As filed with the Securities and Exchange Commission on July 23, 1999
Registration Statement No.33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CIRCLE GROUP INTERNET, INC.
(Name of Small Business Issuer in its Charter)
Illinois 7375 36-4197173
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation) Code Number)
1101 Campus Drive
Mundelein, IL 60060
847-837-8880
(Address and telephone
number of principal
executive offices)
Mr. Gregory J. Halpern
Mr. Frank K. Menon
Circle Group Internet, Inc.
1101 Campus Drive
Mundelein, IL 60060
847-837-8880
(Name, address and telephone number of agent for service)
With a copy to:
Roxanne K. Beilly, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33331
(305) 763-1200
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
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 of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier 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 number of the earlier registration statement for the same
offering. [ ]
If delivery of this Prospectus is expected to be made pursuant to Rule
434, please check the following box [ ].
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- ---------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount
Shares to be to be Price Per of Offering Registration
Registered Registered Share (1) Price (1) Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value
per share 1,569,200 $10.00 $15,692,000 $4363.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(b).
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, as amended, or until this Registration Statement
shall become effective on such date as the SEC, acting pursuant to said Section
8(a), may determine.
ii
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Circle Group Internet, Inc.
Cross Reference Sheet for Prospectus Under Form SB-2
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Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
<S> <C> <C>
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Prospectus Summary; Summary Financial
Risk Factors Data; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Plan of Distribution
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Offi-
cers, Promoters and Control
Persons Management
11. Security Ownership of Cer-
tain Beneficial Owners and
Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters; Experts
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Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
14. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities Undertakings
15. Organization within Last
Five Years Business
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business - Facilities
19. Certain Relationships and Certain Relationships and
Related Transactions Related Transactions
20. Market for Common Equity Market for Our Securities; Description
and Related Stockholder of Securities; Plan of Distribution -
Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagree-
ments with Accountants on
Accounting and Financial
Disclosure Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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SUBJECT TO COMPLETION DATED JULY 23, 1999
PROSPECTUS
CIRCLE GROUP INTERNET, INC.
1,569,200 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE [6], IN
DETERMINING WHETHER TO PURCHASE THE CIRCLE GROUP INTERNET, INC. COMMON STOCK.
These shares of Common Stock are being offered by certain selling
security holders identified in this Prospectus. We issued an aggregate of
1,569,200 of these shares of Common Stock in connection with sales by us of
restricted securities to such selling security holders, or as compensation for
services rendered to us. For additional information on these transactions, you
should refer to the section entitled "Selling Security Holders" beginning on
page [45]. We will not receive any portion of the proceeds from the sale of
these shares.
There is currently no public market for the shares. [ We have applied
to have our Common Stock approved for quotation on the Nasdaq National Market
under the symbol CGRP.] We do not know if our Common Stock will be approved for
quotation on the Nasdaq National Market. Even if it is approved for quotation,
we do not know if a public market will develop for our Common Stock in the
future or, if it develops, whether or not it will be sustained.
<TABLE>
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=============================================================================================================
Price to Underwriting Proceeds to
the Public Discounts and Commissions the Selling Shareholders
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................
Total..................... SEE TEXT ABOVE SEE TEXT ABOVE SEE TEXT ABOVE
=============================================================================================================
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this Prospectus is , 1999
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TABLE OF CONTENTS
Page No.
--------
Prospectus Summary ..................................................
Summary Financial Data ..............................................
Risk Factors ........................................................
Use of Proceeds .....................................................
Capitalization ......................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................
Business ...........................................................
Management ..........................................................
Indemnification of Officers and Directors ...........................
Certain Relationships and Related Transactions.......................
Principal Shareholders ..............................................
Market For Our Securities ...........................................
Selling Security Holders ............................................
Plan of Distribution ................................................
Description of Securities ...........................................
Legal Matters .......................................................
Experts .............................................................
Index to Financial Statements .......................................
An electronic version of this Prospectus is available on a special Web
site at www.circlegroupinternet.com.
You should rely only on the information provided in this Prospectus. We
have authorized no one to provide you with different information. We are not
making an offer of these securities in any state were the offer is not
permitted. You should not assume that the information in this Prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
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PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may
not contain all the information that is important to you. To understand this
offering fully, you should carefully read the entire Prospectus, including the
risk factors and financial statements. Unless otherwise indicated, all
information in this Prospectus gives pro forma effect (i) to the one for two
forward split of our Common Stock effective July 22, 1999 (unless specifically
stated to the contrary) and (ii) our acquisition of CIG Securities, Inc. See
"Business - Our e-finance Division."
Special Note Regarding Forward-Looking Statements
Some of the statements under "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operation," "Business," and
elsewhere in this Prospectus are forward-looking statements. These statements
involve known and unknown risks, uncertainties, and other factors that may cause
our, or our industry's results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those listed under "Risk
Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms, or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
events, levels of activity,
performance, or achievements. We do not assume responsibility for the accuracy
or completeness of the forward-looking statements. We do not intend to update
any of the forward-looking statements after the date of this Prospectus to
conform them to actual results.
Our Business
We are an Internet company with e-finance, Web site design and
multimedia, and e-tailer divisions. Our e-finance division utilizes electronic
mail and the Web to offer and sell securities to our members in private
placements, and to our members and other online investors in public offerings.
We focus our e-finance efforts on Internet companies as well as traditional
"brick and mortar" companies that are expanding their business through the use
of the Internet.
Our Web site design and multimedia division creates distinctive Web
sites, and develops and markets marketing software, multimedia content, and our
Web-O-Matic private label digital browser. The browser is designed to be a
portal and delivery system to provide
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service and advertising to Internet users, and create dial-up service revenues
which can be shared with our clients.
Our e-tailer division includes On-Line Bedding Corporation ("On-Line
Bedding"), a manufacturer and distributor of pillows, blankets, and other
bedding products. On-Line Bedding sells its products by traditional means to
commercial and institutional customers, and is expanding to include an
e-commerce Web site at www.onlinebedding.com where it will offer its products
online direct to the public at wholesale prices.
We are an Illinois corporation. Our executive offices are located at
1101 Campus Drive, Mundelein, Illinois 60060. Our telephone number is (847)
837-8880. Our Web sites are located at www.circlegroupinternet.com.,
www.justdoit.net, [www.cgisecurities.com] and www.onlinebedding.com. The
information on our Web sites is not a part of this Prospectus. [Our regulated
activities are carried out through our wholly owned subsidiary, CIG Securities,
Inc. ("CIG Securities") which is a broker-dealer licensed with the Securities
and Exchange Commission (the "SEC") and a member of the National Association of
Securities Dealers, Inc. (the "NASD").] The terms "Circle Group", the "Company,"
"we," "our" and "us" refer to Circle Group Internet, Inc. and our subsidiaries
[CIG Securities], On-line Bedding, and PPI Capital Corporation ("PPI"). The term
"you" refers to a prospective investor.
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SUMMARY FINANCIAL DATA
The following table summarizes the financial data for our business. The
net income (loss) per common share and the weighted average of shares
outstanding do not give pro forma effect to our one for two stock split
effective July 22, 1999. As stated elsewhere in this Prospectus, all other share
information has been adjusted to give pro forma effect to this event. You should
also read the audited and unaudited historical financial statements and the
compiled pro forma condensed consolidated financial statements included
elsewhere in this Prospectus. The accompanying compiled pro forma condensed
consolidated financial statements are based on the assumptions and adjustments
described in the accompanying notes which we believe are reasonable. The
compiled pro forma condensed consolidated financial statements do not purport to
represent what the combined results of operations actually would have been if
the acquisitions of On-Line Bedding and PPI had occurred as of December 31, 1998
instead of the actual dates of consummation, or what the financial position and
results of operations would be for any future periods. The compiled pro forma
condensed consolidated financial statements and accompanying notes should be
read in conjunction with the audited and unaudited historical financial
statements of Circle Group Internet and On-Line Bedding included elsewhere
herein.
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1999 1998 1998 1997
---- ---- ---- ----
(unaudited) Historical Pro forma Historical
<S> <C> <C> <C> <C> <C>
Revenues $ 494,202 $ 35,432 $ 338,333 $1,121,046 $ 282,362
Net Income (loss) $ 74,887 $ (14,319) $ 26,330 $ 104,312 $ 24,001
Net Income (loss) per
Common Share $ .019 $ ( .004) $ .007 $ .028 $ .007
Weighted average shares
outstanding 3,938,012 3,500,000 3,516,164 3,716,164 3,500,000
</TABLE>
<TABLE>
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Balance Sheet Data:
March 31, 1999 December 31, 1998
-------------- -----------------
(unaudited) Historical Proforma
<S> <C> <C> <C>
Current Assets $2,520,979 $1,031,532 $1,134,672
Total Assets $2,947,953 $1,057,436 $1,181,346
Total Liabilities $ 166,006 $ 14,820 $ 137,776
Working Capital $2,358,138 $1,019,937 $1,000,121
Stockholders Equity $2,781,887 $1,042,616 $1,043,570
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below may not be
the only ones we will face. Additional risks and uncertainties not presently
known to us, or that we currently deem not material, may also impair our
business operations. If any of the following risks actually occur, our business,
financial condition, or results of operations could be materially adversely
effected. In such case, the trading price of our Common Stock could decline, and
you may lose all or part of your investment.
Special Note About Forward Looking Statements
We make statements in this Prospectus that are considered
"forward-looking statements." Sometimes these statements contain words such as
"may," "believe," "expect," "continue," "intend," or other similar words. These
statements are not guarantees of our future performance and are subject to
risks, uncertainties, and other factors that could cause our actual performance
or achievements to be materially different from those we project. The following
factors, among others, could cause materially different results from those
anticipated or projected:
* successful implementation of our growth strategy;
* competition, including the introduction of new products or
services by our competitors;
* unanticipated trends in our business;
* technological innovations;
* regulations regarding the Internet;
* regulations related to e-finance;
* inability to carry out marketing and sales plans;
* inability to obtain capital for future growth;
* loss of key executives;
* other risk factors set forth under "Risk Factors" in this
Prospectus; and
* general economic and business conditions.
We do not have a policy of updating or revising forward-looking
statements, and it should not be assumed that silence by us over time means that
actual events are bearing out as estimated in such forward-looking statements.
Limited Operating History
We have a limited operating history. Our revenues historically have
been derived from the sale of our Web-based marketing software products. We have
only recently formed our e-finance division through the acquisition of CIG
Securities. We have only recently completed development of our private label
digital browsers. While On-Line Bedding has
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been in operation since 1981, we have only recently acquired the company and are
in the process of integrating its historical operations into ours, as well as
expanding its operations through the launch of an e-commerce site. Investors,
therefore, only have limited information upon which an evaluation of our
business and operations can be based. Our business must be considered in light
of the risks, expenses, and problems frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as the Internet and e-finance. Specifically, such risks
include our failure to anticipate and adapt to a developing market, the
rejection of our services and products by Internet consumers, development of
equal or superior services or products by competitors, the failure of the market
to adopt the Internet as a commercial medium, and the inability to identify,
attract, retain, and motivate qualified personnel. There can be no assurance
that we will be successful in addressing such risks.
Dependence on the Internet
The success of our services and products will depend in large part upon
the continued development and expansion of the Internet. The Internet has
experienced, and is expected to continue to experience, significant, geometric
growth in the number of users and the amount of traffic. There can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed on it by this continued growth. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols (for example, the next-generation Internet Protocol) to
handle increased levels of Internet activity, or due to increased governmental
regulation. There can be no assurance that the infrastructure or complementary
services necessary to make the Internet a viable commercial marketplace will be
developed, or, if developed, that the Internet will become a viable commercial
marketplace for services and products such as those we offer. If the necessary
infrastructure or complementary services or facilities are not developed, or if
the Internet does not become a viable commercial marketplace, our business,
results of operations, and financial condition will be materially adversely
effected.
Government Regulation of the Internet and Legal Uncertainties
Other than regulations related to CIG Securities and our activities as
a broker-dealer as described below, we are not currently subject to direct
regulation by any government agency, other than regulations applicable to
businesses generally. There are currently few laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, pricing, characteristics, and quality of products
and service. The Telecommunications Reform Act of 1996 imposes criminal
penalties on anyone who distributes obscene, indecent, or patently offensive
communications on the Internet. Other nations, including Germany, have taken
actions to restrict the free flow of material deemed to be objectionable on the
Internet. The adoption of any additional laws or regulations may
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decrease the growth of the Internet, which could in turn decrease the demand for
our services and products, and increase our cost of doing business or otherwise
have an adverse effect on our business, results of operations and financial
condition. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, libel, and
personal privacy is uncertain and will take years to resolve. Any such new
legislation or regulation could have a material adverse effect on our business,
results of operations, and financial condition.
Regulation of CIG Securities
The securities industry is subject to extensive regulation at both the
federal and state levels by various regulatory organizations charged with
protecting the interests of customers. In addition, organizations such as the
SEC and NASD require strict compliance with their rules and regulations. Failure
to comply with any of these laws, rules or regulations could result in fines,
suspensions or expulsion, which could have a material adverse effect upon us. In
addition, we are focusing our e-finance efforts in an emerging area of Internet
investment banking, and we do not know if new rules or regulations will be
adopted by the SEC or the NASD which might have the effect of limiting or
eliminating our ability to operate our e-finance division as presently
contemplated. As we believe a significant portion of our future growth will be
tied to our e-finance division, any new restrictions on our ability to conduct
our business in this division as presently contemplated would materially and
adversely effect our future growth.
Intense Competition
Our e-finance division will be competing against many well known,
established Internet investment bankers including Wit Capital Corporation and
W.R. Hambrecht & Co. Our management has limited experience in the investment
banking field and e-finance is still an emerging segment of the investment
banking industry. Many of our current and future competitors will have greater
name recognition, more experience, and be better capitalized than we are. In
addition, our ability to attract potential clients is based, in part, on our
success with prior transactions in which we have assisted companies in raising
capital. As we have only recently expanded into this division, we must still
develop a track record on which our future clients can evaluate our likelihood
of success in assisting them to raise capital.
In addition, the market for Internet services and products, such as
those offered by our Web design and multimedia division, is intensely
competitive. Since there are no substantial barriers to entry, we expect
competition in these markets to intensify. We believe that the principal
competitive factors in these markets are name recognition, performance, ease of
use, and functionality. Our existing competitors, as well as a number of
potential new competitors, have longer operating histories in the Internet
market, greater name recognition, larger customer bases and databases, as well
as significantly greater financial, technical and
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marketing resources than we do. Such competitors may be able to undertake more
extensive marketing campaigns and make more attractive offers to potential
employees, distribution partners, advertisers, and content providers. Further,
there can be no assurance that our competitors will not develop Internet
services and products that are equal or superior to ours, or that they will
achieve greater market acceptance than we do in the area of name recognition,
performance, ease of use, and functionality. There can be no assurance that we
will be able to compete successfully against our current or future competitors,
or that competition will not have a material adverse effect on our business,
results of operations, and financial condition.
Lastly, our e-tailer division will compete against many other companies
which sell bedding products on the Internet. While we believe On-Line Bedding,
which has been direct marketing its products since 1981, will be able to
effectively compete based upon its competitive pricing and dedication to
customer service, we do not know for sure if its products will be attractive to
e-commerce consumers.
Fluctuation in Securities Markets and Internet Securities
We anticipate that a material portion of our revenues in the future
will be generated by our e-finance division. These revenues are likely to be
lower during periods of declining securities prices or securities markets
inactivity in the sectors in which we focus. Our business will be particularly
dependent upon the availability of capital in the public and private equity
markets for companies in the Internet sector, the focus of our e-finance
division. The stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of such companies. In
addition, activity in the private equity market frequently reflects the trends
in the public market. These broad market and industry fluctuations may adversely
effect our ability to raise capital for our clients, regardless of the client's
operating performance. As a result, our revenues from our e-finance division may
be adversely effected during periods of declining prices or inactivity in the
public market.
Hazards of an Internet-based Growth Strategy
The growth in our revenues will depend largely on the development of
our e-finance division. Our ability to grow this division is tied to the number
and size of private placements or public offerings in which we participate as
either a placement agent or an underwriter. Because we have no prior experience
in investment banking, we do not know if we will be successful in developing
this division. If we are unsuccessful in developing this division, our ability
to increase our revenues and profits will be materially adversely effected.
Technological Change; Dependence on Recently Introduced and New Products, and
Risk of Product Delays
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Our Web design and multimedia division competes in an industry which is
characterized by rapidly changing technology, evolving standards, frequent new
service product announcements, introductions, enhancements, and changing
customer demands. These market characteristics can be made more difficult by the
emerging nature of the Internet and the apparent need of companies from a
multitude of industries to offer Internet-based products and services.
Accordingly, our future success will depend in significant part on our ability
to adapt to rapidly changing technologies, to adapt our services and products to
evolving industry standards, and to continually improve the performance,
features, and reliability of our services and products in response to both
evolving demands of the marketplace, and competitive service and product
offerings. Our failure to adapt to such changes and evolution would have a
materially adverse effect on our business, results of operations, and financial
condition.
Software Defects
Existing services or products, or new releases by us, whether improved
versions of existing services or products or introductions of new services or
products, may contain undetected errors that require significant design
modifications. This could result in a loss of customer confidence and user
support, and potentially having a material adverse effect on our services and
products and, consequently, our business, results of operations, and financial
condition. We carry a claims made electronic errors and omission liability
insurance in the amount of $1,000,000, and while we have never had a claim by a
client, there can be no assurances that this insurance coverage would be
sufficient in the future.
Risks Related to Efforts to Establish a Public Market for the Common Stock
We have made application to The Nasdaq Stock Market for quotation of
our Common Stock on the Nasdaq National Market System under the symbol CGRP.
[Prior to this listing, there has been no public market for our Common Stock.]
In connection with this application, [ ], [ ] and [ ], NASD member firms, have
agreed to become market makers for our Common Stock. There are no assurances
that our application for quotation of our Common Stock will be approved by The
Nasdaq Stock Market. Even if it is approved, our ability to obtain a listing on
The Nasdaq National Market, as well as the agreement of , and to become market
makers for our Common Stock, there is no assurance that any meaningful market
will be established in our Common Stock. Likewise, there are no assurances that
or will remain market makers for our Common Stock, or that we will be able to
attract additional NASD member firms to make a market in our Common Stock. The
lack of a substantial market in our Common Stock may adversely effect your
ability to sell shares of our Common Stock in the open market in the future.
Generally, issuers whose securities are approved for listing on The
Nasdaq Stock Market are either obtaining the listing in connection with an
initial public offering (IPO) or
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"moving up" to The Nasdaq Stock Market after trading in the over-the-counter
markets, including on the OTC Bulletin Board. When initial trading is commenced
in connection with an IPO, generally the managing underwriter and/or members of
the underwriting syndicate are the primary market makers for the issuer
immediately following the offering. As it is likely that clients of these firms
purchased shares in the IPO, these market makers have an interest in assisting
the issuer in establishing a meaningful trading market in its securities in
order to provide future liquidity for the market makers' clients. Likewise, when
an issuer "moves up" to The Nasdaq Stock Market from the OTC Bulletin Board, in
most instances a preliminary, although in many instances a very limited, market
has already been established for the issuer's securities, and the issuer has
already attracted the support of several market makers. Because our Common Stock
has not previously been traded in the over-the-counter markets, and the listing
of our Common Stock on The Nasdaq National Market was not undertaken in
connection with an IPO, we can make no assurances whatsoever that we will ever
be successful in attracting or maintaining market makers for our Common Stock,
or that a meaningful market for our Common Stock will ever be developed. The
absence of any meaningful market in our Common Stock will adversely effect your
future ability to sell the Common Stock.
Risks Related to Maintaining our Nasdaq National Market Listing
In addition to continued compliance with certain corporate governance
standards, in order to continue the listing of our Common Stock on The Nasdaq
National Market we must meet certain maintenance standards, including:
* Market capitalization (the total number of shares of Common
Stock issued and outstanding times the bid price of the Common
Stock) of at least $50 million or $50 million in total assets
and $50 million in revenue;
* A public float of at least 1.1 million shares (including
shares held directly or indirectly by any of our officers,
directors or 10% or greater shareholders);
* A market value of the public float of at least $15 million;
* A minimum bid price of our Common Stock of at least $5.00;
* At least four market makers for our Common Stock; and
* At least 400 shareholders who are considered holders of at
least 100 shares.
If we fail to meet one or more of these continued listing requirements,
our Common Stock could be delisted from The Nasdaq National Market. It is likely
our Common Stock would then be quoted on the either the Nasdaq SmallCap Market
or the OTC Bulletin Board. In the event our stock is traded on the OTC Bulletin
Board, the market for our Common Stock
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would likely be reduced, transactions in our shares might be delayed, and prices
for our Common Stock might be lower than otherwise could be attained. In this
event, the future liquidity of our Common Stock could be materially and
adversely impacted.
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Securities and Exchange Commission Rules on "Penny Stocks"
If we should fail to obtain a listing of our Common Stock on the Nasdaq
National Market or Nasdaq Small-Cap Market, it is likely we would apply for a
listing on the OTC Bulletin Board. In this event, trading in our Common Stock
may be subject to rules which might adversely impact its liquidity. The SEC has
adopted regulations which generally define a "penny stock" to be any equity
security that has a market price (as defined) of less than $5.00 per share,
subject to certain exceptions. Depending on market fluctuations, our Common
Stock may be deemed to be a "penny stock." It would then be subject to rules
that impose additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors. For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the purchase of such securities, must
have received the purchaser's written consent to the transaction prior to the
purchase, and must provide certain written disclosure to the purchaser.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our securities, and may adversely effect the ability of holders of
shares of our Common Stock to resell them.
Reliance on Management
We are very dependent upon the management talent and experience of our
executive officers. While we have entered into employment agreements with these
individuals, and we are the beneficiary of a $5 million life insurance policy on
the life of Mr. Gregory Halpern, the loss by us of the services of any of these
individuals could have a material adverse impact on our business. See
"Management."
Control of Common Stock by Management
Mr. Gregory J. Halpern, our founder, Chairman and CEO, owns or controls
an aggregate of 6,494,000 shares of Common Stock. Mr. Halpern and the other
members of our management control approximately 75.8% of our issued and
outstanding Common Stock. Our Articles of Incorporation do not provide for
cumulative voting. As a result, our management is able to control the election
of future Directors and management, our dividend policy and other major
decisions such as wages, acquisitions, takeover responses and financing by us.
See "Management," "Security Ownership of Certain Beneficial Owners and
Management" and "Description of Securities."
Lack of Dividends
We have never paid dividends on our Common Stock, and we do not
contemplate paying any in the foreseeable future. It is anticipated that any
earnings which may be
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generated from operations will be used by us to finance our growth. See
Description of Securities."
Possible Rule 144 Sales by Existing Shareholders
After the date of this Prospectus, 8,529,280 shares of our presently
outstanding Common Stock, including the 6,494,000 shares owned or controlled by
Mr. Gregory J. Halpern, our Chairman and Chief Executive Officer, are
"restricted securities" for purposes of federal securities laws. Restricted
securities are eligible for public sale only if registered under the Securities
Act or if sold in accordance with Rule 144. Rule 144 provides, in part, that a
person who is not an affiliate of the Company and who holds restricted
securities for a period of one year may sell all or part of such securities in
ordinary brokerage transactions, subject to certain volume limitations and the
availability of current public information on the company. Likewise, our
affiliates who have held restricted securities for a period of at least two
years may sell such securities in ordinary brokerage transactions, subject to
both volume limitations and availability of current public information on the
company. We cannot predict the effect, if any, that any such sales of Common
Stock, or the availability of such Common Stock for sale, may have on the market
value of our Common Stock prevailing from time to time, assuming a market
develops for the shares, of which there can be no assurance. Sales of
substantial amounts of Common Stock by our shareholders, particularly if they
are our affiliates, could have a material adverse effect upon the market value
of our Common Stock. See "Description of Securities - Shares Eligible for Future
Sale."
USE OF PROCEEDS
We will not receive any proceeds from the resale of our Common Stock by
the selling security holders pursuant to this Prospectus.
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CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 and
has been derived from financial information appearing elsewhere in this
Prospectus. See Financial Statements.
March 31, 1999
--------------
(unaudited)
Debt: $ 162,841
Long-term debt, less current portion 3,225
-------
Total debt $ 166,006
-------
Stockholders' equity:
Common Stock, $.0001 par value
per share; 50,000,000 shares
authorized; 8,160,880 shares issued
and outstanding at March 31,
1999 408
Additional paid-in capital 2,656,872
Retained earnings 124,607
---------
Total stockholders' equity 2,781,887
---------
Total Capitalization $2,947,893
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and the notes thereto which appear elsewhere in this
Prospectus. As PPI is a shell corporation with no revenues, while it is included
in our consolidated financial statements for the three months ended March 31,
1999, we do not provide any separate information on this company.
Results of Operations
First Quarter of 1999 as Compared to First Quarter of 1998
Consolidated
During the first quarter of fiscal 1999 we acquired On-Line Bedding. As
a result of this acquisition, we recorded revenues and expenses from this
corporation for the three months ended March 31, 1999, approximately 40% of the
revenues for this quarter were attributable to On-Line Bedding. During the
comparable quarter in fiscal 1998, our revenues were derived from the operations
of our Web design and multimedia division which we discuss further in the
sub-section entitled "Circle Group Internet" which appears below. Likewise,
approximately 47% of the consolidated income from operations is attributable to
On-Line Bedding. On-Line Bedding has historically incurred lower operating
expenses than our Web design and multimedia division as a result of a smaller
infrastructure. In addition, prior to our acquisition, On-Line Bedding was an
"S" corporation and certain advances made to its shareholders were attributed to
distributions and not general and administrative expenses. Approximately 50% of
our consolidated net income is attributable to our Web design and multimedia
division and the balance is attributable to On-Line Bedding.
We anticipate revenues will continue to increase during the balance of
fiscal 1999 in both our Web design and multimedia divisions and our e-tailer
division. In addition, we presently anticipate that we will begin to report
revenues from our e-finance division during the third or fourth quarters of
fiscal 1999.
Circle Group Internet
Revenues reported by this division were approximately $293,944 for the
three months ended March 31, 1999, which include revenues from sales of our
Web-based marketing software and private label digital browser, and are
generally attributable to our Web design and multimedia division. These revenues
increased approximately 730% in the first quarter of fiscal 1999 over the
comparable period in fiscal 1998. This increase is primarily attributable to
revenues associated with the development of a private label browser for which we
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received as partial compensation for our services a total of 272,000 shares of
common stock in our client which was valued at $1.00 per share. This stock has
not been registered under the Securities Act and, as we have no right to request
the stock be registered and the issuer is a private company, this stock is
illiquid. Accordingly, while we have recognized revenue associated with its
issuance to us as required by generally accepted accounting principles (GAAP),
we may never be able to liquidate the security and receive cash in its place. We
anticipate that we will continue to accept restricted securities from time to
time as partial payment for services rendered by our Web design and multimedia
division. During the balance of fiscal 1999 we expect a continued increase in
revenues from our Web design and multimedia division, including additional
revenues from the continued develop of products which are described elsewhere in
this Prospectus. Selling, general and administrative expenses in this division
increased significantly for the three months ended March 31, 1999 ($208,874)
from the comparable period in fiscal 1998 ($49,376) as a result of our growth
and development. These additional expenses included costs associated with
additional employees and product development. As we continue to expand our
operations in this division during the balance of fiscal 1999, we anticipate
selling, general and administrative expenses will continue to increase. This
division reported net income of approximately $37,740 for the three months ended
March 31, 1999 versus a net loss of approximately $14,319 for the comparable
period in fiscal 1998.
On-Line Bedding
Revenues reported by this corporation, which are attributable to our
e-tailer division, were approximately $200,258 for the three months ended March
31, 1999. On-Line Bedding reported a gross profit of approximately 43% for this
quarter, with a net income of approximately $50,651. We acquired On-Line Bedding
in January 1999 and therefore we did not report any revenues or expenses from
this corporation for the comparable quarter in fiscal 1998. We anticipate a
launch of On-Line Bedding's e-commerce Web site during the third quarter of
fiscal 1999. While we can offer no assurances, we believe this expansion of
On-Line Bedding will result in increased revenues for our e-tailer division
commencing in the fourth quarter of fiscal 1999.
Fiscal Year 1998 as Compared to Fiscal Year 1997
During fiscal years 1998 and 1997 our operations were limited to the
engineering, development and marketing of our Web-based software marketing
tools, and the engineering and development of our private label digital
browsers. During the last quarter of fiscal 1998 our management also devoted a
significant portion of its time to our capital raising efforts. Accordingly,
while our revenues increased approximately 19% for fiscal 1998 from fiscal 1997,
the remaining results of our operations remained constant from one year to
another.
Liquidity and Capital Resources
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At March 31, 1999 we had working capital of approximately $2,358,138,
an increase of approximately $1,338,201, or approximately 131%, from December
31, 1998. This increase is attributable to the capital raised in our Regulation
A offering (which closed in January 1999) in which we received net proceeds of
approximately $2,300,000, and a Rule 506 private placement in which we received
net proceeds of approximately $242,500. Subsequent to March 31, 1999, we
concluded this first Rule 506 private placement and began and concluded a second
Rule 506 private placement, both of which were made to accredited investors with
whom we had a pre-existing relationship. We received net proceeds in the
aggregate of approximately $13,192,000 from the second Rule 506 private
placement. In addition to cash on hand, we have established a $1 million line of
credit with a commercial bank. During the balance of fiscal 1999 we will make
capital expenditures related to our move to new offices (including costs
associated with leasehold improvements, furniture, fixtures, equipment and
information technology systems) which we estimate will cost approximately
$243,000 in the aggregate. Further, we anticipate on hiring an additional
approximately 29 employees and will, accordingly, increase our payroll and
general and administrative expenses. These additional expenses will be funded by
our existing working capital until such time as our revenues increase
proportionately. In the event we do not generate sufficient additional revenues
to offset the expenses related to an increase in our payroll and general and
administrative expenses, we will continue to fund the costs from our working
capital. We anticipate the payroll and general and administrative costs
associated with these additional employees will aggregate approximately
$1,817,000 for the balance of fiscal 1999.
We will also be funding the start-up of our e-finance division, and an
expansion of our e-tailer division during the balance of fiscal 1999. We
estimate these costs, which will be funded from our working capital, will be
approximately $228,156 for our e-finance division and approximately $114,400 for
our e-tailer division. During the balance of fiscal 1999, we anticipate our
revenues will increase, including from fees to be earned by our e-finance
division.^
Other than our working capital and the line of credit, we do not
presently have any additional sources of liquidity. However, we believe our
existing resources are sufficient to fund our planned expansion during the
balance of fiscal 1999 and into fiscal 2000.
Year 2000 Readiness Disclosure
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 issue
relates to whether computer systems will properly recognize and process
information relating to dates in and after the year 2000. These systems could
fail or produce erroneous results if they cannot adequately process dates beyond
the year 1999, and are not corrected. Significant uncertainty exists in the
software industry concerning the potential consequences that may result from the
failure of software to adequately address the Year 2000 issue. We have
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reviewed all software and hardware used internally by us in all support systems
to determine whether they are Year 2000 compliant. Our software has already been
upgraded by the manufacturer or was recently purchased and is Year 2000
compliant. We also intend to implement and test these solutions prior to any
anticipated impact of the Year 2000 issue on our systems. We do not believe that
the aggregate cost for the Year 2000 issue will be material. However, we cannot
predict the effect of the Year 2000 issue on entities with which we transact
business, and there can be no assurance that the effect of the Year 2000 issue
on such entities will not have a material adverse effect on our business,
financial condition, or results of operations. We will be formulating a
contingency plan with respect to such entities with which we do business.
In addition, we use third-party equipment, software and content,
including non-information technology systems, such as our security system,
building equipment and non-capital IT systems embedded micro controllers that
may not be Year 2000 compliant. We are in the process of developing a plan to
assess whether these third parties are adequately addressing the Year 2000
issue, and whether any of our non-IT systems have material Year 2000 compliance
problems. Failure of such third-party equipment, software, or content to operate
properly with regard to the Year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, results of operations, and financial condition.
BUSINESS
This Prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
We have no policy regarding the updating or revising of forward-looking
statements, and thus it should not be assumed that silence by us over time means
that actual events are bearing out as estimated in such forward looking
statements.
Our History
Our company's first business ventures were related to the development
and marketing of search-engine positioning software which can be utilized as a
marketing tool. In January 1999 we concluded a direct public offering of
1,000,000 shares of our Common Stock on the Internet through a Regulation A
offering. We received $2.5 million in gross proceeds from this offering. We used
a portion of these proceeds to fund expansion of our operations, including the
development of our private label digital browser, costs associated with the
acquisitions of On-Line Bedding and PPI, and the expansion of our infrastructure
including investments in additional equipment and systems, leasehold
improvements, and increased administrative costs related to the hiring and
expenses of additional personnel. As a result of this offering, we developed our
FUNDS-IN(TM) Program and entered into an
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agreement to acquire CIG Securities. Our e-finance division is being established
to assist other companies in raising capital through private placements and
direct public offerings utilizing the Internet. We have continued to expand our
Web site design and multimedia division through the development of our private
label digital browsers which serve as a portal and delivery system service to
provide service and advertising to Internet users, and create dial-up service
revenues which can be shared with our clients. We have also made several
acquisitions which are described later in this section.
Our additional capital raising activities have included two private
placements of Common Stock. Between March 1, 1999 and March 15, 1999 we sold an
aggregate of 129,800 shares of our Common Stock at $2.50 per share to a group of
accredited investors with whom we had pre-existing relationship in a private
placement exempt from registration under the Securities Act in reliance on
Section 4(2) and Rule 506, Regulation D of the Securities Act. We received
$324,500 in gross proceeds from the sale of these shares. We used the proceeds
from this offering for the launch of our e-finance division. Between April 1,
1999 and July 22, 1999, we sold an aggregate of 1,319,200 shares of our Common
Stock at $10.00 per share to a group of accredited investors with whom we had
pre-existing relationships in a private placement exempt from registration under
the Securities Act in reliance on Section 4(2) and Rule 506, Regulation D of the
Securities Act. We received $13,192,000 in proceeds from the sale of these
shares, which we intend to utilize for future growth and expansion, as well as
general working capital. In connection with both of these private placements, we
granted the purchasers certain registration rights and we have filed the
Registration Statement of which this Prospectus forms a part in satisfaction of
such registration rights.
We have also consummated two acquisitions and a third accusation is
pending. In January 1999, we acquired On-Line Bedding from Edward J. Halpern and
his wife. On-Line Bedding, an Illinois corporation formed in 1981, was formerly
known as HOS-Pillow Corp. Mr. Edward J. Halpern is one of our officers and
directors and is the father of Mr. Gregory Halpern, our founder, Chairman and
CEO. We issued 400,000 shares of our Common Stock for 100% of On-Line Bedding's
stock. See "Certain Relationships and Related Transactions."
In March 1999 we acquired a majority interest in the common stock of
PPI, a shell corporation, from Gregory J. Halpern for a purchase price of
$20,000. See "Certain Relationships and Related Transactions." We anticipate
that we will use PPI as either a holding company, or as a candidate for a
reverse merger with an operating entity.
In March 1999, we also entered into an agreement, subject to regulatory
approval, CIG Securities for $35,000 from an unaffiliated third party. CIG
Securities, a broker-dealer registered with the SEC and a member in good
standing of the NASD, had never commenced operations. This transaction, which
will close upon our obtaining the necessary approvals for change of control from
the NASD and the State of Florida, was structured so
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as to permit us to fully capitalize upon the opportunities of the FUNDS-IN(TM)
Program. [It is anticipated that a membership interview will be conducted by the
NASD within the near future at which time it is anticipated that we will receive
the necessary approvals to consummate this pending acquisition. CIG Securities
has already received approval to conduct business as a broker-dealer in 32
states under its pending new management.]
Finally, on July 22, 1999, we effected a one for two forward split of
our Common Stock, increasing the number of our issued and outstanding shares of
Common Stock from 4,924,240 shares to 9,848,480 shares. As previously stated,
unless specifically stated, all information in this Prospectus, unless
specifically set forth to the contrary, gives pro forma effect to this split.
Our e-finance Division
We believe the Internet is gradually changing the traditional models
used by companies to raise private and public financing by opening up the equity
markets to more individual investors. When we initially decided to raise capital
for our own expansion, we found the process generally unfriendly to smaller
companies, and the cost of the capital very high. We also became concerned that
our management would spend such a significant amount of its time focusing on the
capital raising efforts that our business development and operations might
suffer. The more we learned about the traditional methods of raising capital
through investment bankers and venture capitalists, the more we became to
believe that an alternative should be made available to companies like ours
which would allow the entrepreneur to complete the process in a timely and cost
conscious fashion, while retaining control of his company and remaining focused
on its business, operations, and growth.
As a result of our own capital raising activities, we developed the
FUNDS-IN(TM) program which is designed to assist small to mid-size companies
raise equity capital in private placements or public offerings utilizing
electronic mail and the Internet. CIG's e-finance activities will focus on the
Internet sector and, more generally, on issuers seeking to market their stock
offerings to online investors. CIG has established a Web site at
www.cgisecurities.com to electronically market the public offerings. CIG will
also offer and sell securities in private placements through both traditional
investment banking methods as well as utilizing the Internet. In this regard,
CIG has established a password-protected page of the Web site, accessible only
to its members which have previously qualified as accredited investors, where it
will post notices of private offerings which are available to its members.
While sales of securities made through general public solicitations
(like IPOs) are required to be registered under federal and state securities
laws, offerings made privately to accredited investors are generally exempt from
these registration requirements if conducted in accordance with the terms of
Rule 506 of Regulation D of the Securities Act. The term "accredited investor"
(as defined in the Securities Act) generally includes individuals whose income
exceeded $200,000 annually in each of the past two years and who reasonably
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expect their income in the current year to also exceed $200,000, married couples
whose joint income exceeded $300,000 annually in each of the past two years and
who reasonably expect their joint income in the current year to also exceed
$300,000, or individuals whose net worth exceeds $1,000,000. These private
placements are a popular method of raising capital in the early stages of a
company's development.
In order to expand CIG's membership base, through its Web site CIG will
solicit individuals who meet the "accredited investor" standards of the
Securities Act. These accredited investors will be required to complete an
on-line questionnaire which is designed to allow CIG, and any potential issuer
of securities sold in a private offering by CIG, to have a reasonable basis to
believe that the person meets the accredited investor test adopted under the
Securities Act. The questionnaire may be completed on-line in a secured manner,
or printed out and returned to CIG in hard copy format. CIG will then verify the
information in the questionnaire to determine that the person is an accredited
investor. Once a person is qualified and registered as an accredited investor
with CIG, the person will be given a password which will allow the member to
access a password-protected page in CIG's Web site where private offerings will
be posted, and the member can access further information. However, the CIG Web
site will only allow a member access to those private offerings which are posted
subsequent in time to the accredited investor's qualification as a CIG member.
In order to maintain its members privacy, CIG will only contact its members
about new private offerings that are posted on CIG's Web site if the member has
consented (as part of the questionnaire), and CIG will not release the names of
its members to issuers making the private offering unless the member
specifically consents to the release to a particular issuer. This release may be
given on-line. CIG's membership is free and carries no obligation. CIG presently
has approximately 23,120 accredited investors who are active members.
CIG intends to offer its members the opportunity to invest in private
placements made under Rule 506 of Regulation D in which it will act as the
exclusive placement agent. Prior to making these investments available to its
members, CIG will have undertaken substantially the same type of due diligence
on the issuers as is generally conducted by other investment banking firms, so
as to satisfy its obligations under applicable federal securities laws related
to the accuracy and adequacy of the information about the issuer which is
contained in the offering materials. Each issuer desiring to list a private
offering on CIG's Web site will be required to agree to issue the securities in
the private offering in strict compliance with Regulation D, and the obligation
to assure compliance with Regulation D will rest on the issuer. CIG, in turn, is
responsible for complying with the various federal and state rules, and
regulations related to its activities as a broker-dealer in the offer and sale
of the securities.
CIG's basic procedures for offering and selling shares to its members
in private placements will be as follows:
* Once the private offering memorandum has been
completed by issuer's counsel, and reviewed and
approved by CIG's counsel, CIG will post
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a Notice or Private Offering in a password protected
page of its Web site. This page will be assessable
only to its members who are previously qualified as
accredited investors, and only after a sufficient
time as elapsed between the member's registration and
the inception of the private offering so that the
registration as a member is not deemed to be a
solicitation for a particular private offering.
* If a member is interested in receiving more
information concerning the private offering, the
member can contact the issuer directly or forward an
indication of interest to CIG, either using an
on-line electronic card (e-card) or printing out the
e-card and returning the hard copy to CIG.
* CIG (or the issuer) will then provide the member with
subscription documents for the private offering which
will also contain instructions regarding payment for
the subscription. The issuer will have previously
established an escrow account with a commercial
financial institution into which the subscription
proceeds will be deposited, pending the acceptance of
the subscription by the issuer. In all instances, the
decision to accept or reject a subscription from a
particular investor, or to limit the number of
securities the investor has subscribed for, rests
solely within the discretion of the issuer.
* Once the issuer has accepted the subscription, the
escrow agent will send the subscription funds to the
issuer who will in turn pay CIG a commission on the
sale. CIG will not accept subscription proceeds or
otherwise handle subscription funds for the issuers.
At the beginning of each private offering in which CIG acts as
placement agent, CIG and the issuer of the securities will enter into a
placement agreement which will generally set forth the conditions of the
offering, and the obligations of each party. The placement agreement will
contain representations and warranties by the issuer as to the accuracy and
adequacy of the information contained in the private offering memorandum. The
placement agreement will also generally include a requirement that an opinion be
given by the issuer's counsel regarding such matters as the validity of the
issuance of the securities, the compliance of the offering with the requirements
of Regulation D, and that the offering materials do not contain any material
misstatements or material omissions (commonly referred to as a 10b-5 opinion).
The placement agreement will also generally require that the issuer's
independent auditors review the interim financial statements included in the
private offering documents and provide an opinion, generally referred to as a
"cold comfort" letter, that these interim financial statements appear to be
prepared in conformity with GAAP.
CIG's current fee structure provides that it will be paid a 6%
commission on the sale of the securities in the private offerings in which it
acts as exclusive placement agent. Unlike
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the customary practices in the industry for private placements in the $1 million
to $5 million range, CIG's commission is below the 10% to 13% commission charged
by other investment banking firms and CIG does not charge the issuer a
"non-accountable" expense allowance, generally 3% of the offering proceeds. By
utilizing an Internet based strategy for its e-finance business, CIG is able to
significantly reduce its overhead and administrative costs which allows it to
offer a reduced commission structure to issuers. CIG believes its fee structure
will enable it to attract a wide variety of companies seeking assistance in
raising capital privately which, in turn, will allow CIG to undertake only those
private placements in which CIG, based upon its internal analysis of the issuer,
its business, management and prospects, believes will have a greater than
average likelihood of being successful following the closing of the offering. In
this regard, the placement agreement will also generally grant CIG the right of
first refusal for an IPO of the issuer, upon terms and conditions to be
negotiated at the time of the IPO. CIG will only agree to act as a placement
agent in private offerings in which it believes the issuer's business model and
industry will provide an opportunity to undertake an IPO of the issuer in 12 to
18 months following the private placement.
In addition, in the future CIG may elect to expand its e-finance
activities to include public offerings. These public offerings could include
those in which CIG does not act as an underwriter, but rather participates in
the selling group with other NASD member firms as a "selected dealer," or
offerings in which CIG acts as the underwriter. We anticipate CIG's basic
procedures for offering and selling shares to individual investors in public
offerings will begin with CIG placing a "tombstone" advertisement and a digital
version of the preliminary prospectus on its Web site, which will include the
names of the underwriters in the public offering. This page of the Web site will
be accessible to CIG's members, as well as any other potential on-line investor.
In cases where CIG does not act as an underwriter, its name will not appear on
the "tombstone" advertisement or preliminary prospectus. Information will appear
that CIG is not an underwriter of the securities, but is authorized to accept
customer orders for the purchase of the securities. CIG will not purchase any
securities from the issuer for resale, and will not participate in the
management of the offering or perform any function normally performed by an
underwriter or underwriting syndicate. The Web site will contain an e-card
linked to each preliminary prospectus. A visitor to the site will be invited to
complete and return the e-card to CIG indicating the visitor's interest in
purchasing the security. In cases where CIG does not act as an underwriter, the
securities will be sold through CIG as a "selected dealer" and CIG will receive
a commission to be determined prior to the offering (but which will not exceed
the usual and customary selling commission). Disclosure of these selling
arrangements will be made to investors. We have not established general
procedures as of this date in instances in which CIG may act as the underwriter.
In order to maximize the potential of the FUNDS-IN(TM) Program, in
March 1999 we agreed to purchase CIG Securities, a broker-dealer who is a member
of the NASD. CIG Securities had been originally formed to take advantage of the
developing Internet direct public offering service market, and while it had not
commenced operations, it had secured the appropriate regulatory approval from
the NASD and the State of Florida. As described
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above, we have submitted the documentation necessary to transfer those approvals
to us, as well as to transfer the principal offices of CIG from Florida to our
principal offices in Illinois. We do not presently anticipate that we will
operate CIG Securities as a traditional brokerage firm, such as employing retail
stock brokers, handling client investment accounts, and other activities
normally undertaken by a broker-dealer. Rather, we acquired CIG Securities so
that we might be permitted to structure the compensation from participants in
the FUNDS-IN(TM) Program to provide the maximum benefit to us without running
afoul of the various applicable federal and state securities laws which might
apply to the FUNDS-IN(TM) Program. See "Government Regulation" below.
Because Internet investment banking is an emerging area of review and
regulation by federal securities regulators, in June 1999 our counsel submitted
a "no-action" request to the SEC seeking assurance that CIG's proposed methods
of conducting its e-finance business would not conflict various rules and
regulations related to private offerings and direct public offerings. CIG's
no-action request was patterned after those previously made by companies such as
Wit Capital Corporation and IPONet. While the SEC has not responded to the
no-action request as of the date of this Prospectus, based upon precedences
previously established by other Internet investment bankers, we believe the SEC
will concur with our counsel's conclusions in the no-action request that CIG's
proposed method of conducting its e-finance business will not conflict with the
applicable rules and regulations cited in the no-action request. We have
included a copy of this no-action request as an exhibit to the registration
statement of which this Prospectus is a part. We refer you to the information
contained elsewhere in this Prospectus which provides instructions on how to
receive copies of the exhibits to the registration statement.
Our Web Site Design and Multimedia Division
Our Web site design and multimedia division engineers marketing tools,
such as search engine positioning software, and has recently completed the
development of our private label digital browser discussed below. We own all of
our designs, software products, logos, names, applications and proprietary
technologies. We internally develop and design each of our product's source
codes, graphic interfaces, and Web designs.
WEB-O-MATIC PRIVATE LABEL DIGITAL BROWSER was designed to serve as a
portal and delivery system service to provide service and advertising to
Internet users, and create dial-up service revenues which can be shared with our
clients. We completed the engineering and development of our private label
digital browser in August 1998, and have begun our initial market efforts. We
market our private label digital browsers as an alternative to the Netscape and
Internet Explorer (Microsoft) browsers which comprise the majority of all
browsers used in the current Internet landscape. Both Netscape and Internet
Explorer offer browsers which are nearly identical to their versions of five
years ago, and provide no more benefit to the user than a means to view the Web.
We developed our private label digital browser to provide clients a means to
deliver front and back-end
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advertisements to those interested in what the client's company has to offer.
The Web-O-Matic private label digital browser features include our automatic
update feature, which finds changes on our servers and feeds the information to
the user upon their initial daily start up. This feature permits a Web-O-Matic
private label digital browser customer to deliver premium promotions, freebies,
loss leaders, two-for-one sales and many other marketing and sales promotions,
as well as information which its customers may want. The browser can also be
customized with 22 defaults to pages selected by the customer, and can include a
custom name, slogan or theme, use of licensee's color scheme, logo identity, and
animated AVI (animated visual interface) in the upper right corner. As a result,
however, of the both the recent introduction of this product and the intense
competition in this field, from both Netscape and Microsoft, as well as many
companies which have developed browsers, there can be no assurances that we will
ever be successful in developing a market for this product.^
The Zap Pow Submissions (TM) automated submission robot takes the
burden out of manually listing Web sites in the search engines. In 48 hours or
less, Zap Pow can accurately deliver the customers' site URL(s), keywords, and
descriptions to the top 220 search engines and directories for $35 per URL.
SearchFind (TM) repositions the user's Web site to the top two pages of
a search engine as well as directing traffic to the user's Web site. A search
engine permits Web browsers to find documents and/or Web sites that are relevant
to their query, by locating actual words used in the query. The search engine
result's list the documents by determining the relevancy of the words contained
in the documents to the query. SearchFind (TM) selects the keywords contained in
the user's Web site and introduces those keywords so that the search engines
will deem the relevancy to be higher, and rank the Web site as more relevant to
the consumer's query. The browsing tools, consisting of the query, creates a
concise summary of the Web document, and permits the Web browsers to evaluate
the relevancy of the Web document without taking the time to visit the Web site
or to read the entire document. SearchFind (TM), depending on the speed of the
relevancy-rating process for the search engine chosen by the Web browser, may
elevate the user's Web site to a place of predominance in the search engine
chosen.
Web design services
Our Web design services include developing, maintaining and promoting a
Web site with user-friendly interfaces. Our Web site designs can incorporate
search engine technology, secured e-commerce transactions, elaborate statistic
generators, multiple types of forms, animation, java, Shockwave, and
sophisticated 3-D technology.
Our Current Projects
As of the date of this Prospectus, we have been engaged to design and
license our private label digital browser to a company for use in a "Disney"
style entertainment Web-site.
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The browser will be "Kids-Safe" and contain chat, e-mail, and banner-blocking
and will also include a members-only chat room. A shopping cart will be designed
to facilitate purchases of products and services, and the browser will also
contain designed story-lines to combine entertaining characters and locations
with the educational interactivity of the video game and electronic catalog. Our
fee for this project was $35,000 and 272,000 shares of the client's common stock
(which was approximately 4% of their issued and outstanding common stock). Our
fees for design and licensing private label digital browser to other clients are
anticipated to be substantially similar to those charged in this project.
This client has also hired us to develop a comprehensive on-line and
CD-ROM-based e-commerce catalog for its complete product line. The catalog will
include animated representations of products such as shirts and hats, coloring
books, musicals/books/tapes, software, toys, and other bundled products. In
addition a virtual bank account will be developed in which the member (child or
parent) can then store (save) money in their account, and spend it when they
want to make a purchase from the e-catalog. The agreement provides that the
client will pay us a total of $150,000 for the development of the CD-ROM game,
plus an additional $90,000 to develop an iMAC version of the game. We will also
be entitled to participate in the revenue stream the client might receive from
the game, including 25% of royalties received, 25% of revenues received, 25% of
licensing fees received, and 25% of profits, less sales costs on direct sales.
Lastly, we will also develop an additional Web site to interact and connect with
the original Web site and combine additional content and educational objectives.
Our fee for this additional Web site is $20,000. We anticipate these projects
will be completed during the fourth quarter of fiscal 1999.
Servers
We own three duplicate server machines which house our Web sites. These
server machines are located in two separate buildings which are placed 65 miles
apart from each other, in an effort to avoid the complete immediate loss of our
data as well as access to our Web site by our potential customers in the event
of fire or theft. Both locations maintain fire and theft security systems that
are continuously monitored.
We maintain uninterruptible power supplies to prevent equipment damage
which could occur during a power failure or a power company electrical surge. We
have also installed a backup power generator on site to prevent any downtime in
the event of any prolonged power company outages. We maintain comprehensive
insurance coverage with A-rated carriers on our equipment and facilities in
amounts we deem sufficient to substantially protect us from any loss.
All 55 of our computer systems and servers are backed up each week with
tape backup machines. Additionally, we maintain back-up disks of all our retail
and developmental software programs and source codes which are kept in a
fireproof safe. Our equipment is also protected with the latest virus prevention
programs, and we maintain our
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own internal network which has been protected by an elaborate security system in
an effort to protect the network, to the greatest extent possible, from piracy
by "hackers." Finally, as of February 1999, we have implemented the necessary
programs to become fully Y2K compliant.
Our e-tailer Division
As previously discussed, we acquired On-Line Bedding in January 1999.
On-Line Bedding has historically been a distributor of pillows, blankets,
mattress pads, pillow protectors and mattresses to hospitals, nursing homes and
hospitality facilities (such as hotels and motels). On-Line Bedding also
distributes disposable airline sized pillows, disposable pillowcases, headrest
covers, airline blankets, tray table covers, napkins, airsick bags, and hot and
cold towels to transportation-based companies, including, airlines, railroads,
and motor coach companies. On-Line Bedding's customers have included National
Railroad Passenger Corp. (AMTRAK), Canadian Airlines, Saudi Arabian Airlines,
Piedmont Airlines, USAirways, Sunworld International and Laker Airline.
Subsequent to our acquisition of On-Line Bedding, we are in the process
of developing an e-commerce site which will offer one, two, and four-pack
quantities of pillows, blankets, mattress pads, quilts, mattresses, and similar
product offerings at factory direct prices. We anticipate the site,
www.onlinebedding.com, will be launched in September 1999.
On-Line Bedding purchases its products from various wholesale
manufacturers and contracts with third party manufacturers to produce its
airline pillows and blankets. On-Line Bedding maintains several sources for its
products and has never experienced any difficulty in obtaining raw materials.
On-Line Bedding drop ships its products from manufacturers or wholesale
suppliers in multiple locations in the United States to reduce freight costs for
its customers.
On-Line Bedding is on EDI (Electronic Data Interchange) with the United
States military for a specialty pillow which is regularly purchased by the U.S.
armed forces. This pillow is anti-bacterial, self-deodorizing and fire retardant
and is covered with a zippered, vinyl pillow protector. On-Line Bedding is also
the authorized pillow and related product vendor for Hospital Purchasing Service
of Michigan, a group of 500-plus members in eight states of hospitals and
nursing homes.
On-Line Bedding has historically direct marketed its products through
regular mailings of its catalog to existing customers, as well as hospitals,
nursing homes, airlines, and university housing directors. We anticipate
expanding our marketing efforts with the introduction of the e-commerce site to
include traditional marketing methods including newspapers, magazines and
similar print advertising, as well as Web-based marketing strategies such as
Internet search engine listings, keyword targeting, affiliate linking and other
on-line promotional strategies.
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Our Intellectual Property
Our success depends in part on our ability to protect our intellectual
property. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality and invention assignment
agreements with employees, and license agreements with vendors and customers,
although we have not signed such agreements in every case. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use our content. We can give no assurance that our agreements with
employees, consultants and others who participate in development activities will
not be breached, or that we will have adequate remedies for any breach, or that
our trade secrets will not otherwise become known or independently developed by
competitors.
We pursue the registration of certain of our trademarks and service
marks in the United States, although we have not secured registration of all our
marks. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be available
in such jurisdictions. In general, there can be no assurance that our efforts to
protect our intellectual property rights through copyright, trademark and trade
secret laws will be effective to prevent misappropriation of our content. Our
failure or inability to protect our proprietary rights could materially
adversely effect our business, financial condition, and results of operations.
Competition
Our e-finance division competes with numerous other securities and
investment banking firms. In particular, we compete with Internet investment
bankers such as Wit Capital Corporation and W.R. Hambrecht & Company, LLC. which
are also focusing their efforts on Internet based offerings. Most of our
competitors have substantially greater capital and other resources, experience
and name recognition than we do.
In the event we should elect to expand CIG's operations to include
wholesale and/or retail trading, we will also face additional competition from
established broker-dealers. The wholesale execution business has become
considerably more competitive over the past few years as numerous highly
visible, large, well-financed securities firms have expanded their businesses.
In addition, companies not engaged primarily in the securities business, but
having substantial financial resources, have acquired leading securities firms.
These developments have increased competition from firms with capital resources
greater than those of CIG. The retail securities industry has experienced
substantial commission discounting by broker-dealers competing for institutional
and individual brokerage business. In addition, an increasing number of
specialized firms and commercial banks now offer "discount" services to
individual customers. These firms generally effect transactions for their
customers on an "execution only" basis without offering other services such as
portfolio valuation, investment recommendations and research.
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Commercial banks and other financial institutions have become a
competitive factor by offering their customers certain corporate and individual
financial services traditionally provided by securities firms. The current trend
toward consolidation in the commercial banking industry could further increase
competition in all aspects of CIG's business and could effect the opportunities
for CIG to expand its operations, should it choose to expand. The Federal
Reserve Board has approved applications of several leading commercial banks to
underwrite certain types of securities which commercial banks have previously
not been permitted to underwrite. Commercial banks generally are expanding their
securities activities, as well as their activities relating to the provision of
financial services. While it is not possible to predict the type and extent of
competitive services which commercial banks and other financial institutions
ultimately may offer, or whether administrative or legislative barriers will be
repealed or modified, securities firms such as CIG may be adversely affected.
The market for Internet services and products, particularly Internet
advertising and Internet search and retrieval services and products, is
intensely competitive. The two primary competitors for our private label digital
browsers are Netscape and Microsoft Internet Explorer. Currently, Netscape and
Internet Explorer control over 90% of the browser market. Since there are no
substantial barriers to entry, we expect competition in these markets to
intensify. Our existing competitors, as well as a number of potential new
competitors, may have longer operating histories in the Internet market, greater
name recognition, larger customer bases and databases, and significantly greater
financial, technical and marketing resources than we do. Such competitors may be
able to undertake more extensive marketing campaigns, and make more attractive
offers to potential employees, distribution partners, advertisers and content
providers. Further, there can be no assurance that our competitors will not
develop Internet services and products that are equal or superior to ours, or
that we will ever achieve market acceptance in the area of name recognition,
performance, ease of use and functionality. There can be no assurance that we
will be able to compete successfully against our current or future competitors,
or that competition will not have a material adverse effect on our business,
results of operations, and financial condition.
On-Line Bedding has historically competed with a variety of wholesale
distributors of similar products, including Celeste Industries Corporation and
Baxter Laboratories (NYSE: BAX). Many of On-Line Bedding's competitors are more
established, better capitalized and offer a wider variety of product offerings.
With our planned expansion of On-Line Bedding with its e-commerce site, On-Line
Bedding will be competing with numerous other companies offering similar
products on the Web. We believe that by building on the combination of On-Line
Bedding=s competitive pricing, established customer base and dedication to
customer service, we will be able to effectively compete in the e-commerce area
of its industry.
Government Regulation
Although there are currently few laws and regulations directly
applicable to the Internet, it is likely that new laws and regulations will be
adopted in the United States and
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elsewhere covering issues such as music licensing, broadcast license fees,
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. It is possible that governments will enact legislation that
may be applicable to us in areas such as content, network security, encryption
and the use of key escrow, data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges, and retransmission activities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, content,
taxation, defamation and personal privacy is uncertain. The majority of such
laws were adopted before the widespread use and commercialization of the
Internet and, as a result, do not contemplate or address the unique issues of
the Internet and related technologies. Any such export or import restrictions,
new legislation or regulation, or governmental enforcement of existing
regulations may limit the growth of the Internet, increase our cost of doing
business or increase our legal exposure, which could have a material adverse
effect on our business, financial condition, and results of operations.
The securities industry in the United States is subject to extensive
regulation under federal and state laws. The SEC is a federal agency charged
with administration of the federal securities laws. Much of the regulation of
broker-dealers, however, has been delegated to self-regulatory organizations,
principally the NASD and the stock exchanges. These self-regulatory
organizations adopt rules (which are subject to approval by the SEC) for
governing the industry, and these self-regulatory organizations conduct periodic
examinations of member broker-dealers. Securities firms are also subject to
regulation by state securities commissions in the states in which they do
business.
Broker-dealers are subject to regulation that covers all aspects of the
securities business, including sales methods, trading practices among
broker-dealers, capital structure of securities firms, record keeping, and the
conduct of directors, officers and employees. Additional legislation, changes in
rules promulgated by the SEC and by self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and rules often directly
effect the method of operation and profitability of broker-dealers. The SEC, the
self-regulatory authorities, and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees. Such administrative
proceedings, whether or not resulting in adverse findings, can require
substantial expenditures. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets, rather
than protection of creditors and stockholders of broker-dealers.
CIG is required by federal law to belong to the Securities Investor
Protection Corporation ("SIPC"). When the SIPC fund falls below a certain
minimum amount, members are required to pay annual assessments. CIG is required
to contribute to SIPC. The SIPC fund provides protection for securities held in
customer accounts up to $500,000 per customer, with a limitation of $100,000 on
claims for cash balances.
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CIG is subject to the SEC's Uniform Net Capital Rule, Rule 15c3-1 (the
"Rule 15c3-1"), which is designed to measure the financial integrity and
liquidity of a broker-dealer and the minimum net capital deemed necessary to
meet its commitments to its customers. Rule 15c3-1 provides that a broker-dealer
doing business with the public must not permit its aggregate indebtedness to
exceed 15 times its net capital or, alternatively, that it not permit its net
capital to be less than 2% of aggregate debit items computed in accordance with
the Rule.
CIG is in compliance with the Rule 15c3-1, as well as the applicable
minimum net capital requirements of the NASD. However, at the present time CIG
has no customer accounts and, accordingly, such compliance is based upon meeting
the minimum net capital requirements of the NASD. While we do not presently
anticipate CIG will undertake retail brokerage operations, we may choose to do
so in the future. In such event, our compliance with Rule 15c3-1 would be
subject to meeting one of the aforedescribed criteria. In computing net capital
under Rule 15c3-1, various adjustments are made to net worth with a view to
excluding assets not readily convertible into cash, and to provide a
conservative statement of other assets, such as a firm's position in securities.
To that end, a deduction is made against the market value of securities to
reflect the possibility of a market decline before their disposition. For every
dollar that net capital is reduced, by means of such deductions or otherwise
(for example, through operating losses or capital distributions), the maximum
aggregate debit items a firm may carry is reduced. Thus, net capital rules,
which are unique to the securities industry, impose financial restrictions upon
our business that are more severe than those imposed on other types of
businesses. Compliance with the net capital rules may limit the operations of
CIG because they require minimum capital for such purposes as financing customer
account balances, underwriting securities distributions, and maintaining the
inventory required for trading in securities. In addition, we are restricted in
the withdrawal of equity capital, and subordinated loans which may not be made
if the withdrawal would impair net capital requirements.
Any failure to maintain the required net capital may subject a
broker-dealer to suspension by the SEC or other regulatory bodies, and may
ultimately require its liquidation.
Facilities
Our principal offices are located in approximately 22,000 square feet
of commercial office space at 1101 Campus Drive, Mundelein, Illinois 60060 which
we lease from an unrelated third party under two separate lease agreements. We
relocated our principal offices to the current location in August 1999. Under
the five year leases dated May 1999 and June 1999, we pay annual aggregate rent
of approximately $95,730 during the first year and approximately $142,560
annually during the remaining four years of the lease terms. We also pay a
pro-rata share of certain common area maintenance and real estate taxes. We have
an option to renew our lease for an additional five year term at annual rental
payments beginning at $63,600 in the first year escalating to $73,140 in the
fifth year of the
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renewal term for approximately 9,325 square feet of the space, with the balance
to be at the then current market rate at the time of renewal.
We are also a party to a lease with an unaffiliated third party for
approximately 1,300 square feet of commercial office/warehouse space at 827 East
Orchard Avenue, Mundelein, Illinois which served as our principal offices until
our move to our current location. The lease for the Orchard Avenue facilities
expires in January 2001 and provides for annual rental payments of $10,200, plus
a pro-rata share of certain common area maintenance. We are presently seeking to
sub-let this space for the balance of the lease term.
Employees
We currently have 26 employees, including 10 in various management
positions and 16 in various technical support positions. We presently plan to
expand our employee base through the addition of approximately 29 new employees
in such areas as management and source code design. We do not foresee any
difficulties in hiring these additional personnel. None of our employees are
covered by a collective bargaining agreement, and we believe our employee
relations to be good.
Legal Proceedings
We are not a party, nor are any of our properties subject to any
pending material legal proceedings.
Availability of Our Annual and Quarterly Reports
Prior to the date of this Prospectus, we were not subject to the
reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and did not file quarterly and annual reports with the SEC. Commencing
with the quarterly report for the period ending [ ]1999, we will file these and
other reports with the SEC. These reports can be accessed via EDGAR at the SEC=s
Web site, www.sec.gov. In addition, we intend to furnish our shareholders with
annual reports containing audited financial statements, and may distribute
quarterly reports containing unaudited summary financial information for each of
the first three quarters of each fiscal year.
How To Obtain a Copy of the Registration Statement
We have filed with the SEC a registration statement on Form SB-2
(herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Securities Act. The Registration Statement
filed by us can be read and copied at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
Information about the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The Registration Statement is also available
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to the public from commercial document retrieval services, or via EDGAR on the
SEC=s Web site at www.sec.gov.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, positions and ages of our
executive officers and directors.
Name Age Positions Held
- ---- --- --------------
Gregory J. Halpern 41 Chairman and Chief Executive Officer
Frank K. Menon 34 Director and President
Dana L. Dabney 49 Director, Vice President of Human
Resources
Arthur C. Tanner 34 Chief Financial Officer
Michael J. Theriault 46 Chief Operating Officer
Edward Halpern 69 Director
Erik Brown 24 Vice President of Business
Development and President of CIG
Securities, Inc.
Charles S. Blumenfield 49 Director
Doron C. Levitas 41 Director
Gregory J. Halpern is our founder and has been a director and Chief
Executive Officer since our formation in May 1994. From May 1994 until March
1999, he also served as our President. From 1981 to 1988, Mr. Halpern was a
co-founder, member of the Board of Directors and Vice President of On-Line
Bedding Corporation, a company that distributes medical products to
institutional health care facilities which we acquired in January 1999. See
"Certain Relationships and Related Transactions." From 1984 until 1992, Mr.
Halpern was also a co-founder and officer of Pain Prevention, Inc., a company
which sold electronic dental anesthesia for which Mr. Halpern holds a patent.
Mr. Halpern developed clinical protocols, and received two separate FDA
clearances to market the technology. From 1984 to June 1987, he was a director
and the President of O.M. Corp., a company which distributes proprietary
computer animated health imaging video products created by Mr. Halpern. Mr.
Halpern has been a feature of more than 100 TV shows, newspapers, national
magazines, and radio and is also a published author of self-help books and an
International Judo Champion. Gregory J. Halpern is the son of Edward Halpern.
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Frank K. Menon has been our President since March 1999 and a director
since February 1999. Mr. Menon previously served as our Vice President of
Finance from our formation until being elected President. Mr. Menon's background
is in the securities industry, where he was a broker at Merrill Lynch, Pierce,
Fenner & Smith from 1992 to 1993, and a broker at J.E. Liss & Company, Inc. from
1993 to 1995. Mr. Menon was Director of Finance for Invest L=Inc. Partners, from
1995 to 1997. During 1998 Mr. Menon invested for his own account. From 1996
until 1998, Mr. Menon served on the board of directors for All Cajun Food
Company.
Dana L. Dabney has been a director of our company and has held various
offices, including Vice President of Sales and Marketing, since joining the
company in January 1997. Mr. Dabney has been our Vice President of Human
Resources since June 1999. From 1989 to 1995, Mr. Dabney was the president of
Across America Telemarketing Company, a company involved in the telemarketing of
retail consumer products. Mr. Dabney also has extensive experience in the
securities industry. He worked for Carl Icahn and Company from 1979 to 1984 as
the firm's primary options trader, and from 1984 to 1989 as a Market Maker, on
the Chicago Board Options Exchange (CBOE).
Arthur C. Tanner has been our Chief Financial Officer since May 1999.
From November 1998 until May 1999, he was Vice President and Controller for UBM,
Inc., a construction company with $50 million in annual revenues. From October
1997 until September 1998, Mr. Tanner was a financial consultant with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and from February 1997 until
September 1997, he was a tax principal with R. Yeager & Co., certified public
accountants, where his responsibilities included public accounting, tax, and
audit work. From October 1995 until December 1996, Mr. Tanner was an
international tax planner for Silicon Graphics Computer Systems, where his
responsibilities included planning and execution of international tax
strategies. Mr. Tanner received a B.A. from Walsh College in 1987 and a J.D.
from Ohio State University in 1995.
Michael J. Theriault has been our Chief Operating Officer since June
1999. Mr. Theriault has over 25 years of progressive operations, programming,
design, support, consulting, project management, and department management
experience in manufacturing, insurance, medical, consulting, and mortgage
banking industries on both mainframe and personal computer equipment. From
September 1989 until June 1997, Mr. Theriault was employed by Recon Optical,
Inc., serving as Supervisor of Business Systems (June 1997 until May 1999) and
Senior Systems and Programming Specialist and Senior Project Leader of
Manufacturing (September 1989 until June 1997). Mr. Theriault received a B.S. in
Computer Science and Business Management from Northeastern Illinois University
in 1978 and an M.B.A. from Lake Forest Graduate School of Management in 1987.
Edward Halpern has been a director since January 1999 and served as our
COO from January 1999 until March 1999. Mr. Halpern founded On-Line Bedding in
1981 and served as its President and CEO. He has continued his duties with that
company since our
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acquisition of it in January 1999. See "Certain Relationships and Related
Transactions." Edward Halpern is the father of Gregory J. Halpern.
Erik Brown has been our Vice President of Business Development since
March 1999 and is President of CIG Securities since May 1999. Mr. Brown was a
Financial Consultant in the Private Client Group at Merrill Lynch, Pierce,
Fenner & Smith from August 1997 to March 1999. He earned a degree in finance in
1997 from the Eli Broad College of Business, Michigan State University.
Charles S. Blumenfield has been a member of our Board of Directors
since March 1999. Mr. Blumenfield, an attorney, has been a Municipal Judge for
the Village of Bayside, Wisconsin since 1986, and a member of firm of Shneidman,
Myers, Dowling, Blumenfield, Ehlke, Hawks & Domer since 1977. Mr. Blumenfield
has been a partner of the firm since 1980. From 1974 to 1977, Mr. Blumenfield
was Assistant District Attorney for Milwaukee County, Wisconsin. Mr. Blumenfield
is actively involved in many professional associations and committees, including
as President of the Wisconsin Municipal Judges Association from 1991 to 1993, a
member of the Wisconsin Supreme Court, Office of Judicial Education, Judicial
Manual Committee since 1994, Governor of the State Bar of Wisconsin since 1992,
and a Board Member of the Wisconsin Academy of Trial Lawyers since 1988. Mr.
Blumenfield received a B.A. in Political Science and Hebrew from the University
of Wisconsin-Milwaukee in 1971 and a J.D. from the University of Wisconsin in
1974.
Doron C. Levitas has been a member of the Board of Directors since June
1999. Mr. Levitas co-founded Sabratek Corporation (Nasdaq NMS: SBTK) in 1989 and
has served as Vice chairman of the Board and Secretary since 1994, Vice
President of International Operations since 1993 and Chief Administrative
Officer since 1998. Sabratek Corporation, a Web-enabled clinical connectivity
company consisting of eight divisions and subsidiaries, develops, produces and
markets interactive, Internet enabled medical systems. From 1986 to 1988, Mr.
Levitas served as President of a division of Chicago-based Andeans of Illinois,
Inc., a medical supplies company which assembled and marketed hospital operating
room supply kits. From 1984 to 1986, Mr. Levitas served as President of
Headings, Inc., an international apparel marketing firm based in New York, New
York which was later sold to Andeans of Illinois. Mr. Levitas received a B.A. in
International Business and Finance from Baruch College in New York. In 1998, Mr.
Levitas was co-named Illinois High Tech Entrepreneur of the Year.
Other than the father-son relationship between Mr. Edward Halpern and
Mr. Gregory J. Halpern described above, there is no family relationship between
any of our executive officers and directors. Each director is elected at our
annual meeting of shareholders and holds office until the next annual meeting of
shareholders, or until his successor is elected and qualified. Officers are
elected annually by the Board of Directors and their terms of office are at the
discretion of the Board. Our officers devote their full time to our business.
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Committees of the Board of Directors
In July 1999 we established an Audit Committee and a Compensation
Committee of our Board of Directors. The Audit Committee will recommend the firm
to be employed as our independent public accountants, and will review the scope
of the audit and audit fees. In addition, the Audit Committee will consult with
the independent auditors with regard to the plan of audit, the audit report and
the management letter, and will confer with the independent auditors with regard
to the adequacy of internal accounting controls, as appropriate, out of the
presence of management. The members of the Audit Committee are Messrs. Gregory
J. Halpern, Blumenfield and Levitas. The Compensation Committee will administer
our 1999 Stock Option Plan, and is charged with monitoring, reporting and
recommending to the Board of Directors on all matters concerning compensation
and benefits of our executive officers and senior staff. The Compensation
Committee consists of Messrs. Gregory J. Halpern, Blumenfield and Levitas; in
matters considered by the Compensation Committee which directly relate to Mr.
Gregory J. Halpern, the Compensation Committee consists of Messrs. Menon,
Blumenfield and Levitas.
Employment Agreements
In order to ensure their continued contribution to our growth and
development, we have entered into employment agreements with certain of our
executive officers. The material terms of each are described below. We have
filed copies of these employment agreements as exhibits to the Registration
Statement of which this Prospectus forms a part. Please see "How To Obtain a
Copy of the Registration Statement" which appeared under "Business" above for
instructions on obtaining copies of these employment agreements.
Gregory J. Halpern. We are a party to a three year employment agreement
with Mr. Halpern which expires in January 2002. Mr. Halpern is paid an annual
salary of $76,000, and we granted him 30,000 stock options exercisable at $2.50
per share under our 1999 Stock Option Plan, which such options expire in January
2003.
Frank K. Menon. We are a party to a three year employment agreement
with Mr. Menon which expires in February 2002. Mr. Menon is paid an annual
salary of $72,000, and we granted him 40,000 stock options exercisable at $2.50
per share under our 1999 Stock Option Plan, which such options expire in
February 2002. We also issued Mr. Menon 10,000 shares of our Common Stock as a
signing bonus.
Dana L. Dabney. We are a party to a three year employment agreement
with Mr. Dabney, which expires in January 2002. Mr. Dabney is paid an annual
salary of $60,000, and we granted him 24,000 stock options exercisable at $2.50
per share under our 1999 Stock Option Plan, which such options expire in January
2003.
38
<PAGE>
Arthur C. Tanner. We are a party to a three year employment agreement
with Mr. Tanner which expires in May 2002. Mr. Tanner is paid an annual salary
of $60,000, and we granted him 20,000 stock options exercisable at $2.50 per
share, and 10,000 stock options exercisable at $10.00 per share, all of which
were granted under our 1999 Stock Option Plan, and which expire in May 2002. We
also issued Mr. Tanner 10,000 shares of our Common Stock as a signing bonus.
Michael J. Theriault. We are a party to a three year employment
agreement with Mr. Theriault which expires in June 2002. Mr. Theriault is paid
an annual salary of $68,000, and we granted him 30,000 stock options exercisable
at $10.00 per share under our 1999 Stock Option Plan, which such options expire
in June 2003. We also issued Mr. Theriault 10,000 shares of our Common Stock as
a signing bonus.
Erik J. Brown. We are a party to a three year employment agreement with
Mr. Brown which expires in March 2002. Mr. Brown is paid an annual salary of
$36,000, and we granted him 20,000 stock options exercisable at $2.50 per share
and 10,000 stock options exercisable at $10.00 per share, all of which were
granted under our 1999 Stock Option Plan, and which expire in March 2002. We
also issued Mr. Brown 10,000 shares of our Common Stock as a signing bonus.
All of the foregoing employment agreements also provide, among other
things, for (i) participation in any profit-sharing or retirement plan and in
other employee benefits applicable to our employees and executives, (ii)
benefits in the event of disability or death, and (iii) contain certain
non-disclosure and non-competition provisions. Under the terms of the employment
agreements, we may terminate the employment of the employee with cause (as
defined in the employment agreement), in which event he would receive no
severance benefits.
Executive Compensation
The following table summarizes all compensation accrued and paid by us
in each of the last three fiscal years to our Chief Executive Officer and each
other executive officer serving as such whose annual compensation exceeded
$100,000. Our directors do not presently receive compensation for serving in
such capacity.
39
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Compensation Awards
Options
Name and Other Annual Number of All Other
Principal Position Year Salary Bonus Compensation Shares Compensation
- ------------------ ---- ------ ----- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory J. Halpern 1996 0 0 0 0 0
1997 0 0 0 0 0
1998 0 0 0 0 0
</TABLE>
In January 1999 we entered into an employment agreement with Mr.
Gregory J. Halpern which provides for an annual salary payable to him of
$76,000. See "Management - Employment Agreements."
1999 Incentive Stock Option Plan
On January 1, 1999 our Board of Directors and a majority of our
stockholders adopted the Circle Group Internet, Inc. 1999 Stock Option Plan. The
purpose of the Plan is to increase the employees', advisors and non-employee
directors' proprietary interest in our company, and to align more closely their
interests with the interests of our stockholders. An additional purpose of the
Plan is also to enable us to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
We have reserved an aggregate of 1,000,000 shares of Common Stock for
issuance pursuant to options granted under the Plan ("Plan Options"). As of the
date hereof, 263,000 options have been granted under the Plan. The Compensation
Committee of the Board of Directors will administer the Plan including, without
limitation, the selection of the persons who will be granted Plan Options under
the Plan, the type of Plan Options to be granted, the number of shares subject
to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), or options that
do not so qualify ("Non-Qualified Options"). In addition, the Plan also allows
for the inclusion of a reload option provision ("Reload Option"), which permits
an eligible person to pay the exercise price of the Plan Option with shares of
Common Stock owned by the eligible person and receive a new Plan Option to
purchase shares of Common Stock equal in number to the tendered shares. Any
Incentive Option granted under the Plan must provide for an exercise price of
not less than 100% of the fair market value of the underlying shares on the date
of such grant, but the exercise price of any Incentive Option granted to an
eligible employee owning more than 10% of our Common Stock must be at least 110%
of such fair market value as determined on the date of the grant.
40
<PAGE>
The term of each Plan Option and the manner in which it may be
exercised is determined by the Compensation Committee of the Board of Directors,
provided that no Plan Option may be exercisable more than 10 years after the
date of its grant and, in the case of an Incentive Option granted to an eligible
employee owning more than 10% of the Company's Common Stock, no more than five
years after the date of the grant. The exercise price of Non-Qualified Options
shall be determined by Compensation Committee of the Board of Directors.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Our officers, directors and key employees will be eligible to receive
Non-Qualified Options under the Plan. Only our officers, directors and employees
who are employed by us, including any subsidiary, are eligible to receive
Incentive Options.
All Plan Options are non-assignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not our employee but is a member of our Board of
Directors and his service as a Director is terminated for any reason, other than
death or disability, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date or 30 days following the date
of termination. If the optionee dies during the term of his employment, the Plan
Option granted to him shall lapse to the extent unexercised on the earlier of
the expiration date of the Plan Option or the date one year following the date
of the optionee's death. If the optionee is permanently and totally disabled
within the meaning of Section 22(c)(3) of the Internal Revenue Code, the Plan
Option granted to him lapses to the extent unexercised on the earlier of the
expiration date of the option or one year following the date of such disability.
The Board of Directors or the Compensation Committee of the Board of
Directors may amend, suspend or terminate the Plan at any time, except that no
amendment shall be made which (i) increases the total number of shares subject
to the Plan or changes the minimum purchase price therefor (except in either
case in the event of adjustments due to changes in our capitalization), (ii)
effects outstanding Plan Options or any exercise right thereunder, (iii) extends
the term of any Plan Option beyond ten years, or (iv) extends the termination
date of the Plan. Unless the Plan shall theretofore have been suspended or
terminated, the Plan shall terminate on approximately 10 years from the date of
the Plan's adoption. Any such termination of the Plan shall not affect the
validity of any Plan Options previously granted thereunder.
41
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Illinois Business Corporations Act (the "Corporation Act") provides
for indemnification of directors, employees, officers and agents of Illinois
corporations. Our Articles of Incorporation (the "Articles") and bylaws provide
that we shall indemnify our directors and officers to the fullest extent
permitted by the Corporation Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to our directors, officers or
persons pursuant to the foregoing provisions, we have been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
and the Securities Act and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997 we established a note payable to Mr. Gregory J.
Halpern, our founder and CEO, to purchase various property and equipment. The
note provided for interest at 18% per annum and was unsecured. At December 31,
1998, the outstanding principal balance of the note was $16,403. This note was
satisfied in full prior to March 31, 1999.
From January 1997 until December 1998, we leased office space from Mr.
Gregory J. Halpern at a monthly rental amount of approximately $2,700. This
office location was within Mr. Halpern's residence. In addition, in 1997 we paid
a one time consulting fee of approximately $13,000 to Mr. Halpern for design
services provided to us.
In January 1999, we acquired 100% of the issued and outstanding stock
of On-Line Bedding from Mr. Edward Halpern, one of our officers and directors,
and his wife in exchange for 200,000 shares of our Common Stock. Prior to our
acquisition, On-Line Bedding was an S corporation. On-Line Bedding made certain
advances to Mr. Edward J. Halpern prior to our acquisition of the corporation
which were to be offset against his share of the prior year's distributions. At
March 31, 1999 the advance was $19,530 and no interest is charged on the
advance.
In addition, in March 1999 we acquired 3,200,000 shares of the common
stock, or approximately 92% of the issued and outstanding capital stock of PPI,
a shell corporation, from Mr. Gregory J. Halpern, one of our officers and
directors, in exchange for $20,000. We anticipate that we will use PPI as either
a holding company or as a candidate for a reverse merger with an operating
entity. We do not, however, presently have any agreements or understandings with
any third parties regarding PPI.
42
<PAGE>
OUR PRINCIPAL SHAREHOLDERS
As of July [23], 1999 there were 9,848,480 shares of our Common Stock
issued and outstanding, without giving effect to the exercise of outstanding
options or warrants to acquire an additional 366,590 shares of our Common Stock.
See "Description of Securities." The following table sets forth information as
of July [23], 1999 with respect to the beneficial ownership of shares of Common
Stock currently issued and outstanding by (i) each person known to us to be the
owner of more than 5% of the outstanding shares of Common Stock, (ii) each
officer and director, and (iii) all officers and directors as a group. Unless
otherwise indicated, the address for each individual listed is 1101 Campus Drive
Mundelein, Illinois 60060.
Name No. of Shares % of Ownership
- ---- ------------- --------------
Gregory J. Halpern(1) 6,524,000 66.0%
Dana L. Dabney(2) 524,000 5.3%
Frank K. Menon(3) 50,000 *
Erik Brown(4) 30,000 *
Edward Halpern 400,000 4.1%
Charles Blumenfield(5) 6,000 *
Arthur C. Tanner(6) 30,000 *
Doron C. Levitas(7) 0 n/a
Paradigm/Circle Group
Limited Partnership(8) 643,160 6.5%
All officers and directors
as a group (eight persons)(9) 7,564,000 75.8%
- ------------------
* represents less than 1%
(1) Includes (i) 250,000 shares held in trust of which Mr. Halpern is the
trustee and (ii) options to purchase 30,000 shares of our Common Stock
expiring in January 2003. See "Management - Employment Agreements."
(2) Includes options to purchase 24,000 shares of our Common Stock expiring
in January 2003. See "Management - Employment Agreements."
(3) Includes options to purchase 40,000 shares of our Common Stock expiring
in February 2002. See "Management - Employment Agreements."
(4) Includes options to purchase 20,000 shares of our Common Stock expiring
in March 2002, but excludes options to purchase 10,000 shares of our
Common Stock which have not yet vested. See "Management - Employment
Agreements."
(5) We are registering these shares for resale by Mr. Blumenfield under
this Prospectus. See "Selling Security Holders." Mr. Blumenfield's
address is 9025 North Iroquois Road, Bayside, Wisconsin 53217.
43
<PAGE>
(6) Includes options to purchase 20,000 shares of our Common Stock expiring
in May 2002, but excludes options to purchase 10,000 shares of our
Common Stock which have not yet vested. See "Management - Employment
Agreements."
(7) Mr. Levitas' address is 8111 North St. Louis Avenue, Skokie, Illinois
60076.
(8) Messrs. Sheldon Drobny, Ruben Rosenberg and Aaron J. Fischer are the
general partners of Paradigm/Circle Group Limited Partnership. The
number of shares of Common Stock beneficially owned includes warrants
exercisable at $2.50 per share to purchase 123,860 shares of our Common
Stock. We are not partners or control persons of Paradigm/Circle Group
Limited Partnership. Paradigm/Circle Group Limited Partnership's
address is 3000 Dundee Road, Suite 105, Northbrook, Illinois 60061. See
"Selling Security Holders."
(9) Includes footnotes (1) through (7) above.
MARKET FOR OUR SECURITIES
There has previously been no market for our Common Stock. Concurrent
with the filing of the Registration Statement of which this Prospectus forms a
part, we made application to The Nasdaq Stock Market, Inc. for listing of our
Common Stock on The Nasdaq National Market System under the symbol CGRP. [On ,
1999 our Common Stock was approved for quotation under the symbol " ." There can
be no assurances that any meaningful trading market in our Common Stock will be
developed or sustained. See "Risk Factors."]
We have approximately 411 record shareholders of our Common Stock.
Based upon the records of our transfer agent, we believe we have in excess of
475 beneficial owners of our Common Stock.
Dividend Policy
The payment of dividends, if any, on our Common Stock is solely at the
discretion of our Board of Directors. The Board of Directors does not foresee
the payment of dividends on any class of our securities, including the Common
Stock, in the foreseeable future. Future dividend policy will depend on our
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
44
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security
Holder, the number or shares of Common Stock beneficially owned by such Selling
Security Holder as of [ , 1999], and the number of shares being offered by each
Selling Security Holder. During the past three years no Selling Security Holder
has been an officer, director or -- affiliates of our company (other than Mr.
Blumenfield who has been a member of our Board of Directors since March 1999),
nor has any Selling Security Holder had any material relationship with us during
such period. The shares of Common Stock being offered hereby are being
registered to permit public secondary trading, and the Selling Security Holders
may offer all or part of the shares for resale from time to time. However, such
Selling Security Holders are under no obligation to sell all or any portion of
such shares of Common Stock immediately under this Prospectus. Because the
Selling Security Holders may sell all or a portion of their shares of Common
Stock, no estimate can be given as to the number of shares of Common Stock that
will be held by any Selling Security Holder upon termination of any offering
made hereby; accordingly, the following table assumes the sale of all shares of
Common Stock by the Selling Security Holders immediately following the date of
this Prospectus.
<TABLE>
<CAPTION>
=================================================================================================================
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
Name of Selling of Common Stock Stock Beneficially ship
Security Holder Beneficially Owned Offered Owned After
as of [July ,] 1999(1) Hereby After Offering Offering
--
=================================================================================================================
<S> <C> <C> <C> <C>
David Abrahams 1,000 1,000 0 *
Louise Abrahams 2,000 2,000 0 *
Richard L. and Louise
Abrahams, Trustees 20,000 20,000 0 *
Amity Enterprises (2) 50,000 50,000 0 *
Kevin J. Bauer 600 600 0 *
Myron Basch 1,000 1,000 0 *
Bruce F. Berkowitz 5,000 5,000 0 *
Ivka Berry 2,000 2,000 0 *
Marshall S. Blackham 5,000 5,000 0 *
Charles Blumenfield(3) 6,000 6,000 0 *
Lucille T. Brown 2,500 2,500 0 *
E. Ann Burke and
Marc Burke, JTWROS 10,000 10,000 0 *
James Campagna 2,500 2,500 0 *
Daniel I. Caplan, M.D. 5,000 5,000 0 *
Ronald Carlson 1,000 1,000 0 *
John T. Colvin and
Gail Covin, JTWROS 10,000 10,000 0 *
Congregation of Hakoil
Koil Yakov(4) 40,000 40,000 0 *
Delta Energy Corp.(5) 25,000 25,000 0 *
Dillion Capital LLC(6) 5,000 5,000 0 *
Connie E. Donaldson 2,000 2,000 0 *
45
<PAGE>
=================================================================================================================
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
Name of Selling of Common Stock Stock Beneficially ship
Security Holder Beneficially Owned Offered Owned After
as of [July ,] 1999(1) Hereby After Offering Offering
--
=================================================================================================================
Gary S. Ducharme 2,000 2,000 0 *
Gary J. Elkins and
Abigail Elkins, JTWROS 5,000 5,000 0 *
Shaun M. Emerson 10,000 10,000 0 *
Paul T. Evans 20,000 20,000 0 *
Isaac Friedman
and Philip Katz, JT 10,000 10,000 0 *
Ronald L. Fauconniere 5,000 5,000 0 *
Anthony Fiore 2,000 2,000 0 *
Jeffrey K. Forgacs 2,000 2,000 0 *
Caroline G. Graddon 5,000 5,000 0 *
Daniel K. Grice 2,500 2,500 0 *
George D. Guritz 10,000 10,000 0 *
Kevin R. Hitzeman 15,000 15,000 0 *
Sean W. Hitzeman 15,000 15,000 0 *
Claudia S. Horty 18,000 18,000 0 *
Enamul Islem 400 400 0 *
Alison Jarret 7,500 7,500 0 *
JRF Investments II, Ltd.(7) 5,000 5,000 0 *
JRF Investments III, Ltd.(7) 5,000 5,000 0 *
JRF Investments IV, Ltd.(7) 5,000 5,000 0 *
Ramesh Kannan 1,000 1,000 0 *
Clarence Kanthak 1,000 1,000 0 *
Thomas J. Kanthek 1,000 1,000 0 *
James A. Kasch 5,000 5,000 0 *
Mark Kaufman 2,500 2,500 0 *
James Kemp 4,000 4,000 0 *
Kollel Alta Faige (8) 17,400 17,400 0 *
Kollel Alta Faige, Philip
Katz and Isaac
Friedman, JT(8) 1,500 1,500 0 *
Lawrence Lacerte 50,000 50,000 0 *
Mary Lytle 200 200 0 *
Stewart L. Macklin 2,500 2,500 0 *
William McClure 16,000 16,000 0 *
Alakesh Mitra 10,000 10,000 0 *
Thomas Molnar 4,000 4,000 0 *
Ismael Morales 800 800 0 *
Lawrence A. Mulvaney,
Trustee 1,000 1,000 0 *
Larry Mulvaney IRA 1,500 1,500 0 *
Khalik M. Mursi 5,000 5,000 0 *
Ramanaprasad
Nandigama 400 400 0 *
George E. Orfanos 6,000 6,000 0 *
Harry Orfanos and
Vasso Orfanos, JTWROS 500 500 0 *
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
Name of Selling of Common Stock Stock Beneficially ship
Security Holder Beneficially Owned Offered Owned After
as of [July ,] 1999(1) Hereby After Offering Offering
--
=================================================================================================================
<S> <C> <C> <C> <C>
Paradigm/Circle Group
Limited Partnership(9) 643,160 519,300 123,860 *
Points Partnership(10) 2,500 2,500 0 *
Patricia Ann Richard 2,400 2,400 0 *
Marco Rosa and
Federico Perandir,
JTWROS 10,000 10,000 0 *
Phillip Rose 3,000 3,000 0 *
Robert Rosin 50,000 50,000 0 *
Tom Rosenquist 2,000 2,000 0 *
Steven Salgam 40,000 40,000 0 *
Susan Schaumberger 10,000 10,000 0 *
Mary Alice Schmidtke IRA 2,500 2,500 0 *
Mary Schmidtke(11) 4,000 2,000 2,000 *
Oskar Schneider 12,000 12,000 0 *
Vincent G. Secontine
Revocable Living Trust 2,000 2,000 0 *
Ralph Sesso IRA 2,500 2,500 0 *
Jitendra Shah and Neha
Shah, JTWROS 2,200 2,200 0 *
Sami Sheeshia 600 600 0 *
Geoffrey M. Shotton 10,000 10,000 0 *
Hardayal Singh 400 400 0 *
Mark Slezak 10,000 10,000 0 *
Martin Straus and
Mercedes Straus, TIE 10,000 10,000 0 *
Erica Swerdlow and
Brian Swerdlow(12) 4,000 8,000 0 *
Kenneth Swiggart 2,500 2,500 0 *
Peter G. Szinte(13) 24,000 20,000 4,000 *
Phillip Tallman 2,000 2,000 0 *
Isaac Teitelbaum 20,000 20,000 0 *
Stanford F. Terry and
Ruth A. Terry, JTWROS 2,000 2,000 0 *
Michelle L. Tiburzi 5,000 5,000 0 *
Kyaw Myo Tin 2,000 2,000 0 *
Mario Valente(14) 4,000 2,000 2,000 *
Mario Valente and
Guiseppe Valente,
JTWROS 4,000 4,000 0 *
Anthony R. Verrecchia 1,200 1,200 0 *
Ed Wodziak Jr 1,000 1,000 0 *
Mali H. Wu 2,000 2,000 0 *
Eugene Young 2,000 2,000 0 *
Farhad Zaghi(15) 120,000 100,000 20,000 *
</TABLE>
- --------------------------
47
<PAGE>
* represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities and includes any securities which the person has the right
to acquire within 60 days of [July ,] 1999 through the conversion or
exercise of any security or other right.
(2) Mr. Joseph A. Rosin is the controlling person of Amity Enterprises.
(3) Mr. Blumenfield is a member of our Board of Directors. See
"Management."
(4) Congregation of Hakoil Koil Yakov is a not-for-profit entity which is
controlled by Mordecai Friedman.
(5) Mr. James Kokenis is the beneficial owner of Delta Energy Corp.
(6) Mr. Stewart Flink is the beneficial owner of Dillion Capital LLC.
(7) Mr. John Fox is the controlling person of JRF Investments II, Ltd., JRF
Investments III, Ltd. and JRF Investments IV, Ltd.
(8) Kollel Alta Faige is a not-for-profit entity which is controlled by Jay
Kaufman and Isaac Friedman.
(9) Messrs. Sheldon Drobny, Ruben Rosenberg and Aaron J. Fischer are the
general partners of Paradigm/Circle Group Limited Partnership. The
number of shares of Common Stock beneficially owned includes warrants
exercisable at $2.50 per share to purchase 123,860 shares of our Common
Stock. The Common Stock underlying these warrants is not being
registered for resale under this Prospectus. We are not partners or
control persons of Paradigm/Circle Group Limited Partnership.
(10) Messrs. Richard M. Finger and Timothy M. Finger are the general
partners Points Partnership.
(11) The number of shares of Common Stock beneficially owned includes
warrants exercisable at $2.50 per share to purchase 2,000 shares of our
Common Stock. The Common Stock underlying these warrants is not being
registered for resale under this Prospectus.
(12) Mr. and Mrs. Swerdlow are the principals of EBS Public Relations, Inc.
We entered into an agreement with EBS Public Relations, Inc. in March
1999 to provide public relations services to us and under the agreement
agreed to issue to EBS Public Relations, Inc. shares of our Common
Stock as compensation for its services. EBS Public Relations, Inc. has
requested that the stock be issued directly to Mr. and Mrs. Swerdlow.
The number of shares of common stock shown as beneficially owned
reflects the payments to date. We are registering the entire amount of
shares due as compensation under the agreement for resale under this
Prospectus. The balance of the shares of our Common Stock will be
issued on a monthly basis during the remaining term of the agreement
pursuant to its terms.
(13) The number of shares of Common Stock beneficially owned includes
warrants exercisable at $2.50 per share to purchase 4,000 shares of our
Common Stock. The Common Stock underlying these warrants is not being
registered for resale under this Prospectus.
(14) The number of shares of Common Stock beneficially owned includes
warrants exercisable at $2.50 per share to purchase 2,000 shares of our
Common Stock. The Common Stock underlying these warrants is not being
registered for resale under this Prospectus.
48
<PAGE>
(15) The number of shares of Common Stock beneficially owned includes
warrants exercisable at $2.50 per share to purchase 20,000 shares of
our Common Stock. The Common Stock underlying these warrants is not
being registered for resale under this Prospectus.
PLAN OF DISTRIBUTION
The shares of our Common Stock offered by this Prospectus may be sold
from time to time by the selling security holders, who consist of the persons
named under "Selling Security Holders" above and those persons' pledgees,
donees, transferees or other successors in interest. The selling security
holders may sell the shares on the [Nasdaq National Market] or otherwise, at
market prices or at negotiated prices. They may sell the shares of Common Stock
by one or a combination of the following:
* a block trade in which a broker or 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 the
broker or dealer for its account pursuant to this Prospectus;
* ordinary brokerage transactions and transactions in which a
broker solicits purchasers;
* an exchange distribution in accordance with the rules of such
exchange;
* privately negotiated transactions;
* short sales;
* if such a sale qualifies, in accordance with Rule 144
promulgated under the Securities Act rather than pursuant to
this Prospectus; and
* any other method permitted pursuant to applicable law.
From time to time, one or more of the selling security holders may
pledge, hypothecate or grant a security interest in some or all of the shares of
Common Stock owned by them, and the pledgees, secured parties or persons to whom
such shares have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be selling security holders hereunder. The number of
selling security holders= shares of Common Stock beneficially owned by those
selling security holders who so transfer, pledge, donate or assign such shares
will decrease as and when they take such actions. The plan of distribution for
selling security holders' shares of Common Stock sold hereunder will otherwise
remain
49
<PAGE>
unchanged, except that the transferees, pledgees, donees or other successors
will be selling security holders hereunder.
A selling security holder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such selling
security holder, including, without limitation, in connection with distributions
of the Common Stock by such broker-dealers. A selling security holder may also
enter into option or other transactions with broker-dealers that involve the
delivery of the shares of Common Stock to the broker-dealers, who may then
resell or otherwise transfer such shares. A selling security holder may also
loan or pledge the shares of Common Stock to a broker-dealer and the
broker-dealer may sell such shares so loaned or upon a default may sell or
otherwise transfer the pledged shares of Common Stock.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares of Common Stock as agents may receive compensation in
the form of commissions, discounts or concessions from the selling security
holders and/or purchasers of the Common Stock for whom such broker-dealers may
act as agent, or to whom they may sell as principal, or both (which compensation
as to a particular broker-dealer may be less than or in excess of customary
commissions). The selling security holders and any broker-dealers who act in
connection with the sale of the shares of Common Stock hereunder may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission they receive and proceeds of any sale of the shares of Common Stock
may be deemed to be underwriting discounts and commissions under the Securities
Act. Neither we nor any selling security holder can presently estimate the
amount of such compensation. We know of no existing arrangements between any
selling security holder, any other stockholder, broker, dealer, underwriter or
agent relating to the sale or distribution of the shares of Common Stock
included in this Prospectus.
We will pay substantially all of the expenses incident to the
registration, offering and sale of the shares of Common Stock included in this
Prospectus to the public, other than commission or discounts of underwriters,
broker-dealers or agents.
We have advised the selling security holders that during such time as
they may be engaged in a distribution of the shares of Common Stock included
herein they are required to comply with Regulation M promulgated under the
Exchange Act. With certain exceptions, Regulation M precludes any selling
security holder, any affiliated purchasers, and any broker-dealers 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 shares of Common Stock.
50
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capitalization consists of 50,000,000 shares of Common
Stock, $.0001 par value per share, of which 9,848,480 shares are issued and
outstanding as of July [23], 1999. We have no other classes of securities
authorized.
Holders of our Common Stock are entitled to one vote for each share
held of record. There are no cumulative voting rights. Each holder of our Common
Stock is also entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available for the
payment of dividends. We have never paid any dividends on our Common Stock, and
we do not anticipate declaring or paying dividends in the foreseeable future. It
is anticipated that any earnings which may be generated from our operations will
be used to finance our growth of the Company. See "Risk Factors."
The holders of our Common Stock are also entitled to share ratably in
any distribution of our assets after payment of all debts and liabilities. All
of the shares of Common Stock presently outstanding are fully paid and
nonassessable, and there are no preemptive rights, conversion rights, redemption
provisions or sinking fund provisions with respect to our shares of Common
Stock.
Options and Warrants
As of the date of this Prospectus, we have granted options to acquire
an aggregate of 263,000 shares of the Common Stock under our 1999 Stock Option
Plan. We also have outstanding warrants to purchase an aggregate of 103,590
shares of our Common Stock, exercisable at $2.50 per share, which are
exercisable until March 2002 which were issued by us in March 1999 to
consultants who rendered various services to us.
Shares Eligible for Future Sale
As of the date of this Prospectus, an aggregate of 8,529,280
outstanding shares of our Common Stock, including the 6,494,000 shares owned or
controlled by Gregory J. Halpern, are "restricted securities" within the meaning
of the Federal securities laws, and in the future may be sold in compliance with
Rule 144 adopted under the Securities Act, assuming a public market exists for
such securities, of which there are no assurances. Rule 144 provides in part
that a person who is not our affiliate and who holds restricted securities for a
period of one year may sell all or part of such securities in ordinary brokerage
transactions, subject to certain volume limitations and the availability of
current public information on Circle Group Internet.
Assuming a public market should develop for our Common Stock, of which
there can be no assurance, our shareholders are not contractually prohibited
from selling any of their
51
<PAGE>
shares of Common Stock, if and when such sales opportunities arise consistent
with the provisions of Rule 144. We cannot predict the effect, if any, that any
such sales of Common Stock, or the availability of such Common Stock for sale,
may have on the market value of our Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock by shareholders, particularly if
they are our affiliates, could have a material adverse effect upon the market
value of our Common Stock. See "Risk Factors."
Transfer Agent
Our transfer agent is Pacific Stock Transfer Co., Las Vegas, Nevada.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301.
EXPERTS
Our (i) compiled condensed consolidated financial statements as of
March 31, 1999 and 1998, and for the three months then ended, (i) audited
financial statements as of December 31, 1998 and 1997, and for the fiscal years
then ended, and (iii) pro forma condensed consolidated financial statements at
December 31, 1998, and for the fiscal year then ended, as well as the audited
financial statements of Hos-Pillow Corporation (now known as On-Line Bedding
Corporation) as of December 31, 1998 and 1997, and for the fiscal years then
ended which are included elsewhere herein have been audited by Harold Y.
Spector, independent certified public accountant, as indicated in his reports
with respect thereto. These financial statements are included herein in reliance
upon the authority of Mr. Spector as an expert in accounting and auditing.
52
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Financial Statements
March 31, 1999 and 1998
Accountant's Compilation Report F-1
Condensed Consolidated Balance Sheets F-2
Condensed Consolidated Statements of Income F-3
Condensed Consolidated Statements of Cash Flows F-4
Notes to Condensed Consolidated Financial Statements F-5
Pro Forma Condensed Consolidated Financial Statements
December 31, 1998
Accountant's Report F-9
Pro Forma Condensed Consolidated Balance Sheet F-10
Pro Forma Condensed Consolidated Statement of Income F-11
Notes to Pro Forma Condensed Consolidated Financial Statements F-12
Audited Financial Statements December 31, 1998 and 1997
Independent Auditor's Report F-14
Balance Sheets F-15
Statements of Income and Retained Earnings F-16
Selling Expenses F-17
Administrative Expenses F-18
Statement of Stockholders' Equity F-19
Statement of Cash Flows F-20
Notes to Financial Statements F-21
Hos-Pillow Corporation
Audited Financial Statements December 31, 1998 and 1997
Independent Auditor's Report F-25
Balance Sheets F-26
Statements of Income and Retained Earnings F-28
Cost of Sales F-29
Operating Expenses F-30
Statement of Changes in Stockholders' Equity F-31
Statement of Cash Flows F-32
Notes to Financial Statements F-33
53
<PAGE>
To the Board of Directors
Circle Group Internet, Inc.
Mundelein, Illinois
I have compiled the accompanying condensed consolidated balance sheet of Circle
Group Internet, Inc. (an Illinois corporation) and subsidiaries, as of March 31,
1999 and 1998, and the related condensed consolidated statements of income for
the three months ended March 31, 1999 and 1998, and the condensed consolidated
statements of cash flows for the three months ended March 31, 1999 and 1998, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. I have not audited or
reviewed the accompanying condensed financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
/s/ Harold Y. Spector
- ----------------------
Pasadena, CA
July 20, 1999
F-1
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1999 and 1998
1999 1998
----------- ----------
ASSETS
Current Assets
Cash $2,327,652 $ 15,648
Accounts Receivable 101,175 -
Inventory 69,317 -
Prepaid and Others 22,835 -
----------- ----------
Total Current Assets 2,520,979 15,648
----------- ----------
Property & Equipment, net 99,537 22,317
----------- ----------
Other Assets
Investments 307,000 -
Goodwill, net of accumulated
amortization of $333 19,667 -
Deposits 770 -
----------- ----------
Total Other Assets 327,437 -
----------- ----------
TOTAL ASSETS $2,947,953 $ 37,965
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 115,533 $ -
Income Tax Payable 47,308 -
----------- ----------
Total Current Liabilities 162,841 -
----------- ----------
Long-Term Liabilities 3,225 16,783
----------- ----------
Total Liabilities 166,006 16,783
----------- ----------
Stockholders' Equity
Common Stock, $.0001 par value;
50,000,000 shares authorized;
4,080,440 shares issued and outstanding
in 1998 and 3,500,000 shares in 1997 408 350
Paid in Capital 2,656,872 11,150
Retained Earnings 124,607 9,682
Minority Interest 0 -
----------- ----------
Total Stockholders' Equity 2,781,887 21,182
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,947,953 $ 37,965
=========== ==========
See accompanying notes and accountant's report
F-2
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Three Months Ended March 31, 1999 and 1998
1999 1998
----------- ----------
Sales $ 494,202 $ 35,432
Cost of Sales 114,741 -
----------- ----------
Gross Profit 379,461 35,432
Operating Expenses 226,135 49,376
----------- ----------
Income (Loss) from Operations 153,326 (13,944)
Other Income (Expenses) (30,734) (375)
----------- ----------
Income (Loss) Before Taxes 122,592 (14,319)
Provision for Income Taxes 47,705 -
----------- ----------
Net Income (Loss) $ 74,887 $ (14,319)
=========== ==========
Earnings per share $ 0.019 $ (0.004)
=========== ==========
Weighted Average Number of Common
Shares Outstanding 3,938,012 3,500,000
=========== ==========
See accompanying notes and accountant's report
F-3
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Three Months Ended March 31, 1999 and 1998
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 74,887 $ (14,319)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 5,675 1,511
(Increase) Decrease in:
Accounts Receivable (61,124) -
Inventory (22,989) -
Prepaid and Others (3,305) -
Increase (Decrease) in:
Accounts Payable & Accrued Expenses (13,067) (2,500)
Income Taxes Payable 41,357 (5,887)
---------- ---------
Net cash provided (used) by operating
activities 21,434 (21,195)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (78,975) (150)
Increase in Investment (307,000) -
Increase in Goodwill (20,000) -
----------- ----------
Net cash (used) by investing activities (405,975) (150)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sales of Stock 1,663,430 -
Due to (from) Shareholders (19,530) -
----------- ----------
Net cash provided by financing activities 1,643,900 -
----------- ----------
NET INCREASE (DECREASE) IN CASH 1,259,359 (21,345)
CASH BALANCE AT BEGINNING OF PERIOD 1,068,293 36,993
----------- ----------
CASH BALANCE AT END OF PERIOD $2,327,652 $ 15,648
=========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest $ 0 $ 0
=========== ==========
Cash paid for income taxes $ 5,691 $ 5,887
=========== ==========
See accompanying notes and accountant's report
F-4
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
Circle Group Internet, Inc. (the "Company") is engaged in the development and
sales of Internet business marketing tools. Its subsidiary, On-Line Bedding
Corporation (FKA Hos-Pillow Corporation) is engaged in sales of blankets and
pillows to airlines and railroad transportation companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company uses the accrual basis of accounting for financial reporting, in
accordance with generally accepted accounting principles.
Principle of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of Circle Group Internet, Inc. (the "Company") and its subsidiaries,
On-Line Bedding Corporation (FKA Hos-Pillow Corporation) and PPI Capital Corp.
(FKA Pain Prevention, Inc.). All significant intercompany balances, transactions
and stockholdings have been eliminated.
The condensed financial statements for the three months ended March 31, 1998
include only the accounts of the Company since the acquisitions did not take
place until 1999.
Acquisitions and Goodwill
The condensed consolidated financial statements include the net assets of
businesses purchased at their book value at the acquisition date. The excess of
acquisition costs over the book value of net assets acquired is included in and
has been allocated to goodwill. Goodwill is amortized on a straight-line basis
over a period of 180 months.
Use of Estimate
In preparing condensed financial statements in conformity with GAAP, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenue from sales is recognized when the products are shipped and/or the
services are performed.
F-5
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable
The Company has not established an allowance for doubtful accounts and does not
use reserve method for recognizing bad debts. Bad debts are treated as direct
write-offs in the period management determines that collection is not probable.
There was no bad debt expense for three months ended March 31, 1999.
Inventories
Costs incurred for materials, technology and shipping are capitalized as
inventories and charged to cost of sales when revenue is recognized. Inventories
consist of finished goods and are stated at the lower of cost or market, using
the first-in, first-out method.
Fixed Assets
Fixed assets are stated at cost. Depreciation is calculated on the accelerated
method over the estimated useful lives of the assets. Management also elected to
expense the fixed assets under Section 179 of the Internal Revenue Code.
Total depreciation expense for three months ended March 31, 1999 and 1998 was
$5,675 and $1,511, respectively.
Statement of Cash Flows
The Company prepares its statement of cash flows using the indirect method as
defined under Financial Accounting Standards Board Statement No. 95. For purpose
of the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company and its subsidiaries will file a consolidated federal income tax
return. The subsidiaries provide for income taxes on a separate-return basis and
remit to or receive from the Company amounts currently payable or receivable.
Income taxes have been provided using the liability method in accordance with
Financial Accounting Standards Board Statement No. 109.
Deferred income taxes are provided on temporary difference between book and tax
income, arising primarily from the recognition of depreciation methods and
periods. As of March 31, 1999, the Company had a deferred tax liability of
$3,225.
F-6
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - ACQUISITION OF BUSINESS
On January 2, 1999, the Company acquired 100% of the issued and outstanding
stock of On-Line Bedding Corporation (FKA Hos-Pillow Corporation, an Illinois
corporation) in exchange for 200,000 shares of the Company's common stock. This
transaction was accounted for as a purchase, with the assets and liabilities
assumed recorded at book values. After acquisition, On-Line Bedding terminates
its S corporation status.
On February 1, 1999, the Company acquired 80% or 3,200,000 issued and
outstanding common shares of PPI Capital Corp. (a shell corporation) for
$20,000. This transaction was accounted for as a purchase, with the assets and
liabilities assumed recorded at book values.
In addition, in March 1999, the Company signed an agreement to purchase 100% of
the issued and outstanding stock of CIG Securities, Inc. (a broker-dealer in
Florida) for $35,000. This transaction will be accounted for as a purchase.
The Company has 272,000 shares at $1 per share, or an aggregate of $272,000 in
Paw Island, Inc. for the service rendered.
NOTE 4 - DUE FROM SHAREHOLDER
Advance drawn by the On-Line Bedding's shareholder will be offset against his
share of prior years' distributions. As of March 31, 1999, the shareholder had
advanced $19,530. No interest is charged on the advances.
NOTE 5 - PROVISION FOR INCOME TAXES
Provision for Income Taxes as of March 31, 1999 consist of:
Federal $39,124
State 8,581
-------
$47,705
=======
NOTE 6 - SECURITIES OFFERING
In January 1999, the Company completed a self-underwritten offering of 500,000
shares of its common stock pursuant to Regulation A of the Securities Act of
1933 as amended, resulting in gross proceeds of $2,500,000. Subsequent thereto,
the Company sold an additional approximate 80,000 shares.
F-7
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - SECURITIES OFFERING (Continued)
In addition, the Company conducted another private placement offering of
1,500,000 shares of its common stock at $20 per share or an aggregate of
$30,000,000, pursuant to Rule 506 of Regulation D of the Securities Act of 1933
as amended.
Expenses related to the offering was $45,654 in 1999.
NOTE 7 - RELATED PARTIES TRANSACTIONS
The Company leases facilities from an officer/stockholder on a month-to-month
basis. The lease requires monthly payments of $2,697, including utilities and
maintenance.
Subsidiary, On-Line Bedding leases its office facilities for $898 per month. The
lease expires September 2001.
As of March 31, 1999, the minimum commitments under these leases are as follows:
December 31, Amount
------------ ------
1999 $ 7,889
2000 10,872
2001 8,370
-------
Total $27,131
=======
Rent expense for three months ended March 31, 1999 and 1998 was $5,149 and
$9,038, respectively.
NOTE 7 - YEAR 2000
The Company believes that it has identified each of its computer systems that
will require modifications to enable it to perform satisfactorily on and after
January 1, 2000. The financial impact of making such modifications to the
Company's systems is not expected to be material to the Company's financial
position or results of operations. In addition, the Company is currently
corresponding with vendors that provide products and systems to the Company in
order to determine if such products and systems will be required to be upgraded
or replaced. Although management believes the Company has an adequate program in
place to address the year 2000 issue, the costs of upgrades to, or replacements
of, its purchased products or systems has not been determined and there can be
no assurance that the program will ultimately be successful.
F-8
<PAGE>
To the Board of Directors and Shareholders
Circle Group Internet, Inc. and Subsidiaries
Mundelein, Illinois
I have prepared the pro forma condensed consolidated balance sheet of Circle
Group Internet, Inc. (an Illinois corporation) and its subsidiaries, Hos-Pillow
Corporation and PPI Capital Corp. as of December 31, 1998, and the related
condensed statement of pro forma income for the year then ended.
A compilation is limited to presenting in the form of pro forma financial
statements information that is the representation of management and does not
include evaluation of the support for the assumptions underlying the pro forma
transactions. I have not examined the accompanying pro forma financial
statements and, accordingly, do not express an opinion or any other form of
assurance on them.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the acquisitions. The accompanying condensed
consolidated pro forma financial statements should be read in connection with
the historical financial statements of the Company and its subsidiaries.
/s/ Harold Y. Spector
- ------------------------
Pasadena, California
June 30, 1999
F-9
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
- ------
"CGI" "HOS" "PPI" Adjustments Pro Forma
---------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash $1,031,532 $ 36,761 $ 0 (20,000) (2) $1,048,293
Accounts Receivable 0 40,051 0 40,051
Inventory 0 46,328 0 46,328
---------- -------- -------- ---------
Total Current Assets 1,031,352 123,140 0 1,134,672
Property & Equipment, net 25,904 0 0 25,904
Cost in Excess of Net
Assets Acquired 20,000 (2) 20,000
Other 0 770 0 770
---------- -------- -------- ---------
TOTAL $1,031,352 $123,910 $ 0 $1,181,346
========== ======== ======== =========
LIABILITIES AND
---------------
STOCKHOLDERS' EQUITY
- --------------------
Accounts Payable &
Accrued Expenses $ 7,500 $121,100 $ 0 $ 128,600
Income Tax Payable 4,095 1,856 0 5,951
---------- -------- -------- ---------
Total Current Liabilities 11,595 122,956 0 134,551
Deferred Income Tax 3,225 0 0 3,225
---------- -------- -------- ---------
Total Liabilities 14,820 122,956 0 137,776
Stockholders' Equity 1,042,616 954 0 (1) 1,043,570
(2)
Minority Interest 0 0 0 (2) 0
---------- -------- -------- ---------
TOTAL $1,057,436 $123,910 $ 0 $1,181,346
========== ======== ======== =========
</TABLE>
See Notes to Pro Forma Consolidated Financial
Statements (Unaudited)
F-10
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
"CGI" "HOS" "PPI" Adjustments Pro Forma
-------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $338,333 $873,713 $ 0 $1,212,046
Cost of Sales 0 649,596 0 649,596
-------- -------- -------- ---------
Gross Profit 338,333 224,117 0 562,450
Operating Expenses 306,307 81,033 1,400 1,333 (3) 390,073
-------- -------- -------- ---------
Income (Loss) from
Operations 32,026 143,084 (1,400) 172,337
Other Income (Expenses) 1,443 (18,248) 0 (16,805)
-------- -------- -------- ---------
Income (Loss) Before Taxes 33,469 124,836 (1,400) 155,572
Provision for Income Taxes 7,139 1,856 0 42,545 (4) 51,540
Minority Interest in
PPI Capital Corp. 0 0 0 280 (5) 280
-------- -------- -------- ---------
Net Income (Loss) $ 26,330 $122,980 ($ 1,400) $ 104,312
======== ======== ======== =========
Earnings per share $0.007 $0.028
====== ======
Weighted Average Shares
of Outstanding 3,516,164 3,716,164
========= =========
</TABLE>
See Notes to Pro Forma Consolidated Financial
Statements (Unaudited)
F-11
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - ACQUISITION OF BUSINESS
On January 2, 1999, Circle Group Internet, Inc. ("the Company" or "CGI")
acquired all the issued and outstanding shares of common stock of Hos-Pillow
Corporation ("HOS", an Illinois S-corporation) in exchange for 200,000 shares of
the Company's common stock, which will be issued before year end of 1999. The
acquisition will be accounted for as a purchase, with the assets acquired and
liabilities assumed recorded at book values, and the results of HOS's operations
included in the Company's consolidated financial statements from the date of
acquisition. In connection with the acquisition, HOS elects to terminate its
S-corporation status in 1999.
On February 1, 1999, the Company acquired 3,200,000 shares of the common stock,
or 80% of the issued and outstanding capital stock of PPI Capital Corp. ("PPI",
FKA Pain Prevention, Inc., an Illinois corporation in the development stage) for
a cash purchase price of $20,000. The acquisition will be accounted for as a
purchase, with the assets acquired and liabilities assumed recorded at book
values, and the results of PPI's operations included in the Company's
consolidated financial statements from the date of acquisition. In connection
with the acquisition, PPI changed its fiscal year ending date from October 31st
to December 31st.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisitions ("Pro Forma") on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of December
31, 1998 is based on the historical balance sheets of the Company, "HOS" and
"PPI" as of that date and assumes the acquisitions took place on that date. The
condensed consolidated statements of income for the year ended December 31, 1998
are based on the historical statements of income of the Company, "HOS" and "PPI"
for that period. The pro forma condensed consolidated statements of income
assume the acquisitions took place on January 1, 1998.
NOTE 2 - The pro forma adjustments to the condensed consolidated balance sheet
are as follows:
(1) To reflect the acquisition of Hos-Pillow Corporation ("HOS") on the basis
of the book value of the assets acquired and liabilities assumed:
Issuance 200,000 shares of CGI's stock $ 954
Eliminate stockholders' equity of HOS (954)
--------
Cost in excess of net assets acquired $ 0
========
F-12
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
NOTE 2 - The pro forma adjustments to the condensed consolidated balance sheet
are as follows: (Continued)
(2) To reflect the acquisition of PPI Capital Corp. ("PPI") on the basis of the
book value of the assets acquired and liabilities assumed:
Total purchase price in cash $ 20,000
Less: 80% of PPI's stockholders equity 0
--------
Cost in excess of net assets acquired $ 20,000
========
NOTE 3 - The pro forma adjustments to the condensed consolidated statements of
income are as follows:
(3) Adjustment to Operating Expenses: Amortization
of excess cost over book value of net assets
acquired over 15 years $ 1,333
========
(4) To adjust tax expense to reflect the income tax effect at the Company's
effective tax rate of the pro forma adjustments to income before income
taxes after consideration of the following:
(a) Nondeductibility of the amortization of the cost in excess of net
assets acquired.
(b) HOS was a C-corporation in 1998.
(c) PPI's fiscal year ended on December 31st.
(5) To reflect minority interest of PPI Capital Corp. as of December 31, 1998:
Net Loss $1,400 * 20% minority interest = $280
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Circle Group Internet, Inc.
I have audited the accompanying balance sheet of Circle Group Internet, Inc. (an
Illinois corporation) as of December 31, 1998 and 1997, and the related
statements of income, retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted this audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provided a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Circle Group Internet, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Operations commenced January 1, 1997.
/s/ Harold Y. Spector
- ---------------------------
Pasadena, CA
March 8, 1999
F-14
<PAGE>
CIRCLE GROUP INTERNET, INC.
BALANCE SHEETS
DECEMBER 31, 1998 and 1997
ASSETS
1998 1997
----------- ----------
(Restated)
Current Assets
Cash $1,031,532 $ 36,993
----------- ----------
Total Current Assets 1,031,532 36,993
----------- ----------
Fixed Assets
Computer Equipment 47,463 33,643
Office Equipment 5,366 5,256
Office Furnishings 8,363 8,323
----------- ----------
61,192 47,222
Less: Accumulated Depreciation (35,288) (23,544)
----------- ----------
Total Fixed Assets 25,904 23,678
----------- ----------
TOTAL ASSETS $1,057,436 $ 60,671
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- ----------
(Restated)
Current Liabilities
Accounts Payable $ 7,500 $ 2,500
Income Taxes Payable 4,095 5,887
Note Payable to Stockholder 0 16,403
----------- ----------
Total Current Liabilities 11,595 24,790
----------- ----------
Long-Term Liabilities
Deferred Income Taxes 3,225 380
----------- ----------
Total Liabilities 14,820 25,170
----------- ----------
Stockholders' Equity
Common Stock, $.0001 par value; 50,000,000
shares authorized; 3,675,670 shares
issued and outstanding in 1998, 3,500,000
shares in 1997 367 350
Paid-in Capital 992,483 11,150
Retained Earnings 49,766 24,001
----------- ----------
Total Stockholders' Equity 1,042,616 35,501
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,057,436 $ 60,671
=========== ==========
See auditor's report and accompanying notes
F-15
<PAGE>
CIRCLE GROUP INTERNET, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
---------- ----------
(Restated)
Sales $ 338,333 $ 282,362
---------- ----------
Cost and Expenses:
Selling Expenses - Schedule A 108,047 118,621
Administrative Expenses - Schedule B 198,260 128,896
Total Cost and Expenses 306,307 247,517
---------- ----------
Income from Operations 32,026 34,845
---------- ----------
Other Income (Expenses)
Interest Income 1,732 0
Interest Expense 0 (4,577)
Penalties and Late Charge (289) 0
---------- ----------
Total Other Income (Expenses) 1,443 (4,577)
---------- ----------
Income before Taxes 33,469 30,268
Provision for Income Taxes 7,139 6,267
---------- ----------
Net Income 26,330 24,001
Retained Earnings
Beginning Balance 24,001 0
Prior year adjustment (565) 0
---------- ----------
Ending Balance $ 49,766 $ 24,001
========== ==========
Net Income per share $0.007 $0.007
====== ======
Weighted average shares outstanding 3,516,164 3,500,000
========= =========
See auditor's report and accompanying notes
F-16
<PAGE>
CIRCLE GROUP INTERNET, INC.
SELLING EXPENSES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Schedule A
1998 1997
---------- ----------
SELLING EXPENSES (Restated)
Commissions $ 4,269 $ 59,944
Entertainment 20 0
Internet Connections 5,568 8,123
Mailings 4,998 3,829
Outside Consultants 0 3,999
Printing 14,759 0
Research and Development 1,356 6,844
Service Fees 0 3,368
Software 42,687 7,684
Sub-Contractor Fees 28,162 24,830
Travel 6,228 6,228
---------- ----------
Total Selling Expenses $ 108,047 $ 118,621
========== ==========
See auditor's report and accompanying notes
F-17
<PAGE>
CIRCLE GROUP INTERNET, INC.
ADMINISTRATIVE EXPENSES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Schedule A
1998 1997
---------- ----------
ADMINISTRATIVE EXPENSES (Restated)
Accounting $ 24,029 $ 7,376
Advertising 662 0
Bank Charges 1,800 0
Charitable Contributions 0 73
Depreciation 11,744 23,544
Dues and Subscriptions 125 0
Equipment Rental 300 0
Insurance 7,080 5,227
Legal 43,005 6,169
Maintenance 4,395 9,146
Miscellaneous 0 8,687
Office Supplies 22,727 17,720
Outside Services 740 0
Rent 25,456 32,364
Security 0 576
Stocks Fees & Promotion 19,939 0
Telephone 17,237 18,014
Utilities 5,324 0
Vehicle 13,697 0
---------- ----------
Total Administrative Expenses $ 198,260 $ 128,896
========== ==========
See auditor's report and accompanying notes
F-18
<PAGE>
CIRCLE GROUP INTERNET, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
-------------------------------------------------------
Balance at 12/31/96 0 $ 0 $ 0 $ 0 $ 0
Issuance of stocks 3,500,000 350 11,150 11,500
Net Income 24,001 24,001
-------------------------------------------------------
Balance at 12/31/97 3,500,000 $ 350 $ 11,150 $ 24,001 $ 35,501
Prior year adjustment (565) (565)
-------------------------------------------------------
Adjusted Balance 3,500,000 $ 350 $ 11,150 $ 23,436 $ 34,936
Issuance of stocks 175,670 17 981,333 981,350
Net Income 26,330 26,330
-------------------------------------------------------
Balance at 12/31/98 3,675,670 $ 367 $992,483 $ 49,766 $1,042,616
=======================================================
See auditor's report and accompanying notes
F-19
<PAGE>
CIRCLE GROUP INTERNET, INC.
STATEMENT OF CASH FLOWS
FOR Years ENDED DECEMBER 31, 1998 and 1997
1998 1997
----------- ----------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 26,330 $ 24,001
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 11,744 23,544
Prior year adjustment (565) -
Increase (Decrease) in:
Accounts Payable 5,000 2,500
Income Taxes Payable (1,792) 5,887
Deferred Income Taxes 2,845 380
----------- ----------
Net cash provided by operating activities 43,562 56,312
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (13,970) (9,783)
----------- ----------
Net cash (used) by investing activities (13,970) (9,783)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment to Officer's Loans (16,403) (21,036)
Issuance of Common Stocks 981,350 11,500
----------- ----------
Net cash provided (used) by financing
activities 964,947 (9,536)
----------- ----------
NET INCREASE IN CASH 994,539 36,993
CASH BALANCE AT BEGINNING OF YEAR 36,993 0
----------- ----------
CASH BALANCE AT END OF YEAR $1,031,532 $ 36,993
=========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest $ 0 $ 4,757
========== =========
Cash paid for income taxes $ 6,375 $ 0
========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased from officer's Loans
in 1997 $ 37,439
=========
See auditor's report and accompanying notes
F-20
<PAGE>
CIRCLE GROUP INTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 1 - GENERAL
Circle Group Internet, Inc. (the "Company") was organized under the laws of the
state of Illinois on May 5, 1994. The Company had no activities and operations
until 1997.
The Company is engaged in the development and sales of Internet business
marketing tools.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company uses the accrual basis of accounting for financial reporting, in
accordance with generally accepted accounting principles.
Use of Estimate
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenue from sales is recognized when services are performed.
Fixed Assets
Fixed assets are stated at cost. Depreciation is calculated on the accelerated
method over the estimated useful lives of the assets. Management also elected to
expense the fixed assets under Section 179 of the Internal Revenue Code.
Total depreciation expense for years ended December 31, 1998 and 1997 was
$11,744 and $23,544.
Research and Development
Research and development expenditures are charged to expense as incurred.
F-21
<PAGE>
CIRCLE GROUP INTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts income taxes in accordance with Financial Accounting
Standards Board Statement No. 109.
Statement of Cash Flows
The Company prepares its statement of cash flows using the indirect method as
defined under Financial Accounting Standards Board Statement No. 95. For purpose
of the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
Reclassification
Certain reclassification have been made to the 1997 financial statements to
conform with the 1998 financial statement presentation. Such reclassification
had no effect on net income as previously reported.
NOTE 3 - PRIOR YEAR ADJUSTMENT
An understatement of 1997 reported penalties and late charge was discovered
during 1998. Correction of this error resulted in a decrease of previously
reported Retained Earnings for year ended December 31, 1997 amounting to $565.
This error has no effect on year of 1997.
NOTE 4 - PROVISION FOR INCOME TAXES
The components of income tax expense as of December 31, 1998 and 1997 were as
follows:
1998 1997
-------- --------
Current $ 4,294 $ 5,887
Deferred 2,845 380
-------- --------
Total $ 7,139 $ 6,267
======== ========
Temporary differences giving rise to the deferred tax consist primarily of the
excess depreciation for tax purposes over the amount for financial reporting
purposes.
F-22
<PAGE>
CIRCLE GROUP INTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 5 - REGULATION A OFFERING
The Company conducted an offering pursuant to Regulation A of the Securities Act
of 1933 as amended, and sold 175,670 shares of common stock, for $5.00 per share
in 1998. Total proceeds received related to the offering were $981,350. Expenses
related to the offering were $19,939.
NOTE 6 - RELATED PARTIES TRANSACTIONS
Note Payable to Stockholder
A note payable to an officer/stockholder was established to purchase various
property and equipment during the years. The note bears interest at 18% per
annum and is unsecured. Loan payments are made through the monthly payment to
the officer's various credit cards. The outstanding balance of the note as of
December 31, 1998 and 1997 was $0 and $16,403, respectively. Total interest paid
in 1997 was $4,577. None in 1998.
Sub-Contractor Fees
During 1997, an officer/stockholder received $12,903 for his consulting fees,
which was recorded in Sub-contractor Fees account. None was paid in 1998.
Executives and Directors Compensation
The services rendered by the officers and directors of the Company were
immaterial. No compensation was accrued in 1998 and 1997 nor prior years.
Lease Commitments
The Company leases facilities from an officer/stockholder on a month-to-month
basis. The lease requires monthly payments of $2,697, including utilities and
maintenance.
Rent expense incurred under this lease for years ended December 31, 1998 and
1997 was $25,456 and $32,364, respectively.
F-23
<PAGE>
CIRCLE GROUP INTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 7 - YEAR 2000
The Company believes that it has identified each of its computer systems that
will require modifications to enable it to perform satisfactorily on and after
January 1, 2000. The financial impact of making such modifications to the
Company's systems is not expected to be material to the Company's financial
position or results of operations. In addition, the Company is currently
corresponding with vendors that provide products and systems to the Company in
order to determine if such products and systems will be required to be upgraded
or replaced. Although management believes the Company has an adequate program in
place to address the year 2000 issue, the costs of upgrades to, or replacements
of, its purchased products or systems has not been determined and there can be
no assurance that the program will ultimately be successful.
NOTE 8 - SUBSEQUENT EVENT
The Regulation A offering in Note 5 was completed in 1999. Total proceeds
received in 1999 related to the offering were $1,518,650. The offering of
500,000 shares was fully subscribed and proceeds in the aggregate of $2,500,000
was received.
F-24
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and stockholders
of Hos-Pillow Corporation
I have audited the accompanying balance sheets of Hos-Pillow Corporation (an
Illinois S-corporation), as of December 31, 1998 and 1997, and the related
statements of income, retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audits have a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial positions of Hos-Pillow Corporation as of
December 31, 1998 and 1997, and the results of its operation and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Harold Y. Spector
- ---------------------
Pasadena, CA
June 4, 1999
F-25
<PAGE>
HOS-PILLOW CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 and 1997
ASSETS
1998 1997
---------- -------------
(As Restated)
Current Assets
Cash and Cash Equivalents $ 36,761 $ 51,098
Accounts Receivable 40,051 70,775
Inventories 46,328 41,437
----------- -----------
Total Current Assets 123,140 163,310
----------- -----------
Property and Equipment
Office Furniture and Equipment 24,209 21,201
Automobiles - 75,816
----------- -----------
24,209 97,017
Less: Accumulated Depreciation (24,209) (21,863)
----------- -----------
Total Property and Equipment 0 75,154
----------- -----------
Other Assets
Deposits 770 770
----------- -----------
Total Other Assets 770 770
----------- -----------
TOTAL ASSETS $ 123,910 $ 239,234
=========== ===========
See accompanying notes and independent auditor's report
F-26
<PAGE>
HOS-PILLOW CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---------- -------------
(As Restated)
Current Liabilities
Accounts Payable $ 118,761 $ 81,568
Accrued Expenses 4,195 3,808
Note Payable - Officer - 175
----------- -----------
Total Current Liabilities 122,956 85,551
----------- -----------
Long-Term Liabilities 0 0
----------- -----------
Total Liabilities 122,956 85,551
----------- -----------
Stockholders' Equity
Common Stock, no par value; 1000 shares
authorized; 100 shares issued and
outstanding 1,000 1,000
Retained Earnings (46) 152,683
----------- -----------
Total Stockholders' Equity 954 153,683
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 123,910 $ 239,234
=========== ===========
See accompanying notes and independent auditor's report
F-27
<PAGE>
HOS-PILLOW CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
----------- -----------
(As Restated)
SALES $ 873,713 $1,028,719
COST OF SALES - SCHEDULE A 649,596 828,046
----------- -----------
GROSS PROFIT 224,117 200,673
OPERATING EXPENSES - SCHEDULE B 76,647 85,125
----------- -----------
INCOME (LOSS) FROM OPERATIONS 147,470 115,548
----------- -----------
OTHER INCOME (EXPENSES)
Dividend Income 2,716 3,195
Depreciation (4,386) (2,072)
Interest Expense - (38)
Officer's Salaries (14,500) (13,500)
Loss on Disposal of Assets (6,464) -
----------- -----------
Total Other Income (Expenses) (22,634) (12,415)
----------- -----------
NET INCOME (LOSS) BEFORE TAXES 124,836 103,133
PROVISION FOR INCOME TAXES 1,856 1,426
----------- -----------
NET INCOME (LOSS) 122,980 101,707
RETAINED EARNINGS
Beginning Balance 152,683 123,151
Prior Period Adjustment - (142)
Less: Distributions (275,709) (72,033)
----------- -----------
Ending Balance $ (46) $ 152,683
=========== ===========
See accompanying notes and independent auditor's report
F-28
<PAGE>
HOS-PILLOW CORPORATION
COST OF SALES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
SCHEDULE A
1998 1997
---------- -------------
(As Restated)
COST OF SALES
Beginning Inventory $ 41,437 $ 46,854
Purchases 639,724 795,010
Freight & Shipping 14,763 27,619
----------- ----------
695,924
Less: Ending Inventory (46,328) (41,437)
----------- ----------
Total Cost of Sales $ 649,596 $ 828,046
=========== ==========
See accompanying notes and independent auditor's report
F-29
<PAGE>
HOS-PILLOW CORPORATION
OPERATING EXPENSES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
SCHEDULE B
1998 1997
---------- -------------
(As Restated)
OPERATING EXPENSES
Accounting $ 4,650 $ 4,850
Automobile 213 456
Bank Charge 865 589
Dues and Subscriptions 35 166
Insurance 1,143 2,483
Legal - 1,826
Miscellaneous 60 575
Office Supplies 3,500 3,174
Postage 2,081 2,322
Rent 9,179 10,700
Salaries and Wages 37,737 37,657
Taxes/Franchise 50 50
Taxes/Payroll 7,090 6,223
Telephone 5,345 6,745
Travel 3,022 5,596
Utilities 1,677 1,713
----------- ----------
Total Operating Expenses $ 76,647 $ 85,125
=========== ==========
See accompanying notes and independent auditor's report
F-30
<PAGE>
HOS-PILLOW CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Common Stock Retained
Shares Amount Earnings Total
---------------------------------------------
Balance at December 31, 1996 100 $1,000 $ 123,151 $ 124,151
Prior Period Adjustment (142) (142)
---------------------------------------------
Adjusted Balance at 12/31/96 100 $1,000 $ 123,009 $ 124,009
Net Income (As Restated) 101,707 101,707
Shareholders' Distributions (72,033) (72,033)
---------------------------------------------
Balance at December 31, 1997 100 $1,000 $ 152,683 $ 153,683
Net Income 122,980 122,980
Shareholders' Distributions (275,709) (243,458)
---------------------------------------------
Balance at December 31, 1998 100 $1,000 $ (46) $ 954
=============================================
See accompanying notes and independent auditor's report
F-31
<PAGE>
HOS-PILLOW CORPORATION
STATEMENT OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
---------- ----------
(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 122,980 $ 101,707
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 4,386 2,072
Loss on Disposal of Assets 6,464 -
(Increase) Decrease in:
Accounts Receivable 30,724 30,361
Inventories (4,891) 5,417
Increase (Decrease) in:
Accounts Payable 37,193 (68,713)
Accrued Expenses 387 940
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 197,243 71,784
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (3,008) (14,392)
---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES (3,008) (14,392)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment to Officers' Loan (175) -
Distributions to Shareholders (208,397) (72,033)
---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (208,572) (72,033)
---------- ----------
NET INCREASE (DECREASE) IN CASH (14,337) (14,641)
BEGINNING OF YEAR 51,098 65,739
---------- ----------
END OF YEAR $ 36,761 $ 51,098
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Year for:
Interest $ 0 $ 38
========== ==========
Income Tax $ 1,532 $ 882
========== ==========
Noncash investing and financing activities:
A shareholder's draw of $67,312 is accrued for a disposal of an automobile:
Net book value of Automobile $ 73,776
Loss on Disposal of Assets (6,464)
----------
$ 67,312
==========
See accompanying notes and independent auditor's report
F-32
<PAGE>
HOS-PILLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 1 - GENERAL
Hos-Pillow Corporation ("the Company") was formed under the laws of Illinois on
January 23, 1981.
Hos-Pillow Corporation is engaged in sales of blankets and pillows to airlines
and railroad transportation companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company uses the accrual basis of accounting in accordance with generally
accepted accounting principles.
Use of estimates
The preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that directly affect the results of reported assets,
liabilities, revenue, and expenses. Actual results may differ from these
estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
The Company prepares its statements of cash flows using the indirect method as
defined under Financial Accounting Standards Board Statement No. 95.
Accounts Receivable
The Company has not established an allowance for doubtful accounts and does not
use reserve method for recognizing bad debts. Bad debts are treated as direct
write-offs in the period management determines that collection is not probable.
There was no bad debt expense neither in 1998 nor 1997.
Inventories
Costs incurred for materials, technology and shipping are capitalized as
inventories and charged to cost of sales when revenue is recognized. Inventories
consist of finished goods and are stated at the lower of cost or market, using
the first-in, first-out method.
F-33
<PAGE>
HOS-PILLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and Equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Depreciation is computed on the accelerated
method based on the estimated useful lives of the assets. Management also
elected to expense the fixed assets under Section 179 of the Internal Revenue
Code. Depreciation expense in 1998 and 1997 was $4,386 and $2,072, respectively.
Income Taxes
The Company is taxed as an S corporation under the Internal Revenue Code and
applicable state statutes. Under an S Corporation election, the income of the
Corporation flows through to the stockholders to be taxed at the individual
level rather than the corporate level. Accordingly, no provision or liability
for federal income taxes has been included in the financial statements. State
income taxes are provided based on statutory rates.
NOTE 3 - NOTE PAYABLE - OFFICER
As of December 31, 1997, the Company had a note payable to an officer in the
amount of $175. The note was paid in full in 1998. Interest charged to the note
was $0 and $38 for years ended December 31, 1998 and 1997, respectively.
NOTE 4 - DISTRIBUTIONS
The Company distributed all of its retained earnings to the shareholders at the
end of each year. Total distributions in 1998 and 1997 was $243,458 and $72,033,
respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company sold its automobile (in which the Company had 25% interest) to a
shareholder for $41,800. The Company included the payment as a Distribution.
This transaction resulted in a net loss of $6,464.
F-34
<PAGE>
HOS-PILLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 6 - PRIOR YEARS' ADJUSTMENT
Certain errors, resulting in both the overstatement and understatement of
assets, stockholders' equity and expenses of the prior year were corrected in
this year. These errors had no effects on 1998. The changes to retained earnings
as of December 31, 1997 and the related statement of income for the year then
ended are summarized as follows:
Retained Net
Earnings Income
-------- --------
As previously reported, December 31, 1997 $152,857 $101,739
Adjustments:
Understatement of Accumulated Depreciation (142) -
Understatement of state income taxes (32) (32)
-------- --------
As restated and adjusted, December 31, 1997 $152,683 $101,707
======== ========
NOTE 7 - LEASE COMMITMENTS
The Company leases its office facilities for $898 per month. The lease expires
September 2001. Rent expense charged to operations was $9,179 and $10,700 for
years ended December 31, 1998 and 1997, respectively.
As of December 31, 1998, the minimum commitments under these leases are as
follows:
Year ended
December 31, Amount
------------ --------
1999 $10,488
2000 10,872
2001 8,370
-------
Total $29,730
=======
NOTE 8 - YEAR 2000
The Company believes that it has identified each of its computer systems that
will require modifications to enable it to perform satisfactorily on and after
January 1, 2000. The financial impact of making such modifications to the
Company's systems is not expected to be material to the Company's financial
position or results of operations. In addition, the Company is currently
corresponding with vendors that provide products and systems to the Company in
order to determine if such products and systems will be required to be upgraded
or replaced. Although management believes the Company has an adequate program in
place to address the Year 2000 issue, the costs of upgrades to, or replacements
of, its purchased products or systems has not been determined and there can be
no assurance that the program will ultimately be successful.
F-35
<PAGE>
HOS-PILLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 9 - SUBSEQUENT EVENT
On January 2 1999, the Company entered into an agreement provided that the
Company will be acquired by Circle Group Internet, Inc. ("CGI", an Illinois
corporation) in a stock for stock transaction. CGI will acquire all of the
issued and outstanding shares of the Company in exchange for 200,000 common
shares of CGI. This transaction will be accounted for as a purchase.
F-36
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
this offering, and any information or representations not contained herein must
not be relied upon as having been authorized by the Company or any other person.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities to which it relates, or any offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any offer or sale make
hereunder shall, under any circumstances, create an implication that information
contained herein is correct at any time subsequent to the date hereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page No.
--------
Prospectus Summary ................................
Summary Financial Data ............................
Risk Factors ......................................
Use of Proceeds ...................................
Capitalization ....................................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .........................
Business...........................................
Management ........................................
Indemnification of Officers and
Directors..........................................
Certain Relationships and
Related Transactions...............................
Principal Shareholders ............................
Market For Our Securities .........................
Selling Security Holders ..........................
Plan of Distribution ..............................
Description of Securities .........................
Legal Matters .....................................
Experts ..........................................
Index to Financial Statements .....................
1,569,200 Shares
CIRCLE GROUP INTERNET, INC.
____________, 1999
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Articles of Incorporation of Circle Group Internet, Inc. (the
"Company") provide indemnification of directors and officers and other corporate
agents to the fullest extent permitted pursuant to the laws of Illinois. The
Articles of Incorporation also limit the personal liability of the Company's
directors to the fullest extent permitted by the Illinois Business Corporation
Act contains provisions entitling our directors and officers to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
Circle Group Internet, provided said officers or directors acted in good faith.
Insofar as indemnification or liabilities arising under the Securities
Act may be permitted to our directors, officers or controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by one of our directors, officers or controlling
persons 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 such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered hereby. The
Company is responsible for the payment of all expenses set forth below.
Registration fee $ 4,363
Application fee for the Nasdaq Stock Market, Inc. 75,625
Blue Sky filing fees and expenses 0
Printing and engraving expenses 8,000
Legal fees and expenses 50,000
Accounting fees and expenses 29,000
Miscellaneous 1,000
--------
Total $167,988
========
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Between June 1998 and January 1999, we sold an aggregate of 1,000,000
shares of our Common Stock in an offering exempt from registration under the
Securities Act pursuant to Regulation A thereof. The offering, which was a
self-underwritten direct public offering conducted by us via the Internet,
resulted in gross proceeds to us of $2,500,000. We paid no underwriting fees,
discounts or commissions in connection therewith.
In March 1999 we issued warrants to purchase an aggregate of 103,590
shares of our Common Stock, exercisable at $2.50 per share, which are
exercisable until March 2002, to consultants who rendered various services to
us.
Between March 1 and March 15, 1999, we sold 129,800 shares of Common
Stock to accredited investors who had preexisting relationships with us in a
private placement exempt from registration in reliance on Section 4(2) and Rule
506, Regulation D, of the Securities Act, resulting in gross proceeds to us of
$324,500. We paid no underwriting fees, discounts or commissions in connection
therewith.
On April 1, 1999; May 1, 1999; June 1, 1999 and July 1, 1999, we issued
an aggregate of 4,000 shares of Common Stock to EBS Public Relations, Inc. for
public relations services rendered to us under an agreement dated March 4, 1999.
EBS had access to, or was otherwise provided with, information, including
financial, concerning our company. Accordingly, the issuance of the shares of
Common Stock were exempt from registration pursuant to Section 4(2) of the
Securities Act.
On April 1, 1999; May 1, 1999; June 1, 1999 and July 1, 1999, we issued
200 shares of Common Stock to Ms. Mary Lytle for tutoring services rendered in
connection with the testing of our management for certain broker-dealer
licenses. Ms. Lytle had access to, or was otherwise provided with, information,
including financial, concerning our company. Accordingly, the issuance of the
shares of Common Stock were exempt from registration pursuant to Section 4(2) of
the Securities Act.
Between April 1, 1999 and July 22, 1999, we sold 1,319,200 shares of
its Common Stock to accredited investors with whom we had pre-existing
relationships in a private placement exempt from registration under the
Securities Act in reliance on Section 4(2) and Rule 506, Regulation D, of the
Securities Act. We received $13,192,000 in gross proceeds in the private
placement and paid no underwriting fees, discounts or commissions in connection
therewith.
ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibits
II-2
<PAGE>
3.1 Articles of Incorporation of Circle Group Internet, Inc.
3.2 Articles of Amendment dated December 8, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.3 Articles of Amendment dated December 15, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.4 By-Laws of Circle Group Internet, Inc.
4.1 Specimen Common Stock Certificate
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.1 Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Gregory J. Halpern
10.2 Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Dana L. Dabney
10.3 Employment Agreement dated February 1, 1999 between Circle Group
Internet, Inc. and Frank K. Menon
10.4 Employment Agreement dated May 1, 1999 between Circle Group
Internet, Inc. and Arthur C. Tanner
10.5 Employment Agreement dated March 1, 1999 between Circle Group
Internet, Inc. and Erik J. Brown
10.6 Employment Agreement dated June 1, 1999 between Circle Group
Internet, Inc. and Michael J. Theriault
10.7 1999 Stock Option Plan of Circle Group Internet, Inc.
10.8 Stock Purchase Agreement dated January 2, 1999 between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
10.9 Stock Purchase Agreement dated March 8, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company, Inc. and CIG
Securities, Inc.
10.10 Extension Agreement dated May 25, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company and CIG Securities,
Inc.
10.11 Stock Purchase Agreement dated February 1, 1999 between Gregory
Halpern and Circle Group Internet, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Harold Y. Spector, Certified Public Accountant
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. is included in
Exhibit 5
27* Financial Data Schedule
99 Letter dated July 14, 1999 to the Securities and Exchange
Commission requesting no-action regarding CIG Securities, Inc.
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) We hereby undertake:
II-3
<PAGE>
(1) To file, during any period in which we offer or sell
securities, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of 1933,
as amended, treat each post-effective amendment as a new registration statement
relating to the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Circle Group Internet, Inc. pursuant to the foregoing provisions, or
otherwise, we have been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of Circle Group Internet, Inc.
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 such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
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 of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of
Mundelein, State of Illinois, on July 22, 1999.
CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory J. Halpern
---------------------------
Gregory J. Halpern, Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Gregory J. Halpern Director and Chief Executive Officer July 22, 1999
- -----------------------------
Gregory J. Halpern
/s/ Frank K. Menon Director and President July 22, 1999
- ------------------------------
Frank K. Menon
/s/ Dana L. Dabney Director, Vice President of July 22, 1999
- -----------------------------
Dana L. Dabney Human Resources
/s/Arthur C. Tanner Chief Financial Officer July 22, 1999
- -------------------------------
Arthur C. Tanner
/s/Michael J. Theriault Chief Operating Officer July 22, 1999
- -------------------------------
Michael J. Theriault
/s/ Edward Halpern Director July 22, 1999
- -------------------------------
Edward Halpern
Director
- -------------------------------
Charles S. Blumenfield
Director
- -------------------------------
Doron C. Levitas
</TABLE>
II-5
The foregoing represents a majority of the Board of Directors
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1 Articles of Incorporation of Circle Group Internet, Inc.
3.2 Articles of Amendment dated December 8, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.3 Articles of Amendment dated December 15, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.4 By-Laws of Circle Group Internet, Inc.
4.1 Specimen Common Stock Certificate
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.1 Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Gregory J. Halpern
10.2 Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Dana L. Dabney
10.3 Employment Agreement dated February 1, 1999 between Circle Group
Internet, Inc. and Frank K. Menon
10.4 Employment Agreement dated May 1, 1999 between Circle Group
Internet, Inc. and Arthur C. Tanner
10.5 Employment Agreement dated March 1, 1999 between Circle Group
Internet, Inc. and Erik J. Brown
10.6 Employment Agreement dated June 1, 1999 between Circle Group
Internet, Inc. and Michael J. Theriault
10.7 1999 Stock Option Plan of Circle Group Internet, Inc.
10.8 Stock Purchase Agreement dated January 2, 1999 between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
10.9 Stock Purchase Agreement dated March 8, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company, Inc. and CIG
Securities, Inc.
10.10 Extension Agreement dated May 25, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company and CIG Securities,
Inc.
10.11 Stock Purchase Agreement dated February 1, 1999 between Gregory
Halpern and Circle Group Internet, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Harold Y. Spector, Certified Public Accountant
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. is included in
Exhibit 5
27* Financial Data Schedule
99 Letter dated July 14, 1999 to the Securities and Exchange
Commission requesting no-action regarding CIG Securities, Inc.
* To be filed by amendment.
ARTICLES OF INCORPORATION
May 5, 1994
George H. Ryan
Secretary of State
1. CORPORATE NAME: CIRCLE GROUP ENTERTAINMENT LTD.
(The corporate name must contain the work "corporation," "company,"
"incorporated," "limited" or an abbreviation thereof.)
2. Initial Registered Agent: Jonathan R. Toby
--------------------------------------------------
First Name Middle Initial Last Name
Initial Registered Office: 435 E. Hawley, Box 366
--------------------------------------------------
Number Street Suite #
Mundelein, IL 60060 Lake
--------------------------------------------------
City Zip Code County
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
INTERNET & FILM PRODUCTION
4. Paragraph 1: Authorized shares, Issued Shares and consideration Received:
<TABLE>
<CAPTION>
Number of Consideration to
Par Value Shares Number of Shares be Received
Class per Share Authorized Proposed to be Issued Therefor
----- --------- ---------- --------------------- --------
<S> <C> <C> <C> <C>
Common $ No 1,000 1,000 $ 1,000
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation: _____________________________.
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or
until their successors are elected and qualify:
Residential Residential Address
------------------------------------------------------------
------------------------------------------------------------
6. OPTIONAL: (a) It is estimated that the value of all
property to be owned by the corporation
for the following
<PAGE>
<TABLE>
<S> <C>
year wherever located will be: $_______________________
(b) It is estimated that the value of
the property to be located within
the State of Illinois during the
following year will be: $_______________________
(c) It is estimated that the gross
amount of business that will be
transacted by the corporation
during the following year will be: $_______________________
(d) It is estimated that the gross
amount of business that will be
transacted from places of business
in the State of Illinois during the
following year will be: $______________________
</TABLE>
7. OPTIONAL: OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation, e.g., authorizing
preemptive rights, denying cumulative voting, regulating internal
affairs, voting majority requirements, fixing a duration other
than perpetual, etc.
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated: 5-2, 1994
<TABLE>
<CAPTION>
Signature and Name Address
<S> <C>
1. /s/ Gregory J. Halpern 1. 3330 Dundee Road, #C-1
------------------------------ ------------------------------------
Signature Street
Gregory J. Halpern Northbrook, IL 60062
------------------------------ ------------------------------------
(Type or Print Name) City/Town State Zip Code
2. ------------------------------ 2. ------------------------------------
Signature Street
------------------------------ ------------------------------------
(Type of Print Name) City/Town State Zip Code
3. 3.
------------------------------ ------------------------------------
Signature Street
------------------------------ ------------------------------------
(Type of Print Name) City/Town State Zip Code
</TABLE>
(Signatures must be in ink on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown and the execution shall be by its
president or vice president and verified by him, and attested by its secretary
or assistant secretary.
2
<PAGE>
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, Articles of Amendment to the Articles of Incorporation of
CIRCLE GROUP ENTERTAINMENT, LTD. Incorporated under the laws of the State of
Illinois have been filed in the office of the Secretary of State as provided by
the Business Corporation Act of Illinois, in force July 1, A.D. 1984.
Now, Therefore, I, George H. Ryan, Secretary of State of the State of
Illinois, by virtue of the powers vested in me by law, do hereby issue this
certificate and attach hereto a copy of the Application of the aforesaid
corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 15th day
of December, A.D., 1997 and of the Independence of the United States the two
hundred and 22nd.
Secretary of State
ARTICLES OF AMENDMENT
FILED
December 8, 1997
George H. Ryan
Secretary of State
1. CORPORATE NAME: CIRCLE GROUP ENTERTAINMENT, LTD.
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted
on: February 1, 1997 in the manner indicated below. ("X" one box only)
o By a majority of the incorporators, provided no directors were
named in the articles of incorporation and no directors have been
elected;
(Note 2)
o By a majority of the board of directors, in accordance with
Section 10.10, the corporation having issued no shares as of the
time of adoption of this amendment;
(Note 2)
o By a majority of the board of directors, in accordance with
Section 10.15, shares having been issued by shareholder action not
being required for the adoption of the amendment;
(Note 3)
o By the shareholders, in accordance with Section 10.20, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. At a meeting of shareholders, not
less than the minimum number of votes required by statute and by
the articles of incorporation were voted in favor of the
amendment;
(Note 4)
o By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been
signed y shareholders having not less than the minimum number of
votes required by statute and by the articles of incorporation.
Shareholders who have not consented in writing have been given
notice in accordance with Section 7.10;
(Notes 4 & 5)
o By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been
signed by all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
1
<PAGE>
a. When amendment effects a name change, insert the new corporate
name below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
CIRCLE GROUP INTERNET INC.
--------------------------------------------------------------
(NEW NAME)
Mail to: 340 Bingham Circle, Mundelein, IL 60060
Text of Amendment
b. (If amendment affects the corporate purpose, the amended
purpose is required to be set forth in its entirety. If there
is not sufficient space to do so, add one or more sheets of
this size.)
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of
the number of authorized shares of any class below the number of issued
shares of that class, provided for or effected by this amendment is as
follows: (If not applicable, insert "No change")
N/A
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital
replaces the terms Stated Capital and paid-in Surplus and is equal to
the total of these accounts) is as follows:
(If not applicable, insert "No change")
N/A
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Pain-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not
applicable, insert "No change")
Before Amendment After Amendment
Paid-in Capital $ 1,000 $ 1,000
(Complete either Item 6 or 7 below. All signatures must be in BLACK INK.)
2
<PAGE>
6. The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of
perjury, that the facts stated herein are true.
<TABLE>
<S> <C>
Dated: 6-18, 1997 Circle Group Entertainment, Ltd.
--------------------------------------- ------------------------------------------------
(Exact Name of Corporation at date of execution)
attested by /s/ Dana L. Dabney by /s/ Gregory J. Halpern
---------------------------------- ---------------------------------------------
(Signature of Secretary or Assistant Secretary) (Signature of President or Vice President)
DANA L. DABNEY, Secretary GREGORY J. HALPERN, President
---------------------------------------------- ------------------------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the
incorporators, the incorporators must sign below, and type or print
name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10
and there are no officers, then a majority of the directors or such
directors as may be designated by the board, must sign below, and type
or print name and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Date:__________________, 19___
------------------------------ ---------------------------------
------------------------------ ---------------------------------
------------------------------ ---------------------------------
3
<PAGE>
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, Articles of Amendment to the Articles of Incorporation of
CIRCLE GROUP INTERNET INC. Incorporated under the laws of the State of Illinois
have been filed in the office of the Secretary of State as provided by the
Business Corporation Act of Illinois, in force July 1, A.D. 1984.
Now, Therefore, I, George H. Ryan, Secretary of State of the State of
Illinois, by virtue of the powers vested in me by law, do hereby issue this
certificate and attach hereto a copy of the Application of the aforesaid
corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 15th day
of December, A.D., 1997 and of the Independence of the United States the two
hundred and 22nd.
Secretary of State
ARTICLES OF AMENDMENT
FILED
December 15, 1997
George H. Ryan
Secretary of State
1. CORPORATE NAME: CIRCLE GROUP INTERNET INC.
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted
on: September 30, 1997 in the manner indicated below. ("X" one box
only)
o By a majority of the incorporators, provided no directors were
named in the articles of incorporation and no directors have been
elected;
(Note 2)
o By a majority of the board of directors, in accordance with
Section 10.10, the corporation having issued no shares as of the
time of adoption of this amendment;
(Note 2)
o By a majority of the board of directors, in accordance with
Section 10.15, shares having been issued by shareholder action not
being required for the adoption of the amendment;
(Note 3)
o By the shareholders, in accordance with Section 10.20, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. At a meeting of shareholders, not
less than the minimum number of votes required by statute and by
the articles of incorporation were voted in favor of the
amendment;
(Note 4)
o By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been
signed y shareholders having not less than the minimum number of
votes required by statute and by the articles of incorporation.
Shareholders who have not consented in writing have been given
notice in accordance with Section 7.10;
(Notes 4 & 5)
o By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been
signed by all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
<PAGE>
a. When amendment effects a name change, insert the new corporate
name below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
-------------------------------------------------------------
Text of Amendment
b. (If amendment affects the corporate purpose, the amended
purpose is required to be set forth in its entirety. If there
is not sufficient space to do so, add one or more sheets of
this size.)
Paragraph 4. Paragraph I thereof of the Articles of Incorporation is
amended to read in full as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is Fifty Million (50,000,000). The par value of each
of the shares is $.0001. All such shares are one class and the shares
are Common Stock.
Upon the amendment of this Article to read as hereinabove set forth,
the One Thousand (1,000) shares issued and outstanding is split,
reconstituted and converted into Three Million Five Hundred Thousand
(3,500,000) shares.
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of
the number of authorized shares of any class below the number of issued
shares of that class, provided for or effected by this amendment is as
follows: (If not applicable, insert "No change")
See 3b above
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital
replaces the terms Stated Capital and paid-in Surplus and is equal to
the total of these accounts) is as follows:
(If not applicable, insert "No change")
No change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Pain-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not
applicable, insert "No change")
No change
2
<PAGE>
Before Amendment After Amendment
Paid-in Capital $_____________ $_____________
(Complete either Item 6 or 7 below. All signatures must be in BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of
perjury, that the facts stated herein are true.
<TABLE>
<S> <C>
Dated: November 26, 1997 Circle Group Internet Inc.
---------------------------------------- ---------------------------------------------------
(Exact Name of Corporation at date of execution)
attested by /s/ Dana L. Dabney by /s/ Gregory J. Halpern
-------------------------------------- -------------------------------------------------
(Signature of Secretary or Assistant Secretary) (Signature of President or Vice President)
DANA L. DABNEY GREGORY J. HALPERN
----------------------------------------------- ---------------------------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the
incorporators, the incorporators must sign below, and type or print
name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10
and there are no officers, then a majority of the directors or such
directors as may be designated by the board, must sign below, and type
or print name and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Date:__________________, 19___
------------------------------ ---------------------------------
------------------------------ ---------------------------------
------------------------------ ---------------------------------
3
BYLAWS
OF
CIRCLE GROUP ENTERTAINMENT, LTD.
A Corporation of the State of Illinois
ARTICLE I
OFFICES
SECTION 1.1. Illinois Registered Office. The corporation shall
continuously maintain in the State of Illinois a registered office and
registered agent whose office is identical with such registered office.
SECTION 1. 2. Other Offices. The corporation may have other offices
within or without the state.
ARTICLE II
SHAREHOLDERS
SECTION 2. 1. Annual Meeting. An annual meeting of the shareholders
shall be held at 1:00 p.m. on the 1st day of June for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
SECTION 2.2. Special Meetings. Special meetings of the shareholders may
be called either by the President, the board of directors, or at the request of
the shareholders owning at least 10% of the issued and outstanding shares of the
corporation, entitled to vote, for the purpose or purposes stated in the call of
the meeting.
SECTION 2.3. Place of Meeting. The board of directors may designate any
place as the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be at the corporation's
principal address.
SECTION 2.4. Notice of Meetings. Written notice stating the place, date
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting or, in the case of a
merger, consolidation, share exchange,
<PAGE>
dissolution, or sale, lease, or exchange of assets, not less than twenty nor
more than sixty days before the meeting, either personally or by mail, by or at
the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
with the United States Postal Service, addressed to the shareholder at his
address as it appears on the records of the corporation, with postage thereon
prepaid. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken.
SECTION 2.5. Meeting of all Shareholders. If all of the shareholders
shall meet at any time and place either within or without the State of Illinois,
and consent to the holding of a meeting at such time and place, such meeting
shall be valid without call or notice, and at such meeting any corporate action
may be taken.
SECTION 2.6. Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders, such date in any case to be not more than sixty
days and for a meeting of shareholders, not less than ten days, or in the case
of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than twenty days before the date of such meeting.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is mailed
or the date on which the resolution of the board of directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. A determination of shareholders shall apply to
any adjournment of the meeting.
SECTION 2.7. Voting Lists. The officer or agent having charge of the
transfer books for shares of the corporation shall make, within twenty days
after record date or ten days before each meeting of shareholders, whichever is
earlier, a complete list of the shareholders entitled to vote at such meeting,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of each shareholder, which list, for a period of ten days
prior to such meeting, shall be kept on file at the registered office of the
corporation and shall be open to inspection by any shareholder for any purpose
germane to the meeting, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and may be
inspected by any shareholder during the whole time of the meeting. The original
share ledger or transfer book, or a duplicate thereof kept in this State, shall
be prima facie evidence as to who are the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 2.8. Quorum. The holders of a majority of the outstanding
shares of the corporation, present in person or represented by proxy, shall
constitute a quorum at
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any meeting of shareholders; provided that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares so
represented may adjourn the meeting at any time without further notice. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by The Business Corporation
Act or the Articles of Incorporation. At any adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the original meeting. Withdrawal of shareholders from any meeting
shall not cause failure of a duly constituted quorum at that meeting.
SECTION 2.9. Voting of Shares. Unless otherwise provided in the
Articles of Incorporation and subject to the provisions of Section 2.11 of this
Article II, each outstanding share, regardless of class, shall be entitled to
one vote upon each matter submitted to vote at a meeting of shareholders.
SECTION 2.10. Voting of Shares by Certain Holders.
(a) Shares held by the corporation in a fiduciary capacity may be voted
and shall be counted in determining the total number of outstanding
shares entitled to vote at any given time.
(b) Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of
incorporation of such corporation.
(c) Shares registered in the name of a deceased person, a minor ward or
a person under legal disability may be voted by his or her
administrator, executor or court appointed guardian, either in person
or by proxy, without a transfer of such shares into the name of such
administrator, executor or court appointed guardian. Shares registered
in the name of a trustee may be voted by him or her, either in person
or by proxy.
(d) Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his or her
name if authority to do so is contained in an appropriate order of the
court by which such receiver was appointed.
(e) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred.
(f) Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their shares, for a period not to exceed ten years,
by entering into a written voting trust agreement specifying the terms
and conditions of the voting trust, and by
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transferring their shares to such trustee or trustees for the purpose
of the agreement. Any such trust agreement shall not become effective
until a counterpart of the agreement is deposited with the corporation
at its registered office. The counterpart of the voting trust agreement
so deposited with the corporation shall be subject to the same right of
examination by a shareholder of the corporation, in person or by agent
or attorney, as are the books and records of the corporation, and shall
be subject to examination by any holder of a beneficial interest in the
voting trust, either in person or by agent or attorney, at any
reasonable time for any proper purpose.
(g) Shareholders may provide for the voting of their shares by signing
an agreement for that purpose. A voting agreement under this subsection
is not subject to the provisions of subsection (f) above.
SECTION 2.11. Proxies. Each shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 2.12. Cumulative Voting. Unless otherwise provided in the
Articles of Incorporation, in all elections for directors, every shareholder
shall have the right to vote, in person or by proxy, the number of shares owned
by him for as many persons as there are directors to be elected, or to cumulate
said shares, and give one candidate as many votes as the number of directors
multiplied by the number of his shares shall equal, or to distribute them on the
same principle among as many candidates as he shall see fit.
SECTION 2.13. Inspectors. At any meeting of shareholders, the chairman
of the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
(a) Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the results;
and do such other acts as are proper to conduct the election and voting
with impartiality and fairness to all the shareholders.
(b) Each report of an inspector shall be in writing and signed by him
or by a majority of them if there be more than one inspector acting at
such meeting. If there is more than one inspector, the report of a
majority shall be the report of the inspectors. The report of the
inspector or inspectors on the number of shares represented at the
meeting and the results of the voting shall be prima facie evidence
thereof.
SECTION 2.14. Voting by Ballot. Voting on any question or in any
election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
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SECTION 2.15. Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting, if a
consent in writing, setting forth the action so taken, shall be signed
(a) if five days prior notice of the proposed action is given in
writing, then to all of the shareholders entitled to vote with respect
to the subject matter thereof, by the holders of outstanding shares
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voting, or
(b) by all of the shareholders entitled to vote with respect to the
subject matter thereof.
ARTICLE III
DIRECTORS
SECTION 3.1. General Powers. The business of the corporation shall be
managed by, or under the direction of, its board of directors.
SECTION 3.2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be three. Each director shall hold office until the
next annual meeting of shareholders or, thereafter, until his successor shall
have been elected. Directors need not be residents of Illinois or shareholders
of the corporation. The number of directors may be increased or decreased from
time to time by the amendment of this section, but no decrease shall have the
effect of shortening the term of any incumbent director. A director may resign
at any time by giving written notice to the board of directors, its chairman, or
to the president or secretary of the corporation. A resignation is effective
when the notice is given unless the notice specifies a future date. The pending
vacancy may be filled before the effective date, but the successor shall not
take office until the effective date.
SECTION 3.3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw, immediately after
the annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 3.4. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president or any one or more
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place as the place for holding any special
meeting of the board of directors called by them.
SECTION 3.5. Notice. Notice of any special meeting shall be given at
least five days previous thereto by written notice to each director at his
business address. If
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mailed, such notice shall be deemed to be delivered when deposited with the
United States Postal Service so addressed, with postage thereon prepaid. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. The attendance of a director
at any meeting shall constitute a waiver of notice of such meeting except where
a director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 3.6. Quorum. A majority of the number of directors fixed by
these bylaws shall constitute a quorum for transaction of business at any
meeting of the board of directors, provided that if fewer than a majority of
such number of directors are present at said meeting, a majority of the
directors present may adjourn the meeting at any time without further notice.
SECTION 3.7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors unless the act of a greater number is required by statute, these
bylaws, or the Articles of Incorporation.
SECTION 3.8. Director Participation in meeting by Telecommunications. A
director may participate in a meeting of the board of directors by means of
conference telephone or similar communications equipment enabling all directors
participating in the meeting to hear one another, and participation in a meeting
pursuant to this section shall constitute presence in person at such meeting.
SECTION 3.9. Informal Action by Director. Unless specifically
prohibited by the Articles of Incorporation or these bylaws, any action required
to be taken at a meeting of the board of directors of the corporation, or any
other action which may be taken at a meeting of the board of directors or a
committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the directors
entitled to vote with respect to the subject matte thereof, or by all the
members of such committee, as the case may be. Any such consent signed by all
the directors or all the members of the committee shall have the same effect as
a unanimous vote and may be stated as such in any document filed with the
Secretary of State or elsewhere.
SECTION 3.10. Vacancies. Any vacancy occurring in the board of
directors and any directorship to be filled by reason of an increase in the
number of directors may be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose.
SECTION 3.11. Removal of Directors. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the
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holders of a majority of the outstanding shares then entitled to vote at an
election of directors, except as follows:
(a) No director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is
to vote upon the removal of one or more directors named in the notice.
Only the named director or directors may be removed at such meeting.
(b) In the case of a corporation having cumulative voting, if less than
the entire board is to be removed, no director may be removed, with or
without cause, if the votes cast against his or her removal would be
sufficient to elect him or her if then cumulatively voted at an
election of the entire board of directors.
(c) If a director is elected by a class or series of shares, he or she
may be removed only by the shareholders of that class or series.
SECTION 3.12. Compensation. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any personal
interest of a any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13. Committees.
(a) A majority of the directors may create one or more committees and
appoint members of the board to serve on the committee or committees.
Each committee shall have two or more members, who serve at the
pleasure of the board.
(b) Unless the appointment by the board of directors requires a greater
number, a majority of any committee shall constitute a quorum, and a
majority of a quorum is necessary for committee action. A committee may
act by unanimous consent in writing without a meeting and, subject to
the provisions of the bylaws or actions by the board of directors, the
committee by majority vote of its members shall determine the time and
place of meetings and the notice required therefor.
(c) To the extent specified by the board of directors, each committee
may exercise the authority of the board of directors to the extent
permitted by law.
SECTION 3.14. Presumption of Assent. A director of the corporation who
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his dissent shall be entered in the minutes of the meeting
or unless he shall file his written
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dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
ARTICLE IV
OFFICERS
SECTION 4.1. Number. The officers of the corporation shall be a
president, a secretary, a treasurer, if desired, any number of vice presidents,
treasurers, assistant treasurers, assistant secretaries, or other officers as
may be elected by the board of directors. Any two or more offices may be held by
the same person.
SECTION 4.2 Election and Term of Office. The officers of the
corporation shall be elected or appointed annually by the board of directors at
the first meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
of an officer shall not of itself create contract rights.
SECTION 4.3. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 4.4. Removal. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4.5. President. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these bylaws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
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of directors has authorized to be executed, and he may accomplish such execution
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. He may vote all securities which the corporation is entitled
to vote except as and to the extent such authority shall be vested in a
different officer or agent of the corporation by the board of directors.
SECTION 4.6. The Vice-Presidents. The vice-president (or in the event
there be more than one vice-president, each of the vice-presidents) shall assist
the president in the discharge of his duties as the president may direct and
shall perform such other duties as from time to time may be assigned to him by
the president or by the board of directors. In the absence of the president or
in the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these bylaws, the vice-president (or
each of them if there are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments, which the board of directors has authorized to be executed, and he
may accomplish such execution either under or without a seal of the corporation
and either individually or with the secretary, any assistant secretary, or any
other officer thereunto authorized by the board of directors, according to the
requirements of the form of the instrument. The corporation need not elect a
vice-president.
SECTION 4.7. The Treasurer. The treasurer shall be the principal
accounting and financial officer of the corporation. He shall:
(a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation;
(b) have charge and custody of all funds and securities of the
corporation, and be responsible therefore and for the receipt and
disbursement thereof; and
(c) perform all the duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the
president or by the board of directors.
If required by the board of directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the board of directors may determine.
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SECTION 4.8. The Secretary. The secretary shall:
(a) record the minutes of the shareholders' and of the board of
directors, meetings in one or more books provided for that purpose;
(b) see that all notices are duly. given in accordance with the
provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation;
(d) keep a register of the post-office address of each shareholder
which shall be furnished to the secretary by such shareholder;
(e) sign with the president, or a vice-president, or any other officer
thereunto authorized by the board of directors, certificates for shares
of the corporation, the issue of which shall have been authorized by
the board of directors, and any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument,
except when a different mode of execution is expressly prescribed by
the board of directors or these bylaws;
(f) otherwise certify the bylaws, resolutions of the shareholders and
board of directors and committees thereof, and other documents of the
corporation as true and correct copies thereof;
(g) have general charge of the stock transfer books of the corporation;
and
(h) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
SECTION 4.9. Assistant Treasurers and Assistant Secretaries. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The assistant secretaries may sign with
the president, or a vice-president, or any other officer thereunto authorized by
the board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these bylaws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
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SECTION 4.10. Salaries. The salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1. Contracts. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority maybe e general or confined to specific instances.
SECTION 5.2. Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 5.3. Checks, Drafts, etc.. All checks, drafts or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 5.4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.1. Shares Represented by Certificates and Uncertificated
Shares. Shares either shall be represented by certificates or shall be
uncertificated shares.
(a) Certificates representing shares of the corporation shall be signed
by the appropriate officers and may be sealed with the seal or a
facsimile of the seal of the corporation. If a certificate is
countersigned by a transfer agent or registrar, other than the
corporation or its employee, any other signatures may be facsimile.
Each certificate representing shares shall be consecutively numbered or
otherwise identified and shall also state the name of the person to
whom issued, the number and class of shares (with designation of
series, if any), the date of issue, and that the corporation is
organized under Illinois law. If the corporation is authorized to issue
shares of more than one class or of series within a class, the
certificate shall also contain such information or statement as may be
required by law.
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(b) Unless prohibited by the Articles of Incorporation, the board of
directors may provide by resolution that some or all of any class or
series of shares shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until the
certificate has been surrendered to the corporation. Within a
reasonable time after issuance or transfer of uncertificated shares,
the corporation shall send the registered owner thereof a written
notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the
holders of uncertificated shares shall be identical to those of the
holders of certificates representing shares of the same class and
series.
(c) The name and address of each shareholder, the number and class of
shares held, and the date on which the shares were issued shall be
entered on the books of the corporation. The person in whose name
shares stand on the books of the corporation shall be deemed the owner
thereof for all purposes as regards the corporation.
SECTION 6.2. Lost Certificates. If a certificate representing shares
has allegedly been lost or destroyed, the board of directors may in its
discretion, except as may be required by law, direct that a new certificate be
issued upon such indemnification and other reasonable requirements as it may
impose.
SECTION 6.3. Transfers of Shares. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective. Transfer of an uncertificated share shall be
made on receipt by the corporation of an instruction from the registered owner
or other appropriate person. The instruction shall be in writing or a
communication in such form as may be agreed upon in writing by the corporation.
ARTICLE VII
FISCAL YEAR
SECTION 7.1. Fixed by Board of Directors. The fiscal year of the
corporation shall be fixed by resolution of the board of directors.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8.1. Declared by Board of Directors. The board of directors may
authorize, and the corporation may make, distributions to its shareholders,
subject to any restrictions in its Articles of Incorporation or provided by law.
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ARTICLE IX
SEAL
SECTION 9.1. Force and Effect. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Illinois."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced, provided that the affixing of the
corporate seal to an instrument shall not give the instrument additional force
or effect, or change the construction thereof, and the use of the corporate seal
is not mandatory.
ARTICLE X
WAIVER OF NOTICE
SECTION 10.1. Waiver in Lieu of Notice. Whenever any notice is required
to be given under the provision of these bylaws or under the provisions of the
Articles of Incorporation or under the provisions of the Business Corporation
Act of the State of Illinois, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance at
any meeting shall constitute waiver of notice thereof unless the person at the
meeting objects to the holding of the meeting because proper notice was not
given.
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 11.1. Power To Hold Harmless. The corporation shall have power
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or who is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment or settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create
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a presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
SECTION 11.2. Power to Indemnify Litigant. The corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, provided that no indemnification shall be made in
respect of any claim, issue or matter as to which such persons shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the corporation, unless, and only to the extent that, the court in
which such action or suit was brought shall determine upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper.
SECTION 11.3. Reimbursement Authorized. To the extent that a director,
officer, employee, or agent of a corporation has been successful, on the merits
or otherwise, in defense of any action, suit or proceeding referred to in
Sections 11.1 and 11.2 above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
SECTION 11.4. Determination if Reimbursement is Proper. Any
indemnification under Sections 11.1 and 11.2 above (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case, upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in Sections 11.1 or 11.2 above. Such determination shall be
made:
(a) by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceedings,
or
(b) if such a quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or
(c) by the shareholders.
14
<PAGE>
SECTION 11.5. Advance of Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding, as
authorized by the board of directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount, unless it shall ultimately be determined that he or she is entitled
to be indemnified by the corporation as authorized in the Article. I
SECTION 11.6. Non-Exclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any contract, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 11.7. Right to Acquire Insurance. The corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article.
SECTION 11.8. Notice to Shareholders. If a corporation has paid
indemnity or has advanced expenses to a director, office, employee or agent, the
corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders, meeting.
SECTION 11.9. "Corporation": Definition. For purposes of this Article,
references to "the corporation" shall include, in addition to the surviving
corporation, any merging corporation (including any corporation having merged
with a merging corporation) absorbed in a merger which, if its separate
existence had continued ' would have had the power and authority to indemnify
its directors, officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was serving
at the request of such merging corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
SECTION 11.10. Miscellaneous Definitions. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the corporation" shall include any service
15
<PAGE>
as a director, officer, employee or agent of the corporation which imposes
duties on, or with respect to an employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referred to in
this Article.
ARTICLE XII
REPAYMENT OF DISALLOWED DEDUCTION
SECTION 12.1. Full Reimbursement by Officers. Any payments made to an
officer of the corporation such as salary, commission, bonus, interest, rent,
medical reimbursement or entertainment expense incurred by him which, for
Federal income tax purposes, shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the corporation to the full extent of such disallowance.
SECTION 12.2. Security for Repayment. It shall be the duty of the
directors, as a board, to enforce payment of such amount disallowed. In lieu of
payment by the officer, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
ARTICLE XIII
AMENDMENTS
SECTION 13.1. Determined by Directors. Unless reserved to the
shareholders by the Articles of Incorporation, the bylaws of the corporation may
be made, altered, amended or repealed by the shareholders or the board of
directors, but no bylaw adopted by the shareholders may be altered, amended or
repealed by the board of directors if the bylaws so provide. The bylaws may
contain any provisions for the regulation and management of the affairs of the
corporation not inconsistent with law or the Articles of Incorporation.
16
SPECIMEN COMMON STOCK CERTIFICATE (FRONT)
- --------------------------------------------------------------------------------
Number Shares
- ------------------ [LOGO] ---------------
Class A Common Stock
CIRCLE GROUP INTERNET, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
CUSIP
THIS CERTIFIES THAT
SEE REVERSE FOR
CERTAIN DEFINITIONS
SPECIMEN
is the owner of
FULLY PAID AND NONASSESSABLE OF THE $.0001 PAR VALUE CLASS A
COMMON STOCK OF
CIRCLE GROUP INTERNET, INC.
transferable only on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent. This Certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Articles of
Incorporation and By-Laws of the Corporation and all amendments thereto, copies
of which are on file with the Transfer Agent, to all of which the holder of this
certificate, by acceptance hereof assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
Dated:
CORPORATE SEAL
<PAGE>
SPECIMEN SPECIMEN
/s/ Signature /s/ Signature
- ------------------------------ -----------------------------------
Secretary President
COUNTERSIGNED:
PACIFIC STOCK TRANSFER COMPANY
3690 South Eastern
Las Vegas, NV 89193
- -------------------------------------------------
Transfer Agent and Registrar Authorized Signature
SPECIMEN COMMON STOCK CERTIFICATE (REVERSE)
- --------------------------------------------------------------------------------
CIRCLE GROUP INTERNET, INC.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--
__________ Custodian ___________
(cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT ENT -- as joint tenants with right of Act_____________________________
survivorship and not as tenant (State)
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
INDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP
CODE OF ASSIGNEE)
- ---------------------------------------------------------------------- Shares of
the common stock represented by the within certificate and do hereby irrevocably
constitute and appoint
- -------------------------------------------------------------------- Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated -----------------------------
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: -------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17 Ad-15.
EXHIBIT 5
OPINION OF ATLAS, PEARLMAN, TROP & BORKSON, P.A.
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
954-763-1200
July 23, 1999
Circle Group Internet, Inc.
1101 Campus Drive
Mundelein, IL 60606
Re: Registration Statement on Form S-B2; Circle Group Internet, Inc.
(the "Company") 1,569,200 shares of Common Stock
Gentlemen:
This opinion is submitted pursuant to applicable rule of the Securities
and Exchange Commission (the "Commission") with respect to the resale of
1,569,200 shares of Common Stock, par value $.001 per share (the "Common Stock")
to be sold by the Selling Security Holders designated in the above referenced
Registration Statement.
In our capacity as counsel to the Company, we have examined the
original, certified, conformed, photostat or other copies of the Company's
Articles of Incorporation, as amended, By-Laws, instruments pertaining to the
issuance of the Common Stock, and related exhibits and corporate minutes
provided to us by the Company. In all such examinations, we have assumed the
genuineness of all signatures on original documents, and the conformity to
originals or certified documents of all copies submitted to us as conformed,
photostat or other copies. In passing upon certain corporate records and
documents of the Company, we have necessarily assumed the correctness and
completeness of the statements made or included therein by the Company and we
express no opinion thereon.
Based upon the foregoing, it is our opinion that the shares of Common
Stock to be sold by the Selling Security Holders are legally issued, fully paid
and non-assessable.
We hereby consent to the use of this opinion in the Registration
Statement on Form SB-2 to be filed with the Commission.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of January, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Gregory J. Halpern, an
individual whose address is 340 Bingham Circle, Mundelein, IL 60060 (the
"Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as Chief Executive Officer of the Company
and shall have such responsibilities and duties as are customarily undertaken by
individuals in similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of seventy-six thousand three hundred thirty-three
dollars ($76,333) per annum.
b. Options. The Employee shall be granted 15,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $5.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company's Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a three (3) year period.
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee' s position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6(b). Any rights and
2
<PAGE>
benefits the Employee may have in respect of any other compensation shall be
determined in accordance with the terms of such other compensation arrangements
or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
3
<PAGE>
ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
4
<PAGE>
information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
5
<PAGE>
the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
6
<PAGE>
13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
7
<PAGE>
22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE TERMS OF THIS
AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO ABIDE BY ITS TERMS AND
CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
............................. CIRCLE GROUP INTERNET, INC.
By: /s/ Dana L. Dabney
------------------------------------
Dana L. Dabney, Vice President Sales
Witness: THE EMPLOYEE
.............................
By: /s/ Gregory Halpern
----------------------------------------
Gregory Halpern, Chief Executive Officer
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of January, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Dana L. Dabney, an
individual whose address is 121 Old McHenry Rd., Hawthorne Woods, IL 60047 (the
"Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as Vice President of the Company and shall
have such responsibilities and duties as are customarily undertaken by
individuals in similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of sixty thousand dollars ($60,000) per annum.
b. Options. The Employee shall be granted 12,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $5.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company's Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a three (3) year period.
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee' s position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6(b). Any rights and
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<PAGE>
benefits the Employee may have in respect of any other compensation shall be
determined in accordance with the terms of such other compensation arrangements
or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
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<PAGE>
ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
4
<PAGE>
information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
5
<PAGE>
the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
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<PAGE>
13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
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<PAGE>
22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE TERMS OF THIS
AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO ABIDE BY ITS TERMS AND
CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
............................ CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern
----------------------------------------
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
.............................
By: /s/ Dana L. Dabney
----------------------------------------
Dana L. Dabney, Vice President
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of January, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Frank Menon, an
individual whose address is 8873 17th Ave, Kenosha, WI 53143 (the "Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as President of the Company and shall have
such responsibilities and duties as are customarily undertaken by individuals in
similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of seventy-two thousand dollars ($72,000) per annum.
b. Options. The Employee shall be granted 10,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $5.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company's Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a three (3) year period.
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee' s position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6(b). Any rights and
2
<PAGE>
benefits the Employee may have in respect of any other compensation shall be
determined in accordance with the terms of such other compensation arrangements
or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
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<PAGE>
ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
4
<PAGE>
information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
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<PAGE>
the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a temporary
injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
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<PAGE>
13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
7
<PAGE>
22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE TERMS OF THIS
AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO ABIDE BY ITS TERMS AND
CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
............................ CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern
----------------------------------------
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
.............................
By: /s/ Frank Menon
----------------------------------------
Frank Menon, President
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of May, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Arthur C. Tanner, an
individual whose address is 526 W. Jefferson Ave., Naperville, IL 60540 (the
"Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as Chief Financial Officer of the Company
and shall have such responsibilities and duties as are customarily undertaken by
individuals in similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of sixty thousand dollars ($60,000) per annum.
b. Options. The Employee shall be granted 10,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $5.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company' s Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a three (3) year period.
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee's position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6(b). Any rights and
2
<PAGE>
benefits the Employee may have in respect of any other compensation shall be
determined in accordance with the terms of such other compensation arrangements
or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
3
<PAGE>
ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
4
<PAGE>
information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
5
<PAGE>
the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
6
<PAGE>
13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
7
<PAGE>
22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE
TERMS OF THIS AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO
ABIDE BY ITS TERMS AND CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
............................ CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern
------------------------------------------
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
.............................
By: /s/ Arthur C. Tanner
------------------------------------------
Arthur C. Tanner, Chief Financial Officer
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of February, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Erik J. Brown, an
individual whose address is 602C S. Milwaukee Ave, Libertyville, IL 60048 (the
"Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as VP Corporate Development of the Company
and shall have such responsibilities and duties as are customarily undertaken by
individuals in similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of forty-two thousand five hundred dollars ($42,500) per
annum.
b. Options. The Employee shall be granted 10,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $5.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company's Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a three (3) year period.
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee's position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6(b). Any rights and
2
<PAGE>
benefits the Employee may have in respect of any other compensation shall be
determined in accordance with the terms of such other compensation arrangements
or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
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ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
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information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
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the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
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13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
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22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE
TERMS OF THIS AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO
ABIDE BY ITS TERMS AND CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
............................. CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern
----------------------------------------
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
..............................
By: /s/ Erik Brown
---------------------------------------
Erik J. Brown, VP Corporate Development
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of June, 1999 (the "Effective Date"), between Circle Group
Internet, Inc., an Illinois corporation, whose principal place of business is
340 Bingham Circle, Mundelein, Illinois 60060 and any of its successors or
affiliated companies (collectively, the "Company") and Michael Theriault, an
individual whose address is 26151 N. Oak Ave., Mundelein, IL 60060 (the
"Employee").
RECITALS
WHEREAS, the Company is principally engaged in the business of Internet
Investment banking and multimedia (the "Business").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter into the employ of the Company.
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business.
WHEREAS, the Employee, by virtue of the Employee's employment with the
Company, will become familiar with and possessed with the manner, methods, trade
secrets and other confidential information pertaining to the Company's Business,
including the Company's client base.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Employee do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein
incorporated by reference.
2. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions hereinafter
set forth.
3. Authority and Power During Employment Period.
a. Duties and Responsibilities. During the Term of this
Agreement, the Employee shall serve as Chief Operating Officer of the Company
and shall have such responsibilities and duties as are customarily undertaken by
individuals in similar positions.
b. Time Devoted. Throughout the Term of the Agreement, the
Employee shall devote substantially all of the Employee's business time and
attention to the business and affairs of the Company consistent with the
Employee's position with the Company, except for reasonable vacations, illness
or incapacity.
<PAGE>
4. Term. The Term of employment hereunder will commence on the
Effective Date as set forth above and end three (3) years from the Effective
Date, unless this Agreement shall have been earlier terminated pursuant to
Section 6 of this Agreement.
5. Compensation and Benefits.
a. Salary. The Employee shall be paid a base salary, payable
in accordance with the Company's policies from time to time for salaried
employees, at the rate of sixty-eight thousand Dollars ($68,000) per annum.
b. Options. The Employee shall be granted 10,000 options (the
"Options") to purchase shares of the Company's Common Stock at an exercise price
of $20.00 per share, being the Fair Market Value (as determined by the Company's
Board of Directors) of the Company's Common Stock on the day immediately
preceding the date of this Agreement. Such Options are granted [under the
Company' s 1999 Stock Option Plan and] pursuant to the form of Option attached
hereto as Exhibit A and incorporated herein by such reference. The Options shall
be exercisable for a five (5) year period from the date of vesting and shall
vest, subject to continued employment of the Employee, [(A) 10,000 Options on
May 31, 1999.]
c. Employee Benefits. The Employee shall be entitled to
participate in all benefit programs of the Company currently existing or
hereafter made available to employees including, but not limited to, stock
option plans, pension and other retirement plans, group life insurance,
hospitalization, surgical and major medical coverage, sick leave, salary
continuation, vacation and holidays, long-term disability, and other fringe
benefits.
d. Vacation. During each fiscal year of the Company, the
Employee shall be entitled to such amount of vacation as determined by the
President of the Company consistent with the Employee's position and length of
service to the Company.
6. Consequences of Termination of Employment.
a. Disability. In the event of the Employee's disability, the
Employee shall be entitled to compensation in accordance with the Company's
disability compensation practice for its salaried employees. "Disability," for
the purposes of this Agreement, shall be deemed to have occurred in the event
(A) the Employee is unable by reason of sickness or accident, to perform his
duties under this Agreement for an aggregate of 90 days in any 12-month period
or 45 consecutive days, or (B) the Employee has a guardian of his person or
estate appointed by a court of competent jurisdiction. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
b. Termination by the Company for Cause.
i. Nothing herein shall prevent the Company from
terminating the Employee for "Cause," as hereinafter defined. The Employee shall
continue to receive salary only for the
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period ending with the date of such termination as provided in this Section
6(b). Any rights and benefits the Employee may have in respect of any other
compensation shall be determined in accordance with the terms of such other
compensation arrangements or such plans or programs.
ii. "Cause" shall mean (A) committing or
participating in an injurious act of fraud, gross neglect, misrepresentation,
embezzlement or dishonesty against the Company; (B) committing or participating
in any other injurious act or omission wantonly, willfully, recklessly or in a
manner which was grossly negligent against the Company, monetarily or otherwise;
(C) engaging in a criminal enterprise involving moral turpitude; (D) an act or
acts (1) constituting a felony under the laws of the United States or any state
thereof; or (2) if applicable, loss of any state or federal license required for
the Employee to perform the Employee's material duties or responsibilities for
the Company; or (E) any assignment of this Agreement by the Employee in
violation of Section 13 of this Agreement.
iii. Notwithstanding anything else contained in this
Agreement, this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a notice of
termination stating that the Employee committed one of the types of
condustanding anything contained herein to the contrary, this Agreement may be
terminated (i) at any time upon the mutual written consent of the Company and
the Employee; or (ii) by the Company giving 30 days' prior written notice to
Employee. During such 30 day period, only the Employee shall continue to perform
the Employee' s duties pursuant to this Agreement, and the Company shall
continue to compensate the Employee in accordance with this Agreement.
d. Death. In the event of the death of the Employee during the
Term of the Agreement, compensation shall be paid to the Employee's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of the Employee for a period of one-hundred eighty (180)
days from and after the date of death. Other death benefits will be determined
in accordance with the terms of the Company's benefit programs and plans.
7. Covenant Not to Compete and Non-Disclosure of Information.
a. Covenant Not to Compete. The Employee acknowledges and
recognizes the highly competitive nature of the Company's Business and the
goodwill, continued patronage, and specifically the names and addresses of the
Company's Clients (as hereinafter defined) constitute a substantial asset of the
Company having been acquired through considerable time, money and effort.
Accordingly, in consideration of the execution of this Agreement, the Employee
agrees to the following:
i. That during the Restricted Period (as hereinafter
defined) and within the Restricted Area (as hereinafter defined), the Employee
will not, individually or in conjunction with others, directly or indirectly,
engage in any Business Activities (as hereinafter defined), whether as an
officer, director, proprietor, employer, partner, independent contractor,
investor (other than as a holder solely as an investment of less than one
percent (1%) of the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
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<PAGE>
ii. That during the Restricted Period and within the
Restricted Area, the Employee will not, directly or indirectly, compete with the
Company by soliciting, inducing or influencing any of the Company's Clients
which have a business relationship with the Company at the time during the
Restricted Period to discontinue or reduce the extent of such relationship with
the Company.
iii. That during the Restricted Period and within the
Restricted Area, the Employee will not (A) directly or indirectly recruit,
solicit or otherwise influence any employee or agent of the Company to
discontinue such employment or agency relationship with the Company, or (B)
employ or seek to employ, or cause or permit any business which competes
directly or indirectly with the Business Activities of the Company (the
"Competitive Business") to employ or seek to employ for any Competitive Business
employs or seeks to employ such person) employed by the Company.
iv. That during the Restricted Period the Employee
will not interfere with, or disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company and any
supplier, customer, employee or agent of the Company.
b. Non-Disclosure of Information. The Employee acknowledges
that the Company's trade secrets, private or secret processes, methods and
ideas, as they exist from time to time, customer lists and information
concerning the Company's products, services, training methods, development,
technical information, marketing activities and procedures, credit and financial
data concerning the Company and/or the Company's Clients (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which are essential to the performance of the Employee
hereunder. In light of the highly competitive nature of the industry in which
the Company's Business is conducted, the Employee agrees that all Proprietary
Information, heretofore or in the future obtained by the Employee as a result of
the Employee's association with the Company shall be considered confidential.
In recognition of this fact, the Employee agrees that the Employee,
during the Restricted Period, will not use or disclose any of such Proprietary
Information for the Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company, the
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by the Employee or that come into the
Employee's possession during the Employee's association with the Company are and
remain the property of the Company, and when this Agreement terminates, such
Documents shall be returned to the Company at the Company's principal place of
business, as provided in the Notices provision (Section 9) of this Agreement.
c. Documents. "Documents" shall mean all original written,
recorded, or graphic matters whatsoever, and any and all copies thereof,
including, but not limited to: papers; email; books; records; tangible things;
correspondence; communications; telex messages; memoranda; work-papers; reports;
affidavits; statements; summaries; analyses; evaluations; client records and
4
<PAGE>
information; agreements; agendas; advertisements; instructions; charges;
manuals; brochures; publications; directories; industry lists; schedules; price
lists; client lists; statistical records; training manuals; computer printouts;
books of account, records and invoices reflecting business operations; all
things similar to any of the foregoing however denominated. In all cases where
originals are not available, the term "Documents" shall also mean identical
copies of original documents or nonidentical copies thereof.
d. Company's Clients. The "Company's Clients" shall be deemed
to be any persons, partnerships, corporations, professional associations or
other organizations for whom the Company has performed Business Activities.
e. Restrictive Period. The "Restrictive Period" shall be
deemed to be five (5) years following termination of this Agreement.
f. Restricted Area. The Restricted Area shall be deemed to
mean worldwide and within any other county of any state in which the Company is
providing service at the time of termination.
g. Business Activities. "Business Activities" shall be deemed
to include the Business and any additional activities which the Company or any
of its affiliates may engage in during the term of this Agreement.
h. Covenants as Essential Elements of this Agreement. It is
understood by and between the parties hereto that the foregoing covenants
contained in Sections 7(a) and 7(b) are essential elements of this Agreement,
and that but for the agreement by the Employee to comply with such covenants,
the Company would not have agreed to enter into this Agreement. Such covenants
by the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
i. Survival After Termination of Agreement. Notwithstanding
anything to the contrary contained in this Agreement, the covenants in Sections
7(a) and 7(b) shall survive the termination of this Agreement and the Employee's
employment with the Company.
j. Remedies.
i. The Employee acknowledges and agrees that the
Company's remedy at law for a breach or threatened breach of any of the
provisions of Section 7(a) or 7(b) herein would be inadequate and the breach
shall be per se deemed as causing irreparable harm to the Company. In
recognition of this fact, in the event of a breach or threatened breach by the
Employee of any of the provisions of Section 7(a) or 7(b), the Employee agrees
that, in addition to any remedy at law available to the Company, including, but
not limited to monetary damages, all rights of the Employee to payment or
otherwise under this Agreement and all amounts then or thereafter due to
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<PAGE>
the Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and the Employee
agrees not to oppose the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
ii. The Employee acknowledges that the granting of a
temporary injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7(a) or 7(b) and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting any form of competition with the Company. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Employee or the Employee's
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as thing such amounts, the
Company may accept other arrangements pursuant to which it is satisfied that
such tax and other payroll obligations will be satisfied in a manner complying
with applicable law or regulation.
9. Notices. Any notice required or permitted to be given under the
terms of this Agreement shall be sufficient if in writing and if sent postage
prepaid by registered or certified mail, return receipt requested; by overnight
delivery; by courier; or by confirmed telecopy, in the case of the Employee to
the Employee's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the first paragraph of this Agreement, or at such other place as it may
designate.
10. Waiver. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. Completeness and Modification. This Agreement constitutes the
entire understanding between the parties hereto superseding all prior and
contemporaneous agreements or understandings among the parties hereto concerning
the Employment Agreement. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties or, in the case of a waiver, by the party to be charged.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
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<PAGE>
13. Binding Effect/Assignment. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Employee but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business or to any of the Company's affiliates controlled by or under common
control with the Company.
14. Governing Law. This Agreement shall become valid when executed and
accepted by Company. The parties agree that it shall be deemed made and entered
into in the State of Illinois and shall be governed and construed under and in
accordance with the laws of the State of Illinois. Anything in this Agreement to
the contrary notwithstanding, the Employee shall conduct the Employee's business
in a lawful manner and faithfully comply with applicable laws or regulations of
the state, city or other political subdivision in which the Employee is located.
15. Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Survival. Any termination of this Agreement shall not, however,
affect the ongoing provisions of this Agreement which shall survive such
termination in accordance with their terms.
18. Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
portions thereof.
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
20. Venue. Company and Employee acknowledge and agree that the U.S.
District for the Nineteenth District of Illinois, or if such court lacks
jurisdiction, the Judicial Circuit (or its successor) in and for Lake County,
Illinois, shall be the venue and exclusive proper forum in which to adjudicate
any case or controversy arising either, directly or indirectly, under or in
connection with this Agreement and the parties further agree that, in the event
of litigation arising out of or in connection with this Agreement in these
courts, they will not contest or challenge the jurisdiction or venue of these
courts.
21. Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
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<PAGE>
22. Independent Legal Counsel. The parties have either (i) been
represented by independent legal counsel in connection with the negotiation and
execution of this Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Agreement has waived such right.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ ALL OF THE
TERMS OF THIS AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO
ABIDE BY ITS TERMS AND CONDITIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
Witness: THE COMPANY:
.............................. CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern
----------------------------------------
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
...............................
By: /s/ Michael J. Theriault
----------------------------------------
Michael Theriault
8
CIRCLE GROUP INTERNET, INC.
1999 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the CIRCLE
GROUP INTERNET, INC. 1999 STOCK OPTION PLAN (the "Plan"), the Board of Directors
(the "Board") or, the Compensation Committee (the "Stock Option Committee") of
Circle Group Internet, Inc., an Illinois corporation, (the "Corporation") is
hereby authorized to issue from time to time on the Corporation's behalf to any
one or more Eligible Persons, as hereinafter defined, options to acquire shares
of the Corporation's Common Stock, $.10 par value (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is
authorized to issue Incentive Stock Options ("ISOs") which meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
which options are hereinafter referred to collectively as ISOs, or singularly as
an ISO. The Board or the Stock Option Committee is also, in its discretion,
authorized to issue options which are not ISOs, which options are hereinafter
referred to collectively as Non Statutory Options ("NSOs"), or singularly as an
NSO. The Board or the Stock Option Committee is also authorized to issue "Reload
Options" in accordance with Paragraph 8 herein, which options are hereinafter
referred to collectively as Reload Options, or singularly as a Reload Option.
Except where the context indicates to the contrary, the term "Option" or
"Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which may
be purchased pursuant to the exercise of Options shall be One Million
(1,000,000) shares. Of this amount, the Board or the Stock Option Committee
shall have the power and authority to designate whether any Options so issued
shall be ISOs or NSOs, subject to the restrictions on ISOs contained elsewhere
herein. If an Option ceases to be exercisable, in whole or in part, the shares
of Stock underlying such Option shall continue to be available under this Plan.
Further, if shares of Stock are delivered to the Corporation as payment for
shares of Stock purchased by the exercise of an Option granted under this Plan,
such shares of Stock shall also be available under this Plan. If there is any
change in the number of shares of Stock due to the declaration of stock
dividends, recapitalization resulting in stock split-ups, or combinations or
exchanges of shares of Stock, or otherwise, the number of shares of Stock
available for purchase upon the exercise of Options, the shares of Stock subject
to any Option and the exercise price of any outstanding Option shall be
appropriately adjusted by the Board or the Stock Option Committee. The Board or
the Stock Option Committee shall give notice of any adjustments to each Eligible
Person granted an Option under this Plan, and such adjustments shall be
effective and binding on all Eligible Persons. If because of one or more
recapitalizations, reorganizations or other corporate events, the holders of
outstanding Stock receive something other than shares of Stock then, upon
exercise of an Option, the Eligible Person will receive what the holder would
have owned if the holder had exercised the Option immediately before the first
such corporate event and not disposed of anything the holder received as a
result of the corporate event.
<PAGE>
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual who
has been employed by the Corporation or by any subsidiary of the Corporation,
for a continuous period of at least six month.
(b) With respect to NSOs, an Eligible Person means (i) any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least six months, (ii) any director
of the Corporation or any subsidiary of the Corporation, or (iii) any consultant
of the Corporation or any subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in writing
signed on behalf of the Corporation or by a majority of the members of the Stock
Option Committee. The writing shall identify whether the Option being granted is
an ISO or an NSO and shall set forth the terms which govern the Option. The
terms shall be determined by the Board or the Stock Option Committee, and may
include, among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be exercised, the
period for which the Option is granted and including the expiration date, the
effect on the Options if the Eligible Person terminates employment and whether
the Eligible Person may deliver shares of Stock or exchange the Option for a
cashless exercise to pay for the shares of Stock to be purchased by the exercise
of the Option. However, no term shall be set forth in the writing which is
inconsistent with any of the terms of this Plan. The terms of an Option granted
to an Eligible Person may differ from the terms of an Option granted to another
Eligible Person, and may differ from the terms of an earlier Option granted to
the same Eligible Person.
6. Option Price. The option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and shall
be not less than (i) in the case of an ISO, the fair market value, (ii) in the
case of an ISO granted to a ten percent or greater stockholder, 110 percent of
the fair market value, or (iii) in the case of an NSO, not less than the fair
market value (but in no event less than the par value) of one share of Stock on
the date the Option is granted, as determined by the Board or the Stock Option
Committee. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of Stock
on such exchange or over-the-counter market on which such shares shall be traded
on that date, or if such exchange or over-the-counter market is closed or if no
shares shall have traded on such date, on the last preceding date on which such
shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by a recognized appraiser as
selected by the Board or the Stock Option Committee or pursuant to Section 12
herein.
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<PAGE>
7. Purchase of Shares. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash, check,
Promissory Note secured by the Shares issued through exercise of the related
Options, or in property, or Corporation stock or by Option exchange for a
cashless exercise, if so permitted by the Board or the Stock Option Committee in
accordance with the discretion granted in Paragraph 5 hereof, having a value
equal to such purchase price. The Corporation shall not be required to issue or
deliver any certificates for shares of Stock purchased upon the exercise of an
Option prior to (i) if requested by the Corporation, the filing with the
Corporation by the Eligible Person of a representation in writing that it is the
Eligible Person's then present intention to acquire the Stock being purchased
for investment and not for resale, and/or (ii) the completion of any
registration or other qualification of such shares under any government
regulatory body, which the Corporation shall determine to be necessary or
advisable.
8. Grant of Reload Options. In granting an Option under this Plan, the
Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 herein. A Reload
Option provision provides that if the Eligible Person pays the exercise price of
shares of Stock to be purchased by the exercise of an ISO, NSO or another Reload
Option (the "Original Option") by delivering to the Corporation shares of Stock
already owned by the Eligible Person (the "Tendered Shares"), the Eligible
Person shall receive a Reload Option which shall be a new Option to purchase
shares of Stock equal in number to the tendered shares. The terms of any Reload
Option shall be determined by the Board or the Stock Option Committee consistent
with the provisions of this Plan.
9. Stock Option Committee. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein. The
members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The members
may participate in a meeting of the Stock Option Committee by conference
telephone or similar communications equipment by means of which all members
participating in the meeting can hear each other. Participation in a meeting in
that manner will constitute presence in person at the meeting. Any decision or
determination reduced to writing and signed by all members of the Stock Option
Committee will be effective as if it had been made by a majority vote of all
members of the Stock Option Committee at a meeting which is duly called and
held.
10. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
3
<PAGE>
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee shall
be final, binding and conclusive on all persons including the Eligible Person,
the Corporation and its stockholders, employees, officers and directors and
consultants. No member of the Board or the Stock Option Committee will be liable
for any act or omission in connection with the administration of this Plan
unless it is attributable to that member's willful misconduct.
11. Provisions Applicable to ISOs. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from the
date of this Plan, which is the date that this Plan was originally adopted by
the Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of ten
(10) years from the date the ISO is granted.
(c) The option price may not be less than the fair market
value of the Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom
it is granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time
of the grant stock possessing more than ten (10%) percent of the total combined
voting power of all classes of stock of the employer corporation or of its
parent or subsidiary corporation (as those terms are defined in the Code), then
the option price shall be at least 110% of the fair market value of the Stock,
and the ISO shall not be exercisable after the expiration of five (5) years from
the date the ISO is granted.
(f) The aggregate fair market value (determined at the time
the ISO is granted) of the Stock with respect to which the ISO is first
exercisable by the Eligible Person during any calendar year (under this Plan and
any other incentive stock option plan of the Corporation) shall not exceed
$100,000.
(g) Even if the shares of Stock which are issued upon exercise
of an ISO are sold within one year following the exercise of such ISO so that
the sale constitutes a disqualifying disposition for ISO treatment under the
Code, no provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was adopted by the Corporation on __________, by
virtue of its approval by the Corporation's Board of Directors and the sole
shareholder of the Corporation.
4
<PAGE>
12. Determination of Fair Market Value. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such exercise
it is his or her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by will
or under the laws of descent and distribution. Prior to issuing any shares of
Stock pursuant to the exercise of an Option, the Corporation shall take such
steps as it deems necessary to satisfy any withholding tax obligations imposed
upon it by any level of government.
14. Exercise in the Event of Death or Termination of Employment.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary; or (ii) within three months after termination of
his employment with the Corporation or a Subsidiary because of his disability or
retirement, his Options may be exercised, to the extent that the optionee shall
have been entitled to do so on the date of his death, by the person or persons
to whom the optionee's right under the Option pass by will or applicable law, or
if no such person has such right, by his executors or administrators, at any
time, or from time to time. In the event of termination of employment because of
his death while an employee or because of disability or retirement, his Options
may be exercised not later than the expiration date specified in Paragraph 5 or
one year after the optionee's death, whichever date is earlier.
(b) If an optionee's employment by the Corporation or a
Subsidiary shall terminate because of his disability and such optionee has not
died within the following three months, he may exercise his Options, to the
extent that he shall have been entitled to do so at the date of the termination
of his employment, at any time, or from time to time, but not later than the
expiration date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of
his retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans if any, or with the consent of the Board or the Stock Option
Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from to time, but not later than
the expiration date specified in Paragraph 5 hereof or thirty (30) days after
termination of employment, whichever date is earlier. For purposes of this
Paragraph 14, termination for cause shall mean; (i) termination of employment
for cause as defined
5
<PAGE>
in the optionee's Employment Agreement; or (ii) in the absence of an Employment
Agreement for the optionee, termination of employment by reason of the
optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in substantial and material damage to the
Corporation or a Subsidiary, all as the Board or the Stock Option Committee in
its sole discretion may determine.
(d) If an optionee's employment shall terminate for any
reason, voluntarily or otherwise, other than by death, disability or retirement,
all right to exercise his Option shall terminate at the date of such termination
of employment absent specific provisions in the optionee's Option Agreement.
15. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock, the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and each
such Eligible Person shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Option as to all or any part of the
shares of Stock covered thereby, including shares of Stock as to which such
Option would not otherwise be exercisable. Nothing set forth herein shall extend
the term set for purchasing the shares of Stock set forth in the Option.
16. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
17. Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
18. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
19. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this Plan
which has the effect of (a) increasing the aggregate number of shares of Stock
subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or
(b) changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
Directors is authorized to seek the approval of the Corporation's
6
<PAGE>
stockholders for any other changes it proposes to make to this Plan which
require such approval; however, the Board of Directors may modify the Plan, as
necessary, to effectuate the intent of the Plan as a result of any changes in
the tax, accounting or securities laws treatment of Eligible Persons and the
Plan, subject to the provisions set forth in this Paragraph 19, and Paragraph
20.
20. Compliance with Code. The aspects of this Plan on ISOs is intended
to comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such provision
shall be deemed null and void and to incorporate by reference the modification
required to qualify the shares for said tax treatment.
21. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such Options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the-counter market on which
the Stock may then be listed, if applicable, and (b) the completion of any
registration or qualification of such shares under any federal or state law, or
any ruling or regulation of any government body which the Corporation shall, in
its sole discretion, determine to be necessary or advisable. Moreover, no Option
may be exercised if its exercise or the receipt of Stock pursuant thereto would
be contrary to applicable laws.
22. Disposition of Shares. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
23. Name. The Plan shall be known as the "Circle Group Internet, Inc.
1999 Stock Option Plan."
24. Notices. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation or the Committee shall be sent to it at its office, 340 Bingham
Circle, Mundelein, IL 60060, subject to the right of either party to designate
at any time hereafter in writing some other address, facsimile number or person
to whose attention such notice shall be sent.
7
<PAGE>
25. Headings. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
26. Effective Date. This Plan, the Circle Group Internet, Inc. 1999
Stock Option Plan, was adopted by the Board of Directors of the Corporation on
__________________, 1999. The effective date of the Plan shall be the same date.
Dated as of _________________, 1999.
CIRCLE GROUP INTERNET, INC.
By: ____________________________________
Gregory Halpern, President
8
<PAGE>
[NSO GRANT FORM]
CIRCLE GROUP INTERNET, INC.
340 Bingham Circle
Mundelein, IL 60060
Date: ________________
- ----------------------
- ----------------------
- ----------------------
Dear ______________:
The Board of Directors of Circle Group Internet, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1999 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and understand
the Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Class B
Non-Voting Common Stock ("Stock") at $__________ per share, the current fair
market value of a share of Stock. The right to purchase the shares of Stock
accrues in __________ installments over the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
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5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199___, being __________ years from the date
of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) Except as otherwise provided for herein, upon the
termination of your employment with the Corporation and any of its subsidiaries
Plan for any reason.
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death,
permanent disability (as defined herein) or retirement. As used herein,
"permanent disability" means your inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months
6. Securities Laws. The Option and the shares of Stock underlying the
Option have not been registered under the Securities Act of 1933, as amended
(the "Act"). The Corporation has no obligations to ever register the Option or
the shares of Stock underlying the Option. All shares of Stock acquired upon the
exercise of the Option shall be "restricted securities" as that term is defined
in Rule 144 promulgated under the Act. The certificate representing the shares
shall bear an appropriate legend restricting their transfer. Such shares cannot
be sold, transferred, assigned or otherwise hypothecated without registration
under the Act or unless a valid exemption from registration is then available
under applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By: ________________________________
Gregory Halpern, President
AGREED AND ACCEPTED:
- -------------------------
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<PAGE>
[ISO GRANT FORM]
CIRCLE GROUP INTERNET, INC.
340 Bingham Circle
Mundelein, IL 60060
Date: ________________
- -------------------------
- -------------------------
- -------------------------
Dear _______________:
The Board of Directors of Circle Group Internet, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1999 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and under-stand
the Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE>
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the
date of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
2
<PAGE>
8. Date of Grant. The Option shall be treated as having been granted to
you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By: ______________________________
Gregory Halpern, President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
CIRCLE GROUP INTERNET, INC.
340 Bingham Circle
Mundelein, IL 60060
Date: ________________
- ---------------------
- ---------------------
- ---------------------
Dear __________:
The Board of Directors of Circle Group Internet, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1999 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and understand the
Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered Shares. The date on which the
Tendered Shares are tendered to the Corporation in full or partial payment of
the purchase price for the shares of Stock acquired pursuant to the exercise of
the Underlying Option is the Reload Grant Date. The exercise
<PAGE>
price of the Reload Option is the fair market value of the Tendered Shares on
the Reload Grant Date. The fair market value of the Tendered Shares shall be the
low bid price per share of the Corporation's Common Stock on the Reload Grant
Date. The Reload Option shall vest equally over a period of __________ (___)
years, commencing on the first anniversary of the Reload Grant Date, and on each
anniversary of the Reload Grant Date thereafter; however, no Reload Option shall
vest in any calendar year if it would allow you to purchase for the first time
in that calendar year shares of Stock with a fair market value in excess of
$100,000, taking into account ISOs previously granted to you. The Reload Option
shall expire on the earlier of (i) __________ (___) years from the Reload Grant
Date, or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with
Paragraph 5(c) as set forth herein. If vesting of the Reload Option is deferred,
then the Reload Option shall vest in the next calendar year, subject, however,
to the deferral of vesting previously provided. Except as provided herein the
Reload Option is subject to all of the other terms and provisions of this
Agreement governing Options.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired
2
<PAGE>
upon the exercise of the Option shall be "restricted securities" as that term is
defined in Rule 144 promulgated under the Act. The certificate representing the
shares shall bear an appropriate legend restricting their transfer. Such shares
cannot be sold, transferred, assigned or otherwise hypothecated without
registration under the Act or unless a valid exemption from registration is then
available under applicable federal and state securities laws and the Corporation
has been furnished with an opinion of counsel satisfactory in form and substance
to the Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By: _______________________________
Gregory Halpern, President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE>
[ISO GRANT FORM
WITH RELOAD OPTIONS]
CIRCLE GROUP INTERNET, INC.
340 Bingham Circle
Mundelein, IL 60060
Date: ________________
- ---------------------
- ---------------------
- ---------------------
Dear __________:
The Board of Directors of Circle Group Internet, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1999 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and understand the
Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered Shares. The date on which the
Tendered Shares are tendered to the Corporation in full or partial payment of
the purchase price for the shares of Stock acquired pursuant to the exercise of
the Underlying Option is the Reload Grant Date. The exercise
<PAGE>
price of the Reload Option is the fair market value of the Tendered Shares on
the Reload Grant Date. The fair market value of the Tendered Shares shall be the
low bid price per share of the Corporation's Common Stock on the Reload Grant
Date. The Reload Option shall vest equally over a period of __________ (___)
years, commencing on the first anniversary of the Reload Grant Date, and on each
anniversary of the Reload Grant Date thereafter; however, no Reload Option shall
vest in any calendar year if it would allow you to purchase for the first time
in that calendar year shares of Stock with a fair market value in excess of
$100,000, taking into account ISOs previously granted to you. The Reload Option
shall expire on the earlier of (i) __________ (___) years from the Reload Grant
Date, or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with
Paragraph 5(c) as set forth herein. If vesting of the Reload Option is deferred,
then the Reload Option shall vest in the next calendar year, subject, however,
to the deferral of vesting previously provided. Except as provided herein the
Reload Option is subject to all of the other terms and provisions of this
Agreement governing Options.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired
2
<PAGE>
upon the exercise of the Option shall be "restricted securities" as that term is
defined in Rule 144 promulgated under the Act. The certificate representing the
shares shall bear an appropriate legend restricting their transfer. Such shares
cannot be sold, transferred, assigned or otherwise hypothecated without
registration under the Act or unless a valid exemption from registration is then
available under applicable federal and state securities laws and the Corporation
has been furnished with an opinion of counsel satisfactory in form and substance
to the Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By: __________________________________
Gregory Halpern, President
AGREED AND ACCEPTED:
- -------------------------
3
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK EXCHANGE AGREEMENT (the "Agreement") is made this 2nd day of
January, 1999 (the "Closing Date") between the shareholders of HOS-Pillow,
Corp., an Illinois corporation (the "Sellers") listed on Schedule A hereto, and
Circle Group Internet, Inc., an Illinois corporation ("CGI").
W I T N E S S E T H :
WHEREAS, HOS-Pillow, Corp., (the "HOS") has 100 shares of common stock,
par value $.00 per share (the "HOS Common Stock") authorized of which 100 shares
of HOS Common Stock are currently issued and outstanding; and
WHEREAS, Sellers own 100 shares of the HOS' Common Stock, and
WHEREAS, the CGI desires to purchase an aggregate of 100 shares of
Common Stock (the "HOS Shares") from Sellers on the terms and conditions set
forth in this Agreement; and
WHEREAS, the Sellers desires to sell the Shares to the CGI on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Sellers and CGI hereby agree as follows:
1. Incorporation by reference. The above recitals are herein incorporated by
reference.
2. Purchase and Sale. CGI shall purchase from Sellers, and the Sellers shall
sell to CGI, the Shares on the terms and conditions of this Agreement.
3. Consideration/Exchange Shares. In consideration of the transfer by Sellers of
the Shares to CGI, CGI shall transfer to Sellers 200,000 shares of common stock,
par value $0.0001 per share of CGI ("CGI Shares") on the Closing Date as set
forth on Schedule A hereto, of which 50,000 CGI Shares ("CGI Shares") shall be
restricted from resale for a period of ninety (90) days following the effective
date of such registration statement and the remaining 150,000 CGI Shares shall
be restricted under Rule 144 for a period of 12 months from the signing of this
agreement.
4. Obligations of Sellers. At the Closing of this transaction (as defined
herein), Sellers shall deliver to CGI (i) the Shares registered in the name of
CGI or
<PAGE>
if the Shares are registered in the name of Sellers, duly endorsed to CGI; and
(ii) a receipt for the CGI Shares delivered to Sellers by CGI pursuant to
Section 3 hereof.
5. Obligations of CGI. At the Closing, CGI shall deliver to Sellers the Exchange
Shares pursuant to the terms of Section 3 of this Agreement.
6. Closing and Condition to Closing.
---------------------------------
6.1 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices CGI or at such other
place mutually agreed upon between CGI and Sellers on the Closing Date, to be
effective as of the 2nd day of January, 1999.
6.2 Condition to Closing. The Closing shall be subject to satisfaction
of the condition that (i) the representations and warranties of the Sellers
contained in Section 7 hereof, and CGI contained in Section 8 hereof, are true
and correct as of the Closing Date; (ii) the Sellers shall have delivered to CGI
the items required by Section 4 hereof; (iii) CGI shall have delivered to
Sellers the items required by Section 5 hereof; and (iv) CGI and Sellers shall
have performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by such party prior to or as of the
Closing Date.
7. Representations and Warranties of the Sellers.
----------------------------------------------
7.1 Authority of Sellers, Consents; Execution of Agreement. Sellers
have all requisite power, authority, and capacity to enter into this Agreement
and to perform the transactions and obligations to be performed by them
hereunder. No consent, authorization, approval, license, permit or order of, or
filing with, any person or governmental authority is required in connection with
the execution or the transactions and obligations to be performed by it
hereunder. This Agreement has been duly executed and delivered by Sellers and
constitutes a valid and legally binding obligation of Sellers, enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws. To the
best of the Seller's knowledge, HOS is a corporation duly organized, validly
existing and in good standing under the laws of the state of Illinois, and is
entitled to own or lease its property and to carry on its business as and in the
places where such properties are now owned, leased or operated. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby will not by themselves result in a breach or default under
result on the creation of any lien, security interest, charge an encumbrance
upon the HOS Shares, or any of the properties or assets of HOS as a result of
the terms, conditions or provisions of any contract, note mortgage or on any HOS
or any of its properties or assets may be bound.
7.2 Capitalization. The authorized capital stock of HOS consists of
1000 shares of Common Stock, of which 100 shares of HOS Common Stock are
2
<PAGE>
presently issued and outstanding. There are currently no outstanding warrants,
options, subscription rights or other commitments of any character granted by
HOS or the Sellers relating to the issued or unissued shares of HOS Common
Stock.
7.3 Unaudited Financial Statements.
-------------------------------
7.4 Investment. The Sellers warrant and acknowledge that:
-----------
7.4.1 CGI Shares have not been registered under the Securities Act
of 1933, as amended ("Act"), or under applicable state blue sky laws;
7.4.2 the Sellers are acquiring the CGI Shares for their own
account;
7.4.3 the Sellers are experienced and sophisticated investors, and
are able to fend for themselves in the transactions contemplated by this
Agreement, and have such knowledge and experience in financial and business
matters that they are capable of evaluating the risks and merits of acquiring
the CGI Shares;
7.4.4 the Sellers are aware that the CGI Shares may not be sold
unless such securities are registered pursuant to the Act or qualify for an
exemption from such registration.
7.5 The HOS Shares. The HOS Shares are free and clear of all liens,
pledges, hypothecation, option, contract and other encumbrance, except for such
restrictions provided in this Agreement and pursuant to applicable law.
7.6 Disclosure Documents. Sellers acknowledge that they have been
given a copy, and have review, CGI's Post-Effective Amendment No. 1 to Form 1-A
dated September 14, 1998 as filed with the Securities and Exchange Commission.
7.7 True as of Closing Date. Sellers warrant and represent that the
warranties and representations contained in this Agreement are true and correct
in all respects as of the Closing Date.
8. Representations and Warranties of CGI.
--------------------------------------
8.1 Authority of CGI; Execution of Agreement. CGI is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Florida, and is entitled to own or lease its property and to carry on
its business as and in the places where such properties are now owned, leased or
operated. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of HOS, and will not by themselves
result in a breach or default under, or result in the creation of any lien,
security interest, charge or encumbrance upon the CGI Shares, or any of the
properties or assets of HOS as
3
<PAGE>
a result of the terms, conditions or provisions of any contract, note, mortgage
or any other agreement, instrument or obligation to which HOS is a party or by
which HOS or any of its properties or assets may be bound. CGI has all requisite
power, authority, and capacity to enter into this Agreement and to perform the
transactions and obligations to be performed by it hereunder. No consent,
authorization, approval, license, permit or order of, or filing with, any person
or governmental authority is required in connection with the execution of the
transactions and obligations to be performed by it hereunder. This Agreement has
been duly executed and delivered by CGI and constitutes a valid and legally
binding obligation of CGI, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws.
8.2 Investment. CGI warrants and acknowledges that:
8.2.1 the HOS Shares have not been registered under the Securities
Act of 1933, as amended ("Act"), or under applicable state blue sky laws;
8.2.2 CGI is acquiring the HOS Shares for its own account and not
with a view towards distribution;
8.2.3 CGI is an experienced and sophisticated investor, is able to
fend for itself in the transactions contemplated by this Agreement, and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the risks and merits of acquiring the HOS Shares;
8.2.4 CGI is aware that the Shares may not be sold unless such
securities are registered pursuant to the Act or qualify for an exemption from
such registration.
8.3 True as of Closing Date. CGI warrants and represents that the
warranties and representations contained in this Agreement are true and correct
in all respects as of the Closing Date.
9. Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed to have been duly given if physically
delivered; delivered by overnight delivery, confirmed telecopy, telegram or
courier; or three days after having been deposited in the United States Mail, as
certified mail with return receipt requested and with postage prepaid, addressed
to the recipient at the address as follows. Any of the foregoing addresses may
be changed by giving notice of such change in the foregoing manner, except that
notices for changes of address will be effective only upon receipt.
If to CGI: CGI
827 East Orchard Street
Mundelein, IL 60060
Attn: Gregory Halpern
4
<PAGE>
If to HOS: 2950 Orange Brace Road
Riverwoods, IL 60015
Attn: Edward Halpern
10. Miscellaneous.
--------------
(a) Assignment. This Agreement and the rights granted hereunder may not
be assigned in whole or in part by any of the parties without the prior written
consent of the other parties.
(b) Further Assurances. All parties hereto shall execute and deliver
such other instruments and do such other acts as may be necessary to carry out
the intent and purposes of this Agreement.
(c) Gender. Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms and the
singular form of nouns and pronouns shall include the plural and vice versa.
(d) Captions. The captions contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit, extend or prescribe
the scope of this Agreement or the intent of any of the provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. It
supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
(f) Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
(g) Choice of Law. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Illinois.
(h) Effect of Waiver. The failure of any party at any time or times to
require performance of any provision of this Agreement will in no manner affect
the right to enforce the same. The waiver by any party of any breach of any
provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(i) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law
5
<PAGE>
or rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
(j) Jurisdiction. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs. Venue for any such action, in addition to
any other venue permitted by statute, will be Lake County, Illinois.
(k) Binding Nature. This Agreement will be binding upon and will inure
to the benefit of any successor or successors of the parties to this Agreement.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
(m) Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
The parties, as evidenced by their signatures below, acknowledge that
this Agreement has been presented to their attorneys and that their attorneys
have had the opportunity to review and explain to them the terms and provisions
of the Agreement, and that they fully understand those terms and provisions.
IN WITNESS WHEREOF, the parties have respectively caused this Agreement
to be executed on the date first above written.
Sellers:
By: /s/ Edward L. Halpern
-------------------------------------
Edward Halpern
By: /s/ Dianne K. Halpern
-------------------------------------
Dianne Halpern
CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern, CEO & President
-------------------------------------
Gregory Halpern, Chief Executive
Officer and President
6
<PAGE>
SCHEDULE A
Name HOS Shares CGI Shares
- ------------------------------------------------
7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of March 8th,
1999, by and between CIRCLE GROUP INTERNET, INC., an Illinois corporation
("Buyer"); INTERNET BROADCASTING COMPANY, INC., formerly known as the Capital
Internet Group, Inc., a Florida corporation (the "Company"); and CIG SECURITIES,
INC., a Florida corporation and wholly-owned subsidiary of the Company ("CIG").
RECITALS
WHEREAS, CIG is a securities broker-dealer, registered as such under
the Securities Exchange Act of 1934, and the rules and regulations promulgated
thereunder (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company is the owner of 100% of the issued and outstanding
shares of Common Stock (the "Stock") of CIG; and
WHEREAS, Buyer desires to purchase and the Company desires to sell,
assign, transfer and convey the Stock to Buyer according to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties, the
parties hereto, intending to be legally bound, agree as follows.
1. SALE AND TRANSFER OF THE STOCK
1.1 SALE AND TRANSFER
Subject to the terms and conditions of this Agreement, the Company
hereby sells, assigns, transfers and coveys to Buyer, all of the Company's
right, title and interest in and to the Stock, free and clear of all liens,
encumbrances, charges or security interests. The Company hereby agrees to
execute such other and further instruments of conveyance as may reasonably be
requested by Buyer in order to vest in Buyer sole and exclusive ownership of the
Stock. The Stock shall be delivered simultaneous herewith which shall be held in
an escrow account pending the Closing as defined herein, pursuant to Section
1.3, the receipt of which is hereby acknowledged by the Buyer.
<PAGE>
1.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Stock shall be
$35,000, which is being paid simultaneously herewith, the receipt of which is
hereby acknowledged by the Company, by delivery of (i) Buyer's certified or bank
check payable to the Company as a non-refundable deposit in the amount of
$5,000; and (ii) Buyer's certified or bank check payable to the Company in the
amount of $30,000, which shall be held in a non-interest bearing escrow account
pending the Closing, in accordance with the terms and conditions of an Escrow
Agreement which is attached hereto and shall be executed simultaneously with
this Agreement ("Escrow Agreement").
1.3 THE CLOSING
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Atlas, Pearlman, Trop & Borkson,
P.A. in Suite 1900, 200 East Las Olas Boulevard, Fort Lauderdale, FL 33301
commencing at 10:00 a.m. on the third business day following the satisfaction or
waiver of all conditions to the obligations of the parties to Closing, pursuant
to Sections 6 and 7, have been satisfied or such other date as the parties may
mutually determine (the "Closing Date"); provided, however, in the event all
conditions to the obligations of the parties are not satisfied or waived prior
to the forty-fifth (45th) day following the date hereof and such failure to
satisfy all conditions is a result of Buyer's failure to timely and diligently
prosecute the applications for necessary approvals or Buyer fails to obtain the
necessary approvals from the NASD, SEC and the State of Florida permitting the
Company to sell the Stock to Buyer, pursuant to Section 6.1, this Agreement
shall terminate and as liquidated damages the Company will be entitled to
receive the Purchase Price.
1.4 DELIVERIES AT THE CLOSING
At the Closing and for any reasonable period of time thereafter if
applicable, (i) the Company and CIG will execute, acknowledge (if appropriate)
and deliver to the Buyer such instruments of sale, transfer, conveyance and
assignment as the Buyer and its counsel reasonably may request; and (ii) the
Escrow Agent will deliver to the Company the Purchase Price specified in Section
1.2 herein and will deliver the Stock to the Buyer.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CIG
2
<PAGE>
In order to induce Buyer to enter into this Agreement and pay the
Purchase Price for the Stock, the Company and CIG, jointly and severally, hereby
represent and warrant to Buyer as follows:
2.1 CIG is a Florida corporation, duly organized, validly existing,
and in good standing under the laws of its jurisdiction of organization, with
full power and authority to conduct its business as it is now being conducted,
to own or use the properties and assets that it purports to own or use, and to
perform all its obligations.
2.12 PRINCIPAL FOR TRANSITIONAL PERIOD
For a period up to Ninety (90) days following the date hereof, Bradley Levine,
the sole officer and director of CIG and the holder of the Series 24 and 27
licenses for CIG, agrees to assist the Buyer in obtaining all regulatory
approvals in connection with the transactions contemplated in this Agreement
necessary for Closing. The Buyer agrees to pay all reasonable out of pocket
expenses of Mr. Levine incurred in connection with his assistance in the
transfer of ownership the Shares. Thereafter, should the Buyer desire the
further assistance of Mr. Levine on a consulting basis, the Buyer shall
compensate Mr. Levine $2,000 a month on a month to month basis terminable at any
time at the sole discretion of Mr. Levine.
2.2 AUTHORITY; CONSENTS
This Agreement constitutes the legal, valid, and binding
obligation of the Company and CIG, enforceable against the Company and CIG in
accordance with its terms. The Company and CIG have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and to perform their respective obligations under this Agreement.
Except as provided for in this Agreement, neither the Company nor CIG is
required to obtain the approval or consent of any person in order for them to
execute this Agreement and to perform their respective obligations under this
Agreement.
2.3 OWNERSHIP OF STOCK
Immediately prior to the Closing Date, the Company will be the
sole and absolute owner of the Stock, free and clear of all liens, charges,
encumbrances and security interests.
2.4 NO VIOLATION
Neither the execution and delivery by the Company or CIG of
this Agreement, nor
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completion of the transactions herein contemplated, nor compliance with the
terms, conditions and provisions hereof, conflicts with or violates any
provision of law or regulation applicable to the Company or CIG or the Articles
of Incorporation of CIG, or results in a violation or default in any provision
of any law, regulation, order, writ, injunction or decree of any court or
governmental agency or authority or, of any agreement or instrument to which the
Company or CIG or any of their respective officers, directors, managers,
employees or representatives ("Representatives") is a party or by which the
Company or CIG or any of their respective Representatives is bound, or which the
Company or CIG or any of their respective Representatives is subject or
constitutes a default thereunder or results in the imposition of any lien,
mortgage, pledge, option, claim, security interest, title defect, encumbrance,
conditional sales contract, charge or other restriction of every kind, of any
nature whatsoever upon any of the Company's or CIG's property.
2.5 ABSENCE OF LIABILITIES AND NET CAPITAL
(a) CIG has no liabilities or obligations of any nature
(whether absolute, accrued, contingent, or otherwise). CIG has net capital of
$5,000 which will be withdrawn prior to Closing and at such time as the Buyer
replaces such amount.
(b) Neither the Company, nor any person or entity under its
control or at its direction, has incurred any liability or indebtedness that has
or will become an obligation of Buyer as a result of the transactions
contemplated hereby.
(c) As of the date hereof and to the extent applicable, CIG
maintained internal controls with respect to its books, records, finances and
other operations which are adequate under rules and regulations promulgated by
the Securities and Exchange Commission ("SEC"), NASD and self regulatory
organizations ("SAO"), and are in accordance with standard industry practices.
2.6 TAXES
(a) CIG has filed all federal, state, local and other tax
returns which are required to be filed by it and which have become due and has
paid all valid taxes shown thereon, including without limitation all taxes on
properties, income, business and occupation, licenses, sales and payrolls, and
none of the assets or properties of CIG are subject to any lien or charge for
taxes, except statutory liens for taxes not yet due. For purposes of this
Agreement, Taxes@ shall mean all taxes, charges, fees, levies and other
assessments however denominated, including any interest, penalties or additions
to tax that may become payable in respect thereof, imposed by any governmental
body, including, without limiting the generality of the foregoing, all net
income, gross income, payroll, withholding,
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unemployment insurance, social security, sales, use, excise, franchise, gross
receipts, occupation, real and personal property, stamp, transfer, workers'
compensation, ad valorem, profits, license, employment, estimated, severance and
other taxes, customs, duties, fees, assessments or charges of any kind whatever.
Tax" shall mean any one of the foregoing.
(b) No federal income, state excise or business or occupation
Tax returns of CIG have been audited by the IRS or other applicable authorities,
and CIG has not granted any power of attorney to any person to represent it
before the IRS or other applicable authorities. No valid federal or state Tax
liabilities have been assessed or proposed which remain unpaid. CIG is unaware
of any basis upon which any assessment for a material amount of additional Taxes
of CIG could be made.
2.7 GOVERNMENT REGULATION
(a) CIG is duly registered as a broker-dealer under the 1934
Act and CIG is a member in good standing of the NASD.
(b) CIG is in compliance with, or exempt from, all federal and
state laws and regulations relating or applicable to it and to its business,
including, without limitation, the 1934 Act, the Securities Act of 1933, as
amended (the 1933 Act@), the Investment Advisors Act of 1940, as amended (the
Advisors Act"), the Investment Conspiracy Act of 1940, as amended (the
Investment Conspiracy Act@), the Commodities Exchange Act, ERISA, all state Blue
Sky laws, and all rules, regulations, guidelines and policies promulgated under
the foregoing, or by any SAO or other regulatory authority having jurisdiction
over CIG ("Agency"). The Company's policies, procedures and practices were in
substantial compliance with each of the requirements of any Agency, SAO or the
NASD. Neither CIG nor any principal of CIG has been subject to sanctions, fines
or other similar action by any Agency, SAO or the NASD.
(c) CIG has filed with the SEC and all other appropriate
Agencies and NASD, when due, all forms, (including Form BD), financial and other
reports and all documents required to be filed pursuant to the foregoing laws
and other requirements and any other applicable laws, and the rules and
regulations thereunder. CIG has made available to Buyer, true and complete
copies of all such forms, notices, registrations and other filings, as amended
to date, and copies of all current reports and information required to be kept
by CIG pursuant to applicable federal and state statutes. The information
contained in such forms, registrations, filings and reports was true and
complete in all respects at the time of filing, and did not contain any untrue
statement of material fact
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or omit to state a material fact required to make the statements therein, in
light of the circumstances under which they were made, not misleading.
2.8 CONTRACTS
Other than this Agreement CIG is not a party to any contract,
agreement or understanding, including without limitation, leases for real or
personal property, that will continue in force or effect following the date
hereof.
2.9 LITIGATION
CIG is not a party to any legal proceeding, nor is CIG
obligated for the payment of any judgment arising out of any legal proceeding.
2.10 CLEARING ARRANGEMENTS
CIG is presently a party to a clearing agreement with U.S.
Clearing Corp., a copy of which is attached hereto. Buyer shall at Closing
replace the CIG deposit if it continues the clearing agreement with U.S.
Clearing Corp. If the clearing agreement is terminated the deposit shall be
delivered to CIG.
2.11 DISCLOSURE
No representation or warranty of CIG or the Company in this
Agreement omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading.
2.12 BROKERS OR FINDERS
CIG and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce the Company to sell, assign and convey the Stock to
Buyer, Buyer hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION AND GOOD STANDING
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Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Illinois.
3.2 AUTHORITY; CONSENT
This Agreement constitutes the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and to perform its obligations under this
Agreement. Buyer is not required to obtain the approval or consent of any person
in order for it to execute this Agreement and to perform its obligations under
this Agreement.
3.3 NO VIOLATION
Neither the execution and delivery by Buyer of this Agreement, nor
completion of the transactions herein contemplated, nor compliance with the
terms, conditions and provisions hereof, conflicts with or violates any
provision of law or regulation applicable to Buyer [or the Articles of
Incorporation or By-Laws of Buyer], or results in a violation or default in any
provision of any law, regulation, order, writ, injunction or decree of any court
or governmental agency or authority or, of any agreement or instrument to which
Buyer or any of its employees is a party or by which Buyer or any of its
employees is bound, or which Buyer or any of its employees is subject or
constitutes a default thereunder or results in the imposition of any lien,
mortgage, pledge, option, claim, security interest, title defect, encumbrance,
conditional sales contract, charge or other restriction of every kind, of any
nature whatsoever upon any of the Company's or CIG's property.
3.4 OBLIGATIONS INCURRED
Buyer has not incurred any liability for or on behalf of the
Company or CIG as to which the Company or CIG has any continuing obligation.
3.5 GOVERNMENT REGULATIONS
Buyer or Buyer's affiliates who will seek to become associated
persons have not been the subject of any 'reportable acts' as defined in Rule
3E-200.001(26) under Section 517.161(13) of the Florida Statutes, which provides
(a) as involvement in either state or federal bankruptcy proceedings either as
the bankrupt petitioner or as the subject of an involuntary petition; (b)
conviction of or entry of a plea of guilty or no contest to any criminal act,
excluding traffic violations or other minor offenses; (c) being the subject of
any order, judgment, or decree, not
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subsequently reversed, suspended, or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining or otherwise limiting the
following activities: (1) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing; or
as an investment advisor, underwriter, broker, or dealer in securities or as an
affiliated person, director, or employee of any investment company, bank,
savings and loan association, or insurance company; or engaging in or continuing
any conduct or practice in connection with such activity; engaging in any type
of business practice; or (2) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities or commodities laws; (3) being the
subject of any order, judgment, or degree, not subsequently reversed, suspended,
or vacated, or of any authority barring, suspending, or otherwise limiting for
more than sixty (60) days the right of such person to engage in any activity
described in Subparagraph (c)(3) or being associated in a business relationship
with persons engaged in any such activity; or (d) having been found by a court
of competent jurisdiction, any state agency, any self regulatory organization,
the Securities Exchange Commission or the Futures Trading Commission to have
violated any federal or state securities or commodities law, if such judgment or
finding has not been subsequently reversed, suspended, or vacated.
3.6 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold the Company and CIG harmless from any such payment alleged to
be due by or through Buyer as a result of the action of Buyer or its officers or
agents.
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4. COVENANTS OF THE COMPANY AND CIG PRIOR TO CLOSING DATE
4.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, the
Company and CIG will, and will cause each of its representatives to, (a) afford
Buyer and its representatives (collectively, "Buyer's Advisors") full and free
access to CIG's contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
4.2 OPERATION OF THE BUSINESS OF CIG
Between the date of this Agreement and the Closing Date, CIG will:
(a) not conduct any business of CIG; and
(b) use its Best Efforts to preserve intact the current business
organization of CIG.
4.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between
the date of this Agreement and the Closing Date, CIG will not, without the prior
consent of Buyer, take any affirmative action, or fail to take any reasonable
action within its control, as a result of which any of the changes or events
listed below is likely to occur.
(a) change CIG's authorized or issued capital stock; grant any
stock option or right to purchase shares of capital stock of CIG; issue any
security convertible into such capital stock; grant any registration rights;
purchase, redeem, retire, or acquire any shares of any such capital stock; or
declare or pay any dividend or other distribution or payment in respect of
shares of capital stock;
(b) amend the organizational documents of the Company;
(c) pay any bonuses, salaries, or other compensation to any
stockholder, director, officer, or employee or enter into any employment,
severance, or similar contract with any director, officer, or employee;
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(d) adopt any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit plan;
(e) damage to or destruction or loss of any asset or property of
CIG, whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of CIG, taken as
a whole;
(f) agreement, whether oral or written, by the Company to do any
business.
4.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, CIG
will make all filings required by legal requirements to be made by it in order
to consummate the transactions described herein. Between the date of this
Agreement and the Closing Date, CIG will (a) cooperate with Buyer with respect
to all filings that Buyer elects to make or is required by legal requirements to
make in connection with the transactions described herein, and (b) cooperate
with Buyer in obtaining all approvals from the NASD, SEC and the State of
Florida.
4.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, the
Company and CIG will promptly notify Buyer in writing if either of them becomes
aware of any fact or condition that causes or constitutes a Breach of any of
their respective representations and warranties as of the date of this
Agreement, or if either of them becomes aware of the occurrence after the date
of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, each of the Company and CIG will promptly notify Buyer of the occurrence
of any Breach of any covenant of the Company and CIG in this Section 4 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 6.1 impossible or unlikely.
4.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant
to Section 8, the Company and CIG will not, and will cause each of their
representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from,
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any person (other than Buyer) relating to any transaction involving the sale of
the business or assets of CIG, or any of the capital stock of CIG, or any
merger, consolidation, business combination, or similar transaction involving
CIG.
4.7 BEST EFFORTS
Between the date of this Agreement and the Closing Date, the
Company and CIG will use their Best Efforts to cause the conditions in Sections
6 and 7 to be satisfied. Best Efforts as used herein means the efforts that a
prudent person desirous of achieving a result would use in similar circumstances
to ensure that such result is achieved as expeditiously as possible [; provided,
however, that an obligation to use Best Efforts under this Agreement does not
require the person subject to that obligation to take actions that would result
in a materially adverse change in the benefits to such person of this Agreement
and the transactions contemplated hereby].
5. COVENANTS OF BUYER PRIOR TO CLOSING DATE
5.1 REQUIRED APPROVALS
Between the date of this Agreement and the Closing Date, Buyer
will, and will cause each of its related persons to, make all filings required
by legal requirements to be made by them to consummate the transactions
described herein, including but not limited to, the NASD, SEC and State of
Florida. Between the date of this Agreement and the Closing Date, Buyer will,
and will cause each related person to, cooperate with the Company and/or CIG
with respect to all filings that the Company and/or CIG are required by legal
requirements to make in connection with the transactions described herein, and
(ii) cooperate with the Company and/or CIG in obtaining all necessary consents,
if any.
5.2 CLEARING ARRANGEMENT
Between the date of this Agreement and the Closing Date, Buyer
shall consummate clearing arrangements and if Buyer continues the arrangements
under the clearing agreement with U.S. Clearing Corp., Buyer shall replace the
net capital of $5,000 and remit to CIG the $5,000 it currently has on deposit
with the clearing agent.
5.3 BEST EFFORTS
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Between the date of this Agreement and the Closing Date, Buyer
will use its Best Efforts to cause the conditions in Sections 6 and 7 to be
satisfied.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Stock, and to take the other
actions required to be taken by Buyer prior to the Closing, is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of the Company's and CIG's representations and warranties in
this Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date.
6.2 THE COMPANY'S AND CIG'S PERFORMANCE
All of the covenants and obligations that the Company and CIG
are required to perform or to comply with pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
6.3 CONSENTS
The consent of the Board of Directors of the Company and CIG
must have been obtained and must be in full force and effect.
6.4 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or threatened by any person any
claim asserting that such person (a) is the holder or the beneficial owner of,
or has the right to acquire or to obtain beneficial ownership of, any stock of,
or any other voting, equity, or ownership interest in CIG, or (b) is entitled to
all or any portion of the Purchase Price payable for the Stock.
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7. CONDITIONS PRECEDENT TO THE COMPANY'S AND CIG'S OBLIGATION TO
CLOSE
The Company's and CIG's obligation to sell the Stock and to take
the other actions required to be taken by the Company and CIG at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Company and CIG, in
whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
7.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered the applicable documents
evidencing the approval received pursuant to Section 5.1.
7.3 CONSENTS
The Consent of the Board of Directors of the Buyer must have
been obtained and must be in full force and effect.
8. TERMINATION
8.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the
Closing, be terminated:
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(a) by either Buyer, CIG or the Company if a material Breach
of any provision of this Agreement has been committed by the other party and
such Breach has not been waived;
(b) by the Company and CIG if any of the conditions in
Section 7 has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of the
Company and CIG to comply with its obligations under this Agreement) and the
Company and CIG have not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer, CIG and the Company; or
(d) by either Buyer or the Company if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before the forty-fifth (45th) day following the date of this Agreement, or such
later date as the parties may agree upon.
8.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in
addition to any other rights it may have under this Agreement or otherwise, and
the exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to Section 9.1, all further obligations of
the parties under this Agreement will terminate, except that the obligations in
Sections 11.1 and 11.3 will survive; provided, however, that if this Agreement
is terminated by a party because of the Breach of the Agreement by the other
party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
9. INDEMNIFICATION; REMEDIES
9.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE
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All representations, warranties, covenants, and
obligations of any party in this Agreement and any other certificate or document
delivered pursuant to this Agreement will survive the Closing. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. Each party has the right to rely on the representations
and warranties of the other party. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification based on such representations, warranties, covenants, and
obligations.
9.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY CIG and THE
COMPANY
Subject to the provisions of Section 5.4 hereof, CIG
and the Company, jointly and severally, hereby indemnify and hold harmless Buyer
and its officers, directors, employees, representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage, expense (including costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with: (a) any breach of any representation or warranty
made by the Company or CIG in this Agreement or any other certificate or
document delivered by the Company or CIG pursuant to this Agreement; (b) any
breach by the Company or CIG of any of their respective covenants or obligations
in this Agreement or in any of the documents or certificates contemplated by
this Agreement; or (c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such person with the Company (or any person
acting on its behalf) in connection with any of the transactions contemplated
hereby.
The remedies provided in this Section 5.2 will not be
exclusive of or limit any other remedies that may be available to Buyer or the
other Indemnified Persons.
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9.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
(a) Buyer hereby indemnifies and holds harmless the
Company and CIG, and their respective officers, directors, employees,
representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any Damages arising, directly or indirectly, from or in
connection with (a) any breach of any representation or warranty made by Buyer
in this Agreement or in any certificate delivered by Buyer pursuant to this
Agreement, (b) any breach by Buyer of any covenant or obligation of Buyer in
this Agreement or in any of the documents or certificates contemplated by this
Agreement, or (c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such person with Buyer (or any person acting on its
behalf) in connection with any of the transactions contemplated hereby.
(b) The remedies provided in this Section 5.3 will not
be exclusive of or limit any other remedies that may be available to Buyer or
the other Indemnified Persons.
9.4 TIME LIMITATIONS
(a) No party to this Agreement shall have any
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the date hereof, other than those in Sections 2.6 and 2.7, unless notice of
any such liability is provided on or before 24 months from the date hereof.
(b) Notwithstanding any conflicting or inconsistent
provisions hereof, CIG and the Company shall not be liable in damages, indemnity
or otherwise to Buyer in respect of the inaccuracy or breach of any
representations, warranties, covenants or agreements herein, except to the
extent that the Damages to Buyer, singularly or in the aggregate, exceed the sum
of $5,000. Notwithstanding any conflicting or inconsistent provisions hereof,
Buyer shall not be liable in damages, indemnity or otherwise to CIG or the
Company in respect to the inaccuracy or breach of any representations,
warranties, covenants or agreements herein except to the extent that Damages to
CIG or the Company exceed, individually or in the aggregate, the sum of $5,000.
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9.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party
under Sections 5.2 and 5.3 of notice of the commencement of any proceeding
against it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any proceeding referred to in Section 5.5(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such proceeding and provide indemnification with respect to
such proceeding), to assume the defense of such proceeding with counsel
reasonably satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Section 5 for any fees of other counsel or any other expenses with respect to
the defense of such proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within the scope of and
subject to indemnification unless indemnifying party expressly reserves the
right to contest such indemnification obligations for sixty (60) days, in which
event if at the end of that period the indemnifying party denies any
indemnification obligations, the indemnified party may assume defense of the
proceeding; (ii) no compromise or settlement of such claims may be effected by
the indemnifying party without the indemnified party's consent unless (A) there
is no finding or admission of any violation of legal requirements or any
violation of the rights of any person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any proceeding
17
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and the indemnifying party does not, within ten days after the indemnified
party's notice is given, give notice to the indemnified party of its election to
assume the defense of such proceeding, the indemnifying party will be bound by
any determination made in such proceeding or any compromise or settlement
effected in good faith by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable probability that a
proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such proceeding, but
the indemnifying party will not be bound by any determination of a proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
9.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim may be asserted by written notice to the party
from whom indemnification is sought.
10. GENERAL PROVISIONS
10.1 EXPENSES
Each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of agents, representatives, counsel, and accountants, except that Buyer
has agreed to pay the Company upon execution of this Agreement [$3,500] to
defray the costs of counsel. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
10.2 NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such
18
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other addresses and telecopier numbers as a party may designate by notice to the
other parties):
The Company: Internet Broadcasting Company, Inc.
555 S. Andrews Avenue, #110
Pompano Beach, FL 33069
Attn: Bradley Levine
Facsimile No.: 954-788-0707
CIG: CIG Securities, Inc.
555 S. Andrews Avenue, #110
Pompano Beach, FL 33069
Attn: Bradley Levine
Facsimile No.: 954-788-0707
BUYER: Circle Group Internet, Inc.
340 Bingham Circle
Mundelein, Il 60606
Attn: Gregory Halpern
Facsimile No.: 847-949-7707
10.3 ARBITRATION
Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall, be resolved by binding
arbitration by a panel of three (3) arbitrators, one of whom shall be selected
by Buyer, one of whom shall be selected, jointly, by CIG and the Company, and
one of whom shall be selected by the arbitrators selected by Buyer, CIG and the
Company. The arbitration shall be conducted in accordance with the rules of the
American Arbitration Association (provided that the parties may conduct
discovery in accordance with the Federal Rules of Civil Procedure as then in
effect). Such arbitration shall be conducted in Broward County, Florida. The
decision of the arbitrators shall be in writing, dated and signed by a majority
of the arbitrators and shall be final and binding upon the parties hereto and
their respective shareholders, directors, successors and assigns. Judgment upon
the award granted by the arbitrators may be entered in any court having
jurisdiction thereof or application may be made to such court for judicial
acceptance of the award and an order of
19
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enforcement, as the case may be. This Section shall not prevent Buyer, CIG or
the Company from seeking or obtaining any temporary or permanent restraining
order or injunction or other equitable relief in the event of any breach or
threatened breach of any obligation of Buyer, CIG or the Company under this
Agreement or any related document which suit, action or proceeding shall be
instituted solely in the Circuit Court for the 17th Judicial Circuit in and for
Broward County, Florida, in the United States District Court for the Southern
District of Florida and each of the parties' consents to the jurisdiction of
such courts (and of the appropriate appellate courts).
10.4 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each
other such further information, (b) to execute and deliver to each other such
other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.5 WAIVER
The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
10.6 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This
20
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Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
10.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights under this
Agreement without the prior consent of the other party. This Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors of the parties. Nothing expressed or referred to in this Agreement
will be construed to give any person other than the parties to this Agreement
any legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
10.8 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
10.9 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are
provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
10.10 TIME OF ESSENCE
With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
10.11 GOVERNING LAW
This Agreement will be governed by the laws of the
State of Florida without regard to conflicts of laws principles.
10.12 COUNTERPARTS
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This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER: THE COMPANY:
CIRCLE GROUP INTERNET, INC. INTERNET BROADCASTING COMPANY, INC.
By: /s/ Gregory Halpern, President By: /s/ Bradley Levine
--------------------------------- --------------------------------
Gregory Halpern, President Bradley Levine, Executive
Vice President
CIG:
CIG SECURITIES, INC.
By: /s/ Bradley Levine
--------------------------------
Bradley Levine, President
23
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT (the "Extension Agreement") is made and
entered into as of the 25th day of June, 1999, between CIRCLE GROUP INTERNET,
INC. ("Buyer") and INTERNET BROADCAST COMPANY, INC., a Florida corporation ("the
Company"); and CIG SECURITIES, INC., a Florida corporation and wholly-owned
subsidiary of the Company ("CIG").
RECITAL
Buyer and the Company entered into that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated March 8, 1999, which grants to
Buyer the right to purchase 100% of the issued and outstanding shares of CIG's
Common Stock, subject to the terms and conditions set forth in the Stock
Purchase Agreement.
Buyer and the Company wish to extend the Expiration Date of the Stock
Purchase Agreement without otherwise altering the duties or obligations of
either party to the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and the receipt of $1.00 and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree to the following:
The Expiration Date of the Stock Purchase Agreement shall be extended
sixty (60) days, from the date of this Extension Agreement.
All other provisions of the Stock Purchase Agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties to this Extension Agreement have caused
this Extension Agreement to be executed as of the date first above written.
BUYER: COMPANY:
CIRCLE GROUP INTERNET, INC. INTERNET BROADCASTING
COMPANY, INC.
/s/ Gregory Halpern
- --------------------------------- /s/ Bradley Levine
Gregory Halpern, President ------------------------------------------
Bradley Levine, Executive Vice President
CIG:
/s/ Bradley Levine
------------------------------------------
Bradley Levine, President
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this 1st day of
February, 1999 (the "Closing Date") between Gregory Halpern (the "Seller") and
Circle Group Internet, Inc., an Illinois corporation ("CGI").
W I T N E S S E T H :
WHEREAS, PPI Capital Corp., (the "PPI") has 50,000,000 shares of common
stock, par value $.0001 per share (the "PPI Common Stock") and 10,000,000 shares
of preferred stock ("PPI Preferred Stock") authorized of which 4,000,000 shares
of PPI Common Stock and no shares of the PPI Preferred Stock are currently
issued and outstanding; and
WHEREAS, Seller owns 3,200,000 shares of the PPI Common Stock, and
WHEREAS, the CGI desires to purchase an aggregate of 3,200,000 shares
of Common Stock (the "PPI Shares") from Seller on the terms and conditions set
forth in this Agreement; and
WHEREAS, the Seller desires to sell the PPI Shares to the CGI on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Seller and CGI hereby agree as follows:
1. Incorporation by reference. The above recitals are herein incorporated by
reference.
2. Purchase and Sale. CGI shall purchase from Seller, and the Seller shall sell
to CGI, the PPI Shares on the terms and conditions of this Agreement.
3. Consideration/Purchase Price. The purchase price (the "Purchase Price") for
the PPI Shares shall be $20,000, which is being paid simultaneously herewith,
the receipt of which is hereby acknowledged by Seller, by delivery of CGI's
certified or bank check payable to the Seller in the amount of $20,000.
4. Obligations of Seller. At the Closing of this transaction (as defined
herein), Seller shall deliver to CGI (i) the PPI Shares registered in the name
of CGI or if the Shares are registered in the name of Seller, duly endorsed to
CGI; and (ii) a receipt for the Purchase Price delivered to Seller by CGI
pursuant to Section 3 hereof.
<PAGE>
5. Obligations of CGI. At the Closing, CGI shall deliver to Seller the Purchase
Price pursuant to the terms of Section 3 of this Agreement.
6. Closing and Condition to Closing.
---------------------------------
6.1 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices CGI or at such other
place mutually agreed upon between CGI and Seller on (the "Closing Date").
6.2 Condition to Closing. The Closing shall be subject to satisfaction
of the condition that (i) the representations and warranties of the Seller
contained in Section 7 hereof, and CGI contained in Section 8 hereof, are true
and correct as of the Closing Date; (ii) the Seller shall have delivered to CGI
the items required by Section 4 hereof; (iii) CGI shall have delivered to Seller
the items required by Section 5 hereof; and (iv) CGI and Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by such party prior to or as of the
Closing Date.
7. Representations and Warranties of the Seller.
---------------------------------------------
7.1 Authority of Seller, Consents; Execution of Agreement. Seller has
all requisite power, authority, and capacity to enter into this Agreement and to
perform the transactions and obligations to be performed by him hereunder. No
consent, authorization, approval, license, permit or order of, or filing with,
any person or governmental authority is required in connection with the
execution or the transactions and obligations to be performed by him hereunder.
This Agreement has been duly executed and delivered by Seller and constitutes a
valid and legally binding obligation of Seller, enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws. To the best of the
Seller's knowledge, PPI is a corporation duly organized, validly existing and in
good standing under the laws of the state of Utah, and is entitled to own or
lease its property and to carry on its business as and in the places where such
properties are now owned, leased or operated. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
by themselves result in a breach or default under, result on the creation of any
lien, security interest, charge an encumbrance upon the PPI Shares, or any of
the properties or assets of PPI as a result of the terms, conditions or
provisions of any contract, note mortgage or on any PPI or any of its properties
or assets may be bound.
7.2 Capitalization. The authorized capital stock of PPI consists of
10,000,000 shares of Common Stock, of which 4,000,000 shares of PPI Common Stock
are presently issued and outstanding. There are currently no outstanding
warrants, options, subscription rights or other commitments of any character
granted by PPI or the Seller relating to the issued or unissued shares of PPI
Common Stock.
2
<PAGE>
7.3 The PPI Shares. The PPI Shares are free and clear of all liens,
pledges, hypothecation, option, contract and other encumbrance, except for such
restrictions provided in this Agreement and pursuant to applicable law.
7.4 Disclosure Documents. Seller acknowledges that he has been given a
copy, and has reviewed, CGI's Post-Effective Amendment No. 1 to Form 1-A dated
September 14, 1998 as filed with the Securities and Exchange Commission.
7.5 True as of Closing Date. Seller warrants and represents that the
warranties and representations contained in this Agreement are true and correct
in all respects as of the Closing Date.
8. Representations and Warranties of CGI.
--------------------------------------
8.1 Authority of CGI; Execution of Agreement. CGI is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Illinois, and is entitled to own or lease its property and to carry on its
business as and in the places where such properties are now owned, leased or
operated. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of CGI, and will not by themselves
result in a breach or default under, or result in the creation of any lien,
security interest, charge or encumbrance upon the CGI Shares, or any of the
properties or assets of CGI as a result of the terms, conditions or provisions
of any contract, note, mortgage or any other agreement, instrument or obligation
to which CGI is a party or by which CGI or any of its properties or assets may
be bound. CGI has all requisite power, authority, and capacity to enter into
this Agreement and to perform the transactions and obligations to be performed
by it hereunder. No consent, authorization, approval, license, permit or order
of, or filing with, any person or governmental authority is required in
connection with the execution of the transactions and obligations to be
performed by it hereunder. This Agreement has been duly executed and delivered
by CGI and constitutes a valid and legally binding obligation of CGI,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws.
8.2 Investment. CGI warrants and acknowledges that:
-----------
8.2.1 the PPI Shares have not been registered under the Securities
Act of 1933, as amended ("Act"), or under applicable state blue sky laws;
8.2.2 CGI is acquiring the PPI Shares for its own account and not
with a view towards distribution;
3
<PAGE>
8.2.3 CGI is an experienced and sophisticated investor, is able to
fend for itself in the transactions contemplated by this Agreement, and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the risks and merits of acquiring the PPI Shares;
8.2.4 CGI is aware that the PPI Shares may not be sold unless such
securities are registered pursuant to the Act or qualify for an exemption from
such registration.
8.3 True as of Closing Date. CGI warrants and represents that the
warranties and representations contained in this Agreement are true and correct
in all respects as of the Closing Date.
9. Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed to have been duly given if physically
delivered; delivered by overnight delivery, confirmed telecopy, telegram or
courier; or three days after having been deposited in the United States Mail, as
certified mail with return receipt requested and with postage prepaid, addressed
to the recipient at the address as follows. Any of the foregoing addresses may
be changed by giving notice of such change in the foregoing manner, except that
notices for changes of address will be effective only upon receipt.
If to CGI: Circle Group Internet, Inc.
827 East Orchard Street
Mundelein, IL 60060
If to Seller: Gregory Halpern
340 Bingham Circle
Mundelein, IL 60060
10. Miscellaneous.
--------------
(a) Assignment. This Agreement and the rights granted hereunder may
not be assigned in whole or in part by any of the parties without the prior
written consent of the other parties.
(b) Further Assurances. All parties hereto shall execute and
deliver such other instruments and do such other acts as may be necessary to
carry out the intent and purposes of this Agreement.
(c) Gender. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms and
the singular form of nouns and pronouns shall include the plural and vice versa.
4
<PAGE>
(d) Captions. The captions contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit, extend or prescribe
the scope of this Agreement or the intent of any of the provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
(f) Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
(g) Choice of Law. This Agreement will be interpreted, construed
and enforced in accordance with the laws of the State of Illinois.
(h) Effect of Waiver. The failure of any party at any time or times
to require performance of any provision of this Agreement will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(i) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(j) Jurisdiction. Should it become necessary for any party to
institute legal action to enforce the terms and conditions of this Agreement,
the successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs. Venue for any such action, in addition to
any other venue permitted by statute, will be Lake County, Illinois.
(k) Binding Nature. This Agreement will be binding upon and will
inure to the benefit of any successor or successors of the parties to this
Agreement.
(l) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
5
<PAGE>
(m) Construction. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
The parties, as evidenced by their signatures below, acknowledge that
this Agreement has been presented to their attorneys and that their attorneys
have had the opportunity to review and explain to them the terms and provisions
of the Agreement, and that they fully understand those terms and provisions.
6
<PAGE>
IN WITNESS WHEREOF, the parties have respectively caused this Agreement
to be executed on the date first above written.
Seller:
By: /s/ Gregory Halpern
-------------------------------------
Gregory Halpern
CIRCLE GROUP INTERNET, INC.
By: /s/ Gregory Halpern, CEO & President
-------------------------------------
Gregory Halpern, Chief Executive
Officer and President
7
SUBSIDIARIES OF THE REGISTRANT
On-Line Bedding Corporation
PPI Capital Corporation
CONSENT OF HAROLD Y. SPECTOR
INDEPENDENT AUDITOR
I consent to the use of my reports dated as follows, included herein and to the
reference made to me:
1. dated July 20, 1999, on the condensed consolidated financial statements
of Circle Group Internet, Inc. and subsidiaries, as of March 31, 1999
and 1998,
2. dated June 30, 1999, on the pro forma condensed consolidated financial
statements of Circle Group Internet, Inc. and subsidiaries, as of
December 31, 1998,
3. dated March 8, 1999, on the financial statements of Circle Group
Internet, Inc. as of December 31, 1998 and 1997, and
4. dated June 4, 1999, on the financial statements of Hos-Pillow
Corporation as of December 31, 1998 and 1997.
/s/ Harold Y. Spector
- ---------------------
Harold Y. Spector, CPA
Pasadena, California
July 21, 1999
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, FL 33301
(954) 763-1200 phone
(954) 766-7800 facsimile
June 14, 1999
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Washington, D.C. 20549
Ladies and Gentlemen:
We are submitting this request for a No Action Letter pursuant to
Release No. 33-6269. Please find seven (7) additional copies of this letter
enclosed with this document.
Request Summary:
CIG Securities, Inc. ("CIG") is seeking assurance on the following
issues:
1. Indications of Interest may be Accepted Electronically. In connection with a
public offering, CIG may accept indications of interest via electronic coupon or
card as well as a paper coupon or card, if the requirements of Rule 134(d) are
otherwise met.
2. The Posting of a Notice of a Private Offering in a Password-protected Page of
CIG Accessible Only to Members who have Previously Qualified as Accredited
Investors Does Not Involve Any Form of General Solicitation or General
Advertising Within the Meaning of Regulation D Rule 502(c). CIG, through its
Internet web site, will solicit individuals who meet the "accredited investor"
or sophisticated investor standards of Regulation D to register as "Accredited
Investors" as a means of building a customer base and data base of accredited
and sophisticated investors for CIG. After an individual has been determined to
meet the requirements of an Accredited Investor, the Accredited Investor may
review offers for private offerings of securities from companies that have
posted private offerings with CIG on the Internet web site of CIG in accordance
with the rules otherwise applying
<PAGE>
Securities and Exchange Commission
June 14, 1999
Page 2
under Regulation D. The solicitation for Accredited Investors will be
independent of and will not be linked to or made "specifically with reference"
to any pending private offering. Accredited Investors may not invest in private
offerings that are posted on CIG's Internet web site before the Accredited
Investor registered. Under these circumstances, an offer of securities otherwise
satisfying the requirements of Regulation D to accredited or sophisticated
investors who have been independently and previously solicited as customers of
CIG will not constitute a general solicitation or general advertising within the
meaning of Regulation D Rule 502(c).
The Facts
1. CIG, a registered NASD member, is wholly-owned by Circle Group Internet,
Inc., an Illinois corporation ("Circle Group Internet"). CIG has established and
will maintain a system to supervise its activities that is reasonably designed
to achieve compliance with all applicable securities laws and regulations, and
with the rules of the NASD and any other applicable self-regulatory
organization.
2. CIG, though it has never commenced operations, will commence conducting a
general securities business, including participation in public and private
offerings as a "selected dealer."
3. CIG has established a home page and other linked pages (collectively "Site")
on the World Wide Web located at http://CGISecurities.com. CIG intends to post
on its Site "tombstone" advertisements meeting the requirements of Rule 134,
together and red herring prospectuses which will set forth the names of the
underwriters. In cases where CIG will not act as an underwriter, the name of CIG
will not appear on the "tombstone" advertisement or the red herring prospectus.
The distribution of the "tombstone" advertisement and the red herring prospectus
by the issuer and its underwriters through the Site will be in accordance with
Release No. 33-7233, dated October 6, 1995. The Site will also set forth a
separate statement substantially as follows: "The securities offered by (name of
the issuer) pursuant to the Preliminary Prospectus dated (insert date) are
available through CIG Securities, Inc." In addition, in the case where CIG will
not act as an underwriter, the Site will contain a statement substantially as
follows: "CIG Securities, Inc. is not an underwriter of the securities of (name
of issuer), but is authorized to accept customer orders for the purchase of the
securities." In such cases, CIG will not purchase any of the securities from the
Issuer for resale, will not participate in any such undertaking directly or
indirectly, will not participate in the management of the distribution of the
issue or any part of the issue, and will not perform any function normally
performed by an
<PAGE>
Securities and Exchange Commission
June 14, 1999
Page 3
underwriter or underwriting syndicate. CIG is not asking for the Division's view
on whether CIG is acting as an underwriter, since such determinations are made
on a case by case basis.
4. The CIG Site will also link to any "tombstone" advertisements or red herring
prospectus the following statements from Rule 134(b)(1) and (d), respectively:
"A registration statement relating to these securities has been filed
with the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This (communication) shall
not constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State."
"No offer to buy the securities can be accepted and no part of the
purchase price can be received until the registration statement has become
effective, and any such offer may be withdrawn or revoked, without obligation or
commitment of any kind, at any time prior to notice of its acceptance given
after the effective date. An indication of interest in response to this
advertisement will involve no obligation or commitment of any kind."
5. The Site will also contain an electronic "coupon" or "card" linked to each
red herring prospectus. A visitor to the Site will be invited to complete and
send this electronic "coupon" or "card", via e-mail or communications link in
the Site itself or by printing the coupon or card and sending it by regular
carrier, indicating an interest in purchasing the security.
6. In cases where CIG will not act as an underwriter, but the securities will be
sold through CIG, as one of the "selected dealers," CIG will receive a
commission which will not exceed the usual and customary distributors' or
sellers' commission and full disclosure will be made to the investors.
7. The Site will contain a section entitled "Accredited Investor." Persons who
have previously opened an account with or registered as a member of CIG are
invited to request registration with CIG as an "Accredited Investor." These
Accredited Investors will be added to CIG's customer and data base. In order to
register, a person must complete an on-line questionnaire substantially in the
form of Exhibit A, which is designed to allow CIG and any potential issuer to
determine, or to have a basis for a reasonable belief, that a person is
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Securities and Exchange Commission
June 14, 1999
Page 4
an "Accredited Investor" within the meaning of Regulation D, Rule 501(a) or a
sophisticated investor under Rule 506. The questionnaire may be completed
on-line in a secured manner or printed out and returned in hard copy. CIG will
verify the information in the questionnaire to determine that the person is an
accredited or sophisticated investor. Once a person is qualified and registered
as an "Accredited Investor," then the Accredited Investor will be given a
password which will allow the Accredited Investor to access a password-protected
page where private offerings will be posted and the Accredited Investor may
access further information. However, the CIG Site will only allow an Accredited
Investor access to those private offerings which are posted subsequent in time
to the Accredited Investor's qualification with CIG. If the Accredited Investor
has consented, then CIG may contact the Accredited Investor in the future about
new private offerings that are posted on the CIG Site.
8. The name of the Accredited Investor will be kept confidential by CIG and will
not be released to the issuers making the private offering unless the Accredited
Investor specifically consents to such release to a particular issuer. This
consent may be given on-line.
9. Private issuers may post their private offerings in the password-protected
section of CIG. No mention or description of the issuer of any nature will be
available on the CIG Site to any person, other than those who have previously
qualified as Accredited Investors, who must use their password to enter the
password-protected part of the CIG Site.
10. For all offerings, CIG will charge a "listing fee" of a set amount. The
listing fee will cover such items as design and graphics work, technical
consulting regarding the listing, and historical popularity of the Site
(analogous to the circulation history of newspapers). The listing fee will be
independent of the size of the private offering, any investment made by
accredited investors, and the number of hits to the Site after the listing.
Where CIG or Circle Group Internet will have an affiliation with or any interest
of any kind in the issuer prior to or at the time of the offering of the private
offering, appropriate disclosure will be made.
11. An Accredited Investor may invest only in private offerings which are posted
on the CIG Site subsequent in time to the registration of the Accredited
Investor with CIG, and then only after a sufficient time has elapsed between the
CIG member's registration as an Accredited Investor and the inception of a
private offering so that the registration as an Accredited Investor is not
deemed to be a solicitation for a particular private offering.
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Securities and Exchange Commission
June 14, 1999
Page 5
12. Each issuer desiring to list a private offering with CIG will covenant to
issue securities in a private offering in strict accordance with Regulation D.
The obligation to assure compliance with Regulation D will rest upon the issuer.
Legal Analysis
1. CIG may accept indications of interest via e-mail.
Rule 134(d) provides as follows: (d) A communication sent or delivered
to any person pursuant to this rule which is accompanied or preceded by a
prospectus which meets the requirements of Section 10 of the Act at the date of
such communication, may solicit from the recipient of the communications an
offer to buy the security or request the recipient to indicate, upon an enclosed
or attached coupon or card, or in some other manner, whether he or she might be
interested in the security, if the communication contains substantially the
following statement:
"No offer to buy the securities can be accepted and no part of
the purchase price can be received until the registration
statement has become effective, and any such offer may be
withdrawn or revoked, without obligation or commitment of any
kind, at any time prior to notice of its acceptance given
after the effective date. An indication of interest in
response to this advertisement will involve no obligation or
commitment of any kind." As described above in Facts,
paragraphs 3 and 4, the Site will contain the notices required
by Rule 134(b)(1) and (d) linked to any tombstone
advertisement and red herring prospectus.
Rule 134(d) specifically contemplates that indications of interest may
be accepted by a "coupon or card, or in some other manner." CIG's electronic
"coupon" or "card" may be sent directly from the Site or independently via
e-mail, or printed in hard copy and sent via regular carrier. An electronic or
e-mail indication of interest as described should qualify as a card or coupon in
harmony with Release No. 33-7233, October 6, 1995, and certainly qualifies under
the phrase "some other manner" and is entirely consistent with the 1933 Act and
the Rules thereunder.
2. The posting of a general notice of private offerings in a password-protected
page of CIG accessible only to CIG members who have previously qualified as
accredited
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Securities and Exchange Commission
June 14, 1999
Page 6
investors does not involve any form of general solicitation or general
advertising within the meaning of Regulation D Section 502(c).
In H.B. Shaine & Co., Inc., No Action Letter dated May 1, 1987, the
staff indicated that a distribution by Shaine of questionnaires to prospective
accredited and sophisticated investors to determine their suitability to
participate in private offerings would not be deemed a "general solicitation or
general advertisement." This view was premised upon several factors, including
the use of a generic questionnaire and upon the elapse of a sufficient period of
time between the completion of the questionnaire and the contemplation or
inception of any particular offering.
As described above in Facts, paragraphs 7-12, CIG will follow
substantially the same procedure as Shaine. The primary distinction in Shaine
appears to be simply that the questionnaire may be returned either
electronically through a link in the Site, through e-mail, or by hard copy, and
one assumes that Shaine sent and received the questionnaires through the
traditional means. Similarly, the documents relating to a private offering to
the Accredited Investors would be distributed electronically through the CIG
Site password protected page available only to Accredited Investors. The No
Action Letter did not address the means of communication.
In Release No. 33-7233, the Commission stated:
The Commission appreciates the promise of electronic distribution of
information in enhancing investors' ability to access, research, and analyze
information, and in facilitating the provision of information by issuers and
others. The Commission believes that, given the numerous benefits of electronic
distribution of information and the fact that in many respects it may be more
useful to investors than paper, its use should not be disfavored. * * * Given
the numerous benefits of electronic media, the Commission encourages further
technological research, development and application. The Commission believes
that the use of electronic media should be at least an equal alternative to the
use of paper-based media. Accordingly, issuer or third party information that
can be delivered in paper under the federal securities laws may be delivered in
electronic format.
In addition, CIG will follow substantially the same structure as
IPONet, 1996 WL 431821 (1996). IPONet operates the same as the proposed CIG Site
will function and the No Action Letter, dated July 26, 1996, addressed
substantially the same issues raised in this request. The Commission's
conclusions were to accept the proposed IPONet structure, with the exception
that the Commission would not take a position as to whether
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Securities and Exchange Commission
June 14, 1999
Page 7
the information obtained by W.J. Gallagher & Company, Inc. (the broker-dealers)
on the potential investors was sufficient to form a reasonable basis for
believing an investor to be accredited or sophisticated. CIG proposes to
diligently research and maintain structured procedures to reasonably ensure that
the information retrieved is correct. This will involve further investigation
into the verifying of all information submitted in hard copy or electronic form
and other efforts of proof. Mail, telephone and the Internet will all become an
integral part in this process. But this process will be similar to the process
usually exercised to define accredited investors prior to an investment.
Accordingly, since CIG will be soliciting questionnaires for Accredited
Investors and will be distributing information on private offerings
electronically that it could otherwise properly do by paper, the posting of
private offerings in a password protected page of CIG would not involve general
solicitation or general advertisement within the meaning of Rule 502 (c) under
the circumstances discussed above.
Conclusion
We request that you concur with the conclusions set forth above. If you
have questions or comments, please contact me directly.
Sincerely,
/s/ Roxanne K. Beilly
- ---------------------------------------
Roxanne K. Beilly, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 E. Las Olas Boulevard
Suite 1900
Ft. Lauderdale, Florida 33301
Telephone (954) 763-1200
Facsimile (954) 766-7800
