AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1999
REGISTRATION NO. 333-88615
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_____________________
GO ONLINE NETWORKS CORPORATION
(Name of small business issuer in its charter)
_____________________
DELAWARE 454110 33-0873993
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
_____________________
5681 Beach Boulevard
Suite 101/100
Buena Park, California 90621
(714) 736-9888
(Address and telephone number of Registrant's principal
executive offices and principal place of business)
_____________________
Joseph M. Naughton
5681 Beach Boulevard
Suite 101/100
Buena Park, California 90621
(714)736-9888
(Name, address and telephone number of agent for service)
_____________________
COPIES TO:
M. Richard Cutler, Esq.
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
____________________
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
____________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER SHARE OFFERING PRICE FEE
=================================================================================================================
<S> <C> <C> <C> <C>
Common Stock offered for sale by Triton 27,027,027 $ .37 $ 10,000,000 $ 2,780.00
ValueEquities Fund, L.P. in Investment Agreement
- ------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon conversion of
Convertible Note 2,834,010 $ .19 $ 538,462 $ 149.70
- -----------------------------------------------------------------------------------------------------------------
Common Stock issuable as coupon payments
for Convertible Note 453,442 $ .19 $ 86,154 $ 2396
- -----------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Warrants issued to Triton Value Equity Fund 192,500 $ .50 $ 96,250 $ 26.76
- -----------------------------------------------------------------------------------------------------------------
Common Stock of certain selling shareholders 308,333 $ .37 $ 114,084 $ 31.71
- -----------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of 1,000,000 $ .50 $ 500,000 $ 139.00
warrant issued to a selling shareholder
- -----------------------------------------------------------------------------------------------------------------
Total Registration Fee $ 3,151.13
=================================================================================================================
</TABLE>
1 Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. Based in part on the average bid
and ask prices for the referenced common stock on the Nasdaq
Over-the-counter Bulletin Board on October 5, 1999.
2 The Convertible Note is convertible at a percentage of the price for the
Company's common stock on the Nasdaq Over-the-counter Bulletin Board on the
lowest 3 days in the 20 trading days prior to the date of conversion. The
Price reflects conversion in the event that Company's common stock drops
to a price of $.20 at the lowest percentage conversion. See "Description
of Securities."
3 Reflects potential payment of the 8% interest on the Convertible Note for
a period of 24 months from issuance. The
pricing is calculated as set forth in footnote 2 hereof.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
Cross-Reference Sheet
FORM SB-2 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
--------------------------------- ---------------------------------
1. Front of the Registration Statement
and Outside Front Cover of
Prospectus . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus. . . . . . . . Inside Front and Outside Back Cover
Pages
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . Not Applicable
6. Dilution . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . Selling Stockholders
8. Plan of Distribution . . . . . . . Plan of Distribution
9. Legal Proceedings . . . . . . . . Certain Transactions
10. Directors, Executive Officers,
Promoters and Control Persons . . Management B Directors
and Executive Officers
11. Security Ownership of Certain
Beneficial Owners and Management . Principal Stockholders
12. Description of Securities . . . . . Description of Securities
13. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . Management B Indemnification of
Directors and Officers
15. Organization Within Last Five Years . Certain Transactions
16. Description of Business . . . . . . . Business
<PAGE>
17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . Management's Discussion and Analysis
of Financial Condition and Results
of Operations
18. Description of Property . . . . . . . Business - Facilities
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . Outside Front Cover Page;
Dividend Policy; Description of
Securities; Price Range of
Securities
21. Executive Compensation . . . . . . . Executive Compensation
22. Financial Statements . . . . . . . . Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . Not applicable
<PAGE>
2
PROSPECTUS Up to 32,742,779 Shares of Common Stock
GO ONLINE NETWORKS CORPORATION
[SHOP GO ONLINE.COM LOGO]
We are registering for resale by Selling Shareholders:
o 27,027,027 shares of Common Stock for issuance to Triton Private Equities
Fund, L.P., upon exercise of our rights to sell up to $10,000,000 in securities
to Triton accordance with an Investment Agreement we entered into with Triton;
o 3,462,452 shares of Common Stock for issuance to Triton Private Equities
Fund, L.P., an investor in Go Online Networks Corporation that purchased a
Series 1999-A Eight Percent Convertible Note and Warrants;
o 28,300 shares of Common Stock issuable upon exercise of warrants by
Bridgewater Capital Corporation, the Company's Consulting Firm;
o 1,225,000 shares of Common Stock held by certain selling shareholders; and
o 1,000,000 shares of Common Stock issuable upon exercise of a warrant held
by a selling shareholder at $.50 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
___________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 1, 1999
1
<PAGE>
TABLE OF CONTENTS
Prospectus Summary . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . 5
Price Range of Securities . . . . . . . . . . . . . 11
Dividend Policy . . . . . . . . . . . . . . . . . . . 11
Dilution . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . 13
Management's Discussions and Analysis of
Financial Condition and Results of Operations . . . 14
Business . . . . . . . . . . . . . . . . . . . . . . . 19
Management . . . . . . . . . . . . . . . . . . . . . . 34
Executive Compensation . . . . . . . . . . . . . . . 36
Certain Transactions . . . . . . . . . . . . . . . . 38
Legal Proceedings . . . . . . . . . . . . . . . . . 39
Selling Stockholders . . . . . . . . . . . . . . . . 40
Plan of Distribution . . . . . . . . . . . . . . . 43
Principal Stockholders . . . . . . . . . . . . . . . 44
Description of Securities . . . . . . . . . . . . . 46
Legal Matters . . . . . . . . . . . . . . . . . . . 48
Experts . . . . . . . . . . . . . . . . . . . . . . . 48
Index to Consolidated Financial Statements . . . F-1
2
<PAGE>
PROSPECTUS SUMMARY
GO ONLINE NETWORKS CORPORATION
Go Online Networks Corporation ("Go Online" or the "Company") operates in
the high technology and E-commerce business. By utilizing a three-tiered
revenue model, we intend to continue actively to pursue the online arena through
superior market knowledge, technology, and marketing.
In initiating our new strategy, we recently acquired and currently operate
three distinct divisions. Our Internet Kiosk Division pursues a strategy in the
installation of Internet kiosks in the mid-priced hotel market. Our
ShopGoOnline.com internet website offers a variety of products and services via
the World Wide Web utilizing streaming video and audio. We intend that our
Auctionomics internet auction site will drive purchases of high-end goods, such
as real estate, automobiles and jewelry.
OUR OFFICES
Our offices are located at 5681 Beach Boulevard, Suite 101, Buena Park,
California 90621. Our telephone number is (714) 736-9888.
THE OFFERING
SECURITIES OFFERED:
Shares Offered by
Triton Private Equities Fund Up to 27,027,027 shares issuable in an
Investment Agreement we have with
Triton Private Equities Fund.
Up to 2,834,010 shares which Triton
Private Equities Fund, LP can
obtain through a Convertible Note.
Up to 453,442 shares of common stock
which we may use to pay the interest
payments on the Convertible Note.
175,000 shares of common stock which
Triton Private Equities Fund
may obtain by exercise of warrants.
3
<PAGE>
Bridgewater Capital Shares 28,300 shares of Common Stock which
can be issued if Bridgewater Capital
Corporation exercises a warrant.
Selling Shareholder Shares 750,000 shares previously issued in
private placements and up to 1,000,000
shares which may be issued to one such
investor upon the exercise of warrants.
Cutler Shares 178,333 shares of Common Stock which
we issued to Cutler Law Group and
certain of their employees, our
legal counsel.
Turner Shares 100,000 shares of Common Stock which we
issued to Fred Turner, our litigation
legal counsel.
Common Stock 71,302,677 shares of common stock are
issued and outstanding as of
September 1, 1999. As many as
102,820,456 shares of common stock may
be outstanding after this offering if
all shares we are registering for the
Investment Agreement are issued, our
Convertible Notes are converted at the
lowest price, and all the warrants and
options reflected above are exercised.
4
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information, together with the other
information contained in this prospectus, before you decide to buy our common
stock. If any of the following events actually occurs, our business, financial
condition or results of operations would likely suffer. In this case, the
market price of our common stock could decline, and you could lose all or part
of your investment in our common stock.
OUR INTERNET RELATED BUSINESSES HAVE EXISTED FOR ONLY A SHORT PERIOD OF
TIME AND THEREFORE INVESTORS CANNOT ASSESS ANY HISTORICAL SUCCESS OR FAILURES.
.. Our executive officers commenced our major lines of business -- the Shop Go
Online E-commerce site, our Go Online kiosk businesses and our Auctionomics
business -- relatively recently. Accordingly, you can evaluate our business,
and therefore our future prospects, based only on a limited operating history.
In addition, you must consider our prospects in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets.
WE HAVE NEVER BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE. We
have incurred losses in our business operation since our inception. We expect to
continue to lose money for the foreseeable future, and we cannot be certain when
we will become profitable, if at all. Failure to achieve and maintain
profitability may adversely affect the market price of our common stock.
OUR AUDITORS HAVE STATED THAT THEY HAVE DOUBTS ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN. Our auditors in their report included in this
Prospectus have expressed doubt about our ability to continue as a going
company. That risk is primarily dependent on our ability to raise sufficient
money to undertake our new business plan. If we do not continue as a business,
any stock you buy from us would be worth substantially less.
WE MAY BE UNABLE TO MEET OUR CAPITAL REQUIREMENTS WHICH MAY SLOW DOWN OR
CURTAIL OUR BUSINESS PLANS . If our capital is insufficient to conduct our
business and if we are unable to obtain needed financing, we will be unable to
promote our two e-commerce websites, build and place sufficient kiosks or
otherwise maintain our competitive position. Since we intend to rapidly commence
advertising our e-commerce sites and since we desire to place internet kiosks
rapidly to get market share, it is certain that we will require additional
capital. Other than through the Investment Agreement we have with Triton Private
Equities Fund, L.P., we have not thoroughly investigated whether this capital
would be available, who would provide it, and on what terms. If we are unable to
raise the capital required to fund our growth, on acceptable terms, our business
may be seriously harmed or even terminated.
WE COULD LOSE REVENUE AND INCUR SIGNIFICANT COSTS IF OUR CONTINGENCY PLANS
TO ADDRESS YEAR 2000 ISSUES IN OUR OWN SYSTEMS OR MATERIAL THIRD-PARTY SYSTEMS
ARE NOT SUFFICIENT. Many currently installed computer systems and software
products accept only two digits to identify the year in any date. Thus, the year
2000 will appear as "00," which a system or software might consider to be the
year 1900 rather than the year 2000. This error could result in system failures,
delays or miscalculations that disrupt our operations. The failure of our
internal systems, or any material third-party systems, to be year 2000 compliant
could result in significant liabilities and could seriously harm our business.
We have conducted a review of our business systems, including our computer
systems. We have taken steps to remedy all the potential problems we found. We
have inquired of the manufacturers of our internet kiosk systems and have been
assured that all our kiosks are year 2000 compliant. We have also made
inquiries of our other primary third party providers and have received
assurances that they have taken steps to be year 2000 compliant. Despite these
efforts, it is possible that we have not identified all year 2000 problems in
our computer systems or in our third party supplier's systems. If we fail to
identify and remedy year 2000 problems, we could lose revenues or experience
delays in our business which would make us less profitable.
SEASONAL FACTORS MAY ADVERSELY AFFECT OUR SHOPGOONLINE PERIODIC OPERATING
RESULTS. We believe that the nature of the products we sell on ShopGoOnline.com
makes it likely that our sales and revenues will fluctuate seasonally, with a
strong emphasis during the Christmas shopping season. It is possible that this
seasonality of our business may cause our revenue and operating results to
fluctuate, and we may not be able to generate sufficient revenue in certain
quarters to offset expenses.
OUR SHOPGOONLINE SITE COULD INCUR COSTS FROM REGULATION UNDER CONSUMER
PROTECTION LAWS IN VARIOUS STATES. Several states, including California and
Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of California,
Washington and other states could require additional disclosure in order to
comply with other regulations.
WE MAY HAVE TO QUALIFY TO DO BUSINESS IN OTHER JURISDICTIONS. Because our
ShopGoOnline and Auctionomics businesses are available over the Internet in
multiple states and foreign countries, and because our kiosks will be located in
numerous states, and because we will sell to consumers resident in such states
and foreign countries, those jurisdictions may require that we qualify to do
business as a foreign corporation. If we fail to qualify as a foreign
corporation in a jurisdiction where we are required to do so, we could be
subject to taxes and penalties.
IF OUR ONLINE SERVERS FOR OTHER SHOPGOONLINE OR AUCTIONOMICS BECAME
UNAVAILABLE, WE COULD LOSE CUSTOMERS. We could lose existing or potential
customers for our ShopGoOnline and Auctionomics businesses if they do not have
ready access to our online servers, or if our online servers and computer
systems do not perform reliably and to our customers' satisfaction. Network
interruptions or other computer system shortcomings, such as inadequate
capacity, could reduce customer satisfaction with our services or prevent
customers from accessing our services and seriously damage our reputation. As
the number of individual users increases, we will need to expand and upgrade the
technology underlying our online services. We may be unable to predict
accurately changes in the volume of traffic and therefore may be unable to
expand and upgrade our systems and infrastructure in time to avoid system
interruptions.
5
<PAGE>
ALL THREE OF OUR DIVISIONS HAVE COMPETITION AND WE COULD CONSEQUENTLY LOSE
SUBSTANTIAL REVENUE AND CUSTOMERS TO OUR COMPETITORS. The electronic commerce
market, particularly over the Internet, is new, rapidly evolving and
competitive, and we expect competition to intensify in the future. We will
compete with many other companies which either offer the same types of
merchandise or provide the same or a similar type of sales format to customers.
Current competitors for our ShopGoOnline division include companies
with online commerce sites such as Onsale, Inc., Egghead, Amazon.com, Inc.,
Beyond.com Corporation, Buy.com Inc., Cyberian Outpost, Inc. and Dell Computer
Corporation. This is not an exhaustive list of current competitors. In
addition, it is not difficult to enter the online commerce market, and current
and new competitors can launch new online commerce web sites at relatively low
cost.
Our internet kiosk division competes on a national scale with other
internet kiosk competitors and other competitors for services to hotel guests.
There are numerous other potential competitors that could use their existing
infrastructure to provide internet services to the lodging industry, including
franchised cable operators, wireless cable operators, telecommunications
companies, major technology companies and DBS providers.
Our Auctionomics internet auction site competes with numerous,
well-established internet auction sites. The biggest competitor in that market
is ebay.com, but there are numerous other sites such as onsale.com, bid.com,
egghead.com, 2themart.com and many others which have competitive auction sites.
New competitors can enter this market very easily. If we do not properly market
our site, our competitors will have more market share.
WE COULD LOSE VALUE OR FACE LOSSES ASSOCIATED WITH PURCHASING AND CARRYING
OUR OWN INVENTORY FOR OUR SHOPGOONLINE SITE. We may determine that it is in our
best interest to purchase inventory directly from vendors. Risks of carrying
inventory include: potential declines in the market value of the goods that we
purchase; difficulties managing customer returns and credits associated with
merchandise to be returned to vendors; and shrinkage resulting from theft, loss
or inaccurate inventory recording. If we manage our inventory poorly, we may be
forced to sell our inventory at a discount or loss.
BECAUSE WE RELY ON THIRD-PARTY MERCHANDISE VENDORS FOR SUPPLY, SHIPPING AND
QUALITY OF PRODUCTS FOR OUR SHOPGOONLINE SITE, WE CANNOT CONTROL AVAILABLE AND
QUALITY OF OUR PRODUCTS. We rely on various vendors to supply us with
merchandise. We will likely not have any long-term contracts or arrangements
with our vendors that guarantee the availability of merchandise. We may not be
able to obtain sufficient quality and quantities of merchandise at competitive
prices. Also, the quality of service provided by such parties may fall below the
standard needed to enable us to conduct our business effectively.
6
<PAGE>
WE WILL RELY ON OTHER THIRD PARTIES IN CONDUCTING OUR E-COMMERCE
OPERATIONS. In conducting our operations, we may depend on several other third
parties, including the following:
Fulfillment. Third parties will fulfill a significant portion of our
sales. Any service interruptions experienced by these distribution centers as a
result of labor problems or otherwise could disrupt or prevent fulfillment of
customer orders;
Payment processing. We will rely on one or two processors of credit
card transactions. If computer systems failures or other problems were to
prevent them from processing our credit card transactions, we would experience
delays and business disruptions; and
Shipping. We will use one or two primary delivery services to ship our
products. Our business would suffer if labor problems or other causes prevented
these or any other major carriers from delivering our products for significant
time periods. We may not be able to maintain satisfactory relationships with any
of the above parties on acceptable commercial terms, and the quality of services
that they provide may not remain at the levels needed to enable us to conduct
our business effectively.
DEPENDENCE ON THE LODGING INDUSTRY AND CHANGES IN VIEWING HABITS FOR OUR
KIOSK BUSINESS COULD ADVERSELY EFFECT OUR PROFITS. Our kiosk business is closely
linked to the performance of the lodging industry. Declines in hotel occupancy
or changes in the mix of hotel guests as a result of general business, economic,
seasonal and other factors can have a significant impact on our kiosk revenues.
IF WE CANNOT KEEP UP WITH RAPIDLY CHANGING TECHNOLOGY OUR SITES MAY GO OUT
OF DATE. Technology in the internet, cable, entertainment and communications
industries is subject to rapid and significant change. There can be no assurance
that future technological advances will not result in improved equipment or
software systems that would be better than the systems we currently have in
place in any of our three divisions. In order to remain competitive, we will be
required to continue to make programming enhancements and maintain engineering
and technical capability and flexibility to respond to customer demands for new
or improved versions of our kiosk systems and new technological developments for
our e-commerce sites, particularly in the area of streaming video and audio. Our
continued success will depend in part upon our ability to identify promising
emerging technologies and to develop, refine and introduce high quality services
in a timely manner on competitive and cost-effective terms.
RELIANCE ON KIOSK PROVIDERS MAY DELAY DELIVERY. We currently rely upon two
suppliers who developed and who manufacturer our internet kiosks. The loss of
either of these suppliers could slow our ability to deliver kiosks in accordance
with our hotel contracts and consequently could hurt our relationships with
those hotels and our revenues would decrease. While we believe that we could
find other suppliers who could manufacture our kiosks, we may incur increased
costs and require additional time to deliver those kiosks.
OUR INTERNET AUCTION BUSINESS MAY FACE INCREASED GOVERNMENT REGULATION.
Several states have laws that regulate auctions and auction companies within
their jurisdiction. Some states may interpret their statutes to apply to our
transactions with consumers in such states, even if those transactions originate
over the internet. The burdens of complying with auctioneering laws could
materially increase our cost of doing business. Similarly, states may construe
their existing laws governing issues such as property ownership, sales tax,
libel and personal privacy to apply to Internet companies servicing consumers
within their boundaries. Resolution of whether or how these laws will be applied
is uncertain and may take years to resolve.
OUR INTERNET AUCTION BUSINESS MAY BE HARMED BY THE LISTING OR SALE BY OUR
USERS OF ILLEGAL ITEMS. The law relating to the liability of providers of online
services for the activities of their users on their service is currently
unsettled. Although we have not determined all of our policies in that regard,
we are aware that certain goods, such as firearms, other weapons, adult
material, tobacco products, alcohol and other goods that may be subject to
regulation by local, state or federal authorities, may be listed and traded on
our service. We may be unable to prevent the sale of unlawful goods, or the sale
of goods in an unlawful manner, by users of our service, and we may be subject
to civil or criminal liability for unlawful activities carried out by users
through our service.
OUR BUSINESS MAY BE HARMED BY FRAUDULENT ACTIVITIES ON OUR INTERNET AUCTION
WEBSITE. Our future success will depend largely upon sellers reliably delivering
and accurately representing their listed goods and buyers paying the agreed
purchase price. We generally will not take responsibility for delivery of
payment or goods to any user of our internet auction service. Any negative
publicity generated as a result of fraudulent or deceptive conduct by users of
our service could damage our reputation and diminish the value of our brand
name. We may in the future receive additional requests from users requesting
reimbursement or threatening legal action against us if no reimbursement is
made. Any resulting litigation could be costly for us, divert management
attention, result in increased costs of doing business, lead to adverse
judgments or could otherwise harm our business.
WE COULD BE LIABLE FOR INACCURATE OR MISLEADING INFORMATION DISSEMINATED
THROUGH BOTH OUR SHOPGOONLINE WEBSITE AND OUR AUCTIONOMICS WEBSITE. The law
relating to the liability of online services companies for information carried
on or disseminated through their services is currently unsettled. Claims could
be made against online services companies under both United States and foreign
law for defamation, libel, invasion of privacy, negligence, copyright or
trademark infringement, or other theories based on the nature and content of the
materials disseminated through their services. Several private lawsuits seeking
to impose liability upon other online services companies currently are pending.
In addition, federal, state and foreign legislation has been proposed that
imposes liability for or prohibits the transmission over the Internet of certain
types of information.
WE MAY NOT BE ABLE TO ACCURATELY PROJECT THE RATE OR TIMING OF INCREASES,
IF ANY, IN THE USERS OF OUR SHOPGOONLINE WEBSITE OR OUR INTERNET AUCTION SERVICE
SUFFICIENTLY TO TIMELY EXPAND AND UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO
ACCOMMODATE ANY INCREASES. We intend to use internally developed systems to
operate our service and for transaction processing, including billing and
collections processing. We will be required continually to improve these systems
in order to accommodate the level of use of our auction website. In addition, we
may add new features and functionality to our services that would result in the
need to develop or license additional technologies. Our inability to add
additional software and hardware or to upgrade our technology, transaction
processing systems or network infrastructure to accommodate increased traffic or
transaction volume could cause unanticipated system disruptions, slower response
times, degradation in levels of customer support, impaired quality of the users'
experience on our service and delays in reporting accurate financial
information.
7
<PAGE>
BECAUSE OF RECENT NASD RULES, OUR COMMON STOCK MAY BE DELISTED FROM THE
OVER-THE-COUNTER BULLETIN BOARD. Pursuant to NASD Eligibility Rule 6530 (the
"Rule") issued on January 4, 1999, issuers who do not make current filings
pursuant to Sections 13 and 15(d) of the Securities Act of 1934 are ineligible
for listing on the Over- the-Counter Bulletin Board. Pursuant to the Rule,
issuers who are not current with such filings are subject to delisting pursuant
to a phase-in schedule depending on each issuer's trading symbol as reported on
January 4, 1999. Our trading symbol on January 4, 1999 was JNNE. Therefore,
pursuant to the phase-in schedule, our common stock is subject to de-listing on
January 12, 2000. On December 10, 1999, our common stock will have its trading
symbol changed to GONTE unless this registration statement is effective and we
are current with our other filings. When we get this Registration Statement
effective, we would become eligible to remain on the over-the-counter bulletin
board. If we had previously been delisted, we could reapply for listing when we
have this Registration Statement effective.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH MAY NOT HAPPEN.
The outcome of the events described in these forward-looking statements is
subject to risks and actual results could differ materially. The sections
entitled "Risk Factors," "Managements Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" contain a discussion of some
of these factors that could contribute to those differences.
8
<PAGE>
PRICE RANGE OF SECURITIES
The following table sets forth the high and low closing prices for shares
of our common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Prior to September 22, 1999, our common stock
was listed under the symbol "JNNE." Effective on September 22, 1999, the
trading symbol for the Company's Common Stock changed to GONT.
CLOSING PRICES
YEAR PERIOD HIGH LOW
----- ------ ---- ----
1999 First Quarter .09 .02
Second Quarter .74 .09
Third Quarter .70 .36
Fourth Quarter (through Nov. 22) .49 .26
1998 First Quarter .07 .04
Second Quarter .16 .03
Third Quarter .10 .03
Fourth Quarter .05 .02
The number of beneficial holders of record of the Common Stock of the
company as of the close of business on September 24, 1999 was approximately 223.
Many of the shares of the Company's Common Stock are held in "street name" and
consequently reflect numerous additional beneficial owners, which we are advised
is approximately 9,925 as of August 24, 1999.
At September 30, 1999, the Company had outstanding options to purchase
2,450,000 shares of common stock at exercise prices ranging from $.20 to $5.50,
with a weighted average option price of $.27.
At September 30, 1999, the Company had 2,614,523 shares of common stock
which could be sold pursuant to Rule 144.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends on our common stock in the future.
Instead, we intend to retain future earnings, if any, to fund the development
and growth of our business.
9
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DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share of Common Stock after this Offering
constitutes the dilution to investors in Shares we are offering to the public in
this Offering. The Company has already realized the dilution from the Shares
registered for selling securityholders other than the delivery of funds from
Triton Private Equities Fund, L.P. in our investment contract with them. Net
tangible book value per share is determined by dividing the net tangible book
value (total assets less intangible assets and total liabilities) by the number
of outstanding shares of Common Stock. The calculations reflect issuance of
shares to Triton Value Equities Fund, L.P. at a price of $.37 per share for
total gross proceeds of $10,000,000 to the Company, although the Investment
Contract may result in different numbers of shares at different conversion
prices depending on our stock prices.
As of June 30, 1999, the Company had a net tangible book value of ($80,098)
or ($.001) per share of issued and outstanding Common Stock. After giving
effect to the sale of the Shares issued to Triton reflected above, the Company
would have a net tangible book value of $9,919,902 or $.101 per share. This
represents an immediate increase in net tangible book value of $.102 per share
to stockholders prior to the Triton placement. This also represents an
immediate dilution of $.269 per share to Triton which would effectively be
passed along by sales by Triton in the market. The following table illustrates
such per share dilution:
Proposed conversion price for Triton
(per share) . . . . . . . . . . . . . $.37
Net tangible book value per share at
June 30, 1999 . . . . . . . . . . . ($.001)
Increase in net tangible book value per
share attributable to the Triton Value
Equities, L.P. placement . . . . . . $.102
-----
Pro forma net tangible book value
per share after the Triton
placement (1) . . . . . . . . . . . $0.101
------
Dilution to Triton . . . . . . . . . . . $0.269
======
The following table sets forth on a pro forma basis at June 30, 1999, the
differences between existing stockholders and Triton Private Equities Fund, L.P.
with respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price paid per share
(assuming a conversion price for Triton of $0.37 per share).
<TABLE>
<CAPTION> AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
---------------- --------------------
PERCENT SHARE
-------------------- ------
<S> <C> <C> <C> <C> <C>
Prior 71,705,677 72.6% $ 6,977,344 41.1% $0.099
======
Stockholders
Triton Private 27,027,027 27.4% $10,000,000 58.9% $ .37
---------------- -------------------- ----------- ----- ======
Equities Fund, L.P.
Total 98,732,704 100% $16,977,344 100%
================ ==================== =========== =====
</TABLE>
10
<PAGE>
USE OF PROCEEDS
Except for amounts to be received from Triton Private Equities Fund, L.P.
in connection with our Investment Agreement with them, the Company will not
realize any proceeds from the sale of the Shares by the Selling Securityholders.
The Company has already received and is utilizing the proceeds received from
those Shares sold in private placements in its business and marketing
The net proceeds to the Company from our Investment Agreement with Triton
Private Equities Fund, L.P. (assuming we take all $10,000,000 in gross proceeds
from them), will be $8,890,000 (with a finders fee of 10% and costs and other
expenses estimated at $110,000).
We intend to use those proceeds with the following priorities:
USE AMOUNT PERCENTAGE
--- ------ ----------
Purchase Internet Kiosks $2,850,000 32.1%
Internet Marketing for
E-commerce $2,500,000 28.1%
General and Administrative $1,085,000 12.2%
Legal Fees $ 200,000 2.2%
Office Equipment $ 600,000 6.7%
Rent $ 80,000 0.9%
Advertising $ 400,000 4.5%
Marketing $ 800,000 9.0%
Software Development $ 100,000 1.1%
Streaming Visual and Audio
Expansion $ 275,000 3.1%
----------- ------
TOTAL $8,890,000 100.0%
Our allocation of proceeds represents our best estimate based upon expected
sale of shares, the requirements of our business and our ongoing business and
marketing plan. If any of these factors change, we may reallocate some of the
net proceeds within or to different categories. If we are able to sell the
maximum shares, we believe that the funds generated by this Offering, together
with current resources and expected revenues, would be sufficient to fund our
working capital and capital requirements for at least 12 months from the date of
this Prospectus. The portion of the any net proceeds not immediately required
will be invested in U.S. government securities, certificates of deposit or
similar short-term interest bearing instruments.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements that
are subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
RESULTS OF OPERATIONS
In late 1998 and early 1999 the Company commenced a change in its business
operations to an internet commerce and technology business. This included the
acquisition of the ShopGoOnline.com internet E-commerce division and the
acquisition of Auctionomics.com. Accordingly, the historical operating results
of the Company do not reflect the present business strategy of the Company and
consequently are not indicative of the probability of future success or failures
of the Company. The Company sold its prior primary business operating
subsidiary, Real Estate Television Network, Inc., in late 1996 and had only
nominal operations during 1997. During 1998, the Company acquired and
subsequently resold to its prior management AMS Acquisition Corp., a publishing
and advertising company.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1997
Net loss for the Company during the fiscal year ended December 31, 1998 was
($803,844) compared to ($172,517) for 1997. This loss is attributable to an
increase in stock issued for services and for legal fees paid by the Company in
connection with its lawsuit against AmeriNet Financial Systems, Inc. In
addition, a substantial portion of this loss is attributable to the operating
loss of the AMS Acquisition Corp., a publishing and advertising company which
the Company sold back to its prior management during 1998.
While the Company shows no revenues on its financial statements during
either the fiscal year ended December 31, 1997 or the fiscal year ended December
31, 1998, this reflects the net earnings of its discontinued AMS Acquisition
Corp. subsidiary which were consolidated as a net loss for the period. The
operating subsidiary had earnings, but these were less than expenses and
consequently the financial statements reflect a nonrecurring net loss for the
period without reflecting earnings and expenses. At the end of 1996, the
Company sold its Real Estate Television Network, Inc. operating subsidiary and
had planned to use the proceeds of that sale to acquire operating businesses.
When AmeriNet Financial Systems, Inc., the purchaser of RETN, failed to honor
its agreements with the Company, the Company was unable to complete several
proposed acquisitions and consequently filed legal action against AmeriNet.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the reasons set forth under the comparison for the twelve month period,
the Company recorded no revenues on its financial statements for either the six
months ended June 30, 1999 or the six months ended June 30, 1998. For the first
six months of 1999, the Company has been in the development stage of its new
internet strategies. During 1998, the Company was involved in completing the
disposition of its RETN subsidiary and commencing litigation against AmeriNet.
Net loss for the six months ended June 30, 1999 was ($658,264) compared to
($280,730) for the six months ended June 30, 1999. The increase in net loss is
primarily attributed to the repurchase of an option held by Scott Claverie to
purchase 26,000 shares of AMS Acquisition Corp., the corporate entity which owns
and operates ShopGoOnline.com, for 1,250,000 shares of common stock of the
Company valued at $.275 per share.
The Tax Reform Act of 1986 includes provisions which may limit the net
operating loss carryforwards available for use in any given year if certain
events, including significant changes in stock ownership, occur. Utilization of
the Company's net operating loss carryforwards to offset future income may be
limited. The Company as of June 30, 1999 had approximately $6,200,000 of net
operating loss carryovers which expire in years through 2018. A change in
ownership of more than 50% of the Company my result in the inability of the
Company to utilize the carryovers.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has limited capital resources pending completion of
this Offering and funding of its business plan in accordance with its Investment
Agreement with Triton Private Equities Fund, L.P. Nevertheless, the company in
all three businesses it is operating presently has the ability to enact cost
control measures to operate each of its key businesses which would permit it to
remain operational absent such immediate funding.
Our ShopGoOnline internet Kiosk division could stop building and placing
kiosks with no cost to the company. At present, all sales agents for this
business are independent contractors whose demand for income from us is
dependent on performance and all are paid percentages of earned income by us
for successful sales. The necessary marketing and management of all of our
businesses could be effected on a very nominal budget until alternative
financial resources are developed.
Auctionomics is currently dependent on the performance of two key
individuals whose salaries are paid against earned income and we are not
obligated to pay any "base" compensation. The Auctionomics site is offering only
referral businesses at this time so we are not obligated to inventory to build
this business at this time. All technical requirements are furnished by our
ShopGoOnline.com division and are included in that entities overhead and
equipment support system.
ShopGoOnline.com's management staff is presently composed of the two
founders and 25% partners of Go Online Networks in establishing and building
that business. Both are motivated by their equity position to properly maintain
both Auctionomics and Shopgoonline.com websites and our technical server
capacity.
Office leases for all three operations have been paid in advance, all
crucial equipment to operate these enterprises is bought and paid for and no
critical leases exist to allow a greatly reduced work force to professionally
operate these businesses.
As of June 30, 1999, the Company had assets of $463,093 consisting
primarily of cash of $254,916, prepaid expenses of $9,584, designs and
trademarks of $31,250, security deposits of $2,500, and equipment valued at
$164,483.
Liabilities consist of accounts payable of $42,605, notes payable and
interest expense of $132,879 and amounts due to Joseph Naughton, the Company's
President, for advances from Mr. Naughton and accrued expenses totalling
$336,457.
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<PAGE>
At June 30, 1999, the Company had an accumulated deficit of $7,026,192 and
a stockholders deficit of $48,848. The accumulated deficit and the stockholders
deficit relate to prior businesses of the Company which were recently changed.
Since inception, the Company has funded its capital requirements through
private equity financings. As of June 30, 1999, the Company's sources of
liquidity included cash and cash equivalents of $254,916.
The Company made no Capital expenditures during the fiscal year ended
December 31, 1998. The Company acquired $181,131 in equipment during the first
six months of 1999. The Company's principal commitments as of June 30, 1999
consisted primarily of leases on its office facilities and there were no
material commitments for additional capital expenditures.
The Company funded its initial capital requirements through the sale of
securities to private investors in private offerings generating a total of
$178,483 during the fiscal year ended December 31, 1997, $694,883 during the
fiscal year ended December 31, 1998 and approximately $611,000 during the first
six months of 1999.
On September 20, 1999, the Company sold to Triton Private Equities Fund,
LP, an aggregate of $538,462 principal amount of a Series 1999-A Eight Percent
Convertible Note for proceeds to the Company of $350,000. The common stock into
which the Note can be converted is being registered in this registration
statement.
The Company believes that proceeds from its previous financings, together
with the Company's other resources and expected revenues, will be sufficient to
cover working capital requirements for at least six months. Should revenue
levels expected by the Company not be achieved, the Company would nevertheless
require additional financing during such period to support its operations,
continued expansion of its business and acquisition of products or technologies.
Such sources of financing could include capital infusions from strategic
alliance partners of the Company, additional equity financings or debt
offerings. Other than the proposed sale of securities in this registration
statement, the Company has made no arrangements or commitments for such
financing and there can be no assurance that the Company will be able to obtain
such financing on satisfactory terms, if at all.
YEAR 2000 DISCLOSURE
We have completed a review of our internal computer systems to identify all
software applications and hardware that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999, referred to as the Year 2000 or Y2K issue. Because our internet
operations are relatively recent, we have purchased virtually all of our
presently existing systems during 1999 and consequently we are confident that
those systems and the operating software on those systems are Y2K compliant. We
have inquired of the manufacturers of our internet kiosk systems and have been
assured that all our kiosks are year 2000 compliant. We have also made
inquiries of our other primary third party providers and have received
assurances that they have taken steps to be year 2000 compliant. Despite these
efforts, it is possible that we have not identified all year 2000 problems in
our computer systems or in our third party supplier's systems. If we fail to
identify and remedy year 2000 problems, we could lose revenues or experience
delays in our business which would make us less profitable. While we may be
dependent for some functions on third-party computer systems and applications,
our relationship with our vendors is such that electronic data exchange is not
generally date dependent. Although we believe that our computer systems are Y2K
compliant, we intend to continue to monitor our computer systems in a continual
effort to insure that our systems are Y2K compliant. Costs associated with our
review were not material to our results of operations.
CERTAIN MATERIAL AGREEMENTS AND TRANSACTIONS
In addition to options disclosed elsewhere in the notes to the financial
statements, the Company has issued the following options to acquire restricted
common stock of the Company: (i) Options to purchase 31,640 shares issued to
Vera Brown exercisable at $.20 per share at any time within one year after the
Company's common stock first trades at or above $1.20 per share for thirty
consecutive trading days; (ii) Options to purchase 31,640 shares issued to Vera
Brown exercisable at $.40 per share exercisable at any time within one year
after the publicly traded common stock of the Company has traded at $2.00 per
share on each trading date for thirty consecutive days; (iii) Options to
purchase 31,640 shares issued to Vera Brown exercisable at $1.00 per share at
any time within one year after the publicly trade common stock of the Company
has traded at $2.80 per share for thirty consecutive trading days. Such shares
cannot be traded for a period of ninety days after the exercise of this option
and (iv) Options to purchase 31,640 shares issued to Vera Brown exercisable at
$2.00 per share, exercisable at any time within one year after the publicly
traded stock of the Company has traded at $3.60 per share for thirty consecutive
trading days. Such shares cannot be traded for a period of sixty days after the
exercise of this option.
On July 8, 1998 AMS Acquisition Corp., a newly formed wholly-owned
subsidiary of the Company acquired the assets and liabilities of a business
operating several different publishing and advertising divisions located in San
Diego, California. The total investment in the acquisition of the business
assets approximated $240,000 including related acquisition expenses. After
operating the business for approximately six months, the assets and liabilities
were sold back to the original seller in exchange for assuming the then existing
liabilities of the business. This sale back was effective December 31, 1998.
At the time of the return of the business, the total assets of the business
including goodwill of approximately $500,000, totaled approximately $858,000,
and liabilities totaled approximately $904,000. While the liabilities were
assumed in the sale back transaction, AMS remains contingently liable for any
amounts not paid by the purchaser. The assets and the liabilities have been
subsequently sold to another purchaser after the buy back from AMS.
13
<PAGE>
Effective February 3, 1998 the Company entered into a consulting agreement
with Patrick M. Rost to provide financial support and market makers for the
Company's publicly traded common stock. In accordance with the terms of the
agreement the consultant was issued 400,000 shares valued at $.035 per share and
1,250,000 shares at $.03 per share (issued to Lightning Imports) as compensation
for consulting services. In addition, the consultant was granted an option to
acquire 1,000,000 shares at $.05, 1,000,000 at $.07 and 1,000,000 at $.09 per
share. At the time of the grant of the options, the market price of the stock
was in excess of the option prices. The options for the 1,000,000 shares at
$.05 and the 1,000,000 shares at $.07 were exercised. The option for the
1,000,000 shares at $.09 expired unexercised.
On March 5, 1995 the Company borrowed $49,500 and $52,500 from an
individual and from a corporation, respectively. The notes bear interest at 7%
per annum and are uncollateralized. The notes were due and not paid on May 29,
1996. The lenders have the right to demand payment in full on the notes and
failure to pay on demand would increase the interest rate to 18% per annum. The
lenders have the right to convert the notes to common stock of the Company at a
rate of $.125 per share. The balance payable on December 31, 1998 on the notes
total $62,744 and $66,547, respectively, including accrued interest.
Effective September 15, 1999 the Company entered into a Consulting and
Financial Services Agreement with Patrick M. Rost. The Consulting and Financial
Services Agreement provides for developing, managing and marketing financial
services for the Company from March 1, 1999 through December 31, 2000. In
connection with the Agreement, Mr. Rost received 200,000 shares of "restricted"
common stock and options to purchase 1,000,000 shares of common stock at $.50
per share until December 31, 2000. The shares underlying the options are being
registered in this registration statement.
14
<PAGE>
BUSINESS OF THE COMPANY
SUMMARY
Go Online Networks Corporation operates in the high technology and
E-commerce business utilizing a three-tiered revenue model. In initiating our
new strategy, we recently acquired and currently operate three distinct
divisions, each described below:
INTERNET KIOSK DIVISION
We are pursuing a strategy in the installation of Internet kiosks in the
mid-priced hotel market. Our Internet kiosks, designed in three primary models,
are installed in the hotel lobby or an alternative centralized public access
room. Our Kiosk Division has developed two suppliers capable of manufacturing
small, integrated kiosks that can provide pay-as-you-use stand-alone Internet
access. At no cost to the hotel owner and sharing revenues with us and the
owner, our Internet kiosks have been and will continue to be marketed to these
mostly mid-priced hotels by sales agent organizations employed by our Kiosk
Division. Presently, 197 hotels have signed contracts and 48 have been
installed as of September 25, 1999. We believe that we will have many more by
year end and hope to reach our goals of installation of enough kiosks to make us
profitable by the first quarter of 2001.
SHOPGOONLINE.COM
Utilizing online video and audio technology to assist with customer review,
our ShopGoOnline.com internet website offers a variety of products and services
via the World Wide Web. ShopGoOnline.com sells products such as jewelry, coins,
collectibles, electronics, computers, skin care and beauty products, and
personal fitness products. At ShopGoOnline.com, the customer can search for
products we have to sell by category or by product name and obtain a full
description of the product offer including a complete audio presentation of the
product as well as a video demonstration when appropriate.
AUCTIONOMICS.COM
The internet auction method of e-commerce has become increasingly accepted
in todays internet environment. By adding Auctionomics.com to our e-commerce
business strategy, we are attempting to take advantage of those opportunities.
While showcasing real property, we intend that our Auctionomics web site will
drive purchases of other high-end goods, such as automobiles and jewelry. As a
complimentary component of the Go Online Networks Corporation network of
E-commerce web sites, Auctionomics will link traffic to the ShopGoOnline.com
virtual shopping mall, and vice versa.
15
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THE HOTEL INTERNET KIOSK
We believe the demand for Internet access by travelers will continue to
grow as more of the United States and world population continues to go on line.
Travelers, whether business or personal, are a substantial potential market.
Business strategies to service the traveler's needs range from Internet services
located in airports and hotels, to remote, hand held or car based devices. User
demand, capital requirements, and operating costs of alternative technologies,
along with the business models to service these travelers are all evolving, and
have mostly resulted to date in substantial operating losses.
Within the hotel industry, the primary attention paid to travelers to date
has been in the upscale, high priced and luxury hotels segments. These affluent
travelers are viewed as the most likely to pay for the cost of technological
solutions to Internet access and entertainment demand. The twin demand drivers,
entertainment and Internet, are expected to pay for these sophisticated
technological solutions.
On the other hand, little attention has been directed to mid-priced hotels
which is our primary focus, aside from possible provision of a modem jack on
phones. Cable or a satellite service is considered for entertainment. Owners
of franchises are resisting orders from chain corporations to spend significant
sums, such as electronic upgrades of room locks and other amenities.
In the upscale and luxury hotel category, the two leading companies, On
Command (NASDAQ: ONCO) and LodgeNet (NASDAQ: LNET), have reported substantial
losses in building their in-room entertainment and Internet access business in
luxury hotels. LodgeNet now services 4,700 lodging properties with 725,000
rooms, providing on demand movies, video games, high-speed Internet access and
other programming. LNET's losses narrowed in the first six months of 1999 to
($16 million) from ($36 million) in the first half of 1998. Its competitor, On
Command, claims an installed base of 942,000 rooms, of which 11,000 rooms
represent installation of its new OCX platform including high-speed Internet
access. Losses at ONCO for the first six months of 1999 remained flat at ($15
million) with the comparable 1998 period.
Aside from the current losses encountered in acquiring and installing new
accounts, and building new service technologies that include high speed Internet
access, the room based services in upscale hotels require the companies to front
a high cost per room investment. Capital outlays of $400 per room are common.
High-speed Internet access generally revolves around installation of a T1
network service (essentially a high speed digital type of telephone line) that,
while available, has significant installation, maintenance, and operating costs.
Daily per room fees for this unlimited Internet access approach $10. Both
companies offer differing versions of in-room connectivity for laptops.
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<PAGE>
Airport based Internet access holds significant potential. There are
significant complexities, costs, and time encountered for marketing,
contracting, and installing with multiple airport public authorities. The
prototype units being installed are generally sophisticated, expensive units
that integrate Internet services with multiple advertising side panels with
electronic traveler information systems. GTE is a major factor in this large
market.
THE MID-PRICED HOTEL MARKET
Market segmentation of the hotel industry began in 1981, with the
mid-priced and economy segments rapidly developing. This design and operational
model was coupled with franchising, and eventually consolidations, to build
large numbers of hotel properties and rooms. Brand identification programs for
these chains, e.g., Days Inn and Motel 6, were launched to promote occupancy and
brand loyalty. Leveraged buyout firms such as KKR acquired major brand names,
such as Motel 6. Economically priced hotels with minimal amenities and
standardized design have now became commonplace.
Today, to name just a few, corporations such as Choice Hotels International
(NYSE: CHH) have franchised over 3,600 mid-priced and budget hotels in the
United States operating under name chain brands such as Sleep, Comfort, Quality,
Roadway, and EconoLodge. Choice Hotels has developed mid-priced longer stay
hotels under the brand name Main Stay Suite. Cendant Corp (NYSE: CD) developed
the DaysInn franchise, which includes 1,755 hotels in the United States. Other
chains, including Holiday Inn, Ramada, and Howard Johnson are expanding rapidly.
Our business model is intended to address the build up of mid-priced hotels by
providing efficient and cost-effective Internet access for the guests in these
mid strata hotels.
This segment of hotels generates substantial numbers of travelers and
potential Internet users. For example, a 150-bed hotel at 70% occupancy
generates 38,325 occupied rooms per year. If one-third of the occupied rooms
are double occupied on average, 51,000 potential Internet users per year stay in
the hotel. In a 500-room hotel with 70% occupancy, and with half of the rooms
averaging two people, the number of annual potential users rises to 192,000. In
good locations, occupancy rates as well as double occupancy, run significantly
higher. Location too will also affect the mix of business travelers, a more
intense Internet user. Younger family members entertain themselves by Web
surfing. Our internet kiosk business model addresses this pool of travelers at
middle and lower priced hotels for both the hotel and our Company.
GROWTH OF THE ONLINE AUCTION
The Internet offers for the first time the opportunity to create a
marketplace for person-to-person trading--the exchange of goods between
individuals. This trading has traditionally been conducted through trading
forums, such as classified advertisements, collectibles shows, garage sales and
flea markets, or through intermediaries, such as auction houses and local dealer
shops. These markets are inefficient because: (i) their fragmented, regional
nature makes it difficult and expensive for buyers and sellers to meet, exchange
information and complete transactions; (ii) they offer a limited variety and
breadth of goods; (iii) they often have high transaction costs from
intermediaries; and (iv) they are information inefficient, as buyers and sellers
lack a reliable and convenient means of setting prices for sales or purchases.
An Internet-based centralized trading place can overcome the inefficiencies
associated with traditional person-to-person trading by facilitating buyers and
sellers meeting, listing items for sale, exchanging information, interacting
with each other and, ultimately, consummating transactions. Through such a
trading place, buyers can access a significantly broader selection of goods to
purchase and sellers have the opportunity to sell their goods efficiently to a
broader base of buyers. Because of the Internet's efficiency, the number of
online auction purchasers is expected to increase.
OUR PRODUCTS AND SERVICES
SHOPGOONLINE.COM
Mr. Scott Claverie, the current President, formed the ShopGoOnline.com
Division as a small venture to develop Internet E-commerce solutions. The
Company, through its AMS Acquisition Corp. subsidiary, provided seed financing
in exchange for a 75% interest in the ShopGoOnline.com website. This initial
financing contained an option for Mr. Claverie to reacquire majority ownership.
This option was recently extinguished for 1,250,000 shares of Company common
stock and certain cash consideration. The Company owns 75%, and is committed to
provide overall division financing and direction. ShopGoOnline.com is a dba of
AMS Acquisition Corp.
ShopGoOnline.com is a company that offers a variety of products and
services via the World Wide Web. ShopGoOnline.com sells products such as
household items, jewelry, coins, collectibles, electronics, computers,skin care
and beauty products, and personal fitness products. Almost anything that is
normally offered to the public through traditional retail or exclusive TV offers
or infomercials can be available through E-commerce on the Internet. At
ShopGoOnline.com, the customer can search for products by category or by product
name and obtain a full description of the product offer including a full color
picture and full-motion video. In addition, the customer will be able to view
the TV offer in part or in its entirety all from the ShopGoOnline.com Web site.
When fully implemented, our ShopGoOnline.com Web site will be a place where a
customer can find favorite products as well as some of those seen advertised on
TV. Our customers can shop from hundreds of products and add them to their
electronic shopping cart. At the checkout counter, the customer purchases all
the products selected from one easy location. Our ShopGoOnline.com division
then processes the orders and has the products delivered right to the customers'
door.
Our ShopGoOnline.com division derives revenue from three different sources:
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1. Direct Sales - from selling product and services that are offered on the
Web site.
2. Indirect sales - by referring our customers to "link share" numbers to
purchase products advertised on the Company's Web site.
3. Web hosting - by hosting other Web pages that reside on our server
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Our ShopGoOnline com web site opened for business on July 6, 1999. Our
site is now open 24 hours a day, 365 days a year. We are in the initial growth
phase of our sales and advertising. For the period from inception of our web
site until November 9, 1999, we have had 128 orders with total gross sales of
$9,483.01. Our products are shipped by our vendors via a method of the vendor's
choice, although to date most of our vendors have selected UPS as their primary
shipper.
Currently, our ShopGoOnline.com web, file, print and fax servers operate on
industry standard hardware (including Intel processors, Seagate and IBM hard
drives and Linux software), that can be easily replaced if problems arise. Our
online video and audio technology is provided through our relationship with Real
Networks, Inc., and their RealAudio and RealVideo products which have become
widely utilized and accepted on the internet. Our use of their products is
producing videos that the compatible with the users home/work internet
connection and software.
Our internal and external web server software is balanced and maintained
using a server-load based rotation scheme. If a server becomes busy, the next
available server will receive and process the request. As the requests grow
beyond the capacity of the equipment, new machines will be added to the rotation
scheme in short order. This scheme allows for growth and failure redundancy.
To our knowledge, there are no known material limitation or upgrades necessary.
We supply the products sold on ShopGoOnline.com directly from agreements
with vendors who sell on our site. These vendors include 5th Avenue, Ingram
Micro, Ingram Entertainment, Panda America, Guthey Renker and Carefree Traders.
We generally do not warehouse any inventory ourselves for resale. We make
arrangements with each individual vendor to package, ship and notify us of sale
and delivery. We obtain payment from our customers and pay the vendors directly
for these products.
INTERNET KIOSK DIVISION
Our Internet kiosk, designed in three primary models, is designed to be
installed in a hotel lobby or an alternative centralized public access area.
Our primary strategy is to place these internet access kiosks in mid-price
hotels in the lobby or another high access area.
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We have contractual arrangements with iCom Network, Inc. as well as
Infotouch Technologies, Inc., two suppliers who manufacture small, integrated
kiosks that can provide pay as you use stand alone Internet access. At no cost
to the owner and in a revenue sharing model, our Internet kiosks have been and
will continue to be marketed to mostly mid-priced hotels by sales agent
organizations employed by our Kiosk Division.
Available kiosks range from 23 inches wide to 30 inches wide, and 20 inches
high for the table top versions to 68.5 inches high for some of the stand alone
versions. The hotel chooses from our agreement the type of kiosk they desire,
the manufacturer and the kiosk finish color. Each kiosk includes a mechanism
for accepting currency and a traditional internet browser familiar to customers
for browsing the internet and obtaining email.
The hotel is required to provide free space, approximately 9-12 square
feet, under a four-year, renewable Internet exclusive contract. The hotel
receives in exchange a 10% share of kiosk revenues with a $45 monthly minimum.
The contract is renewable by the hotel for an additional four years or eight
years in total. We agree to maintain the Kiosk from our share of the revenues.
Presently, the total direct installed cost of each Internet kiosk is
approximately $3,300, which has been brought down from our initial cost of
$5,100.
The Kiosk Division business plan has several multi-level, integrated
strategies to maximize our revenues and business value from the Kiosks. These
revenue and valuation sources are as follows:
Revenues and earnings streams generated by the existing and potential
kiosks.
Advertising revenues to be sold as spots and banners on the hotels' kiosks.
This revenue is based on "eyeballs" generated.A value derived from the exclusive
4-year Internet service contract for a hotel (which potential for 8 year
exclusive contracts). The aggregate value of these contracts should grow
geometrically as hotels are added, representing future revenue streams and the
exclusive right to provide that hotel's guests with Internet services.
Operating experience will refine the value.
Tie-ins to other Company services by usage promotional affinity programs,
including ShopGoOnline.com.
Develop branded "rewards" programs for hotels to give their guests that
operate through the kiosk.
Although we cannot be sure that we will be successful in marketing our
internet kiosks, we intend to have the 2,000 Internet kiosks installed and
operating in hotels at the end of a two-year period. Presently, 197 hotels have
signed contracts and 48 have been installed as of September 25, 1999. Our
existing customers include franchises of Ramada Inns, Holiday Inns, Howard
Johnsons, Econolodge, Radisson Inn and Country Suites. No one customer or chain
accounts for a substantial portion of our business to date.
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AUCTIONOMICS, INC.
Auctionomics, Inc. incorporated in the state of Nevada in June 1999. This
division was created solely for the pursuit of capturing a share of the online
auction market by the Company. Auctionomics.com started to offer merchandise
for sale in August 1999 through Auctionomics ClassifiedAuctions. Sales have
been minimal since the opening, with the exchange of inventory of approximately
$300,000 in approximately 15 auction categories through November 15, 1999.
The founders of Auctionomics, Inc., Messrs. Harvey A. Turell and Nathan A.
Wolfstein IV, have experience in the marketing of real estate auctions and have
brought these skills to the Company. The Company acquired a 75% interest in
Auctionomics, Inc. from the two founders/shareholders in June 1999. The
consideration was 500,000 shares of the Company's common stock and a two-year
warrant to acquire an additional 500,000 shares of the Company's common stock at
$0.50. The shareholders, Messrs. Turell and Wolfstein, are entitled to receive
a bonus of 25% of Auctionomics.com pre-tax income, so long as they retain their
25% ownership. If their shareholdings are reduced, the bonus is reduced
proportionally. The Company provided Auctionomics, Inc. with $25,000 for
working capital shortly after the acquisition in June 1999.
Given that Mr. Nathan Wolfstein, one of the key managers of Auctionomics,
had previously specialized in real estate auctioning, marketing online auctions
for such government agencies as the FDIC, RTC, HUD, FHA, VA and DRMS, as well as
The Ross-Dove Company/Grubb & Ellis Real Estate Auction Partnership and The
Credit Managers Association of California/Asset Liquidation Division (CMAC/ALD),
the auction of real estate properties is a marketing strength for our
Auctionomics.com division. We have had several real property assets listed on
the site and are actively working on producing a Real Property eAuction Event
which would include residential, commercial and business opportunity assets. We
plan to showcase real property with our other auctions in upcoming online
auction sales events. We believe that this facet of the online auction market
separates itself from its competition. While showcasing real property, we
intend to use Auctionomics for the sale of other high-end goods, such as
automobiles and jewelry. Once traffic is established, consumer-oriented,
product auction sections will be created similar to Ebay and Ubid. Also, as a
complimentary component of the our network of e-commerce Web sites, Auctionomics
will be designed to drive traffic to the ShopGoOnline.com virtual mall, and vice
versa.
Auctionomics.com can become an auction eTrading community providing sellers
and buyers access to specially selected sales events and the ShopGoOnline.com
virtual mall.
When fully completed, Auctionomics.com will feature product/asset
eMarketing, enhanced with digital graphics, streaming audio and video in an
online auction environment that presents and promotes each product or other
asset featured. We intend that the process will replicate the appearance of a
live auction broadcast TV over the Internet within a secure online electronic
bidding and payment process.
Customers will search through product/asset listings included in scheduled
sales events in a virtual auction mall setting, place products/assets in an
electronic shopping cart and bid/ purchase via credit card in a secure
transaction environment.
Auctionomics will earn fees for marketing services rendered and receive a
sliding commission of 10% to 30% of the gross earned revenue derived from each
sale, depending on the product type and gross dollar valuation.
Auctionomics is working with several major auction clients on the marketing
and positioning of several major auction events, including military surplus,
industrial machinery, real estate, excess inventories and on-going business
opportunities. Auctionomics is currently in discussions to develop and confirm
a mutually beneficial eAuction Marketing and Online Sales Relationship with the
following major auction clients:
Real Estate Cyber Auction ()
The marketing of residential, commercial and business opportunity auctions
online, in conjunction with the sale of a user license. Revenues would be
generated from professional services rendered and earned commissions.
Credit Managers Asset Liquidation Division ()
The marketing of excess, surplus and business equipment no longer needed in
current operations of member companies, in addition to Assignments for the
Benefit of Creditors.
Dovebid ()
The marketing of surplus industrial machinery and equipment for corporate
clients and surplus military assets.
We are working to enhance the marketing of these clients and events, both
on-site and online, by incorporating interactive digital enhancements and proven
auction selling techniques.
Auctionomics.com will offer its non-real estate product line through a
joint marketing agreement with Classified Auctions.com, LLC. Rather than create
the auction environment from scratch, which can take months of programming and
resources, we believe that it would be best to strategically partner with an
existing, successful auction Web site. Auctionomics.com will receive 20% of the
gross revenue derived from each sale made by Classified Auctions. Our plan is
to advertise and market Auctionomics through web browsers and search engines and
build traffic that we would then convert to online transactions, for a fee.
At present, the majority seller on Classified Auctions is Express Auction
Specialists, Inc., which is headed by Larry Makowski. Express conducts live
one-site auctions, as well as private sealed bid sales. They consign assets, as
well as accept consignments.
The main goal of Classified Auctions.com is to give clients ranging from
private individuals to large corporations the maximum dollar value for their
goods and services, and to buyers the best deal possible. Classified
Auctions.com offers its clients convenient and efficient avenues to buy and sell
via an online auction or traditional classified format.
Within minutes of registering with Classified Auctions.com, online users
can list items for sale or auction. Users may browse familiar classified
categories for sale items or bid on items posted for auction in a fully
automated, secure online service.
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Auctionomics.com provides users methods to effectively market and sell
their goods. These include:
Digital literature and emailings to targeted buyer lists and the
presentation of products for sale in online events through digital presentations
Internet search engine marketing
ShopGoOnline.com Virtual Shopping Mall
Streaming video and digital audio online of certain key items in an auction
as primary digital enhancements to the online and eCommerce marketing programs
Television/cable Broadcasting. For selected online events, Auctionomics
intends to contract for satellite broadcast of a live auction event, with live
interactive bidding in real time
Credit card payments online
E-commerce solutions which encompass the direct applications of electronic
technology to enhance the auction marketing process and the ability to confirm
online transactions
COMPETITION
The electronic commerce market, particularly over the Internet, is new,
rapidly evolving and competitive, and we expect competition to intensify in the
future. We will compete with many other companies which either offer the same
types of merchandise or provide the same or a similar type of sales format to
customers.
Current competitors for our ShopGoOnline division include companies
with online commerce sites such as Onsale, Inc., Intermallamerica.com,
iVillage.com, Egghead, Amazon.com, Inc., AOL.com, Beyond.com Corporation,
Buy.com Inc., Cyberian Outpost, Inc., Dell Computer Corporation and numerous
other companies marketing goods over the internet. Most of these companies have
substantially greater resources than we do and consequently have the ability to
market their products more effectively. This is not an exhaustive list of
current competitors. We intend to compete with these companies by utilizing the
key differentiation of our streaming audio and video, as well as link to other
sites and undertake traditional advertising. In addition, it is not difficult
to enter the online commerce market, and current and new competitors can launch
new online commerce web sites at relatively low cost.
Our internet kiosk division competes on a national scale with other
internet kiosk competitors and other competitors for services to hotel guests.
There are numerous other potential competitors that could use their existing
infrastructure to provide internet services to the lodging industry, including
franchised cable operators, wireless cable operators, telecommunications
companies, major technology companies and DBS providers. Our internet kiosk
division also indirectly competes with "in-room" internet suppliers such as
Lodgenet and On Command, as well as other in-room internet access providers. We
are not seeking to compete in this market, but rather have focused our marketing
efforts on mid-priced hotels which are not likely to commit the resources
required to make in-room access available in the near future. We also believe
that the hotel lobby resource is easier for quick access to email and other
quick look ups similar to pay telephone resources.
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Our Auctionomics internet auction site competes with numerous,
well-established internet auction sites. The biggest competitor in that market
is ebay.com, but there are numerous other sites such as onsale.com, bid.com,
ubid.com, egghead.com, 2themart.com and many others which have competitive
auction sites. New competitors can enter this market very easily. If we do not
properly market our site, our competitors will have more market share.
GOVERNMENT REGULATION
Our internet and e-commerce businesses may become subject to increasing
government regulation as various government regulators continue their focus on
improving internet commerce. Several states, including California and
Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of California,
Washington and other states could require additional disclosure in order to
comply with other regulations. In addition, several states have laws that
regulate auctions and auction companies within their jurisdiction. Some states
may interpret their statutes to apply to our transactions with consumers in such
states, even if those transactions originate over the internet. The burdens of
complying with auctioneering laws could materially increase our cost of doing
business. Similarly, states may construe their existing laws governing issues
such as property ownership, sales tax, libel and personal privacy to apply to
Internet companies servicing consumers within their boundaries. Resolution of
whether or how these laws will be applied is uncertain and may take years to
resolve.
SALES AND MARKETING
Web Promotion - Advertising
As with any Internet company, we actively market our web sites and drive
traffic to them. We plan to market and brand our Go Online Web sites through
conventional banner ads and reciprocal links placed throughout highly visible
online locations and print publications.
It is a standard in the industry to team with Web promoters in order to
market our sites electronically. Web promoters (also known as media sales
companies) are actively involved in banner placement and swapping, search engine
registration, and other activities associated with Web promotion. Because of
their existing relationships and the ability to "package" deals, these firms
constitute the quickest, most cost-effective way to promote a site. Typically,
these firms take a percentage of their clients' total ad revenue (usually
35-50%) as compensation for their services.
Specifically, these firms provide :
Exclusive sales representation
Support by a sales force of experienced media professionals
Increased focus on long-term sponsorship programs
Total inventory and ad management
Additional revenue streams from local and international ad sales efforts
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To date, we have entered into agreements with Website Results, LinkShare
Corporation and Doubleclick. Our Websites Result contract is designed to assist
us in building traffic to our website by developing key indices on search
engines. ShopGoOnline.com is a Platinum Program Subscriber to Website Results
which specializes in developing multiple "doorway" pages for internet customers
for their subscribers. The "doorway" program is a system to rank multiple
keyword phrases for Website Result's clients to establish high ranking for those
phrases with the major search engines to build traffic by optimizing rankings in
order to produce quality targeted traffic for our website. We also have an
agreement with LinkShare through which we receive revenues and pay fees for
receiving traffic from other better known sites and referring web traffic
through our sites. We have agreed with DoubleClick to obtain 1,000,000
impressions on Doubleclick with "click through" to our ShopGoOnline website. We
paid $15,000 for this first agreement.
In the coming months, our management intends to pursue expanded traditional
and nontraditional marketing with our Website Results, Doubleclick, Linkshare
and other agreements to build consumer awareness of ShopGoOnline.com. The media
campaign, which we generally launched with the Grand Opening of
ShopGoOnline.com, was expanded with nationwide newspaper display ads which
reached a substantial number of readers in the eight major Internet markets. We
placed Display ads in the Boston Globe, San Francisco Examiner, Chicago Times,
New York Times, Miami Herald, San Diego Union Tribune, Los Angeles Times and
Dallas Morning News.
Following the display ads, our plan is for our ShopGoOnline.com division to
deliver a targeted investor promotional piece via direct mail drop to selected
demographic sections of these same major Internet markets.
These new branding campaigns will continue to be supported by agreements
with DoubleClick, through the Dynamic Advertising Reporting and Targeting
Program (DART), and Website Results, both designed to direct traffic to the
ShopGoOnline Web site. We are also gearing up to increase revenues generated by
the sale of advertising space on ShopGoOnline.com as well as the expansion of
advertising sales on our Internet kiosks.
Key to the success of Auctionomics.com is to stay connected to the auction
community, both on- and offline. Therefore, our plan is to advertise in
publications that target the auction enthusiast. Currently, Auctionomics.com is
running a full-page advertisement in Auction Weekly, one of the most respected
publications in the auction arena.
Since 1994, Auction Weekly has been published by Auction Advisory. Auction
Advisory has now taken its auction expertise online at auctionadvisory.com.
Auction Weekly lists only live auctions, those auctions conducted by
professional auctioneers and government agencies. The publishers and principals
of Auction Advisory are deeply involved in the auction industry, and have been
for the past 18 years.
The paper version of Auction Weekly has always listed 300+ auctions each
week while the online database is updated daily. Auction Advisory gives users
early warning and up to the minute changes, similar to traditional, short-notice
"public notices".
Auction Weekly is mailed first class every Tuesday. This 32-page newsletter
comprehensively lists all auctions in the Southwest (AZ, CA, CO, NM, NV, TX,
UT). The newsletter lists virtually every type of auction from large to small.
Auction Weekly lists Government Auctions, Estates, IRS, U.S. Customs, City,
County, State, Bankruptcy, Lien Auctions, Antiques, Business Liquidations, U.S.
Dept. of Defense, and U.S. Marshal.
Internet Kiosk Marketing
While we cannot be sure we will succeed with our goal, we intend to seek to
have the 2,000 Internet kiosks installed and operating in hotels at the end of a
two-year period. To accelerate penetration of the hotel market and the use of
the installed kiosks, in September 1999 we initiated a major 45-day marketing
campaign for our Kiosk Division. The sales and marketing campaign includes:
Advertising in trade magazines and attending trade shows to enhance our
kiosk program's visibility with hotel operators. An example is the
Asian-American Hotel Association, which represents approximately 60% of the
franchised mid and economy priced hotel owners.
Providing the hotel upon kiosk installation with a full marketing program
to increase guest usage. This includes signage, which will be intended to draw
guests to the kiosk, and obtaining email while traveling. Guest access to their
email requires only knowing the short address of the mail servers of their
internet service providers (ISP) and password they currently use to access their
mail. This information is the same that is inputted into their home or office
email program and is readily available to the traveler before he/she departs.
Distribute plastic affinity cards to reward users with credits to be spent
at our ShopGoOnline.com Web site. Affinity members or guests of certain hotels
will be offered free minutes to check for their e-mail at check-in. Some hotels
look to also use the kiosks as a center around which to develop a stay rewards
program for their guests.
Develop catalogs for periodic mailing to users of the kiosks for purchase
opportunities at our online sites.
Retain sales agencies to represent our Kiosk Division to acquire agreements
to place Internet kiosks in hotels within the United States and internationally.
Our most recent sales agreement was with Midwest Internet Solutions, Inc.
("MIS") covering Indiana, Michigan, and Ohio.
The following graph depicts our success in achieving increasing monthly
sales of kiosks contacts to hotels. The first sales were recorded in March 1999
and the chart covers the period through August 1999. Through November 3, 1999,
we have installed a total of 112 kiosks and have agreements signed with 311
sites.
[GRAPHIC OMITED]
COMPANY BACKGROUND
Go Online Networks Corporation became a publicly traded corporation on the
over-the-counter bulletin board in April 1990 by the "reverse acquisition" of
Valencia Capital, a Colorado corporation. From this acquisition, the
shareholders of the Company became the majority shareholders and the corporation
in November 1990 was renamed Jones Naughton Entertainment, IncA one for four
reverse stock split was accomplished at the same time, resulting in nine million
common shares then outstanding.
The Company under its then president, Mr. Spike Jones, Jr., initially
produced infomercials but ceased infomercial production in 1993. Mr. Jones left
the Company, and in 1995, the Company acquired Real Estate Television Network,
Inc. ("RETN"), a satellite real estate TV network. RETN's target market was the
independent real estate office of the large franchised office networks, e.g.
Century 21. In 1996, many of the large independent real estate firms were
acquired by HSF, Inc., which resulted in a consolidated industry. The
consolidation led to the decision to internally produce and provide training and
other services, which were originally provided by outside vendors like RETN. In
1996, RETN was sold to AmeriNet Financial Services, Inc.
The Company made the strategic decision to pursue opportunities involving
the Internet. In the first quarter of 1998, the Company acquired the assets of
a small advertising agency, Affiliated Marketing Services, Inc which it intended
to move into Internet advertising. The Company's management determined that
Affiliated Marketing Services, Inc.'s Internet progress was insufficient, and
during the fourth quarter of 1998, it was sold back to its management.
Subsequent to the AMS sale, the Company made its initial investment in AMS
Acquisition Corp., a previously unaffiliated corporate entity which was and
continues to be the developer of ShopGoOnline.com, investing $25,000 for a 75%
equity interest. AMS Acquisition Corp. was formed in Nevada on June 29, 1998.
Management of that corporation received a repurchase option to acquire back 26%
of the outstanding shares from the Company. The Company subsequently purchased
this repurchase option. The Company issued to management (primarily its
President Scott Claverie) 1,250,00 shares of the Company's common stock, along
with cash consideration.
During March 1998 we entered into an agreement to acquire the assets of
Sign Products of America, Inc., an unaffiliated business engaged in the
manufacturing, marketing, management and display of advertising and
informational kiosks. The purchase price was $50,000 with a down payment of
$25,000 plus four equal quarterly installments at the 90 day, 180 day, 270 day
and 350 day anniversaries of the closing date.
The Company acquired a 75% interest in Auctionomics, Inc. from Nathan A.
Wolfstein IV and Harvey A. Turell, the two previously unaffiliated
founders/shareholders in June 1999. Auctionomics, Inc. was formed in Nevada in
June 1999. The consideration was 500,000 shares of the Company's common stock
and a two-year warrant to acquire an additional 500,000 shares of the Company's
common stock at $0.50. The shareholders, Messrs. Turell and Wolfstein, are
entitled to receive a bonus of 25% of Auctionomics.com pre-tax income, so long
as they retain their 25% ownership. If their shareholdings are reduced, the
bonus is reduced proportionally. The Company provided Auctionomics, Inc. with
$25,000 for working capital shortly after the acquisition in June 1999.
At a meeting of shareholders held on September 8, 1999, the Company
reincorporated in Delaware and changed its name to Go Online Networks
Corporation. This change was designed to provide the Company with the
advantages of Delaware law for a public corporation and to change the name to
reflect the Company's new internet businesses.
RESEARCH AND DEVELOPMENT
We have not spent any measurable amount of time on research and development
activities.
EMPLOYEES
As of August 31, 1999, we had 14 full-time employees and 6 part time
employees, including employees in each of our divisions. Of these employees,
three work in our administrative offices, three are employed by our Internet
Kiosk division, nine are employed by our ShopGoOnline.com division and five are
employed by our Auctionomics division. None of our employees is covered by any
collective bargaining agreement. We believe that our relations with our
employees are good.
FACILITIES
Our principal executive offices are located at 5681 Beach Boulevard, Suite
101/100, Buena Park, California 90621. Effective July 21, 1999 we entered into
a lease for this office space. The term of the lease is for 3 years with
monthly base rent payments of $1,600. The rent for the first year was prepaid.
Future base rent commitments during the years ended December 31 under this lease
are summarized as follows: (i) 2000 - $ 8,000; (ii) 2001 - $ 19,200; and (iii)
2002 - $ 11,200.
Effective May 15, 1999, we entered into a lease for office space in
northern California used by our ShopGoOnline.com division. The term of the
lease is for 5 years with monthly base rent payments of $1,615. The base rent
amounts are subject to increases of 3% per annum. We have the right to
terminate the lease between May 15, 2000 and June 15, 2000 and also between May
15, 2002 and June 15, 2002. The first years rent was prepaid. Future base rent
commitments during the years ended December 31 under this lease are summarized
as follows: (i) 2000 - $ 19,380; (ii) 2001 - $19,380; (iii) 2002 - $ 19,380;
(iv) 2003 - $ 19,380; and (v) 2004 - $ 8,075.
Effective August 12, 1999, the Company entered into a lease for office
space for its marketing department located at 13101 Washington Blvd., Suite 231,
Culver City, California. The term of the lease is until September 30, 2000,
with a month to month tenancy thereafter, with monthly base rental of $1,254.00
per month.
At the end of the lease terms for all of our rental space, we believe that
we can lease the same or comparable offices at approximately the same monthly
rate.
ADDITIONAL INFORMATION
The Company is not subject to the reporting requirements of the Securities
Exchange Act of 1934. The Company has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2, together with all amendments
and exhibits thereto, under the Securities Act of 1933 with respect to the
common stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
A copy of the Registration Statement may be inspected by anyone without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and its public reference
facilities in New York, New York and Chicago, Illinois, upon the payment of the
fees prescribed by the Commission. The Registration Statement is also available
through the Commission's World Wide Web site at the following address: The
public may obtain information about the operation of the SEC's public reference
room by calling 1-800-SEC-0330.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current directors
and executive officers, their principal offices and positions and the date each
such person became a director or executive officer of the Company. Our
executive officers are elected annually by the Board of Directors. Our
directors serve one year terms until their successors are elected. The
executive officers serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships between
any of the directors and executive officers. In addition, there was no
arrangement or understanding between any executive officer and any other person
pursuant to which any person was selected as an executive officer.
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
Joseph M. Naughton 56 Chairman, Chief Executive Officer,
Director
Scott Claverie 39 Director; President of AMS Acquisition Corp.
Dba GoOn-line.com
Jim Cannon 65 Director; Director of Operations, Go Online
Kiosk Division
Michael Abelson 51 Director
JOSEPH M. NAUGHTON, Chairman - Mr. Naughton has been President of the
Company since May 1991. From September 1986 through October 1987, Mr. Naughton
was Operations Manager for Shop Television Network in which he oversaw the
marketing and merchandising from the Company. In October 1987 Mr. Naughton was
elected to Shop Television Network's Board and Directors and appointed
simultaneously Executive Vice President and Chief Operating Officer. Shop
Television Network was acquired by the JC Penney Company in 1987 and Mr.
Naughton was a Vice President of Operations for the renamed ShopTV, Inc., the TV
home shopping program arm of JC Penney Television Shopping Channel until June
1991. Mr. Naughton was responsible for overseeing the video production and
cable distribution for the JC Penney and Shop Television Network. Prior to Shop
Television Network, Mr. Naughton served as VP/General Merchandising Manager for
the GEMCO division of Lucky Stores from January 1985. From May 1970 until
October 1986, Mr. Naughton worked for Lucky Stores, Inc. and its wholly owned
subsidiary Gemco Stores.
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SCOTT CLAVERIE, Director and President of AMS Acquisition Corp. - Mr.
Claverie will be directing the operations and marketing efforts of
ShopGoOnline.com. Mr. Claverie has directed sales and marketing for companies
such as MCI and Pacific Bell. More recently, from June 1997 until June 1999,
Mr. Claverie was Business Operations Manager for Cal State University at Chico.
From December 1992 until June 1996, he was a regional manager for Computer
Telephone Corp. Computer Telephone Corp. was responsible for managing a
significant portion of Pacific Bell's customer base.
JIM CANNON, Director of Operations -- Mr. Cannon has over 30 years of
experience in the hospitality, lodging, and food and beverage industry. A
graduate of Cornell University with a Bachelor's of Science degree in Business
and Food Technology. He is an eleven-year veteran of the Days Inn organization,
serving as Vice President of Franchise Operations. From September 1998 until
April 1999, Mr. Cannon was with ShoLodge Franchise Systems. From March 1997
until September 1998, Mr. Cannon was Director of Franchise Sales for Country &
Hearth Inns in Atlanta, Georgia. From August 1990 through August 1996, Mr.
Cannon was National Director of Franchise Development for Hospitality
International, Inc. in Atlanta, Georgia. During 1990 and 1991, Mr. Cannon
worked in sales of Friendship Inn and Econolodge franchises for Econolodges of
America, Inc. in North Bergen, New Jersey. In addition, Mr. Cannon's past
experience includes senior level executive positions with Columbia Sussex
Corporation, Inc. (a Holiday Inn Franchise Group), Days Inn or America, Inc and
other hotels and restaurants.
DR. MICHAEL ABELSON, Director. Dr. Abelson is President of Abelson &
Company, a firm he founded in 1986, which specializes in improving real estate
management and sales associate profitability. Dr. Abelson is also on the
faculty of Texas A&M University in the Department of Management, which he joined
in 1981.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Our articles of incorporation limit the liability of directors to the
maximum extent permitted by Delaware law. This limitation of liability is
subject to exceptions including intentional misconduct, obtaining an improper
personal benefit and abdication or reckless disregard of director duties. Our
articles of incorporation and bylaws provide that we may indemnify its
directors, officer, employees and other agents to the fullest extent permitted
by law. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification. We currently do not have such an insurance policy.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
26
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the three fiscal years ended December
31, 1996, 1997 and 1998 and the six months ended June 30, 1999. Other than as
set forth herein, no executive officer's salary and bonus exceeded $100,000 in
any of the applicable years. The following information includes the dollar
value of base salaries, bonus awards, the number of stock options granted and
certain other compensation, if any, whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------- -------------------------------
Awards Payouts
--------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION STOCK Awards OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL YEAR ($) ($) ($) ($) SARS (#) ($) ($)
POSITION
Joseph Naughton 1999 $15,500 -0- -0- -0- -0- -0- -0-
(President, CEO) (6/30)
1998 25,515 -0- -0- - 0 - - 0 - -0- -0-
(12/31)
1997 34,750 -0- -0- -0- -0- -0- -0-
(12/31)
1996 48,000 -0- -0- -0- -0- -0- -0-
(12/31)
Jim Cannon (1) 1998 - 0 - -0- -0- -0- -0- -0- -0-
(12/31)
1999 15,000 -0- -0- - 0 - - 0 - -0- -0-
(6/30)
Michael English (2) 1996 $48,000 -0- -0- -0- -0- -0- -0-
(12/31)
</TABLE>
(1) Mr. Cannon commenced his employment with the Company in 1999.
(2) Mr. English was President of the Company until his resignation during 1996.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANTED
OPTIONS/SAR'S GRANTED TO EMPLOYEES IN FISCAL EXERCISE OF BASE PRICE
(#) YEAR ($/SH) EXPIRATION DATE
NAME
Joseph M. Naughton -0- -- -- --
- ------------------ ---------------------- ---------------------- ----------------------- ---------------
James Cannon -0- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
27
<PAGE>
<S> <C> <C> <C> <C>
NUMBER OF UNEXCERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FY-END (#) MONEY OPTION/SARS
SHARES ACQUIRED ON EXERCISABLE/UNEXERCISABLE AT FY-END ($)
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE
------------------- ------------------ -------------------------- -----------------------------
Joseph M. Naughton -0- -0- - 0 - --
- ------------------ ------------------- ------------------ -------------------------- -----------------------------
James Cannon -0- -0- - 0 - --
</TABLE>
Compensation of Directors
The Directors have not received any compensation for serving in such capacity.
The Company currently contemplates that it pay each outside director up to $500
to attend meetings will provide certain option grants and/or restricted stock
awards as compensation for its outside Directors in the future for serving in
such capacity.
Employment Agreements
Effective May 1, 1999 the Company entered into a consulting agreement with
Michael Abelson, a Director of the Company, whereby Mr. Abelson was engaged to
assist in the creation of the Company's real estate website for its
ShopGoOnline.com operating division. The term of the agreement is for one year
but can be terminated by the Company with or without cause with 30 days notice.
Compensation to Mr. Abelson is summarized as follows: (a) Monthly cash
consulting fee of $5,000; (b) Quarterly bonus equal to 15% of the gross revenues
earned by the Company through its real estate web site developed by the
consultant; (c) options to acquire 25,000 shares of stock for each $500,000 in
gross revenues attributable to the real estate web site developed by the
Company.
Effective April 12, 1999 the Company entered into an employment agreement
with James Cannon. The agreement is for a term of one year but is subject to
termination by the Company for cause. The Company or Mr. Cannon have the right
to terminate the agreement after giving the other party thirty days notice. In
the event that the agreement is terminated by the Company without cause, Mr.
Cannon shall be entitled to compensation earned computed pro-rata up to the date
of termination. Mr. Cannon compensation during the term of the agreement shall
be as follows: (a) Base salary of $60,000 per year; (b) Quarterly bonus of 20%
of the net advertising revenues of the Community Marquee Division generated as a
result of the employee's direct efforts during the previous quarter; (c)
Alternative quarterly bonus in lieu of B. above equal to 25% of the net
adverting revenues of the Community Marquee Division generated by parties other
than the employee; (d) options to purchase 25,000 shares of the Company's common
stock for each twenty-five kiosks shipped up to a maximum of 150 kiosks. The
exercise price of the options shall be equal to 60% of the closing bid price on
the last business day of the month in which the employee becomes eligible.
28
<PAGE>
CERTAIN TRANSACTIONS
Joseph M. Naughton, the Company's Chief Executive Officer has loaned
various amounts to the Company. As of December 31, 1998 and as of June 30, 1999
the amounts payable to the officer for advances totaled $130,242 and $124,222
respectively. In addition there is unpaid compensation due to him of $48,000
for 1996, $61,250 for 1997, $70,485 for 1998 and $32,500 for the six months
ended June 30, 1999. The balances payable for compensation to Mr. Naughton
totaled $179,735 at December 31, 1998 and $212,235 at June 30, 1999. The
balances payable to Mr. Naughton are uncollateralized, bear no interest and are
payable on demand. This loan is on terms which are substantially better than
could be obtained from third parties.
Effective February 26, 1999 the Company entered into a joint venture
agreement with Scott Claverie whereby 25,000 shares of AMS Acquisition Corp.
were transferred (25% ownership of AMS) to Mr. Claverie. The Company also
granted Mr. Claverie warrants to acquire an additional 26,000 shares of AMS at
$1.00 per share following the end of the first profitable quarter of operations,
but in no event later than twelve months after the February 26, 1999 agreement
date. Effective April 19, 1999 the Company exchanged 1,250,000 restricted
shares of Company common stock for the warrants. These 1,250,000 shares were
recorded at $.275 per share, one half of the market value of free trading shares
of the Company's Common Stock on April 19, 1999, and recorded as an expense
totaling $343,750. As a part of the joint venture agreement, the Company agreed
to provide AMS with $25,000 for working capital. Mr. Claverie transferred to
AMS all equipment, intellectual property, technology associated with the
individuals internet-based business. These transactions were all on terms as
fair as those obtainable from third parties.
29
<PAGE>
LEGAL PROCEEDINGS
During 1996 the Company sold its wholly-owned subsidiary Real Estate
Television Network, Inc. in exchange for shares of stock of AmeriNet Financial
Services, Inc. ("ANFS"), the entity that acquired RETN. Since the Company has
been unable to receive free trading shares of ANFS as agreed, the Company on
July 9, 1998 filed a lawsuit against ANFS and certain of its officers and
directors alleging breaches of written contracts, fraud and violations of
various Corporate Code sections. In this litigation, the Company is seeking
damages in excess of $60,000,000, together with exemplary and punitive damages,
attorney's fees and costs of the suit. On September 2, 1998, the purchasing
entity filed a cross-complaint against the Company alleging fraud and
misrepresentation, breaches of contracts and conspiracy. In the cross-complaint
the entity is seeking damages in the approximate amount of $12,000,000, together
with exemplary and punitive damages, attorney's fees and cost of the suit. The
actual losses identified by the cross-complaint are less than $500,000. The
purchasing entity has recently made a settlement offer to the Company which
included a payment to the Company of a combination of stock and cash, however
the amounts offered were insufficient and rejected by the Company and the
litigation is continuing. The Company intends to vigorously prosecute this
litigation.
During December, 1997 the Company entered into an agreement with some of
its shareholders whereby the Company agreed to sell certain of the shares of
ANFS for $200,000 subject to the shares being released as free trading. Under
the terms of these stock purchase agreements if the shares were allowed to
become free trading then in exchange for the $200,000 the shares would be
transferred to the shareholders. If they were not released as free trading,
$190,000 of the $200,000 would be returned and the remaining $10,000 would be
forfeited. The shares were not released as free trading and the $10,000 was
forfeited. As of December 31, 1998 $190,000 was returned.
On December 3, 1998, related to a different litigation matter, a default
judgment was entered against the Company in the approximate amount of $55,000
for alleged amounts owed by RETN for which the plaintiff alleges is also owed by
the Company. On July 14, 1999 the default judgement was set aside based on the
fact that the Company was never properly served with a summons and complaint.
The Company contends that it is not liable for the amounts due since RETN was a
separate corporation and the Company never guaranteed this obligation.
30
<PAGE>
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS
The following table provides certain information with respect to shares
saleable by Selling Shareholders:
<S> <C> <C> <C>
Percent Before Percent After
Selling Shareholder Shares for Sale Investment Agreement Investment Agreement
- -------------------- ----------------- -------------------- --------------------
Triton Private Equities Fund
Conversion of Note 2,834,010
Note Interest 453,442
Exercise of Warrant 192,500
-------
Subtotal 3,479,952 4.9% 3.5%
Issuable under Investment Agreement 27,027,027
----------
Subtotal 27,027,027 N/A 27.5%
Total of All 30,506,979 N/A 31.0%
Patrick Rost (upon exercise of warrants)** 1,000,000 3.8% 2.8%
MRC Legal Services Corporation
and employee Shares 208,333 * *
Fred Turner Shares 100,000 * *
______________________
</TABLE>
* Less than 1%
**Reflects 1,434,000 shares held by Lightning Imports, Inc., as to which Mr.
Rost may be considered to be the beneficial owner, and 300,000 shares held by
Pat Rost individually
Shares Offered by Triton Private Equities Fund
Convertible Note
-----------------
The Triton Private Equities Fund, LP, an investor in the Company, is
offering up to 2,834,010 shares of Common Stock which Triton Private Equities
Fund can obtain by converting at a premium $538,462 principal amount of a Series
1999-A Eight Percent Convertible Note (the "Note") into common stock. We sold a
$538,462 face amount Note to Triton Private Equities Fund for $350,000 in gross
proceeds to the Company. We are using those proceeds to purchase internet
kiosks ($250,000), advertise our ShopGoOnline.com website with Double Click
($50,000) and develop software for Auctionomics.com ($50,000). The Note can be
converted after 120 days from issuance (on or after January 19, 2000) at a
percentage of the lowest three days closing bid prices of our common stock in
the prior 20 trading days. If the Note were converted today, Triton Private
Equities Fund could obtain approximately 1,050,000 shares of common stock. From
day 120 to day 150, the percentage is 103%; from day 151 to day 180, the
percentage is 100%; from day 181 to day 210, the percentage is 97% and from day
211 forward, the percentage is 95%. The number of shares of common stock we are
registering to potentially give to Triton Private Equities Fund when they
31
<PAGE>
convert the Note reflects the worst conversion ratio and a market price of our
stock of $.20 (which we think is very conservative and not likely to occur).
The Note requires an interest payment of 8% per annum on the face amount,
which we may pay in cash or in free trading common stock. We are consequently
also registering 453,442 shares of common stock which we may use to pay the 8%
interest payments on the Note through its expiration (assuming a market price of
our stock of $.20) before it is converted.
In addition to the Note, Triton Private Equities Fund received warrants to
purchase 175,000 shares of our common stock at an exercise price of $.50 per
share until December 31, 2000. In addition, Ganesh Ltd., a finder in the
transaction, received 17,500 warrants also exercisable at $.50 per share until
December 31, 2000. We are consequently registering 192,500 shares of common
stock which Triton Private Equities Fund and Ganesh Ltd. may obtain by exercise
of those warrants.
If Triton Private Equities Fund were to receive the maximum number of
shares on conversion (based on a market price of our stock of $.20), the maximum
number of shares for payment of the 8% interest (based on a market price of our
stock of $.20) and were to exercise all of their warrants, they would own a
total of 3,479,952 shares which would be approximately 4.9% of our issued and
outstanding common stock before completing our Investment Agreement and
approximately 2.9% if the maximum number of shares are issued in connection with
the Investment Agreement.
Investment Agreement
---------------------
In November 1999 we entered into an Investment Agreement with Triton
Private Equities Fund, L.P. The term of the Investment Agreement will be three
years and will begin on the effective date of the registration statement to
which this Prospectus forms a part. Commencing on the effectiveness of the
registration statement, except under certain circumstances, Triton Private
Equities Fund, L.P., has an obligation to purchase up to $10.0 million of our
common stock. Essentially, on a monthly basis we may require Triton to purchase
our common stock subject to the price and volume restrictions detailed below.
We have no obligation to sell common stock to Triton if we determine that our
price is not what we would like.
At the time of purchase, the common stock will be priced at 82.5% of the
previous five trading day average bid price during the ten trading days
immediately prior to the date of Purchase. The obligation to purchase stock
pursuant to the Investment Agreement in any monthly period shall be limited to
the lesser of: (a) remaining amounts available under the Investment Agreement,
(b) an amount equal to 20% of the total dollar trading volume in our common
stock (based on the closing bid prices) during the month in question, and (c)
the maximum amount that Triton could purchase without becoming the beneficial
owner of more than 5% and consequently being required to file a Form 13D under
the Securities Exchange Act of 1934.
In addition, on each closing of a purchase of our common stock, Triton
shall be issued three year warrants to purchase a number of shares of common
stock equal to 10% of the number of shares purchased at the closing at an
Initial exercise price equal to 100% of the average closing bid price for the
common stock as calculated for the purchase. To the extent we have not required
Triton to purchase common Stock in any annual period equal to $1.0 million,
32
<PAGE>
additional Warrants shall be issued at the end of such annual period to reflect
up to $1.0 million having been purchased.
Selling Shareholder Warrants
We are registering 1,000,000 shares which may be issued to Mr. Patrick M.
Rost for options which he holds exercisable at $.50 per share until December 31,
2000. If Mr. Rost were to exercise his options and continue to hold his shares,
he would hold a total of approximately 3.8% of the issued and outstanding shares
before giving effect to the delivery of shares to Triton under the Investment
Agreement.
Cutler Shares
We are registering for potential sale by MRC Legal Services Corporation and
its employees a total of 208,333 shares of Common Stock. MRC Legal Services
Corporation does business as Cutler Law Group, which is our legal counsel. M.
Richard Cutler is the sole shareholder and beneficial owner of MRC Legal
Services Corporation. We issued these shares to Cutler Law Group in
consideration for legal services. The Cutler Law Group shares were issued as
follows:
MRC Legal Services Corporation 159,333 shares
Brian A. Lebrecht 25,000 shares
Vi Bui 9,000 shares
Stephanie Crumpler 9,000 shares
Liz Macko 2,500 shares
Jaime Ceniceros 2,500 shares
Elaine Arritt 1,000 shares
None of the foregoing individuals or entities owns more than 1% of the
issued and outstanding shares.
Turner Shares
We are registering for potential sale by Fred Turner a total of 100,000
shares of Common Stock. Fred Turner represents us as legal counsel for the ANFS
litigation matter. Mr. Turner holds less than 1% of our issued and outstanding
stock.
This Prospectus relates to the potential sale by the Selling
Securityholders of the securities described above. The securities offered by
this Prospectus by the Selling Stockholders may be offered from time to time by
the Selling Stockholders named below or their nominees, and this Prospectus will
be required to be delivered by persons who may be deemed to be underwriters in
connection with the offer or sale of such securities. No Selling Stockholder
has had any position, office or other material relationship with the Company
since its inception, except that (i) Mr. Rost has acted as a financial public
relations consultant for the Company; (ii) Cutler Law Group is legal counsel
for the Company; and (iii) Mr. Turner has represented the Company in connection
with the ANFS litigation.
33
<PAGE>
PLAN OF DISTRIBUTION
All securities referenced above under "Selling Stockholders" will be
offered by the Selling Stockholders from time to time on the over-the-counter
bulletin board, in privately negotiated sales or on other markets. The Company
believes that virtually all of such sales will occur on the over-the-counter
bulletin board in transactions at prevailing market rates. Any securities sold
in brokerage transactions will involve customary brokers' commissions. No
underwriters will participate in any such sales on behalf of the Selling
Stockholders.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock and our Series A Preferred Stock as of September 30,
1999 by:
- each person or entity known to us to own beneficially more than 5% of
our common stock or 5% of our preferred stock;
- each of our directors;
- each of our named executive officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner (1) Beneficial Ownership Class
- --------------- --------------------- --------------------- -----------
<S> <C> <C> <C>
Joseph M. Naughton 5,307,125 (2) 7.6%
Common Stock
Preferred Stock 0 0.0%
Common Stock James M. Cannon 1,008,000 (3) 1.4%
Preferred Stock 0 0.0%
Common Stock Scott Claverie 1,250,000 1.8%
Preferred Stock 0 0.0%
Common Stock Michael Abelson 485,000 (4) 0.7%
Preferred Stock 0 0.0%
Preferred Stock Nicanor Concepcion & Fahma
Concepcion, Joint Tenants
624 Park Ave. 130,000 26.0%
Norton, VA 24273
Preferred Stock Avelino Rosales
23 White Drive 63,333 12.7%
Cedarhurst, NY 11516
Preferred Stock Bill Tillson
14623 Deervale Place 40,000 8.0%
Sherman Oaks, CA 91403
Preferred Stock Bradley B. Hinshew 35,000 7.0%
3918 River Road
Sneeds Ferry, NC 28460
Common Stock All Officers and Directors
as a Group (4 persons) 6,800,125 (2,3,4) 9.5%
===================== ========
</TABLE>
35
<PAGE>
1. Except as otherwise set forth, the address for each of these shareholders
is c/o Go Online Networks Corporation, 5681 Beach Boulevard, Suite 101/100,
Buena Park, CA 90621.
2. Mr. Naughton's shares are held through several different entities and
trusts, as to which Mr. Naughton is the primary beneficial owner.
3. Reflects 8,000 shares which Mr. Cannon owns director and up to 1,000,000
shares which Mr. Cannon could obtain upon the exercise of a warrant to purchase
shares of common stock at $.20 per share.
4. In addition, Mr. Abelson will receive options to purchase 25,000 shares
of common stock for each $500,000 in gross revenues attributable to the real
estate website developed by the Company.
36
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001, and 10,000,000 shares of preferred stock, par value
$0.001. The following summary of certain provisions of our common stock,
preferred stock, and warrants is qualified in its entirety by reference to our
articles of incorporation, as amended, and bylaws, which have been filed as
exhibits to the registration statement of which this prospectus is a part.
Common Stock
As of October 1, 1999, there were 70,052,677 shares of common stock
outstanding, held by approximately 223 shareholders of record. We are advised
that there are approximately 9,925 beneficial owners of our common stock.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors, and do not have cumulative voting rights. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available
therefor. See "Dividend Policy." Upon a liquidation, dissolution or winding up
of the Company, the holders of common stock will be entitled to share ratably
in the net assets legally available for distribution to shareholders after the
payment of all debts and other liabilities of the Company, subject to the prior
rights of any preferred stock then outstanding. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking funds provisions applicable too the common stock. All
outstanding shares of common stock are, and the common stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without further action by the
shareholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
the Company.
As of October 1, 1999, we have issued and outstanding a total of 499,333
shares of Series A Preferred Stock held by 13 shareholders of record. Each
share of the Series A Preferred Stock is convertible into one share of common
stock at the option of the holder. The Series A Preferred Stock votes on a pari
pass basis with the common stock, and receives dividends equivalent to shares of
common stock. In the event of a liquidation of the Company, the Series A
Preferred Stock has a
37
<PAGE>
liquidation preference of the number of shares plus 8%
from the time of issuance over the common stock.
Series 1999-A Eight Percent Convertible Note
We have issued a Series 1999-A Eight Percent Convertible Note in the face
amount of $538,462 to Triton Private Equities Fund, LP. We sold the $538,462
face amount Note to Triton Private Equities Fund for $350,000 in gross proceeds
to the Company. The Note can be converted after 120 days from issuance (on or
after January 19, 2000) at a percentage of the lowest three days closing bid
prices of our common stock in the prior 20 trading days. If the Note was
converted today, Triton Private Equities Fund could obtain approximately
1,050,000 shares of common stock. From day 120 to day 150, the percentage is
103%; from day 151 to day 180, the percentage is 100%; from day 181 to day 210,
the percentage is 97% and from day 211 forward, the percentage is 95%. The
number of shares of common stock we are registering to potentially give to
Triton Private Equities Fund when they convert the Note reflects the worst
conversion ratio and a market price of our stock of $.20 (which we think is very
conservative and not likely to occur). See "Price Range of Securities."
The Note requires an interest payment of 8% per annum on the face amount,
which we may pay in cash or in free trading common stock. We are consequently
also registering 453,442 shares of common stock which we may use to pay the 8%
interest payments on the Note through its expiration date (assuming a market
price of our stock of $.20) before it is converted.
Warrants
In addition to the Notes, Triton Private Equities Fund received a warrant
to purchase 175,000 shares of our common stock at an exercise price of $.50.
Ganesh, Ltd., a finder in the transaction, received 17,500 equivalent warrants.
We are consequently registering 192,500 shares of common stock which Triton
Private Equities Fund and Ganesh, Ltd. may obtain by exercise of the warrants.
Transfer Agent
The transfer agent for the common stock is American Securities Transfer,
12039 West Alameda Parkway, Z-2, Lakewood, Colorado 80228.
38
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Cutler Law Group, Newport Beach, California. MRC Legal Services
Corporation, a California corporation which does business as Cutler Law Group,
is presently the beneficial owner of an aggregate of 159,333 shares of the
Company's Common Stock. Employees of Cutler Law Group own an additional 49,000
shares of the Company's Common Stock. These shares of common stock are being
registered in this registration statement.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1998
and as of June 30, 1998 and 1999, included in this Prospectus have been so
included in reliance on the report of Schumacher & Associates, Inc., certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
<PAGE>
YOU MAY RELY ON THE INFORMATION CONTAINED
IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF ANOFFER TO BUY THESE SHARES
OF THE COMMON STOCK IN ANY CIRCUMSTANCES
UNDER WHICH THE OFFER OR SOLICITATION IS 37,742,770 SHARES OF
UNLAWFUL. COMMON STOCK
_____________________
GO ONLINE
TABLE OF CONTENTS NETWORKS CORPORATION
Page
Prospectus Summary 3 [GRAPHIC OMITTED]
Risk Factors 5
Price Range of Securities 11
Dividend Policy 11
Dilution 12
Use of Proceeds 13
Management's Discussions and Analysis of
Financial Condition and Results
of Operations 14
Business 19
Management 34
Executive Compensation 36
Certain Transactions 38
Selling Stockholders 40
Plan of Distribution 43
Principal Stockholders 44
Description of Securities 46
Legal Matters 48
Experts 48 ____________
Index to Consolidated Financial
Statements F-1 PROSPECTUS
____________
Dealer Prospectus Delivery Obligation Until
January ___, 2000; all dealers that effect
transactions in these securities, whether or not
participating in this offering, may be required to
deliver a Prospectus. This is in addition to the
dealers' obligation to deliver a Prospectus when
acting as underwriters and with respect to their
unsold allotments or subscriptions. DECEMBER 1, 1999
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997 and 1998, and September 30, 1998 and 1999 (Unaudited)
Consolidated Financial Statements:
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in
Stockholders' (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Go Online Networks Corporation
Buena Park, California
We have audited the accompanying balance sheet of Go Online Networks Corporation
and Consolidated Subsidiaries as of December 31, 1998, and the related
statements of operations, stockholders' (deficit) and cash flows for the two
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Go Online Networks Corporation
and Consolidated Subsidiaries as of December 31, 1998 and the results of its
operations, changes in its stockholders' (deficit) and its cash flows for the
two 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 described in Note 1, the Company
has suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubts about its ability to continue as a going concern.
Management's plan to continue in operations is contained in Note 1 to the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Schumacher & Associates
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
August 27, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
F-2
<PAGE>
<S> <C> <C>
December 31, September 30,
1998 1999
--------------------------------
(Unaudited)
Current Assets:
Cash $ 2,271 $ 189,617
Accounts receivable - 2,647
Prepaid expenses - 5,958
Trust account receivable (Note 1) 137,946 -
------------------ --------------
Total Current Assets 140,217 198,222
Designs and trademarks, net of
accumulated amortization of $12,500
at December 31, 1998 and $21,875 at
September 30, 1999 (Note 9) 37,500 28,125
Security deposits - 2,500
Equipment, net of accumulated depreciation
of $36,081 at September 30, 1999 - 382,577
------------------ --------------
TOTAL ASSETS $ 177,717 $ 611,424
================== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 66,041 $ 133,663
Notes payable and accrued interest
(Note 8) 129,291 134,673
Unearned revenue (Note 1) - 145,000
Advances from and accrued expenses
to officer (Note 2) 309,977 377,707
Other liabilities (Notes 9 and 10) 37,500 -
------------------ --------------
Total Current Liabilities 542,809 791,043
Convertible debentures (Note 4) - 538,462
------------------ --------------
TOTAL LIABILITIES 542,809 1,329,505
------------------ --------------
Commitments and contingencies
(Notes 1,2,3,4,5,6,7,8,9 and 10) - -
Stockholders' (Deficit):
Convertible preferred stock, no par
value, 100,000,000 shares authorized,
638,333 issued and outstanding as of
December 31, 1998 and 499,333 shares
at September 30, 1999 217,533 168,883
Common stock, no par value,
100,000,000 shares authorized,
54,450,028 shares issued and
outstanding at December 31, 1998 and
71,873,510 shares at September 30, 1999 5,785,303 7,055,439
Accumulated (Deficit) (6,367,928) (7,942,403)
------------------ --------------
TOTAL STOCKHOLDERS' (DEFICIT) (365,092) (718,081)
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 177,717 $ 611,424
================== ==============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ -------------- ----------------- --------------
(Unaudited) (Unaudited)
Revenue
Sales $ - $ - $ - $ 13,017
-------------- --------------- --------------- ----------------
Expenses:
Advertising - - - 12,259
Amortization and
depreciation - 12,500 9,375 45,455
Rent 7,472 7,451 5,610 36,135
Legal fees 39,317 120,048 91,136 269,612
Stock issued for services 20,000 124,375 93,280 -
Salary and payroll taxes - - - 117,055
Compensation, officer 96,000 96,000 72,000 72,000
Common stock issued for
Website development (Note 10) - - - 100,000
Other 2,552 82,100 62,600 364,049
-------------- ----------------- -------------- -------------
Total Operating Expenses 165,341 442,474 334,001 1,016,565
-------------- ----------------- -------------- -------------
Net (Loss) Before Other
Income (Expense) (165,341) (442,474) (334,001) (1,003,548)
Other (Expense):
Option buy back (Note 10) - - - (343,750)
Operating loss of segment
disposed of - (145,203) - -
Discount on convertible
debentures (Note 4) - - - (188,462)
Loss from disposition of
segment disposed of (Note 5) - (94,845) - -
Interest expense (7,176) (121,322) (90,942) (38,715)
-------------- ----------------- --------------- ---------------
Net (Loss) $ (172,517) $ (803,844) $ (424,943) $ (1,574,475)
============== ============= =============== ===============
Per Common Share $ (.01) $ (.02) $ (.01) $ (.02)
============== ================= =============== ===============
Weighted Average
Shares Outstanding 31,682,602 44,558,017 40,869,284 65,823,983
============== ================ =============== ===============
</TABLE>
The acconpanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From December 31, 1996 through December 31, 1998
and from January 1, 1999 through September 30, 1999 (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Accumulated
No./Shares Amount No./Shares Amount (Deficit) Total
----------- ------ ---------- ---------- ------------- -------
Balance at December 31, 1996 1,064,667 $ 366,750 28,699,328 $4,592,728 $(5,391,567) $ (432,089)
Common stock issued - - 5,840,000 129,150 - 129,150
Preferred stock converted (126,667) (44,333) 126,667 44,333 - -
Loss for the year ended
December 31, 1997 - - (172,517) (172,517)
----------- ---------- ------------ ------------- ------------- ----------
Balance at December 31, 1997 938,000 322,417 34,665,995 4,766,211 (5,564,084) (475,456)
Common stock issued - - 19,484,366 914,208 - 914,208
Preferred stock converted (299,667) (104,884) 299,667 104,884 - -
Loss for the year ended
December 31, 1998 - - - - (803,844) (803,844)
----------- ---------- ---------- ---------- ------------- ------------
Balance at December 31, 1998 638,333 217,533 54,450,028 5,785,303 (6,367,928) (365,092)
Common stock issued - - 17,284,482 1,221,486 - 1,221,486
Preferred stock converted (139,000) (48,650) 139,000 48,650 - -
Loss for the nine months ended
September 30, 1999 - - - - (1,574,475) (1,574,475)
----------- ---------- ---------- ---------- ------------- ------------
Balance at September 30, 1999
(Unaudited) 499,333 $ 168,883 71,873,510 $7,055,439 $ (7,942,403) $ (718,081)
=========== ========== ========== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ ------------- -------------- ----------------
(Unaudited) (Unaudited)
Operating Activities:
Net (Loss) $(172,517) $(803,844) $ (424,943) $ (1,574,475)
Adjustments to reconcile net
(loss) to net cash (used in)
operating activities:
Amortization and depreciation - 12,500 9,375 45,455
Increase (decrease) in accounts
payable and accrued expenses (6,172) 46,651 35,929 67,623
Increase in unearned revenue - - - 145,000
Discount on debenture - - - 188,462
Other (26,335) 126,382 109,540 262,453
---------- ---------- ----------- ------------
Net Cash (Used in) Operating
Activities (205,024) (618,311) (270,099) (865,482)
---------- ---------- ----------- ------------
Investing Activities:
Investment in equipment - - - (418,658)
Investment in designs and
trade name - (50,000) - -
---------- ---------- ------------ -----------
Net Cash Provided by (Used in)
Investing Activities - (50,000) - (418,658)
---------- ---------- ----------- -----------
Financing Activities:
Repayment of notes and advances
payable - (31,427) (23,570) -
Common stock issued 178,483 694,883 290,112 1,121,486
Proceeds from notes and
advances payable 28,515 - - 350,000
---------- ---------- ---------- ----------
Net Cash Provided by
Financing Activities 206,998 663,456 266,542 1,417,486
---------- ---------- ---------- -----------
Increase (decrease) in Cash 1,974 (4,855) (3,557) 187,346
Cash at Beginning of Period 5,152 7,126 7,126 2,271
---------- ---------- ----------- ---------
Cash at End of Period $ 7,126 $ 2,271 $ 3,569 189,617
========== ========== ========== ==========
Interest Paid $ 7,176 $ 121,322 $ 60,500 $ 38,715
========== ========== =========== ==========
Income Taxes Paid $ - $ - $ - $ -
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies
----------------------------------------------
A. Organization and Principles of Consolidation
------------------------------------------------
The consolidated financial statements of Go Online Networks Corporation,
formerly Jones Naughton Entertainment, Inc. and Consolidated Subsidiaries
include the accounts of Go Online Networks Corporation, incorporated in Colorado
on October 20, 1987, and its subsidiaries AMS Acquisition Corp. (AMS),
incorporated in Nevada on June 2, 1998 and Auctionomics, Inc., incorporated in
Nevada on June 8, 1999. Jones Naughton Entertainment, Inc. changed its name to
Go Online Networks Corporation on September 8, 1999. References to the Company
refer to Go Online Networks Corporation and its subsidiaries. As of December
31, 1998, AMS was a wholly-owned subsidiary of Go Online Networks Corporation.
As of September 30, 1999, AMS and Auctionomics are 75% owned subsidiaries of Go
Online Networks Corporation. The Company is in the information technology
business. All intercompany accounts have been eliminated in the consolidation.
The Company has selected December 31 as its year end.
B. Use of Estimates in the Preparation of Financial Statements
-------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
C. Basis of Presentation - Going Concern
------------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained operating losses
since its inception and has a net capital deficiency. Management=s plan to
continue in operations is to continue to attempt to raise additional debt or
equity capital including the proposal to publicly offer securities subject to
the effectiveness of a registration statement with the Securities and Exchange
Commission. During the nine month period ended September 30, 1999, the Company
had proceeds of approximately $1,400,000 from debt and equity transactions.
In view of these matters, realization of certain of the assets in the
accompanying financial statements is dependent upon continued operations of the
Company, which in turn is dependent upon the Company=s ability to meet its
financial requirements, raise additional capital, and the success of its future
operations. Management believes that its ability to raise additional capital
provides the opportunity for the Company to continue as a going concern.
F-7
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
D. Per Share Information
-----------------------
The per share information is computed based upon the weighted average number of
shares outstanding.
E. Equipment
---------
The Company carries its investment in equipment, principally consisting of
office equipment and computer access kiosks installed at customer locations, at
cost net of accumulated depreciation. Depreciation is provided over a five year
period on a straight-line basis.
F. Geographic Area of Operations
--------------------------------
The Company=s customers are principally in the U.S.A. The potential for severe
financial impact can result from negative effects of economic conditions within
the market or geographic area. Since the Company=s business is principally in
one area and in one industry, this concentration of operations results in an
associated risk of uncertainty.
G. Intangible Assets
------------------
The Company reviews the carrying value of its intangible assets on a periodic
basis, at least quarterly, to determine if there is any impairment in carrying
value. As of September 30, 1999 and the Company believes that there is no
impairment in value of the carrying value of its intangible assets.
H. Stock Issued for Services and Stock Options Granted for Services
--------------------------------------------------------------------
The Company has issued stock and granted stock options for services. The market
value of the shares issued for services was recorded as an expense in the
accompanying financial statements. All options granted were at market value or
higher at the time of the grant. No compensation was recorded for the options
granted since any compensatory amounts would be immaterial since the options
were granted at prices at least equal to market.
I. Income Taxes
-------------
The Company as of December 31, 1998 had approximately $5,500,000 of net
operating loss carryovers which expire in years through 2018. A change in
ownership of more than 50% of the Company my result in the inability of the
Company to utilize the carryovers. As of December 31, 1998 the Company had
deferred tax assets of approximately $1,650,000 related to net operating loss
carryovers. A valuation allowance has been provided for the total amount since
the amounts, if any, of future revenues necessary to be able to utilize the
carryovers are uncertain.
F-8
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
J. Trust Account Receivable
--------------------------
At December 31, 1998 and September 30, 1999 the Company had funds on deposit
with its legal counsel held for the Company=s benefit totaling $137,946. There
were no restrictions on the use of the funds.
K. Preferred Stock
----------------
The Company has outstanding 499,333 shares of Series A Preferred Stock. Each
share of Series A Preferred stock is convertible into one share of common stock
at the option of the holder. The Series A Preferred Stock votes on an equal per
share basis with the common stock, and is eligible to receive equivalent
dividends to the shares of common stock. In the event of liquidation of the
Company, the Series A Preferred Stock has a liquidation preference of the number
of shares plus 8% from the time of issuance.
L. Advertising
-----------
The Company expenses advertising costs as incurred.
M. Unearned Revenue
-----------------
The Company received $145,000 related to future advertising on the Internet
kiosks which has been accounted for as unearned revenue. The advertising
revenue will be recognized as income when the Company has sufficient kiosks in
operation to meet the terms of the agreement and will be amortized over the
periods then covered on a straight-line basis. Failure to meet the number of
kiosks specified by the agreement could result in the requirement to refund the
unearned advertising fees.
N. Unaudited Financial Statements
--------------------------------
The balance sheet as of September 30, 1999, the statements of operations and the
statements of cash flows for the nine month periods ended September 30, 1998 and
1999, and the statement of changes in stockholders= (deficit) for the nine month
period ended September 30, 1999 have been prepared by management without audit.
In the opinion of management all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, cash flows and changes in stockholders (deficit) at
September 30, 1999 and for all periods presented have been made.
O. Concentration of Credit Risks
--------------------------------
The Company carries its cash accounts in banks. As of September 30, 1999 the
Company had $89,617 in a bank account in excess of the amount insured by the
F.D.I.C.
F-9
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(2) Advances and Accrued Expenses, Related Party
-------------------------------------------------
The Company=s Chief Executive Officer has loaned various amounts to the Company.
As of December 31, 1998 and as of September 30, 1999 the amounts payable to the
officer for advances totaled $130,242 and $149,222 respectively. In addition
there is unpaid compensation due to him of $48,000 for 1996, $61,250 for 1997,
$70,485 for 1998 and $48,750 for the nine months ended September 30, 1999. The
balances payable for compensation to the CEO totaled $179,735 at December 31,
1998 and $228,485 at September 30, 1999. The balances payable to the related
party are uncollateralized, bear no interest and are payable on demand.
<TABLE>
<CAPTION>
The following summarizes earned options granted, exercised and outstanding:
<S> <C> <C> <C>
Option Expiration
Date of Grant # of Shares Price Date
- -------------------- ------------ --------- ---------
February 27, 1996 1,000,000 $ .35 November 1, 1997
------------ ---------
Balance outstanding
December 31, 1996 1,000,000 $ .35 Average option price of $.35
April 10, 1997 100,000 $ .25 November 1, 1997
April 10, 1997 100,000 $ .10 May 1, 1998
April 10, 1997 100,000 $ .15 November 1, 1998
April 1, 1997 100,000 $ .25 November 1, 1999
February 27, 1996 (1,000,000) $ .35 Expired November 1, 1997
April 10, 1997 (100,000) $ .05 Expired November 1, 1997
------------ ---------
Balance outstanding
December 31, 1997 300,000 $.10-$.25
April 10, 1997 (100,000) $ .10 Expired May 1, 1998
April 10, 1997 (100,000) $ .15 Expired November 1, 1998
May 3, 1998 500,000 $ .07 February 2, 1999
May 3, 1998 500,000 $ .125 February 2, 1999
May 3, 1998 500,000 $ .25 February 2, 1999
July 27, 1998 500,000 $ .25 February 2, 1999
------------ ---------
Balance outstanding
December 31, 1998 2,100,000 $.07-$.25 Average option price of $.18
May 3, 1998 (500,000) $ .07 Exercised February 2, 1999
April 12, 1999 150,000 $ .25 April 11, 2001
April 12, 1999 1,000,000 $ .20 April 11, 2001
August 9, 1999 200,000 $ .32 August 8, 2000
September 15, 1999 1,000,000 $ .50 December 31, 2000
May 3, 1998 (500,000) $ .125 Expired February 2, 1999
May 3, 1998 (500,000) $ .25 Expired February 2, 1999
July 27, 1998 (500,000) $ .25 Expired February 2, 1999
------------ ---------
Balance outstanding
September 30, 1999
(Unaudited) 2,450,000 $.20-$.50 Average option price of $.27
============ =========
</TABLE>
F-10
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(3) Stock Options, Continued
--------------------------
The Company has other various option agreements with employees, independent
contractors and consultants that have contingencies associated with the rights
to exercise. These other contingent option agreements are disclosed at various
locations throughout the notes to the financial statements. The above summary
represents all options that are not subject to any contingencies. All options
were granted at exercise prices equal to or in excess of market prices of the
stock at the date of grant, therefore no compensation expense was recorded for
the options.
In addition to options disclosed elsewhere in the notes to the financial
statements, the Company has issued the following options to acquire restricted
common stock of the Company:
A. 31,640 shares exercisable at $.20 per share at any time within one year
after the Company=s common stock first trades at or above $1.20 per share for
thirty consecutive trading days.
B. 31,640 shares exercisable at $.40 per share exercisable at any time
within one year after the publicly traded common stock of the Company has traded
at $2.00 per share on each trading date for thirty consecutive days.
C. 31,640 shares exercisable at $1.00 per share at any time within one year
after the publicly trade common stock of the Company has traded at $2.80 per
share for thirty consecutive trading days. Such shares cannot be traded for a
period of ninety days after the exercise of this option.
D. 31,640 shares exercisable at $2.00 per share, exercisable at any time
within one year after the publicly traded stock of the Company has traded at
$3.60 per share for thirty consecutive trading days. Such shares cannot be
traded for a period of sixty days after the exercise of this option.
(4) Convertible Debentures
-----------------------
During the year ended December 31, 1998 and the nine month period ended
September 30, 1999 the Company issued approximately $343,000 and $100,000,
respectively of convertible debentures which have been converted to common
stock. The debentures were converted to common stock at 75% of the market value
of the common stock. The difference between the exercise price and the market
price upon exercise has been recorded as interest expense in the accompanying
1998 and 1999 financial statements in the amount of $114,333 and $33,333 ,
respectively. In addition during September, 1999, the Company issued $538,462
of convertible debentures for $350,000. The discount of $188,462 has been
recorded as an other expense similar to interest in the financial statements.
As additional consideration for the purchase of the debenture, the purchaser was
granted a warrant to purchase 175,000 shares of common stock of the Company at a
price of $.50 per share which will expire on December 31, 2000. Since the
exercise price was in excess of the market value of the stock at the time of
issuance, no consideration was recorded in the financial statements. If not
converted to common stock, the debenture accrues interest at 8% per annum, due
and payable quarterly in arrears with the first payment due on December 31,
1999. The $538,462 convertible debenture is convertible at the option of the
holder into common stock at a conversion price for each share of common stock
equal to the
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(4) Convertible Debentures, Continued
-----------------------------------
lesser of (1) 125% of the closing bid price for the common stock on the date of
issuance of the debenture or (2) a percentage of the average of the three lowest
closing bid prices for the common stock for the 20 trading days immediately
preceding the conversion date. The applicable percentage shall be equal to the
following: (I) for conversions made on or before 120 days after the date of the
F-11
<PAGE>
debenture, 105%; (ii) between 121 and 150 days, 103%; (iii) between 151 and 180
days, 100%; (iv) between 181 and 210 days, 97% or (v) after 210 days, 95%.
(5) Investment in and Disposition of Investment in Publishing and
---------------------------------------------------------------------
Advertising Business
-------------
On July 8, 1998 AMS Acquisition Corp., a newly formed wholly-owned subsidiary of
the Company acquired the assets and liabilities of a business operating several
different publishing and advertising divisions located in San Diego, California.
The total investment in the acquisition of the business assets approximated
$240,000 including related acquisition expenses. After operating the business
for approximately six months, the assets and liabilities were sold back to the
original seller in exchange for assuming the then existing liabilities of the
business. This sale back was effective December 31, 1998. At the time of the
return of the business, the total assets of the business including goodwill of
approximately $500,000, totaled approximately $858,000, and liabilities totaled
approximately $904,000. While the liabilities were assumed in the sale back
transaction, AMS remains contingently liable for any amounts not paid by the
purchaser. The assets and the liabilities have been subsequently sold again
after the buy back from AMS. The financial statements have no provision for
future losses, if any, related to this contingency. The ultimate resolution of
this matter cannot presently be determined.
The consolidated financial statements include a loss from the operations of this
discontinued business in the amount of $145,203 and a loss from disposition of
this business totaling $94,845.
(6) Consulting Agreements
----------------------
Effective February 3, 1998 the Company entered into a consulting agreement with
an individual to provide financial support and market makers for the Company=s
publicly traded common stock. In accordance with the terms of the agreement
the consultant was issued 400,000 shares valued at $.035 per share and 1,250,000
shares at $03 per share as compensation for consulting services. In addition,
the consultant was granted an option to acquire 1,000,000 shares at $.05,
1,000,000 at $.07 and 1,000,000 at $.09 per share. At the time of the grant of
the options, the option price was in excess of the market price of the stock.
The options for the 1,000,000 shares at $.05 and the 1,000,000 shares at $.07
were exercised. The option for the 1,000,000 shares at $.09 expired
unexercised.
Effective July 27, 1998 the Company entered into a consulting agreement with an
individual for a 90 day period. The individual was paid $6,000 per month
for providing services to assist in developing financial support for the
Company=s publicly traded common stock. In addition, the consultant was granted
an option to purchase 500,000 shares of the Company=s common stock at $.125 per
share within one year of the effective date of the agreement. The option
expired unexercised.
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(6) Consulting Agreements, Continued
----------------------------------
Effective March 9, 1998 the Company entered into an internet public relations
agreement with an entity for a three month period. For services performed, the
Company issued 125,000 shares of its common stock valued at $.025 per share.
The entity was also granted a ninety day option to acquire 50,000 additional
shares at $.075 per share. The option expired unexercised.
Effective October 17, 1997 the Company entered into a consulting agreement with
an individual whereby the individual prepared news releases and other services
requested by the Company in connection with its securities market, broker dealer
relationships and investor relations. The Company issued the individual 150,000
shares valued at $.066 per share for compensation related to the services
performed.
F-12
<PAGE>
(7) Commitments and Contingencies
-------------------------------
During 1996 the Company sold its wholly-owned subsidiary RETN in exchange for
shares of stock of the entity acquiring RETN. Since the Company has been unable
to receive free trading shares of the entity, the Company on July 9, 1998 filed
a lawsuit against the purchaser and certain of its officers and directors
alleging breaches of written contracts, fraud and violations of various
Corporate Code sections. In this litigation, the Company is seeking damages in
excess of $60,000,000, together with exemplary and punitive damages, attorney=s
fees and costs of the suit. On September 2, 1998, the purchasing entity filed a
cross-complaint against the Company alleging fraud and misrepresentation,
breaches of contracts and conspiracy. In the cross-complaint the entity is
seeking damages in the approximate amount of $12,000,000, together with
exemplary and punitive damages, attorney=s fees and cost of the suit. The actual
losses identified by the cross-complaint are less than $500,000. The purchasing
entity has recently made a settlement offer to the Company which included a
payment to the Company of a combination of stock and cash, however the amounts
offered were insufficient and rejected by the Company and the litigation is
continuing. Contingencies exist with respect to this matter, the ultimate
resolution of which cannot presently be determined. The financial statements of
the Company include no provisions for losses or gains with respect to this
matter.
On December 3, 1998, related to a different litigation matter, a default
judgement was entered against the Company in the approximate amount of $55,000
for alleged amounts owed by RETN for which the plaintiff alleges is also owed by
the Company. On July 14, 1999 the default judgement was set aside based on the
fact that the Company was never properly served with a summons and complaint.
The Company contends that it is not liable for the amounts due since RETN was a
separate corporation and the Company never guaranteed this obligation. The
financial statements do not include any loss provision with respect this matter.
A contingency exists with respect to this matter, the ultimate resolution of
which cannot presently be determined.
Management does not believe that the above contingencies will result in material
adverse effects on the financial statements.
F-13
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(8) Notes Payable
--------------
On March 5, 1995 the Company borrowed $49,500 and $52,500 from an individual and
from a corporation, respectively. The notes bear interest at 7% per annum and
are uncollateralized. The notes were due and not paid on May 29, 1996. The
lenders have the right to demand payment in full on the notes and failure to pay
on demand would increase the interest rate to 18% per annum. The lenders have
the right to convert the notes to common stock of the Company at a rate of $.125
per share. The balance payable on December 31, 1998 on the notes total $62,744
and $66,547, respectively, including accrued interest.
(9) Acquisition of Assets
-----------------------
During March 1998 the Company entered into an agreement to acquire the assets of
a business engaged in the manufacturing, marketing, management and display of
advertising and informational kiosks. The purchase price was $50,000 with a
down payment of $25,000 plus four equal quarterly installments at the 90 day,
180 day, 270 day and 350 day anniversaries of the closing date. As of December
31, 1998 the balance payable under the terms of the agreement was $12,500.
Since the value of tangible assets acquired was minimal, the total $50,000 was
recorded in the accompanying financial statements as an intangible asset related
to the designs, trademarks, trade names, contract rights and other intangible
assets. This intangible asset is being amortized on a straight line basis over
a three year period.
(10) Other Events and Transactions
--------------------------------
Effective February 26, 1999 the Company entered into a joint venture agreement
with an individual, the current President of AMS, whereby 25,000 shares of (AMS)
Acquisition Corp. were transferred (25% ownership of AMS) to the individual.
The Company also granted the individual warrants to acquire an additional 26,000
shares of AMS at $1.00 per share following the end of the first profitable
quarter of operations, but in no event later than twelve months after the
February 26, 1999 agreement date. Effective April 19, 1999 the Company
exchanged 1,250,000 restricted shares of Go Online Networks Corporation common
stock for the warrants. These 1,250,000 shares were recorded at $.275 per
share, one half of the market value of free trading shares of the Company=s
Common Stock on April 19, 1999, and recorded as an expense totaling $343,750.
As a part of the joint venture agreement, the Company agreed to provide AMS with
$25,000 for working capital. The individual transferred to AMS all equipment,
intellectual property, technology associated with the individuals Internet-based
business.
Effective May 15, 1999 the Company entered into a lease for office space in
northern California. The term of the lease is for 5 years with monthly base
rent payments of $1,615. The base rent amounts are subject to increases of 3%
per annum. The Company has the right to terminate the lease between May 15,
2000 and June 15, 2000 and also between May 15, 2002 and June 15, 2002. Future
base rent commitments during the years ended December 31 under this lease are
summarized as follows:
F-14
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
1999 $ 11,305
2000 $ 19,380
2001 $ 19,380
2002 $ 19,380
2003 $ 19,380
2004 $ 8,075
Effective July 21, 1999 the Company entered into a lease for office space in
Buena Park California. The term of the lease is for 3 years with monthly base
rent payments of $1,600. Future base rent commitments during the years ended
December 31 under this lease are summarized as follows:
1999 $ 8,000
2000 $ 19,200
2001 $ 19,200
2002 $ 11,200
During May, 1999, the Company entered into a settlement agreement whereby the
Company paid $25,000 in cash to an entity for the full and final release of a
liability of the Company with respect to the Company=s guarantee of certain
commitments of RETN to the entity. The $25,000 liability has been included with
the liabilities of the Company as of December 31, 1998.
Effective June 10, 1999 the Company entered into a stock purchase agreement
whereby the Company acquired 75% ownership if Auctionomics, Inc., a Nevada
corporation. Auctionomics, Inc. had no business or material assets or
liabilities at the time of the acquisition. The Company had issued 500,000
restricted shares of its common stock and a warrant for an additional 500,000
shares exercisable for two years at an exercise price of $.50 per share. The
shares were recorded at $.20 per share, fifty percent of the market value, due
to the size of the block and the restricted nature of the stock. The $10,000
value of the shares issued was recorded as an expense in the accompanying
financial statements since the substance of the transaction was to engage the
services of the principals of Auctionomics to assist the Company in developing
an Internet web site. The Company agreed to and has provided $25,000 of working
capital. The agreement also provides that the 25% shareholders of Auctionomics
will be entitled to a bonus equal to 25% of the net income before taxes of
Auctionomics each year for as long as they remain shareholders of Auctionomics.
The Company also entered into consulting agreements with the 25% shareholders of
Auctionomics whereby they will receive 20% of the gross revenues generated to
Auctionomics through efforts of the consultants as long as they are shareholders
of Auctionomics.
Effective August 9, 1999 the Company entered into an employment agreement with
an individual whereby the individual was engaged to be Vice President and
Director of Marketing. The agreement is for a term of five years but is subject
to termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the employee shall be entitled to compensation earned computed pro-rata
up to the date of termination plus
F-15
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
ninety days of salary. The employee=s compensation during the term of the
agreement shall be as follows:
A. Base salary of $75,000 per year.
B. Quarterly bonus of one quarter of one percent of the sales of the
Company=s shopgoonline.com and Auctionomics.com divisions.
C. Quarterly bonus of 3% of the net advertising revenues generated by the
Company, after reduction for account fees and commissions payable by the
Company.
D. Bonus of 25% of the gross revenue generated by an internal advertising
agency to be formed by the Company.
E. The employee shall be granted options to purchase up to 200,000 shares AF
common stock of the Company at a price of $.32 per share at the end of year one
of the employment agreement. In addition, at the end of each of years 2
through 5, the employee will become eligible to purchase up to 200,000 shares of
common stock at a price equal to 75% of the average closing bid price on the
five business days immediately preceding the anniversary date of the agreement.
The difference between the exercise price and the option price at the time when
the options are earned will be expensed in the financial statements as
compensation.
Effective April 12, 1999 the Company entered into an employment agreement with
an individual. The agreement is for a term of one year but is subject to
termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the Employee shall be entitled to compensation earned computed pro-rata
up to the date of termination. The employees compensation during the term of
the agreement shall be as follows:
A. Base salary of $60,000 per year.
B. Quarterly bonus of 20% of the net advertising revenues of the Community
Marquee Division generated as a result of the employee=s direct efforts during
the previous quarter.
C. Alternative quarterly bonus in lieu of B. above equal to 25% of the net
adverting revenues of the Community Marquee Division generated by partes other
than the employee.
D. The employee shall be granted options to purchase 25,000 shares of the
Company=s common stock for each twenty-five kiosks shipped up to a maximum of
150 kiosks. The exercise price of the options shall be equal to 60% of the
closing bid price on the last business day of the month in which the employee
becomes eligible. The difference between the exercise price and the option
price at the time when the options are earned will be expensed in the financial
statements as compensation.
F-16
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
Effective May 1, 1999 the Company entered into a consulting agreement with an
individual whereby the consultant was engaged to assist in the creation of the
Company=s real estate website for its GoOn-line.com operating division. The
term of the agreement is for one year but can be terminated by the Company with
or without cause with 30 days notice.
Compensation to the consultant is summarized as follows:
A. Monthly cash consulting fee of $5,000.
B. Quarterly bonus equal to 15% of the gross revenues earned by the Company
through its real estate web site developed by the consultant.
C. The consultant shall be granted options to acquire 25,000 shares of stock
for each $500,000 in gross revenues attributable to the real estate web site
developed by the Company.
Effective May 20, 1999 the Company entered into a marketing agreement with an
entity, whereby the entity agreed to introduce various hotels, motels and other
lodging businesses to the Company for the purpose of placing computer access
kiosks in their facilities. The Company will compensate the entity 20% for all
adjusted gross usage and 10% of advertising revenue generated as a result of the
site agreements negotiated during the term of the agreement. The site owner will
also be paid not More than 10% of adjusted gross revenue. The entity will be
paid 25% of all the adjusted gross usage and 15% of the advertising revenue for
any site agreement that is signed for a duration exceeding 4 years. The Company
granted the entity a 60 month exclusive representation for the marketing of the
Company=s kiosk system for South Florida, define as south of Interstate 40. In
order to maintain exclusivity, the entity must sign 20 new sites per month for
the 60 month contract period and must agree to procure a minimum of 8
advertising contracts per kiosk installed. Upon execution of the first 100 site
agreements the Company will grant the entity an option to purchase 100,000
shares of stock at $.45 per share exercisable for a two year period. Upon
execution of the first 500 site agreements the Company will grant the entity the
right to purchase 250,000 shares at $.75 per share for two years. Upon
execution of the first 1,000 site agreements the Company will grant the entity
the right to purchase 250,000 shares at $1.25 per share for two years. If the
entity installs additional ad panels on the Company=s kiosks using a secondary
ad panel furnished by the Company the entity will be compensated 10% for all ad
revenue up to $15,000 per year per ad panel and 90% of all ad revenues generated
per panel in excess of $15,000 per year.
Effective May 15, 1999 the Company entered into a marketing agreement with an
entity, whereby the entity agreed to introduce various hotels, motels and other
lodging businesses to the Company for the purpose of placing computer access
kiosks in their facilities. The Company will compensate the entity 20% for all
adjusted gross usage and 10% of advertising revenue generated as a result of the
site agreements negotiated during the term of the agreement. The site owner will
also be paid not more than 10% of adjusted gross revenue. The entity will be
paid 25% of all the adjusted gross usage and 15% of the advertising revenue for
any site agreement that is signed for a duration exceeding 4 years. The Company
granted the
F-17
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
entity a 60 month exclusive representation for the marketing of the Company=s
kiosk system for Southern California, defined as Los Angeles County and south of
Los Angeles County, and also Arizona and Nevada. In order to maintain
exclusivity, the entity must sign 20 new sites per month for the 60 month
contract period and must agree to procure a minimum of 8 advertising contracts
per kiosk installed. Upon execution of the first 100 site agreements the
Company will grant the entity an option to purchase 100,000 shares of stock at
$.75 per share exercisable within one year. Upon execution of the first 1,000
site agreements the Company will grant the entity the right to purchase 250,000
shares at $1.25 within one year. If the entity installs additional ad panels on
the Company=s kiosks using a secondary ad panel furnished by the Company the
entity will be compensated 10% for all ad revenue up to $15,000 per year per ad
panel and 90% of all ad revenues generated per panel in excess of $15,000 per
year. In addition, the Company agreed to pay the entity $350 for each 4 year
site agreement and $200 for all other site agreements exceeding one year. The
Company also agreed to pay the entity $2,000 per month in advance for marketing
expenses drawn against future site agreement fees and commissions as long as the
entity signs not less that 10 new site agreements for the following month.
During August, 1999, the Company entered into a marketing agreement with an
entity whereby the entity agreed to provide certain marketing services for the
Company. The entity agreed to introduce various hotels, motels and other
lodging businesses to the Company and to assist in negotiating kiosk site
agreements for the Company. The entity will be compensated as follows:
A. The entity will receive 20% for all adjusted gross usage revenue and 10%
of advertising revenue generated as a result of the site agreements negotiated
for the duration of the agreement. The site agreement will provide for a
commission to be paid to the site owner of not more than 10% of the adjusted
gross revenue. For purposes of the contract, adjusted gross revenue is defined
as revenue less cost for purchasing and installing the kiosk.
B. The entity will be paid 25% of all adjusted gross usage and 15% of the
advertising revenue for any site agreement that is signed for a duration
exceeding four years.
C. The entity will be paid $150 for each site agreement of four years or
greater and $100 for each site agreement less than four years.
D. The entity was granted a 60 month exclusive representation for the
marketing of the kiosk system for Indiana, Michigan and Ohio.
E. In order to maintain the exclusive marketing agreement, the entity agreed
to deliver 20 signed site agreements per month for the 60 month contract period
and agreed to produce a minimum of eight advertising contracts per kiosk.
F. Upon the execution of the first 100 site agreements the company agreed to
grant to the entity an option to purchase 100,000 shares of the company=s common
stock for the price of $1.00 per share for one year.
F-18
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
G. Upon the execution of the first 500 site agreements the company agreed to
grant to the entity an option to purchase 250,000 shares of the Company=s common
stock for the price of $1.25 per share for one year.
H. If the entity installs additional advertising panels on the kiosks using
secondary advertising panel display units, the entity will be compensated 10%
for all advertising revenue up to $15,000 per year. Advertising revenues
generating more than $15,000 per year will earn the entity 90% and 10% will be
paid to the Company.
(11) Subsequent Events
------------------
During October, 1999, 308,333 restricted shares of common stock were issued as
consideration for amounts owed for legal fees totaling $73,750. The September
30, 1999 financial statements included an accrual for legal fees which include
the $73,750.
Effective October 1, 1999, the Company entered into an employment agreement with
an individual for a three year period. The individual will serve as Executive
Vice President and Director of Technical Support.
A. The employee will receive an annual salary of $80,000 for the first year,
$90,000 for the second year and $100,000 for the third year.
B. The employee shall also receive a cash bonus payable following the end of
each fiscal year equal to one eighth of one percent of the gross sales of the
Company, if and only if the Company is profitable for the corresponding year.
C. In addition to the salary and bonus set forth above, the employee shall
be granted options to acquire common stock of the Company as follows:
At the end of the first year the employee shall be eligible to purchase up to
200,000 shares of common stock at $.25 per share. At the end of years two and
three the employee shall become eligible to purchase 200,000 shares of stock at
the average closing bid price on the five business days immediately preceding
the anniversary of the employment agreement. All options granted shall be
exercisable for a period of two years from their date of grant.
D. The agreement may be terminated for cause at any time. The agreement may
be terminated by the Company or the employee with 30 days notice. If terminated
by the Company, the employee shall be entitled to compensation earned up to the
date of termination plus 90 days severance pay. If terminated by the employee,
the employee shall be entitled to compensation earned prior to the date of
termination.
Effective October 6, 1999, the Company entered into an employment agreement with
an individual. The agreement is for a term of one year but is subject to
termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the Employee shall be entitled to compensation earned computed pro-rata
up to the date of termination.
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(11) Subsequent Events, Continued
------------------------------
The employee=s compensation during the term of the agreement shall be as
follows:
A. Base salary of $60,000 per year.
F-19
<PAGE>
B. Quarterly bonus of 10% of the net advertising revenues of the Go Online
kiosk=s generated as a result of the employee=s direct efforts during the
previous quarter.
C. The employee shall be granted options to acquire common stock of the
Company as follows: For his 1st year of employment, employee is granted an
option to purchase 100,000 shares at .32 per share. In addition, for every
seventy-five (75) kiosks shipped and installed by the division, up to a maximum
of three hundred seventy-five (375) kiosks, employee shall receive options to
acquire 25,000 shares of Company common stock at an exercise price equal to
seventy-five percent (75%) of the closing bid price on the last business day of
the month in which employee became eligible hereunder. Parties to this contract
agree that this option starts at a level of 225 units already in existence when
employee signed this agreement. The initial option expires December 31, 2000.
Subsequent options expire on the 31st of December of the next calendar year that
those options become effective in.
F-20
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The laws of the State of Delaware and our corporate bylaws provide for
indemnification of our directors and officers for liabilities and expenses that
they may incur while acting in such capacities. In general, our directors and
officers are indemnified for actions they take in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests. With
respect to criminal actions or proceeds, they are indemnified if they had no
reasonable cause to believe their actions were unlawful. In addition, their
liability is limited by our Articles of Incorporation.
We do not currently have a policy of directors and officers insurance.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our estimated expenses in connection with
the distribution of the securities being registered. None of the expenses will
be paid by selling securityholders. Except for SEC filing fees, all expenses
have been estimated and are subject to future contingencies.
SEC registration fee . . . . . . . . .. . . . $ 3,707.13
Legal fees and expenses . . . . . . . . . . 51,000.00
Printing and engraving expenses . . . . . . 3,000.00
Accounting fees and expenses . . . . . . . 40,000.00
Blue sky fees and expenses . . . . . . . . 8,000.00
Transfer agent registration fees and expenses . . 1,000.00
Miscellaneous Expenses . . . . . . . . . . . . 3,292.87
Total . . . . . . . . . . . . . . . . . . . . . $ 110,000.00
RECENT SALES OF UNREGISTERED SECURITIES
On April 4, 1997, the Company issued 140,000 shares of common stock at a
price of $.039 per share to Nickolas Reissis, an accredited investor, under Rule
504 of Regulation D promulgated under the Securities Act, resulting in proceeds
to the Company of $5,400.
On April 4, 1997, the Company issued 2,500,000 shares of common stock at a
price of $.0255 per share to LaSalle Investments, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $63,750.
On July 10, 1997, the Company issued 800,000 shares of common stock at a
price of $.025 per share to Lightning Imports, Inc., an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $20,000.
II-1
<PAGE>
On July 25, 1997, the Company issued 400,000 shares of common stock at a
price of $.025 per share to Lightning Imports, Inc., an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $10,000.
On November 15, 1997, the Company issued 1,000,000 shares of common stock
at a price of $.02 per share to Royal West Sales, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $20,000.
On November 15, 1997, the Company issued 1,250,000 shares of common stock
at a price of $.028 per share to Lightning Imports, Inc., an accredited
investor, under Rule 504 of Regulation D promulgated under the Securities Act,
resulting in proceeds to the Company of $35,000.
On January 29, 1998, the Company issued 150,000 shares of common stock at a
price of $.067 per share to Gary Howard, an accredited investor, under Rule 504
of Regulation D promulgated under the Securities Act, resulting in proceeds to
the Company of $10,000.
On January 29, 1998, the Company issued options to purchase 1,000,000
shares of restricted stock at an exercise price of $.05, 1,000,000 shares of
restricted stock at an exercise price of $.07 and 1,000,000 shares of restricted
stock at $.09 to Patrick Rost, an accredited investor and a consultant to the
Company, in connection with a consulting agreement. These issuances were under
Section 4(2) of the Securities Act. The options at $.05 and at $.07 were
exercised. The options at $.09 expired unexercised.
On January 29, 1998, the Company issued 400,000 shares of common stock at a
price of $.035 per share to Pat Rost, an accredited investor, under Rule 504 of
Regulation D promulgated under the Securities Act, resulting in proceeds to the
Company of $14,000.
On March 4, 1998, the Company issued 1,000,000 shares of common stock at a
price of $.0325 per share to Oriental New Investments, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $32,500.
On March 11, 1998, the Company issued 25,000 shares of common stock at a
price of $.04 per share to Financial Power Network, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $1,000.
On April 2, 1998, the Company issued 777,778 shares of common stock at a
price of $.045 per share to Charles Dunn, an accredited investor, under Rule 504
of Regulation D promulgated under the Securities Act, resulting in proceeds to
the Company of $35,000.
On April 2, 1998, the Company issued 100,000 shares of common stock at a
price of $.025 per share to Financial Power Network, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $2,500.
II-2
<PAGE>
On May 1, 1998, the Company issued 1,250,000 shares of common stock at a
price of $.03 per share to Lightning Imports, an accredited investor, under Rule
504 of Regulation D promulgated under the Securities Act, resulting in proceeds
to the Company of $37,500.
On June 30, 1998, the Company issued 1,066,666 shares of common stock at a
price of $.048 per share to Oriental New Investments, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $51,500.
On August 5, 1998, the Company sold an aggregate of $100,000 face value
convertible debenture to an accredited investor under Rule 504 of Regulation D.
The debenture was convertible at a discount into shares of common stock of the
Company at the discretion of the holder thereof. The entire debenture was
converted into an aggregate of 3,214,922 shares of common stock.
On August 8, 1998, the Company issued 200,000 shares of common stock at a
price of $.05 per share to Patrick Rost, an accredited investor, under Rule 504
of Regulation D promulgated under the Securities Act, in consideration for
consulting services valued at $10,000.
On August 21, 1998, the Company issued 800,000 shares of common stock at a
price of $.05 per share to James Cannon, an accredited investor and an officer
of the Company, under Rule 504 of Regulation D promulgated under the Securities
Act, resulting in proceeds to the Company of $40,000.
On September 2, 1998, the Company issued 700,000 shares of common stock at
a price of $.025 per share to JPMJ, Inc., an accredited investor, under Rule 504
of Regulation D promulgated under the Securities Act, resulting in proceeds to
the Company of $17,500.
On September 14, 1998, the Company issued 450,000 shares of common stock at
a price of $.055 per share to Oriental New Investments, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $25,000.
On October 1, 1998, the Company issued 1,000,000 shares of common stock at
a price of $.05 per share to Patrick Rost, an accredited investor, under Rule
504 of Regulation D promulgated under the Securities Act, resulting in proceeds
to the Company of $50,000.
On October 2, 1998, the Company issued 1,675,000 shares of common stock at
a price of $.025 per share to Lightning Imports, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $41,875.
On October 2, 1998, the Company issued 1,675,000 shares of common stock at
a price of $.025 per share to Patrick Rost, an accredited investor, under Rule
504 of Regulation D promulgated under the Securities Act, resulting in proceeds
to the Company of $41,875.
II-3
<PAGE>
On November 11, 1998, the Company sold an aggregate of $125,000 face value
convertible debenture to two accredited investors under Rule 504 of Regulation
D. The debentures were convertible at a discount into shares of common stock of
the Company at the discretion of the holders thereof. The two debentures were
converted into an aggregate of 5,000,000 shares of common stock.
On January 5, 1999 the Company sold an aggregate of $121,500 face value
convertible debenture to two accredited investors under Rule 504 of Regulation
D. The debentures were convertible at a discount into shares of common stock of
the Company at the discretion of the holders thereof. The two debentures were
converted into an aggregate of 2,963,658 shares of common stock.
On January 26, 1999, the Company issued 3,000,000 shares of common stock at
a price of $.033 per share to Oriental New Investments, an accredited investor,
under Rule 504 of Regulation D promulgated under the Securities Act, resulting
in proceeds to the Company of $100,000.
On January 26, 1999, the Company issued 285,714 shares of common stock at a
price of $.035 per share to Joseph Lynde, an accredited investor, under Rule 504
of Regulation D promulgated under the Securities Act, resulting in proceeds to
the Company of $10,000.
On January 26, 1999, the Company issued 1,714,286 shares of common stock at
a price of $.035 per share to Lightning Imports, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $60,000.
On February 18, 1999, the Company sold an aggregate of $100,000 face value
convertible debenture to an accredited investor under Rule 504 of Regulation D.
The debenture was convertible at a discount into shares of common stock of the
Company at the discretion of the holder thereof. The entire debenture was
converted into an aggregate of 1,949,991 shares of common stock.
On March 15, 1999, the Company issued 2,000,000 shares of common stock at a
price of $.05 per share to LaSalle Investments, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $100,000.
On April 16, 1999, the Company issued 4,000,000 shares of common stock at a
price of $.03125 per share to LaSalle Investments, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $125,000.
On April 19, 1999, the Company issued 1,250,000 shares of common stock to
Scott Claverie, an accredited investor and President of AMS Acquisition
Corporation which develops and maintains our ShopGoOnline division, which shares
were valued at $.275 per share. This issuance was completed in accordance
with Section 4(2) of the Securities Act.
In June 1999, the Company issued 500,000 shares to the two shareholders of
Auctionomics, Inc. in connection with the acquisition of Auctionomics, Inc. by
the Company. This issuance was exempt under Section 4(2) of the Securities Act.
II-4
<PAGE>
On August 11, 1999, the Company issued 800,000 shares of common stock at a
price of $.1125 per share to LaSalle Investments, an accredited investor, under
Rule 504 of Regulation D promulgated under the Securities Act, resulting in
proceeds to the Company of $90,000.
In September 1999, the Company issued 200,000 shares of restricted common
stock valued at $.42 and options to purchase 1,000,000 shares of common stock at
$.50 per share to Patrick Rost in connection with a consulting agreement. This
issuance was pursuant to Section 4(2) of the Securities Act.
On September 8, 1999 the Company completed a reorganization which resulted
in all shareholders of Jones Naughton Entertainment, Inc., a Colorado
corporation, effectively receiving a share of Go Online Networks Corporation, a
Delaware corporation in accordance with a tax free reorganization and
reincorporation. This issuance was exempt in accordance with Section 3(a)(8) of
the Securities Act.
On Septmeber 20, 1999 the Company sold a Convertible Note to Triton Private
Equities Fund, L.P., an accredited investor, for $350,000. In connection with
the sale of the Convertible Note, the Company issued warrants to purchase
175,000 shares at $.50 per share to Triton and warrants to purchase 17,500
shares at $.50 per share to Ganesh Ltd., an accredited investor and a finder in
the transaction.
On October 4, 1999, the Company issued 1,320,833 shares of common stock at
a price of $.158 per share to Oriental New Investments, an accredited investor
and a Colorado resident entity, under Rule 504 of Regulation D promulgated under
the Securities Act, resulting in proceeds to the Company of $208,750.
On October 6, 1999, the Company issued 208,333 shares of "restricted"
common stock (as that term is defined under Rule 144 of the Securities Act) to
Cutler Law Group and certain of its employees, the Company's legal counsel and
an accredited investor, in exchange for legal services rendered valued at
$70,000. The Company relied upon Section 4(2) of the Securities Act for the
issuance.
On October 6, 1999, the Company issued 100,000 shares of "restricted"
common stock (as that term is defined under Rule 144 of the Securities Act) to
Fred Turner, the Company's litigation legal counsel and an accredited investor,
in exchange for legal services rendered valued at $30,000. The Company relied
upon Section 4(2) of the Securities Act for the issuance.
EXHIBITS
Exhibit No. Description
- ----------- -----------
*2.1 Agreement and Plan of Merger of Go Online Networks
Corporation, a Delaware corporation, and Jones Naughton
Entertainment, Inc. a Colorado corporation, dated
September 8, 1999.
II-5
<PAGE>
*2.2 Certificate of Merger of Jones Naughton Entertainment, Inc.
into Go Online Networks Corporation, dated
August 12, 1999.
*2.3 Articles of Merger of Jones Naughton Entertainment, Inc.
with Go Online Networks Corporation, dated
September 8, 1999.
*3.1 Articles of Incorporation of Valencia Capital, Inc., filed
October 20, 1987.
*3.2 Articles of Amendment to the Articles of Incorporation of
Valencia Capital, Inc., filed February 7, 1991.
*3.3 Articles of Amendment to the Articles of Incorporation of
Jones Naughton Entertainment, Inc., filed July 27, 1994.
*3.4 Articles of Amendment to the Articles of Incorporation of
Jones Naughton Entertainment, Inc., filed July 28, 1994.
*3.5 Certificate of Designation for Jones Naughton Entertainment,
Inc., dated June 8, 1994.
*3.6 Bylaws of Jones Naughton Entertainment, Inc., as amended.
*3.7 Certificate of Incorporation of Go Online Networks
Corporation, dated August 11, 1999.
*3.8 Certificate of Designation for Go Online Networks
Corporation, dated August 13, 1999.
*3.9 Bylaws of Go Online Networks Corporation.
*3.10 Articles of Incorporation of AMS Acquisition Corp., filed
June 29, 1998.
*3.11 Bylaws of AMS Acquisition Corp.
5 Opinion of Cutler Law Group with respect to legality
of the securities of the Registrant begin registered
*10.1 Agreement and Plan of Reorganization by and among Amerinet
Financial Systems, Inc., Jones Naughton Entertainment,
Inc., Real Estate Television Network, Inc. and Amerinet,
Inc., dated August 1996.
**10.2 Stock Purchase Agreement between Amerinet Financial
Services, Inc. and Jones Naughton Entertainment,
Inc., dated October 1996.
*10.3 Escrow Agreement between Jones Naughton Entertainment, Inc.,
Amerinet Financial Systems, Inc. and MRC Legal Services
Corporation, dated February 12, 1997
*10.4 Form of Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and investors for 504 Stock Sales from
January 1997 through April 1999.
*10.5 Escrow Agreement between Jones Naughton Entertainment, Inc.,
Michael Rost and MRC Legal Services Corp., dated
November 17, 1997.
*10.6 Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and Joe Lynde, dated
November 17, 1997.
*10.7 Escrow Agreement between Jones Naughton Entertainment, Inc.,
Joseph Lynde and MRC Legal Services Corp., dated
November 17, 1997.
II-6
<PAGE>
*10.8 Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and David Evans, dated
November 17, 1997.
*10.9 Escrow Agreement between Jones Naughton Entertainment, Inc.,
David Evans and MRC Legal Services Corp., dated
November 17, 1997.
*10.10 Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and Patricia L. Schonebaum IRA Account,
dated November 17,
1997.
*10.11 Escrow Agreement between Jones Naughton Entertainment,
Inc., Patricia L. Schonebaum IRA Account and MRC Legal
Services Corp., dated November 17, 1997.
*10.12 Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and Patricia L. Schonebaum, dated
November 17, 1997.
*10.13 Escrow Agreement between Jones Naughton Entertainment,
Inc., Patricia L. Schonebaum and MRC Legal Services Corp.,
dated November 17, 1997.
*10.14 Stock Purchase Agreement between Jones Naughton
Entertainment, Inc. and Joy F. Evans, dated
November 17, 1997.
*10.15 Escrow Agreement between Jones Naughton Entertainment,
Inc., Joy F. Evans and MRC Legal Services Corp., dated
November 17, 1997.
*10.16 Agreement for Purchase and Sale of Assets between Sign
Products of America, Inc. and Jones Naughton Entertainment,
Inc., dated March 1998.
*10.17 Agreement for Purchase and Sale of Assets between
Affiliated Marketing Services, Inc. and AMS Acquisition
Corp., dated July 8, 1998.
*10.18 Employment Agreement between AMS Acquisition Corp. and Paul
Hentschl effective July 8, 1998.
*10.19 First Company Security Agreement in favor of Affiliated
Marketing Services, Inc., dated July 8, 1998.
*10.20 Company Security Agreement in favor of Paul Hentschl, dated
July 8, 1998.
*10.21 Secured Promissory Note payable to Paul Hentschl, dated
July 8, 1998.
*10.22 Agreement for Purchase and Sale of Assets between AMS
Acquisition Corp. and Affiliated Marketing Services,
Inc., dated January 11, 1999.
*10.23 Addendum to Agreement for Purchase and Sale of Assets
between AMS Acquisition Corp. and Affiliated Marketing
Services, Inc., dated January 13, 1999.
*10.24 Joint Venture Agreement by and between Jones Naughton
Entertainment, Inc. and Scott Claverie, dated
February 26, 1999.
*10.25 Employment Agreement between Jones Naughton Entertainment,
Inc. and James Cannon, effective April 12, 1999.
II-7
<PAGE>
*10.26 Stock Exchange Agreement by and between Jones Naughton
Entertainment, Inc. and Scott Claverie, dated
April 19, 1999.
*10.27 Independent Consultant Agreement between Jones Naughton
Entertainment, Inc. and Michael Abelson, effective
May 1, 1999.
*10.28 Marketing Agreement between Jones Naughton Entertainment,
Inc. and PDQ Internet , dated May 3, 1999.
*10.29 Marketing Agreement between Jones Naughton Entertainment,
Inc. and ieXe, dated June 4, 1999.
*10.30 Reorganization and Stock Purchase Agreement between Jones
Naughton Entertainment, Inc. and Auctionomics, Inc.,
dated June 10, 1999.
*10.31 Consulting Agreement between Auctionomics, Inc. and WLTC,
LLT, effective June 10, 1999.
*10.32 Vendor Agreement between GoOn-line.com and 5th Avenue
Channel, dated June 1999.
*10.33 Addendum to Reorganization and Stock Purchase Agreement
between Jones Naughton Entertainment, Inc. and Auctionomics,
Inc., dated June
25, 1999.
*10.34 Form of Securities Subscription Agreement between Jones
Naughton Entertainment, Inc. and certain Investors for
3% Series A Convertible Debentures due July 30, 2000
*10.35 Form of 3% Series A Convertible Debenture due July 30, 2000
*10.36 Form of Escrow Agreement between Jones Naughton
Entertainment, Inc., certain Investors, and
Edward H. Birnbaum, Esq., as escrow agent, for the Company's
3% Series A Convertible Debentures due July 30, 2000.
*10.37 Employment Agreement between Jones Naughton Entertainment,
Inc. and Jeffrey F. Reynolds, effective August 9, 1999.
*10.38 Office Lease between Jones Naughton Entertainment, Inc. and
eOfficeSuites, Inc. dated August 12, 1999.
*10.39 Consulting and Financial Services Agreement between Jones
Naughton Entertainment, Inc. and Patrick M. Rost dated
September 15, 1999.
*10.40 Employment Agreement between AMS Acquisition Corp. and Matt
Herman, effective October 1, 1999.
*10.41 Lease Proposal for 5681 Beach Blvd., Buena Park, CA 90621
for Jones Naughton Entertainment, Inc. dated
July 21, 1999.
*10.42 Lease Agreement between GoOn-Line.com and Design Arts
Building Associates dated April 29, 1999
*10.43 Securities Purchase Agreement between Go Online Networks
Corporation and Triton Private Equities Fund, L.P.,
dated September 20, 1999
*10.44 Series 1999-A Eight Percent Convertible Promissory Note due
October 1, 2001 dated September 21, 1999 issued to Triton
Private Equities Fund, L.P.
II-8
<PAGE>
*10.45 Warrant to Purchase Common Stock dated September 21, 1999
issued to Triton Private Equities Fund, L.P.
*10.46 Registration Rights Agreement between Go Online Networks
Corporation and Triton Private Equities Fund, L.P.
dated September 20, 1999
*10.47 Escrow Agreement among Go Online Networks Corporation,
Triton Private Equities Fund, L.P. and H. Glenn
Bagwell, Jr., as escrow agent, dated as of
September 20, 1999
***10.48 Employment Agreement between AMS Acquisition Corp. and Scott
Claverie dated September 1, 1999.
10.49 Form of Site Agreement
10.50 Agreement between Auctionomics, Inc. and Classified
Auctions.com, LLC
10.51 Agreement between Ingram Book Company and Go Online Networks
Corporation dated November 22, 1999
10.52 Agreement between LinkShare Corporation and Go Online
Networks Corporation
10.53 Agreement between Infotouch Technologies Corporation and Go
Online Networks Corporation dated June 22, 1999
10.54 Memorandum of Understanding between Icom Network and Go
Online Networks Corporation dated March 8, 1999
10.55 Invoice dated June 14, 1999 reflecting Agreement between
Websites Results and Go Online Networks Corporation
10.56 Investment Agreement dated November 29, 1999 between
Triton Private Equities Fund LP and Go Online
Networks Corporation
10.57 Registration Rights Agreement dated November 29, 1999
between Triton Private Equities Fund LP and Go Online
Networks Corporation
10.58 Form of Warrant to Purchase Common Stock issuable to Triton
Private Equities Fund LP by Go Online Networks
Corporation
*21 List of Subsidiaries
23.1 Consent of Schumacher & Associates, independent public
accountants
23.2 Consent of Cutler Law Group (included in their opinion set
forth as Exhibit 5 hereto)
*24 Power of Attorney
__________________
* Previously filed
** Corrected version from prior filing
*** Agreement not executed
II-9
<PAGE>
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as express in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication such issue.
II-10
<PAGE>
(5) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(6) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that is has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Buena Park, State of California, on
December 1, 1999.
Go Online Networks Corporation
By: /s/ Joseph M. Naughton
----------------------------------
Joseph M. Naughton
President and Chief Executive Officer
II-12
CUTLER LAW GROUP
610 NEWPORT CENTER DRIVE, SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(949)719-1977 M. Richard Cutler, Esq.
FAX: (949) 719-1988 Brian A. Lebrecht, Esq.
www.cutlerlaw.com Vi Bui, Esq.
================================================================================
December 1, 1999
Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C. 20549
Re: Go Online Networks Corporation
Ladies and Gentlemen:
This office represents Go Online Networks Corporation, a Delaware
corporation (the "Registrant") in connection with the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933 (the "Registration
Statement"), which relates to the resale of (i) up to 27,027,027 shares of
common stock issuable in connection with an Investment Agreement between the
Registrant and Triton Private Equities Fund L.P. (the AInvestment Agreement
Shares@) (ii) up to an additional 2,834,010 shares of common stock issuable upon
the conversion of the Series 1999-A Eight Percent Convertible Note (the
AConversion Shares@), (iii) up to 453,442 shares of common issuable in
satisfaction of interest due under the Notes (the AInterest Shares@), (iv) up to
192,500 shares of common stock issuable upon the exercise of warrants issued to
the Note holder (the ANoteholder Warrant Shares@), (v) up to 1,000,000 shares
issuable upon the exercise of warrants issued to an investor in the Registrant
(the AWarrant Shares@), and (vi) 308,333 shares of common stock issued to the
Registrant=s legal counsel (the ALegal Shares@). For purposes hereinafter, the
Investment Agreement Shares, Conversion Shares, Interest Shares, Noteholder
Warrant Shares, Warrant Shares and Legal Shares, together with the components of
each of the foregoing, are collectively referred to as the "Registered
Securities." In connection with our representation, we have examined such
documents and undertaken such further inquiry as we consider necessary for
rendering the opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that the Registered Securities,
when issued as set forth in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We acknowledge that we are referred to under the heading "Legal Matters" in
the Prospectus which is a part of the Registrant's Form SB-2 Registration
Statement relating to the Registered Securities, and we hereby consent to such
use of our name in such Registration Statement and to the filing of this opinion
as Exhibit 5 to the Registration Statement and with such state regulatory
agencies in such states as may require such filing in connection with the
registration of the Registered Securities for offer and sale in such states.
CUTLER LAW GROUP
AGREEMENT AND
PLAN OF REORGANIZATION
DATED OCTOBER 2,1996
BY AND AMONG
ANERINET FINANCIAL SYSTEMS, INC.,
JONES NAUGHTON ENTERTAINMENT, INC.,
REAL ESTATE TELEVISION NETWORK INC.
AND
ANFS, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. Certain Definitions 1
1.1 "Affiliate" 1
1.2 "AMERINET Financial Statements " 1
1.3 "AMERINET Products/Services" 2
1.4 "AMERINET Series A Stock" 2
1.5 "Closing " 2
1.6 "Closing Date " 2
1.7 "Code " 2
1.8 "Commission " 2
1.9 "Effective Time " 2
1.10 "GAAP " 2
1.11 "JNE Lock-up Shares " 2
1.12 "Material Adverse Effect" 2
1.13 "Notice of Claim " 2
1.14 "Notice of Objection " 2
1.15 "RETN Common Stock " 2
1.16 "RETN Disclosure Schedule" 2
1.17 "RETN Financial Statements" 2
1.18 "RETN' Products/Services " 3
1.19 Securities Act " 3
1.20 "Transaction Documents " 3
1.21 "AMERINET Disclosure Schedule" 3
2. Plan of Reorganization 3
2.1 The Merger 3
2.2 AMERINET Series A Stock 4
2.3 Conversion of Shares 4
2.4 Fractional Shares 4
2.5 Lock-up Arrangement 4
2.6 Contingent Shares 4
2.7 The Closing 5
2.8 Effective Time 5
2.9 Tax Free Reorganization 5
3. Representations and Warranties of JNE and RETN 5
3.1 Organization 5
3.2 Capitalization of RETN 6
3.3 Power, Authority and Validity 6
3.4 Financial Statements 7
3.5 Tax Matters 7
3.6 Tax-Free Reorganization 8
3.7 Absence of Certain Changes or Events 8
3.8 Title and Related Matters 10
3.9 Proprietary Rights 10
3.10 Employee Benefit Plans 11
3.11 Bank Accounts 11
3.12 Contracts 11
3.13 Insider Transactions 13
3.14 Insurance 13
3.15 Disputes and Litigation 13
3.16 Compliance with Laws 14
3.17 Subsidiaries 14
3.18 Environmental Matters 14
3.19 Corporate Documents 15
3.20 No Brokers 15
<PAGE>
3.21 Disclosure 15
4. Representations and Warranties of AMERINET and ANFS 16
4.1 Corporate Existence and Authority of AMERINET 16
4.2 Capitalization of AMERINET 16
4.3 Subsidiaries 17
4.4 Execution of Agreement 17
4.5 Taxes 17
4.6 Disputes and Litigation 17
4.7 Compliance with Laws 18
4.8 Guaranties 18
4.9 Financial Statements 18
4.10 Tax-Free Reorganization 19
4.11 Title and Related Matters 19
4.12 Proprietary Rights 19
4.13 Environmental Matters 20
4.14 No Brokers 21
4.15 Disclosure 21
5. Preclosing Covenants of RETN and JNE 21
5.1 Notices and Approvals 21
5.2 Employment Agreements, Other Commitments Terminated 21
5.3 Advice of Changes 21
5.4 Information for AMERINET's Statements and Applications 22
5.5 Conduct of Business by RETN 22
6. Mutual Covenants 23
6.1 No Public Announcement 23
6.2 Other Negotiations 23
6.3 Due Diligence Investigation, and Audits 24
6.4 Regulatory Filings; Consents; Reasonable Efforts 24
6.5 Further Assurances 24
7. Closing Matters 24
7.1 Filing of Certificate of Merger 24
7.2 Exchange of Certificates 25
7.3 Delivery of Contingent Shares 25
7.4 Delivery of Documents 25
8. Conditions to RETN's Obligations 25
8.1 Accuracy of Representations and Warranties 25
8.2 Covenants 25
8.3 No Litigation 25
8.4 No Adverse Development 26
8.5 Authorizations 26
8.6 Government Consents 26
8.7 Filing of Certificate of Merger 26
8.8 Registration Rights Agreement 26
9. Conditions to AMERINET's and ANFS' Obligations 27
9.1 Accuracy of Representations and Warranties 27
9.2 Covenants 27
9.3 No Litigation 27
9.4 Authorizations 28
9.5 No Adverse Development 28
9.6 Government Consents 28
9.7 Filing of Certificate of Merger 28
<PAGE>
10. Termination of Agreement 28
10.1 Termination 28
10.2 Liability for Termination 28
10.3 Certain Effects of Termination 29
10.4 Remedies 29
11. Indemnification 29
11.1 Survival of Representations, Warranties, Covenants
and Agreements 29
11.2 Indemnification by JNE 30
11.3 Indemnification ion by AMERINET and ANFS 30
11.4 Claims for Indemnification 30
11.5 Arbitration 31
11.6 Limitation on Indemnification 32
11.7 Lock-up 32
12. Miscellaneous 33
12.1 Governing Laws 33
12.2 Binding upon Successors and Assigns 33
12.3 Severability 33
12.4 Entire Agreement 33
12.5 Counterparts 33
12.6 Expenses 33
12.7 Amendment and Waivers 34
12.8 Survival of Agreements 34
12.9 No Waiver 34
12.10 Attorneys' Fees 34
12.11 Notices 34
12.12 Time 35
12.13 Construction of Agreement 35
12.14 No Joint Venture 35
12.15 Pronouns 35
12.16 Further Assurances 35
12.17 Absence of Third-Party Beneficiary Rights 36
Exhibits and Schedules
Exhibit A Certificate of Merger
Exhibit B Certificate of Incorporation
Exhibit C Form of Legal Opinion to be Delivered by Counsel to RETN
Exhibit D Form of Legal . Opinion to be Delivered by Counsel to ANFS
ANFS Schedule
RETN Schedule
1
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered into
effective as of October 1, 1996, by and among AMERINET FINANCIAL SYSTEMS, INC.,
a Florida corporation ("AMERINET"), JONES NAUGHTON ENTERTAINMENT, INC., a
Colorado corporation ("JNE"), REAL ESTATE TELEVISION NETWORK, INC., a Nevada
corporation ("RETN"), and ANFS, INC., a Delaware corporation ("ANFS" and
"Surviving Corporation").
RECITALS
--------
A. RETN is a wholly-owned subsidiary of JNE and ANFS is a wholly-owned
subsidiary of AMERINET.
B. Subject to and in accordance with the terms and conditions of this
Agreement and pursuant to the Certificate of Merger attached hereto as Exhibit A
("Certificate of Merger"), the parties intend that RETN will merge with and into
ANFS (the "Merger"), whereby at the Effective Time, all of the RETN Common Stock
will be converted into One Million (1,000,000) AMERINET Series A Preferred Stock
Shares.
C. An additional Four Hundred Thousand (400,000) shares of AMERINET. Series
A. Preferred Stock may be issued to JNE upon the occurrence of certain
contingencies.
D. For federal income tax purposes, it is intended that the Merger shall
qualify as a tax free reorganization within the meaning of 368(a)(2)(D) of the
Code.
E. The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.
AGREEMENT
---------
NOW, THEREFORE in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Certain Definitions.
---------------------
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "AMERINET Financial Statements" shall mean AMERINET's audited
balance sheet as of June 30, 1996, and statements of operations, stockholders'
equity and cash flow for the three (3) month period then-ended, and the audited
balance sheet as of March 31, 1996, and statements of operations, stockholders
equity and cash flow for the twelve (12) month period then ended.
1.3 "AMERINET Products/Services" shall mean all products or services
which have been, or are being, marketed by ANFS or arc currently under
development, and all trade secrets, copyrights, trademarks, trade names and
other proprietary rights related to such products or services.
1.4 "AMERINET Series A Stock" shall mean the Series A Preferred Stock
of AMERINET issued to JNE in the Merger, the rights of which are described in
Section 2.2.
1.5 "Closing" shall mean the closing of the transactions contemplated
by this Agreement.
1.6 "Closing Date" shall mean the date of the Closing.
1.7 "Code" shall mean the United States Internal Revenue Code of 1986,
as amended.
1.8 "Commission" shall mean the United States Securities and Exchange
Commission.
2
<PAGE>
1.9 "Effective Time" shall mean the date and time of the effectiveness
of the Merger under Delaware law.
1.10 "GAAP" shall mean generally accepted accounting principles.
1.11 "JNE Lock-up Shares" shall mean the shares of AMERINET Series A
Stock issued to JNE in the Merger pursuant to Section 2.5.
1.12 "Material Adverse Effect" shall mean a material adverse effect on
the business, properties, prospects, condition (financial or otherwise) or
results of operations of an entity taken as a whole.
1.13 "Notice of Claim" shall mean a notice of a claim of
indemnification arising under Section 11.
1.14 "Notice of Objection" shall mean a notice of an objection to a
claim of indemnification arising under Section 11.
1.15 "RETN Common Stock" shall mean all of the outstanding shares of
Common Stock of RETN.
1.16 "RETN Disclosure Schedule" shall mean the disclosure schedule
attached hereto and provided to AMERINET and ANFS by JNE and RETN disclosing
such items and matters as arc required to be disclosed under this Agreement.
1.17 "RETN Financial Statements" shall mean RETN's 'compiled' balance
sheet as of June 30, 1996, and statements of operations, stockholders' equity
and cash flow for the six (6) month period then-ended, and the audited balance
sheet as of December 31, 1995, and statements of operations, stockholder's
equity and cash flow for the twelve (12) month period then ended.
1.18 "RETN Products/Services" shall mean all products or services which
have been, or are being, marketed by RETN, or are currently under development,
and all patents, patent applications, trade secrets, copyrights, trademarks,
trade names and other proprietary rights related to such products or services.
1.19 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.20 "Transaction Documents" shall mean all documents or agreements
attached as an exhibit or schedule hereto, and set forth on the Table of
Contents.
1.21 "AMERINET Disclosure Schedule" shall mean the disclosure schedule
attached hereto and provided to JNE and RETN by AMERINET and ANFS disclosing
such items and matters as are required to be disclosed under this Agreement.
2. Plan of Reorganization.
2.1 The Merger. Subject to the terms and conditions of this Agreement
and the Certificate of Merger, RETN shall be merged with and into ANFS in
accordance with the applicable provisions of the laws of the State of Delaware,
and with the terms and conditions of this Agreement and the Certificate of
Merger, so that:
(a) At the Effective Time (as defined in Section 2.7 (below)), RETN shall
be merged with and into ANFS. As a result of the Merger, the separate corporate
existence of RETN shall cease, and ANFS shall continue as the surviving
corporation, and shall succeed to and assume all of the rights and obligations
of RETN in accordance with the laws of Delaware.
3
<PAGE>
(b) The Certificate of Incorporation and Bylaws of ANFS in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws, respectively, of the Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) Subject to the terms of this Agreement, the directors and officers of
ANFS immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation after the Effective Time. Such directors and
officers shall hold their position until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the Bylaws of the Surviving Corporation.
2.2 AMERINET Series A Stock. The AMERINET Series A Stock Shall have the
following preferred rights:
(a) The AMERINET Series A Stock shall have no voting rights except as
required by law and as provided in ANFS' Certificate of Incorporation attached
hereto as Exhibit B.
-----------
(b) Each of the Preferred Shares will have a liquidation preference of
Three Dollars ($3.00) per share. After payment in full of such liquidation
amount, the Common Stock shareholders shall then each receive a liquidation
payment of Three Dollars ($3.00) per share. Thereafter, all Common Stock and
Preferred Stock shareholders of AMERINET shall participate equally on a per
share basis in any further liquidation payments
(c) Each of the Preferred Sham will have an annual, noncumulative dividend
preference equal to Eighteen Cents ($0.18) per share. Following the payment of
this dividend preference in any year, the Preferred Shares will participate with
the AMERINET Common Stock equally on a Share-for-share basis in any remaining
dividend distributions.
(d) The Preferred Shares will automatically convert into AMERINET Common
Stock, on a one-for-one basis, upon either 01 the closing(s) of any equity
offering(s) for the account of AMERINET which results in aggregate gross cash
proceeds to AMERINET of at least $20,000,000 received after the Effective Time
or (it) at such time that AMERINET is listed and trading as a National Market
System company on NASDAQ.
2.3 Conversion of Shares. Each share of RETN Common Stock, issued and
outstanding immediately prior to the Effective Time, will, by virtue of the
Merger, and at the Effective Time, and without further action on the part of any
holder thereof, be converted into two thousand (2,000) shares of fully paid and
nonassessable shares of AMERINET Series A Stock.
2.4 Fractional Shares No fractional shares of AMERINET Series A Stock
will be issued in connection with the Merger.
2.5 Lock-up Arrangement. At the Effective Time, certificates
representing Four Hundred Thousand (400,000) of the shares of the AMERINET
Series A Stock issued to JNE in the Merger SHALL be subject to a lock-up. The
JNE Lock-up Sham shall be held as collateral for the indemnification obligation
of JNE under Section 11 and pursuant to the provisions of a lock-up agreement to
be entered into between the parties, with the terms of such agreement to be
mutually agreed upon, which terms shall not be inconsistent with the terms set
forth in this Agreement.
2.6 Contingent Shares JNE shall be issued in additional Four Hundred
Thousand (400,000) AMERINET Series A Stock shares (the *Contingent Shares") on
the six month anniversary date following the Closing Date (the "Contingent Share
Date") if, on, or before such anniversary, RETN shall have sold, delivered and
received payment subsequent to the Closing Date for not less than 10 real estate
satellite system to new clients and AMERINET shall have raised not less than
$750,000 in equity financing on terms reasonably acceptable to AMERINET
following the Closing.
2.7 The Closing. Subject to termination of this Agreement as provided in
Section 10 (below), the Closing shall take place at the offices of AMERINET as
soon as possible upon the satisfaction or waiver of all conditions set forth in
Sections 8 and 9 hereof, or such other time and place as is mutually agreeable
to the parties.
2.8 Effective Time. Simultaneously with the Closing, the Certificate of
Merger shall be filed in the office of the Secretary of State of the State of
Delaware. The Merger shall become effective immediately upon the filing of the
Certificate of Merger with such office.
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2.9 Tax Free Reorganization. The parties intend to adopt this Agreement as
a tax-free plan of reorganization to consummate the Merger in accordance with
the provisions of '368(a)(2)(D) of the Code. Each parry agrees that it will not
take or assert any position on any tax return, report or otherwise which is
inconsistent with the qualification of the Merger as a reorganization within the
meaning of 5368(a) of the Code. Except for cash paid in lieu of fractional
shares, no consideration that could constitute "other property" within the
meaning of S356 of the Code is being paid by ANFS for the RETN Common Stock. In
addition, ANFS represents now, and as of the Closing Date, that it presently
intends to continue RETN's historic business. or use a significant -portion -of
RETN's business assets in a business.
3. Representations and Warranties of JNE and RETN. Except as otherwise
set forth in the RETN Disclosure Schedule attached hereto, JNE and RETN jointly
and severally represent and warrant to AMERINET and ANFS as set forth below. No
fact or circumstance disclosed shall constitute an exception to these
representations and wan-antics unless such fact or circumstance is set forth in
the RETN Disclosure Schedule or such supplements thereto as may mutually be
agreed upon in writing by JNE, RETN, AMERINET and ANFS.
3.1 Organizaton. RETN and JNE are corporations duly organized, validly
existing and in good standing under the laws of the state of incorporation of
such entity and have the corporate power and authority to carry on their
respective businesses as it is now being conducted. RETN and JNE am duly
qualified or licensed to do business and are in good standing in each
jurisdiction in which the nature of their respective businesses or properties
makes such qualification or licensing necessary except where the failure to be
so qualified would not have a Material Adverse Effect on RETN and JNE. The RETN
Disclosure Schedule contains a true and complete listing of the locations of all
sales offices, manufacturing facilities, and any other offices or facilities of
RETN, and a true and complete list of all states in which RETN maintains any
employees. The RETN Disclosure Schedule contains a true and complete list of all
states in which RETN is duly qualified to transact business as a foreign
corporation. True and complete copies of RETN's Articles of Incorporation and
Bylaws, as in effect on the date hereof and as to be in effect: as of the
Closing, have been provided to AMERINET, ANFS or its representatives.
3.2 Capitalization of RETN.
(a) General. As of the Closing Date, the authorized equity securities
of RETN will consist of two thousand five hundred (2,500) shares of common
stock, of which
five hundred (500) shares are issued and outstanding, and no (-0-) shares of
Preferred Stock, of
which no shares are issued and outstanding. No other shires of capital stock are
issued and
outstanding. All of ' of the issued and outstanding shares have been duly and
validly issued in
accordance and compliance with all applicable laws, rules and regulations and
are fully paid
and nonassessable. There are no options, warrants, rights, calls, commitments,
plans, contracts
or other agreements of any character granted or issued by RETN which provide for
the
purchase, issuance or transfer of any shares of the capital stock of RETN nor
are there any
outstanding securities granted or issued by RETN that are convertible into any
shares of the
equity securities of RETN, and none is authorized.
(b) JNE Ownership. JNE is the record and beneficial owner of all such
shares of RETN Common Stock, free and clear of any and all claims, liens,
encumbrances or security interests. Neither JNE nor RETN is under any obligation
to register under the Securities Act any such shares or any other securities of
RETN that might be issued in the future if the Merger were not consummated.
Neither JNE nor RETN are a party to any voting agreement or other understanding
that affects or relates to the voting or giving of written consent with respect
to such shares or any other of RETN's securities that Might be issued in the
future if the Merger were not consummated.
5
<PAGE>
3.3 Power, Authority and Validity. JNE and RETN have the corporate power to
enter into this Agreement and the other Transaction Documents to which they are
parties and to carry out their obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Boards of Directors of JNE and RETN and no other corporate
proceedings on the part of RETN are necessary to authorize this Agreement, the
other Transaction Documents and the transactions contemplated herein and
therein. JNE and RETN are not subject to, or obligated under, any charter, bylaw
or contract provision or any license, franchise or permit, or subject to any
order or decree, which would be breached or violated by or in conflict with its
executing and carrying out this Agreement and the transactions contemplated
hereunder and under the Transaction Documents. Except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevantauthorities of other states in which RETN
is qualified to do business, and (ii) filings under applicable securities laws,
no consent of any person who is a party to a contract which is material to
RETN's business, nor consent of any governmental authority, is required to be
obtained on the part of RETN to permit the transactions contemplated herein and
to permit RETN to continue the business activities of RETN as previously
conducted by RETN without a Material Adverse Effect. This Agreement is, and the
other Transaction Documents when executed and delivered by JNE and RETN shall
be, the valid and binding obligations of JNE and RETN, enforceable in accordance
with their respective terms.
3.4 Financial Statements.
(a) RETN has delivered to AMERINET copies of the RETN Financial Statements.
(b) The RETN Financial Statements are complete and in accordance with the
books and records of RETN and present fairly the financial position of RETN as
of its historical dates. The RETN Financial Statements have been prepared in
accordance with GAAP (except for the absence of footnotes) applied on a basis
consistent with prior periods. Except and to the extent reflected or reserved
against in such balance sheets (including the notes thereto), RETN does not
have, as of the dates of such balance sheets, any liabilities or obligations
(absolute or contingent) of a nature required or customarily reflected in a
balance sheet (or the notes thereto) prepared in accordance with GAAP. The
reserves, if any, reflected on the RETN Financial Statements are adequate in
light of the contingencies with respect to which they are made.
(c) RETN has no debt, liability, or obligation of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that is not reflected or reserved against in the RETN Financial Statements,
except for those 01 that may have been incurred after the date of the RETN
Financial Statements; or (ii) that are not required by GAAP to be included in a
balance sheet or the notes thereto.
3.5 Tax Matters.
(a) RETN has fully and timely, properly and accurately filed all tax
returns and reports required to be filed by it, including all federal, foreign,
state and local tax returns and estimates for all years and periods (and
portions thereof) for which any such returns, reports or estimates were due. All
such returns, reports and estimates were prepared in the manner required by
applicable law. All income, sales, use, occupation, property or other taxes or
assessments clue from REIN have been paid. There am no pending assessments,
asserted deficiencies or claims for additional tam that have not been paid. The
reserves for taxes, if any, reflected on the RETN Financial Statements are
adequate and there are no tax liens on any property or assets of RETN. There
have been no audits examinations of any tax returns or reports by my applicable
governmental agency. No state of facts exists or his .existed which would
constitute grounds for the assessment of any penalty or of any further tax
liability beyond that shown on the respective tax -reports, returns or
estimates. There am no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, am or local income tax return or
.. report for any period.
(b) All tam which RETN has been required to collect or withhold have been
duly withheld or collected and, to the extent required. have been paid to the
proper taxing authority.
(c) RETN is not a party to any tax-sharing agreement or similar arrangement
with any other party.
(d) At no time has RETN been included in the federal consolidated tax return of
any affiliated group of corporations.
(e) No payment which RETN is obliged to pay to any director, Officer,
employee or independent contractor pursuant to the terms of an employment agree-
severance agreement or otherwise will constitute an excess parachute payment as
defined in '28OG of the Code.
(f) RETN is not currently under any contractual obligation to pay any tax
obligations of, or with respect to any transaction relating to, any other person
or to indemnify any other person with respect to- any tax.
3.6 Tax-Free Reorganization
(a) Neither RETN nor JNE his taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of 368(a) of the Code.
(b) There is no present plan or intention by JNE to sell, exchange or
otherwise dispose of the ANERR14ET Series A Stock to be received in the Merger.
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<PAGE>
(c) Neither JNE nor RETN is an *investment company as defined in
368(a)(2)(F)(iii) and (iv) of the Code.
3.7 Absence of Certain Changes or-Events Since June 30, 1996, RETN has
not:
(a) suffered any Material Adverse Effect in its financial condition or in
the operations of its business, nor any Material Adverse Effect in its balance
sheet, (with the REIN Financial Statements and any subsequent balance sheet
analyzed as if each had been prepared according to GAAP), including but not
limited to cash distributions or material decreases in the net assets of RETN;
(b) suffered any damage, destruction or loss, whether covered by insurance
or not, materially and adversely affecting its properties or business.
(c) granted or agreed to make any increase in the compensation payable or
to become payable by it to its officers or employees, except those occurring in
the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other distribution
on or in respect of the shares of its capital stock or declared any direct or
indirect redemption, retirement, purchase or other acquisition by-it of such
shares;
(e) issued any shim of its capital stock or any warrants, rights, options
or entered into any commitment relating to its shares;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise dis posed of any real property or
any machinery, equipment or other operating property other thin in the ordinary
course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset except in the ordinary course of its business;
(i) suffered any labor dispute;
(j) engaged in any activity or entered into any material commitment or
transaction (including without limitation any borrowing or capital expenditure)
other thin in the ordinary course of business;
(k) incurred any liabilities except in the ordinary course of business
(which liabilities in the ordinary course of business do not exceed $10,000 as
of the Closing Date) and consistent with past practice which would be required
to be disclosed in financial statements prepared in accordance with GAAP;
(1) permitted or allowed any of its property or assets to be subjected to
any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind, except those permitted under Section 3.8 hereof, other
than any purchase money security interests incurred in the ordinary course of
business;
(m) made any capital expenditure or commitment for additions to property,
plant or equipment individually in excess of Ten Thousand Dollars ($10,000), or
in the aggregate, in excess of Fifty Thousand Dollars ($50,000);
(n) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with
any of its Affiliates, officers, directors or stockholder or any Affiliate or
associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the RETN Disclosure
Schedule; or
(p) agreed to take any action described in Sections 2.9, 3.6 or 3.7 or
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
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<PAGE>
3.8 Title and Related Matters, RETN has good and marketable title to all
the properties, interests in properties and assets, real and personal, reflected
in the RETN Financial Statements or acquired after the date of the RETN
Financial Statements (except properties, interests in properties and assets sold
or otherwise disposed of since the date of the RETN Financial Statements in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except the lien of current
taxes not yet due and payable and except for liens which in the aggregate do not
secure more than Ten Thousand Dollars ($10,000) in liabilities. The equipment of
RETN used in the operation of its business is in good operating condition and
repair. The RETN Disclosure Schedule contains a description of all real and
personal property leased or owned by RETN, identifying such property and, in
Elie case of real property, stating the monthly rental due, term of lease and
square feet leased. True and correct copies of each of RETN's leases have been
provided to AMERINET, ANFS or its representatives.
3.9 Proprietary Rights.
(a) RETN owns all right, title and interest in and to, or valid licenses
for use of, all patents, copyrights, technology, software, software tools,
know-how, processes, trade secrets, trademarks, service marks, trade names and
other proprietary rights used in or necessary for the conduct of RETN's business
as conducted to the date hereof or contemplated, including, without limitation,
the technology and all proprietary rights developed or discovered or used in
connection with or contained in the RETN ' Products/Services, free and clear of
all liens, claims and encumbrances (including without limitation distribution
rights) (all of which are referred to as "RETN Proprietary Rights") and RETN has
the right to transfer all such rights to ANFS as contemplated hereby, which RETN
Proprietary Rights if not so owned by RETN would have a Material Adverse Effect
on RETN. The foregoing representation as it relates to RETN Third-Party
Technology (as hereinafter defined) is limited to RETN's interest pursuant to
the RETN Third-Party Licenses (as hereinafter defined), 211 Of which are valid
and enforceable and in full force and effect and which grant RETN such rights to
the RETN Third-Party Technology as are employed in or necessary to the business
of RETN as conducted or proposed to be conducted. The RETN Disclosure Schedule
contains an accurate and complete description of (i) all patents, trademarks
(with separate listings of registered and unregistered trademarks), trade names,
and registered copyrights in or related to the RETN Products/ Services, all
applications and registration statements therefor, and a list of all licenses
and other agreements relating thereto; and (ii) a list of all licenses and other
agreements with third parties (the "RETN Third-Party licenses") relating to any
inventions, technology, know-how, or processes that RETN is licensed or
otherwise authorized by such third parties to use, market, distribute or
incorporate into products distributed by RETN (such Software, inventions,
technology, know-how and processes am collectively referred to as the "RETN
Third-Party Technology"). RETN's trademark or trade name registrations related
to the RETN Products/Services and all of RETN's copyrights in any of the RETN
Products/Services are valid and in full force and effect, and consummation of
the transactions contemplated hereby will not alter or impair any such rights.
No claims have been asserted against RETN (and RETN is not aware of any claims
which am likely to be asserted against it or which have been asserted against
others) by any person challenging RETN's use, possession, manufacture,sale,
------------
provision or distribution of the RETN Products/Services under any parents,
trademarks, trade names, copyrights, trade secrets, technology, know-how or
processes utilized by RETN (including, without limitation, the RETN Third-Party
Technology) or challenging or questioning the validity or effectiveness of any
license or agreement relating thereto (including, without limitation, the RETN
Third-Party Licenses).
(b) No employee of RETN is in violation of any material term of any
employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such employee with RETN or, to
JNE's or RETN's actual knowledge, any other party because of the nature of the
business conducted by RETN or proposed to be conducted by RETN.
(c) Each person presently or previously employed by RETN
(including independent contractors, if any) with access to confidential
information has executed
a confidentiality and non-disclosure agreement pursuant to the form of agreement
previously
provided to ANFS or its representatives. Such confidentiality and non-disclosure
agreements
constitute valid and binding obligations of RETN and such person, enforceable in
accordance
with their respective terms. Neither the execution or delivery. of such
agreements, nor the
carrying on of their business as employees by such persons, nor the conduct of
their business
as currently anticipated, will conflict with or result in a breach of the terms,
conditions or
provisions of or constitute a default under any contract, covenant or instrument
under which
any of such persons is obligated.
(d) No product or service liability or warranty claims which individually
or in the aggregate could exceed One Thousand Dollars ($1,000) 'individually or
Ten Thousand ($10,000) in the aggregate have been communicated to, or threatened
against, RETN nor, to RETN's actual knowledge, is there any specific situation,
set of facts or occurrence that provides a basis for such claim.
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<PAGE>
3.10 Employee Benefit Plans There is no unfunded prior service cost with
respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by RETN. Each -bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option, and other employee benefit or fringe benefit plans, whether formal
or informal, maintained by RETN conforms to all applicable requirements of the
Employees Retirement Income Security Act of 1974. The RETN Disclosure Schedule
lists and describes all profit-sharing, bonus, incentive, deferred compensation,
vacation, severance pay, retirement, stock option, group insurance or other
plans (whether written or not) providing employee benefits.
3.11 Bank Accounts.The REIN Disclosure Schedule sets forth the names and
---------------
locations of all banks, trusts, companies, savings and loan associations, and
other financial institutions at which RETN maintains accounts of any nature and
the names of all persons authorized to draw thereon or make withdrawals
therefrom.
3.12 Contracts
(a) RETN has no agreements, contracts or commitments that provide for the
sale, licensing or distribution by RETN of any of its products, services,
inventions, technology, know-how, trademarks or trade names except in the
ordinary course *-its business.
(b) RETN has no agree ments, contracts or commitments that call for fixed
and/or contingent payments or expenditures by or to RETN of more than Ten
Thousand Dollars ($10,000).
(c) Without limiting the provisions of Section 3.9 and except for any
agreements with AMERINET or ANFS, REIN his not granted to any third party any
exclusive rights of any kind with respect to any of the RETN Products/Services.
(d) There is no outstanding sales contract, commitment or proposal of RETN
that is currently expected to result in any loss to RETN (before allocation of
overhead and administrative costs) upon completion or performance thereof which
would have a Material Adverse Effect on RETN.
(c) RETN has no outstanding agreements, contracts or commitments with
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it on notice
of not longer thin thirty (30) days and without liability, penalty or premium.
(f) RETN has no employment, independent contractor. or similar agreement,
contract or commitment that is not terminable on no more thin thirty (30) days'
notice without penalty or liability of any type, including without limitation
severance or termination pay.
(g) RETN has no currently effective collective bargaining or union
agreements, contracts or commitments.
(h) RETN is not restricted by agreement from competing with any person or
from carrying on its business anywhere in the world.
(i) RETN has not guaranteed any obligations of other persons or made any
agreements to acquire or guarantee any obligations of other persons.
(j) RETN has no outstanding loan or advance to any person; nor is it party
to any line of credit, standby financing, revolving credit or other similar
financing arrangement of any sort which would permit the -borrowing by RETN of
any sum not reflected in the REIN Financial Statements.
(k) All material contracts, agreements and instruments to which RETN is a
parry are valid, binding, in full force and effect, and enforceable by RETN in
accordance with their respective terms. No such material contract, agreement or
instrument contains any material liquidated-damages, penalty or similar
provision. RETN has not received any notice from any party to any such material
contract, agreement or instrument that such party intends to cancel, withdraw,
modify or amend such contract, agreement or arrangement.
(l) The RETN Disclosure Schedule lists all material agreements pursuant to
which RETN has agreed to supply to any third party RETN Products/Services.
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<PAGE>
(m) RETN is not in default under or in breach or violation of, nor, to its
actual knowledge, is there any valid basis for any claim of default by RETN
under, or breach Or violation by RETN of, any contract, commitment or
restriction to which RETN is a party or to which it or any of its properties is
bound, where such defaults, breaches, or violations would, in the aggregate,
have a Material Adverse Effect on RETN. To RETN's actual knowledge, no other
party is in default under or in breach or violation of, nor is there any valid
basis for any claim of default by any other party under or any breach or
violation by any other party of, any material contract, commitment, or
restriction to which RETN is bound or by which any of its properties is bound,
where such defaults, breaches, or violations would, in the aggregate, have a
Material Adverse Effect on RETN.
(n) All agreements, contracts and commitments (the "Material Contracts")
listed or described in the RETN Disclosure Schedule pursuant to this Section
3.12 are assumable, or will otherwise be the property of, the Surviving
Corporation following the Merger without further action by the Surviving
Corporation or ANFS. If any of the Material Contracts are not assumable by or
will not be the property of, the Surviving Corporation following the Merger,
then RETN his described in the RETN Disclosure Schedule such actions as is
necessary for assumption of the Material Contract by the Surviving Corporation.
(o) True and correct copies of each document or instrument described in the
RETN Disclosure Schedule pursuant to this Section 3.12 have been made available
to AMERINET, ANFS, or their representatives.
3.13 Insider Transactions. No Affiliate of RETN or JNE has any interest
in (i) any material equipment or other property, real or personal, tangible or
intangible, including, without limitation, any item of intellectual property,
used in connection with or pertaining to the business of RETN; or (ii) any
creditor, supplier, customer, agent or representative of RETN; provided,
however, that no such Affiliate or other person shall, be deemed to have such an
interest solely by virtue of the ownership of less thin one percent (1%) of the
outstanding stock or debt securities of any publicly-held company, the stock or
debt securities of which are traded on a recognized stock exchange or quoted on
the National Association of Securities Dealers Automated Quotation System.
3.14 Insurance. The RETN Disclosure Schedule contains a list of the
principal policies of fire, liability and other forms of insurance held by RETN.
3.15 disputes and Litigation. There is no suit, action, litigation,
proceeding, investigation, claim, complaint, or accusation pending, or to 'its
knowledge threatened against or affecting RETN or any of its properties, assets
or business or to which RETN is a party, in any court or before any arbitrator
of any kind or before or by any governmental agency (including, without
limitation, any federal, state, local, foreign or other governmental department,
commission, board, bureau, agency or instrumentality), and to its knowledge,
there is no basis for such suit, action, litigation, proceeding, investigation,
claim, complaint, or accusation; (b) there is no pending or threatened change in
any environmental, zoning or building laws, regulations or ordinances which
affect or could affect RETN or any of its properties, assets or businesses; and
(c) there is no outstanding order, writ, injunction, decree, judgment or award
by any court, arbitrator or governmental body against or affecting RETN or any
of its properties, assets or business. There is no litigation, proceeding,
investigation, claim, complaint or accusation, formal or informal, or
arbitration pending, or any of the aforesaid threatened, or any contingent
liability which would give rise to any right of indemnification or similar right
on the part of any director or officer of RETN or any such person's heirs,
executors or administrators as against RETN.
3.16 Compliance with Laws. RETN has at all times been, and presently
is, in full compliance with, and has not received notice of any claimed
violation of, any applicable federal, state, local, foreign and other laws,
rules and regulations which lack of compliance or violation would cause a
liability or Material Adverse Effect in dollar terms of in excess of $10,000.
RETN has filed all returns, reports and other documents and furnished all
information required or requested by any federal, state, local or foreign
governmental agency and all such returns, reports, documents and information are
true and complete in all respects. All permits, licenses, orders, franchises and
approvals of all federal, state, local or foreign governmental or regulatory
bodies required of RETN for the conduct of its business have been obtained, no
violations are or have been recorded in respect of any such permits, licenses,
orders, franchises and approvals, and there is no litigation, proceeding,
investigation, arbitration, claim, complaint or accusation, formal or informal,
pending or threatened, which may revoke, limit, or question the validity,
sufficiency or continuance of any such permit, license, order, franchise or
approval which action, lack of compliance or violation would cause a liability
or Material Adverse Effect in dollar terms of in excess of $10,000. Such
permits, licenses, orders, franchises and approvals are valid and sufficient for
all activities presently carried on by RETN.
3.17 Subsidiaries. RETN has no subsidiaries.
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3.18 Environmental Matters' To its knowledge:
(a) As of the date hereof, no underground storage tanks am present under
any property that RETN has at any time owned, operated, occupied or leased. As
of the date hereof except as set forth in the RETN Disclosure Schedule, no
material amount of any substance char has been designated by any governmental
entity, or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amen" and the regulations promulgated pursuant to said laws (a
"hazardous Material"), excluding office, janitorial and other immaterial
supplies, am present, as a result of the actions of RETN or, to RETN's actual
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water, that RETN have at any time owned, operated, occupied or leased
which would be reasonably likely to have a Material Adverse Effect on RETN.
(b) At no time has RETN transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has RETN
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material in violation of any rule, regulation, treaty or statute
promulgated by any governmental entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activities which would be
reasonably likely to have a Material Adverse Effect on RETN.
(c) RETN currently holds all environmental approvals, permits, licenses,
clearances and consents necessary for the conduct of its business as such
business is currently being conducted, the absence of which would be reasonably
likely to have a Material Adverse Effect on RETN.
(d) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending or, to the actual knowledge of RETN,
threatened concerning any Environmental Permit which would be reasonably likely
to have a Material Adverse Effect on RETN. RETN is not aware of any fact or
circumstance which could involve it in any environmental litigation or impose
upon it any environmental liability which would be reasonably likely to have a
Material Adverse Effect on RETN
3.19 Corporate Documents. RETN his furnished to AMERINET for its
examination: (i) copies of its Certificate or Articles of Incorporation and
Bylaws; (ii) its Minute Book containing all records required to be set forth of
all proceedings, consents, actions, and meetings of the stockholders, the board
of directors and any committees thereof-, (iii) all permits, orders, and
consents issued by any regulatory agency with respect to RETN, or any securities
of RETN, and all applications for such permits, orders, and consents; and (iv)
its stock transfer books setting forth all transfers of any capital stock. The
corporate minute books, stock certificate books, stock registers and other
corporate records of RETN are complete and -cc,in all material respects, and the
----
signatures appearing on all documents contained therein are the true signatures
of the persons purporting to have signed the sane. AU actions reflected in such
books and records were duly and validly taken in compliance with the laws of the
applicable jurisdiction.
3.20 No Brokers, Neither JNE nor RETN is obligated for the payment of
fees or expenses of any broker or finder in connection with the or&, negotiation
or execution of this Agreement or the Certificate of Merger or in connection
with any transaction contemplated hereby or thereby.
3.21 Disclosure No statements by JNE or RETN contained in this
Agreement and the Exhibits and RETN Disclosure Schedule attached hereto, any
other Transaction Document or any written statement or certificate furnished or
to be furnished pursuant hereto or in connection with the transactions
contemplated hereby and thereby (when read together) contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under Which they were made.
4. Representations and Warranties of AMERINET and ANFS. Except as
otherwise set forth in the ANFS Disclosure Schedule attached hereto, AMERINETand
--------
ANFS represents and warrants to RETN as set forth below. No fact or circumstance
disclosed to JNE shall constitute in exception to these representations- and
warranties unless such fact or circumstance is set forth in the ANFS Disclosure
Schedule or such supplements thereto as may mutually be agreed upon in writing
by AMERINET and JNE.
11
<PAGE>
4.1 Corporate Existence and Authority of AMERINET. AMERINET is a
corporation duly organized, validly existing and in good standing under the laws
of the state of incorporation of such entity and his the corporate power and
authority to carry on its business as it is now being conducted. AMERINET is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or properties makes such
qualification or licensing necessary except where the failure to be so qualified
would not have a Material Adverse Effect on AMERINET. AMERINET has the corporate
power to enter into this Agreement and the other Transaction Documents to which
they are parties and to carry out their obligations hereunder and thereunder.
The execution and delivery of this Agreement and the Transaction Documents and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of AMERINET and no other corporate
proceedings on the part of AMERINET are necessary to authorize this Agreement,
the other Transaction Documents and the transaction contemplated herein and
therein. AMERINET is not subject to, or obligated under, any contract provision
which would be breached or violated by or in conflict with its executing and
carrying out this Agreement and the transactions contemplated hereunder and
under the Transaction Documents. This Agreement is, and the other Transaction
Documents when executed and delivered by AMERINET shall be, the valid and
binding, obligations of AMERINET, enforceable in accordance with their
respective terms.
4.2 Capitalization of AMERINET. As of the Closing Date, the authorized
equity securities of AMERINET will consist of fifty million (50,000,000) shares
of common stock, of which seven million one hundred two thousand six hundred
seventy (7,102,670) shares are issued and outstanding, and fifty million
(50,000,000) shares of Preferred Stock, of which no shares are issued and
outstanding. No other sham of capital stock of AMERINET are issued and
outstanding All of the issued and outstanding sham have been duly and validly
issued in accordance and compliance with all applicable laws, rules and
regulations and are fully paid and nonassessable. There am no options, wan-ants,
rights, calls, commitments, plans, contracts or other agreements of any
character granted or issued by AMERINET which provide for the purchase, issuance
or transfer of any shares of the capital stock of AMERINET nor are there any
outstanding securities granted or issued by AMERINET that am convertible into
any shares of the equity securities of AMERINET, and none is authorized.
4.3 Subsidiaries. There are no Subsidiaries of AMERINET, except as
identified in the ANFS Disclosure Schedule.
4.4 Execution of Agreement. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not: (a) violate, conflict with, modify or cause any default under or
acceleration of (or give any party any right to declare any default or
acceleration upon notice or passage of time or both), in whole or in part, any
charter, article of incorporation, bylaw, mortgage, lien, deed of trust,
indenture, lease, agreement, instrument, order, injunction, decree, judgment,
law or any other restriction of any kind to which AMERINET is a party or to its
knowledge by which it or any of its properties are bound; (b) result in the
creation of any security interest, lien, encumbrance, adverse claim,
proscription or restriction on any property or asset (whether real, personal,
mixed, tangible or intangible), right, contract, agreement or business of
AMERINET; (C) to its knowledge violate any law, rule or regulation of any
federal or state regulatory agency; or (d) to its knowledge permit any federal
or state regulatory agency to impose any restrictions or limitations of any
nature on AMERINET or any of its actions.
4.5 Taxes.
(a) All taxes, assessments, fees, penalties, interest and other
governmental charges with respect to AMERINET which have become due and payable
on the date hereof have been paid in full or adequately reserved against by
AMERINET, (including without limitation, income, property, sales, use,
franchise, capital stock, excise, added value, employees' income withholding,
social security and unemployment taxes), and 211 interest and penalties thereon
with respect to the periods then ended and for all periods thereto;
(b) There are no agreements, waivers or other arrangements providing for in
extension of time with respect to the assessment of any tax or deficiency
against AMERINET, nor are there any actions, suits, proceedings, investigations
or claims now pending against AMERINET, nor are there any actions, suits,
proceedings, investigations or claim now pending against AMERINET in respect of
any tax or assessment, or any matters under discussion with any feeral, state,
local or foreign authority relating to any taxes or assessments, or any claims
for additional taxesor assessments asserted by any such authority, and there is
-----
no basis for the assertion of any additional tam or assessments against
AMERINET, and
(c) The consummation of the transactions contemplated by this Agreement
will not result in the imposition of any additional taxes on or assessments
against AMERINET.
12
<PAGE>
4.6 Disputes and Litigation. There is no suit, action, litigation,
proceeding investigation, claim, complaint, or accusation pending, or to its
knowledge threatened against or affecting AMERINET or any of its properties,
assets or business or to which AMERINET is a party, in any court or before any
arbitrator of any kind or before or by any governmental agency (including,
without limitation, any federal, state, local, foreign or other governmental
department, commission, board, bureau., agency or instrumentality), and to its
knowledge there is no basis for such suit, action, litigation, proceeding,
investigation, claim, complaint, or accusation; (b) to its knowledge there is no
pending or threatened change in any environmental, zoning or building laws,
regulations or ordinances which affect or could affect AMERINET or any of its
properties, assets or businesses; and (c) there is no outstanding order, writ,
injunction, decree, judgment or award by any court, arbitrator or governmental
body against or affecting AMERINET or any of its properties, assets or business.
To its knowledge, there is no litigation, proceeding, investigation, claim,
complaint or accusation, formal or informal, or arbitration pending, or any of
the aforesaid threatened, or any contingent liability which would give rise to
any right of indemnification or similar right on the part of any director or
officer of AMERINET or any such person's heirs, executors or administrators as
against AMERINET.
4.7 Compliance with Laws.To its knowledge, AMERINET has at all times,
-----------------------
been, and presently is, in full compliance with, and has not received notice of
any claimedviolation of, any applicable federal, state, local, foreign and
other laws, rules and regulationswhich lack of compliance or violation would
cause a liability or Material Adverse Effect in dollar terms of in excess of
$100,000. AMERINET has filed all returns, reports and other documents and
furnished all information required or requested by any federal, state, local or:
foreign governmental agency and all such returns, reports, documents and
information are true; and complete in all respects. To its knowledge, all
permits, licenses, orders, franchises and, approvals of all federal, state,
local or foreign governmental or regulatory bodies required of, AMERINET for the
conduct of its business have been obtained, no violations arc or have been:
recorded in respect of any such permits, licenses, orders, franchises and
approvals, and there': is no litigation, proceeding, investigation, arbitration,
claim, complaint or accusation, formal or informal, pending or threatened, which
may revoke, limit, or question the validity,. sufficiency or continuance of any
such permit, license, order, franchise or approval which action, lack of
compliance or violation would cause a liability or Material Adverse Effect in'
dollar terms of in excess of $100,000. Such permits, licenses, orders,
franchises and approvals are valid and sufficient for all activities presently
carried on by AMERINET.
4.8 Guarranties.AMERINET has not guaranteed any dividend, obligation or
------------
indebtedness of any Person; nor his any Person guaranteed any dividend,
obligation or indebtedness of AMERINET.
4.9 Financial Statements.
----------------------
(a) AMERINET has delivered toJNE copies of the AMERINET: Financial
--
Statements.
13
<PAGE>
(b) The AMERINET Financial Statements arc complete and in accordance with
the books and records of AMERINET and present fairly the financial position of
AMERINET as of its historical dares. The AMERINET Financial Statements have been
prepared in accordance with GAAP (except for the absence of footnotes) applied
on a basis consistent with prior periods. Except and to the extent reflected or
reserved against in such balance sheets (including the notes thereto), AMERINET
does not have, as of the dares of such balance sheets, any liabilities or
obligations (absolute or contingent) of a nature required or customarily
reflected in a balance sheet (or the notes thereto) prepared in accordance with
GAAP. The reserves, if any, reflected on the AMERINET Financial Statements are
adequate in light of the contingencies with respect to which they are made.
(c) AMERINET has no debt, liability, or obligation of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that is not reflected or reserved against in the AMERINET Financial Statements,
except for those (i) that may have been incurred after the date of the AMERINET
Financial Statements; or (ii) that are not required by GAAP to be included in a
balance sheet or the notes thereto.
4.10 Tax-Free Reorganization.
-------------------------
(a) AMERINET has not taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the provisions'
of 368(a) of the Code.
(b) AMERINET is not an investment company as defined in: 368(a)(2)(F)(iii)
and (iv) of the Code.
4.11 Title and Related Matters.AMERINET has good and marketable title
----------------------------
to 0 the properties, interests in properties and mats, real and personal,
reflected in -the AMERINET Financial Statements or acquired after the date of
the AMERINET Financial Statements (except properties, interests in properties
and assets sold or otherwise disposed of since the date of the AMERINET
Financial Statements in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except the lien of current taxes not yet due and payable and except for liens
which in the aggregate do not secure more than One Hundred Thousand Dollars
($I00,000) in liabilities. The equipment of AMERINET used in the operation of
its business is in good operating condition and repair.
4.12 Proprietary Rights.AMERINET owns all right, title and interest in
--------------------
and to, or valid licenses; for use of, all patents, copyrights, technology,
software, software tools, know-how, processes, trade secrets, trademarks,
service marks, trade names and other proprietary rights used in or necessary for
the conduct of AMERINET's business as conducted to the date hereof, including,
without limitation, the technology and all proprietary rights developed or
discovered or used in connection with or contained in the AMERINET
Products/Services, free and clear of all liens, claims and encumbrances
(including without limitation distribution rights) (all of which are referred to
j AMERINET Proprietary Rights"), which AMERINET Proprietary Rights if not so
owned by AMERINET would have a Material Adverse Effect an AMERINET. No claims
have been asserted against AMERINET (and AMERINET is not aware of any claims
which are likely to be asserted against it or which have been asserted against
others) by any person challenging AMERINET's use, possession, manufacture, sale,
provision or distribution of the AMERINET Products/Services under any patents,
trademarks, trade names, copyrights, trade secrets, technology, know-how or
processes utilized by AMERINET or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto.
4.13 Environmental Matters.To its knowledge:
-----------------------
(a) As of the date hereof, no underground storage tanks are present under
any property that AMERINET his at any time owned, operated, occupied or leased.
As of the date hereof except as set forth in the AMERINET Disclosure Schedule,
no material amount of any substance that has been designated by any governmental
entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, ureaformaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental.
Response, Compensation and Liability Act Of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "Hazardous Material"), excluding office, janitorial and other immaterial
supplies, are present, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that AMERINET has at any time
owned, operated, occupied or leased which would be reasonably likely to have a
Material Adverse Effect on AMERINET
14
<PAGE>
(b) At no time has AMERINET transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has
AMERINET disposed of, transported, sold, or manufactured any product containing
a Hazardous Material in violation of any rule, regulation, treaty or statute
promulgated by any governmental entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activities which would be
reasonably likely to have a Material Adverse Effect on AMERINET.
(c) AMERINET currently holds all environmental approvals, permits,
licenses, clearances and consents necessary for the conduct of its business as
such business is currently being conducted, the absence of which would be
reasonably likely to have a Material Adverse Effect on AMERINET.
(d) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending or, to the actual knowledge of AMERINET,
threatened concerning any Environmental Permit which would be reasonably likely
to have a Material Adverse Effect on AMERINET. AMERINET is nor aware of any fact
or .circumstance which could involve it in any environmental litigation or
impose upon it anyenvironmental liability which would be reasonably likely to
have a Material Adverse Effect on AMERINET.
4.14 No Brokers.AMERINET is not obligated for the payment of fees or
------------
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Certificate of Merger or in connection with
any transaction contemplated hereby or thereby.
4.15 Disclosure. No statements by AMERINET contained in this Agreement
and the Exhibits and AMERINET Disclosure Schedule attached hereto, any other
Transaction Document or any written statement or certificate furnished or to be
furnished pursuant hereto or in connection with the transactions contemplated
hereby and thereby (when read together) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
5. Preclosing Covenants of RETN and.
-------------------------------------
5.1 Notices and Approvals. JNE agrees: (a) to give and to cause RETN to
give all notices to third parties which may be necessary or deemed desirable by
AMERINET in connection with this Agreement and the consummation of the
transactions contemplated hereby, (b) to use its best efforts to obtain and to
cause RETN to obtain, all federal and state governmental regulatory agency
approvals, consents, permit, authorizations, and orders necessary or deemed
desirable by AMERINET in connection with this Agreement and the consummation of
the transaction contemplated hereby, and (c) to use its best efforts to obtain,
and to cause RETN to obtain, all consents and authorizations of any other third
panics necessary or deemed desirable by AMERINET in connection with this
Agreement and the consummation of the transactions contemplated hereby.
5.2 Employment Agreements, Other Commitments Terminated. Prior to the
Closing, all employment agreements to which RETN is a party shall be reviewed by
RETN and AMERINET and, as agreed between them, either terminated prior to the
Closing or assumed by ANFS as of the Closing with such modifications as may be
acceptable to RETN, AMERINET and the employee party to such agreement.
5.3 Advice of Changes.RETN and JNE will promptly advise AMERINET in
--------------------
writing (i) of any event occurring subsequent to the date of this Agreement
which would reader any representation or warranty of RETN or JNE contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in RETN's business, taken as a whole.
5.4 Information for AMERINET's Statements and Applications.JNE and RETN
-------------------------------------------------------
and their employees, accountants and attorneys shall cooperate fully with
AMERINET in the preparation of any statements or applications made by AMERINET
to any federal or state governmental regulatory agency in connection with this
Agreement and the transactions contemplated hereby and to furnish AMERINET with
all information concerning JNE and RETN necessary or deemed desirable by
AMERINET for inclusion in such statements and applications, including, Without
limitation, all requisite financial statements and schedules.
5.5 Conduct of Business by RETN.Until the Closing, RETN will continue
------------------------------
to conduct its business and maintain its business relationships in the ordinary
and usual course and will not, without the prior written consent of AMERINET:
(a) borrow any money which borrowings exceed in the aggregate Ten Thousand
Dollars ($10,000) or incur or commit to incur any capital expenditures in excess
of Ten Thousand Dollars ($10,000) in the aggregate;
15
<PAGE>
(b) lease, license, sell, transfer or encumber or permit to be encumbered
any asset, intellectual property right or other property associated with the
business of RETN (including sales or transfers to Affiliates of REIN, except for
sales of inventory in the usual and ordinary course of business;
(c) dispose of any of its assets, except in the regular and ordinary'
course of business;
(d) enter into any lease or contract for the purchase or sale of any':
property, real or personal except in the ordinary course of business;'
(e) pay any bonus, increased saIary, or special remuneration to any:
officer or employee, including any amounts for accrued but unpaid saIary or
bonuses (other than amounts not in excess of normal payments made on a regular
basis in prior periods);
(f) change accounting methods;
(g) declare, -set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(h) amend or terminate any contract, agreement or license to which it is a
party except in the ordinary course of business;
(i) loan any amount to any person or entity, or guaranty or act as: a
surety for any obligation;
(j) issue or sell any shares of its capital stock of any class or any other
of its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue shares of capital
stock, other than stock options granted as part of existing stock option program
or pursuant to any recapitalization plan disclosed to and approved by AMERINET
in its discretion;
(k) split or combine the outstanding share of its capital stock of any
class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(l) amend its Certificate of Incorporation or Bylaws except as necessary to
carry out a recapitalization plan;
(m) make or change any election, change any annual accounting period, adopt
or change any accounting method, file any amended tax return, enter into any
closing agreement, settle any tax claim or assessment, surrender any right to
claim refund of taxes, consent to any extension or waiver of the limitation
period applicable to any tax claim or assessment, or take any ocher action or
omit to take any action, if any such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission would have
the effect of increasing the tax liability of RETN;
(n) do anything that would cause there to be material adverse changesin
its Financial Statements (with such Financial Statements analyzed as if it had
been prepared according to GAAP, and including but not limited to cash
distributions or material decreases in the net assets of RETN), except as would
occur in the ordinary course of RETN's business, between the date of the RETN
Financial Statements and the Closing Date; or
(o) agree to do any of the things described in the preceding clauses
Section 6.1(a) through (n).
6. Mutual Covenants.
6.1 No Public Announcement.The parties shall. make no public
-------------------------
announcement concerning this Agreement, their discussions or any other memos,
letters or agreements between the panics relating to the Merger until such time
as they agree to the contents of a mutually satisfactory press release which
they intend to publicly-release on the date of this Agreement. Either of the
parties, but only after reasonable consultation with the other, may make
disclosure if required under applicable law.
16
<PAGE>
6.2 Other NegotiationBetween the date hereof and the Closing, or such
------------------
earlier date as AMERINET and JNE mutually agree to discontinue discussions of
the Merger, neither AMERINET nor JNE will take any action to solicit, initiate,
seek, encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than discussions pursuant to
this Agreement) regarding any acquisition, any merger or consolidation with or
involving RETN, or any acquisition of any material portion of the stock or
assets. JNE and AMERINET agree that any such negotiations in progress as of the
date hereof will be terminated or suspended during such period.
6.3 Due Diligence, Investigation, and Audits.At such time prior to the
------------------------------------------
Closing as may be reasonably requested, each party shall make available to the
other party and the other parry's employees, agents and representatives all
information concerning the operation, business and prospects of such party as
may be reasonably requested by the other party. including, without limitation,
making the -working papers of such party's independent certified public
accountants available for inspection by the other parry's independent certified
public accountants. Each party will cooperate with the other party for the
purpose of permitting the other party to discuss such party's business and
prospects with such parry's customers, creditors, suppliers and other persons
having business dealings with such parry, subject to reasonable confidentiality
obligations between the parties.
6.4 Regulatory Filings: Consents: Reasonable Efforts Subject to the
terms
and conditions of this Agreement, JNE, RETN, AMERINET and ANFS shall use their
respective best efforts to (i) make all necessary filings with respect to the
Merger and this
Agreement under the Securities Act, and applicable blue sky or similar
securities laws and shall
use all reasonable efforts to obtain required approvals and clearances with
respect thereto and
shall supply all additional information requested in connection therewith; (ii)
make merger
notification or other appropriate filings with federal, state or local
governmental bodies or
applicable foreign governmental agencies and shall use all reasonable efforts to
obtain required
approvals and clearances with respect thereto and shall supply an additional
information
requested in connection therewith; (iii) obtain all consents, waivers,
approvals, authorizations
and orders required in connection with the authorization, execution and delivery
of this
Agreement and the consummation of the Merger, and (iv) take, or cause to be
taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by
this Agreement.
6.5 Further Assurances.Prior to and following the Closing, each parry
--------------------
agrees to cooperate fully with the other parties and to execute such further
instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect. the intents and purposes of this Agreement.
7. Closing Matters
----------------
7.1 Filing of Certificate of Merger. On the date of the Closing, but
not prior to the Closing, the Certificate of Merger shall be filed with the
offices of the Secretary of State of the State of Delaware and Nevada and the
merger of RETN with and into ANFS shall be consummated.
7.2 Exchange of Certificates. At the Closing, JNE shall exchange its
RETN Common Stock certificate(s) for a certificate representing the AMERINET
Series A Stock.
7.3 Delivery of ContingentShares. Subject to fulfillment of the
------------------------
conditions subsequent for the issuance of the Contingent Shares, AMERINET shall
deliver a share certificate for the Contingent Shares to JNE on the Contingent
Shares Date.
7.4 Delivery of Documents.On or before the Closing, the parties shall.
-----------------------
deliver the documents, and shall perform the acts, which are set forth- in
Sections 8 and 9, as' specified in such Sections, including. delivery of the
counterpart signature pages of the Transaction Documents executed by JNE, RETN,
AMERINET and/or ANFS, as the case may be. All documents which JNE or RETN shall
deliver or cause to be delivered shall be in form and substance reasonably
satisfactory to AMERINET. All documents which AMERINET or ANFS shall deliver or
cause to be delivered shall be in form and substance reasonably satisfactory to
JNE.
8. Conditions to RETN's Obligations,.Unless otherwise provided below,
------------------------------------
JNE's. and RETN's obligations to close the transactions contemplated under this
Agreement are. subject to the fulfillment or satisfaction by Closing of each of
the following conditions (any. one or more of which may be waived by JNE, but
only in a writing signed by JNE):
17
<PAGE>
8.1 Accuracy of Representations and Warranties.The representations and
-----------------------------------------------
warranties of AMERINET and ANFS set forth in Section 4 shall be true in all
material respects on and as of the Closing with the same force and effect as if
they had been made at': the Closing, and JNE shall receive a certificate to such
effect executed by the Presidents of AMERINET and ANFS.
8.2 Covenants.AMERINET and ANFS shall have performed and complied with all
----------
of its covenants contained in Section 6 on or before the Closing, and JNE shall
receive a certificate from AMERINET and ANFS to such effect executed by the
Presidents of ANERINET and ANFS.
8.3 No Litigation.On and as of the Closing, no litigation or proceeding
---------------
shall be threatened or pending against AMERINET or ANFS with the purpose or with
the probable effect of enjoining or preventing the consummation of arty of the
transactions contemplated by this Agreement, and JNE shall receive a certificate
to such effect executed by the Presidents of AMER24ET and ANFS.
8.4 No Adverse Development.There shall not have been -any material adverse
-----------------------
changes in the financial condition, results of operations, assets, liabilities,
business or prospects of AMERINET since the date of this Agreement, and JNE
shall receive a certificate to such effect executed by the President of
AMERINET.
8.5 Authorizations.JNE shall have received from AMERINET written evidence
---------------
that the execution, delivery and performance of AMERINET's and ANFS' obligations
under this Agreement and the Certificate of Merger have been duly and validly
approved and authorized by the Board of Directors of AMERINET.
8.6 Government Consents.There shall have been obtained at or prior to. the
--------------------
Closing such permits or authorizations, and there shall have been taken such
other action, as may be required by any regulatory authority having jurisdiction
over the parties and the subject matter and the actions herein proposed to be
taken.
8.7 Filing of Certificate of Merger . As of the Closing, the Certificate
off Merger shall have been filed with the Secretary of State of the State of
Delaware.
8.8 Registration Rights Agreement
-------------------------------
(a) The Corporation's Obligation to Register.If AMERINET at any time
---------------------------------------------
proposes to register any of its securities under the Securities Act (other than
a registration effected solely to implement in employee benefit plan, a
transaction to which' Rule 145 of the Commission is applicable or any other form
or type of registration in which "Registrable Securities" (as defined below)
cannot be included pursuant to Commission regulation, rule or practice), then
JNE (and any other holder of 250,000 or more AMERINET Series A Stock sham
received hereunder by JNE hereinafter to be referred to as a "Holder") shall
receive written notice from AMERINET (the "AMERINET Notice") of its intention to
make such registration (JNE's AMERINET Series A Stock Shares are referred to
herein as "Registrable Securities"). If such registration is proposed to be on a
form which permits inclusion of the Registrable Securities, then upon the
written request by JNE given within ten (10) days after transmittal by AMERINET
to JNE of the AMERINET Notice, AMERINET will, subject to the limits contained
in this Section, use its reasonable efforts to cause such Registrable Securities
to be registered under the Securities Act and applicable Blue Sky laws, all to
the extent requisite to permit such sale or other disposition by JNE of the
Registrable Securities so registered.
(b) Limitations\Cutbacks.The right of JNE to request inclusion in the
---------------------
registration pursuant to this Section 8.9 shall terminate at such time that all
of the shares of Registrable Securities held by JNE may be publicly sold under
Rule 144 or any applicable exemption or registration statement without
applicable volume limitations during any 90-day period. Furthermore,
notwithstanding any other provision of this Section, if the underwriter managing
such registration or AMERINET in a self-underwritten offering notifies JNE (and
any other Holder of Registrable Securities) in writing that market or economic
conditions limit the amount of securities aich may reasonably be expected to be
old or that inclusion of such Registrable Securities would jeopardize the
success of the offering, then AMERINET may exclude all or any portion of such
Registrable Securities so long as all executive officers, directors or presently
existing 5% or greater shareholders of AMERINET who remain 5% or greater
shareholders at the time of such request arc likewise cutback in proportion to
their respective shareholdings.
18
<PAGE>
(c) Further Documents/Lock-up.JNE shall enter into such further agreements,
--------------------------
including indemnification and customary underwriting agreements, as AMERINET
and/or the managing underwriter shall reasonably require in such registration.
In connection with any public registration of AMERINET's securities after the
date hereof, JNE agrees, upon the request of AMERINET or the underwriters
managing such offering of AMERINET's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
AMERINET equity without the prior written consent of ANERINET or such
underwriters, as the case may be, for a period of time, not to exceed ninety
(90) clays from the effective date of such registration (or such other period as
shall be requested); provided that all executive officers, directors and 5% or
greater shareholders of AMERINET enter into similar agreements. Such agreement
shall be in writing in the form reasonably satisfactory to AMERINET and such
underwriter, if applicable. AMERINET may impose stop-transfer instructions with
respect to the shares subject to the foregoing restrictions until the end of
said lock-up period.
9. Conditions to AMERINET's and ANFS' ObligationsUnless otherwise provided
----------------------------------------------
below, the obligations of AMERINET and ANFS are subject to the fulfillment or
satisfaction by Closing, of each of the following conditions (any one or more of
which may be waived by AMERINET, but only in a writing signed by AMERINET):
9.1 Accuracy of Representations and WarrantiesThe representations and
----------------------------------------------
warranties of JNE and RETN contained in Section 2 shall be true in all material
respects on and as of the Closing with the same force and effect as if they had
been nude at the Closing, and AMERINET shall receive a certificate from JNE and
RETN to such effect with respect to the representations and wan-antics of RETN
executed by the Presidents of JNE and RETN.
9.2 Coventants.JNE and RETN shall have performed and complied with all of
-----------
its covenants contained in Sections 5 and 6 on, or before the Closing, and AFNS
shall receive a certificate from JNE and RETN to such effect signed by the
Presidents of JNE and RETN.
9.3 No Litigation.On and as of the Closing, no litigation or proceeding
---------------
shall be threatened or pending AGAINST JNE OR RETN FOR THE PURPOSE OR WITH the
probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, and AMERINET shall receive a
certificate from JNE and RETN to such effect signed by the Presidents of JNE and
RETN.
9.4 Authorizations.AMERINET shall have received from RETN written evidence
---------------
that
the execution, delivery and performance of this Agreement and the Certificate of
Merger have been duly
and validly approved and authorized by RETN's Board of Directors and by JNE's
Board of Directors.
AMERINET shall have received a certificate from RETN to such effect signed by
the President of RETN.
9.5 No Adverse Development.There shall not have been any material adverse
------------------------
changes in the financial condition, results of operations, assets, liabilities,
business or prospects of RETN since the date of this Agreement. AMERINET shall
have received a certificate from RETN to such effect signed by the President of
RETN.
9.6 Government Consents.There shall have been obtained at or prior to' the
--------------------
Closing such permits or authorizations, and there shall have been taken such
other action, as may be required by any regulatory authority having jurisdiction
over the parties and the subject matter and the actions herein proposed to be
taken
9.7 Filing of Certificate of MergeAs of the Closing, the Certificate of
---------------------------------
Merger shall have been filed with the Secretary of State of the State of
Delaware.
10. Termination of Agreement.
10.1 Termination.This Agreement may be terminated at any time prior to; the
------------
Closing by the mutual written consent of each of the parties hereto. This
Agreement may; also be terminated and abandoned
(a) By AMERINET or ANFS if any of the conditions -precedent to AMERINET's
and ANFS' obligations pursuant to Section 9 shall not have been fulfilled at
and;: as of the Closing.
(b) By JNE or RETN any of the conditions precedent to JNE's and RETN's
obligations pursuant to Section 8 above shall not have been fulfilled at and as
of the Closing.
(c) By either JNE or AMERINET upon three (3) business days' prior written
notice, if the Merger is not effected by September 30, 1996.
Any termination of this Agreement under this Section 10.1 shall be effected by
the delivery of written notice of the terminating parry to the other parties
hereto.
19
<PAGE>
10.2 Liability for Termination.Any termination of this Agreement pursuant
---------------------------
to this Section 10 shall be without further obligation or liability upon any
party in favor of any other party hereto; provided, that if such termination
shall result from the willful failure of a party to carry our its obligations
under this Agreement, then such parry shall be liable for losses incurred by the
other parties as set forth in Section 10.4. The provisions of this Section 10.2
shall survive termination.
10.3 Certain Effects of Termination In the event of the termination of this
Agreement as provided in Section 10.1 hereof, each party, if so requested by the
other party,
will (i) return promptly every document (other than documents publicly
available) furnished.
to it by the ocher party (or any subsidiary, Divisi I on, associate or affiliate
of such other parry)
in connection with the transactions contemplated hereby, whether so obtained
before or after
the execution of this Agreement, and any copies thereof which may have been
made, and will.
cause its representatives and any representatives of financial institutions and
investors and
others to whom such documents were furnished promptly to return such documents
and any
copies thereof any of them may have made; or (ii) destroy such documents and
cause its
representatives and such other representatives to destroy such documents, and
such party shall
deliver a certificate executed by its president or vice president stating to
such effect; and
10.4 RemediesNo parry shall be limited to the termination right granted' in
--------
Section 10.1 hereto by reason of the willful nonfulfillment of any condition to
such party's closing obligations but may, in the alternative, elect to do one of
the following:
(a) proceed to close despite the willful nonfulfillment of any closing
condition, it being understood that consummation of the transactions
contemplated hereby shall be deemed a waiver of any misrepresentation or breach
of warranty or covenant and of any party's rights and remedies with respect
thereto to the extent that the other party shall have actual knowledge of such
misrepresentation or breach and the Closing shall nonetheless take place; or
(b) decline to close, terminate this Agreement as provided in Section 10.1
hereof, and thereafter seek damages.
11. Indemnification.
----------------
11.1 Survival of Representations, Warranties,COVENANTSand Agreements.
--------------------------------------------------------------------
(a) The lock-up as provided in Section 2.5 shall terminate one (1) year
after the Closing Date (the "Lock-up TERMINATION DATE"). Except asset forth in
11.1(b) below all warranties and representations of the parties hereto shall
terminate on the Lock-up Termination Date. Notwithstanding the foregoing, the
Lock-up Termination Date shall be accelerated to the date that AMERINET SHALL
HAVE RAISED NOT LEA THAN $1,500,000 in equity financing on terms reasonably
acceptable to AMERINET following the Closing if such event occurs prior to the
events set forth in the preceding sentence.
(b) The representations, warranties, covenants and agreements of the
parties contained in Sections 3 and 4 of this Agreement or in any writing
delivered pursuant to such sections, to the extent that a breach or default in
any such representations, warranties, covenants or agreements is not as a result
of fraud shall not terminate at, but rather shall survive, the Closing Date and
shall terminate on the Lock-up Termination Date; provided, however, that such
representations, warranties, covenants and agreements shall survive as to any
claim or demand made prior to the Lock-up Termination Date until such claim or
demand is fully paid or other-wise resolved by the -parties hereto in writing or
by a court of competent jurisdiction. Notwithstanding the foregoing, in the
event of fraud, or any breach of JNE's or RETN's representations set forth in
Section 3.2 (capitalization), the representations and warranties of the parties
hereto and their respective indemnity obligations under this Section 11 shall
not terminate.
11.2 Indemnificationby JNE. JNE shall indemnify and hold harmless AMERINET,
---------------
ANFS, their directors and officers, and each other person, if any, who controls
AMERINET or ANFS within the meaning of the Securities Act ("Controlling
Persons") in respect of any and all claims, LOSSES, damages, liabilities,
demands, assessments, judgments, costs and expenses (including, without
limitation, settlement costs and any legal or other expenses for investigating,
bringing or defending any actions or threatened actions) reasonably incurred by
AMERINET or ANFS, any of its directors, officers or Controlling Persons in
connection with any misrepresentation or breach of any warranty made by JNE or
RETN in this Agreement or in any schedule, exhibit, certificate or other
instrument contemplated by this Agreement.
20
<PAGE>
11.3 Indemnification by AMERINET and ANFS. AMERINET and ANFS shall, jointly
and severally, indemnify and hold harmless JNE and its directors and officers,
and each other person, if any, who controls AMERINET or ANFS within the meaning
of the Securities Act ("Controlling Persons") in respect of any and all claims,
losses, damages, liabilities, demands, assessments, judgments, costs and
expenses (including, without limitation, settlement costs and any legal or other
expenses for investigating, bringing Or defending any
actions or threatened actions) reasonably incurred by JNE or any of its
directors, officers or Controlling Persons in connection with any
misrepresentation or breach of any warranty made by AMERINET or ANFS in this
Agreement or in any schedule, exhibit, certificate or other instrument
contemplated by this Agreement.
11.4 Claims for Indemnification.
-----------------------------
(a) Whenever any claim shall arise for indemnification under this Section
11, the indemnified party shall describe such claim in a Notice of Claim to the
other party and, when known, specify the facts constituting the basis for such
claim and the amount or an estimate of the amount of such claim. Each Notice of
Claim shall (A) be signed by the indemnified party, (B) contain a description of
the claim, (C) specify the amount of such claim, and (D) state that, in the
opinion of the signer thereof, such Notice of Claim is valid under the terms of
Section 11 hereof, and is being given in good faith.
(b) The indemnified party shall give the ocher party prompt-notice of any
claim for indemnification hereunder resulting from, or in connection with, any
claim or Third-Party Claim and, with respect to any Third-Party Claim, the
indemnified party shall undertake the defense thereof by representatives
reasonably satisfactory to the indemnified parry and the other partie(s) hereto.
The indemnified party shall not have the right to scale or compromise or enter
into any binding agreement to scale or compromise, or consent to entry of any
judgment arising from, any such claim or proceeding in its sole discretion
without the prior written consent of the ocher party. Each party shall have the
right to participate in any such defense of a Third-Parry Claim with advisory
counsel of its own choosing at its own expense. In the event the indemnified
party, within a reasonable time after notice of any Third-Parry Claim, fails to
defend, the other party shall have the right to undertake the defense,
compromise or settlement of such Third-Piny Claim on behalf of, and for the
account of, JNE, AMERINET or ANFS, at the expense and risk of all parties to the
extent of their liability set forth in Section 11. No party shall, without the
indemnified party's written consent, settle or compromise any- such Third-Parry
Claim or consent to entry of any judgment that does not include, as in
unconditional term thereof, the giving by Elie claimant or the plaintiff to the
indemnified parry, or affiliate or affiliates, as the case may be, an
unconditional release from all liability in respect of such Third-Party Claim.
21
<PAGE>
11.5 Arbitration.If a party makes a good faith determination that a breach
------------
(or potential breach) of any of the confidentiality, non-competition, or
intellectual property rights provisions of this Agreement by the other party may
result in damages or consequences that will be immediate, severe, and incapable
of adequate redress after the fact, so that a temporary restraining order or
other immediate injunctive relief is necessary for a realistic and adequate
remedy, that party may seek immediate injunctive relief without first seeking
relief through arbitration. After the court has ruled on the request for
injunctive relief, the parties will thereafter proceed with arbitration of the
DISPUTE and stay the litigation pending arbitration. Subject to the foregoing,
any dispute arising out of this Agreement, or its performance or breach, shall
be resolved by binding arbitration conducted by JAMS/Endispute under the
JAMS/Endispute Rules for Complex Arbitration (the "JAMS Rules"). This
arbitration provision is expressly made pursuant to and shall be governed by the
Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties hereto agree that
pursuant to Section 9 of the Federal Arbitration Act, a judgment of the United
States District Courts for the Northern District of California SHALL BE entered
upon the AWARD MADE PURSUANT TO THE ARBITRATION. A single arbitrator, who shall
have the authority to allocate the costs of any arbitration initiated under this
paragraph, shall be selected according to the JAMS Rules within ten (10) days of
the submission to JAMS/Endispute of the response to the statement of claim or
the date on which any such response is due, whichever is earlier. The arbitrator
shall conduct the arbitration in accordance with the Federal Rules of Evidence.
The arbitrator shall decide the amount and extent of pre-hearing discovery which
is appropriate. The arbitrator shall have the power to enter any award of
monetary and/or injunctive relief (including the power issue permanent
injunctive relief and also the power to reconsider any prior request for
immediate INJUNCTIVE relief by either of the parties and any order as to
immediate injunctive relief previously granted or denied by a court in response
to a request therefor by either of the parties), including the power to reader
an award as provided in Rule 43 OF THE JAMS RULES; PROVIDED, HOWEVER, that the
arbitrator-shall not have the power. to award punitive damages under any
circumstances (whether styled as -ve, exemplary, or treble damages, or any
penalty or punitive type of damages) regardless of whether such damages may be
available under applicable law, the parties hereby waiving their rights to
recover any such damages. The arbitrator shall award the prevailing parry its
costs and reasonable attorneys' fees, and the losing party shall bear the entire
cost of the arbitration, including the arbitrator's fees. All arbitration shall
be held in Ontario, California. In addition to the above court, the arbitration
award may be enforced in any court having jurisdiction over the parties and the
subject matter of the arbitration. Notwithstanding the foregoing, the parties
irrevocably submit to the nonexclusive jurisdiction of the state and federal
courts situated where the respondent is domiciled or resides as of the Effective
Date in any action to enforce in arbitration award. With respect to any request
for immediate injunctive relief, that state and federal courts in San Bernardino
County, California shall have exclusive jurisdiction and venue over any such
disputes.
11.6 Limitation on IndemnificationNo indemnified party hereunder will be
-------------------------------
entitled to make a claim against any indemnifying party under Section 11.2 or
11.3 unless and until with respect to the parry claiming indemnification 01 the
aggregate amount of losses indemnifiable by JNE exceeds Fifty Thousand Dollars
($50,000) and (it) the aggregate amount of losses indemnifiable by AMERINET
and/or ANFS exceeds Two Hundred Fifty Thousand Dollars ($250,000), respectively,
and then only to the extent of the excess. For purposes of the indemnification
set forth in this Section 11 as it relates to the Lock-up Shares, the parties
agree that each Lock-up Share shall have a value of $3.00.
11.7 Lock-up
-------
(a) JNE may give ANFS a written Notice of Objection: (1) attaching a copy
of such Notice of Claim; (2) stating that, in the good faith opinion of JNE, the
claim described in such Notice of Claim is invalid (either in whole or in
specified party) under the terms of Section I I hereof; (3) giving the reasons
for the alleged invalidity; and (4) stating that based on such alleged
invalidity, JNE object to the paymentof any portion of the JNE Lockup Shares to
-------
the requesting party on account thereof. In the event that a Notice of Objection
alleges that a Notice of Claim is only partially' invalid, JNE, within thirty
(30) days of the receipt of such Notice of Claim, agrees to pay over to AMERINET
or ANFS, as applicable, that portion of the amounts specified in such Notice of
Claim as to which no objection is made. JNE is not required to agree to make any
payments to AMERINET or ANFS in respect of a Notice of Claim that has been
objected to in a Notice of Objection except as provided in the immediately
preceding sentence.
(b) AMERINET, ANFS, REIN and JNE agree to submit to final and binding
- -arbitration any and all disputes JNE has specified in a Notice of Objection or
AMERINET or ANFS have specified in a Notice of Claim to which JNE has not
responded within thirty (30) days of receipt of such Notice of Claim. Any such
dispute is subject to arbitration in accordance with the JAMS Rules as provided
in Section 11 hereof.
(c) The lock-up shall be terminated on the Lock-up Termination Date;
provided, however, that the lock-up may continue beyond such date if AMERINET or
ANFS has asserted in indemnification claim, and any such claim remains
unsatisfied.
12. Miscellaneous.
--------------
12.1 Governing Laws.It is the intention of the panics hereto that the
----------------
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
12.2 Binding upon Successors and Assigns.Subject to, and unless otherwise
-------------------------------------
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators-
and assigns of the parties hereto.
12.3 Severability.If any provision of this Agreement, or the application
-------------
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall be interpreted so as best to reasonably effect the intent
of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Entire Agreement. This Agreement, the exhibits hereto, the documents
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.5 Counterparts.This Agreement may be executed in any number of
-------------
counterparts, each of which shall be in original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or mom
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
22
<PAGE>
12.6 Expenses.Except as provided to the contrary herein, each parry shall.
---------
pay all of its own costs and expenses INCURRED WITH RESPECT TO THE NEGOTIATION,
execution and, delivery of this Agreement, the exhibits hereto, and the other
Transaction Documents.
12.7 Amendment and Waivers.Any term or provision of this Agreement may be
-----------------------
amended, and the observance of any term of this Agreement may be waived either
generally or in a particular instance and either retroactively or prospectively)
only by a writing: signed by the party to be bound thereby. The waiver by a
party of any breach hereof for for default in payment of any amount due
hereunder or default in the performance hereof shall nor be deemed to constitute
a waiver of any other default or any succeeding breach or default
12.8 Survival of Agreements.All covenants, agreements, representations and
-----------------------
warranties made herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
notwithstanding any investigation of the parties hereto and shall terminate on
the date one year after the Closing Date.
12.9 No Waiver.The failure of any parry to enforce any Of the
-----------
provisions,hereof shall not be construed to be a waiver of the right of such
---
party thereafter to enforce such provisions.
12.10 Attorneys' Fees.Should suit be brought to enforce or interpret any
-----------------
part! of this Agreement, the prevailing parry shall be entitled to recover, as
an element of the costs:: of suit and not as damages, reasonable attorneys' fees
to be fixed by the court (including;: without limitation, costs, expenses and
fees on any appeal). The prevailing party shall be the party entitled to recover
its costs of suit, regardless of whether such suit proceeds to final judgment. A
parry not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for; purposes of determining if a party is entitled to
recover costs or attorneys' fees.
12.11 NoticesAny notice provided for or permitted under this Agreement';
-------
will be treated as having been given when (a) delivered personally, (b) sent by
confirmed telex or telecopy, (c) sent by commercial overnight courier with
written verification of receipt, or:
(d) mailed postage prepaid by certified or registered mail, return receipt
requested, to the party to be notified, at the address set forth below, or at
such other place of which the other parry, HAS BEEN NOTIFIED in accordance with
the provisions of this Section 12.11.
RETN:
Jones Naughton Entertainment, Inc.
6255 Sunset Blvd., Suite 2000
Los Angeles, CA 90028 Ann. Joe Naughton
With copy to:
M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
AMERINET and ANFS:
John J. Pembroke
AMERINET FINANCIAL SYSTEMS, INC.
3400 Inland Empire Boulevard, Suite 205
Ontario, CA 91764
With copy to:
Pezzola & Reinke
Lake Merritt Plaza Bldg.
1999 Harrison Street, Suite 1300
Oakland, CA 94612
Attention: Donald C. Reinke, Esq.
Such notice will be treated as having been received upon actual receipt.
12.12 Time.Time is of the essence of this Agreement.
-----
23
<PAGE>
12.13 Construction of Agreement. ement.This Agreement has been negotiated
----------------------------------
by the respective parties hereto and their attorneys and the language hereof
shall not be construed: for or against any parry. The titles and headings herein
are for* reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
12.14 No Joint Venture.Nothing contained in this Agreement shall be deemed
-----------------
or construed as creating a joint venture or partnership between JNE and AMERINET
or ANFS. No parry is by virtue of this Agreement authorized as in agent,
employee or legal representative of any other party. No party shall have any
power or authority to bind or commit any other except as expressly provided by
this Agreement. No party shall hold itself out as having any authority or
relationship in contravention of this Section 12.14.
12.15 PronounsAll pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
12.16 Further AssuranceEach party agrees to cooperate fully with the other
-----------------
parties and to execute such further instruments, documents and agreements and to
give such further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.17 Absence of Third-Party Beneficiary Rights.No provisions of this
----------------------------------------------
Agreement are intended, nor shall be interpreted, to provide or create any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner of any party hereto or any other
person or entity except employees and stockholders of RETN specifically referred
to herein, and, except as so provided, all provisions hereof shall be personal
solely between the parries to this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
AMERINET FINANCIAL SYSTEMS INC.
By: /s/ John Pembroke
Signature
John J. Pembroke, Chairman & CEO
(Print Name & Title)
ANFS, INC.
By: /s/ Winston Hickman
Signature
Winston E. Hickman, CFO
(Print Name & Title)
JONES NAUGHTON ENTERTAINMENT, INC.
By: /s/ Joseph Naughton
Signature
Joseph M. Naughton, CEO
(Print Name & Title)
REAL ESTATE TELEVISION NETWORK, INC.
By: /s/ Michael D. English
Signature
Michael D. English, President
(Print Name & Title)
25
<PAGE>
AMENDMENT NO. I TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. I TO AGREEMENT AND PLAN OF REORGANIZATION (this
"Amendment") is entered into effective as of October 1. 1996, by and among
AMERINET FINANCIAL SYSTEMS, INC., a Florida corporation ("AMERINET'), JONES
NAUGHTON ENTERTAINMENT, INC., a Colorado corporation ("JNE"), REAL ESTATE
TELEVISION NETWORK, INC., a Nevada corporation ("RETN"), and ANFS, INC., a
Delaware corporation (ANFS" and "Surviving Corporation").
1. Registration Rights Agreement.Section 8.8 of that certain Agreement
-------------------------------
and Plan of Reorganization entered into on even date herewith by and among the
parties hereto (the "Reorganization Agreement") is hereby amended in its
entirety to ready as follows:
"8.8 Registration Rights Agreement.
--------------------------------
(a) The Corporation's Obligation to Register.If AMERINET at any time
---------------------------------------------
proposes to register any of its securities under the Securities Act (other than
a registration affected solely to implement an employee benefit plan, a
transaction to which Rule 145 of the Commission Is applicable or any other form
or type of registration in which "Registrable Securities" (as defined below)
cannot be included pursuant to Commission regulation, rule or practice), then
JNE (and any other record and beneficial holder of 250,000 or more AMERINET
Series A Stock shares received under the Reorganization Agreement by JNE
hereinafter to be referred to as a "Holder") shall receive written notice FROM
AMERINET (the "AMERINET Notice") of its Intention to make such registration
(JNE's AMERINET Series A Stock Shares are referred to herein as 'Registrable
Securities"), If such registration is proposed to be on a form which permits
inclusion of the Registrable Securities, then upon the written request by JNE
and any other Holder given within ton (10) 0) days after transmittal by AMERINET
to JNE and all other Holders of the AMERINET Notice, AMERINET will, subject to
the limits contained in this Section, use Its reasonable efforts to cause such
Registrable Securities to be registered under the Securities Act and applicable
Blue Sky laws, all to the extent requisite to permit such sale or other
disposition by JNE and such other Holders of the Registrable Securities so
registered.
b. Demand Registration.Any time after the second anniversary date following
--------------------
the Closing, JNE shall HAVE the right to request in writing (the "DEMAND
Notice") registration with the Securities and Exchange Commission of Ks.
Registrable Securities to be effective for a period of Two Hundred Seventy (2701
days (such request shall be In writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares), provided that AMERINET shall not be required to effect a
registration pursuant to this Section Unless JNE proposes to dispose of at least
Two Hundred Fifty Thousand (250,0001 shares of Registrable Securities. Upon
AMERINET's receipt of the Demand Notice, it shad notify all other Holder's of
JNE's Demand Notice. Each such Holder shall have ten (10) days after AMERINET's
transmittal to elect to Participate in such registration. Subject to the above
contingencies and the limitations set forth below. AMERINET shag thereafter use
its reasonable efforts to Cause such registration to become effective as soon as
reasonably possible.
c. Limitations.The right of JNE or any other Holder hereunder to request
------------
Inclusion in or demand the registration& pursuant to this section 8.8 shad
terminate at such time that all of the shares of Registrable Securities hold by
JNE may be Publicly sold (i) under Rule 144. (ii) any other applicable
exemption, or Oil) pursuant to any previous registration to which JNE had the
opportunity to sell Its Registrable Securities, Without applicable volume
limitations during any 90-day period In at least one of such three cases.
d. Other Documents/Lock-up.JNE and other participating Holder under any
-------------------------
registation under this Section 8.8 shall enter Into such further agreements,
including Indemnification and customary underwriting agreements, as AMERINET
and/or the managing underwriter shall reasonably require in such registration.
In connection with any registration statement filed by AMERINET after the date
hereof, JNE and all other Holders, upon the request of AMERINET or any
underwriter managing an offering of AMERINET's securities (whether for resale by
an AMERINET shareholder or by AMERINET), not to son, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any AMERINET
equity without the prior written consent of AMERINET or such underwriters, as
the case may be, for a period of time, not to exceed ninety 1901 days from the
effective date of such registration (or such other period as shall be requested
not to exceed in any event 180 days); provided that all executive officers,
directors and 5% or greater shareholders of AMERINET enter Into similar
agreements. Such agreement shag be In writing in the form reasonably
satisfactory to AMERINET and such underwriter, if applicable. AMERINET may
impose top-transfer instructions with respect to the shares subject to the
foregoing restrictions until the end of said lock-up period."
26
<PAGE>
e. Amendments.Notwithstanding anything to the contrary herein, the
-----------
registration rights granted herein may be amended, modified, waived, extended or
cancelled with the mutually written consent of JNE and AMERINET.
2. Conditions To Closing.In addition to the conditions to Closing set
------------------------
forth in Section 9 of the Reorganization Agreement, RETN's and JNE's obligations
to consummate the transactions under the Reorganization Agreement shall be
contingent upon their acceptance of AMERINET's Certificate of Incorporation to
be attached to the Reorganization Agreement as Exhibit B.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the
date first set forth above.
AMERINET FINANCIAL SYSTEMS INC.
By: /s/ John Pembroke
Signature
John J. Pembroke, Chairman & CEO
(Print Name & Title)
ANFS, INC.
By: /s/ Winston Hickman
Signature
Winston E. Hickman, CFO
(Print Name & Title)
JONES NAUGHTON ENTERTAINMENT, INC.
By: /s/ Joseph Naughton
Signature
Joseph M. Naughton, CEO
(Print Name & Title)
REAL ESTATE TELEVISION NETWORK, INC.
By: /s/ Michael D. English
Signature
Michael D. English, President
(Print Name & Title)
27
<PAGE>
ANFS Disclosure Schedule
Each disclosure set forth below shall be deemed to qualify all applicable
representation ions and warranties set forth in the Agreement and Plan of
Reorganization Dated October 1, 1996 whether or not specifically cross
- -referenced as pertaining thereto.
4.2 Issued and outstanding capital and/or obligations /commitments to issue
capital stock of AmeriNet as of the Closing Date:
Shares Issued:
Common Stock - 7,122,445 shares
Preferred Stock - none
Commitments:
Common Stock - 250,000 shares, including 100,000 shares issuable to the
Lynde Group
Options for Common Stock - 6,000,000 shares
Options for Class B Common (or Preferred) Stock (or similar class presently
contemplated to be non-voting, but as yet with undetermined rights, preferences
and privileges) - 1,100,000 shares
Series A Preferred Stock - 1,400,000 shares to be issued or potentially issuable
to Jones Naughton Entertainment for MTN acquisition
4.3 The HomeOwner Buying Club, a Nevada corporation, is a whollyowned
subsidiary. AmeriNet contemplates completing the formation of the following
entities pursuant to its current Business Plan:
Real Estate Professionals Cooperative, a Nevada Cooperative association, of
which AmeriNet presently contemplates that it will control approximately 50% of
the voting interests.
An indeterminate number of Limited Liability Corporations (LLC's) presently
contemplated to be organized under 'Nevada law, and which presently are
contemplated to be owned approximately Sok by AmeriNet for the point of sale to
consumers for the delivery of mortgages and other HomeOwner products and
services in the Real Estate Brokers offices.
There is no guaranty however, that additional ventures and subsidiaries will not
be formed or that any of the above subsidiaries will in fact be established if
the Board of Directors of AmeriNet determines otherwise.
4.8 'Various agreements with the BETA Brokers currently provide that they will
be paid 25%, of their office net revenue (total office revenue less office
direct expenses related to having a Customer Service Representative (CSR) in the
office, telephone charges, computer and other equipment costs, supplies
/brochures expense, etc- in their office).
4.12 The AmeriNet trademark "AmeriNet" may not be.exclusively or even
non-exclusively used by AmeriNet - AmeriNet has filed an application with the
USPTO to register the mark "AmeriNet" and its associated logo. There are other
companies in substantially the same market place/industry, however, that could
claim a prior use of the AmeriNet name.
4.13 AmeriNet is a successor company to Space Systems Laboratories, Inc. (SSLI)
.. While AmeriNet has no knowledge or reason to believe that SSLI had
environmental problems, there may be issues or environmental liability due to
the nature of that company's business which was conducted essentially as a
machine shop type operation.
4.15 While the AmeriNet Financial Statements indicate a strong cash position,
the AmeriNet Business Plan currently requires that a large amount of cash be
expended each month. As disclosed to the principals of MTN and JNE,
approximately $15 to $20 million in additional equity/debt investment is
believed to be required at a minimum for AmeriNet to successfully execute its
strategy.
Additional Funding. significant additional funding will be required as noted
- -------------------
above to continue operations, and there can be no assurance that AmeriNet will
- ---
be able to secure such additional financing on favorable terms, or at all.
Going Concern/NOL. AmeriNet has experienced recurring Losses from operations and
- -----------------
use of cash from operations. Market conditions and AmeriNet's financial position
may inhibit its ability to achieve profitable operations. -These factors as well
as others indicate AmeriNet may be unable to continue as a going concern unless
it is able to obtain significant additional financing and generate sufficient
cash flows to meet its obligations as they come due and sustain its operations.
28
<PAGE>
Shares Eligible for Future Sale.No prediction can be made as to the effect, if
- ----------------------------------
any, that substantial and significant sales of new shares of Common Stock or
Preferred Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of stock may be sold in the future may adversely affect
prevailing prices for AmeriNet's stock and could impair AmeriNet's ability to
raise capital through the sale of its equity securities . AmeriNet also
contemplates that a significant but as of yet undetermined number of stock
options will be issued to employee insiders, consultants and directors of
AmeriNet.
AGREED, CONFIRMED AND ACCEPTED AS OF JANUARY 15, 1997
AMERINET FINANCIAL SYSTEMS INC.
By: /s/ John Pembroke
Signature
John J. Pembroke, Chairman & CEO
(Print Name & Title)
ANFS, INC.
By: /s/ Winston Hickman
Signature
Winston E. Hickman, CFO
(Print Name & Title)
JONES NAUGHTON ENTERTAINMENT, INC.
By: /s/ Joseph Naughton
Signature
Joseph M. Naughton, CEO
(Print Name & Title)
REAL ESTATE TELEVISION NETWORK, INC.
By: /s/ Michael D. English
Signature
Michael D. English, President
(Print Name & Title)
29
This agreement is entered into on as exclusive rights basis between GoOnline
Networks, Inc. (hereinafter referred to as "GoOn-line Kiosk") and
(hereinafter referred
to as "Hotel") located at
RECITALS
1. GoOn-line Kiosk is engaged in the business of installing information
centers known as kiosks in public locations throughout the United States and
internationally.
2. GoOn-line Kiosk custom designs kiosks with several available features
depending on certain factors concerning the site location. The most common
features used are the back-lit translucent ad panels with touch-tone dialing
connections, computer terminals for Internet access with keyboards and monitors
integrated into the kiosk design, currency payment slots, coupon racks, video
monitors and electronic messaging scrolling banners.
3. GoOn-line Kiosk makes every effort to work very closely with the managers
of the site location to design a kiosk that is most aesthetically pleasing and
generates the most customers' visibility and usage.
4. GoOn-line Kiosk derives revenue from the sale of advertisements and
payments received for Internet access by users of the kiosk.
5. Hotel is a hotel enterprise offering accommodations for rent to the
general public.
6. Hotel is desirous of entering into this agreement to offer their
customers a visually appealing information center with Internet access and ad
panels notifying customers of certain goods and services available to them.
TERM AND CONDITIONS
1. Hotel agrees to allow GoOn-line Kiosk to install a kiosk in the hotel
lobby in a suitable location agreeable to both parties. The kiosk and all
related equipment will remain the sole property of GoOnline Kiosk.
2. GoOn-line Kiosk agrees to pay Hotel $45.00 per month or 10% of the usage
fees derived from the Internet access terminal, whichever is greater.
Calculation of the monthly revenue for this purpose will commence 45 days after
installation of the Internet access terminal and be paid quarterly.
3. GoOn-line Kiosk has the right to cancel upon 30 days written notice, to
remove the Internet access terminal if the Internet access terminal is not
providing an average of $15.00 per day in usage fees for the preceding 90 days.
4. GoOn-line Kiosk agrees to pay for the installation of a dedicated
telephone line and for the monthly charges incurred to maintain those lines.
Hotel gives GoOn-Line KIOSK permission to install a telephone line into said
hotel, at no expense to the Hotel. GoOn-line Kiosk accepts no liability for
holes in walls, pillars or floors which are necessary for the installation or
removal of the kiosk(s) and equipment, or as a result of vandalism.
5. GoOn-line Kiosk will supply Hotel with quarterly accounting of all
revenue and expenses generated by the information center.
6. GoOn-line Kiosk agrees to inspect the kiosk regularly and provide
maintenance of the information center at their expense. GoOn-line Kiosk shall
have the right to change the type of kiosk equipment at this location.
<PAGE>
7. Hotel agrees to notify GoOn-line Kiosk if any maintenance should be
needed in a timely manner. Only GoOn-line KIOSK or a duly authorized
representative is allowed to open, adjust, remove, disconnect, repair, replace
or alter the kiosk in any way.
8. Should any dispute arise involving the terms and conditions of this
agreement, such dispute will be decided by the AMERICAN ARBITRATION ASSOCIATION
in a binding decision.
9. This exclusive site agreement is for four (4) years, with a second
four-year option exercisable upon written notice, by registered mail from Hotel
to GoOn-line Kiosk, ninety days before the end of the first four-year period.
10. GoOn-line Kiosk agrees to pay Hotel for that portion of liability
insurance naming GoOn-line Kiosk as an additional insured.
All of the above terms and conditions are agreed upon by the parties signing
below.
GoOn-line Kiosk Date
Auctionomics, Inc.
18226 Ventura Boulevard, Suite 103
Tarzana, CA 91346
July 1, 1999
Mr. Larry Makowski:
ClassifiedAuctions.com, LLC
Re: Agreement between ClassifiedAuctions.com, LLC and Auctionomics, Inc.
Dear Mr. Makowski:
This letter will evidence the provisions of the agreement between
Auctionomics, Inc. ("Auctionomics") and ClassifiedAuctions.com, LLC
("Classified"). In consideration of the mutual covenants contained herein, and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, we hereby agree as follows:
1. Classified will provide an operational online auction site for use by
Auctionomics in the Auctionomics online internet mall. Auctionomics will use
the classifiedauctions.com web site as the exclusive online aucction site for
----------------------
its online Internet mall and Classified will not allow any other Internet mall
to use said site or its platform during the term hereof.
2. This agreement will have a term of 2 years commencing on the date hereof
and will automatically renew at the end of the initial two year period for an
additional two years unless proper notice is given. Proper notice is written
notice of the desire to terminate the agreement received no less than 90 days
before the end of any two year period.
3. Classified will award a 20% referral fee to Auctionomics for any fees
that Classified charges to customers that are referred to the
classifiedauction.com web site through the efforts of Auctionomics.
---
If the foregoing correctly states our understanding, please evidence your
acceptance and approval in the space below and return a fully executed copy of
the letter agreement to me.
Very truly yours,
AUCTIONOMICS, INC.
By: /s/ Harvey A. Turell
-------------------------
Harvey Turell, President
<PAGE>
AGREED AND APPROVED
CLASSIFIEDAUCTIONS.COM, LLC
By: /s/ Larry A. Makowski
--------------------------
[INGRAM MICRO LOGO]
September 28, 1999
Joseph M. Naughton
GO ONLINE NETWORKS CORP,
25 Main Street Suite 201
Chico, CA 95928-5489
Dear Mr. Naughton:
Welcome to Ingram Micro Inc., the leader in computer and technology related
distribution. As an account holder, we offer you the advantage of one stop
shopping with prompt and courteous service. We have established an account for
GO ONLINE NETWORKS CORP and assigned Customer Number 50-324346.
Terms of payment are Net 30 days from the date of invoice With a limit of
$15,000.00. Your assistance in seeing that our terms of sale are honored will be
appreciated. I will be your Senior Credit Representative and may be reached at
(714) 566-1000, extension 23795. Your Sales Representative may be reached at
(800) 456-8000.
When making a payment to Ingram Micro, please be sure to indicate your account
number along with which invoices are being paid to ensure proper posting. To
help you maintain your account you will receive's statement within 15 days of
each month end.
Information about Ingram Micro program and services is available on our Web
site. You can search for the products you need, generate quotes and place orders
all in one convenient online location www.ingrammicro.com To obtain your
Internet ID, please call our Electronic Commerce Support team at 1-800-616-4665.
Thank you for choosing Ingram Micro Inc. as your distributor of choice. We will
strive to fulfill our commitment to excellence In service and support
Please note that accounts with no activity for 12 months are subject to
deletion.
Sincerely,
Leslie Bowman
Senior Credit Representative
[INGRAM MICRO LOGO]
[GRAPHIC OMITED]
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WEBSITE. BECAUSE SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
INCIDENTAL OR CONSEQUENTIAL DAMAGES, THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
IN SUCH JURISDICTIONS, LINKSHARE'S LIABILITY IS LIMITED TO THE GREATEST EXTENT
PERMITTED BY LAW. THIS PARAGRAPH WILL SURVIVE THE FAILURE OF ANY EXCLUSIVE OR
LIMITED REMEDY.
11.3 The obligations of LinkShare are solely corporate obligations, no af
filiate, stockholder, director, officer, employee, consultant or agent of
LinkShare shall be subject to any personal liability whatsoever to You or any of
its affiliates, stockholders or creditors or any other person or entity, nor
will any such claim be asserted (directly, derivatively or otherwise) by or on
behalf of You or any of Your successors and assigns.
12. Termination.
12.1 You may terminate Your account at any time by sending an e-mail to
[email protected]. Upon termination, your access to the Service will be
suspended within ten (10) days. You are responsible for all actions and charges
incurred up to the time that the account is deactivated.
12.2 LinkShare may, in its sole discretion, terminate or suspend Your access
to
all or part of the Service for any reason, including without limitation, breach
of this Agreement, or assignment of this Agreement by You.
12.3 Upon termination, You shall no longer be entitled to use the Service and
the licenses granted hereunder shall terminate and You shall immediately return
or destroy all Proprietary Information, but the terms of this Agreement will
otherwise remain in effect.
13. Nonassignability.
Neither the rights nor the obligations arising under this Agreement are a
ssignable or transferable by You, and any such attempted assignment or transfer
shall be void and without effect. LinkShare may assign this Agreement to any
successor, affiliate or assign.
14. Controlling Law and Severability.
The Service is controlled and operated from its offices within the State of New
York. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to its conflict of law provisions.
In the event of any dispute concerning the Service, or any matter related to
this Agreement, You agree that the litigation shall be in state or federal
courts in New York City. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provisions shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
15. Entire Agreement.
This Agreement constitutes the entire agreement between LinkShare and You
pertaining to the subject matter hereof, and any and all written or oral
agreements heretofore existing between the parties hereto are expressly
cancelled. Any modifications of this Agreement must be in writing and signed by
both parties hereto.
16. Export.
You shall not remove or export from the United States or reexport from anywhere
any part of the Service or any direct product thereof to Cuba, Libya, North
Korea, Iran, Iraq or Rwanda or to any Group D:1 or E:2 country (or any national
of such country) specified in the then current Supplement No. 1 to part 740 of
the U.S. Export Administration Regulations (or any successor supplement or
regulations) or otherwise except in compliance with and with all licenses and
approvals required under applicable export laws and regulations, including
without limitation, those of the U.S. Department of Commerce.
17. BASIS OF BARGAIN.
EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY DISCLAIMERS AND LIABILITY AND
REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL BARGAINED FOR BASES OF THIS
AGREEMENT AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT AND REFLECTED IN
DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND
IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT.
18. Force Majeure.
Neither party shall be liable hereunder by reason of any failure or delay in the
performance of its obligations hereunder on account of strikes, shortages,
riots, insurrection, fires, flood, storm, explosions, acts of God, war,
governmental action labor conditions, earthquakes or any other cause which is
beyond the reasonable control of such party.
19. Jurisdictional Issues
Information LinkShare publishes on the Web may contain references or cross
references to LinkShare's products, programs and services that are not announced
or available in you country. Such references do not imply that LinkShare
intends to announce such products, programs or services in your country. Except
as described otherwise, all materials in LinkShare's site are made available
only to provide information about LinkShare. LinkShare controls and operates
its site from its offices in the state of New York, United States of America and
makes no representations or warranties that these materials are appropriate or
available for use in other locations, and access to them from territories where
their contents are illegal is prohibited. If you use LinkShare's site from
other locations, you are responsible for compliance with applicable local laws.
Any claim relating to the materials in the LinkShare website shall be governed
by the internal substantive laws of the state of New York.
Official Correspondence must be sent via postal mail to:
95 Horatio Street, Suite 107, New York, New York 10014, USA.
LINKSHARE, LINKSHARE SYNERGY(tm) and THE LINKSHARE NETWORK(tm) are trademarks of
LinkShare Corporation. Other product and company names mentioned herein may be
the trademarks of their respective owners.
Copyright ? 1997 LinkShare Corporation. Any rights not expressly granted herein
are reserved.
Should You have any questions concerning this Agreement contact LinkShare
Corporation at [email protected]
[GRAPHIC OMITED]
June 22, 1999
(INFOTOUCH LOGO)
Mr. Joseph Naughton
Chairperson
Jones Naughton
5681 Beach Blvd. Suite 101
Buena Park, CA 90621
Re: Confirmation of Initial Order and Stategic Alliance with Jones Naughton
Dear Sir,
The following has been sent to you pursuant to our discussions of a strategic
vendor/client relationship between Info Touch Technologies and Jones Naughton
respectively.
Info Touch is pleased to enter into a sales agreement with Jones Naughton for
the sale of 50 Surfnet Internet terminals. This purchase will be taking place
during the subsequent 45 days.
It is the intention of both parties to enter into a formal strategic alliance
and supply agreement whereby the provisioning of kiosks would be determined on a
monthly basis.
Respectfully,
/s/ Hamed Shahbazi
Hamed Shahbazi
CEO
Info Touch Technologies Corp.
(INFOTOUCH LOGO)
Sales Quote
Date: Wednesday, May 19, 1999
To:
Joseph Naughton
Chairman
Jones Naughton Entertainment, Inc
Dear Joseph,
As per the request of Mr. Hamed Shahbazi, here are the prices for the Surfnet
models you requested followed by the volume discounts:
<PAGE>
All prices are in USD
Item No. Description QTY Unit Price
ITT-TKK-NSTA Turnkey Netflyer Kiosk 1 $4,495.50
Specifications:
Housing
ITT-ENC-NSTA -Constructed of MDF board and high pressure laminates
CPU System
ITT-SYS-CPU -Intel Celeron 333 MMX w/64 MB SDRAM
3.5 GB Removable HD. 4 MB Video Card, 16 Bit Sound Card.
56K V90 modem, 36 CD ROM, 1.44 MB Floppy Drive
ITT-VIS-CR17 -17" Monitor Built by Scepter
Accessories:
ITT-ACC-CCS -Credit Card Reader (swipe)
ITT-ACC-PBR -Powerbar (Surge Protector)
ITT-ACC-CSKB -Compact Keyboard
ITT-ACC-GPM -Cirque Glidepoint Touchpad Mouse
ITT-ACC-CCAM -USB Full motion color camera
ITT-ACC-HST -Armored telephone Handset
ITT-ACC-USBM -US bill acceptor (1,5,10,20) accepts new and old bills
ITT-ACC-RBT -Reboot Switch Card
Software:
ITT-SOFT-W98 -Windows 98
ITT-SUR-CORE -Surfnet complete software package including the Co-branding
customization and full motion video e-mail.
ITT-SUR-RMT -Remote software package
Crate:
ITT-ACC-CRA -Full wooden Shipping Crate and packing supplies
Item No. Description QTY Unit Price
ITT-TKK-ELNT Turnkey Elantra Net 1 $4,495.00
Specifications:
Housing
ITT-ENC-NSTA -Constructed of durable ABS plastic, MDF board, and high
pressure laminates
CPU System
ITT-SYS-CPU -Intel Celeron 333 MMX w/64 MB SDRAM
3.5 GB Removable HD. 4 MB Video Card, 16 Bit Sound Card.
56K V90 modem, 36 CD ROM, 1.44 MB Floppy Drive
ITT-VIS-CR17 -17" Monitor Built by Scepter
Accessories:
ITT-ACC-CCS -Credit Card Reader (swipe)
ITT-ACC-PBR -Powerbar (Surge Protector)
<PAGE>
ITT-ACC-CSKB -Compact Keyboard
ITT-ACC-GPM -Cirque Glidepoint Touchpad Mouse
ITT-ACC-CCAM -USB Full motion color camera
ITT-ACC-HST -Armored telephone Handset
ITT-ACC-USBM -US bill acceptor (1,5,10,20) accepts new and old bills
ITT-ACC-RBT -Reboot Switch Card
Software:
ITT-SOFT-W98 -Windows 98
ITT-SUR-CORE -Surfnet complete software package including the Co-branding
customization and full motion video e-mail.
ITT-SUR-RMT -Remote software package
Crate:
ITT-ACC-CRA -Full wooden Shipping Crate and packing supplies
Item No. Description QTY Unit Price
ITT-TKK-MNET Turnkey Micronet FXII 1 $4,695.00
Specifications:
Housing
ITT-ENC-NSTA -Constructed of MDF Board and High Pressure laminates.
CPU System
ITT-SYS-CPU -Intel Celeron 400 MMX w/64 MB SDRAM 4.3 GB HD, 4 MB Video Card,
16 Bit Sound card, 56K Modem V.90, 36X+CD ROM, 1.44 MB Floppy Drive
ITT-VIS-LC12 -12.1" Flat panel active matrix display
Accessories:
ITT-ACC-CCS -Credit Card Reader (swipe)
ITT-ACC-PBR -Powerbar (Surge Protector)
ITT-ACC-CSKB -Compact Keyboard
ITT-ACC-GPM -Cirque Glidepoint Touchpad Mouse
ITT-ACC-CCAM -USB Full motion color camera
ITT-ACC-HST -Armored telephone Handset
ITT-ACC-USBM -US bill acceptor (1,5,10,20) accepts new and old bills
ITT-ACC-RBT -Reboot Switch Card
Software:
ITT-SOFT-W98 -Windows 98
ITT-SUR-CORE -Surfnet complete software package including the Co-branding
customization and full motion video e-mail.
ITT-SUR-RMT -Remote software package
Crate:
ITT-ACC-CRA -Full wooden Shipping Crate and packing supplies
Volume Discounts:
<PAGE>
As expressed by Mr. Shahbazi, Jones Naughton Entertainment, Inc would like the
volume price to reflect the number of units ordered on monthly basis. The two
options were ordering in lots of 20 units/month or 40 units/month:
Surfnet Model Unit Price (orders of Unit Price
(orders of 20/month) 40/month)
Net Flyer $3195.00 $3095.00
Elantra Net $3195.00 $3095.00
Micronet FX II $3395.00 $3295.00
Payment Terms.
Payment terms are 50% upon order and 50% upon completion. All units are F.O.B.
manufacturing facility in Burnaby, BC.
Please note that Info Touch offers remote monitoring services, On-site services
and shipping and handling services to facilitate the management of your
terminals.
If you have any questions or comments about this quote, please contact me.
Thank you for your considerations,
/s/ Joseph Nakhla
Joseph Nakhla
Corporate Sales Manager
Infotouch Technologies
iCom
Network
March 8, 1999
To:
From:
Re: Memo of UnderstandingBInternet Kiosks
This Memo of Understanding (hereinafter "MOU") is between (company) (hereinafter
"Contract Vendor") and iCom Network, Inc. (hereinafter "iCom") regarding the
service and maintenance of iCom's installed Internet Kiosks.
1.) Icom owns and operates public internet Kiosks under the brand name of
NetSiteJ and/or NetZoneJ throughout the U.S. which requires service and
maintenance.
2.) Contract Vendor agrees to service, collect monies from, repair, clean
and otherwise perform general maintenance in Contract Vendor's territory to
Internet Kiosks so designated by iCom in a timely and professional manner using
qualified and experienced technicians. Contract Vendor must maintain a
reasonable quality of service acceptable to iCom based on industry standards.
3.) Contract Vendor agrees to review online Internet Kiosk reports provided
by iCom to determine daily status of kiosks and perform any repair service calls
needed within 24 hours.
4.) Contract Bendor agrees to perform a miimum of (1) service call per month
per kiosk to change dollar bill boxes and perform general cleaning functions.
5.) Contract Bendor agrees to properly label and send via Federal Express
using iCom's account number on a weekly basis all dollar bill boxes removed from
kiosks. Contract Vendor understands the contents of the dollar bill boxes are
not t be removed and/or tampered with in any form.
6.) Icom agrees to pay Contract Vendor a fee of (fees) revenue per kiosk per
month for services performed. Contract Vendor must provide iCom an invoice
every month for services rendered.
7.) Icom agrees to provide Contract Vendor all necessary parts needed to
perform service and repair functions on kiosks.
8.) Each party shall have the right to terminate this MOU immediately by
written notice to the other if the party has materilly breached any obligation
herein.
<PAGE>
Both parties have reviewed this MOU and agree to abide by all requirements.
/s/ Eric Wagner
Eric Wagner
iCom Network, Inc.
10225 Barnes Canyon Rd Suite A-111
San Diego, CA 92121
[WEBSITE RESULTS LOGO]
INVOICE
INVOICE DATE: 06114199
TRAFFIC INSERTION ORDER:
Scott Claverie
GoOn-line.com
25 Main Street
Chico, CA 95928
Tel- 530-891-4100
Fax: 530-896-8284
SEARCH ENGINE MARKETING PACKAGE
1. Keyword evaluation by Internet marketing specialist. 2. Creation of search
engine-focused Smart Pages for multiple keywords/keyword phrases (creation of 4
Smart Pages per keyword). 3. Submission and monitoring of Smart Pages to Major
Search engines for indexing and subsequent traffic.
Total Visitors: 9,000 Per Visitor $.15 Per visitor delivered to client site via
SmartPage Technology from the major search engines wtih a total number of
visitors not to exceed 9, 000 unique visitors Retainer will be prepaid against
traffic fulfillment to, Website Results, at the agreed upon rate of $.15 per
visitor. Website Results and client will evaluate the traffic delivered at the
conclusion of this campaign and create a Phase 11 thereafter. Website Results
services are ongoing, however, client reserves the right to terminate said
services at the conclusion of the "test" campaign.
Total Campaign: $1,295.00 (Now due & payable)
Respectfully,
Jeff Reynolds
Website Results
1
GO ONLINE NETWORKS CORPORATION
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT J.
<PAGE>
17
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the ___ day of
, 1999, by and between Go Online Networks Corporation, a corporation duly
organized and validly existing under the laws of the State of Delaware (the
"Company"), and the undersigned Investor executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, par value $0.001 per share (the "Common
Stock"), as part of an offering of Common Stock by the Company to Investor, for
a maximum aggregate offering amount of Ten Million Dollars ($10,000,000) (the
"Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by
the Company, the offer and sale of the Common Stock are being made pursuant to
the Company's Registration Statement on Form SB-2, file number 333-88615 filed
on October 7, 1999 under the Securities Act of 1933, as amended (the "Act").
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Investment Agreement (including the
-------------------
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.26.
"AAA" shall have the meaning set forth in Section 7.8.
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.5.
<PAGE>
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.6.3(b).
"Agreement" shall mean this Investment Agreement.
"Annual Commitment Amount" shall have the meaning set forth in Section 2.7.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bid Price" shall mean the bid price of the Common Stock on the Company's
Principal Market.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is open
for business.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month (the "Numeric Day") and for Calendar Months
thereafter, beginning on the earlier of (i) the same Numeric Day of the next
calendar month or (ii) the last day of the next calendar month. Each Calendar
Month shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.6.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, and shall be attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
<PAGE>
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on the O.T.C. Bulletin Board, or, if the
O.T.C. Bulletin Board is not the principal securities exchange or trading market
for such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by such principal securities exchange or trading market, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security, or,
if no closing bid price is reported for such security, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor in
this offering and any fees and costs associated therewith shall be paid by the
Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.7.
"Commitment Warrant" shall have the meaning set forth in Section 2.7.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company, par value $0.001
per share.
"Company" shall mean Go Online Networks Corporation, a corporation duly
organized and validly existing under the laws of the State of Delaware.
"Company Termination" shall have the meaning set forth in Section 2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set forth
in Section 2.2.4.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.6.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Extended Put Period" shall mean the period of time between the Advanced
Put Notice Date until the Pricing Period End Date.
<PAGE>
"Gross Discount Amount," for each Purchase of Put Shares, shall equal the
product of (i) the difference of one minus the quotient obtained when the Put
Share Price for such Purchase is divided by the Market Price for such Purchase,
multiplied by (ii) the Put Dollar Amount paid to the Company by the Investor for
the Put Shares in that Purchase.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in this
Investment Agreement and the Registration Rights Agreement) becomes ineffective
or unavailable for use for the sale or resale, as applicable, of any or all of
the Registrable Securities (as defined in the Investment Agreement and
Registration Rights Agreement) for any reason (or in the event the prospectus
under either of the above is not current and deliverable) during any time period
required under this Investment Agreement and the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.3.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.18, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
<PAGE>
"Look Back Period" shall mean the period of ten (10) consecutive trading
days during the Pricing Period ending immediately prior to the Put Closing Date.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Investment Agreement and the Registration
Rights Agreement). For purposes hereof, an entity shall have Substantially
Similar Trading Characteristics as the Company if the average daily dollar
trading volume of the common stock of such entity is equal to or in excess of $
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the average of the five (5) lowest Closing Bid
Prices for the Common Stock on the Principal Market during the Look Back Period
for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Offering Amount" shall mean Ten Million Dollars ($10,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"NYSE" shall have the meaning set forth in Section 6.10.
<PAGE>
"Numeric Day" shall mean the numerical day of the month of the Investment
Date.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel and the Purchase Warrant Opinion
of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall have the meaning set forth in Section 2.3.7(b).
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Pricing Period Extension" shall have the meaning set forth in Section
2.3.7(b).
"Principal Market" shall mean the Nasdaq Small Cap Market, the O.T.C.
Bulletin Board, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7(a).
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from Company's
independent counsel, substantially in the form attached as Exhibit O, or such
other form as agreed upon by the parties, as to the issuance of Purchase
Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(d).
<PAGE>
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth in
Section 2.3.13(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the Put Share Price with respect to such Put Date, subject to the limitations
herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall mean those shares of the Common Stock of the
Company together with any capital stock issued in replacement of, in exchange
for or otherwise in respect of such Common Stock, that are: (i) issuable or
issued to the Investor pursuant to this Investment Agreement, and (ii) issuable
or issued upon exercise of the Warrants; provided, however, that notwithstanding
the above, the following shall not be considered Registrable Securities:
<PAGE>
(a) any Common Stock which would otherwise be deemed to be Registrable
Securities, if and to the extent that those shares of Common Stock may be resold
in a public transaction without volume limitations or other material
restrictions without registration under the Act, including without limitation,
pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
parties.
"Registration Statement" shall mean the Registration Statement filed by the
Company on Form SB-2 on October 7, 1999 covering the offer and sale of the
Registrable Securities pursuant to this Agreement.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.26.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
<PAGE>
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the Effective Date of this Agreement and ending on the
Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date of this Agreement, or (ii) the date that is
thirty (30) Business Days after the later of (a) the Put Closing Date on which
the sum of the aggregate Put Share Price for all Put Shares equals the Maximum
Offering Amount, (b) the date that the Company has delivered a Termination
Notice to the Investor, and (c) the date that all of the Warrants have been
exercised.
"Termination Notice" shall have the meaning as set forth in Section 2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.7(b).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.13(b).
"Twelve Month Anniversary" shall mean the date that is the same Numeric Day
of the twelfth (12th) calendar month after the Investment Date, and the date
that is the same Numeric Day of each twelfth (12th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Unlegended Share Certificates" shall mean a certificate or certificates
(in denominations as instructed by Investor) representing the shares of Common
Stock to which the Investor is then entitled to receive, registered in the name
of Investor or its nominee (as instructed by Investor) and not containing a
restrictive legend, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4.
"Variable Priced Securities" shall have the meaning set forth in Section
6.6.1.
"Warrant Shares" shall mean the Common Stock issuable upon exercise of the
Warrants and the Commitment Warrants.
"Warrants" shall mean the Purchase Warrants and the Commitment Warrants.
<PAGE>
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock and accompanying Warrants as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Puts pursuant to Section 2.3
below.
2.2 Investment Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Investment Commitment Closing. The closing of this Investment
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Investment Agreement and the Registration Rights Agreement have been
executed by both Investor and the Company, and the other Conditions to
Investor's Obligations set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Investor's Obligations. As a prerequisite to the
Investment Commitment Closing and the Investor's obligations hereunder, all of
the following (the "Conditions to Investor's Obligations") shall have been
satisfied prior to or concurrently with the Company's execution and delivery of
this Agreement:
(a) the following documents shall have been delivered to the Investor: (i)
the Registration Rights Agreement, in the form attached hereto as Exhibit A, or
such other form as agreed upon by the parties, (the "Registration Rights
Agreement") (executed by the Company and Investor), (ii) the Investment
Commitment Opinion of Counsel (signed by the Company's counsel), and (iii) a
Secretary's Certificate as to (A) the resolutions of the Company's board of
directors authorizing this transaction, (B) the Company's Certificate of
Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have been
received by the Investor;
(c) the Company's Registration Statement on Form SB-2, File No. 333-88615,
shall have been declared effective by the SEC;
<PAGE>
(d) the Company's Common Stock shall be listed for trading and actually
trading on the O.T.C. Bulletin Board or the Nasdaq Small Cap Market;
(e) other than continuing losses described in the Risk Factors set forth in
the Disclosure Documents (provided for in Section 3.2.4), as of the Closing
there have been no material adverse changes in the Company's business prospects
or financial condition since the date of the last balance sheet included in the
Disclosure Documents, including but not limited to incurring material
liabilities; and
(f) the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects and the conditions to
Investor's obligations set forth in this Section 2.2.4 shall have been satisfied
as of such Closing; and the Company shall deliver an Officer's Certificate,
signed by an officer of the Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual Put Limit,
the Maximum Offering Amount and the Cap Amount (if applicable), and the other
conditions and limitations set forth in this Agreement, at any time beginning on
the date on which the Registration Statement is declared effective by the SEC
(the "Effective Date"), the Company may, in its sole and absolute discretion,
elect to exercise one or more Puts according to the following procedure:
(a) Delivery of Advance Put Notice. At least ten (10) Business Days but not
more than twenty (20) Business Days prior to any intended Put Date (unless
otherwise agreed in writing by the Investor), the Company shall deliver advance
written notice (the "Advance Put Notice," the form of which is attached hereto
as Exhibit E, the date of such Advance Put Notice being the "Advance Put Notice
Date") to Investor stating the Put Date for which the Company shall, subject to
the limitations and restrictions contained herein, exercise a Put and stating
the number of shares of Common Stock (subject to the Individual Put Limit and
the Maximum Put Dollar Amount) which the Company intends to sell to the Investor
(the "Intended Put Share Amount").
<PAGE>
Notwithstanding the above, if more than two (2) Calendar Months have passed
since the date of the previous Put Closing, the Company shall deliver the
Advance Put Notice at least twenty (20) Business Days prior to any intended Put
Date, unless waived in writing by the Investor. In order to effect delivery of
the Advance Put Notice, the Company shall (i) send the Advance Put Notice by
facsimile on such date so that such notice is received by the Investor by 6:00
p.m., New York time, and (ii) surrender such notice on such date to a courier
for overnight delivery to the Investor (or two (2) day delivery in the case of
an Investor residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Advance Put Notice, the Investor shall, within two (2)
Business Days, send, via facsimile, a confirmation of receipt (the "Advance Put
Notice Confirmation," the form of which is attached hereto as Exhibit F) of the
Advance Put Notice to the Company specifying that the Advance Put Notice has
been received and affirming the intended Put Date and the Intended Put Share
Amount.
(b) Put Share Amount. The "Put Share Amount" is the number of shares of
Common Stock that the Investor shall be obligated to purchase in a given Put,
and shall equal the lesser of (i) the Intended Put Share Amount, and (ii) the
Individual Put Limit. The "Individual Put Limit" shall equal 20% of the sum of
the daily reported trading volume in the outstanding Common Stock on the
Company's Principal Market during the Pricing Period, as extended or shortened
under the terms hereof. Notwithstanding the above, the Company shall have the
right to seek a one-time waiver of the "Put Share Amounts" and depending on
market conditions and business operations, such waiver shall not be unreasonably
withheld
(c) Put Share Price. The purchase price for the Put Shares (the "Put Share
Price") shall equal 82.5% of the Market Price for such Put.
<PAGE>
(d) Delivery of Put Notice. After delivery of an Advance Put Notice, on the
Put Date specified in the Advance Put Notice, or on the sixth (6th) Business Day
following the last day of the previous Pricing Period, whichever is later, the
Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date and (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"). In order to effect delivery of the Put Notice, the Company shall (i)
send the Put Notice by facsimile on the Put Date so that such notice is received
by the Investor by 6:00 p.m., New York time, and (ii) surrender such notice on
the Put Date to a courier for overnight delivery to the Investor (or two (2) day
delivery in the case of a Investor residing outside of the U.S.). Upon receipt
by the Investor of a facsimile copy of the Put Notice, the Investor shall,
within two (2) Business Days, send, via facsimile, a confirmation of receipt
(the "Put Notice Confirmation," the form of which is attached hereto as Exhibit
H) of the Put Notice to Company specifying that the Put Notice has been received
and affirming the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the Put Date for such
Put, the Company shall deliver the Required Put Documents (as defined in Section
2.3.5 below) to the Investor (or to an agent of Investor, if Investor so
directs). Unless otherwise specified by the Investor, the Put Shares of Common
Stock shall be transmitted electronically pursuant to such electronic delivery
system as the Investor shall request; otherwise delivery shall be by physical
certificates. If the Company has not delivered all of the Required Put Documents
to the Investor on or before the Put Date, the Put shall be automatically
cancelled, unless the Investor agrees to delay the Put Date by up to three (3)
Business Days, in which case the Pricing Period begins on the Business Day
following such new Put Date. If the Company has not delivered all of the
Required Put Documents to the Investor on or before the Put Date (or new Put
Date, if applicable), and the Investor has not agreed in writing to delay the
Put Date, the Put is automatically canceled (an "Impermissible Put
Cancellation") and, unless the Put was otherwise canceled in accordance with the
terms of Section 2.3.13, the Company shall pay the Investor reasonable due
diligence expenses up $5,000 incurred in preparation for the canceled Put and
the Company may deliver an Advance Put Notice for the subsequent Put no sooner
than ten (10) Business Days after the date that such Put was canceled.
2.3.2 Termination of Right to Put. The Company's right to require the
Investor to purchase any subsequent Put Shares shall terminate permanently (an
"Automatic Termination"), unless waived in writing by the Investor, upon the
occurrence of any of the following:
<PAGE>
(a) the Company shall not exercise a Put or any Put thereafter if, at any
time, either the Company or any director or executive officer of the Company has
engaged in a transaction or conduct related to the Company that gives rise to
(i) a Securities and Exchange Commission enforcement action, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;
(b) the Company shall not exercise a Put or any Put thereafter, on any date
after (i) any Ineffective Period or Delisting Event, both as defined in the
Registration Rights Agreement, that last for four (4) consecutive months, or
(ii) a cumulative time period, including both Ineffective Periods and Delisting
Events, that lasts for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put thereafter if at any
time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against
the Company or any subsidiary of the Company; provided that in the event that an
involuntary bankruptcy petition is filed against the Company, the Company shall
have sixty (60) days to obtain dismissal of such petition before such Put
prohibition shall initiate; and
(d) the Company shall not exercise a Put after the sooner of (i) the date
that is three (3) years after the Effective Date of this Agreement, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts
equals the Maximum Offering Amount.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows, unless waived in writing by the Investor:
(a) [Intentionally Left Blank].
(2) notwithstanding the amount of any Put, the Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount;
<PAGE>
(c) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has announced a subdivision
or combination, including a reverse split, of its Common Stock or has subdivided
or combined its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has paid a dividend of its
Common Stock or has made any other distribution of its Common Stock during the
Extended Put Period;
(e) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has made, during the
Extended Put Period, a distribution of all or any portion of its assets or
evidences of indebtedness to the holders of its Common Stock; or
(f) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which a Major Transaction has occurred during
the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Investor to
Purchase Put Shares. The right of the Company to deliver an Advance Put Notice
or a Put Notice and the obligation of the Investor hereunder to acquire and pay
for the Put Shares incident to a Put Closing is subject to the satisfaction, on
(i) the date of delivery of such Advance Put Notice or Put Notice and (ii) the
applicable Put Closing Date, of each of the following conditions, unless waived
in writing by the Investor:
(a) the Company's Common Stock shall be listed for and actively trading on
the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National
Market or the New York Stock Exchange and the Put Shares shall be so listed, and
subject to NASD Rule 4820, to the Company's knowledge there shall be no notice
of any suspension or delisting with respect to the trading of the shares of
Common Stock on such market or exchange;
<PAGE>
(b) the Registration Statement covering the sale of the Registrable
Securities to the Investor shall be effective and, if so required, the Company
shall have satisfied any and all obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing of the Supplemental
Registration Statement with the SEC with respect to the resale of all
Registrable Securities and the requirement that the Supplemental Registration
Statement shall have been declared effective by the SEC for the resale of all
Registrable Securities; and the Company shall have satisfied and shall be in
compliance with any and all obligations pursuant to this Agreement and the
Warrants;
(c) there shall have been no material adverse changes in the Company's
business prospects or financial condition, including but not limited to
incurring material liabilities, except as disclosed in the SEC documents filed
by the Company since the date of this Investment Agreement;
(d) the representations and warranties of the Company shall be true and
correct in all material respects as if made on such date and the conditions to
Investor's obligations set forth in this Section 2.3.4 are satisfied as of such
Closing, and the Company shall deliver a certificate, signed by an officer of
the Company, to such effect to the Investor;
(e) the Company shall have reserved for issuance a sufficient number of
Common Shares for the purpose of enabling the Company to satisfy any obligation
to issue Common Shares pursuant to any Put and to effect exercise of the
Warrants;
(f) the Registration Statement or Supplemental Registration Statement is not
subject to an Ineffective Period as defined in the Registration Rights
Agreement, the prospectus included therein is current and deliverable, and to
the Company's knowledge there is no notice of any investigation or inquiry
concerning any stop order with respect to the Registration Statement or
Supplemental Registration Statement; and
(g) if the Aggregate Issued Shares after the Closing of the Put would exceed
the Cap Amount, the Company shall have obtained the Stockholder 20% Approval as
specified in Section 6.12.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions
to Closing of any Put. The Closing of any Put and Investor's obligations
hereunder shall additionally be conditioned upon the delivery to the Investor of
each of the following (the "Required Put Documents") on or before the applicable
Put Date, unless waived or extended in writing by the Investor:
(a) a number of Unlegended Share Certificates equal to the Intended Put
Share Amount, in denominations of not more than 1,000 shares per certificate;
<PAGE>
<PAGE>
(b) the following documents: Put Opinion of Counsel, Officer's Certificate,
Put Notice, any required Registration Opinion, and any report or disclosure
required under Section 2.3.6 or Section 2.6;
(3) current Risk Factors; and
(d) all documents, instruments and other writings required to be delivered
on or before the Put Date pursuant to any provision of this Agreement in order
to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
<PAGE>
(a) The Company shall have caused to be delivered to the Investor, (i)
whenever required by Section 2.3.6(b) or by Section 2.6, and (ii) on the date
that is three (3) Business Days prior to each Put Date (the "Registration
Opinion Deadline"), an opinion of the Company's independent counsel, in
substantially the form of Exhibit R (the "Registration Opinion"), addressed to
the Investor stating, inter alia, that no facts ("Material Facts") have come to
such counsel's attention that have caused it to believe that the Registration
Statement is subject to an Ineffective Period or to believe that the
Registration Statement, any Supplemental Registration Statement (as each may be
amended, if applicable), and any related prospectuses, contains an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statement,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Cancellation Notice to the Investor pursuant to Section 2.3.13 by
facsimile and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent auditors to perform the
procedures in accordance with the provisions of Statement on Auditing Standards
No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the
"Bring Down Cold Comfort Letters") as shall have been reasonably requested by
the Investor with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor such a report
addressed to the Investor, on the date that is three (3) Business Days prior to
each Put Date.
(2) in the event that the Investor shall have requested delivery of an
"Agreed Upon Procedures Report" pursuant to Section 2.6, the Company shall
engage its independent auditors to perform certain agreed upon procedures and
report thereon as shall have been reasonably requested by the Investor with
respect to certain financial information of the Company and the Company shall
deliver to the Investor a copy of such report addressed to the Investor. In the
event that the report required by this Section 2.3.6(b) cannot be delivered by
the Company's independent auditors, the Company shall, if necessary, promptly
revise the Registration Statement and the Company shall not deliver a Put Notice
until such report is delivered.
2.3.7 Mechanics of Purchase of Put Shares.
(a) Investor's Obligation and Right to Purchase Shares. Subject to the
conditions set forth in this Agreement, following the Investor's receipt of a
validly delivered Put Notice, the Investor shall be required to purchase (each a
"Purchase") from the Company a number of Put Shares equal to the Put Share
Amount, in the manner described below.
<PAGE>
(b) Pricing Period. For purposes hereof, the "Pricing Period," shall mean,
unless otherwise shortened or lengthened under the terms of this Agreement, the
period beginning on the Business Day immediately following the Put Date and
ending on and including the date which is twenty (20) Business Days after such
Put Date; provided that, if a Put Cancellation Notice has been delivered to the
Investor after the Put Date, the Pricing Period for such Put shall end at the
close of trading on the last full trading day on the Principal Market that ends
prior to the moment of initial delivery of the Put Cancellation Notice (a
"Truncated Pricing Period") to the Investor.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
by either of them pursuant to this Agreement at or prior to each Closing.
Subject to such delivery and the satisfaction of the conditions set forth in
Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor of Put
Shares shall occur by 5:00 PM, New York time, on the date which is five (5)
Business Days following the applicable Pricing Period End Date (or such other
time or later date as is mutually agreed to by the Company and the Investor)
(the "Payment Due Date") at the offices of Investor. On each Closing Date, the
Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid. The closing (each a "Put Closing") for each Put shall occur on the
date that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar
Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
2.3.9 [Intentionally Left Blank].
1.1.10 Limitation on Short Sales. The Investor and its Affiliates
shall not engage in short sales of the Company's Common Stock; provided,
however, that the Investor may enter into any short sale or other hedging or
similar arrangement it deems appropriate with respect to Put Shares after it
receives a Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares specified in
the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed on the Nasdaq Small
Cap Market or the Nasdaq National Market, then, unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.12 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
<PAGE>
2.3.12 Investor's Right to Defer Receipt. If at any time the Investor
would have the right to receive shares of Common Stock from the Company, and/or
the right to receive a Warrant or Warrants by reason of Section 2.4 hereof, and
as a result of receiving such additional shares of Common Stock or such Warrants
the Investor would be deemed to be, after taking into account Common Shares
previously acquired from the Company, Warrant Shares deemed to be beneficially
owned pursuant to ownership of the Warrants, and any other shares of Common
Stock of the Company deemed to be beneficially owned by the Investor, the
beneficial owner (within the meaning of Section 13(d) of the Exchange Act) of
9.9% of the Common Stock of the Company, the Investor may elect to defer receipt
of all or any portion of such Common Shares from the Company and/or defer
receipt of all or any portion of such Warrant or Warrants, by sending a notice
to the Company of such election. Such election shall not affect the Investor's
obligation to pay for Put Shares, as if such election had not been made, nor
shall it affect (other than by way of deferral, as set forth herein) the
Investor's absolute and unconditional right to receive the shares of Common
Stock and/or Warrants to which it was otherwise entitled. In the event the
Investor makes such election, (i) it may waive such election, in whole or in
part, at any time effective on sixty one (61) days' prior notice to the Company
and (ii) may waive it effective immediately upon notice to the Company in the
event of the announcement by the Company or any third party of a Major
Transaction. The Company shall deliver the shares and/or Warrants to which the
Investor is entitled on the effective date of the waiver in the case of clause
(i)
2.3.13 Put Cancellation.
(4) Mechanics of Put Cancellation. Subject to the limitations below, at any
time from the Advance Put Notice Date through the last day of the Pricing
Period, the Company may cancel a Put (a "Put Cancellation"), in whole or in
part, by delivering written notice to the Investor (the "Put Cancellation
Notice"), attached as Exhibit Q, by facsimile and overnight courier. The "Put
Cancellation Date" shall be the date that the Put Cancellation Notice is first
received by the Investor, if such notice is received by the Investor by 6:00
p.m., New York time, and shall be the following date, if such notice is received
by the Investor after 6:00 p.m., New York time. The Investor shall, within one
(1) Trading Day of receipt of a Put Cancellation, send, via facsimile, a
confirmation of receipt (the "Put Cancellation Confirmation," the form of which
is attached hereto as Exhibit S) of the Put Cancellation Notice to Company
specifying that the Put Cancellation Notice has been received;
<PAGE>
(b) Limitations of Put Cancellation. The Company may not deliver a Put
Cancellation Notice unless (i) the Company discovers the existence of Material
Facts or any Ineffective Period occurs after a Put Date but before the Put
Closing (in which case Put Cancellation is mandatory), or (ii) the Closing Bid
Price on the Put Cancellation Date is less than eighty percent (80%) of the
Closing Bid Price on the applicable Advance Put Notice Date. Notwithstanding
any Put Cancellation Notice, the Put shall remain effective with respect to the
number of shares of Common Stock sold by the Investor from the Advance Put
Notice Date through the close of trading on the Put Cancellation Date and the
Pricing Period shall end on the Put Cancellation Date.
(c) Effect of Canceling a Put. Once the Company delivers a valid Put
Cancellation Notice, (i) the Pricing Period shall end on the close of trading on
the Put Cancellation Date ("Truncated Pricing Period") and the Pricing Period
End Date shall be deemed to be the Put Cancellation Date for purposes of
calculating the Put Share Price and (ii) the Investor shall not be obligated to
purchase any shares of Common Stock for that Put. Notwithstanding the above,
the Company shall be obligated, upon canceling any Put, to issue to the Investor
Unlegended Share Certificates representing a number of shares of Common Stock
equal to the number of shares of Common Stock sold, if any, by the Investor from
the Advance Put Notice Date through the close of trading on the Put Cancellation
Date, but not exceeding the Intended Put Share Amount.
(d) Put Cancellation Notice Confirmation. Upon receipt by the Investor of a
facsimile copy of the Put Cancellation Notice, the Investor shall promptly send,
via facsimile, a confirmation of receipt (the "Put Cancellation Notice
Confirmation") of the Put Cancellation Notice to Company specifying that the Put
Cancellation Notice has been received and affirming the Put Cancellation Date
and the number of shares of Common Stock that have been sold by the Investor
from the Advance Put Notice Date through the close of trading on the Put
Cancellation Date.
2.3.14 Investment Agreement Cancellation. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing written
notice ("Termination Notice") to the Investor, by facsimile and overnight
courier, at any time, provided that such termination shall have no effect on the
parties' other rights and obligations under this Agreement, the Registration
Rights Agreement or the Warrants.
<PAGE>
2.3.15 Return of Excess Common Shares. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is less
than the Intended Put Share Amount, the Investor shall promptly return to the
Company any shares of Common Stock in the Investor's possession that are not
being purchased by the Investor.
2.4 Warrants.
2.4.1 [Intentionally Omitted].
2.4.2 Purchase Warrants. Within five (5) Business Days of the end of
each Pricing Period, the Company shall issue and deliver to the Investor a
warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or such
other form as agreed upon by the parties, to purchase a number of shares of
Common Stock equal to 10% of the number of Put Shares issued to Investor in that
Put. Each Purchase Warrant shall be exercisable at a price (the "Purchase
Warrant Exercise Price") which shall initially equal 100% of the Market Price on
the Pricing Period End Date. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on date that is three (3) years
thereafter. The Warrant Shares shall be covered by the Registration Statement
or, if necessary, registered for resale pursuant to the Registration Rights
Agreement. Concurrently with the issuance and delivery of the Purchase Warrant
to the Investor, the Company shall deliver to the Investor a Purchase Warrant
Opinion of Counsel (signed by the Company's independent counsel).
2.5 [Intentionally Left Blank].
2.6 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other 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 Investor 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 Investor 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.
<PAGE>
2.6.1 Treatment of Nonpublic Information. The Company shall not
disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate nonpublic information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and 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. Nothing contained in this Section 2.6 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.6.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the Investor's
counsel of all events or circumstances constituting nonpublic information
discovered by such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's counsel shall consult with the Company's independent counsel in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
<PAGE>
1.1.11 Procedure if Material Facts are Reasonably Believed to be Untrue
or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement or a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading,
(a) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such material misstatement
or omission, (i) the Company's independent counsel shall provide the Investor's
counsel with a Registration Opinion and (ii) in the event the dispute relates to
the adequacy of financial disclosure and the Investor shall reasonably request,
the Company's independent auditors shall provide to the Company a letter
("Agreed Upon Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter.
2.7. Commitment Payments. On the date of the Investment Commitment
Closing, the Company shall pay to the Investor an amount equal to $250,000 (the
"Initial Commitment Fee"), representing 2_% of the Maximum Offering Amount.
Such amount shall be payable in either cash or by delivering to the Investor a
number of unrestricted shares of the Company's common stock which, when
multiplied by the average Closing Bid Price of the Company's common stock for
the five (5) trading days immediately prior to the date of the Investment
Commitment Closing, will equal the Initial Commitment Fee.
<PAGE>
On each anniversary of the Investment Commitment Closing, if the Investor
has not purchased a number of Put Shares for an aggregate Put Dollar Amount of
at least $1,000,000 (the "Annual Commitment Amount") during the preceding twelve
(12) Calendar Months (each such period a "Commitment Evaluation Period"), the
Company, in consideration of the Investor's commitment costs, including but not
limited to, due diligence expenses, shall deliver to the Investor a warrant
(each a "Commitment Warrant") to purchase a number of shares of the Company's
Common Stock equal to 10% of the number of shares of the Company's Common Stock
determined by dividing (i) the Commitment Shortfall, which shall be equal to the
Annual Commitment Amount less the actual aggregate Put Dollar Amount for the
relevant Commitment Evaluation Period, by (ii) the average Closing Bid Price of
the Company's Common Stock for the five (5) Trading Days ending on the last day
of the relevant Commitment Evaluation Period. The Commitment Warrant shall be
immediately exercisable, shall have an exercise price equal to 100% of the price
determined in clause (ii) above and shall be exercisable for a period of three
(3) years. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
3. Representations, Warranties and Covenants of Investor. Investor hereby
represents and warrants to and agrees with the Company as follows:
1.3 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 12 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which Investor
or Investor's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
1.3.10 Reliance on Own Advisors. Investor has relied completely on the
advice of, or has consulted with, Investor's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any of the foregoing, within the meaning
of Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 3.2.4 below and on
the Opinion of Counsel). The foregoing, however, does not limit or modify
Investor's right to rely upon covenants, representations and warranties of the
Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
<PAGE>
3.2.4 Disclosure Documents. Investor, in making Investor's investment
decision to subscribe for the Investment Agreement hereunder, represents that
(a) Investor has received and had an opportunity to review (i) the Company's
preliminary Registration Statement on Form SB-2, together with all amendments
thereto and comments from the SEC thereon (ii) the Company's audited financial
statements for the years ended December 31, 1998 and 1997, (iii) the Company's
unaudited financial statements for the six (6) months ended June 30, 1999 and
1998, (iv) the Risk Factors, attached as Exhibit J, (the "Risk Factors"), (v)
the Capitalization Schedule, attached as Exhibit K, (the "Capitalization
Schedule"), and (vi) the Use of Proceeds Schedule, attached as Exhibit L, (the
"Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely
on the documents described in (a) above, the Company's representations and
warranties and other information in this Agreement, including the exhibits,
documents prepared by the Company which have been specifically provided to
Investor in connection with this Offering (the documents described in this
Section 3.2.4 (a) and (b) are collectively referred to as the "Disclosure
Documents"), and an independent investigation made by Investor and Investor's
representatives, if any; (c) Investor has, prior to the date of this Agreement,
been given an opportunity to review material contracts and documents of the
Company which have been filed as exhibits to the Company's Registration
Statement and has had an opportunity to ask questions of and receive answers
from the Company's officers and directors; and (d) is not relying on any oral
representation of the Company or any other person, nor any written
representation or assurance from the Company other than those contained in the
Disclosure Documents or incorporated herein or therein. The foregoing, however,
does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has substantial
experience in investing in securities and it has made investments in securities
other than those of the Company. Investor acknowledges that Investor is able to
fend for Investor's self in the transaction contemplated by this Agreement, that
Investor has the ability to bear the economic risk of Investor's investment
pursuant to this Agreement and that Investor is an "Accredited Investor" by
virtue of the fact that Investor meets the investor qualification standards set
forth in Section 3.1 above. Investor has not been organized for the purpose of
investing in securities of the Company, although such investment is consistent
with Investor's purposes.
3.3 Registered Securities; Investment Intent; Resale Restrictions.
<PAGE>
3.3.1 Registered Securities. The Investor understands that the Company
has filed a Registration Statement on Form SB-2 covering the shares of Common
Stock, and Warrants and Warrant Shares to be issued to Investor at each Put
Closing, and as such, such securities shall be registered under the Act
(collectively, the "Registered Securities").
3.3.2 Investment Intent. The Investor is entering into this Agreement
for its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor, except as required by Section 3.3.3 below, does not agree to hold the
Common Stock for any minimum or other specific term and reserves the right to
dispose of the Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment Agreement, if
executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Investor is executing this Agreement. Investor
has reached the age of majority (if an individual) according to the laws of the
state in which he or she resides.
3.4.2 Due Authorization. If Investor is a corporation, Investor is duly
and validly organized, validly existing and in good tax and corporate standing
as a corporation under the laws of the jurisdiction of its incorporation with
full power and authority to purchase the Securities to be purchased by Investor
and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the representations,
warranties, agreements and understandings set forth above are true with respect
to all partners of Investor (and if any such partner is itself a partnership,
all persons holding an interest in such partnership, directly or indirectly,
including through one or more partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a representative or
fiduciary capacity, the representations and warranties shall be deemed to have
been made on behalf of the person or persons for whom Investor is so purchasing.
4. Acknowledgments. Investor is aware that:
<PAGE>
4.1 Risks of Investment. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of Investor's
entire investment herein. Investor recognizes that the Disclosure Documents,
this Agreement and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 [Intentionally Left Blank.]
4.4 Restrictions on Transfer. Unless the Investor has otherwise
satisfied the requirements of Section 3.3.3 above, Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof.
4.5 [Intentionally Left Blank.]
4.6 [Intentionally Left Blank.]
4.7 Legends. Neither the certificates representing the Put Shares nor
the certificates representing the Warrant Shares shall bear a restrictive
legend.
5. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to Investor (which shall be true at
the signing of this Agreement, and as of any such later date as contemplated
hereunder) and agrees with Investor that, except as set forth in the Schedule of
Exceptions attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, The National Association of Securities Dealer, Inc. The Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. Except as set forth in the
Disclosure documents, the Company has no subsidiaries.
<PAGE>
5.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure Documents, if applicable), except for changes in
the ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition, or prospects since the dates of such Disclosure Documents. The
financial statements as contained in the Form SB-2 have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act), subject,
in the case of the unaudited financial statements, to customary year-end
adjustments and the absence of certain footnotes, and fairly present the
financial condition of the Company as of the dates of the balance sheets
included therein and the results of its operations and cash flows for the
periods then ended. Without limiting the foregoing, there are no material
liabilities, contingent or actual, that are not disclosed in the Disclosure
Documents (other than liabilities incurred by the Company in the ordinary course
of its business, consistent with its past practice, after the period covered by
the Disclosure Documents). The Company has paid all material taxes that are
due, except for taxes that it reasonably disputes. There is no material claim,
litigation, or administrative proceeding pending or, to the best of the
Company's knowledge, threatened against the Company, except as disclosed in the
Disclosure Documents. This Agreement and the Disclosure Documents do not contain
any untrue statement of a material fact and do not omit to state any material
fact required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
The Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
<PAGE>
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants,
when issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws, each
as amended and in effect on and as of the date of the Agreement, or of any
material provision of any material instrument or material contract to which it
is a party or by which it is bound or of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery
and performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws, or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 [Intentionally Left Blank.].
5.7 Capitalization. The capitalization of the Company as of June 30,
1999 is, and the capitalization as of the Closing, subject to exercise of any
outstanding warrants and/or exercise of any outstanding stock options, after
taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities. Except as
disclosed in the Capitalization Schedule, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Act (except
the Registration Rights Agreement).
<PAGE>
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes and in
the approximate amounts set forth on the Use of Proceeds Schedule set forth as
Exhibit L hereto. These purposes and amounts are estimates and are subject to
change without notice to any Investor.
1.4 No Rights of Participation. No person or entity, including, but
not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that,
subject to Section 3.3.3, Investor may elect to hold the Securities for various
periods of time, as permitted by the terms of this Agreement, the Warrants, and
other agreements contemplated hereby, and the Company further acknowledges that
Investor has made no representations or warranties, either written or oral, as
to how long the Securities will be held by Investor or regarding Investor's
trading history or investment strategies.
5.12 [Intentionally Left Blank].
5.13 Underwriter's Fees and Rights of First Refusal. The Company shall
be obligated to pay 10% of the proceeds received pursuant to the Offering to any
underwriter, broker, agent or other representative other than the Investor in
connection with this Offering.
5.14 [Intentionally Left Blank.]
5.15 [Intentionally Left Blank.]
5.16 [Intentionally Left Blank].
<PAGE>
5.17 Foreign Corrupt Practices. Neither the Company, nor any director,
officer, agent, employee or other person acting on behalf of the Company has, in
the course of its actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
1.5 Key Employees. Each "Key Employee" (as defined in Exhibit N) is
currently serving the Company in the capacity disclosed in Exhibit N. No Key
Employee, to the best knowledge of the Company and its subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company,
any intention to terminate his employment with, or services to, the Company.
5.19 Representations Correct. The foregoing representations, warranties
and agreements are true, correct and complete in all material respects, and
shall survive any Put Closing and the issuance of the shares of Common Stock
thereby.
5.20 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
<PAGE>
5.21 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.22 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Delaware law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.23 Other Agreements. The Company has not, directly or indirectly,
made any agreements with the Investor under a subscription in the form of this
Agreement for the purchase of Common Stock, relating to the terms or conditions
of the transactions contemplated hereby or thereby except as expressly set forth
herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.25 Financings. Except as set forth in Exhibit , there are no
other financings currently pending or contemplated by the Company.
<PAGE>
5.26 Shareholder Authorization. The Company shall, at its next annual
shareholder meeting following its listing on either the Nasdaq Small Cap Market
or the Nasdaq National Market, or at a special meeting to be held as soon as
practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least [27,027,027] shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval and
the Share Authorization Increase Approval, the Company agrees to use its best
efforts to reserve [27,027,027] shares of Common Stock for issuance under this
Agreement.
6. Covenants of the Company.
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least
the Termination Date, maintain its corporate existence in good standing and,
concurrent with the Effective Date of its Registration Statement file a Form 8-A
under the Securities Exchange Act of 1934 (the "Exchange Act") and remain a
"Reporting Issuer" (defined as a Company which files periodic reports under the
Exchange Act) (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization as long as
the surviving entity in such transaction, if not the Company, assumes the
Company's obligations with respect to the Common Stock and has Common Stock
listed for trading on a stock exchange or on Nasdaq and is a Reporting Issuer)
and shall pay all its taxes when due except for taxes which the Company
disputes.
6.3 Registration Rights. The Company will enter into a registration
rights agreement covering the resale of the Common Shares and the Warrant
Shares, if necessary, substantially in the form of the Registration Rights
Agreement attached as Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (i) transfer, sell, convey
or otherwise dispose of any of its material assets to any subsidiary except for
a cash or cash equivalent consideration and for a proper business purpose or
(ii) transfer, sell, convey or otherwise dispose of any of its material assets
to any Affiliate, as defined below, during the Term of this Agreement. For
purposes hereof, "Affiliate" shall mean any officer of the Company, director of
the Company or owner of twenty percent (20%) or more of the Common Stock or
other securities of the Company.
6.6 Capital Raising Limitations; Rights of First Refusal.
<PAGE>
6.6.1 Capital Raising Limitations. During the period from the date
of this Agreement until the earlier of (i) the Termination Date, or (ii) (a) in
the case of a Company Termination, the date of such Company Termination, or (b)
in the case of an Automatic Termination that is not waived by the Investor, the
date of such Automatic Termination, the Company shall not issue or sell, or
agree to issue or sell, for cash in private capital raising transactions (the
following to be collectively referred to herein as, the "Variable Priced
Securities"), any debt or equity securities which are convertible into,
exercisable or exchangeable for, or carry the right to receive additional shares
of Common Stock either (i) at any conversion, exercise or exchange rate or other
price that is based upon and/or varies with the trading prices of or quotations
for Common Stock at any time after the initial issuance of such debt or equity
security, or (ii) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date at any time after the initial
issuance of such debt or equity security or upon the occurrence of specified
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock. During the period from the date of this
Agreement until the Termination Date, the Company shall not issue or sell, or
agree to issue or sell, for cash in private capital raising transactions any
securities of the Company pursuant to an equity line structure or format similar
in nature to this Offering without obtaining the prior written approval of the
Investor of the Offering (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations").
6.6.2 Investor's Right of First Refusal. For any private capital
raising transactions of Variable Priced Securities or equity line structured
investments which close after the Capital Raising Deadline and on or prior to
the date that is six (6) months after the Termination Date of this Agreement,
not including any warrants issued in conjunction with this Investment Agreement,
the Company agrees to deliver to Investor, at least ten (10) days prior to the
closing of such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the same
terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights of First
Refusal. Notwithstanding the above, the Capital Raising Limitations and the
Rights of First Refusal shall not apply to any transaction involving issuances
of securities in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or exercise of options by employees, consultants or
directors. The Capital Raising Limitations also shall not apply to (a) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, (b)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants, or (c) the
issuance of debt securities, with no equity feature, incurred solely for working
capital purposes.
6.7 Financial 10-KSB Statements, Etc. and Current Reports on Form 8-K.
The Company shall deliver to the Investor copies of its annual reports on Form
10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor
current reports on Form 8-K within two (2) days of filing for the Term of this
Agreement.
<PAGE>
6.8 Opinion of Counsel. Investor shall, concurrent with the purchase of
the Common Stock and accompanying Warrants pursuant to this Agreement, receive
an opinion letter from the Company's legal counsel, in the form attached as
Exhibit B or in such form as agreed upon by the parties, as to the Investment
Commitment Closing and in the form attached as Exhibit I or in such form as
agreed upon by the parties, as to any Put Closing.
[6.9 Removal of Legend. If the certificates representing any Securities
are issued with a restrictive Legend in accordance with the terms of this
Agreement, the Legend shall be removed and the Company shall issue a certificate
without such Legend to the holder of any Security upon which it is stamped, and
a certificate for a security shall be originally issued without the Legend, if
(a) the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Investor), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.]
6.10 Listing. Subject to the remainder of this Section 6.10, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares) are listed and available for trading on the O.T.C. Bulletin Board.
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the O.T.C. Bulletin Board or to become
eligible for and listed and available for trading on the Nasdaq Small Cap
Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in all
material respects with the Company's reporting, filing and other obligations
under the By-Laws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
<PAGE>
6.11 The Company's Instructions to Transfer Agent. The Company will
instruct the Transfer Agent of the Common Stock, by delivering instructions in
the form of Exhibit T hereto, to issue certificates, registered in the name of
each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.9 hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.3 hereof with
respect to any resale of the Securities. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to a Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 6.11 will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 6.11, that a Investor shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put that
would cause the Aggregate Issued Shares to exceed the Cap Amount, the Company
shall obtain approval of its stockholders to authorize (i) the issuance of the
full number of shares of Common Stock which would be issuable pursuant to this
Agreement but for the Cap Amount and eliminate any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or any of its securities with respect to the Company's ability to issue shares
of Common Stock in excess of the Cap Amount (such approvals being the
"Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Investor shall have the
right to review and comment upon any press release issued by the Company in
connection with the Offering which approval shall not be unreasonably withheld
by Investor.
6.14 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no further Commitment Warrants shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. 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, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, the Investor, at its option, may terminate this
Agreement or require that other terms of the Agreement be amended to compensate
for such material economic changes.
<PAGE>
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent. If assigned, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Investor may assign Investor's rights hereunder, in
connection with any private sale of the Common Stock of such Investor, so long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights Agreement,
each of the Company and Investor shall pay all costs and expenses that it
respectively incurs, with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
<PAGE>
7.8 Arbitration. Except as otherwise provided in Section 6.11 of this
Agreement, any controversy or claim arising out of or related to the Transaction
Documents or the breach thereof, shall be settled by binding arbitration in
Wilmington, Delaware in accordance with the Expedited Procedures (Rules 53-57)
of the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). A proceeding shall be commenced upon written demand by Company or any
Investor to the other. The arbitrator(s) shall enter a judgment by default
against any party, which fails or refuses to appear in any properly noticed
arbitration proceeding. The proceeding shall be conducted by one (1) arbitrator,
unless the amount alleged to be in dispute exceeds two hundred fifty thousand
dollars ($250,000), in which case three (3) arbitrators shall preside. The
arbitrator(s) will be chosen by the parties from a list provided by the AAA, and
if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in Wilmington, Delaware or to the United
States District Court sitting in Delaware for purposes of enforcement of any
discovery order, judgment or award in connection with such arbitration. The
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
Although the parties, as expressed above, agree that all claims, including
claims that are equitable in nature, for example specific performance, shall
initially be prosecuted in the binding arbitration procedure outlined above, if
the arbitration panel dismisses or otherwise fails to entertain any or all of
the equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in
Wilmington, Delaware. Each party waives any right to a trial by jury, assuming
such right exists in an equitable proceeding, and irrevocably submits to the
jurisdiction of said Delaware court. Delaware law shall govern both the
proceeding as well as the interpretation and construction of the Transaction
Documents and the transaction as a whole.
<PAGE>
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall deliver Put
Dollar Amounts (as payment towards any Put Share Price) by wire transfer, to
the Company pursuant to a wire instruction letter to be provided by the Company,
and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and agrees,
subject to the provisions of any applicable laws providing for the refund of
subscription amounts submitted by Investor, that this Agreement is irrevocable
and that Investor is not entitled to cancel, terminate or revoke this Agreement
or any other agreements executed by such Investor and delivered pursuant hereto,
and that this Agreement and such other agreements shall survive the death or
disability of such Investor and shall be binding upon and inure to the benefit
of the parties and their heirs, executors, administrators, successors, legal
representatives and assigns. If the Securities subscribed for are to be owned by
more than one person, the obligations of all such owners under this Agreement
shall be joint and several, and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators, successors,
legal representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of securities
purchased hereby will pass to Investor upon the Warrant Closing or any Put
Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
<PAGE>
In consideration of the Investor's execution and delivery of the Investment
Agreement, the Registration Rights Agreement and the Warrants (the "Transaction
Documents") and acquiring the Securities thereunder and in addition to all of
the Company's other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Investor and all of its
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
10. [Intentionally Left Blank].
11. [Intentionally Left Blank].
12. Accredited Investor. Investor is an "accredited investor" because (check
all applicable boxes):
(a) it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, or a corporation, limited duration company, limited
liability company, business trust, or partnership not formed for the specific
purpose of acquiring the securities offered, with total assets in excess of
$5,000,000.
<PAGE>
(b) any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the prospective investment.
(c) a natural person, who
is a director, executive officer or general partner of the issuer of the
securities being offered or sold or a director, executive officer or general
partner of a general partner of that issuer.
has an individual net worth, or joint net worth with that person's spouse, at
the time of his purchase exceeding $1,000,000.
had an individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same income level
in the current year.
(d) an entity each equity owner of which is an entity described in a -
b above or is an individual who could check one (1) of the last three (3) boxes
under subparagraph (c) above.
(e) other [specify]
_________________________________________________________
<PAGE>
The undersigned hereby subscribes for ___________% of the Maximum Offering
Amount and acknowledges that this Agreement and the subscription represented
hereby shall not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this __ day of ___________, 1999.
Your Signature PRINT EXACT NAME IN WHICH
YOU WANT THE SECURITIES TO
BE REGISTERED
SECURITY DELIVERY INSTRUCTIONS:
Your Signature
Please type or print address where delivered your security is to be:
ATTN:
_____________________________
Title/Representative Capacity
(if applicable)
Name of Company You Represent Street Address
(if applicable)
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
<PAGE>
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: ___________________________ ATTN: ____________________________
Street Address Street Address
City, State or Province, Country, City, State or Province, Country,
Offshore Postal Code Offshore Postal Code
Telephone: _____________________ Telephone: ______________________
Facsimile: ______________________ Facsimile: _______________________
Facsimile: ______________________ Facsimile: _______________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF 100% OF THE MAXIMUM
OFFERING AMOUNT ON THE ____ DAY OF _______________, 1999.
GO ONLINE NETWORKS CORPORATION
By: ______________________
Joseph M. Naughton
Address: GO ONLINE NETWORKS CORPORATION
5681 Beach Boulevard, Suite 101/100
Buena Park, California 90621
Telephone No.: (714) 736-9888
Fax No.: (714) ___________
<PAGE>
EXHIBIT E
ADVANCE PUT NOTICE
GO ONLINE NETWORKS CORPORATION (the "Company") hereby intends, subject to
the Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to _____________________________, the Investor, as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Triton
Private Equities Fund, L.P. dated on or about _________, 1999.
Date of Advance Put Notice: ___________________
Intended Put Date :____________________________
Intended Put Share Amount: ____________________
GO ONLINE NETWORKS CORPORATION
By: _____________________
Address: GO ONLINE NETWORKS CORPORATION
5681 Beach Boulevard, Suite 101/100
Buena Park, California 90621
Telephone No.: (714) 736-9888
Fax No.: (714) ___________
<PAGE>
EXHIBIT F
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________, the Investor, hereby confirms receipt of GO
ONLINE NETWORKS CORPORATION's (the "Company") Advance Put Notice on the Advance
Put Date written below, and its intention to elect to exercise a Put to sell
shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Triton Private Equities Fund, L.P. dated on or about ____________,
1999.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _____________________________
_____________________________
_____________________________
Telephone No.: _________________
Facsimile No.: __________________
<PAGE>
EXHIBIT G
PUT NOTICE
GO ONLINE NETWORKS CORPORATION (the "Company") hereby elects to exercise a
Put to sell shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Triton Private Equities Fund, L.P. dated on or about ____________,
1999.
Put Date :
Intended Put Share Amount (from Advance Put Notice):
Common Shares
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
GO ONLINE NETWORKS CORPORATION
By: _____________________
Joseph M. Naughton
Address: GO ONLINE NETWORKS CORPORATION
5681 Beach Boulevard, Suite 101/100
Buena Park, California 90621
Telephone No.: (714) 736-9888
Fax No.: (714) ___________
<PAGE>
EXHIBIT H
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
GO ONLINE NETWORKS CORPORATION (the "Company") Put Notice and election to
exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Triton Private Equities Fund, L.P. dated on or about
____________, 1999.
Date of this Confirmation: ________________
Put Date: ______________
Number of Put Shares of Common Stock to be Issued: _________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _________________________________
_________________________________
_________________________________
Telephone No.: _________________
Facsimile No.: __________________
<PAGE>
EXHIBIT Q
PUT CANCELLATION NOTICE
GO ONLINE NETWORKS CORPORATION (the "Company") hereby cancels the Put
specified below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Triton Private Equities Fund, L.P.
dated on or about _____________, 1999 as of the close of trading on the date
specified below (the "Cancellation Date," which date must be on or after the
date that this notice is delivered to the Investor), provided that such
cancellation shall not apply to the number of shares of Common Stock equal to
the Truncated Put Share Amount (as defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty
(20) Business Days advance written notice to the Investor before effecting the
next Put.
GO ONLINE NETWORKS CORPORATION
By: _____________________
Joseph M. Naughton
Address: GO ONLINE NETWORKS CORPORATION
5681 Beach Boulevard, Suite 101/100
Buena Park, California 90621
Telephone No.: (714) 736-9888
Fax No.: (714) ___________
<PAGE>
EXHIBIT S
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the
"Investment Agreement") by and between the Company, and Triton Private Equities
Fund, L.P. dated on or about _____________, 1999, hereby confirms receipt of Go
Online Networks Corporation's (the "Company") Put Cancellation Notice, and
confirms the following:
DATE OF THIS CONFIRMATION:
PUT CANCELLATION DATE:
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _________________________________
_________________________________
_________________________________
Telephone No.: _________________
Facsimile No.: __________________
F:\LAW\JNE\triton2\Investment Agreement.wpd
1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
November 29, 1999, by and Go Online Networks Corporation, a corporation duly
incorporated and validly existing under the laws of the State of Delaware (the
"Company") and the Investor as named on the signature page hereto (hereinafter
referred to as "Investor").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Ten Million
Dollars ($10,000,000), excluding any funds paid upon exercise of the Warrants,
of Common Stock of the Company pursuant to that certain Investment Agreement of
even date herewith (the "Investment Agreement") between the Company and the
Investor, the Company has agreed to sell and the Investor has agreed to
purchase, from time to time as provided in the Investment Agreement, shares of
the Company's Common Stock for a maximum aggregate offering amount of Ten
Million Dollars ($10,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement, the Company has
agreed to issue to the Investor, from time to time, Purchase Warrants, as
defined in the Investment Agreement, to purchase a number of shares of Common
Stock, exercisable for three (3) years from the date of issuance (collectively,
the "Investor Warrants" or the "Warrants");
WHEREAS, pursuant to the terms of the Investment Agreement, the Company has
filed a registration Statement under the Securities Act of 1933, as amended (the
"Act"), on Form SB-2 (File No.333-88615) covering the sale of Common Stock to be
issued to the Investor in the Offering and the Common Stock issuable upon
exercise of the Investor Warrants; and
WHEREAS, the Investor and Company desire to enter into this Registration Rights
Agreement to provide the Investor with additional registration rights with
respect to the resale of the Common Stock to be issued to the Investor in the
Offering and the Common issuable upon exercise of the Investor Warrants.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
Recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both singular and plural forms of the terms
defined):
<PAGE>
11
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Act" shall mean the Securities Act of 1933, as amended, together with the rules
and regulations promulgated thereunder.
"Additional Registration Statement" shall have the meaning set forth in
Section 3(b).
"Agreement" shall have the meaning set forth in the preamble hereto.
"Amended Registration Statement" shall have the meaning set forth in Section
3(b).
"Business Day" shall have the meaning set forth in the Investment
Agreement.
"Closing Bid Price" shall have the meaning set forth in the Investment
Agreement.
"Common Stock" shall mean the common stock, par value $0.001, of the
Company.
"Company" shall have the meaning set forth in the preamble hereto.
"Due Date" shall mean the date that is one hundred twenty (120) days after the
date of the Investor's Resale Registration Notice.
"Effective Date" shall have the meaning the date that the registration
statement in question shall have been declared effective by the SEC.
"Filing Date" shall mean the date that is forty five (45) days after the
date of the Investor's Resale Registration Notice.
"Holder" shall mean Investor, and any other person or entity owning or
having the right to acquire Registrable Securities or any permitted assignee
thereof.
"Initial Registration Statement" shall have the meaning set forth in
Section 2.2.
"Investment Agreement" shall have the meaning set forth in the Recitals
hereto.
"Investor" shall have the meaning set forth in the preamble to this
Agreement.
"Investor Warrants" shall have the meaning set forth in the above Recitals.
"Offering" shall have the meaning set forth in the recitals hereto.
"Put" shall have the meaning as set forth in the Investment Agreement.
<PAGE>
"Register," "Registered," and "Registration" shall mean and refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Registrable Securities" shall have the meaning set forth in Section 2.1.
"Registration Period" shall have the meaning set forth in Section 2.7.
"Registration Statement" shall mean either the Initial Registration
Statement or the Resale Registration Statement.
"Resale Registration Statement" shall have the meaning set forth in Section 2.3.
"Rule 144" shall mean Rule 144, as amended, promulgated under the Act.
"SEC" shall have the meaning set forth in Section 3(a).
"Supplemental Registration Statement" shall have the meaning set forth in
Section 3(b).
"Warrants" shall have the meaning set forth in the above Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable upon exercise
of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean those
shares of the Common Stock of the Company together with any capital stock issued
in replacement of, in exchange for or otherwise in respect of such Common Stock,
that are: (i) issuable or issued to the Investor pursuant to the Investment
Agreement or in this Agreement, and (ii) issuable or issued upon exercise of the
Investor Warrants; provided, however, that notwithstanding the above, the
following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to be Registrable
Securities, if and to the extent that those shares of Common Stock may be resold
in a public transaction without volume limitations or other material
restrictions without registration under the Act, including without limitation,
pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
<PAGE>
2.2 Filing of Initial Registration Statement. The Company filed on
October 7, 1999, a registration statement (the "Initial Registration Statement")
on Form SB-2 (File No. 333-88615), covering the offer and sale of a number of
shares of Common Stock as Registrable Securities equal to at least Twenty Seven
Million (27,000,000) shares of Common Stock, and which covers, to the extent
allowed by applicable law, such additional shares of Common Stock, if any, that
may become registrable pursuant to Rule 416 of the Act. The Company shall use
its reasonable best efforts to cause the Initial Registration Statement to be
declared effective by the SEC on or before (the date of such
effectiveness referred to herein as the "Effective Date").
2.3 Filing of Resale Registration Statement. Upon the receipt of a
written notice from the Investor (the "Resale Registration Notice") stating that
the Investor has determined in good faith that a registration statement must be
filed to cover the Investor's resale of some or all of the shares of Common
Stock purchased by the Investor in the Offering or to be issued to the Investor
upon the exercise of the Investor Warrants, the Company shall promptly prepare
and file, by the Filing Date, a registration statement (the "Resale Registration
Statement") on Form SB-2 (or other suitable form, at the Company's discretion,
but subject to the reasonable approval of the Investor), covering the resale of
a number of shares of Common Stock as Registrable Securities as the Investor
shall reasonably determine and, to the extent allowed by applicable law, such
additional shares of Common Stock, if any, that may become registrable pursuant
to Rule 416 of the Act.
2.4 Registration Effective Date. The Company shall use its best efforts
to have any Resale Registration Statement declared effective by the SEC (the
date of such effectiveness is also referred to herein as the "Effective Date")
by the Due Date.
2.5 Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Initial Registration Statement, and/or any
Resale Registration Statement, shall be prepared as a "shelf" registration
statement under Rule 415, and shall be maintained effective until the earlier of
(i) the date that is one (1) year from the Termination Date, as defined in the
Investment Agreement (the "Registration Period") or (ii) the date that all
Registrable Securities are resold pursuant to such Registration Statement.
2.8 Eligibility for Form SB-2. The Company understands that in order to
file the Resale Registration Statement described herein on Form SB-2, it must be
eligible to file Form S-B2 for primary offerings. The Company represents that it
is presently eligible to effect any required resale registration contemplated
hereby on Form SB-2 and will use its best efforts to continue to take such
actions as are necessary to maintain such eligibility. The Company covenants to
use its best efforts to use Form SB-2 (or other suitable form, at the Company's
discretion, but subject to the reasonable approval of the Holders) for the
resale registration required by this Section during all applicable times
contemplated by this Agreement.
2.9 Supplemental Registration Statement. Anytime the Registration
Statement does not cover a sufficient number of shares of Common Stock to cover
all outstanding Registrable Securities, the Company shall promptly prepare and
file with the SEC such Supplemental Registration Statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
such Registrable Securities and shall use its best efforts to cause such
Supplemental Registration Statement to be declared effective as soon as
possible.
<PAGE>
3. Obligations of the Company. Whenever required under this Agreement
to effect registration of any Registrable Securities (whether the initial
Registration Statement or any Resale Registration Statement), the Company shall,
as expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") the Registration Statement with respect to such Registrable Securities
and use its best efforts to cause such Registration Statement to become
effective and to remain effective during the Registration Period.
(b) Prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement, "Supplemental Registration
Statements") as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such Supplemental
Registration Statements or such prior registration statement and to cover the
resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such Registration Statement under such other securities or Blue Sky laws of the
jurisdictions in which the Holders are located and of such other jurisdictions
as shall be reasonably requested by the Holders of the Registrable Securities
covered by such Registration Statement, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such event, notify
each Holder of Registrable Securities of the happening of any event of which the
Company 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, in light of the circumstances under
which they were made, not misleading, use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Holder as such Holder may reasonably request.
(g) Provide Holders with notice of the date that a Registration Statement or
any Supplemental Registration Statement registering the sale or resale of the
Registrable Securities is declared effective by the SEC, and the date or dates
when the Registration Statement is no longer effective.
<PAGE>
(h) Provide Holders and their representatives the opportunity and a
reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to review the
Registration Statement and all amendments or supplements thereto prior to their
filing with the SEC by giving the Holder at least five (5) business days advance
written notice prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the SEC or any
state securities commission or agency of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceeding
for such purpose. The Company shall use its best efforts to prevent the issuance
of any stop order and, if any is issued, to obtain the removal thereof at the
earliest possible date.
(k) Use its best efforts to list the Registrable Securities covered by the
Registration Statement with all securities exchanges or markets on which the
Common Stock is then listed and prepare and file any required filing with the
NASD and any other exchange or market on which the Common Stock is listed.
4. [Intentionally Left Blank].
5. [Intentionally Left Blank].
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 by Holders do not
constitute "Registrable Securities" by virtue of Section 2.1 of this Agreement,
and the status of those shares as Registrable Securities is disputed, the
Company shall provide, at its expense, an Opinion of Counsel, reasonably
acceptable to the Holders of the Securities at issue (and satisfactory to the
Company's transfer agent to permit the sale and transfer), that those securities
may be sold immediately, without volume limitation or other material
restrictions, without registration under the Act, by virtue of Rule 144 or
similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such securities
to the extent required to effect the registration of its Registrable Securities
or to determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act. The Company shall include all information
provided by such Holder pursuant hereto in the Registration Statement,
substantially in the form supplied, except to the extent such information is not
permitted by law.
8. Expenses. All expenses, other than commissions and fees and
expenses of counsel to the selling Holders, incurred in connection with
registrations, filings or qualifications pursuant hereto, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, and fees and disbursements of counsel for the Company, shall be
borne by the Company.
<PAGE>
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners, legal counsel, and
accountants of each Holder, any underwriter (as defined in the Act, or as deemed
by the Securities Exchange Commission, or as indicated in a registration
statement) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Act the 1934 Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) 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, and the Company will reimburse each such Holder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person; provided however, that the above shall not relieve the
Company from any other liabilities which it might otherwise have.
<PAGE>
(b) Promptly after receipt by an indemnified party under this Section 9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume,
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
(c) In the event that the indemnity provided in paragraph (a) of this
Section 9 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree to contribute to the
aggregate claims, losses, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Holders may
be subject in such proportion as is appropriate to reflect the relative fault of
the Company and the Holders in connection with the statements or omissions which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the Holders. The Company and the Holders agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation that does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
Holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act and each director and officer of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (c).
(d) The obligations of the Company and Holders under this Section 9
shall survive the resale, if any, of the Common Stock, the completion of any
offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144; and
<PAGE>
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act.
11. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the written consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Go Online Networks Corporation 5681 Beach
Boulevard, Suite 101/100, Buena Park, California 90621, Telephone No. (714)
736-9888, Facsimile No. (714) 736-9488 (or at such other location as directed by
the Company in writing) and (ii) the Holders at their respective last address as
the party as shown on the records of the Company. Any notice, except as
otherwise provided in this Agreement, shall be made by fax and shall be deemed
given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist (as that term is defined in Section 2.1
hereof); but without prejudice to (i) the parties' rights and obligations
arising from breaches of this Agreement occurring prior to such termination (ii)
other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file an
amended or supplemented registration statement including such transferee as a
selling security holder thereunder; and provided further that the Company may
transfer its rights and obligations under this Agreement to a purchaser of all
or a substantial portion of its business if the obligations of the Company under
this Agreement are assumed in connection with such transfer, either by merger or
other operation of law (which may include without limitation a transaction
whereby the Registrable Securities are converted into securities of the
successor in interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws.
<PAGE>
16. Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy of
specific performance in the event of the Company's breach of this Agreement, the
parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against any
and all claims, damages (including reasonable attorney's fees), and expenses
arising out of the first party's breach of any of the terms of this Agreement.
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this
_____ day of _______________, 1999
GO ONLINE NETWORKS CORPORATION
By:
Joseph M. Naughton, Chief Executive Officer
Address: Go Online Networks Corporation
5681 Beach Boulevard, Suite 101/100
Buena Park, California 90621
Telephone No. (714) 736-9888
Facsimile No. (714)
INVESTOR:
TRITON PRIVATE EQUITIES FUND, L.P.
By:____________________________________
Address:
Telephone No.
Facsimile No.
GO ONLINE NETWORKS CORPORATION
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT AGREEMENT
BY AND BETWEEN GO ONLINE NETWORKS CORPORATION, A DELAWARE CORPORATION ("THE
COMPANY") AND THE INVESTOR REFERENCED THEREIN.
Warrant to Purchase shares
WARRANT TO PURCHASE COMMON STOCK
OF
GO ONLINE NETWORKS CORPORATION
THIS CERTIFIES that or any subsequent holder hereof
("Holder"), has the right to purchase from GO ONLINE NETWORKS CORPORATION., a
Delaware corporation (the "Company"), up to "N" fully paid and nonassessable
shares, wherein "N" is defined below, of the Company's common stock, $.001 par
value per share ("Common Stock"), subject to adjustment as provided herein, at a
price equal to the Exercise Price as defined in Section 3 below, at any time
beginning on the Date of Issuance (defined below) and ending at 5:00 p.m., New
York, New York time the date that is three (3) years after the Date of Issuance
(the "Exercise Period"); provided, that, with respect to each "Put," as that
term is defined in that certain Investment Agreement (the "Investment
Agreement") by and between the Holder and Company, "N" shall equal twelve
percent (12%) of the number of shares of Common Stock purchased by the Holder in
that Put.
Holder agrees with the Company that this Warrant to Purchase Common Stock
of the Company (this "Warrant") is issued and all rights hereunder shall be held
subject to all of the conditions, limitations and provisions set forth herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______ ("Date
of Issuance"). The term of this Warrant is three (3) years from the Date of
Issuance.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: Chief Executive Officer, Go Online Networks Corporation,
3681 Beach Boulevard, Suite 101/100 Buena Park, CA 90621, Telephone No.(714)
736-9888, Telecopy No. (714) , or at such other office or agency
as the Company may designate in writing, by overnight mail, with an advance copy
of the Exercise Form sent to the Company and its Transfer Agent by facsimile
(such surrender and payment of the Exercise Price hereinafter called the
"Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be defined
as the date that the advance copy of the completed and executed Exercise Form is
sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile. The Company shall not be required to deliver the shares of Common
Stock to the Holder until the requirements of Section 2(a) above are satisfied.
<PAGE>
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder of
record of such shares on the Date of Exercise of this Warrant, irrespective of
the date of delivery of the Common Stock purchased upon the Exercise of this
Warrant. Nothing in this Warrant shall be construed as conferring upon Holder
any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall equal 100% of the Market Price
ending on the Pricing Period End Date (as both are defined in the Investment
Agreement).
Payment of the Exercise Price shall be made by cash, bank or cashiers check or
wire transfer.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" as such term is defined in
the Investment Agreement.
5. Anti-Dilution Adjustments.
(1) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then Holder, upon Exercise of this Warrant
after the record date for the determination of holders of Common Stock entitled
to receive such dividend, shall be entitled to receive upon Exercise of this
Warrant, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
<PAGE>
(c) Distributions. If the Company shall at any time distribute for no
consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the net
effect of increasing the Exercise Price in relation to the split adjusted and
distribution adjusted price of the Common Stock. The number of shares of Common
Stock subject hereto shall increase proportionately with each decrease in the
Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
Holder shall, upon Exercise of this Warrant, become entitled to receive shares
and/or other securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Assignment.
Holder may sell, transfer, assign, pledge or otherwise dispose of this
Warrant, in whole or in part. Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company
shall effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms
for the appropriate number of shares.
<PAGE>
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and Holder any legal or equitable right, remedy or claim under
this Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the State of California, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by Holder
to or on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, until
another address is designated in writing by the Company, to the Attention: Chief
Executive Officer, Go Online Networks Corporation, 3681 Beach Boulevard, Suite
101/100 Buena Park, Ca 90621. (714) 736-9888; Telecopy No. (714)
.. Notices or demands pursuant to this Warrant to be given or made by the
Company to or on Holder shall be sufficiently given or made if sent by certified
or registered mail, return receipt requested, postage prepaid, and addressed, to
the address of Holder set forth in the Company's records, until another address
is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ________________, 1999
GO ONLINE NETWORKS CORPORATION
By:
Joseph M. Naughton, Chief Executive Officer
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: GO ONLINE NETWORKS CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of GO ONLINE
NETWORKS CORPORATION, a Delaware corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the conditions
and provisions of said Warrant.
1. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, if appropriate, and a warrant
representing any unexercised portion hereof be issued, pursuant to the Warrant
in the name of the undersigned and delivered to the undersigned at the address
set forth below:
Dated:
Signature
Print Name
Address
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of GO ONLINE
NETWORKS CORPORATION, evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.
Dated:______________________________
Signature
Fill in for new registration of Warrant:
Name
Address
Please print name and address of assignee
(including zip code number)
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors of Go Online Networks Corporation
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated August 27, 1999 relating to the consolidated financial statements
of Go Online Networks Corporation (formerly Jones Naughton Entertainment, Inc.)
and consolidated subsidiaries, appearing in the Prospectus, which is a part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
__________________________________
SCHUMACHER & ASSOCIATES
Englewood, Colorado
December 1, 1999
