 2,161.04 $ 25,932.50 $ 9.02
12/1/02 TO 11/30/03 $ 2,225.73 $ 26,708.75 $ 9.29
12/1/03 TO 11/30/04 $ 2,292.81 $ 27,513.75 $ 9.57
ADDITIONAL RENT (CAM): $ 311.46 $ 3,737.50 $ 1.30
- ---------------------
EXCEPT FOR THE FIRST MONTH'S RENT DUE ON THE COMMENCEMENT DATE,
ALL RENTS ARE DUE ON THE 1ST DAY OF EACH MONTH
BROKER: MIKE DOYLE C/O MIKE P. DOYLE, INC., 1100 E. MOREHEAD STREET,
CHARLOTTE, NORTH CAROLINA
COMMISSION PAID BY LANDLORD: $ 5,191.10
SECURITY DEPOSIT: $ 2,036.46 TENANT PROPORTIONATE SHARE: 3.73%
- ---------------- --------------------------
ATTACHED EXHIBITS: A Legal Description of Building Site
B Floor Plan of Premises
C Work Letter
D Minimum Rent
E Additional Rent Calculation
F Office Building Rules
<PAGE> 2
OFFICE-WAREHOUSE LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), made and entered into as of December, 1999,
by and between AP SOUTHEAST PORTFOLIO PARTNERS, L.P., a Delaware limited
partnership ("Landlord"), and STUPIDPC, INC., a Georgia corporation ("Tenant"),
WITNESSETH:
1. DEMISE OF PREMISES. Landlord hereby demises the Premises (as hereafter
described) to Tenant and covenants that Tenant shall peaceably and quietly hold
and enjoy the Premises throughout the term on and subject to all the provisions
and conditions of this Lease; and Tenant hereby accepts such demise of the
Premises from Landlord.
(a) The "Premises" consist of the space containing approximately 2,875
rentable square feet located in the building containing approximately 77,179
rentable square feet known as the Scarlet Oak Building (the "Building") on a
tract of land located at Oakhill Business Park, more particularly described on
EXHIBIT A attached hereto (together with the Building, the "Property").
The Premises are shown outlined in red on the building plan attached hereto as
EXHIBIT B.
(b) As long as Tenant is entitled to possession of the Premises, Tenant
shall have the nonexclusive right to use any parking areas, driveways,
sidewalks, and other common facilities of the Property as they may exist from
time to time.
(c) Tenant's Proportionate Share (herein so called) is stipulated to be
(3.73%), and has been calculated based on the current rentable area of the
Building. If the rentable area of the Building changes, Tenant's Proportionate
Share shall be adjusted accordingly (based on an architect's certificate or
other reasonable substantiation of the Building's rentable area) by an amendment
to this Lease, which Landlord and Tenant agree to execute.
2. TERM. The term of this Lease shall begin on the "COMMENCEMENT DATE" and end
five (5) years thereafter the "Termination Date". Thus, unless the Commencement
Date falls on the first day of a calendar month, the term will also include the
initial partial calendar month immediately following the Commencement Date. The
"Commencement Date" shall be the earlier of (a) the date of substantial
completion of any Tenant Improvements to be constructed by Landlord pursuant to
the Work Letter attached hereto as EXHIBIT C, or (b) the date on which Tenant
first begins to occupy the Premises, both of which are anticipated to occur on
or about December 1, 1999. On the Commencement Date, Tenant shall execute a
written agreement to confirm the actual calendar date on which the Commencement
Date occurs. Tenant shall take possession of the Premises on the Commencement
Date and surrender the Premises to Landlord at the expiration of the term or
earlier termination of this Lease free of waste and in as good a condition as on
the Commencement Date except for reasonable wear and tear and repairs that are
Landlord's responsibility under this Lease. By taking possession of the
Premises, Tenant shall have agreed that the Premises are suitable for their
intended purpose and that the Premises and all other parts of the Property are
in good and satisfactory condition, free of material defects, except for latent
defects.
1
<PAGE> 3
3. RENT. Throughout the term of this Lease, Tenant shall pay rent to Landlord in
accordance with the following provisions:
(a) Tenant shall pay minimum annual rent (the "Minimum Rent") in
monthly installments in advance on or before the first day of each calendar
month as reflected in EXHIBIT D hereto.
(b) Additional Rent (herein so called) shall be calculated as provided
in EXHIBIT E hereto. For each calendar year after the year in which the
Commencement Date occurs, Landlord shall furnish Tenant a written estimate of
Additional Rent for the applicable calendar year. Estimates of Additional Rent
shall be made by Landlord on a reasonable basis determined by Landlord based on
prior year's expenses. During the calendar year in which the Commencement Date
occurs, Tenant shall pay estimated Additional Rent to Landlord in advance on or
before the first day of each month in the amount of Three Hundred Eleven Dollars
and 46/100 ($311.46) per month, and throughout the balance of the term
thereafter, Tenant shall pay estimated Additional Rent in advance on or before
the first day of each month in monthly installments equal to one-twelfth (1/12)
of the estimated Additional Rent for the applicable calendar year. Pending
receipt of Landlord's written estimate of Additional Rent for any calendar year,
monthly installments of estimated Additional Rent shall continue to be paid in
the same amount as in the prior calendar year. By April 30 of each calendar year
or as soon as possible thereafter, Landlord shall deliver to Tenant a written
statement reflecting any difference between estimated Additional Rent paid and
actual Additional Rent accrued for the prior calendar year (or in the case of
any partial calendar year in which the term of this Lease begins or ends, a
prorated portion of such Additional Rent based on actual days elapsed during the
portion of term occurring in that calendar year). Tenant shall pay Landlord the
total amount of any balance of Additional Rent due shown on such annual
statement within thirty (30) days after receipt of the statement. Landlord shall
refund any overpayment of Additional Rent by Tenant shown on such annual
statement within thirty (30) days after delivery of the statement, or Landlord,
at Tenant's option, may credit the amount of any such overpayment against the
installment(s) of Minimum Rent and Additional Rent due for the remainder of the
then current calendar year. Tenant may examine the accounting records supporting
the amount of Additional Rent reflected on such annual statement within sixty
(60) days after receipt of the statement, such examination to occur after
reasonable advance written notice to Landlord during normal business hours at
the place where Landlord's accounting records are normally kept.
(c) The installments of Minimum Rent and Additional Rent for any
initial partial calendar month shall be prorated based on actual days elapsed,
and shall be paid in advance on the Commencement Date.
(d) Except as expressly provided to the contrary in this Lease,
installments of Minimum Rent and Additional Rent shall be payable without
notice, demand, reduction, setoff, or other defense. Installments of Minimum
Rent and Additional Rent and payments of other sums owing to Landlord pursuant
to this Lease shall be made to Landlord at Post Office Box 65022, Charlotte,
North Carolina 28265-0022 or at whatever other account or address that Landlord
may designate from time to time by written notice to Tenant.
(e) If any installment of Minimum Rent or Additional Rent, or any other
sum due and payable pursuant to this Lease, remains unpaid for more than ten
(10) days after the date due, Tenant shall pay Landlord a late payment charge
equal to the greater of (i) Fifty and No/100 Dollars ($50.00), or (ii) five
percent (5%) of the unpaid installment or other payment. The late payment charge
is intended to compensate Landlord for administrative expenses associated with
responding to late payment, and shall not be considered liquidated damages or
interest. All rent and other sums of whatever nature owed by Tenant to Landlord
under this Lease that remain unpaid for more than ten (10) days shall bear
interest from the date due until paid at the lesser of (iii) two percent (2%) in
excess of the prime or general reference rate of interest of NationsBank of
North Carolina, N.A. (or its successors) in effect from time to time.
2
<PAGE> 4
(f) Tenant shall pay to Landlord upon signing this Lease Two Thousand
Thirty Six Dollars and 46/100 ($2,036.46) (the "Deposit") as security for
Tenant's performance of all obligations hereunder. The Deposit may be held in
whatever lawful manner Landlord may choose, and Landlord shall be entitled to
any interest as it may accrue on the Deposit. In the Event of Default by Tenant,
Landlord may, at its option, apply all or any part of the Deposit on account of
any rent or other sums owing by Tenant, and thereupon Tenant shall immediately
redeposit with Landlord the amount so applied in order that Landlord will always
have the full Deposit on hand throughout the term of this Lease. The Deposit
shall never constitute liquidated damages in the Event of Default by Tenant.
Upon full payment and performance of this Lease by Tenant (including without
limitation, final payment of any Additional Rent owed by Tenant), Landlord shall
refund to Tenant any balance of the Deposit remaining after deducting any rental
or other sums owed by Tenant pursuant to this Lease.
4. USE OF PREMISES; COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall use the
Premises only for general office or warehouse purposes and for no other
purposes. Tenant shall not commit or allow waste to be committed in the Premises
or elsewhere on the Property, and shall not do or allow to be done in the
Premises or elsewhere on the Property anything that shall constitute a nuisance
or detract in any way from the reputation of the Property as a first-class real
estate development. Tenant shall allow no noxious or offensive odors, fumes,
gases, smoke, dust, steam or vapors, or any loud or disturbing noise or
vibrations to originate in or be emitted from the Premises. Tenant shall comply
with all laws, ordinances, and regulations of any governmental authority
relating to Tenant's use or occupancy of the Premises, with the requirements of
insurance underwriters or rating bureaus applicable to the Property, and with
the following requirements:
(a) Within the office area of the Premises, Tenant may use generally
available office equipment and supplies that contain small quantities or
concentrations of Hazardous Materials so long as they are properly used and
stored within the Premises, properly disposed of by Tenant at a location other
than the Property, and do not require any governmental license or permit. Except
as permitted in the preceding sentence, no use, generation, storage, treatment,
transportation, or disposal of any Hazardous Material shall occur or be
permitted to occur in connection with Tenant's use and occupancy of the Premises
or any other portion of the Property. "Hazardous Material" shall mean any toxic
or hazardous waste, material, or substance or any other substance that is
prohibited, limited, or regulated as a health or environmental hazard by any
governmental or quasi-governmental authority, or that even if not so regulated,
could or does pose an apparent hazard to the environment or to the health and
safety of the occupants of the Building or others.
(b) No portion of the Premises or the Property shall be used or
occupied for anything that is extrahazardous on account of fire or other risks,
that causes a material increase in the premiums payable by Landlord for any of
its insurance with respect to the Property, or that causes any underwriter to
deny insurance coverage to Landlord.
(c) Tenant shall comply with all requirements of the Americans with
Disabilities Act and implementing regulations applicable to its use and
occupancy of the Premises other than requirements relating solely to the
physical structure of (i) the Tenant Improvements, (ii) the roof, foundation,
and exterior walls of the Building, and (iii) the common use areas of the
Property.
(d) Tenant has previously been furnished with a copy of any applicable
restrictive covenants relating to the Building, and Tenant shall abide by those
restrictions in connection with its use and occupancy of the Premises.
(e) Landlord shall have the right to prescribe and modify reasonable
rules for the use of the Property and leased premises within the Building. A
copy of Landlord's current Building rules is attached
3
<PAGE> 5
hereto as EXHIBIT F. In the event of any conflict with the Building rules, the
provisions in the main body of this Lease control.
(f) Tenant shall ensure that its agents, employees, and contractors
comply with this Paragraph, and shall use reasonable efforts to ensure that its
invitees and customers comply with this Paragraph.
5. TAXES PAYABLE BY TENANT. Tenant shall pay any documentary stamp tax, sales or
use tax, excise tax, or any other tax, assessment, or charge (other than any
income, franchise, or similar tax imposed directly on Landlord or Landlord's net
income from the Property) required to be paid on account of (a) the execution of
this Lease, (b) the use or occupancy of the Premises by Tenant, (c) the rent or
other payments due hereunder, or (d) Tenant's trade fixtures, equipment,
machinery, inventory, merchandise or other personal property located on the
Premises and owned by or in the custody of Tenant. All such taxes, assessments,
and charges shall be paid promptly as they become due prior to delinquency.
Tenant shall provide Landlord with copies of paid receipts for such taxes,
assessments, or charges promptly after payment of same. Tenant shall also pay on
written demand from Landlord any increase in ad valorem taxes or assessments on
the Property as a result of alterations, additions, or improvements made by or
on behalf of Tenant other than the initial Tenant Improvements.
6. INSURANCE COVERAGE; WAIVER OF SUBROGATION.
Tenant shall comply with all applicable laws, ordinances and
regulations affecting the Premises, now existing or hereafter adopted, including
the Rules and Regulations.
Throughout the Term, Tenant, at its sole cost and expense, shall keep
or cause to be kept for the mutual benefit of Landlord, Landlord's managing
agent, (presently AP Southeast Portfolio Partners, L.P. and its affiliates) and
Tenant, Commercial General Liability Insurance (1986 ISO Form or its equivalent)
with a combined single limit, each Occurrence and General Aggregate-per location
of at least TWO MILLION DOLLARS ($2,000,000), which policy shall insure against
liability of Tenant, arising out of and in connection with Tenant's use of the
Premises, and which shall insure the indemnity provisions contained herein. Not
more frequently than once every three (3) years, Landlord may require the limits
to be increased if in its reasonable judgment (or that of its mortgagee) the
coverage is insufficient. Tenant shall also carry the equivalent of ISO Special
Form Property Insurance on its personal property and fixtures located in the
Premises and any improvements made by Tenant for their full replacement value,
and Tenant shall neither have, nor make, any claim against Landlord for any loss
or damage to the same, regardless of the cause thereof.
Prior to taking possession of the Premises, and annually thereafter,
Tenant shall deliver to Landlord certificates or other evidence of insurance
satisfactory to Landlord. All such policies shall be non-assessable and shall
contain language to the extent obtainable that: (i) any loss shall be payable
notwithstanding any act or negligence of Landlord or Tenant that might otherwise
result in forfeiture of the insurance, (ii) that the policies are primary and
non-contributing with any insurance that Landlord may carry, and (iii) that the
policies cannot be canceled, non-renewed, or coverage reduced except after
thirty (30) days' prior written notice to Landlord. If Tenant fails to provide
Landlord with such certificates or other evidence of insurance coverage,
Landlord may obtain such coverage and Tenant shall reimburse the cost thereof on
demand.
Anything in this Lease to the contrary notwithstanding, Landlord hereby
releases and waives unto Tenant (including all partners, stockholders, officers,
directors, employees and agents thereof), its successors and assigns, and Tenant
hereby releases and waives unto Landlord (including all partners, stockholders,
officers, directors, employees and agents thereof), its successors and assigns,
all rights to claim damages for any injury, loss, cost or damage to persons or
to the Premises or any other casualty,
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as long as the amount of which injury, loss, cost or damage has been paid either
to Landlord, Tenant, or any other person, firm or corporation, under the terms
of any Property, General Liability, or other policy of insurance, to the extent
such releases or waivers are permitted under applicable law. As respects all
policies of insurance carried or maintained pursuant to this Lease and to the
extent permitted under such policies, Tenant and Landlord each waive the
insurance carriers' rights of subrogation. Subject to the foregoing, Tenant
shall indemnify and hold Landlord harmless from and against any and all claims
arising out of (i) Tenant's use of the Premises or any part thereof, (ii) any
activity, work, or other thing done, permitted or suffered by Tenant in or about
the Premises or the Building, or any part thereof, (iii) any breach or default
by Tenant in the performance of any of its obligations under this Lease, or (iv)
any act or negligence of Tenant, or any officer, agent, employee, contractor,
servant, invitee or guest of Tenant; and in each case from and against any and
all damages, losses, liabilities, lawsuits, costs and expenses (including
attorneys' fees at all tribunal levels) arising in connection with any such
claim or claims as described in (i) through (iv) above, or any action brought
thereon.
If such action is brought against Landlord, Tenant upon notice from
Landlord shall defend the same through counsel selected by Tenant's insurer, or
other counsel acceptable to Landlord. Tenant assumes all risk of damage or loss
to its property or injury or death to persons in, on, or about the Premises,
from all causes except those for which the law imposes liability on Landlord
regardless of any attempted waiver thereof, and Tenant hereby waives such claims
in respect thereof against Landlord. The provisions of this paragraph shall
survive the termination of this Lease.
Landlord shall keep the Building, including the improvements, insured
against damage and destruction by perils insured by the equivalent of ISO
Special Form Property Insurance in the amount of the full replacement value of
the Building.
Each party shall keep its personal property and trade fixtures in the
Premises and Building insured with the equivalent of ISO Special Form Property
Insurance in the amount of the full replacement cost of the property and
fixtures. Tenant shall also keep any non-standard improvements made to the
Premises at Tenant's request insured to the same degree as Tenant's personal
property.
Tenant's insurance policies required by this Lease shall: (i) be
issued by insurance companies licensed to do business in the state in which the
Premises are located with a general policyholder's ratings of at least A- and a
financial rating of at least VI in the most current Best's Insurance Reports
available on the Commencement Date, or if the Best's ratings are changed or
discontinued, the parties shall agree to a comparable method of rating insurance
companies; (ii) name the non-procuring party as an additional insured as its
interest may appear [other landlords or tenants may be added as additional
insureds in a blanket policy]; (iii) provide that the insurance not be canceled,
non-renewed or coverage materially reduced unless thirty (30) days advance
notice is given to the non-procuring party; (iv) be primary policies; (v)
provide that any loss shall be payable notwithstanding any gross negligence of
Landlord or Tenant which might result in a forfeiture thereunder of such
insurance or the amount of proceeds payable; (vi) have no deductible exceeding
TEN THOUSAND DOLLARS ($10,000), unless accepted in writing by Landlord; and
(vii) be maintained during the entire Term and any extension terms.
7. REPAIRS AND MAINTENANCE BY LANDLORD. At its own cost (and not as a cost
included in the calculation of Additional Rent), Landlord shall repair only the
roof, exterior walls, structural members (including foundation and subflooring)
of the Premises, and central plumbing and electrical systems serving the entire
Building up to the point of entry into the Premises. If Tenant gives Landlord
written notice of the need for repairs, Landlord shall begin any repair work
required under the terms of this Lease within thirty (30) days after its receipt
of such notice, and shall diligently pursue such required repairs to completion.
If repairs are required to be made by Landlord as the result of any act or
omission of Tenant or its agents, employees, or contractors, then any cost of
such repairs in excess of insurance proceeds actually received by Landlord shall
be paid by Tenant to Landlord on written demand, and Landlord shall
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not be obligated to begin or continue repair work until funds for such purposes
are received from insurance proceeds or from Tenant. As used in this Paragraph,
"repair" includes the replacement of materials or equipment. As items whose cost
is included in the calculation of Additional Rent, Landlord shall provide for:
(a) Routine and periodic maintenance and regular inspection of heating,
ventilating, and air conditioning ("HVAC") systems and equipment for the
Premises, replacement of filters as recommended, and performance of other
recommended periodic HVAC maintenance service in accordance with applicable
manufacturer's standards and recommendations. If Landlord elects to provide HVAC
maintenance through a contract that includes portions of the Building outside
the Premises, the contract shall provide that labor and materials furnished for
the Premises will be separately invoiced.
(b) Routine control (and extermination, as applicable) of insects,
pests, and other vermin for portions of the Building outside the Premises. If
Landlord elects to provide routine pest control through a contract that includes
portions of the Premises, the contract shall provide that labor and materials
furnished for the Premises will be separately invoiced.
(c) Routine maintenance and repair of the common areas, facilities, and
equipment of the Property, including landscaping, irrigation systems, parking
and loading areas, driveways, sidewalks, exterior lighting, common signs,
garbage collection and disposal, common water, sewer, plumbing, gas, electric
facilities and equipment, and other areas, facilities, or equipment shared by
the various tenants in the Building. If and to the extent Landlord chooses,
common area security services and equipment. Landlord has no duty to provide
security, and no duty to so shall be deemed to have been assumed by Landlord's
furnishing any security services or equipment. Tenant waives and releases all
claims against Landlord and its agents, employees, and contractors to the extent
based on any wrongful, negligent, or other failure to furnish security services
or equipment or on any wrongful, negligent, or other act or omission in
connection with any security services or equipment furnished.
Tenant shall not be deemed to have been evicted as the result of, nor shall
Landlord be liable for any loss or damage to the property of Tenant located in
the Premises or for any loss of business or profits of Tenant or other damages
of any kind arising from (i) any failure of Landlord to provide maintenance,
repair, or other services to be furnished by Landlord pursuant to this Paragraph
as the result of circumstances outside of Landlord's reasonable control, (ii)
any interruption or unavailability of utilities or any stoppage, leaking,
bursting, or other defect or failure in the utility lines, pipes, wires, and
other facilities serving the Premises as the result of circumstances outside of
Landlord's reasonable control, or (iii) any repairs, maintenance, alterations,
or improvements to any portion of the Property made in connection with
correcting any of the foregoing circumstances or providing the maintenance,
repair, or other services to be furnished by Landlord pursuant to this
Paragraph. If as the result of any of the foregoing, the Premises remain
untenantable for more than ten (10) days after written notice from Tenant to
Landlord specifying the circumstances giving rise to such untenantability, then
as Tenant's sole and exclusive remedy, Minimum Rent and Additional Rent shall
abate for so long thereafter as the Premises remain untenantable. Such abatement
of Minimum Rent and Additional Rent shall not extend the term of this Lease.
8. REPAIRS AND MAINTENANCE BY TENANT. Tenant shall maintain and keep in good
repair all parts and components of the Premises not expressly required by this
Lease to be maintained or repaired by Landlord, including without limitation,
plumbing, wiring, electrical systems, HVAC systems and equipment (except for
routine maintenance provided by Landlord), glass and plate glass, and equipment
or machinery constituting fixtures. All maintenance and repair work performed by
Tenant shall be carried out in a good an workmanlike manner in compliance with
applicable building codes and other laws. As used in this Paragraph, "repair"
includes the replacement of materials or equipment.
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9. UTILITIES AND JANITORIAL SERVICES. Tenant shall contract directly with public
or private utility companies to obtain, and shall pay directly any required
deposits, installation and hook-up costs, and consumption or use charges for (a)
electricity, gas, and telephone or other telecommunications services, (b) water
and sewer service if separately metered for the Premises, (c) unless provided by
Landlord as part of the common facilities of the Property, trash and waste
collection and disposal service, and (d) waste collection and disposal services
for waste in exceptional quantities or of a type requiring special handling or
that is otherwise not suitable for collection and disposal through common
facilities of the Property, if any. Tenant shall provide and pay for janitorial
services of a type and frequency to keep the Premises in a clean, safe,
healthful, and presentable condition.
10. ALTERATIONS AND IMPROVEMENTS. Tenant shall make no alterations, additions,
or improvements to the Premises or the Property without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld. Tenant shall comply with all reasonable requirements of Landlord
relating to approval of plans and specifications, compliance with building codes
and other laws, protection of the integrity, condition, and proper functioning
of the roof, walls, foundations, and other structural elements of the Building
and of the Building's mechanical, electrical, and plumbing systems and
equipment, employment and bonding of contractors, insurance, aesthetic
considerations, and other relevant matters as determined by Landlord. All
alterations, additions or improvements, including without limitation all
partitions, walls, railings, carpeting, floor and wall coverings, and other
fixtures (excluding Tenant's trade fixtures) made by, for, or at the direction
of Tenant shall become the property of Landlord when made, and shall remain upon
the Premises at the expiration or earlier termination of this Lease. Landlord
reserves the right to make structural and nonstructural alterations, additions,
and improvements to the Property, to re-stripe parking areas and otherwise
control parking and traffic movement on the Property, and to change the name or
street address of the Property.
11. TRADE FIXTURES AND OTHER PERSONAL PROPERTY. Any trade fixtures installed in
the Premises at Tenant's expense shall remain Tenant's personal property, and
Tenant shall have the right at any time during the term of this Lease to remove
such trade fixtures (provided that any damage to the Building or Premises caused
by such removal shall immediately be repaired by Tenant). On or before the
expiration of the term or earlier termination of this Lease, Tenant shall remove
all trade fixtures and other personal property of Tenant from the Premises,
repair any damage to the Building or Premises caused by removal of its trade
fixtures and other personal property, and leave the Premises in a clean
condition free of waste, refuse, or debris. If Tenant fails to do so, Landlord
may retain, store, or dispose of such trade fixtures and other personal property
however Landlord chooses without liability of any kind to Tenant, repair any
damage to the Building or Premises caused by removal of such trade fixtures and
other personal property, and clean the Premises and properly dispose of all such
waste, refuse, or debris; and all reasonable costs and expenses incurred by
Landlord in connection with the foregoing shall be payable by Tenant to Landlord
on written demand. The following property shall be considered part of the
permanent improvements to the Building owned by Landlord, not trade fixtures of
Tenant, and shall not be removed from the Premises by Tenant under any
circumstances: (a) HVAC systems, fixtures, or equipment; (b) lighting fixtures
or equipment; (c) dock levelers; (d) carpeting, other permanent floor coverings,
or raised flooring; (e) paneling or other wall coverings; (f) plumbing fixtures
and equipment; and (g) permanent shelving.
12. SIGNS AND ADVERTISING. As part of the initial Tenant Improvements, Landlord
shall install a single exterior tenant identification sign for Tenant on the
Building at or near Tenant's front entrance to the Premises. The identification
sign will be of a design acceptable to Landlord and Tenant. Tenant shall install
no signs, marquees, billboards, outside lighting fixtures, or other decorations
on the Premises that are visible from the exterior of the Building, and Landlord
shall have the right to remove any such items and repair any resulting damage to
the Building or Premises at the cost and expense of Tenant payable on written
demand. Tenant shall not use or allow the use in or about the Premises or
elsewhere
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on the Property of any sound production device, mechanical or moving display
device, bright lights, or other advertising media that would be visible or
audible from the exterior of the Building.
13. LANDLORD'S RIGHT OF ENTRY. Landlord and persons authorized by Landlord may
enter the Premises at any time without notice to Tenant in the event of
emergency involving possible injury to property or persons in or around the
Premises or the Building. Landlord and persons authorized by Landlord shall have
the right to enter the Premises at all reasonable times and upon reasonable
notice for the purposes of making repairs or connections, making alterations,
additions, or improvements to the Building, installing utilities, providing
services to the Premises or for other tenants, making inspections, or showing
the Premises to prospective purchasers or lenders of the Property. During the
last six (6) months of the initial or any extended term, Landlord and persons
authorized by Landlord shall have the right at reasonable times and upon
reasonable notice to show the Premises to prospective tenants.
14. CASUALTY DAMAGE. If any part of the Premises is damaged by fire or other
casualty, Tenant shall give prompt notice to Landlord. If damage by fire or
other casualty renders any substantial part of the Premises untenantable and the
repair time to restore the Premises to a tenantable condition will exceed one
hundred twenty (120) days (or will exceed thirty (30) days in the case of damage
occurring during the last twelve (12) months of the term), or if any part of the
Property is so damaged that in Landlord's judgment, substantial alteration or
reconstruction is required (whether or not the Premises have been damaged by the
casualty), or if any mortgagee of the Property requires application of the
insurance proceeds to the reduction of the mortgage debt, or if any material
uninsured loss occurs, Landlord may, at its option, terminate this Lease by so
notifying Tenant in writing within sixty (60) days after the date of the
casualty. If the damage by fire or other casualty renders any substantial part
of the Premises untenantable and if the repair time to restore the Premises to a
tenantable condition will exceed one hundred twenty (120) days (or will exceed
thirty (30) days in the case of damage occurring during the last twelve (12)
months of the term), Tenant may elect to terminate this Lease by so notifying
Landlord in writing within sixty (60) days after the date of the casualty. If
the Lease is not so terminated by Landlord or Tenant, Landlord shall promptly
begin and diligently pursue the work of restoring the Premises (including the
initial Tenant Improvements) to substantially their former condition as soon as
reasonably possible. Landlord shall not, however, be required to restore any
alterations, additions, or improvements other than the initial Tenant
Improvements or to spend any amount in excess of the insurance proceeds actually
received by Landlord as a result of the casualty. Landlord shall allow Tenant an
equitable abatement of Minimum Rent and Additional Rent during the time and to
the extent the Premises are untenantable as the result of fire or other
casualty, but such abatement shall not extend the term.
15. CONDEMNATION. If all or substantially all of the Property is condemned or is
sold in lieu of condemnation, then this Lease shall terminate on the date the
condemning authority takes possession. If less than all of the Property is so
condemned or sold (whether or not the Premises are affected) and in Landlord's
judgment, the Property cannot be restored to an economically viable condition,
or if any mortgagee of the Property requires application of condemnation
proceeds to the reduction of the mortgage debt, Landlord may terminate this
Lease by written notice to Tenant effective on the date the condemning authority
takes possession. If the condemnation will render any substantial part of the
Premises untenantable, Tenant may terminate this Lease by written notice to
Landlord effective on the date the condemning authority takes possession of the
affected part of the Premises. If this Lease is not so terminated by Landlord or
Tenant, Landlord shall, to the extent feasible, restore the Premises (including
the initial Tenant Improvements) to substantially their former condition.
Landlord shall not, however, be required to restore any alterations, additions,
or improvements other than the initial Tenant Improvements or to spend any
amount in excess of the condemnation proceeds actually received by Landlord.
Landlord shall allow Tenant an equitable abatement of Minimum Rent and
Additional Rent during the time and to the extent the Premises are untenantable
as the result of any condemnation, but such abatement shall not extend the term.
All condemnation awards and proceeds shall belong
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exclusively to Landlord, and Tenant shall not be entitled to, and expressly
waives and assigns to Landlord, all claims for any compensation for
condemnation; provided, however, if Tenant is permitted by applicable law to
maintain a separate action that will not reduce condemnation awards or proceeds
to Landlord, Tenant shall be permitted to pursue such separate action, but only
for loss of business, moving expenses, and Tenant's trade fixtures.
16. TRANSFERS BY TENANT.
(a) Without the prior written consent of Landlord in each instance,
which consent will not be unreasonably withheld, Tenant shall not do any of the
following (as used in this Paragraph, a "Transfer"): (i) assign this Lease or
any estate or interest therein, whether absolutely or collaterally as security
for any obligation; (ii) sublease any part of the Premises; (iii) permit any
assignment of this Lease or any estate or interest therein by operation of law;
(iv) grant any license, concession, or other right of occupancy for any part of
the Premises; or (v) permit the use of the Premises by any person other than
Tenant and its agents and employees. Permissible reasons for Landlord's
withholding consent include (but are not limited to) the following: (vi) the
proposed use of the Premises is not permitted by this Lease, would negatively
affect insurance or environmental risks, or would otherwise negatively impact
the Property; (vii) the creditworthiness of the proposed transferee is
unacceptable to Landlord in Landlord's good faith business judgment; (viii) the
proposed use or occupancy would require alterations or additions to the Premises
or other portions of the Property to comply with applicable laws, ordinances,
and regulations; (ix) the proposed transferee is a tenant or occupant of the
Property or any other rental real property owned by Landlord; and (x) if the
consent of any mortgagee is required, such mortgagee refuses to consent after
good faith efforts by Landlord to obtain such consent. Any attempted Transfer
without Landlord's prior written consent shall be void.
(b) If Tenant requests Landlord's consent to a Transfer, Landlord may
either (i) approve or disapprove the Transfer, or (ii) terminate this Lease with
respect to the part of the Premises included in the proposed Transfer. In
connection with each Transfer request by Tenant, Tenant shall obtain and furnish
to Landlord all documents, financial reports, and other information Landlord
reasonably requires in order to evaluate the proposed Transfer. Landlord shall
advise Tenant of Landlord's decision with respect to the requested Transfer
within fifteen (15) days after receipt of Tenant's written Transfer request and
all requested supporting materials. If Landlord refuses to consent to a
requested Transfer, this Lease shall nonetheless remain in full force and
effect. The consent of Landlord to one requested Transfer shall never be
construed to waive the requirement for Landlord's consent to other Transfers,
nor unless otherwise agreed, shall any consent by Landlord or Transfer by Tenant
discharge or release Tenant from any obligations or liabilities to Landlord.
(c) All cash or other proceeds of any Transfer in excess of the Minimum
Rent and Additional Rent payable under this Lease shall be paid to Landlord, and
Tenant hereby assigns to Landlord all rights it might have or ever acquire to
the excess proceeds. No transferee of less than the entire Premises or Lease
shall ever be entitled to exercise any extension, expansion, or other option
provided in this Lease. If an Event of Default by Tenant occurs after any
Transfer, Landlord may, at its option, collect rent directly from the
transferee, and Tenant hereby authorizes any transferee to pay rent directly to
Landlord at all times after receipt of written notice from Landlord. No direct
collection by Landlord from any transferee shall constitute a novation or
release Tenant from its obligations and liabilities under this Lease.
17. TRANSFERS BY LANDLORD. Landlord shall have the unrestricted right to sell,
assign, mortgage, encumber, or otherwise dispose of all or any part of the
Property or any interest therein. Upon sale or other disposition of the Property
to a party who assumes the obligations of Landlord under this Lease, Landlord
shall be released and discharged from obligations and liabilities thereafter
accruing under this Lease (including liability for the return of any Deposit),
and Tenant shall look solely to Landlord's
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successor for performance of the Lease thereafter (including the return of any
Deposit). Tenant's obligations under this Lease shall not be affected by any
sale, assignment, mortgage, encumbrance, or other disposition of the Property by
Landlord, and Tenant shall attorn to anyone who thereby becomes the successor to
Landlord's interest in this Lease.
18. SUBORDINATION. This Lease is subject and subordinate to any and all
mortgages now or hereafter encumbering the Property. Such subordination shall be
self-operative without the necessity of any further instrument, but if requested
by Landlord, Tenant shall promptly execute and deliver to Landlord any
instrument Landlord may reasonably request to evidence the subordination of this
Lease to such mortgages or to acknowledge the assignment of this Lease as
additional security for such mortgages. If any person acquires the Property
through the exercise of remedies provided in a mortgage, Tenant shall
automatically attorn to and become the tenant of the new owner of the Property,
bound by any payment of rent for more than one (1) month in advance or liable
for any act or omission of Landlord that occurred prior to the date the new
owner acquired title and possession of the Property. Upon request by any
successor owner of the Property, Tenant shall execute an instrument confirming
the attornment required by this Lease. Tenant shall peaceable and quietly hold
and enjoy the Premises for the Lease Term, without hindrance from Landlord,
subject to the terms and conditions of this Lease.
19. ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS. Within ten (10) days after a
written request by Landlord, Tenant shall deliver an estoppel certificate in a
form supplied by or acceptable to Landlord certifying any facts that are then
true with respect to this Lease, including without limitation that this Lease is
in full force and effect, that no default exists on the part of Landlord or
Tenant, that Tenant is in possession, that Tenant has commenced payment of rent,
and that Tenant claims no defenses or offsets with respect to payment of rent
under this Lease. Likewise, within ten (10) days after a written request by
Tenant, Landlord shall deliver to Tenant an estoppel certificate covering such
matters of fact with respect to Landlord's obligations under the Lease as are
reasonably requested by Tenant.
20. EVENTS OF DEFAULT BY TENANT. Each of the following constitutes an Event of
Default by Tenant (herein so called):
(a) Tenant fails or refuses to pay any installment of Minimum Rent,
Additional Rent, or any other sum payable under this Lease when due, and the
failure or refusal continues for at least ten (10) days after the due date.
(b) Tenant fails or refuses to comply with any provision of this Lease
not requiring the payment of money, and the failure or refusal continues for at
least thirty (30) days after written notice from Landlord; provided, however, if
any failure by Tenant to comply with this Lease cannot be corrected within such
30-day period solely as a result of nonfinancial circumstances outside of
Tenant's control, and if Tenant has commenced substantial corrective actions
within such 30-day period and is diligently pursuing such corrective actions,
such 30-day period shall be extended for such additional time as is reasonably
necessary to allow completion of actions to correct Tenant's noncompliance.
(c) Tenant's leasehold estate is taken on execution or other process of
law in any action against Tenant.
(d) Tenant fails or refuses to take occupancy of the Premises upon the
Commencement Date, or Tenant ceases to do business in, or abandons any
substantial part of, the Premises.
(e) Tenant or any guarantor of this Lease files a petition under any
chapter of the United States Bankruptcy Code, as amended, or under any similar
law or statute of the United States or any state, or a petition is filed against
Tenant or any such guarantor under any such statute and not dismissed with
prejudice within thirty (30) days of filing, or a receiver or trustee is
appointed for Tenant's
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leasehold estate or for any substantial part of the assets of Tenant or any such
guarantor and such appointment is not dismissed with prejudice within sixty (60)
days, or Tenant or any such guarantor makes an assignment for the benefit of
creditors.
21. LANDLORD'S REMEDIES. If an Event of Default by Tenant occurs, Landlord shall
be entitled then or at any time thereafter to do any one or more of the
following at Landlord's option:
(a) Enter the Premises in accordance with local statutory requirements,
and take whatever curative actions are necessary to rectify Tenant's
noncompliance with this Lease; and in that event Tenant shall reimburse Landlord
on written demand for reasonable expenditures by Landlord to effect compliance
with Tenant's obligations under this Lease.
(b) Terminate this Lease, in which event Tenant shall immediately
surrender possession of the Premises to Landlord, or without terminating this
Lease, terminate Tenant's right to possession of the Premises; and in either
case, Landlord may re-enter and take possession of the Premises, evict Tenant
and all parties then in occupancy or possession in accordance with applicable
law, and if permitted under applicable law, change the locks on the doors of the
Premises without making keys to the changed locks available to Tenant.
(c) If Landlord has terminated this Lease, recover all Minimum Rent,
Additional Rent, and other sums owing and unpaid under this Lease as of the date
of termination plus damages measured by the difference in the rental value of
the Premises if this Lease had been fully performed for the balance of the term
and the rental value of the Premises following the Event of Default by Tenant
(taking into account probable remodeling, lease commission, allowance,
inducement, and other costs of reletting).
(d) If Landlord has not terminated this Lease (whether or not Landlord
has terminated Tenant's right to possession of the Premises or actually retaken
possession), recover (in one or more suits from time to time or at any time
before or after the end of the term) all Minimum Rent, Additional Rent, and
other sums then or thereafter owing and unpaid under this Lease, together with
all costs, if any, incurred in reletting the Premises (including remodeling,
lease commission, allowance, inducement, and other reasonable costs), less all
rent, if any, actually received from any reletting of the Premises during the
remainder of the term. Landlord shall have the right following an Event of
Default by Tenant to relet the Premises on Tenant's account without terminating
the Lease, any such reletting to be on such terms as Landlord considers
reasonable under the circumstances. To the extent, in the manner, and on the
conditions permitted or required by applicable law, Landlord shall have the
option to accelerate payment of all future rent and other sums due from Tenant
to the date the Event of Default by Tenant occurred; and if Landlord actually
receives the future rent and other sums due from Tenant on such acceleration,
then to the extent necessary to avoid Landlord's retaining funds in excess of
the rent and other sums due from Tenant, Landlord shall thereafter refund to
Tenant from time to time any net proceeds of any reletting of the Premises
during the remainder of the term remaining after paying the costs of such
reletting.
(e) Recover all costs of retaking possession of the Premises and any
other damages incidental to the Event of Default by Tenant.
(f) Terminate all of Tenant's rights to any allowances or under any
renewal, extension, expansion, refusal, or other options granted to Tenant by
this Lease.
(g) Exercise any and all other remedies available to Landlord at law or
in equity, including injunctive relief of all varieties.
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If Landlord elects to retake possession of the Premises without terminating this
Lease, it may nonetheless at any subsequent time elect to terminate this Lease
and exercise the remedies provided above on termination of the Lease. Nothing
done by Landlord or its agents shall be considered an acceptance of any
attempted surrender of the Premises unless Landlord specifically so agrees in
writing. No re-entry or taking of possession of the Premises by Landlord, nor
any reletting of the Premises, shall be considered an election by Landlord to
terminate this Lease unless Landlord gives Tenant written notice of termination.
22. LANDLORD'S DEFAULT. It shall be an Event of Default by Landlord (herein so
called) only if Landlord fails to comply with any provision of this Lease and
the failure continues for at least thirty (30) days after written notice from
Tenant to Landlord (with a copy to Landlord's mortgagees if Tenant has been
notified in writing of the identities and addresses of such mortgagees);
provided, however, if any failure by Landlord to comply with this Lease cannot
be corrected within such 30-day period solely as a result of nonfinancial
circumstances outside of the control of Landlord, and if substantial corrective
actions have commenced within such 30-day period and are being diligently
pursued, such 30-day period shall be extended for such additional time as is
reasonably necessary to allow completion of actions to correct Landlord's
noncompliance.
23. TENANT'S REMEDIES. Except as otherwise provided in this Lease, in the Event
of Default by Landlord, Tenant shall be entitled to any remedies available at
law or in equity. Notwithstanding anything in this Lease to the contrary,
Landlord shall never be liable in the Event of Default by Landlord, under any
promise of indemnity in this Lease, or under any other provision of this Lease
for any loss of business or profits of Tenant or other consequential damages or
for punitive or special damages of any kind. None of Landlord's officers,
employees, agents, directors, shareholders, or partners shall ever have any
liability to Tenant under or in connection with this Lease. Tenant agrees to
look solely to Landlord's interest in the Property for the recovery of any
judgment against Landlord, and Landlord shall never be personally liable for any
judgment.
24. INDEMNIFICATION.
(a) Tenant shall indemnify and hold Landlord and its officers,
employees, agents, directors, shareholders, and partners harmless against any
loss, liability, damage, fine or other governmental penalty, cost, or expense
(including reasonable attorneys' fees and costs of litigation), or any claim
therefor, resulting from: (i) Tenant's noncompliance with or violation of any
law, ordinance, or other governmental regulation applicable to Tenant in its use
and occupancy of the Premises; (ii) the use, generation, storage, treatment, or
transportation, or the disposal or other release into the environment, of any
Hazardous Material by Tenant or its employees, agents, or contractors in
Tenant's use and occupancy of the Premises; or (iii) injury to persons or loss
or damage to property to the extent caused by any negligent or wrongful act or
omission of Tenant or its employees, agents, and contractors, but only to the
extent the loss or damage would not be covered by property and casualty
insurance of the type and amount required to be carried by Landlord pursuant to
this Lease (whether or not actually so carried).
(b) Landlord shall indemnify and hold Tenant and its officers,
employees, agents, directors, shareholders, and partners harmless against any
loss, liability, damage, fine or other governmental penalty, cost, or expense
(including reasonable attorneys' fees and costs of litigation), or any claim
therefor, resulting from: (i) Landlord's noncompliance with or violation of any
law, ordinance, or other governmental regulation applicable to Landlord, but
only to the extent such noncompliance or violation is not based on the use or
occupancy of the Premises by Tenant or on any other act or omission of Tenant or
its employees, agents, or contractors; (ii) the use, generation, storage,
treatment, or transportation, or the disposal or other release into the
environment, of any Hazardous Material by Landlord or its employees, agents, or
contractors; or (iii) injury to persons or loss or damage to property (other
than
12
<PAGE> 14
trade fixtures or personal property owned by, or in the custody of Tenant) to
the extent caused by any negligent or wrongful act or omission of Landlord or
its employees, agents, and contractors (other than any negligent or wrongful
omission to furnish security services or equipment or any negligent or wrongful
act or omission in connection with any security services or equipment
furnished). Nothing herein shall create any liability on the part of Landlord
for any acts or omissions by other tenants or occupants of the Property or their
agents, employees, contractors, or invitees.
25. PROTECTION AGAINST LIENS. Tenant shall do all things necessary to prevent
the filing of any mechanics', materialmen's, or other type of lien or claim
against Landlord or the Property by, against, through, or under Tenant or its
contractors. If any such lien or claim is filed, Tenant shall either cause the
same to be discharged within twenty (20) days after filing, or if Tenant in its
discretion and in good faith determines that such lien or claim should be
contested and if all required consents or approvals of Landlord's mortgagee are
obtained, Tenant shall furnish such security as may be necessary to prevent any
foreclosure proceedings against the Property during the pendency of such
contest. If Tenant fails to discharge such lien or claim within such 20-day
period or fails to furnish such security, then Landlord may at its election, in
addition to any other right or remedy available to it, discharge the lien or
claim by paying the amount alleged to be due or by giving appropriate security.
If Landlord discharges or secures such lien or claim, then Tenant shall
reimburse Landlord on written demand for all sums paid and all reasonable costs
and expenses (including reasonable attorneys' fees and costs of litigation) so
incurred by Landlord.
26. HOLDING OVER. If Tenant remains in possession of any part of the Premises
after the expiration of the term of this Lease, whether with or without
Landlord's consent, Tenant shall be only a tenant at will, the monthly
installments of Minimum Rent payable during such holdover period shall be one
hundred fifty percent (150%) of the monthly installments of Minimum Rent payable
immediately preceding such expiration, and all Additional Rent and other sums
payable under this Lease shall continue to be due and payable. The acceptance of
any rent or other payments from Tenant with respect to any holdover period shall
not serve to extend the term or waive any rights of Landlord, but Landlord may
at any time refuse to accept rent or other payments from Tenant, and may
re-enter the Premises, evict Tenant and all parties then in occupancy or
possession, take possession of the Premises, and if permitted under applicable
law, change the locks on the doors of the Premises without making keys to the
changed locks available to Tenant. Tenant shall indemnify and hold Landlord
harmless against any loss, liability, damage, cost, or expense (including
reasonable attorneys' fees and costs of litigation), or any claim therefor,
related to Tenant's holding over, including liabilities to any person to whom
Landlord may have leased any part of the Premises.
27. ATTORNEYS' FEES. If an Event of Default by Tenant or an Event of Default by
Landlord occurs, the nondefaulting party shall be entitled to recover reasonable
attorneys' fees and any costs of litigation incurred in exercising and enforcing
its remedies under this Lease.
28. WAIVER. The failure of a party to insist upon the strict performance of any
provision of this Lease or to exercise any remedy for an event of default shall
not be construed as a waiver. The waiver of any noncompliance with this Lease
shall not prevent subsequent similar noncompliance from being or becoming an
event of default. No waiver shall be effective unless expressed in writing
signed by the waiving party. No waiver shall affect any condition other than the
one specified in the waiver and then only for the time and in the manner stated.
Landlord's receipt of any rent or other sums with knowledge of noncompliance
with this Lease by Tenant shall not be considered a waiver of the noncompliance.
No payment by Tenant of a lesser amount than the full amount then due shall be
considered to be other than on account of the earliest amount due. No
endorsement or statement on any check or any letter accompanying any check or
payment shall be considered an accord and satisfaction, and Landlord may accept
any check or payment without prejudice to Landlord's right to recover the
balance owing and to pursue any other available remedies.
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<PAGE> 15
29. LEASING COMMISSIONS. Each of Landlord and Tenant represents and warrants to
the other that it has not dealt with anyone claiming any entitlement to any
commission in connection with this leasing transaction except: Mike Doyle c/o
Mike P. Doyle, Inc., 1100 E. Morehead Street, Charlotte, North Carolina 28204
("Broker"). Landlord is liable for all commissions due and payable to Mike Doyle
hereunder, pursuant to a separate Commission Agreement. Each of Landlord and
Tenant agrees to indemnify and hold the other harmless against any loss,
liability, damage, cost, or expense (including reasonable attorneys' fees and
costs of litigation), or any claim therefor, for any leasing or other
commissions, fees, charges, or payments resulting from or arising out of their
respective actions in connection with this Lease except as to Broker. Landlord
shall indemnify and hold Tenant harmless against payment of any leasing
commission due Broker in connection with this Lease.
30. NOTICES. Any notice may be given by (a) depositing written notice in the
United States mail, postpaid and certified and addressed to the party at its
notification address under this Lease with return receipt requested, (b)
delivering written notice in person or by commercial messenger or overnight
private delivery service to the party at its notification address under this
Lease, or (c) by facsimile transmission of written notice to the party at its
notification address under this Lease. Unless actually received earlier, written
notice deposited in the mail in the manner described above shall be effective on
the third business day after it is so deposited, even if not received. Written
notice given in person or by commercial messenger, overnight private delivery,
or facsimile transmission in the manner described above shall be effective as of
the time of receipt at the destination address as evidenced by a receipt signed
by an employee of Tenant, by any confirmation of delivery provided by the
messenger or delivery service, or by facsimile confirmation of transmission. The
notification addresses of the parties are specified on the signature page(s) of
this Lease. Each party shall have the right to change its address by written
notice to the other party.
31. MISCELLANEOUS.
(a) If requested by Landlord, Tenant shall furnish appropriate evidence
of the valid existence and good standing of Tenant and the authority of any
parties signing this Lease to act for Tenant. If requested by Tenant, Landlord
shall furnish appropriate evidence of the valid existence and good standing of
Landlord and the authority of any parties signing this Lease to act for
Landlord.
(b) This document embodies the entire contract between the parties, and
supersedes all prior agreements and understandings between the parties related
to the Premises, including all lease proposals, letters of intent, and similar
documents. All representations, warranties, or agreements of an inducement
nature, if any, are merged with, and stated in this document. This Lease may be
amended only by a written instrument executed by both Landlord and Tenant.
(c) The relationship created by this Lease is that of landlord and
tenant. Landlord and Tenant are not partners or joint venturers, and neither has
any agency powers on behalf of the other. Tenant is not a beneficiary of any
other contract or agreement relating to the Property to which Landlord may be a
party, and Tenant shall have no right to enforce any such other contract or
agreement on behalf of itself, Landlord, or any other party.
(d) No consent or approval by Landlord shall be effective unless given
in writing signed by Landlord or its duly authorized representative. Any consent
or approval by Landlord shall extend only to the matter specifically stated in
writing.
(e) The captions appearing in this Lease are included solely for
convenience and shall never be given any effect in construing this Lease.
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<PAGE> 16
(f) This Lease is being executed in multiple counterparts, each of
which shall be considered an original for all purposes.
(g) If any provision of this Lease is invalid or unenforceable, the
remainder of this Lease shall not be affected. Each separate provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
(h) This Lease binds not only Landlord and Tenant, but also their
respective heirs, personal representatives, successors, and assigns (to the
extent assignment is permitted by this Lease).
(i) This Lease is governed by the laws of the state in which the
Property is located.
(j) All references to "business days" in this Lease shall refer to days
that national banks are open for business in the city where the Property is
located. Time is of the essence of this Lease.
(k) All references to "mortgage(s)" in this Lease shall include deeds
of trust, deeds to secure debt, other security instruments, and any ground or
other lease under which Landlord may hold title to the Property as lessee. All
references to "mortgagee(s)" in this Lease shall include trustees, secured
parties, ground or other lessors, and other parties holding any lien, security,
or other interest in the Property pursuant to any mortgage.
(l) Any liability or obligation of Landlord or Tenant arising during or
accruing with respect to the term of this Lease shall survive the expiration or
earlier termination of this Lease, including without limitation, obligations and
liabilities relating to (i) the final adjustment of estimated installments of
Additional Rent to actual Additional Rent owed, (ii) the condition of the
Premises or the removal of Tenant's property, and (ii) indemnity and hold
harmless provisions of this Lease.
(m) Tenant agrees not to record this Lease. Tenant may record a
memorandum of this Lease in a form approved by Landlord in writing prior to
recording provided Tenant pays all taxes, recording fees, or other governmental
charges incident to such recording. The memorandum shall not disclose the rent
payable under this Lease and shall expressly provide that it shall be of no
further force or effect after the last day of the term or on filing by Landlord
of an affidavit that this Lease has expired or been terminated. Additionally,
Tenant shall not disclose the terms of this Lease to any third party except (i)
legal counsel to Tenant, (ii) any assignee of Tenant's interest in this Lease or
sublessee of Tenant, (iii) as required by applicable law or by subpoena or other
similar legal process, or (iv) for financial reporting purposes.
(n) Landlord has delivered a copy of this Lease solely for Tenant's
review, and such delivery does not constitute an offer to Tenant or an option
reserving the Premises. This Lease shall not be effective until a counterpart
executed by both Landlord and Tenant is delivered by Landlord to Tenant.
15
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Lease to be executed pursuant
to authority duly given as of the day and year first above written.
TENANT: LANDLORD:
STUPIDPC, INC., a Georgia Corporation AP SOUTHEAST PORTFOLIO PARTNERS, L.P.,
a Delaware limited partnership
By: HIGHWOODS PROPERTIES, INC.
By: /s/ Bart Brannon By: /s/ illegible
--------------------------------- ---------------------------------
Title: President Title: Senior Vice President
[SEAL] [SEAL]
Witnesses to Tenant: Witnesses to Landlord:
/s/ Aimee M. Miners /s/ Melissa J. Pearce
- ------------------------------------ ------------------------------------
Printed Name: Aimee M. Miners Printed Name: Melissa J. Pearce
/s/ Mary S. Klues /s/ Chris Ann Brotherton
- ------------------------------------ ------------------------------------
Printed Name: Mary S. Klues Printed Name: Chris Ann Brotherton
TENANT'S NOTIFICATION ADDRESS: LANDLORD'S NOTIFICATION ADDRESS:
StupidPC, Inc. AP Southeast Portfolio Partners, L.P.
3010-E Business Park Drive c/o Highwoods Properties, Inc.
Norcross, Georgia 30071 4944 Parkway Plaza Boulevard, Suite 250
Attn: _________________ Charlotte, North Carolina 28217
Facsimile: _____________ Attn: Manager, Lease Administration
Facsimile: (704) 357-1342
COPY TO:
Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
Attn: Manager, Lease Administration
Facsimile: (919) 876-2448
<PAGE> 18
EXHIBIT A
LEGAL DESCRIPTION OF BUILDING SITE
BEGINNING at a point, which point is located in the northwesternmost corner of
the property of Toyoda Automatic Loom Works, Ltd. (now or formerly) as more
particularly described in deed recorded in Deed Book 4371 at Page 907 of the
Mecklenburg County Public Registry (the "Toyoda Property") and which point is
also located in the margin of the right-of-way of Red Oak Boulevard and running
thence from the point of BEGINNING; two (2) courses and distances as follows:
(1) with the arc of a circular curve to the left, having a radius of 130 feet,
an arc distance of 123.59 feet to a point in the said margin; and (2) S.
43-51-39 W. 47.67 feet to a point in the said margin; thence N. 46-49-48 W.
260.00 feet to a point; thence N. 43-51-39 E. 20.00 feet to a point; thence N.
46-49-48 W. 279.14 feet to a point, which point is located in the northerly
margin of the property of North Carolina National Bank, Trustee for the "NCNB
Real Estate Fund: (now or formerly) as more particularly described in deed
recorded in Deed Book 4371 at Page 863 of the Mecklenburg County Public Registry
(the "NCNB Property"); thence with the said northerly margin of said NCNB
Property N. 50-25-36 E. 529.97 feet to a point; thence N. 06-38-44 E. 498.74
feet to a point; thence S. 34-30-00 E. 544.53 feet to a point; thence S.
50-00-00 E. 216.11 feet to a point which point is running thence with said
northerly margin of the Toyoda Property S. 43-10-12 W. 761.39 feet to the point
of BEGINNING, said tract containing 9.849 acres as shown on that certain
Boundary and Physical Survey dated May 13, 1981, last revised December 30, 1981,
for North Carolina National Bank, Trustee of the "NCNB Real Estate Fund" by R.B.
Pharr and Associates, Charlotte, North Carolina, N.C.R.L.S., reference to which
is hereby made.
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EXHIBIT B
FLOOR PLAN OF PREMISES
2
<PAGE> 20
EXHIBIT C
WORK LETTER
1. No later than October 15, 1999, Tenant shall submit to Landlord complete
architectural, electrical, and mechanical plans and specifications for the
construction of improvements to the Premises prepared by an architect designated
by Landlord (the "Architect"). Within five (5) days thereafter, Landlord shall
advise Tenant of any required revisions. Within five (5) days thereafter, Tenant
shall deliver to Landlord revised plans and specifications incorporating the
revisions required by Landlord. Such plans and specifications as revised in
accordance with Landlord's requirements shall constitute the "Plans" for
purposes of this Work Letter.
2. Landlord shall promptly begin construction of the improvements described in
the Plans (the "Tenant Improvements"), and shall pursue such construction with
reasonable diligence to completion. Construction of Tenant Improvements shall be
accomplished by contractors selected and employed by Landlord.
3. If the cost of constructing the Tenant Improvements exceeds Eleven Thousand
Five Hundred Dollars and 00/100 ($11,500.00) (the "Allowance"), any excess
costs shall be paid by Tenant as provided in this Work Letter. The cost of
constructing Tenant Improvements shall include (a) fees and expenses of the
Architect in connection with preparation of the Plans and construction of the
Tenant Improvements, (b) costs of labor and materials, (c) fees and other
charges payable to contractors, (d) fees to governmental authorities for
permits, inspections, and certificates of occupancy, (e) utilities during
construction, and (f) other out-of-pocket costs and expenses incurred by
Landlord that are directly related to the preparation of the Plans or the
construction of the Tenant Improvements. The estimated cost of constructing
Tenant Improvements in excess of the Allowance shall be paid by Tenant to
Landlord one half prior to commencement of construction of the Tenant
Improvements and one half at completion. Any underpayment based on such estimate
shall be paid by Tenant to Landlord within five (5) days after delivery of
Landlord's invoice to Tenant reflecting the final accounting of the cost of
constructing Tenant Improvements; and any overpayment by Tenant shall be
refunded or credited at Tenant's election against the installment(s) of Minimum
Rent first due under this Lease.
4. If Tenant requests any changes in the Plans, Tenant shall submit revised
drawings and specifications for Landlord's approval. If Landlord approves such
changes, Landlord shall incorporate such changes in the Tenant Improvements
following Landlord's receipt of a change order therefor executed by Tenant. As a
condition to Landlord's approval, Tenant shall pay Landlord in advance the
amount by which the increased cost of constructing the Tenant Improvements
attributable to such change exceeds the Allowance.
5. Substantial completion of the Tenant Improvements shall be deemed to occur on
the date the Tenant Improvements are completed in all material respects in
substantial compliance with the Plans (including any changes thereto approved by
a change order executed by Landlord and Tenant) excepting only minor finish and
touch-up work that does not interfere in any material respect with the occupancy
of the Premises by Tenant and receipt of a certificate permanent or temporary.
The date of substantial completion shall be reasonably determined by the
Architect, whose good faith determination shall be binding upon Landlord and
Tenant. After the date of substantial completion, Landlord shall proceed with
reasonable promptness to complete any minor finish and touch-up work required to
finally complete the Tenant Improvements, and Landlord shall have the right to
enter the Premises for such purposes with prior notice to Tenant and performed
in a manner not to interfere with Tenant's business.
<PAGE> 21
6. On the Commencement Date, Tenant shall pay Landlord one (1) day's Minimum
Rent (at the rate initially in effect after the Commencement Date) for each day
that (a) Tenant was late in submitting any plans or specifications or revisions
thereto, (b) construction of the Tenant Improvements was delayed by obtaining or
installing special equipment, materials, or finishes required by Tenant, (c)
construction of the Tenant Improvements was delayed by changes in the Plans
requested by Tenant, or (d) construction of the Tenant Improvements was
otherwise delayed by any act or omission of Tenant or its employees, agents, or
contractors.
7. The failure of Tenant to make any payment ten (10) days after it is due under
this Work Letter shall constitute an Event of Default by Tenant under this
Lease.
<PAGE> 22
EXHIBIT E
ADDITIONAL RENT CALCULATION
Additional Rent for any calendar year shall equal the sum of the following
amounts:
1. Tenant's Proportionate Share of any increase in Taxes on the Property over
the amount payable therefor for the calendar year in which the Commencement Date
occurs (the "Base Year"). "Taxes" means all real estate taxes, assessments
(whether for drainage, sewage, or other public improvements), taxes on rent or
on occupancy or use of the Property, and similar governmental impositions now or
hereafter levied or assessed, whether general or special, and whether imposed by
any governmental entity or special taxing or assessment district (excluding,
however, any income, franchise, or similar tax imposed directly on Landlord or
Landlord's net income from the Property), together with all costs incurred by
Landlord in contesting same.
2. Tenant's Proportionate Share of any increase in premiums for casualty and for
liability insurance coverage carried by Landlord for the Property (including any
endorsements or additional coverages that Landlord may reasonably elect to
carry) over the amount payable therefor for the Base Year; excluding, however,
any increased premium attributable solely to a particular hazardous use of the
Property by another tenant.
3. Tenant's Proportionate Share of all costs payable by Landlord for (a)
operating and maintaining (including routine repairs and replacements) the
common areas, facilities, and equipment of the Property, including landscaping,
irrigation systems, parking and loading areas, driveways, sidewalks, exterior
lighting, common signs, garbage collection and disposal, common water, sewer,
plumbing, gas, electric facilities and equipment, common area security services
and equipment (if furnished by Landlord), and other areas, facilities, or
equipment shared by the various tenants in the Building, (b) assessments, fees,
or similar charges imposed on the Property for its share of the cost of
operating and maintaining common areas and facilities of the business park in
which the Property is located, (c) unless separately metered and payable
directly by Tenant, charges by public or private utility companies for water and
sewer usage, and (d) costs and expenses of providing accounting and bookkeeping
services with respect to the operation and maintenance of the Property. To the
extent such costs reasonably can be controlled by Landlord, Landlord shall
attempt in good faith (without litigation) to keep such costs reasonably
consistent with those of comparable properties in the same market area.
4. To the extent attributable to the Premises, the entire amount of any costs
payable by Landlord for routine mechanical maintenance and inspection of the
HVAC equipment supplying the Premises and for pest control and vermin
extermination in the Premises. Landlord shall attempt in good faith (without
litigation) to keep such costs reasonably consistent with those of comparable
properties in the same market area.
Additional Rent shall be calculated and appropriately adjusted for each calendar
year (including the Base Year) to reflect costs that would have been incurred
for a full calendar year with the entire rentable area of the Building occupied.
<PAGE> 23
EXHIBIT F
OFFICE-WAREHOUSE BUILDING RULES
1. Sidewalks, doorways, vestibules, halls, stairways, elevator lobbies and
other similar areas in the common areas of the Property shall not be used for
the storage of materials or disposal of trash, obstructed by tenants or others,
or used by tenants or others for any purpose other than entrance to and exit
from tenant premises.
2. Plumbing fixtures shall be used only for the purposes for which they are
designed, and no sweepings, rubbish, rags, or other unsuitable materials shall
be disposed into them. Damage resulting to any such fixtures from misuse by a
tenant shall be the liability of said tenant.
3. Landlord's property manager shall have the authority to approve the
proposed weight and location of any safes and heavy furniture and equipment,
which shall if determined to be necessary by Landlord's property manager, stand
on supporting devices approved by Landlord's property manager in order to
distribute the weight.
4. Each tenant shall keep its premises neat and clean. No exterior storage of
materials, equipment, supplies, or other property shall be permitted. All trash
shall be properly disposed of in appropriate containers or receptacles.
5. No birds, fish or other animals shall be brought into or kept in, on or
about the Building (except for seeing-eye dogs).
6. Each tenant shall comply with all security procedures (if any) both during
business hours and after hours and on weekends. Landlord's property manager will
provide each tenant with prior notice of any such security procedures and any
changes thereto promptly. Tenants shall lock all exterior doors after working
hours.
7. No flammable or explosive fluids or materials shall be kept or used within
the Building except in areas approved by Landlord, and each tenant shall comply
with all applicable building and fire codes relating thereto.
8. The location of any vending machines must be approved by Landlord's
property manager.
9. All locks for doors in each tenant's premises shall be Building Standard
except as otherwise permitted by Landlord and no tenant shall place any
additional lock or locks on any door in its premises without Landlord's property
manager's written consent. All requests for duplicate keys shall be made to
Landlord's property manager.
10. No machinery of any kind may be operated that would overload, damage, or
otherwise exceed design capacities for the Building's mechanical, electrical,
and plumbing systems and equipment.
11. Canvassing, peddling, soliciting and distribution of hand bills on the
Property (except for activities within a tenant's premises that involve only
such tenant's employees) is prohibited. Each tenant is requested to notify
Landlord (or Landlord's property manager) if such activities occur.
12. Prior approval from Landlord's property manager will be required for
access to Building mechanical, telephone or electrical rooms or to the roof of
the Building by any person. No penetration of the roof of the Building shall be
allowed in any circumstances. The tenant will be responsible for
<PAGE> 24
contacting Landlord's property manager in advance for clearance of tenant
contractors. All tenants shall refer all contractors, contractors'
representatives, and installation technicians rendering any service to them to
Landlord for Landlord's supervision, approval, and control.
13. Each tenant and their contractors are responsible for removal of trash
resulting from large deliveries or move-ins. Such trash must be removed from the
Building and Building facilities may not be used for dumping. If such trash is
not promptly removed, Landlord (or Landlord's property manager) may cause such
trash to be removed at the tenant's sole cost and expense plus a reasonable
additional charge to be determined by Landlord to cover Landlord's
administrative costs in connection with such removal.
14. Tenants may not install, leave or store equipment, supplies, furniture or
trash in the common areas of the Property.
15. Each tenant shall provide Landlord's property manager with names and
telephone numbers of individuals who should be contacted in an emergency.
16. Electric current shall not be used for space heaters, cooking or heating
devices or similar appliances without Landlord's prior written permission.
17. No vehicles shall be parked except in designated areas. No vehicles may
be stored or abandoned on the Property. All loading and unloading shall occur
only at designated loading docks or areas. All persons on the property shall
comply with traffic control and parking signs.
18. No antennas (including microwave or satellite dish antennas) shall be
placed on the roof of the Building or elsewhere on the Property without the
prior written consent of Landlord.
Landlord reserves the right to amend and add to these rules as Landlord
considers appropriate for the safety, care, maintenance, operation, and
cleanliness of the Building, and for the preservation of good order therein. If
any of these rules directly contradicts the other terms of the Lease, such other
terms shall prevail.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 19, 1999 (except for Note K, as to
which the date is July 31, 1999), accompanying the financial statements and
schedules of StupidPC, Inc. contained in the Form SB-2, Registration Statement
under the Securities Act of 1933 and in the Prospectus which forms a part of
that Registration Statement. We consent to the use of the aforementioned reports
in the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Grant Thornton LLP
Atlanta, Georgia
January 27, 2000
