As filed with the Securities and Exchange Commission on October 20, 1999
Registration Statement No.333-83701
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO THE
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)
1011 Campus Drive
Mundelein, IL 60060
847-549-6002
(Address and telephone
number of principal
executive offices)
Mr. Gregory J. Halpern
Mr. Frank K. Menon
Circle Group Internet, Inc.
1011 Campus Drive
Mundelein, IL 60060
847-549-6002
(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
(954) 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 of 1933, check the following box and
list the Securities Act of 1933 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 of 1933, check the following box and list the Securities Act
of 1933 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 [ ].
<PAGE>
<TABLE>
<CAPTION>
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 1,825,532 $10.00 $18,255,320 $5,075
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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 Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold by the holders until the registration
statement filed with the Securities and Exchange Commission is effective. This
preliminary 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.
SUBJECT TO COMPLETION DATED OCTOBER 20, 1999
PROSPECTUS
CIRCLE GROUP INTERNET, INC.
1,825,532 SHARES OF COMMON STOCK
This investment has a high degree of risk. You should carefully consider the
risk factors beginning on page [ ] before purchasing any of the shares of Circle
Group Internet common stock offered by this prospectus.
The selling security holders identified on pages [ ] to [ ] of this prospectus
are offering these shares of our common stock. The shares were previously
purchased by the selling security holders from us in two private placements
which were both exempt from the registration requirements of the Securities Act
of 1933. We will not receive any portion of the proceeds from the sale of these
shares. This offering is not being underwritten. The selling security holders
may offer the shares from time to time through public or private transactions,
[on the Nasdaq National Market], at prevailing market prices, or at privately
negotiated prices. For additional information on the methods of sale, you should
refer to the section entitled "Plan of Distribution" on page [ ]
There is currently no public market for our common stock. Application has been
made to have our common stock listed on the Nasdaq National Market under the
symbol "CGRP."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is [ ], 1999
1
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
Prospectus Summary....................................................................................................... 3
Summary Financial Data................................................................................................... 3
General Information...................................................................................................... 4
Risk Factors............................................................................................................. 4
Forward-Looking Statements............................................................................................... 8
Use of Proceeds.......................................................................................................... 8
Capitalization........................................................................................................... 9
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10
Business................................................................................................................. 14
Management............................................................................................................... 30
Indemnification of Officers and Directors................................................................................ 36
Certain Relationships and Related Transactions........................................................................... 36
Principal Shareholders................................................................................................... 38
Market For Our Securities................................................................................................ 39
Selling Security Holders................................................................................................. 40
Plan of Distribution..................................................................................................... 45
Description of Securities................................................................................................ 46
Legal Matters............................................................................................................ 47
Experts.................................................................................................................. 47
Index to Financial Statements............................................................................................ F1
</TABLE>
2
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PROSPECTUS SUMMARY
Circle Group Internet, Inc.
We are an Internet company with e-finance, business-to-business, and e-tailer
divisions. Our divisions are built around the common theme of Internet-based
operations. A summary of our divisions follows.
* Our e-finance, or Internet investment banking, division is a
broker-dealer that offers and sells securities in private
placements and public offerings. Our e-finance division
focuses its activities on the Internet sector and, more
generally, on issuers seeking to market their stock offerings
to online investors.
* Our business-to-business, or B2B, division develops
distinctive web sites, engineers software, including our
Internet viewing software, and provides business-to-business
consulting services.
* Our e-tailer, or Internet retailer, division is a manufacturer
and distributor of pillows, blankets, and other bedding
products.
Our executive offices are located at 1011 Campus Drive, Mundelein, Illinois
60060. Our telephone number is (847) 549-6002. 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.
SUMMARY FINANCIAL DATA
The following table provides summary consolidated financial information on
Circle Group Internet. 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 claim to represent what the combined results of
operations actually would have been if the acquisitions of
On-Line Bedding and PPI Capital had occurred as of December
31, 1998 instead of the actual closing dates, or
* what the financial position and results of operations would be
for any future periods.
You should also read the audited and unaudited historical financial statements,
and the compiled pro forma condensed consolidated financial statements included
in this prospectus.
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<TABLE>
<CAPTION>
Statement of Operations data:
Six Months Ended June 30, Year Ended December 31,
1999 1998 1998 1997
---- ---- ---- ----
(unaudited) Historical Pro forma Historical
----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $2,204,994 $ 492,182 $ 338,333 $1,121,046 $ 282,362
Net Income (loss) $ 633,931 $( 30,885) $ 7,422 $ (209,127) $ 23,436
Net Income (loss) per
Common Share $ .079 $ (.004) $ .001 $ (.028) $ .003
Weighted average shares
outstanding 8,010,040 7,000,000 7,032,328 7,432,328 7,000,000
Balance Sheet data:
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
Historical Proforma
---------- --------
<S> <C> <C> <C>
Current Assets $12,621,106 $1,033,399 $1,048,293
Total Assets $15,250,840 $1,059,303 $2,162,259
Total Liabilities $ 752,773 $ 35,595 $ 158,551
Working Capital $11,868,333 $ 977,804 $ 977,988
Stockholders Equity $14,498,067 $1,059,303 $2,024,708
</TABLE>
GENERAL INFORMATION
On July 22, 1999, we effected a one for two forward split of our common stock.
All information contained in this prospectus gives proforma effect to this stock
split. Our B2B division operates in the corporate structure of Circle Group
Internet. [Our e-finance division operates in the corporate structure of CIG
Securities.] Our e-tailer division operates in the corporate structure of
On-Line Bedding. PPI is a shell corporation which has no operations as of the
date of this prospectus. The terms "Circle Group Internet," "we," "our," and
"us" refer to Circle Group Internet, Inc. and our subsidiaries [CIG Securities],
On-line Bedding, and PPI Capital Corporation. The term "you" refers to a
prospective investor.
RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition to
the other information contained in this prospectus, you should carefully
consider the following risk factors before investing in our common stock.
We have a limited operating history, have only recently closed our acquisitions,
and our ability to integrate these operations is unproven
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 Internet viewing
software. While On-Line Bedding has been in operation since 1981, we have only
recently acquired the company. We 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 a web site used to conduct business online. There
are no assurances that we will be successful in developing markets for the
products of our various divisions. If we are unsuccessful in developing markets,
or integrating On- Line Bedding's operations, we may not achieve any revenue
growth. If we cannot properly integrate our operations
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and achieve some efficiencies of scale, we will incur excessive general and
administrative costs which would adversely effect our future profitability.
A significant portion of our B2B division's revenues are non-cash compensation
which we may never be able to liquidate, and on which we are required to pay
income taxes
We have developed a compensation structure for clients of our B2B division which
is a combination of restricted stock and cash. We believe this fee structure
makes our services desirable to developmental stage companies. Approximately 71%
of our revenues for the six months ended June 30, 1999 represented the value of
restricted securities we accepted as partial payment for our fees for business
to business consulting services, and the development of various software, from
privately held, third party clients.
This stock has not been registered under the Securities Act of 1933. Although we
have been granted registration rights in each instance, in every case the issuer
is a private company and the stock is illiquid. Accordingly, while we have
recognized revenue associated with its issuance to us as required by GAAP, we
may never be able to liquidate these securities and receive cash in their place.
We have adopted a policy of reviewing the value of these investments on a
quarterly basis. This review may result in an adjustment to their carrying value
which could adversely affect our operating results for the corresponding
quarters in that we might be required to reduce our carrying value of the
investments. In addition, if we are unable to inevitably liquidate these
securities, we will be required to write off the investments which would
adversely affect our operating results. Finally, we will be required to use cash
generated from our other operations, or our working capital, to pay the income
taxes which will be due on this revenue attributed to non-cash compensation.
We must effectively develop our e-finance division to achieve significant
revenue growth
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 a number of
factors, including:
* the number and size of private placements or public offerings
in which we participate, as either a placement agent, or as an
underwriter. Our compensation is success-based, and is
computed as a percentage of the total funds we raise for the
issuers. For example, the efforts and costs we will expend in
an offering raising $1,000,000, for which we would receive a
$60,000 fee, are substantially equal to the efforts and costs
we would expend in an offering raising $5,000,000, for which
we would receive a $300,000 fee. To maximize our revenue
potential, we must focus our efforts on larger deals.
* our ability to attract a sufficient number of accredited
investors to participate in a number of private offerings.
Unlike investors in public offerings who purchase a security
with immediate liquidity, investors in private placements are
generally required to hold the security purchased for at least
one year. It is an illiquid investment. In instances where the
issuer is a private company, the investment may extend for a
longer period. Our business model is geared toward
participating in private placements for privately held
companies who intend to undertake an IPO within 12 to 18
months after the private placement. Our members who
participate in these offerings will be required to hold
restricted securities for at least that long. Private
placements can also be very risky investments and we may
participate in offerings where the issuer never proceeds to
the IPO stage. It is likely that investors in those offerings
will not recover their initial investment. If we do not
continue to solicit an increasing number of accredited
investor members who are interested in participating in
private placements, we may be able to undertake only a limited
number of private offerings. Any significant
5
<PAGE>
limitation in the number of private offerings we are able to
successfully close will result in a reduction of our potential
revenues.
* our ability to close public offerings. Our members need an
exit strategy because the private placements they invest in
will be illiquid. Generally, this strategy will be a public
offering. We may act as lead underwriter in the public
offering, or we may refer the issuer to another investment
banking firm who will undertake the public offering, and we
will participate as a member of the selling group. We must
establish relationships with other investment banking firms
who can either participate with us in these public offerings,
or who have the ability to undertake and successfully close
public offerings we refer to them. In this instance, we would
likely participate as a member of the selling group. If we are
unable to successfully close public offerings, either those we
underwrite or those in which we participate as a member of the
selling group, we will not earn the potential revenues from
this participation and our future growth will be impeded. The
number of private placement investors available to us to
participate in future transactions may be adversely effected
if we do not provide exit strategies for these investors.
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 our e-finance division, it will materially adversely affect our
ability to increase our revenues and profits.
Our e-finance division will operate in the highly regulated area of the
securities industry, and we could be fined, suspended, or expelled from the
industry if we fail to comply with the rules
The securities industry is extensively regulated at both the federal and state
levels by various regulatory organizations charged with protecting the interests
of customers. The SEC and NASD require strict compliance with their rules and
regulations. Our continued compliance with these rules and regulations requires
diligent effort. If we fail to comply with any of these laws, rules or
regulations, the SEC and/or the NASD could levy fines against, suspend or expel
CIG Securities. Significant fines could adversely impact our working capital,
and a suspension or expulsion would severely limit our projected future growth.
Our e-finance division will compete against other companies with more experience
and with better name recognition than CIG Securities
Our e-finance division will compete 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 better capitalization than CIG Securities. Because we will
initially lack these advantages, it will be difficult for us to attract clients
with the most potential.
Our ability to attract potential clients is also based, in part, on our success
with prior transactions in which we have assisted companies in raising capital.
We have only recently expanded into this division, and must still develop a
track record on which our future clients can evaluate our likelihood of success
in assisting them to raise capital. Until we develop this track record, we may
incur difficulties in attracting potential clients which have the greatest
potential for future success.
We are focusing our e-finance efforts in an emerging area of Internet investment
banking, and do not know if new rules or regulations will be adopted by the SEC
or the NASD. New rules or regulations might limit, or eliminate our ability to
operate our e-finance division as presently contemplated. In this event, we
would modify this division
6
<PAGE>
to operate as a traditional investment banking firm. While we do not believe
this change would materially effect our operations, we believe the unique
identity we are seeking to establish as an Internet investment bank would be
lost. We would then compete with a greater number of existing investment
bankers, which might result in a greater loss of competitiveness on our part.
We are dependent upon the continued growth and prosperity of the securities
markets
For our e-finance division to successfully grow, investor confidence in the
United States economy and the securities markets must remain high. If the United
States economy should slow, or if the securities markets should suffer a
significant and prolonged decline, it is likely investors would stop investing
in private placements and IPOs. Our revenues are likely to be lower during
periods of declining securities prices or securities markets inactivity. 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 unrelated to the operating performance of these companies. These
broad market and industry fluctuations may adversely effect our ability to raise
capital for our clients, regardless of the client's operating performance. In
this event, it would be more difficult to increase our revenues.
We may not be successful in controlling or managing our growth
Our management team faces the challenge of hiring, training, managing additional
personnel, successfully implementing company-wide administrative and operating
systems, and managing our diverse operations. We may face difficulties from time
to time integrating new personnel and systems. We may not be able to
successfully manage our business to achieve optimum revenues and profitability
in any of our divisions, or overall.
We may be unsuccessful in protecting our intellectual property
Our success depends in part on our ability to protect our intellectual property.
To help us protect these rights, we generally rely on:
* copyright, trademark, and trade secret laws,
* confidentiality and invention assignment agreements with
employees, and
* license agreements with vendors and customers.
We have not signed agreements in every case. Despite these protections, a third
party could, without authorization, copy or otherwise obtain and use our
intellectual property. Despite our agreements with employees, consultants and
others who participate in our development activities, these individuals and/or
entities may violate the terms of these agreements. Their actions may be beyond
our control. We may not have adequate remedies for any breach, and our trade
secrets may either become known to, or independently developed by our
competitors.
Because of the way we have chosen to establish a public market for our common
stock, we may have significant difficulty in gaining recognition by market
makers, analysts, and individual investors
Generally, issuers whose securities are approved for listing on The Nasdaq Stock
Market are either obtaining the listing in connection with an IPO or moving up
from the over-the-counter markets, including the OTC Bulletin Board. When
initial trading begins 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 to assist the issuer in establishing a meaningful trading market in its
securities in order to provide future liquidity for the market
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makers' clients. 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, trading 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 our listing was not undertaken in connection with an IPO, we do not
know if 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. Because we did not undertake an IPO, we do not have the support of
an underwriter who could help us in gaining recognition with individual
investors, nor have any analysts instituted coverage on our common stock. Both
of these factors are important in establishing a liquid trading market for our
common stock. The absence of any meaningful market in our common stock would
adversely affect your ability to sell the common stock in the future.
Because we do not have an established public market, future sales of our common
stock under this prospectus or otherwise could lower our stock price
This prospectus covers the resale by the selling security holders of a total of
1,825,532 shares of our common stock, including 247,000 shares we have
registered for resale by a trust controlled by Mr. Gregory J. Halpern, our
president and CEO. Additionally, all 1,000,000 shares of our common stock sold
in our Regulation A offering are freely sellable by the holders. This total of
2,578,532 shares of our common stock is substantially all of the shares of our
common stock presently issued and outstanding which are not held by our
affiliates. We are in the early stages of establishing a public market for our
common stock. The listing of our common stock on the Nasdaq National Market
simply means that we satisfied the listing criteria, not that we have developed
a market for our common stock. Our ability to establish and sustain a meaningful
market for our common stock will be hindered to an extent by the number of
shares which are available for sale under this prospectus or otherwise. The
occurrence of these sales, or the perception that these sales could occur, could
materially and adversely affect our stock price.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend to identify
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," or similar statements. These statements are based
on our beliefs, as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section beginning
on page [
] of this prospectus. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock by the
selling security holders made under this prospectus.
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CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 and has been
derived from financial information appearing in the financial statements
included in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
-------------
(unaudited)
<S> <C>
Total Debt: $ 752,773
------------
Stockholders' equity:
common Stock, $.0001 par value per share; 50,000,000 shares
authorized; 8,616,480 shares issued and outstanding at June 30, 1999 431
Additional paid-in capital 13,852,847
Retained earnings 664,789
Dividend (20,000)
------------
Total stockholders' equity $14,498,067
------------
Total capitalization $15,250,840
============
</TABLE>
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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 related notes which appear elsewhere in this prospectus. We
acquired On-Line Bedding in January 1999, and our consolidated revenues for the
six months ended June 30, 1999 include revenues for On-Line Bedding for the
period of February 1, 1999 through June 30, 1999. On-Line Bedding was an S
corporation until our acquisition of all of its stock. We acquired PPI Capital
in March 1999. PPI Capital is a shell corporation with no operations or
revenues. While it is included in our consolidated financial statements for the
six months ended June 30, 1999 and 1998, and our balance sheet at June 30, 1999,
we do not provide any separate information on this company. Our financial
statements for the six months ended June 30, 1998 have been adjusted to give pro
forma effect to the acquisitions of On-Line Bedding and PPI Capital as if these
acquisitions had occurred in January 1998 and March 1998, respectively. We did
not close our acquisition of CIG Securities until [November ], 1999 and its
results of operations are not included in our financial statements for the six
months ended June 30, 1999. The following discussion assumes the pro forma
acquisitions of On-Line Bedding and PPI Capital at June 30, 1998 and for the six
months ended June 30, 1998.
RESULTS OF OPERATIONS
Second Quarter of 1999 as Compared to Second Quarter of 1998
Consolidated
Our revenues increased approximately 348% for the six months ended June 30, 1999
from the comparable period in fiscal 1998. The following table provides a
breakdown of the revenues for our B2B division and our e-tailer division for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
B2B division $1,785,944 $ 106,153
e-tailer division 419,050 386,029
----------- ----------
$2,204,994 $ 492,182
=========== ==========
</TABLE>
Our consolidated operating expenses increased significantly for the second
quarter of fiscal 1999 over the second quarter of fiscal 1998 as a result of the
expansion of our B2B division, and shareholder distributions to the shareholders
of On-Line Bedding which have been treated as an operating expense. Included in
the operating expenses for the six months ended June 30, 1999 is also a one time
expense of $295,000 which represents the value of stock grants to new employees
hired during fiscal 1999. Other Income at June 30, 1999 represents interest
income. Our conslidated income from operations increased from a loss for the six
months ended June 30, 1998. Of this increase, approximatley 95% is attributable
to the operations of our B2B division.
Based upon an internal analysis of our pending projects and orders, we
anticipate revenues will continue to increase during the balance of fiscal 1999
in both our B2B and e-tailer divisions. In addition, we anticipate that we will
begin to report revenues from our e-finance division during the third or fourth
quarter of fiscal 1999.
B2B division
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Revenues reported by this division increased approximately 1,583% for the six
months ended June 30, 1999 from the comparable period in fiscal 1998. These
revenues included revenues from sales of business-to-business consulting
services and our Internet viewing software. Revenues for the comparable period
in fiscal 1998 were generally attributed to sales of our marketing software.
Included in the revenues for the six months ended June 30, 1999 which were
reported by this division is approximately $1,571,000 in non-cash revenue. This
non-cash revenue represents the value of restricted securities we accepted as
partial payment from three unrelated clients for our fees for business to
business consulting services, and the development of various software. None of
these clients are our affiliates. This stock has not been registered under the
Securities Act of 1933. Although we have been granted registration rights in
each instance with respect to the securities we accepted as partial payment for
the services, in each case the issuer is a private company and the stock is
illiquid. Accordingly, while we have recognized revenue associated with its
issuance to us as required by GAAP, we may never be able to liquidate these
securities and receive cash in their place. As discussed elsewhere in this
prospectus, we anticipate that we will continue to accept restricted securities
from time to time as partial payment for services rendered by our B2B division.
Based upon our internal review of pending projects within this division, we
anticipate that revenues will continue to increase during the balance of fiscal
1999.
Operating expenses in this division increased significantly for the six months
ended June 30, 1999 from the comparable period in fiscal 1998 as a result of our
growth and development. These additional expenses included costs associated with
additional employees, and product and service development. As we continue to
expand our operations in this division during the balance of fiscal 1999, we
anticipate operating expenses will continue to increase.
This division reported net income of approximately $775,910 for the six months
ended June 30, 1999 versus a net loss of approximately $20,437 for the
comparable period in fiscal 1998.
e-tailer division
Revenues reported by this division increased approximately 8.6% for the six
month ended June 30, 1999 from the comparable period in fiscal 1998. Gross
profit as a percentage of sales decreased from approximately 42% for the six
months ended June 30, 1998 to approximately 21% for the comparable period in
fiscal 1999. The gross profit reported for the six months ended June 30, 1998
was higher than customarily reported by On-Line Bedding as a result of a
non-recurring order flow in that period. The profit margin reported for On-Line
Bedding for the six months ended June 30, 1999 is closer to this division's
historic norms. We anticipate a modest increase in revenues at this division
through the balance of fiscal 1999 as its e-commerce web site becomes
operational.
Operating expenses in this division remained essentially unchanged. For the six
month ended June 30, 1998 compensation payable to Mr. Edward Halpern, On-Line
Bedding's president, is reflected as an Other Expense. Mr. Edward Halpern's
compensation for the six months ended June 30, 1999 is included in the operating
expenses for our B2B division. We do not presently anticipate any increases in
operating expenses within this division. This division reported net income of
approximately $34,428 for the six months ended June 30, 1999 versus net income
of approximately $114,980 for the comparable period in fiscal 1998. This
reduction in net income is primarily attributable to the lower margins this
division reported during the second quarter of fiscal 1999, as well as the
effect of a change from an S corporation to a C corporation following our
acquisition of On-Line Bedding's stock in January 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 Internet viewing software.
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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
At June 30, 1999 we had working capital of approximately $11,868,333, an
increase of approximately $10,870,559 from December 31, 1998. This increase is
attributed to proceeds we received from our capital raising activities which are
described elsewhere in this prospectus. In addition to cash on hand, we have
established a $1 million line of credit with a commercial bank. Our balance
sheet at June 30, 1999 reflects accounts receivable of $243,235, which is
attributed $99,600 to our B2B division and $143,625 to our e-tailer division. We
did not have any accounts receivable at December 31, 1998. In addition, our
balance sheet at June 30, 1998 reflects accounts payable and accrued expenses of
$263,170 which are attributable to our e-tailer division.
During the balance of fiscal 1999 we anticipate hiring approximately 29
employees and will, accordingly, increase our payroll and operating expenses.
These additional expenses will be funded by our existing working capital until
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 operating 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 the
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 the fees to be earned by our e-finance
division.
We have also set aside $1 million of our cash to contribute to the fund which
will invest in Illinois technology companies. This to-be-created fund is
discussed elsewhere in this prospectus. We also anticipate that we will use a
portion of our working capital to fund the acquisitions and development of
additional companies. Other than these planned capital expenditures, and the
costs associated with the continued growth of our company, we do not presently
have any planned or anticipated use of proceeds for the balance of funds raised
in our capital raising activities.
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.
Special capital considerations of our e-finance division
CIG Securities must follow the SEC's Uniform Net Capital Rule, 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 as calculated by the rule. As of this
date, CIG Securities is required to maintain a minimum net capital of $5,000. As
of July 31, 1999, it had total net capital of $22,582, or $17,582 in excess of
the minimum net capital required. The minimum net capital required is based upon
the nature of CIG Securities' broker dealer business. If CIG Securities remains
principally engaged in the offer and sale of private placement securities, then
its net capital requirements remain at a minimum. In the event CIG Securities
ever
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becomes involved in the participation in public underwritings, then net capital
requirements will be increased to a minimum of $100,000.
As a broker dealer, CIG will be subject to certain liabilities based upon the
nature of its business. CIG intends to restrict its business during the first 12
months of operations to the private placement of equity securities. Its capital
requirements will be limited, and we should not be subject to any fluctuations
in the stock market. However, as a broker dealer engaged in the sale of equity
securities, CIG could be subject to claims by subscribers to private offerings
based upon allegations of false or misleading statements contained in the
selling memorandum. At the time CIG undertakes public offerings for its clients,
it will be subject to similar liabilities related to the contents of the
prospectus. CIG will seek to limit its liability by conducting significant due
diligence and working closely with its attorneys and accountants. We are unable
at this time to predict what effect CIG's activities, if any, will have on our
liquidity and capital resources.
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 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 are
fully Year 2000 compliant as of the date of this prospectus. 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 these 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 entities with which we do business.
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BUSINESS
Our history
We began our operations in 1997, and our first business ventures were related to
the development and marketing of software that strategically places web sites in
Internet directories. Since 1997, we have also engaged in a variety of
transactions designed to expand and broaden the scope of our business and
operations. These transactions included:
Our capital raising activities
- 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 these proceeds to:
* fund the expansion of our operations,
* pay the costs associated with the
acquisitions of On-Line Bedding and PPI
Capital, and
* provide working capital for 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.
- Between March 1, 1999 and March 15, 1999 we sold 150,480
shares of our common stock, at $2.50 per share, to a group of
accredited investors with whom we had pre-existing
relationships. These sales were made in a private placement
which was exempt from registration under the Securities Act of
1933 in reliance on Section 4(2) and Rule 506, Regulation D.
We received $376,200 in gross proceeds from the sale of these
shares. We used these proceeds to launch our e-finance
division.
- Between April 1, 1999 and July 22, 1999, we sold 1,213,800
shares of our common stock at $10.00 per share to a group of
accredited investors with whom we had pre-existing
relationships. These sales were made in a private placement
exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) and Rule 506, Regulation D. We
received $12,138,000 in proceeds from the sale of these
shares. We used a portion of the proceeds for the development
and marketing of our Internet viewing software. We have also
set aside $1 million of the cash from this private placement
to contribute to the fund we decided to create a to invest in
Illinois technology companies. This to- be-created fund is
discussed elsewhere in this prospectus. Lastly, we anticipate
that the balance of these proceeds will be used to acquire
additional companies. Our plans regarding this are discussed
later in this prospectus.
Our acquisitions
- In January 1999, we acquired On-Line Bedding, a distributor of
a wide variety of bedding and disposable products. We are
expanding On-Line Bedding's sales and distribution channels to
include e-commerce.
- In February 1999, we acquired an 80% interest in the common
stock of PPI Capital, a shell corporation. We anticipate that
we will use PPI Capital as either a holding company, or as a
candidate for a reverse merger with an operating entity.
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- In March 1999, we entered into an agreement to purchase all of
the stock of CIG Securities, a broker-dealer registered with
the SEC and a member in good standing of the NASD. [This
acquisition closed in November 1999 after we received approval
from the NASD for the change in control.]
Information about the acquisitions
On-Line Bedding
This company, originally known as Hos-Pillow Corporation, is an Illinois
corporation formed in 1981 by affiliates of ours. Since its beginning, On-Line
Bedding has operated as a distributor of a wide variety of bedding and
disposable products. We wanted to make the acquisition of On-Line Bedding to
enhance our revenues, and because we believe we can increase its business
through the addition of an e-commerce site. After engaging in due diligence on
On-Line Bedding, we acquired all of the issued and outstanding stock of On-Line
Bedding from its shareholders in exchange for 400,000 shares of our common
stock. The purchase price was based upon a multiple of On-Line Bedding's
historic net income, utilizing a value of $2.50 per share for our stock issued
as the consideration for the share exchange. On-Line Bedding's assets, which we
acquired in this acquisition, included cash and cash equivalents, accounts
receivable, inventory, and office furniture and equipment. See "Certain
Relationships and Related Transactions."
Mr. Edward L. Halpern, who had served as president and CEO of On-Line Bedding
since its beginning, and was responsible for its day to day operations, remains
in those positions following our acquisition of the company. Mr. Edward L.
Halpern also joined our board of directors. On-Line Bedding has consolidated its
operations into our newly relocated principal offices which occupy approximately
22,000 square feet. Our facility provides sufficient space to store On-Line
Bedding's limited inventory, and allows us to take advantage of various
operating efficiencies including central administrative and accounting
personnel.
PPI Capital
PPI Capital was formed as an Illinois corporation in 1984 under the name Pain
Prevention, Inc. In November 1997, the corporation changed its name to PPI
Capital Corporation and reincorporated in Utah. PPI Capital was formerly a
wholly-owned subsidiary of Pain Prevention, Inc., a Utah corporation. In 1997,
Pain Prevention, Inc., the Utah corporation, transferred 80% of the capital
stock of PPI Capital to Meridian Enterprises, Inc., a Delaware corporation. Our
CEO, Greg Halpern, acquired the PPI Capital stock from Meridian in 1997. Pain
Prevention, Inc., the Utah corporation, also distributed the remaining 20% of
PPI Capital's stock to its shareholders. PPI Capital is a development stage
company which has had no operations since its formation. We purchased the
company as an investment. After engaging in due diligence on PPI Capital, we
acquired 80% of its issued and outstanding stock from Greg Halpern, for $20,000.
The purchase price was based on a 50% discount from the price paid for 80% of
the sister shell corporation of PPI Capital paid by an unaffiliated third party
in 1998. Since PPI Capital is a shell corporation, we acquired no assets in this
transaction. See "Certain Relationships and Related Transactions."
CIG Securities
CIG Securities had been formed in 1996 by Internet Broadcasting Company to take
advantage of the developing Internet direct public offering service market.
Although it had not begun operations, it had secured the appropriate regulatory
approval from the NASD and the State of Florida. After engaging in due diligence
on CIG Securities, we signed an agreement to purchase all of its issued and
outstanding stock from Internet Broadcasting Company, an unaffiliated third
party, for $35,000. The purchase price was based upon the prevailing market
price set by the seller at the time of the transaction. CIG Securities has
received approval to conduct business as a broker-dealer
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in 42 states, and will seek approval in the remaining additional states as
quickly as possible. We do not anticipate that the costs of making and obtaining
these additional approvals will be substantial.
We do not presently anticipate that we will operate CIG Securities as a
traditional brokerage firm, including employing retail stock brokers, handling
client investment accounts, acting as a market-maker, and other activities
normally undertaken by a broker-dealer. Rather, we acquired CIG Securities so
that we might undertake private placements and be permitted to structure the
compensation we will receive from our capital raising efforts to provide the
maximum benefit to us without overlooking the various applicable federal and
state securities laws which might apply to the FUNDS-IN(TM) Program.
CIG Securities' principal offices are located at our principal offices. Mr. Brad
Levine, the previous principal of CIG Securities, resigned all positions on the
closing date of the acquisition. Mr. Erik Brown, our vice president of corporate
development, was appointed president of CIG Securities in May 1999, and remained
in that position following the closing of our purchase of CIG Securities. Mr.
Brown is responsible for its day to day operations. Mr. Arthur Tanner, our CFO,
serves as CIG Securities' financial operations principal, and Mr. Frank Menon,
our president, will also be involved in CIG's operations. All of these
individuals have already obtained the required licenses from the NASD for the
positions they will hold at CIG Securities.
Acquisition procedure
Once we identified the acquisition candidate, we generally followed the same
procedures for all of these transactions. Based on our due diligence results, we
negotiated a purchase price and a definitive agreement with the owners of the
acquisition candidates. The negotiations for the purchase of CIG Securities were
held at an arms-length basis. Because the owners of On-Line Bedding and PPI
Capital were our affiliates, these negotiations were not at arms-length. We
believe, however, that the terms of these transactions were no less favorable
than the sellers' might have received from an unaffiliated third party. In none
of these transactions did we seek or obtain a fairness opinion.
Our plans for additional acquisitions
We presently intend to acquire additional companies to compliment our organic
growth . Although we have not formalized the criteria we will follow in
identifying and evaluating potential acquisition candidates, generally we will
seek to acquire either start-up or operating technology based businesses which,
in our opinion, either occupy a developing market niche, compliment our existing
business, or possess new and innovative technology and/or marketing and
distribution methods. We anticipate that we will use a combination of cash and
equity in these future acquisitions. As of the date of this prospectus, we have
not identified any target companies. Given the preliminary nature of our plans,
we cannot predict as of the date of this prospectus when we will acquire any
additional companies.
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 a significant amount of its time focusing on the capital
raising efforts causing our business development and operations to suffer. The
more we learned about the traditional methods of raising capital through
investment bankers and venture capitalists, the more we believed that an
alternative should be made available to companies like ours. This alternative
would allow the entrepreneur
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to complete the process in a timely and cost conscious fashion, while retaining
control of his/her 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 using electronic mail and the
Internet. CIG Securities' e-finance activities will focus on the Internet sector
and, more generally, on issuers who seek to market their stock offerings to
online investors. CIG Securities has established a web site at
www.cgisecurities.com to electronically market the public offerings. CIG
Securities will also offer and sell securities in private placements through
both traditional investment banking methods as well as using the Internet. In
this regard, CIG Securities has established a password-protected page in the web
site, accessible only to its members who have previously qualified as accredited
investors. Notices of private offerings are available on the web site only to
those members who became members before the offering began.
Sales of securities made through general public solicitations, like IPOs, are
required to be registered under federal and state securities laws. However,
offerings made privately to accredited investors are generally exempt from these
registration requirements if conducted under the terms of Rule 506 of Regulation
D of the Securities Act of 1933.
The term accredited investor generally includes:
* individuals whose income exceeded $200,000 annually in each of
the past two years, and who reasonably 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.
To expand CIG Securities' membership base, through its web site, CIG Securities
will solicit individuals who meet the "accredited investor" standards of the
Securities Act of 1933. This process has many steps:
* Prospective members will be required to complete an on-line
questionnaire which will allow CIG Securities, and any
potential issuer of securities sold in a private offering by
CIG Securities, to have a reasonable basis to believe that the
person meets the accredited investor test adopted under the
Securities Act of 1933.
* The questionnaire may be completed on-line in a secured
manner, or printed out and returned to CIG Securities in a
hard copy format.
* CIG Securities 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 Securities, the member will be given a
confidential password which will allow the member to access a
password-protected page in CIG Securities' web site where
private offerings will be posted.
* CIG Securities' web site will only allow a member access to
those private offerings which are posted after the date on
which the individual is qualified as a CIG Securities member,
so that the registration as a member is not a solicitation for
a particular private offering.
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* To maintain its members privacy, CIG Securities will contact
its members about new private offerings only if the member has
previously consented to these communications as part of the
registration process.
* CIG Securities 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 Securities membership is free and carries no obligation. CIG Securities
presently has approximately 23,120 accredited investors who are active members.
CIG Securities intends to offer its members the opportunity to invest in private
placements made under Rule 506 of Regulation D where it will act as the
exclusive placement agent. Before making these investments available to its
members, CIG Securities will have undertaken substantially the same type of due
diligence on the issuers as is generally conducted by other investment banking
firms. This will satisfy its obligations under applicable federal securities
laws related to the accuracy and adequacy of the information about the issuer
contained in the offering materials.
Each issuer who wants to list a private offering on CIG Securities' web site
will be required to agree to issue the securities in the private offering in
strict compliance with Regulation D. The obligation to assure compliance with
Regulation D will rest on the issuer. CIG Securities, in turn, is responsible to
comply 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
Securities will have basic procedures for offering and selling shares to its
members in private placements.
* Once the private offering memorandum has been completed by the
issuer's counsel, reviewed and approved by CIG Securities'
counsel, CIG Securities will then post a notice of private
offering in a password protected page of its web site. This
page will only be accessible to investors who became our
members before the offering began.
* If a member is interested in receiving more information about
the private offering, the member can contact the issuer
directly or forward an indication of interest to CIG
Securities, either using an on-line form, or printing out the
form and returning the hard copy to CIG Securities.
* CIG Securities ,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 issuer has the final decision to accept or
reject a subscription from a particular investor, or to limit
the number of securities the investor may purchase.
* Once the issuer has accepted the subscription, the escrow
agent will send the subscription funds to the issuer who will
then pay CIG Securities a commission on the sale. CIG
Securities will not accept subscription proceeds or otherwise
handle subscription funds for the issuers.
At the beginning of each private offering in which CIG Securities acts as
placement agent, CIG Securities and the issuer of the securities will enter into
a placement agreement. The placement agreement will generally contain:
- the conditions of the offering,
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- the obligations of each party,
- representations and warranties by the issuer as to the
accuracy and adequacy of the information contained in the
private offering memorandum,
- a requirement that an opinion be given to CIG Securities by
the issuer's counsel regarding a variety of matters, including
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,
- a requirement that the issuer's independent auditors review
the interim financial statements included in the private
offering documents and provide an opinion to CIG Securities
that the interim financial statements appear to be prepared in
conformity with GAAP.
CIG Securities is able to significantly reduce its overhead and administrative
costs because it uses an Internet based strategy for its e-finance business.
These reduced costs allow CIG Securities to offer a reduced commission to
issuers. We believe CIG Securities' fee structure is competitive, in that:
- CIG Securities charges a 6% commission on the sale of the
securities in the private offerings in which it acts as the
exclusive placement agent. Unlike the customary practices in
the industry for private placements in the $1 million to $5
million range, CIG Securities' commission is below the 10% to
13% commission charged by other investment banking firms, and
- CIG Securities does not charge the issuer a non-accountable
expense allowance, generally 3% of the offering proceeds.
CIG Securities believes its fee structure will enable it to attract a wide
variety of companies that seek assistance to raise capital privately. We believe
this will allow CIG Securities to undertake only those private placements in
which CIG Securities, based upon its internal analysis of the issuer, including
the issuer's business, management and prospects, believes will have a greater
than average likelihood of being successful following the closing of the private
offering.
We generally will require issuers to grant CIG Securities 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 Securities 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 in 12 to 18 months
following the private placement.
In the future, CIG Securities may elect to expand its e-finance activities to
include public offerings. These public offerings could include those in which
CIG Securities 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 Securities acts as the underwriter. We anticipate CIG Securities basic
procedures for offering and selling shares to individual investors in public
offerings will include:
- 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 Securities' members, as
well as any other potential on-line investor. In cases where
CIG Securities does not act as an underwriter, its name will
not appear on the tombstone advertisement or preliminary
prospectus. Information will appear that CIG Securities is not
an
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underwriter of the securities, but is authorized to accept
customer orders for the purchase of the securities.
- CIG Securities 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 a form linked to each preliminary
prospectus. A visitor to the site will be asked to complete
and return the form to CIG Securities indicating the visitor's
interest in purchasing the security.
- in cases where CIG Securities does not act as an underwriter,
the securities will be sold through CIG Securities as a
selected dealer. CIG Securities will receive a commission to
be determined before the offering, and it 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 Securities may act as the underwriter.
No-action request
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 Securities' proposed methods of
conducting its e-finance business would not conflict with various rules and
regulations related to private offerings and direct public offerings. CIG
Securities' no-action request was patterned after those previously submitted by
companies like 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 precedents 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 Securities' proposed method of conducting its e-finance
business will not conflict with the applicable rules and regulations cited in
the no-action request. In the event, however, that we do not receive favorable
no-action treatment from the SEC, we will modify CIG Securities' business plan
to conduct private placements for its clients following traditional methods used
by most broker-dealers. We have included a copy of this no-action request as an
exhibit to the registration statement of which this prospectus is a part.
Our B2B division
This division develops distinctive web sites, engineers software, including our
Internet viewing software, and provides business-to-business consulting
services. 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.
The Internet viewing software was designed to serve as a portal and delivery
system to provide service and advertising to Internet users, and create Internet
dial-up service revenues which can be shared with our clients. We completed the
engineering and development of our Internet viewing software in August 1998, and
have begun our initial market efforts. We market our Internet viewing software
as an alternative to Netscape and Microsoft Internet Explorer, which comprise
the majority of all Internet viewing software used in the current Internet
landscape.
We developed our Internet viewing software to provide clients a means to deliver
advertisements to those interested in what the client's company has to offer.
The Internet viewing software features include our automatic update
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feature, which finds changes on our servers and feeds those changes to the
user's computer when they access the Internet. This feature allows our clients
to deliver premium promotions, freebies, loss leaders, two-for-one sales,
marketing and sales promotions, and other information its customers may want.
The Internet viewing software can also be customized with 22 defaults to pages
selected by the customer, and can include a custom name, slogan, theme,
licensee's color scheme, logo identity, and animated picture.
Our web design services include developing, maintaining, and promoting a
user-friendly web site. Our web site designs can incorporate web site placement
technology, secured e-commerce transactions, elaborate statistic compilers,
animation, visual programming language, audio/visual compression software, and
sophisticated 3-D technology.
We offer a menu of business-to-business consulting services to assist companies
in many aspects of their business, including:
* Business plan development, including assistance in creating
and revising the client's business plan to accurately
articulate corporate intentions;
* Internet marketing strategy development to define business
models and branding strategies;
* Web site design to create a user-friendly a web site using
original content and design;
* Technology support to provide secure e-commerce business
between the client's customers and the client, and to
construct and maintain employee communication systems
including the client's networks and servers;
* Evaluation of professionals to ensure the client is properly
represented by attorneys and accountants with experience in
all areas of the client's current and proposed business and
operations;
* Debt management to assist the client to reduce or restructure
the client's debt to improve the client's valuation;
* Operations consulting to assist management in using the
Internet for day to day operations, and in the understanding,
analyzing, and management of the client's intellectual assets;
* Human resources consulting to help promote a management
philosophy and organizational structure tailored towards
teamwork and group contributions;
* Corporate communications to enhance the client's presentation;
* Sales training to assist management in proper sales
techniques;
* Negotiation training;
* Strategic networking to assist the client in linking its name
with beneficial contacts; and
* Strategy and planning consulting to assist the client in
identifying and analyzing market opportunities, as well as
anticipating competitive behavior.
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We focus our business-to-business consulting solutions on providing economical
and cost-efficient services to developmental stage, technology companies. We
recognize that many of our potential clients may not have sufficient cash
available to pay the full value for these services. We have developed a
compensation structure which is a combination of restricted stock and a small
amount of cash. We believe this fee structure makes our services desirable to
developmental stage companies. We also believe that this fee structure will give
our shareholders an opportunity to benefit from the potential increased value of
a client's stock should the client ultimately be successful in its business.
The scope of business-to-business consulting services rendered by our B2B
division is limited to activities which do not require the registration of
Circle Group Internet as a broker-dealer. The offer and sale of a client's
securities, or other activities which would require registration as a
broker-dealer, will be undertaken by our e-finance division.
Our current projects
As of the date of this prospectus, we have been engaged to design and license
our Internet viewing software to a company for use in a "Disney" style
entertainment web-site. The software will be "Kids-Safe" and contain chat,
e-mail, and banner advertising blocking. It will also include a members-only
chat room. A shopping cart will be designed to facilitate purchases of products
and services. The software will also contain designed story-lines to combine
entertaining characters and locations with the educational interactivity of the
video game and a electronic catalog. Our fee for this project was $35,000 and
272,000 shares of the client's common stock which represented approximately 4%
of their issued and outstanding common stock. Our fees for the design and
licensing of our Internet viewing software to other clients are anticipated to
be 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 a variety of products including shirts,
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 can 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 the direct cost of sales.
Lastly, we will also develop an additional web site that interacts with the
original web site to combine additional content and educational objectives. Our
fee for this web site is $20,000. We anticipate these projects will be completed
during the fourth quarter of fiscal 1999.
We have also been engaged by three companies to provide business-to-business
consulting services. Our agreements with each of these clients provide for cash
payments to us ranging from $20,000 to $25,000, and the issuance to us of shares
of their restricted common stock in amounts of 90,000 shares (for one client)
and 200,000 shares (for each of the other two clients). The number of shares of
common stock issued to us represents, in each case, approximately 4% of the
client's issued and outstanding capital stock. The cash portion of our fee is
anticipated to cover our costs in rendering the consulting services. We have
been granted demand and piggy-back registration rights covering the shares of
the client's common stock which we accepted as a portion of our fees.
None of these clients are affiliates of ours.
Our e-tailer division
On-Line Bedding distributes a wide variety of bedding and disposable products,
including:
- pillows
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- blankets
- mattress pads
- pillow protectors and mattresses
- disposable airline sized pillows
- disposable pillowcases
- headrest covers
- airline blankets
- tray table covers
- napkins
- airsick bags
- hot and cold towels
Its customers include hospitals, nursing homes, hotels and motels, and
transportation-based companies like airlines, railroads, and motor coach
companies. On-Line Bedding's customers have included AMTRAK, Canadian Airlines,
Saudi Arabian Airlines, Piedmont Airlines, USAirways, Sunworld International,
and Laker Airline.
Since our purchase of On-Line Bedding, we are developing an e-commerce site
which will offer single and multi- pack quantities of pillows, blankets,
mattress pads, quilts, mattresses, and other products at factory direct prices.
We anticipate the site will be launched before the end of fiscal 1999.
On-Line Bedding purchases its products from various wholesale manufacturers, and
contracts production of its airline pillows and blankets with third party
manufacturers. On-Line Bedding maintains several sources for its products and
has never experienced any difficulty in obtaining raw materials. On-Line Bedding
warehouses a limited inventory, and 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 an electronic invoice system 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. It
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 expansion in
our marketing efforts using traditional marketing methods, the introduction of
our e-commerce site, and web- based marketing strategies. These include
strategic web site placement, keyword targeting, affiliate linking, and other
on-line promotional strategies.
Additional proposed activities
Our business and operations are located in Illinois. Based upon our research, we
believe a niche exists within Illinois to assist technology start-ups with their
capital needs. In addition to the activities of CIG Securities, in September
1999 we decided to create a new fund to invest in Illinois technology companies.
We have allocated $1 million of our working capital as an investment in this
to-be-created fund, with a target of raising $100 million from accredited and
institutional investors. We are currently reviewing a variety of structure
options for this fund, including those which will permit investments at the
state and federal level. [As of the date of this prospectus] we have not decided
on the structure, nor have we begun raising outside capital for this fund. We
have not identified any companies in which the to-be-created fund may invest, or
the structure of these future investments. Based upon the complexity of
establishing this fund, and the time involved in raising the additional capital
from outside
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investors, we cannot presently predict when this to-be-created fund will begin
making investments in Illinois technology companies, if ever.
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.
We pursue the registration of our trademarks and service marks in the United
States. Although we have not secured registration of all our marks, we have made
application to the U.S. Patent and Trademark Office to register the FUNDS-IN
trademark. The laws of some foreign countries do not protect our proprietary
rights to the same extent as do the United States laws. In addition, effective
copyright, trademark and trade secret protection may be unavailable in foreign
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 intellectual property.
Our failure or inability to protect our proprietary rights could materially
adversely effect our business, financial condition, and results of operations by
lessening the value of the intellectual property and possibly increasing
competition.
Competition
Our e-finance division competes with numerous other securities and investment
banking firms. In particular, we compete with Internet investment bankers like
Wit Capital Corporation and W.R. Hambrecht & Company, LLC. which also focus
their efforts on Internet based offerings. Most of our competitors have
substantially greater capital, resources, experience, and name recognition.
In the event we should expand CIG Securities' operations to include wholesale
and/or retail trading, our competition would expand to established
broker-dealers. The wholesale execution business has become considerably more
competitive over the past few years as numerous highly visible, large, and
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 Securities. The retail securities industry has
experienced substantial commission discounting by broker-dealers who compete 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 conduct transactions for their
customers on an execution only basis without offering other services like
portfolio valuation, investment recommendations, and research.
Commercial banks and other financial institutions have become a competitive
factor by offering their customers 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 Securities' business and could effect the
opportunities for CIG Securities to expand its operations. The Federal Reserve
Board has approved applications of several leading commercial banks to
underwrite some types of securities which commercial banks have previously been
prohibited 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
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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 like CIG
Securities may be adversely affected.
Competition effecting our B2B division is substantial. The market for Internet
products, particularly Internet advertising and Internet search and retrieval
services, is intensely competitive. The two primary competitors for our Internet
viewing software are Netscape and Microsoft Internet Explorer. Currently,
Netscape and Internet Explorer control over 90% of the Internet viewing software
market. Since there are no substantial barriers to entry, we expect competition
in these markets to intensify.
To compete with the established web designers, we use unique concepts to
increase the likelihood that visitors to a client's web site will be interested
in what they see, and have a reason to return. These concepts include:
* user-friendly web sites
* novel approaches to design work
* quick access to what the viewer wants
* emphasis on single page web sites to make viewing easier
* artistically pleasing layouts custom tailored to client needs
Many professionals, including other consulting firms, attorneys, and
accountants, offer business-to-business consulting services similar to those
offered by our B2B division. To provide a competitive advantage, we developed a
compensation package for our clients which is a combination of restricted common
stock and cash. We believe this compensation structure will be attractive to our
potential clients and provide us with some degree of competitive advantage.
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. These competitors may be able to
undertake more extensive marketing campaigns, and make more attractive offers to
potential employees, distribution partners, advertisers, and content providers.
There can be no assurance that we will be able to compete successfully against
our current or future competitors.
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 compete with numerous other companies to offer similar products on
the web. We believe that by building on the combination of On-Line Bedding's
competitive pricing, prompt delivery of products, established customer base, use
of Internet for ordering and marketing, 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 elsewhere that cover a variety of issues including:
- broadcast license fees
- copyrights
- privacy
- pricing
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- sales taxes
- characteristics and quality of Internet services
It is possible that governments will enact legislation that may be applicable to
us in areas including:
- 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
- retransmission activities
The applicability to the Internet of existing laws governing a variety of
issues, including property ownership, content, taxation, defamation, and
personal privacy is uncertain. The majority of these laws were adopted before
the widespread use and commercialization of the Internet, and do not contemplate
or address the unique issues of the Internet and related technologies. Any
export or import restrictions, new legislation or regulation, or governmental
enforcement of existing regulations may increase our cost of doing business or
increase our legal exposure.
The securities industry in the United States is extensively regulated 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 must be approved by the SEC, to govern the industry. These self-regulatory
organizations conduct periodic examinations of member broker-dealers. Securities
firms are also regulated by state securities commissions in the states in
which they do business.
Broker-dealers must follow rules which cover all aspects of the securities
business, including:
- sales methods
- trading practices among broker-dealers
- capital structure of securities firms
- record keeping
- the conduct of directors, officers, and employees
The broker-dealer's operations and profitability are often directly effected by
additional legislation, changes in rules adopted by the SEC and self-regulatory
organizations, or changes in the interpretation or enforcement of existing laws
and rules. 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, along with its officers and/or
employees. Regardless of the findings, administrative proceedings may require
substantial expenditures. The principal purpose of regulation and discipline of
broker-dealers is for the protection of customers and the securities markets,
rather than for the protection of creditors and stockholders of broker-dealers.
CIG Securities is required by federal law to belong to the SIPC. When the SIPC
fund falls below a minimum amount, members are required to pay annual
assessments. CIG Securities is required to contribute to the SIPC fund. 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. SIPC
provides protection for customers in the event of the insolvency of CIG
Securities or, at the time as it might expand its operations to include retail
or wholesale trading,
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of its clearing brokerage company. SIPC assessments are based upon revenues of
CIG Securities. Currently, CIG Securities pays $150 annually to the SIPC fund.
CIG Securities must follow the SEC's Uniform Net Capital Rule, 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 as calculated by the rule.
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 Securities because they require minimum capital for purposes
like 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.
As of this date, CIG Securities is required to maintain a minimum net capital of
$5,000. As of July 31, 1999, it had total net capital of $22,582, or $17,582 in
excess of the minimum net capital required. The minimum net capital required is
based upon the nature of CIG Securities' broker dealer business. If CIG
Securities remains principally engaged in the offer and sale of private
placement securities, then its net capital requirements remain at a minimum. In
the event CIG Securities ever becomes involved in the participation in public
underwritings, then net capital requirements will be increased to a minimum of
$100,000.
CIG Securities 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
Securities has no customer accounts and, accordingly, compliance is based upon
meeting the minimum net capital requirements of the NASD. While we do not
presently anticipate CIG Securities will undertake retail brokerage operations,
we may choose to do so in the future.
If we elect to operate as a retail stockbroker, we would be required to increase
CIG Securities' net capital beyond the existing $5,000 minimum required net
capital. In computing net capital under Rule 15c3-1, various adjustments are
made to net worth to exclude assets not readily convertible into cash, and to
provide a conservative statement of other assets, like a firm's position in
securities. 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 these deductions or through
other deductions like operating losses or capital distributions, the maximum
aggregate debit items a firm may carry is reduced.
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 1011 Campus Drive, Mundelein, Illinois 60060. We
lease this space from an unrelated third party under two separate lease
agreements. Under the five year leases dated May 1999 and June 1999, we pay an
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 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 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.
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We relocated our principal offices to the current location in August 1999. 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 60060 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 common area maintenance. We are presently seeking to sublet
this space for the balance of the lease term.
Employees
As of October 15, 1999, we employ 32 persons, all full-time, including:
- 14 in various management positions,
- 15 in various technical support positions, and
- 3 in various accounting and administrative positions.
Our accounting and administrative personnel provide various services for our
divisions. Our executive officers devote time to all of our divisions. None of
our employees are represented by a labor union, and we are not governed by any
collective bargaining agreements. We have a satisfactory relationship with our
employees.
We presently plan to expand our employee base through the addition of
approximately 29 new employees including personnel for our e-finance and B2B
divisions. We also will seek to expand our management personnel.
Legal proceedings
We are not a party to any material legal proceedings.
How to get more information
We have filed with the SEC a registration statement on Form SB-2 which
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 to the public from
commercial document retrieval services, or via EDGAR on the SEC's web site at
www.sec.gov.
Before the date of this prospectus we have been a non-reporting company
under the Securities Exchange Act of 1934. Upon effectiveness of the
registration statement, we will begin filing quarterly, annual and other reports
with the SEC. We intend to furnish our stockholders with annual reports, which
will include financial statements audited by independent accountants, and other
periodic reports as we may chose to provide, or as we are required by law.
We have not authorized any dealer, salesperson, or other person to
provide any information or make any representations about us, except the
information or representations contained in this prospectus. You should not rely
on any additional information or representation.
This prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities:
- except the common stock offered by this prospectus;
- in any jurisdiction in which the offer or solicitation is not
authorized;
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- in any jurisdiction where the dealer or other salesperson is
not qualified to make the offer or solicitation;
- to any person to whom it is unlawful to make the offer or
solicitation; or
- to any person who is not a United States resident or who is
outside the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sales does not
imply that:
- there have been no changes in the affairs of Circle Group
Internet after the date of this prospectus; or
- the information contained in this prospectus is correct after
the date of this prospectus.
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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.
<TABLE>
<CAPTION>
Name Age Positions Held
- ---- --- --------------
<S> <C> <C>
Gregory J. Halpern 41 Chairman and Chief Executive Officer
Frank K. Menon 35 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 L. Halpern 69 Director
Erik Brown 24 Vice President of Corporate
Development and President of CIG
Securities, Inc.
Charles S. Blumenfield 49 Director
Doron C. Levitas 41 Director
</TABLE>
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 a wide variety of bedding and disposable products which
we acquired in January 1999. In 1984 he was co-founded Pain Prevention, Inc., an
Illinois company which sold electronic dental anesthesia for which Mr. Halpern
holds a patent. Pain Prevention, Inc. discontinued its operations in 1989 and
subsequently changed its name to PPI Capital Corp. We acquired 80% of the issued
and outstanding capital stock of PPI Capital in March 1999 from Mr. Halpern. Mr.
Halpern has served as an officer and director of PPI Capital since its inception
in 1984. Mr. Halpern also served as an officer and director of PPI Capital
Group, Inc., a Utah corporation of which he was a principal shareholder, from
1989 to May 1998. At the present time, PPI Capital (our subsidiary) and PPI
Capital Group, Inc. have no affiliation. 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 L. Halpern.
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
January 1999 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
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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. During our first two years of development, Mr. Dabney also was
employed as a mortgage broker. From 1994 until December 1997 he was employed by
State Financial Bank in Richmond, Illinois, which was formerly known as Richmond
Bank, and from January 1998 until December 1998 he was employed by Mortgage
Market Corporation, also in Illinois. 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 has also worked in the
securities industry. He was employed by 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.
Arthur C. Tanner has been our chief financial officer since March 1999. From
November 1998 until joining Circle Group Internet, 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 professional experience includes 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 from June 1997 until May 1999,
and Senior Systems and Programming Specialist and Senior Project Leader of
Manufacturing from 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 L. 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 acquisition of it in January 1999. Edward L. Halpern is the
father of Gregory J. Halpern.
Erik Brown has been our vice president of corporate 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
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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 L. 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.
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
To ensure their continued contribution to our growth and development, we have
entered into employment agreements with our executive officers. The material
terms of each are described below.
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 that 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
32
<PAGE>
per share under our 1999 Stock Option Plan that 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 that expire in January 2003.
Arthur C. Tanner. We are a party to a three year employment agreement with Mr.
Tanner which expires in March 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
which expire in March 2002. We subsequently granted Mr. Tanner an additional
10,000 stock options exercisable at $10.00 per share which expire in July 2003.
All of these options were granted under our 1999 Stock Option Plan. 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 20,000 stock options exercisable at $10.00 per
share. We subsequently granted Mr. Theriault an additional 10,000 stock options
exercisable at $10.00 per share. All of these options were granted under our
1999 Stock Option Plan and 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
$42,500, and we granted him 20,000 stock options exercisable at $2.50 per share.
We subsequently granted Mr. Brown an additional 10,000 stock options exercisable
at $10.00 per share. All of these stock options were granted under our 1999
Stock Option Plan and expire in March 2002. We also issued Mr. Brown 10,000
shares of our common stock as a signing bonus.
All of these employment agreements also provide, among other things:
- participation in any profit-sharing or retirement plan and in
other employee benefits applicable to our employees and
executives;
- benefits in the event of disability or death; and
- contain non-disclosure and non-competition provisions. A state
court, however, may determine not to enforce, or only
partially enforce, the non-compete provisions of these
employment agreements.
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.
Key- man insurance
We are the beneficiary of a $5 million life insurance policy on the life of
Mr. Gregory Halpern.
Executive compensation
We began our operations in 1997. The following table summarizes all compensation
accrued and paid by us in each of the last two fiscal years to our chief
executive officer and each other executive officer serving as executive officers
whose annual compensation exceeded $100,000.
33
<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 1997 $12,903 0 0 0 0
1998 $24,000(1) 0 0 0 0
</TABLE>
(1) We did not pay Mr. Halpern any compensation for services he rendered to us
in 1998. This amount represents our estimate of the fair value of the services
and this amount has been recognized by us as an expense during 1998.
Directors compensation
In August 1999, we adopted a compensation policy for our outside directors,
which includes:
* options will be granted annually under our 1999 Stock Option
Plan to purchase 15,000 shares of our common stock,
exercisable at the fair market value on the date of grant, to
each outside director;
* these options will vest at the rate of 5,000 options on each
of the first, second and third anniversary date of the grant
date, and will be exercisable for three years from the grant
date,
* directors and officers insurance coverage in an amount
reasonably acceptable to us, and
* reimbursement for all reasonable out-of-pocket expenses the
outside director incurs in attending our board of directors
meetings.
Messrs. Blumenfield and Levitas are currently our outside directors. We granted
each of them 15,000 options, exercisable at $10.00 per share, as compensation
for their board service.
Members of our board of directors who are our executive officers do not receive
any additional compensation for their services to us in their capacity as a
member of our board of directors, other than coverage under our directors and
officers insurance policy.
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
upon the exercise of options granted under the plan. As of the date of this
prospectus, grants for 319,000 under the plan are outstanding. The compensation
committee of the board of directors will administer the plan including 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 which may be granted
under each plan option and the plan option price.
Plan options granted under the plan include:
- incentive stock options under Section 422 of the Internal
Revenue Code of 1986,
34
<PAGE>
- non-qualified options, and
- reload options, which permit 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 at least 100% of the fair market value of the underlying shares on the date
of 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 the
fair market value as determined on the date of the grant.
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 our 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 in plan options granted under the plan
may be adjusted in the event of changes in our capitalization, but any
adjustment will 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^. Plan options may only be exercised by the
optionee during the lifetime of the optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, 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 the disability. The same
type of termination provisions apply to options granted to our board members in
the event they resign their board seats, or are not reelected by our
shareholders.
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:
- increases the total number of shares which we may granted
under the plan or changes the minimum purchase price, except
in either case in the event of adjustments due to changes in
our capitalization,
- effects outstanding plan options or any of their exercise
rights,
- extends the term of any plan option beyond 10 years, or
- extends the termination date of the plan.
35
<PAGE>
Unless the plan shall have been suspended or terminated, the plan shall
terminate on approximately 10 years from the date of the plan's adoption. Any
termination of the plan shall not affect the validity of any plan options
previously granted.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Illinois Business Corporations Act provides for indemnification of
directors, employees, officers and agents of Illinois corporations. Our articles
of incorporation and bylaws provide that we shall indemnify our directors and
officers to the fullest extent permitted by the Illinois Business Corporation
Act. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers or persons by these
provisions, we have been informed that, in the opinion of the SEC,
indemnification is against public policy as expressed and the Securities Act of
1933 and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In conjunction with our formation, Mr. Gregory Halpern received 6,494,000 shares
and Mr. Dana Dabney received 500,000 shares of our common stock for the nominal
consideration of par value $.0001 per share.
During fiscal 1997 we established a note payable in the principal amount of
$16,403 to Mr. Gregory J. Halpern, our founder and CEO, to purchase furniture
and fixtures, including computer equipment for our offices. The note provided
for interest at 18% per annum and was unsecured. We repaid the note in full
before December 31, 1998.
From January 1997 until July 1999, 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 January 1999, we acquired 100% of the issued and outstanding stock of On-Line
Bedding from Mr. Edward L. Halpern, one of our officers and directors, and his
wife in exchange for 400,000 shares of our common stock. Mr. Gregory J. Halpern,
our president and CEO, was a co-founder of On-Line Bedding. Before our
acquisition, On-Line Bedding was an S corporation. On-Line Bedding was an S
corporation prior to our acquisition of its capital stock. At June 30, 1999 we
owed Mr. and Mrs. Edward Halpern $80,018 which represented shareholder
distributions prior to our acquisition of On-Line Bedding. We have issued Mr.
and Mrs. Edward Halpern a demand promissory note bearing interest at 8% per
annum.
In addition, in March 1999 we acquired 3,200,000 shares of the common stock, or
approximately 80% of the issued and outstanding capital stock of PPI Capital, a
shell corporation, from Mr. Gregory J. Halpern, one of our officers and
directors, in exchange for $20,000. The remaining approximate 20% of PPI Capital
is owned by the shareholders of Pain Prevention, Inc., a Utah corporation which
was formerly PPI Capital's sole shareholder. Mr. Dana Dabney, one of our
officers and directors, owns 70,286 shares, or approximately 1.7% of the
remaining 20% of PPI Capital's stock not owned by Circle Group Internet . We
anticipate that we will use PPI Capital 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 Capital.
As a term of employment agreements we have with four of our executive officers,
we issued each of these individuals shares of our common stock as a signing
bonus. The following table sets forth the names, date of issuance and the number
of shares issued to each individual and value attributed to the shares issued.
<TABLE>
<CAPTION>
Name Date No. of Shares Value Attributed
- ---- ---- ------------- ----------------
<S> <C> <C> <C>
Frank K. Menon February 1, 1999 10,000 $ 25,000
36
<PAGE>
Erik J. Brown March 1, 1999 10,000 $ 25,000
Arthur C. Tanner March 1, 1999 10,000 $ 25,000
Michael Theriault June 1, 1999 10,000 $ 100,000
</TABLE>
On March 1, 1999 we issued a warrant to purchase 123,860 shares of our common
stock, exercisable for three years at $2.50 per share, to Paradigm Fund C.,
L.P., an unaffiliated third party, as compensation for services rendered to us.
These services included consulting with us on investment advisory matters. As of
October 15, 1999, Paradigm Fund C., L.P. owned approximately 6.5% of our common
stock.
On August 1, 1999 Mr. Gregory J. Halpern, our president and CEO, borrowed
$935,000 from us under a secured promissory note. This note bears interest at 8%
per annum. Beginning on September 6, 1999, Mr. Halpern will make four monthly
payments to us of $6,233.33, and the entire principal, plus any accrued but
unpaid interest, is due in full on December 6, 1999. As collateral for the note,
Mr. Halpern granted us a first mortgage on his principal residence. This
residence has a fair market value which exceeds the principal amount of the note
and, with the exception of our mortgage, is unencumbered.
In 1996 CIG Securities was formed by its parent company, Internet Broadcasting
Company, Inc. a Delaware corporation, to take advantage of the developing
Internet direct public offering service market. Prior to our acquisition of CIG
Securities, it was a wholly-owned subsidiary of Internet Broadcasting Company,
Inc. Messrs. Bradley M. Levine, James W. Dwyer, Cort A. Neimark, Edmund Allen
Tubbs, and Leonard Simon are the controlling persons of Internet Broadcasting
Company, Inc.
Our policy regarding transactions with our affiliates
Transactions with our officers, directors and principal shareholders have been
made upon terms no less favorable to us that we might receive from unaffiliated
third parties. In September 1999 we adopted a policy which requires the approval
of a majority of our disinterested directors for any future transaction
involving an officer, director or 5% of greater shareholder.
37
<PAGE>
OUR PRINCIPAL SHAREHOLDERS
As of October 15, 1999 there were 9,840,680 shares of our common stock issued
and outstanding, without giving effect to the exercise of outstanding options or
warrants to acquire an additional 546,180 shares of our common stock. The
following table sets forth information as of October 15, 1999 with respect to
the beneficial ownership of shares of common stock currently issued and
outstanding by:
- each person known to us to be the owner of more than 5% of the
outstanding shares of common stock,
- each officer and director, and
- all officers and directors as a group.
Unless otherwise indicated, the address for each individual listed is 1011
Campus Drive Mundelein, Illinois 60060.
<TABLE>
<CAPTION>
Name No. of Shares % of Ownership
- ---- ------------- --------------
<S> <C> <C>
Gregory J. Halpern 6,524,000 66.1%
Dana L. Dabney 524,000 5.3%
Frank K. Menon 50,000 *
Erik Brown 30,000 *
Edward L. Halpern 400,000 4.1%
Michael J. Theriault 30,000 *
Charles Blumenfield 6,000 *
Arthur C. Tanner 30,000 *
Doron C. Levitas 0 n/a
Paradigm Fund C. L.P. 643,160 6.5%
All officers and directors
as a group (nine persons) 7,594,000 73.6%
</TABLE>
* represents less than 1%
In the preceding table:
- - Mr. Halpern's shares include 494,000 shares held in the name of HF Trust, a
trust of which Mr. Halpern is the trustee, and options to purchase 30,000 shares
of our common stock expiring in January 2003. 247,000 shares held by HF Trust
are being registered for resale under this prospectus.
- - Mr. Dabney's shares includes options to purchase 24,000 shares of our common
stock expiring in January 2003.
- - Mr. Menon's shares includes options to purchase 40,000 shares of our common
stock expiring in February 2002.
- - Mr. Brown's shares 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.
38
<PAGE>
- - Mr. Edward L. Halpern's shares include 196,000 shares owned of record by Mr.
Halpern and 204,000 shares owned of record by Diane Halpern, his wife.
- - Mr. Theriault's shares includes options to purchase 20,000 shares of our
common stock expiring in June 2002, but excludes options to purchase 10,000
shares of our common stock which have not yet vested..
- - Mr. Blumenfield's shares are being registering for resale under this
prospectus. The total for Mr. Blumenfield does not include options to purchase
15,000 shares of our common stock at $10.00 per share, vesting 5,000 options on
the first, second and third anniversary date of the date of grant, awarded to
him in September 1999 as compensation for his service as an outside director.
Mr. Blumenfield's address is 9025 North Iroquois Road, Bayside, Wisconsin 53217.
- - Mr. Tanner's shares 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.
- - The total for Mr. Levitas does not include options to purchase 15,000 shares
of our common stock at $10.00 per share, vesting 5,000 options on the first,
second and third anniversary date of the date of grant, awarded to him in
September 1999 as compensation for his service as an outside director. Mr.
Levitas' address is 8111 North St. Louis Avenue, Skokie, Illinois 60076.
- - Messrs. Sheldon Drobny, Ruben Rosenberg and Aaron J. Fischer are the general
partners of Paradigm Fund C.,L.P. We have registered in this prospectus for
resale 519,320 shares owned by Paradigm Fund C., L.P., together with 123,860
shares of our common stock underlying an outstanding warrant exercisable at
$2.50 per share. Paradigm Fund C., L.P.'s address is 3000 Dundee Road, Suite
105, Northbrook, Illinois 60061.
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. In conjunction
with this application, Bank of America Securities, LLC, Allen & Company,
Incorporated, Knight Securities, Inc. , and Wein Securities Corp. have agreed to
become market makers for our securities. [On , 1999 our common stock was
approved for quotation on the Nasdaq National Market.] 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 560
beneficial owners of our common stock.
39
<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 the selling security
holder as of October 15, 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, nor has any selling
security holder had any material relationship with us during the period, other
than as set forth below.
As a term of our two private placements, for one year from the date of the
purchase we have agreed to notify the purchasers of the filing of a registration
statement under the Securities Act of 1933, except those filed on Forms S-4 or
S-8, and give the purchasers the opportunity to include the shares of common
stock owned by them registration statement so as to permit the public resale of
those shares. The registration statement of which this prospectus forms a part
is being filed by us in satisfaction of the registration rights. The
registration statement has been prepared and filed at our expense, including our
legal and accounting fees, and printing expenses. We will not pay brokerage
commissions, transfer taxes and the fees of counsel to the selling security
holders. In connection with filing the registration statement, the selling
security holders will be required to furnish certain information to us and to
indemnify us against certain civil liabilities, including liabilities arising
under the Securities Act of 1933 with respect to the information provided to us.
The shares of common stock being offered by this prospectus 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, the selling
security holders are under no obligation to sell all or any portion of the
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 under
this prospectus; accordingly, the following table assumes the exercise of the
warrants and 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-
of Common Stock Stock Beneficially ship
Name of Selling Beneficially Owned Offered Owned After
Security Holder as of Oct.15, 1999 By This Prospectus 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 50,000 50,000 0 *
Joseph Anthony 1,000 0 *
Kevin J. Bauer 600 600 0 *
Myron Basch 1,000 1,000 0 *
Marc Bear 2,000 2,000 0 *
Bruce F. Berkowitz 5,000 5,000 0 *
Ivo Beelen 4,000 4,000 0 *
Ivka Berry 2,000 2,000 0 *
Joel and Trixie Bode 3,000 3,000 0 *
Jacqueline Burgess 200 200 0 *
40
<PAGE>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Beneficially ship
Name of Selling Beneficially Owned Offered Owned After
Security Holder as of Oct.15, 1999 By This Prospectus After Offering Offering
- --------------- ------------------ ------------------ -------------- --------
Marshall S. Blackham 5,000 5,000 0 *
Charles Blumenfield 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 *
Kwanzu Chen 1,000 1,000 0 *
John T. Colvin and
Gail Covin, JTWROS 10,000 10,000 0 *
Congregation of Hakoil
Koil Yakov 40,000 40,000 0 *
Delta Energy Corp. 25,000 25,000 0 *
Dillion Capital LLC 5,000 5,000 0 *
Connie E. Donaldson 2,000 2,000 0 *
Steven Donia 4,000 4,000 0 *
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 *
Stewart Flink 21,600 21,600 0 *
Isaac Friedman
and Philip Katz, JT 10,000 10,000 0 *
Mordechai Friedman 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 *
Javier Garcia, Jr. 200 200 0 *
Edward Giuntini 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 *
HF Trust 494,000 247,000 247,000 2.5%
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. 5,000 5,000 0 *
JRF Investments III, Ltd. 5,000 5,000 0 *
JRF Investments IV, Ltd. 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 *
Jay Kaufman 7,800 7,800 0 *
John Kaufman SEP IRA 624 624 0 *
James Kemp 4,000 4,000 0 *
41
<PAGE>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Beneficially ship
Name of Selling Beneficially Owned Offered Owned After
Security Holder as of Oct. 15, 1999 By This Prospectus After Offering Offering
- --------------- ------------------- ------------------ -------------- --------
Kollel Alta Faige 17,400 17,400 0 *
Kollel Alta Faige, Philip
Katz and Isaac
Friedman, JT 1,500 1,500 0 *
Daniel Korshak 400 400 0 *
Lawrence Lacerte 50,000 50,000 0 *
Eddie Lee 13,920 13,920 0 *
Stanford J. Levin 20,000 20,000 0 *
Shaqqian Lu 100 100 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 *
Thomas Molnar 4,000 4,000 0 *
Ismael Morales 800 800 0 *
Stephen Morris 600 600 0 *
Lawrence A. Mulvaney,
Trustee 1,000 1,000 0 *
Larry Mulvaney IRA 1,500 1,500 0 *
Khalid M. Mursi 5,000 5,000 0 *
Ramanaprasad Nandigama 400 400 0 *
Nguyen Hoi 4,000 4,000 0 *
George E. Orfanos 6,000 6,000 0 *
Harry Orfanos and
Vasso Orfanos, JTWROS 500 500 0 *
Nancy Page 1,000 1,000 0 *
Paradigm Fund C., L.P. 643,160 643,160 0 *
Points Partnership 2,500 2,500 0 *
Joanne Pontarelli 400 400 0 *
Patricia Ann Richard 2,400 2,400 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 4,000 4,000 0 *
Jeffery and Julie Schlesinger
JTWROS 624 624 0 *
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 *
Erik Surono 280 280 0 *
42
<PAGE>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Beneficially ship
Name of Selling Beneficially Owned Offered Owned After
Security Holder as of Oct.15, 1999 By This Prospectus After Offering Offering
- --------------- ------------------ ------------------ -------------- --------
Erica Swerdlow and
Brian Swerdlow 3,000 4,500 0 *
Kenneth Swiggart 2,500 2,500 0 *
Peter G. Szinte 24,000 24,000 0 *
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 *
Erik Travelstea 2,000 2,000 0 *
Donna Mae Turrentle 624 624 0 *
Mario Valente 4,000 4,000 0 *
Mario Valente and
Guiseppe Valente,
JTWROS 4,000 4,000 0 *
Vijay Vemuri 400 400 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 120,000 120,000 0 *
Total 1,825,532
==========
</TABLE>
* represents less than 1%
In the preceding table:
- - Beneficial ownership is determined in compliance 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 October 15, 1999 through the conversion or exercise of any security or other
right.
- - Mr. Joseph A. Rosin is the controlling person of Amity Enterprises.
- - The information concerning Mr. Bear assumes the exercise of a warrant to
purchase 2,000 shares of our common stock at $2.50 per share.
- - Mr. Blumenfield is a member of our board of directors. The total for Mr.
Blumenfield does not include options to purchase 15,000 shares of our common
stock at $10.00 per share, vesting 5,000 options on the first, second and third
anniversary date of the date of grant, awarded to him in September 1999 as
compensation for his service as an outside director.
- - The information concerting Mr. Flink assumes the exercise of an outstanding
warrant to purchase 21,600 shares of our common stock at $2.50 per share.
- - Congregation of Hakoil Koil Yakov is a not-for-profit entity which is
controlled by Mrs. Gitta Brull.
43
<PAGE>
- - HF Trust is a trust of which Mr. Gregory Halpern, one of our executive
officers and a member of our board of directors, is trustee. Because HF Trust is
an affiliate of ours, the number of shares it may sell during any three month
period will be subject to the volume limitations of Rule 144 of Securities Act
of 1933
- - Mr. James Kokenis is the beneficial owner of Delta Energy Corp.
- - Mr. Stewart Flink is the beneficial owner of Dillion Capital LLC.
- - Mr. John Fox is the controlling person of JRF Investments II, Ltd., JRF
Investments III, Ltd. and JRF Investments IV, Ltd.
- - The information concerning Mr. Jay Kaufman assumes the exercise of an
outstanding warrant to purchase 7,800 shares of our common stock at $2.50 per
share.
- - Kollel Alta Faige is a not-for-profit entity which is controlled by Jay
Kaufman and Isaac Friedman.
- - The information concerning Mr. Lee assumes the exercise of a warrant to
purchase 13,920 shares of our common stock exercisable at $2.50 per share.
- - The information concerning Mr. Levin assumes the exercise of a warrant to
purchase 20,000 shares of our common stock exercisable at $2.50 per share.
- - Messrs. Sheldon Drobny, Ruben Rosenberg and Aaron J. Fischer are the general
partners of Paradigm Fund C., L.P. 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 being registered for resale under this prospectus.
- - Messrs. Richard M. Finger and Timothy M. Finger are the general partners
Points Partnership.
- - The number of shares of common stock beneficially owned by Ms. Schmidtke
includes warrants exercisable at $2.50 per share to purchase 2,000 shares of our
common stock. The common stock underlying these warrants is being registered for
resale under this prospectus.
- - Mr. and Mrs. Swerdlow are the principals of EBS Public Relations, Inc. In
March 1999 we entered into a one year agreement with EBS Public Relations, Inc.
to provide public relations services to us and under the agreement agreed to
issue to EBS Public Relations, Inc. 500 shares of our common stock per month as
compensation for its services. In addition, we agreed pay out-of-pocket expenses
including overnight mails, postage, phone changes, photocopies, travel, etc. The
agreement may be terminated on 60 days prior notice by either party. 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 under this prospectus an
additional 1,000 shares which would be due if we canceled the agreement as of
the date hereof. These additional 1,000 shares, plus any additional shares we
are obligated to issue during the term of the agreement, will be issued on a
monthly basis, when due, during the remaining term of the agreement.
- - The number of shares of common stock beneficially owned by Mr. Szinte includes
warrants exercisable at `$2.50 per share to purchase 4,000 shares of our common
stock. The common stock underlying these warrants is being registered for resale
under this prospectus.
44
<PAGE>
- - The number of shares of common stock beneficially owned by Mr. Valente
includes warrants exercisable at $2.50 per share to purchase 2,000 shares of our
common stock. The common stock underlying these warrants is being registered for
resale under this prospectus.
- - The number of shares of common stock beneficially owned by Mr. Zaghi includes
warrants exercisable at $2.50 per share to purchase 20,000 shares of our common
stock. The common stock underlying these warrants is 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 under this prospectus;
* ordinary brokerage transactions and transactions in which a
broker solicits purchasers;
* an exchange distribution in compliance with the rules of the
exchange;
* privately negotiated transactions;
* short sales;
* if a sale qualifies, in compliance with Rule 144 of the
Securities Act of 1933 rather than under this prospectus; and
* any other method permitted by 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 the
shares have been hypothecated shall, upon foreclosure in the event of default,
be deemed to be selling security holders under this prospectus. The number of
selling security holders' shares of common stock beneficially owned by those
selling security holders who transfer, pledge, donate or assign the shares will
decrease when they take that action. The plan of distribution for selling
security holders' shares of common stock sold under this prospectus will
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be selling security holders under this prospectus.
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 the selling
security holder, including in connection with distributions of the common stock
by 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
the shares. A selling security holder
45
<PAGE>
may also loan or pledge the shares of common stock to a broker-dealer and the
broker-dealer may sell the 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 broker-dealers may act as agent, or to
whom they may sell as principal, or both. The 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 under this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, 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 of 1933. Neither we nor any selling security holder can presently estimate
the amount of compensation. CIG Securities will not participate in any way in
the distribution of the shares of common stock offered hereby. 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, which includes our legal, accounting and printing expenses. We will
not pay commissions or discounts of underwriters, broker-dealers or agents, or
any other costs incurred by the selling security holders.
We have advised the selling security holders that during the time as they may be
engaged in a distribution of the shares of common stock included in this
prospectus they are required to comply with Regulation M adopted under the
Exchange Act. With some exceptions, Regulation M precludes any selling security
holder, any affiliated purchasers, and any broker-dealers or other person who
participates in the 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 to stabilize the price of a security in
connection with the distribution of that security. All of the factors may affect
the marketability of the shares of our common stock.
DESCRIPTION OF SECURITIES
Our authorized capitalization consists of 50,000,000 shares of common stock,
$.0001 par value per share, of which 9,840,680 shares are issued and outstanding
as of October 15, 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 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. 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 outstanding shares of common stock are fully paid and non-assessable.
There are no preemptive rights, conversion rights, redemption provisions or
sinking fund provisions with respect to our shares of common stock.
Options and warrants
46
<PAGE>
As of the date of this prospectus, we have outstanding options under our 1999
Stock Option Plan to acquire an aggregate of 319,000 shares of the common stock.
We also have outstanding warrants to purchase an aggregate of 227,180 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. The services provided to us by these consultants
included general business matters, investments, real estate, business
development, acquisitions, marketing and market research, international
business, vehicle brokerage, transportation, and banking and financial matters.
There are 11 holders of these warrants. The warrants may be exercised from time
to time by the holders until their expiration date, and may be transferred at
the discretion of the holders. The warrants also contain customary anti-dilution
provisions in the event that we declare a stock split or stock dividend or that
we otherwise recapitalize Circle Group Internet.
Shares eligible for future sale
As of the date of this prospectus, an aggregate of 7,015,148 outstanding shares
of our common stock, including the remaining 6,247,000 shares owned or
controlled by Gregory J. Halpern which are not registered for resale under this
prospectus, 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 of 1933, assuming a public market exists for
the securities, of which there are no assurances. The 247,000 shares of our
common stock owned of record by a trust controlled by Mr. Gregory Halpern which
are registered for resale under this prospectus must also be resold in
compliance with Rule 144, even though the shares are registered, because Mr.
Halpern is our affiliate. 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 the securities in ordinary brokerage transactions, in compliance
with 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 shares of common stock, if and when a sales opportunities arise
consistent with the provisions of Rule 144. We cannot predict the effect, if
any, that any sales of common stock, or the availability of 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.
Transfer agent
Our transfer agent is Pacific Stock Transfer Co., 5844 South Pecos, Suite D, Las
Vegas, Nevada 89120.
LEGAL MATTERS
Legal matters in connection with this registration statement will be passed upon
for us by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas Boulevard,
Suite 1900, Fort Lauderdale, Florida 33301.
EXPERTS
Our compiled condensed consolidated financial statements as of March 31, 1999
and 1998, and for the three months then ended, audited financial statements as
of December 31, 1998 and 1997, and for the fiscal years then ended, and 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 in this prospectus have been audited by Harold Y. Sector, independent
certified public accountant, as indicated in his
47
<PAGE>
reports. These financial statements are included in this prospectus in reliance
upon the authority of Mr. Sector as an expert in accounting and auditing.
48
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Unaudited Condensed Consolidated Financial Statements June 30, 1999 and 1998
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-5-13
Pro Forma Condensed Consolidated Financial Statements
December 31, 1998
Accountant's Report F-14
Pro Forma Condensed Consolidated Balance Sheet F-15
Pro Forma Condensed Consolidated Statement of Income F-16
Notes to Pro Forma Condensed Consolidated Financial Statements F-17-19
Audited Financial Statements December 31, 1998 and 1997
Independent Auditor's Report F-20
Balance Sheets F-21
Statements of Income and Retained Earnings F-22
Selling Expenses F-23
Administrative Expenses F-24
Statement of Stockholders' Equity F-25
Statement of Cash Flows F-26
Notes to Financial Statements F-27-30
Hos-Pillow Corporation
Audited Financial Statements December 31, 1998 and 1997
Independent Auditor's Report F-31
Balance Sheets F-32-33
Statements of Income and Retained Earnings F-34
Cost of Sales F-35
Operating Expenses F-36
Statement of Changes in Stockholders' Equity F-37
Statement of Cash Flows F-38
Notes to Financial Statements F-39-42
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1999 and 1998
1999 1998
(Proforma)
<S> <C> <C>
ASSETS
Current Assets
Cash $12,215,602 $ 106,874
Accounts Receivable 243,235 99,256
Inventory 89,892 68,400
Prepaid and Others 72,377 488
----------- ----------
Total Current Assets 12,621,106 275,018
----------- ----------
Property & Equipment, net 130,256 94,441
----------- ----------
Other Assets
Investments 1,571,000 0
Goodwill, net of accumulated
amortization of $26,506 927,708 0
Other Assets 770 770
----------- ----------
Total Other Assets 2,499,478 770
----------- ----------
TOTAL ASSETS $15,250,840 $ 370,229
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses $ 263,170 $ 211,378
Income Tax Payable 409,585 0
Note Payable-Shareholder 80,018 2,239
------------ ----------
Total Current Liabilities 752,773 211,378
------------ ----------
Long-Term Liabilities 0 0
----------- ----------
Total Liabilities 752,773 213,617
----------- ----------
Stockholders' Equity
Common Stock, $.00005 par value;
50,000,000 shares authorized;
8,616,480 shares issued and outstanding
in 1999 and 7,000,000 in 1998 431 350
Paid in Capital 13,852,847 163,711
Retained Earnings 664,789 (7,449)
Dividend (20,000) 0
Minority Interest 0 0
----------- ----------
Total Stockholders' Equity 14,498,067 370,229
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,250,840 $ 370,229
=========== ==========
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Six Months Ended June 30, 1999
1999 1998
(Proforma)
<S> <C> <C>
Sales $2,204,994 $ 492,182
Cost of Sales 329,051 234,986
---------- ----------
Gross Profit 1,875,943 257,196
Operating Expenses 918,177 289,119
---------- ----------
Income (Loss) from Operations 957,766 (31,923)
Other Income (Expenses) 74,682 1,038
---------- ----------
Income (Loss) Before Taxes 1,032,448 (30,885)
Provision for Income Taxes 398,517 0
---------- ----------
Net Income (Loss) $ 633,931 $ (30,885)
========== ==========
Earnings per share $ 0.079 $ (0.004)
========== ==========
Weighted Average Number of Common Shares
Outstanding 8,010,040 7,000,000
========== ==========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Six Months Ended June 30, 1999
(Proforma)
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 633,931 $ (30,885)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and Amortization 39,527 7,680
Compensation-stock, signing bonus 295,000 0
(Increase) Decrease in:
Accounts Receivable (160,944) (21,403)
Other Receivable 9,390 0
Inventory (37,678) (22,819)
Prepaid and Others (70,510) (488)
Increase in Other Investments (1,571,000) 0
Increase (Decrease) in:
Accounts Payable & Accrued Expenses 144,593 95,188
Income Taxes Payable 390,374 (6,452)
----------- -----------
Net cash provided (used) by operating
activities (327,317) 20,821
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (117,374) (1,339)
Accumulated Depreciation Adjustment 0 (2,312)
----------- -----------
Net cash (used) by investing activities (117,374) (3,651)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock 11,565,430 0
Note Payable-Shareholder 80,018 (14,719)
Dividend Paid (20,000) 0
----------- -----------
Net cash provided (used) by financing
activities 11,625,448 (14,719)
----------- -----------
NET INCREASE (DECREASE) IN CASH 11,180,757 2,451
CASH BALANCE AT BEGINNING OF PERIOD 1,034,845 104,423
----------- -----------
CASH BALANCE AT END OF PERIOD $12,215,602 $ 106,874
=========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest $ 0 $ 0
=========== ==========
Cash paid for income taxes $ 8,143 $ 10,167
=========== ==========
</TABLE>
Noncash investing and financing activities:
The Company granted $295,000 in stock to employees as compensation
signing bonuses.
Issuance of stocks for Goodwill of $954,214.
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 an Internet company with
e-finance, business-to-business and e-tailer divisions. It has a wholly owned
subsidiary, On-Line Bedding Corporation (FKA Hos-Pillow Corporation, "HOS")
which is engaged in sales of blankets and pillows to airlines and railroad
transportation companies. The Company also owns 80% interest of a shell
corporation with no activity.
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.
Presentation of Interim Information
In the Opinion of the management of Circle Group Internet, Inc. & Subsidiaries
(the Company), the accompanying unaudited consolidated financial statements
include all normal adjustments considered necessary to present fairly the
financial positions as of June 30, 1999 and 1998, and the results of operations
and cash flows for the six months then ended. Interim results are not
necessarily indicative of results for a full year.
The accompanying pro forma condensed consolidated financial statements as of
June 30, 1998 is presented for comparison.
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 and PPI Capital Corp.. The accompanying condensed
consolidated income statement and cash flows include only the subsidiaries'
earnings since the date of acquisition, and for comparative periods, the
previous year includes the same period. All significant intercompany balances,
transactions and stockholdings have been eliminated.
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.
F-5
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Accounts Receivable
No allowance for uncollectible accounts has been provided. Management has
evaluated all accounts and they are all collectible. There was no bad debt
expense for six months ended June 30, 1999 or 1998.
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 six months ended June 30, 1999 and 1998 was $13,021 and
$7,680.
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.
F-6
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, and officers' compensation. As of June 30, 1999, the Company had a
deferred tax asset of $1,857.
NOTE 3 - ACQUISITION OF BUSINESS
On January 29, 1999, the Company acquired 100% of the issued and outstanding
stock of On-Line Bedding Corporation (FKA Hos-Pillow Corporation, an Illinois
corporation) from a related party, in exchange for 400,000 shares of the
Company's common stock. The acquisition of On-Line Bedding Corporation has been
accounted for under the purchase method of accounting and the results of
operations of On-Line Bedding are included in the historical financial
statements from the date of acquisition.
This transaction was accounted for as a purchase, and accordingly, the purchase
price was allocated to the net assets acquired base on their net book values. As
a result of this allocation, the cost in excess of net assets acquired was
$954,214.
Aggregate purchase price, 400,000 shares of
common stock @ $2.50 per share $1,000,000
Less: Net assets acquired
Working Capital 45,016
Property and equipment 0
Other 770
----------
Total 45,786
----------
Excess of purchase price over net assets acquired $ 954,214
==========
The excess of purchase price is goodwill amortized over 15 years.
F-7
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - ACQUISITION OF BUSINESS (Continued)
On February 1, 1999, the Company acquired 80% or 3,200,000 issued and
outstanding common shares of PPI Capital Corp. (a shell corporation), from a
related party, the Chairman of the Board of Directors, for $20,000. This
transaction was accounted for as a dividend, with the assets and liabilities
assumed recorded at book values.
NOTE 4 - INVESTMENTS
As of June 30, 1999, Other Investments totaled $1,571,000.
The Company receives a combination of cash and common stock as compensation from
its client companies for its web design and business-to-business consulting
services. The valuation process used by the Company is as follows:
Common stock received from a client company that is trading on an exchange, is
valued based upon the closing price on the day of receipt of the shares of the
stock.
Common stock received in a transaction from a client company where there has
been no prior public offering, but whose shares have been offered and sold in
private placement within the last 90 days, is valued based upon the last sale
price of shares in the private placement. The Company assumes that the liquidity
issues relating to the shares are factored into the private placement
offering/sale price.
Common stock received in a transaction from a client company where there has
been no public or private placement offering, is valued based upon the value
placed on like companies in the same or similar industry with a reduction in
value applied in recognition of the illiquidity of the shares.
The Company evaluates monthly the carrying value of each investment in the
companies for a possible increase or decrease in value based on the market
conditions, for a traded security, or other changes in the issuer for securities
in which no trading market exists. Factors considered by the Company in
evaluating the carrying value of investments for which no trading market exists
includes subsequent private placements by the issuers, achievement of business
plan objectives and milestones, the financial condition and prospects for the
client company, management team, major contracts, and other valuation factors.
F-8
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - INVESTMENTS (Continued)
Investments will be increased or decreased, on the quarterly compilations and
year-end audit. The increased/decreased valuation will flow through the income
statement, as non-operating income/loss on investments. Per Paragraph 20 of APB
No. 29 and SFAS 121, certain of these investments may not be able to be
liquidated because of the lack of a readily available trading market. Those
investments will be written down accordingly.
NOTE 5 - NOTE PAYABLE - SHAREHOLDER
As of June 30, 1999, On-Line Bedding had a note payable to the President of
On-Line Bedding in the amount of $80,018, payable at 8.25% per annum, due and
payable by December 31, 1999.
NOTE 6 - PROVISION FOR INCOME TAXES
Provision for Income Taxes as of June 30, 1999 consist of:
Federal $326,284
State 72,233
--------
Total $398,517
========
NOTE 7 - REGULATION A OFFERING
In January 1999, the Company completed a self-underwritten offering of 1,000,000
shares of its common stock at $2.50 per share, pursuant to Regulation A of the
Securities Act of 1933 as amended, resulting in gross proceeds of $2,500,000.
NOTE 8 - REGULATION D OFFERING - FIRST
In March 1999, the Company completed a private placement offering of 154,480
shares of its common stock at $2.50 per share or an aggregate of $386,200
pursuant to Rule 506 of Regulation D of the Securities Act of 1933 as amended.
F-9
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - REGULATION D OFFERING - SECOND
The Company completed another private placement offering of 1,213,800 shares of
its common stock at $10 per share or an aggregate of $12,138,000 pursuant to
Rule 506 of Regulation D of the Securities Act of 1933 as amended. As of June
30, 1999, 985,200 shares were issued for a total of $9,852,000. Subsequently,
the offering has closed and the remaining shares were issued and proceeds
received by the Company as of July 23, 1999.
Total expenses related to the offerings were $72,989.
NOTE 10 - STOCK OPTIONS
Stock Options Granted to Employees
The Company established the 1999 Stock Option Plan (the Plan) effective January
2, 1999 which provides for the issuance of qualified options to all employees
and non-qualified options to consultants and other service providers. The
Company has reserved 1,000,000 shares of common stock for issuance under the
Plan. The Company granted 214,000 options under the Plan as of June 30, 1999.
The range of exercise prices were from $2.50-$10.00. The options may be
exercised no later than three years from the date of issuance. The weighted
average fair value of share of options granted by the Company as of June 30,
1999 was $3.60. None of these options have been exercised to date.
A summary of the status of stock options issued by the Company as of June 30,
1999 is presented in the following table. There were no options issued or
outstanding at June 30, 1998.
<TABLE>
<CAPTION>
1999
------------------------
Weighted
Average
Exercise
Number of Price Per
Shares Share
--------- ---------
<S> <C> <C>
Outstanding at beginning of period - -
Granted 214,000 $3.60
Exercised - -
Canceled - -
------- -----
Outstanding at end of period 214,000 $3.60
Exercisable at end of period 214,000 $3.60
</TABLE>
F-10
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 - STOCK OPTIONS (Continued)
The Company accounts for equity-based instruments issued or granted to employees
using the intrinsic method as prescribed under APB No. 25 Accounting for Stock
Issued to Employees.
During 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which defines a fair value based method of
accounting for stock options or similar equity instruments. The Company has
elected to adopt the disclosure-only provisions of SFAS 123 in accounting for
its stock-based compensation plan under APB No. 25; however the Company has
computed for pro-forma disclosure purposes, the value of all options granted
during the period ended June 30, 1999 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 and the weighted average assumptions as
follows. No options were granted in year 1998.
<TABLE>
<CAPTION>
Six months ended
June 30, 1999
-------------
<S> <C>
Risk-free interest rate 6.00%
Expected dividend yield 0.00%
Expected Lives 3.00
Expected volatility 0.00
</TABLE>
Stock Options Granted in Exchange for Services
During 1999, the Company granted options/warrants to purchase 227,180 shares of
common stock at the price of $2.50 per share in exchange for legal, financial
and operational consulting services.
The following table sets forth additional information about stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Number Weighted Weighted Number
Range of Outstanding Avg. Avg. Exercisable
Exercise as of Remaining Exercise as of
Prices June 30, 1999 Contractual Life Price June 30, 1999
- ------ ------------- ---------------- ----- -------------
<S> <C> <C> <C> <C>
$ 2.50 393,180 2.58 years $ 2.50 393,180
$ 10.00 48,000 2.91 years $ 10.00 48,000
--------- ---- -------
441,180 2.67 years 441,180
</TABLE>
There is no readily available trading market for the common stock of the
Company. The options to purchase the common stock have been valued at the price
at which the options were granted.
F-11
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11- EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock and common stock outstanding during the period. Earnings per share is
computed using the treasury stock method. Had the stock options (See Note 10)
were exercised as of June 30, 1999, earnings per share as of June 30, 1999 would
have been $.075.
NOTE 12 - LEASE COMMITMENTS
The Company leased facilities from an officer/shareholder on a month-to-month
basis until July 31, 1999. The lease required monthly payments of $2,697
including utilities and maintenance.
Commencing August 15, 1999 the Company leases its office facilities for $6,030
per month. Rental increases occur every three months for the first year.
Thereafter the monthly rental is $11,555. Taxes, insurance and maintenance shall
be billed when due.
As of June 30, 1999, the minimum commitments under these leases are as follows:
December 31, Amount
------------ ------
1999 $ 52,963
2000 117,545
2001 143,410
2002 142,560
2003 142,560
2004 92,440
--------
Total $691,478
Rent expense for six months ended June 30, 1999 was $25,628.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company acquired businesses from related parties(See Note 3). The Chairman
was a co-founder of On-Line Bedding Corporation, which was acquired by the
Company from the parents of the Chairman.
The Company acquired PPI Capital Corp. (a shell corporation) from the Chairman
of the Board of Directors. This transaction was accounted for as a dividend.
As of June 30, 1999, On-Line Bedding had a note payable to the President of
On-Line Bedding in the amount of $80,018, payable at 8.25% per annum, due and
payable by December 31, 1999.
F-12
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 - RELATED PARTY TRANSACTIONS (Continued)
The Company leased facilities from an officer/shareholder on a month-to-month
basis until July 31, 1999. The lease required monthly payments of $2,697
including utilities and maintenance.
The Company has granted $295,000 in stock for signing bonuses to employees as of
June 30, 1999. The compensation was expensed.
NOTE 14 - YEAR 2000
The year 2000 issue affects the company's internal systems, including IT
systems. The Company has assessed the readiness of its critical systems for
handling the year 2000. Testing and remediation of all systems has been
completed. Management believes that all critical systems are year 2000
compliant. The financial impact of making the replacements and modifications to
the Company's systems was not material to the Company's financial position or
results of operations. Management does not rely on outside vendors for any
products or services that would adversely affect the Company's ability to
function, should those outside vendor's products or services not be Year 2000
compliant.
NOTE 15 - SUBSEQUENT EVENTS
Stock Split
On July 22, 1999, the Board of Directors declared a split of the outstanding and
issued stock from each one(1) share into two(2) shares. Accordingly, the number
of issued and outstanding shares increased to 8,616,480; as retroactively stated
in the accompanying financial statements.
Note Receivable
In August 1999, the Company loaned the Chairman of the Board the sum of
$935,000. This loan was approved by the Board of Directors and is evidenced by a
secured promissory note and first mortgage on a residence. The loan shall be
paid in full by December 6, 1999.
Interest at 8.00% per annum is payable monthly. The collateral for the loan
exceeds the face amount of the loan.
The Company will acquire from a non-affiliated third party, subject to
regulatory approval, 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, with the assets and liabilities assumed recorded at
book values.
F-13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(888) 584-5577 HAROLD Y. SPECTOR 80 SOUTH LAKE AVENUE
FAX (626) 584-6447 CERTIFIED PUBLIC ACCOUNTANT SUITE 723
[email protected] PASADENA, CALIFORNIA 91101
</TABLE>
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
(Except for Notes 3-4 & 4, the
date is October 6, 1999)
F-14
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, 1998
ASSETS
- ------
"CGI" "HOS" "PPI" Adjustments Pro Forma
----- ----- ----- ----------- ---------
<S> <C> <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
Deferred Tax Assets 1,867 0 0 1,867
---------- -------- -------- ----------
Total Current Assets 1,033,399 123,140 0 1,136,539
Property & Equipment, net 25,904 0 0 25,904
Cost in Excess of Net
Assets Acquired 999,046 (1) 999,046
Other 0 770 0 770
---------- -------- -------- ----------
TOTAL $1,059,303 $123,910 $ 0 $2,162,259
========== ======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Accounts Payable &
Accrued Expenses $ 31,500 $121,100 $ 0 $ 152,600
Income Tax Payable 4,095 1,856 0 5,951
---------- -------- -------- ----------
Total Current Liabilities 35,595 122,956 0 158,551
Stockholders' Equity 1,023,708 954 0 999,046 (1) 2,023,708
(2)
Dividend Paid 0 0 0 (20,000) (2) (20,000)
Minority Interest 0 0 0 (2) 0
---------- -------- -------- ----------
TOTAL $1,059,303 $123,910 $ 0 $2,162,259
========== ======== ======== ==========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Year Ended December 31, 1998
"CGI" "HOS" "PPI" Adjustments Pro Forma
----- ----- ----- ----------- ---------
<S> <C> <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 330,307 95,533 1,400 66,603 (3) 493,843
-------- -------- -------- ---------
Income (Loss) from
Operations 8,026 128,584 (1,400) 68,607
Other Income (Expenses) 1,443 (3,748) 0 (275,709) (4) (278,014)
-------- -------- -------- ----------
Income (Loss) Before Taxes 9,469 124,836 (1,400) (209,407)
Provision for Income Taxes 2,047 1,856 0 (3,903) (5) 0
Minority Interest in
PPI Capital Corp. 0 0 0 280 (6) 280
-------- -------- -------- ----------
Net Income (Loss) $ 7,422 $122,980 ($ 1,400) $ (209,127)
======== ======== ======== ==========
Earnings per share $ 0.001 $ (0.028)
======== ==========
Weighted Average Shares
of Outstanding 7,032,328 7,432,328
========= ==========
</TABLE>
F-16
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - ACQUISITION OF BUSINESS
On January 29, 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 400,000 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., a shell corporation in the Illinois state) for a cash
purchase price of $20,000. The acquisition will be accounted for as a dividend.
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, and "HOS" as if a
C-corporation.
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 400,000 shares of CGI's stock
at $2.50 per share $1,000,000
Eliminate stockholders' equity of HOS (954)
----------
Cost in excess of net assets acquired $ 999,046
==========
F-17
<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: Dividend Paid (20,000)
Less: 80% of PPI's stockholders equity 0
--------
Cost in excess of net assets acquired $ 0
========
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 $ 66,603
========
(4) Adjustment to Other Expenses:
Treatment of shareholders' distributions
as officers' compensation, assume "HOS" as
if a C-corporation. $275,709
========
(5) 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.
(6) To reflect minority interest of PPI Capital Corp. as of December 31, 1998:
Net Loss $1,400 * 20% minority interest = $280
====
F-18
<PAGE>
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
NOTE 4: RELATED PARTY TRANSACTIONS
The Company acquired both businesses from related parties. The Chairman of the
Board had been a co-founder of the business, and "Hos" was acquired by the
Company from the parents of the Chairman. "PPI" was acquired from the Chairman.
The cost in excess of net assets acquired will be capitalized and amortized on a
straight-line basis over a 180-month period.
F-19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(888) 584-5577 HAROLD Y. SPECTOR 80 SOUTH LAKE AVENUE
FAX (626) 584-6447 CERTIFIED PUBLIC ACCOUNTANT SUITE 723
[email protected] PASADENA, CALIFORNIA 91101
</TABLE>
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
(Except for Notes 1,2,3,4 & 8,
the date is October 6, 1999)
F-20
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC.
BALANCE SHEETS (RESTATED)
DECEMBER 31, 1998 and 1997
ASSETS
1998 1997
---------- -----------
<S> <C> <C>
Current Assets
Cash $1,031,532 $ 36,993
Deferred Tax Asset 1,867 0
---------- ---------
Total Current Assets 1,033,399 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 $1,059,303 $ 60,671
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---------- -----------
Current Liabilities
Accounts Payable $ 7,500 $ 2,500
Accrued Expenses 24,000 0
Income Taxes Payable 4,095 6,452
Note Payable to Stockholder 0 16,403
---------- ---------
Total Current Liabilities 35,595 25,355
---------- ---------
Long-Term Liabilities 0 0
---------- ---------
Total Liabilities 35,595 25,355
---------- ---------
Stockholders' Equity
Common Stock, $.00005 par value;
50,000,000 shares authorized; 7,351,340
shares issued and outstanding in 1998,
7,000,000 shares in 1997 367 350
Paid-in Capital 992,483 11,150
Retained Earnings 30,858 23,436
---------- ---------
Total Stockholders' Equity 1,023,708 34,936
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,059,303 $ 60,671
========== =========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS (RESTATED)
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
---------- ----------
<S> <C> <C>
Sales $ 338,333 $ 282,362
--------- ---------
Cost and Expenses:
Selling Expenses - Schedule A 101,027 73,064
Administrative Expenses - Schedule B 229,280 174,453
--------- ---------
Total Cost and Expenses 330,307 247,517
--------- ---------
Income from Operations 8,026 34,845
--------- ---------
Other Income (Expenses)
Interest Income 1,732 0
Interest Expense 0 (4,577)
Penalties and Late Charge (289) (565)
--------- ---------
Total Other Income (Expenses) 1,443 (5,142)
--------- ---------
Income before Taxes 9,469 29,703
Provision for Income Taxes 2,047 6,267
--------- ---------
Net Income (Loss) 7,422 23,436
Retained Earnings
Beginning Balance 23,436 0
--------- ---------
Ending Balance $ 30,858 $ 23,436
========= =========
Net Income per share $ 0.001 $ 0.003
========= =========
Weighted average shares outstanding 7,032,328 7,000,000
========= =========
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC.
SELLING EXPENSES (RESTATED)
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Schedule A
1998 1997
---------- ----------
<S> <C> <C>
SELLING EXPENSES
Commissions $ 4,269 $ 27,290
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 21,142 11,927
Travel 6,228 6,228
---------- ----------
Total Selling Expenses $ 101,027 $ 73,064
========== ==========
</TABLE>
F-23
<PAGE>
CIRCLE GROUP INTERNET, INC.
ADMINISTRATIVE EXPENSES (RESTATED)
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Schedule A
1998 1997
---------- ----------
ADMINISTRATIVE EXPENSES
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
Officers' Compensation 31,020 45,557
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 $ 229,280 $ 174,453
========== ==========
F-24
<PAGE>
<TABLE>
<CAPTION>
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
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at 12/31/96 0 $ 0 $ 0 $ 0 $ 0
Issuance of stocks 3,500,000 350 11,150 11,500
Net Income (Restated) 23,436 23,436
-------------------------------------------------------
Balance at 12/31/97 3,500,000 $ 350 $ 11,150 $ 23,436 $ 34,936
Issuance of stocks 175,670 17 981,333 981,350
Net Income (Restated) 7,422 7,422
-------------------------------------------------------
Balance at 12/31/98 3,675,670 $ 367 $992,483 $ 30,858 $1,023,708
Stock Split 2-for-1 3,675,670
-------------------------------------------------------
Retroactive Balance
as of 12/31/98 7,351,340 $ 367 $992,483 $ 30,858 $1,023,708
=======================================================
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
CIRCLE GROUP INTERNET, INC.
STATEMENT OF CASH FLOWS (RESTATED)
FOR Years ENDED DECEMBER 31, 1998 and 1997
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 7,422 $ 23,436
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 11,744 23,544
(Increase) Decrease in:
Deferred Tax Assets (1,867) 0
Increase (Decrease) in:
Accounts Payable 5,000 2,500
Accrued Expenses 24,000 0
Income Taxes Payable (2,357) 6,452
Deferred Tax Liability (380) 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
=========
</TABLE>
F-26
<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") is an Internet company with
e-finance business-to-business and e-tailer divisions. 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.
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-27
<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.
Restatement
The accompanying financial statements for year ended December 31, 1998 were
restated to reflect the stock split (See Note 8) and the accrual of Officers'
Compensation of $24,000.
The accompanying financial statements for year ended December 31, 1997 were also
restated for the prior period adjustment (See Note 3).
NOTE 3 - PRIOR PERIOD ADJUSTMENT
An understatement of 1997 reported penalties and late charge was discovered
during 1998. The fiscal year 1997 financial statements have been restated to
account for these charges. Correction of this error resulted in a decrease of
previously reported net income of $565.
F-28
<PAGE>
CIRCLE GROUP INTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 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 (2,247) 380
-------- --------
Total $ 2,047 $ 6,267
======== ========
Provision for deferred taxes has been made for temporary differences existing in
the recognition of depreciation and officers' compensation for tax purposes and
financial reporting purposes.
NOTE 5 - REGULATION A OFFERING
The Company conducted an offering pursuant to Regulation A of the Securities Act
of 1933 as amended, and sold 351,340 shares of common stock, for $2.50 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.
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-29
<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
Stock Offering
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
1,000,000 shares was fully subscribed and proceeds in the aggregate of
$2,500,000 was received.
Stock Split
On July 22, 1999, the Board of Directors declared a split of the outstanding and
issued stock from each(1) share into two(2) shares. Accordingly, the number of
issued and outstanding shares increased to 7,351,340, and the par value of each
share decreased to $.00005. The 1998 restated financial statements reflect this
transaction.
F-30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(888) 584-5577 HAROLD Y. SPECTOR 80 SOUTH LAKE AVENUE
FAX (626) 584-6447 CERTIFIED PUBLIC ACCOUNTANT SUITE 723
[email protected] PASADENA, CALIFORNIA 91101
</TABLE>
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
(Except for Note 9, the
date is October 6, 1999)
F-31
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 and 1997
ASSETS
1998 1997
----------- -----------
(As Restated)
<S> <C> <C>
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
========== ==========
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- -----------
(As Restated)
<S> <C> <C>
Current Liabilities
Accounts Payable $ 118,761 $ 81,568
Accrued Expenses 2,239 2,276
State Tax Payable 1,856 1,532
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
========== ==========
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
----------- -----------
(As Restated)
<S> <C> <C>
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 95,533 100,839
---------- ----------
INCOME (LOSS) FROM OPERATIONS 128,584 99,834
---------- ----------
OTHER INCOME (EXPENSES)
Dividend Income 2,716 3,195
Interest Expense - (38)
Loss on Disposal of Assets (6,464) -
---------- ----------
Total Other Income (Expenses) (3,748) 3,157
---------- ----------
NET INCOME (LOSS) BEFORE TAXES 124,836 102,991
PROVISION FOR INCOME TAXES 1,856 1,426
---------- ----------
NET INCOME (LOSS) 122,980 101,565
RETAINED EARNINGS
Beginning Balance 152,683 123,151
Less: Distributions (275,709) (72,033)
---------- ----------
Ending Balance $ (46) $ 152,683
========== ==========
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
COST OF SALES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
SCHEDULE A
1998 1997
----------- ----------
(As Restated)
<S> <C> <C>
COST OF SALES
Beginning Inventory $ 41,437 $ 46,854
Purchases 639,724 795,010
Freight & Shipping 14,763 27,619
---------- ---------
695,924 869,483
Less: Ending Inventory (46,328) (41,437)
---------- ---------
Total Cost of Sales $ 649,596 $ 828,046
========== =========
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
OPERATING EXPENSES
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
SCHEDULE B
1998 1997
----------- ------------
(As Restated)
<S> <C> <C>
OPERATING EXPENSES
Accounting $ 4,650 $ 4,850
Automobile 213 456
Bank Charge 865 589
Depreciation 4,386 2,214
Dues and Subscriptions 35 166
Insurance 1,143 2,483
Legal - 1,826
Miscellaneous 60 575
Office Supplies 3,500 3,174
Officer's Salaries 14,500 13,500
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 $ 95,533 $ 100,839
========== =========
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
Common Stock Retained
Shares Amount Earnings Total
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 100 $1,000 $ 123,151 $ 124,151
Net Income (As Restated) 101,565 101,565
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
============================================
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
HOS-PILLOW CORPORATION
STATEMENT OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
1998 1997
---------- ------------
(As Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 122,980 $ 101,565
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 4,386 2,214
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 63 396
State Tax Payable 324 544
--------- ---------
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
=========
</TABLE>
F-38
<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-39
<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 $2,214, 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-40
<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
1997. 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:
<TABLE>
<CAPTION>
Retained Net
Earnings Income
-------- ------
<S> <C> <C>
As previously reported, December 31, 1997 $152,857 $101,739
Adjustments:
Understatement of Accumulated Depreciation (142) (142)
Understatement of state income taxes (32) (32)
-------- --------
As restated and adjusted, December 31, 1997 $152,683 $101,565
======== ========
</TABLE>
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-41
<PAGE>
HOS-PILLOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1998 and 1997
NOTE 9 - SUBSEQUENT EVENT
On January 29, 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. This is a
related party transaction; in addition, both parties, son-father, are officers
of CGI. The father becomes the officer of CGI after the acquisition.
F-42
<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. provide
indemnification of directors and officers and other corporate agents to the
fullest extent permitted under the laws of Illinois. The articles of
incorporation also limit the personal liability of the Circle Group Internet,
Inc.'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 of
1933 may be permitted to our directors, officers or controlling persons by
these, or otherwise, we have been advised that in the opinion of the SEC this
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against 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 a 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 indemnification by us is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
the 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 by this
prospectus. We are responsible for the payment of all expenses set forth below.
<TABLE>
<CAPTION>
<S> <C>
Registration fee $ 5,075
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 $168,700
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On October 9, 1996 CIG issued 1,000 shares of its common stock to Internet
Broadcasting Company, Inc., formerly known as Capital Internet Group, Inc., for
par value, as founders shares. The issuance of these shares was exempt from
registration in reliance on Section 4(2) of the Securities Act of 1933.
In conjunction with our formation, Mr. Gregory Halpern received 6,494,000 shares
and Mr. Dana Dabney received 500,000 shares of our common stock for the nominal
consideration of par value $.0001 per share. These issuances of the shares of
common stock were exempt from registration under Section 4(2) of the Securities
Act of 1933.
II-1
<PAGE>
During fiscal 1997 we established a note payable in the principal amount of
$16,403 to Mr. Gregory J. Halpern, our founder and CEO, to purchase furniture
and fixtures, including computer equipment for our offices. The note provided
for interest at 18% per annum and was unsecured. We repaid the note in full
before December 31, 1998.
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 of 1933 which was conducted according to Regulation A. 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 from approximately 402 investors.
We paid no underwriting fees, discounts or commissions in connection therewith.
The proceeds from this offering were used to fund the expansion of our
operations, to pay costs associated with our acquisitions of On-Line Bedding and
PPI Capital, and to provide working capital for the expansion of our
infrastructure.
Between January 1999 and October 1999 we issued options to purchase an aggregate
of 319,000 shares of our common stock, at exercise prices ranging from $2.50 per
share to $10.00 per share, under our 1999 Stock Option Plan to 16 of our
executive officers, directors and employees. Subsequent to their issuance,
options for an aggregate of 7,000 shares were canceled when the employment of
the optionees was terminated. In each instance, the exercise price of the
options was equal to the fair market value of our common stock on the date of
grant. None of the options have been exercised. In as much as the employees had
a pre-existing relationship with us and they access to relevant information
concerning Circle Group Internet, the issuance of these securities was exempt
from the registration requirements of the Securities Act of 1933 in reliance on
the exemption set forth in Section 4(2) of the Securities Act of 1933.
In January 1999 we issued 400,000 shares of our common stock to Mr. Edward L.
Halpern and his wife, Diane Halpern, in a private transaction exchange for all
the issued and outstanding capital stock of On-Line Bedding. Mr. Halpern is an
affiliate of ours. The transaction was exempt from registration under the
Securities Act of 1933 in reliance on the exemption provided by Section 4(2) of
the Securities Act of 1933. We paid no underwriting fees, discounts or
commissions in connection therewith.
In March 1999 we issued warrants to purchase an aggregate of 227,110 shares of
our common stock, exercisable at $2.50 per share, which are exercisable until
March 2002, to consultants who rendered various consulting services to us on a
variety of business issues, including general business matters, investments,
real estate, business development, acquisitions, marketing and market research,
international business, vehicle brokerage, transportation, and banking and
financial matters. These consultants are sophisticated and had access to, or
were otherwise provided with, information concerning Circle Group Internet.
There are 11 holders of these warrants which were issued without registration
under the Securities Act of 1933 in reliance on Section 4(2) of the Securities
Act of 1933. We paid no underwriting fees, discounts or commissions in
connection therewith.
Between March 1 and March 15, 1999, we sold 150,480 shares of common stock to 47
accredited investors who had preexisting relationships with us and access to
relevant information concerning our company in a private placement exempt from
registration in reliance on Section 4(2) and Rule 506, Regulation D, of the
Securities Act of 1933, resulting in gross proceeds to us of $376,200. We paid
no underwriting fees, discounts or commissions in connection therewith. The
proceeds from this offering were used to launch our e-finance division.
Between April 1, 1999 and October 7, 1999 , we have issued an aggregate of 3,500
shares of common stock to EBS Public Relations, Inc. for public relations
services rendered to us under an agreement dated March 4, 1999. At the request
of EBS' principals, Erica and Brian Swerdlow, these shares have been issued to
them individually. EBS is a sophisticated investor and 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 under Section 4(2) of the Securities Act of 1933.
II-2
<PAGE>
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 their broker-dealer licenses.
Ms. Lytle is a sophisticated investors and 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 under Section 4(2) of the Securities Act of 1933.
Between April 1, 1999 and July 22, 1999, we sold 1,213,800 shares of our common
stock to 63 accredited investors in a private placement exempt from registration
under the Securities Act of 1933 in reliance on Section 4(2) and Rule 506,
Regulation D, of the Securities Act of 1933. Each of these investors had a
pre-existing relationship with us and had access to relevant information
concerning Circle Group Internet. We received $12,138,000 in gross proceeds in
the private placement and paid no underwriting fees, discounts or commissions in
connection therewith. We used a portion of the proceeds from this offering for
the development and marketing of our Internet viewing software. We have also set
aside $1 million of these proceeds to contribute to the fund we are creating. We
will also use a portion of these proceeds for future acquisitions.
In April 1999 we issued Mr. and Mrs. Edward Halpern a demand promissory note in
the principal amount of $80,018, bearing interest at 8% per annum, which
represented shareholder distributions prior to our acquisition of On-Line
Bedding.
On August 1, 1999 Mr. Gregory J. Halpern, our president and CEO, borrowed
$935,000 from us under a secured promissory note. This note bears interest at 8%
per annum. Beginning on September 6, 1999, Mr. Halpern will make four monthly
payments to us of $6,233.33, and the entire principal, plus any accrued but
unpaid interest, is due in full on December 6, 1999. As collateral for the note,
Mr. Halpern granted us a first mortgage on his principal residence. This
residence has a fair market value which exceeds the principal amount of the note
and, with the exception of our mortgage, is unencumbered.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibits
- ----------- -----------------------
<S> <C>
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 March 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
II-3
<PAGE>
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.
10.12** Extension Agreement dated August 25, 1999 between Circle Group Internet, Inc., Internet
Broadcasting Company and CIG Securities, Inc.
10.13** Client Agreement dated March 4, 1999 between EBS Public Relations, Inc. and Circle Group Internet, Inc.
10.14** Industrial lease agreement dated May 20, 1999 between CLO Enterprises and Circle Group Internet, Inc.
10.15** Industrial lease agreement dated June 18, 1999 between CLO Enterprises and Circle Group Internet, Inc.
10.16** Amendment No. 1 to the Stock Purchase Agreement between the shareholders of On-Line Bedding
Corporation and Circle Group Internet, Inc.
10.17** Secured Promissory Note dated August 1, 1999 from Gregory J. Halpern
10.18** Mortgage dated August 6, 1999 between Gregory J. Halpern and Karen S. Halpern and Circle Group Internet, Inc.
10.19 Form of Placement Agency Agreement
10.20** Form of Business Consulting Agreement
10.21** Demand Promissory Note dated April 1, 1999
21* Subsidiaries of the Registrant
23.1** Consent of Harold Y. Sector, 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.
</TABLE>
* Previously filed
** Filed herewith.
ITEM 28. UNDERTAKINGS
(a) We undertake:
(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;
II-4
<PAGE>
(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 of 1933 may be permitted to directors, officers and
controlling persons of Circle Group Internet, Inc., we have been
advised that, in the opinion of the SEC, indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against 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 a 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 indemnification by it
is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of the issue.
II-5
<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 October 20, 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 No. 1 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 October 20, 1999
- -----------------------
Gregory J. Halpern
/s/ Frank K. Menon Director and President October 20, 1999
- -----------------------
Frank K. Menon
/s/ Dana L. Dabney Director, Vice President of Human Resources October 20, 1999
- -----------------------
Dana L. Dabney
/s/Arthur C. Tanner Chief Financial Officer October 20, 1999
- -----------------------
Arthur C. Tanner
/s/Michael J. Theriault Chief Operating Officer October 20, 1999
- -----------------------
Michael J. Theriault
/s/ Edward L. Halpern Director October 20, 1999
- -----------------------
Edward L. Halpern
_______________________ Director
Charles S. Blumenfield
_______________________ Director
Doron C. Levitas
</TABLE>
The foregoing represents a majority of the Board of Directors
II-6
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
<S> <C>
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 March 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.
10.12** Extension Agreement dated August 25, 1999 between Circle Group Internet, Inc., Internet
Broadcasting Company and CIG Securities, Inc.
10.13** Client Agreement dated March 4, 1999 between EBS Public Relations, Inc. and Circle Group Internet, Inc.
10.14** Industrial lease agreement dated May 20, 1999 between CLO Enterprises and Circle Group Internet, Inc.
10.15** Industrial lease agreement dated June 18, 1999 between CLO Enterprises and Circle Group Internet, Inc.
10.16** Amendment No. 1 to the Stock Purchase Agreement between the shareholders of On-Line Bedding
Corporation and Circle Group Internet, Inc.
10.17** Secured Promissory Note dated August 1, 1999 from Gregory J. Halpern
10.18** Mortgage dated August 6, 1999 between Gregory J. Halpern and Karen S. Halpern and Circle Group Internet, Inc.
10.19** Form Placement Agency Agreement
10.20** Form of Business Consulting Agreement
<PAGE>
10.21** Demand Promissory Note dated April 1, 1999
21* Subsidiaries of the Registrant
23.1** Consent of Harold Y. Sector, 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.
</TABLE>
* Previously filed
** Filed herewith.
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,
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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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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 corporation shall
have at least one (1) and no more than ten (10) directors. 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
5
<PAGE>
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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<PAGE>
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
7
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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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
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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] ------------------
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 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 & TRUST, INC.
P.O. BOX 1596, Denver, CO 80201
- -------------------------------------------------
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of March, 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.
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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
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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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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:_______________________________________
Gregory Halpern, Chief Executive Officer
Witness: THE EMPLOYEE
___________________________
By:_______________________________________
Arthur C. Tanner, Chief Financial Officer
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT (the "Extension Agreement") is made and
entered into as of the 25th day of August, 1999, between CIRCLE GROUP INTERNET,
INC. ("Buyer"); 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 entered into an Extension Agreement on June 25,
1999 extending the Expiration Date of the Stock Purchase Agreement until August
25, 1999.
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/ Frank K. Menon
Frank K. Menon, President /s/ Bradley Levine, President
- ------------------------- ------------------------------
Bradley Levine, Executive Vice President
CIG:
/s/ Bradley Levine, President
-------------------------------
Bradley Levine, President
Client Agreement
This letter will serve as an agreement between EBS Public Relations, Inc.
("EBS") and Circle Group Internet, Inc. ("Client") commencing on April 1, 1999
and continuing through March 31, 2000, unless continued by or terminated by the
parties hereto. EBS will generate publicity for Client according to the
guidelines outlined in the PR Plan dated March 4, 1999 (the "Services").
Fees: In consideration for such Services, EBS will receive, as payment, 500
shares of common stock in Circle Group Internet, Inc., with a minimum value of
$20.00 dollars per share at the offering, per month ("Monthly Fee"). Client will
reimburse EBS for all monthly expenses advanced on Client's behalf. The monthly
expenses may include, but not be limited to charges for: overnight mails,
postage, phone charges, photography, photocopies, travel, and press release
writing with such amount not to exceed $250 monthly total unless agreed upon in
writing by Client. In the event of special media opportunities that may require
substantial expenses above and beyond the regular services outlined in the March
4th Plan, EBS may request Client to pay them directly or to fund them in
advance. Client may agree, solely at its option, whether or not to pay such
expenses.
Payments: The first of each month Client will deliver to EBS the 500 registered
shares of stock. The previous month's expenses will be billed, together with an
accounting, on the first of each month and paid to EBS by Client within 30 days
of the invoice date.
Performance: On the 20th day of month one of this agreement, EBS promises to
deliver to Client a completed Press Kit that is built for and supports the
various aspects of Client's Internet business. On or before the 15th day of
month two of this agreement, EBS promises that it will arrange for Client to
appear in at least one feature media story in either a major printed publication
or major television/cable show that compliments Client's Internet business. On
or before every 15th day of months three through twelve of this agreement, EBS
promises that it will arrange for Client to appear in at least one additional
feature media story in either a major printed publication or major
television/cable show that compliments Client's Internet business.
Indemnification: Client agrees to defend and indemnify EBS against all
liabilities, damages, costs and expenses, including reasonable attorney's fees,
that EBS may incur as the result of any claim, suit or proceeding brought or
threatened against EBS arising out of assertions made for Client's products or
services or assertions made for any products or services of Client's competitors
in any media materials EBS prepares for Client, provided the assertions are
based on information or data supplied to EBS by Client or any of Client's
affiliates or agents and are pre-approved in writing by Client prior to
distribution.
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Remuneration for Hiring EBS Employees: Client agrees not to recruit, engage as
an independent contractor or consultant, or employ any EBS employee as long as
Client is a client or EBS and for a twelve month period following termination of
this Agreement. If Client does recruit, engage as an independent contractor or
consultant or hires any EBS employee during such period, Client agrees to pay
EBS as liquidated damages a fee equal to one and one half times the employee's
full base annual salary concurrent with employee's termination from EBS.
Severability: Whenever possible, each of the provisions of this Agreement shall
be construed and interpreted in such a manner as to be effective and valid under
applicable law. If any provisions of this Agreement or the application of any
provision of this Agreement to any party or circumstance shall be prohibited by,
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition without invalidating the remainder of such provision,
any other provision of this Agreement, or the application of such provision to
other parties or circumstances.
Termination: Either party may terminate this agreement upon 60 days written
notice. In the event of any such termination, Client will no longer be required
to provide any shares or its stock to EBS after the date of termination, and EBS
shall not be required to continue to provide services to Client after the date
of termination. Termination of this Agreement shall not relieve either party of
any other relevant prior contractual obligations previously agreed to by the
parties, with the exception of the stock for services arrangement which would be
canceled simultaneously with any such termination. Any modifications to this
Agreement must be in made in writing and signed by both parties.
EBS Public Relations, Inc. Circle Group Internet Inc.
/s/ Brian K. Swerdlow /s/ Gregory J. Halpern
- ---------------------- -----------------------
By: By:
Brian K. Swerdlow - CEO
EBS Public Relations, Inc. ________________________
31 00 Dundee Rd. #308 Gregory J. Halpern
Northbrook, IL 60062
------------------------
President & CEO
------------------------
Date
Circle Group Internet, Inc.
827 East Orchard Street
Mundelein, IL 60060
2
INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made this 20th day of May, 1999 between CLO Enterprises
as LESSOR, and Circle Group Internet, Inc. as LESSEE.
LESSOR hereby leases to LESSEE, and LESSEE hereby leases from LESSOR,
the following described premises, hereinafter referred to as "the premises", in
the Village of Mundelein, County of Lake, State of Illinois.
To wit: 13,018 rentable square feet of space, within 43,493 total
rentable square feet of building space, located at 1005-1025 Campus Drive,
Mundelein, IL 60060. LESSEE's address will be 1021 Campus Drive, Mundelein, IL
60060 which will be used only for a term of five (5) years, beginning SEE RIDER
TO LEASE for which LESSEE agrees to pay to LESSOR a total of SEE RIDER TO LEASE
as rent, in monthly installments as listed below, each due and payable on the
first day of each and every month of the term hereof, in advance at, CLO
Enterprises c/o George Orfanos, 933 N.E. Holcomb Dr., Mundelein, IL 60060, or at
such other place as LESSOR may designate from time to time, in writing. LESSEE
agrees to use and occupy the premises only for the permitted use of in-line
skating, cycling, and skate boarding and for no other purpose without LESSOR's
consent.
LESSEE shall have the option to renew the lease term for an additional
five (5) year term provided LESSEE gives LESSOR written notice not less than six
(6) months prior to the end of the primary term, and provided LESSEE is in full
compliance and not in default of this lease at the time the renewal option is
exercised. SEE RIDER TO LEASE.
Concurrently, with its execution of this lease, LESSEE shall deliver to
LESSOR a check in the amount of $12,693.00 as security for the performance by
LESSEE of every covenant and condition of this lease. Said deposit may be
commingled with other funds of LESSOR, and shall bear no interest. If LESSEE
shall default with respect to any covenant or condition of this lease,
including, but not limited to the payment of any sum in default or any sum which
LESSOR may be required to spend by reason of LESSEE's default, then LESSOR may
use such portion of the security deposit as necessary to cover or compensate for
such default. In the event LESSOR so uses the security deposit in part or in
whole, LESSEE will restore security deposit to the required amount upon notice
of said default plus a processing fee of $50.00 for each incident. Should LESSEE
comply with all of the covenants and conditions of this lease, the security
deposit or any balance thereof shall be returned to LESSEE at the expiration of
the term thereof subject to Article 35. SEE RIDER TO LEASE.
LESSOR and LESSEE further agree as follows:
1. POSSESSION AT BEGINNING OF TERM: LESSEE shall be entitled to
possession of the premises when the "work" (as defined in Exhibit "A") is
"substantially completed" (as defined in Exhibit "A") subject to early access to
the premises by LESSEE
<PAGE>
as provided under Article 7 of Exhibit "A") LESSOR shall use due diligence to
give possession as nearly as possible at the beginning of the lease term of this
lease which is SEE RIDER TO LEASE, and rent shall abate pro rate for the period
of delay in so doing. LESSEE shall make no other claim against LESSOR for any
such delay.
2. INSURANCE: LESSEE shall pay LESSOR as additional rent its pro rata
share of the building insurance in monthly installments equal to 1/12th of the
most recent insurance premium. LESSOR shall notify LESSEE on the anniversary
date of the insurance policy if any adjustments are required to the monthly
installments and provide LESSEE copy of the insurance premium evidencing said
adjustment. LESSEE shall comply with all insurance regulations so the lowest
fire, lightning, explosion, extended coverage and liability insurance rates may
be obtained; and nothing shall be done or kept in or on the premises for any of
such insurance on the premises or on any building of which the premises are a
part or any contents located therein, over the rate usually obtained for the
proper use of the premises permitted by this lease or which will cause
cancellation of any such insurance.
If during the term of this lease the annual premium for fire and
(what is commonly known as) extended coverage insurance increases due to
LESSEE's use within the premises. then LESSEE shall pay, as additional rent, the
amount of such increase, which amount shall be payable within (10) ten days from
the date of LESSOR's notice of an amount so due hereunder.
3. INDEMNITY AND PUBLIC LIABILITY: LESSEE covenants at all times to
save LESSOR harmless from all loss, liability, cost or damages that may occur or
be claimed with respect to any person or persons, corporation, or property on or
about the premises or to the property itself resulting from any att done or
omission by or through the LESSEE, its agents, employees, invitees, or any
person on the premises by reason of LESSEE's use of property and all loss, cost,
liability, or expense resulting there from up to the limits of liability
insurance required by this lease. LESSEE further covenants and agrees to
maintain at all times, during the term of this lease, comprehensive public
liability insurance in which the premises am located and satisfactory to LESSOR,
properly protecting and indemnifying LESSOR in an amount of not less than TWO
MILLION DOLLARS ($2,000,000.00). combined single limit for bodily injury or
property damage. LESSEE shall furnish LESSOR with a current certificate or
certificate of insurance, coverage such insurance so maintained by LESSEE. These
copies or certificate shall include an endorsement which states that such
insurance shall not be canceled without thirty days prior written notice to
LESSOR. LESSOR shall be named as additional insured on the liability insurance
policy. LESSEE shall carry adequate workmen's compensation insurance and also
provide evidence of said insurance to LESSOR.
4. ASSIGNMENT AND SUBLEASE: LESSEE shall not assign, transfer or
encumber this lease and shall nol sublease the premises or any
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part thereof or allow any other person to be in possession thereof without the
prior written consent of LESSOR, in each and every instance, which consent or
consents shall not he unreasonably withheld.
5. SIGNS AND ADVERTISEMENTS: LESSEE shall not put upon nor permit to be
put upon any part of the premises, any signs, billboards or advertisements
whatever, without the prior written consent of LESSOR.
6. ACCEPTANCE, MAINTENANCE AND REPAIR: LESSEE has inspected and knows
the condition of the premises and accepts the same in their present condition
(subject to ordinary wear, tear, and deterioration in the event the term
commences after the date hereof and to the rights of present of former occupant
or occupants, if any, to remove movable property). LESSOR shall take good care
of the premises and the equipment and fixtures therein (including but not
limited to replacement of parts and components of heating and air conditioning
equipment and by maintaining records of semi-annual maintenance checks by a
qualified technician) and shall keep the same in good working order and
condition, including particularly but not limited to protecting water pipes,
heating and air conditioning equipment. plumbing. windows, doors, frames, dock
bumpers, fixtures, appliances, and sprinkler system from becoming frozen or
being damaged, and shall keep the premises and the approaches, sidewalks.
parking areas, landscaped areas and the alleys adjacent thereto, if any. clean.
sightly and free from ice and snow LESSEE shall pay as additional rent its pro
rata share of maintenance and repairs in monthly installments equal to 1/12th of
the most recent maintenance and repair expenses or mutually agreed upon estimate
provided by LESSOR. At the expiration of the term, LESSEE shall surrender the
premises broom clean, in as good condition as the reasonable use thereof will
permit. All damage or injury to the premises not caused by fire or other
casualty and all damage to glass. windows, walls. ceilings, flooring and doors
shall be promptly repaired by the LESSEE.
7. LESSOR'S RIGHT OF ENTRY: LESSOR or LESSOR's agent may enter the
premises at reasonable hours to examine the premises and to do anything LESSOR
may be required to hereunder or which LESSOR may deem necessary for the good of
the premises or any building of which they are a part; and, during the last 180
days of this lease, LESSOR may display a "For "Rent" sign on, and show the
premises.
8. PARKING LOT MAINTENANCE: LESSOR shall be responsible for maintenance
of the parking lot and common areas including snow removal. cleaning, repainting
and repairs. LESSEE shall pay, as additional rent its pro rata share of the
parking lot maintenance and common areas, including snow removal etc., in
monthly installments equal to 1/12th of the most recent parking lot maintenance
and snow removal expenses or mutually agreed upon estimates provided by LESSOR.
LESSEE shall insure that the parking lot is not damaged by placement or movement
of trash containers or the dollies on semitrailer trucks and LESSEE shall be
responsible for the repair of same during the term of the lease and upon
termination thereof. LESSEE understands and agrees that no personal or business
property shall be stored in the parking area or any place outside
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<PAGE>
the building. LESSEE shall not permit its employees, customers, agents,
contractors or vendors to utilize more than 41 parking spaces in the parking
area immediately adjacent to the premises.
9. MAINTENANCE AND REPAIR BY LESSOR: LESSOR shall keep in repair,
ordinary wear and tear excepted, the roof and exterior walls (exclusive of
inside surfaces), gutters and downspouts of the building in which the premises
are a pam except as to damage arising from the negligence of the LESSEE, but
nothing herein shall be construed as requiring LESSOR to repair any front or
other part installed by the LESSEE. LESSOR reserves the right to the exclusive
use of the roof and exterior walls which LESSOR is so obligated to repair.
10. DAMAGE BY CASUALTY: In case, during the term created or previous
thereto, the premises hereby let, or the building of which said premises are a
part, shall be destroyed or shall be so damaged by fire or other casualty as to
become untenantable, then in such event, at the option of the LESSOR, the term
hereby created shall cease, and this lease shall become null and void from the
date of such damage or destruction and the LESSEE shall immediately surrender
said premises and all interest therein to LESSOR, and LESSEE shall pay rent
within said term only to the time of such surrender, provided, however, that
LESSOR shall exercise such option to so terminate this lease by notice in
writing delivered to LESSEE within thirty days after such damage or destruction.
In case LESSOR shall not so elect to terminate this lease, in such event, this
lease shall continue in full force and effect and the LESSOR shall repair the
premises with all reasonable promptitude, placing the same in as good a
condition as they were at the time of the damage or destruction, and for that
purpose may enter said premises and rent shall abate in proportion to the extent
and duration of untenantability. In either event LESSEE shall remove all
rubbish, debris, merchandise, furniture, equipment and other of its personal
property, within five days after the request of the LESSOR. If the premises
shall be but slightly injured by fire or other casualty, so as not to render the
same untenantable and unfit for occupancy, then the LESSOR shall repair the same
with all reasonable promptitude, and in that case the rent shall not abate. No
compensation or claim shall be made by or allowed to the LESSEE by reason of any
inconvenience or annoyance arising from the necessity of repairing any portion
of the building or the premises, however the necessity may occur.
11. PERSONAL PROPERTY: LESSOR shall not be liable for any loss or
damage to any merchandise, personal or business property in or about the
premises, regardless of the cause of such loss or damage.
12. ALTERATIONS: LESSEE shall not make any alterations or additions in
or to the premises without the prior written consent of LESSOR.
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<PAGE>
13. UTILITIES AND SERVICES: LESSEE shall famish and pay for all
electricity, gas, water, fuel and any services or utilities used in or assessed
against the premises including, but not limited to, any charges for the burglar
and fire monitoring systems which shall include line and installation charge; if
necessary, unless otherwise herein expressly provided.
14. PUBLIC REQUIREMENTS: LESSEE shall comply with all laws, orders,
ordinances, and other public requirements now or hereafter affecting the
premises or the use thereof, and save LESSOR harmless from expense or damage
resulting from failure to do so.
15. MULTIPLE TENANT BUILDINGS: If the premises area a part of a
multiple tenant building, it is understood that the responsibility of LESSEE for
additional rent as called for in Articles 2, 6, 8 and 17 of this lease shall be
a percentage of the total square feet of building space (43,493 Sq. Ft.) divided
by the rentable area occupied by LESSEE ( Sq. Ft.). LESSEE shall pay LESSOR for
LESSEE's pro rata share of said expenses stated in Articles 2, 6, 8 and 17 of
this Lease. LESSEE's pro rata share is 29.93%. LESSEE agrees to conduct its
business in a manner that will not be objectionable to other tenants in the
building of which the premises are a part, including, noise, vibration, odor, or
fumes. In the event LESSOR receives complaints from other tenants in the
building and determines, in its sole and reasonable judgment, that LESSEE is
conducting Its operations in a manner objectionable to other tenants, LESSEE
agrees, upon written notice from LESSOR, to promptly modify the conduct of its
operations to eliminate such objectionable operations.
16. FIXTURES: All buildings, repairs, alterations, additions,
improvements, installations, and any other fixtures by whomsoever installed or
erected (except such business trade fixtures and equipment belonging to LESSEE
as can be removed without damage to or leaving incomplete the premises or
building) shall belong to LESSOR and remain on and be surrendered with the
premises as a part thereof at the expiration of this lease or any extension
thereof.
17. REAL ESTATE TAXES: LESSEE shall pay as additional rent Its pro rata
share of real estate taxes, both general and special, including the expense of
protesting, negotiating or contesting the amount or validity of any such taxes,
payable with respect to the leased premises during any lease year. LESSEE shall
pay to LESSOR monthly installments in the amount of 1/12th of the most recent
real estate tax bill or 1/12th of LESSOR's reasonable estimate of the next tax
bill sum. LESSOR shall notify LESSEE on the anniversary date of the tax bill if
any adjustments are required to the monthly installments and provide LESSEE a
copy of the tax bill evidencing said adjustment.
18. EMINENT DOMAIN: If the premises or any substantial part thereof
shall be taken by any competent authority under the power of eminent domain or
be acquired for
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<PAGE>
any public or quasi-public use or purpose, the term of this lease shall cease
and terminate upon the date when the possession of said premises of the part
thereof so taken shall be required for such use of purpose and without
apportionment of the award, and LESSEE shall have no claim against LESSOR for
the value of any unexpired term of this lease, If any condemnation proceeding
shall be instituted in which it is sought to take or damage any part of LESSOR's
building of the land under it or if the grade of any street or alley adjacent to
the building is changed by any competent authority and such change of grade
makes it necessary or desirable to remodel the building to conform to the
changed grade, LESSOR shall have the right to cancel this lease after having
given written notice of cancellation to LESSEE not less than ninety (90) days
prior to the date of cancellation designated in the notice. In either of said
events rent at the then current rate shall be apportioned as of the date of the
termination. No money or other consideration shall be payable by the LESSOR to
the LESSEE for the right of cancellation and the LESSEE shall have no right to
share in the condemnation award or in any judgment for damages caused by the
taking or the change of the grade Nothing in this paragraph shall preclude an
award being made to LESSEE for loss of business or depreciation to and cost of
removal of equipment or fixtures.
19. WAIVER OF SUBROGATION: As part of the consideration for this lease
each of the parties hereto hereby releases the other party hereto from all
liability for damage due to any act or neglect of the other party (except as
hereinafter provided) occasioned to property owned by said parties which is or
might be incident to or the result of a fire or any other casualty against loss
for which either of the panties is now carrying or hereafter may carry
insurance; provided, however, that the releases herein contained shall not apply
to any loss or damage occasioned by the willful, wanton, or premeditated
negligence of either of the parties hereto, and the parties hereto further
covenant that any insurance that they obtain on their respective properties
shall contain an appropriate provision whereby the insurance company, or
companies, consent to the mutual release of liability contained in this
paragraph.
20. DEFAULT AND REMEDIES: In the event: (a) LESSEE fails to comply with
any term, provision, condition, or covenant of this lease; (b) LESSEE deserts or
vacates the premises; (c) any petition is filed by or against LESSEE under any
section or chapter of the Federal Bankruptcy Act, as amended, or under any
similar law or statute of the United States or any state thereof, (d) LESSEE
becomes insolvent or makes a transfer in fraud of creditors; (e) LESSEE makes
any assignment for benefit of creditors; or (f) a receiver is appointed for
LESSEE or any of the: assets of LESSEE, then in any of such events LESSEE shall
be in default and, LESSOR shall have the option to do any one or more of the
following upon ten (10) days prior written notice, excepting the payment of rent
or additional rent for which no demand or notice shall be necessary, in addition
to and not in limitation of any other remedy permitted by law; to enter upon the
premises or any part thereof either with or without process of law, and to
expel, remove and put out LESSEE or any other persons who might be thereon,
together with all personal property found
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therein; and, LESSOR may terminate this lese or it may from time to time,
without terminating this lease, rent said premises or any part thereof for such
term or terms (which may be for a term extending beyond the term of this lease)
and at such rental or rentals and upon such other terms and conditions as LESSOR
in its sole discretion may deem advisable, with the right to repair, renovate,
remodel, redecorate, alter and change said premises. At the option of LESSOR,
rents received by LESSOR from such reletting shall be applied first to the
payment of any indebtedness from LESSEE to LESSOR other than rent and additional
rent due hereunder, second, to payment of any costs and expenses of such
reletting including but not limited to attorneys' fees, advertising fees, and
brokerage fees, alterations and changes in the premises; third, to the payment
of rent and additional rent due and payable hereunder and interest thereon, and
if after applying said rentals there is any deficiency in the rent and
additional rent and interest to be paid by LESSEE under this lease, LESSEE shall
pay any such deficiency to LESSOR and such deficiency shall be calculated and
collected by LESSOR monthly. No such re-entry or taking possession of said
premises shall be construed as an election of LESSOR's part to terminate this
lease unless a written notice of such intention be given to LESSEE.
Notwithstanding any such reletting without termination, LESSOR may at any time
thereafter elect to terminate this lease for such previous breach and default.
Should LESSOR at any time terminate this lease by reason of any default, in
addition to any other remedy it may have, it may recover from LESSEE the worth
at the time of such termination of the excess of the amount of rent and
additional rent reserved in this lease for the balance of the term hereof over
the then reasonable rental value of the premises for the same period LESSOR
shall have the right and remedy to seek redress in the courts at any time to
correct or remedy any default of LESSEE by injunction or otherwise. Without such
resulting or being deemed a termination of this lease, and LESSOR, whether this;
lease has been or is terminated or not shall have the absolute right by court
action or otherwise to collect any and all amounts of unpaid rent or unpaid
additional rent reserved in this lease for the balance of the term hereof over
the then reasonable rental value of the premises for the same period LESSOR
shall have the right and remedy to seek redress in the courts at any time to
correct or remedy any default of LESSEE by injunction or otherwise, without such
resulting or being deemed a termination or not, shall have the absolute right by
court action or otherwise to collect any and all amounts of unpaid rent or
unpaid additional rent or any other sums due from LESSEE to LESSOR under this
lease which were or are unpaid at the date of termination. In case it should be
necessary for LESSOR to bring any action under this lease, to consult or place
said lease or any amount payable by LESSEE hereunder with an attorney concerning
or for the enforcement of any LESSOR's rights hereunder, the LESSEE agrees in
each and any such rise to pay to LESSOR, LESSOR's reasonable attorney's fees.
21. WAIVER: The rights and remedies of the LESSOR under this lease, as
well as those provided or accorded by law, shall be cumulative, and none shall
be exclusive of any other rights or remedies hereunder allowed by law. A waiver
by LESSOR of any breach or breaches, default or defaults of LESSEE hereunder
shall not be deemed or
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construed to be a continuing waiver of such breach or default nor as a waiver of
or permission, expressed or implied, for any subsequent breach or default, and
it is agreed that the acceptance by LESSOR of any installment of rent
subsequently to the daw the same should have been paid hereunder, shall in no
manner alter or affect the covenant and obligation of LESSEE to pay subsequent
installments of rent promptly upon the due date thereof No receipt of money by
LESSOR after the termination in any way of this lease shall reinstate, continue
or extend the term above demised.
22. NOTICES: Any notice hereunder shall be sufficient if sent by
registered or certified mail, addressed to LESSEE at the premises, and to LESSOR
where rent is payable.
23. SUBORDINATION: In the event LESSOR holds title to said premises by
virtue of a lease, then this sublease is and shall remain subject to all of the
terms and conditions of such underlying lease so far as shall be applicable to
the premises herein leased. This lease shall also be, subject and subordinate in
law and equity to any existing or future mortgage or deeds of trust placed by
LESSOR upon the leased premises or the building of which the premises form a
part.
24. SUCCESSORS: The provisions, covenants, and conditions of this lease
shall bind and inure to the benefit of the legal representatives, heirs,
successors and assigns of each of the parties hereto, except that no assignment
or subletting by LESSEE without the written consent of LESSOR shall vest any
right in the assignee or sublessee of the LESSEE.
25. QUIET POSSESSION: LESSOR agrees that so long as LESSEE fully
complies with all of the terms, covenants and conditions herein contained on
LESSEE's part to be kept and performed, LESSEE shall and may peaceably and
quietly have, hold and enjoy the said premises for the term aforesaid, it being
expressly understood and agreed that the aforesaid covenant of quiet enjoyment
shall be binding upon the LESSOR, its heirs, successors, or assigns. LESSOR
further covenants and represents that LESSOR has full right, title, power and
authority to make, execute and deliver the lease.
26. BANKRUPTCY: Neither this lease nor any interest therein nor any
estate hereby created shall pass to any trustee or receiver in bankruptcy or to
any other receiver or assignee for the benefit of creditors by operation of law
or otherwise during the term of this lease or any renewal thereof.
27. ENTIRE AGREEMENT: This lease contains the entire agreement between
the parties, and no modification of this lease shall be binding upon the parties
unless evidenced by an agreement in writing signed by the LESSOR and the LESSEE
after the date hereof If there be more than one LESSEE named herein, the
provisions of this lease shall be applicable to and binding upon such LESSEE's
jointly and separately.
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28. ESTOPPEL CERTIFICATE BY LESSEE: LESSEE further agrees at anytime
and from time to time, upon not less than twenty (20) days prior written request
by LESSOR, to execute, acknowledge and deliver to LESSOR a statement in writing
certifying that this lease is unmodified and ir full force and effect (or if
there have been modifications that the same is in full force and effect as
modified, and stating the modifications), and the date to which the rental and
other charges have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this paragraph, may be relied upon by any
prospective purchaser upon the fee, of the demised premises.
29. LESSEE: From time to time during the term of this lease and for a
reasonable purpose, LESSEE shall provide to LESSOR copies of its audited or
certified financial statements within thirty (30) days from LESSOR's written
request.
30. LIENS AND ENCUMBRANCES: LESSEE shall not perform any act which
shall in any way encumber the title of LESSOR in and to the Leased Premises or
the Real Estate, nor shall the interest or estate of LESSOR in the Leased
Premises or the Real estate be in any way subject to any claim by way of lien or
encumbrance, whether by operation of law or by virtue or any express or implied
contract by LESSEE. Any claim to, or lien upon, the Leased Premises or the Real
Estate arising from any act or omission of LESSEE shall accrue only against the
leasehold estate of LESSEE and shall be subject and subordinate to the paramount
title and rights of LESSOR in and to the Leased Premises or the Real Estate.
Should the Leased Premises or the Real Estate become subject to any mechanics,
laborers' or materialmen's lien on account of labor or material furnished to
LESSEE or claimed to have been furnished to LESSEE in connection with work of
any character performed or claimed to have been performed on the Leased Premises
by, or at the direction or sufferance of, LESSEE, and in case of filing of any
such lien, LESSEE will promptly pay same, provided, however, that LESSEE shall
have the right to contest in good faith and with reasonable diligence, the
validity of any such lien or claimed lien if LESSEE shall give to LESSOR such
security as may be deemed satisfactory to LESSOR to insure payment thereof and
to prevent a sale, foreclosure, or forfeiture of the Leased Premises or the Real
Estate by mason of non-payment thereof, provided further, however, that on final
determination of the lien or claim for lien, LESSEE shall immediately pay any
judgment rendered, with all proper costs and charge, and shall have the lien
released and any judgment satisfied.
31. HOLDING OVER: In the event of a holding over by LESSEE after
expiration of termination of this lease without the written consent of the
LESSOR, LESSEE shall be deemed a LESSEE at sufferance and shall pay as
liquidated damages, double rent for the entire holdover period and any and all
damages incurred by LESSOR's inability to deliver premises to any future
contracted tenant and all attorney's fees and expenses incurred by LESSOR in
enforcing its rights hereunder.
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32. COMMON AREAS: LESSEE agrees to conform with any reasonable rules
and regulations LESSOR may establish from time to time in connection with use of
the common areas, including those concerning the parking area, driveways,
landscaping and loading docks.
33. JANITORIAL SERVICE AND GARBAGE REMOVAL: LESSEE at its own expense
shall provide its own janitorial service and garbage removal. LESSEE shall not
permit the undue accumulation of debris in the premises or in any area
immediately adjoining the premises. Dumpsters will be stored within the
designated area of the premises prior to and immediately following trash
removal.
34. LATE CHARGE: LESSEE will pay to LESSOR a late charge of five
percent (5%) on any amount owing to LESSOR hereunder which is not paid when due.
The late charge will represent a fair and reasonable estimate of the cost LESSOR
will incur because of LESSEE's late payment. Additionally LESSOR may charge
LESSEE interest for any sum pas due, with such interest rate charged being five
percent (5%).
35. ADJUSTED RENTAL: After delivery of LESSOR's notice as provided in
Articles 2, 6, 8 and 17, and determination of the amount of LESSEE's pro rata
share of taxes, insurance, maintenance and other expenses due upon notice, if
any, the monthly installment of rent then being paid by LESSEE shall be
increased by 1/12th of the amount of LESSEE's pro rata share of LESSOR's
reasonable estimate of the next billing amount The adjusted monthly rental as
determined by the preceding sentence shall be paid by LESSEE until receipt by
LESSEE of LESSOR's notice the next succeeding calendar year, If the term of this
lease ends on other than the last day of a calendar year, LESSEE's pro rata
share shown on the notice delivered after the end of the term shall be reduced
proportionately and any payment due shall also be apportioned and paid as
aforesaid.
36. ENVIRONMENTAL: LESSEE shall not in the premises or the building
generate, store, handle, release, discharge or otherwise seal with any material
classified as a "hazardous material" for purpose of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended from time to time, or any other similar or related federal, state or
local statutes, rules, regulations or ordinances. Without limiting the,
generality of the foregoing, LESSEE expressly covenants and agrees that it shall
not, nor LESSEE shall permit anyone to (a) use asbestos or any asbestos
containing materials in the premises or in the building; (b) use any liquid
filled transformers in the premises or in the building, unless consented by the
LESSOR in limiting and confirmed by an outside authoritative source to be free
of polychlorinated biphenyl's (PCB's); (c) install any underground storage tanks
unless consented by LESSOR in writing and specifically approved and certified to
be in compliance with applicable code requirements; and (d) store any unopened
containers of combustible products such as cleaning solvents in other than metal
containers and cabinets approved by LESSOR in writing.
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LESSEE shall protect, indemnify and save LESSOR and its officers,
agents, contractors and employees harmless from and against any and all
obligations, liabilities, costs, damages, claims and expenses of whatsoever
nature arising from or in connection with any violation of this Article 36. The
provisions of this Article 36 shall survive the termination of this lease.
37. FORCE MAJEUR: Landlord shall not be considered in default of any of
the terms, covenants and conditions of this Lease on Landlord's part to be
performed, if Landlord fails to timely perform any of the terms and such failure
is due in whole or in part to any strike, lockout, labor trouble (whether legal
or illegal), civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, acts of God, acts caused directly or
indirectly by Tenant (or Tenant's agents, employees or invitees) or any other
cause beyond the control of Landlord.
This lease consists of 11 pages numbered 1 to 11, identified by LESSOR
and LESSEE.
WITNESS WHEREOF, said parties hereunto subscribed their names. Executed
in two (2) originals.
LESSOR: ADDRESS:
CLO Enterprises
By: /s/ George Orfanos 933 N.E. Holcomb Dr.
---------------------------- Mundelein, IL 60060
George Orfanos
Its: General Partner
LESSEE:
Circle Group Internet, Inc.
By: /s/ Greg Halpern
----------------------------
Greg Halpern
Its: CEO
RIDER TO LEASE
This Rider To Lease is entered into this 20th day of May, 1999, by and
between CLO Enterprises as LESSOR, and CIRCLE GROUP INTERNET, INC. as LESSEE.
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Whereas Landlord and Tenant entered into a Lease dated May 20, 1999
(hereinafter the "Lease") for certain premises (hereinafter "Premises") located
at 1011 Campus Drive, Mundelein, IL 60060, commonly known as 1005-1025 Campus
Drive, Mundelein, IL 60060;
Whereas Lessor and Lessee mutually acknowledge that certain items
within the "Lease" require clarification or change;
Now Therefore Lessor and Lessee mutually agree that the this document
is attached to and shall be a part of the Lease.
1. Term of Lease shall be five (5) years commencing on the 1st day of
July, 1999 and ending on the 30th day of June, 2004.
2. Base rents shall be as follows:
Months Base Monthly Rents
------ ------------------
1-3 $2,980.00
4-6 $3,970.00
7-9 $4,965.00
10-12 $6,455.00
13-60 $6,780.00
3. Option to Renew: Lessee shall have the right to extend this Lease
for an additional five (5) year term, if the Lessee has been for the twelve
months preceding the exercise of the Option and is at the time of exercise of
the Option, a Lessee in good standing. Good Standing is the state of full
compliance with all terms and conditions of the Lease including, but not limited
to, payment of all rents due on the first day of each month. All terms and
conditions of Lease shall apply to the Option Term except that the Base Rents
shall be at "market" to be negotiated by Lessor and Lessee.
4. The Security Deposit shall be $12,693.00. This Deposit shall be
reduced to $6,347.00 if, during the first twelve months of occupancy the Lessee
has been a Lessee in good standing. If Lessee has done so, then Lessor shall, in
the thirteenth month of tenancy return to Lessee $6,346.00 of the original
Security Deposit. If required by State Statute, interest shall be paid per
Statute.
5. Possession at Beginning of Term: This Lease shall commence and
occupancy shall be provided to Lessee thirty (30) days from the date of
execution of the Lease by both Lessee and Lessor.
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6. Exhibit "A" attached hereto and made a party hereof. This drawing of
the building in which the "premises" are located indicates the "premises" as
Unit B.
7. Exhibit "B" attached hereto and made a part hereof. This drawing of
the "premises" depicts the improvements desired by the Lessee. Specifically, the
improvement of the primary entranceway; the creation of two bathrooms, one
kitchen, one hallway, one conference room and two private offices; a drop-in 2
'x 4' acoustical ceiling throughout the "premises"; electrical; lighting; and
HVAC and its distribution as appropriate.
8. Pursuant to the Letter of Proposal, dated May 19, 1999, the cost of
the restrooms shall be Lessor's cost, and Lessor shall also provide the sum of
$33,000.00 toward the cost of the improvements within the "premises". To the
extent, if any, the cost of the improvements within the "premises" (excluding
the cost of the restrooms) may exceed the sum provided by Lessor, said excess
costs shall be the sole responsibility and cost of the Lessee. Lessee shall pay
to Lessor, within seven (7) days from the date of receipt of the invoice for
such excess, if any, the full sum of such excess costs.
9. All work to the "premises" is to be performed by Carlson
Construction and/or its subcontractors at the direction of the Lessor.
10. Lessor and Less agree that from May 27, 1999 through July 26, 1999,
Lessor hereby grants to Lessee "the right of first refusal" for Unit A of the
building. This "right" shall be at a rental rate and terms to be agreed upon
within three (3) days at Lessor's notice to Lessee that Lessor has a bonafide
prospect desiring to lease Unit A. Lessor's notice to Lessee shall be in
writing. Lessee's exercise of this "right" shall be in writing. If no written
agreement for Unit A is reached within said three (3) day period then this
"right" shall automatically expire.
WITNESS WHEREOF, said parties hereunto subscribed their names. Executed
in two (2) originals.
LESSOR: LESSEE:
CLO ENTERPRISES CIRCLE GROUP INTERNET, INC.
By: /s/ George Orfanos By: /s/ Greg Halpern
---------------------- ------------------------------
George Orfanos Greg Halpern
Its: General Partner Its: Chief Executive Officer
---------------------- -----------------------------
Date: June 22, 1999 Date: June 22, 1999
13
INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made this 18th day of June, 1999, between CLO Enterprises
as LESSOR, and Circle Group Internet, Inc. as LESSEE.
LESSOR hereby leases to LESSEE, and LESSEE hereby leases from LESSOR,
the following described premises, hereinafter referred to as "the premises", in
the Village of Mundelein, County of Lake, State of Illinois.
To wit: 9,325 rentable square feet of space, within 43,493 total
rentable square feet of building space, located at 1005-1025 Campus Drive,
Mundelein, IL 60060. LESSEE's address will be 1021 Campus Drive, Mundelein, IL
60060 which will be used only for a term of five (5) years, beginning on the
15th day of August, 1999 and ending at the end of the last day of the fifth year
thereafter. LESSEE agrees to pay to LESSOR Base rents, in monthly installments
as listed below, each due and payable on the first day of each and every month
of the term hereof, in advance at, CLO Enterprises c/o George Orfanos, 933 N.E.
Holcomb Dr., Mundelein, IL 60060, or at such other place as LESSOR may designate
from time to time, in writing. LESSEE agrees to use and occupy the premises only
for the permitted use of an internet service company and for no other purpose
without LESSOR's prior written consent.
Months Base Rents per Month
------ --------------------
01-03 $ 2,200.00
04-06 $ 2,950.00
07-09 $ 3,640.00
10-12 $ 4,750.00
13-60 $ 5,100.00
LESSEE shall have the option to renew the lease term for an additional
five (5) year term provided LESSEE gives LESSOR written notice not less than six
(6) months prior to the end of the primary term, and provided LESSEE is in full
compliance and not in default of this lease at the time the renewal option is
exercised, and for each month subsequent to that date but prior to the effective
date of the option term commencement. Prior to commencement of the option term,
LESSEE shall deposit a sum sufficient to bring its total security deposit to
$5,300.00. The Base Rents for the Option terms shall be:
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<PAGE>
Months Base Rents per Month
------ --------------------
01-12 $ 5,300.00
13-24 $ 5,490.00
25-36 $ 5,680.00
37-48 $ 5,880.00
49-60 $ 6,095.00
Concurrently, with its execution of this lease, LESSEE shall deliver to
LESSOR a check in the sum of $9,512.00 as security for the performance by LESSEE
of every covenant and condition of this lease. Said deposit may be commingled
with other funds of LESSOR, and shall bear no interest. If LESSEE shall default
with respect to any covenant or condition of this lease, including, but not
limited to the payment of any sum in default or any sum which LESSOR may be
required to spend by reason of LESSEE's default, then LESSOR may use such
portion of the security deposit as necessary to cover or compensate for such
default. In the event LESSOR so uses the security deposit in part or in whole,
LESSEE will restore security deposit to the required amount upon notice of said
default plus a processing fee of $50.00 for each incident. Should LESSEE comply
with all of the covenants and conditions of this lease, the security deposit or
any balance thereof shall be returned to LESSEE at the expiration of the term
thereof subject to Article 35.
LESSOR and LESSEE further agree as follows:
1. POSSESSION AT BEGINNING OF TERM: LESSEE shall be entitled to
possession of the premises when the "work" (as defined in Exhibit "A") is
"substantially completed" (as defined in Exhibit "A") subject to early access to
the premises by LESSEE as provided under Article 7 of Exhibit "A") LESSOR shall
use due diligence to give possession as nearly as possible at the beginning of
the lease term of this lease which is August 15, 1999, and rent shall abate pro
rate for the period of delay in so doing. LESSEE shall make no other claim
against LESSOR for any such delay.
2. INSURANCE: LESSEE shall pay LESSOR as additional rent its pro rata
share of the building insurance in monthly installments equal to 1/12th of the
most recent insurance premium. LESSOR shall notify LESSEE on the anniversary
date of the insurance policy if any adjustments are required to the monthly
installments and provide LESSEE copy of the insurance premium evidencing said
adjustment. LESSEE shall comply with all insurance regulations so the lowest
fire, lightning, explosion, extended coverage and liability insurance rates may
be obtained; and nothing shall be done or kept in or on the premises for any of
such insurance on the premises or on any building of which the premises are a
part or any contents located therein, over the rate usually obtained for the
proper use of the premises permitted by this lease or which will cause
cancellation of any such insurance.
If during the term of this lease the annual premium for fire
and (what is commonly known as) extended coverage insurance increases due to
LESSEE's use within
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<PAGE>
the premises. then LESSEE shall pay, as additional rent, the amount of such
increase, which amount shall be payable within (10) ten days from the date of
LESSOR's notice of an amount so due hereunder.
3. INDEMNITY AND PUBLIC LIABILITY: LESSEE covenants at all times to
save LESSOR harmless from all loss, liability, cost or damages that may occur or
be claimed with respect to any person or persons, corporation, or property on or
about the premises or to the property itself resulting from any att done or
omission by or through the LESSEE, its agents, employees, invitees, or any
person on the premises by reason of LESSEE's use of property and all loss, cost,
liability, or expense resulting there from up to the limits of liability
insurance required by this lease. LESSEE further covenants and agrees to
maintain at all times, during the term of this lease, comprehensive public
liability insurance in which the premises am located and satisfactory to LESSOR,
properly protecting and indemnifying LESSOR in an amount of not less than TWO
MILLION DOLLARS ($2,000,000.00). combined single limit for bodily injury or
property damage. LESSEE shall furnish LESSOR with a current certificate or
certificate of insurance, coverage such insurance so maintained by LESSEE. These
copies or certificate shall include an endorsement which states that such
insurance shall not be cancelled without thirty days prior written notice to
LESSOR. LESSOR shall be named as additional insured on the liability insurance
policy. LESSEE shall carry adequate workmen's compensation insurance and also
provide evidence of said insurance to LESSOR.
4. ASSIGNMENT AND SUBLEASE: LESSEE shall not assign, transfer or
encumber this lease and shall nol sublease the premises or any part thereof or
allow any other person to be in possession thereof without the prior written
consent of LESSOR, in each and every instance, which consent or consents shall
not he unreasonably withheld.
5. SIGNS AND ADVERTISEMENTS: LESSEE shall not put upon nor permit to be
put upon any part of the premises, any signs, billboards or advertisements
whatever, without the prior written consent of LESSOR.
6. ACCEPTANCE, MAINTENANCE AND REPAIR: LESSEE has inspected and knows
the condition of the premises and accepts the same in their present condition
(subject to ordinary wear, tear, and deterioration in the event the term
commences after the date hereof and to the rights of present of former occupant
or occupants, if any, to remove movable property). LESSOR shall take good care
of the premises and the equipment and fixtures therein (including but not
limited to replacement of parts and components of heating and air conditioning
equipment and by maintaining records of semi-annual maintenance checks by a
qualified technician) and shall keep the same in good working order and
condition, including particularly but not limited to protecting water pipes,
heating and air conditioning equipment. plumbing. windows, doors, frames, dock
bumpers, fixtures, appliances, and sprinkler system from becoming frozen or
being damaged, and shall keep the premises and the approaches, sidewalks.
parking areas, landscaped areas and the alleys adjacent thereto, if any. clean.
sightly and free from ice and snow LESSEE shall pay as additional rent its pro
rata share of maintenance and repairs in monthly
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<PAGE>
installments equal to 1/12th of the most recent maintenance and repair expenses
or mutually agreed upon estimate provided by LESSOR. At the expiration of the
term, LESSEE shall surrender the premises broom clean, in as good condition as
the reasonable use thereof will permit. All damage or injury to the premises not
caused by fire or other casualty and all damage to glass. windows, walls.
ceilings, flooring and doors shall be promptly repaired by the LESSEE.
7. LESSOR'S RIGHT OF ENTRY: LESSOR or LESSOR's agent may enter the
premises at reasonable hours to examine the premises and to do anything LESSOR
may be required to hereunder or which LESSOR may deem necessary for the good of
the premises or any building of which they are a part; and, during the last 180
days of this lease, LESSOR may display a "For "Rent" sign on, and show the
premises.
8. PARKING LOT MAINTENANCE: LESSOR shall be responsible for maintenance
of the parking lot and common areas including snow removal. cleaning, repainting
and repairs. LESSEE shall pay, as additional rent its pro rata share of the
parking lot maintenance and common areas, including snow removal etc., in
monthly installments equal to 1/12th of the most recent parking lot maintenance
and snow removal expenses or mutually agreed upon estimates provided by LESSOR.
LESSEE shall insure that the parking lot is not damaged by placement or movement
of trash containers or the dollies on semitrailer trucks and LESSEE shall be
responsible for the repair of same during the term of the lease and upon
termination thereof. LESSEE understands and agrees that no personal or business
property shall be stored in the parking area or any place outside the building.
LESSEE shall not permit its employees, customers, agents, contractors or vendors
to utilize more than ____ parking spaces in the parking area immediately
adjacent to the premises.
9. MAINTENANCE AND REPAIR BY LESSOR: LESSOR shall keep in repair,
ordinary wear and tear excepted, the roof and exterior walls (exclusive of
inside surfaces), gutters and downspouts of the building in which the premises
are a pam except as to damage arising from the negligence of the LESSEE, but
nothing herein shall be construed as requiring LESSOR to repair any front or
other part installed by the LESSEE. LESSOR reserves the right to the exclusive
use of the roof and exterior walls which LESSOR is so obligated to repair.
10. DAMAGE BY CASUALTY: In case, during the term created or previous
thereto, the premises hereby let, or the building of which said premises are a
part, shall be destroyed or shall be so damaged by fire or other casualty as to
become untenantable, then in such event, at the option of the LESSOR, the term
hereby created shall cease, and this lease shall become null and void from the
date of such damage or destruction and the LESSEE shall immediately surrender
said premises and all interest therein to LESSOR, and LESSEE shall pay rent
within said term only to the time of such surrender, provided, however, that
LESSOR shall exercise such option to so terminate this lease by notice in
writing delivered to LESSEE within thirty days after such damage or destruction.
In case LESSOR shall not so elect to terminate this lease, in such event, this
lease shall continue
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in full force and effect and the LESSOR shall repair the premises with all
reasonable promptitude, placing the same in as good a condition as they were at
the time of the damage or destruction, and for that purpose may enter said
premises and rent shall abate in proportion to the extent and duration of
untenantability. In either event LESSEE shall remove all rubbish, debris,
merchandise, furniture, equipment and other of its personal property, within
five days after the request of the LESSOR. If the premises shall be but slightly
injured by fire or other casualty, so as not to render the same untenantable and
unfit for occupancy, then the LESSOR shall repair the same with all reasonable
promptitude, and in that case the rent shall not abate. No compensation or claim
shall be made by or allowed to the LESSEE by reason of any inconvenience or
annoyance arising from the necessity of repairing any portion of the building or
the premises, however the necessity may occur.
11. PERSONAL PROPERTY: LESSOR shall not be liable for any loss or
damage to any merchandise, personal or business properly in or about the
premises, regardless of the cause of such loss or damage.
12. ALTERATIONS: LESSEE shall not make any alterations or additions in
or to the premises without the prior written consent of LESSOR.
13. UTILITIES AND SERVICES: LESSEE shall famish and pay for all
electricity, gas, water, fuel and any services or utilities used in or assessed
against the premises including, but not limited to, any charges for the burglar
and fire monitoring systems which shall include line and installation charge; if
necessary, unless otherwise herein expressly provided.
14. PUBLIC REQUIREMENTS: LESSEE shall comply with all laws, orders,
ordinances, and other public requirements now or hereafter affecting the
premises or the use thereof, and save LESSOR harmless from expense or damage
resulting from failure to do so.
15. MULTIPLE TENANT BUILDINGS: If the premises area a part of a
multiple tenant building, it is understood that the responsibility of LESSEE for
additional rent as called for in Articles 2, 6, 8 and 17 of this lease shall be
a percentage of the total square feet of building space (43,493 Sq. Ft.) divided
by the rentable area occupied by LESSEE (9,325 Sq. Ft.). LESSEE shall pay LESSOR
for LESSEE's pro rata share of said expenses stated in Articles 2, 6, 8 and 17
of this Lease. LESSEE's pro rata share is 21.44%. LESSEE agrees to conduct its
business in a manner that will not be objectionable to other tenants in the
building of which the premises are a part, including, noise, vibration, odor, or
fumes. In the event LESSOR receives complaints from other tenants in the
building and determines, in its sole and reasonable judgment, that LESSEE is
conducting Its operations in a manner objectionable to other tenants, LESSEE
agrees, upon written notice from LESSOR, to promptly modify the conduct of its
operations to eliminate such objectionable operations.
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16. FIXTURES: All buildings, repairs, alterations, additions,
improvements, installations, and any other fixtures by whomsoever installed or
erected (except such business trade fixtures and equipment belonging to LESSEE
as can be removed without damage to or leaving incomplete the premises or
building) shall belong to LESSOR and remain on and be surrendered with the
premises as a part thereof at the expiration of this lease or any extension
thereof.
17. REAL ESTATE TAXES: LESSEE shall pay as additional rent Its pro rata
share of real estate taxes, both general and special, including the expense of
protesting, negotiating or contesting the amount or validity of any such taxes,
payable with respect to the leased premises during any lease year. LESSEE shall
pay to LESSOR monthly installments in the amount of 1/12th of the most recent
real estate tax bill or 1/12th of LESSOR's reasonable estimate of the next tax
bill sum. LESSOR shall notify LESSEE on the anniversary date of the tax bill if
any adjustments are required to the monthly installments and provide LESSEE a
copy of the tax bill evidencing said adjustment.
18. EMINENT DOMAIN: If the premises or any substantial part thereof
shall be taken by any competent authority under the power of eminent domain or
be acquired for any public or quasi-public use or purpose, the term of this
lease shall cease and terminate upon the date when the possession of said
premises of the part thereof so taken shall be required for such use of purpose
and without apportionment of the award, and LESSEE shall have no claim against
LESSOR for the value of any unexpired term of this lease, If any condemnation
proceeding shall be instituted in which it is sought to take or damage any part
of LESSOR's building of the land under it or if the grade of any street or alley
adjacent to the building is changed by any competent authority and such change
of grade makes it necessary or desirable to remodel the building to conform to
the changed grade, LESSOR shall have the right to cancel this lease after having
given written notice of cancellation to LESSEE not less than ninety (90) days
prior to the date of cancellation designated in the notice. In either of said
events rent at the then current rate shall be apportioned as of the date of the
termination. No money or other consideration shall be payable by the LESSOR to
the LESSEE for the right of cancellation and the LESSEE shall have no right to
share in the condemnation award or in any judgment for damages caused by the
taking or the change of the grade Nothing in this paragraph shall preclude an
award being made to LESSEE for loss of business or depreciation to and cost of
removal of equipment or fixtures.
19. WAIVER OF SUBROGATION: As part of the consideration for this lease
each of the parties hereto hereby releases the other party hereto from all
liability for damage due to any act or neglect of the other party (except as
hereinafter provided) occasioned to property owned by said parties which is or
might be incident to or the result of a fire or any other casualty against loss
for which either of the panties is now carrying or hereafter may carry
insurance; provided, however, that the releases herein contained shall not apply
to any loss or damage occasioned by the willful, wanton, or premeditated
negligence of either of the parties hereto, and the parties hereto further
covenant that any insurance that they obtain on their respective properties
shall contain an appropriate
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provision whereby the insurance company, or companies, consent to the mutual
release of liability contained in this paragraph.
20. DEFAULT AND REMEDIES: In the event: (a) LESSEE fails to comply with
any term, provision, condition, or covenant of this lease; (b) LESSEE deserts or
vacates the premises; (c) any petition is filed by or against LESSEE under any
section or chapter of the Federal Bankruptcy Act, as amended, or under any
similar law or statute of the United States or any state thereof, (d) LESSEE
becomes insolvent or makes a transfer in fraud of creditors; (e) LESSEE makes
any assignment for benefit of creditors; or (f) a receiver is appointed for
LESSEE or any of the: assets of LESSEE, then in any of such events LESSEE shall
be in default and, LESSOR shall have the option to do any one or more of the
following upon ten (10) days prior written notice, excepting the payment of rent
or additional rent for which no demand or notice shall be necessary, in addition
to and not in limitation of any other remedy permitted by law; to enter upon the
premises or any part thereof either with or without process of law, and to
expel, remove and put out LESSEE or any other persons who might be thereon,
together with all personal property found therein; and, LESSOR may terminate
this lese or it may from time to time, without terminating this lease, rent said
premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this lease) and at such rental or rentals and upon
such other terms and conditions as LESSOR in its sole discretion may deem
advisable, with the right to repair, renovate, remodel, redecorate, alter and
change said premises. At the option of LESSOR, rents received by LESSOR from
such reletting shall be applied first to the payment of any indebtedness from
LESSEE to LESSOR other than rent and additional rent due hereunder, second, to
payment of any costs and expenses of such reletting including but not limited to
attorneys' fees, advertising fees, and brokerage fees, alterations and changes
in the premises; third, to the payment of rent and additional rent due and
payable hereunder and interest thereon, and if after applying said rentals there
is any deficiency in the rent and additional rent and interest to be paid by
LESSEE under this lease, LESSEE shall pay any such deficiency to LESSOR and such
deficiency shall be calculated and collected by LESSOR monthly. No such re-entry
or taking possession of said premises shall be construed as an election of
LESSOR's part to terminate this lease unless a written notice of such intention
be given to LESSEE. Notwithstanding any such reletting without termination,
LESSOR may at any time thereafter elect to terminate this lease for such
previous breach and default. Should LESSOR at any time terminate this lease by
reason of any default, in addition to any other remedy it may have, it may
recover from LESSEE the worth at the time of such termination of the excess of
the amount of rent and additional rent reserved in this lease for the balance of
the term hereof over the then reasonable rental value of the premises for the
same period LESSOR shall have the right and remedy to seek redress in the courts
at any time to correct or remedy any default of LESSEE by injunction or
otherwise. Without such resulting or being deemed a termination of this lease,
and LESSOR, whether this; lease has been or is terminated or not shall have the
absolute right by court action or otherwise to collect any and all amounts of
unpaid rent or unpaid additional rent reserved in this lease for the balance of
the term hereof over the then reasonable rental value of the premises for the
same period LESSOR shall have the right and remedy to seek redress in the courts
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at any time to correct or remedy any default of LESSEE by injunction or
otherwise, without such resulting or being deemed a termination or not, shall
have the absolute right by court action or otherwise to collect any and all
amounts of unpaid rent or unpaid additional rent or any other sums due from
LESSEE to LESSOR under this lease which were or are unpaid at the date of
termination. In case it should be necessary for LESSOR to bring any action under
this lease, to consult or place said lease or any amount payable by LESSEE
hereunder with an attorney concerning or for the enforcement of any LESSOR's
rights hereunder, the LESSEE agrees in each and any such rise to pay to LESSOR,
LESSOR's reasonable attorney's fees.
21. WAIVER: The rights and remedies of the LESSOR under this lease, as
well as those provided or accorded by law, shall be cumulative, and none shall
be exclusive of any other rights or remedies hereunder allowed by law. A waiver
by LESSOR of any breach or breaches, default or defaults of LESSEE hereunder
shall not be deemed or construed to be a continuing waiver of such breach or
default nor as a waiver of or permission, expressed or implied, for any
subsequent breach or default, and it is agreed that the acceptance by LESSOR of
any installment of rent subsequently to the daw the same should have been paid
hereunder, shall in no manner alter or affect the covenant and obligation of
LESSEE to pay subsequent installments of rent promptly upon the due date thereof
No receipt of money by LESSOR after the termination in any way of this lease
shall reinstate, continue or extend the term above demised.
22. NOTICES: Any notice hereunder shall be sufficient if sent by
registered or certified mail, addressed to LESSEE at the premises, and to LESSOR
where rent is payable.
23. SUBORDINATION: In the event LESSOR holds title to said premises by
virtue of a lease, then this sublease is and shall remain subject to all of the
terms and conditions of such underlying lease so far as shall be applicable to
the premises herein leased. This lease shall also be, subject and subordinate in
law and equity to any existing or future mortgage or deeds of trust placed by
LESSOR upon the leased premises or the building of which the premises form a
part.
24. SUCCESSORS: The provisions, covenants, and conditions of this lease
shall bind and inure to the benefit of the legal representatives, heirs,
successors and assigns of each of the parties hereto, except that no assignment
or subletting by LESSEE without the written consent of LESSOR shall vest any
right in the assignee or sublessee of the LESSEE.
25. QUIET POSSESSION: LESSOR agrees that so long as LESSEE fully
complies with all of the terms, covenants and conditions herein contained on
LESSEE's part to be kept and performed, LESSEE shall and may peaceably and
quietly have, hold and enjoy the said premises for the term aforesaid, it being
expressly understood and agreed that the aforesaid covenant of quiet enjoyment
shall be binding upon the LESSOR,
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its heirs, successors, or assigns. LESSOR further covenants and represents that
LESSOR has full right, title, power and authority to make, execute and deliver
the lease.
26. BANKRUPTCY: Neither this lease nor any interest therein nor any
estate hereby created shall pass to any trustee or receiver in bankruptcy or to
any other receiver or assignee for the benefit of creditors by operation of law
or otherwise during the term of this lease or any renewal thereof.
27. ENTIRE AGREEMENT: This lease contains the entire agreement between
the parties, and no modification of this lease shall be binding upon the parties
unless evidenced by an agreement in writing signed by the LESSOR and the LESSEE
after the date hereof If there be more than one LESSEE named herein, the
provisions of this lease shall be applicable to and binding upon such LESSEE's
jointly and separately.
28. ESTOPPEL CERTIFICATE BY LESSEE: LESSEE further agrees at anytime
and from time to time, upon not less than twenty (20) days prior written request
by LESSOR, to execute, acknowledge and deliver to LESSOR a statement in writing
certifying that this lease is unmodified and ir full force and effect (or if
there have been modifications that the same is in full force and effect as
modified, and stating the modifications), and the date to which the rental and
other charges have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this paragraph, may be relied upon by any
prospective purchaser upon the fee, of the demised premises.
29. LESSEE: From time to time during the term of this lease and for a
reasonable purpose, LESSEE shall provide to LESSOR copies of its audited or
certified financial statements within thirty (30) days from LESSOR's written
request.
30. LIENS AND ENCUMBRANCES: LESSEE shall not perform any act which
shall in any way encumber the title of LESSOR in and to the Leased Premises or
the Real Estate, nor shall the interest or estate of LESSOR in the Leased
Premises or the Real estate be in any way subject to any claim by way of lien or
encumbrance, whether by operation of law or by virtue or any express or implied
contract by LESSEE. Any claim to, or lien upon, the Leased Premises or the Real
Estate arising from any act or omission of LESSEE shall accrue only against the
leasehold estate of LESSEE and shall be subject and subordinate to the paramount
title and rights of LESSOR in and to the Leased Premises or the Real Estate.
Should the Leased Premises or the Real Estate become subject to any mechanics,
laborers' or materialmen's lien on account of labor or material furnished to
LESSEE or claimed to have been furnished to LESSEE in connection with work of
any character performed or claimed to have been performed on the Leased Premises
by, or at the direction or sufferance of, LESSEE, and in case of filing of any
such lien, LESSEE will promptly pay same, provided, however, that LESSEE shall
have the right to contest in good faith and with reasonable diligence, the
validity of any such lien or claimed lien if LESSEE shall give to LESSOR such
security as may be deemed satisfactory to LESSOR to insure payment thereof and
to prevent a sale, foreclosure, or forfeiture of the Leased Premises or the Real
Estate by mason of non-payment thereof, provided
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further, however, that on final determination of the lien or claim for lien,
LESSEE shall immediately pay any judgment rendered, with all proper costs and
charge, and shall have the lien released and any judgment satisfied.
31. HOLDING OVER: In the event of a holding over by LESSEE after
expiration of termination of this lease without the written consent of the
LESSOR, LESSEE shall be deemed a LESSEE at sufferance and shall pay as
liquidated damages, double rent for the entire holdover period and any and all
damages incurred by LESSOR's inability to deliver premises to any future
contracted tenant and all attorney's fees and expenses incurred by LESSOR in
enforcing its rights hereunder.
32. COMMON AREAS: LESSEE agrees to conform with any reasonable rules
and regulations LESSOR may establish from time to time in connection with use of
the common areas, including those concerning the parking area, driveways,
landscaping and loading docks.
33. JANITORIAL SERVICE AND GARBAGE REMOVAL: LESSEE at its own expense
shall provide its own janitorial service and garbage removal. LESSEE shall not
permit the undue accumulation of debris in the premises or in any area
immediately adjoining the premises. Dumpsters will be stored within the
designated area of the premises prior to and immediately following trash
removal.
34. LATE CHARGE: LESSEE will pay to LESSOR a late charge of five
percent (5%) on any amount owing to LESSOR hereunder which is not paid when due.
The late charge will represent a fair and reasonable estimate of the cost LESSOR
will incur because of LESSEE's late payment. Additionally LESSOR may charge
LESSEE interest for any sum pas due, with such interest rate charged being five
percent (5%).
35. ADJUSTED RENTAL: After delivery of LESSOR's notice as provided in
Articles 2, 6, 8 and 17, and determination of the amount of LESSEE's pro rata
share of taxes, insurance, maintenance and other expenses due upon notice, if
any, the monthly installment of rent then being paid by LESSEE shall be
increased by 1/12th of the amount of LESSEE's pro rata share of LESSOR's
reasonable estimate of the next billing amount The adjusted monthly rental as
determined by the preceding sentence shall be paid by LESSEE until receipt by
LESSEE of LESSOR's notice the next succeeding calendar year, If the term of this
lease ends on other than the last day of a calendar year, LESSEE's pro rata
share shown on the notice delivered after the end of the term shall be reduced
proportionately and any payment due shall also be apportioned and paid as
aforesaid.
36. ENVIRONMENTAL: LESSEE shall not in the premises or the building
generate, store, handle, release, discharge or otherwise seal with any material
classified as a "hazardous material" for purpose of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended from time to time, or any other similar or related federal, state or
local statutes, rules, regulations or ordinances. Without limiting the,
generality of the foregoing, LESSEE expressly covenants and agrees
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that it shall not, nor LESSEE shall permit anyone to (a) use asbestos or any
asbestos containing materials in the premises or in the building; (b) use any
liquid filled transformers in the premises or in the building, unless consented
by the LESSOR in limiting and confirmed by an outside authoritative source to be
free of polychlorinated biphenyl's (PCB's); (c) install any underground storage
tanks unless consented by LESSOR in writing and specifically approved and
certified to be in compliance with applicable code requirements; and (d) store
any unopened containers of combustible products such as cleaning solvents in
other than metal containers and cabinets approved by LESSOR in writing.
LESSEE shall protect, indemnify and save LESSOR and its officers,
agents, contractors and employees harmless from and against any and all
obligations, liabilities, costs, damages, claims and expenses of whatsoever
nature arising from or in connection with any violation of this Article 36. The
provisions of this Article 36 shall survive the termination of this lease.
37. FORCE MAJEUR: Landlord shall not be considered in default of any of
the terms, covenants and conditions of this Lease on Landlord's part to be
performed, if Landlord fails to timely perform any of the terms and such failure
is due in whole or in part to any strike, lockout, labor trouble (whether legal
or illegal), civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, acts of God, acts caused directly or
indirectly by Tenant (or Tenant's agents, employees or invitees) or any other
cause beyond the control of Landlord.
This lease consists of 7 pages numbered 1 to 7, identified by LESSOR
and LESSEE.
WITNESS WHEREOF, said parties hereunto subscribed their names. Executed
in two (2) originals.
LESSOR: ADDRESS:
CLO Enterprises
By: /s/ George Orfanos 933 N.E. Holcomb Dr.
- --- ------------------ --------------------
George Orfanos Mundelein, IL 60060
Its: General Partner
LESSEE:
Circle Group Internet, Inc.
By: /s/ Greg Halpern
- --------------------
Greg Halpern
Its: CEO
11
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RIDER TO LEASE
This Rider To Lease is entered into this 22nd day of June, 1999, by and
between CLO Enterprises as LESSOR, and CIRCLE GROUP INTERNET, INC. as LESSEE.
Whereas Landlord and Tenant entered into a Lease dated June 18, 1999
(hereinafter the "Lease") for certain premises (hereinafter "Premises") located
at 1021 Campus Drive, Mundelein, IL, within the property commonly referred to as
1005-1025 Campus Drive, Mundelein, IL.
Whereas Landlord and Tenant mutually acknowledge that certain items
within the "Lease" require clarification or change, therefore such
clarifications and changes are listed herein below.
Now Therefore Landlord and Tenant mutually agree that the this document
is attached to and shall be a part of the Lease.
1. If required by statute, LESSOR shall pay to LESSEE interest on
security deposit.
2. If the LESSEE is a tenant in good standing, not in default of any
lease terms and conditions for the first twelve months of the lease term, LESSOR
will refund 50% of the security deposit within thirty (30) days, of the end of
the first one year tenancy.
3. The demising wall between the premises (Unit A on Exhibit "A') and
the adjoining Unit B shown on Exhibit "A" shall not be constructed as LESSEE is
also the LESSEE for Unit B.
4. LESSEE shall submit to LESSOR, along with the security deposit
referenced in the lease, the sum of $2,200.00 which is the first months Base
Rents.
5. LESSOR shall, prior to the occupancy, provide to LESSEE that sum
which LESSEE shall pay each month, along with the Base Rent, pursuant to
paragraph 6 on page 2 of the lease.
6. LESSOR shall provide to LESSEE an allowance of $23,313.00 for
improvements to premises.
7. The "work" referenced on page 1, paragraph numbered 1 is not shown
on Exhibit "A". The "work" shall consist of:
Concrete floor, 18 feet clear to ceiling, sprinklered per village code,
400 amp service to space (not distributed), 2 drive-in doors (already
in place), gas heat for standard industrial premises.
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8. LESSEE shall provide to LESSOR as soon as possible, all information
needed by LESSOR to enable LESSOR to complete the premises to include LESSEE's
improvements which exceed the building standards being provided by LESSOR as
described in item 7 above.
9. LESSOR and LESSEE recognize that local government requirements pose
time constraints for LESSOR to complete the referenced improvements, therefore,
each shall make reasonable efforts to take steps necessary to insure completion
of the premises as promptly as possible.
WITNESS WHEREOF, said parties hereunto subscribed their names. Executed
in originals.
LESSOR: LESSEE:
CLO ENTERPRISES CIRCLE GROUP INTERNET, INC.
By: /s/ George Orfanos By: /s/ Greg Halpern
- ---------------------- --------------------
George Orfanos Greg Halpern
Its: General Partner Its: Chief Executive Officer
Date: June 22, 1999 Date: June 22, 1999
13
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to that certain Stock Purchase Agreement (this
"Amendment") between the shareholders (the "Sellers") of On-Line Bedding
Corporation formerly known as HOS -Pillow Corporation, an Illinois Corporation
("On-Line Bedding") and Circle Group Internet, Inc., an Illinois corporation
("CGI"), is made this 17th day of September, 1999.
WITNESSETH:
WHEREAS, the Sellers and CGI are parties to a Stock Purchase Agreement,
(the "Original Stock Purchase Agreement") with respect to the purchase and sale
of the common stock of On-Line Bedding;
WHEREAS, the Original Stock Purchase Agreement was entered into on
January 29, 1999 and to be effective as of January 2, 1999 as provided in
Section 6 thereof;
WHEREAS, pursuant to a scrivener's error, the first paragraph of the
Original Stock Purchase Agreement inaccurately stated the Closing Date or
execution date was January 2, 1999;
WHEREAS, the parties wish to amend the Original Stock Purchase
Agreement to clarify that the Closing Date or execution date was January 29,
1999 and the Effective Date was January 2, 1999; and
WHEREAS, the Purchaser and Seller desire to amend the Original Stock
Purchase Agreement to reflect this chang.
NOW THEREFORE, theCGI and Sellers, intending to be legally bound, agree
as follows:
1. Amendment to Sentence 1 of Paragraph 1. The first sentence of the
first paragraph of the Original Stock Purchase Agreement is hereby amended by
changing the Closing Date from the 2nd to the 29th, and shall read in its
entirety as follows:
"THIS STOCK EXCHANGE AGREEMENT (the "Agreement') is made this
29th 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")."
2. Effect of Amendment. In the event of any inconsistency between this
Amendment and the Original Purchase Agreement, this Amendment shall govern.
Except as amended by this Amendment, the Original Purchase Agreement shall
remain in full force and effect.
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IN WITNESS WHEREOF,CGI and the Sellers have executed this Amendment as
of the date first above written.
Sellers:
By:/s/ Edward Halpern
---------------------
Edward Halpern
By:/s/ Dianne Halpern
---------------------
Dianne Halpern
CIRCLE GROUP INTERNET, INC., an Illinois
corporation:
By:/s/ Gregory Halpern
-----------------------
Gregory Halpern, Chief Executive
Officer and President
2
SECURED PROMISSORY NOTE
-----------------------
$935,000 Mundelein, Florida
August 1, 1999
FOR VALUE RECEIVED, GREGORY HALPERN ("Maker") promises to pay to the
order of CIRCLE GROUP INTERNET, INC. ("Holder"), in lawful money of the United
States of America in immediately available funds, the principal sum of NINE
HUNDRED THIRTY FIVE THOUSAND AND NO/100 DOLLARS ($935,000), together with
interest on the unpaid principal balance from the date hereof until paid in full
at the rate of 8% per annum (the "Interest Rate").
This Secured Promissory Note is the "Promissory Note" referred to and
provided for in the Mortgage dated August 6, 1999 between Maker and Holder
executed concurrently herewith. Capitalized terms used in this Note and not
otherwise defined herein shall have the meanings given to such terms in the
Mortgage. This Note, and the indebtedness and obligations evidenced hereby, are
secured by the Mortgage.
The principal balance hereof, together with interest thereon, shall be
paid in full four (4) months from the date hereof as follows:
(i) Commencing September 6, 1999, and the same day of each succeeding
month thereafter, Maker shall pay to Holder interest only
payments of $6,233.33 per month in four (4) equal monthly
installments.
(ii) The principal balance shall be due and payable in full on
December 6, 1999.
To the extent not sooner paid, the entire unpaid principal balance,
together with all accrued interest and all other sums payable hereunder, shall
be due and payable in full by no later than 5:00 p.m. local time on December 6,
1999 (the "Maturity Date"). In the event this Note is not paid in full by the
Maturity Date, the principal balance due hereunder shall accrue interest
thereafter at the lesser of 18% per annum or the highest rate of interest per
annum permitted by law ("Maximum Rate").
This Note may be prepaid in whole or in part at any time without
penalty.
All payments under this Note shall be made to Holder at the address
specified in the Agreement, or to such other place or in such other manner as
may be designated by written notice from Holder to the Maker.
In the event of a default in the payment of any sums due from Maker to
Holder under this Note, or in the case of a default under the Agreement, Holder
shall notify Maker, by certified United
<PAGE>
States mail, return receipt requested, of the occurrence of such default, and
Holder shall provide Maker a 15 day opportunity to cure such default, such time
period to run from the date of delivery of such notice of default. After notice
of default is provided and expiration of the 15 day period without such default
having been cured by Maker, then the entire principal sum shall at the option of
the Holder become at once due and payable; and said principal sum shall bear
interest from such time until paid at the Maximum Rate. Failure to exercise this
option shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default.
Maker agrees to pay all costs, including reasonable attorneys' and
paralegals' fees and expenses, whether or not suit is brought, if, after
maturity of this Note or after default hereunder or under the Agreement, counsel
shall be employed to collect this Note or to enforce the Mortgage.
Time is of the essence for the performance and observance of each
agreement and obligation of Maker under this Note.
Maker and all sureties, endorsers and guarantors, or other parties now
or hereafter liable for any of the obligations evidenced herein severally waive,
for themselves and their representatives, heirs, successors and assigns, (i)
presentment, demand, protest and notice, including notice of nonpayment, of
default, of intent to accelerate and of acceleration, and (ii) the benefit of
marshalling, election or remedies, valuation, appraisal and exemption laws.
In the event of a default under this Note, Holder may pursue the rights
and remedies inuring to the Holder hereunder, under the Mortgage or at law or in
equity.
In the event any one or more of the provisions contained in this Note
shall for any reason be held to be invalid, illegal or unenforceable, such
invalid, illegal or unenforceable provisions shall not affect any other
provision of this Note, and this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
This Note shall be governed by and construed in accordance with the
laws of the State of Illinois.
Neither the Maker nor the Holder shall seek a jury trial on any
lawsuit, proceeding, or counterclaim based upon, or arising out of this Note, or
the relationship between the Maker and Holder. If the subject matter of any such
lawsuit is one in which the waiver of a jury trial is prohibited, neither the
Maker nor Holder shall present as a counterclaim in such a lawsuit, any claim
arising out of this Note. Furthermore, neither the Maker nor Holder shall seek
to consolidate any such action in which a jury trial has been waived, with any
such action in which a jury trial cannot be waived. The Maker hereby certifies
that no representative or agent of Holder, nor Holder's counsel, has
represented, expressly or otherwise, that Holder would not, in the event of such
litigation, seek to enforce this waiver of right to jury trial provision. The
Maker acknowledges that the provisions of this paragraph are a material
inducement to Holder's acceptance of this Note.
2
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note on the
date first written above. Maker:
By: /s/ Gregory Halpern
-----------------------
Gregory Halpern
3
MORTGAGE
THIS INDENTURE, Made this 6th day of August, 1999, between GREGORY J.
HALPERN and KAREN S. HALPERN, husband and wife, Mortgagor, and CIRCLE GROUP
INTERNET, INC., a corporation organized and existing wider the laws of the state
of Illinois Mortgagee.
WITNESSETH: That whereas the Mortgagor is justly indebted to the
Mortgagee, as is evidenced by a certain promissory note bearing even date
herewith, in the principal sum of
NINE HUNDRED AND THIRTY FIVE THOUSAND
______________________________________________________Dollars
($ 935,000.00)
payable with interest at the rate of EIGHT per centum ( 8.00 %)
per annum on the unpaid balance until paid, and made payable to the order of the
Mortgagee at its office in Mundelein, IL or at such other place as the holder
may designate in writing, and delivered; the said principal and interest being
payable in monthly installments of n/a Dollars
( O.00 ) on the first day of _______n/a_______, 19__, and a like sum on the
first day of each and every month thereafter until the note is fully paid,
except that the final payment of principal and interest, if not sooner paid,
shall be due and payable on August 6, 2000.
NOW, THEREFORE, the said Mortgagor, for the better securing of the
payment of the said principal sum of money and interest and the performance of
the covenants and agreements herein contained, does by these presents MORTGAGE
and WARRANT unto the Mortgagee, its successors or assigns, the following
described Real Estate situate, lying, and being in the county of
Lake and the State of Illinois, to wit:
Lot 31 in Pebble Beach Subdivision, being a resubdivision of Lot 11 in Gregg's
Landing North Subdivision, in Section 29, Township 44 North, Range 11, East of
the Third Principal Meridian, according to the Plat of Resubdivision recorded
April 30, 1997 as Document 3961809, in Lake County, Illinois.
P.I.N. 11-29-405-010
Commonly known as 1713 Player Court Vernon Hills, IL 60061
<PAGE>
TOGETHER with all and singular the tenements, hereditaments and
appurtenances thereunto belonging, and the rents, issues, and profits thereof,
and all apparatus and fixtures of every kind for the purpose of supplying or
distributing heat, light, water, or power, and all plumbing and other fixtures
that may be placed in, any building now or hereafter standing on said land, and
also all the estate, right, title, and interest of the said Mortgagor in and to
said premises.
TO HAVE AND TO HOLD the above-described premises, with the
appurtenances and fixtures, unto the said Mortgagee, its successors and assigns,
forever, for the purposes and uses herein set forth, free from all rights and
benefits under and by virtue of the Homestead Exemption Laws of the State of
Illinois, which said rights and benefits the said Mortgagor does hereby
expressly release and waive.
AND SAID MORTGAGOR covenants and agrees:
not to do, or permit to be done, upon said premises, anything that may
impair the value thereof, or of the security intended to be effected by virtue
of this instrument; not to suffer any lien of mechanics men or material men to
attach to said premises; to pay to the Mortgagee as hereinafter provided, until
said note is fully paid, (1) a sum sufficient to pay all taxes and assessments
on said premises, or any tax or assessment that may be levied by authority of
the State of Illinois, or of the county, town, village, or city in which the
said land is situate, upon the Mortgagor on account of the ownership thereof;
(2) a sum sufficient to keep all buildings that may at any time be on said
premises, during the continuance of said indebtedness, insured for the benefit
of the Mortgagee in such forms of insurance, and in such amounts, as may be
required by the Mortgagee.
In case of the refusal or neglect of the Mortgagor to make such
payments, or to satisfy any prior lien or encumbrance other than that for taxes
or assessments on said premises, or to keep said premises in good repair, the
Mortgagee may pay such taxes, assessments, And insurance premiums, when due, and
may make such repairs to the property herein mortgaged as in its discretion it
may deem necessary for the proper thereof, and any moneys so paid or expended
shall become so much additional indebtedness, secured by this mortgage, to be
paid out of proceeds of the sale of the mortgaged premises, if not otherwise
paid by the Mortgagor.
It is expressly provided, however (all other provisions of this
mortgage to the contrary notwithstanding), that the Mortgagee shall not be
required nor shall it have the right to pay, discharge, or remove any tax,
assessment, or tax lien upon or against the premises described herein or any
part thereof or the improvements situated thereon, so long as the Mortgagor
shall, in good faith, contest the same or the validity thereof by appropriate
legal proceedings brought in an court of competent jurisdiction, which shall
operate to prevent the collection of the tax, assessment, or lien so contested
and the sale or forfeiture of the said premises or any part thereof to satisfy
the same.
2
<PAGE>
AND the said Mortgagor further covenants arid agrees as follows:
That privilege is reserved to pay the debt in whole, or in an amount
equal to one or more monthly payments on the principal that are next due on the
note, on the first day of any month prior to maturity; provided, however, that
written notice of an intention to exercise such privilege is given at least
thirty (30) days prior to prepayment.
Any deficiency in the amount of any such aggregate monthly payment
shall, unless made good by the Mortgagor prior to the date due of the
next such payment, constitute an event of default under this mortgage.
The Mortgagee may collect a "late charge" not to exceed four cents for
each dollar for each payment more than fifteen (15 ) days in arrears,
to cover the extra expense involved in handling delinquent payments.
AND AS ADDITIONAL SECURITY for the payment of the indebtedness
aforesaid the Mortgagor does hereby assign to the Mortgagee all the rents,
issues, and profits now due or which may hereafter become due for the use of the
premises hereinabove described.
THAT HE WILL KEEP the improvements now existing or hereafter erected on
the mortgaged properly, insured as may be required from time to time by the
Mortgagee against loss by fire arid other hazards, casualties and contingencies
in such amounts arid for such periods as may be required by the Mortgagee and
will pay promptly, when due, any premiums on such insurance provision for
payment of which has not been previously made.
All insurance shall be carried in companies approved by the Mortgagee
and the policies and renewals thereof shall be held by the Mortgagee and have
attached thereto loss payable clauses in favor of and in favor of and in form
acceptable to the Mortgagee. In event of loss Mortgagor will give immediate
notice by mail to the Mortgagee, who may make proof of loss if not made promptly
by Mortgagor, and each insurance company concerned is hereby authorized and
directed to make payment for such loss directly to the Mortgagee instead of the
Mortgagor and the Mortgagee jointly, and the insurance proceeds, or any part
thereof, may be applied by the Mortgagee at its option either to the reduction
of the indebtedness hereby secured or to the restoration or repair of the
property damaged. In event of foreclosure of this mortgage or other transfer of
title to the mortgaged property to extinguish the indebtedness secured hereby,
all right, title and interest of the Mortgagor in and to any insurance policies
then in force shall pass to the purchaser or grantee.
THAT if the premises, or any part thereof, be condemned under any power
of eminent domain, or acquired for a public use, the damages, proceeds, and the
consideration for such acquisition, to the extent of the full amount of
indebtedness upon
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<PAGE>
this mortgage, and the Note secured hereby remaining unpaid, are hereby assigned
by the Mortgagor to the Mortgagee and shall be paid forthwith to the Mortgagee
to be applied by it on account of the indebtedness secured hereby, whether due
or not.
IN THE EVENT of default in making any monthly payment provided for
herein and in the note secured hereby for a period of thirty ( 30 ) days after
the due date thereof, or in case of a breach of any other covenant or agreement
herein stipulated, then the whole of said principal sum remaining unpaid
together with accrued interest thereon, shall, at the election of the Mortgagee,
without notice, become immediately due and payable.
AND IN THE EVENT that the whole of said debt is declared to be due, the
Mortgagee shall have the right immediately to foreclose this mortgage, and upon
the filing of any bill for that purpose, the count in which such bill is filed
may in any time thereafter, either before or after sale, and without notice to
the said Mortgagor, or any party claiming under said Mortgagor, and without
regard to the solvency or insolvency at the time of such applications for
appointment of a receiver, or for an order to place Mortgagee in possession of
the premises of the person or persons liable for the payment of the indebtedness
secured hereby, and without regard to the value of said premises or whether the
same shall then be occupied by the owner of the equity of redemption, as a
homestead, enter an order placing the Mortgagee in possession of the premises,
or appoint a receiver for the benefit of the Mortgagee with power to collect the
rents, issues, and profits of the said premises during the pendency of such
foreclosure suit and, in case of sale and a deficiency, during the full
statutory period of redemption, and such rents, issues, and profits when
collected may be applied toward the payment of the indebtedness, costs, taxes,
insurance, and other items necessary for the protection and preservation of the
property.
Whenever the said Mortgagee shall be placed in possession of the above
described premises under an order of a court in which an action is pending to
foreclose this mortgage or a subsequent mortgage, the said Mortgagee, in its
discretion, may: keep the said premises in good repair; pay such current or back
taxes and assessments as may be due on the said premises; pay for and maintain
such insurance in such amounts as shall have been required by the Mortgagee;
lease the said premises to the Mortgagor or others upon such terms and
conditions, either within or beyond any period of redemption, as are approved by
the court; collect and receive the rents, issues, and profits for the use of the
premises hereinabove described; and employ other persons and expend itself such
amounts as are reasonably necessary to carry out the provisions of this
paragraph.
AND IN CASE OF FORECLOSURE of this mortgage by said Mortgagee in any
court of law or equity, a reasonable sum shall be allowed for the attorney's
fees, and stenographers' fees of the complainant in Such proceeding and also for
all outlays for documentary evidence and the cost of a complete abstract of
title for the purpose of such foreclosure; and in case of any other suit, or
legal proceeding, wherein the Mortgagee shall be made a party thereto by reason
of this mortgage, its costs and expenses, and the
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<PAGE>
reasonable fees and charges of the attorneys of the Mortgagee, so made parties,
for services in such suit or proceedings, shall be a further lien and charge
upon the said premises under this mortgage, and all such expenses shall become
so much additional indebtedness secured hereby and be allowed on any decree
foreclosing this mortgage.
AND THERE SHALL BE INCLUDED in any decree foreclosing this mortgage and
be paid out of the proceeds of any sale made in pursuance of any such decree:
(1) All the costs of such suit or suits, advertising, sale, and conveyance,
including attorneys' and stenographers' fees, outlays for documentary evidence
and cost of said abstract and examination of title; (2) all the moneys advanced
by the Mortgagee, if any, for the purpose authorized in the mortgage with
interest on such advances at the rate set forth in the note secured hereby, from
the time such advances are made; (3) all the accrued interest remaining unpaid
on the indebtedness hereby secured; (4) all the said principal money remaining
unpaid. The surplus of the proceeds of sale, in any, shall then be paid to the
Mortgagor.
If Mortgagor shall pay said note at the time and in the manner
aforesaid and shall abide by, comply with, and duly perform all the covenants
and agreements herein, then this conveyance shall be null and void and Mortgagee
will, within thirty (30) days after written demand therefor by Mortgagor,
execute a release or satisfaction of this mortgage, and Mortgagor hereby waives
the benefits of all statutes or laws which require the earlier execution or
delivery of such release or satisfaction by Mortgagee.
IT IS EXPRESSLY AGREED that no extension of the time for payment of the
debt hereby secured given by the Mortgagee to any successor in interest of the
Mortgagor shall operate to release, in any manner, the original liability of the
Mortgagor.
THE COVENANTS HEREIN CONTAINED shall bind, and the benefits and
advantages shall inure, to the respective heirs, executors, administrators,
successors, and assigns of the parties hereto. Whenever used, the singular
number shall include the plural, the plural the singular, and the masculine
gender shall include the feminine.
WITNESS the hand and seal of the Mortgagor, the day and year first
written.
/s/ Gregory J. Halpern (SEAL) /s/ Karen S. Halpern (SEAL)
- --------------------------- ---------------------------
GREGORY J. HALPERN KAREN S. HALPERN
5
<PAGE>
STATE OF ILLINOIS
COUNTY OF LAKE
I, THE UNDERSIGNED notary public, in and for the County and State
aforesaid, do hereby certify that GREGORY J. HALPERN, and KAREN S. HALPERN,
husband and wife, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that they signed, scaled, and delivered the said instrument as
their free and voluntary act for the uses and purposes therein set forth,
including the release and waiver of the right of homestead.
Given under my hand and Notary Seal this 6th day of August, 1999.
My commission expires11/17/2002 /s/ E. Kenneth Suskin
---------------------------
Notary Public
DOC. NO. ___________________ Filed for record in the Recorder's Office of
__________ _____________________ County, Illinois, on the ______ day of
_______________, A.D. _____________ at _______________ o'clock ______m., and
duly recorded in Book _____ of __________ Page ______________
- --------------------------------------------------------------------------------
TAX IDENTIFICATION NUMBER:
6
<PAGE>
MORTGAGE NOTE
$ 935,000.00 Mundelein, Illinois.
August 6, 1999
FOR VALUE RECEIVED, The undersigned promise(s) to pay to the order of
CIRCLE GROUP INTERNET, INC.
the principal sum of NINE HUNDRED AND THIRTY FIVE THOUSAND DOLLARS
- -----------------------------------------
with interest from date, at the rate of EIGHT per centum (8.00 %) per annum on
the unpaid balance until paid. The said principal and interest to be payable in
monthly installments as follows:
The final payment of principal and interest, if not sooner paid, shall be due
and payable on August 6, 2000.
Both principal and interest shall be payable at the office of CIRCLE GROUP
INTERNET, INC., 1011 Campus Drive, Mundelein, IL 60060, or at such other place
as may from time to time be designated in writing.
Upon default in the payment of any such installment of principal and interest
for a period of thirty (3 0) days after the due date thereof, the holder of this
note may, at its option, and without notice, declare all the unpaid principal
and accrued interest of said note immediately due and payable. Failure to
exercise this option shall not constitute a waiver of the right to exercise the
same in the event of any subsequent default.
Presentment, protest, and notice are hereby waived.
This mortgage note is secured by a mortgage dated August 6, 1999 on real estate
commonly known as 1713 Player Ct., Vernon Hills, IL 60061
/s/ Gregory J. Halpern /s/ Karen S. Halpern
---------------------- --------------------
Signature Signature
1713 N. Player Court 1713 N. Player Court
Vernon Hills, IL 60061 Vernon Hills, IL 60061
7
PLACEMENT AGENCY AGREEMENT
[DATE]
[NAME AND ADDRESS OF COMPANY]
Dear Sirs:
[NAME OF COMPANY], a corporation (the "Company"), hereby confirms its
agreement with CIG Securities, Inc. (the "Placement Agent") as follows:
1. Introductory. The Company proposes to offer for sale through the
Placement Agent, as exclusive agent for the Company, shares of common stock, par
value $. per share (the "Shares"), on a "best efforts" basis (the "Offering")
during the period commencing on the date of the Memorandum (as hereinafter
defined) and ending on [DATE], unless extended by mutual agreement of the
Company and the Placement Agent until [DATE] (the "Offering Period"). The
minimum subscription will be Shares or $ unless otherwise permitted by the
Placement Agent.
Subscriptions for the Shares will be accepted by the Company at a price
of $ per Share (the "Offering Price"); provided, however, that the Placement
Agent may offer, and the Company may sell, Shares only to persons or entities
who qualify as an accredited investor ("Accredited Investor") as such term is
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Act"). Investors will be required to subscribe for the
Shares by executing the subscription documents (the "Subscription Agreement")
set forth as an exhibit in the Company's Confidential Private Offering
Memorandum, dated ("Offering Materials"). The offering of the Shares will be
made by the Company through the Placement Agent pursuant to the Memorandum, in
form and substance mutually acceptable to the Placement Agent (and its counsel)
and the Company (and its counsel) and shall contain such legends and other
information as the Placement Agent and its counsel deem necessary and desirable
to set forth in the Memorandum.
"Memorandum" as used in this Agreement means the Company's Confidential
Private Offering Memorandum dated [DATE] relating to the Offering, and all
amendments, supplements, exhibits and appendices to such Memorandum, taken as a
whole. Unless otherwise defined, each term used in this Agreement will have the
same meaning as that set forth in the Memorandum.
2. Representations and Warranties. The Company hereby represents and
warrants to the Placement Agent that:
(a) The Memorandum has been prepared by the Company in
conformity with the requirements of Regulation D, the Act and the requirements
of all other rules and
1
<PAGE>
regulations (the "Regulations") of the Securities and Exchange Commission (the
"SEC") relating to the private offering (as defined in Regulation D ("Regulation
D") as promulgated under Section 4(2) of the Act). The Company has used its best
efforts to ensure that the offer and sale of the Shares by the Company has
satisfied, and on the Closing Date will have satisfied, in all material
respects, all of the requirements of Regulation D; the Shares are not
disqualified from the exemption under Rule 506 contained in Regulation D, except
that no representation or warrant is made hereunder by the Company as to any
disqualifications based upon Rule 262(b) and (c) of Regulation A as it may be
applied to the Placement Agent. The Memorandum (i) describes the material
aspects of an investment in the Company and (ii) does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. If any time prior to
the Termination Date (as hereinafter defined) or other termination of this
Agreement any event shall occur as a result of which it is necessary to amend or
supplement the Memorandum so that it does not include any untrue statement of
any material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances then existing, not
misleading, the Company will promptly notify you and will supply you with
amendments or supplements correcting such statement or omission. Except as
otherwise provided, no representations or warranties of the Company will apply
to statements or omissions made in reliance upon and in conformity with written
information furnished to the Company by the Placement Agent expressly for use in
the Memorandum or any amendment or supplement thereto. The cover or inside cover
page of the Memorandum contains the legend required by Rule 502(d) of the
Regulations.
(b) The Company will afford each prospective purchaser of
Shares and his purchaser representative, if any, the opportunity to ask
questions of and receive answers from it concerning the terms and conditions of
the Offering and the opportunity to obtain additional information necessary to
verify the accuracy of the Memorandum to the extent it possesses such
information or can acquire it without unreasonable expense.
(c) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of , and
has all requisite power and authority to own or lease and operate its properties
and to conduct its businesses as presently and proposed-to be conducted as
described in the Memorandum. The Company is duly qualified to transact business
as a foreign corporation and is in good standing under the laws of each
jurisdiction wherein the location of its properties or the character of its
operations make such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the Company. The Company
has all necessary material, authorizations, approvals, licenses, permits,
franchises and orders (the "Authorizations") of and from all governmental
officials and bodies to own or lease and operate its respective properties and
to conduct its respective businesses as presently and proposed to be conducted
as described in the Memorandum, except for
2
<PAGE>
those Authorizations the failure of which to obtain would not have a material
adverse effect on the Company, and the Company has the requisite power and
authority to enter into this Agreement, to carry out the provisions and
conditions hereof, and to issue and sell the Shares as provided herein and in
the Memorandum. The conduct of business by the Company as presently and proposed
to be conducted (as described in the Memorandum) is not subject to continuing
oversight or supervision by any governmental official or body of the United
States or any other jurisdiction wherein the Company conducts or proposes to
conduct such business, except as described in the Memorandum.
(d) This Agreement has been duly authorized, executed and
delivered on behalf of the Company and is the valid and binding obligation of
the Company, enforceable in accordance with its terms, subject only to the
effect, if any, of bankruptcy laws or similar laws relating to the insolvency of
debtors and to principles of equity and except as the Company's indemnification
and/or contribution obligations under this Agreement may be limited under
Federal or applicable state securities laws.
(e) The execution and delivery of, and the compliance with,
this Agreement by the Company and the consummation by the Company of the
transactions herein contemplated will not, with or without the giving of notice
or the lapse of time, or both: (i) result in a material conflict with or breach
of any of the material terms or provisions of, or constitute a default under, or
result in the modification or termination of, or require consent under, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the material properties or assets of the Company
pursuant to the terms of, any agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, or (ii) violate the Company's articles of
incorporation or by-laws, or (iii) have any material effect on any material
license, permit, judgment, decree, order, statute, rule or regulation applicable
to the Company or any of its properties or businesses.
(f) The financial statements of the Company are attached as an
Exhibit to the Memorandum present fairly the financial position of the Company
as of the respective dates specified and the results of its operations and
changes in financial position for the respective periods covered thereby. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied through the periods involved.
(g) There has been no material adverse change since [DATE OF
LAST FINANCIALS] in the financial position or results of operations of the
Company or in its business, affairs, other than as set forth in the Memorandum
and the capitalization, properties, business and management of the Company
conform in all material respects to the descriptions thereof contained in the
Memorandum. The Company has no material liabilities of any kind, contingent or
otherwise, except as set forth in the Memorandum.
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<PAGE>
(h) No material default exists in the due performance or
observance of any term, covenant or condition of the material contracts,
agreements or documents referred to in the Memorandum to which the Company is a
party or by which the Company is bound or to which any of its property is
subject (collectively, the "Company Agreements") other than as described in the
Memorandum; the Company Agreements are accurately and fairly described in the
Memorandum; the Company Agreements are in full force and effect in accordance
with their respective terms; and no other party to any thereof has instituted
or, to the best of the Company's knowledge, threatened any action or proceeding
wherein the Company would or might be alleged to be in default thereunder. The
Company is not a party to any contract or instrument materially affecting its
financial condition, business, management, properties or prospects, other than
those referred to in the Memorandum.
(i) The authorized capital stock of the Company consists of
_________ shares of Common Stock, of which __________ shares were outstanding on
the date of the Memorandum, all of which have been duly authorized and are
validly issued and fully paid and non-assessable[ EXPAND TO INCLUDE ANY OTHER
CLASSES OF STOCK]. None of the outstanding shares of Common Stock or options to
purchase shares of Common Stock have been issued in violation of the preemptive
rights of any shareholder of the Company. Except as disclosed within the
Memorandum, there are no outstanding options, warrants or other rights calling
for issuances by the Company of, and no commitments, plans or arrangements of
the Company to issue any shares of capital stock of the Company or any
securities convertible into or exchangeable for such capital stock. Except as
set forth in the Memorandum, no holder of any of the Company's securities has
any rights, "demand," "piggy-back" or otherwise, to have such securities
registered under the Act.
(j) The Shares have been duly authorized, and when duly
delivered and paid for pursuant to the terms of the Memorandum and this
Agreement will be validly issued, fully paid and non-assessable. No holder of
the Shares will be subject to personal liability by reason of being such a
holder, and none of the Shares are subject to the preemptive rights of any
stockholder of the Company. The Shares conform to all statements in relation
thereto contained in the Memorandum.
(k) No authorization, approval, consent, order, registration,
license or permit of any court or governmental agency or body, other than under
the Act, the Regulations and the rules and regulations of the state securities
laws of the states in which offers or sales will be made, is required for the
valid authorization, issuance, sale and delivery of the Shares in accordance
herewith or the consummation by the Company of the transactions contemplated by
this Agreement.
(l) The Company is not in violation of its articles of
incorporation or by-laws or any applicable statute, rule, regulation or
ordinance, except as may be set forth in the Memorandum, nor is the Company in
default under any order, writ, judgment,
4
<PAGE>
injunction or decree of any court, government agency or arbitration tribunal
applicable to the Company.
(m) Subsequent to the respective dates as of which information
is given in the Memorandum, and prior the Termination Date, except as may
otherwise be indicated or contemplated therein, the Company will not have
entered into any transaction otherwise than in the ordinary course of business,
or issued any securities, or entered into any material transaction, unless the
Memorandum is amended or supplemented to reflect same, such changes to have been
approved by the Placement Agent and its counsel, which approval shall not be
unreasonably withheld or delayed.
(n) There is no litigation or governmental proceeding pending,
or to the best of the Company's knowledge, threatened against the Company or
involving its properties or business which, individually or in the aggregate,
could be reasonably expected to materially and adversely affect the value of the
assets or the business of the Company, except as described in the Memorandum. To
the best knowledge of the Company, there is no basis for any such action, suit,
proceeding, arbitration, claim or inquiry, except as set forth in the
Memorandum. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, its properties or businesses are bound or subject.
(o) Except as set forth in the Memorandum, the Company owns,
or possesses adequate rights to use, all patents, trademarks, service marks and
other rights necessary for the conduct of its business as described in the
Memorandum (collectively, the "Intangibles"). Except as set forth in the
Memorandum, the Company has not and is not infringing on the rights of others
with respect to the Intangibles and neither the Company, nor any officer or
director of the Company has received any notice of conflict with the asserted
rights of others with respect to the Intangibles in any respect which would
materially adversely affect the business of the Company and knows no basis
therefor.
(p) The Company has either good and marketable title to, or
valid and enforceable leasehold interests in, all items of real property and
personal property which are stated in the Memorandum to be owned or leased by
it, in each case free and clear of all liens, encumbrances, claims, security
interests, subleases and defects, other than those referred to in the Memorandum
and those which do not have a material adverse effect upon the operations of the
Company. The Company has the right to operate all of its facilities in its
present locations and the operation of such facilities does not violate the
material provisions of any lease with respect thereto which the Company is a
party. The Company is not in violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties
except for violations which, individually or in the aggregate, do not have a
material adverse effect, and has not
5
<PAGE>
received any notice of an alleged violation. The Company has adequately insured
its properties against loss or damage by fire or other casualty and maintains,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in its geographical area.
(q) The Company has filed with the appropriate federal, state
and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof and has paid all taxes shown on such return and all assessments receive
by it to the extent that the same have become due; and the provisions for income
taxes payable, if any, shown on the financial statements included as part of the
Memorandum are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
financial statements. Except as disclosed in writing to the Placement Agent, the
Company has not executed or filed with any taxing authority, foreign or
domestic, any agreement extending the period for assessment or collection of any
income taxes and is not a party to any pending action or proceeding by any
foreign or domestic governmental agency for assessment or collection of taxes;
and no claims for assessment or collection of taxes have been asserted by the
Company.
(r) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for political office in violation of
law or failed to disclose fully any such contribution, or (ii) made any payment
to any state, federal or foreign governmental office or official, or other
person charged with similar public or quasi-public duties, other than payments
or contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(s) The Company represents that no director, executive
officer, or key employee of the Company has been convicted or any felony,
experienced a personal bankruptcy, or been an officer, director, or key employee
of any company that during their tenure with such company experienced any
bankruptcy, or had any trustee, receiver, or conservator appointed with respect
to its business or assets.
3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations and warranties contained herein, and subject to the terms and
conditions set forth:
(a) The Company hereby appoints the Placement Agent as its
exclusive agent in connection with the offer and sale of up to Shares pursuant
to the terms of the Memorandum. The Placement Agent has no obligation to
purchase any or all of the Shares.
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(b) The Shares will be offered at the Offering Price and upon
the terms and conditions set forth in the Memorandum. The Placement Agent and
the Company agree to use their best efforts to assure that any sale of Shares is
made pursuant to the exemption from the registration requirements of the Act
provided by Section 4(2) thereof, including, but not limited to, Rule 506 of
Regulation D of the Act, and the requirements of the state securities laws and
the respective rules and regulations thereunder in those jurisdictions in which
the Shares are offered and sold.
(c) As compensation for acting as the exclusive agent of the
Company, the Placement Agent will be entitled to receive a commission equal to
eight percent (8%) of the aggregate offering price of all Shares sold in the
Offering (the "Placement Agent's Fee").
(d) Each prospective subscriber desiring to purchase Shares
will be required to complete and execute an original of the Subscription
Agreement, in the form attached as Exhibit B to the Memorandum, which
Subscription Agreement will be forwarded or delivered to [INSERT NAME OF BANK],
as Escrow Agent, together with (i) the subscriber's check in the full amount of
the investor's subscription made payable to [INSERT NAME OF ESCROW ACCOUNT] for
the number of Shares desired to be purchased; and (ii) an Investor's
Questionnaire in the form included as an exhibit to the Memorandum. The
"Termination Date" will be the expiration date of the Offering fixed in the
Memorandum as the same may be extended as provided therein. Subscriptions for
Shares must be received and accepted by the Company on or before such
Termination Date.
(e) All cash proceeds and subscription documents received from
the offering of the Shares will be promptly forwarded by the Placement Agent to
the Escrow Agent, with copies delivered to the Company. As promptly as
practicable after receipt of subscription documents, the Company will decide
whether or not to accept the Subscription Agreements of the subscribers named
therein. If the Company elects not to accept a Subscription Agreement, it will
notify the Placement Agent and the Escrow Agent and the subscription proceeds of
such subscriber will be returned to him without interest or deduction. If the
Company elects to accept a particular Subscription Agreement, it will evidence
its acceptance thereof by signing same and forwarding copies to the Escrow Agent
and the Placement Agent. Immediately thereafter, the Placement Agent and the
Company shall jointly execute and deliver instructions to the Escrow Agent for
payment of the Placement Agent's Commission to the Placement Agent and the
payment of the remaining amount of such subscription to the Company, all as more
fully set forth in the Escrow Agreement which is an exhibit to the Memorandum.
(f) The Shares will be delivered against payment therefor from
the funds received by the Company.
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4. Further Covenants. The Company hereby covenants and agrees that:
(a) The Company will not at any time, whether before or after
Termination Date, prepare or use any amendment or supplement to the Memorandum
of which the Placement Agent will not previously have been advised and furnished
with a copy, or to which the Placement Agent or its counsel will have objected
in writing or orally (confirmed in writing within 24 hours), or which is not in
compliance with the Act and the Regulations. As soon as the Company is advised
thereof, the Company will advise the Placement Agent and its counsel, and
confirm the advice in writing, of any order preventing or suspending the use of
the Memorandum, or the suspension of or the qualification or registration of the
Shares for offering or of any exemption for such qualification or registration
of the Shares for offering in any jurisdiction, or of the institution or
threatened institution of any proceedings for any of such purposes, and the
Company will use its best efforts to prevent the issuance of any such order and,
if issued, to obtain as soon as possible the lifting thereof.
(b) The Company has caused to be delivered to the Placement
Agent copies of the Memorandum, has consented, and hereby consents, to the use
of such copies for the purposes contemplated hereby permitted by the Act and
applicable state securities laws, and has authorized, and hereby authorizes, the
Placement Agent to use the Memorandum in connection with the sale of the Shares
until the Termination Date, in each case subject to the limitations contained
therein and herein, and no person is or will be authorized to give any
information or make any representations other than those contained in the
Memorandum or to use any offering materials other than those contained in the
Memorandum in connection with the sale of the Shares. In the event of the
happening, at any time within such period, of any event to which the Company has
knowledge and which materially adversely affects, or may affect, the Company,
and which should in the opinion of the Placement Agent's counsel be set forth in
an amendment or supplement to the Memorandum in order to make the statement
therein not misleading, in light of the circumstances existing at the time the
Memorandum is required to be delivered to a purchaser of the Shares, or in case
it shall, in the opinion of counsel to the Placement Agent, be necessary to
amend or supplement the Memorandum to comply with any Federal or state
securities laws or with the Regulations or the rules and regulations of any
state in which the Memorandum is made available to a prospective subscriber, the
Company will forthwith prepare and furnish to the Placement Agent copies of such
amended Memorandum or of such supplement to be attached to the Memorandum in
such quantities as the Placement Agent may reasonably request, in order that the
Memorandum, as so amended or supplemented, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements in the Memorandum, in light of the circumstances under which they
were made, not misleading. The preparation, distribution and furnishing of any
such amendment to the Memorandum or any such supplement to be attached to the
Memorandum will be without expense to the Placement Agent.
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(c) The Company will comply with the Act, the Regulations
(including, without limitation, Rule 506) so as to permit the continuance of the
sales of the Shares, and will file with the SEC, and will promptly thereafter
forward to the Placement Agent any and all reports on Form D as are required.
(d) During the Offering Period, the Company will make
available for review by prospective purchasers of the Shares, upon their
request, all material contracts or other documents described or listed in the
Memorandum.
(e) The Company will use its best efforts to qualify the
Shares for sale under the securities laws of the States of [INSERT STATE NAMES],
and the Company will make such applications and furnish information as may be
reasonably required for such purposes, provided that the Company will not be
required to qualify as a foreign corporation in any jurisdiction. The Company
will, from time to time, prepare and file such statements and reports as are or
may be required to continue such qualifications, in effect for so long a period
as the Placement Agent may reasonably request.
(f) The Company will deliver to the Placement Agent from time
to time and without charge, until the Termination Date, as many copies of the
Memorandum as the Placement Agent may reasonably request.
(g) The Company will apply the net proceeds from the sale of
the Shares substantially for the purposes set forth under "Use of Proceeds" in
the Memorandum.
(h) For a period of three years from the Termination Date, the
Company will deliver to the Placement Agent (i) within 45 days from the end of
the applicable fiscal quarter, a copy of each unaudited quarterly financial
statement which shall have been prepared in accordance with generally accepted
accounting principles consistently applied, and, if applicable, any other
documents or reports which may be issued by the Company to the public,
including, without limitation, reports on Forms 8-K, 10-K and 10-Q and exhibits
thereto, (ii) reports or communications (financial or other) of the Company
mailed to its security holders, and (iii) every press release and every material
news item and article in respect of the Company or its affairs which was
released by the Company. Further, for a period of three years from the
Termination Date, the Company will (i) within 90 days of the end of the fiscal
year furnish to the Placement Agent and distribute the Company's stockholders
annual financial statements prepared by an independent auditor in conformity
with generally accepted accounting principles, consistently applied, which
clearly set forth the financial position of the Company and (ii) furnish to the
Placement Agent a duplicate list of stockholders of the Company at such time as
reasonably requested by the Placement Agent together with monthly DTC transfer
sheets, if applicable.
(i) The Company will pay all expenses incurred in connection
with the preparation and printing of all necessary offering documents and
instruments related to the
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Offering and the issuance of the Shares, and the underlying shares of Common
Stock and will also pay its own expenses for accounting fees, legal fees,
transfer agent fees and other costs involved with the Offering. The Company will
furnish at its expense such quantities of the offering documents and instruments
as the Placement Agent may reasonably request.
(j) The Company will provide to the Placement Agent, for
delivery to all offerees and subscribers and their representatives, any
additional information, documents and instruments which the Placement Agent or
its counsel reasonably deems necessary to comply with the Act and the
Regulations and the securities laws and the rules and regulations thereunder of
those states in which the Shares are to be offered and sold.
(k) The Company will comply with all registration, filing and
reporting requirements of the Act or the Securities Exchange Act of 1934 (the
"Exchange Act") which may from time to time be applicable to the Company.
(l) For a period of three years from the Termination Date, the
Placement Agent shall have the right of first refusal (the "Right of First
Refusal") to act as underwriter or agent for any and all public or private
offerings of securities (excluding all lease financing, bank financing or
institutionally placed property debt), of the Company, or any successor to or
subsidiary of the Company or other entity in which the Company either has a
controlling equity interest or is generally authorized to enter into contracts
or otherwise act on behalf of, (collectively referred to herein as the
"Company") by the Company (the "Subsequent Company Offering"). In addition, the
Company will use its best efforts to cause all officers, directors and holders
of five percent or more of the Company's equity securities (the "Principal
Stockholders") to agree in writing that the Placement Agent shall have such
Right of First Refusal with respect to any secondary offering of the Company's
securities by the Principal Stockholders made during the three year period
following the Termination Date. Accordingly, if during such period the Company
intends to make a Subsequent Company Offering, the Company shall notify the
Placement Agent in writing of such intention and of the proposed terms of the
offering. The Company shall thereafter promptly furnish the Placement Agent with
such information concerning the business, condition and prospects of the Company
as the Placement Agent may reasonably request. If within 15 business days of the
receipt of such notice of intention and statement of terms, the Placement Agent
does not accept in writing such offer to act as underwriter or agent with
respect to such offering upon the terms proposed, the Company and each of the
Principal Stockholders shall be free to negotiate terms with other underwriters
with respect to such offering and to effect such offering on such proposed terms
within six months after the end of such 15 business days. Before the Company and
each of the Principal Stockholders and/or shall accept any modified proposal
from such underwriter, the Placement Agent's preferential right shall be
reinstated and the same procedure with respect to such modified proposal as
provided above shall be adopted. The failure of the Placement Agent to exercise
its Right of First Refusal in any particular instance shall not
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<PAGE>
affect in any way such right with respect to any other Subsequent Company
Offering or Secondary Offering. [OPTIONAL - SEE LOI] Notwithstanding the
foregoing, (i) should an investment banking firm which is generally recognized
to be of a higher tier than the Placement Agent agree to the Subsequent Company
Offering resulting in aggregate gross proceeds of $15,000,000 or more, and (ii)
the Placement Agent is permitted by such investment banking firm to participate
in the Subsequent Company Offering to the extent of at least 10%, then the Right
of First Refusal granted herein shall not apply to the Subsequent Company
Offering or any related offering.
(m) Within 90 days after the Termination Date, the Company
shall elect a minimum of two "outside" persons (excluding affiliates of the
Company and family members of the Company's existing directors, officers and
principal shareholders) to the Company's Board of Directors, which such
individuals shall be reasonably acceptable to the Placement Agent. Within 90
days of the Termination Date, the Board of Directors of the Company shall create
an audit committee consisting of a majority of outside directors, which such
audit committee will generally supervise the financial affairs of the Company.
(n) For a period of five years from the Termination Date,
unless waived by the Placement Agent, the Placement Agent shall have a right to
designate an individual to attend all meetings of the Company's Board of
Directors or committees thereof. The Company shall provide the Placement Agent
with notice of all Board or committee meetings contemporaneously with
notification to the members of the Board of Directors, as well as copies of any
draft written consents of the Board of Directors or other documents or materials
which may be provided to the Board of Directors. All information received by
such representative at such meetings shall be kept confidential, shall not be
disclosed by the representative to any third party, and shall be dealt with in
full compliance with federal and state securities laws.
(o) [IF APPLICABLE] For a period of five years from the
Termination Date, the Company shall use its best efforts to maintain its current
listing on the OTC Bulletin Board, including taking such actions as are
necessary to comply with any newly enacted listing standards.
(p) For a period of one year from the Termination Date, the
Company will not, without the Placement Agent's prior written consent, redeem
any securities outstanding at the Termination Date nor declare or pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's then current retained earnings as
reflected on its most recent balance sheet. sell any securities, grant warrants
or options to acquire any securities except pursuant to its existing Stock
Option Plans or conversions of convertible securities or the exercise of
outstanding options or Warrants. The Company shall advise the Placement Agent in
writing at least five business days in advance of its intent to either redeem
any outstanding securities or declare and pay dividends.
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5. Conditions of Placement Agent's Obligations. The obligations of the
Placement Agent hereunder are subject (as of the date hereof and on the
Termination Date) to the accuracy of and compliance with the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) On or prior to the Termination Date, no order suspending
the use of the Memorandum or enjoining the offering or sale of the Shares will
have been issued and no proceedings for that purpose or a similar purpose will
have been initiated or will be pending or, to the knowledge of the Placement
Agent or the Company, will be contemplated; and any request on the part of the
SEC or any securities authority of a state wherein the Shares are being offered
for additional information will have been complied with to the satisfaction of
counsel for the Placement Agent.
(b) On the date of the Memorandum and the Termination Date (i)
the Memorandum and any amendments or supplements thereto will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Memorandum nor any
amendment or supplement thereto will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances under which they were made; (ii) since the respective dates as of
which information is given in the Memorandum, there will not have been any
material adverse change in the financial condition, results of operations or
affairs of the Company from that set forth or contemplated in the Memorandum,
except changes which the Memorandum indicates might occur after the date
thereof; (iii) since the date of the Memorandum, there shall have been no
material transaction, contract or agreement entered into by the Company, other
than in the ordinary course of business, which would be required to be set forth
in the Memorandum, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the knowledge
of the Company, threatened against the Company which would be required to be set
forth in the Memorandum, other than as set forth therein, and no proceedings
will be pending or, to the best of the knowledge of the Company, threatened
against the Company before or by any Federal, state or other tribunal or agency
wherein an unfavorable decision, ruling or finding would materially adversely
affect the business, properties, financial condition or results of operations of
the Company, other than as set forth in the Memorandum.
(c) The Placement Agent will have received from the Company's
counsel a signed opinion reasonably satisfactory to the Placement Agent and the
Placement Agent's counsel.
6. Indemnification.
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(a) The Company will (i) indemnify and hold harmless the
Placement Agent and each person, if any, who controls the Placement Agent within
the meaning of the Act against any losses, claims, damages or liabilities, joint
or several (which will, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all reasonable attorneys'
fees, including appeals), to which either the Placement Agent or such
controlling persons may become subject, under the Act or otherwise, in
connection with the offer and sale of the Shares; and (ii) reimburse the
Placement Agent and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating or defending against any
such loss, claim, action, proceeding or investigation; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon (A) an
untrue statement or alleged untrue statement or an omission or alleged omission
made in the Memorandum in reliance upon and in conformity with written
information furnished to the Company by the Placement Agent or any such
controlling persons specifically for use in the preparation thereof, or (B) any
violations by the Placement Agent of the Act or state securities laws which does
not result from a violation thereof by the Company or any of its affiliates. In
addition to the foregoing agreement to indemnify and reimburse, the Company will
indemnify and hold harmless the Placement Agent against any costs, expenses,
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), joint or several (which shall for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees including appeals) to which the Placement Agent may
become subject insofar as such costs, expenses, losses, claims, damages or
liabilities arise out of or are based upon the claim of any person or entity
that he or it is entitled to broker's or finder's fees from the Placement Agent
in connection with the offering. The foregoing indemnity agreements will be in
addition to any liability which the Company may otherwise have.
(b) The Placement Agent will indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning of
the Act against any losses, claims, damages or liabilities to which the Company
or any such person may become subject under the Act or otherwise insofar as such
losses, claims, damages, or liabilities (or actions, proceedings or
investigations in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Memorandum, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading (provided, however, that
the indemnity of the Placement Agent will apply in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Memorandum in reliance upon and in
conformity with written information furnished to the Company by the Placement
Agent, specifically for use in the preparation thereof; and will reimburse the
Company or any such person for any legal or other expenses reasonably incurred
in connection with investigating or defending against any such loss,
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<PAGE>
claim, damage, liability or action, proceeding or investigation to which such
indemnity obligation applies. In addition to the foregoing agreement to
indemnify and reimburse, the Placement Agent agrees to (i) indemnify and hold
harmless the Company and each person, if any, who controls the Company against
any losses, claims, damages or liabilities resulting solely from a violation by
the Placement Agent of the Act or state securities laws; and (ii) reimburse the
Company and such controlling persons for any legal or other expense reasonably
incurred in connection with investigating and defending against any such loss,
claim, action, proceeding or investigation to which such indemnity obligation
applies. The foregoing indemnity agreements will be in addition to any liability
which the Placement Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, proceeding or
investigation, such indemnified party, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, will notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party under this Section 6 unless the indemnifying party has
been substantially prejudiced by such omission. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party, to assume the defense thereof, subject to the provisions herein stated,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party will have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel will not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party. No
settlement of any action against an indemnified party will be made without the
consent of the indemnifying party and the indemnified party which shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party.
7. Contribution. To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to Section 6
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claims for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any controlling person of the Company), as one entity, will
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may
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be subject, so that the Placement Agent is responsible for 10% thereof and the
Company is responsible for the remaining portion; provided, however, that if
applicable law does not permit such allocation, then, if applicable law permits,
other relevant equitable considerations such as the relative fault of the
Company and the Placement Agent in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses shall also be considered.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, will be determined by, among other
things, whether such statement, alleged statement, omission or alleged omission
relates to information supplied by the Company or by the Placement Agent, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement, alleged statement, omission or alleged
omission. The Company and the Placement Agent agree that it would be unjust and
inequitable if the respective obligations of the Company and the Placement Agent
for contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses or by any other
method or allocation that does not reflect the equitable considerations referred
to in this Section 7. No person guilty of a fraudulent misrepresentation (within
the meaning of Section II(f) of the Act) will be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, each person, if any, who controls the Placement Agent within
the meaning of the Act will have the same rights to contribution as the
Placement Agent, and each person, if any, who controls the Company within the
meaning of the Act will have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 7. Anything in this
Section 7 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 7 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act, the Exchange
Act or otherwise available.
8. Termination.
(a) This Agreement, except for Sections 6, 7, 10, 11, 12 and
13 hereof, may be terminated by the Placement Agent at any time prior to the
Termination Date, in which case the Placement Agent's obligations and rights
hereunder will forthwith cease (except for Section 6, 7, 10, 11, 12 and 13
hereof), if, in the Placement Agent's sole and absolute judgment, it is
impracticable to sell the Shares by reason of (i) the Company having sustained a
material loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree, which in any such case may have a material adverse
effect upon the Company, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited or
minimum prices having been established on either of such Exchanges, (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof), (iv) a banking
moratorium having been declared by Federal or New York state authorities, (v) a
major catastrophe, national calamity, act of God or other event which in the
Placement Agent's
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judgment materially disrupts the financial markets having occurred, (vi) an
outbreak of major international hostilities or other national or international
calamity having occurred, (vii) the passage by the Congress of the United States
or by any state legislative body, of any act or measure, or the adoption or
proposed adoption of any orders, rules, legislation or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive, which is believed by the Placement Agent to be likely to
have a material adverse impact on the business, prospects, financial condition
or financial statements of the Company or the market for the Shares, or (viii)
any material adverse change having occurred since the respective dates as of
which information is given in the Memorandum in the condition of the Company,
financial or otherwise, or in the earnings, management, affairs or business or
prospects of the Company, whether or not arising in the ordinary course of
business.
(b) If any of the conditions provided for in Section 5 have
not been fulfilled as of the date such condition was required to be fulfilled,
and if such condition has not been waived by the Placement Agent, this Agreement
may be canceled by notice by the Placement Agent to the Company, except for
Sections 6, 7, 10, 11, 12 and 13 hereof, in which case the Placement Agent's
obligations and rights hereunder will forthwith cease (except for Sections 6, 7,
10, 11, 12 and 13 hereof).
9. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of, and regardless of any access to information by, the Company or the
Placement Agent, or any of their officers or Directors or any controlling person
thereof, and will survive the sale of the Shares.
10. Notices. All communications hereunder will be in writing and,
except as otherwise expressly provided herein or after notice by one party to
the other of a change of address, if sent to the Placement Agent, will be
mailed, delivered, or telegraphed and confirmed to [INSERT NEW ADDRESS], with a
copy to Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas Boulevard,
Suite 1900, Fort Lauderdale, Florida 33301, Attention:
Roxanne K. Beilly, Esq.
11. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Placement Agent, the Company, any person controlling
either of them, and their respective executors, administrators, successors and
assigns; and no other person will acquire or have any rights under or by virtue
of this Agreement. The term "successors and assigns" will not include any
purchaser, as such purchaser, of the Shares.
12. Applicable Law, etc. This Agreement will be governed by, construed
and enforced in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed wholly performed within such State. Any
action or proceeding in
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connection with this Agreement may be brought in a court of record of the State
of Illinois in and for Lake County or in the United States District Court for
the [WHAT DISTRICT?] District of Illinois, the Company hereby consenting to the
jurisdiction thereof. Service of process may be made upon the Company by mailing
a copy thereof to it, by certified or registered mail, at its address to be used
for the giving of notices under this Agreement.
13. Modifications. No provision of this Agreement may be changed or
terminated except by writing a signed by the party or parties to be charged
therewith.
14. Nature of Liability. Unless expressly so provided, no party to this
Agreement will be liable for the performance of any other party's obligations
hereunder.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the Company and the Placement Agent in accordance with
its terms.
Very truly yours,
CIG Securities, Inc.
By:________________________________
Frank K. Menon, President
ACCEPTED AND AGREED AS OF
THE________DAY OF___________, 1999
[NAME OF COMPANY]
By:___________________________________
[NAME], President
17
BUSINESS CONSULTING AGREEMENT
THIS BUSINESS CONSULTING AGREEMENT (this "Agreement") is made
and entered into this day of , , by and between , a corporation, with its
principal place of business at . (hereinafter referred to as the "Company") and
Circle Group Internet, Inc., an Illinois corporation with its principal place of
business at 1011 Campus Drive, Mundelein, Illinois 60060 (hereinafter referred
to as the "Consultant").
RECITALS
A. The Company is engaged in the [describe the scope of business
activities].
B. The Consultant provides business-to-business consulting services to
assist companies in many aspects of their business, including business plan
development, Internet marketing strategy development, web site design,
technology support, management consulting, corporate communications, sales
training, strategic networking and strategy and planning consulting.
C. The Company desires to avail itself of the Consultant's experience,
skills and abilities, and background and knowledge, and is willing to engage the
Consultant upon the terms and conditions set forth herein.
D. The Consultant agrees to be engaged and retained by the Company upon
said terms and conditions.
E. The parties hereto have each established a valuable reputation and
goodwill in their respective businesses.
G. Each party hereto, by virtue of its relationship with the other
party, will become familiar with and possessed with the manner, methods and
other confidential information pertaining to the such other parties business
activities.
NOW, THEREFORE, in consideration of the recitals, promises and
conditions in this agreement, the Consultant and the Company agree as follows:
1. Consulting Services.
(a) During the term of this Agreement, the Consultant is
hereby retained by the Company to provide consulting services to the Company as
described below. The Consultant shall provide such consulting services as
reasonably requested by the Company during the term of this Agreement, provided
that nothing hereunder shall require the Consultant to devote a minimum number
of hours per calendar month toward the performance of
1
<PAGE>
services hereunder. The level and scope of services that may reasonably be
requested hereunder shall be dependent, in part, on the amount of compensation
to be paid to the Consultant by the Company hereunder. Unless otherwise agreed
to by the Consultant, all services hereunder shall be performed by the
Consultant, in its sole discretion, at its principal place of business or other
offices. Notwithstanding anything contained herein to the contrary, the services
to be performed by the Consultant hereunder may be performed by any employee of,
or consultant to, the Consultant, which is reasonably qualified to perform such
services. The consulting services to be rendered by the Consultant to the
Company include:
i. Business plan development, including assistance in
creating and revising the Company's business plan to accurately articulate
corporate intentions;
ii. Internet marketing strategy development to define
business models and branding strategies;
iii. Web site design to create user-friendly a web
site using original content and design;
iv. Technology support to provide secure e-commerce
business between the Company's customers and the Company, and to construct and
maintain employee communication systems including the Company's networks and
severs;
v. Evaluation of professionals to ensure the Company
is properly represented by attorneys and accountants with experience in all
areas of the Company's current and proposed business and operations;
vi. Debt management to assist the Company to reduce
or restructure the Company's debt to improve the Company's valuation;
vii. Management consulting (operations) to assist
management in using the Internet for day to day operations, and in the
understanding, analyzing, and management of the Company's intellectual assets;
viii. Management consulting (human resources) to help
promote a management philosophy and organizational structure tailored towards
teamwork and group contributions;
ix. Corporate communications;
2
<PAGE>
x. Sales training to assist management in proper
sales techniques;
xii. Negotiation training;
xii. Strategic networking to assist the Company in
linking its name with beneficial contacts; and
xiii. Strategy and planning consulting to assist the
Company in identifying and analyzing market opportunities, as well as
anticipating competitive behavior.
(b) The Consultant shall specifically not provide any of the
following services to the Company:
i. The offer or sell the Company's securities, or any
other activities which require registration by the Consultant as a
broker-dealer;
ii. Engage in due diligence activities;
iv. Provide advice relating to the valuation of, or
the financial advisability of, any investments in the Company; or
v. Handle any funds or securities on behalf of the
Company.
(c) The Consultant will collaborate with the Company in
designing the content and marketing terms to be used on the Company's web site
to effectively market the Company, including creating effective and
attention-getting descriptive phrases highlighting the Company, such as search
engine registration and keyword computation, and other proprietary methods to
increase site rank and market within newsgroups on various news-wire services.
The Company will have the right to approve each aspect of the design, content
and marketing methods of its web site prior to its publication. The Company
acknowledges the Consultant has agreed to defer a portion of its compensation
hereunder to the date on which the Company's web site has been completed. The
Company further acknowledges that time is of the essence and represents,
warrants and covenants that it shall promptly respond to all manner of
communication from the Consultant regarding the necessary approvals for the web
site.
2. Term. The term of this Agreement shall be for a period of [insert
term] commencing on the date of the date of this Agreement and ending on [insert
date].
3
<PAGE>
3. Compensation. As compensation for its services hereunder, Consultant
shall receive:
(a) $[ ] in cash, with $[ ] payable within two (2) business
days following the date of this Agreement, and the remaining $[ ] due within
five (5) business days following the completion of the Company's web site as
contemplated under Section 1(a)(iii) above; and
(b) [ ] shares of the Company's common stock (the
"Consultant's Shares"). The Consultant shall deemed to be the beneficial owner
of the Consultant's Shares upon the execution by the parties hereto of this
Agreement, and a certificate representing such shares shall be delivered to the
Consultant within three (3) business days following the date of this Agreement.
4. Expenses of the Consultant. The Consultant shall be responsible for
all expenses incurred by the Consultant in the performance of its duties
hereunder, which expenses shall include, postage, printing, long distance calls,
transmitting facsimiles, travel and wire service expenses reasonably related to
the Consultant's services to the Company.
5. Anti-dilution of the Number of Consultant's Shares.
(a) The Company represents, warrants and covenants that number
of Consultant Shares issued to the Consultant pursuant to Section 3(b) above
represents [ ] % of the Company's issued and outstanding Common Stock on a
fully-diluted basis immediately prior to the execution of this Agreement. It is
the intent of the parties hereto that until such time as the Consultant's Shares
shall have been registered for resale under the Securities Act of 1933 as
hereinafter set forth in Section 5 hereof, that the number of shares of the
Company's Common Stock owned beneficially by the Consultant at any time, and
from time to time during such period, shall equal [ ] % of the Company's issued
and outstanding Common Stock on a fully-diluted basis.
(b) The number of shares of the Company's common stock
issuable to the Consultant pursuant to Section 3(b) above shall be subject to
adjustment from time to time, as follows:
(i) If the Company in any manner issues or sells any
shares of its Common Stock, regardless of the type or amount of consideration
received, or to be received, by the Company;
(ii) If the Company in any manner issues, sells or
grants warrants or options which are exercisable into shares of the Company's
Common Stock, regardless of the vesting of such rights or the consideration to
be tendered to the Company upon their conversion or exercise;
4
<PAGE>
(iii) If the Company in any manner grants any rights
or options to subscribe for or to purchase shares of its Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock,
regardless of the vesting of such rights or the consideration to be tendered to
the Company upon their conversion or exercise; or
(iv) If the Company in any manner issues or sells any
convertible securities which are convertible or exercisable into shares of the
Company's Common Stock, regardless of the conversion of such rights or the
consideration to be tendered to the Company upon their conversion or exercise.
(c) The Company shall give the Consultant ten (10) business
days prior written notice of the anticipated occurrence of any of the events
described in Section 5(b) hereof.
(d) Upon the occurrence of any of the foregoing events, the
Company shall issue, on the date the shares, options, rights, warrants,
convertible or other securities are issued, to the Consultant such additional
number of shares of the Company's Common Stock so that the Consultant shall be
the beneficial owner of [ ]% of the Company's Common Stock on a fully-diluted
basis giving pro-forma effect to the issuance of shares of the Company's Common
Stock, including upon the exercise, conversion or otherwise of such options,
warrants, rights or convertible securities, regardless if they are exercisable
or convertible upon the date of issuance by the Company. The certificate(s)
representing such shares of Common Stock shall be delivered to the Consultant
within three (3) business days following the occurrence of any of the events
described in Section 5(b) hereof. For the purposes of this Agreement, the term
"Consultant's Shares" shall include such additional number of shares of Common
Stock as may be issued from time to time to the Consultant pursuant to the
provisions of this Section 5.
(e) The number of shares of Common Stock deemed outstanding at
any given time shall include the number of shares of Common Stock outstanding,
as adjusted as provided herein, but shall not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issuance or sale of Common Stock hereunder.
6. Registration Rights.
(a) If at any time the Company shall prepare and file one or
more registration statements with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to a public offering of equity or debt
securities of the Company, or of any such securities of the Company held by its
security holders, the Company will include in any such registration statement
5
<PAGE>
such information as is required, and such number of Consultant's Shares held by
the Consultant or its designees or transferees as may be requested by it, to
permit a public offering of the Consultant's Shares so requested. In the event
of such a proposed registration, the Company shall furnish the Consultant with
not less than thirty (30) days' written notice prior to the proposed date of
filing of such registration statement. Such notice shall continue to be given by
the Company to the Consultant, with respect to subsequent registration
statements or post-effective amendments filed by the Company, until such time as
all of the Consultant's Shares have been registered, or may be sold without
registration under the Securities Act of 1933 or applicable state securities
laws and regulations, and without limitation as to volume, pursuant to Rule 144
of the Securities Act of 1933. The Company shall cause the registration
statement to remain effective for a period of at least nine (9) months from the
effective date of the registration statement or such earlier date as all of the
Consultant's Shares have been sold.
(b) Until such time as the Consultant's Shares shall have been
registered under the Securities Act of 1933 pursuant to the provisions of
subsection (a) of this Section 6, if at any time the Consultant shall give
notice to the Company requesting that the Company file with the Securities and
Exchange Commission a registration statement relating to the Consultant's
Shares, the Company shall, as expeditiously as possible, file and use its best
efforts to cause to become effective under the Securities Act of 1933 the
registration statement covering such number of the Consultant's Shares as the
Company has been requested to register for disposition by the Consultant, to the
extent required to permit the public sale or other public disposition thereof by
the Consultant. The Company shall cause the registration statement to remain
effective for a period of at least nine (9) months from the effective date of
the registration statement or such earlier date as all of the Consultant's
Shares have been sold.
(c) Notwithstanding anything contained herein to the contrary,
the Consultant may not demand registration of the Consultant's Shares if re-sale
of the Consultant's Shares is already covered by an effective registration
statement, or if the Consultant's Shares may otherwise be sold without
registration under the Securities Act of 1933 or applicable state securities
laws and regulations, and without limitation as to volume pursuant to Rule 144
of the Securities Act of 1933.
(d) The Company shall bear all expenses incurred in the
preparation and filing of such registration statements or post-effective
amendment (and related state registrations, to the extent permitted by
applicable law) and the furnishing of copies of the preliminary and final
prospectus thereof to the Consultant, other than expenses of the Consultant's
counsel and sales commissions incurred by the Consultant with respect to the
re-sale of such securities.
6
<PAGE>
7. Cooperation. Both parties shall cooperate fully with each other in
the performance of the their respective obligations under this Agreement
including, without limitation, providing all necessary information, executing
all documents and performing all actions reasonably required in connection with
such performance.
8. Independent Contractor. This Agreement shall not constitute an
employer-employee relationship. It is the intention of the parties that the
Consultant shall be at all times an independent contractor of the Company. The
Consultant shall not have any authority to act as the agent of the Company and
shall not have the authority to, and shall not, bind the Company to any
agreements or obligations with a third party except as otherwise authorized by
the Company. Subject to the express provisions herein, the manner and means
utilized by the Consultant in the performance of its services hereunder shall be
under the sole control of the Consultant.
9. Non-Disclosure of Confidential Information. Both parties
acknowledge that it is their policy to maintain as secret and confidential all
valuable information heretofore or hereafter acquired, developed or used by each
other in relation to their respective business, operations, employees and
contacts which may give a competitive advantage in either party's industries
(all such information is hereinafter referred to as "Confidential Information").
The parties recognize that, by reason of the relationship of the parties, the
parties may acquire Confidential Information of the other party. The parties
recognize that all such Confidential Information is the property of the owning
party. In consideration of the parties entering into this Agreement, the parties
agree that:
(a) They shall never, directly or indirectly, publicly
disseminate or otherwise disclose any Confidential Information obtained during
the term of this agreement without the prior written consent of either party, it
being understood that the obligation created by this subparagraph shall survive
the termination of this Agreement;
(b) At all times, the parties shall exercise all due and
diligent precautions to protect the integrity of any of the other party's
documents embodying Confidential Information (which shall be marked
"Confidential" by the supplying party prior to delivery and, if not so marked,
shall not be deemed to embody Confidential Information), and upon termination of
this Agreement, each party shall return all such documents (and copies thereof)
in its possession or control to the other party; and
(c) In recognition of the foregoing, the parties represent,
warrant and covenant that they will not in the future use or disclose any of
such Confidential Information for the benefit of any person or other entity or
organization under any circumstances at any time.
7
<PAGE>
10. Liability. In the absence of gross negligence or willful misconduct
on the part of Consultant or the Company, the Consultant shall not be liable to
the Company or to any officer, director, employee, stockholder or creditor, for
any act or omission in the course of, or in connection with, the provision of
advice or assistance hereunder. Except in those cases where the gross negligence
or misconduct of the Consultant is alleged and proven in a court of competent
jurisdiction, the Company agrees to and shall defend, indemnify and hold the
Consultant harmless from and against any and all suits, claims, demands, causes
of action, judgments, damages, expenses and liability (including court costs and
attorney's fees paid in the defense of any specific action) which may in any way
result from any activities pursuant to or in any connection with this Agreement.
11. Representations and Warranties. The Company hereby represents and
warrants to the Consultant as follows:
(a) This Agreement has been duly authorized, executed and
delivered on behalf of the Company and is the valid and binding obligation of
the Company, enforceable in accordance with its terms, subject only to the
effect, if any, of bankruptcy laws or similar laws relating to the insolvency of
debtors and to principles of equity and except as the Company's indemnification
and/or contribution obligations under this Agreement may be limited under
Federal or applicable state securities laws.
(b) The execution and delivery of, and the compliance with,
this Agreement by the Company and the consummation by the Company of the
transactions herein contemplated will not, with or without the giving of notice
or the lapse of time, or both: (A) result in a material conflict with or breach
of any of the material terms or provisions of, or constitute a default under, or
result in the modification or termination of, or require consent under, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the material properties or assets of the Company
pursuant to the terms of, any agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, or (B) violate the Company's articles of
incorporation or by-laws or (C) have any material effect on any material
license, permit, judgment, decree, order, statute, rule or regulation applicable
to the Company or any of its properties or businesses.
12. Indemnification.
(a) The acts, statements and representations made by the
Company to third parties are the sole responsibility of the Company, and the
Company agrees to indemnify the Consultant and hold the Consultant harmless for
any liabilities, claims, losses and expenses, including legal costs and
8
<PAGE>
expenses incurred by the Consultant, that result from acts, statements and
representations made by the Company and its authorized representatives to third
parties. The Company represents that all materials provided to the Consultant in
relation to the consulting services to be provided hereunder are truthful and
accurate, and the Consultant may rely upon same without independent verification
of the facts or other information contained therein.
(b) The acts, statements and representations made by the
Consultant without the approval of the Company to third parties which are not
made in reliance upon information and/or material furnished to the Consultant by
the Company, rather written or oral, are the sole responsibility of the
Consultant, and the Consultant agrees to indemnify the Company for any
liability, claims, losses and expenses, including legal costs and expenses
incurred by the Company that result from the Consultant's representations made
without the approval of the Company.
13. Taxes. All taxes, duties and other governmental fees or charges
arising from the Consultant's receipt of remuneration shall be borne by the
Consultant, except to the extent that the Company is responsible for the fees,
costs and expenses in connection with the provisions of Section 6 hereof.
14. Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally served in writing or when deposited in the United States mail,
postage prepaid, addressed to the other party at the address provided by each
party. Either party may change its address by written notice made in accordance
with this section.
15. Benefit of Agreement. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their respective legal
representatives, administrators, executors, successors, subsidiaries and
affiliates.
16. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Illinois, without and application of the principles of
conflicts of laws. If it becomes necessary for any party to institute legal
action to enforce the terms and conditions of this Agreement, and such legal
action results in a final judgment in favor of such party ("Prevailing Party"),
then the party or parties against whom said final judgment is obtained shall
reimburse the Prevailing Party for all direct, indirect or incidental expenses
incurred, including, but not limited to, all attorney's fees, court costs and
other expenses incurred throughout all negotiations, trials or appeals
undertaken in order to enforce the Prevailing Party's rights hereunder. Any
suit, action or proceeding with respect to this Agreement shall be brought in
the state or federal courts located in Lake County in the State of Illinois. The
parties hereto hereby accept the exclusive
9
<PAGE>
jurisdiction and venue of those courts for the purpose of any such suit, action
or proceeding. The parties hereto hereby irrevocably waive, to the fullest
extent permitted by law, any objection that any of them may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any judgment entered by any court in respect
thereof brought in Lake County, Illinois, and hereby further irrevocably waive
any claim that any suit, action or proceeding brought in Lake County, Illinois,
has been brought in an inconvenient forum.
17. Assignment Any attempt by either party to assign any rights, duties
or obligations that arise under this Agreement without the prior written consent
of the other party shall be void and shall constitute a breach of the terms of
this Agreement.
18. Entire Agreement; Modification. This Agreement constitutes the
entire agreement between the Company and the Consultant. No promises,
guarantees, inducements or agreements, oral or written, express or implied, have
been made regarding the provision of any services, other than as contained in
this Agreement. This Agreement can be modified only in writing signed by both
parties hereto.
19. Severability. In the event of the invalidity or unenforceability of
any one or more of the provisions of this Agreement, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof, and such other provisions shall be deemed to remain in full
force and effect.
20. Continuing Effect. Sections 5, 6, 9, 10 and 12 shall survive the
expiration or the termination of obligations of each party to the other.
21. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first written above.
CIRCLE GROUP INTERNET, INC.
By: __________________________
Frank K. Menon, President
[ Insert Name of Company ]
By: _______________________________
___________________ , President
11
DEMAND PROMISSORY NOTE
$80,018
Dated as of April 1, 1999 Mundelein, Illinois
FOR VALUE RECEIVED, On-Line Bedding Corporation, an Illinois
corporation located at 1011 Campus Drive, Mundelein, IL 60060 (the "Maker"),
promises to pay to Edward L. Halpern (the "Holder") the sum of Eighty Thousand
Eighteen ($80,018) Dollars, plus interest at the annual rate of Eight and a
Quarter (8.25%) percent per annum upon written demand for payment.
The accrued interest and principal of this Note shall be payable within
two (2) business days following the posting by certified mail of written demand
therefor, sent to Maker's above indicated address.
This Note may be prepaid without premium or penalty, at any time, in
whole or in part with accrued interest to the date of prepayment. All payments
on this Note shall be applied first to the payment of accrued interest and the
balance shall be applied to the principal.
All payments of principal and interest are payable at Maker's above
indicated address or such place as the Holder hereof may, from time to time,
designate in writing, in lawful money of the United States of America.
Should it become necessary to collect the sum due under this Note
through an attorney, Maker hereby agrees to pay all costs of collection,
including a reasonable attorney's fee. Said reasonable attorney's fee shall
include fees for services rendered in all appellate proceedings. Maker waives
presentment for payment and protest for nonpayment of this Note, and trial by
jury in connection with the enforcement of collection of this Note.
This Note may be assigned by the Holder thereof at any time, and Maker
will thereafter make payment directly to assignee, as directed by assignor. The
terms of this Note are binding upon any successor in interest to Maker.
This Agreement shall be construed pursuant to the laws of the State of
Illinois.
Dated April 1, 1999. MAKER:
Made in the presence of: On-Line Bedding Corporation
/s/ Arthur C. Tanner, Jr. /s/ Edward L. Halpern
- ------------------------- ---------------------
Arthur C. Tanner, Jr. Edward L. Halpern
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. Financial statements of Circle Group Internet, Inc. as of December 31,
1998 and 1997, dated June 30, 1999 (except for Notes 3, 4 and 8, the
date is October 6, 1999).
2. Financial Statements of Hos-Pillow Corporation, as of December 31, 1998
and 1997, dated June 4, 1999.
3. Proforma Condensed Consolidated Financial Statements of Circle Group
Internet, Inc. and Subsidiaries, as of December 31, 1998, dated June
30, 1999 (except for Notes 3-4 & 4 the date is October 6, 1999).
I consent to the incorporation by reference in the Registration Statement of the
aforementioned reports and to the use of my name as it appears under the caption
"Experts."
/s/ Harold Y. Spector
- ---------------------
Harold Y. Spector, CPA
Pasadena, California
October 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated with subsidaries from date of acquisition
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,215,602
<SECURITIES> 0
<RECEIVABLES> 243,235
<ALLOWANCES> 0
<INVENTORY> 89,892
<CURRENT-ASSETS> 12,621,106
<PP&E> 202,775
<DEPRECIATION> 72,519
<TOTAL-ASSETS> 15,250,840
<CURRENT-LIABILITIES> 752,773
<BONDS> 0
0
0
<COMMON> 431
<OTHER-SE> 14,497,636
<TOTAL-LIABILITY-AND-EQUITY> 15,250,840
<SALES> 2,204,994
<TOTAL-REVENUES> 2,279,676
<CGS> 329,051
<TOTAL-COSTS> 1,247,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,032,448
<INCOME-TAX> 398,517
<INCOME-CONTINUING> 633,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 633,931
<EPS-BASIC> 0.079
<EPS-DILUTED> 0.075
</TABLE>
