U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-27219
FAMOUS FIXINS, INC.
(Name of small business issuer in its charter)
NEW YORK 13-3865655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 W. 57th Street, Suite 1112, New York, New York 10107
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 245-7773
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
----------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the 90
past days. YES [ ] NO [ X ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,515,966
The aggregate market value of voting and non-voting stock of the
issuer held by non-affiliates on March 9, 2000 was $4,208,909, based on
the average closing bid and ask prices of the issuer's common stock on
March 9, 2000 of $.57 and $.61, respectively.
As of March 13, 2000, 12,220,888 shares of the issuer's common stock
were issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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FAMOUS FIXINS, INC.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business 4
Item 2. Description of Property 25
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 26
Item 6. Management's Discussion and Analysis or Plan of Operation 29
Item 7. Financial Statements 35
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 57
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act 58
Item 10. Executive Compensation 60
Item 11. Security Ownership of Certain Beneficial Owners and Management 65
Item 12. Certain Relationships and Related Transactions 67
Item 13. Exhibits and Reports on Form 8-K 69
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
We are a New York corporation known as Famous Fixins, Inc. We were
originally incorporated on February 9, 1984 under the laws of the State of
Utah as Straw Dog, Inc. Pursuant to a registration with the Utah Securities
Division effective September 26, 1984, 1,000,000 shares of our common stock
were sold to the public at a price of $.02 per share. On November 4, 1985, we
changed our name to Tinderblock, Inc.
On July 31, 1995, we reincorporated under the laws of the State of
Nevada by merging with Spectrum Resources, Inc. Under the terms of the merger
and incorporation, all of the 7,666,666 outstanding shares of our common stock
were exchanged for shares of the common stock of Spectrum Resources, Inc. at
the rate of 1 share of Spectrum Resources for 3 of our shares. Following the
reincorporation, there were 2,555,887 shares of our common stock issued and
outstanding. On October 20, 1995, the Board of Directors approved a 1 for 10
reverse split of our stock, after which we had 255,588 shares of common stock
issued and outstanding.
On January 12, 1996, pursuant to a resolution of the Board of Directors,
we issued 354,930 shares of common stock to Phoenix Pacific Property Trust.
Those shares were valued at approximately $5,111 on the date of issuance. The
shares were given as consideration for services and costs that they incurred
to maintain our status as an active corporation and for providing business and
financing consulting advice to us. Our present management and Board of
Directors do not know how the securities issued to Phoenix Pacific Property
Trust were valued, but reasonably estimates a value of $5,111 based on a price
of $.0144 per share, based on the following factors:
- the shares were restricted common stock;
- there was no active trading market at the time for the securities;
- there were no contemporaneous transactions of which our present
management and Board are aware of that were transacted at a greater
price per share; and
- we did not have active business operations or material net worth at
the time of issuance.
We did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998.
On May 28, 1998, we acquired Famous Fixins, Inc., a privately-held New
York corporation formed on November 29, 1995 ("FFNY"), in a transaction viewed
as a reverse acquisition. FFNY was a promoter and marketer of celebrity
endorsed food products. It commenced business activities in 1995 and began
sales operations in March 25, 1997. Pursuant to a Plan and Agreement of
Reorganization, we issued 5,494,662 shares of common stock to Jason Bauer, as
trustee for certain shareholders of FFNY, in exchange for 97% of the
outstanding common stock of FFNY. Pursuant to the reorganization, the
controlling shareholders became our controlling shareholders and officers and
directors. FFNY became a majority-owned subsidiary of our company.
On June 8, 1998, we changed our name to Famous Fixins, Inc. under the
laws of the State of Nevada.
On November 16, 1998, we reincorporated under the laws of the State of
New York by merging into our wholly-owned subsidiary, Famous Fixins Holding
Company, Inc., a corporation formed for the purpose of reincorporation. On
November 20, 1998, we merged with our New York subsidiary, FFNY. On November
20, 1998, we changed our name to Famous Fixins, Inc. under the laws of the
State of New York. We operate as a single entity under the laws of the State
of New York.
As of March 13, 2000, we had 12,220,888 shares of our common stock
issued and outstanding.
We have not been subject to bankruptcy, receivership or any similar
proceedings.
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(b) BUSINESS OF ISSUER
We are a promoter and marketer of celebrity and athlete licensed food
products for sale in supermarkets, mass merchandisers, drug chains, specialty
stores and over the Internet. Our plan is to develop, market and sell
specialty products based on the diverse professional, cultural and ethnic
backgrounds of various celebrities. We create food products which include a
line of breakfast cereals endorsed by high profile athletes and a line of
salad dressings. We promote and market our products directly to supermarket
chain stores. We also operate an electronic commerce site from which our
products may be purchased. We utilize a nationwide network of food brokers to
distribute our products in supermarket chains, mass-merchandisers, drug
stores, restaurants and specialty retail stores throughout the United States.
We enlist third party manufacturers to produce our food products.
We have recently significantly increased our roster of high profile
celebrities and athletes who endorse food products that we promote and market.
The celebrities and athletes that endorse our products donate a portion of
their compensation to charities and community organization. Our current
roster includes:
Celebrity or Athlete Charity
- -------------------- -------
Britney Spears Giving Back Fund
Tony Stewart Habitat for Humanity
Sammy Sosa The Sammy Sosa Charitable Foundation
Cal Ripken, Jr. The Kelly & Cal Ripken, Jr. Foundation
Jeff Bagwell, Craig Biggio,
and Ken Caminiti D.A.R.E.
Derek Jeter Turn 2 Foundation
Alonzo Mourning Zo's Summer Grove Charity
Jake Plummer The Jake Plummer Foundation
Peyton Manning Pey Back Foundation
Tim Duncan The Children's Shelter of San Antonio
New York Mets LISPCC
Olympia Dukakis Women's Domestic Abuse
Dave Mirra To be determined
PRINCIPAL PRODUCTS AND SERVICES
Breakfast Cereal
- ----------------
The cereal category is the largest category in the food industry, with
national sales exceeding seven billion dollars per year. There are more than
100 cereals nationally distributed, however, Famous Fixins' select cereals are
endorsed by well-known athletes, and therefore, require little advertising in
each marketplace.
Slammin' Sammy's Frosted Flakes. We entered into a contract with
Chicago Cubs baseball player Sammy Sosa for the rights to produce a breakfast
cereal. We launched "Slammin' Sammy's Frosted Flakes" in June 1999 in a
limited edition collector's box commemorating Sammy's 66 home runs. This
product was launched mid-June, in the Chicago area initially, with national
and international distribution to follow.
Cal's Classic O's. We have a contract with The Tufton Group for
the rights to manufacture and distribute a cereal bearing the name and
likeness of Baltimore Orioles baseball player Cal Ripken Jr., "Cal's Classic
O's", in the Baltimore area. In April 1999, we launched "Cal's Classic O's,"
a honey-nut toasted oats cereal in a limited-edition collector's box, for
distribution in the Baltimore/Washington area.
Houston's Triple Play. We entered into a contract with three
Houston Astros baseball players, Jeff Bagwell, Craig Biggio and Ken Caminiti,
for the exclusive rights to manufacture and distribute a cereal collectively
bearing their names and likeness and highlighting their baseball careers. We
launched "Houston's Triple Play," a honey-nut toasted oats cereal in a
limited-edition collector's box in July 1999.
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Jeter's. We entered into an agreement with Turn 2, Inc. for the
production of a breakfast cereal called "Jeter's" featuring Derek Jeter,
shortstop for the World Series Champion New York Yankees. We launched this
frosted flakes cereal in October 1999 in the New York market.
Zo's O's. We have an agreement with Alonzo Mourning, the Miami Heat
basketball player and a four-time NBA All-Star for the rights to manufacture
and distribute a new cereal, "Zo's O's," in the Miami area. The cereal was
launched in February 2000. "Zo's O's" is packaged in a limited edition
collector's cereal box, commemorating Mourning's outstanding 1999 NBA season.
In the 1999 NBA season, Mourning led the league in blocks and was named the
league's Defensive Player of the Year.
Jake's Flakes. We entered into a contract with Jake Plummer,
quarterback of the Arizona Cardinals, for the exclusive rights to manufacture
a breakfast bearing the name and likeness of Jake Plummer. We launched
"Jake's Flakes", a frosted flakes cereal in October 1999 in the Arizona and
Idaho markets.
Peyton's O's. We have an agreement with Pey Dirt, Inc. for the
exclusive rights to manufacture a breakfast cereal bearing the name and
likeness of Peyton Manning, quarterback of the Indianapolis Colts. We
launched "Peyton's O's", a honey-nut toasted oats cereal, in October 1999 in
the Indianapolis and Tennessee markets.
Amazin' Mets Frosted Flakes. We have an agreement with Doubleday
Enterprises, L.P., owner and operator of the New York Mets National League
Baseball team, for promotional rights during the 1999 and 2000 baseball
seasons to produce and sell a cereal product identified by the name and logos
of the Mets. The cereal product may feature the images of eight or more Major
League Baseball players on the Mets, and at least one version of the cereal
product will feature Mets catcher Mike Piazza. We launched "Amazin' Mets
Frosted Flakes" cereal in New York in October 1999.
Salad Dressing
- --------------
Olympia Dukakis' Greek Salad Dressings. Our initial product line was
Olympia Dukakis' Greek Salad Dressings, which we began selling in April 1997.
Developed exclusively for us, the Olympia Dukakis' Greek Salad Dressings are
based on Ms. Dukakis' family recipe passed down through many generations.
Made to enhance the traditional Greek salad, the Dukakis line of salad
dressings is unlike others currently on the market. The Dukakis line consists
of four salad dressings, all made with natural ingredients and containing no
preservatives: Greek, Light Greek, Creamy Feta and Light Creamy Feta. The
Greek and Light Greek dressings blend imported extra virgin olive oil with
special herbs and spices, and the Creamy Feta and Light Creamy Feta dressings
have the added touch of premium quality cheeses. The products also contain
extra virgin olive oil, which has seen a great resurgence in the marketplace,
on the strength of consumer sensitivity to healthy eating. The light versions
of the dressings contain half the fat and calories of the regular varieties.
Since the launch of the Olympia Dukakis' Greek Salad Dressings in April
1997, we have achieved distribution for the Dukakis line to over 2,000
supermarkets throughout the United States. We have been successful in having
articles written about Famous Fixins and our products in more than 150
newspapers and magazines across the country. We were the subject of an
article in the February 2, 1998 issue of Business Week magazine. In addition,
Ms. Dukakis has appeared and promoted the salad dressings on numerous
nationally broadcast television shows, including The Rosie O'Donnell Show and
Access Hollywood. These media vehicles have played an important role in
alerting consumers about our products.
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FamousFixins.com
- ----------------
On April 7, 1999, we launched Internet sales of our products.
FamousFixins.com, our Internet marketing division intended to be an online
supermarket for celebrity endorsed food products. Through this web site,
consumers are able to purchase individual items and personalized gift baskets
consisting of a variety of celebrity food products. This electronic commerce
service allow us to reach consumers in regions of the United States where our
products are not carried in supermarkets.
DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES
We presently employ a direct method of distribution for most our
sales, whereby the product is shipped directly from the manufacturing facility
to the supermarket chain's warehouses. As a secondary form of distribution,
in cases where the direct distribution method is impracticable, we use a
distributor, whereby the product is shipped to independent distribution
companies who bear the responsibility for delivery to the retail stores. The
latter method of distribution increases the retail price to the consumer by
approximately 30%.
We had a marketing agreement with Crown Prince, Inc., dated December 7,
1998, under which Crown Prince, Inc. provided to us consultation and oversight
services, as well as administrative and marketing support, in connection with
the distribution of our products. Crown Prince is a national food company in
business for over 50 years with a national sales force and broker network.
Under the marketing agreement, Crown Prince assisted us in the distribution of
our food products to supermarkets and specialty stores throughout the country.
Under the agreement, Crown Prince, Inc. received commissions on net sales at
the rate of 7% for Olympia Dukakis Greek Salad Dressings and at least 3% for
all other products lines. The agreement was terminated on December 31, 1999.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
We are currently in the development stages of four new products.
Slam Duncan's. We entered into an agreement with Tim Duncan,
forward/center of the 1998-1999 NBA champion San Antonio Spurs for the
exclusive rights to manufacture a breakfast bearing his name and likeness. We
are in the final stages of development of "Slam Duncan's" and expect to launch
this cereal by April 2000 in the San Antonio, Texas market.
Britney Spears. We entered in an agreement Britney Brands, Inc. for the
rights to use the name and likeness of musical artist Britney Spears in
connection with the manufacture of a "Britney Spears CD Bubble Gum". We are
in the final stages of development of the bubble gum and expect to launch the
product in April 2000.
Tony Stewart. We entered into an agreement with Redline Sports
Marketing, Inc. for the rights to use the name and likeness of Tony Stewart,
the 1999 NASCAR Rookie of the Year. We are in the developmental stage of,
and we expect to launch, "Tony Stewart Racecar Mints", a racecar-shaped
mint, in April 2000.
Dave Mirra. We entered into an agreement with Dave Mirra for the rights
to manufacture a shredded gum for sale to bike shops, toy stores and other
merchandisers. We are in the developmental stage of the bubble gum and expect
to launch "Mirracle Boy BMX Bubble Gum" in April 2000.
COMPETITIVE BUSINESS CONDITIONS
We face intense competition in our businesses against some large
corporations and smaller specialized businesses, that have the name
recognition to attract well-known celebrities and sell celebrity endorsed food
products. We face day-to-day competition from numerous competitors who
produce and market food products endorsed by celebrities. The range of
competitors runs from large corporations, such as General Mills, Coca-Cola,
and Frito Lays, to smaller competitors. Those corporations have far greater
financial resources and business experience than we do. The range of products
runs across the food category from sports drinks, soda, salad dressings to
cereals, desserts and candy bars. Any celebrity endorsed product similar to
our products sold in an ordinary supermarket is competition to us.
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Because we are significantly smaller than our national competitors, we
may lack the financial resources needed to capture increased market share.
Many of our existing competitors and potential new competitors have:
- longer operating histories;
- greater name recognition;
- larger customer bases;
- more financial resources;
- more and larger facilities; and
- significantly greater financial, technical and marketing resources.
If we compete with them for the same geographical markets, their financial
strength could prevent us from capturing those markets. Because of their
resources, our competitors may offer more attractive financial terms to
celebrities than we can to endorse products. They may also devote greater
resources than we can to the development, promotion and sale of their
products. They may develop products that are superior to or have greater
market acceptance than ours. Our competitors may also conduct more extensive
research and development, run more marketing campaigns, adopt more aggressive
pricing policies and provide more attractive services to our customers than we
do.
PRINCIPAL SUPPLIERS
We engage third-party, private-label manufacturers to produce our
products according to the specifications and product formulas provided by us
to such manufacturer. We have not experienced and do not anticipate any
difficulty in meeting our current and anticipated sales objectives.
Manufacturing facilities are subject to regulations promulgated by the Food
and Drug Administration. The Food and Drug Administration and state
regulatory agencies inspect the facilities of manufacturers on a routine basis
for regulatory compliance. We cannot assure you that the third-party
manufacturers can satisfy these requirements. The table below lists the
manufacturers that we utilize for our products.
Manufacturer Location Food Product
- ------------ -------- ------------
Jasper Foods/Gilster-Mary-Lee Jasper, Missouri cereals
Marzetti Foods Canton, Ohio salad dressing
Amurol Confections Yorksville, Illinois bubble gum
Ragold Chicago, Illinois mints
DEPENDENCE ON MAJOR CUSTOMERS
Although we target our products to a large number of supermarkets and
upon a broad customer base, to each of whom is sold relatively small
quantities of our products, in 1999, Safeway accounted for about 13% and Jewel
Supermarkets accounted for about 19% of our sales. These customers purchased
products in blocks and there is no on-going agreement for these customers to
purchase our products. We do not believe that loss of any one of these
customers would have a material adverse affect on our operations.
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LICENSE AGREEMENTS
Cal Ripken
- ----------
We have a worldwide license with The Tufton Group, dated as of April 1,
1999, to market a line of limited edition cereal product entitled "Cal's
Classic O's Honey Nut Toasted Oat Cereal" and related merchandise bearing the
name and likeness of Calvin E. Ripken, Jr. Under the agreement, we have the
non-exclusive right, license, and privilege to utilize the name, picture,
visual representation, biography, performance statistics, facsimile signature,
nickname and photographic image of Ripken on our products.
We are required to indemnify Tufton Group and Ripken jointly and
severally against any claims, losses, suits, liabilities, obligations, costs
and expenses arising out of the agreement. We are required to maintain, at
our own cost and expense, general liability insurance protecting Tufton and
Ripken from any claims or suits arising out of the agreement in an amount of
the greater of at least one million dollars or our standard policy limit, and
to name Tufton Group and Ripken as additional insured parties.
We may terminate the agreement upon written notice for a material
breach of the agreement by Tufton and Tufton's failure to cure within five
business days after. Tufton may terminate the agreement upon written notice,
and our failure to cure within fifteen business days, if we:
- fail to make timely payment;
- fail to deliver quarterly sales statements;
- breach any material term of the agreement.
Upon expiration or termination of the agreement, we shall not use or re-use
the cereal product, advertising, or promotional materials without the express
written consent of Tufton Group.
Tufton is entitled to five percent of gross sales, less slotting fees,
of the cereal product, and twenty five percent of the net profits of the
related merchandise. Tufton received five year warrants to purchase 50,000
shares of our common stock at $.50 per share. The agreement is for a term of
one year, subject to automatic renewal for one additional year if certain
sales goals are met, in which event an additional 10,000 warrants shall be
issued to Tufton.
Major League Baseball Players Association
- -----------------------------------------
Under a non-exclusive, non-transferable, non-assignable promotional
license agreement with the Major League Baseball Players Association, dated as
of June 10, 1999, we have group licensing rights to use
- the names, nicknames, likenesses, signatures, pictures, numbers,
playing records and biographical data of eight or more active
baseball players, and
- the logo, name and symbol of Major League Baseball Players
Association, and Major League Baseball Players Choice Logo
in connection with our cereal products. The license territory is the United
States, its possessions and territories, Canada and the Caribbean.
The license fee is $125,000. In addition, the Players Association is
entitled to receive a thirteen and one-half percent royalty on our baseball
trading cards inserted into the cereal boxes, and ten percent on other
promotional items using the rights granted under the license.
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We are obligated to defend, indemnify and hold harmless the Players
Association, its members, offices, directors, employees and agents from and
against any and all claims, demands, causes of action and judgments arising
out of or in connection with:
- our products using the rights granted under the license;
- our use of intellectual property rights claimed to be the property
of any Major League Baseball club or other entity affiliated with
any Major League Baseball club; and
- any defects in our products pursuant to this license.
We are required to obtain the prior written consent of the Player's
Association if it seeks to settle or compromise any claim covered by the
indemnification provision. The Player's Association and its members have the
right to defend themselves in any such action or proceeding with attorneys of
the Player's Association's selection. We are required to obtain and maintain
comprehensive general liability insurance naming the Player's Association and
its members as an additional insured parties in an amount of at least two
million dollars for each single occurrence.
The Player's Association has the right immediately to terminate the
agreement by giving written notice if we:
- manufacture, advertise, promote, ship, distribute or use any
material without the prior written approval of the Player's
Association;
- use any material after receipt of notice that the Player's
Association disapproves of the material;
- fail to carry on the materials the notices specified by the
Player's Association;
- become subject to any voluntary or involuntary order of any
governmental agency involving the recall of any of our products
because of safety, health or other hazards or risks to the public;
- take any action in connection with our products that damages or
reflects adversely upon the Player's Association or its rights and
its trademarks;
- breach any provision of the agreement relating to the unauthorized
assertion of right in the rights or trademarks;
- fail to obtain or maintain insurance; or
- use the rights granted under the license in a manner that is
inconsistent with the agreement.
We may terminate the agreement upon giving written notice if the Player's
Association breaches and fails to cure within fifteen days a material term of
the agreement.
The license period ends on April 14, 2000. We intend to renew the group
licensing rights or enter into a similar agreement for an additional license
period beginning April 14, 2000, unless we discontinue the promotion and sale
of products featuring Major League Baseball players.
Major League Baseball Properties, Inc.
- --------------------------------------
We have a license with Major League Baseball Properties, Inc. granting
us the non-exclusive license to use the names, word marks, logos, uniform
designs, colors and color combinations, trade dress, characters, symbols,
designs, likenesses, visual representations, and such other similar or related
identifications of
- Major League Baseball Properties, Inc.,
- Baltimore Orioles,
- Chicago Cubs,
- Houston Astros,
- San Francisco Giants,
- Seattle Mariners,
- New York Mets, and
- New York Yankees
in connection with the manufacture, distribution, promotion, advertisement and
sale of our cereal products and the baseball trading cards contained in the
cereals.
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The license agreement with Baseball Properties is a blanket agreement
that expires on or about April 30, 2000, and it covers all of our baseball-
themed products, including our products that were offered after we entered
into the Baseball Properties license agreement.
We are required to pay a minimum guaranteed compensation to MLBP,
against which royalties are credited, of $125,000 for the rights granted under
the agreement, of which $100,000 is due on December 31, 1999, and $25,000 is
due on April 30, 2000. For our cereal products, we are required to pay
royalties to MLBP in the amounts ranging from the greater of one percent of
net sales or $.025 per cereal box sold to the greater of two and one-half
percent of net sales or $.0545 per cereal box sold.
Under the agreement, Baseball Properties has agreed to indemnify, defend
and hold us and its owners, shareholders, directors, officers, employees,
agents, representatives, successors and assigns harmless from any claims,
suits, damages or costs arising from challenges to Baseball Properties'
authority to license the rights granted to us or assertions to any claim of
right or interest in or to the rights granted to us and used on our products,
provided that we give prompt written notice, cooperates and assist in any
such claim or suit, and provided further that Baseball Properties has the
option to undertake and conduct the defense of, and to settle, any such suit
at its sole discretion.
Under the agreement, we have agreed to indemnify, defend and hold
Baseball Properties, the Major League Baseball Clubs, the Leagues and the
Office of the Commissioner of Baseball and their respective owners,
shareholders, directors, officers, employees, agents, representatives,
successors and assigns harmless from any claims, suits, damages and costs
arising out of:
- any unauthorized use of or infringement of any trademark, service
mark, copyright, patent, process, method or device by us in
connection with the licensed products;
- alleged defects or deficiencies in, or the use of, the licensed
products;
- false advertising, fraud, misrepresentation or other claims related
to the licensed products; the unauthorized use of the licensed
rights or any breach by us of the agreement;
- libel or slander against, or invasion of the right of privacy,
publicity or property of, or violation or misappropriation of any
other right of any third party; or
- agreements or alleged agreements made or entered into by us to
effectuate the terms of the agreement;
provided that Baseball Properties gives us notice of the making of any claim
or the institution of any action. Baseball Properties may at its option
participate in any action.
Baseball Properties has the right to terminate the agreement without any
right to cure if:
- we fail to obtain or maintain liability insurance;
- any governmental agency or court of competent jurisdiction finds
that the licensed products are defective;
- we breach certain undertakings pursuant to the license; or
- we undergo a change in majority or controlling ownership.
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Baseball Properties has the right to terminate the agreement if we
default on, and fail to cure within ten business days, the following
occurrences:
- we fail to make timely payment;
- we fail to deliver an accounting statement or to give access to our
premises or license records;
- we are unable to pay our debts when due;
- we make any assignment for the benefit of creditors or an
arrangement pursuant to any bankruptcy law;
- we file or have filed against us any petition under the bankruptcy
or insolvency laws of any jurisdiction, county or place;
- we shall have or suffer a receiver or trustee to be appointed for
our business or property;
- we are adjudicated a bankrupt or an insolvent;
- we fail to commence in good faith to manufacture, distribute and
sell each licensed product throughout the licensed territory within
any twelve month period;
- we discontinue our business as it is now conducted;
- we breach any term of the agreement; or
- our accounting statements furnished to Baseball Properties are
significantly or consistently understated.
We have orally agreed with MLBP to extend the license period through the
calendar year 2000 for all of our present and future baseball-themed products
during the license period, and the minimum compensation of $125,000 against
which royalties are credited against are to be carried over through the
calendar year 2000.
Sammy Sosa
- ----------
We have an exclusive license with Sammy Sosa, dated as of April 12,
1999, to develop, manufacture, distribute, promote, and sell up to two
editions of a line of limited edition cereal products bearing his name and
likeness in North America and the Caribbean. We have the right to use the
name, photograph, characterization, likeness, voice, image, and biographical
data of Sosa. We have the right to use the trademarks, logos, copyrights and
all other authorized material owned or controlled by Sosa.
We retain all rights, titles, and interests in and to the cereal
products, their formulae and secret ingredients, and their packaging and
labeling. We are responsible to pay all costs and expenses in connection with
the development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the cereal products and related merchandise. We are
required to maintain an eight million dollar product liability insurance which
cover all the products produced in connection with this license. The
agreement can only be assigned with the prior written consent of the other
party, except that we may assign the assignment to a wholly-owned subsidiary
or to an entity owning or acquiring a substantial portion of our stock or
assets. The agreement provides that the parties shall indemnify the other
parties for actions, claims, suits, losses, judgments, penalties, liabilities,
damages, costs, and expenses arising out of a party's breach of the terms of
the agreement, or through the gross negligence or intentional acts of its
officers, directors, employees, or representatives.
Sosa is entitled to twelve and one-half percent of gross receipts from
the sale of the cereal product, and one hundred percent of gross sales less
twenty five percent of gross profits from the sale of related merchandise.
Sosa also received five year warrants to purchase 150,000 shares of our common
stock, exercisable at $.15 per share.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of its receipt of written notice
of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products; or
- Sosa becomes the subject of public disrepute or scandal that
affects his image.
The agreement terminates on April 14, 2000, subject to automatic renewal for
one additional year if certain sales goals are met.
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Ken Caminiti, Craig Biggio, and Jeff Bagwell
- --------------------------------------------
We have an exclusive worldwide license with Ken Caminiti, Craig Biggio,
and Jeff Bagwell, dated as of April 29, 1999, to launch a line of limited
edition cereal products bearing their names and likenesses, expiring on April
20, 2000.
We have the right to use the name, photograph, characterization,
likeness, voice, image, and biographical data of the licensors, and the
trademarks, logos, copyrights and all other authorized material owned or
controlled by the licensors in connection with the development, manufacture,
distribution, promotion, and sale of the cereal and related merchandise.
Related merchandise includes hats and T-shirts bearing the name and logo of
the cereal, which may be sold only by way of direct sales through cereal box
redemption programs, mail order, Internet, or print advertising.
We are responsible for all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the products. We have all rights, titles, and
interests in and to the products, their formulae and secret ingredients, and
their packaging and labeling. We are required to maintain an eight million
dollar product liability insurance which cover all the products produced in
connection with this license and to name the licensors as additional insured
parties on its general liability insurance policy. The agreement can only be
assigned with the prior written consent of the other party, except that we may
assign the assignment to a wholly-owned subsidiary or to an entity owning or
acquiring a substantial portion of our stock or assets.
As compensation, the licensors are to receive six and one-half percent
of all monies received less slotting fees from the sale of the cereal product,
and twenty-five percent of net sales of the related merchandise. The
licensors received a total of 30,000 warrants, exercisable for five years at
$.25 per share, and are entitled to an additional 30,000 warrants if the
license term is extended.
The agreement provides that the parties shall indemnify the other
parties for actions, claims, suits, losses, judgments, penalties, liabilities,
damages, costs, and expenses arising out of a party's breach of the terms of
the agreement, or through the gross negligence or intentional acts of its
officers, directors, employees, or representatives.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30days of its receipt of written notice
of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products; or
- any licensor becomes the subject of public disrepute or scandal
that affects the licensor's image.
The agreement is subject to automatic renewal until April 30, 2001 if certain
sales goals are met.
Derek Jeter
- -----------
We have an exclusive license with Turn 2, Inc., dated as of May 31,
1999, to develop, manufacture, distribute, promote, and sell cereal products
bearing his name and likeness in the United States. We have the right to use
Jeter's name and likeness in connection with the advertisement and promotion
by us of the products in television, radio, print and point of purchase. We
also have the non-exclusive right to use Jeter's name and likeness in
connection with certain merchandise that may be featured on the back panel of
the endorsed products packaging, subject to the licensor's sole and exclusive
discretion and approval. The side panel of the products packaging shall
feature a charity or other entity of Jeter's sole choice.
13
<PAGE>
As compensation, Turn 2 is entitled to eleven and one-half percent of
the invoice price of the cereal products shipped, and fifty percent of the
gross profits from the sale of related merchandise. We granted Turn 2 five
year options to purchase 50,000 shares of our common stock at $.15 per share.
The remuneration due to licensor is subject to upward adjustment to conform
with the highest then current remuneration paid by us to other Major League
Baseball players, with the exception of certain specified persons, under
similar licenses. All packaging costs shall be our sole responsibility.
If we, at any time or times during the license period, desire to
register a trademark or trademarks which include Jeter's name and likeness, or
which relate in any manner to Jeter, or to register us as a user thereof, all
costs related to any such trademarks shall be borne by us, and ownership of
any such trademarks shall rest solely in the name of Turn 2 or its designee.
Upon registration of any such trademark, Turn 2 shall grant to us a license
for the use of such registered trademark on or in connection with the
advertisement, promotion and sale of the products.
We are required to maintain a three million dollar product liability
insurance which cover all the products produced in connection with this
license and to name Turn 2, Turn 2's agent, and Jeter as additional insured
parties. We may assign or transfer this agreement only with the prior written
consent of Turn 2. Turn 2 has the right to terminate the license term for up
to sixty days after it receives notice from us that we have merged or
consolidated with a third party.
The agreement provides that in no event shall Jeter or Turn 2 be liable
to us, or any party claiming through us, for any amount in excess of the
royalties actually received by Turn 2 under the license. The agreement
provides that the parties are not liable to each other for special,
consequential, indirect, exemplary or punitive damages, or for a loss of good
will or business profits.
We are obligated to indemnify Turn 2, its agent, and Jeter from and
against all expenses, damages, claims, suits, actions, judgments and costs
arising out of the agreement, our breach of the agreement, or the negligence,
actions, errors or omissions of us or any claim or action for personal injury,
death or otherwise involving alleged defects in our products, provided that we
are given notice of any such action or claim.
The agreement may be terminated by the non-defaulting party if:
- the other party fails to make any payment of any sum of money under
the license and fails to cure within ten days of its receipt of
written notice of its default, or
- fails to observe or perform any of the terms of the agreement other
than the payment of money and fails to cure within thirty days of
its receipt of written notice of its default.
The right to cure applies only to a first-time default, and the agreement may
be terminated immediately for subsequent defaults. The license terminates on
May 31, 2000.
Jake Plummer
- ------------
We have an exclusive worldwide license with Jake "The Snake"
Enterprises, dated as of May 13, 1999, to launch a line of cereal products
bearing his name and likeness. We have the right to use the name, photograph,
characterization, likeness, voice, image, and biographical data of Jake
Plummer, and the trademarks, logos, copyrights and all other authorized
material owned or controlled by him in connection with the development,
manufacture, distribution, promotion, and sale of the cereal products and
related merchandise. We have all rights, titles, and interests in and to the
products, their formulae and secret ingredients, and their packaging and
labeling.
The licensor is entitled to seven percent of revenues from the
sale of the cereal product, and fifty percent of net profits from the sale of
related merchandise. The licensor received a five year warrants to purchase
35,000 shares of our common stock at the purchase price of $.25 per share. We
are responsible for all costs and expenses in connection with the development,
promotion, manufacturing, packaging, shipping, distribution, sales and
promotion of the products.
14
<PAGE>
We are required to maintain an eight million dollar product liability
insurance which cover all the products produced in connection with this
license and name Plummer as an additional insured party. The agreement can
only be assigned with the prior written consent of the other party, except
that we may assign the agreement to a wholly-owned subsidiary or to an entity
owning or acquiring a substantial portion of our stock or assets.
The agreement provides that the parties shall indemnify the other
parties for actions, claims, suits, losses, judgments, penalties, liabilities,
damages, costs, and expenses arising out of a party's breach of the terms of
the agreement, or through the gross negligence or intentional acts of its
officers, directors, employees, or representatives, or including product
liability.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of its receipt of written notice
of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products; or
- Plummer becomes the subject of public disrepute or scandal that
affects his image.
Peyton Manning
- --------------
We have an exclusive license with Pey Dirt, Inc., dated as of May 31,
1999, to develop, manufacture, distribute, promote, and sell cereal products
bearing Peyton Manning's name and likeness in the states of Indianapolis and
Tennessee. We have the right to use Manning's name and likeness in connection
with the advertisement and promotion by us of the products in television,
radio, print and point of purchase. We also have the non-exclusive right to
use Manning's name and likeness in connection with certain merchandise that
may be featured on the back panel of the endorsed products packaging, subject
to the licensor's sole and exclusive discretion and approval. The side panel
of the products packaging shall feature a charity or other entity of
Manning's sole choice.
As compensation, Pey Dirt is entitled to eight and one-half percent of
the invoice price of the cereal products shipped, and fifty percent of the
gross profits from the sale of related merchandise. We granted Pey Dirt five
year options to purchase 50,000 shares of our common stock at $.15 per share.
The remuneration due to licensor is subject to upward adjustment to conform
with the highest then current remuneration paid by us to other National
Football League quarterbacks, under similar regional licenses. All costs
related to any such trademarks shall be borne by us, and ownership of any such
trademarks shall rest solely in the name of Pey Dirt or its designee. All
packaging costs is our sole responsibility.
If we, at any time or times during the license period, desire to
register a trademark or trademarks which include Manning's name and likeness,
or which relate in any manner to Manning, or to register us as a user, all
costs related to any such trademarks shall be borne by us, and ownership of
any such trademarks shall rest solely in the name of Pey Dirt or its designee.
Upon registration of any such trademark, Pey Dirt shall grant to us a license
for the use of such registered trademark on or in connection with the
advertisement, promotion and sale of the products.
We are required to maintain a three million dollar product liability
insurance which cover all the products produced in connection with this
license and to name Pey Dirt, its agent, and Manning as additional insured
parties.
We may assign or transfer this agreement only with the prior written
consent of Pey Dirt. Pey Dirt has the right to terminate the license term for
up to sixty days after it receives notice from us that we have merged or
consolidated with a third party.
15
<PAGE>
The agreement provides that in no event shall Manning or Pey Dirt be
liable to us, or any party claiming through us, for any amount in excess of
the royalties actually received by Pey Dirt under the license. The agreement
provides that the parties are not liable to each other for special,
consequential, indirect, exemplary or punitive damages, or for a loss of good
will or business profits. We are obligated to indemnify Pey Dirt, its agent
and Manning from and against all expenses, damages, claims, suits, actions,
judgments and costs arising out of the agreement, our breach of the agreement,
or the negligence, actions, errors or omissions of us or any claim or action
for personal injury, death or otherwise involving alleged defects in our
products, provided that we are given notice of any such action or claim.
The agreement may be terminated by the non-defaulting party if:
- the other party fails to make any payment of any sum of money
under the license and fails to cure within ten days of its
receipt of written notice of its default, or
- fails to observe or perform any of the terms of the agreement
other than the payment of money and fails to cure within thirty
days of its receipt of written notice of its default.
The right to cure applies only to a first-time default, and the agreement may
be terminated immediately for subsequent defaults. The license terminates on
May 31, 2000.
Alonzo Mourning
- ---------------
We have an exclusive worldwide license with Alonzo Mourning, dated as of
May 10, 1999, to develop, manufacture, distribute, promote and sell a cereal
product bearing his name and likeness. Under the agreement, we have the right
to use the name, approved photograph, likeness, and biographical data of
Mourning. Mourning retains all rights in and to the licensed subject matter,
and shall may use the licensed subject matter in connection with the
advertisement, promotion, or endorsement of any product or service except for
ready-to-eat cereal.
As compensation, Mourning is entitled to five percent of all revenues
from the sale of the cereal product, and twenty five percent of net profits
from the sale of related merchandise. We issued to Mourning warrants to
purchase 50,000 shares of our common stock, exercisable for five years at $.15
per share. We are responsible for all costs and expenses in connection with
the development, promotion, manufacturing, packaging, shipping distribution,
sales and promotion of the cereal product.
We have all rights, titles and interest in and to the cereal product,
the formulae and ingredients, and the packaging and labeling. We also have
the right to produce, manufacture, distribute, and sell certain t-shirts and
hats bearing the logo "Zo's O's", provided that such apparel products are
manufactured by NIKE, Inc. We are responsible for any and all costs
associated with the manufacture, promotion, sale, advertisement, or
distribution of the apparel products.
We are required to maintain an eight million product liability insurance
which cover all the products produced in connection with this license and name
Mourning as an additional insured party. The agreement can only be assigned
with the prior written consent of the other party, except that we may assign
the assignment to a wholly-owned subsidiary or to an entity owning or
acquiring a majority of our stock or assets.
The agreement provides that the parties shall indemnify the other
parties, and that we shall indemnify Falk Associates Management Enterprises,
for actions, claims, suits, losses, judgments, penalties, liabilities,
damages, costs, and expenses arising out of a party's breach of the terms of
the agreement, or through the gross negligence or intentional acts of its
officers, directors, employees, or representatives. The indemnification
provision survives the termination or expiration of the agreement.
16
<PAGE>
The license may be terminated upon thirty days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 15 days of its receipt of written notice
of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products;
- we fail to make any timely payments under the agreement; or
- Mourning is convicted of a felony involving moral turpitude.
The license agreement terminates on June 30, 2000.
Tim Duncan
- ----------
We have a non-exclusive worldwide license with Tim Duncan, dated as of
August 27, 1999, granting us the right to use the name, photograph,
characterization, likeness, voice, image, and biographical data of Tim Duncan
in connection with the development, manufacture, distribution, promotion, and
sale of a limited edition cereal product and related merchandise.
We are required to distribute, promote, and sell the products, at a
minimum, in the greater San Antonio, Texas area, North Carolina, and the U.S.
Virgin Islands, and to provide for the sale and distribution of products on
Tim Duncan's web site, www.slamduncan.com. We are responsible for all costs
and expenses in connection with the development, promotion, manufacturing,
packaging, shipping, distribution, sales and promotion of the products. We
have all rights, titles, and interests in and to the cereal product, their
formulae and secret ingredients. Under the agreement, Duncan is obligated to
autograph 50 personalized jerseys and 150 boxes of the cereal product for our
use as promotional materials.
We are required to maintain general liability insurance coverage of at
least two million dollars that survives the term of the license and name
Duncan as an additional insured party. The agreement provides that we shall
protect, indemnify and hold Duncan, his agents and representatives, harmless
from and against any and all expenses, damages, claims, suits, actions,
judgments and costs arising out of any action or proceeding by any third party
based upon:
- any act, omission, or material or alleged breach by us of the terms
of the license;
- our use of the material produced under the agreement;
- the manufacture, marketing, sale or use of the products;
- our unauthorized use of any individual intellectual property right,
trademark, service mark, or copyright in connection with the
licensed subject matter;
- any materials supplied by us in connection with the services
provided by Duncan under the agreement; or
- the enforcement of our indemnification obligation.
The remuneration due to Duncan is seven percent of all gross revenues
from the sale of the cereal product, and fifty percent of all gross profit
from the sale of related merchandise, and is subject to upward adjustment to
provide the remuneration that we pay any other celebrity licensor for our
products having comparable quantities of products manufactured or sold us.
Interest on any late payments to Duncan will be the lesser four percent per
month or the maximum rate permissible by law. Mr. Duncan also received a five
year warrant to purchase 50,000 shares of our common stock, exercisable at
$.20 per share.
17
<PAGE>
Either party may terminate the agreement upon forty-five days written
notice if the other party breaches a material term and fails to remedy the
breach within thirty days. Duncan may also terminate the agreement upon
forty-five days written notice if we:
- become insolvent,
- file a petition in bankruptcy or have a petition in bankruptcy
filed against us which is not dismissed within fifteen days;
- discontinue production and distribution of the products;
- use products and materials not approved by Duncan; or
- use the licensed subject matter in connection with any product or
service for which we do not have license rights under the
agreement.
We may also terminate the agreement if Duncan is convicted, after all appeals,
of a felony crime involving moral turpitude or a crime involving use or
possession of controlled substances.
The license terminates at the end of the 1999-2000 National Basketball
Association season. If certain sales goals are met, the license fees on the
cereal products increases by four percent of gross revenues, and the license
is automatically extended through the 2000-2001 NBA basketball season, in
which event, Duncan is to receive an additional warrant to purchase 30,000
shares of our common stock, exercisable at one-half the market value of the
common stock at that time.
New York Mets
- -------------
We have a promotional agreement, dated September 10, 1999, with Sterling
Doubleday Enterprises, L.P., owner and operator of the New York Mets National
League Baseball team, for promotional rights during the 1999 and 2000 baseball
seasons in connection with the sale and marketing of a cereal product
identified by the name and logos of the New York Mets. Under the agreement,
Sterling Doubleday is obligated to inform Major League Baseball Properties of
its approval of our use of the Mets name and logos on our products.
We must maintain in effect throughout the term of the agreement a
license with the Major League Baseball Player's Association permitting us to
feature the images of eight or more Major League Baseball players on our
cereal product. If we decide to feature individual players or groups of less
than eight players on the cereal product, the parties are to obtain the
consent of each such player featured. If the parties decide to feature
individual Mets players or groups of less than eight players on the cereal,
Sterling Doubleday is to cooperate in good faith with our efforts to obtain
the consent of the players for the use of their names and likenesses on the
cereal product.
The selection of the participating players shall be as mutually agreed
upon by the parties, with each party's approval not to be unreasonably
withheld. The parties have agreed that at least one version of the product
will feature Mike Piazza alone, and that such version will be produced and
distributed during at least 12 months within the period from the date of the
agreement through December 31, 2000. Sterling Doubleday is responsible for
any compensation paid to any individual player.
18
<PAGE>
Sterling Doubleday agreed to promote the sale of the cereal product:
- in one 15-second advertisement displayed on the Diamond Vision
scoreboard at Shea Stadium, which was to be displayed during each
Mets home game from August 6, 1999 through the end of the regular
season, and is to be displayed during each regular season home game
at Shea Stadium in the 2000 season;
- through two appearances by Mr. Met in 1999 and six appearances in
2000 at retail stores that sell the cereal product;
- by allowing us to distribute product samples at Shea Stadium
turnstiles during three regular season home games in 1999 and five
regular season home games in the 2000 season;
- by allowing us to place advertisements of the cereal product on the
backs of 100,000 Mets pocket schedules in 2000;
- advertising the cereal product in the 2000 New York Mets Yearbook.
Under the agreement, we received:
- the use of a 15-person Diamond View Suite at Shea Stadium on one
game date in 1999, and on three games dates in the 2000 season;
- four tickets to ten regular season home games in 1999 and the right
to purchase four tickets to the first three Mets 1999 playoff games
at Shea Stadium;
- four tickets to 30 regular season Mets home games in 2000;
- the right to conduct and promote one contest in each of 1999 and
the 2000 seasons and to award prizes to retail purchasers of the
cereal product.
As compensation, we are to pay to Sterling Doubleday twelve and one-half
percent of net sales of all products covered by the agreement. The agreement
automatically renews on an annual basis unless Sterling Doubleday elects to
terminate the agreement. Sterling Doubleday is to provide comparable
promotional support and cooperation during each year the agreement remains in
effect.
Olympia Dukakis
- ---------------
We entered into an exclusive worldwide license agreement with Olympia
Dukakis as of March 1, 1997 to manufacture, distribute, promote and sell Greek
specialty food products bearing her name and likeness. Under the agreement,
we have the right to use the name, photograph, depiction, characterization,
likeness, voice, image and biographical data of Ms. Dukakis and the
trademarks, logos, copyrights and all other authorized material owned or
controlled by Ms. Dukakis.
We are responsible for all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the product. We reserve all rights in the products,
their formulae and secret ingredients, or their packaging and labeling.
Ms. Dukakis is entitled to five percent of all monies received by us as
revenue derived from sale of the products. As additional compensation, we
have granted Ms. Dukakis warrants to purchase 100,000 shares of our common
stock, exercisable for five years at $1.00 per share.
The agreement can only be assigned with the prior written consent of the
other party. We are allowed to assign the agreement to a wholly-owned
subsidiary or to an entity owning at least 42.5% of our equity, in which event
Ms. Dukakis has the right to renegotiate the license terms.
19
<PAGE>
The parties agreed to indemnify the other party for actions, claims,
suits, losses, judgments, penalties, liabilities, damages, costs, and expenses
arising out of a party's breach of the terms of the agreement, or through the
gross negligence or intentional acts of its officers, directors, employees, or
representatives.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of its receipt of written notice
of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products;
- Ms. Dukakis becomes the subject of public disrepute or scandal that
affects her image; or
- Ms. Dukakis dies or suffers any disability impairing her ability to
perform as an entertainer.
Britney Spears
- --------------
We have a non-exclusive license with Britney Brands, Inc. to develop,
manufacture, package, advertise, promote and distribute bubble gum in plastic
CD-shaped cases throughout the world bearing Britney Spears' name, symbols,
logos, images, autographs, and approved likenesses. We are responsible
for the costs incurred in the manufacture, sale, distribution, or promotion of
the product.
We can sell the product to:
- jobbers, wholesalers, and distributors for sale and distribution
to retail stores and merchants;
- retail stores and merchants directly for sale and distribution to
the public;
- family-oriented, reputable, third party direct marketing
catalogue companies;
- through home shopping television channels; and
- directly to the ultimate consumer via our direct-to-consumer
programs.
Britney Brands reserves the right to manufacture, distribute, market and sell
similar or identical products for use in connection with premium sales,
promotional tie-ins, give-aways, home television sales, cable programs,
vending machines, electronic and Internet sales, direct mail and telephone
sales, in-theater sales, sales at theme parks, amusement parks, at concerts,
shows and other amusement or live entertainment attractions, radio sales,
sales by or through fan clubs and conventions, and fund-raisers.
As compensation, Britney Brands is entitled royalty of 9% of net sales
on all units that we sell or that we distribute on for promotional, marketing
or goodwill purposes. If we provide a higher royalty rates to another pop
musical entertainment personality for a similar products, we will provide
Britney Brands with the same royalty rate. Britney Brands is entitled to an
advance of $150,000, of which $50,000 was paid at the signing of the license,
$25,000 is due by November 1, 2000 and $75,000 is due by July 31, 2002.
Royalties are credited against the advance. Britney Brands is entitled to a
minimum royalty guarantee of $150,000, including the advance. We agreed to
make a non-refundable payment of $10,000 to the Britney Spears Foundation. We
issued to Britney Brands warrants to purchase a total of 200,000 shares of our
common stock. The warrants are exercisable at $0.25 per share and terminate
on November 22, 2004.
The intellectual property rights in the product and the marketing
materials that use the licensed subject matter are to vest with Britney
Brands. Britney Brands is permitted to withdraw some or all of the licensed
subject matter from the license if it determines that the exploitation may
violate or infringe the proprietary rights of third parties, or subject itself
to any liability or violate any law, court order, government regulation or
other ruling of any governmental agency.
20
<PAGE>
We are required to maintain insurance coverage of $1,000,000 per
occurrence per year for products, personal injury, advertising, and
contractual liability for up to three years after the license ends which names
Britney Brands and its representative, Signatures Network, as additional
insureds.
Britney Brands is to indemnify, hold harmless and defend us and our
affiliates, officers, directors and employees against any claims, liabilities,
demands, and expenses arising solely out of our use of the licensed subject
matter. It is not liable for any consequential damages or loss of profits
that we may suffer from the use of the licensed subject matter.
We are to indemnify and hold harmless Britney Brands and Signatures
Network, including their respective parents, subsidiaries, affiliates,
officers, directors, representatives, employees and agents from and against
any and all claims, liabilities, demands, causes of action, judgments,
settlements and expenses that arises in connection with:
- the design, manufacture, packaging, distribution, shipment,
advertising, promotion, sale, or exploitation of the Articles,
- our breach of any representation, warranty, or covenant, or
- our failure to perform any covenants or obligations contained in
the license.
We may not assign the license unless otherwise previously agreed in
writing by Licensor.
The license expires on October 29, 2002. Britney Brands has the right
to immediately terminate the license upon written notice if any of the
following occurs:
- we make, sell, offer for sale, use or distribute any product
without prior written approval or continue to make, sell, offer for
sale, use or distribute any product after receipt of notice
withdrawing approval; or
- we become subject to any voluntary or involuntary order of any
government agency involving the recall of any of the products
because of safety, health or other hazard or risks to the public.
Britney Brands has the right to immediately terminate the license if we fail
to cure upon 7 days written notice if any of the following occurs:
- we fail to immediately discontinue the advertising, distribution or
sale of products which do not contain the appropriate legal legend
or notice;
- we breach any of the provisions of the license relating to the
unauthorized assertion of rights in the licensed subject matter;
- we fail to make timely royalty payments;
Britney Brands may terminate the license if we fail to cure a breach to its
satisfaction on 30 days prior written notice if:
- we fail to obtain or maintain insurance;
- we fail to distribute, ship and sell the product by June 1, 2000,
and to use best efforts in distribution, shipment and sale;
- we fail to timely submit preliminary samples of the product for
approval;
- a petition in bankruptcy is filed by or against us; we are
adjudicated bankrupt or insolvent, or make an assignment for the
benefit of creditors or an arrangement pursuant to any bankruptcy
law;
- we discontinue our business; or a receiver is appointed for us or
our business and such receiver is not discharged within 30 days;
- our corporation or any of our controlling shareholders, officers,
directors or employees take any actions in connection with the
manufacture, sale, distribution or advertising of the product which
damages or reflects adversely upon Britney Brands, Britney Spears
or the licensed subject matter; or
- we violate any of our other obligations or breach any of our
covenants, agreements, representations or warranties.
21
<PAGE>
Dave Mirra
- ----------
We have an exclusive worldwide license with Dave Mirra, dated as of
December 22, 1999, to launch a line of chewing gun and a line of cereal
products bearing his name and likeness. We have the right to use the name,
photograph, characterization, likeness, voice, image, and biographical data of
Dave Mirra, and the right to use all other licenseable intellectual property
rights held by Mirra to his name, image or identity in connection with the
development, manufacture, distribution, promotion, and sale of the foods
products. We have all rights, titles, and interests in and to the products,
their formulae and secret ingredients, and their packaging and labeling.
Mirra is entitled to seven percent of revenues from the sale of the
cereal product. Mirra received three year warrants to purchase 25,000 shares
of our common stock at the purchase price of $.20 per share. We are
responsible for all costs and expenses in connection with the development,
promotion, manufacturing, packaging, shipping, distribution, sales and
promotion of the products.
We are required to maintain a two million dollar product liability
insurance which cover all the products produced in connection with this
license and name Mirra as an additional insured party. The agreement can only
be assigned with the prior written consent of the other party, except that we
may assign the agreement to a wholly-owned subsidiary or to an entity owning
or acquiring a substantial portion of our stock or assets.
The agreement provides that the parties shall indemnify the other
parties for actions, claims, suits, losses, judgments, penalties, liabilities,
damages, costs, and expenses arising out of a party's breach of the terms of
the agreement, or through the negligence or intentional acts of its officers,
directors, employees, or representatives, or including product liability. We
will indemnify Mirra for actions, claims, costs related to the products,
including damages allegedly caused by the products, the condition or quality
of the products, or the distribution of the products.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of
its receipt of written notice of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we fail to maintain quality standards;
- we discontinue production and distribution of the products;
- Mirra dies or retires from his occupation as an athlete; or
- Mirra becomes the subject of public disrepute or scandal that
affects his image.
The license terminates on December 31, 2002. At termination, we have the
right of first refusal to renew the license.
Tony Stewart
- ------------
We have a limited, non-transferable license with Redline Sports
Marketing, Inc. to manufacture, package, and ship mints bearing certain
trademarks and copyrights of Redline. The license grants us a non-exclusive
right to use the trademarks The Home Depot(r), Joe Gibbs Racing, Inc.(r),
#20(r), and Tony Stewart(r) and the copyrights for the name, likeness and
signature of "Tony Stewart" and the likeness of the #20 Joe Gibbs Racing
Winston Cup Car in connection with the mints. The license permits us to sell
the mints in the United States and its territories at race tracks or souvenir
trailers or concenssionaires at racing events.
As compensation, Redline is entitled to royalty of 15% of the net sales
price for each licensed product sold, without deducting manufacturing or
marketing costs. If we enter into any agreement to use the name or likenesses
of any other NASCAR team or personality which provides for a more favorable
royalty percentage, we agreed to give Redline the same higher royalty
percentage. Redline is to receive a minimum royalty guarantee of $5,000
against which royalties are credited against.
22
<PAGE>
We assigned and transferred to Redline the rights in the materials
created for the product, including the artwork and designs. Until one year
after the license term ends, we are required to maintain products liability,
completed operations, advertiser's, and comprehensive liability insurance
coverage of $2,000,000 for each single occurrence of bodily injury or for
property damage. We are responsible for all costs in connection with the
manufacture, packing, shipping, sale or other use of the licensed products.
We agreed to hold harmless Redline from and against any and all loss,
expense, damage, or injury that Redline may sustain as a result of any claim
for damage or injury of any kind or nature arising out of the licensed
products or our actions or inactions in accordance with the license. Under
the license, except for defense of a claim and payment of accompanying damages
to a claimant, we agreed that Redline shall not be responsible for any damages
or expenses suffered by us as a result of the suspension or limitation of
copyright or trademark infringement, including consequential damages.
We may not to assign, sublicense, or subcontract without the prior
approval of Redline.
The license terminates on December 21, 2000. Redline has the right to
terminate the license if;
- we fail to cure any payment due within 5 days;
- we fail to perform and cure any of the terms, conditions,
agreements or covenants in the license is agreement within 20 days
of written notice.
- we undergo any substantial change in ownership or control;
- the Redline team undergoes substantial change, such as if the
sponsor withdraws or changes, if the driver changes teams, if the
car number changes or if the color scheme, logo scheme or make of
the car changes;
- we fail to maintain the insurance required;
- we do not introduce licensed products to the market within 90 days
of execution of the license or continue to diligently pursue sales;
- the quality of the licensed products is lower than the sample
products approved by Redline;
- we manufacture, sell, market or distribute any licensed products or
any promotional or packaging material, containers, cartons and
wrapping relating to the licensed products before obtaining
Redline's written approval of all required pre-production
submittals for each such item; or
- we use the licensed products or promotional or packaging material
relating to the licensed products without prior written approval or
continue to do so after notice of disapproval. At Redline's
discretion, we are obligated to pay Reline $5,000 per occurrence
for failing to follow proper approval procedures.
Either party may, by written notice, immediately terminate the license if the
other party shall:
- be dissolved, be adjudicated insolvent, bankrupt, or cease
operations, admit in writing its inability to pay its debts or make
a general assignment for the benefit of or enter into an
arrangement with creditors, or file for relief under any insolvency
law;
- apply for, or consent to the appointment of a receiver, trustee or
liquidator of all or a substantial part of its assets or affairs,
or authorize such application or consult to be commenced against it
which continues undismissed for 30 days; or
- be the subject of any other proceeding not defined above whereby
any substantial portion of the property or assets of such party are
or may be distributed among its creditors.
23
<PAGE>
NEED FOR GOVERNMENT APPROVAL
Not applicable.
GOVERNMENT REGULATION
Not applicable.
RESEARCH AND DEVELOPMENT
Not applicable.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Not applicable.
INSURANCE
We have general liability insurance in the aggregate amount of
$3 million, including products liability coverage.
EMPLOYEES
We have four full-time employees and one part-time employee.
YEAR 2000 DISCLOSURE
To date, we have not encountered any Year 2000 problems which have
adversely affected our business or operations. We believe that Year 2000
issues would not materially impact our business operations as presently
conducted. We have conducted a review of our computer programs and have
reason to believe that there are no significant Year 2000 issues within
our internal systems or services. We did not incur any significant expense
in ensuring that our internal systems are Year 2000 compliant. We believe a
reasonable worst case Year 2000 scenario for our internal operations would be
that we may need to purchase new software programs for word processing and
accounting, which costs are not expected to exceed $500.
We utilize and rely upon the services of third parties to conduct our
operations. We have made written inquires of all key third parties that we
utilize, including third party manufacturers and distributors of our products,
as to their Year 2000 compliance status. We requested that such third parties
provide to us a written response no later than November 30, 1999. The vast
majority of such third parties did not respond to our request. Although we
have completed an investigation of our internal Year 2000 compliance status,
because of the failure of third parties to cooperate with our Year 2000
investigation, we did not consider our Year 2000 investigation to be complete.
Although the failure of third parties' software applications or internal
systems, none of which we control, to be Year 2000 compliant upon January 1,
2000 could have a material adverse affect on our business, financial condition
and results of operations, we do not believe that Year 2000 issues will have
materially adverse affects on our business operations. We envisioned that a
reasonable worst case scenario for third party operations would be the
inability to print and send purchase orders by electronic means, in which
event, purchase orders can be transmitted by telephone.
24
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
We maintain our executive offices in approximately 1,341 square feet at
New York, New York, pursuant to a lease expiring on April 30, 2005, at a
current annual rent of $38,889 through August 2001. The annual rent will be
$42,912 for the term September 2001 through June 2003 and $42,935 for the term
July 2003 through May 2005. We believe that our facility is suitable as our
executive offices and we have no present intentions to renovate or improve our
facility or seek new facilities. Our facility is adequately covered by
insurance.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to, and none of our property is subject to, any
pending or threatened legal or governmental proceedings that will have a
materially adverse affect upon our financial condition or operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
General
Our authorized capital stock consists of 25,000,000 shares of common
stock, par value $.001 per share. As of December 31, 1999, we had 10,462,624
shares of common stock issued and outstanding.
Common Stock
The holders of the common stock are entitled to cast one vote for each
share held of record on all matters presented to stockholders. The holders of
common stock do not have cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares voting for the election of
our directors can elect all of the directors, and in such an event, the
holders of the remaining shares will be unable to elect any of our directors.
Our certificate of incorporation does not provide that the holders of common
stock have any preemptive right.
Dividends
We have not paid any cash dividends on our common stock and do not
expect to declare or pay any cash dividends in the near future. After paying
interest on our outstanding 5% convertible debentures in the principal amount
of $325,000 and other convertible debentures in the principal amount of
$1,000,000, we intend to retain any future earnings for use in our business.
Future cash dividends, if any, will be at the discretion of our Board of
Directors and will depend upon, among other things, our future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions, and such other factors as the Board of Directors may
deem relevant.
Market Information
Beginning on September 9, 1998, our common stock was quoted on the OTC
Bulletin Board under the symbol "FIXN". On about November 18, 1999, our
common stock was removed from quotation on the OTC Bulletin Board. On about
December 20, 1999, our common stock was reinstated for quotation on the OTC
Bulletin Board. The table below sets forth for the periods indicated, the
high and low closing bid prices for the common stock as reported by the OTC
Bulletin Board.
Fiscal Year Quarter Ended High Low
- ----------- ------------- ---- ---
1998 September 30, 1998 $1.75 $1.00
December 31, 1998 $1.25 $0.25
1999 March 31, 1999 $1.625 $0.375
June 30, 1999 $0.67 $0.350
September 30, 1999 $0.52 $0.34
December 31, 1999 $0.49 $0.25
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Holders
The approximate number of holders of record of our common stock as of
December 31, 1999 was 84. We estimate that there were approximately 1,252
beneficial holders of our common stock as of that date.
26
<PAGE>
Sale of Unregistered Securities
On September 2, 1999, pursuant to a consulting agreement, we issued
warrants to purchase up to 125,000 shares of common stock to Jaffoni & Collins
Incorporated in exchange for business consulting and corporate public
relations services, valued at $34,979, in a transaction deemed to be exempt
under Section 4(2) of the Securities Act of 1933. The warrants are
exercisable at $0.34 per share. Warrants to purchase 75,000 shares of common
stock have vested. Warrants to purchase an additional 25,000 shares vest on
May 31, 2000 and on August 31, 2000. The warrants expire on February 8, 2003.
We entered into agreements, dated as of October 19, 1999, for the sale
of 5% convertible debentures with a principal amount of $550,000 and warrants
to purchase 139,152 shares of common stock to three accredited investors in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We received gross proceeds of $550,000 from the sales. The interest on
the convertible debentures is payable quarterly and accrues from the date of
issuance on the principal amount of the convertible debentures. The
convertible debentures are due October 30, 2002. At our option, we may pay
the interest on the convertible debentures in cash or in registered shares of
common stock. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price equal
to the lower of 80% of the market price of the common stock or $0.55.
However, the maximum number of shares of common stock that may be received
upon the conversion of the debentures by any one holder is 9.9% of our then-
outstanding common stock. If the conversion price is less than $0.20 per
share on any conversion date, we may redeem the debentures in their entirety
in cash or common stock. The amount of cash to be delivered upon such
redemption or conversion shall equal the closing ask price on the conversion
date or the date we give notice of redemption multiplied by the number of
shares of common stock that would have been issued at the conversion price
upon such conversion or redemption. The warrants are exercisable before
October 30, 2004 at a purchase price of $.494 per share. Under the
agreements, we were obligated to prepare and file a registration statement
under the Securities Act of 1933 for shares of common stock issuable upon the
conversion of the convertible debentures and the warrants. The registration
statement was declared effective on February 8, 2000. On about February 23,
2000, debentures with a principal amount of $150,000 were converted into
1,000,000 shares of common stock. On about February 24, 2000, debentures with
a principal amount of $75,000, with interest, were converted into 508,264
shares of common stock.
Pursuant to a license agreement with Britney Brands, Inc., dated as of
November 22, 1999, we issued warrants to purchase an aggregate of 200,000
shares of common stock, valued at $95,496, to Britney Spears, Signatures
Network, Inc., Laurence H. Rudolph, Johnny Wright, Burt Paddell and Reggie
Covington in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933. The warrants are exercisable at $0.25 per share and
expire on November 22, 2004.
Pursuant to a license agreement, dated as of December 22, 1999, we
issued warrants to purchase 25,000 shares of common stock, valued at
$6,719, to Dave Mirra in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933. The warrants are exercisable at $0.20 per
share and expire on December 22, 2002.
On February 8, 2000, pursuant to a consulting agreement with Matthew
Markin, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. Fifty percent of the securities vested as of March 6, 2000. We
agreed to file a registration statement on Form S-8 for the issuance
or resale of the securities. Markin represented to us that he had the
experience and knowledge in business and financial matters to evaluate the
risks and merits of the transaction.
27
<PAGE>
On February 8, 2000, pursuant to a consulting agreement with Edward
DeFudis, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. Fifty percent of the securities vested as of March 6, 2000. We
agreed to file a registration statement on Form S-8 for the issuance
or resale of the securities. DeFudis represented to us that he had the
experience and knowledge in business and financial matters to evaluate the
risk s and merits of the transaction.
We entered into agreements, dated as of March 7, 2000, for the sale of
convertible debentures with a principal amount of $1,000,000 and warrants to
purchase 2,500,000 shares of common stock to three accredited investors in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We received gross proceeds of $1,000,000 from the sales. The
convertible debentures are due March 13, 2005. The holders of the
convertible debentures are entitled to convert the debentures into shares of
common stock at a conversion price of $.40 per share. However, the maximum
number of shares of common stock that may be received upon the conversion of
the debentures by any one holder is 9.9% of our then-outstanding common stock
after the conversion, including any other shares of common stock held by the
holder. The warrants are exercisable before March 13, 2005 at a purchase
price of $.75 per share. Under the agreements, we were obligated to prepare
and file a registration statement under the Securities Act of 1933 for shares
of common stock issuable upon the conversion of the convertible debentures and
the warrants within 15 days of our filing of our Form 10K-SB for the year
ended December 31, 1999. If the registration statement is not timely filed
with the SEC by the required filing date, the registration statement is not
declared effective by the SEC within 90 days of the required filing date
or five days of clearance by the SEC to request effectiveness, but in no event
later than July 15, 2000, the registration statement is not maintained as
effective by us for the requisite period, or the additional registration
statement is not filed within thirty days or declared effective within ninety
days, then we are to pay each holder of the convertible debentures and
warrants, as liquidated damages, one percent of the aggregate market value of
shares of common stock purchaseable or purchased from Famous Fixins and held
by the holder for the first month of such default, and two percent for each
month of default thereafter until such registration statement has been filed,
and in the event of late effectiveness or lapsed effectiveness, one percent of
the aggregate market value of shares of common stock purchaseable or purchased
from Famous Fixins and held by the holder for the first month of such default
and two percent for each month of default thereafter until such registration
statement has been declared effective. The liquidated damages are not to
exceed $50,000 per month. We have agreed with the holders that each will hold
harmless the other against any losses, claims, damages or liabilities, joint
or several, including all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses, to which they may become subject
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, prospectus, or based upon the
omission or alleged omission to state therein a material fact, unless the
misleading or omitted information was provided by the other in connection with
the preparation of the registration statement or prospectus.
28
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Forward-Looking" Information
This report on Form 10-KSB contains certain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Generally, the words "anticipates," "expects," "believes," "intends," "could,"
"may," and similar expressions identify forward looking statements. Forward-
looking statements involve risks and uncertainties. We caution you that while
we believe any forward-looking statement are reasonable and made in good
faith, expectations almost always vary from actual results, and the
differences between our expectations and actual results may be significant.
The following discussion and analysis of our results of operations and
our financial condition should be read in conjunction with the information set
forth in the audited financial statements for the year ended December 31,
1999.
Results of Operations
We did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998. On May 28, 1998, we acquired
FFNY in a transaction viewed as a reverse acquisition. FFNY was a promoter
and marketer of celebrity endorsed food products, which commenced business
activities in 1995 and began sales operations in March 25, 1997. Pursuant to
the reorganization, the controlling FFNY shareholders became the controlling
shareholders, the officers and the directors of our company. The following
discussion describes the historical operations of FFNY, giving effect to our
reorganization with us in May 1998.
The following table sets forth, for the period indicated, the
relationship between total sales and certain expenses and earnings items:
<TABLE>
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $2,515,966 $ 276,006 $ 358,791
COST OF GOODS SOLD $1,590,438 $ 193,143 $ 194,701
GROSS PROFIT ON SALES $ 925,528 $ 82,863 $ 164,090
OTHER INCOME $ 0 $ 35,347 $ 0
OPERATING EXPENSES $1,662,321 $ 748,184 $ 374,822
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAX $ (736,793) $ (629,974) $ (210,732)
PROVISION FOR INCOME TAXES $ 1,339 $ 669 $ 950
NET INCOME (LOSS) $ (738,132) $ (630,643) $ (211,682)
</TABLE>
29
<PAGE>
1999 v. 1998
Cost of goods sold for the year ended December 31, 1999 was $1,590,438,
or approximately 63% of sales, as compared to $193,143, or approximately 70%
of sales, for the year ended December 31, 1998. Total cost of goods sold are
expected to increase as more products are sold; however, cost of goods sold
are expected to continue to decrease as a percentage of total sales as our
sales volume grows.
Gross profit on sales for the year ended December 31, 1999 was
$925,528, an increase of 1,017% as compared to the year ended December 31,
1998 of $82,863. The increase in gross profits is attributable to our new
cereal product line.
For the year ended December 31, 1999, as compared to the year ended
December 31, 1998, operating expenses increased to $1,662,321 from $748,184,
which represents a 122% increase in operation expenses, and which represents
a decrease to 66% of sales in 1999 from 271% of sales in 1998. The increase
in 1999 in operating expenses is due mainly to an expansion of our operations,
creation of new product lines, and licensing fees, including the related costs
of stock warrants issued, in connection with new celebrity licenses obtained
by us. Operating expenses are expected to increase as more products are sold;
however, operating expenses are expected to decrease as a percentage of total
sales as our sales volume grows.
We operated at a loss in the year ended December 31, 1999, losing
$738,132, or $0.07 per share basic and $0.07 per share diluted, as compared to
a net loss of $630,643, or $0.10 per share basic and $0.10 per share diluted,
for the year ended December 31, 1998.
We anticipate significant increases in revenues and gross profit in
fiscal year 2000. This trend of increased revenues and gross profits is
expected to continue now that we have already launched nine new products
for nine new celebrity licenses in 1999, and expect to launch two to four
more new products for two to four more new celebrities in the spring
of 2000. We may not experience profitability in fiscal year 2000 because
we expect our costs of goods sold and operating expenses to also increase
significantly in the 2000 fiscal year.
Our gross profits on product sales of our celebrity endorsed products
are substantially in excess of the portion of the licensing costs which are
computed and payable at specified percentages of product sales. However, the
ultimate profitability to Famous Fixins from each particular individual
celebrity license is dependent on total sales volumes of the related license
products inasmuch as we are required to bear fixed charges to income for the
cost of stock warrants issued which do not require cash outlays by us. During
the years ended December 31, 1999 and 1998, charges to income for stock
warrants related to licensing costs were $162,038 and $124,342, respectively.
While the addition of new product lines may also create liquidity issues
and demands on our limited resources, we anticipate that the increased
revenues generated this year by the new products will have a favorable impact
on income and liquidity.
Our food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed to
be a factor in our operations.
30
<PAGE>
1998 v. 1997
We experienced losses in 1997 and 1998, our first two years of
operations, primarily due to start-up costs, slowly developed marketing and
distribution operations and the lack of sufficient licenses from celebrities
for the use of their names and reputations in promoting food products.
Further, we were hampered by an insufficient amount of credit and financing.
Our sales were lower in 1998 than in 1997. Our operating revenues for the
year ended December 31, 1998 were $276,006, a decrease of 23.1% as compared to
operating revenues for the year ended 1997 of $358,791. This decrease
primarily resulted from the lack of sufficient capital to market our products.
Cost of goods sold for the year ended December 31, 1997, was $194,701,
or approximately 54% of sales, as compared to $193,143, or approximately 70%
of sales, for the comparable period in 1998. Total cost of goods sold are
expected to increase as more products are sold; however, cost of goods sold
are expected to decrease as a percentage of total sales as our sales volume
grows.
Gross profit on sales for the year ended December 31, 1998 was $82,863,
a decrease of 49%, as compared to the gross profit on sales in the year ended
December 31, 1997 of $164,090. The decrease in gross profit is attributable
to the decrease in sales; however, our gross profit percentage on sales
decreased to 30% in 1998 compared to 45% in 1997.
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, operating expenses increased to $748,184 from $374,822,
which represents a 100% increase in operating expenses, and which represents
an increase as a percentage of sales to 271% of sales in 1998 from 104% of
sales in 1997. The increase in operating expenses is primarily due to
increased administrative and selling expenses. Operating expenses are
expected to increase as more products are sold; however, operating expenses
are expected to decrease as a percentage of total sales as our sales volume
grows.
We operated at a loss, for the reasons discussed above as to the start-
up costs, lack of sufficient capital, and limited line of products, in the
year ended December 31, 1998, losing $630,643, or $.10 per share basic and
diluted, as compared to a net loss for the year ended December 31, 1997 of
$211,682, or $.03 per share basic and diluted. We moved our emphasis to
celebrity athletes in 1999, and we have been able to obtain a number of
valuable licenses pursuant to which we have produced dramatic growth in
revenues, and it has improved our ability to obtain credit and financing. We
anticipate significant increases in revenues, gross profits and profitability
for the year ending December 31, 1999. While the addition of new product
lines may also create liquidity issues and demands on our limited resources,
it is anticipated that the increased revenues generated in 1999 by our new
products will have a favorable impact on income and liquidity.
Our food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed to
be a factor in our operations.
31
<PAGE>
Financial Condition or Liquidity and Capital Resources
Through 1999, we have funded our operations through a line of credit,
bank borrowings, borrowings from stockholders, issuances of warrants,
and sales of securities to stockholders and holders of notes, as described in
Notes 1, 4, 5 8 and 11 of the Notes to the 1999 Financial Statements and in
Notes 1, 3, 4, 7 and 10 of the Notes to the 1998 Financial Statements, and
from operating revenues. Our inability to obtain sufficient credit and
capital financing has limited operations and growth from inception.
During 1998, we received capital of $492,637 in cash and services, net
of costs of $61,278, from securities offerings by issuing 778,711 shares of
Famous Fixins' common stock. In 1999, we issued an additional 3,578,733
shares of common stock in exchange for cash and services aggregating
approximately $476,000. As of December 31, 1999:
- we collected $306,000;
- $48,000 is receivable under a stock subscription agreement; and
- $122,000 has been provided in various services.
We used substantially all of the net proceeds for general operating expenses.
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank, the bank agreed to make loans to us for up to a maximum credit
line amount, which currently is $100,000. The bank notifies us as to the
amount of the available credit line from time to time. We may borrow from the
bank incremental principal amounts of at least $2,500. Borrowings bear
interest at the Bank's prime rate plus 1/2%. Principal is payable in monthly
installments equal to 1/36 of the outstanding principal amount of the loan as
of the date of the last loan made prior to the date of such installment.
Repayment of the loan is guaranteed by certain of our stockholders. The
outstanding balance of the long-term note payable to the bank, net of current
installments, at December 31, 1998 was $40,685 and was repaid prior to
December 31, 1999.
In October 1999, we entered into agreements pursuant to which certain
investors agreed to purchase an aggregate of $550,000 principal amount of 5%
convertible debentures due October 19, 2002 and 139,152 warrants to purchase
shares of Famous Fixins' common stock. At the initial closing date, we
received gross proceeds of $450,000, and are to receive the remaining $100,000
when this registration statement becomes effective. The warrants are
exercisable between October 30, 1999 and October 30, 2004 at a purchase price
of $.494 per share, which was 125% of the market price on the closing date.
At our option, the convertible debentures may be exchanged into convertible
preferred stock. On about February 23, 2000, debenture holders of $150,000 in
principal amount converted the debentures into 1,000,000 shares of common
stock. On about February 24, 2000, a debenture holder of $75,000 in principal
amount converted the debentures with the interest due on the debentures into
508,264 shares of common stock.
In March 2000, we entered into an agreement pursuant to which certain
Investors agreed to purchase an aggregate of $1,000,000 principal amount of
Convertible debentures due March 13, 2005 and warrants to purchase 2,500,000
Shares of our common stock. We received gross proceeds of $$1,000,000 from
the transaction. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price of
$.40 per share. The warrants are exercisable before March 13, 2005 at a
purchase price of $.75 per share. We believe that such sources of funds
will be sufficient to fund our operations for the next twelve months.
We believe that our future growth is dependent on the degree of success
of current operations in generating revenues, and borrowings under our current
credit facility, and the ability to obtain additional credit facilities,
although there can be no assurance that we will be able to obtain any
additional financing that we may require.
32
<PAGE>
The auditors' report to our financial statements for the year ended
December 31, 1999 cites factors that raise substantial doubt about our ability
to continue as a going concern. The factors are that we have incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflect a deficiency in stockholders' equity. The auditors'
report states that although our management believes that it can achieve
profitable operations in the future and that we can raise adequate capital
and financing as may be required, there can be no assurance that future
capital contributions or financing will be sufficient for Famous Fixins to
continue as a going concern or that we can achieve profitable operations in
the future. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
33
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
FAMOUS FIXINS, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
-----------------
Financial Statements:
Independent Auditors' Report F-1
Exhibit "A" - Balance Sheets F-2
Exhibit "B" - Statements Of Operations F-3
Exhibit "C" - Statements Of Cash Flows F-4
Exhibit "D" - Statements Of Stockholders' Equity (Deficit) F-5
Notes To Financial Statements F-6 - F-21
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
Famous Fixins, Inc.:
We have audited the accompanying balance sheets of Famous Fixins, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
cash flows and stockholders' equity (deficit) for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Famous Fixins,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial losses from
operations and has a deficiency in stockholders' equity at December 31, 1999,
which raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ FREEMAN & DAVIS LLP
New York, New York
February 29, 2000
F-1
35
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
<TABLE>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 475,325 $ 19,500
Investments in marketable equity trading securities 101,961 -
Accounts receivable 176,475 13,613
Merchandise inventory 69,542 27,420
Prepaid expenses 59,081 -
Stock subscription receivable (collected in 2000) 47,500 -
---------- ----------
TOTAL CURRENT ASSETS 929,884 60,533
---------- ----------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 15,804 9,309
Machinery and equipment 25,576 9,406
---------- ----------
41,380 18,715
Less: Accumulated depreciation 8,089 3,578
---------- ----------
NET PLANT AND EQUIPMENT 33,291 15,137
---------- ----------
OTHER ASSETS
- ------------
Deferred debenture issuance costs 42,500 -
Security deposits 6,482 2,400
---------- ----------
TOTAL OTHER ASSETS 48,982 2,400
---------- ----------
$1,012,157 $ 78,070
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
36
<PAGE>
EXHIBIT "A"
<TABLE>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 508,341 $ 134,138
Due to customers 190,038 -
Taxes payable - other than on income 9,544 1,643
Income taxes payable 625 625
Current installments of long-term note payable to bank - 15,432
Note payable to related party - 134,303
Subscribers' deposits on common stock, net - 12,500
---------- ----------
TOTAL CURRENT LIABILITIES 708,548 298,641
---------- ----------
LONG-TERM LIABILITIES
- ---------------------
5% convertible debentures (Principal amount - $450,000) 389,586 -
Long-term note payable to bank, net of current
installments - 25,253
---------- ----------
TOTAL LONG-TERM LIABILITIES 389,586 25,253
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
10,462,624 shares in 1999;
6,883,891 shares in 1998 10,462 6,883
Additional paid-in capital 1,557,337 662,937
Accumulated deficit (1,603,776) (865,644)
---------- ----------
(35,977) (195,824)
Less: Unused advertising barter credits (50,000) (50,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (85,977) (245,824)
---------- ----------
$1,012,157 $ 78,070
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2A
37
<PAGE>
EXHIBIT "B"
FAMOUS FIXINS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $2,515,966 $ 276,006
---------- ----------
COST OF GOODS SOLD
- ------------------
Merchandise inventory at beginning of year 27,420 61,186
Purchases 1,451,175 154,878
Other direct costs 181,385 4,499
---------- ----------
1,659,980 220,563
Less: Merchandise inventory at end of year 69,542 27,420
---------- ----------
TOTAL COST OF GOODS SOLD 1,590,438 193,143
---------- ----------
GROSS PROFIT ON SALES 925,528 82,863
OTHER INCOME - Management and distribution services - 35,347
---------- ----------
TOTAL INCOME 925,528 118,210
---------- ----------
OPERATING EXPENSES
- ------------------
Selling expenses 995,971 530,676
General and administrative expenses 657,781 203,482
Interest expense, net 8,569 14,026
---------- ----------
TOTAL OPERATING EXPENSES 1,662,321 748,184
---------- ----------
OPERATING LOSS BEFORE PROVISION
FOR INCOME TAXES (736,793) (629,974)
PROVISION FOR INCOME TAXES 1,339 669
---------- ----------
NET LOSS $ (738,132) $ (630,643)
========== ==========
Net loss per common share, basic $(0.07) $(0.10)
Net loss per common share, assuming full dilution $(0.07) $(0.10)
Weighted average number of common shares outstanding:
Basic 10,147,294 6,458,266
Assuming full dilution 10,147,294 6,458,266
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
38
<PAGE>
EXHIBIT "C"
FAMOUS FIXINS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (738,132) $ (630,643)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash items:
Depreciation 4,511 2,317
Amortization 6,054 -
Value of common stock issued for services
received by the Company 121,826 88,500
Value of warrants issued for services received
by the Company 358,203 176,173
Unrealized gain on investments in marketable
equity trading securities (1,961) -
Purchase of investments in marketable equity
trading securities (100,000) -
Changes in working capital 308,077 40,457
Increase in security deposits (4,082) (2,400)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (45,504) (325,596)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (22,665) (8,936)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debentures, net 405,000 -
Proceeds from issuance of common stock, net 306,482 365,437
Proceeds of long-term debt from bank - 50,000
Repayments of long-term debt to bank (40,685) (9,315)
Repayments of note payable to related party, net (134,303) (62,958)
Increase (decrease) in subscribers' deposits on
common stock, net (12,500) 12,500
Decrease in stockholders' loans - (11,154)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 523,994 344,510
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 455,825 9,978
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,500 9,522
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 475,325 $ 19,500
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
39
<PAGE>
EXHIBIT "D"
FAMOUS FIXINS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 1999
<TABLE>
ADDITIONAL UNUSED
COMMON STOCK PAID-IN ADVERTISING
----------------------- CAPITAL ACCUMULATED BARTER
TOTAL SHARES AMOUNT (DEFICIT) DEFICIT CREDITS
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 $ (233,991) 6,105,180 $ 6,105 $ (5,095) $ (235,001) $ -
Issuance in June, 1998, of common shares on a
one for one basis for common shares sold in
January 1998 by the New York Subsidiary
in its securities offering 102,265 132,711 133 102,132 - -
Issuance of common shares for goods and
services received 91,975 141,000 140 141,835 - (50,000)
Issuance of common shares in a securities
offering in July, 1998 - net 211,953 255,000 255 211,698 - -
Issuance of common shares in a securities
offering in December 1998 - net 36,444 250,000 250 36,194 - -
Issuance of warrants for services received 176,173 - - 176,173 - -
Net loss for 1998 (630,643) - - - (630,643) -
---------- ---------- ---------- ---------- ----------- ----------
BALANCE - DECEMBER 31, 1998 (245,824) 6,883,891 6,883 662,937 (865,644) (50,000)
Issuance of common shares in a securities
offering in February 1999 - net 353,982 2,433,233 2,433 351,549 - -
Issuance of common shares for services received 121,826 1,145,500 1,146 120,680 - -
Issuance of warrants for services received 358,203 - - 358,203 - -
Issuance of warrants in connection with
convertible debentures issued 63,968 - - 63,968 - -
Net loss for 1999 (738,132) - - - (738,132) -
---------- ---------- ---------- ---------- ----------- ----------
BALANCE - DECEMBER 31, 1999 $ (85,977) 10,462,624 $ 10,462 $1,557,337 $(1,603,776) $ (50,000)
========== ========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
40
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS COMBINATION - PRINCIPLES OF PRESENTATION
-------------------------------------------------
The accompanying financial statements include the accounts of
Famous Fixins, Inc. (Company) and reflects certain transactions which are
described below.
Famous Fixins, Inc., a New York corporation (New York
Subsidiary), began its sales operations on March 25, 1997. On May 28, 1998,
Spectrum Resources, Inc., a Nevada corporation (Spectrum) (an inactive
corporation with no assets and liabilities), pursuant to a Plan and Agreement
of Reorganization, issued 5,494,662 shares of common stock in exchange for
substantially all (4,104,328) of the issued and outstanding common shares of
New York Subsidiary. In addition, in June 1998 Spectrum exchanged 132,711
shares of its common stock for 132,711 shares of New York Subsidiary from
shareholders who acquired such shares in a private placement by New York
Subsidiary in January, 1998. As a result, Spectrum, became the parent of New
York Subsidiary.
On June 19, 1998, Famous Fixins Holding Company (Holding) was
incorporated in the State of New York. On November 16, 1998, Spectrum merged
into Holding by exchanging its outstanding common shares for shares of
Holding on a one for one basis.
On November 20, 1998, New York Subsidiary merged into Holding and
Holding changed its name to Famous Fixins, Inc. (Company).
The aforementioned 1998 merger transactions have been accounted
for as a "reverse acquisition" because the former shareholders of New York
Subsidiary received the larger portion of the voting rights in the combined
companies and that; (i) for accounting purposes New York Subsidiary is deemed
to be the accounting acquirer, (ii) the historical financial statements
presented are that of New York Subsidiary and (iii) the guidance of APB 16 is
applied in the allocation of the purchase price to the accounting acquirees
(Spectrum's) net assets, the nature of which are described above.
All significant intercompany accounts and transactions are
eliminated.
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity and athlete
endorsed food products for sale in supermarkets, other retailers and over the
Internet. The Company develops, markets and sells specialty food products
based on the diverse professional, cultural and ethnic backgrounds of various
celebrities. The Company enters into licensing agreements with high profile
athletes and other celebrities and creates food products which include a line
of breakfast cereals and a line of salad dressings endorsed by the licensors.
The Company utilizes a nationwide network of food brokers to distribute its
products throughout the United States. Third party manufacturers produce the
Company's various food products.
F-6
41
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
The Company's current roster of high profile celebrities and
athletes who endorse food products that it promotes and markets includes the
following, among others:
Sammy Sosa of the Chicago Cubs;
Cal Ripken, Jr. of the Baltimore Orioles;
Jeff Bagwell, Craig Biggio, and Ken Caminiti of the Houston
Astros;
Derek Jeter of the New York Yankees;
Alonzo Mourning of the Miami Heat;
Jake Plummer of the Arizona Cardinals;
Peyton Manning of the Indianapolis Colts;
Tim Duncan of the San Antonio Spurs;
The New York Mets baseball team; and
Academy Award Winner actress Olympia Dukakis.
In August 1998, the Company received approval to trade its common
shares on the "OTC Bulletin Board".
In 1999, the Company has issued an additional 3,578,733 shares of
common stock in exchange for cash and services aggregating $475,808 which as
at December 31, 1999 (a) $306,482 was collected by the Company; (b) $47,500
is receivable under a stock subscription agreement; and (c) $121,826 has been
provided in various services. The offerings are pursuant to the exemptions
from registration with the Securities and Exchange Commission (SEC) provided
by Section 4(2) of the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, including Regulation D, and under
applicable state laws, rules and regulations.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern. The Company has incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflects a deficiency in stockholders' equity. These conditions
indicate that the Company may be unable to continue as a going concern.
Management believes that it can achieve profitable operations in the future
and that it can continue to raise adequate capital and financing as may be
required. However, there can be no assurance that future capital
contributions and/or financing will be sufficient for the Company to continue
as a going concern or that it can achieve profitable operations in the
future. These financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
F-7
42
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Estimates are made when accounting for uncollectible accounts
receivable, instant winner card obligations, advertising barter credits,
depreciation and amortization, income taxes, contingencies and valuation of
warrants, among others. Estimates and assumptions are reviewed periodically
and the effects of revisions are reflected in the financial statements in the
period they are determined to be necessary.
STOCK-BASED COMPENSATION - WARRANTS
-----------------------------------
The Company accounts for stock-based compensation using the fair-
value based method prescribed in SFAS No. 123 "Accounting for Stock-Based
Compensation". Compensation cost for all stock warrants issued by the Company
is (a) measured at the grant date based on the fair value of the warrants and
(b) recognized over the service period. See Note 8.
REVENUE RECOGNITION AND SALES RETURNS
-------------------------------------
Revenue from sales of celebrity and athlete endorsed food
products is recorded at the time the goods are shipped, with provision for
uncollectible accounts, when appropriate. Provision for sales returns and
allowances are recorded in the period in which the related revenue is
recognized. When sales returns and allowances are in excess of customer
receivable balances, such excess amount is reflected as a current liability
under the category "Due To Customers".
OTHER COMPREHENSIVE INCOME
--------------------------
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", established standards for reporting and
display of comprehensive income and its components in the financial
statements. Besides net income, SFAS No. 130 requires the reporting of other
comprehensive income, defined as revenues, expenses, gains and losses that
under generally accepted accounting principles are not included in net income.
As at December 31, 1999 and 1998, the Company had no items of other
comprehensive income and as a result, no additional disclosure is included in
the financial statements.
F-8
43
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
CONCENTRATIONS OF CREDIT RISK
-----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105, consist of cash and cash equivalents,
investments in marketable equity trading securities and trade accounts
receivable.
A. CASH AND CASH EQUIVALENTS
-------------------------
The Company maintains its cash balances in one financial
institution located in New York, New York. The balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. As at December 31,
1999, the Company's bank statement balances in excess of such insurance were
approximately $409,000.
The Company invests excess cash in high quality short-term
liquid money market instruments with maturities of three months or less when
purchased. Investments are made only in instruments issued by or enhanced by
high quality financial institutions. The Company has not incurred losses
related to these investments.
B. MARKETABLE EQUITY TRADING SECURITIES
------------------------------------
The Company's marketable equity trading securities consist of
shares in a high quality mutual fund described in Note 2. The Company has
not incurred losses related to this investment.
C. ACCOUNTS RECEIVABLE
-------------------
The Company's customer base consists primarily of
supermarkets located in the United States. Credit limits, ongoing credit
evaluations and account monitoring procedures are utilized to minimize the
risk of loss. The Company does not generally require collateral. In 1999,
approximately 32% (30% in 1998) of the sales of the Company were derived from
two customers. Although the Company is directly affected by the well being
of the retail food industry, management does not believe significant credit
risk exists at December 31, 1999.
F-9
44
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or market
value on a first-in, first-out basis.
PLANT AND EQUIPMENT
-------------------
Plant and equipment are stated at cost, less accumulated
depreciation. The cost of major improvements and betterments to existing
plant and equipment are capitalized, while maintenance and repairs are
charged to expense when incurred. Upon retirement or other disposal of plant
and equipment, the profit realized or loss sustained on such transaction is
reflected in income. Depreciation is computed on the cost of plant and
equipment on the straight-line method, based upon the estimated 5 year useful
life of the assets.
INCOME TAXES
------------
The Company has incurred net operating losses for federal income
tax purposes during the current and prior tax years. Such losses, in the
approximate amount of $487,000 are available through December 31, 2019 as
deductions from future income otherwise subject to income taxes.
The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting For Income Taxes", which requires the
recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
No deferred tax assets are recognized in the balance sheets as at December
31, 1999 and 1998 in connection with the Company's net operating losses
inasmuch as a full valuation allowance has been established by management.
F-10
45
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2. INVESTMENTS IN MARKETABLE EQUITY TRADING SECURITIES
---------------------------------------------------
Marketable equity securities, classified as "trading securities",
are carried at market value and consist of the following at December 31, 1999:
NO. OF UNREALIZED MARKET
SHARES COST GAIN VALUE
------ ---- ---------- ------
Chase Vista Equity Growth
Class A Fund 8,525 $100,000 $1,961 $101,961
Trading securities are stated at fair value with unrealized gains
and losses reported in income. Realized gains and losses are determined on
the specific identification method and are reflected in income. The Company
had no gross realized gains and losses on sale of marketable equity trading
securities for the years ended December 31, 1999 and 1998.
NOTE 3. UNUSED ADVERTISING BARTER CREDITS
---------------------------------
In July 1998, the Company issued 125,000 shares of its common
stock in exchange for advertising services and credits to be provided in the
current and future periods. The exchange was accounted for on the basis of
$1.00 per share of common stock issued (the then prevailing price of the
Company's shares) for an aggregate of $125,000, such amount being equal to
the value of the advertising services and credits. Of such amount, $75,000
is charged to income in 1998, for advertising services utilized by the
Company in its operations. At December 31, 1999 and 1998, $50,000 of unused
advertising barter credits are available in connection with specified future
radio spot advertisements and is reflected in the accounts as a contra to
stockholders' equity. Such amount is valued at the estimated cost of
services to be received by the Company which are usable without any
additional cash payments.
F-11
46
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4. 5% CONVERTIBLE DEBENTURES PAYABLE
---------------------------------
In October, 1999 the Company entered into two Convertible
Debenture and Warrants Purchase Agreements pursuant to which the investors
agreed to purchase, for $550,000, an aggregate of $550,000 principal amount
of 5% Convertible Debentures (Debentures) convertible into common stock (due
October 19, 2002) and Warrants to purchase 139,152 shares of the Company's
common stock.
At the initial closing date, the Company received $450,000 in
connection with the sale of $450,000 principal amount of Convertible
Debentures and Warrants. The Company incurred debt issuance costs of $45,000
which are amortized as a component of interest expense over the term of the
Debentures. A second closing date for the sale of the remaining $100,000 of
Debentures is subject to the effective date of a registration statement and
certain other conditions as described in the agreements. (See Note 11,
Events Subsequent as to the issuance of the remaining Debentures.)
The Debenture holders are entitled to convert any portion of the
principal of the Debentures to common stock at a conversion price for each
share at the lower of (a) 80% of the market price at the conversion date or
(b) $.55. The Debentures include an option by the Company to exchange the
Debentures for Convertible Preferred Stock.
In accordance with the agreements, the Company issued an
aggregate of 139,152 Warrants for the purchase of the Company's common stock,
exercisable between October 30, 1999 and October 30, 2004 at a purchase price
of $.494 per share (125% of the market price on the closing date). The fair
value of the Warrants in the amount of $63,968 is accounted for as additional
paid-in capital with the resulting discount reflected as a reduction of the
carrying amount of the Debentures. The discount is amortized as a component
of interest expense over the term of the Debentures.
These Debentures have an effective annualized interest rate of
13% to the Company, including debt issuance and warrant costs.
The following summarizes the outstanding balance of the
Debentures at December 31, 1999:
Principal amount of Debentures $450,000
Discount for Warrants issued (63,968)
--------
386,032
Amortized discount for 1999 3,554
--------
CARRYING AMOUNT AT DECEMBER 31, 1999 $389,586
========
F-12
47
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 5. LONG-TERM NOTE PAYABLE TO BANK (1998 - $40,685)
-----------------------------------------------
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank (Bank), the Company may receive loan proceeds up to a maximum
credit line amount, which is currently set at $100,000. From time to time,
the Bank notifies the Company as to the current amount of the available
credit line. The Company may borrow incremental principal amounts of at
least $2,500 with interest computed at the Bank's prime rate plus "%. The
loan principal is payable in monthly installments equal to 1/36 of the
outstanding principal on the date of the most recent bank loan advance.
Repayment of the Company's loan is guaranteed by certain principal
stockholders of the Company.
There is no outstanding loan balance to the Bank at December 31,
1999. The balance due on the indebtedness at December 31, 1998 consists of
current maturities of $15,432 and installments due after one year of $25,253.
NOTE 6. ADVERTISING
-----------
The Company charges to expense all advertising costs as incurred.
The aggregate advertising expense incurred by the Company was approximately
$279,000 and $285,000 for the years ended December 31, 1999 and 1998,
respectively. See Note 3 for the details of unused advertising barter
credits of $50,000 which are included in the accounts as a contra to
stockholders' equity at December 31, 1999 and 1998.
F-13
48
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES
-----------------------------
A. ROYALTY CONTRACTS
-----------------
The Company has various celebrity licensing agreements which
generally cover worldwide sales of its products. One of the agreements is
with a related party and covers the Company's salad dressing line of
products. The contracts generally specify that the Company shall pay
royalties based on net annual merchandise sales and provide for certain
minimum guarantees for the licensors. Minimum aggregate royalty guarantees
(including the unearned cost of common stock warrants) are as follows:
YEAR
ENDING
DECEMBER 31,
------------
2000 $418,000
2001 59,000
2002 103,000
--------
TOTAL $580,000
========
Total royalty expense charged to operations (including the
recognized portion of the cost of common stock warrants as described in Note
1) under the foregoing contracts are summarized as follows for the years
ended December 31, 1999 and 1998:
1999 1998
-------- --------
Unrelated parties $473,000 $ 33,000
Related party 5,000 103,000
-------- --------
$478,000 $136,000
======== ========
F-14
49
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
B. REAL PROPERTY LEASE
-------------------
Rental commitments under a noncancellable operating lease for the
Company's office facilities located in New York, New York are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
----------- --------
2000 $ 38,889
2001 40,230
2002 42,912
2003 44,923
2004 46,935
2005 15,645
--------
TOTAL $229,534
========
Rent expense charged to operations was approximately $19,000 and
$8,000 for the years ended December 31, 1999 and 1998, respectively.
C. TRANSPORTATION EQUIPMENT LEASE
------------------------------
The Company is obligated under the terms of an operating lease
for transportation equipment utilized by it. Future minimum annual payments
under this noncancellable operating lease are as follows:
YEAR ENDING
DECEMBER 31,
-----------
2000 $ 9,683
2001 7,260
-------
TOTAL $16,943
=======
Total equipment lease expense charged to operations was
approximately $15,000 and $7,000 for the years ended December 31, 1999 and
1998, respectively.
F-15
50
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
D. PURCHASE COMMITMENTS
--------------------
The Company has an understanding with its principal manufacturer-
supplier to purchase certain minimum levels of merchandise. At December 31,
1999, the approximate future purchase commitments amount to $376,000.
E. AGREEMENT WITH EXECUTIVE OFFICER
--------------------------------
Pursuant to an agreement with the Company's chief executive
officer, if there is a "Change in Control" of the Company as defined in the
agreement, the officer shall have the right to terminate such agreement and
shall be entitled to a lump sum payment equal to 290% of his base amount as
defined in Section 280(G) of the Internal Revenue Code.
F. YEAR 2000 COMPLIANCE
--------------------
The Company recognizes the need to ensure its operations are not
adversely impacted by Year 2000 software failures. The Company primarily
uses licensed software products in its operations with a significant portion
of processes and transactions centralized in one particular software package.
During 1999, management upgraded its software so that the Company's
accounting system is Year 2000 compliant. The cost of the upgrade was not
material. Also during 1999, attention was focused on compliance attainment
efforts of vendors and others, including key system interfaces with customers
and suppliers. Although it is not possible to quantify the effects Year 2000
compliance issues will have on customers and suppliers, the Company does not
anticipate related material adverse effects on its financial condition or
results of operations.
G. OTHER CONTINGENCIES
-------------------
In the normal course of business, the Company has lawsuits,
claims and contingent liabilities. The Company does not expect that any sum
it may have to pay in connection with any of these matters would have a
materially adverse effect on its financial position or results of operations.
F-16
51
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 8. OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK
---------------------------------------------
The Company has issued warrants to purchase shares of its common
stock to certain officers and nonemployees. The objectives of the issuance
of the warrants include attracting and retaining the best talent, providing
for additional performance incentives and promoting the success of the
Company by providing the opportunity to employees and nonemployees to acquire
common stock. Outstanding warrants have been granted at exercise prices
ranging from $0.15 to $2.25 and expire at various dates after the grant date.
The status of the Company's warrants is summarized below as of
December 31, 1999:
NUMBER OF OPTION
WARRANTS PRICE
---------- --------------
Outstanding at December 31, 1996 0 $ 0
Granted in 1997 104,328 .90
---------- --------------
Outstanding at December 31, 1997 104,328 .90
Granted in 1998 (*) 502,500 .90 - 2.25
---------- --------------
Outstanding at December 31, 1998 606,828 .90 - 2.25
Granted in 1999 (**) 2,844,152 .15 - 1.00
Expired in 1999 (20,000) 1.00 - 1.50
---------- --------------
Outstanding at December 31, 1999 3,430,980 $ .15 - $2.25
========= ==============
Weighted Average Fair Value of Options
Granted During 1999 $ .51
==============
(*) Includes 300,000 warrants issued to an officer,
exercisable subject to conditions of continued employment,
at 60,000 warrants per year at an exercise price of $1.00
per share, cumulatively, over a five year period, the
initial exercise date commencing in June 1999.
(**) Includes 1,500,000 warrants granted to the chief executive
officer for a period of five years at an exercise price of
$.30 per share. The warrants will vest based upon
corporate milestones including the receipt of a specified
number of new license agreements or the achievement of
specified levels of the Company's future annual earnings
determined before interest, taxes, depreciation and
amortization.
The Company accounts for stock-based compensation using the fair
value method prescribed in SFAS No. 123 "Accounting for Stock-Based
Compensation", under which compensation cost for all stock warrants issued
(both vested and non-vested) is measured at the grant date based on the fair
value of the warrants. Such cost is recognized over the service period (the
contract period).
F-17
52
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 8. OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK (CONTINUED)
---------------------------------------------
The fair value of each warrant issued is estimated on the date of
grant using the Black- Scholes option pricing model with the following
weighted-average assumptions used for the warrants issued: dividend yield of
0%, expected volatility of 150%, risk-free rate of 6%, and expected lives
ranging from 1 to 5 years.
Stock-based compensation cost charged to operations was $358,203
and $176,173 for the years ended December 31, 1999 and 1998, respectively.
NOTE 9. NET LOSS PER COMMON SHARE
-------------------------
Basic net loss per common share is calculated by dividing the net
loss by the weighted average number of common shares outstanding.
The calculation of fully diluted net loss per common share
assumes conversion of warrants and debentures into common stock. Net loss
and shares used to compute net loss per share, basic and assuming full
dilution, are reconciled below:
1999 1998
---------- ---------
Net loss as reported $ (738,132) $(630,643)
========== =========
Net loss, basic $ (738,132) $(630,643)
Effect of dilutive securities, warrants and
debentures convertible to common stock (*) - -
---------- ---------
Net loss, assuming full dilution $ (738,132) $(630,643)
========== =========
Weighted average number of common shares,
basic 10,147,294 6,458,266
Effect of dilutive securities, warrants and
debentures convertible to common stock (*) - -
---------- ---------
Common shares, assuming full dilution 10,147,294 6,458,266
========== =========
(*) No effect has been given to the conversion of warrants and
debentures to common stock inasmuch as such conversions
would be anti-dilutive.
F-18
53
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 10. CASH FLOW DATA
--------------
Cash and cash equivalents include cash on hand and investments
with maturities of three months or less at the time of purchase. Working
capital changes on the statements of cash flows were as follows:
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
--------- --------
(Increase) decrease in assets:
Accounts receivable - net $(162,862) $ (194)
Merchandise inventory (42,122) 33,766
Prepaid expenses (59,081) 2,227
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 374,203 4,179
Due to customers 190,038 -
Taxes payable - other than on income 7,901 479
--------- --------
NET CHANGES IN WORKING CAPITAL $ 308,077 $ 40,457
========= ========
Supplemental information about cash
payments is as follows:
Cash payments for interest $ 10,273 $ 9,509
Cash payments for income taxes $ 1,334 $ 625
Supplemental disclosure of noncash
financing activities:
Common stock subscription received for
common shares issued $ 47,500 $ -
Issuance of warrants in connection with
convertible debentures issued by the
Company $ 63,968 $ -
Issuance of common stock in exchange for
plant and equipment acquired $ - $ 3,475
F-19
54
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 11. EVENTS SUBSEQUENT
-----------------
A. In February 2000, the Company entered into service agreements
with two consultants providing for the issuance of a maximum of 500,000
shares of the Company's common stock and a maximum of 500,000 warrants to
purchase common stock.
B. In February 2000, the Company received the remaining balance
of $100,000 under the 5% Convertible Debenture and Warrants Purchase
Agreements described in Note 4 to the financial statements.
In addition, $225,000 of the outstanding $450,000 principal
amount of Debentures at December 31, 1999 were converted into 1,508,264
shares of common stock pursuant to the aforementioned Agreements.
C. In March 2000, the Company entered into a Convertible
Debenture and Warrant Purchase Agreement pursuant to which the investors
agreed to purchase an aggregate of $1,000,000 principal amount of debentures,
convertible into common stock at a conversion price of $.40 per share, due
March, 2005 and warrants to purchase 2,500,000 shares of the Company's common
stock exercisable between March, 2000 and March, 2005 at an exercise price of
$.75 per share.
D. In March, 2000, the Company entered into an agreement to sell
approximately $457,000 of merchandise in exchange for a trade credit to
purchase future television, radio and other advertising mediums on a barter
basis over a maximum period of four years. This transaction satisfies a
portion of the Company's purchase commitments described in Note 7D to the
financial statements.
F-20
55
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The estimate of the fair value of each class of financial
instruments for which it is practicable to estimate that value is based on
the following methods and assumptions:
CASH AND CASH EQUIVALENTS, INVESTMENTS IN MARKETABLE EQUITY
TRADING SECURITIES, ACCOUNTS RECEIVABLE, DUE TO CUSTOMERS, ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES:
The carrying amounts of these items are assumed to be a
reasonable estimate of their fair value due to their short-term nature.
LONG-TERM LIABILITIES - 5% CONVERTIBLE DEBENTURES:
There is no quoted market price for the Company's 5% Convertible
Debentures.
The Debentures, which were issued in October 1999, in the
principal amount of $450,000, are carried in the accounts at December 31,
1999 at $389,856 (net of $60,414 of discounts for unattached stock warrants
less related amortization thereof). Subsequent to December 31, 1999, as
described in Note 11, $225,000 of principal amount of the Debentures,
representing one half of the principal amount of the outstanding Debentures,
were converted into 1,508,264 shares of the Company's common stock.
In view of the close proximity of the date of issuance of the
Debentures to year end dates and the conversion of a material portion thereof
as described above, management has determined that it is impractical and
excessively costly to obtain a valuation of the Debentures. Additional
information in connection with the Debentures are provided in Notes 4 and 11B.
F-21
56
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSRE.
We did not have an independent certified accountant from April 30, 1996
to May 28, 1998, during which time period we had no material operations. On
May 28, 1998, we acquired FFNY, and the Board of Directors approved the
election to retain the services of FFNY's independent certified accountants,
Freeman and Davis LLP, who had served as FFNY's sole principal accountants
since May 25, 1997.
57
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The persons listed in the table below are our present directors and
executive officers.
Name Age Position
- ---- --- --------
Jason Bauer 30 Chairman of the Board, Chief Executive Officer,
President and Treasurer
Peter Zorich 31 Director, Executive Vice President and Secretary
Michael Simon 30 Executive Vice President and Director
Lisa Bauer 29 Director
Our directors are elected annually to serve for one year and hold office
until the next annual meeting of the shareholders and until their successors
are elected and qualified. Our officers are elected by the Board of Directors
at the first meeting after each annual meeting of our shareholders, and hold
office until their death, resignation or removal from office. Michael Simon
became a director on July 8, 1999.
None of the directors are directors of other reporting companies.
Family relationships that exist among our present officers and directors
are: Jason Bauer, our Chief Executive Officer, President and Chairman of the
Board of Directors, is the spouse of Lisa Bauer, a director.
None of our officers and directors have been involved in the past five
years in any of the following:
- bankruptcy proceedings;
- subject to criminal proceedings or convicted of a criminal act;
- subject to any order, judgment or decree entered by any court for
violating any laws relating to the business, securities or banking
activities; or
- subject to any order for violation of federal or state securities
laws or commodities laws.
MANAGEMENT PROFILES
JASON BAUER, Chief Executive Officer, President, Treasurer and Chairman
of the Board. Jason Bauer has served as our President, Treasurer and Chairman
of the Board since May 1998. In November 1995, he founded FFNY, which we
acquired in May 1998. From November 1995 to May 1998, he served as President
and Chairman of the Board of FFNY. He worked in the food and beverage
industries throughout his entire career. Before founding FFNY, from October
1994 through December 1996, Mr. Bauer was Regional Sales Manager for Krinos
Foods, and from December 1996 through March 1997, he was National Sales
Manager for Paradise Products, a manufacturer and distributor of foods
products in the United States. His expertise includes new product
introduction as well as implementation of sales and marketing programs. From
1991 through 1994, Mr. Bauer was Sales Manager for Tri-County Distributors, a
beverage wholesaler, where he was responsible for sales of over 100 beverage
products. Mr. Bauer received a Bachelor of Science degree in marketing and
finance from Boston University in 1991.
58
<PAGE>
PETER ZORICH, Executive Vice President, Secretary and Director. Peter
Zorich has served as our Executive Vice President, Secretary and a director
since May 1998. He was one of the founders of FFNY, which we acquired in May
1998, having served as Vice President and a director of FFNY from 1995 to May
1998. Mr. Zorich has extensive experience in the television industry as a
producer and as a programmer for national news and entertainment. From 1996
to the present, he has worked for the Fox New Channel in New York, New York as
a producer of the prime time news and the television talk show "Hannity &
Colmes". From 1994 to 1996, he was an associate producer at the business
cable network CNBC, where he produced segments on business, politics and
entertainment. From 1993 to 1994, he was an associate producer for the Fox
Network morning television show "Good Day New York", where he booked guests
for local news segments. Mr. Zorich is the son of Olympia Dukakis. Mr.
Zorich received a Bachelor of Arts degree in political science from Montclair
State University in 1990.
LISA BAUER, Director. Lisa Bauer has served as our director since May
1998. From 1997 to May 1998, she served as a director of FFNY. From July
1998 to the present, she has worked at J.P. Morgan & Co. As a financial
planner in its asset management services area. From November 1997 to June
1998, she worked as an investment manager at Circle Advisors, a financial
planning and investment advisory firm. From April through November 1997, she
worked as an estate planner for Smith Barney, and from February 1996 through
March 1997, she worked as a sales assistant for Lehman Brothers. From June
1993 through January 1996, she worked as a sales assistant at J.P. Morgan.
MICHAEL SIMON, Executive Vice President and Director. Michael Simon has
served as our Executive Vice President and a director since July 8, 1999. He
served, on an independent contractor basis, as our Vice President of
Publicity, in a non-officer capacity, from May 28, 1998 to July 8, 1999. From
1997 to May 1998, he held the non-officer title of Vice President of Publicity
of FFNY. He has worked in the entertainment industry for the past eight
years. From August 1998 to June 1999, he worked as a publicist with the
public relations firm B/W/R located in New York, New York. While at B/W/R, he
worked with celebrity clients such as Cal Ripken, Jr., Sugar Ray Leonard,
Jason Alexander, Chris Rock and corporate clients D.A.R.E. America and
Playboy. From August 1997 to July 1998, he worked as a publicist with the
public relations firm Jason Weinberg and Associates located in New York, New
York, where he worked with clients such as Della Reese, Marlo Thomas, Kirstie
Alley and Michael Bergin. From July 1995 through July 1997, he was a Public
Relations Manager for Planet Hollywood International, Inc. where his duties
included promoting the Planet Hollywood restaurants and logo. He has
extensive relationships with national media outlets in radio, television and
print, and his primary role for Famous Fixins will be that of publicist. From
June 1991 through July 1995, Mr. Simon was a television talent agent for the
Los Angeles based talent agency, International Creative Management, where he
worked with clients such as Valerie Harper, Garry Marshall, Sugar Ray Leonard,
Bob Barker and Tori Spelling. Mr. Simon received a Bachelor of Arts degree
from Hunter College in 1991.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of filings with the SEC and written representations
that no other reports were required, we believe that all of our directors and
executive officers and all persons who own more than 10% of our common stock
complied during the fiscal 1999 year with the reporting requirements of
Section 16(a) of the Securities Exchange Act.
59
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION SUMMARY TABLE
The table below sets forth information concerning the annual and long-
term compensation during our last three fiscal years of our Chief Executive
Officer and other of our most highly compensated employees and all other
officers and directors.
The following factors should be considered when reviewing the table
below:
- Jason Bauer, Peter Zorich, Lisa Bauer and Olympia Dukakis became a
director or officer of Famous Fixins on May 28, 1998. Olympia
Dukakis resigned as a director on July 6, 1999.
- The compensation paid in fiscal year 1998 includes the operations
of FFNY prior to May 28, 1998. The compensation paid in fiscal
year 1997 refers to the operations of FFNY, a privately held
company at the time.
- Under an employment agreement, we granted Jason Bauer options to
purchase 1,500,000 shares of our common stock, valued at
approximately $522,450 at the time of grant. These options are
exercisable for five years at $.30 per share. These options are to
vest only after we achieve certain corporate milestones as defined
in his employment agreement.
- Michael Simon became a director and officer of Famous Fixins on
July 8, 1999. The compensation for Michael Simon in fiscal year
1999 includes $3,350 in compensation paid to him while he served
as an independent consultant to Famous Fixins.
- Michael Simon is entitled to as additional cash compensation,
reported in the Bonus column, an amount equal to five to ten
percent of royalties paid by us during the employment period to
certain celebrity licensors under license agreements.
- On June 2, 1998, we issued to Michael Simon 300,000 warrants to
purchase shares of our common stock, valued at $275,982. At that
time, Michael Simon served as an independent consultant to Famous
Fixins. The warrants are exercisable for six years at $1.00 per
share, subject to vesting at a rate of 60,000 per year. Presently,
60,000 warrants are exercisable. These warrants are included in
the Summary Compensation Table.
- The amount shown in the Other Annual Compensation column is the
dollar value of an automobile that we provide for Jason Bauer.
- The amount shown in the All Other Compensation column is the
insurance premium under a life insurance policy that we provide
for Jason Bauer.
Summary Compensation Table
<TABLE>
Long Term
Compensation
------------
Awards
------
Name and Other Securities
Principal Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARs Compensation
- -------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer 1999 $82,592 $ 0 $ 15,102 1,500,000 $ 610
President and Chairman 1998 $75,094 $ 0 $ 0 0 $ 0
of the Board 1997 $29,050 $ 0 $ 0 0 $ 0
Michael Simon 1999 $17,965 $20,596 $ 0 0 $ 0
Executive Vice President 1998 $ 0 $ 0 $ 0 300,000 $ 0
and Director 1997 $ 0 $ 0 $ 0 0 $ 0
Peter Zorich 1999 $ 0 $ 0 $ 0 0 $ 0
Executive Vice President, 1998 $ 0 $ 0 $ 0 0 $ 0
Treasurer, Secretary and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Lisa Bauer 1999 $ 0 $ 0 $ 0 0 $ 0
Director 1998 $ 0 $ 0 $ 0 0 $ 0
1997 $ 0 $ 0 $ 0 0 $ 0
Olympia Dukakis 1999 $ 0 $ 0 $ 0 0 $ 0
Former Director 1998 $ 0 $ 0 $ 0 0 $ 0
1997 $ 0 $ 0 $ 0 0 $ 0
</TABLE>
60
<PAGE>
OPTION GRANTS
The table below sets forth information concerning options granted
during the 1999 fiscal year to those persons named in the preceding Summary
Compensation Table.
We granted a total of 1,500,000 options to one employee in the 1999
fiscal year. Under an employment agreement, we granted to Jason Bauer options
to purchase 1,500,000 shares of our common stock, valued at approximately
$522,450 at the time of grant. These options are exercisable for five years
at $.30 per share. The options are to vest only after we achieve certain
corporate milestones as set forth in the employment agreement:
- options to purchase 600,000 shares are to vest following the first
fiscal year end in which we sign four new product endorsement
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $300,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $500,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $700,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $1,000,000.
These options are cumulative and are subject to anti-dilution rights. If any
of these milestones are achieved in the same year, all of the options vest at
the time the milestones are achieved.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year ($/Sh) Date
- ---- ------------ -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Jason Bauer 1,500,000 100% $.30 April 11, 2004
Peter Zorich 0 0% -- --
Lisa Bauer 0 0% -- --
Michael Simon 0 0% -- --
Olympia Dukakis 0 0% -- --
</TABLE>
61
<PAGE>
OPTION EXERCISES AND VALUES FOR FISCAL 1999
The table below sets forth information concerning the value of
unexercised stock options as of December 31, 1999 for those individuals named
in the Summary Compensation Table.
The following factors should be considered when reviewing the table
below:
- None of the options held by those individuals listed in the Summary
Compensation Table were exercised in fiscal year 1999.
- The dollar values were calculated by determining the difference
between the fair market value at fiscal year-end of the common
stock underlying the warrants and the exercise price of the
warrants. The last sale price of a share of our common stock on
December 31, 1999 as reported by OTC Bulletin Board was $0.25.
- The table reports that the options granted to Jason Bauer have not
vested. As of March 2000, he is deemed vested with options to
purchase 1,200,000 shares of common stock.
- The options held by Michael Simon are exercisable at $1.00 per
share and therefore were not in-the-money as of December 31, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
Number of securities
Shares underlying unexercised Value of unexercised
Acquired Value Options/SARs in-the-money options/SARs
on Realized at FY-end (#) at FY-end ($)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer -- -- -- 1,500,000 -- $375,000
Peter Zorich -- -- -- -- -- --
Lisa Bauer -- -- -- -- -- --
Michael Simon -- -- 60,000 240,000 -- --
Olympia Dukakis -- -- -- -- -- --
Russell Ortman -- -- -- -- -- --
Leona Jamison -- -- -- -- -- --
</TABLE>
DIRECTOR COMPENSATION
We have never compensated members of the Board of Directors for their
services, and have never reimbursed directors for their reasonable out-of-
pocket expenses incurred in connection with their attendance at board meetings
and for other expenses incurred in their capacity as directors.
We presently do not have a defined compensation plan for members of our
Board of Directors. We reserve the right to compensate members of the Board
of Directors for their services on the Board at reasonable rates, including by
issuing stock options, and reimbursement of expenses for their attendance at
each Board meeting.
62
<PAGE>
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Jason Bauer, Chief Executive Officer, President
- -----------------------------------------------
We have an employment agreement with Jason Bauer to serve as President
and Chief Executive Officer for a term of five years ending April 11, 2004.
The agreement provides for a current annual salary of $150,000, with cost-of-
living adjustments tied to the Consumer Price Index. Beginning in the third
year of the employment term, his base annual salary is to increase by an
amount equal to one percent of our earnings before interest, taxes,
depreciation and amortization in the most recent fiscal year.
He has been granted options to purchase 1,500,000 shares of our common
stock, valued at approximately $522,450 at the time of grant. These options
are exercisable for five years at $.30 per share. These options are to vest
only after we achieve certain corporate milestones.
- options to purchase 600,000 shares are to vest following the first
fiscal year end in which we sign four new product endorsement
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $300,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $500,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $700,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more new
licenses or our earnings before interest, taxes, depreciation and
amortization exceeds $1,000,000.
These options are cumulative and are subject to anti-dilution rights. If any
of these milestones are achieved in the same year, all of the options vest at
the time the milestones are achieved. As of March 2000, 1,200,000 options
have vested.
He is also to receive an annual performance bonus equal to up to fifty
percent of his base salary, or such other amount as the Board of Directors may
determine. He is also entitled to:
- death benefits of $100,000;
- medical and dental insurance;
- six weeks vacation;
- a fifteen year term life insurance policy with a face amount of
benefit of $1,000,000 and a beneficiary as designated by him;
- an automobile for his exclusive use;
- reimbursement for reasonable travel and other business related
expenses; and
- other bonuses to be determined by the Board of Directors.
If we undergo a change of control, he is to receive a golden parachute
payment equal to 290% of his base salary, and he has the right to terminate
his employment agreement. A change of control refers to any of the following
situations:
- a change in our ownership or management that would be required to
be reported in response to certain provisions of the Securities
Exchange Act of 1934;
- an acquisition by a person or entity, excluding us, of 25% or more
of our common stock or our then outstanding voting securities;
- a change in a majority of the current Board of Directors, other
than in connection with an actual or threatened proxy contest;
- completion of a reorganization, merger, consolidation or sale of
all or substantially all of our assets; or
- the approval by our stockholders of our complete liquidation or
dissolution.
63
<PAGE>
Michael Simon, Vice President
- -----------------------------
On June 2, 1998, we entered into an agreement with Michael Simon for his
services, on an independent contractor basis, to perform services as our
publicist. Under the arrangement, we issued to him 300,000 warrants, valued
at $275,982, to purchase shares of our common stock in a transaction deemed to
be exempt under Section 4(2) of the Securities Act of 1933. At the time of
issuance, he was our Vice President of Publicity, in a non-officer capacity.
The warrants granted to him are exercisable for six years at $1.00 per share,
subject to vesting at a rate of 60,000 warrants per year and subject to other
conditions of performance of publicity services, valued at $275,982 at the
time of grant, to be rendered to us over a five year period.
On July 8, 1999, Michael Simon became our Executive Vice President and
was elected to our Board of Directors. Pursuant to an oral agreement for an
at-will employment for a term not to exceed one year, he earned compensation
amounting to $50,000 annually. In November 1999, his salary was increased to
$60,000 annually. He also received as additional compensation an amount
equal to ten percent of royalties paid by us during the employment period to
certain celebrity licensors under license agreements, which was reduced to
five percent in November 1999.
We currently do not have a retirement, pension or profit sharing
program, but the Board of Directors may recommend one at a later date.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth the shares of our common stock beneficially
owned by each person known to us to be the beneficial owner of more than 5% of
the outstanding shares of common stock, except that the security ownership of
management is provided in a separate table. Beneficial ownership and percent
of class are based upon 12,220,888 shares of common stock issued and
outstanding on March 13, 2000, as adjusted to include shares of common stock
that may be acquired within 60 days.
AMRO International, S.A. owns 508,264 shares of common stock and
beneficially owns another 834,542 shares of common stock, assuming the
exercise of 101,202 warrants and the conversion of $325,000 principal amount
of 5% debentures into a total of 834,452 shares of common stock. AMRO
International may not exercise the warrants or convert the debentures into a
number of shares of common stock so that it owns 9.9% or more of our then-
outstanding common stock. The applicable conversion rate of the 5% debentures
adjusts with the market price of our common stock. Assuming a conversion
price for the 5% debentures of $.343 per share, AMRO International could
acquire up to 1,048,724 shares of our common stock upon the exercise of
warrants and the conversion of debentures if the exercise or conversion does
not violate the 9.9% limit.
Roseworth Group Ltd. beneficially owns 1,342,806 shares of our common
stock, assuming the exercise of 1,000,000 warrants and the conversion of
$400,000 principal amount of debentures into a total of 1,342,806 shares of
common stock. Roseworth Group may not exercise the warrants or convert the
debentures into a number of shares of common stock so that it owns 9.9% or
more of our then-outstanding common stock. Roseworth Group could acquire up
to 2,000,000 shares of our common stock upon the exercise of warrants and the
conversion of debentures if the exercise or conversion does not violate the
9.9% limit.
Austost Anstalt Schaan owns 500,000 shares of common stock and
beneficially owns another 842,806 shares of our common stock, assuming the
exercise of 643,975 warrants and the conversion of $250,000 principal amount
of debentures into a total of 842,806 shares of common stock. Austost Anstalt
Schaan may not exercise the warrants or convert the debentures into a number
of shares of common stock so that it owns 9.9% or more of our then-outstanding
common stock. Austost Anstalt Schaan could acquire up to 1,268,975 shares of
our common stock upon the exercise of warrants and the conversion of
debentures if the exercise or conversion does not violate the 9.9% limit.
Balmore Funds, S.A. owns 500,000 shares of common stock and beneficially
owns another 842,806 shares of our common stock, assuming the exercise of
893,975 warrants and the conversion of $350,000 principal amount of debentures
into a total of 842,806 shares of common stock. Balmore Funds may not
exercise the warrants or convert the debentures into a number of shares of
common stock so that it owns 9.9% or more of our then-outstanding common
stock. Balmore Funds could acquire up to 1,768,975 shares of our common stock
upon the exercise of warrants and the conversion of debentures if the exercise
or conversion does not violate the 9.9% limit.
<TABLE>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Owner of Class
- -------------- ------------------------------------------ ------------------- --------
<S> <C> <C> <C>
Common Stock AMRO International, S.A. 1,342,806 9.9%
Grossmuensterplatz 6
Zurich, CH-8022, Switzerland
Common Stock Roseworth Group Ltd. 1,342,806 9.9%
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Common Stock Austost Anstalt Schaan 1,342,806 9.9%
Landstrasse 163
9494 Furstenweg
Vaduz, Liechtenstein
Common Stock Balmore Funds, S.A. 1,342,806 9.9%
Trident Chambers
Road Town, Tortola, British Virgin Islands
</TABLE>
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(b) SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth the shares of our common stock beneficially
owned by each officer, by each director, and by all of our officers and
directors as a group. All persons named in the table have the sole voting and
dispositive power, unless otherwise indicated, with respect to common stock
beneficially owned. Beneficial ownership and percent of class in the table
below is based upon 12,220,888 shares of common stock issued and outstanding
on March 13, 2000, as adjusted to include shares of common stock acquirable
within 60 days.
We granted to Jason Bauer options to purchase 1,500,000 shares of common
stock under an employment agreement. Jason Bauer may exercise options to
purchase up to 1,200,000 shares of common stock beginning in August 2000.
These options are not reported in the table below.
We granted to Michael Simon warrants to purchase 300,000 shares of
common stock. Reported in the table below are 60,000 warrants, and the
remaining warrants vest in increments of 60,000 warrants on June 2 of each
year.
Jason Bauer owns 2,389,747 shares of common stock. Peter Zorich owns
2,409,747 shares of common stock. Jason Bauer and Peter Zorich are deemed the
beneficial owner of the shares of common stock held by each other due to a
voting agreement. The agreement provides that Jason Bauer and Peter Zorich
shall vote his shares for the election of the other as a director of Famous
Fixins. For the election of any additional director, Jason Bauer and Peter
Zorich shall vote his shares for the election of each other's designee,
provided that at least two directorships shall need to be filled. The
agreement also provides that they will vote for the election of Jason Bauer as
President and Chief Executive Officer and Peter Zorich as Executive Vice
President of Famous Fixins. The agreement expires on June 30, 2001, unless
earlier terminated by written agreement signed by both parties.
<TABLE>
Name and Address Amount and Nature Acquirable Percent
Title of Class of Beneficial Owner of Beneficial Owner within 60 days of Class
- -------------- ------------------- ------------------- -------------- --------
<S> <C> <C> <C> <C>
Common Stock Jason Bauer 4,799,494 0 39.3%
Common Stock Peter Zorich 4,799,494 0 39.3%
Common Stock Michael Simon 327,650 60,000 2.7%
Common Stock Lisa Bauer 0 0 0.0%
Common Stock All officers and directors 5,127,144 60,000 41.7%
as a group (4 persons)
</TABLE>
The address of each of the persons named in the table above is Famous
Fixins, Inc., 250 West 57th Street, Suite 1112, New York, New York 10701.
(c) CHANGES IN CONTROL
There is no arrangement which may result in a change in control of
Famous Fixins.
Jason Bauer and Peter Zorich have an agreement to vote their respective
shares for the election of each other as a director of Famous Fixins. For the
election of any additional director, each of Bauer and Zorich shall vote his
shares for the election of each other's designee, provided that at least two
directorships shall need to be filled. The agreement also provides that they
will vote for the election of Jason Bauer as President and Chief Executive
Officer and Peter Zorich as Executive Vice President of Famous Fixins. They
also agreed not to offer to sell, sell, transfer, assign, hypothecate, pledge
or otherwise dispose of any beneficial interest in their voting shares except
subject to the terms of the voting agreement, unless prior written consent is
obtained from the other party that such shares shall not be subject to the
voting agreement or unless the shares are sold to an independent third party
in an arms'-length transaction for fair market value. The agreement expires
on June 30, 2001, unless earlier terminated by written agreement signed by
both parties. Jason Bauer is our Chief Executive Officer, President,
Treasurer and Chairman of the Board of Directors. Peter Zorich is our Vice
President, Secretary and a director. Bauer and Zorich are our two largest
shareholders.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 28, 1998, we completed the acquisition of FFNY, a privately-held
New York corporation formed on November 29, 1995in a transaction viewed as a
reverse acquisition. Immediately prior to the acquisition, Jason Bauer was
the President, Chairman of the Board, and a principal of FFNY, and Peter
Zorich was the Executive Vice President, Secretary, a director, and a
principal of FFNY. Pursuant to a Plan and Agreement of Reorganization, we
issued 5,494,662 shares of common stock to certain shareholders of FFNY which
included the controlling shareholders of FFNY, Jason Bauer and Peter Zorich,
in a transaction deemed to be exempt under Section 4(2) of the Securities Act
of 1933. Pursuant to the reorganization, Jason Bauer, Peter Zorich, Michael
Simon, and certain non-affiliates of FFNY, exchanged their shares of FFNY for
an aggregate of 5,494,662 shares of our common stock, on a pro-rata basis.
Pursuant to the acquisition, our officers and directors resigned and elected
the FFNY nominees in their places, and FFNY become a majority-owned subsidiary
of Famous Fixins. Jason Bauer, Peter Zorich, and Michael Simon had acquired
their 95, 95 and 5 common shares, respectively, of FFNY on August 21, 1996 for
a total cost of less than $10. On October 29, 1997, FFNY authorized, and on
January 23, 1998, FFNY filed, a Certificate of Amendment of the Certificate of
Incorporation to change and increase the authorized capital stock of FFNY from
200 common shares, no par value, into 20,000,000 shares of common stock, par
value $.001. All the shareholders of FFNY exchanged their collective 200
common shares with no par value, proportionately, for a total of 4,000,000
shares of common stock, par value $.001 per share, of FFNY. Pursuant to our
acquisition of FFNY, Jason Bauer, Peter Zorich, Michael Simon, and certain
non-affiliates exchanged their collective 4,104,328 shares of FFNY,
representing approximately 97% of the outstanding shares of FFNY, for an
aggregate of 5,494,662 shares of Famous Fixins.
On May 28, 1998, we exchanged all of the 246,828 warrants of FFNY
outstanding for 246,828 of our warrants on a one for one basis. As part of
the exchange of warrants, we issued to Olympia Dukakis 100,000 warrants,
valued at $91,994, to purchase shares of our common stock, exercisable for
five years at $1.00 per share, in exchange for her 100,000 five year warrants
to purchase the common stock of FFNY at $1.00 per share. She acquired her
warrants pursuant to license arrangements. At that time, she served on our
Board of Directors, and previously had been a director of FFNY. Olympia
Dukakis resigned from our Board of Directors on July 6, 1999.
On June 2, 1998, we issued 300,000 warrants to purchase shares of our
common stock to Michael Simon for publicity services valued at $275,982 to be
rendered to us over a five year period, in a transaction deemed to be exempt
under Section 4(2) of the Securities Act of 1933. Michael Simon was our Vice
President of Publicity, in a non-officer capacity, at the time of the
issuance. The warrants are exercisable for six years at $1.00 per share,
subject to vesting at a rate of 60,000 per year and subject to other
conditions of performance of services to us. On July 8, 1999, Michael Simon
became an officer and director of Famous Fixins.
Jason Bauer and Peter Zorich have an agreement to vote their respective
shares for the election of each other as a director of Famous Fixins. For the
election of any additional director, each of Bauer and Zorich shall vote his
shares for the election of each other's designee, provided that at least two
directorships shall need to be filled. The agreement also provides that they
will vote for the election of Jason Bauer as President and Chief Executive
Officer and Peter Zorich as Executive Vice President of Famous Fixins. They
also agreed not to offer to sell, sell, transfer, assign, hypothecate, pledge
or otherwise dispose of any beneficial interest in their voting shares except
subject to the terms of the voting agreement, unless prior written consent is
obtained from the other party that such shares shall not be subject to the
voting agreement or unless the shares are sold to an independent third party
in an arms'-length transaction for fair market value. The agreement expires
on June 30, 2001, unless earlier terminated by written agreement signed by
both parties.
On April 12, 1999, we granted Jason Bauer, pursuant to an employment
agreement to serve as President and Chief Executive Officer, 5-year options to
purchase up to 1,500,000 shares of our common stock, proportioned to vest only
after we achieve certain corporate milestones. The options are exercisable at
$.30 per share. These options are cumulative and are subject to anti-dilution
rights. If any milestones are achieved in the same year, all such options
shall vest at the time such milestone is achieved. These options were valued
at approximately $522,450 at the time of issuance.
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<PAGE>
On October 19, 1999, we entered into agreements with AMRO International,
S.A., Austost Anstalt Schaan and Balmore Funds, S.A. for the sale of a total
of $550,000 five percent convertible debentures and warrants to purchase
139,152 shares of common stock in transactions deemed to be exempt under
Section 4(2) of the Securities Act of 1933. We received gross proceeds of
$450,000 in October 1999, and an additional $100,000 in February 2000. The
interest on the convertible debentures is payable quarterly and accrues from
the date of issuance on the principal amount of the convertible debentures.
The convertible debentures are due October 30, 2002. At our option, we may
pay the interest on the convertible debentures in cash or in registered shares
of common stock. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price equal
to the lower of 80% of the market price of the common stock or $0.55. If the
conversion price of the common stock is less than $0.20 per share on any
conversion date, we may elect to redeem the debentures in their entirety or to
deliver to the holders either cash or common stock or a combination of cash
and common stock. The amount of cash to be delivered upon such redemption or
conversion shall equal the closing ask price on the conversion date or the
date we give notice of redemption multiplied by the number of shares of common
stock that would have been issued at the conversion price upon such conversion
or redemption. The warrants are exercisable before October 30, 2004 at a
purchase price of $.494 per share, which is 125% of the market price of the
common stock on the closing date. At our expense, we filed a registration
statement, which was declared effective on February 8, 2000, under the
Securities Act of 1933 for the resale of the shares of common stock issuable
upon the conversion of the debentures and the exercise of the warrants. On
about February 23, 2000, Austost Anstalt Schaan converted its $75,000
debentures into 500,000 shares of common stock. On about February 23, 2000,
Balmore Funds converted its $75,000 debentures into 500,000 shares of common
stock. On about February 24, 2000, AMRO International converted $75,000 of
its $400,000 debentures, with the interest due on the debentures, into 508,264
shares of common stock.
We entered into an agreement, dated as of March 7, 2000, with Roseworth
Group, Ltd., Austost Anstalt Schaan and Balmore Funds, S.A. for the sale of a
total of convertible debentures with a principal amount of $1,000,000 and
warrants to purchase 2,500,000 shares of common stock in transactions deemed
to be exempt under Section 4(2) of the Securities Act of 1933. We received
gross proceeds of $1,000,000 from the sales. The convertible debentures are
due March 13, 2005. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price of
$.40 per share. However, the maximum number of shares of common stock that
may be received upon the conversion of the debentures by any one holder is
9.9% of our then-outstanding common stock after the conversion, including any
other shares of common stock held by the holder. The warrants are exercisable
before March 13, 2005 at a purchase price of $.75 per share. Under the
agreements, we were obligated to prepare and file a registration statement
under the Securities Act of 1933 for shares of common stock issuable upon the
conversion of the convertible debentures and the warrants within 15 days of
our filing of our Form 10K-SB for the year ended December 31, 1999. If the
registration statement is not timely filed with the SEC by the required filing
date, the registration statement is not declared effective by the SEC within
the 90 days of the required filing date or five days of clearance by the SEC
to request effectiveness, but in no event later than July 15, 2000, the
registration statement is not maintained as effective by us for the requisite
period, or the additional registration statement is not filed within thirty
days or declared effective within ninety days, then we are to pay each holder
of the convertible debentures and warrants, as liquidated damages, one percent
of the aggregate market value of shares of common stock purchaseable or
purchased from Famous Fixins and held by the holder for the first month of
such default, and two percent for each month of default thereafter until such
registration statement has been filed, and in the event of late effectiveness
or lapsed effectiveness, one percent of the aggregate market value of shares
of common stock purchaseable or purchased from Famous Fixins and held by the
holder for the first month of such default and two percent for each month of
default thereafter until such registration statement has been declared
effective. The liquidated damages are not to exceed $50,000 per month. We
have agreed with the holders that each will hold harmless the other against
any losses, claims, damages or liabilities, joint or several, including all
reasonable costs of defense and investigation and all reasonable attorneys'
fees and expenses, to which they may become subject based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement, prospectus, or based upon the omission or alleged
omission to state therein a material fact, unless the misleading or omitted
information was provided by the other in connection with the preparation of
the registration statement or prospectus.
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<PAGE>
On March 13, 2000, Jason Bauer sold 15,000 shares at $0.60 per share
and 5,000 shares at $0.61 per share in the open market.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits required to be filed by Item 601 of Regulation SB are included
in Exhibits to this Report as follows:
Exhibit Description
- ------- -----------
2.1* Plan and Agreement of Reorganization between Spectrum Resources,
Inc. and Famous Fixins, Inc.
2.2* Agreement and Plan of Merger between Famous Fixins, Inc., a
Nevada corporation, and Famous Fixins Holding Company, Inc., a
New York corporation
2.3* Agreement and Plan of Merger between Famous Fixins, Inc., a New
York corporation, and Famous Fixins Holding Company, Inc., a New
York corporation
3(i)(1)* Articles of Incorporation of Spectrum Resources, Inc.
3(i)(2)* Certificate of Incorporation of Famous Fixins Holding Company,
Inc.
3(i)(3)* Articles of Merger for Famous Fixins, Inc., a Nevada corporation,
and Famous Fixins Holding Company, Inc., a New York corporation
3(i)(4)* Certificate of Merger of Famous Fixins Holding Company, Inc., a
New York corporation, and Famous Fixins, Inc., a Nevada
corporation
3(i)(5)* Certificate of Merger of Famous Fixins, Inc., a New York
corporation, and Famous Fixins Holding Company, Inc.
3(i)(6)* Certificate of Amendment of the Certificate of Incorporation of
Famous Fixins Holding Company, Inc.
3(ii)* By-Laws
4.1* Form of Warrant Certificate
4.2* Warrant Certificate of Michael Simon
4.3* Form of Warrant Certificate
4.4* Convertible Debenture and Warrants Purchase Agreement between
Famous Fixins, Inc. and AMRO International, S.A. dated as of
October 19, 2000
4.5* Convertible Debenture and Warrants Purchase Agreement between
Famous Fixins, Inc. and Austost Anstalt Schaan and Balmore Funds,
S.A. dated as of October 19, 1999
4.6** Convertible Debenture and Warrants Purchase Agreement between
Famous Fixins, Inc. and Roseworth Group Ltd., Austost Anstalt
Schaan, and Balmore Funds, S.A. dated as of March 7, 2000
9* Voting Agreement between Jason Bauer and Peter Zorich
10.1* Employment Agreement for Jason Bauer
10.2* Lease Agreement
10.3* License Agreement with Olympia Dukakis
10.4* Marketing Agreement with Crown Prince, Inc.
10.5* License Agreement with The Tufton Group
10.6* License Agreement with Major League Baseball Properties, Inc.
10.7* License Agreement with IMS and KKSM F/S/O Sammy Sosa
10.9* License Agreement with Ken Caminiti, Craig Biggio and Jeff
Bagwell
10.10* License Agreement with Turn 2, Inc.
10.11* License Agreement with Jake "The Snake" Enterprises
10.12* License Agreement with Pey Dirt, Inc.
10.13* License Agreement with Alonzo Mourning
10.14* Promotional License Agreement with Major League Baseball Players
Association
10.15* Major League Baseball Properties, Inc. License Agreement
10.16* License Agreement with Tim Duncan
10.17* Promotion Agreement with Sterling Doubleday Enterprises, L.P.
10.18* Financial Consulting Agreement with First Atlanta Securities, LLC
69
<PAGE>
10.19** Consulting Agreement with Jaffoni & Collins
10.20** Merchandising License Agreement with Britney Brands, Inc.
10.21** Limited License Agreement with Redline Sports Marketing, Inc.
10.22** License Agreement between Famous Fixins, Inc. and Dave Mirra
10.23** Consulting Agreement with Matthew Markin
10.24** Consulting Agreement with Edward Defudis
11 Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Financial Statements" of Part II -
Item 7, contained in this Form 10-KSB.
27** Financial Data Schedule
______
* Incorporated by reference to Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.
** Filed herewith.
(b) Report on Form 8-K
None.
70
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAMOUS FIXINS, INC.
By: /s/ Jason Bauer
----------------------------
Jason Bauer
Chief Executive Officer and President
Dated: March 28, 2000
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
SIGNATURES TITLE DATE
/s/ Jason Bauer Chairman of the Board, President, March 28, 2000
Jason Bauer Chief Executive Officer and Treasurer
/s/ Peter Zorich Vice President, Secretary, March 28, 2000
Peter Zorich and Director
/s/ Michael Simon Vice President and Director March 28, 2000
Michael Simon
71
EXHIBIT 4.6
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT
Between
Famous Fixins, Inc.
and
the Investors Signatory Hereto
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT dated as of
March 7, 1999 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Famous Fixins, Inc., a
corporation organized and existing under the laws of the State of New York
(the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Investors, and the Investors shall purchase in the aggregate, (i) $1,000,000
principal amount of Convertible Debentures and (ii) Warrants to purchase
shares of the Common Stock (as defined below) as described in Section 2.2.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities
Act and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any right
to subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Convertible Debentures and Warrants pursuant to Section 2.1.
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<PAGE>
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Debenture.
Section 1.7. "Convertible Debenture(s)" shall mean the $1,000,000 principal
amount of Convertible Debentures due March __, 2005, in the form of Exhibit A
hereto.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.14. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Certificate of Designations or the
Warrants in any material respect.
Section 1.15. "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date
as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that "Outstanding" shall not mean any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.16. "Person" shall mean an individual, a corporation, a partnership,
a limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
2
<PAGE>
Section 1.17. "Principal Market" shall mean the American Stock Exchange, the
New York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap
Market or the OTC Bulletin Board, whichever is at the time the principal
trading exchange or market for the Common Stock, based upon share volume.
Section 1.18. "Purchase Price" shall mean the principal amount of the
Convertible Debenture.
Section 1.19. "Registrable Securities" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion Shares
and Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and
Warrant Shares have been otherwise transferred to holders who may trade such
shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend or (iv) such time as, in the opinion of
counsel to the Company, all Conversion Shares and Warrant Shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
Section 1.20. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as
of the Closing Date in the form annexed hereto as Exhibit C.
Section 1.21. "Registration Statement" shall mean a registration statement on
such form promulgated by the SEC for which the Company then qualifies and
which counsel for the Company shall deem appropriate, which form shall be
available for the resale by the Investors of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement and in accordance with the intended method of
distribution of such securities, for the registration of the resale by the
Investors of the Registrable Securities under the Securities Act.
Section 1.22. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.23. "SEC" shall mean the Securities and Exchange Commission.
Section 1.24. "SEC Documents" means the Company's Form 10-SB as amended to
date.
Section 1.25. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.26. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "Shares" shall have the meaning set forth in Section 1.16.
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Section 1.28. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.29. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
Section 1.30. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Debenture and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors, severally and not jointly, agree to
purchase Convertible Debentures with an aggregate principal amount of
$1,000,000 in accordance with the commitments set forth on the signature pages
hereto, together with the Warrants, at the Purchase Price. On the Closing
Date, the Investors shall purchase $1,000,000 principal amount of Convertible
Debentures as follows:
(i) Upon execution and delivery of this Agreement, each Investor
shall deliver to the Escrow Agent immediately available funds in their
proportionate amount of the Purchase Price as set forth on the signature pages
hereto, and the Company shall deliver the Convertible Debenture certificates
and the Warrants to the Escrow Agent, in each case to be held by the Escrow
Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section
2.1(b), the Closing ("Closing") shall occur at the offices of the Escrow Agent
at which the Escrow Agent (x) shall release the Convertible Debentures and the
Warrants to the Investors and (y) shall release the Purchase Price (after all
brokerage commissions have been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
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(b) The Closing is subject to the satisfaction or waiver by the party to
be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the Investors,
of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the Convertible
Debentures purchased at the Closing and the Warrants, as more fully set forth
in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the Closing Date (as a
condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date (as a condition to
the Investors' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Convertible Debentures and
Warrants, or shall have the availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and the
Warrants hereunder, and the proposed issuance by the Company to the Investors
of the Common Stock underlying the Convertible Debentures and the Warrants
upon the conversion or exercise thereof shall be legally permitted by all laws
and regulations to which the Investors and the Company are subject and there
shall be no ruling, judgment or writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debenture certificates and Warrants certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Law Offices
of Dan Brecher, counsel to the Company, in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as Exhibit F; and delivery to
the Escrow Agent of the Registration Rights Agreement.
Section 2.2. Warrants. The aggregate number of Warrants to be issued at the
Closing shall be 2,500,000. The initial exercise price of the Warrants shall
be $0.75 per share.
Section 2.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sum payable pursuant to the Registration Rights Agreement for late
registration and the sum payable pursuant to the Convertible Debentures for
late delivery of Common Stock certificates shall constitute liquidated damages
and not penalties, and shall not be due if such late registration or late
delivery is caused by the Investor or the agents of the Investor. The parties
further acknowledge that (a) the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, (b) the amount
specified in such provisions bear a reasonable proportion and are not plainly
or grossly disproportionate to the probable loss likely to be incurred by the
Investor in connection with the failure of the Company to timely cause the
registration of the Registrable Securities or to deliver stock certificates
upon any conversion, and (c) the parties are sophisticated businesses and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
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ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any
distribution of the Common Stock. The Investor has no present arrangement
(whether or not legally binding) at any time to sell the Convertible
Debenture, the Warrants, any Conversion Shares or Warrant Shares to or through
any person or entity; provided, however, that by making the representations
herein, the Investor does not agree to hold such securities for any minimum or
other specific term and reserves the right to dispose of the Conversion Shares
and Warrant Shares at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to
protect its own interests in connection with this transaction and is capable
of evaluating the merits and risks of an investment in the Convertible
Debenture, the Warrants and the underlying Common Stock. The Investor has been
represented by counsel of its choice. The Investor acknowledges that an
investment in the Convertible Debenture, the Warrants and the underlying
Common Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an
Exhibit hereto which is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid
and binding agreement of the Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and
executed by the Investor in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof by the Investor, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding
on Investor or (a) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to
the terms of any such indenture, instrument or agreement, or constitute a
breach of any fiduciary duty owed by Investor to any third party; or (d)
require the approval of any non-governmental agency third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any
of its assets, operations or management may be subject.
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Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by the Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of New
York and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company is structured, has
operated and currently operates as described in the SEC Documents.. The
Company is duly qualified and is in good standing as a foreign corporation to
do business in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other
than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to conduct its business as now conducted, to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, and the Warrants and to issue the Convertible
Debentures, the Conversion Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery
of this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Convertible Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Convertible Debentures and the Warrants have been duly
executed and delivered by the Company and at the Closing shall constitute
valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the conversion of the Convertible Debentures and for the
exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares. The Company further acknowledges that, its obligation to
issue Conversion Shares upon conversion of the Convertible Debentures and
Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Convertible Debentures is absolute and
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unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"). The Company shall not seek judicial relief from
its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under
11 U.S.C. Section 362 in respect of the conversion of the Convertible
Debentures and the exercise of the Warrants. The Company agrees, without cost
or expense to the Investors, to take or consent to any and all action
necessary to effectuate relief under 11 U.S.C. Section 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, $0.001 par value per share, of
which 12,220,888 shares are issued and outstanding as of March 6, 2000.
Except as set forth in the SEC Documents and in Schedule 4.3 hereto, there are
no outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities.
All of the outstanding shares of Common Stock of the Company have been duly
and validly authorized and issued and are fully paid and non-assessable and
have been issued pursuant to valid exemptions from registration under the
Securities Act and all applicable state "blue sky" laws.
Section 4.4. Common Stock. The Company registered its Common Stock pursuant
to Section 12(g) of the Exchange Act and is in compliance with all
requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on, the Principal Market. As
of the date hereof, the Principal Market is the OTC Bulletin Board and the
Company has not received any notice regarding, and to its knowledge there is
no threat, of the termination or discontinuance of the eligibility of the
Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided
to the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. Subject to items raised in
the SEC staff comment letters, as of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act,
and rules and regulations of the SEC promulgated thereunder and the SEC
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Subject to items raised in the SEC staff comment
letters, the financial statements of the Company included in the SEC Documents
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto at the time of such inclusion. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent
they exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of operations and cash flows for the periods
then
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ended (subject, in the case of unaudited interim statements, to normal year-
end audit adjustments). Neither the Company nor any of its subsidiaries has
any material indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or
otherwise described in the financial statements or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the financial statements or the notes thereto included
in the SEC Documents or was not incurred in the ordinary course of business
(which may include material transactions) consistent with the Company's past
practices since the last date of such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Debentures, the Conversion Shares and the Warrant Shares will be
duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Debentures, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under,
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Debentures, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to
preemptive or other rights to subscribe for or acquire the Capital Shares or
other securities of the Company. The Convertible Debentures, the Conversion
Shares, the Warrants and the Warrant Shares shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their behalf (i) has
conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale
of the Convertible Debentures or the Warrants, or (ii) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Convertible Debentures,
the Conversion Shares, the Warrants or the Warrant Shares under the Securities
Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture
or instrument, or any "lock-up" or similar provision of any underwriting or
similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
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asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is
not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not have a Material Adverse Effect. The Company is not
required under any Federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and sell the
Convertible Debentures or the Warrants in accordance with the terms hereof
(other than any SEC or state securities filings that may be required to be
made by the Company subsequent to Closing, any registration statement that may
be filed pursuant hereto); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy
of the relevant representations and agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since Setptember 30, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company of
which Investors or their counsel are not aware. No material supplier has
given notice, oral or written, that it intends to cease or reduce the volume
of its business with the Company from historical levels.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that could be expected to have a Material Adverse Effect which will
not be publicly disclosed in a required SEC Filing.
Section 4.11. No Integrated Offering. Other than pursuant to offerings which
are exempt from registration under the Securities Act, or pursuant to the
issuance or exercise of employee stock options, or pursuant to its discussion
with the Investors in connection with the transactions contemplated hereby,
the Company has not issued, offered or sold the Convertible Debentures, the
Warrants or any shares of Common Stock (including for this purpose any
securities of the same or a similar class as the Convertible Debentures, the
Warrants or Common Stock, or any securities convertible into a exchangeable or
exercisable for the Convertible Debentures or Common Stock or any such other
securities) within the six-month period next preceding the date hereof, and
the Company shall not permit any of its directors, officers or affiliates
directly or indirectly to take, any action (including, without limitation, any
offering or sale to any Person of the Convertible Debentures, Warrants or
shares of Common Stock), so as to make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer and
sale to Investors of the Convertible Debentures (and the Conversion Shares) or
the Warrants (and the Warrant Shares) as contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings. There are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened, against
the Company or any subsidiary, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which could
reasonably be expected to have a Material Adverse Effect. No judgment, order,
writ, injunction or decree or award has been issued by or, to the knowledge of
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the Company, requested of any court, arbitrator or governmental agency which
could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants
in connection with the transaction contemplated by this Agreement, have not
made, at any time, any oral communication in connection with the offer or sale
of the same which contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed
to the Investors any material non-public information that (i) if disclosed,
would reasonably be expected to have a material effect on the price of the
Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Section 4.15. Insurance. The Company maintains general liability and workers'
compensation insurance policies with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and
has no knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor
or other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated
as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to Section 7121 of the Internal
Revenue Code or any predecessor provision
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thereof or any similar provision of state, local or foreign law; or (B) has
not agreed to or is required to make any adjustments pursuant to Section 481
(a) of the Internal Revenue Code or any similar provision of state, local or
foreign law by reason of a change in accounting method initiated by the
Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
(c) The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real
or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties, additions
to tax, and interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
Section 4.17. Property. The Company does not own any real property. The
Company has good and marketable title to all personal property owned by it,
free and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company; and
to the Company's knowledge any real property and buildings held under lease by
the Company as tenant are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property and buildings by the
Company. The Company's present facilities are adequate for the Company's
reasonably foreseeable needs.
Section 4.18. Intellectual Property. The Company has the rights stated in the
SEC Documents (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures)
and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being
conducted.
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To the Company's knowledge, except as disclosed in the SEC Documents neither
the Company nor any of its subsidiaries is infringing upon or in conflict with
any right of any other person with respect to any Intangibles. Except as
disclosed in the SEC Documents, no adverse claims have been asserted by any
person to the ownership or use of any Intangibles and the Company has no
knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books
and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with U.S. generally
accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment of Company funds to any foreign or domestic
government official or employee; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. Related Party Transactions. The Company is not a party to any
agreement or transaction with any of its officers, directors, greater than 10%
shareholders or any Affiliate (as defined in SEC Rule 405) of any of said
persons that would require disclosure under Item 404 of Regulation S-B that
will not be disclosed in the next the Form 10-KSB.
Section 4.22. Permits and Licenses. The Company holds all necessary permits
and licenses to conduct its business as presently conducted. All of such
permits and licenses are in full force and effect and the Company is not in
material violation of any thereof.
Section 4.23. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
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Section 5.1. Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. Limitations on Resales. In the event that the Registration
Statement becomes effective within one hundred eighty (180) days from the
Closing Date, the Investor agrees that sales of its Conversion Shares during
each thirty (30) day period beginning on the Effective Date shall not exceed
one third of the Conversion Shares beneficially owned by such Investor as of
the Effective Date. The right to sell such Conversion Shares shall be
cumulative with the Investor's right to sell Conversion Shares in subsequent
thirty (30) day periods. Such limitation on resales shall not apply after any
date when the Common Stock has had a closing bid price of $1.20 or greater for
ten (10) consecutive Trading Days.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall
comply in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose
of enabling the Company to issue the Conversion Shares and the Warrant Shares
pursuant to any conversion of the Convertible Debentures or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants and the number of shares so reserved
shall be increased or decreased to reflect potential increases or decreases in
the Common Stock that the Company may thereafter be obligated to issue by
reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to use its
best efforts to maintain the listing of the Common Stock on a Principal Market
and as soon as reasonably practicable following the Closing to list the
Conversion Shares and the Warrant Shares on the Principal Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Principal Market, it will include in such application the Conversion
Shares and the Warrant Shares, and will take such other action as is necessary
or desirable in the opinion of the Investors to cause the Conversion Shares
and Warrant Shares to be listed on such other Principal Market as promptly as
possible. The Company will use its best efforts to take all action to
continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets)
and will use its best efforts to comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investors with copies of any correspondence
to or from such Principal Market which questions or threatens delisting of the
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Common Stock, within three (3) Trading Days of the Company's receipt thereof,
until the Investors have disposed of all of their Registrable Securities.
Section 6.4. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act until the
Investors have disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will
take all steps necessary to preserve and continue the corporate existence of
the Company. The Company shall not enter into any agreement, the terms of
which agreement would restrict or impair the right or ability of the Company
to perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company
to, another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investors such shares of
stock and/or securities as the Investors are entitled to receive pursuant to
this Agreement and the Convertible Debenture.
Section 6.8. Issuance of Convertible Debentures and Warrant Shares. The sale
of the Convertible Debentures and the Warrants and the issuance of the Warrant
Shares pursuant to exercise of the Warrants and the Conversion Shares upon
conversion of the Convertible Debentures shall be made in accordance with the
provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws,
and shall provide a copy thereof to the Investors promptly after such filing.
However, the Company understands that no "blue sky" filings are required
because none of the Investors are in the United States and each Investor
represents that Investor's country of residence does not require registration
therein.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in
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each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom
such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse
the Investor Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any material misrepresentation, omission of fact or breach of
any of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(ii) any failure by the Company to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(iii) any action instituted against the Investors, or any of them
or their respective Affiliates, by any stockholder of the Company who is not
an Affiliate of an Investor, with respect to any of the transactions
contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse
the Company Indemnitees for reasonable all out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any material misrepresentation, omission of fact, or breach of
any of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor pursuant to
this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or obligations set
forth in this Agreement or any instrument, certificate or agreement entered
into or delivered by the Investor pursuant to this Agreement.
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Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof;
but the omission to so notify the Indemnifying Party shall not relieve it from
any liability that it otherwise may have to the Indemnified Party, except to
the extent that the Indemnifying Party is actually prejudiced by such omission
or delay. In connection with any Claim as to which both the Indemnifying Party
and the Indemnified Party are parties, the Indemnifying Party shall be
entitled to assume the defense thereof. Notwithstanding the assumption of the
defense of any Claim by the Indemnifying Party, the Indemnified Party shall
have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have
agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by
the Indemnified Party. Except as provided above, the Indemnifying Party shall
not, in connection with any Claim in the same jurisdiction, be liable for the
fees and expenses of more than one firm of legal counsel for the Indemnified
Party (together with appropriate local counsel). The Indemnifying Party shall
not, without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or consent
to the entry of any judgment that does not include an unconditional release of
the Indemnified Party from all liabilities with respect to such Claim or
judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Indemnifying Party. If the Indemnified Party disputes
the claim, such dispute shall be resolved by mutual agreement of the
Indemnified Party and the Indemnifying Party or by binding arbitration
conducted in accordance with the procedures and rules of the American
Arbitration Association as set forth in Article X. Judgment upon any award
rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
ARTICLE VIII
Due Diligence Review
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Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of
the Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all proposed filings with the SEC, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose
of such review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and
other inquiries reasonably made or submitted by any of them), prior to and
from time to time after the filing and effectiveness of the Registration
Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement through the Effective
Date of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) From and after the filing of the Registration Statement, the Company
shall not disclose material non-public information to the Investors, advisors
to or representatives of the Investors unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. Other than disclosure of any comment letters received from the SEC
staff with respect to the Registration Statement, the Company may, as a
condition to disclosing any non-public information hereunder, require the
Investors' advisors and representatives to enter into a confidentiality
agreement in form and content reasonably satisfactory to the Company and the
Investors.
(b) The Company will promptly notify the advisors and representatives of
the Investors and, if any, underwriters, of any event or the existence of any
circumstance of which it becomes aware, constituting material information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed
in the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in
light of the circumstances in which they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
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THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect
thereto other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and
without regard to its principles of conflicts of laws. Any dispute under
this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New
York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party
in respect of a claim filed. In connection with rendering its decisions, the
Board of Arbitration shall adopt and follow the laws of the State of New York
unless the matter at issue is the
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corporation law of the company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more
than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to
be delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The Board
of Arbitration shall be authorized and is hereby directed to enter a default
judgment against any party failing to participate in any proceeding hereunder
within the time periods set forth in the AAA rules. The prevailing party shall
be awarded its costs, including attorneys' fees, from the non-prevailing party
as part of the arbitration award. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case where
such relief is available. The prevailing party in such injunctive action
shall be awarded its costs, including attorney's fees, from the non-prevailing
party.
ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any
other person except as permitted herein, or in the event of a merger or
similar transaction. Notwithstanding the foregoing, (a) the provisions of
this Agreement shall inure to the benefit of, and be enforceable by, any
permitted transferee of any of the Convertible Debentures or Warrants
purchased or acquired by any Investor hereunder with respect to the
Convertible Debentures or Warrants held by such person, and (b) upon the prior
written consent of the Company, which consent shall not unreasonably be
withheld or delayed, each Investor's interest in this Agreement may be
assigned at any time, in whole or in part, to any other person or entity
(including any Affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day
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during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications
shall be:
If to the Company: Famous Fixins, Inc.
250 West 57th Street, Suite 2501
New York, NY 10107
Attention: Jason Bauer
Telephone: 212-245-7773
Facsimile: 212-245-7767
with a copy to (shall not constitute Law Offices of Dan Brecher
notice): 99 Park Avenue, 16th Floor
New York, NY 10016
Attn: Dan Brecher, Esq.
Telephone: 212-286-0747
Facsimile: 212-808-4155
if to the Investors: As set forth on the signature pages
hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving written notice of such
changed address or facsimile number to the other party hereto as provided in
this Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument.
Except as otherwise stated herein, in lieu of the original documents, a
facsimile transmission or copy of the original documents shall be as effective
and enforceable as the original. This Agreement may be amended only by a
writing executed by all parties.
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Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as is fully set
forth herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of
the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent
of the Investors and the Company shall be required to employ any other
reporting entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the
Company at its expense will execute and deliver, in lieu thereof, a new
certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agree
to pay its own expenses incident to the performance of its obligations
hereunder.
Section 13.9. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party except
for Union Atlantic, LC, whose fee shall be paid by the Company. The Company on
the one hand, and the Investors, on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder's fees on account of services
purported to have been
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rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
Roseworth Group Ltd.
By: /s/ Hans Gassner
--------------------------------------
Hans Gassner, Authorized Signatory
Principal Amount subscribed for: $400,000
Address for notices:
c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405
Austost Anstalt Schaan
By: /s/ Thomas Hackl
--------------------------------------
Thomas Hackl, Authorized Signatory
Principal Amount subscribed for: $250,000
Address for notices:
Landstrasse 163
9494 Furstenweg
Vaduz, Liechtenstein
Fax: 011-431-532-895
Balmore Funds, S.A.
By: /s/ Francois Morax
--------------------------------------
Francois Morax, Authorized Signatory
Principal Amount subscribed for: $350,000
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Address for notices:
Trident chambers
Road Town, Tortola, British Virgin Islands
Fax: 411-201-8800
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SCHEDULE 4.3
As of March 6, 2000, without including the securities to be offered and sold
herein:
1.) the Company has 12,220,888 shares of common stock outstanding;
2.) the Company also has 3,730,980 options and warrants
outstanding;
3.) the Company has a convertible debenture outstanding in the
principal amount of $325,000. The terms of conversion of the debentures are
set forth in the Company's SEC Documents.
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CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
No. 1 US $400,000
Famous Fixins, Inc.
CONVERTIBLE DEBENTURE DUE MARCH 13, 2005
THIS DEBENTURE is issued by Famous Fixins, Inc., a corporation organized
and existing under the laws of the State of New York (the "Company") and is
designated as its Convertible Debenture Due March 13, 2005.
FOR VALUE RECEIVED, the Company promises to pay to Roseworth Group Ltd.,
or permitted assigns (the "Holder"), the principal sum of Four Hundred
Thousand and 00/100 (US $400,000) Dollars on March 13, 2005 (the "Maturity
Date"). The Company will pay the principal of this Debenture on the Maturity
Date, less any amounts required by law to be deducted, to the registered
holder of this Debenture as of the tenth day prior to the Maturity Date and
addressed to such holder at the last address appearing on the Debenture
Register. The forwarding of such check shall constitute a payment of
principal hereunder and shall satisfy and discharge the liability for
principal on this Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder
shall deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name does not
and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Debenture,
the Company and any agent of the Company may treat the person in whose name
this Debenture is duly registered on the Company's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Debenture and
Warrants Purchase Agreement dated as of March 7, 2000 between the Company and
the original Holder (the "Purchase Agreement"), and is subject to the terms
and conditions of the Purchase Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
2. The Holder of this Debenture is entitled, at its option, to
convert at any time commencing on the date hereof, the principal amount of
this Debenture or any portion thereof into shares of Common Stock of the
Company ("Conversion Shares") at a conversion price for each share of Common
Stock ("Conversion Price") equal to $0.40 per share subject to proportionate
adjustments for any stock splits or dividends in the form of Common Stock
subsequent to March 7, 2000.
3. (a) Conversion shall be effectuated by surrendering this
Debenture to the Company (if such Conversion will convert all outstanding
principal) together with the form of conversion notice attached hereto as
<PAGE>
Exhibit A (the "Notice of Conversion"), executed by the Holder of this
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. No fraction of a share or
scrip representing a fraction of a share will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. The
date on which Notice of Conversion is given (the "Conversion Date") shall be
deemed to be the date on which the Holder faxes the Notice of Conversion duly
executed to the Company. Facsimile delivery of the Notice of Conversion shall
be accepted by the Company at facsimile number (212) 245-7767 Attn.: Jason
Bauer. Certificates representing Common Stock upon conversion will be
delivered to the Holder within three (3) Trading Days from the date the Notice
of Conversion is delivered to the Company. Delivery of shares upon conversion
shall be made to the address specified by the Holder in the Notice of
Conversion.
(b) The Company understands that a delay in the issuance of
shares of Common Stock upon a conversion beyond the three (3) Trading Day
period described in Section 3(a) could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company).
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 3(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion, and in such event no late payments shall be due in connection with
such withdrawn conversion.
If at any time, except in accordance with this Debenture or the
Purchase Agreement, (a) the Company challenges, disputes or denies the right
of the Holder to effect the conversion of this Debenture into Common Stock or
otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with this Section 3 or (b) any
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<PAGE>
Company stockholder who is not and has never been an Affiliate (as defined in
Rule 405 under the Securities Act of 1933, as amended) of the Holder obtains a
judgment or any injunctive relief from any court or public or governmental
authority which denies, enjoins, limits, modifies, delays or disputes the
right of the holder hereof to effect the conversion of this Debenture into
Common Stock, then the Holder shall have the right, by written notice, to
require the Company to promptly redeem this Debenture for cash at a redemption
price equal to one hundred forty percent (140%) of the outstanding principal
amount hereof. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in
disputing any such action or pursuing its rights hereunder (in addition to any
other rights of the Holder), subject in the case of clause (b) to the
Company's right to control and assume the defense of any such action. In the
absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's conversion privilege.
4. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of this Debenture at the time, place and in the coin or currency or
shares of Common Stock, herein prescribed. This Debenture is a direct
obligation of the Company.
5. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another
person, or spins off a division or subsidiary to its shareholders, and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which
shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the
right to convert by delivering a Notice of Conversion to the Company within
fifteen (15) days of receipt of notice of such Sale from the Company.
6. The Holder of the Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
8. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal on this
Debenture and same shall continue for a period of five (5) days; or
b. Any of the representations or warranties made by the Company herein,
in the Purchase Agreement, the Registration Rights Agreement, or in any
agreement, certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and
delivery of this Debenture or the Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder or to
cause its Transfer Agent to issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder
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<PAGE>
in accordance with the terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture or the Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture, the Purchase Agreement or the Registration Rights Agreement
and such legend removal is otherwise lawful, and any such failure shall
continue uncured for five (5) Trading Days; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under the Purchase Agreement, the Registration
Rights Agreement or this Debenture and such failure shall continue uncured for
a period of thirty (30) days after written notice from the Holder of such
failure; or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for
a substantial part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
j. The Company shall have its Common Stock suspended or delisted from
trading on a Principal Market for in excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
9. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
10. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock
beneficially owned by such Holder (other than shares of Common Stock issuable
upon conversion of this Debenture) plus (y) the number of shares of Common
Stock issuable upon conversion of this Debenture, would be equal to or exceed
9.9% of the number of shares of Common Stock then issued and outstanding,
including shares issuable upon conversion of this Debenture held by such
Holder after application of this Section 10. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as
4
<PAGE>
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 10 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in
the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination of whether this
Debenture is convertible (in relation to other securities owned by such
holder) and of which portion of this Debenture is convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to convert
this Debenture into shares of Common Stock at such time as such conversion
will not violate the provisions of this Section 10. The provisions of this
Section 10 may be waived by the Holder of this Debenture upon not less than 75
days' prior notice to the Company, and the provisions of this Section 10 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No conversion of this Debenture in violation of
this Section 10 but otherwise in accordance with this Debenture shall affect
the status of the Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by an officer thereunto duly authorized.
Dated: March 13, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
Attest:
_______________________
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. 1 into Shares of Common
Stock of Famous Fixins, Inc. (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion*_____________________________________________________
Applicable Conversion Price * __________________________________________
Accrued Interest________________________________________________________
Signature_______________________________________________________________
[Name]
Address:________________________________________________________________
________________________________________________________________
*If such conversion represents the remaining principal balance of the
Debenture, the original Debenture must accompany the Notice of Conversion.
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<PAGE>
CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
No. 2 US $250,000
Famous Fixins, Inc.
CONVERTIBLE DEBENTURE DUE MARCH 13, 2005
THIS DEBENTURE is issued by Famous Fixins, Inc., a corporation organized
and existing under the laws of the State of New York (the "Company") and is
designated as its Convertible Debenture Due March 13, 2005.
FOR VALUE RECEIVED, the Company promises to pay to Austost Anstalt
Schaan, or permitted assigns (the "Holder"), the principal sum of Two Hundred
Fifty Thousand and 00/100 (US $250,000) Dollars on March 13, 2005 (the
"Maturity Date"). The Company will pay the principal of this Debenture on the
Maturity Date, less any amounts required by law to be deducted, to the
registered holder of this Debenture as of the tenth day prior to the Maturity
Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment
of principal hereunder and shall satisfy and discharge the liability for
principal on this Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder
shall deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name does not
and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Debenture,
the Company and any agent of the Company may treat the person in whose name
this Debenture is duly registered on the Company's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Debenture and
Warrants Purchase Agreement dated as of March 7, 2000 between the Company and
the original Holder (the "Purchase Agreement"), and is subject to the terms
and conditions of the Purchase Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
2. The Holder of this Debenture is entitled, at its option, to
convert at any time commencing on the date hereof, the principal amount of
this Debenture or any portion thereof into shares of Common Stock of the
Company ("Conversion Shares") at a conversion price for each share of Common
Stock ("Conversion Price") equal to $0.40 per share subject to proportionate
adjustments for any stock splits or dividends in the form of Common Stock
subsequent to March 7, 2000.
3. (a) Conversion shall be effectuated by surrendering this
Debenture to the Company (if such Conversion will convert all outstanding
principal) together with the form of conversion notice attached hereto as
<PAGE>
Exhibit A (the "Notice of Conversion"), executed by the Holder of this
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. No fraction of a share or
scrip representing a fraction of a share will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. The
date on which Notice of Conversion is given (the "Conversion Date") shall be
deemed to be the date on which the Holder faxes the Notice of Conversion duly
executed to the Company. Facsimile delivery of the Notice of Conversion shall
be accepted by the Company at facsimile number (212) 245-7767 Attn.: Jason
Bauer. Certificates representing Common Stock upon conversion will be
delivered to the Holder within three (3) Trading Days from the date the Notice
of Conversion is delivered to the Company. Delivery of shares upon conversion
shall be made to the address specified by the Holder in the Notice of
Conversion.
(b) The Company understands that a delay in the issuance of
shares of Common Stock upon a conversion beyond the three (3) Trading Day
period described in Section 3(a) could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company).
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 3(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion, and in such event no late payments shall be due in connection with
such withdrawn conversion.
If at any time, except in accordance with this Debenture or the Purchase
Agreement, (a) the Company challenges, disputes or denies the right of the
Holder to effect the conversion of this Debenture into Common Stock or
otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with this Section 3 or (b) any
2
<PAGE>
Company stockholder who is not and has never been an Affiliate (as defined in
Rule 405 under the Securities Act of 1933, as amended) of the Holder obtains a
judgment or any injunctive relief from any court or public or governmental
authority which denies, enjoins, limits, modifies, delays or disputes the
right of the holder hereof to effect the conversion of this Debenture into
Common Stock, then the Holder shall have the right, by written notice, to
require the Company to promptly redeem this Debenture for cash at a redemption
price equal to one hundred forty percent (140%) of the outstanding principal
amount hereof. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in
disputing any such action or pursuing its rights hereunder (in addition to any
other rights of the Holder), subject in the case of clause (b) to the
Company's right to control and assume the defense of any such action. In the
absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's conversion privilege.
4. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of this Debenture at the time, place and in the coin or currency or
shares of Common Stock, herein prescribed. This Debenture is a direct
obligation of the Company.
5. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another
person, or spins off a division or subsidiary to its shareholders, and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which
shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the
right to convert by delivering a Notice of Conversion to the Company within
fifteen (15) days of receipt of notice of such Sale from the Company.
6. The Holder of the Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
8. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal on this
Debenture and same shall continue for a period of five (5) days; or
b. Any of the representations or warranties made by the Company herein,
in the Purchase Agreement, the Registration Rights Agreement, or in any
agreement, certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and
delivery of this Debenture or the Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder or to
cause its Transfer Agent to issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder
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<PAGE>
in accordance with the terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture or the Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture, the Purchase Agreement or the Registration Rights Agreement
and such legend removal is otherwise lawful, and any such failure shall
continue uncured for five (5) Trading Days; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under the Purchase Agreement, the Registration
Rights Agreement or this Debenture and such failure shall continue uncured for
a period of thirty (30) days after written notice from the Holder of such
failure; or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for
a substantial part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
j. The Company shall have its Common Stock suspended or delisted from
trading on a Principal Market for in excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
9. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
10. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock
beneficially owned by such Holder (other than shares of Common Stock issuable
upon conversion of this Debenture) plus (y) the number of shares of Common
Stock issuable upon conversion of this Debenture, would be equal to or exceed
9.9% of the number of shares of Common Stock then issued and outstanding,
including shares issuable upon conversion of this Debenture held by such
Holder after application of this Section 10. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as
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<PAGE>
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 10 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in
the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination of whether this
Debenture is convertible (in relation to other securities owned by such
holder) and of which portion of this Debenture is convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to convert
this Debenture into shares of Common Stock at such time as such conversion
will not violate the provisions of this Section 10. The provisions of this
Section 10 may be waived by the Holder of this Debenture upon not less than 75
days' prior notice to the Company, and the provisions of this Section 10 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No conversion of this Debenture in violation of
this Section 10 but otherwise in accordance with this Debenture shall affect
the status of the Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by an officer thereunto duly authorized.
Dated: March _____, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
Attest:
_______________________
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. 1 into Shares of Common
Stock of Famous Fixins, Inc. (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion*_____________________________________________________
Applicable Conversion Price * __________________________________________
Accrued Interest________________________________________________________
Signature_______________________________________________________________
[Name]
Address:________________________________________________________________
________________________________________________________________
*If such conversion represents the remaining principal balance of the
Debenture, the original Debenture must accompany the Notice of Conversion.
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<PAGE>
CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
No. 3 US $350,000
Famous Fixins, Inc.
CONVERTIBLE DEBENTURE DUE MARCH 13, 2005
THIS DEBENTURE is issued by Famous Fixins, Inc., a corporation organized
and existing under the laws of the State of New York (the "Company") and is
designated as its Convertible Debenture Due March 13, 2005.
FOR VALUE RECEIVED, the Company promises to pay to Balmore Funds, S.A.,
or permitted assigns (the "Holder"), the principal sum of Three Hundred Fifty
Thousand and 00/100 (US $350,000) Dollars on March 13, 2005 (the "Maturity
Date"). The Company will pay the principal of this Debenture on the Maturity
Date, less any amounts required by law to be deducted, to the registered
holder of this Debenture as of the tenth day prior to the Maturity Date and
addressed to such holder at the last address appearing on the Debenture
Register. The forwarding of such check shall constitute a payment of
principal hereunder and shall satisfy and discharge the liability for
principal on this Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder
shall deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name does not
and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Debenture,
the Company and any agent of the Company may treat the person in whose name
this Debenture is duly registered on the Company's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Debenture and
Warrants Purchase Agreement dated as of March 7, 2000 between the Company and
the original Holder (the "Purchase Agreement"), and is subject to the terms
and conditions of the Purchase Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
2. The Holder of this Debenture is entitled, at its option, to
convert at any time commencing on the date hereof, the principal amount of
this Debenture or any portion thereof into shares of Common Stock of the
Company ("Conversion Shares") at a conversion price for each share of Common
Stock ("Conversion Price") equal to $0.40 per share subject to proportionate
adjustments for any stock splits or dividends in the form of Common Stock
subsequent to March 7, 2000.
3. (a) Conversion shall be effectuated by surrendering this
Debenture to the Company (if such Conversion will convert all outstanding
principal) together with the form of conversion notice attached hereto as
<PAGE>
Exhibit A (the "Notice of Conversion"), executed by the Holder of this
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. No fraction of a share or
scrip representing a fraction of a share will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. The
date on which Notice of Conversion is given (the "Conversion Date") shall be
deemed to be the date on which the Holder faxes the Notice of Conversion duly
executed to the Company. Facsimile delivery of the Notice of Conversion shall
be accepted by the Company at facsimile number (212) 245-7767 Attn.: Jason
Bauer. Certificates representing Common Stock upon conversion will be
delivered to the Holder within three (3) Trading Days from the date the Notice
of Conversion is delivered to the Company. Delivery of shares upon conversion
shall be made to the address specified by the Holder in the Notice of
Conversion.
(b) The Company understands that a delay in the issuance of
shares of Common Stock upon a conversion beyond the three (3) Trading Day
period described in Section 3(a) could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of shares of Common Stock upon
conversion in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company).
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 3(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion, and in such event no late payments shall be due in connection with
such withdrawn conversion.
If at any time, except in accordance with this Debenture or the Purchase
Agreement, (a) the Company challenges, disputes or denies the right of the
Holder to effect the conversion of this Debenture into Common Stock or
otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with this Section 3 or (b) any
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<PAGE>
Company stockholder who is not and has never been an Affiliate (as defined in
Rule 405 under the Securities Act of 1933, as amended) of the Holder obtains a
judgment or any injunctive relief from any court or public or governmental
authority which denies, enjoins, limits, modifies, delays or disputes the
right of the holder hereof to effect the conversion of this Debenture into
Common Stock, then the Holder shall have the right, by written notice, to
require the Company to promptly redeem this Debenture for cash at a redemption
price equal to one hundred forty percent (140%) of the outstanding principal
amount hereof. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in
disputing any such action or pursuing its rights hereunder (in addition to any
other rights of the Holder), subject in the case of clause (b) to the
Company's right to control and assume the defense of any such action. In the
absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's conversion privilege.
4. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of this Debenture at the time, place and in the coin or currency or
shares of Common Stock, herein prescribed. This Debenture is a direct
obligation of the Company.
5. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another
person, or spins off a division or subsidiary to its shareholders, and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which
shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the
right to convert by delivering a Notice of Conversion to the Company within
fifteen (15) days of receipt of notice of such Sale from the Company.
6. The Holder of the Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
8. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal on this
Debenture and same shall continue for a period of five (5) days; or
b. Any of the representations or warranties made by the Company herein,
in the Purchase Agreement, the Registration Rights Agreement, or in any
agreement, certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and
delivery of this Debenture or the Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder or to
cause its Transfer Agent to issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder
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<PAGE>
in accordance with the terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture or the Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture, the Purchase Agreement or the Registration Rights Agreement
and such legend removal is otherwise lawful, and any such failure shall
continue uncured for five (5) Trading Days; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under the Purchase Agreement, the Registration
Rights Agreement or this Debenture and such failure shall continue uncured for
a period of thirty (30) days after written notice from the Holder of such
failure; or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for
a substantial part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
j. The Company shall have its Common Stock suspended or delisted from
trading on a Principal Market for in excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
9. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
10. In no event shall the Holder be permitted to convert this
Debenture for shares of Common Stock in excess of the amount of this Debenture
upon the conversion of which, (x) the number of shares of Common Stock
beneficially owned by such Holder (other than shares of Common Stock issuable
upon conversion of this Debenture) plus (y) the number of shares of Common
Stock issuable upon conversion of this Debenture, would be equal to or exceed
9.9% of the number of shares of Common Stock then issued and outstanding,
including shares issuable upon conversion of this Debenture held by such
Holder after application of this Section 10. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as
4
<PAGE>
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 10 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in
the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder's determination of whether this
Debenture is convertible (in relation to other securities owned by such
holder) and of which portion of this Debenture is convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to convert
this Debenture into shares of Common Stock at such time as such conversion
will not violate the provisions of this Section 10. The provisions of this
Section 10 may be waived by the Holder of this Debenture upon not less than 75
days' prior notice to the Company, and the provisions of this Section 10 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No conversion of this Debenture in violation of
this Section 10 but otherwise in accordance with this Debenture shall affect
the status of the Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable.
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by an officer thereunto duly authorized.
Dated: March _____, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
Attest:
_______________________
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. 1 into Shares of Common
Stock of Famous Fixins, Inc. (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion*_____________________________________________________
Applicable Conversion Price * __________________________________________
Accrued Interest________________________________________________________
Signature_______________________________________________________________
[Name]
Address:________________________________________________________________
________________________________________________________________
*If such conversion represents the remaining principal balance of the
Debenture, the original Debenture must accompany the Notice of Conversion.
6
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY
BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE
SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 1,000,000 Shares of Common Stock of
Famous Fixins, Inc.
THIS CERTIFIES that, for value received, Roseworth Group Ltd. (the
"Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after March 13, 2000 (the "Initial
Exercise Date") and on or prior to the close of business on March 13, 2005
(the "Termination Date") but not thereafter, to subscribe for and purchase
from Famous Fixins, Inc., a corporation incorporated in New York (the
"Company"), up to one million (1,000,000) shares (the "Warrant Shares") of
Common Stock, $.001 par value, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be $0.75. The Exercise Price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein.
In the event of any conflict between the terms of this Warrant and the
Convertible Debenture and Warrants Purchase Agreement dated as of March 7,
2000 pursuant to which this Warrant has been issued (the "Purchase
Agreement"), the Purchase Agreement shall control. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth for such terms
in the Purchase Agreement.
1
<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Sections 4 and 5 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three (3) Trading Days after the date on which this Warrant
shall have been exercised as aforesaid. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by Holder, if
any, pursuant to Section 5 prior to the issuance of such shares, have been
paid. If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant. If no registration statement is effective permitting the resale of
the shares of Common Stock issued upon exercise of this Warrant at any time
commencing one year after the issuance date hereof, then this Warrant shall
also be exercisable by means of a "cashless exercise" in which the holder
shall be entitled to receive a certificate for the number of shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
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<PAGE>
(X) = the number of shares issuable upon exercise of the Warrants in
accordance with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. Limitation on Exercise of Warrant. In no event shall the Holder be
permitted to exercise this Warrant for shares of Common Stock in excess of the
amount of this Warrant upon the exercise of which, (x) the number of shares of
Common Stock beneficially owned by such Holder (other than shares of Common
Stock issuable upon exercise of this Warrant) plus (y) the number of shares of
Common Stock issuable upon exercise of this Warrant, would be equal to or
exceed 9.9% of the number of shares of Common Stock then issued and
outstanding, including shares issuable upon exercise of this Warrant held by
such Holder after application of this Section 5. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. To the extent that the limitation contained in this Section 5
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and which portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such Holder's determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to exercise
this Warrant into shares of Common Stock at such time as such exercise will
not violate the provisions of this Section 5. The provisions of this Section
5 may be waived by the Holder of this Warrant upon not less than 75 days'
prior notice to the Company, and the provisions of this Section 5 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No exercise of this Warrant in violation of this
Section 5 but otherwise in accordance with this Warrant shall affect the
status of the Common Stock issued upon such exercise as validly issued, fully-
paid and nonassessable.
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6. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the
name of the holder of this Warrant or in such name or names as may be directed
by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
7. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
8. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 8(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
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(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 8.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
9. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
12. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this Warrant
shall be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled to
receive had such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the holder of this Warrant shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment
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made pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable
upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
exercisable into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts
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<PAGE>
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or business
of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i)
at least 30 days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, liquidation or winding up,
and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least 30 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such disposition, dissolution, liquidation or
winding up. Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 17(d).
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<PAGE>
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Principal Market upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of Holder against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York
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without regard to its conflict of law, principles or rules, and be subject to
arbitration pursuant to the terms set forth in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Warrant; provided, however, that the Company will not be liable hereunder to
the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses
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<PAGE>
or disbursements are found in a final non-appealable judgment by a court to
have resulted from Holder's negligence, bad faith or willful misconduct in its
capacity as a stockholder or warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: March 7, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
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NOTICE OF EXERCISE
To: Famous Fixins, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of Famous Fixins, Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY
BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE
SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 625,000 Shares of Common Stock of
Famous Fixins, Inc.
THIS CERTIFIES that, for value received, Austost Anstalt Schaan (the
"Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after March 13, 2000 (the "Initial
Exercise Date") and on or prior to the close of business on March 13, 2005
(the "Termination Date") but not thereafter, to subscribe for and purchase
from Famous Fixins, Inc., a corporation incorporated in New York (the
"Company"), up to six hundred twenty-five thousand (625,000) shares (the
"Warrant Shares") of Common Stock, $.001 par value, of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be $0.75. The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. In the event of any conflict between the terms
of this Warrant and the Convertible Debenture and Warrants Purchase Agreement
dated as of March 7, 2000 pursuant to which this Warrant has been issued (the
"Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth for
such terms in the Purchase Agreement.
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<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Sections 4 and 5 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three (3) Trading Days after the date on which this Warrant
shall have been exercised as aforesaid. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by Holder, if
any, pursuant to Section 5 prior to the issuance of such shares, have been
paid. If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant. If no registration statement is effective permitting the resale of
the shares of Common Stock issued upon exercise of this Warrant at any time
commencing one year after the issuance date hereof, then this Warrant shall
also be exercisable by means of a "cashless exercise" in which the holder
shall be entitled to receive a certificate for the number of shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
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<PAGE>
(X) = the number of shares issuable upon exercise of the Warrants in
accordance with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. Limitation on Exercise of Warrant. In no event shall the Holder be
permitted to exercise this Warrant for shares of Common Stock in excess of the
amount of this Warrant upon the exercise of which, (x) the number of shares of
Common Stock beneficially owned by such Holder (other than shares of Common
Stock issuable upon exercise of this Warrant) plus (y) the number of shares of
Common Stock issuable upon exercise of this Warrant, would be equal to or
exceed 9.9% of the number of shares of Common Stock then issued and
outstanding, including shares issuable upon exercise of this Warrant held by
such Holder after application of this Section 5. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. To the extent that the limitation contained in this Section 5
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and which portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such Holder's determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to exercise
this Warrant into shares of Common Stock at such time as such exercise will
not violate the provisions of this Section 5. The provisions of this Section
5 may be waived by the Holder of this Warrant upon not less than 75 days'
prior notice to the Company, and the provisions of this Section 5 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No exercise of this Warrant in violation of this
Section 5 but otherwise in accordance with this Warrant shall affect the
status of the Common Stock issued upon such exercise as validly issued, fully-
paid and nonassessable.
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<PAGE>
6. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the
name of the holder of this Warrant or in such name or names as may be directed
by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
7. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
8. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 8(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
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<PAGE>
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 8.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
9. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
12. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this Warrant
shall be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled to
receive had such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the holder of this Warrant shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment
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<PAGE>
made pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable
upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
exercisable into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts
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<PAGE>
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or business
of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i)
at least 30 days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, liquidation or winding up,
and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least 30 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such disposition, dissolution, liquidation or
winding up. Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 17(d).
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16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Principal Market upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of Holder against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York
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without regard to its conflict of law, principles or rules, and be subject to
arbitration pursuant to the terms set forth in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Warrant; provided, however, that the Company will not be liable hereunder to
the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses
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<PAGE>
or disbursements are found in a final non-appealable judgment by a court to
have resulted from Holder's negligence, bad faith or willful misconduct in its
capacity as a stockholder or warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: March 7, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
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NOTICE OF EXERCISE
To: Famous Fixins, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of Famous Fixins, Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY
BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN
A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE
SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 875,000 Shares of Common Stock of
Famous Fixins, Inc.
THIS CERTIFIES that, for value received, Balmore Funds, S.A. (the "Holder"),
is entitled, upon the terms and subject to the conditions hereinafter set
forth, at any time on or after March 13, 2000 (the "Initial Exercise Date")
and on or prior to the close of business on March 13, 2005 (the "Termination
Date") but not thereafter, to subscribe for and purchase from Famous Fixins,
Inc., a corporation incorporated in New York (the "Company"), up to eight
hundred seventy-five thousand (875,000) shares (the "Warrant Shares") of
Common Stock, $.001 par value, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be $0.75. The Exercise Price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein.
In the event of any conflict between the terms of this Warrant and the
Convertible Debenture and Warrants Purchase Agreement dated as of March 7,
2000 pursuant to which this Warrant has been issued (the "Purchase
Agreement"), the Purchase Agreement shall control. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth for such terms
in the Purchase Agreement.
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<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Sections 4 and 5 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three (3) Trading Days after the date on which this Warrant
shall have been exercised as aforesaid. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by Holder, if
any, pursuant to Section 5 prior to the issuance of such shares, have been
paid. If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant. If no registration statement is effective permitting the resale of
the shares of Common Stock issued upon exercise of this Warrant at any time
commencing one year after the issuance date hereof, then this Warrant shall
also be exercisable by means of a "cashless exercise" in which the holder
shall be entitled to receive a certificate for the number of shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common Stock
on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
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(X) = the number of shares issuable upon exercise of the Warrants in
accordance with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. Limitation on Exercise of Warrant. In no event shall the Holder be
permitted to exercise this Warrant for shares of Common Stock in excess of the
amount of this Warrant upon the exercise of which, (x) the number of shares of
Common Stock beneficially owned by such Holder (other than shares of Common
Stock issuable upon exercise of this Warrant) plus (y) the number of shares of
Common Stock issuable upon exercise of this Warrant, would be equal to or
exceed 9.9% of the number of shares of Common Stock then issued and
outstanding, including shares issuable upon exercise of this Warrant held by
such Holder after application of this Section 5. As used herein, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. To the extent that the limitation contained in this Section 5
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder) and which portion of this Warrant is
exercisable shall be in the sole discretion of such Holder, and the submission
of a Notice of Exercise shall be deemed to be such Holder's determination of
whether this Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a holder to exercise
this Warrant into shares of Common Stock at such time as such exercise will
not violate the provisions of this Section 5. The provisions of this Section
5 may be waived by the Holder of this Warrant upon not less than 75 days'
prior notice to the Company, and the provisions of this Section 5 shall
continue to apply until such 75th day (or such later date as may be specified
in such notice of waiver). No exercise of this Warrant in violation of this
Section 5 but otherwise in accordance with this Warrant shall affect the
status of the Common Stock issued upon such exercise as validly issued, fully-
paid and nonassessable.
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<PAGE>
6. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the
name of the holder of this Warrant or in such name or names as may be directed
by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
7. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
8. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by Holder
or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 8(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
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<PAGE>
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 8.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
9. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
12. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this Warrant
shall be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled to
receive had such Warrant been exercised in advance thereof. Upon each such
adjustment of the kind and number of Warrant Shares or other securities of the
Company which are purchasable hereunder, the holder of this Warrant shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company resulting
from such adjustment. An adjustment
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<PAGE>
made pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable
upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
exercisable into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts
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<PAGE>
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
or any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or business
of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i)
at least 30 days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, liquidation or winding up,
and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least 30 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders
of Common Stock shall be entitled to any such dividend, distribution or right,
and the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such disposition, dissolution, liquidation or
winding up. Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company
and delivered in accordance with Section 17(d).
7
<PAGE>
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Principal Market upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of Holder against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of New York
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without regard to its conflict of law, principles or rules, and be subject to
arbitration pursuant to the terms set forth in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company fails to comply with any provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by
or asserted against Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Warrant; provided, however, that the Company will not be liable hereunder to
the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses
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<PAGE>
or disbursements are found in a final non-appealable judgment by a court to
have resulted from Holder's negligence, bad faith or willful misconduct in its
capacity as a stockholder or warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: March 7, 2000
Famous Fixins, Inc.
By: /s/ Jason Bauer
--------------------------------------
Jason Bauer, President
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NOTICE OF EXERCISE
To: Famous Fixins, Inc.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock (the "Common Stock"), of Famous Fixins, Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 7, 2000, between
the investor or investors signatory hereto (each an "Investor" and together
the "Investors"), and Famous Fixins, Inc., a New York corporation (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to a
Convertible Debenture and Warrants Purchase Agreement dated the date hereof
(the "Purchase Agreement"), $1,000,000 principal amount of Convertible
Debentures and Warrants to purchase up to 2,500,000 shares of the Company's
Common Stock (terms not defined herein shall have the meanings ascribed to
them in the Purchase Agreement) in the number and at the exercise price set
forth in the Purchase Agreement; and
WHEREAS, the Company desires to grant to the Investors the registration
rights set forth herein with respect to the Conversion Shares of Common Stock
issuable upon conversion of the Convertible Debenture purchased pursuant to
the Purchase Agreement and shares of Common Stock issuable upon exercise of
the Warrants issued to the Investors (hereinafter referred to as the "Stock"
or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration
Statement has been declared effective by the Commission, and all Securities
have been disposed of pursuant to the Registration Statement, (ii) all
Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Securities have been
otherwise transferred to holders who may trade such Securities without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such Securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Common Stock, such adjustment shall be deemed to be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Agreement.
Section 2. Restrictions on Transfer. Each Investor acknowledges and
understands that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Act. Each Investor understands that no disposition or
transfer of the Securities may be made by Investor in the absence of (i) an
opinion of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without
registration under the Securities Act or (ii) such registration.
With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the
<PAGE>
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and
other documents required to be filed with the Commission pursuant to Section
13 or 15(d) under the Exchange Act by companies subject to either of such
sections, irrespective of whether the Company is then subject to such
reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within fifteen (15) days of
its filing of its Form 10K-SB, a registration statement (on Form SB-2 or S-1,
or such other form as the Company may reasonably deem appropriate) under the
Securities Act (the "Registration Statement"), at the sole expense of the
Company (except as provided in Section 3(c) hereof), in respect of the
Investors, so as to permit a public offering and resale of the Securities
under the Act by the Investors as selling stockholders and not as
underwriters.
The Company shall use its best efforts to cause such Registration
Statement to become effective within ninety (90) days from the required filing
date, or, if earlier, within five (5) days of SEC clearance to request
acceleration of effectiveness, but in any event no later than July 15, 2000.
The number of shares designated in the Registration Statement to be registered
shall be five million (5,000,000) shares of Common Stock and shall include
appropriate language regarding reliance upon Rule 416 to the extent permitted
by the Commission. The Company will notify the Investors of the effectiveness
of the Registration Statement within one (1) Trading Day of such event.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) thirty days after the date that one
percent or less of the Securities covered by such Registration Statement are
or may become issued and outstanding, (ii) thirty days after the date that all
but one percent or less of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) thirty days after all but one percent or
less of the Securities have been otherwise transferred to persons who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend, or (v) all Securities may be
sold without any time, volume or manner limitations pursuant to Rule 144(k) or
any similar provision then in effect under the Securities Act in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Investor (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Investors
shall bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Securities being registered and the
fees and expenses of their counsel. The Investors and their counsel shall have
a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any
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<PAGE>
amendment thereto, prior to filing with the Commission, and the Company shall
provide each Investor with copies of any comment letters received from the
Commission with respect thereto within two (2) Trading Days of receipt
thereof. The Company shall qualify any of the securities for sale in such
states as any Investor reasonably designates and shall furnish indemnification
in the manner provided in Section 6 hereof. However, the Company shall not be
required to qualify in any state which will require an escrow or other
restriction relating to the Company and/or the sellers, or which will require
the Company to qualify to do business in such state or require the Company to
file therein any general consent to service of process. The Company at its
expense will supply the Investors with copies of the applicable Registration
Statement and the prospectus included therein and other related documents in
such quantities as may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section 3 to
include an Investor's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Investor and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and
would result in all purchasers or transferees obtaining securities which are
not "restricted securities", as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement to be
filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days from the required filing date, (ii) such
Registration Statement is not declared effective by the Commission within the
earlier of ninety (90) days from the Closing Date or five (5) days of
clearance by the Commission to request effectiveness or (iii) such
Registration Statement is not maintained as effective by the Company for the
period set forth in Section 3(b) above (each a "Registration Default") then
the Company will pay Investor (pro rated on a daily basis), as liquidated
damages for such failure and not as a penalty one percent (1%) of the
aggregate market value of shares of Common Stock purchased from the Company
(including the Conversion Shares which would be issuable upon conversion of
the Convertible Debenture on any date of determination, and whether or not the
Convertible Debenture is then convertible pursuant to its terms) and held by
the Investor for the first month and two percent (2%) for each month
thereafter until such Registration Statement has been filed, and in the event
of late effectiveness (in case of clause (ii) above) or lapsed effectiveness
(in the case of clause (iii) above), one percent (1%) of the aggregate market
value of shares of Common Stock purchased from the Company and held by the
Investor (including the Conversion Shares which would be issuable upon
conversion of the Convertible Debenture on any date of determination, and
whether or not the Convertible Debenture is then convertible pursuant to its
terms) for the first month and two percent (2%) for each month thereafter
(regardless of whether one or more such Registration Defaults are then in
existence, and without duplication) until such Registration Statement has been
declared effective. Such payment of the liquidated damages shall be made to
the Investors in cash, within five (5) calendar days of demand, provided,
however, that the payment of such liquidated damages shall not relieve the
Company from its obligations to use its best efforts to register the
Securities pursuant to this Section. The market value of the Common Stock for
this purpose shall be the closing price (or last trade, if so reported) on the
Principal Market for each day during such Registration Default, not to exceed
$50,000 per month.
If the Company does not remit the payment to the Investors of
either liquidated damages or for the repurchase of the Convertible Debentures
as set forth above, the Company will pay the Investors reasonable costs of
collection, including attorneys' fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not affect
or limit the Investors' other rights or remedies as set forth in this
Agreement.
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<PAGE>
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective
date of any Registration Statement, the Company notifies the Investors in
writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Investors shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities, from the time of
the giving of notice with respect to a Potential Material Event until the
Investors receive written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event; provided, however, that the Company may not so
suspend the right to such holders of Securities for more than twenty (20) days
in the aggregate during any twelve month period, during the period the
Registration Statement is required to be in effect, and if such period is
exceeded, such event shall be a Registration Default. If a Potential Material
Event shall occur prior to the date a Registration Statement is required to be
filed, then the Company's obligation to file such Registration Statement shall
be delayed without penalty for not more than twenty (20) days, and such delay
or delays shall not constitute a Registration Default. The Company must, if
lawful, give the Investors notice in writing at least two (2) Trading Days
prior to the first day of the blackout period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that
disclosure of such information in a Registration Statement would be
detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Chief Executive Officer or the Board of Directors of the
Company, be adversely affected by disclosure in a registration statement at
such time, which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of Directors of the
Company that the applicable Registration Statement would be materially
misleading absent the inclusion of such information.
Section 4. Cooperation with Company. The Investors will cooperate with
the Company in all respects in connection with this Agreement, including
timely supplying all information reasonably requested by the Company (which
shall include all information regarding the Investors and proposed manner of
sale of the Registrable Securities required to be disclosed in any
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor
to consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as to those Securities which the Commission will
permit to be registered without naming the Investors as underwriters. Any
delay or delays caused by the Investors by failure to cooperate as required
hereunder shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible,
subject to the Investors' assistance and cooperation as reasonably required
with respect to each Registration Statement:
4
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(a)(i) prepare and file with the Commission such amendments
and supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the
sale or other disposition of all securities covered by such registration
statement whenever the Investors shall desire to sell or otherwise dispose of
the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful
action such that each of (A) the Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (B) the prospectus forming part
of the Registration Statement, and any amendment or supplement thereto, does
not at any time during the Registration Period include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(b)(i) prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any prospectus (including any supplements thereto), provide
draft copies thereof to the Investors as required by Section 3(c) and reflect
in such documents all such comments as the Investors (and their counsel)
reasonably may propose respecting the Selling Shareholders and Plan of
Distribution sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with
the requirements of the Act, and such other documents, as such Investor may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Investor;
(c) register and qualify the Registrable Securities covered
by the Registration Statement under such other securities or blue sky laws of
such jurisdictions as the Investors shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts
and things which may be necessary or advisable to enable each Investor to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Investor;
(d) list such Registrable Securities on the Principal Market,
if the listing of such Registrable Securities is then permitted under the
rules of such Principal Market;
(e) notify each Investor at any time when a prospectus
relating thereto covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing, and the Company shall prepare and file a curative
amendment under Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or,
in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
5
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(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Investors reasonably may request and registered in such
names as the Investors may request; and, within three (3) Trading Days after a
Registration Statement which includes Registrable Securities is declared
effective by the Commission, deliver and cause legal counsel selected by the
Company to deliver to the transfer agent for the Registrable Securities (with
copies to the Investors) an appropriate instruction and, to the extent
necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably necessary
to expedite and facilitate the disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor
provided in the prospectus which are customary for issuers to perform under
the circumstances;
(i) in the event of an underwritten offering, promptly
include or incorporate in a prospectus supplement or post-effective amendment
to the Registration Statement such information as the managers reasonably
agree should be included therein and to which the Company does not reasonably
object and make all required filings of such prospectus supplement or post-
effective amendment as soon as practicable after it is notified of the matters
to be included or incorporated in such Prospectus supplement or post-effective
amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company
agrees to indemnify and hold harmless the Investors and each person, if any,
who controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses), to which the Distributing
Investor may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, or any
related final prospectus or amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company will not be liable in any
such case to the extent, and only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, preliminary prospectus, final prospectus or amendment
or supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Investor, its
counsel, affiliates or any underwriter, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Investor agrees that it will indemnify and hold harmless the Company, and each
officer and director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
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Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, 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 statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in such Registration
Statement, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
such Distributing Investor, its counsel, affiliates or any underwriter,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Distributing Investor may otherwise
have. Notwithstanding anything to the contrary herein, the Distributing
Investor shall be liable under this Section 6(b) for only that amount as does
not exceed the net proceeds to such Distributing Investor as a result of the
sale of Registrable Securities pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action against such indemnified
party, such indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party except to the extent
the failure of the indemnified party to provide such written notification
actually prejudices the ability of the indemnifying party to defend such
action. 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 similarly notified,
assume the defense thereof, subject to the provisions herein stated 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 to
such indemnified party 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, unless the indemnifying
party shall not pursue the action to its final conclusion. The indemnified
parties as a group shall have the right to employ one separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall 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 unless (i) the employment of
such counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by its counsel that there may be one
or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the indemnified
party or any other indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld so long as such settlement
includes a full release of claims against the indemnified party.
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All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder; provided, that the indemnifying party may require such indemnified
party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such indemnified party is not entitled to
indemnification hereunder).
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that the express provisions of Section 6
hereof provide for indemnification in such case, or (ii) contribution under
the Securities Act may be required on the part of any indemnified party, then
the Company and the applicable Distributing Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall
any (i) Investor be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the proceeds
received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are registered under the Securities Act and (ii) underwriter be
required to undertake liability to any person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to such Registration Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (i) hand
delivered, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth
in the Purchase Agreement or to such other address as such party shall have
specified
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most recently by written notice. Any notice or other communication required
or permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the first business day following the date
of sending by reputable courier service, fully prepaid, addressed to such
address, or (c) upon actual receipt of such mailing, if mailed. Either party
hereto may from time to time change its address or facsimile number for
notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Investors under this Agreement may
be assigned to any purchaser of substantially all of the Registrable
Securities (or the rights thereto) from an Investor, as otherwise permitted by
the Purchase Agreement.
Section 10. Additional Covenants of the Company. The Company agrees
that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of
registering the Registrable Securities, it shall use its best efforts to file
all reports and information required to be filed by it with the Commission in
a timely manner and take all such other action so as to maintain such
eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all
of which, when together shall constitute but one and the same instrument, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other parties. In lieu of the original, a
facsimile transmission or copy of the original shall be as effective and
enforceable as the original.
Section 12. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their best efforts
to find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant or
restriction.
Section 13. Conflicting Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 14. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York City
and without regard to its principles of conflicts of laws. Any dispute under
this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of
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arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party
in respect of a claim filed. In connection with rendering its decisions, the
Board of Arbitration shall adopt and follow the laws of the State of New York.
To the extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following commencement of
proceedings with respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to all parties involved in the dispute. Any
decision made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final, binding
and conclusive on the parties to the dispute, and entitled to be enforced to
the fullest extent permitted by law and entered in any court of competent
jurisdiction. The Board of Arbitration shall be authorized and is hereby
directed to enter a default judgment against any party failing to participate
in any proceeding hereunder within the time periods set forth in the AAA
rules. The prevailing party shall be awarded its costs, including attorneys'
fees, from the non-prevailing party as part of the award. Any party shall
have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. The prevailing party
in such injunctive action shall be awarded its costs, including attorney's
fees, from the non-prevailing party.
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Famous Fixins, Inc.
By: /s/ Jason Bauer
-------------------------------
Jason Bauer, President
Roseworth Group Ltd.
By: /s/ Hans Gassner
-------------------------------
Hans Gassner, Authorized Signatory
Austost Anstalt Schaan
By: /s/ Thomas Hackl
-------------------------------
Thomas Hackl, Authorized Signatory
Balmore Funds, S.A.
By: /s/ Francois Morax
-------------------------------
Francois Morax, Authorized Signatory
10
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EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of March 7, 2000, by
and among Famous Fixins, Inc., a corporation incorporated under the laws of
the State of New York (the "Company"), the investors signatory hereto (each an
"Investor" and together the "Investors"), and Epstein Becker & Green, P.C.,
(the "Escrow Agent"). Capitalized terms used but not defined herein shall
have the meanings set forth in the Convertible Debenture and Warrants Purchase
Agreement referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing from the Company $1,000,000
principal amount of Convertible Debentures (the "Convertible Preferred Stock")
and Warrants to purchase up to 2,500,000 shares of Common Stock pursuant to
the formula set forth in the Convertible Debenture and Warrants Purchase
Agreement (the "Purchase Agreement") dated the date hereof between the
Investors and the Company, which will be issued as per the terms contained
herein and in the Purchase Agreement; and
WHEREAS, it is intended that the purchase of the securities be
consummated in accordance with the requirements set forth by Sections 4(2)
and/or 4(6) and/or Regulation D promulgated under the Securities Act of 1933,
as amended; and
WHEREAS, the Company and the Investors have requested that the Escrow
Agent hold the Purchase Price with respect to the Closing in escrow until the
Escrow Agent has received the Convertible Debentures, the Warrants and certain
other closing documents specified herein;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1. The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
the Convertible Debentures and the Warrants at the Closing.
1.2. (a) At the Closing, upon Escrow Agent's receipt of the Purchase
Price for the Closing into its attorney trustee account from the Investors,
together with executed counterparts of this Agreement, the Purchase Agreement
and the Registration Rights Agreement, it shall telephonically advise the
Company, or the Company's designated attorney or agent, of the amount of funds
it has received into its account.
(b) Wire transfers to the Escrow Agent shall be made as follows:
Epstein Becker & Green, P.C.
Master Escrow Account
Chase Manhattan Bank
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1411 Broadway - Fifth Floor
New York, New York 10018
ABA No. 021000021
Account No. 035-1-346036
Attention: L. Borneo
1.3. The Company, upon receipt of said notice, shall deliver to the
Escrow Agent the certificates representing the Convertible Debentures and the
Warrants to be issued to each Investor at the first Closing together with:
(i) the original executed Registration Rights Agreement in the form of
Exhibit C to the Purchase Agreement;
(ii) Instructions to Transfer Agent in the form of Exhibit F to the
Purchase Agreement;
(iii) the original executed opinion of Law Offices of Dan Brecher, in
the form of Exhibit E to the Purchase Agreement; and
(iv) an original counterpart of this Escrow Agreement;
In the event that the foregoing items are not in the Escrow Agent's possession
within three (3) Trading Days of the Escrow Agent notifying the Company that
the Escrow Agent has custody of the Purchase Price, then each Investor shall
have the right to demand the return of said sum.
1.4. At the Closing, once Escrow Agent confirms the validity of the
issuance of the Convertible Debentures and the Warrants by means of its
receipt of a Release Notice in the form attached hereto as Exhibit X executed
by the Company and each Investor, it shall enter the Commencement Date and
Termination Date of each Warrant on the face of each Warrant, insert the
Closing Date on the face of the certificates representing the Convertible
Debentures, and then wire that amount of funds necessary to purchase the
Convertible Debentures and the Warrants per the written instructions of the
Company, net of One Hundred Thousand Dollars ($100,000) to Union Atlantic, LC,
net of Ten Thousand Dollars ($10,000) from Union Atlantic LC to Epstein Becker
& Green, P.C.
Once the funds (as set forth above) have been sent per the Company's
instructions, the Escrow Agent shall then arrange to have the Convertible
Debentures, the Warrants, the Registration Rights Agreement and the opinion of
counsel delivered as per instructions from the Investors and to deliver the
Instructions to Transfer Agent to the Transfer Agent.
ARTICLE 2
MISCELLANEOUS
2.1. No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension
of time for performance of any obligation or act shall be deemed any extension
of the time for performance of any other obligation or act.
2.2. All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent as set forth in the Purchase Agreement.
2.3. This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties
hereto.
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2.4. This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter
hereof and supersedes all prior understandings with respect thereto. This
Escrow Agreement may not be modified, changed, supplemented or terminated, nor
may any obligations hereunder be waived, except by written instrument signed
by the parties to be charged or by its agent duly authorized in writing or as
otherwise expressly permitted herein.
2.5. Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine.
This Escrow Agreement shall not be construed as if it had been prepared by one
of the parties, but rather as if both parties had prepared the same. Unless
otherwise indicated, all references to Articles are to this Escrow Agreement.
2.6. The parties hereto expressly agree that this Escrow Agreement shall
be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Any action to enforce, arising out
of, or relating in any way to, any provisions of this Escrow Agreement shall
only be brought in a state or Federal court sitting in New York City.
2.7. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, each Investor and
the Escrow Agent.
2.8. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to do hereunder
as the Escrow Agent while acting in good faith, and any act done or omitted by
the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law
shall be conclusive evidence of such good faith.
2.9. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person, firm or corporation by reason of such decree
being subsequently reversed, modified, annulled, set aside, vacated or found
to have been entered without jurisdiction.
2.10. The Escrow Agent shall not be liable in any respect on account of
the identity, authorization or rights of the parties executing or delivering
or purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder.
2.11. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise
the Escrow Agent in connection with the Escrow Agent's duties hereunder, may
rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Investors, and may continue to act as legal counsel for the Investors, from
time to time, notwithstanding its duties as the Escrow Agent hereunder. The
Company consents to the Escrow Agent in such capacity as legal counsel for the
Investors and waives any claim that such representation represents a conflict
of interest on the part of the Escrow Agent. The Company understands that the
Investors and the Escrow Agent are relying explicitly on the foregoing
provision in entering into this Escrow Agreement.
2.12. The Escrow Agent's responsibilities as escrow agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Investors. In the event of any such resignation, the
Investors and the Company shall appoint a successor Escrow Agent.
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2.13. If the Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such
instruments.
2.14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
documents or the escrow funds held by the Escrow Agent hereunder, the Escrow
Agent is authorized and directed in the Escrow Agent's sole discretion (1) to
retain in the Escrow Agent's possession without liability to anyone all or any
part of said documents or the escrow funds until such disputes shall have been
settled either by mutual written agreement of the parties concerned by a final
order, decree or judgment of a court of competent jurisdiction after the time
for appeal has expired and no appeal has been perfected, but the Escrow Agent
shall be under no duty whatsoever to institute or defend any such proceedings
or (2) to deliver the escrow funds and any other property and documents held
by the Escrow Agent hereunder to a state or Federal court having competent
subject matter jurisdiction and located in the County of New York in
accordance with the applicable procedure therefor.
2.15. The Company and each Investor agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees,
agents and representatives from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder or the transactions contemplated hereby or by the
Purchase Agreement other than any such claim, liability, cost or expense to
the extent the same shall have been determined by final, unappealable judgment
of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
FAMOUS FIXINS, INC.
By: /s/ Jason Bauer
-------------------------------
Jason Bauer, President
Roseworth Group Ltd.
By: /s/ Hans Gassner
-------------------------------
Hans Gassner, Authorized Signatory
Austost Anstalt Schaan
By: /s/ Thomas Hackl
-------------------------------
Thomas Hackl, Authorized Signatory
Balmore Funds, S.A.
By: /s/ Francois Morax
-------------------------------
Francois Morax, Authorized Signatory
ESCROW AGENT:
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EPSTEIN BECKER & GREEN, P.C.
By: /s/ Joseph A. Smith
-----------------------------
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Exhibit X to
Escrow Agreement
RELEASE NOTICE
The UNDERSIGNED, pursuant to the Escrow Agreement, dated as of March 7,
2000 among Famous Fixins, Inc., the Investors signatory thereto and Epstein
Becker & Green, P.C., as Escrow Agent (the "Escrow Agreement"; capitalized
terms used herein and not defined shall have the meaning ascribed to such
terms in the Escrow Agreement), hereby notify the Escrow Agent that each of
the conditions precedent to the purchase and sale of the Convertible Debenture
and Warrants set forth in the Convertible Debenture and Warrants Purchase
Agreement have been satisfied. The Company and the undersigned Investor
hereby confirm that all of their respective representations and warranties
contained in the Purchase Agreement remain true and correct and authorize the
release by the Escrow Agent of the funds and documents to be released at the
Closing as described in the Escrow Agreement. This Release Notice shall not be
effective until executed by the Company and the Investor.
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to
be duly executed and delivered as of this __ day of March, 2000.
Famous Fixins, Inc.
By: /s/ Jason Bauer
----------------------------
Jason Bauer, President
INVESTOR: Roseworth Group, Ltd.
By: /s/ Hans Gassner
----------------------------
Name: Hans Gassner
Title: President
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EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Address
Re: Convertible Debenture and Warrants Purchase Agreement between the
Investors Signatory thereto and Famous Fixins, Inc..
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Purchase Agreement by
and between the investors signatory thereto (the "Investors") and Famous
Fixins, Inc., a New York corporation (the "Company"), dated as of March 7,
2000 (the "Purchase Agreement"), which provides for the issuance and sale by
the Company of (i) $1,000,000 principal amount of Convertible Debentures and
(ii) warrants to purchase up to 2,500,000 shares of Common Stock of the
Company (the "Warrants"). All terms used herein have the meanings defined for
them in the Purchase Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Convertible Debentures, the
Warrants, and the Registration Rights Agreement between the Investors and the
Company, dated as of March 7, 2000 (the "Registration Rights Agreement"), and
the Escrow Agreement between the Investors, the Company and Epstein Becker &
Green, P.C., dated as of March 7, 2000 (the "Escrow Agreement", and together
with the Purchase Agreement, the Convertible Debentures, the Warrants and the
Registration Rights Agreement, the "Agreements"). As counsel, we have made
such legal and factual examinations and inquiries as we have deemed advisable
or necessary for the purpose of rendering this opinion. In addition, we have
examined, among other things, originals or copies of such corporate records of
the Company, certificates of public officials and such other documents and
questions of law that we consider necessary or advisable for the purpose of
rendering this opinion. In such examination we have assumed the genuineness of
all signatures on original documents, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents
of all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrants and the transactions contemplated thereby, and without any
independent investigation of any underlying facts or situations.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by each Investor in the Agreements and
pursuant thereto are true and correct.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has all requisite
corporate power and authority to carry on its business and
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to own, lease and operate its properties and assets as described in the
Company's SEC Documents. To our knowledge, the Company does not have any
subsidiaries and does not own more than fifty percent (50%) of the outstanding
capital stock of or control any other business entity other than as disclosed
in the SEC Documents.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and the Warrants and to
issue the Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares. The execution and delivery of the Agreements by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Agreements has been duly executed and delivered, and
the Convertible Debentures and the Warrants have each been duly executed,
issued and delivered by the Company and each of the Agreements, the
Convertible Debentures and the Warrants constitutes valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
3. The execution, delivery and performance of the Agreements by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Convertible
Debentures, the Conversion Shares, the Warrants and the Warrant Shares, do not
and will not (i) result in a violation of the Company's Certificate of
Incorporation or By-Laws; (ii) to our knowledge, conflict with, or constitute
a material default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or
similar agreement to which the Company is a party; or (iii) result in a
violation of any federal or state law, rule or regulation applicable to the
Company or by which any property or asset of the Company is bound or affected,
except for such violations as would not, individually or in the aggregate,
have a Material Adverse Effect. To our knowledge, the Company is not in
violation of any terms of its Certificate of Incorporation or Bylaws.
4. The issuance of the Convertible Debentures, the Conversion Shares and
the Warrants in accordance with the Purchase Agreement, and the issuance of
the Warrant Shares in accordance with the Warrants, will be exempt from
registration under the Securities Act of 1933, as amended, and will be in
compliance with the state securities laws of the Company's principal place of
business. When so issued, the Conversion Shares and the Warrant Shares will
be duly and validly issued, fully paid and nonassessable, and free of any
liens, encumbrances and preemptive or similar rights contained in the
Company's Certificate of Incorporation or Bylaws or, to our knowledge, in any
agreement to which the Company is party.
5. We have not been engaged to devote substantive attention to any
claims, actions, suits, proceedings or investigations that are pending against
the Company or its properties, or against any officer or director of the
Company in his or her capacity as such. To our knowledge, the Company is not
a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
6. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $0.001 par value per share, of which 12,220,888 shares
were issued and outstanding at March 6, 2000, without giving effect to the
conversion of debentures outstanding or the exercise of options and warrants
outstanding as of that date. All of such issued and outstanding shares have
been duly authorized and are fully paid and non-assessable. No person has
rescission rights with respect to any shares of the Company's Common Stock.
2
<PAGE>
This opinion is furnished to the Investors solely for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
3
<PAGE>
EXHIBIT F
INSTRUCTIONS TO TRANSFER AGENT
FAMOUS FIXINS, INC.
_____________, 2000
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
Attn: Roger Bernhammer
Dear Sirs:
Reference is made to the Convertible Debenture and Warrants Purchase
Agreement and all Exhibits thereto (the "Agreement") dated as of March 7, 2000
between the investors signatory thereto (the "Investors") and Famous Fixins,
Inc. (the "Company"). Pursuant to the Agreement, and subject to the terms and
conditions set forth in the Agreement, the Company has issued to the Investors
(i) $1,000,000 principal amount of Convertible Debentures (the "Debentures")
and (ii) Warrants to purchase 2,500,000 shares of Common Stock (the
"Warrants"). As a condition to the effectiveness of the Agreement, the
Company has agreed to issue to you, as the transfer agent for the Common Stock
(the "Transfer Agent"), these instructions relating to the Common Stock to be
issued to the Investors (or a permitted assignee) pursuant to the Agreement
upon conversion of the Debentures or upon exercise of the Warrants. All
capitalized terms used herein and not otherwise defined shall have the meaning
set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement and the Registration Rights Agreement,
the Company is required to prepare and file with the Commission, and maintain
the effectiveness of, a registration statement or registration statements
registering the resale of the Common Stock to be acquired by the Investors (i)
upon exercise of the Warrants and (ii) upon conversion of, or as payment of
interest on, the Debentures, all as provided in the Registration Rights
Agreement. The Company will advise the Transfer Agent in writing of the
effectiveness of any such registration statement promptly upon its being
declared effective, and shall deliver an opinion of its counsel to that
effect. The Transfer Agent shall be entitled to rely on such advice and such
opinion and shall assume that such registration statement remains in effect
unless the Transfer Agent is otherwise advised in writing by the Company or
such counsel, and the Transfer Agent shall not be required to independently
confirm the continued effectiveness of such registration statement. In the
circumstances set forth in the following three paragraphs, the Transfer Agent
shall deliver to the appropriate Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction
or additional documentation from the Company or its counsel or the Investor or
its counsel or any other party (other than as described in such paragraphs).
(a) At any time after the effective date of the registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender
of one or more certificates evidencing Common Stock which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered, in such names and in such
denominations as the Investor may request, provided that in connection with
any such event, the Investor (or its permitted assignee) shall confirm in
writing to the Transfer Agent that (i) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (ii) the Investor confirms to the transfer agent
that the Investor has complied with the prospectus delivery requirement.
<PAGE>
(b) In the event a registration statement is not filed by the
Company, or for any reason the registration statement which is filed by the
Company is not declared effective by the Securities and Exchange Commission,
the Investor, or its permitted assignee, or its broker confirms to the
Transfer Agent that (i) the Investor has beneficially owned the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investor (or the Trading Day immediately following if such date is not a
Trading Day), the Investor will not have sold more than the greater of (a) one
percent (1%) of the total number of outstanding shares of Common Stock or (b)
the average weekly trading volume of the Common Stock for the preceding four
weeks during the three months ending upon such delivery date (or the Trading
Day immediately following if such date is not a Trading Day), and (iii) the
Investor has complied with the manner of sale and notice requirements of Rule
144 under the Securities Act; or
(c) The Investor (or its permitted assignee) shall represent that
it is permitted to dispose of such shares of Common Stock without limitation
as to amount or manner of sale pursuant to Rule 144(k) under the Securities
Act.
In the case of subparagraphs (b) or (c), the Transfer Agent shall be
entitled to require an opinion of counsel to the Company or from counsel to
the Investor (which opinion shall be from an attorney or law firm reasonably
acceptable to the Transfer Agent and be in form and substance reasonably
acceptable to the Transfer Agent). Any advice, notice, or instructions to the
Transfer Agent required or permitted to be given hereunder may be transmitted
via facsimile to the Transfer Agent's facsimile number of 212-509-5150.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any conversion of the Debentures or exercise of
Warrants pursuant to which the Investor acquires Common Stock under the
Agreement, the Transfer Agent is hereby instructed to deliver to the Investor,
certificates representing Common Stock (with or without the Legend, as
appropriate) within two (2) Trading Days of receipt by the Transfer Agent of a
copy of the Notice of Conversion (in the case of the Debentures) or Notice of
Exercise (in the case of the Warrant) from the Investor, and to deliver such
certificates to the Investor, in the case of original issuance, and in the
case of subsequent transfer, if the Transfer Agent is able to deliver such
Common Stock to the Investor's account pursuant to the DWAC system of the
Depository Trust Company, the Transfer Agent shall make delivery pursuant to
such system and provide the Investor with confirmation thereof in lieu of such
Common Stock certificates.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred
in connection with these Irrevocable Instructions. The Company agrees to
indemnify the Transfer Agent and its officers, employees and agents, against
any losses, claims, damages or liabilities, joint or several, to which it or
they become subject based upon the performance by the Transfer Agent of its
duties in accordance with the Irrevocable Instructions, other than as a result
of the Transfer Agent's gross negligence or willful misconduct.
2
<PAGE>
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investors are each an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
Famous Fixins, Inc.
By: /s/ Jason Bauer
-----------------------
Jason Bauer, President
AGREED:
By:__________________________
Name:
Title:
3
EXHIBIT 10.19
[Letterhead of
Jaffoni & Collins
Incorporated]
September 2, 1999
Mr. Jason B. Bauer
President and Chief Executive Officer
Famous Fixins, Inc.
250 West 57th Street, Suite 2501
New York, NY 10107
Dear Jason:
This letter confirms the terms and conditions of our agreement that effective
September 3, 1999 Jaffoni & Collins Incorporated has been engaged by Famous
Fixins, Inc. ("The Company") as investor relations counsel.
1. Our principal responsibilities will be to use our best efforts to: (i)
develop and implement programs designed to achieve those objectives we jointly
arrive at with respect to investor relations and financial relations; (ii)
advise you with respect to investor relations and financial policies,
opportunities and problems; and (iii) at your request, provide additional
services for special projects.
2. Our compensation for all basic services under (i) and (ii) above shall
be (a) $2,500 per month, payable on the first of each month (and prorated for
any portion of a month) and (b) the grant of warrants to purchase 125,000
shares of Famous Fixins, Inc. Common Stock, exercisable at $0.34 per share
(today's closing price), including piggyback registration rights as to the
underlying Famous Fixins shares, subject to any deferral requested by an
investment banking firm conducting a distribution of the Company's securities
to which deferral management also consents, vesting as follows: 25,000 shares
upon signing of the agreement and 25,000 shares at the close of each
subsequent three-month period for which the agreement remains in effect
(November 30, 1999, February 28, 3000, May 31, 2000 and August 31, 2000). It
is agreed that should you utilize Jaffoni & Collins Incorporated's services in
connection with a significant merger or acquisition of the Company or in a
crisis communications situation, staff time shall be paid on an hourly basis
at the rate of one and one-half times the regular hourly billing rate of the
professionals involved. We will invoice you monthly for the previous month's
expenses.
3. You agree to reimburse us for all reasonable out-of pocket disbursements
made in the performance of our duties under this agreement. Expenses outside
of news announcement distribution that exceed $250.00 will require prior
written approval by Famous Fixins. Certain disbursements to suppliers, such
as slide and print production, conference calls, bulk mail distribution, etc.
will be charged to you with a standard handling charge of 17.65%. Other
items, such as travel, meals, messengers and Business Wire will be rebilled to
you at cost, subject to your reasonable approval.
<PAGE>
4. You agree to indemnify, defend and hold us harmless from and against any
and all losses, claims, damages, expenses or liabilities (including reasonable
attorneys' fees) to which we may become subject arising in any way out of the
proper performance of our duties or relating to information, representations,
reports or data you have furnished to us.
5. For a period of two years after the expiration of this agreement, you
agree not to employ, hire or solicit the employment of, or recommend to others
the employment of, any person employed by us without our prior consent. This
limitation shall terminate with respect to any such person two years after the
termination of such person's employment with us.
6. This agreement shall be for a term of one (1) year from the date hereof
and shall be renewable, subject to signed written agreement of the parties, on
similar terms except as for the warrants, for successive one year periods at
the then current monthly cash service fee plus 10%, unless either party
notifies the other in writing, at least 60 days prior to the expiration date,
of its desire not to renew. In the event you are acquired or merged into
another company involving at least 50% of the Company's assets or stock,
Jaffoni & Collins Incorporated shall be entitled to immediate, full vesting of
all warrants under this contract and twelve times the then monthly service fee
as well as any other fees we may be entitled to receive under paragraph 2.
The agreement is cancelable at any time by any party for cause, or without
cause, on sixty days notice.
7. You agree to recognize Jaffoni & Collins as a "finder" and support JCI
in its efforts to receive appropriate "finder's fees" in the event Jaffoni &
Collins directly introduces Famous Fixins or its affiliates to investment
banking firms, institutions or individuals, when such introductions lead to
completed transactions, including capital raisings and/or acquisitions as a
result thereof within 18 months of such introduction, or when an agreement for
such transaction has been signed within one year of such introduction, but has
not closed within 18 months of such introduction.
8. Any controversy or claim arising out of or relating to this agreement,
its validity or the breach thereof, shall be determined by arbitration in New
York, New York, before a single arbitrator in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered may be
entered in any court having jurisdiction.
Please acknowledge your acceptance of this agreement by signing in the space
provided below.
With best regards,
JAFFONI & COLLINS INCORPORATED
By: /s/ Joseph N. Jaffoni
---------------------
Joseph N. Jaffoni, President
ACCEPTED:
By: /s/ Jason B. Bauer
-----------------------------------
Jason B. Bauer, President and Chief Executive Officer
Date: September 7, 1999
EHXIBIT 10.20
MERCHANDISING LICENSING AGREEMENT
---------------------------------
1. Licensor: Britney Brands, Inc. ("Licensor")
c/o Rudolph & Beer, LLP
432 Park Avenue South
Second Floor
New York, NY 10016
Attention: Laurence H. Rudolph, Esq.
and Mark Steverson, Esq.
Phone:(212) 684-1001; Fax: (212) 684-0920
Licensee: Famous Fixins ("Licensee"),
a New York corporation
250 West 57th Street
Suite 2501
New York, NY 10107
Attention: Jason Bauer
Phone:(212) 245-7773; Fax: (212) 245-7767
Representative: Signatures Network, Inc. ("Signatures")
Two Bryant Street
San Francisco, CA 94105
Attention: Music Licensing Division
Phone:(415) 247-7400; Fax: (415) 247-7407
2. Artist: The musical artist "Britney Spears" ("Artist").
3. Proprietary Subject Matter: The name(s), symbols, logos, images,
autographs and approved likenesses of the
Artist ("Proprietary Subject Matter").
4. Articles: The following products utilizing, bearing, or
otherwise relating to the Proprietary Subject
Matter ("Articles") and, for each of the
Articles, its preferred wholesale selling price
("PWP"):
Plastic CD case, containing generic CD-shaped
bubble gum (i.e, the bubble gum shall not embody
the Proprietary Subject Matter) (PWP:
approximately $1.00).
5. Territory: The world ("Territory").
6. Term: The term shall commence on October 30, 1999 and
expire on October 29, 2002, unless sooner
terminated as provided in Exhibit "A" hereto
"(Term").
7. Exclusivity: Non-exclusive license.
<PAGE>
8. Royalty Rate: 9% of Net Sales ("Royalty Rate").
9. Advance: US $150,000 ("Advance"), payable as follows:
US $50,000 due on Licensee's execution of this
Agreement;
US $25,000 due on or before November 1, 2000;
US $75,000 due on or before July 31, 2002.
10. Guarantee: US $150,000 (inclusive of the Advance)
("Guarantee").
11. Channels of Distribution: The sale of Articles (i) to jobbers,
wholesalers, and distributors for sale and distribution to retail stores and
merchants; (ii) to retail stores and merchants directly. for sale and
distribution to the public; (iii) to family-oriented, reputable, third party
direct marketing catalogue companies; (iv) via home shopping television
channels; and (v) directly to the ultimate consumer via Licensee's direct-to-
the-consumer programs; provided however, that nothing in this Agreement shall
be construed to authorize Licensee to use the Proprietary Subject Matter in a
manner designed to promote its website ("Channels of Distribution").
12. Earliest In-Store Date: February 1, 2000 ("Earliest In-Store Date").
13. Shipping Date: June 1, 2000 ("Shipping Date").
14. Copyright and Trademark Notices:
Copyright: (c) 199x Britney Brands, Inc.
All Rights Reserved.
Trademark: Britney Spears TM
15. Approvals: Subject to Paragraph 26.3 of the Agreement, all
Articles and any related packaging and advertising must be approved by
Licensor in writing before distribution or sale by Licensee. Such approvals
or disapprovals are within Licensor's sole discretion, and any submission not
approved in writing is deemed disapproved.
16. Insurance Amount: $1,000,000.00 per occurrence per year.
17. Samples: 24 of each Article.
-2-
<PAGE>
18. Additional Terms: The attached Exhibit "A" (Standard Terms and
Conditions) is incorporated herein by this
reference.
By signing below, Licensee affirms that it is in agreement with the foregoing
and that it has read and understands and agrees to be bound by Exhibit "A"
(Standard Terms and Conditions) attached hereto and forming a part hereof.
Licensee further agrees that this Agreement shall also serve as an invoice to
Licensee with respect to the amounts payable as set forth above and Licensee
agrees to pay such amounts to Licensor as and when specified above. This
Agreement shall not be binding upon Licensor until full executed and
delivered.
ACCEPTED AND AGREED TO:
BRITNEY BRANDS, INC. FAMOUS FIXINS
By: /s/ Lawrence Rudolph By: /s/ Jason Bauer
Print Name: Lawrence Rudolph Print Name: Jason Bauer
Title: Officer Title: President
Date: 11/17/99 Date: 11/22/99
-3-
<PAGE>
EXHIBIT "A"
-----------
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions shall be deemed fully incorporated
in the Merchandising License Agreement ("Underlying Agreement") to which this
Exhibit "A" is attached, and these Standard Terms and Conditions and the
Underlying Agreement shall hereinafter be collectively referred to as the
"Agreement". All terms shall, unless expressly provided to the contrary
herein, have the same respective meanings as set forth in the Underlying
Agreement. Unless expressly provided to the contrary herein, to the extent
that any provision of these Standard Terms and Conditions conflicts with any
provision of the Underlying Agreement, the Underlying Agreement shall control.
19. FURTHER CONDITIONS ON GRANTS OF RIGHTS.
---------------------------------------
Licensor hereby grants to Licensee, and Licensee hereby accepts, the
right and license to utilize during the Term the Proprietary Subject Matter
solely on or in connection with the manufacture and sale of Articles in the
Territory, subject to the terms and conditions hereunder. Licensee shall be
entitled to sell Articles solely in the Channels of Distribution set forth in
Paragraph 11 of the Underlying Agreement. No such sales shall be on an
approval, consignment, guaranteed sale or return basis. Licensee agrees that
it will not make or authorize any use, direct or indirect, of the Articles
outside the Territory and that it will not intentionally sell Articles to
persons who intend or are likely to resell them outside the Territory.
20. CONSIDERATION.
--------------
20.1 Licensee shall pay Licensor a nonrefundable Advance against
Royalties in the amount(s) and at the time(s) specified in Paragraph 9.
Licensee shall be entitled to apply the Advance against Royalties due Licensor
hereunder during the Term.
20.2. Licensee shall pay Licensor the Royalty Rate specified in Paragraph
8. Royalties shall be paid on all units of Articles (i) sold by Licensee or
(ii) distributed by Licensee on a "no charge" basis for promotional,
marketing, or goodwill purposes. For purposes of this Agreement, "Net Sales"
shall mean Licensee's gross sales (the gross invoice amount billed customers)
of Articles sold or otherwise distributed during the Term pursuant to this
Agreement, less deductions for trade and quantity discounts actually taken
(provided, however, that such trade and quantity discounts shall not exceed
ten percent (10%) of gross sales), returns for damaged goods actually credited
(and supported by credit memoranda actually issued to the customers), and
sales taxes (if applicable). It is understood that credit against sales will
be allowed only for actual returns of damaged goods, and that no credit
against sales will be allowed on the basis of an accrual or reserve system.
No other deductions shall be taken from Net Sales including, without
limitation, deductions for cash or other discounts or uncollectible accounts.
No costs incurred in the manufacture, sale, distribution, or promotion of
Articles shall be deducted from any Royalties payable to Licensor. Licensee
shall pay, and hold Licensor forever harmless from, all taxes, customs,
duties, levies, impost or any other charges now or hereafter imposed or based
upon the manufacture, delivery, license, sale, possession or use hereunder to
or by Licensee of the Articles (including, but not limited to sales, use,
inventory, income and value added taxes on sales of Articles), which charges
shall not be deducted from Licensor's Royalties, the Advance, or the
Guarantee. In addition, Royalties shall be paid by the Licensee based on
Licensee's usual sales price where (a) Articles are distributed by Licensee on
a "no charge" basis for promotional marketing or goodwill purposes, (b) the
billed price for the Articles is less than the usual sales price and the
Licensee receives other compensation attributable to the distribution of the
Articles separate from the price which appears on the respective invoice, or
(c) the Articles are sold by Licensee to an affiliate.
-4-
<PAGE>
20.3 Unless otherwise expressly provided herein, Licensee shall not,
without the express prior written consent of Licensor, permit the distribution
or other marketing of any Articles on an F.O.B. or L.C. basis (as those terms
are commonly understood in the international merchandising business). All
Articles distributed or marketed (and subject to Licensor's prior written
approval) on an F.O.B. or L.C. basis will be subject to Royalties based on the
greater of (a) a royalty rate computed on the same basis as if such Articles
had been shipped directly to Licensee, or (b) a royalty rate equal to one-half
of the Royalty Rate specified in Paragraph 8, but based on the suggested
retail sales price of Articles sold by Licensee's customers.
20.4 All royalties due Licensor as set forth in Paragraphs 20.2 and
20.3 shall be collectively referred to as "Royalties". Royalties hereunder
shall accrue when the Articles are sold, shipped, distributed, billed and/or
paid for, whichever occurs first.
20.5 If withholding taxes based on Licensor's direct net income taxes
are required, Licensee may deduct the required amount from Royalties prior to
remitting same to Licensor, provided Licensee provides Licensor with a copy of
such withholding tax payment prior to such deduction and provides Licensor
with the appropriate tax credit forms within sixty (60) days of payment of
such withholding tax and affords all necessary cooperation and support to
Licensor in order to get reimbursed and/or credited. In the event Licensee
does not provide the appropriate tax credit form within sixty (60) days of
payment of withholding taxes, Licensee shall be liable to and shall reimburse
Licensor for the amounts deducted from Royalties for withholding taxes in the
immediately following Royalty Report.
20.6 Licensee shall pay Licensor a minimum Royalties Guarantee for the
Term, inclusive of the Advance, in the amount specified in Paragraph 10,
payable at the expiration or earlier termination of the Term.
21. ACCOUNTING; AUDITING.
--------------------
21.1 On the form attached hereto or on such other form as Licensor may
from time to time provide to Licensee, Licensee shall (i) render royalty
reports ("Royalty Reports") to Licensor on a quarterly basis within thirty
(30) days after the close of each calendar quarter during the Term hereof,
whether or not any payment is shown to be due to Licensor thereunder, and (ii)
remit payments due Licensor, if any, along with such Royalty Reports. If the
Territory covers more than one country, Royalty Reports shall be prepared on a
country-by-country basis. Royalties may be computed in the currency of the
country where earned and paid to the Licensor in U.S. Dollars at the exchange
rate received by Licensee at the time of conversion. Licensee shall be solely
responsible for all costs of any currency conversion to U.S. Dollars, and such
costs shall not reduce the amounts due to Licensor hereunder. Acceptance of
Royalties by Licensor shall not preclude Licensor from questioning the
correctness of same at any time. All Royalties shall be made without set-off
of any amount whatsoever, whether based upon any claimed debt or liability of
Licensor to Licensee. All Royalties and Royalty Reports shall be sent to:
Signatures Network, Inc., P.O. Box 191627, San Francisco, CA 94119, Attn.:
Accounting-Britney Spears.
21.2 Licensee shall keep and maintain accurate books of account and
records covering all transactions relating to this Agreement. Licensor or its
designee shall be entitled to (i) audit and inspect such books and records at
any time or times during or after the Term of the Agreement during reasonable
business hours and upon five (5) days prior written notice to Licensee, and
(ii) make copies and summaries of such books and records. All such books of
account and records shall be retained by Licensee for a minimum of three (3)
years after expiration or termination of this Agreement. If Licensor's duly
authorized representative discovers a deficiency in the Royalties paid to
Licensor for any period under audit (an "Audit Deficiency"), Licensee shall
promptly pay such Audit Deficiency to Licensor and, if such Audit Deficiency
is three percent (3%) or more of the Royalties paid to
-5-
<PAGE>
Licensor for such audit period, Licensee shall also reimburse Licensor for all
costs and expenses incurred by Licensor in connection with such audit. In
calculating costs for an internal auditor to perform such audit, Licensor
shall bill its personnel costs incurred in performing such audit on an hourly
basis at the hourly salaried rate of the personnel performing such services
multiplied by a factor of 1.75. If such Audit Deficiency is twenty percent
(20%) or more of the Royalties paid to Licensor for such audit period, then in
addition to the above, Licensor may, at its sole option, immediately terminate
the Agreement upon notice to Licensee, even if Licensee tenders the Audit
Deficiency and associated costs and expenses to Licensor.
21.3 Without prejudice to any other rights of Licensor hereunder, time
is of the essence regarding all payments due hereunder and Licensee shall pay
interest on any Audit Deficiency, as well as on all delinquent Royalty
payments hereunder, at two percent plus the "prime rate" established by the
Bank of America in San Francisco, compounded annually at the rate from time to
time in effect and calculated from the date on which such payment was due.
22. EXCLUSIVITY.
-----------
22.1 If, and only if, the Underlying Agreement specifies that
Licensee's license hereunder is exclusive, Licensor shall not, except as
otherwise provided herein, grant any other licenses effective during the Term
for the use of the Proprietary Subject Matter in connection with the
manufacture, distribution and sale in the Channels of Distribution in the
Territory of the Articles as expressly described in the Underlying Agreement.
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
prevent Licensor from granting any licenses for the use of the Proprietary
Subject Matter other than as provided herein, or from utilizing the
Proprietary Subject Matter in any manner whatsoever other than as provided
herein. If the Underlying Agreement specifies that Licensee's license
hereunder is exclusive, and in the event that Licensee is unable to timely
provide Signatures with such quantities of Articles as it from time to time
requests pursuant to Paragraph 28.6, then Signatures shall have the right to
manufacture, advertise, and sell Articles so long as such Articles are sold
only in retail establishments owned or controlled by Signatures.
22.2 If the Underlying Agreement specifies that Licensee's license
hereunder is non-exclusive, then Licensor shall be free to utilize, or to
grant any license to third parties to utilize, the Proprietary Subject Matter
in any manner for any purposes whatsoever.
23. COPYRIGHT, TRADEMARKS, ETC.
--------------------------
23.1 Licensee's use of the Proprietary Subject Matter shall inure
exclusively to the benefit of Licensor, and Licensee shall not acquire any
rights therein. Licensee recognizes the value of the goodwill associated with
the Proprietary Subject Matter, and that the Proprietary Subject Matter has
acquired secondary meaning in the mind of the public. Licensee agrees, during
the Term and thereafter, never to contest the rights of Licensor in such
Proprietary Subject Matter or the validity of the license herein granted to
it. Licensee shall not at any time apply for any registration of any
copyright, trademark, patent, or any other intellectual property right,
whether recognized currently or in the future, or other designation which
would affect the ownership or rights of Licensor in and to the Proprietary
Subject Matter nor file any document with any governmental authority or
otherwise to take any action which would adversely affect any of such
ownership or rights in and to the Proprietary Subject Matter, or assist anyone
else in doing so.
23.2 Ownership of all intellectual property rights, whether recognized
currently or in the future, including, without limitation, copyright, patent
and trademark rights, in the Articles and in all artwork, packaging, copy,
literary text, advertising material and promotion material of any sort
utilizing the Proprietary Subject Matter, including all such material
developed by Licensee, shall vest in Licensor and title thereof shall be in
the name of Licensor, or its respective designees. All such items and all
Articles shall bear the copyright and trademark
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notices specified in Paragraph 14 and any other legal notices which Licensor
may from time to time prescribe. Any and all additions to, and new
renderings, modifications or embellishments of the artwork shall,
notwithstanding their invention, creation and use by Licensee or its agents,
be and remain the property of Licensor, and Licensor may use, and license
others to use the same, subject only to the provisions of this Agreement.
Licensee shall enter into written agreements with all of its employees and
independent contractors (i) providing that all artwork and designs created by
them in the course of Licensee's performance under this Agreement shall be the
property of Licensor either as works for hire under United States copyright
law or otherwise, and (ii) obligating them to assign all rights in such
artwork and designs to Licensor. Upon the request of Licensor, Licensee shall
submit to Licensor for Licensor's approval copies of all such agreements prior
to use thereof. Licensee shall not permit any of its employees or independent
contractors to obtain or reserve, by written or oral agreement or otherwise,
any rights as "authors" or "inventors" of any such artwork or designs (as such
terms are used in present or future United States copyright and/or patent
statutes or judicial decisions). Licensee shall furnish to Licensor at
Licensor's request, full information concerning the invention and creation of
such artwork and designs, together with the originals of assignments of all
rights therein obtained from all such third parties to Licensor.
23.3 Licensee shall assist Licensor, at Licensor's request and expense,
in the procurement and maintenance of Licensor's rights in the Proprietary
Subject Matter (including all intellectual property rights, whether recognized
currently or in the future). In connection therewith, Licensee shall, without
limitation, execute and deliver to Licensor in such form as it may reasonably
request, all instruments necessary to (i) effectuate copyright and trademark
protection, (ii) record Licensee as a registered user of any trademarks
pursuant to this Agreement, or (iii) cancel any such registration. Such
registration shall be handled by attorneys selected or approved by Licensor.
Licensor makes no warranty or representation that trademark or copyright
protection shall be secured in the Proprietary Subject Matter.
23.4 Licensor and Licensee shall cooperate to ensure that third parties
may not unlawfully infringe on the Proprietary Subject Matter or engage in any
acts of unfair competition involving the Proprietary Subject Matter. Licensee
shall promptly notify the Licensor of any such infringements or acts of unfair
competition by third parties that comes to its attention. Licensor shall have
the exclusive right, exercisable at its discretion, to institute in its own
name and/or Licensee's name and to control, all actions against third parties
relating to Licensor's copyrights, trademarks, and other proprietary rights in
and to the Proprietary Subject Matter, at Licensor's expense. With respect to
any such actions, Licensor shall employ counsel of its own choice to direct
the handling of the litigation and any settlement thereof. Licensor shall be
entitled to receive and retain all amounts awarded, if any, as damages,
profits or otherwise in connection with such suits. Licensee shall not,
without Licensor's prior written consent, institute any suit or take any
action on account of such infringements, acts of unfair competition or
unauthorized uses. If, with Licensor's consent, Licensee institutes, at its
sole cost and expense, such a suit or action, Licensee shall be entitled to
recover all reasonable costs and expenses incurred in such suit or action from
any financial recovery awarded or obtained and the remainder shall be treated
as Net Sales hereunder. Licensor shall incur no liability to Licensee by
reason of Licensor's failure or refusal to prosecute, or by Licensor's refusal
to permit Licensee to prosecute, any alleged infringement by third parties,
nor by reason of any settlement to which Licensor may agree.
23.5 Licensor can withdraw any or all elements of the Proprietary
Subject Matter, or any component part thereof, from the terms of this
Agreement if Licensor determines that the exploitation therefor would or might
violate or infringe the copyright, trademark or other proprietary rights of
third parties, or subject Licensor to any liability or violate any law, court
order, government regulation or other ruling of
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any governmental agency, or if, on account of the expiration or sooner
termination of an agreement between Licensor and a third party from whom
Licensor has obtained certain underlying rights relating to the exploitation
of the Proprietary Subject Matter hereunder or otherwise, Licensor shall no
longer have the right to act in the capacity herein contemplated on behalf of
any third party or parties, or if Licensor determines that it cannot
adequately protect its rights in the Proprietary Subject Matter under the
copyright, trademark or other laws of the Territory. Such a withdrawal shall
not be deemed a breach of this Agreement. Within five (5) business days of
such withdrawal, Licensee shall, at Licensor's sole discretion, (a) destroy or
(b) deliver to Licensor at Licensor's expense, any Articles which are in
Licensee's inventory. Licensor shall indemnify Licensee for the direct
production cost of such destroyed or returned Articles; provided, however,
that Licensee furnishes Licensor with (i) a detailed inventory of such
Articles, (ii) source documentation supporting such direct production costs,
and (iii) an affidavit of destruction, if applicable, in a form acceptable to
Licensor, evidencing the same.
23.6 Licensee shall not use Licensor's name, or the Proprietary Subject
Matter, other than as permitted hereunder and, in particular, shall not
incorporate Licensor's name, or the Proprietary Subject Matter, in the
Licensee's corporate or business name in any manner whatsoever. Licensee
agrees that in using the Proprietary Subject Matter it will in no way
represent that it has any rights, title and/or interest in or to the
Proprietary Subject Matter other than those expressly granted under the terms
of this Agreement. Licensee further agrees that it will not use or authorize
the use, either during or after the Term, of any configuration, trademark,
trade name, or other designation confusingly or substantially similar to the
Proprietary Subject Matter, or any element thereof.
24. INDEMNIFICATION.
---------------
24.1 Licensor shall indemnify, hold harmless and defend Licensee, and
its parents, subsidiaries, affiliates, officers, directors and employees,
against any claims, liabilities, demands, causes of action, judgments,
settlements and expenses (including, but not limited to, reasonable attorneys'
fees and court costs) arising solely out of Licensee's use of the Proprietary
Subject Matter as authorized hereunder; provided, however, that Licensee shall
notify Licensor in writing within ten (10) days after Licensee receives
notification of any claim or suit relating to the Proprietary Subject Matter.
Licensor shall undertake and control the defense and settlement of any such
claim or suit and Licensee shall cooperate fully with Licensor in connection
herewith. In no event shall Licensor be liable for any consequential damages
or loss of profits which Licensee may suffer arising out of same. The
foregoing indemnity shall not be construed to cover any claim with respect to
which Licensee has committed to indemnify Licensor under Paragraph 24.2 below.
24.2 During and after the Term hereof, Licensee shall indemnify and
hold harmless, Licensor and Signatures, and their respective parents,
subsidiaries, affiliates, officers, directors, representatives, employees and
agents, and all persons whose names and/or likenesses are licensed hereunder
(each, an "Indemnitee" and collectively "Indemnitees") from and against any
and all claims, liabilities, demands, causes of action, judgments, settlements
and expenses (including, but not limited to, reasonable attorneys' fees and
court costs) ("Claim") arising out of or in connection with (i) the design,
manufacture, packaging, distribution, shipment, advertising, promotion, sale,
or exploitation of the Articles, (ii) any breach of any representation,
warranty, or covenant made by Licensee hereunder, or (iii) the failure of
Licensee to perform any of its covenants or obligations contained in this
Agreement. Without limiting the generality of the foregoing, Licensee's
indemnity shall specifically apply to claims relating to or based upon defects
in the Articles, whether hidden or obvious, and despite Licensor's approval of
the Articles, it being agreed that any governmental order of recall or
injunction against distribution and/or sale shall, as between Licensee and
Licensor, be deemed
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conclusive proof of such defect for purposes of invoking Licensee's indemnity
hereunder. The foregoing indemnity shall not be construed to cover any claim
with respect to which Licensor has committed to indemnify Licensee under
Paragraph 24.1 above. If any Claim is initiated against any Indemnitee with
respect to which such Indemnitee may make a claim against Licensee pursuant to
this Paragraph 24.2, then the Indemnitee shall give prompt written notice of
such Claim to the Licensee; provided, however, that the failure to so notify
the Licensee shall not relieve the Licensee from any liability under this
Paragraph 24.2 unless, and only to the extent that, such failure results in
prejudice to or forfeiture of, substantive rights or defenses of the Licensee.
Licensee, at Licensee's own expense, shall have the option to assume the
defense of such Claim. If Licensee assumes the defense of such Claim, (i)
Licensee shall keep the Indemnitee informed of all material developments and
events relating to such Claim, (ii) the Indemnitee shall have the right to
participate, at its own expense, in the defense of such Claim (but such
participation shall not be deemed to give the Indemitee the right to control
such defense), (iii) the Indemnitee shall cooperate as reasonably requested by
Licensee in the defense of such Claim, and (iv) Licensee shall not settle such
Claim without the prior written consent of the Indemnitee, which consent shall
not be unreasonably withheld. If Licensee fails to assume the defense of such
Claim, or fails to diligently defend such Claim, Indemnitee may assume the
defense of such Claim and Licensee shall reimburse Indemnitee for all
reasonable expenses (including reasonable attorneys' fees which may include,
without limitation, an allocation for in-house counsel) as such expenses are
incurred, relating to the defense of such Claim.
25. INSURANCE.
---------
Licensee shall at all times while this Agreement is in effect and for
three (3) years thereafter, obtain and maintain at its own expense, from a
qualified insurance carrier with a Best rating of at least "B", insurance,
including, without limitation, products, personal injury, advertising, and
contractual liability coverage, which includes as additional insureds Licensor
and Signatures, and their respective parents, subsidiaries, affiliates,
officers, directors, employees, representatives and agents. The amount of
coverage shall be not less than the amount specified in Paragraph 16 combined
single limit (with no deductible amount) for each single occurrence. The
policy shall provide for thirty (30) days written notice to Licensor and
Signatures from the insurer by registered or certified mail, return receipt
requested, in the event of any modification, cancellation or termination.
Upon execution of this Agreement, Licensee shall furnish Licensor with a
certificate of insurance issued by the carrier evidencing the same. In no
event shall Licensee manufacture, advertise, distribute or sell any Articles
prior to Licensor's receipt of such certificate of insurance.
26. ARTWORK; APPROVALS; SAMPLES; OUALITY CONTROL.
--------------------------------------------
26.1 Licensee undertakes that the Articles as well as all packaging,
hang tags, labels, press releases, advertising, promotion display or other
materials of any and all types prepared in connection with the Articles
(collectively the "Collateral Materials") shall be of the highest standard and
quality and shall ensure that all Articles and the manufacture, distribution,
sale, promotion and advertisement thereof comply with all federal, state and
local laws and regulations.
26.2 At Licensee's request, Licensor shall supply Licensee with
"thumbnails" embodying the Proprietary Subject Matter for Licensee's
preliminary use in developing the Articles. All other artwork requested by
Licensee for the development and production of the Articles or the Collateral
Materials (including but not limited to photographs, transparencies, designs,
and materials) shall be subject to availability, and shall be provided at
Licensor's standard licensee price therefor. (All of the artwork supplied to
Licensee by Licensor shall be collectively referred to herein as "Artwork")
26.3 Licensee shall submit to Licensor
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and Licensor shall have absolute approval over all artwork (whether Artwork or
artwork created by Licensee and/or its designees), all Articles and all
Collateral Materials at all stages of development and production. Licensee
may not manufacture, use, offer for sale, sell, advertise, ship or distribute
any Articles or Collateral Materials without Licensor's prior written
approval. Licensee shall, at its own cost, submit to Licensor for approval,
one (1) prototype of each Article ("Prototype") and each Collateral Material
and/or one (1) drawing, storyboard or rough cut of each Article (collectively
"Preliminary Artwork"), as applicable. All such Prototypes and/or Preliminary
Artwork shall be sent to: Signatures Network, Inc., Two Bryant Street, San
Francisco, CA, 94105 Attn.: Gladys Ng Blumin. Licensee shall submit
Prototypes and Preliminary Artwork, as applicable, for approval as provided
herein not later than sixty (60) days after receipt of Artwork from Licensor.
Any submission of a Prototype and/or Preliminary Artwork which is not approved
in writing by Licensor shall be deemed disapproved. Any changes required by
Licensor to any such Prototypes and/or Preliminary Artwork which have been
disapproved by Licensor, shall be made by Licensee. Thereafter, Licensee
shall submit final samples of all Articles and Collateral Materials to
Licensor for final approval. With respect to all such samples which have
received Licensor's final approval, Licensee shall not depart therefrom in any
material respect, without Licensor's prior written approval. All Articles and
Collateral Materials not approved by Licensor shall be destroyed or shall have
the Proprietary Subject Matter removed. Such destruction shall be attested to
in a certificate signed by one of Licensee's officers.
26.4 Licensee shall furnish to Licensor, without charge, a minimum
number of samples of each finished Article from the first production run,
together with its Collateral Materials, as is specified in Paragraph 17.
Licensee shall not sell, ship, or distribute any Articles until all such
samples have been furnished to Licensor. Licensor may, periodically, but not
more often than twice per calendar year, during the Term, require that
Licensee submit to Licensor, without charge, up to six (6) additional samples
of Articles, together with Collateral Materials, for subsequent review of the
quality and copyright, trademark, and other legal notices on same and for any
other purpose the Licensor deems appropriate. No Royalties shall be due or
payable on all finished samples furnished to Licensor.
26.5 Licensee shall allow Licensor or its representative to enter
Licensee's premises and all manufacturing facilities during regular business
hours, upon three (3) business days notice, for the purpose of inspecting the
Articles, the Collateral Materials, and the facilities in which they are
manufactured and packaged. In the event that the quality standards
hereinabove referred to are not met, Licensee shall, upon written notice from
Licensor, discontinue the manufacture and distribution of such Articles and/or
the Collateral Materials related thereto, unless Licensee shall have remedied
such failure of quality to Licensor's satisfaction within ten (10) days after
Licensee's receipt of notice thereof; failure to effect such remedial measures
shall entitle Licensor to terminate this Agreement upon notice to Licensee.
27. RESERVED RIGHTS.
---------------
27.1 Licensor reserves all rights not expressly granted to Licensee
hereunder.
27.2 Licensor shall not be prevented from granting third parties the
right to use the Proprietary Subject Matter in any manner whatsoever, except
as otherwise provided herein.
27.3 Licensor specifically reserves unto itself and/or its designees
the right to manufacture, distribute, offer for sale, advertise, promote,
display and otherwise exploit without limitation and throughout the world
merchandise, goods and products similar and/or identical to the Articles for
use in connection with premium sales, promotional tie-ins, giveaways, home
television sales (e.g., QVC), cable programs, vending machines, electronic
sales (e.g., Prodigy and Internet sales directly to the public), direct
response sales (e.g., direct mail and
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telephone sales directly to the public), in-theater sales, sales at theme
parks, amusement parks, entertainment centers or other amusement or live
entertainment attractions and performances (e.g., concert halls, arena shows,
stadiums), radio sales, sales by or through fan clubs and conventions, and
fund-raisers.
27.4 It is specifically acknowledged by Licensee that all personal,
publicity and other rights of Licensor not granted in Paragraph 3 (including,
but not limited to, the voice and sound recordings of Artist), shall not be
included in the definition of Proprietary Subject Matter and the use thereof
is not licensed herein.
27.5 Licensee acknowledges that the license granted herein does not
include any right, title, or interest in or to the Artist nor to any
intellectual property rights in the Artist, including, without limitation, any
copyrights, patents, and/or trademarks therein or associated therewith.
Furthermore, Licensee acknowledges that the license granted herein does not
include the portrayals of or by Artist in any motion picture, television
production, and the like ("Media Properties"). In this connection, Licensee
expressly acknowledges that its license hereunder does not include the right
to use photographs, designs, materials, and artwork from Media Properties to
the extent such materials are different from the Proprietary Subject Matter.
27.6 Neither Licensee nor any third party connected with Licensee shall
engage in any offer for sale, sale, or distribution of Articles in and about
or at the premises of any of Artist's live performances.
28. MANUFACTURE AND DISTRIBUTION.
----------------------------
28.1 The Proprietary Subject Matter may only be used in connection with
the manufacture, actual packaging and advertising, promotion and distribution
of the Articles.
28.2 Licensee shall be entitled to sublicense the right to manufacture
Articles to any third party ("Supplier"), in whole or in part, with Licensor's
prior written consent. Licensee represents and warrants that it shall
familiarize each such Supplier with the terms and conditions of this Agreement
as they apply to such Supplier. In addition, Licensee acknowledges and agrees
that Licensee's use of any such Supplier shall in no way derogate from or
relieve Licensee of any of its obligations under this Agreement. Licensee
further acknowledges and agrees that it shall be responsible and primarily
liable for all activities and obligations of all such Suppliers with respect
to the Articles. Furthermore, if Licensor so requests, Licensee shall cause
each such Supplier to sign an agreement with Licensee for the manufacture of
the Articles, in whole or in part, in a form satisfactory to Licensor.
28.3 Without the prior written consent of Licensor, Licensee shall not
commence distribution, shipment, and sale of Articles prior to the Earliest
In-Store Date specified in Paragraph 12.
28.4 Licensee shall commence distribution, shipment and sale of
substantial quantities of Articles no later than the Shipping Date specified
in Paragraph 13.
28.5 During the Term, and subject to the terms and conditions hereof,
Licensee shall (i) continue to diligently and continuously advertise, promote,
distribute, ship and sell the Articles in the Territory, and (ii) use its best
efforts to make and maintain adequate arrangements for the distribution,
shipment and sale necessary to meet the demand for such Articles in the
Territory.
28.6 Licensee shall sell to Licensor such quantities of the Articles as
Licensor and/or Representative shall request at Licensee's manufacturing cost
therefor, plus ten percent (10%). Licensor's distribution and/or resale of
such Articles shall be limited to the following distribution channels: concert
venues, catalogs, electronic media, and as premiums and/or promotional items.
No Royalties shall be due on such sales.
28.7 The Proprietary Subject Matter shall not be used in conjunction
with any other
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musical artist or group, name, character, symbol, design, likeness or literary
or artistic material, except that actual representations of an Article and its
packaging may be shown in advertising showing other articles sold by Licensee,
provided such use is not made in a manner that may be likely to cause doubt or
confusion in the minds of the public as to the ownership of the Proprietary
Subject Matter, and in no event may the Articles be packaged for sale with
other articles.
28.8 Upon request by Licensor and upon ten (10) days prior written
notice to Licensee, Licensee agrees to provide Licensor with any and all lists
compiled by Licensee in connection with Licensee's marketing of the Articles
hereunder of names and addresses of customers or potential customers thereof,
including but not limited to any so-called registration cards as completed and
sent to Licensee by purchasers of the Articles hereunder. Licensor
acknowledges and agrees that it can neither provide such lists to existing
licensees who have licenses for similar products in the Territory, nor utilize
such lists for its own purposes for similar articles in the Territory during
the Term.
29. REPRESENTATIONS AND WARRANTIES.
------------------------------
29.1 Licensor represents and warrants to Licensee as follows: (i)
Licensor owns or controls all rights in and to the Proprietary Subject Matter;
(ii) Licensor has the full right, authority and power to enter into this
Agreement and to perform all its obligations hereunder; and (iii) Signatures
has the authority on behalf of Licensor to grant the rights being granted
herein. Licensor makes no representation or warranty as to the amount of
receipts Licensee will derive or as to the quality or success of the Artist.
Furthermore, Licensor does not represent or warrant that the Artist will
continue to perform, compose, record, or otherwise act as a musical artist or
group.
29.2 Licensee represents and warrants to Licensor as follows: (i)
Licensee has full power and authority to enter into this Agreement and perform
its obligations herein; and (ii) Licensee's execution, delivery, and
performance of this Agreement will not infringe upon the rights of any third
party or violate the provisions of any agreement to which Licensee is a party.
30. TERMINATION.
-----------
30.1 In addition to any and all other remedies available to it
hereunder, Licensor shall have the right to immediately terminate this
Agreement upon written notice to Licensee upon the occurrence of any of the
following:
30.1.1 Licensee makes, sells, offers for sale, uses or distributes any
Article without having the prior written approval of Licensor as specified in
Paragraph 26.3 or continues to make, sell, offer for sale, use or distribute
any Article after receipt of notice from Licensor withdrawing approval of
same.
30.1.2 Licensee becomes subject to any voluntary or involuntary order
of any government agency involving the recall of any of the Articles because
of safety, health or other hazards or risks to the public.
30.2 In addition to any and all other remedies available to it
hereunder, on seven (7) days prior written notice to Licensee, Licensor may
terminate this Agreement (in which case such termination shall be effective
immediately upon expiration of the seven (7) day notice period), upon the
occurrence of any of the following circumstances, provided that during such
seven (7) day period, Licensee fails to cure the breach to Licensor's
satisfaction:
30.2.1 Licensee fails to immediately discontinue the advertising,
distribution or sale of Articles which do not contain the appropriate legal
legend or notice.
30.2.2 Licensee breaches any of the provisions of this Agreement
relating to the unauthorized assertion of rights in the Proprietary Subject
Matter.
30.2.3 Licensee fails to make timely payment of Royalties when due or
fails to
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make timely submission of Royalty Reports when due. However, in the event
Licensee has previously been given notification and time to cure a prior
breach relating to Licensee's failure to remit a Royalty payment (including
Advances or Guarantees) and/or Royalty Report when due, then Licensor may
terminate this Agreement immediately upon notice to Licensee and no further
time to cure need be given to Licensee by Licensor regardless of whether or
not Licensee cured any prior failure or breach.
30.2.4 Licensee intentionally sells or authorizes the sales of Articles
outside the Territory, or sells the Articles to persons who intend or are
likely to resell them outside the Territory.
30.3 In addition to any and all other remedies available to it
hereunder, on thirty (30) days prior written notice to Licensee, Licensor may
terminate this Agreement (in which case such termination shall be effective
immediately upon expiration of the thirty (30) day notice period), upon the
occurrence of any of the following circumstances, provided that during such
thirty (30) day period, Licensee fails to cure the breach to Licensor's
satisfaction:
30.3.1 Licensee fails to obtain or maintain insurance as required under
Paragraph 25 hereof.
30.3.2 During any calendar quarter of the Term, if Licensee fails to
reasonably satisfy Paragraphs 28.4 or 28.5, Licensor may terminate this
Agreement as to such Article(s) in any country in the Territory or in whole,
by written notice to Licensee.
30.3.3 Licensee fails to timely submit Prototype and/or Preliminary
Artwork for approval by Licensor as provided in Paragraph 26.3.
30.3.4 A petition in bankruptcy is filed by or against Licensee;
Licensee is adjudicated bankrupt or insolvent, or makes an assignment for the
benefit of creditors or an arrangement pursuant to any bankruptcy law;
Licensee discontinues its business, or a receiver is appointed for Licensee or
Licensee's business and such receiver is not discharged within thirty (30)
days.
30.3.5 Licensee or any of its controlling shareholders, officers,
directors or employees take any actions in connection with the manufacture,
sale, distribution or advertising of the Articles which damages or reflects
adversely upon the Licensor, the Artist and/or the Proprietary Subject Matter.
30.3.6 Licensee violates any of its other obligations or breaches any
of its covenants, agreements, representations or warranties hereunder.
31. EFFECT OF TERMINATION.
---------------------
31.1 On expiration or termination of this Agreement, all Royalties
(including unpaid portions of the Guarantee, if any) shall be immediately due
and payable without set-off of any kind and no Advance or Guarantee paid to
Licensor shall be refunded to Licensee. Termination of this Agreement, or any
portions thereof, by Licensor pursuant to Paragraph 30 shall in no way reduce,
proportionally or otherwise, the Guarantee required to be paid to Licensor
hereunder. Ninety (90) days before the expiration of the Term, and in the
event of its sooner termination, ten (10) business days after receipt of
notice of termination, a statement showing the number and description of
Articles on hand or in process shall be furnished by Licensee to Licensor.
Licensor shall have the right to take a physical inventory to ascertain or
verify such inventory and statement. Refusal by Licensee to submit to such
physical inventory by Licensor and/or failure by Licensee to render the final
statement as and when required by this provision, shall result in a forfeiture
by Licensee of Licensee's right to dispose of its inventory (as provided by
Paragraph 31.2 hereof, Licensor retaining all other legal and equitable rights
Licensor may have in the circumstances.
31.2 On expiration of this Agreement only (as compared to an early
termination
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pursuant to Paragraph 30), Licensee shall have a period of ninety (90) days
commencing with the expiration date, in which to sell-off (on a non-exclusive
basis) Articles which are on hand or in process as of the expiration date;
provided, however:(i) Licensee complies with all the terms and conditions of
this Agreement, including, but not limited to, Licensee's obligation to pay
Royalties on and to account to Licensor for such sales (such accounting to be
provided to Licensor within fifteen (15) days after the expiration of the
sell-off period); (ii) Licensee has not manufactured Articles solely or
principally for sale during the sell-off period; and (iii) Licensee has given
Licensor the opportunity to purchase such Articles at Licensee's cost of
manufacture thereof, which purchase may be of some or all such units, in
Licensor's sole discretion. Royalties earned during the sell-off period may
not be applied to any Guarantee shortfall. Licensee shall not be authorized
to dispose of the excess inventory in the sell-off period to the extent that
of any right of Licensee if Licensor should at any it exceeds ten percent
(10%) of the total number of Articles sold during the Term, without Licensor's
prior written consent. During the sell-off period, Licensor may use or
license the use of the Proprietary Subject Matter in any manner, at any time,
anywhere in the world.
31.3 On expiration or termination of termination of the Agreement,
except as noted in Paragraph 31.2 above, Licensee shall have no further right
to exercise the rights licensed hereunder or otherwise acquired in relation to
this Agreement and such rights shall forthwith revert to the
Licensor. All Artwork and any other materials supplied to Licensee by
Licensor hereunder shall be immediately returned to Licensor at Licensee's
expense. All remaining Articles and component parts thereof shall be
destroyed within five (5) business days. Licensee shall within five (5)
business days after such destruction deliver to Licensor a certificate of
destruction evidencing same. Licensee agrees that (i) its failure to cease
the manufacture, sale and/or distribution of Articles upon the expiration or
termination of this Agreement will result in immediate and irreparable damage
to Licensor, (ii) there is no adequate remedy at law for such failure and
(iii) in the event of such failure, Licensor shall be entitled to injunctive
relief.
31.4 Upon expiration or termination of this Agreement, (i) if the
Underlying Agreement specifies that the license granted hereunder is an
exclusive license, Licensor shall be free to license others to use the
Proprietary Subject Matter in connection with the manufacture, sale,
distribution and promotion of the Articles in the Territory (it being
acknowledged that Licensor has the full and complete right so to do during the
Term if the license granted is a non-exclusive License), and (ii) Licensee
shall refrain from further use of the Proprietary Subject Matter or any
further reference, direct or indirect, thereto or to anything deemed by
Licensor to be similar to the Proprietary Subject Matter, in connection with
the manufacture, sale, distribution or promotion of Licensee's products except
as permitted in Paragraph 31.2 above. It shall not be a violation of any
right of Licensee if Licensor should at any time during the Term enter into
negotiations with another to license use of the Proprietary Subject Matter in
respect to the Articles within the Territory provided that, in the event that
the license granted to Licensee hereunder is an exclusive license, it is
contemplated that such prospective license shall commence after termination of
the Agreement.
32. NOTICES.
-------
All notices, demands, contracts or waivers hereunder shall be given in
writing by mail, messenger, overnight air courier or telefax addressed as
indicated in the Underlying Agreement or as otherwise indicated in writing by
a party hereto. The date of messengering or telefaxing shall be deemed to be
the date of service. Three (3) business days from the date of mailing shall
be deemed to be the date of service for mailed notices. One(1) business day
from the date of overnight air courier handling shall be deemed to be the date
of service for courier handled notices.
33. NO MODIFICATION; WAIVER.
-----------------------
The terms of this Agreement shall not be
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modified except by an agreement in writing signed by both parties hereto. No
waiver by either party of a breach or default hereunder shall be deemed a
waiver by such party of a subsequent breach or default of a like or similar
nature.
34. ENTIRE AGREEMENT.
----------------
This Agreement shall constitute the entire understanding of the parties
with respect to the subject matter, superseding all prior and contemporaneous
promises, agreements and understandings, whether written or oral pertaining
thereto.
35. RELATIONSHIP OF THE PARTIES.
---------------------------
This Agreement does not appoint either party as the agent of the other
party, or create a partnership or joint venture between the parties.
36. GOVERNING LAW.
-------------
This Agreement shall be construed and interpreted pursuant to the laws
of the State of California, and the parties hereto submit and consent to the
jurisdiction of the courts of the State of California, including Federal
Courts located therein, should Federal jurisdiction requirements exist, in any
action brought to enforce (or otherwise relating to) this Agreement.
Notwithstanding the preceding sentence, nothing contained in this Agreement
shall preclude Licensor from bringing an action in any appropriate forum to
enforce the terms and provisions of this Agreement. Licensee hereby consents
to the exclusive jurisdiction of any State or Federal court empowered to
enforce this Agreement in the State of California, Los Angeles County, and
waives any objection thereto on the basis of personal jurisdiction or venue.
37. SEVERABILITY.
------------
If any provision of this Agreement is held by a court of competent
jurisdiction to be unenforceable, such decision shall not affect the validity
or enforceability of any of the remaining provisions, which remaining
provisions shall continue to have full force and effect.
38. CONFIDENTIALITY.
---------------
Other than as may be required by any applicable law, government order or
regulation, or by order or decree of any court of competent jurisdiction,
Licensee shall not publicly divulge or announce, or in any manner disclose to
any third party, any information or matters revealed to Licensee pursuant
hereto, or any of the specific terms and conditions (including but not limited
to Royalty Rates, Advances, Guarantees and Net Sales of Articles) of this
Agreement.
39. COUNTERPARTS.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same Agreement.
40. FURTHER ASSURANCES.
------------------
The parties hereto shall execute such further documents and perform such
further acts as may be necessary to comply with the terms of this Agreement
and consummate the transactions herein provided.
41. ATTORNEYS' FEES.
---------------
If any legal action or any other proceeding is brought for the
enforcement of this Agreement, or if a dispute arises under this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
42. HEADINGS.
--------
The headings contained in this Agreement are for convenience and
reference purposes only. They do not form a part hereof and shall not affect
the meaning or interpretation of this Agreement.
-15-
<PAGE>
43. ADMINISTRATION.
--------------
Licensee expressly acknowledges that Signatures is authorized to
administer this Agreement on behalf of Licensor, and in connection therewith
to exercise such rights and powers as Licensor may exercise with respect to
the enforcement and administration of this Agreement. Such rights and powers
include, without limitation, monitoring and overseeing Licensee's obligations
under this Agreement to ensure that all Advances, Guarantees, Royalties,
Royalty Reports, and the like are timely submitted, and to ensure that the
quality control provisions of this Agreement are being complied with by
Licensee. Furthermore, Licensee acknowledges and agrees that any
administrative matters relating to this Agreement shall be submitted by
Licensee to Signatures, rather than directly to Licensor. The provisions of
this Paragraph 43 shall apply until Licensee receives notice of the revocation
thereof from Licensor.
44. ASSIGNMENT.
----------
Licensee's rights and obligations hereunder are personal to Licensee and
shall not be assigned to any affiliate of Licensee (including, without
limitation, subsidiary and parent companies, and partnerships, joint ventures
and the like, in which Licensee has an interest.) Licensee's rights and
obligations hereunder shall not be sublicensed, assigned, mortgaged or
otherwise transferred or encumbered by Licensee or by operation of law unless
otherwise previously agreed in writing by Licensor. Licensor reserves the
right to assign this Agreement to any third party and to hypothecate or pledge
this Agreement as collateral for any purpose. In the event of any such
assignment, Licensee shall pay the Royalties and the Guarantee due hereunder
as directed by Licensor. This Agreement shall be binding upon and shall inure
to the benefit of the successors and assigns of Licensor.
45. EQUITABLE REMEDIES.
------------------
Licensee acknowledges that its failure to perform any of the material
terms or conditions of this Agreement shall result in immediate and
irreparable damage to Licensor. Licensee also acknowledges that there may be
no adequate remedy at law for such failures and that in the event thereof,
Licensor shall be entitled to equitable relief in the nature of an injunction
and to all other available relief, at law or in equity.
END OF STANDARD TERMS AND CONDITIONS.
- ------------------------------------
-16-
<PAGE>
RIDER TO AGREEMENT
------------------
This Rider is hereby incorporated into and made a part of that certain
Merchandising License Agreement ("Agreement") effective as of ______________,
1999 between Britney Brands, Inc. ("Licensor") and Famous Fixins ("Licensee")
in connection with the Proprietary Subject Matter.
1. DEFINED TERMS.
-------------
All capitalized terms in this Rider shall, unless expressly provided to
the contrary, have the same respective meanings as set forth in the Agreement.
2. LICENSEE'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Licensee represents and warrants that the Royalty Rate specified in
Paragraph 8 is the most favorable rate currently being granted by it with
respect to musical entertainment personalities in the "pop" music genre.
Licensee agrees that if at any time during the Term it enters into a license
agreement with any third party licensor relating to musical entertainment
personalities in the "pop" music genre and products similar to those licensed
herein, and such license agreement provides for more favorable royalty rates
than those provided in Paragraph 8, then Licensee shall immediately advise
Licensor in writing of the same and in such event, such more favorable royalty
rates will apply to this Agreement. Furthermore, Licensee represents and
warrants that the definition of Net Sales (or its equivalent term) specified
in Paragraph 20.2 above is the most favorable definition currently being
granted by it with respect to musical entertainment personalities in the "pop"
music genre. Licensee agrees that if at any time during the Term it enters
into a license agreement with any third party licensor relating to musical
entertainment personalities in the "pop" music genre properties and products
similar to those licensed herein, and such license agreement provides for a
more favorable definition of Net Sales (or its equivalent term) than provided
above, then Licensee shall immediately advise Licensor in writing of the same
and in such event, such more favorable definition will apply to this
Agreement.
3. CONSIDERATION.
-------------
In addition to any amounts due from Licensee under the Agreement, upon
Execution thereof:
a) Licensee shall issue a total of 200,000 stock warrants (the form of
which shall be subject to the mutual agreement of the parties and shall
conform to all
-17-
<PAGE>
applicable laws) for common stock in Licensee's company, exercisable at a
price of $0.25 per share ("Warrants") to the following persons and entities in
the designated quantities:
Britney Spears 120,000 Warrants
Signatures Network, Inc. 40,000 Warrants
Laurence H. Rudolph 20,000 Warrants
Johnny Wright 12,000 Warrants
Burt Paddell 6,400 Warrants
Reggie Covington 1,600 Warrants
The Warrants shall be valid for a period of five (5) years after the effective
date of this Agreement. For the avoidance of doubt, any amounts paid and/or
assumed by Licensee pursuant to any exercise, in whole or in part, of the
Warrants by Licensor or any of the other persons or entities designated above
shall not be deemed an additional Advance and shall not be recoupable from any
Royalties otherwise due Licensor. In the event this Agreement is terminated
by Licensor due to Licensee's breach, such termination shall not affect any
rights of Licensor, or any of the other persons or entities designated above,
to purchase stock pursuant to the Warrants.
b) Licensee shall make a non-refundable payment of $10,000 ("Donation")
to the following charitable organization:
The Britney Spears Foundation
c/o Giving Back Fund, Inc.
54 Canal Street, Third Floor
Boston MA 02114
Attention: Marc Pollick
The Donation shall be due upon the Licensee's execution of this Agreement.
For the avoidance of doubt, the Donation shall not be deemed an additional
Advance and shall not be recoupable from any Royalties otherwise due Licensor.
4. COPYRIGHT; TRADEMARKS.
---------------------
For purposes of clarity, nothing in the Agreement shall be construed as
giving Licensor any separate right, title or interest in any trademarks, trade
names, copyrights, patents or other proprietary rights which Licensee owned or
controlled prior to entering into this Agreement. Notwithstanding the
foregoing, nothing in this Agreement, as amended by this Rider, shall be
construed as giving Licensee any proprietary rights whoever in the Proprietary
Subject Matter, which, as between Licensee and Licensor, shall remain
licensor's sole and exclusive property.
-18-
<PAGE>
5. MANUFACTURE AND DISTRIBUTION.
----------------------------
In the first sentence of Paragraph 28.6, the phrase "ten percent
(10%)"shall be deleted and replaced with the phrase "twenty percent (20%)".
6. CONFIDENTIALITY.
---------------
Notwithstanding anything to the contrary set out in Paragraph 38 of the
Agreement, Licensor acknowledges and agrees that if Licensee is required under
Federal law to disclose material terms of this Agreement to the Securities and
Exchange Commission, then such disclosure shall not be deemed a violation of
Paragraph 38 of the Agreement.
Initials: /s/ LB /s/ Jason Bauer
------------- ---------------
Licensor Licensee
-19-
<PAGE>
MANUFACTURER'S AGREEMENT
------------------------
The company signing this Agreement (herein referenced as "MANUFACTURER") will
be responsible for manufacturing certain articles of merchandise (or
components thereof embodying licensed material that includes, but is not
limited to, the name, title, logos, images, copyrights, trademarks and/or
other proprietary matters pertaining to the LICENSED PROPERTY, which are the
exclusive property of Britney Brands, Inc. (herein referenced as 'LICENSOR").
MANUFACTURER recognizes and accepts that a License Agreement exists between
LICENSOR and the company designated as "LICENSEE" in the "BASIC TERMS" set
forth below, authorizing LICENSEE to use the LICENSED PROPERTY in conjunction
with the "ARTICLES" (as defined in the BASIC TERMS) during the "PERIOD OF
AUTHORIZATION" (as defined in the BASIC TERMS).
In consideration for its engagement by LICENSEE to manufacture the ARTICLES,
MANUFACTURER agrees to fulfill the following terms and conditions:
1. It will not manufacture the ARTICLES (or components thereof embodying
the LICENSED PROPERTY for anyone but LICENSEE.
2. It will manufacture the ARTICLES and/or components to the quality
standards specified by LICENSOR from time to time. It will destroy all
ARTICLTS and components embodying any of the LICENSED PROPERTY which do not
meet the quality standards.
3. It will not authorize any other party to manufacture copies of the
ARTICLES or any components thereof containing copyrighted material and/or
trademarks owned by LICENSOR, for its or LICENSEE's account, without the
express prior written consent of LICENSOR.
4. It will manufacture only such quantities of the ARTICLES or components
of same as are ordered specifically by LICENSEE or authorized in writing by
LICENSOR or its agent.
5. It will ship the duly approved quantities of the ARTICLES or components
of same only to LICENSEE. Should it manufacture quantities of the ARTICLES or
components in excess of those ordered specifically by LICENSEE, LICENSOR, or
its agent, MANUFACTURER will dispose of such ARTICLES or components only to
LICENSEE at cost price OR will destroy any such ARTICLES or components.
MANUFACTURER will ensure that no supplies of ARTICLES or components (including
any defective or rejected items) are made to anyone except LICENSEE.
6. It will not, unless LICENSOR otherwise consents in writing, manufacture
any merchandise utilizing any of the copyrighted material and/or trademarks of
LICENSOR, other than as identified as ARTICLES.
7. It will permit the LICENSOR, its agent, or its auditors to inspect the
activities and premises of MANUFACTURER and to examine the accounting books
and invoices of MANUFACTURER relevant to its manufacture and supply to
LICENSEE. MANUFACTURER will, whenever requested, provide copies of all such
documents to LICENSOR or its agents.
8. It will provide LICENSOR and LICENSEE annually and at the end of the
PERIOD OF AUTHORIZATION, with a certificate signed by a responsible officer of
MANUFACTURER confirming that there has been no breach of any of the terms of
this Agreement.
<PAGE>
9. Within 30 days of either the termination of this Agreement or the end of
the PERIOD OF AUTHORIZATION, MANUFACTURER shall deliver up to LICENSEE or, at
LICENSOR's option to LICENSOR, all drawings, artworks, or other materials
supplied to MANUFACTURER by LICENSEE, or by LICENSOR or its agent, and will
destroy all drawings, artwork, moulds or other materials whether in physical
or electronic form which embody any of the LICENSED PROPERTY. Within five (5)
business days after such destruction, MANUFACTURER will deliver to LICENSOR a
certificate of destruction signed by an officer of MANUFACTURER evidencing
such destruction.
10. It will not during the PERIOD OF AUTHORIZATION or thereafter, attack the
title or any of the rights of LICENSOR in and to the LICENSED PROPERTY, or
attack the validity of the rights licensed to LICENSEE. It agrees that all
goodwill derived form the LICENSED PROPERTY will be vested exclusively in
LICENSOR, MANUFACTURER acknowledges that if the manufacture of the ARTICLES
continues after the PERIOD OF AUTHORIZATION has ended, or after notice of
termination from LICENSOR, such manufacture shall infringe upon and damage the
rights of the LICENSOR. MANUFACTURER therefore recognizes and accepts that
LICENSOR has the right to receive relief and money damages by means of
judicial resolution and other recourses to stop such production,
commercialization or other use of its properties.
BASIC TERMS
- -----------
1. LICENSEE:
----------------------
2. MANUFACTURER: (include address)
--------------------
--------------------
--------------------
3. LICENSED PROPERTY: "Britney Spears"
4. ARTICLES:
------------------------
5. PERIOD OF AUTHORIZATION:
--------------------------
AGREED:
MANUFACTURER
By:
----------------------------
Type or Print Name:
-------------------------
Title:
----------------------
Dated:
---------------------
BRITNEY BRANDS, INC.
By:
-----------------------------
Type or Print Name:
--------------------------
Title:
---------------------------
Dated:
---------------------------
<PAGE>
By signing the space provided below, LICENSEE represents that it has
familiarized MANUFACTURER with the terms and conditions of the License
Agreement as they may apply to MANUFACTURER. In addition, LICENSEE
acknowledges and agrees that the approval by LICENSOR of MANUFACTURER as a
supplier of ARTICLES in no way derogates from or relieves LICENSEE of any of
its obligations under the License Agreement. LICENSEE further acknowledges and
agrees that it shall be responsible and primarily liable for all activities
and obligations of MANUFACTURER with respect to the ARTICLES. LICENSEE further
affirms all representations made hereinabove by MANUFACTURER.
LICENSEE
By:
---------------------------
Type or Print Name:
--------------------------
Title:
-----------------------------
Dated:
-----------------------------
EXHIBIT 10.21
Redline Sports Marketing, Inc.
Agreement #: FF112299TS
Licensee: Famous Fixins
LIMITED LICENSE AGREEMENT
THIS AGREEMENT, is entered into as of the 22nd day of
November 1999, by and between REDLINE SPORTS MARKETING, INC., a
North Carolina corporation ("Redline"), and FAMOUS FIXINS, a
corporation under the laws of New York ("Licensee").
BACKGROUND
A. Redline is the owner of, or has rights to, and desires
to license certain trademarks which are set forth on the
attached Exhibit A ("Redline Trademarks").
B. Redline has rights in and desires to license certain
copyrights in works, which are set forth on the attached
Exhibit B ("Redline Copyright Works").
C. Licensee is engaged in the business of manufacturing
and selling the products set forth on Exhibit C ("Licensed
Products") attached hereto and desires to obtain a limited
license from Redline to manufacture and sell such products
bearing the Redline Trademarks and Redline Copyright Works as
more specifically set forth herein.
D. Redline desires to protect the integrity of their
respective trademarks and to protect and preserve the
integrity of and their respective rights in their respective
copyright works.
E. Licensee and Redline agree that certain restrictions
on Licensee's use of the Redline Trademarks and Redline
Copyright Works are necessary to protect their rights. Redline
<PAGE>
and Licensee have entered into this Agreement to set forth
their respective rights and obligations.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. LICENSE
1.1 Grant of Limited License By Redline. Upon the terms
and conditions set forth herein, Redline hereby grants to
Licensee, and Licensee hereby accepts, a LIMITED, NON-
TRANSFERABLE license and NON-EXCLUSIVE right to use the Redline
Trademarks and the Redline Copyright Works in the Contract
Territory (as defined below) during the Contract Term (as
defined below) in connection with the manufacture, packaging,
shipping and sale of the products set forth on Exhibit C
bearing the Redline Trademarks and the Redline Copyright Works
(the "Licensed Products"). It is understood and agreed that
this license shall pertain only to Licensed Products and does
not extend to any other product or service. The rights granted
to Licensee hereunder shall not include the right of Licensee,
or any person or entity purchasing from Licensee other than
Action Performance Companies and their successors or assigns,
to sell Licensed Products at race tracks or souvenir trailers
or concessionaires track side at or during any racing event.
Licensee shall only have the right to manufacture or produce
Licensed Products in quantities that are reasonably required to
meet its customer demands.
1.2 Limitations; No Right to Sublicense. The license and
rights granted herein shall be limited to the express terms set
forth herein and shall not include any right of Licensee to do
any of the following acts, each of which is expressly
prohibited hereby: (i) manufacture any souvenirs, including the
packaging thereof, bearing the Redline Trademarks, or Redline
Copyright Works, or any of them, except for Licensed Products;
(ii) grant sublicenses or assignments in or of the license
granted herein or any portion thereof, except as approved in
writing by Redline and where the sublicensed manufacturer has
executed a manufacturing agreement satisfactory to Redline;
(iii) produce any Licensed Products under any name other than
Licensee's name set forth on Exhibit C; (iv) use or knowingly
permit the use of any of the Redline Trademarks or Redline
Copyright Works in any manner or for any purpose not
specifically authorized under this Agreement; (v) change,
alter, add to, delete from, augment or modify the Licensed
Products in any way or mix the Redline Trademarks or Redline
Copyright Works with any other unauthorized licensed
2
<PAGE>
indicia; or (vi) sell the Licensed Products to any person or
entity for incorporation into another product or souvenir that
has not been properly licensed by Redline. No license is
granted hereunder for the manufacture, sale, or distribution of
Licensed Products to be used as premiums, for fund raising, as
giveaways, in combination sales, or to be disposed of under
similar methods of merchandising or sold for less than the usual
selling price for the purpose of increasing sales. Licensee
shall not use any of the Redline Trademarks or Redline Copyright
Works in connection with any sweepstake, lottery, game of chance
or any similar promotional sales device, scheme, or program. In
the event Licensee desires to use Licensed Products as premiums
or for promotional purposes, Licensee acknowledges that a
separate contractual arrangement must be made with Redline.
Licensee's use of the Redline Trademarks or Redline Copyright
Works is for the benefit of Redline and Licensee shall not
acquire any rights whatsoever in the Redline Trademarks or
Redline Copyright Works except as specifically set forth herein.
Section 2. TERRITORY
2.1 Contract Territory. The limited license granted
pursuant to this Agreement shall extend throughout the United
States of America and its territories and possessions (the
"Contract Territory"). Licensee may submit a written request to
Redline to extend the Contract Territory to additional
countries. The Contract Territory will be expanded only upon
written approval of Redline. This Agreement grants no right to
manufacture, sell, market or distribute Licensed Products
outside the Contract Territory, and this Agreement grants no
right to authorize any person or entity to manufacture, sell,
market or distribute Licensed Products outside the Contract
Territory. Licensee agrees not to sell Licensed Products to any
person or entity who Licensee knows or has reason to know
intends or is likely to resell Licensed Products outside the
Contract Territory.
Section 3. TERM
3.1 Term. The term of this Agreement shall be for a
period beginning on the date hereof and ending on December 31,
2000 (the "Contract Period") unless sooner terminated in
accordance with the terms hereof. This Agreement may be renewed
by a writing signed by each party hereto.
3
<PAGE>
Section 4. ROYALTY AND COMPENSATION
4.1 Royalty. (a) In consideration of the rights granted by
Redline hereunder, Licensee hereby irrevocably agrees to pay
Redline a royalty (the "Royalty") equal to fifteen percent
(15%) of the Net Sales Price for each Licensed Product sold
(except in prearranged special projects wherein specific
royalty rate will be discussed) or otherwise distributed by
Licensee payable in U.S. Dollars payable as set forth below.
(b) "Net Sales Price" shall mean the wholesale list price
or top-of-the-line gross invoice sales price, whichever is
greater, less permitted discounts and allowances, not to exceed
one percent (1%) of Licensee's Net Sales of Licensed Product per
annual period. No deductions shall be made for uncollectible
accounts or for other costs incurred in the manufacturing,
selling, advertising or distribution of the Licensed Products.
The royalty obligations shall accrue on the earliest of shipping
or actual invoicing by Licensee regardless of the time of
collection by Licensee.
(c) If Licensee sells any Licensed Products to any party
affiliated with Licensee or directly or indirectly related to or
under common control with Licensee, at a price less than the
regular price charged to unrelated parties, then the royalty
payable to Redline shall be computed on the basis of the regular
price charged to unrelated parties.
(d) Upon expiration or termination of this Agreement, all
Royalty obligations, including any unpaid portion of the
Guaranteed Minimum Royalty, shall be accelerated and shall
immediately be due and payable, subject only to the right of
sell down.
(e) All of Licensee's obligations under this Section 4
shall be performed without any right of Licensee to invoke set-
offs, deductions and other similar rights.
(f) If Licensee enters any agreement permitting Licensee
to use the name and/or likeness of any other NASCAR team or
personality and such agreement provides for a higher royalty
percentage than specified herein, Licensee immediately shall
give Redline notice of such agreement and higher royalty
percentage. The parties agree that such notice shall
automatically amend the royalty percentage of this Agreement to
the royalty percentage of the notified agreement and that the
amended, higher royalty
4
<PAGE>
percentage shall be applied retroactively to all sales made under
this Agreement.
4.2 Guaranteed Minimum and Advance Royalties. Licensee
agrees that notwithstanding the actual amount of sales of
Licensed Products, it shall be obligated to make certain
nonrefundable minimum payments to Redline ("Guaranteed Minimum
Royalties") in the amount of $5,000.00 during the Contract
Period. The 1999 Guaranteed Minimum Royalty ($2,500.00) is
payable as follows: $2,500.00 due upon execution of the
agreement. The 2000 Guaranteed Minimum Royalty ($2,500.00) is
payable as follows: $1,250.00 due on or before June 30 and
December 31, 2000, respectively. All payments of Royalty
pursuant to Section 4.1 in each calendar year will be credited
against the Guaranteed Minimum Royalty. Once the prepaid minimum
amount is reached, royalty payments will be made in accordance
with Section 4.1. Guaranteed Minimum Royalties in excess of
actual sales for any calendar year will not be applied against
royalties due in any subsequent calendar year.
4.3 Payments, Statements and Records. All royalty payments
shall be due and payable within twenty (20) days after the end of
each calendar quarter for sales or distributions during the
previous quarter. Complete and accurate royalty reports will be
due whether or not there were sales during the previous quarter.
Late payments shall bear interest at a rate equal to l 1/2% per
month until paid. Licensee shall (i) furnish to Redline in
connection with each royalty payment, a statement of account of
all sales activity relating to the Licensed Products (including a
per item breakdown including description of the Licensed Product,
number sold or distributed and Net Sales Price), together with
such supporting detail that Redline may require and (ii) keep
full, true, clear and accurate records and books of account with
respect to all Licensed Products, such books and records to be
retained for at least three (3) years after expiration of the
Contract Period. Redline shall have the right to inspect any
such books and records related to the Licensed Products and the
manufacturing facilities of Licensee or its authorized
manufacturer during normal business hours and, where possible,
upon advance notice.
The Royalties and Guaranteed Minimum Royalties due hereunder
shall be paid to Redline at the address set forth in Section 10.6
hereof.
In the event that an audit by Redline (or its representatives)
determines a payment deficiency for Royalties
due versus Royalties actually paid by Licensee of five percent
5
<PAGE>
(5%) or greater, then the cost of the audit shall be paid by
Licensee, together with the Royalty deficiency plus interest
thereon at an interest rate of 1 1/2% per month until paid in
full.
The receipt and/or acceptance by Redline of the statements
furnished or royalties paid hereunder or the cashing of any
royalty checks paid hereunder, shall not preclude Redline from
questioning the correctness thereof at any time. In the event
that any inconsistencies or mistakes are discovered in such
statements or payments, they shall immediately be rectified by
Licensee and the appropriate payment shall be made by Licensee.
Section 5. MANUFACTURE AND QUALITY STANDARDS
5.1 Quality Standards. The Licensed Products shall meet
or exceed Redline's standards and shall be of high and uniform
premium quality (including, but not limited to, quality of
material and workmanship), in Redline's reasonable judgment,
sufficient to protect and enhance the Licensed Products and the
substantial goodwill pertaining thereto. All Licensed Products
shall be consistent with, or superior in quality to, the
samples or prototypes provided to and approved by Redline.
Licensee shall manufacture package, ship and label the Licensed
Products in accordance with (i) all applicable foreign,
federal, state and local laws, rules and regulations and (ii)
the manufacturing and packaging specifications and requirements
established from time to time by Redline. Licensee shall
furnish to Redline design concepts, artwork and product samples
for approval prior to use by Licensee as set forth in Section
5.2.
5.2 Quality and Approval of Licensed Products. (a) Purpose
of Quality Control. In order to maintain the quality
reputation of Redline Trademarks and the rights in the Redline
Copyright Works, all Licensed Products and promotional or
packaging material relating to the Licensed Products must
receive the approval of Redline. All approvals in this Section
5.2 shall be in writing.
(b) Pre-Production Submittal Approval. Licensee shall
submit at its own cost to Redline for Redline's written
approval three (3) pre-production submittals for any proposed
Licensed Products together with all promotional and packaging
material, containers, cartons and wrapping relating to the
Licensed Products. LICENSEE SHALL NOT MANUFACTURE, SELL,
MARKET OR DISTRIBUTE ANY LICENSED PRODUCTS OR ANY PROMOTIONAL OR
PACKAGING MATERIAL, CONTAINERS, CARTONS AND WRAPPING RELATING
TO THE LICENSED PRODUCTS BEFORE OBTAINING REDLINE'S WRITTEN
APPROVAL OF ALL REQUIRED PRE-PRODUCTION SUBMITTALS FOR EACH SUCH
ITEM. If
6
<PAGE>
Redline fails to give written approval of any pre-production
submittal within thirty (30) days after receipt of Licensee's
submission of Redline, such failure shall constitute a
disapproval of the pre-production submittal.
(c) Production Submittal Approval. Licensee shall
submit, at its own cost, to Redline six (6) final production
samples of any Licensed Products from the first production run
to be received in Redline's office no later than ten (10) days
following such production and prior to first shipment.
Licensee may manufacture, sell, market and distribute Licensed
Products after submitting to Redline production samples of
such Licensed Products, provided that (i) such samples fully
conform to the approved pre-production samples; and (ii) upon
Redline's demand, Licensee shall immediately cease all
manufacture, sale, marketing and distribution of any Licensed
Product if Redline disapproves its production samples. If
Redline fails to give written disapproval of any production
sample submitted by Licensee within thirty (30) days after the
date of Redline's receipt of Licensee's submission, such
failure shall constitute an approval of the submission.
(d) Quality Maintenance. Licensee shall maintain the
same quality in the Licensed Products and promotional and
packaging material relating to the Licensed Products produced
as in the samples approved by Redline. Licensee agrees to
provide upon demand a reasonable number of samples of the
Licensed Products and of promotional and packaging material
relating to the Licensed Products at no cost to Redline for
periodic quality control inspection. All such samples shall
be excluded from Net Sales.
(e) Changes. If during the term of this Agreement
there is to be any change in the Licensed Products or the
promotional or packaging material relating to the Licensed
Products after the approval of production samples, Licensee
must comply with the provisions of Section 5.2(b) and Section
5.2(c) for the changed item before the item's manufacture,
sale, marketing or distribution.
(f) Licensee's Production Facilities. Licensee
agrees to furnish Redline promptly with the addresses of
Licensee's production facilities for the Licensed Products and
the names and addresses of the persons or entities, if any,
which are manufacturing each of the Licensed Products for
Licensee. Redline shall have the right upon reasonable notice
to Licensee, during regular business hours, to inspect any
production facility where any Licensed Product is being
manufactured to determine
7
<PAGE>
whether Licensee is adhering to the requirements of this
Agreement relating to the nature and quality of the Licensed
Products and the use of the Redline Trademarks and Redline
Copyright Works in connection therewith.
(g) Damaged, Defective or Non-Approved Items.
Licensee shall not sell, market, distribute or use for any
purpose or permit any third party to sell, market, distribute
or use for any purpose any Licensed Products or promotional
and packaging material relating to the Licensed Products which
are damaged, defective, seconds or otherwise fail to meet the
specifications or quality standards of Redline or the
trademark and copyright usage and notice requirements of this
Agreement. If in Redline's opinion any Licensed Products or
promotional or packaging material relating to any Licensed
Products are damaged, defective, seconds or otherwise fail to
meet the quality standards reflected in the production samples
of the Licensed Products approved hereunder or the trademark
or copyright usage and notice requirements of this Agreement,
then, upon Redline's demand, Licensee shall immediately cease
all further manufacture and distribution of such items until
the failure is corrected and the party having made the demand
gives written approval of the correction. If requested by
Redline, Licensee will recall any substandard Licensed
Products or promotional or packaging material relating to the
Licensed Products to Licensee's warehouse or plant at
Licensee's sole expense.
(h) Laboratory Testing. Licensee agrees that upon
reasonable demand by Redline, it will undertake and pay for
any pre-production laboratory testing necessary with respect
to the Licensed Products. Any such testing shall be done by a
qualified independent laboratory acceptable to Redline. If
testing is required, approval for production will be
contingent upon test results satisfactory to Redline.
(i) First Shipment. Licensee agrees to give Redline
prompt notice of the first shipment of Licensed Products.
5.3 Advertising and Promotion. (a) All advertising
and promotional material prepared by Licensee in connection
with the Licensed Products shall be subject to the prior
written approval of Redline. If Redline fails to give written
approval of the advertising or promotional material within
thirty (30) days after receipt of Licensee's submission to
Redline, such failure shall constitute a disapproval of the
submittal. If the text of the advertising and/or promotional
material has been previously approved in writing by Redline,
Licensee may re-use such material without again obtaining the
written approval of Redline unless
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such approval has been previously withdrawn in writing by Redline
or unless this Agreement has been terminated. All copyrights in
such advertising and promotional material shall bear a copyright
notice in the name of Redline.
(b) Licensee shall diligently and continuously market and
distribute the Licensed Products in the Contract Territory and
will use its best efforts to make and maintain adequate
arrangements for the marketing and distribution necessary to
meet the demand for the Licensed Products in the Contract
Territory.
(c) Licensee shall at all times maintain an inventory of
the Licensed Products sufficient to supply promptly the
reasonably foreseeable demand for the Licensed Products within
the Contract Territory.
5.4 Trademark and Copyright Protection; Intellectual
Property. Licensee acknowledges that the manufacture and sale
by it of the Licensed Products shall not vest in Licensee any
ownership rights whatsoever in the Redline Trademarks or
Redline Copyright works. Licensee agrees that its use of the
Redline Trademarks or Redline Copyright Works shall inure to
the benefit of Redline, as applicable. Licensee shall cause to
appear on all Licensed Products, and on all materials in
connection with which the Redline Trademarks or Redline
Copyright Works are used hereunder, legends, markings,
indications and notices in order to give notice of the
trademarks, tradenames, copyrights or other rights therein or
pertaining thereto. Licensee shall comply with all practices
and governmental regulations in force or customarily used in
the United States (or if applicable, the relevant foreign
jurisdictions) in order to safeguard the rights of Redline to
the Redline Trademarks or Redline Copyright Works, including
without limitation imprinting where appropriate, irremovably,
legibly and permanently on the Licensed Products, packaging,
labeling and advertising or promotional material used in
connection therewith, notice of trademarks and/or copyrights,
including but not limited (i) the symbol "Tm" in the upper
righthand corner next to the mark, for marks which are not yet
registered with the United States Patent and Trademark office,
(ii) the symbol "(r) " in the upper right-hand corner next to the
mark, for marks which are registered with the United States
Patent and Trademark Office; (iii) the symbol "(c)200_ Joe
Gibbs Racing" for any copyrights of printed materials, and (iv)
an indication that the Licensed Product, whether the mark is
registered or unregistered, is "made under license from Joe
Gibbs Racing".
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This Agreement shall not be considered as implying any
assignment, either partial or temporary, of Redline's
trademark rights, Redline remaining as the sole holders of all
rights therein as well as all actions and/or claims in
connection with said marks. All rights in said trademarks and
service marks other than those specifically granted herein are
reserved to Redline for its own respective use and benefit.
Licensee will at no time use or authorize the use of any
trademark, trade name or other designation identical with or
confusingly or colorably similar to Redline's trademarks or
service marks.
Licensee acknowledges that:
(i) The Redline Trademarks and Redline Copyright
Works, copyrights, logos and images associated with the
Redline Trademarks and Redline Copyright Works, (the
"Property") are unique and original and that Redline, as
applicable, are the owners thereof;
(ii) Redline has acquired substantial and valuable
good will in the Property;
(iii)The Property has acquired a secondary meaning as
trademarks uniquely associated with the merchandise authorized by
Redline;
(iv) All rights in any additional material, new
versions, translations, rearrangements or other changes in
the Licensed Products which may be created by or for Licensee
shall, as between Redline and Licensee, be and will remain
the exclusive property of Redline, as applicable, and;
(v) Any copyrights, trademarks and design patents
heretofore obtained by Redline or in connection with the
marks are good and valid.
(vi) As between Redline and Licensee, Redline shall be
deemed to be the owner of all materials created for the
Licensed Products hereunder, including but not limited to
artwork and designs. In connection herewith, Licensee hereby
assigns and transfers to Redline, as applicable, or its
designee, all rights, including copyright, title and interest
in and to all such materials and elements free of charge.
This Agreement shall not be considered as implying any
assignment, either partial or temporary, of Redline's
copyrights, remaining as the sole holder of said copyrights, as
well as of all actions and/or claims in connection with said
copyrights.
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Licensee shall not, during the Contract Term or any time
thereafter, dispute or contest, nor cause or assist or aid
others in disputing or contesting, Redline's or its licensors,
exclusive right and title to the marks or Property, or any
other rights of Redline's in and to the subject matter of this
Agreement.
Section 6. FURTHER OBLIGATIONS OF LICENSEE
6.1 Best Efforts. Licensee shall protect and promote
the goodwill and reputation of Redline and will avoid activity
detrimental to their interest, reputation and goodwill.
Licensee shall exercise its best efforts to promote the Licensed
Products.
6.2 Insurance. Licensee shall acquire and maintain,
at its own expense, in full force and effect throughout the
Contract Term and for a one year period thereafter, products
liability, completed operations, advertiser's, and
comprehensive liability insurance policies with respect to the
Licensed Products with an insurer with a Moody's rating of B
or higher satisfactory to Redline and shall name Redline as
additional insured therein. Such standard insurance shall
provide protection against any and all claims, demands and
causes of action arising out of any defects or failure to
perform, alleged or otherwise, of the Licensed Products, or
any material used in connection therewith or any use thereof.
Such standard advertiser's liability insurance shall provide
protection against any and all claims, demands and causes of
action arising out of errors and omissions in any
advertisement that may be utilized for the Licensed Products.
The amount of coverage of each policy should be a minimum of
two million dollars ($2,000,000.00) combined single limit,
with deductible not in excess of five thousand dollars
($5,000.00), for each single occurrence for bodily injury
and/or for property damage and a per annum aggregate
limitation of not less than two million dollars
($2,000,000.00). Each policy shall provide for thirty (30)
days' notice to Redline from the insurer by registered or
certified mail, return receipt requested, in the event of any
modification, cancellation or termination. Licensee agrees to
furnish Redline a Certificate of Insurance evidencing same
prior to manufacture of any Licensed Products and, in no
event, shall the Licensee manufacture Licensed Products before
receipt by Redline of such evidence of insurance.
6.3 Manufacturing Agreements. In the case that
Licensee utilizes any submanufacturers, Licensee shall
negotiate in good faith any manufacturing agreements that
Redline may require in connection with the Licensed Products
prior to manufacture and
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shall comply with all requirements of any such manufacturing
agreement.
6.4 Approvals. Licensee shall undertake to secure from
the appropriate authorities, at its own cost and expense, all
permits, concessions or other documents required by law in
connection with the manufacture, packing, shipping, sale or
other use of the Licensed Products. Licensee shall be
responsible for (i) all authorizations for the use of, and (ii)
the payment of any royalties that may be due and owing to the
owners of any trademarks or tradenames (other than Redline as
provided for herein) which may be used in connection with the
Licensed Products.
Section 7. INDEMNIFICATION
7.1 Indemnification. If any person shall make a claim
for any damage or injury of any kind or nature whatever,
including death, whether such claim be for breach of warranty,
product liability, or for any other alleged type of damage, and
whether such claim be based in negligence, strict liability, or
under any other theory, against Redline and/or any of its
affiliates, partners, shareholders, agents, employees, and
directors or licensors (collectively, the "Indemnified Parties")
arising out of the Licensed Products or Licensee's actions or
inactions in accordance with this Agreement, Licensee will
indemnify and hold harmless Redline and each Indemnified Party
from and against any and all loss, expense, damage, or injury
that Redline and any Indemnified Party may sustain as a result
of any such claim, and Licensee will assume on behalf of Redline
and such Indemnified Parties the defense of any action at law or
suit in equity or any other proceeding which may be brought
against Redline or any Indemnified Party upon such claim and
will pay on behalf of Redline and/or such Indemnified Party upon
its demand the amount of any and all costs, fees, and expenses
in connection with such defense, including the fees of Redline
and/or such Indemnified Party's counsel, as well as any
judgment, fine, or penalty that may be entered against Redline
and/or such Indemnified Party in any such action, suit, or
proceeding. This indemnity shall continue in force
notwithstanding the termination of this Agreement.
Section 8. REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties. Each party represents
and warrants to the other that: (i) it has, and will maintain at
all times during this Agreement, all federal, state and local
governmental permits and licenses required in order to conduct
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its business as contemplated hereunder; (ii) it is duly
organized and validly existing under the laws of the state of
its organization; (iii) it has full power and authority to
enter into and perform this Agreement and the person or
persons executing this Agreement have been duly authorized to
do so; and (iv) the execution, delivery and performance of
this Agreement shall not conflict with, violate or constitute
a default under, any other contracts, agreements or
undertakings to which it is a party or by which it is bound.
EXCEPT AS SET FORTH IN SECTION 8.2 BELOW, REDLINE DOES NOT
MAKE ANY OTHER REPRESENTATIONS OR WARRANTIES, EXPRESSED OR
IMPLIED.
8.2 Trademark Indemnity by Redline. Redline represents
and warrants that it has the rights to grant the licenses in the
Redline Trademarks and Redline Copyright Works granted herein as
set forth on Exhibits A and B. In the event a third party should
file within the Contract Territory any claim against Licensee
for trademark or trade dress infringement, for copyright
infringement for works supplied to Licensee by Redline or for
other similar intellectual property infringement, occurring
within the Contract Territory, solely on account of Licensee's
proper use of the Redline Trademarks, Redline Copyright Works
in accordance with the terms hereof, Licensee shall promptly
notify Redline of such claim, and thereafter if such claim
arises out of Redline's failure to possess full right and
authority to grant the license in the Redline Trademarks or
Redline Copyright Works, as applicable, evidenced by this
Agreement, then Redline shall undertake defense of such claim
through counsel of its choosing and at its expense as to the
Redline Trademarks and Redline Copyright Works and shall take
whatever steps they deem necessary or appropriate to defend and
finally dispose of such claim. if the claim is disposed of by
agreed or court imposed suspension of distribution of Licensed
Products, Licensee, upon notice from Redline shall suspend its
distribution of Licensed Products. EXCEPT FOR DEFENSE OF A
CLAIM AND PAYMENT OF ACCOMPANYING DAMAGES TO THE CLAIMANT,
REDLINE SHALL NOT BE RESPONSIBLE FOR ANY DAMAGES OR EXPENSES
SUFFERED BY LICENSEE AS A RESULT OF SUCH SUSPENSION OR
LIMITATION, INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES.
8.3 Safety. Licensee certifies that all Licensed Products
will meet all applicable Consumer Product Safety Commission
(CPSC) and all applicable American Society for Testing and
Materials (ASTM) standards as well as comply with all other
applicable federal, state and local laws and regulations.
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Section 9. TERMINATION
9.1 Payment and Covenant Default. If Licensee shall fail
to make any payment due hereunder and if such default shall
continue uncured for a period of five (5) days thereafter,
Redline shall have the right to terminate this Agreement
forthwith. If Licensee shall otherwise fail to perform any of
the terms, conditions, agreements or covenants in this
Agreement, and such default shall continue uncured for a period
of twenty (20) days after written notice thereof to Licensee,
Redline shall have the right to terminate this Agreement forthwith.
9.2 Insolvency. Either party may by written notice
terminate this Agreement immediately without incurring thereby
any liability to the other in the event the other party shall
(i) be dissolved, be adjudicated insolvent or bankrupt or cease
operations, admit in writing its inability to pay its debts as
they mature or make a general assignment for the benefit of, or
enter into any composition or arrangement with, creditors, or
file for relief under any insolvency law; (ii) apply for, or
consent (by admission of material allegations of a petition or
otherwise) to the appointment of a receiver, trustee or
liquidator of all or a substantial part of its assets or
affairs, or authorize such application or consent, or suffer
any proceedings seeking such appointment to be commenced
against it (whether voluntary or involuntary) which continues
undismissed for a period of thirty (30) days; or (iii) be the
subject of any other proceeding not defined above whereby any
substantial portion of the property or assets of such party are
or may be distributed among its creditors (or any group of
them).
9.3 Change in Control. Redline may immediately terminate
this Agreement without liability if Licensee undergoes any
substantial change in its ownership or control.
9.4 Use of Marks. Redline may immediately terminate this
Agreement where the team has undergone substantial change, such
as if the sponsor withdraws or changes, if the driver changes
teams, if the car number changes or if the color scheme, logo
scheme or make of the car changes.
9.5 Insurance. Redline may terminate this Agreement
immediately if Licensee fails to maintain the insurance
required hereunder.
9.6 Production. Redline may terminate this Agreement
immediately if Licensee does not introduce Licensed Products to
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the market within ninety (90) days of execution of this
contract or continue to diligently pursue sales thereafter.
9.7 Quality. Redline may terminate this Agreement
immediately if the quality of the Licensed Products is lower
than of the approved samples.
9.8 Approval. Redline may terminate this Agreement
immediately if Licensee manufactures, sells, markets,
distributes or uses in any way any Licensed Products or
promotional or packaging material relating to the Licensed
Products without having prior written approval of Redline as
provided for by the provisions of this Agreement or continues
to manufacture, sell, market, distribute or use in any way
any Licensed Products or promotional or packaging material
relating to the Licensed Products after receipt of notice of
Redline disapproving such items. In addition to, or as an
alternative, at the sole discretion of Redline, as liquidated
damages, Licensee shall pay to Redline the sum of five thousand
dollars ($5,000.00) on demand for failure, per occurrence, to
follow proper approval procedures as set forth herein.
9.9 Rights and Remedies. On the expiration or sooner
termination of this Agreement:
(a) The rights and license granted to Licensee herein
shall forthwith terminate and automatically revert to Redline.
(b) Licensee shall discontinue all use of the Redline
Trademarks and Redline Copyright Works and shall deliver to
Redline all products, packages and other materials in its
possession bearing the Redline Trademarks and Redline
Copyright Works and previously paid for by Redline, and shall
either (i) destroy all products, packages and other materials
in its possession bearing Redline Trademarks and Redline
Copyright Works not previously sold to Redline and provide
satisfactory evidence to Redline of such destruction or (ii)
cause all Redline Trademarks and Redline Copyright Works, to
be removed from the Licensed Products and provide Redline
with satisfactory evidence of such removal; provided,
however, that if Licensee is not in breach of this Agreement
Licensee shall be entitled to dispose of existing approved
Licensed Products within sixty (60) days after any such
termination.
(c) The termination or expiration of this Agreement
shall not relieve Licensee of any obligation due to Redline
arising or accrued prior to or as of the date of such
termination or
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expiration, including the obligation to pay Royalties and
Guaranteed Minimum Royalties.
The parties acknowledge that there may not be an adequate
remedy at law to redress a breach or threatened breach of the
terms of this Agreement, and therefore agree that either
party, or their respective assigns, shall be entitled to an
injunction or other equitable relief against the other to
restrain it from such breach, and each party waives any claim
or defense that the other has an adequate remedy at law. The
foregoing is in addition to any remedies at law that either
party may have.
Section 10. MISCELLANEOUS
10.1 No Agency Relation. Nothing herein contained
shall create or be deemed to create any agency, partnership or
joint venture between the parties hereto, and neither party
shall have power or authority to obligate or bind the other in
any manner whatsoever.
10.2 Amendments. No addition to, deletion from or
modification of any of the provisions of this Agreement shall
be binding upon the parties unless made in writing and signed
by a duly authorized representative of each party.
10.3 Assignment. The rights of Licensee under this
Agreement shall not be assigned, sublicensed, or
subcontracted, in whole or in part (whether by operation of
law or otherwise) without the prior written consent of
Redline. Any assignment or attempted assignment pursuant to
the change of control of Licensee or the sale of the stock,
assets or business of Licensee shall not be effective without
the prior written consent of Redline.
10.4 Applicable Law. This Agreement and all purchase
orders placed pursuant to this Agreement shall be governed by
and construed and enforced in accordance with the internal
laws and judicial decisions of the State of North Carolina.
Any litigation, action or proceeding arising out of or
relating to this Agreement shall be instituted in any State or
Federal court in the State of North Carolina, Mecklenburg or
Cabarrus Counties. Licensee hereby waives any objection which
it might have now or hereafter to the venue of any such
litigation, action or proceeding, submits to the jurisdiction
of any such court and, waives any claim or defense of
inconvenient forum. Licensee consents to service of process
by Registered Mail, Return Receipt Requested, at Licensee's
address and expressly waives the benefit of any contrary
provision of law.
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10.5 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same document.
10.6 Notices. All notices required or permitted
hereunder shall be in writing and shall be deemed duly given
when personally delivered or sent by registered or certified
mail, return receipt requested, postage prepaid, or by
facsimile transmission or overnight carrier.
To Redline: Redline Sports Marketing, Inc.
13415 Reese Boulevard West
Huntersville, NC 28078
Attn: Dave Alpern (Cheryl King)
Telephone: 704/944-5035
Fax: 704/944-5059
To Licensee: Famous Fixins
250 West 57th Street, Suite 2501
New York, NY 10107
Attn: Jason Bauer
Telephone: 212/245-7773
Fax: 212/245-7767
To Agent: The Henry Licensing Group
19516 Tryon Street
Cornelius, NC 28031
Attn: Brad Henry
Telephone: 704/789-0038
Fax: 704/987-0810
or to other such address as the person to whom notice is to be
given may have previously furnished to the other in writing in
the manner set forth herein, provided that notice of a change
of address all be deemed given only upon receipt.
10.7 Purchases by Redline. Redline shall be permitted
to purchase Licensed Products from Licensee at the most
favorable prices offered by Licensee to any other person or
entity.
10.8 Charity and Promotions. Purchases by Redline. In
addition to the samples provided for herein, Licensee hereby
agrees to provide Redline at no charge, upon request, with
final packaged production samples of the Licensed Product for
Redline
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to use to donate for appropriate charity auctions or other
charitable purposes or to use in connection with the Joe Gibbs
Racing team, its sponsors, endorsement sponsors, crew members,
or other similar purposes, but not for resale by Redline.
10.9 Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties hereto
and supersedes all prior agreements and understandings, verbal
or written, relating to the subject matter hereof. There are
no unwritten oral agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
FAMOUS FIXINS, a New York
corporation
By: /s/ Jason Bauer
Title: President
REDLINE SPORTS MARKETING, INC., a
North Carolina corporation
By: /s/ David Alpern
David Alpern
Title: Vice President of Marketing
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Exhibit A to Limited
License Agreement
Redline Sports Marketing, Inc.
December 31, 2000
FF112299TS
EXHIBIT A
REDLINE TRADEMARKS
Name(s) of Owners of Marks MARKS
The Home Depot "The Home Depot(r) "
Joe Gibbs Racing, Inc. "Joe Gibbs Racing, Inc.(r) " and
#20(r)
Tony Stewart "Tony Stewart(r) "
[in any combination acceptable to
Redline on any single Licensed
Product]
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Exhibit B to Limited
License Agreement
Redline Sports Marketing, Inc.
December 31, 2000
FF112299TS
EXHIBIT B
REDLINE COPYRIGHT WORKS
Name(s) of Owners of Marks: MARKS
Joe Gibbs Racing, Inc. Likeness of the #20 Joe Gibbs
Racing Winston Cup Car, including
"The Home Depot"
Tony Stewart Enterprises "Tony Stewart" (name, likeness and
signature)
[in any combination acceptable
to Redline on any single Licensed
Product with approved artwork]
20
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Exhibit C to Limited
License Agreement
Redline Sports Marketing, Inc.
December 31, 2000
FF112299TS
EXHIBIT C
LICENSED PRODUCTS
Mints
21
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Exhibit D to Limited
License Agreement
Redline Sports Marketing, Inc.
December 31, 2000
FF112299TS
EXHIBIT D
MANUFACTURER'S AGREEMENT
This Manufacturer's Agreement is made pursuant to the License
Agreement between Redline Sports Marketing, Inc. ("Redline") and
the undersigned LICENSEE ("Licensee"), a copy of
which is attached hereto and made a part hereof ("License
Agreement"). _______________________________(full name) located
at ______________________________ ("Manufacturer") desires to
manufacture the following Licensed Products bearing Trademarks
and/or Copyright Works: _____________________. As a condition to
the manufacture by Manufacturer of any Licensed Product set forth
in Exhibit C of the License Agreement bearing any Trademarks
and/or Copyright Works listed in Exhibits A or B respectively of
the License Agreement, Manufacturer acknowledges that the
Trademarks and Copyright Works are the sole property of Redline
and that Manufacturer's right to manufacture the Licensed
Products with the Trademarks and/or Copyright Works thereon is in
all respects subject to the terms and conditions in the License
Agreement. Manufacturer agrees that the provisions of the
License Agreement shall take precedence over and supersede any
and all contractual relationships between Licensee and
Manufacturer and, in particular, Manufacturer recognizes that all
manufacturing rights are subject to (a) the restrictions on the
use of the Trademarks and Copyright Works and (b) the termination
provisions in the License Agreement. Manufacturer further
acknowledges that its manufacture of the Licensed Products shall
give Manufacturer no right to use the Trademarks and Copyright
Works or to sell Licensed Products bearing the Trademarks and
Copyright Works to Licensee beyond the term of the License
Agreement. Manufacturer shall not sell Licensed Products with
the Trademarks and Copyright Works thereon to any person or
entity except Licensee. If Redline terminates the License
Agreement, Manufacturer agrees to make no claim against Redline
for any reason whatsoever.
REDLINE SPORTS MARKETING, INC. MANUFACTURER
By:___________________________ By:__________________________
David B. Alpern
Vice President of Marketing Title:_______________________
Date:_________________________ Date:________________________
LICENSEE
By:___________________________
Title:________________________
Date:_________________________
EXHIBIT 10.22
LICENSE AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 22nd day of December
1999, by and between Famous Fixins, Inc. ("Licensee"), a corporation organized
under the laws of the State of New York, having its principal place of
business at 250 West 57th street, Suite 1112, New York, NY 10107, and Dave
Mirra ("Licensor"), c/o The Familie, an LLC organized under the State of
California, having its principal place of business at 115 West Plaza Street,
Solana Beach, CA 92075
WHEREAS, Licensee manufactures celebrity food products and has been
granted the exclusive right, to the extent Licensor can grant such rights
pursuant to law, to the use of the name and likeness of Licensor on and in
connection with the development, manufacture, distribution, promotion, and
sale of a line of food products, specifically chewing gum and cereal endorsed
by Licensor ("the Products").
NOW THEREFORE, in consideration of the mutual promises and undertakings
contained herein, the parties agree as follows:
1. Grant of License. Licensor hereby grants Licensee the right to use
the name, and the approved photograph, characterization, likeness, voice,
image, and biographical data of Licensor, and to the extent Licensor presently
holds any protectable intellectual property rights in his name, image, or
identity and is able to license such rights pursuant to applicable law, such
rights (the "Licensed Subject Matter") in connection with the development,
manufacture, distribution, promotion, and sale of the Products ("the
License"). This License shall be effective worldwide from the date of this
executed contract until December 31, 2002 unless terminated in accordance with
the terms and conditions of Paragraphs 8 or 9 of this Agreement ("the licensed
term"). Licensee shall have the right of first refusal regarding renewal of
license at the end of this agreement.
2. Licensee's Obligations. Licensee agrees to develop, manufacture,
distribute, promote, and sell the Products, provided, however, that Licensee
shall in its sole and absolute discretion have the right to determine: (a)
the type and quantity of Products developed and manufactured; (b) the markets
in which the Products are distributed and sold; (c) the manner of distribution
and sale of the Products; and (d) the volume and nature of advertising for the
Products. Licensee shall pay all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the Products. Nothing herein shall obligate licensor
to incur any costs whatsoever. All rights, titles, and interests in and to
the Products, their formulae and secret ingredients, and their packaging and
labeling shall be, and they are specifically and entirely, reserved to
Licensee and may be fully exploited by licensee, subject to the terms hereof.
3. Licensor's Obligation. At Licensee's expense, Licensor shall supply
the Licensed Subject Matter and personal appearance for the purposes of a
press conference at the reasonable request of Licensee to assist in the
promotion of the Products. All services will be rendered on mutually
agreeable dates and locations. Any additional participation is at the sole
discretion of Licensor. Any reasonable transportation expenses incurred at or
do to such appearances will be the responsibility of Licensee. Licensor shall
further furnish Licensee with sufficient information about the Licensor's
schedule to adequately plan its promotions and sales programs. Any and all
publicity regarding the Products shall be issued only by Licensee, subject to
prior approval by Licensor which shall not be unreasonable withheld.
4. Quality Assurance. Licensee agrees that all use of the Licensed
Subject Matter shall be only upon the Products manufactured by or for Licensee
in accordance with quality standards approved by Licensor prior to the
commencement of manufacturing of the Products. Licensee shall submit for
Licensor's approval the packaging design, advertising material and all other
materials to be used in connection with the Products, which approval shall not
be unreasonably delayed or withheld.
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5. Compensation. For full and complete compensation to Licensor for
entering into and performing the terms and conditions of the Agreement, and
provided that Licensor completely perform his obligations hereunder, Licensee
shall pay Licensor a license fee (the "Licensing Fee") in an amount equal to
seven percent (7%) of all monies received by Licensee as revenue derived from
the sale of the Products ("Gross Receipts less trade and quantity discounts").
In addition, as further consideration for this Agreement, Licensor has
received a warrant to purchase 25,000 shares of the Company's unregistered
common stock at the purchase price of $.20 per share (the "exercise price")
exercisable immediately subsequent to the execution hereof, with an expiration
date of three (3) years from the date hereof.
6. Accounting. Licensee shall render a detailed accounting to Licensor
on a quarterly basis within 60 days after the first day of January, April,
July, and October. Each accounting shall show both quarterly and cumulative
Gross Receipts for the Products and shall be accompanied by the payment in
full then due to the Licensor. Licensor, or Licensor's representative shall
have the right at all reasonable times to inspect and make copies of the books
and records of company, at Licensor's expense, in so far as they relate to the
computation of royalties to be paid to Licensor thereunder and the shipment of
endorsed products and related merchandise pursuant to this agreement. If
royalties are due and unpaid, such inspection should be at licensee's expense.
7. Insurance. Licensee maintains $2,000,000 in product liability
insurance, which cover all products produced by Licensee bearing Licensor's
name and likeness. Licensee will name Licensor as an additional insured to
its product liability insurance policy.
8. Licensor Termination. Licensor may terminate this Agreement upon
forty-five (45) days written notice if (a) Licensee breaches a material term
of this Agreement and fails to remedy said breach within thirty (30) days of
its receipt of written notice of the breach; (b) Licensee becomes insolvent or
files a petition in bankruptcy; (c) quality standards as required by industry
are not met or (d) Licensee permanently discontinues production and
distribution of the Products; (e) Upon death or retirement of Licensor. All
royalties due to Licensor up to the date of termination will be paid to
Licensor.
9. License Termination. Licensee may terminate this agreement upon
forty-five (45) days written notice if (a) Licensor breaches a material term
of this Agreement and fails to remedy said breach within thirty (30) days of
his receipt of written notice of the breach; (b) Licensor becomes insolvent or
files a petition in bankruptcy; (c) Licensee determines, in its sole and
absolute discretion, to discontinue production and distribution of the
Products; (d) Licensor becomes the subject of public dispute or scandal that
affects Licensor's image. All royalties due to Licensor up to the date of
termination will be paid to Licensor.
10. Indemnification. The parties hereto shall indemnify, defend,
protect, and save and hold each other harmless from and against any and all
actions, claims, suits, losses, judgements, penalties, liabilities, damages,
costs and expenses, including, without limitation, reasonable attorney's fees
and court costs, of whatever kind and nature imposed on, incurred by, or
asserted, made, brought, or made against each other arising out of a party's
breach of any of its representations, warranties, or obligations made pursuant
to this agreement, or through the negligence or intentional acts of its
officers, directors, employees, or representatives, or including product
liability. Licensor shall be similarly indemnified to by licensee with
respect to actions..., costs in connections with the products, including,
without limitation, damages allegedly caused by the products or the condition
or quality of the products, and in connection with, any expediting or
distribution of the licensed subject matter.
11. Assignment. Neither Licensor nor Licensee shall assign this
Agreement without the prior written consent of the other party, except that
Licensee shall have the right to assign this Agreement to any wholly owned
subsidiary, or to any person, firm, or corporation owning or acquiring a
substantial portion of Licensee's stock or assets. Licensee will remain
liable for Licensor's royalty if not paid by assignee.
2
<PAGE>
12. Notices. Any notice to be hereunder shall be made in writing and
shall be sent by certified U.S. mail, return receipt requested, postage paid.
All notices to Licensor shall be sent to The Familie, 115 West Plaza Street,
Solana Beach, CA 92075 . All notices to Licensee shall be sent to 250 West
57th St., Suite 1112, New York, NY 10107.
13. Relationship of the Parties. Nothing in this Agreement shall be
construed to (a) give either party the power to direct or control the day to
day activities of the other; (b) constitute the parties as partners, joint
ventures, co-owners, or otherwise as participants in a joint and common
undertaking; or (c) constitute Licensor, its agents, or employees as the
agents or employees of Licensee or to grant them any power or authority to act
for, bind or otherwise create any obligation on behalf of Licensee for any
purposes whatsoever.
14. Governing Law and Jurisdiction. This Agreement shall be construed
and enforced in the County of New York in accordance with the laws of the
State of New York. In the event of any action, suit, or proceeding
concerning, arising out of, or based upon this Agreement brought by either
party against each other, the prevailing party shall be entitled to recover
from the other its reasonable attorney's fees in connection therewith in
addition to the costs of such action, suit or proceeding. All conflicts shall
be resolved by arbitration according to the Triple A in New York City in
judgment there from shall be enforceable in the applicable court.
15. Entire Agreement. This Agreement set forth the entire understanding
of the parties with respect to its subject matter. No waiver, modification,
or addition to this agreement shall be valid unless reduced to writing and
signing by both parties. If any provision of this Agreement shall be held
void, voidable, invalid, or inoperative, no other provision of this Agreement
shall be affected as a result thereof, and, accordingly, the remaining
provisions of this Agreement shall remain in full force and effect as though
such void, voidable, invalid, or inoperative provision had not been contained
therein. Notwithstanding the foregoing, in the event any provision is held
void, voidable, invalid, or inoperative and impairs Licensee's right to
manufacture, distribute, promote, or sell the Products, then Licensee may,
upon notice to Licensor, terminate this Agreement.
IN WITNESS WHEREOF, the parties have executed this agreement in New York, New
York, on this day and year first above written.
LICENSEE: FAMOUS FIXINS, INC.
/s/ Jason Bauer
------------------------------
Jason Bauer, President
LICENSOR: /s/ Dave Mirra
-----------------------------
Dave Mirra
3
EXHIBIT 10.23
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") entered into as of February 8,
2000 between Famous Fixins, Inc. with the principal offices located at 250
West 57th Street Suite 1112, New York, NY 10107 (the "Company") and MATTHEW
MARKIN with address at 3594 South Ocean Blvd., Highland Beach, FL 33487 (the
"Consultant").
WHEREAS, the Board of Directors of the Company has adopted a written
compensation agreement for compensation of Consultant who is a natural
person; and
WHEREAS, the Company has engaged Consultant to provide services at the
request of and subject to the satisfaction of the Company's management; and
WHEREAS, a general description of the nature of the services performed
by Consultant and the maximum value of such services under this Agreement are
set forth below; and
WHEREAS, the Company and Consultant intend that this Agreement and the
services performed hereunder shall be made, requested and performed in such a
manner that this Agreement shall be a "written compensation agreement" as
defined in Rule 405 of the Securities and Exchange Commission ("SEC")
pursuant to which the Company may issue "freely tradeable" shares of its
common stock as payment for services rendered pursuant to an S-8 Registration
Statement to be filed with the SEC by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, it is agreed:
1. The Company agrees to and does hereby engage Consultant for a one
year period which commenced as of February 8, 2000 and ends on February 7,
2001. The Company hereby employs Consultant and Consultant hereby accepts
such employment, and will perform the services requested by management of the
Company to its satisfaction during the term hereof. All such services are to
be performed only upon direct authorization from the Company. The services
performed by Consultant hereunder will be personally rendered by Consultant,
and no one acting for or on behalf of the Consultant, except those persons
normally employed by the Consultant in rendering services to others, such as
secretaries, bookkeepers and the like.
2. During the Term of this Agreement:
(a) Consultant shall provide to the Company consulting services
designed to assist the Company in marketing and product development activities
as related to the Company's food products and services, including the
preparation of business plans and reports on product market research. Such
services may include other tasks requested by the Company's management;
however, such services requested by the Company and to be provided by
Consultant:
- shall not be investor relations services;
- shall not be shareholder communications services;
- shall not be of a promotional nature that would directly or
indirectly promote or maintain a market for the Company's securities;
- shall not be in connection with or related to the offer or sale of
the Company's securities in a capital-raising transaction.
(b) The services of Consultant are non-exclusive and subject to
Section 4 hereof, Consultant may render services of the same or similar
nature, as herein described, to an entity whose business is in competition
with the Company or the Company's clients, directly or indirectly.
3. The Company shall pay to Consultant for its services hereunder as
follows: $250 per hour for services invoiced and $100 per hour for services
invoiced by any assistants of the Consultant. The payment shall be made in
the form of the Company's securities through a combination of shares of common
stock and options to purchase an equal number of shares of common stock. The
maximum compensation payable by the Company to Consultant under this Agreement
shall be a total of 250,000 shares of the Company's common stock and options
to purchase 250,000 shares of the Company's common stock. In no event can
more than 50% of the total number of securities vest prior to March 6, 2000.
The number of shares and options to be issued shall be computed in relation to
the closing bid price of the Company's common stock on the date invoice for
services is received by the Company; provided, however, such shares of common
stock shall be issued pursuant to and shall be subject to the filing and
effectiveness of a Registration Statement on Form S-8 covering such shares
with the SEC. The options to purchase the first 125,000 shares of common
stock are exercisable at $.1875 per share (the bid price on February 8, 2000).
The options to purchase the other 125,000 shares of common stock shall be
exercisable at $.25 per share. The options are exercisable for a period of
three years from the date of this Agreement. The options shall not be given,
granted sold, exchanged, transferred, pledged, encumbered, assigned or
otherwise disposed of by Consultant, other than by will or the laws of descent
and distribution, and during the lifetime of Consultant, shall be exercisable
only by Consultant. In the event the Company shall undergo a merger,
consolidation, reorganization, recapitalization, declare a stock dividend of
its shares of common stock or cause to be implemented a forward or reverse
stock split which affects the present number of issued and outstanding shares
of common stock, the securities issued under this Agreement shall be
appropriately adjusted to reflect any such event.
The Company agrees to use its best efforts to file a registration
statement for the aforementioned securities on Form S-8 in a timely manner
within 15 days after the Company submits its annual report on Form 10K-SB for
the year ended December 31, 1999. The Company shall engage the services of a
competent professional to prepare and file a Registration Statement on Form
S-8 with the Commission to cover the shares of common stock to be issued
under the Agreement. Consultant shall cooperate with such professional in
every manner whatsoever to the extent reasonably required or necessary so
that such Registration Statement shall be competently prepared, and so that
such Registration Statement will not contain any untrue statement of a
material fact or omit to state a material fact regarding Consultant necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Such Registration Statement
shall be prepared at the sole cost and expense of the Company. The Company
shall cause its transfer agent to deliver certificates for the shares due to
Consultant promptly after the effectiveness of the Registration Statement.
Consultant understands, acknowledges and agrees to comply with the Securities
Act in all respects in connection with the issuance and resale of such shares
of common stock.
Regardless of the Consultant's status as an "employee" under Rule
405 of the Commission, all services rendered by Consultant hereunder shall be
rendered as an independent contractor, and Consultant shall be liable for any
FICA taxes, withholding or other similar taxes or charges, and Consultant
shall indemnify and hold the Company harmless therefrom; it is understood and
agreed that the value of all such items has been taken into account by
Consultant in computing the billable rate for the services Consultant agreed
to render to the Company.
4. Consultant will not disclose to any other person, firm, or
corporation, nor use for its own benefit, during or after the term of this
Agreement, any trade secrets or other information designated as confidential
by the Company which are acquired by Consultant in the course of performing
services hereunder. A trade secret is information not generally known to the
trade which gives the Company an advantage over its competitors. Trade
secrets can include, by way of example, products or services under
development, production methods and processes, sources of supply, customer
lists, marketing plans and information concerning contract negotiations or the
filing or pendency of patent applications.
5. Consultant represents and warrants to the Company as follows:
(a) Consultant hereby accepts employment by the Company for the
services performed pursuant to this Agreement. The services performed by
Consultant hereunder will be personally rendered by Consultant, and no one
acting for or on behalf of Consultant.
(b) Consultant represents and warrants that, by reason of income,
net assets, education, background and business acumen, Consultant has the
experience and knowledge in business and financial matters to evaluate the
risks and merits attendant to an investment in the securities of the Company,
either singly or through the aid and assistance of a competent professional,
and is fully capable of bearing the economic risk of loss of the total
investment of services.
(c) None of the services rendered by Consultant and paid for by
the issuance of securities of the Company shall be services related to any
"capital raising" transaction or other prohibited service as described above.
6. (a) The Company and Consultant agree to indemnify and hold the
other harmless for any loss or damage resulting from any misstatement of a
material fact or omission to state a material fact by the other contained
herein or contained in the S-8 Registration Statement of the Company to be
filed hereunder, to the extent that any misstatement or omission contained in
the Registration Statement was based upon information supplied by the other.
(b) The Company agrees to indemnify and hold Consultant harmless
from and against all losses, claims, damages, liabilities, costs or expenses
including reasonable attorney's and accountant's fees arising out of the
performance of this Agreement, whether or not Consultant is a party to such
dispute. This indemnity shall not apply, however, where a court of competent
jurisdiction has made a final determination that Consultant engaged in
misconduct in the performance of its services hereunder which gave rise to the
loss, claim, damage, liability, cost or exposure sought to be recovered
hereunder.
(c) The provision of this Section 6 shall survive the termination
and expiration of this Agreement.
7. This Agreement sets forth the entire understanding of the parties
relating to the subject matter hereof, and supersedes and cancels any prior
communications, understandings, and agreements between the parties. This
Agreement cannot be modified or changed, nor can any of its provisions be
waived, except by written agreement signed by all parties.
8. This Agreement shall be governed by the laws of the State of New
York. Any dispute arising out of this Agreement shall be adjudicated in the
courts of the State of New York or in the federal court for the Southern
District of the State of New York, and the parties hereby agree that service
of process upon them by certified mail at the addresses shown in this
Agreement shall be deemed adequate and lawful.
9. Prior to the performance of services hereunder, this Agreement
may be terminated by mutual consent of the parties. The Agreement shall
automatically terminate at the expiration of the term hereof or upon 30 days
written notice by either party; provided, however, all representations and
warranties shall survive the termination hereof; provided, further, however,
that any obligation of the Company to pay for any services actually rendered
by the Consultants hereunder shall survive any such termination.
10. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 8, 2000.
CONSULTANT:
/s/ Matthew Markin
- -------------------
MATTHEW MARKIN
THE COMPANY:
FAMOUS FIXINS, INC.
By: /s/ Jason Bauer
----------------------
Jason Bauer, President
EXHIBIT 10.24
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") entered into as of February 8,
2000 between Famous Fixins, Inc. with the principal offices located at 250
West 57th Street Suite 1112, New York, NY 10107 (the "Company") and EDWARD
DEFUDIS with address at _________________________________________ (the
"Consultant").
WHEREAS, the Board of Directors of the Company has adopted a written
compensation agreement for compensation of Consultant who is a natural
person; and
WHEREAS, the Company has engaged Consultant to provide services at the
request of and subject to the satisfaction of the Company's management; and
WHEREAS, a general description of the nature of the services performed
by Consultant and the maximum value of such services under this Agreement are
set forth below; and
WHEREAS, the Company and Consultant intend that this Agreement and the
services performed hereunder shall be made, requested and performed in such a
manner that this Agreement shall be a "written compensation agreement" as
defined in Rule 405 of the Securities and Exchange Commission ("SEC")
pursuant to which the Company may issue "freely tradeable" shares of its
common stock as payment for services rendered pursuant to an S-8 Registration
Statement to be filed with the SEC by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, it is agreed:
1. The Company agrees to and does hereby engage Consultant for a one
year period which commenced as of February 8, 2000 and ends on February 7,
2001. The Company hereby employs Consultant and Consultant hereby accepts
such employment, and will perform the services requested by management of the
Company to its satisfaction during the term hereof. All such services are to
be performed only upon direct authorization from the Company. The services
performed by Consultant hereunder will be personally rendered by Consultant,
and no one acting for or on behalf of the Consultant, except those persons
normally employed by the Consultant in rendering services to others, such as
secretaries, bookkeepers and the like.
2. During the Term of this Agreement:
(a) Consultant shall provide to the Company consulting services
designed to assist the Company in marketing and product development activities
as related to the Company's food products and services, including the
preparation of business plans and reports on product market research. Such
services may include other tasks requested by the Company's management;
however, such services requested by the Company and to be provided by
Consultant:
- shall not be investor relations services;
- shall not be shareholder communications services;
- shall not be of a promotional nature that would directly or
indirectly promote or maintain a market for the Company's securities;
- shall not be in connection with or related to the offer or sale of
the Company's securities in a capital-raising transaction.
(b) The services of Consultant are non-exclusive and subject to
Section 4 hereof, Consultant may render services of the same or similar
nature, as herein described, to an entity whose business is in competition
with the Company or the Company's clients, directly or indirectly.
3. The Company shall pay to Consultant for its services hereunder as
follows: $250 per hour for services invoiced and $100 per hour for services
invoiced by any assistants of the Consultant. The payment shall be made in
the form of the Company's securities through a combination of shares of common
stock and options to purchase an equal number of shares of common stock. The
maximum compensation payable by the Company to Consultant under this Agreement
shall be a total of 250,000 shares of the Company's common stock and options
to purchase 250,000 shares of the Company's common stock. In no event can
more than 50% of the total number of securities vest prior to March 6, 2000.
The number of shares and options to be issued shall be computed in relation to
the closing bid price of the Company's common stock on the date invoice for
services is received by the Company; provided, however, such shares of common
stock shall be issued pursuant to and shall be subject to the filing and
effectiveness of a Registration Statement on Form S-8 covering such shares
with the SEC. The options to purchase the first 125,000 shares of common
stock are exercisable at $.1875 per share (the bid price on February 8, 2000).
The options to purchase the other 125,000 shares of common stock shall be
exercisable at $.25 per share. The options are exercisable for a period of
three years from the date of this Agreement. The options shall not be given,
granted sold, exchanged, transferred, pledged, encumbered, assigned or
otherwise disposed of by Consultant, other than by will or the laws of descent
and distribution, and during the lifetime of Consultant, shall be exercisable
only by Consultant. In the event the Company shall undergo a merger,
consolidation, reorganization, recapitalization, declare a stock dividend of
its shares of common stock or cause to be implemented a forward or reverse
stock split which affects the present number of issued and outstanding shares
of common stock, the securities issued under this Agreement shall be
appropriately adjusted to reflect any such event.
The Company agrees to use its best efforts to file a registration
statement for the aforementioned securities on Form S-8 in a timely manner
within 15 days after the Company submits its annual report on Form 10K-SB for
the year ended December 31, 1999. The Company shall engage the services of a
competent professional to prepare and file a Registration Statement on Form
S-8 with the Commission to cover the shares of common stock to be issued
under the Agreement. Consultant shall cooperate with such professional in
every manner whatsoever to the extent reasonably required or necessary so
that such Registration Statement shall be competently prepared, and so that
such Registration Statement will not contain any untrue statement of a
material fact or omit to state a material fact regarding Consultant necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Such Registration Statement
shall be prepared at the sole cost and expense of the Company. The Company
shall cause its transfer agent to deliver certificates for the shares due to
Consultant promptly after the effectiveness of the Registration Statement.
Consultant understands, acknowledges and agrees to comply with the Securities
Act in all respects in connection with the issuance and resale of such shares
of common stock.
Regardless of the Consultant's status as an "employee" under Rule
405 of the Commission, all services rendered by Consultant hereunder shall be
rendered as an independent contractor, and Consultant shall be liable for any
FICA taxes, withholding or other similar taxes or charges, and Consultant
shall indemnify and hold the Company harmless therefrom; it is understood and
agreed that the value of all such items has been taken into account by
Consultant in computing the billable rate for the services Consultant agreed
to render to the Company.
4. Consultant will not disclose to any other person, firm, or
corporation, nor use for its own benefit, during or after the term of this
Agreement, any trade secrets or other information designated as confidential
by the Company which are acquired by Consultant in the course of performing
services hereunder. A trade secret is information not generally known to the
trade which gives the Company an advantage over its competitors. Trade
secrets can include, by way of example, products or services under
development, production methods and processes, sources of supply, customer
lists, marketing plans and information concerning contract negotiations or the
filing or pendency of patent applications.
5. Consultant represents and warrants to the Company as follows:
(a) Consultant hereby accepts employment by the Company for the
services performed pursuant to this Agreement. The services performed by
Consultant hereunder will be personally rendered by Consultant, and no one
acting for or on behalf of Consultant.
(b) Consultant represents and warrants that, by reason of income,
net assets, education, background and business acumen, Consultant has the
experience and knowledge in business and financial matters to evaluate the
risks and merits attendant to an investment in the securities of the Company,
either singly or through the aid and assistance of a competent professional,
and is fully capable of bearing the economic risk of loss of the total
investment of services.
(c) None of the services rendered by Consultant and paid for by
the issuance of securities of the Company shall be services related to any
"capital raising" transaction or other prohibited service as described above.
6. (a) The Company and Consultant agree to indemnify and hold the
other harmless for any loss or damage resulting from any misstatement of a
material fact or omission to state a material fact by the other contained
herein or contained in the S-8 Registration Statement of the Company to be
filed hereunder, to the extent that any misstatement or omission contained in
the Registration Statement was based upon information supplied by the other.
(b) The Company agrees to indemnify and hold Consultant harmless
from and against all losses, claims, damages, liabilities, costs or expenses
including reasonable attorney's and accountant's fees arising out of the
performance of this Agreement, whether or not Consultant is a party to such
dispute. This indemnity shall not apply, however, where a court of competent
jurisdiction has made a final determination that Consultant engaged in
misconduct in the performance of its services hereunder which gave rise to the
loss, claim, damage, liability, cost or exposure sought to be recovered
hereunder.
(c) The provision of this Section 6 shall survive the termination
and expiration of this Agreement.
7. This Agreement sets forth the entire understanding of the parties
relating to the subject matter hereof, and supersedes and cancels any prior
communications, understandings, and agreements between the parties. This
Agreement cannot be modified or changed, nor can any of its provisions be
waived, except by written agreement signed by all parties.
8. This Agreement shall be governed by the laws of the State of New
York. Any dispute arising out of this Agreement shall be adjudicated in the
courts of the State of New York or in the federal court for the Southern
District of the State of New York, and the parties hereby agree that service
of process upon them by certified mail at the addresses shown in this
Agreement shall be deemed adequate and lawful.
9. Prior to the performance of services hereunder, this Agreement
may be terminated by mutual consent of the parties. The Agreement shall
automatically terminate at the expiration of the term hereof or upon 30 days
written notice by either party; provided, however, all representations and
warranties shall survive the termination hereof; provided, further, however,
that any obligation of the Company to pay for any services actually rendered
by the Consultants hereunder shall survive any such termination.
10. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 8, 2000.
CONSULTANT:
/s/ Edward DeFudis
- -------------------
EDWARD DeFUDIS
THE COMPANY:
FAMOUS FIXINS, INC.
By: /s/ Jason Bauer
----------------------
Jason Bauer, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCATED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 475,325
<SECURITIES> 101,961
<RECEIVABLES> 176,475
<ALLOWANCES> 0
<INVENTORY> 69,542
<CURRENT-ASSETS> 929,884
<PP&E> 41,380
<DEPRECIATION> (8,089)
<TOTAL-ASSETS> 1,012,157
<CURRENT-LIABILITIES> 708,548
<BONDS> 389,586
0
0
<COMMON> 10,462
<OTHER-SE> (96,439)
<TOTAL-LIABILITY-AND-EQUITY> 1,012,157
<SALES> 2,515,966
<TOTAL-REVENUES> 2,515,966
<CGS> 1,590,438
<TOTAL-COSTS> 1,653,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,569
<INCOME-PRETAX> (736,793)
<INCOME-TAX> 1,339
<INCOME-CONTINUING> (738,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (738,132)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
