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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12 (b) or (g) of the Securities Exchange Act of 1934
NETWORK HOLDINGS INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 65-0794980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2701 WEST OAKLAND PARK BLVD., SUITE 305, FORT LAUDERDALE, FLORIDA 33311
(Address of principal executive offices) (Zip Code)
954-453-3400
(Issuer's telephone number, including area code)
with copies to:
Matthias & Berg LLP
Jeffrey P. Berg, Esq.
1990 South Bundy Drive, Suite 790
Los Angeles, California 90025
(310) 820-0083
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value per share
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(Title of class)
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AVAILABLE INFORMATION
Upon this Registration Statement becoming effective, the Company will
become subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and in accordance therewith will
file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its New York Regional Office,
Room 1300, 7 World Trade Center, New York, New York 10048; and at its Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission at prescribed
rates. In addition, such materials may be accessed electronically at the
Commission's site on the World Wide Web, located at http:/www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
THIS REGISTRATION STATEMENT ON FORM 10-SB (THE "REGISTRATION STATEMENT")
MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT").
FORWARD-LOOKING STATEMENTS IN THIS REGISTRATION STATEMENT OR HEREAFTER
INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE COMPANY'S STOCKHOLDERS
AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE COMPANY
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD
CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR
ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST ESTIMATES
BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS.
THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH HEREIN, EACH
OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Network Holdings International, Inc., a Delaware corporation (the
"Company"), formerly known as TravelMax International, Inc. ("TMax Utah"), a
Utah corporation, together with its wholly-owned subsidiary, TravelMax
International, Inc., a California corporation ("TMax-California"),
(collectively, the "Company") is principally a provider of travel agent
services through its network of independent representatives ("IRs"), many of
whom are independent travel agents ("ITAs"). The Company's IRs, who are
independent contractors, earn commissions by selling travel services and
travel and leisure products to retail consumers or to other IRs. IRs may
also develop their own IR organizations (sometimes referred to as
"downlines") by sponsoring other IRs to sell travel services and products in
any market where the Company operates. In addition, the Company markets
tutorials and promotional merchandise designed to enable IRs to build their
own referral travel agent business.
HISTORY OF THE COMPANY
The BullEk Corporation, a Utah corporation ("BullEk Utah"), was
incorporated on August 25, 1983, under the name Ves-spree, Inc.
("Ves-spree"). Ves-pree changed its name on April 7, 1987, to Profit Planning
Institute, Inc. ("PPI"). PPI changed its name on October 14, 1992, to BullEk
Utah. At the time of the Share Exchange (described below), the sole asset of
BullEk Utah was all of the issued and outstanding common stock of BullEk,
Inc., a Florida corporation ("BullEk Florida").
TMax-California was incorporated in California on July 12, 1995, and
began operating a travel services business based upon multilevel marketing
of that companies services. In December, 1995, pursuant to an agreement (the
"Share Exchange Agreement"), all of the common stock of TMax-California was
acquired by BullEk Utah. In the share exchange ("Share Exchange"), the
shareholders of TMax-California received one share of BullEk Utah common
stock for each share of TMax-California common stock purportedly owned by
such TMax-California shareholders. The TMax-California shareholders, in the
aggregate, were issued 4,672,500 shares of BullEk Utah common stock, which
represented approximately 70% of all of the issued BullEk Utah common stock
after the Share Exchange was effectuated. In connection with the Share
Exchange and purportedly to provide to the shareholders of TMax-California a
"clean shell," in December, 1995, all of the issued and outstanding common
stock of BullEk Florida was transferred, for no consideration to the Company,
to Robert F. Bullard and Ronald C. Eken, the then controlling and principal
shareholders of BullEk Utah. Immediately prior to the effectiveness of the
Share Exchange, BullEk Utah changed its name to TMax Utah and effectuated a
one-for-six reverse split of its outstanding Common Stock, reducing the total
number of issued and outstanding shares of BullEk Utah from 13,200,000 to
2,220,000. See "Legal Proceedings."
On April 14, 1997, the Company ceased all operations for 14 days. See
"Legal Proceedings." On April 24, 1997, the Company, Dale Paisley
("Paisley"),William Alverson (" Alverson") and Mark Guest ("Guest"), the
Company's then Chief Financial Officer, Chief Executive Officer and Vice
President, respectively, entered into a management agreement ("Management
Agreement"), with Glenn M. Gallant ("Gallant") and Douglas R. Baetz ("Baetz")
(collectively, the "Principal Shareholders"), who were then unaffiliated
third parties to the Company. The purpose of the Management Agreement was to
induce Messrs. Baetz and Gallant to recapitalize and to restart operations of
the Company. Pursuant to the terms of the Management Agreement, Messrs.
Baetz and Gallant acquired 25,863,354 newly-issued shares of the Company's
Common Stock, constituting 70.8 percent of the then issued and outstanding
Common Stock of the Company. As of the date of this Registration Statement,
Century Financial Group, Inc. ("Century"), an affiliate of Messrs. Baetz and
Gallant, has lent the Company a total of approximately $8,700,000 (in
principal and interest), for working capital and other purposes. Under the
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terms of the Management Agreement, most of the existing directors and
officers of the Company resigned, and the Principal Shareholders were named
directors of the Company. Pursuant to the Management Agreement, Alverson and
Guest assigned to the Company all of their rights to all warrants, options
and other rights to acquire shares of Common Stock. The Company resumed
business operations under its new management on April 28, 1997. See "Legal
Proceedings" and "Certain Relationships and Related Transactions."
In August, 1997, the Company filed suit in the Superior Court of the
State of California, County of Orange, entitled TRAVELMAX INTERNATIONAL,
INC., ET AL., PLAINTIFFS V. WILLIAM ALVERSON, ET. AL., DEFENDANTS, Case
No.783061. This suit makes claims, on behalf of the Company, against
Paisley, Alverson and certain other persons. The Company's claims against
the Defendants are based upon a theory that the Defendants participated in a
scheme to improperly acquire large blocks of the Company's Common Stock for
little or no consideration and committed numerous acts in violation of their
fiduciary duty to the Company and the doctrine of corporate opportunity. See
"Legal Proceedings."
In October, 1997, the Company entered into an agreement, subject to
certain contingencies, to acquire all of the common stock of Links Direct,
Inc. ("Links"), an unaffiliated network marketing business selling golf and
golf-related products. See "Description of Business - Recent Acquisitions."
On November 20, 1997, the Company changed its state of incorporation
from Utah to Delaware and changed its name to Network Holdings International,
Inc. These changes became effective as of January 20, 1998.
As of January 5, 1998, the Company acquired the exclusive rights to the
names of independent representatives of Jetaway Travel Corporation
("Jetaway"), a network marketing travel company. See "Description of
Business - Acquisitions."
BUSINESS OF THE COMPANY
BUSINESS GOALS
Management of the Company has determined that the most efficient means
of achieving its goal of a large, active, trained organization of referral
ITAs is to build up the numbers of such trained ITAs as quickly as possible.
To this end the Company has instituted a new compensation plan which actively
encourages the sponsoring and training of new ITAs. In addition, the Company
has embarked on an acquisition program to bring in large numbers of
experienced network marketing representatives. Both of these measures are
designed to bring the Company closer to its ultimate goal of operating a
nationwide full service travel agency which draws its business from its ITAs.
See "Description of Business - Compensation Plan."
The Company's goal is to build a network of active, enthusiastic IRs to
market the Company's travel services and sell its line of products. "Travel
Services" in this context means the booking of reservations for airlines,
hotels, cruise lines, rental cars and other travel-related services. To
achieve the first goal, the Company has recently reworked its entire
compensation program for IRs, and has substantially increased its training
and support of IRs. The Company's products consist of: (i) a series of
tutorials on the travel business and on a number of other subjects
(collectively, the "Tutorial Products"); (ii) business support products,
including promotional materials to assist ITAs in building their travel
services business; (iii) prepaid telephone cards; (iv) long distance
telephone service; (v) membership in the Electronic Secretarial Assistant
("ESA"), a central telephonic paging, message, e-mail and electronic calendar
service; and (vi) products sold in My-Mall, an electronic (on the Internet)
catalog-based outlet of 3,000 various miscellaneous products. Products in
categories (ii) through (vi) are sometimes referred to as "Additional
Products." See "Description of Business - Sale of Products" and "Certain
Relationships and Related Transactions."
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The Company intends to strengthen its network of IRs by improving its
training and IR support programs and by acquiring groups of independent
representatives from other network marketing companies. The Company has
embarked on a program of selective acquisition of businesses and assets which
are consistent and compatible with the Company's existing business, either
because of the products to be sold or the marketing method used to sell them.
For example, the Company has entered into an agreement, subject to certain
contingencies not yet fulfilled, to acquire all of the issued and outstanding
common stock of Links, an unaffiliated network marketing (sometimes referred
to as "multi-level marketing" or "MLM") business, which sells golf and
related products. Management believes that this golf products line will
give existing IRs an additional "leisure" product to sell which is related to
the Company's existing leisure travel and cruise business and which may be
marketed to many of the IRs' existing customers, although no assurance can be
given to that effect. See "Description of Business - Sale of Products" and
"Description of Business - Acquisitions."
BACKGROUND OF TRAVEL BUSINESS
The Company was established to market leisure travel services through
its IRs. The travel industry's principal providers, airlines, cruise lines
and automobile rental companies, historically have relied on their internal
sales departments and independent travel agencies as their primary
distribution channels. During the past two years, however, airlines have
reduced the amount of commissions paid to travel agents from 10% to 8%,
making it more difficult for travel agents to operate profitably. In
addition, travel agencies face competition from a number of newer types of
travel services businesses, including travel companies such as Preview
Travel, Inc., which offers travel services directly to the consumer over the
Internet, other MLM travel companies and certain travel companies which use
independent representatives but are not MLM businesses. See "Description of
Business - Competition."
THE COMPANY'S TRAVEL SERVICES BUSINESS
Unlike most other travel service companies, the Company operates
exclusively through its IR network, wherein IRs take advantage of personal
contacts and communication to build their business. The travel services
business involves the receipt of payment by customers before tickets or other
bookings are delivered. These same customers generally require a significant
amount of information before the sale is made, especially in the case of
leisure travel. Thus, a travel agent who has a personal relationship with
potential customers may have a significant advantage over other travel
agents, although no assurance can be given to that effect. It is this
factor, along with the perceived efficiencies of network marketing, that
management of the Company believes may constitute an advantage to the travel
service business of the Company, although no assurance to this effect can be
given.
SALE OF PRODUCTS
In addition to the provision of travel services, the Company markets a
number of other products. The first category of products is the videotape
and text tutorials ("Tutorials"), principally the ITA Tutorial which teaches
each new IR step by step how to become knowledgeable in the travel agent
business. The ITA Tutorial covers certain aspects of airline fares and
reservations, group tours, and hotels and assistance in building a referral
travel agent business. The other Tutorials available for sale by the
Company's IRs are: (i) NetMax 2000, which teaches how to establish one's own
website on the Internet; (ii) TaxMax Tutorial, which provides tax planning
advice in those areas considered to be of interest to IRs and their
customers, such as deduction of the cost of a home office; (iii) TaxMax/Time
Share Tutorial, which provides tax planning advice on how to maximize
deductions in connection with acquisition and maintenance of a "time-share"
real estate interest; and (iv) TaxMax/RV Tutorial, which provides tax
planning advice on how to maximize deductions in connection with acquisition
and maintenance of a recreational vehicle. As of the date of this
Registration Statement, approximately 40% of the Company's revenue is derived
from the sale of Tutorials; the remainder of the Company's revenue is derived
principally from travel services.
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In addition to the Tutorials described above, the Company has offered a
videotape tutorial on training to become a consultant ("Charity Consultant")
to charitable organizations. Since such tutorial was written, the Company has
become aware of increased regulation by certain states of activities of
charity consultants. In an effort to instruct new purchasers on
responsibilities under such charity fundraising laws of several states, the
new management of the Company decided to develop a far more comprehensive
program, including all of the relevant state law provisions governing such
activities. Until that new program is ready, the Company has suspended sales
of the existing Charity Consultant Tutorial. No assurance can be given that
the new Charity services program will provide a comprehensive and rigorous
training manual for such business. See "Management's Discussion and
Analysis or Plan of Operation" and "Legal Proceedings."
During 1997, the Company established a charitable foundation ("TMax
Foundation") with the intent of enabling IRs to allocate, through the
foundation, a portion of their commissions to one or more specific public
charities. See "Legal Proceedings."
The second type of products available for sale by ITAs is the collection
of business office support items ("Support Products"), including sales
literature and other items designed to assist the ITA in maintaining his
travel services business.
ADDITIONAL PRODUCTS.
The third category of products marketed by the Company's IRs consists of
the various Additional Products. The availability of the Additional Products
to the Company's IRs only began in the latter part of 1997 and they have not
generated significant revenue to the Company as of the date of this
Registration Statement. See "Description of Business - Compensation Plan."
The Company has embarked on a program of introducing new products
available for marketing by IRs. Most of these products are intended to be of
interest to persons who are themselves IRs. The products include telephone
debit cards and long-distance telephone services, provided by Access
Communications, Corp. ("Access"), the sole shareholders of which are the
Principal Shareholders. Thus, Access may be deemed to be an affiliate of the
Company. The Company has recently introduced membership in the Electronic
Secretarial Assistant, an unaffiliated third party, which offers members a
wide range of remote communication features, such as voice-mail paging, fax
paging, conference calls, card-less long distance calling, reminder
electronic memos, forwarding of calls and fax-on-demand. In addition, the
Company maintains an electronic "department store" on the Internet which
sells 18 different categories of products, from fine wine and cigars to
personal care and fitness and kitchen gadgets. The Company has used such
cards as a means of paying certain claims by IRs for refunds. See
"Managements Discussion and Analysis or Plan of Operation" and "Certain
Relationships and Related Transactions."
RECENT ACQUISITIONS
To increase its number of active IRs at a faster pace, the Company has
embarked on a program of acquisition of businesses which can both provide
benefits to and draw benefits from the Company's existing IRs. In October,
1997, the Company entered into an agreement with the shareholders of Links,
unaffiliated third parties, to acquire all of the issued and outstanding
shares of the common stock of Links, which is a network marketing seller of
golf products. The closing of this agreement is contingent upon fulfillment
of certain conditions, including a determination that the financial records
of Links are auditable. The consideration for the acquisition will be an
amount of the Company's Common Stock equal in value, measured as of the date
of closing of the acquisition, to the amount of debt and equity investment
made in Links by its shareholders as of the date of closing. This amount is
currently estimated to be $2,400,000. In addition, the Company will directly
assume certain obligations of Links to third parties and will replace the
principal shareholder of Links as guarantor on certain obligations of Links.
While management of the Company believes that the contingencies to the
acquisition will be removed and the transaction will close, no assurance can
be given to that effect. The Company intends to make Links' golf products
line available to its
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current IRs, but has not formulated a plan for this integration into its
organization of Links' products and independent representatives. No
assurance can be given that such integration will be completed.
On January 5, 1998, the Company entered into an agreement with Jetaway
Travel Corporation, a California corporation ("Jetaway"), an unaffiliated
third party, engaged in the network marketing of referral travel services, to
acquire the exclusive rights to the names of Jetaway's independent
representatives for a total consideration of $300,000. The parties estimated
that Jetaway had approximately 100,000 such independent representatives. The
purchase price for the acquisition was payable 50% in cash and 50% in Common
Stock of the Company. $100,000 of the cash portion of the purchase price was
paid at the closing of the acquisition in January, 1998. The funds for such
payment were derived from the line of credit provided by Century. In
addition, the Company agreed to enter into a two-year employment agreement
with Larry Michaels, Chief Operating Officer of Jetaway, in which Michaels
was named Senior Vice-President - Travel Services of TMax-California. The
Common Stock portion of the purchase price is measured on the basis of the
average mean between the daily closing bid and asked prices in the
over-the-counter market for the Company' Common Stock for the five business
days preceding the closing, was payable ninety days after the closing.
Subsequent to the closing, the Company learned that the number of names of
independent representatives provided by Jetaway was significantly below that
for which the Company had bargained and that a large percentage of the names
delivered consisted of a block of names just acquired by Jetaway from World
Travel, a company which had just ceased operations. The World Travel
representatives had little or no history of operating within the Jetaway
organization. For this reason, the Company has withheld the $50,000 cash
payment and is in negotiation with the sole shareholder of Jetaway to resolve
all disputes. No assurance can be given that this negotiation will be
successful. See "Executive Compensation - Employment Agreement with Larry
Michaels" and "Certain Relationships and Related Transactions."
NETWORK MARKETING SYSTEM
OVERVIEW OF NETWORK MARKETING SYSTEM. The foundation of the Company's
business philosophy and distribution system is network marketing. Network,
or multilevel, marketing generally involves sales representatives selling
products directly to the consumer rather than through the medium of a retail
outlet. Such representatives may purchase products at wholesale prices from a
manufacturer and sell them at retail. They may also serve principally as
sales representative who take orders for and receive commissions from the
sale of Company products or services. Both types of representatives are
entitled to sponsor other representatives and receive commissions on the
sales of the sponsored sales representatives and those in the group or
organization. Leading merchandisers who use this form of network marketing
include Amway Corporation, Mary Kay Cosmetics and Rexall Sundown.
THE COMPANY'S NETWORK MARKETING SYSTEM. The Company's network marketing
program is similar to that of other MLM businesses in many respects. First,
compensation of any individual IR is dependent in part on the development by
each IR of an effective network of new IRs (sometimes referred to as such
IR's "Downline"). Second, the Company does not engage in direct consumer
advertising. Third, each IR is an independent contractor, not an employee of
the Company. A key difference from most other programs is that the Company
sells both tangible and intangible products. The sale of Tutorials, which
constitute source of the vast majority of the Company's revenue, are
intellectual property. A successful ITA will often do much more than merely
soliciting and accepting travel bookings from the public. He will also
assist his customers in planning trips, determining optimum routings,
selection of airports (in cities with more than one airport), and offering
other advice on vacations and travel. This difference may require each IR to
be more knowledgeable about the Company's business than his counterpart at
another MLM company who is merely selling tangible products. The result is
that, because of the need to become knowledgeable about the travel and
leisure business, the Company's IRs may face greater challenges in
establishing their individual businesses. On the other hand, such IRs may
have a greater opportunity to build a dynamic business as a seller of the
Company's
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products and a travel agent because of the necessity of early training. No
assurance can be given that the nature of the Company's business will serve
to generate increased revenue to the Company.
QUALIFICATION AS AN IR. To qualify as an IR, an individual must
purchase a TravelMax Representative Kit for $25. The Company is forbidden in
certain states from making any profit on the sale of such kits. At this point
the IR may sell the ITA Tutorial at its retail price of $470, for which a
direct sales commission of $100 is earned, but is not permitted to book
travel services until he himself becomes an ITA. The Company requires no
purchase of inventory and does not pay a commission on the recruitment of
other IRs ("headhunting"). See "Description of Business - Regulation of
Network Marketing."
QUALIFICATION AS AN INDEPENDENT TRAVEL AGENT. To qualify as an ITA, who
is entitled to book travel services, the IR must purchase and study the ITA
Tutorial and pass a test ("ITA Test") which is administered by the Company.
The function of the ITA is to act as an outside referral travel agent, who
generates travel bookings business from individuals and businesses and places
all such bookings with the Company. Unlike a full-service travel agent who
places bookings directly with a travel provider (such as an airline or a
cruise line), the ITA does not have to maintain any of the computer hardware
(to print tickets), deposit cash bonds or engage any full time employees (to
answer the telephone during all business hours) necessary to such a business.
Rather, in exchange for sharing the commission paid by the travel provider to
the Company, the ITA refers the travel booking to the Company, and the
Company performs the business functions performed by any full-service travel
agency. These functions include maintaining long-term relationships with
certain travel providers which yield discounted travel prices on all bookings
placed with such providers. As of May 1, 1998, the Company maintains
relationships yielding discounts with Continental, Trans World Airlines and
Value Air. No assurance can be given that such relationships will continue
in their present form or at all. The Company hopes to negotiate similar
relationships with other travel and leisure service providers, including
cruise line operators, although no assurance can be given to that effect.
See "Business - Compensation Plan" and "Management's Discussion and Analysis
or Plan of Operation."
The Company's revenue is directly dependent upon the efforts of IRs.
Growth in sales volume requires an increase in the productivity of IRs and/or
growth in the total number of IRs. Because the IRs are independent
contractors, the Company has no control over the level of sponsorship of new
IRs. There can be no assurance that the productivity or number of IRs, or,
more importantly, active IRs, will increase in the future. Furthermore, the
Company estimates that, as of May 1, 1998, twelve IRs have qualified as
"bronze" or "silver" IRs, and none has qualified as a "gold" (all defined
below). In general, the performance of the IRs who constitute the downline
of such high-achieving IRs depends on the support and training by such
high-achieving IRs. Consequently, the loss of a high-level IR, together with
a group of leading IRs in such IR's downline network, or the loss of a
significant number of IRs for any reason, could have a material adverse
effect on the Company's business. See "Business - Compensation Plan."
COMPENSATION PLAN
BACKGROUND OF COMPENSATION OF INDEPENDENT REPRESENTATIVES. An IR's
network marketing business does not use fixed retail outlets, advertising or
sales employees. It relies exclusively on the efforts of independent
representatives, who receive no regular stipend and who are under only
limited control of an MLM company. For a company to have profitable
operations, its independent representatives must sell products or services
and must create their own independent representative organizations or
downlines to broaden the base of the Company's marketing organization. The
principal incentive for these activities is the company's compensation plan.
The purpose of any MLM compensation plan is to provide a financial incentive
for each independent representative both to market the company's products and
services and to enlist others to become independent representatives. Thus,
virtually every compensation plan for an MLM company involves paying a
commission to an independent representative for direct sales and also paying
either for
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introducing new independent representatives to the company's business and/or
paying the independent representative a commission on sales of those new
independent representatives whom he has introduced.
Each compensation plan must be designed to fit the particular needs of
the MLM business in question. If a company's business involves an initial
steep learning curve, for example, the compensation plan might reward
diligence of the specific independent representative, to encourage training
and diligence. In any case, the Company must maintain an efficient training
and support structure for its independent representatives, which constitute
its principal asset. Even more importantly, it must insure that the total of
commissions payable does not exhaust the company's own profit margin on sales.
Management of the Company believes that the compensation plan which
existed before April, 1997, was responsible in part for the Company's cash
flow problems and the Company's shut-down in April. Under that former
compensation plan, the total commissions payable on certain sales could
exceed the Company's total gross profit on such sale. Management has spent
the time since April, 1997, designing and redesigning its compensation plan
in an effort to take advantage of the Company's existing base of IRs and
stimulate the recruitment of new IRs, while controlling the amount of payout
to IRs so that the Company can maintain profitability. The Company's current
compensation plan was adopted in the first quarter of 1998. Management
believes that the current plan, as described below, provides the right mix of
financial incentives for IRs to enable the Company to grow significantly,
although no assurance can be given to that effect.
SPONSORING. The Company relies on existing IRs to sponsor new IRs.
While the Company provides product samples, brochures, magazines and other
sales materials, IRs are primarily responsible for educating new IRs with
respect to products, the Compensation Plan, and the building of a successful
travel services business. Sponsoring activities are not required of IRs.
Generally, IRs invite friends, family members and acquaintances to sales
meetings where Company products are presented and where the Compensation Plan
is explained. The IR is also entitled to sponsor other IRs in order to build
a network of IRs. The sponsoring of new IRs creates multiple levels in the
network marketing structure. Persons whom a IR sponsors are referred to as
"downline" or "sponsored" IRs. If downline IRs also sponsor new IRs, they
create additional levels in the structure, but their downline IRs remain part
of the same downline network as their original sponsoring IR.
OVERVIEW OF THE COMPANY'S COMPENSATION PLAN. The Company's principal
goal is to build a large organization of ITAs who book travel services
through the Company. Each ITA earns a direct commission on such bookings.
In addition, the Company gives its IRs the opportunity to sell products, both
the Additional Products and the Tutorials. Since the Tutorials, principally
the ITA Tutorials, tend to build up the number of IRs working with the
Company, such sales qualify for the most lucrative bonuses offered by the
Company. It is the belief of management of the Company that the financial
incentives offered to IRs to sell Tutorials and build up the Company's number
of active ITAs will, in the long run, establish a large number of ITAs who
book travel services for the Company, although no assurance can be given to
that effect. See "Description of Business - Compensation Plan - Compensation
Plan for Tutorials."
COMPENSATION PLAN FOR TRAVEL SERVICES. The initial purchase made by
anyone wishing to become an IR is the Company's Representative Kit, which
sells for $25. An IR is entitled to sell the Company's products but may not
book travel services. The sale of a Representative Kit to a customer
generates no commission for the selling IR. An ITA, that is, an IR who has
qualified by purchasing the ITA Tutorial and passing the ITA test prepared
and administered by the Company, receives a commission on all travel services
booked and referred to the Company equal to 40% of the total amount earned by
the Company. Thus, if an ITA books air tickets for $1,000, the Company will
earn a commission of $50 (the commission rate is 8%, with a cap of $50) from
the airline. Of that amount, 40%, or $20, is paid to the ITA. The Company
keeps the remaining $30, but must cover all of the cost of operations of the
Company out of these funds. See "Management's Discussion and Analysis or
Plan of Operations."
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COMPENSATION PLAN FOR SALES OF ADDITIONAL PRODUCTS. In general, IRs
(not just ITAs) earn a commission of 40% of the commissionable value
("Commissionable Value"), which is, for each product, an amount less than the
retail sales price (usually from 30% to 40%), of each of the Company's
products which they sell directly. Under the Company's "Unilevel" override
system, which applies to the Additional Products, an IR earns 10% in
overrides in respect of the sale of Additional Products by any member of such
IR's downline up to a maximum of six levels down. If the initial IR has six
levels of downline, each sale by an IR at the bottom level generates 40% to
the selling IR and 10% to each of the introducing IRs at the levels above
him. Thus, the Company has a theoretical liability of 100% of the
Commissionable Value on each sale of an Additional Product. This still leaves
the Company with a gross profit on the sale of the product which gives rise
to the commission and the overrides. In order to qualify for the Unilevel
overrides, an IR first must have downline IRs and second must have, for the
month in question, direct sales of at least $100. See "Management's
Discussion and Analysis or Plan of Operations."
COMPENSATION PLAN FOR TUTORIALS. The largest incentives are reserved
for the sale, directly and indirectly, of "coded bonus products." Coded
bonus products are the Tutorials (ITA Tutorial, NetMax 2000, TaxMax, TaxMax
RV and TaxMax Timeshare). The bonus commissions are computed separately for
each type of Tutorial. Using the ITA Tutorial as an example, an ITA
("Originating ITA") must first qualify as an ITA, then sponsor two people who
also purchase the ITA Tutorial. Such two people must, with the Originating
IR, sponsor a total of four additional people. Each ITA in the group will
have earned a commission of 40% of the coded bonus value ("Coded Bonus
Value") of the Tutorial. The Coded Bonus Value, which is applied only to
Tutorials, is an amount, usually about 50%, of the retail price which
represents the total which the Company is prepared to pay out in the form of
commissions and bonuses to its ITAs. Once six people have been sponsored,
the Originating ITA will have qualified as a "Bronze Rep," eligible to move
to the next stage of group building.
As a Bronze Rep, the Originating ITA begins to form another downline
group. He will earn a bonus of 20% of the Coded Bonus Value of all ITA
Tutorials sold by all members of the Bronze group. In addition, if he
introduces three new ITAs, who, among them, in turn sponsor an additional
nine new ITAs beneath the three, then the originating ITA will qualify as a
Silver Rep, eligible to move to the next stage of group building.
As a Silver Rep, the originating ITA begins to form yet another group.
He will earn a bonus of 40% of the Coded Bonus Value of all ITA Tutorials
sold by all members of the Silver group. In addition, if he introduces four
new ITAs, who in turn sponsor an additional sixteen new ITAs beneath the
four, then the originating ITA will qualify as a Gold Rep, eligible to move
to the next stage of group building.
As a Gold Rep, the originating ITA will earn a bonus of 60% of the Coded
Bonus Value of all ITA Tutorials sold by all members of the Gold group.
As of May 1, 1998, there are 12 Bronze ITAs, 4 Silver ITAs and no Gold
ITAs (out of 30,000 IRs), some of whom were "grandfathered" into their
current status on the basis of their performance under the former
compensation plan. Management believes that the financial incentives in this
compensation plan will serve to encourage the growth of more high performing
ITAs, although no assurance can be given to that effect. Since the
compensation plan is newly adopted, no assurance can be given that it will
work well or even at all. Even if the compensation plan enables a number of
IRs to become Bronze, Silver and Gold Reps, no assurance can be given that
this will result in profits to the Company.
INDEPENDENT REPRESENTATIVES STOCK OPTION PLAN. In addition to the
Compensation Plans described above, the Company maintains the Independent
Representatives Stock Option Plan (the "IR Plan"), whereby the Company may
grant options to IRs for the purchase of the Company's Common Stock on the
basis of performance by such IRs. Under the IR Plan's guidelines (which may
be overridden by the Company's Board
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of Directors), commissions of from $2,250 to $4,499 per week will result in
the issuance of stock options to purchase 250 shares of Common Stock,
commissions of from $4,500 to $6,749 per week will result in the issuance of
stock options to purchase 500 shares of Common Stock, and commissions of
$6,750 or more per week will result in the issuance of stock options to
purchase 1,000 shares of Common Stock. Under the IR Plan's guidelines, for
each set of options granted, 25% will vest after two years from the date of
grant, 25% will vest after three years from the date of grant, and the
remaining 50% will vest after four years from the date of grant. The
exercise price of the options will be determined by the Company at the time
of the grant but will be no less than the fair market value of the Company's
Common Stock at the time of the grant. Unless specified otherwise by the
Company at the time of grant, all rights to exercise these options shall
terminate if the optionee ceases to be an IR of the Company (except in
certain cases of death or disability). The Company has retained an attorney
specializing in MLM law as an advisor to ensure that the Company remains in
compliance with network marketing laws. However, no assurance can be given
that the Company will remain in compliance with network marketing law. See
"Description of Securities."
TRAINING AND DISCIPLINE OF IRs
A potential IR must enter into an IR agreement with the Company which
obligates the IR to abide by the Company's policies and procedures. However,
since the IRs are independent contractors, the Company has only limited means
with which to control the actions of such IRs. Management believes that the
best means of instilling actions which adhere to the Company's policies is a
comprehensive training and support program, although no assurance can be
given to that effect. Increased training has been a priority of management
since April, 1997. The Company's programs include extensive written
instructional materials, the availability of regular conference calls for IRs
with more experienced IRs and with the Company's Training Director, and the
use of the Company's Website on the Internet for dissemination of the latest
information on the Company and its products and services. In addition, the
Company regularly holds training seminars on the marketing by IR of travel
services; in May, 1998, alone, 13 such comprehensive seminars are scheduled
across the country. Once or twice a month, the Company runs a full day
program (at a cost of $35) for the development of ITA skills, both for new
and advanced ITAs. Attendance by IRs and ITAs is optional. This program
covers international airfares, familiarization trips and discounts, leisure
travel strategies, sales skills for building an IR's business, group sales,
corporate and many other topics. No assurance can be given that these
support activities will result in the generation of revenue to the Company.
From time to time, it becomes necessary to discipline an IR for
activities which may be adverse to the Company's best interest. An example
of such actions would be the making of exaggerated claims concerning the
Company's Compensation Plan or products. The Company is in the process of
studying proposals for a more comprehensive set of procedures for all IRs,
beyond its current policies and procedures, together with sanctions,
including dismissal, to be applied for particular acts.
REGULATION OF NETWORK MARKETING.
Direct selling activities are regulated by various governmental
agencies. These laws and regulations are generally intended to prevent
fraudulent or deceptive schemes, often referred to as "pyramid" or "chain
sales" schemes, that promise quick rewards for little or no effort, require
high entry costs, use high pressure recruiting methods and/or do not involve
legitimate products or services. The Company believes that its method of
distribution is in compliance in all material respects with the laws and
regulations relating to direct selling activities of the states in which the
Company currently operates, although no assurance can be given to that
effect.
The Company's network marketing system is potentially subject to a
number of federal and state regulations administered by the Federal Trade
Commission ("FTC") and various state agencies. Regulations applicable to
network marketing organizations are generally directed at ensuring that
product sales are ultimately made to consumers and that advancement within
such organizations be based on sales of the organizations' products and
services rather than investments in the organizations or other non-retail
sales related criteria. See "Description of Business - Business Goals."
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The basic thrust of these statutes is that marketing plans are
prohibited which require an investment or purchase by sales representatives
for the right to recruit others for economic gain. Under these statutes,
multilevel marketing companies must be bona fide retail organizations which
market bona fide products to the ultimate consumer. Inventory loading and
headhunting are prohibited, and sales kits must be sold at actual company
cost to sales representatives.
In the leading decisions in this subject area, a variety of abuses have
been targeted as potential elements of illegal marketing plans including:
products which have no "real world" marketplace; products which are sold at
inflated prices; mandatory purchases of company product; plans which result
in inventory loading of representatives; substantial cash investment
requirements; mandatory purchases of peripheral or other products or
services; plans in which company products are totally or substantially
consumed only by representatives; plans in which representatives are left
with substantial unsold inventory upon cancellation of participation; plans
in which representatives purchase products in order to further the marketing
plan rather than out of genuine desire and need for the product; plans which
would fail without purchases by participants; plans which make no effort to
emphasize retail sales to the ultimate nonparticipant consumer; plans which
require no meaningful participation by representatives after becoming a
representative; plans in which fees are paid to representatives for
headhunting; plans in which commissions are not based on actual retail
product sales; plans in which emphasis is on recruitment rather than sale of
product; and plans which contain elements of a lottery rewarding participants
based on chance rather than on bona fide sales efforts. See "Description of
Business - Regulation of Network Marketing."
The term "investment" and its definition arises time and time again in
the statutes and the cases involved in multilevel marketing. The pyramid
statutes and the business opportunity statutes of many states specifically
exempt from the term required "investment" sales kit materials or
demonstration materials sold at company cost. It should be noted that many
of the pyramid statutes and some of the business opportunity statutes do not
exempt sales kit materials and demonstration materials sold at company cost
from the definition of investment. In general, these statutes place their
primary focus on the headhunting, inventory loading and lottery aspects of
potential pyramid schemes.
MULTILEVEL MARKETING DISTRIBUTION STATUTES.
Five states have enacted laws which specifically regulate multilevel
marketing companies: Georgia, Louisiana, Maryland, Massachusetts and Wyoming.
These state laws define a multilevel distribution company as any person,
firm, corporation or other business entity which sells, distributes or
supplies for valuable consideration, goods or services through independent
agents, contractors or representatives, at different levels wherein
commissions, cross-commissions, bonuses, refunds, discounts, dividends or
other considerations in the program are or may be paid as a result of the
sale of such goods and services or the recruitment, actions or performances
of additional participants.
Many of these statutes place restrictions on the activities of
multilevel marketing companies. One of the most important of these
restrictions is the buyback requirement, which grants representatives the
right to cancel "contracts of participation" for any reason and at any time
and requires that the company repurchase inventory and sales materials from
the representative at a price not less than 90% of the representative's
original net cost and refund fees paid by the representative. In addition,
these states prohibit companies from representing that representatives have
or will earn stated dollar amounts.
BUSINESS OPPORTUNITY LEGISLATION.
Another set of issues involves the potential application of securities,
franchise and business opportunity statutes. One critical concept common to
all of these statutes is the existence of an "investment." The amount,
manner, type and timing of the investment are fundamental in determining the
applicability of the statute.
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Under these statutes, an investment encompasses much more than the payment of
money for the right to participate in the business. Payments for inventory,
consumer purchases, training, consumer sales, demonstration and motivation
materials, and even sales kits, come within the scope of the term
"investment." State authorities have often taken the approach that if a
sales program will not succeed on its own without purchase by
representatives, such purchases are "required." For this purpose
"investment' may include payments made subsequent to the initial purchase.
Thus, although the only required purchase for IRs of the Company is the
Representative Kit ($25), a state government authority might consider that
since the ITA Tutorial (which costs $470) is, as a practical matter,
essential to becoming a trained outside referral travel agent, such Tutorial
is itself part of the "investment." If such investment were to exceed the
maximum allowed under a state's business opportunity statute, the Company
could be subject to civil and criminal penalties. Management of the Company
believes that its current system does not violate the provisions of any state
statute, although no assurance can be given to that effect.
A decade ago, no state had a business opportunity statute. Business
opportunity legislation has been proposed in a variety of forms, many of
which are inconsistent with one another. The FTC has its own rules and
interpretative guidelines on business opportunity ventures. In 1984, the
North American Security Administrator's Association adopted a Model Business
Opportunity Sales Act for consideration by states. To date, California has
enacted perhaps the most rigorous business opportunity statute, entitled the
Seller Assisted Marketing Plan Act and generally referred to as the SAMP Act.
Numerous other states have adopted similar but local homegrown versions of
business opportunity statutes.
These business opportunity statutes can result in both civil and
criminal penalties, and some aspects of direct selling activity can trigger
their application. Under the California SAMP Act, a seller assisted
marketing plan includes any required sale or lease of product, equipment,
supplies or services within the first six months of participation in the
program in excess of $500, in connection with the beginning or operating of a
business where the seller of the program has represented that purchaser
will: (i) earn a profit, (ii) that there is a market for the goods to be
produced or sold, and (iii) that the seller will buy back products produced
by the purchaser. Some of the business opportunity legislation also includes
programs in which seller provides that there is a marketing plan for the
marketing of product. Most business opportunity statutes have a threshold
amount for their application in the range of $250 to $500, but some states go
as low as $25 for application of their statutes. Several states specifically
exempt sales materials and demonstration equipment sold at company cost in
determining whether or not the threshold amount has been reached which would
trigger application of the business opportunity statutes. Some states also
exempt reasonable purchases of initial start up inventory when calculating
the amount spent for purposes of application of the business opportunity
statute. It should be noted that California exempts neither "initial start up
inventory" nor flat cost sales materials. In California, it can be argued
that the purchase of Representative Kit materials at Company cost, together
with inventory purchases, the total of which exceed $500 for the first six
months of participation in the program, would trigger application of the SAMP
Act. In the case of the Company, the total of these two items is $495.
If the SAMP Act or a business opportunity statute were triggered by the
Company's actions, the Company would have to register the program with the
state and post a bond. In California, the minimum bond to be posted is
$50,000. Specific disclosure statements and information sheets must be
provided, which are similar to franchise offering circulars providing
information regarding the Company's financial background, including the
financial statement, as well as indication that the seller has been the
subject of previous civil or criminal legal action. The contracts are
stringently regulated and purchasers are provided specific cancellation
rights. Earnings representations are prohibited unless the seller has facts
to substantiate claims of income or earning potential.
OTHER REGULATIONS. The Company is also subject to a variety of other
regulations in the various markets in which it operates. These regulations
in existing and new markets are often ambiguous and subject to considerable
interpretive and enforcement discretion by the responsible regulators. Even
when the Company
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believes that it and its IRs are in compliance with all applicable
regulations, new regulations are regularly being added and the interpretation
of existing regulations is subject to change. Further, the content and
impact of regulations to which the Company is subject may be influenced by
public attention directed at the Company, its products, services or its
network marketing system, so that extensive adverse publicity about the
Company, its products, services or its network marketing system may result in
increased regulatory scrutiny. Moreover, depending upon the severity of
regulatory changes in a particular market and the changes in the Company's
operations that would be necessitated to maintain compliance, such changes
could result in the Company experiencing a material reduction in sales in
such market or determining to exit such market altogether. In such event,
the Company would attempt to devote the resources previously devoted to such
market to a new market or markets or other existing markets, but there can be
no assurance that such transition would not have an adverse effect on the
Company's business and results of operations either in the short or long term.
In 1973, a Federal Court of Appeal held that investments in a pyramid
scheme were "investment contracts" and, therefore, securities within the
meaning of the federal securities laws, stating an investment contract is a
transaction in which the scheme involves an investment of money in a common
enterprise with profits to come solely from the efforts of others. In March,
1996, the same Court held that operation of a so-called pyramid scheme (that
is, where participants pay money to a company in return for the right to sell
products and the right to earn commissions for recruiting other participants)
violates Rule 10b-5, promulgated under the Exchange Act. Management of the
Company believes that, as it is currently operated and enforced, the
Compensation Plan does not constitute an "investment contract" and is not
otherwise a "pyramid" scheme within the meaning of the above case, although
no assurance can be given to that effect.
COMPETITION
The industry segments in which the Company's business operates are
highly competitive. The Company competes with major and independent travel
agencies. Some of the companies with which the Company competes are
substantially larger, have more substantial histories, backgrounds,
experience and records of successful operations, greater financial,
technical, marketing and other resources, more employees and more extensive
facilities than the Company has or will have in the foreseeable future. The
Company's ability to compete effectively may also depend on the availability
of capital. Many of the Company's competitors have access to significantly
greater capital and management resources then does the Company. The travel
services industry consists of all sizes and, more importantly, many types of
travel agencies competing for the same individual consumer's dollar.
Compounding the competitiveness is the recent reduction of commissions paid
by airlines. Travel companies are now selling travel directly over the
Internet. Management believes that such electronic competition will
increase, and that one means of dealing with this competition is to employ
the direct, personal approach of network marketing, although no assurance to
that effect can be given. See "Certain Relationships and Related
Transactions."
The majority of the travel industry does not use the network marketing
approach. Indeed, management of the Company is not aware of a single major
successful travel services company based on network marketing.
Notwithstanding the built-in problems of compensating its IRs in the face of
the small margins to be earned on most travel services, the Company feels its
combination of providing travel services and the sale of related products
constitutes a substantial advantage by allowing an individual to establish a
business, earn the designation of an (ITA) and offer complete travel services
to its customers for a startup cost of less than $500, the cost of its ITA
tutorial product, although no assurance can be given to that effect.
Finally, the Company competes against other network marketing companies,
which engage in a variety of businesses. Many IRs focus more on the business
method and compensation plan of an MLM company than on the particular
products or services sold. Thus, the Company is in real competition with
such other MLM companies for the services of its experienced IRs. Most other
such companies are larger and better
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financed than the Company. No assurance can be given that the Company will
be able to compete successfully for such IRs.
EMPLOYEES
As of May 1, 1998, the Company had 42 full-time employees, consisting of
9 management and legal personnel, 18 persons performing travel services, and
15 clerical and accounting personnel. These numbers do not include the
Company's IRs, who are independent contractors rather than employees of the
Company. The Company considers its employee relationships to be
satisfactory. None of the Company's employees is a member of any labor union
and the Company has never experienced any business interruption as a result
of any labor disputes.
RISK FACTORS
THE SECURITIES ISSUED BY THE COMPANY ARE HIGHLY SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. AN INVESTMENT IN THESE
SECURITIES SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. IN ADDITION TO THE FACTORS SET FORTH ELSEWHERE IN THIS
REGISTRATION STATEMENT, PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL
CONSIDERATION TO THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING ANY SUCH SECURITIES.
THIS REGISTRATION STATEMENT MAY BE DEEMED TO CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE REFORM ACT. FORWARD-LOOKING STATEMENTS
IN THIS REGISTRATION STATEMENT OR HEREAFTER INCLUDED IN OTHER PUBLICLY
AVAILABLE DOCUMENTS FILED WITH THE COMMISSION, REPORTS TO THE COMPANY'S
STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY
THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S
BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET FORTH
HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE
ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
CURRENT LOSSES. Since the inception of TMax-California, the Company has
generated regular and substantial losses, and no assurance can be given when,
or whether, the Company will begin to operate profitably. Since April, 1997,
the Company's cash flow requirements have been met by a loan from Century, an
affiliate of Messrs. Baetz and Gallant, the Company's Principal Stockholders.
No assurance can be given that this source of financing will continue to be
available to the Company, and if the Company is not able to generate profits
and is unable to continue to obtain financing for its working capital needs,
it may have to curtail its business sharply or cease business altogether.
See "Description of Business - History," "Management's Discussion and
Analysis or Plan of Operation" and "Description of Business--Business Goals."
QUALIFIED FINANCIAL STATEMENTS. The Company's auditors have included an
explanatory paragraph in their Report of Independent Certified Public
Accountants to the effect that recovery of the Company's assets is dependent
upon its ability to generate sufficient cash flow to meet its obligations on
a timely basis, to retain its current financing from Century, to resolve the
issue of potential claims for rescission of purchases of Common Stock, to
resolve pending litigation issues, to obtain additional financing and,
ultimately, to attain profitability. Until and unless the Company is able to
attain such profitability or obtain significant outside financing from
unaffiliated parties, of which no assurance can be given, the operations of
the Company are dependent upon the continued infusion of debt from Century.
There can be no assurances that the Principal Shareholders will cause Century
to continue to provide such financing at its present level, or at all. See
"Management's Discussion and Analysis or Plan of Operation," "Certain
Relationships and Related Transactions" and "Legal Proceedings."
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TRANSACTIONS WITH AFFILIATES. As of the date of this Registration
Statement, the Company is dependent on the continued financing provided by
Century in order to maintain current operations. In addition, the Principal
Shareholders have guaranteed the Company's lease obligation for its offices
in Newport Beach housing its travel services operation. Management cannot
predict at what point, if any, the Company will begin to generate enough
revenue to cover costs of operations. Furthermore, financial claims may be
made against the Company for: (i) refunds on claims for rescission of
purchases of Common Stock; (ii) claims for refunds from purchasers of
Tutorials; (iii) the allocation for funds never paid to the TMax Foundation,
or other charity, as required by the Charity program; (iv) potential sales
tax liability; and (v) the Borg-Warner judgment. Except for the potential
claims for rescission, the Company has set up reserves on its books for such
claims or obligations pending resolution or expiration of all such potential
claims. If the Company were faced with a number of such claims amounting to
significant financial demands on the Company, the Company would have little,
if any, ability to pay such claims, and the Company's ability to generate a
profit could be delayed significantly, resulting in the need for more
financing from Century. If the Principal Shareholders should decide in the
future that the continued investment, in the form of loans from Century or
any other source, is not desirable from their point of view, such advances
may cease. If the Century financing were to cease, this could have a
material adverse effect on the Company and the value, if any, that the
Company's shareholders may have in their securities of the Company. Should
the debt financing provided by Century go into default, Century could
foreclose on its debt and the control of all of the business of the Company
could pass to Century, which could have a material adverse effect upon the
Company. Moreover, any legal action on the part of a purchaser of
securities of the Company or one or more regulatory agencies may have a
material adverse effect on the ability of the Company to effectuate its
intended business plan and could result in Century foreclosing on its
security interest that has been created in connection with the loan made to
the Company by Century, which as of the date of this Registration Statement
totals approximately $8,700,000, including principal and interest. See
"Management's Discussion and Analysis or Plan of Operation," "Description of
Business - Regulation of Network Marketing," "Legal Proceedings," "Certain
Relationships and Related Transactions" and "Financial Statement."
PLANNED EXPANSION OF BUSINESS. The Company business plan requires it to
expand its business operations, both in the travel services business and
otherwise, which will require a significant increase in the number of trained
reservation agents in a relatively short period of time. To manage such
rapid growth, the Company has been and will be required to expend significant
management and financial resources. Since the assumption of control of the
Company by the Principal Shareholders in April, 1997, the cash flow generated
by the Company has not increased significantly and is well below the level
needed just to break even on a current basis. There can be no assurance that
the Company will be able to generate adequate cash flow for current
operations, much less to carry out its expansion plans. See "Description of
Business -- Business Goals" and "Management's Discussion and Analysis or
Plan of Operation."
COMPETITION. The Company's success depends in significant part upon its
ability to attract, maintain and motivate a large base of IRs. In its efforts
to attract and retain IRs, the Company competes with other network marketing
organizations, not just those in the travel services. The Company competes
for new IRs on the basis of its Compensation Plan and its potential for
establishing a referral travel agent business. Such potential IRs can choose
among a number of different MLM businesses, including many which are larger
and better financed than the Company. Some of the companies with which the
Company competes are substantially larger, have more substantial histories,
backgrounds, experience and records of successful operations, greater
financial, technical, marketing and other resources, more employees and more
extensive
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facilities than the Company has or will have in the foreseeable future. Many
of the Company's competitors have access to significantly greater capital and
management resources then does the Company. The network marketing structure
employed by the Company has not been adequately tested by any national
company and may prove to be far less efficient than other types of travel
companies, including those selling directly over the Internet. The Company
may experience increased competition in the future as its competitors combine
to form larger companies. There can be no assurance that the Company will be
competitive with larger or more efficient travel agencies or with other MLM
companies in the future. See "Description of Business--Competition."
RISKS OF NETWORK MARKETING-GENERAL. The network
marketing of the Company's services and products by its IRs is a critical
factor in the generation of revenue for the Company's business. This
business involves reliance on IRs who are independent contractors and,
therefore, not subject to supervision and control, as are employees of the
Company. The Company has set up what it believes to be an attractive
compensation package for IRs, which it hopes will encourage more people to
become IRs and, more importantly, to work actively in the business of
marketing the Company's travel services and products. However, no assurance
can be given that such measures will be effective in attracting, retaining
and encouraging such IRs. If the Company is unable to attract enough IRs to
market its products and services or motivate its existing IRs to market such
services in sufficient quantities, then the Company may continue to be unable
to generate adequate revenue to sustain its business operations. No
assurance can be given that the Company would be able to sustain its business
operations. The Company intends to increase its revenues, expand the
markets it serves and increase its service offerings, in part through the
acquisition of additional representatives of travel services and other
products and services. There can be no assurance that the Company will be
able to manage its growing businesses or successfully integrate new IRs into
the Company without substantial costs, delays or other operational or
financial problems. See "Description of Business - Network Marketing System."
RISKS OF NETWORK MARKETING-ACTIVITIES OF IRs. The Company's
network marketing business is subject to governmental regulation by a number
of jurisdictions in a number of different manners. While the Company
endeavors to supervise the activities of its IRs insofar as they could create
liability to private parties or violations of government restrictions, such
IRs are independent contractors of the Company, and, as such, are not subject
to the same measure of control as are Company employees. The Company's
policy manual purports to limit the types of statements and written material
provided by IRs to the public, and the Company regularly informs IRs about
Company policies and procedures which are designed to protect both the
Company and the IRs themselves. No assurance can be given, however, that the
IRs will adhere to Company rules. In addition, the Company has implemented
policies to insure that the IRs are treated for income tax purposes as
independent contractors, not employees. If, notwithstanding these policies,
the Internal Revenue Service or the taxing authority of any state were to
assert that the IRs were employees and such assertion were upheld by a Court,
then the Company would immediately become liable for withholding and payment
of substantial amounts for payroll taxes. Such liability could be
retroactive. No assurance can be given that the Company's policies will
avoid such liability to payroll taxes. Because of the great number and
variety of situations in which the Company's activities may be subject to
regulation and because of the inherent difficulty in supervising and
controlling persons who are independent contractors, no assurance can be
given that the Company will not be accused of violating the rights of private
persons or rules promulgated by governmental agencies in connection with the
Company's business. No assurance can be given that sanctions, if any, which
might be imposed on the Company as a result of such accusations would not
have a material, adverse effect on the Company's business, including causing
the Company to make major restructuring changes. No assurance can be given
that the Company's network marketing business would be able to survive such
restructuring and continue to provide revenue to the Company. See
"Description of Business -Regulation of Network Marketing" and "Legal
Proceedings."
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RISKS OF NETWORK MARKETING-GOVERNMENT REGULATION. The Company's
network marketing system is subject to regulation by various agencies of the
federal and state governments. A state may use its MLM distribution statutes
or its business opportunity statutes to restrict significantly the manner in
which the Company does business in that state or cause the Company to cease
operations entirely. For a short period of time the Company was forced to
cease all operations in the State of Kentucky. That ban was later removed.
No assurance can be given that the Company, through the activities of its
IRs, will not be sanctioned under the laws of one or more states and have its
business activities severely restricted or stopped altogether. See
"Description of Business - Regulation of Network Marketing" and "Legal
Proceedings."
In addition, a federal court could find that the Company's network
marketing system constitutes the sale of "investment contracts" and,
therefore, securities within the meaning of the federal securities laws,
subjecting the Company to potential liability under Section 12(2) of the
Exchange Act. Management of the Company believes that, as they are currently
operated and enforced, the Compensation Plans do not constitute an
"investment contracts" and do not otherwise constitute a "pyramid" scheme,
although no assurance can be given to that effect. See "Description of
Business - Regulation of Network Marketing" and "Legal Proceedings."
RISK OF NETWORK MARKETING-ADVERSE PUBLICITY. The Company's ability to
attract and retain IRs has been and could again be negatively affected by
adverse publicity and regulatory action relating to the Company. The Company
expects that its business in particular markets may, from time to time,
continue to be adversely affected by negative publicity or regulatory action.
See "Description of Business -- Network Marketing System."
RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY-GENERAL ECONOMIC CONDITIONS.
The Company's results of operations will be dependent upon factors affecting
the travel industry. The Company's revenues and earnings are especially
sensitive to events that affect domestic and international air travel, cruise
travel and auto rentals in Europe. A number of factors, including political
instability, armed hostilities, international terrorism, extreme weather
conditions, a rise in fuel prices, a decline in the value of the U.S.
dollar, labor disturbances and excessive inflation, could result in an
overall decline in demand for travel. These types of events could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, demand for the Company's travel
services may be significantly related to the general level of economic
activity and employment in the U.S. Therefore, any significant economic
downturn or recession in the U.S. could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Description of Business - The Company's Travel Service Business."
NO INDEPENDENT DIRECTORS. The Board of Directors consists of five
directors, none of whom is independent. Although all directors are required
to act in the best interests of the Company and its stockholders, directors
not employed by the Company may be able to more independently assess certain
key areas, such as compensation of management as it relates to operations and
progress of the Company, and reviewing accounting issues, including the scope
and adequacy of internal control procedures, and recommending independent
auditors to serve the Company. The Company has no compensation committee.
Independent directors also aid in avoiding conflicts of interest that exist
by virtue of affiliation with the Company. Management has undertaken to
appoint independent directors to the Board at such time as qualified
candidates are available. There can be no assurance that such candidates
will be available. See "Directors, Executive Officers, Promoters and Control
Persons."
CERTAIN CONFLICTS OF INTEREST. Due to the nature of certain
transactions between Messrs. Gallant, Baetz and their affiliates, such as
Century and Access, and the Company, the terms under which these agreements
were negotiated may not be deemed to have been negotiated on an arm's length
basis. The Company believes that the transactions with affiliates of the
Principal Shareholders are on terms equal to or better than those available
from unaffiliated third parties. However, no assurance can be given to that
effect. See "Certain Relationships and Related Transactions."
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LIMITED PUBLIC MARKET FOR COMMON STOCK. There is currently a limited
public market for the Common Stock. Holders of the Company's Common Stock
may, therefore, have difficulty selling their Common Stock, should they
decide to do so. In addition, there can be no assurances that such markets
will continue or that any shares of Common Stock which may be purchased may
be sold without incurring a loss. Any such market price of the Common Stock
may not necessarily bear any relationship to the Company's book value,
assets, past operating results, financial condition or any other established
criteria of value, and may not be indicative of the market price for the
Common Stock in the future. Further, the market price for the Common Stock
may be volatile depending on a number of factors, including business
performance, industry dynamics, news announcements or changes in general
economic conditions. See "Market for Common Equity and Related Shareholder
Matters."
DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company's Common Stock is
currently listed for trading in the over-the-counter market on the NASD
Electronic Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau, Inc., which are generally considered to be less efficient
markets than markets such as NASDAQ or other national exchanges, and which
may cause difficulty in conducting trades and difficulty in obtaining future
financing. Further, the Company's securities are subject to the "penny
stock rules" adopted pursuant to Section 15 (g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The penny stock rules apply to
non-NASDAQ companies whose common stock trades at less than $5.00 per share
or which have tangible net worth of less than $5,000,000 ($2,000,000 if the
company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other
than "established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information
concerning trading in the security, including a risk disclosure document and
quote information under certain circumstances. Many brokers have decided not
to trade "penny stock" because of the requirements of the penny stock rules
and, as a result, the number of broker-dealers willing to act as market
makers in such securities is limited. In the event that the Company remains
subject to the "penny stock rules" for any significant period, there may
develop an adverse impact on the market, if any, for the Company's
securities. See "Market for Common Equity and Related Shareholder Matters."
CONTROL BY PRINCIPAL STOCKHOLDERS. The Company's principal
stockholders, directors and executive officers of the Company and their
affiliates control the voting power of approximately 70% of the outstanding
Common Stock. As a result of such Common Stock ownership, such persons will
be in a position to exercise complete control with respect to the affairs of
the Company and the election of directors. See "Security Ownership of
Certain Beneficial Owners and Management."
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The
Company's Certificate of Incorporation includes certain provisions which are
intended to protect the Company's stockholders by rendering it more difficult
for a person or persons to obtain control of the Company without cooperation
of the Company's management. These provisions include certain super-majority
requirements for the amendment of the Company's Certificate of Incorporation
and Bylaws. Such provisions are often referred to as "anti-takeover"
provisions. The inclusion of such "anti-takeover" provisions in the
Certificate of Incorporation may delay, deter or prevent a takeover of the
Company which the stockholders may consider to be in their best interests,
thereby possibly depriving holders of the Company's securities of certain
opportunities to sell or otherwise dispose of their securities at
above-market prices, or limit the ability of stockholders to remove incumbent
directors as readily as the stockholders may consider to be in their best
interests. See "Market for Common Equity and Related Shareholder Matters."
FUTURE ISSUANCES OF PREFERRED STOCK. The Company's Certificate of
Incorporation, as amended, authorize the issuance of preferred stock with
such designation, rights and preferences as may be determined from time to
time by the Board of Directors, without stockholder approval. In the event
of the issuance of additional series of preferred stock, the preferred stock
could be utilized, under certain circumstances, as a method of
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discouraging, delaying or preventing a change in control of the Company. See
"Market for Common Equity and Related Shareholder Matters."
LACK OF DIVIDENDS ON COMMON STOCK. As of the date of this Registration
Statement, the Company has paid no dividends on its Common Stock to date and
there are no plans for paying dividends on the Common Stock in the
foreseeable future. The Company intends to retain earnings, if any, to
provide funds for the expansion of the Company's business. See "Market for
Common Equity and Related Shareholder Matters."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REGISTRATION STATEMENT, INCLUDING THE DISCLOSURES BELOW, CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE TERMS "ANTICIPATES", "EXPECTS",
"ESTIMATES", "BELIEVES" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE
COMPANY OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH MATERIAL
DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE "RISK FACTORS" SECTION OF
THIS REGISTRATION STATEMENT, WHICH READERS OF THE REGISTRATION STATEMENT
SHOULD CONSIDER CAREFULLY.
OVERVIEW OF PRESENTATION.
The Company began operations in July, 1995 under its prior management.
On April 14, 1997, the Company ceased operations for 14 days as a result of a
lack of sufficient funds to continue operations at that time. See "Legal
Proceedings."
On April 24, 1997, the Company entered into the Management Agreement
whereby two of the former officers and directors resigned. As a part of this
agreement, Messrs. Baetz and Gallant, the Principal Shareholders, agreed to
accept election to the Board of Directors and provide a source of financing
in order to mitigate the Company's working capital deficiencies. In
consideration for these acts and the aggregate sum of $10.00, on July 22,
1997, the Company issued an aggregate of 25,863,354 shares of Common Stock to
the Principal Shareholders equal to 70.8% of the total issued and outstanding
shares at that date. See "Description of Business - History of the Company."
Since the assumption of control of the Company by the Principal
Shareholders in April, 1997, the Company has continued to generate regular
and substantial losses, and revenues have substantially contracted. Further,
the Company has reduced its staffing level and, therefore, its payroll
expense, operating costs and overhead since the recommencement of operations
in April, 1997. No assurance can be given when, or whether, the Company will
begin to be profitable. Since April, 1997, the Company's cash flow
requirements have been met by loans from affiliates of the Principal
Shareholders through a credit line from Century (the "Credit Line"). No
assurance can be given that this source of financing will continue.
Management believes that, as of December 31, 1997, and for the foreseeable
future, the Company will be required to finance costs of current levels of
operations primarily through the Credit Line. However, should the Credit
Line not be renewed, the Company's ability to continue operations would be
highly questionable. If the Company is not able to generate profits and is
unable to continue to obtain financing of its working capital needs, it may
have to curtail its operations sharply or cease business altogether.
As a direct result of the cessation of operations in April 1997, a
significant number of IRs have either become inactive or have terminated
their relationship with the Company. In January, 1998, two key IRs that
remained active were retained by management to regenerate interest in the
Company with the Company's existing IRs. As of May 1, 1998, one such key IR
remains on retainer. Additionally, various marketing consultants have been
retained to attract new IRs. To date, such
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efforts have been met with marginal success. Management continues to
re-evaluate the corporate structure, commission structure and operating
expenses in an attempt to make the Company profitable.
The Company's current business plan involves a strategy to expand its
activities as a provider of network marketing products and travel services
through the acquisition of additional operations related to the Company's
business plan and the attraction of additional IRs to market the Company's
products and services. The market for such acquisition prospects is highly
competitive, and management expects that other potential acquirers will have
significantly greater capital than the Company. The Company has suffered
recurring losses and had a working capital deficit of $13,787,133 at December
31, 1997. There can be no assurances that the Company will be able to
generate revenues sufficient to develop sufficient positive cash flow or
develop additional sources of financing to continue the Company's business
plan of growth and expansion.
The Credit Line provided for a fixed interest rate of 14% (later changed
to 10% to conform to the California usury laws) with a maturity date of April
21, 1998. The amount advanced under the Credit Line exceeded the $4,000,000
face amount of the underlying note on September 17, 1997, and, as of May 1,
1998, totaled approximately $8,700,000 in principal and interest. As of April
21, 1998, the amount of the Credit Line was increased to $10 million, and
the term was extended to April 21, 1999. The Credit Line is secured by
substantially all the assets of the Company. See "Certain Relationships and
Related Transactions."
During late fiscal 1996 and 1997, the Company experienced an
extraordinarily high level of returns of its product for refund. Such demand
led, in part, to the cessation of operations noted above. The Company's lack
of liquidity led to a backlog of requests for refunds of approximately $4.7
million. Additionally, as a part of the refund process, individuals that
purchased their product by credit card contacted the merchant bank processing
the credit card purchases to request credits known as "charge-backs" to their
accounts. The volume of such charge-backs reached a level that required the
merchant bank to request the Company to reduce the level of the balance of
charge backs that had built up. On November 20, 1997, in order to comply
with the merchant bank's request, the Company arranged for a loan from
BestBank in the amount of $765,000 at 1.0% over Wall Street prime rate with
an initial base rate of 8.5% and a maturity date of May 1, 1999, which loan
has been guaranteed by the Principal Shareholders. BestBank is an
unaffiliated financial institution which engages in numerous business
activities with affiliates of the Company. See "Legal Proceedings" and
"Certain Relationships and Related Transactions."
In August, 1997, the Company filed suit alleging breach of fiduciary
duty and fraud against ten of the Company's former stockholders, directors
and officers and certain others in the Superior Court of Orange County,
California. The Company alleges that the defendants knowingly committed
fraud, breached fiduciary duty, negligently performed their duties,
misappropriated funds and failed to repay obligations owing to the Company.
The Company is seeking actual damages in excess of $13 million, plus special
and punitive damages. One group of defendants has filed a cross-complaint for
express indemnity, comparative indemnity and declaratory relief. See "Legal
Proceedings."
During the period from 1995 to April, 1997, the Company and TMax
California undertook a total of four private offerings of their securities.
The Company believes that as a result of actions by former directors and
officers, some of the individuals that invested in these private offerings
may have the right to assert claims for rescission. The extent of rescission
is unknown at this time. However, it is estimated that such amount may be as
much as $3.8 million. See "Legal Proceedings."
During 1997, the Company established TMax Foundation with the intent of
making contributions to the TMax Foundation from the sale of products and
merchandise by the Company. In connection with an audit by the Office of the
Attorney General of the State of California, the Company has reserved
$230,000 with respect to amounts which may be owed by the Company to the TMax
Foundation. See "Legal Proceedings."
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During the period from inception to December, 1997, the Company may have
been liable for the withholding and payment of state sales tax on sales of
its products. Although there is currently no claim by any state for past due
sales taxes, the Company has set up a reserve as of December 31, 1997, in the
amount of $2,364,360. See "Legal Proceedings."
During the period from 1995 to April, 1997, the Company sold a total of
5400 tutorials for the provision of charity consultant services, of which
nearly one quarter have been returned for refunds. The Company is developing
a much more comprehensive tutorial on this subject. The Company could be faced
with claims for refunds from most or all of the remaining 3600 purchasers of
the old program, for a total potential liability of $1.7 million. The Company
has set up a reserve of approximately $1.6 million at December 31, 1997, for
potential claims for refund with respect to all Tutorial Products. See
"Legal Proceedings."
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996. Sales for the six-month period ended December 31, 1997
decreased approximately 95.8% to $865,578 from $17,091,528 for the six-month
period ended December 31, 1996. This decrease in sales is reflective of the
slowdown in sales activity that occurred as a result of the temporary closure
of business in April, 1997 and the subsequent change in the Company's
business and management structure.
Similarly, travel service commission income generated through air,
hotel, cruise and tour bookings decreased 23.8% to $333,334 for the six-month
period ended December 31, 1997 from $437,718 for the six-month period ended
December 31, 1996.
Gross profit as a percent of sales for the six-month period ended
December 31, 1997 decreased to 82% from 90.6% for the six-month period ended
December 31, 1996, due principally to increased product costs.
Total operating expenses decreased 84% to $3,531,465 for the six-month
period ended December 31, 1997 from $22,376,035 for the six-month period
ended December 31, 1996. The primary components of operating expenses are:
(i) commissions to IRs; (ii) salaries, wages and benefits to officers and
employees; (iii) meeting expenses and travel expenses; (iv) office rent and
rental of equipment and furniture; and (v) legal expenses.
Commission expenses to IRs decreased 97.5% to $348,764 for the six-month
period ended December 31, 1997 from $14,383,632 for the six-month period
ended December 31, 1996. The primary contributor to this decreased
commission expense was the 91.8% reduction in product sales and travel
services bookings.
Cost of salaries, wages and fringe benefits to officers and employees
decreased 35% from $1,926,600 for the six-month period ended December 31,
1996 to $1,256,820 for the six-month period ended December 31, 1997. This
decrease in payroll was primarily attributed to the 62% employee head count
reduction to 52 employees from 136 employees, the direct by-product of the
95.8% decline in sales volume.
Meeting expenses and related travel expenses declined from $469,888 for
the six-month period ended December 31, 1996 to $200,716 for the six-month
period ended December 31, 1997. This 32.7% decrease in meeting and travel
expenses was directly attributable to the reduced sales volume.
Office rent, furniture rental and lease expenditures declined from
$484,683 for the six-month period ended December 31, 1996 to $295,726 for the
six-month period ended December 31, 1997. This 38.4% reduction was due to
the Company's plan to consolidate employees in one location and minimize
expenses.
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Legal expenses increased from $201,874 for the six-month period ended
December 31, 1996 to $348,629 for the six-month period ended December 31,
1997. This 201.5% increase was directly related to the cost of outside
counsel in the Company's suit against its former officers and directors. See
"Legal Proceedings."
As a result of the foregoing, the Company experienced a net loss of
$3,096,692 for the six-month period ended December 31, 1997, as compared to a
net loss of $7,039,640 for the six-month period ended December 31, 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND JUNE 30,
1996. Sales for the fiscal year ended June 30, 1997 increased
approximately 239% to $20,539,549 from $8,601,370 for the fiscal year ended
June 30, 1996. The fiscal year ended June 30, 1996 was the Company's first
full year for sales, and during such period, the Company was developing its
base of IRs. The fiscal year ended June 30, 1997 was more active, reflecting
the increased numbers of IRs.
In addition, travel service commission income generated through air,
hotel, cruise and tour bookings increased 457% to $1,036,844 for the fiscal
year ended June 30, 1997 from $226,720 for the fiscal year ended June 30,
1996.
Gross profit as a percent of sales for the fiscal year 1997 increased to
89% from 1996's fiscal year gross profit of 87.5%. Tighter cost controls
coupled with greater economies of scale contributed to this improvement.
Total operating expenses increased 164% to $31,742,120 for the fiscal
year ended June 30, 1997 from $12,016,839 for the fiscal year ended June 30,
1996. The primary components of operating expenses are: (i) commissions to
IRs; (ii) salaries, wages and benefits to officers and employees; (iii)
printing, shipping and reproduction of marketing literature; and (iv) rental
of equipment and furniture.
Commission expenses to IRs increased 315% to $15,763,381 for the fiscal
year ended June 30, 1997 from $4,998,505 for the fiscal year ended June 30,
1996. The primary contributor to this increased commission expense was the
higher tutorial sales and travel service bookings.
Cost of salaries, wages and fringe benefits to employees and officers
increased 381% from $930,588 in fiscal 1996 to $3,543,674 in fiscal 1997.
This increase in payroll was primarily related to the increase in employee
head count to 86 from 71 to provide the support to handle the 239% sales
increase.
Printing, shipping and the reproduction of marketing literature
earmarked to support the sales volume increased 292% from $388,109 in the
fiscal year ended June 30, 1996 to $1,134,549 in the fiscal year ended June
30, 1997. Specifically, higher tutorial production of all core products was
necessary to satisfy the demand for these products.
Rental of equipment and furniture and lease cancellation expenses
increased to $1,097,982 during the fiscal year ended June 30, 1997 from
$51,450 during the fiscal year ended June 30, 1996. The major increase was
predominantly from the cancellation of a large office equipment contract.
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Other income and expenses resulted in total other expenses of $264,657
for the fiscal year ended June 30, 1997 or 153% greater than other income and
expenses of $1,716 for the fiscal year ended June 30, 1996. This increase in
expenses was primarily the result of: (i) cancellation and termination of an
equipment lease of $891,278; (ii) the write-down of the equity investment in
Associated Resources Investments; and (iii) the loss on the disposal of fixed
operating assets of $226,575.
As a result of the foregoing, the Company experienced a net loss of
$13,726,583 for the fiscal year ended June 30, 1997 as compared to a net loss
of $4,561,041 for the year ended June 30, 1996.
Management believes that these increased losses from operations were due
primarily to computer program errors which resulted in overpayment of
commissions and the mismanagement and poor decision with respect to a key
acquisitions coupled with ongoing operating losses. Significant management
controls and stopgap measures are in place to curtail the level of current
losses.
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1997, the ratio of
current assets to current liabilities was 0.03 to 1 compared to 0.06 to 1 at
December 31, 1996.
Prior to its cessation of operations in April 1997, the Company had
historically financed its operations through the use of working capital.
Upon resumption of operations at the end of April, 1997, the Company has
almost exclusively relied upon the Credit Line provided by Century to cover
the costs of current operations. At December 31, 1997, the majority of trade
payables were delinquent. Prepaid expenses and inventories were $635,411 and
are anticipated to be expensed as used in the future. The net property and
equipment was $1,446,129 at December 31, 1997. Management believes that
without the Credit Line, the Company's ability to continue operations would
be highly questionable.
On October 24, 1997, the Company entered into an agreement to purchase
Links, a company involved in the multilevel marketing of golf related
products and travel packages. It is anticipated that this acquisition will
be completed by the end of May, 1998, although no assurance can be given to
that effect.
On January 16, 1998, the Company acquired the exclusive rights to the
names of the IRs of Jetaway, a multilevel marketing travel business.
Consideration for the acquisition of Jetaway's assets consisted of specified
amounts of cash and Common Stock payable over an extended period of time.
Payment of the cash portion of the purchase price is in two installments of
$100,000 and $50,000. The first installment paid to date has been funded out
of the Credit Line. The second installment is past due under the terms of
the related agreement. At present, however, the amount of the purchase price
is being renegotiated based on the evaluation by the Company of the active
number of names contained in the list of former Jetaway IRs. As a result of
the acquisition, the Company hired six former Jetaway employees.
Cash and cash equivalents were $56,390 as of December 31, 1997, as
compared to $63,605 as of June 30, 1997.
As of December 31, 1997, the Company's only long-term borrowing
consisted of a loan from an unrelated financial institution in the amount of
$765,000.
As of December 31, 1997, the Company had drawn down on the Credit Line
in the aggregate amount of $5,791,711 as compared to $2,189,711 at June 30,
1997.
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The Company continues to generate losses from operations and does not
anticipate achieving profitable operations in the foreseeable future. The
Company's current levels of IR compensation and expenses far exceeds current
levels of revenues. The Company is dependent on external sources of
financing, particularly loans from affiliates of the Principal Shareholders,
to finance current levels of operations.
As noted in the independent certified public accountant's opinion
expressed on the Company's financial statements and Note 2 to the audited
financial statements, the financial statements have been prepared under the
assumptions that the Company is a going concern. This assumption is subject
to numerous objectives that must be achieved, including, but not limited to,
the Company's generation of sufficient cash flow to meet its obligations on a
timely basis, retention of its current financing, securing additional
financing and, ultimately, the attainment of profitability. However, there
can be no assurances that the Company will continue to receive financing from
its principal stockholders or other sources to support business operations
or that the Company will ever achieve profitable operations. To the extent
that additional capital is raised through the sale of additional securities
of the Company, the issuance of such securities could result in substantial
dilution to the Company's stockholders. Moreover, the Company's cash
requirements may vary materially because of liabilities, currently known or
unknown, including certain liabilities to judgment creditors, governmental
agencies or refund claims arising from operations conducted by prior
management, as well as the level of working capital required to sustain the
Company's planned growth, litigation, operating results and other factors.
In the event that the Company experiences the need for additional capital,
and is not able to generate capital from external financing sources or from
future operations, management may be required to modify, suspend or
discontinue the business plan and operations of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128 (SFAS NO. 128), "Earnings Per Share,"
which is effective for financial statements issued for periods ending after
December 31, 1997. SFAS No. 128 requires public companies to present
specified disclosure of basic earnings per share and, if applicable, diluted
earnings per share, instead of primary and fully diluted earnings per share
based on the dilutive impacts of outstanding stock options or other
convertible securities. There was no material difference between reported
earnings per share and diluted earnings per share for the periods presented
in the Company's financial statements.
FASB recently issued SFAS No. 130, "Reporting Comprehensive Income,"
which is required to be adopted for financial statements issued for periods
beginning after December 15, 1997. This statement establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income is defined as revenue, expenses, gains and losses that,
under generally accepted accounting principles, are included in comprehensive
income, but excluded from net income (such as extraordinary and non-recurring
gains and losses). SFAS No. 130 requires that items of comprehensive income
be classified separately in the financial statements. SFAS No. 130 also
requires that the accumulated balance of comprehensive income items be
reported separately from retained earnings and paid-in capital in the equity
section of the balance sheet. SFAS No. 130 is not anticipated to have a
material effect on the Company's financial position or results of operations.
FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is required to be adopted for
financial statements issued for periods beginning after December 15, 1997.
SFAS No. 131 is not required to be applied to interim financial statements in
the initial segments be reported. Generally, financial information will be
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is not anticipated to have any effect on the
Company's financial position or results of operations.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company has an operating lease from an unaffiliated third party at
3388 Via Lido, Newport Beach, California 92663 for office space containing
the Company's principal travel services operations. The lease term is seven
(7) years from the commencement date of February 1, 1996, and the monthly
rental is $24,735. This lease is guaranteed individually by the Principal
Shareholders. See "Certain Relationships and Related Transactions."
The Company has two operating leases at 2701 West Oakland Park
Boulevard, Fort Lauderdale, Florida 33311 for office space containing the
Company's corporate headquarters. This leases are with CGI, an affiliate of
the Company. The term for both leases is one (1) year from the commencement
date of August 15, 1997, and the total monthly rental is $4,041.10. See
"Certain Relationships and Related Transactions."
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 1, 1998, the Company had issued and outstanding 36,480,981
shares of Common Stock. The following table reflects, as of May 1, 1998, the
beneficial Common Stock ownership of: (a) each director of the Company, (b)
each executive officer named in the Summary Compensation Table, (c) person
known by the Company to be a beneficial owner of five percent (5%) or more of
its Common Stock and (d) all executive officers and directors of the Company
as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
- ------------------------------------ ---------------- -------
<S> <C> <C>
Glenn M. Gallant (1) 12,931,677 35.42
Douglas R. Baetz (1) 12,931,677 35.42
C. Dean Hofmeister (2) 0 0
James C. Healy (2) 0 0
Joseph Ewart (2) 0 0
All Directors and Officers as a Group
(5 persons) 25,863,354 70.84%
</TABLE>
- ---------------
# Pursuant to the rules of the Commission, shares of Common Stock
which an individual or group has a right to acquire within 60 days pursuant
to the exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
1. The address for Messrs. Baetz and Gallant is 3020 N. W. 33rd Avenue,
Fort Lauderdale, Florida 33311.
2. The address for Messrs. Hofmeister, Healy and Ewart is 2701 West
Oakland Park Boulevard, Fort Lauderdale, Florida 33311.
26
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their
successors are elected and qualify, subject to their prior death, resignation
or removal. Officers serve at the discretion of the Board of Directors.
There are no family relationships among any of the Company's directors and
executive officers.
The following reflects certain biographical information on the current
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
<S> <C> <C>
C. Dean Hofmeister Chairman of the Board of Directors 66
and Chief Operating Officer
Glenn M. Gallant Director and Secretary 43
Douglas R. Baetz Director 47
Joseph F. Ewart Director and
Vice President - Travel 51
James C. Healy Director and Executive 53
Vice-President
</TABLE>
C. DEAN HOFMEISTER joined the Company in August, 1997, as its Chairman
and, in January, 1998, as its Chief Operating Officer. Mr. Hofmeister is
also the Chairman and Chief Executive Officer of New SeaEscape Cruises, Ltd.,
Fort Lauderdale, Florida. He has served as a development consultant for the
Palm Beach County Convention Center. His cruise industry experience includes
positions as president of Bahamas Cruise Line, Inc., Chief Executive Officer
of Commodore Cruise Line, and District Manager of Central Europe for United
States Lines.
GLENN M. GALLANT joined the Company as a director and Secretary in
April, 1997. Mr. Gallant is a financier with years of experience in
development and management in a wide range of industries. Together with
Douglas R. Baetz, Mr. Gallant owns and supervises the management of New
SeaEscape Cruises, Inc., a cruise line operating from South Florida, and
Columbia Capital Corp., a publicly-traded financial information services
organization. In addition, Mr. Gallant owns and supervises the operations of
Century a credit card issuing company which is also a lender to the Company.
There have been and will continue to be significant business transactions
between the Company, Mr. Gallant and his affiliates. See "Certain
Relationships and Related Transactions."
DOUGLAS R. BAETZ joined the Company as a director in April, 1997.
Mr. Baetz is a financier with years of experience in development and
management in a wide range of industries. Together with Glenn Gallant, Mr.
Baetz owns and supervises the management of New SeaEscape Cruises, Inc., a
cruise line operation from South Florida and Columbia Capital Corp. In
addition, Mr. Baetz owns and supervises the operations of Century a credit
card issuing company which is also a lender to the Company. There have been
and will continue to be significant business transactions between the Company
and affiliates of Mr. Baetz. See "Certain Relationships and Related
Transactions."
27
<PAGE>
JOSEPH F. EWART joined the Company as a director and Vice President
- -Travel in August, 1997. Mr. Ewart is currently President and Chief
Operating Officer of New SeaEscape Cruises, Ltd., and has been working in the
travel industry since 1973, when he first became a travel agent, opening its
cruise division. He is widely recognized as an authority on cruise ships and
their relationships with the retail travel agent distribution system.
JAMES C. HEALY joined the Company as a director and Executive
Vice-President in August, 1997. Mr. Healy has thirty-three years experience
in the travel industry with over twenty years in management and executive
level positions. He has extensive experience in the sales and marketing,
primarily of travel related products, with Delta Airlines and Paxson
Communications. In addition, he brings the Company a strong background in
promotions, advertising, public relations and negotiations.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning
compensation of certain of the Company's executive officers (the "Named
Executives"), including the Company's Chief Executive Officer and all
executive officers whose total annual salary and bonus exceeded $100,000, for
the fiscal years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards Payouts
- ------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>> <C> <C> <C> <C> <C>
William
Alverson 1997 120,000
1996 120,000
Dale
Paisley 1997 120,000
1996 61,500
Mark
Guest 1997 89,850
1996 120,000
</TABLE>
- -------------------
COMPENSATION OF EXECUTIVE OFFICERS. Messrs. Alverson, Paisley and
Guest, the former Chief Executive Officer, Chief Financial Officer, and
Vice-President, respectively, of the Company, during the two fiscal years
ended June 30, 1997, received, in the aggregate $1,676,253. Management of
the Company believes that the amounts received by these individuals were
excessive and unjustified, and the receipt of such amounts, in and of itself,
was a breach of fiduciary duty to the Company. Due to the foregoing, the
Company has determined that reasonable compensation for the services provided
to the Company was in the amounts set forth in the table above for fiscal
1996 and
28
<PAGE>
fiscal 1997. The balance of the funds and/or benefits
received by Messrs. Alverson and Paisley is the subject of litigation pending
between them and the Company. The Company has not yet decided how to deal
with the excessive amounts received by Mr. Guest. See "Legal Proceedings."
COMPENSATION OF DIRECTORS. The Company compensates C. Dean Hofmeister
and Joseph Ewart $10,000 per year for services rendered as a director.
DIRECTORS AND OFFICERS LIABILITY INSURANCE. The Company does not have
directors' and officers' liability insurance.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS. The Company
has no compensatory plans or an arrangements which relate to the resignation,
retirement or any other termination of an executive officer or key employee
of the Company.
EMPLOYMENT AGREEMENT WITH LARRY MICHAELS. As of January 16, 1998,
TravelMax California entered into an employment agreement ("Employment
Agreement") with Larry Michaels ("Michaels"), pursuant to which Michaels will
serve as a Senior Vice-President of TravelMax California until January 16,
2000, unless terminated earlier. Compensation is $100,000 per year plus an
amount of shares of Common Stock of the Company equal to $50,000, as measured
on the basis of the average mean between the daily closing bid and asked
prices in the over-the-counter market of the Company's Common Stock for each
day in the five business day period ending on January 15, 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 17, 1995, TMax-California issued to 7 individuals 417,000 shares
of its common stock for past services purportedly rendered. The shares
issued were valued at $0.76 per share. Such recipients of these shares were
officers and directors of the Company. In addition, 66,200 shares were
issued to a trust in exchange for an investment of $50,000 in cash at a
purchase price of $0.76 per share.
On December 5, 1995, the Board of Directors of TMax-California
purportedly effectuated a forward stock split of some of the then outstanding
shares of TMax-California's issued and outstanding shares of common stock,
purportedly increasing the number of issued and outstanding shares of
TMax-California from 1,000,000 to 5,000,000. This attempted forward stock
split was never validly effectuated, in that the legal formalities of the
stock split were never perfected and the purported forward stock split only
applied to certain TMax-California shareholders. The number of shares of
TMax-California authorized by the Articles of Incorporation of
TMax-California were 1,000,000, a number substantially less then the number
purportedly to be issued and outstanding by TMax-California following the
purported forward stock split.
MANAGEMENT AGREEMENT. On April 24, 1997, the Company, Paisley, Alverson
and Guest entered into the Management Agreement, with the Principal
Shareholders, who were then unaffiliated third parties to the Company. The
purpose of the Management Agreement was to induce Messrs. Baetz and Gallant
to recapitalize and to restart operations of the Company. Pursuant to the
terms of the Management Agreement Messrs. Baetz and Gallant acquired
25,863,354 newly-issued shares of the Company's Common Stock, constituting
70.8% of such Common Stock. The Company resumed business operations under
its new management on April 28, 1997. Under the Management Agreement, most of
the existing directors and officers of the Company resigned, and the
Principal Shareholders were named Directors of the Company. See
"Management's Discussion and Analysis or Plan of Operation."
AGREEMENT WITH ACCESS COMMUNICATIONS CORP. As of October 21, 1997, the
Company has entered into an agreement with Access Communications, Inc.
("Access"), a company which is controlled by Messrs. Baetz and Gallant and
which may be deemed to be an affiliate of the Company. Pursuant to the
terms of the
29
<PAGE>
agreement with Access, the Company acquires prepaid telephone cards and
long-distance service which may be marketed by the Company's IRs. The Company
has used such cards as a means of paying certain claims by IRs for refunds.
Management of the Company believes that the contract cost of these products
are comparable with those obtainable from unaffiliated third parties,
although no assurance can be given to that effect. See "Management's
Discussion and Analysis or Plan of Operation."
LOAN AGREEMENT WITH CENTURY. On April 21, 1997, the Company entered
into the Credit Line. Century is not required to make advances under the
Line of Credit. The Line of Credit is secured by all of the assets of the
Company. The annual percentage rate charged by Century to the Company is 10%
per annum. The term of this line was extended to April 21, 1999, and the
maximum credit was increased to $10,000,000. As of the date of this
Registration Statement the line of credit balance was $8,734,144. See
"Management's Discussion and Analysis or Plan of Operation."
LEASE GUARANTEE. In May, 1997, the Principal Shareholders executed a
personal guarantee of the lease for the operating lease at 3388 Via Lido,
Newport Beach, California 92663 for office space containing the Company's
principal travel services operations. See "Description of Property" and
"Management's Discussion and Analysis or Plan of Operation."
LOAN AGREEMENT WITH BESTBANK. On November 20, 1997, the Company
borrowed $765,000 (the "Loan") principal amount from BestBank. The Loan is
secured by all of the assets of the Company. The annual percentage rate
charged by Century to the Company is 1% over Wall Street Journal prime, and
the Loan is due and payable on May 1, 1999. This Loan is guaranteed by the
Principal Shareholders. See "Management's Discussion and Analysis or Plan
of Operation."
The Principal Shareholders have existing business relationships and
affiliations involving entities with which the Company is doing business,
including Century. All transactions between such entities and the Company
may be deemed not to be at arm's-length. The Company believes that the
transactions with affiliates of the Principal Shareholders are at terms equal
to or better than those available from third parties. However, no assurance
can be given to that effect.
It is the practice of management that transactions between the Company
and its officers, directors, employees or stockholders or persons or entities
affiliated with officers, directors, employees or stockholders be on terms no
less favorable to the Company than it could reasonably obtain in arms-length
transactions with independent third parties.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 70,000,000 shares of $0.001 par value
Common Stock. Subject to those preferential rights, as may be determined by
the Board of Directors of the Company in the future in connection with the
issuance of a series of Preferred Stock, holders of Common Stock are entitled
to cast one vote for each share held of record, to receive such dividends as
may be declared by the Board of Directors out of legally available funds and
to share ratably in any distribution of the Company's assets after payment of
all debts and other liabilities, upon liquidation, dissolution or winding up.
Stockholders do not have preemptive rights or other rights to subscribe for
additional shares, and the Common Stock is not subject to redemption. The
outstanding shares are validly issued, fully paid and nonassessable.
Under Delaware law, each holder of a share of Common Stock is entitled
to one vote per share for each matter submitted to the vote of the
stockholders, and cumulative voting is allowed for the election of
30
<PAGE>
directors, if provided for in the Certificate of Incorporation. The
Company's Certificate of Incorporation does not provide for cumulative
voting.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
up to 5,000,000 shares of $0.001 par value Preferred Stock. There are no
shares of Preferred Stock issued. The Company's Board of Directors has the
power, without further action by the holders of Common Stock, to designate
the relative rights and preferences of the preferred stock, and to issue the
preferred stock in such one or more series as designated by the Board of
Directors. The designation of rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting
rights, dividends or other preferences, any of which may be dilutive of the
interest of the holders of the common stock or the preferred stock of any
other series. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of the Company without further
shareholder action and may adversely affect the rights and powers, including
voting rights, of the holders of common stock. In certain circumstances, the
issuance of preferred stock could depress the market price of the common
stock. The Board of Directors effects a designation of each series of
preferred stock by filing with the Delaware Secretary of State a
certificate of designation defining the rights and preferences of each
such series.
WARRANTS
In October, 1995, the Company issued warrants for the purchase of 30,000
shares of Common Stock, at a purchase price of $1.50 per share. In May,
1996, as part of a private offering of securities, the Company issued
warrants for the purchase of 50,000 shares of Common Stock at a purchase
price of $3.25 per share, and 283,333 shares of Common Stock at a purchase
price of $6.25 per share. As of May 1, 1998, no warrants have been
exercised.
OPTIONS
During fiscal 1997, options to acquire 500,000 shares of Common Stock
were granted to Mark Doumani, an officer of the Company. These options may
be exercised for a price of $1.00 per share and expire on March 31, 2006.
None of these options has been exercised as of May 1, 1998.
IR PLAN. On July 29, 1997, the Board of Directors adopted a stock
option plan for IRs (the "IR Plan"), which was approved by the stockholders
on August 16, 1997. Pursuant to the IR Plan, the Company may grant options
to IRs for the purchase of the Company's Common Stock on the basis of
performance by such IRs. Under the IR Plan's guidelines (which may be
overridden by the Company's Board of Directors), weekly commissions of from
$2,250 to $4,499 will result in the issuance of stock options to purchase 250
shares of Common Stock, weekly commissions of from $4,500 to $6,749 will
result in the issuance of stock options to purchase for 500 shares of Common
Stock, and weekly commissions of $6,750 or more will result in the issuance
of stock options to purchase for 1,000 shares of Common Stock. Under the IR
Plan's guidelines, for each set of options granted, 25% will vest after two
years from the date of grant, 25% will vest after three years from the date
of grant, and the remaining fifty% will vest after four years from the date
of grant. The exercise price of the options will be determined by the
Company at the time of the grant but will be no less than the fair market
value of the Company's Common Stock at the time of the grant. Unless
specified otherwise by the Company at the time of the grant, all rights to
exercise these options shall terminate if the optionee ceases to be an IR of
the Company (except in certain cases of death or disability).
Prior to the adoption of the IR Plan, the Company had granted options to
certain IRs. On July 29, 1997, the Company's Board of Directors incorporated
into the IR Plan all of the options previously granted to IRs on the original
terms and conditions. As of May 1, 1998, The Company has reserved up to
2,900,000
31
<PAGE>
shares of Common Stock for issuance under the IR Plan, and the Company's
Board of Directors has granted options to purchase 630,350 shares of Common
Stock under the IR Plan. Of such options granted, none has vested. 433,050
of such options have expired or terminated. The Company has granted these
options at exercise prices ranging from $0.5625 to $15.00. See "Description of
Securities."
1997 STOCK OPTION PLAN. As of July 29, 1997, the Company's Board of
Directors approved a 1997 Stock Option Plan (the "Stock Option Plan"), and
was approved by the shareholders on August 16, 1997. The Company has
reserved for issuance thereunder an aggregate of 2,000,000 shares of Common
Stock. The Stock Option Plan provides for the grant to employees of the
Company of incentive stock options within the meaning of Section 422 of the
Code, and for the grant to employees and consultants of nonstatutory stock
options. The description of the 1997 Stock Option Plan is intended to be a
summary of the material provisions of the Stock Option Plan and does not
purport to be complete.
GENERAL. The general purposes of the Stock Option Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants
of the Company and to promote the success of the Company's business. It is
intended that these purposes will be effected through the granting of stock
options, which may be either "incentive stock options" as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options.
The Stock Option Plan provides that options may be granted to the
employees (including officers and directors who are employees) and
consultants of the Company, or of any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. An employee or
consultant who has been granted an option may, if otherwise eligible, be
granted additional options. The Company has not granted any options to
purchase shares of Common Stock under the Stock Option Plan.
ADMINISTRATION OF AND ELIGIBILITY UNDER STOCK OPTION PLAN. The Stock
Option Plan, as adopted, provides for the issuance of options to purchase
shares of Common Stock to officers, directors, employees, independent
contractors and consultants of the Company and its subsidiaries as an
incentive to remain in the employ of or to provide services to the Company
and its subsidiaries. The Stock Option Plan authorizes the issuance of
incentive stock options ("ISOs"), non-qualified stock options ("NSOs") and
stock appreciation rights ("SARs") to be granted by a committee (the
"Committee") to be established by the Board of Directors to administer the
Stock Option Plan, which will consist of at least two (2) outside directors
of the Company.
Subject to the terms and conditions of the Stock Option Plan, the
Committee will have the sole authority to determine: (a) the persons
("optionees") to whom options to purchase shares of Common Stock and SARs
will be granted, (b) the number of options and SARs to be granted to each
such optionee, (c) the price to be paid for each share of Common Stock upon
the exercise of each option, (d) the period within which each option and SAR
will be exercised and any extensions thereof, and (e) the terms and
conditions of each such stock option agreement and SAR agreement which may be
entered into between the Company and any such optionee.
All officers, directors and employees of the Company and its
subsidiaries and certain consultants and other persons providing significant
services to the Company and its subsidiaries will be eligible to receive
grants of options and SARs under the Stock Option Plan. However, only
employees of the Company and its subsidiaries are eligible to be granted ISOs.
STOCK OPTION AGREEMENTS. All options granted under the Stock Option
Plan will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the Stock Option Plan need not be identical and
may include
32
<PAGE>
any term or condition which is not inconsistent with the Stock Option Plan
and which the Committee deems appropriate for inclusion.
INCENTIVE STOCK OPTIONS. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of
all classes of the securities of the Company or its subsidiaries to whom such
ownership is attributed on the date of grant ("Ten Percent Stockholders"),
the exercise price of each ISO must be at least one hundred percent (100%) of
the fair market value of the Company's Common Stock as determined on the date
of grant. ISOs granted to Ten Percent Stockholders must be at an exercise
price of not less than one hundred ten percent (110%) of such fair market
value.
Each ISO must be exercised, if at all, within ten (10) years from the
date of grant, but, within five (5) years of the date of grant in the case of
ISO's granted to Ten percent Stockholders. An optionee of an ISO may not
exercise an ISO granted under the Stock Option Plan so long as such person
holds a previously granted and unexercised ISO. The aggregate fair market
value (determined at time of the grant of the ISO) of the Common Stock with
respect to which the ISOs are exercisable for the first time by the optionee
during any calendar year shall not exceed $100,000.
As of the date of this Registration Statement, no ISO's have been
granted.
NON-QUALIFIED STOCK OPTIONS. The exercise price of each NSO will be
determined by the Committee on the date of grant. The Company hereby
undertakes not to grant any non-qualified stock options under the Stock
Option Plan at an exercise price less than eighty five percent (85%) of the
fair market value of the Common Stock on the date of grant of any
non-qualified stock option under the Stock Option Plan. The exercise period
for each NSO will be determined by the Committee at the time such option is
granted, but in no event will such exercise period exceed ten (10) years from
the date of grant. As of the date of this Registration Statement no NSO's
have been granted.
STOCK APPRECIATION RIGHTS. Each SAR granted under the Stock Option Plan
will entitle the holder thereof, upon the exercise of the SAR, to receive
from the Company, in exchange therefor, an amount equal in value to the
excess of the fair market value of the Common Stock on the date of exercise
of one share of Common Stock over its fair market value on the date of
exercise of one share of Common Stock over its fair market value on the date
of grant (or in the case of an SAR granted in connection with an option, the
excess of the fair market of one share of Common Stock at the time of
exercise over the option exercise price per share under the option to which
the SAR relates), multiplied by the number of shares of Common Stock covered
by the SAR or the option, or portion thereof, that is surrendered.
SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will
be exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under
the Stock Option Plan at any time and may impose any conditions upon the
exercise of an SAR or adopt rules and regulations from time to time affecting
the rights of holders of SARs. As of the date of this Registration
Statement, no SAR's have been granted.
TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under the Stock Option Plan will terminate: (a) in
the event of death or disability, pursuant to the terms of the option
agreement or SAR agreement, but not less than six (6) months or more than
twelve (12) months after the applicable date of such event, (b) in the event
of retirement, pursuant to the terms of the option agreement or SAR
agreement, but no less that thirty (30) days or more than three (3) months
after such retirement date, or (c) in the event of termination of such person
other than for death, disability or retirement, until thirty (30) days after
the date of such termination. However, the Committee may in its sole
discretion accelerate the exercisability of any or all options or SARs upon
termination of employment or cessation of services. The
33
<PAGE>
options and SARs granted under the Stock Option Plan generally will be
non-transferable, except by will or the laws of descent and distribution.
ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION. The number of
shares of Common Stock reserved under the Stock Option Plan and the number
and price of shares of Common Stock covered by each outstanding option or SAR
under the Stock Option Plan will be proportionately adjusted by the Committee
for any increase or decrease in the number of issued and outstanding shares
of Common Stock resulting from any stock dividends, split-ups,
consolidations, recapitalizations, reorganizations or like event.
AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLAN. The Board of
Directors has the right to amend, suspend or terminate the Stock Option Plan
at any time. Unless sooner terminated by the Board of Directors, the Stock
Option Plan will terminate on the tenth anniversary date of the effectiveness
of the Stock Option Plan.
SUPERMAJORITY REQUIRED FOR AMENDMENT. In order to insure that the
substantive provisions set forth in the Certificate of Incorporation are not
circumvented by the amendment of such Certificate of Incorporation pursuant
to a vote of a majority of the voting power of the Company's outstanding
shares, the Certificate of Incorporation also provides that any amendment,
change or repeal of the provisions contained in the Certificate of
Incorporation with respect to: (i) the Company's capitalization, (ii)
amendment of the Bylaws, (iii) determination by the Board of the number of
directors, (iv) filling Board vacancies, (v) the requirement that stockholder
action be taken at an annual or special meeting, (vi) requirements with
respect to appraisal rights for stockholders, or (vii) the amendment of the
provision imposing such supermajority requirement for amendment of the
Certificate of Incorporation, shall require the affirmative vote of the
holders of at least 66 2/3% of the voting power of all outstanding shares of
voting stock, including, in any instance where the repeal or amendment is
proposed by an interested stockholder (as such term is defined in Section 203
of the Delaware General Corporation Law) or its affiliate or associate, the
affirmative vote of a majority of the voting power of all outstanding shares
of voting stock held by persons other than such interested stockholder or its
affiliates or associates. However, only the affirmative vote of the majority
of the voting power of all outstanding shares of voting stock is required if
the amendment of any of the foregoing provisions is approved by a majority of
the Continuing Directors (as such term is defined in the Certificate of
Incorporation).
The Certificate of Incorporation permits the Board of Directors to
adopt, amend or repeal any or all of the Company's bylaws without stockholder
action and provide that such bylaws may also be adopted, amended or repealed
by its stockholders, but only if approved by holders of 66 2/3% or more of
the voting power of all outstanding shares of voting stock, including in any
instance in which the alteration is proposed by an interested stockholder or
by affiliates or associate of any interested stockholder, the affirmative
vote of the holders of at least a majority of voting power of all outstanding
shares of voting stock held by persons other than the interested stockholder
who proposed such action. However, the only stockholder vote required if the
modification is approved by a majority of the continuing directors is the
affirmative vote of the majority of the voting power of all outstanding
shares of voting stock.
34
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
As of May 1, 1998, the authorized capital stock of the Company consisted
of 70,000,000 shares of common stock, par value $0.001 per share (the "Common
Stock") and 5,000,000 shares of preferred stock, par value $0.001 per share
(the "Preferred Stock"). As of May 1, 1998, there were issued and
outstanding 36,480,981 shares of Common Stock and options to purchase 697,300
shares of Common Stock. Further, the Company has issued and outstanding
warrants to purchase up to 363,333 shares of Common Stock.
The Company's Common Stock is listed for trading in the over-the-counter
market and is quoted on the NASD Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc. under the symbol "NETW."
The following table sets forth quotations for the bid and asked prices for
the Common Stock for the periods indicated below, based upon quotations
between dealers, without adjustments for stock splits, dividends, retail
mark-ups, mark-downs or commissions, and therefore, may not represent actual
transactions:
<TABLE>
<CAPTION>
BID PRICES ASKED PRICES
------------------ -----------------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDED JUNE 30, 1996
<S> <C> <C> <C> <C>
3rd Quarter. . . . . . . . . . . . . . . . . . . . 4.625 2.25 5.0 2.75
4th Quarter. . . . . . . . . . . . . . . . . . . . 6.75 4.375 7.125 4.75
YEAR ENDED JUNE 30, 1997
1st Quarter. . . . . . . . . . . . . . . . . . . . 15.0 6.875 16.0 7.25
2nd Quarter. . . . . . . . . . . . . . . . . . . . 8.25 3.5 8.625 3.75
3rd Quarter. . . . . . . . . . . . . . . . . . . . 7.75 2.75 8.5 3.0
4th Quarter. . . . . . . . . . . . . . . . . . . . 3.9375 0.05625 4.0625 0.625
YEAR ENDED JUNE 30, 1998
1st Quarter. . . . . . . . . . . . . . . . . . . . 2.84375 0.9375 3.0 1.0625
2nd Quarter. . . . . . . . . . . . . . . . . . . . 2.125 1.125 2.3125 1.21875
3rd Quarter. . . . . . . . . . . . . . . . . . . . 1.125 0.5625 1.21875 0.6875
</TABLE>
The bid and asked sales prices of the Common Stock, as traded in the
over-the-counter market, on May 6, 1998, were approximately $0.5625 and
$0.625, respectively.
No dividend has been declared or paid by the Company since inception.
The Company does not anticipate that any dividends will be declared or paid
in the future.
The transfer agent for the Company is Interwest Transfer Company, 1981
East South, #100, Salt Lake City, Utah 84117, telephone 801-272-9294.
ITEM 2. LEGAL PROCEEDINGS.
ALVERSON/PAISLEY LITIGATION. On August 15, 1997, the Company filed suit
in the Superior Court of California, Orange County, Case No. 783061, against
certain former officers and directors of the Company and
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others identified therein (collectively, the "Defendants") who are affiliated
with and/or assisted them in the acts which are the subject of the action.
The Defendants include William Montgomery Alverson and Dale Paisley, the
former president and chief financial officer of the Company, respectively.
The Company alleges that the Defendants participated in a conspiracy to
acquire large blocks of common stock of the Company for little or no
consideration, and committed other acts in violation of their fiduciary duty
and the doctrine of corporate opportunity.
The Complaint alleges that Alverson, Paisley, and the other Defendants,
combined and conspired to locate a public shell corporation for merger or
reorganization with TMax-California; to obtain a significant inside interest
in the merged or reorganization entity; to control an entity which they could
use to raise significant capital; and to give them an entity they could use
as a subterfuge to obtain money and property for their sole benefit. The
Complaint further alleges that as a part thereof, the Defendants approved and
ratified a Plan of Reorganization (the "Plan of Reorganization") by and
between BullEk Utah and TMax-California, pursuant to which the shareholders
of TMax-California exchanged their stock for stock of BullEk Utah and
TMax-California became a wholly owned subsidiary of BullEk Utah, which
changed its name to TMax-Utah. The Complaint also alleges that as part of the
Plan of Reorganization, the stock of BullEk Florida, a wholly owned
subsidiary of BullEk Utah and the only asset and sole business operation of
BullEk Utah, was transferred to Robert F. Bullard ("Bullard") and Ronald C.
Eken ("Eken") for no consideration, thus resulting in Bullard and Eken
receiving all of the BullEk Utah operations and assets valued at a net of
$261,271. It additionally alleges that in exchange for allowing Bullard and
Eken to take all of the operations and assets of BullEk Utah, with no
consideration to BullEk Utah or TMax-California, Bullard and Eken secretly
transferred their majority ownership and control of BullEk Utah stock to the
Defendants.
The Complaint alleges that following completion of the Plan of
Reorganization, the Defendants continued to carry out their plan by
illegally causing the Bullard and Eken shares obtained by them in the
Reorganization, which should have been restricted, to be sold into the
open-market as free trading shares. It alleges that during the period from
December 15, 1995 to April 15, 1997, the Defendants obtained between $750,000
and $12,000,000 as a result of selling such shares into the open market, and
that they used said funds for their own personal benefit and gain. The
Complaint also alleges that the Defendants caused private placements of the
Company's common stock to be sold by Defendants who acted in the capacity of
a broker-dealer, but were not licensed to so act. It further alleges that
the Defendants caused commissions to be paid to said unlicensed broker-dealer
Defendants in violation of applicable laws. Additional allegations in the
Complaint are that Alverson, Paisley and others used American Express
corporate credit cards, in the name of the Company, for their personal
benefit.
The Complaint alleges that on or about February 16, 1996, Alverson,
Paisley and other Defendants caused Worcester Investment Corporation
("Worcester") to execute a subscription agreement for the purchase of 572,000
shares of allegedly free trading common stock from TMax-Utah (the "Worcester
Shares") for the stated total price of $1,000,000; that said per share price
of approximately $1.75 was only 25% of the then current market price of the
common stock of TMax-Utah; that neither Worcester nor any other party ever
paid for said shares; that said shares were purportedly issued to Worcester
pursuant to an exemption from registration pursuant to Rule 504; that a
portion of said shares were transferred from Worcester to one of the other
individual defendants; that said shares were improperly and illegally issued;
that none of the said shares was free trading; that Worcester was an
affiliate of TMax-Utah; that the Rule 504 exemption was not available; and
that the Defendants illegally sold some of said shares into the market for
their personal benefit and gain. The Complaint alleges that Worcester is a
Cayman Islands corporation, owned by and/or under the control of Alverson and
Paisley.
The Complaint further alleges that on or about September 30, 1996,
Alverson, Paisley and other Defendants caused the Company to form Associated
Resources International, Inc. ("ARI"), using the Company's capital and assets
to structure and build ARI into a viable subsidiary of the Company; that soon
after ARI became viable, they caused the Company to sell ARI to Worcester,
purportedly for $650,000; that
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if any funds were actually paid to the Company by Worcester for ARI, said
funds were acquired by Worcester through the sale of the wrongfully obtained
stock of the Company as alleged in the Complaint and rightfully belonged to
the Company.
The Complaint also includes a claim for declaratory relief, seeking a
finding that the shares of the Company's stock wrongfully received by the
Defendants as alleged in the Complaint should be cancelled, along with
certain shares received in what is alleged to be an illegal forward split of
shares. With respect to the alleged illegal forward split of shares, the
Complaint alleges that TMax-California was authorized by its articles of
incorporation (the "Articles") to issue a total of one million shares of its
capital stock; that on or about July 17, 1995, TMax-California, in exchange
for unspecified pre-incorporation services allegedly rendered to TravelMax
California, issued 107,900 shares to Alverson, 10,000 shares to Paisley, and
42,000 shares to Matthew Lothian ("Lothian"), an individual defendant
(collectively, the "Incorporation Shares"); that on or about August 25, 1995,
TMax-California initiated its initial private sale ("Initial Private
Placement") of shares of TMax-California; that during the period of August
25, 1995 to December 1995 (the"Period"), TMax-California sold, pursuant to
its Initial Private Placement, approximately 956,938 shares to approximately
100 separate investors, raising approximately $1,000,000; that during the
Period, in an effort to continue to exercise effective voting control over
TMax-California and avoid the effects of the dilution caused by the shares
issued pursuant to the Initial Private Placement, Alverson, Paisley and
Lothian caused TMax-California to execute a series of forward stock splits
(collectively, the "Stock Splits") of their Incorporation Shares; that
Alverson, Paisley and Lothian limited the benefits of the Stock Splits to
themselves and three other individuals and one related entity; that in
connection with and as a result of the Stock Splits, Alverson was issued an
additional 971,100 shares, Paisley was issued an additional 90,000 shares and
Lothian was issued an additional 378,000 shares (collectively, the "Stock
Split Shares"); that all of the Stock Split Shares were issued unlawfully and
improperly in that inadequate and/or no consideration was paid to
TMax-California for the Split Stock Shares, the issuance of the Stock Split
Shares caused TMax-California to exceed the number of shares it was
authorized to issue pursuant to its Articles, no amendments to the Articles
authorizing the Stock Split Shares or an increase in the number of authorized
shares was filed with the Secretary of State of California thereby causing
the Stock Splits and the issuance of the Stock Split Shares to be in
violation of California Law and ineffective, and investors in the Initial
Private Placement were, according to California precedent, improperly and
unfairly excluded from the benefits of the Stock Splits; that these
unlawfully and improperly issued Stock Split Shares were exchanged in the
Reorganization for an equal number of shares of TMax-Utah ("Reorganization
Split Shares"), resulting in these Reorganization Split Shares being
unlawfully and improperly issued.
One group of defendants, Thomas E. Stepp, Jr. and White and Stepp LLP,
former counsel to the Company, filed a cross-complaint on December 16, 1997,
stating claims for express indemnity, comparative indemnity and declaratory
relief. Because only preliminary discovery has taken place with respect to
issues raised in the cross-complaint, it is not possible to assess the
likelihood of a favorable or unfavorable result with respect thereto. In
discussions, some of the other defendants have stated that they may file
cross-complaints. They have been vague as to the nature thereof, and thus it
is not possible to assess the likelihood of a favorable or unfavorable
outcome with respect thereto.
BORG-WARNER LITIGATION. Borg-Warner Security Corporation sued the
Company and a California corporation known as Promaxx in the Orange County
Superior Court, Case Number 771503, for breach of a written contract, dated
June 18, 1996, whereby Borg-Warner sold tickets to Promaxx for the Atlanta
1996 Olympic games. Plaintiff alleged that since the Company was paying for
the expenses of Promaxx at the time of the written agreement to purchase the
Olympic tickets--in anticipation of the company purchasing Promaxx--and since
the Company sent two checks for downpayment on the tickets directly to
Borg-Warner, the Company should be jointly/severally liable, with Promaxx, to
Borg-Warner. Even though the Company and Promaxx never entered into an
agreement, Borg-Warner recovered against the Company as a "joint venturer"
with Promaxx, in the amount of $524,000 plus 5% interest from June 18, 1996
and continuing until paid. The
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Company filed an appeal in the California Court of Appeal, Fourth District,
Division 3, on March 5, 1998. The Company asked the Court of Appeal,
pursuant to its settlement conference program, for a settlement conference
with Borg-Warner. Should the Company be required to pay the amount of the
judgment, this could have a material adverse effect upon the Company.
STATE OF KENTUCKY LITIGATION. In October, 1996, the State of Kentucky
filed a civil suit (Case No. 96CI05809) against the Company, in Jefferson
County Circuit Court, alleging that the Company was operating an illegal
pyramid scheme in that state. Plaintiff obtained a temporary restraining
order which stopped business activities of the Company in Kentucky. This
order was lifted in January, 1997, after a hearing in which the Court found
that the Attorney General had failed to meet its burden that the Company was
engaged in such a scheme. At present, the Company is permitted to do
business in Kentucky but has chosen not to do so until the litigation has
been resolved. The suit is still pending, and the Company is currently
negotiating with the Attorney General to resolve the dispute. No assurance
can be given that a settlement will be reached and if reached that the
Company will be able to resume business in the State of Kentucky.
CHARITABLE FOUNDATION. TMax Foundation was incorporated by the Company
in 1996 to provide a vehicle through which IRs were able to allocate a
portion of their earnings for charitable purposes. The amounts so allocated
were to be paid to TMax Foundation, which would then distribute the correct
amounts to the appropriate charities. TMax Foundation was qualified as a
charitable corporation under federal and California law. Certain amounts
were so allocated by IRs, but the Company did not deliver them to TMax
Foundation. The records of TMax have been under examination by the
California Attorney General, and the Company is attempting to resolve this
matter by paying the amounts so allocated, on an installment basis, to
qualified charitable organizations and then to liquidate TMax Foundation. See
"Management's Discussion and Analysis or Plan of Operation" and "Financial
Statement."
CHARITY CONSULTANT TUTORIALS. The Company has sold a total of 5400
Charity Consultant Tutorials for the provision of charity consultant
services, of which nearly one quarter have been returned for refunds. The
Company is developing a much more comprehensive tutorial on this subject
which, in its judgment, corrects all of the failings of the old program. The
Company intends to provide the new program at a steeply discounted price to
the remaining 3600 purchasers of the new program. No assurance can be given,
however, that the Company will not be faced with claims for refunds from most
or all of the remaining 3600 purchasers of the old program. See
"Management's Discussion and Analysis or Plan of Operation" and "Financial
Statement."
POTENTIAL SALES TAX LIABILITY. At least one state has claimed that the
Company has been liable for sales taxes on sales of products made to
residents of that state. After discussions with the State of Washington, the
Company paid an accumulated amount claimed by that State and is now
collecting and paying over such sales taxes currently. Since the Company's
principal place of operations is in California, it has withheld and paid
sales taxes to that state. Although there has been no formal claim for sales
taxes in other states in which IRs of the Company has sold products, no
assurance can be given that the Company will not be liable for significant
payments to other states. The Company has reserved for this potential
liability on its financial statement. See " Management's Discussion and
Analysis or Plan of Operation."
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
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ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On July 17, 1995, TMax-California issued to 7 individuals 417,000 shares
of its common stock for past services purportedly rendered. The shares
issued were valued at $0.76 per share. In addition, 66,200 shares were
issued to one individual in exchange for an investment of $50,000 in cash at
a purchase price of $0.76 per share.
On December 5, 1995, the Board of Directors of TMax-California
purportedly effectuated a forward stock split of some of the then outstanding
shares of TMax-California's issued and outstanding shares of common stock
purportedly, increasing the number of issued and outstanding shares of
TMax-California from 1,000,000 to 5,000,000. This attempted forward stock
split was never legally effectuated, in that the legal formalities of the
stock split were never perfected and the purported forward stock split only
applied to certain TMax-California shareholders, not all TMax-California
shareholders. Furthermore, the number of shares of TMax-California
authorized by the Articles of Incorporation of TMax-California were
1,000,000, a number substantially less then the number purportedly to be
issued and outstanding by TMax-California following the purported forward
stock split. On December 7, 1995, TMax-California purported to issue 547,500
shares of its common stock to 13 people and entities, which issuances appear
to have been made in respect of services.
In December, 1995, pursuant to the Share Exchange Agreement, all of the
common stock of TMax-California was acquired by BullEk Utah and BullEk Utah
issued to the then shareholders of TMax-California, a total of 18
shareholders, 4,672,500 shares of BullEk Utah common stock. In the Share
Exchange, the shareholders of TMax-California received one share of BullEk
Utah common stock for each share of TMax-California common stock purportedly
owned by such TMax-California shareholders. Immediately prior to the
effectiveness of the Share Exchange, a reverse stock split was effectuated by
BullEk Utah on a one-for-six basis, reducing the total number of issued and
outstanding shares of BullEk Utah from 13,200,000 to 2,220,000. See "Legal
Proceedings."
In February, 1996, the Company issued 572,000 shares of Common Stock, at
a purported price of $1,000,000, to Worcester, which the Company believes is
and was then an affiliate of Alverson, Paisley and others. The Company does
not believe that it received any consideration for the shares delivered to
Worcester.
In May, 1996, the Company sold 333,333 Units of its securities, each
Unit consisting of one share of Common Stock and one common stock purchase
warrant for gross proceeds of $1,000,000 at a purchase price per Unit of
$3.33.
In December, 1996, the Company sold 1,864,292 shares of its Common Stock
for gross proceeds of $3,631,673.
With respect to the above issuances of stock, certain amounts may have
been paid by the Company as commissions for such sales.
On April 24, 1997, the Company, Paisley, Alverson and Guest, entered
into the Management Agreement, with the Principal Shareholders, who were then
unaffiliated third parties to the Company. The purpose of the Management
Agreement was to induce Messrs. Baetz and Gallant to recapitalize and to
restart operations of the Company. Pursuant to the terms of the Management
Agreement, Messrs. Baetz and Gallant acquired 25,863,354 newly-issued shares
of the Company's Common Stock, constituting 70.8% of such Common Stock.
All of the offerings referenced above were conducted by prior management
of the Company. As of the date of the filing of this Registration Statement
none of the former officers and directors of the Company or TMax-California,
who were responsible for the transactions discussed in this Section of the
Registration
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Statement are officers and directors of the Company. The only association
between the former officers and directors of the Company and the Company, as
of the date of this Registration Statement, is that of shareholder.
Certain of the offerings referenced above may have involved violations
of the Act and various other statutes designed to regulate the offer and sale
of securities both in interstate commerce and within certain states may have
occurred. The Company did not and does not have the ability to refund the
amounts invested by such investors. Rights of purchasers of securities of
the Company to rescission or other forms of remedies or damages will not be
relinquished until applicable statutes of limitations will have lapsed.
Further, various regulatory agencies, may bring legal actions against the
former officers and directors of the Company and others who helped raise
money and make the offerings conducted by TMax-California and the Company.
Any legal action on the part of a purchaser of securities of the Company or
one or more of such regulatory agencies may have a material adverse effect on
the ability of the Company to effectuate its intended business plan and could
result in Century foreclosing on its security interest that has been created
in connection with the loans made to the Company by Century, which as of the
date of this Registration Statement total approximately $8,700,000. See
"Certain Relationships and Related Transactions."
Between the inception of TMax-California and April, 1997, the Company
granted options to certain IRs to acquire shares of Common Stock. On July
29, 1997, the Company's Board of Directors incorporated into the IR Plan all
of the options previously granted to IRs on the original terms and conditions
by prior management. As of May 1, 1998, The Company's Board of Directors has
granted options to purchase 630,350 shares of Common Stock under the IR Plan.
Of such options granted, none has vested. 433,050 of such options have
expired or terminated. The Company has granted these options at exercise
prices ranging from $0.5625 to $15.00. See "Description of Securities."
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses, including amounts paid in
settlement and attorney's fees actually and reasonably incurred by him or her
in connection with the defense or settlement of the action or suit if he or
she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim,
issue or matter therein, he or she must be indemnified by the corporation
against expenses, including attorney's fees, actually and reasonably incurred
by him in connection with the defense. Any indemnification under this
section, unless ordered by a court or advanced pursuant to this section, must
be made by the corporation only
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as authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances.
The determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or
proceeding so orders, by independent legal counsel in a written opinion; or
(d) if a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
The certificate of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by
the corporation as they are incurred and in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by the corporation. The provisions of this
section do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under
any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section: (a) does not exclude any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under the certificate of incorporation or any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, for either an action
in his or her official capacity or an action in another capacity while
holding his or her office, except that indemnification, unless ordered by a
court pursuant to this section or for the advancement of any director or
officer if a final adjudication establishes that his or her acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and
was material to the cause of action; and (b) continues for a person who has
ceased to be a director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
On August 16, 1997, the stockholders of the Company approved a form of
indemnification agreement ("Indemnification Agreement") to be entered into
with each of the Company's directors. All current officers and directors of
the Company and its subsidiaries have executed Indemnification Agreements
with the Company. These agreements include the following provisions:
First, in the event an action is instituted by the person who is
indemnified under the Indemnification Agreement ("Indemnitee") to enforce or
interpret any of the terms therein, Indemnitee shall be entitled to be paid
all costs and expenses, including reasonable attorneys' fees, incurred by the
Indemnitee with respect to such action, unless as a part or such action, a
court of competent jurisdiction determines that each of the material
assertions made by the Indemnitee were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the
Company under the Indemnification Agreement or to enforce or interpret any of
the terms therein, the Indemnitee shall be entitled to be paid all costs and
expenses, including reasonable attorneys' fees, incurred by the Indemnitee in
the defense of such action, unless as a part of such action the court
determines that each of the Indemnitee's material defenses to such action
were made in bad faith or were frivolous.
Second, the Indemnification Agreements explicitly provide for partial
indemnification of costs and expenses in the event that an Indemnitee is not
entitled to full indemnification under the terms of the Indemnification
Agreements.
Third, in the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company shall be entitled to
assume the defense of such proceeding, with counsel approved by the
indemnified party, which approval shall not be unreasonably withheld, upon
the delivery to the
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Indemnitee of written notice of its election to do so. The Company shall
have the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee without the
consent of the Indemnitee.
Fourth, indemnification provided by the Indemnification Agreements is
not exclusive of any rights to which the Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote
of stockholders or disinterested directors, or otherwise. The
indemnification provided under the Indemnification Agreements continues for
any action taken or not taken while serving in an indemnified capacity even
though the Indemnitee may have ceased to serve in such capacity at the time
of the action, suit or other covered proceeding.
Finally, the Indemnification Agreements provide for certain exceptions
to indemnification which include the following: (a) indemnification for
liabilities where the law prohibits indemnification; (b) indemnification or
advancement of expenses with respect to proceedings or claims initiated or
brought voluntarily by an Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under the Indemnification Agreements or any statute or law or
otherwise as required under Delaware law; and (c) indemnification for
expenses in the payment of profits arising from the purchase and sale by the
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar or successor statute.
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PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
43
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Agreement of Merger of TMax Utah and the Company.
3.1 Certificate of Incorporation.
3.2 Bylaws.
10.1 Form of Indemnification Agreement.
10.2 Stock Option Plan.
10.3 Independent Representatives Stock Option Plan.
10.4 Lease for Property at 3388 Via Lido, Newport Beach, CA 92663
10.5 Lease for property at 2701 West Oakland Park Blvd, Suite 103, Ft.
Lauderdale FL 33311
10.6 Lease for property at 2701 West Oakland Park Blvd, Suite 305, Ft.
Lauderdale FL 33311
10.7 Management Agreement
10.8 Agreement for Acquisition of Assets from Jetaway.
10.9 Employment Agreement with Larry Michaels.
27.1 Financial Data Schedule.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
NETWORK HOLDINGS INTERNATIONAL, INC.
Dated: May 13, 1998 By: /s/ JAMES C. HEALY
-----------------------
James C. Healy,
Executive Vice-President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Dated: May 13, 1998 By: /s/ C. DEAN HOFMEISTER
-------------------------
C. Dean Hofmeister
Chairman of the Board of
Directors
Dated: May 13, 1998 By: /s/ DOUGLAS R. BAETZ
-------------------------
Douglas R. Baetz
Director
Dated: May 13, 1998 By: /s/ GLENN M. GALLANT
-------------------------
Glenn M. Gallant
Director
Dated: May 13, 1998 By: /s/ JOSEPH F. EWART
-------------------------
Joseph F. Ewart
Director
Dated: May 13, 1998 By: /s/ JAMES C. HEALY
-------------------------
James C. Healy
Director
45
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NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1997 AND 1996
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 (UNAUDITED)
Network Holdings International Dec97 Rev #8142 5/14/98
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONTENTS
JUNE 30, 1997 AND 1996, AND DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Operations 4 - 5
Consolidated Statements of Stockholders' Deficit 6 - 7
Consolidated Statements of Cash Flows 8 - 9
Notes to Consolidated Financial Statements 10 - 31
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Network Holdings International, Inc.
We have audited the accompanying consolidated balance sheets of Network
Holdings International, Inc. and subsidiary as of June 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Network
Holdings International, Inc. and subsidiary as of June 30, 1997 and 1996, and
the consolidated results of their operations and their consolidated cash
flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
consolidated financial statements, the Company incurred a net loss of
$13,726,583 and $4,561,041 during the years ended June 30, 1997 and 1996,
respectively. As of June 30, 1997, the Company's current liabilities
exceeded its current assets by $10,968,075, and its total liabilities
exceeded its total assets by $9,394,022. In addition, there is uncertainty
regarding pending litigation and a potential stock rescission as discussed in
Note 13. These factors, among others, as described in Notes 2 and 13 to the
consolidated financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 8, 1998
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996 AND DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS (Note 7)
June 30,
December 31, ------------------------
1997 1997 1996
----------- --------- ----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $56,390 $63,605 $783,877
Other receivables (Note 4) 107,845 14,327 31,908
Inventories (Note 3) 625,277 208,988 292,547
Prepaid expenses 10,134 10,600 -
----------- ---------- ----------
Total current assets 799,646 297,520 1,108,332
----------- ---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization (Note 6) 1,446,129 1,502,688 508,854
----------- ---------- ----------
OTHER ASSETS
Restricted cash (Note 5) 70,009 70,009 -
Deposits 4,041 1,356 -
----------- ---------- ----------
Total other assets 74,050 71,365 -
----------- ---------- ----------
TOTAL ASSETS $2,319,825 $1,871,573 $1,617,186
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1997 AND 1996 AND DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30,
December 31, --------------------------
1997 1997 1996
----------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $2,860,186 $2,284,418 $1,018,473
Accrued expenses (Note 8) 5,382,382 6,791,466 1,645,897
Line of credit (Note 7) 5,791,711 2,189,711 -
Current portion of note payable (Note 7) 552,500 - -
----------- ---------- ----------
Total current liabilities 14,586,779 11,265,595 2,664,370
NOTE PAYABLE, net of current portion (Note 7) 212,500 - -
----------- ---------- ----------
Total liabilities 14,799,279 11,265,595 2,664,370
----------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' DEFICIT (Note 10)
Common stock, $.001 par value
70,000,000 shares authorized
36,512,481 (unaudited), 10,649,127, and
8,784,835 shares issued and outstanding 36,512 10,649 8,785
Treasury stock, 6,500 shares at cost (24,688) (24,688) -
Additional paid-in capital 8,893,038 8,907,641 3,505,072
Accumulated deficit (21,384,316) (18,287,624) (4,561,041)
----------- ---------- ----------
Total stockholders' deficit (12,479,454) (9,394,022) (1,047,184)
----------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $2,319,825 $1,871,573 $1,617,186
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------------- ---------------------------
1997 1996 1997 1996
---------- ----------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $865,578 $17,091,528 $20,539,549 $8,601,370
COST OF SALES 159,234 1,746,549 2,259,112 1,143,614
---------- ----------- ----------- ----------
GROSS PROFIT 706,344 15,344,979 18,280,437 7,457,756
---------- ----------- ----------- ----------
OPERATING EXPENSES
Selling, general, and administrative
expenses 3,531,465 21,584,598 29,822,269 10,976,689
Cancellation of operating leases
(Note 13) - - 891,287 -
Provision for loss on investment in
subsidiary (Note 5) - 273,926 342,289 50,172
Provision for loss on management
receivables (Note 4) - 517,511 686,275 989,978
---------- ----------- ----------- ----------
Total operating expenses 3,531,465 22,376,035 31,742,120 12,016,839
---------- ----------- ----------- ----------
LOSS FROM OPERATIONS (2,825,121) (7,031,056) (13,461,683) (4,559,083)
---------- ----------- ----------- ----------
OTHER INCOME (EXPENSE)
Interest income 1,152 4,518 3,992 1,342
Interest expense (272,723) (13,102) (42,074) (3,058)
Loss on disposal of assets - - (226,575) -
---------- ----------- ----------- ----------
Total other income (expense) (271,571) (8,584) (264,657) (1,716)
---------- ----------- ----------- ----------
LOSS BEFORE PROVISION FOR INCOME
TAXES (3,096,692) (7,039,640) (13,726,340) (4,560,799)
PROVISION FOR INCOME TAXES
(Note 11) - - 243 242
---------- ----------- ----------- ----------
NET LOSS $(3,096,692) $(7,039,640) $(13,726,583) $(4,561,041)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
LOSS PER SHARE
BASIC $ (0.09) $ (0.78) $ (1.42) $ (0.75)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
DILUTED $ (0.09) $ (0.78) $ (1.42) $ (0.75)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING 33,544,555 8,986,076 9,793,514 6,076,012
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Treasury Paid-In Accumulated
Shares Amount Stock Capital Deficit Total
---------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1,
1995 - $ - $ - $ - $ - $ -
ISSUANCE OF
COMMON STOCK 8,784,835 8,785 3,353,322 3,362,107
ISSUANCE OF STOCK
OPTIONS TO
INDEPENDENT
REPRESENTATIVES
(Note 9) 151,750 151,750
NET LOSS (4,561,041) (4,561,041)
---------- ---------- --------- --------- ---------- ----------
BALANCE, JUNE 30,
1996 8,784,835 8,785 - 3,505,072 (4,561,041) (1,047,184)
ISSUANCE OF
COMMON STOCK 1,864,292 1,864 4,185,219 4,187,083
ISSUANCE OF STOCK
OPTIONS TO
INDEPENDENT
REPRESENTATIVES
(Note 9) 467,350 467,350
ISSUANCE OF STOCK
OPTIONS TO
EMPLOYEES
(Note 9) 750,000 750,000
ACQUISITION OF
TREASURY STOCK (24,688) (24,688)
NET LOSS (13,726,583) (13,726,583)
---------- ---------- --------- --------- ---------- ----------
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Treasury Paid-In Accumulated
Shares Amount Stock Capital Deficit Total
---------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30,
1997 10,649,127 10,649 (24,688) 8,907,641 (18,287,624) (9,394,022)
ISSUANCE OF COMMON
STOCK (unaudited) 25,863,354 25,863 (25,853) 10
ISSUANCE OF STOCK
OPTIONS TO
INDEPENDENT
REPRESENTATIVES
(Note 9)
(unaudited) 11,250 11,250
NET LOSS (unaudited) (3,096,692) (3,096,692)
---------- ---------- --------- ---------- ------------ ------------
BALANCE, DECEMBER
31, 1997
(UNAUDITED) 36,512,481 $36,512 $(24,688) $8,893,038 $(21,384,316) $(12,479,454)
---------- ---------- --------- ---------- ------------ ------------
---------- ---------- --------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
-------------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,096,692) $(7,039,640) $(13,726,583) $(4,561,041)
Adjustments to reconcile net loss to
net cash used in operating
activities
Issuance of stock options for
compensation 11,250 366,010 1,217,350 151,750
Depreciation and amortization 167,764 118,471 292,610 30,015
Loss on disposal of asset - - 226,575 -
(Increase) decrease in
Receivables (93,518) (2,538,232) 17,581 (31,908)
Inventories (416,289) (392,758) 83,559 (292,547)
Prepaid expenses and other
assets (72,228) (30,128) (81,965) -
Increase (decrease) in
Accounts payable 575,768 398,020 1,265,945 1,018,473
Accrued expenses (1,409,084) 5,748,763 5,145,569 1,645,897
----------- ---------- ---------- ----------
Net cash used in operating activities (4,333,029) (3,369,494) (5,559,359) (2,039,361)
----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and
equipment (111,205) (1,353,859) (1,513,019) (538,869)
----------- ---------- ---------- ----------
Net cash used in investing activities (111,205) (1,353,859) (1,513,019) (538,869)
----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt and
line of credit 4,367,000 - 2,189,711 -
Issuance of common stock 10 4,024,373 4,187,083 3,362,107
Purchase of treasury stock - - (24,688) -
----------- ---------- ---------- ----------
Net cash provided by financing
activities 4,367,010 4,024,373 6,352,106 3,362,107
----------- ---------- ---------- ----------
Net increase (decrease) in cash (77,224) (698,980) (720,272) 783,877
CASH, BEGINNING OF PERIOD 133,614 783,877 783,877 -
----------- ---------- ---------- ----------
CASH, END OF PERIOD $ 56,390 $ 84,897 $ 63,605 $ 783,877
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended June 30, 1997 and 1996 and the six months ended
December 31, 1997, the Company paid $2,125, $0, and $112,484 (unaudited),
respectively, in interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company entered into the following non-cash transactions:
- The Company issued 547,500 shares of common stock in return for
services relating to private placements of the Company's common stock
during the year ended June 30, 1996.
- During the years ended June 30, 1997 and 1996 and the six months
ended December 31, 1997, the Company granted options to purchase
shares of the Company's common stock in the amount of 467,350, 151,750,
and 11,250 (unaudited), respectively. Services rendered for these
options were valued at $467,350, $151,750, and $11,250 (unaudited) for
the years ended June 30, 1997 and 1996 and the six months ended
December 31, 1997, respectively.
- During the year ended June 30, 1997, the Company granted options to
purchase 500,000 shares of the Company's common stock to an officer of
the Company. The options were valued at $750,000.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Network Holdings International, Inc. (the "Company"), a Delaware
corporation, (formerly TravelMax International, Inc., a Utah corporation)
develops, markets, and distributes travel-related products and services
and engages in certain charity-oriented business activities. The
Company's products and services are marketed through a national network
marketing system in which Independent Representatives, who are independent
contractors, purchase the products for their own use, for sale to other
Independent Representatives, or for sale to new customers.
The Company was originally incorporated in California on July 12, 1995,
under the name Travel Max International, Inc. ("TravelMax-California"),
and began operating a travel business based upon the multi-level
marketing of that company's services. In December 1995, in a share
exchange agreement, all of the common stock of the California
corporation was acquired by the BullEk corporation ("BullEk"), a Utah
corporation. In the share exchange agreement, one share of common stock
of BullEk was received by each of the shareholders of the Company for
each share held, representing 70% of the outstanding common stock of
BullEk. In connection with the share-exchange, all of the assets of
BullEk were transferred out of the corporation to the former
stockholders, providing Travel Max-California with a "clean shell."
Immediately prior to the share-exchange agreement, BullEk changed its
name to TravelMax International, Inc., and effectuated a 1-for-6 reverse
stock split. Subsequently, the Company undertook four private
placements of its common stock through December of 1997.
The Company temporarily ceased operations for a two-week period in April
1997. The cessation of operations was the result of a lack of sufficient
funds to continue operations at that time. The Company emerged from its
self-imposed suspension of operations with new financing from two
private, secured lenders who, in July 1997, became majority stockholders
when they received common stock equal to 70.8% of the total issued and
outstanding shares at that date in exchange for providing financing for
the Company. Concurrent with the emergence from the self-imposed
suspension of operations, a new management team was hired, and the name
of the Company was changed to Network Holdings International, Inc., a
Delaware corporation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiary. All significant intercompany
transactions and accounts have been eliminated.
10
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTERIM FINANCIAL INFORMATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in
the opinion of management, are necessary to fairly state the Company's
financial position, the results of their operations, and cash flows for
the periods presented. The results of operations for the six months
ended December 31, 1997 are not necessarily indicative of results for
the entire year ending June 30, 1998.
ESTIMATES
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 the disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results may differ
from those estimates.
INVENTORIES
Inventories consist of product and merchandise held for resale and is
stated at the lower of cost (on the first-in, first out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company uses the
straight-line method in computing depreciation and amortization for
financial reporting purposes based on estimated useful lives as follows:
Office equipment 5 years
Furniture and fixtures 5 years
Computer equipment 5 years
Software 7 years
Leasehold improvements term of lease or life of asset, whichever
is shorter
Upon retirement or disposition of assets, cost and accumulated depreciation
or amortization are removed from the related accounts and any gain or loss
is included in the statements of operations.
11
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT (Continued)
Property and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Impairment losses would be recognized if
the carrying amount of the asset exceeds the fair value of the asset.
Maintenance and repairs are charged to income as incurred while major
improvements over $500 are capitalized.
REVENUE RECOGNITION
The Company records its sales of tutorial and other products and
merchandise upon receipt of the cash payment in full from its
Independent Representatives.
The Company's sales from the travel services division are commissions
earned on travel services booked with airlines, hotels, cruise lines,
etc. Commissions earned from travel bookings are recorded at the time
the booking is made and paid for by the consumer.
TREASURY STOCK
The Company accounts for its treasury stock under the cost method,
whereby purchases of treasury stock are recorded at the cost to the
Company.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
12
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET LOSS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share." Basic earnings
per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares available.
Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common
shares were dilutive. Earnings per share for fiscal year 1997 and 1996
has been restated using the methodologies of SFAS No. 128. Since the
Company incurred a net loss for all periods, basic earnings per share
and diluted earnings per share are the same.
STOCK-BASED COMPENSATION PLANS
The Company has two stock-based compensation plans, the "1997 Stock
Option Plan" and the "Independent Representatives Stock Option Plan."
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined
as of the date of grant and is recognized over the periods in which the
related services are rendered. The statement also permits companies to
elect to continue using the current implicit value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the implicit value based
method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation (see Note 9).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts payable, and
accrued expenses, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for note payable and line of
credit also approximate fair value because current interest rates
offered to the Company for debt of similar maturities are substantially
the same.
13
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement requires
companies to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements
issued for fiscal years beginning after December 15, 1997. Management
believes that SFAS No. 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." This statement establishes
additional standards for segment reporting in the financial statements
and is effective for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 131 will not have an effect on the
Company's financial statements.
STOCK SPLIT
In December 1995, the Company performed a 1-for-6 stock split of its
common stock. All share and per share data have been retroactively
restated to reflect this stock split.
RISKS AND UNCERTAINTIES
The Company is entirely dependent on the continued funding of its
operations through the use of the line of credit extended by the
affiliated bank. If this line were to be called or funding of advances
on the line were to be ceased, it is highly likely that the Company
would cease to be able to finance its current operations. There is no
guarantee that the affiliated party will continue to fund the line.
The Company was involved in a private placement of its securities, such
that the circumstances surrounding that placement may give certain
investors the right of rescission. The extent of the potential risk is
unknown, but management estimates it could be as much as $3,800,000.
The Company is involved in network marketing of travel services.
Network marketing is subject to extensive regulation and high scrutiny
by government agencies in numerous states. No assurance can be given
that the activities of the Independent Representatives will not be
sanctioned under the laws of one or more of the states in which it
operates and have its business activities severely restricted or stopped
altogether.
14
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES (CONTINUED)
As a result of the nature of network marketing companies, competition
for Independent Representatives exists with other network marketing
companies outside of the travel arena. The Company in many cases is
competing for Independent Representatives with larger and better
financed companies. In addition, the Company is dependent on a few key
representatives, and the loss of one of these key Independent
Representatives could mean the loss of significant networks of
representatives attached to that individual.
The travel industry is highly dependent on fluctuations in the general
economic conditions of the county in general. Events within the economic
environment, including fluctuations in the value of currency, fuel
prices, inflation and unemployment, could have a significant effect on
the profitability of the Company.
NOTE 2 - GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements during the years ended June 30, 1997 and
1996 and the six months ended December 31, 1997, the Company incurred
losses of $13,726,583, $4,561,041, and $3,096,692 (unaudited),
respectively. In addition, since April 1997, the Company's cash flow
requirements have been met by the line of credit extended by a related
party. No assurance can be given that this source of financing will
continue to be available to the Company. The operations of the Company
are absolutely dependent on infusion of this debt capital. If the
Company is unable to generate profits and unable to continue to obtain
financing for its working capital needs, it may have to curtail its
business sharply or cease business altogether.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely
basis, to retain its current financing, to obtain additional financing,
and ultimately to attain profitability.
15
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN MATTERS (CONTINUED)
To meet these objectives, the Company has instituted a three-point plan:
1. Increasing sales by motivating and expanding the existing Independent
Representative base.
2. Increasing sales through the acquisition of other multi-level
marketing entities and expanding into international markets.
3. The continuation of financing provided by the majority stockholders
of the Company until the Company attains profitability.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30,
December 31, ------------------------
1997 1997 1996
------------ --------- ---------
(unaudited)
<S> <C> <C> <C>
Products $ 302,095 $ 159,064 $ 268,754
Merchandise 45,418 49,924 23,793
Phone cards 277,764 - -
--------- --------- ---------
TOTAL $ 625,277 $ 208,988 $ 292,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
Products and phone cards consist of items sold to Independent
Representatives for resale. Merchandise consists primarily of marketing
and advertising tools sold to Independent Representatives to assist in
the retail sales of Company products.
NOTE 4 - OTHER RECEIVABLES
On September 4, 1997, the Company loaned a non-affiliated entity
$100,000. The loan had a fixed interest rate of 10%, matured on
November 3, 1997, and was collateralized by 77% of the issued and
outstanding common stock of the borrowing entity. The loan was in
default as of December 31, 1997. On April 24, 1998, the loan was paid
in full.
The amounts recorded on the accompanying balance sheets represent
commission receivables from the Airline Reporting Corporation.
16
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 4 - OTHER RECEIVABLES (CONTINUED)
The Company does not have trade receivables. Sales of products are
recorded upon receipt of the cash payment in full from its Independent
Representatives. Commissions from the sale of travel services are
recorded at the time the travel is booked and paid for by the consumer.
As a result of the litigation against certain former directors and
officers, the Company has recorded two receivables as follows (see Notes
12 and 13):
- The Company has recorded $1,000,000 that is due from former directors
and officers for stock purchased in 1995 for which payment has not
been received. The Company is unable to predict the outcome of this
litigation and, therefore, a valuation allowance has been established
for the full $1,000,000 at June 30, 1997.
- The Company has recorded a receivable due from former directors and
officers in the amount of $1,676,253 at June 30, 1997. The receivable
reflects advances to and amounts expended by former directors and
officers unrelated to the Company's operations. The Company is unable
to predict the outcome of this litigation and, therefore, a valuation
allowance has been established for the full $1,676,253 at June 30,
1997.
NOTE 5 - RESTRICTED CASH AND OTHER ASSETS
The Company maintains certain amounts on deposit with banking
institutions which are required by state statutes in order to conduct
travel-related business. At June 30, 1997, restricted amounts were
$50,009.
The Company maintains a deposit, as required by the Airline Reporting
Corporation, to secure a letter of credit. The amount securing the
letter of credit was $20,000 at June 30, 1997. The letter expired on
March 31, 1998 with an automatic one-year renewal clause. The letter
was extended for one year to March 31, 1999.
17
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 5 - RESTRICTED CASH AND OTHER ASSETS (CONTINUED)
In fiscal year ended June 30, 1996, the Company formed Associated
Resources International, Inc. ("ARI") with certain other investors. ARI
was organized to perform certain business functions related, but not
integral to the Company's normal operations. At inception, the Company
owned a 50% interest in this entity. The Company's total investment in
and expenditures related to ARI were $342,289, $50,172, and $0
(unaudited), respectively, during the years ended June 30, 1997 and 1996
and the six months ended December 31, 1997, respectively. The
operations of ARI did not commence in earnest during this time period.
Subsequently, the Company's interest in ARI was divested to an investor
related to the former directors of the Company. The terms of the
divestiture are currently being disputed by the Company. As the outcome
of the dispute is unknown, a provision has been established for the
entire amount of the Company's investment at June 30, 1997 and 1996.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30,
December 31, -----------------------
1997 1997 1996
------------- --------- ----------
(unaudited)
<S> <C> <C> <C>
Office equipment $268,296 $267,524 $139,363
Furniture and fixtures 404,228 347,565 2,512
Computer equipment 608,601 592,957 187,778
Software 172,905 150,735 -
Leasehold improvements 441,915 425,960 209,216
------------- --------- ----------
1,895,945 1,784,741 538,869
Less accumulated depreciation
and amortization 449,816 282,053 30,015
------------- --------- ----------
TOTAL $1,446,129 $1,502,688 $508,854
------------- --------- ----------
------------- --------- ----------
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1997 and 1996
and the six months ended December 31, 1997 was $292,610, $30,015, and $167,764
(unaudited), respectively.
18
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 7 - LINE OF CREDIT AND NOTE PAYABLE
The Company entered into an agreement on April 21, 1997 with a non-bank
affiliate for a $10,000,000, as amended, revolving line of credit. The
line accrues interest at 10%, is due April 21, 1999, and is currently in
default. Principal and Interest payments on this line have been deferred
by the affiliated entity. As of June 30, 1997 and December 31, 1997, the
Company had drawn on the line for $2,189,711 and $5,791,711 (unaudited),
respectively, with accrued interest of $15,943 and $163,045 (unaudited),
respectively.
Subsequent to December 31, 1997, the Company had drawn amounts in excess
of the limits of the line. The line has been amended to reflect the
increased borrowing level, which is currently over $8,400,000. The line
is secured by substantially all of the assets of the Company.
On November 20, 1997, the Company entered into a loan agreement with a
bank in the amount of $765,000. The loan is a variable rate loan with
an initial interest rate of 9.5% and matures on May 1, 1999, requiring
monthly payments of principal in the amount of $42,500, plus accrued
interest. The purpose of the loan is to provide funds to process credit
card chargebacks. The first payment was due on December 31, 1997 and
paid in January 1998. The payment was made out of funds from the
related party line of credit which increased the amount owed to the
related party. The note requires principal payments of $297,500 during
fiscal year end June 30, 1998 and $467,500 in the following year. The
Company is now current with this obligation.
19
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
June 30,
December 31, ---------------------------
1997 1997 1996
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
Product returns payable $ 1,588,872 $ 3,314,375 $ -
Sales taxes payable 2,364,360 2,071,323 580,000
Charitable contributions payable 230,000 230,000 -
Accrued legal settlement 524,060 524,060 524,060
Overdraft at banks 270,895 205,625 -
Accrued commissions payable 14,560 239,318 472,250
Other accrued expenses 389,635 206,765 69,587
------------ ----------- -----------
TOTAL $ 5,382,382 $ 6,791,466 $ 1,645,897
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
As a result of the Company's lack of liquidity in April 1997, the
Company became delinquent in payment for product returned by Independent
Representatives for refund. The Company has recorded a reserve in the
amount of $3,314,375 and $1,588,872 at June 30, 1997 and December 31, 1997
(unaudited), respectively.
The Company is in arrears in the payment of its sales taxes in several
states. In order to recognize this potential liability, the Company has
recorded a reserve in the amount of $2,071,323, $580,000 and $2,364,360
(unaudited) for the years ended June 30, 1997 and 1996 and the six
months ended December 31, 1997 (see Note 13).
The Company is in arrears in the payment of certain required payments to
the TravelMax International Foundation, an affiliated entity. The
Company has recorded as due and payable to the Foundation $230,000
related to agreements with Independent Representatives on the sale of
products and merchandise from the Company's Charity Services division
(see Note 12).
The Company has recorded a liability in the amount of $524,060 and
accrued interest of $27,064 and $40,273 (unaudited) at June 30, 1997 and
December 31, 1997, respectively, relating to a legal judgment against it
(see Note 13).
20
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 8 - ACCRUED EXPENSES (CONTINUED)
At June 30, 1997 and December 31, 1997, the Company maintained an
overdraft at two separate banks, incurred from processing the
chargebacks of credit card purchases of Company products and general
operations. The total amount of the overdrafts was $205,625 and
$270,895 (unaudited) at June 30, 1997 and December 31, 1997,
respectively. Part of this overdraft was subsequently financed with a
promissory note to one of the banks.
NOTE 9 - STOCK OPTION PLANS
In August 1997, the Company's stockholders approved the "1997 Stock
Option Plan" (the "Employee Plan"), a fixed employee stock-based
compensation plan, and the "Independent Representatives Stock Option
Plan" (the "Independent Representatives Plan"), a performance-based
incentive stock option plan.
1997 STOCK OPTION PLAN AND OTHER EMPLOYEE OPTIONS
The Employee Plan provides for the granting of incentive stock options
to employees, including officers and directors who are employees, or
non-qualified stock options to employees and consultants. The Employee
Plan also provides for the issuance of stock appreciation rights. At
June 30, 1997, 2,000,000 shares of common stock were reserved for
issuance under this plan. The exercise price of each option is
determined by the plan committee at the time of the grant, but will
never be less than the fair market value of the shares at the date of
the grant. The plan committee also determines the maximum term of the
options at the time of the grant; however, that term will never be more
than ten years, and options vest immediately upon issuance.
Prior to approval of the plan, 500,000 stock options were granted to an
executive officer of the Company in April 1997. Such options are
outside of any formally approved plan.
INDEPENDENT REPRESENTATIVES STOCK OPTION PLAN
The Independent Representatives Plan provides for the granting of
non-statutory stock options to Independent Representatives who market
the Company's products and services. At June 30, 1997, 2,900,000 shares
of common stock were reserved for issuance under this plan. The
exercise price of each option is determined by the plan committee at the
time of the grant, but will never be less than the fair market value of
the shares at the date of the grant. The plan committee also determines
the maximum term of the options at the time of the grant; however, the
term will never be more than ten years. Under the Independent
Representatives Plan, unless other determined by the plan committee,
options may be exercised based on the following schedule:
21
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
INDEPENDENT REPRESENTATIVES STOCK OPTION PLAN (Continued)
2 years after grant 25% of options granted
3 years after grant 25% of options granted
4 years after grant 50% of options granted
Subsequent to June 30, 1997, with approval from the stockholders, stock
options granted to Independent Representatives prior to approval of the
Independent Representatives Plan were retroactively included in the
Independent Representatives Plan.
STOCK OPTION PLANS
The following is a summary of the status of both plans during the years
ended June 30, 1997 and 1996 and the six months ended December 31, 1997,
respectively:
<TABLE>
<CAPTION>
Employee Plan and Independent
Other Employee Options Representatives Plan
-------------------------- ------------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, July 1,
1995 - $ - - $ -
Granted - $ - 151,750 $ 4.65
Exercised - $ - - $ -
Forfeited $ - 117,250 $ 4.61
-------- --------
Outstanding, June 30,
1996 - $ - 34,500 $ 4.79
Granted 500,000 $ 1.00 467,350 $ 6.45
Exercised - $ - - $ -
Forfeited - $ - 310,200 $ 6.59
-------- --------
</TABLE>
(continued)
22
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
STOCK OPTION PLANS (Continued)
<TABLE>
<CAPTION>
Employee Plan and Independent
Other Employee Options Representatives Plan
-------------------------- ------------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, June 30,
1997 500,000 $ - 191,650 $ 5.92
Granted - $ - 11,250 $ 1.83
Exercised - $ - - $ -
Forfeited - $ - 5,600 $ 1.88
--------- --------
OUTSTANDING, DECEMBER
31, 1997 500,000 $ - 197,300 $ 5.81
--------- --------
--------- --------
</TABLE>
The following is a summary of the status of the Employee Plan options
and other options outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
----------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
--------- ------- ----------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.00 500,000 10 years $ 1.00 500,000 $ 1.00
</TABLE>
The following is a summary of the status of the Independent Representatives
Plan options outstanding at June 30, 1997:
23
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
STOCK OPTION PLANS (Continued)
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
-------- ------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.50 to
3.00 16,700 9.43 years $ 1.96 - $ -
$ 3.00 to
6.00 87,900 9.17 years $ 4.57 - $ -
$ 6.00 to
9.00 67,050 9.20 years $ 7.40 - $ -
$ 9.00 to
12.00 19,500 9.12 years $ 10.10 - $ -
$ 12.00 to
15.00 500 9.13 years $ 14.25 - $ -
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company has
accounted for its Employee Plan options and other employee options under
the fair value method of that statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing
model. The following assumptions were made in estimating fair value:
<TABLE>
<CAPTION>
Employee
Assumption Plan
----------------------- --------
<S> <C>
Dividend yield 0%
Risk-free interest rate 5.8%
Expected life 2 years
Expected volatility 120%
</TABLE>
24
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
STOCK OPTION PLANS (Continued)
The Company applies APB 25 in accounting for its Employee Plan and
Independent Representatives Plan and other options. As a result of the
grant price being less than the quoted market price, $750,000
(unaudited) of compensation cost has been recognized for other employee
options for the six months ended December 31, 1997. In addition,
compensation cost has been recognized for the Independent
Representatives Plan in the amount of $467,350, $151,750, and $11,250
(unaudited) for the years ended june 30, 1997 and 1996 and the six
months ended december 31, 1997, respectively. Had compensation cost for
the employee options been determined on the basis of fair value pursuant
to SFAS 123, Net loss and loss per share would have been increased as
follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Net loss
As reported $(13,858,565) $(4,561,041)
Pro forma $(14,048,565) $(4,561,041)
Basic and diluted loss per common share
As reported $(1.42) $(0.75)
Pro Forma $(1.43) $(0.75)
</TABLE>
NOTE 10 - STOCKHOLDERS' DEFICIT
During the year ended June 30, 1996, the Company completed three private
offerings of shares of its common stock.
In October 1995, the Company issued warrants to purchase 30,000 shares
of the Company's common stock at $1.50 per share. These warrants are
still outstanding.
In May 1996, as part of a private offering of securities, the Company
issued warrants for the purchase of 50,000 shares of common stock at a
purchase price of $3.25 per share and 283,333 shares of common stock at
$6.25 per share. These warrants have not been exercised.
During the year ended June 30, 1997, the Company completed one private
offering of its common stock.
25
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)
In December 1996, the Company completed the issuance of 1,864,292 shares
of common stock, resulting in net proceeds of approximately $3,500,000
after deducting issuance costs. For a discussion of the possible right
of rescission regarding this private offering of the Company's common
stock, see Note 13.
On April 24, 1997, the Company entered into a Management Agreement,
whereby former officers and directors resigned and an additional
25,863,354 shares of common stock were issued to two individuals who
were then elected as directors. In consideration for the common stock,
the investors paid $10 and agreed to provide financing for the Company's
continued operations.
NOTE 11 - INCOME TAXES
For the years ended June 30, 1997 and 1996 and the six months ended
December 31, 1997, the Company did not provide a provision for income
taxes due to the net losses incurred. At June 30, 1997, the Company has
approximately $4,500,000 and $2,250,000 in net operating loss
carryforwards for federal and state income tax purposes, respectively,
that begin to expire in 2011 and 2001, respectively. The components of
the Company's deferred tax assets and liabilities for income taxes
consist of a deferred tax asset relating to the net operating loss
carryforwards non-deductible amounts relating to refunds payable and
cancellation of operating leases of approximately $5,500,000 and
7,100,000 (unaudited) for the year ended June 30, 1997 and the six
months ended December 31, 1997, respectively. The other components of
the Company's deferred tax assets and liabilities are immaterial. The
Company has established a valuation allowance to fully offset its
deferred tax asset as the Company does not believe the recoverability of
this deferred tax asset is more likely than not. The valuation
allowance increased by approximately $3,700,000 and $1,600,000
(unaudited) during the year ended June 30, 1997 and the six months ended
December 31, 1997.
NOTE 12 - RELATED PARTIES TRANSACTIONS
During the years ended June 30, 1997 and 1996, two former senior
officers of the Company owned entities with which the Company conducted
business (see Note 4).
During the years ended June 30, 1997 and 1996, former officers and
directors of the Company were advanced amounts unrelated to the
Company's business operations (see Note 4).
26
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 12 - RELATED PARTIES TRANSACTIONS (CONTINUED)
In July 1997, two individuals acquired 12,931,677 common shares each or
70.8% of the total common shares issued and outstanding at that date.
Prior to that date they were secured lenders of the Company. These
majority stockholders have varying degrees of ownership in several other
entities with which the Company conducts business. One of these
entities had advanced $2,189,711 under a credit facility to the Company
at June 30, 1997 (see Note 7). There was no interest or fees paid to
these entities for the years ended June 30, 1997 and 1996. Accrued
interest for the year ended June 30, 1997 and the six months ended
December 31, 1997 was $15,943 and $163,045 (unaudited). The Company has
currently drawn amounts in excess of $8,400,000.
During the six months ended December 31, 1997, the Company purchased
phone cards from an affiliated entity in the amount of $600,000 with the
intent of selling these cards on a retail basis in conjunction with its
other products. These cards have subsequently been used as a means of
relieving certain refund liabilities.
In December 1996, in conjunction with the business activities of its
TravelMax International, Inc. Charity Services division ("Charity
Services"), the Company established the TravelMax International
Foundation ("Foundation"), an affiliated, but separate entity. The
Foundation has been approved by the state of California and the Internal
Revenue Service to act as a nonprofit entity. The Foundation was created
to receive charitable donations from Charity Services based on the sale
of tutorial and other products sold through Charity Services. As of the
date of this report, such donations have not been made by Charity
Services to the Foundation. Related to this matter, the Attorney
General of the state of California has initiated an ongoing inquiry to
determine the amount of donations that are due and payable to the
Foundation by Charity Services. At June 30, 1997 and December 31, 1997
(unaudited), the amount recorded as due and payable by the Company to
the Foundation by Charity Services was $230,000.
On August 15, 1997, the Company entered into a lease with a related
party for two office suites in Fort Lauderdale, Florida (see Note 13).
27
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases approximately 19,000 square feet of commercial office
space for its corporate offices. This lease expires in February 2003
and contains four additional three-year renewal options. Under the
lease agreement, the Company is also obligated to pay its pro rata share
of common area maintenance costs that relate to the operation and
maintenance of the property. The Company is subject to certain
specified cost of living increases in the monthly rental amount that are
tied to the Consumer Price Index.
On August 15, 1997, the Company leased two office suites located in Fort
Lauderdale, Florida consisting of 1,383 and 1,850 square feet,
respectively, from a related party. The leases have a one-year term with
an automatic renewal for an additional year. The terms of the leases
are considered to be at market rates (see Note 12).
During the years ended June 30, 1997 and 1996, the Company entered into
various other non-cancelable agreements for the purpose of leasing
office equipment.
Future minimum rental commitments under these non-cancelable operating
leases at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
June 30,
-----------
<S> <C>
1998 $ 409,491
1999 409,491
2000 364,283
2001 350,874
2002 306,218
Thereafter 173,145
------------
TOTAL $ 2,013,502
------------
------------
</TABLE>
Rental expense for the years ended June 30, 1997 and 1996 and the six
months ended December 31, 1997 was $611,188, $183,855, and $295,726
(unaudited), respectively.
During the year ended June 30, 1997, the Company cancelled several
operating leases, resulting in a loss of $891,287.
28
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (Continued)
On October 31, 1997, the Company obtained its release from a lease of a
warehouse facility located in Costa Mesa, California. The release from
the lease obligation was obtained in exchange for payment of two and
one-half month's rent. Concurrent with the closure of the Company's
Costa Mesa, California warehouse facility, the Company transferred its
inventory to a non-related warehouse distribution center located in
Oakland Park, Florida. Inventory is now stored and orders filled and
shipped from this Florida distribution center. The Company is charged
actual shipping fees and a transaction fee per order. Backorders incur
an additional transaction fee per order.
LITIGATION
The Company and its subsidiary are involved in legal proceedings,
claims, litigation, and governmental investigations arising in the
ordinary course of business and covering a wide range of matters. There
exists a reasonable possibility that the Company will not prevail in an
unknown number of these cases and, as a result, the Company's
consolidated operating results and cash flows for the period in which
such determination occurs could be materially affected.
On December 9, 1996, a complaint was filed by Borg-Warner Security
Corporation ("Borg-Warner") in the Superior Court of Orange County,
California naming the Company as a defendant in a legal action. The
complaint alleged that the Company breached a contract that provided for
the Company to acquire one hundred seventy-nine, 1996 Olympic Game
Packages from Borg-Warner in exchange for payment of $693,400. The
complaint sought judgement for the unpaid balance of the contract,
$524,060, interest at the rate of 10% per annum on all outstanding
amounts due beginning June 18, 1996, and reasonable attorney's fees and
court costs. On November 3, 1997, a judgement related to this action
was entered against the Company in the amount of $524,060 with interest
from June, 18, 1996 at 5% plus court costs. The Company has filed an
appeal of the court's decision.
29
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On August 15, 1997, the Company filed suit alleging breach of fiduciary
duty and fraud against ten of the Company's former stockholders,
directors, and officers in the Superior Court of Orange County,
California. The Company alleges that the defendants knowingly committed
fraud, breached fiduciary duty, negligently performed their duties,
misappropriated funds, and failed to repay debt. The Company is seeking
actual damages in excess of $13,000,000, plus special and punitive
damages. The Company is unable to predict the ultimate outcome with
respect to this lawsuit. One group of defendants has filed a
cross-complaint stating claims of express indemnity, comparative
indemnity, and declaratory relief. The Company has filed a general
denial of these claims. The Company is unable to predict the outcome of
the cross-complaint.
GOVERNMENT INVESTIGATIONS
The Company has been contacted by the Attorneys General of Florida,
Idaho, Kentucky, Oregon, Texas, Utah, and Washington regarding unpaid
refunds for product returned by sales representatives in those states.
The Kentucky claim resulted in the Company voluntarily electing to cease
operations in that state. The Company has a significant amount of
refunds pending related to the return of tutorials and other products by
Independent Representatives (see Note 8). Discussions with each state
continue on a case-by-case basis.
POSSIBLE TAX ASSESSMENTS
The Company, from time to time, engages in discussions with sales taxing
authorities regarding amounts due (see Note 14).
OTHER MATTERS
As a result of actions by former directors and officers, it is the
Company's opinion that some of the individuals that invested in a
private offering of the Company's common stock completed in December
1996 may have the right of rescission. The extent of recision is
unknown at this time; however, management estimates that such amount may
be as much as $3,800,000.
NOTE 14 - SUBSEQUENT EVENTS
On November 3, 1997, the Company announced that it had entered into an
Agreement to Purchase 100% of the outstanding shares of Links Direct,
Inc., a multi-level marketing entity marketing golf products and
golf-related travel packages. Upon completion, the acquisition will be
accounted for as a pooling of interest transaction, and Links Direct,
Inc. will become a subsidiary of the Company.
30
<PAGE>
NETWORK HOLDINGS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED.)
- -------------------------------------------------------------------------------
NOTE 14 - SUBSEQUENT EVENTS (CONTINUED)
On November 18, 1997, the Company settled a matter concerning the amount
of state sales taxes due and payable to the state of Washington for the
period September 1996 through June 1997. The settlement called for a
total payment of $51,600, payable in four installments beginning in
November 1997. Subsequent to December 31, 1997, the Company has paid
this obligation in full.
On January 5, 1998, the Company acquired the assets of Jetaway Travel
Company, a multi-level marketing entity marketing travel services, for a
combination of cash and shares of the Company's common stock. The
transaction will be accounted for as a purchase; accordingly, the
purchase price will be allocated to the underlying assets based on their
respective estimated fair values at the date of the acquisition.
On December 13, 1996, the Company created TravelMax International
Foundation (the "Foundation") to operate as a nonprofit organization in
concert with its TravelMax Charity Services division. In January 1998,
the Foundation received approval of its Internal Revenue Code Section
501(c)3 status as a nonprofit organization.
On January 14, 1998, the President of the Company resigned. Concurrent
with his resignation, two individuals, who were former Independent
Representatives, were engaged as consultants to coordinate and develop
the Company's sales efforts.
On February 9, 1998, the Company entered into a Financial Consulting
Agreement with an unrelated third party to provide financial advice and
business consulting services ("Services"). In exchange for providing
the Services, the Company agreed to compensate the consulting firm in a
non-cash transaction with shares of the Company's common stock and a
staggered series of options for shares of the Company's common stock,
plus certain out-of-pocket costs.
In March 1998, the Company instituted a self-imposed, ninety-day hold on
sales of products and services related to the Company's Charity
Services, pending an investigation of its programs by the Attorney
General of the State of California. The Company is currently reviewing
this division for possible dissolution. During the year ended June 30,
1997, this division accounted for approximately 10% of the Company's net
sales.
On March 5, 1998, the Company filed an appeal of the court's decision
regarding the judgment against the Company (as described in Note 13) for
the Borg-Warner lawsuit.
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Documents of Merger of TMax Utah into the Company.
3.1 Certificate of Incorporation.
3.2 Bylaws.
10.1 Form of Indemnification Agreement.
10.2 Stock Option Plan.
10.3 Independent Representatives Stock Option Plan.
10.4 Lease for Property at 3388 Via Lido, Newport Beach, CA 92663
10.5 Lease for property at 2701 West Oakland Park Blvd, Suite 103, Ft.
Lauderdale FL 33311
10.6 Lease for property at 2701 West Oakland Park Blvd, Suite 305, Ft.
Lauderdale FL 33311
10.7 Management Agreement
10.8 Asset Purchase Agreement
10.9 Employment Agreement between Larry Michaels and the Company.
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 2.1: Documents of Merger of TMax Utah into the Company.
ARTICLES OF MERGER
BETWEEN
TRAVELMAX INTERNATIONAL, INC.
A UTAH CORPORATION
AND
NETWORK HOLDINGS INTERNATIONAL, INC.
A DELAWARE CORPORATION
The undersigned, President and Secretary of TravelMax International, Inc.,
a Utah corporation ("Parent") and the Vice-President and Secretary of Network
Holdings International, Inc., a Delaware corporation ("Subsidiary"), hereby
certify that pursuant to the provisions of Section 16-10a-1107 of the Utah
Revised Business Corporation Act, Parent and Subsidiary adopt the following
Articles of Merger, hereby set forth, as of November 20, 1997, as follows:
1. The Plan of Merger respectively, approved by each of Parent and
Subsidiary, pursuant to the laws of the States of Utah and Delaware,
respectively, is set forth in the form attached as Exhibit "A" hereto.
2. The Plan of Merger was adopted by the Board of Directors of Subsidiary
as of November 20, 1997 and the Board of Directors of Parent as of November 20,
1997, pursuant to the resolutions in the form attached as Exhibit "B" hereto,
and by the stockholders of Parent, on November 20, 1997, by consent of 71% of
the issued and outstanding voting securities of Parent eligible to vote as of
November 20, 1997. The vote of the stockholders of Parent by which the Plan of
Merger was adopted was 25,863,354 shares in favor, out of Parent's total of
36,512,481 eligible voting shares issued and outstanding as of the record date
of such vote. Immediately prior to the approval of the Plan of Merger by Parent
and Subsidiary, as set forth above, Parent was and remains the owner of 100
shares of the common stock of Subsidiary, which constitutes 100% of the issued
and outstanding securities of Subsidiary. Therefore, stockholder approval of
the Plan of Merger by Subsidiary was not required under Utah or Delaware law.
3. The effective date of these Articles of Merger shall be the filing
date of these Articles of Merger. Such effective date complies with Sections
16-10a-110 et seq. of the Utah Revised Business Corporation Act. The surviving
corporation upon the effective date of these Articles of Merger shall be
Subsidiary. The business address of Parent is 3388 Via Lido, Newport Beach,
California 92663 and that of Subsidiary is 2701 West Oakland Park Boulevard,
Fort Lauderdale, Florida 33311.
The Restated Certificate of Incorporation of Subsidiary, the surviving
corporation, upon the effectiveness of the Plan of Merger, shall be in the form
attached as Exhibit "C" hereto.
5. Subsidiary hereby agrees that it may be served with process in the
State of Utah in any action or special proceeding for enforcement of any
liability or obligation of Parent or Subsidiary arising from the Plan of Merger.
Subsidiary appoints of the CT Corporation System, 50 West Broadway, Salt Lake
City, Utah 84101, as its agent to accept service of process in any such suit or
other proceeding.
1
<PAGE>
IN WITNESS WHEREOF, Parent and Subsidiary have caused these Articles of
Merger to be executed and delivered at Fort Lauderdale, Florida, by their
respective duly authorized officers as of the date first written above.
TRAVELMAX INTERNATIONAL, INC. NETWORK HOLDINGS
a Utah corporation INTERNATIONAL, INC.
a Delaware corporation
By: /s/ Mark Guest By: /s/ James C. Healy
-------------- ------------------
Mark Guest, President James C. Healy, Vice-President
By: /s/ Glenn Gallant BY: /s/ Glenn Gallant
----------------- ----------------------
Glenn Gallant, Secretary Glenn Gallant, Secretary
2
<PAGE>
EXHIBIT "A"
PLAN OF MERGER
BETWEEN
TRAVELMAX INTERNATIONAL, INC.
a Utah corporation
AND
NETWORK HOLDINGS INTERNATIONAL, INC.
a Delaware corporation
The following corporations are parties to this Plan of Merger: (i)
TRAVELMAX INTERNATIONAL, INC., a Utah corporation ("TravelMax"), and (ii)
NETWORK HOLDINGS INTERNATIONAL, INC., a Delaware corporation ("NHII").
1. TravelMax has acquired and owns 100 shares of the common stock of
NHII, which constitutes 100% of the issued and outstanding securities of NHII.
2. TravelMax has issued and outstanding 36,512,481 shares of common
stock, which constitute one hundred percent of the issued and outstanding common
stock of TravelMax.
3. The address of each of TravelMax and NHII is 2701 West Oakland Park
Boulevard, Fort Lauderdale, Florida 33311. The address of NHII, which shall be
the surviving corporation upon the effective date of the agreement of merger,
shall remain the same.
4. Upon the effective date of the agreement of merger underlying this
Plan of Merger, TravelMax shall be merged into NHII. The surviving corporation
upon the effective date of the agreement of merger shall be NHII.
5. Upon the effective date and by virtue of the merger and without any
action on the part of the holder thereof:
(a) each share of TravelMax common stock outstanding immediately prior to
the Effective Time shall be changed and converted into and shall be one
fully paid and nonassessable share of NHII common stock and no fractional
shares shall be issued and fractions of half or more shall be rounded to a
whole share and fractions of less than half shall be disregarded, such that
the issued and outstanding capital stock of NHII resulting from the
conversion of the capital stock of TravelMax upon the effective date shall
be 36,512,481 shares of common stock.
(b) Each holder of shares of TravelMax shall thereupon surrender the share
certificate or certificates to NHII representing each of their respective
ownership interest in TravelMax and shall thereupon be entitled to receive
in exchange therefor a certificate or certificates representing the number
of shares of NHII into which the shares of TravelMax theretofore
represented by a certificate or certificates so surrendered shall have been
converted.
3
<PAGE>
Exhibit 3.1 Certificate of Incorporation.
RESTATED
CERTIFICATE OF INCORPORATION
OF
NETWORK HOLDINGS INTERNATIONAL, INC.
This Restated Certificate of Incorporation (the "Certificate") of NETWORK
HOLDINGS INTERNATIONAL, INC. (the "Corporation"), was duly adopted by the Board
of Directors of the Corporation on November 20, 1997 and the stockholders of the
Corporation on November 20, 1997, as set forth below, in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware. The original Certificate of Incorporation was filed on November 17,
1997.
The following Restated Certificate of Incorporation was adopted on November
20, 1997 by the affirmative vote of 25,863,354 shares, which was in excess of
50% of the number of shares issued and outstanding which are eligible to vote.
The text of the Certificate of Incorporation as amended or supplemented
heretofore is hereby restated and further amended to read in its entirety as
follows:
FIRST: The name of the corporation is Network Holdings International, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware shall be at Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19901. The name and address of the Corporation's registered
agent in the State of Delaware is Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19901.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
FOURTH: 1. The total number of shares of stock which the Corporation
shall have authority to issue is 75,000,000 shares, consisting of 70,000,000
shares of Common Stock, par value $0.001 per share (the "Common Stock"), and
5,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred
Stock").
2. Shares of Preferred Stock may be issued from time to time in one or
more series as may be established from time to time by resolution of the Board
of Directors of the Corporation (the "Board of Directors"), each of which series
shall consist of such number of shares and have such distinctive designation or
title as shall be fixed by resolution of the Board of Directors prior to the
issuance of any shares of such series. Each such class or series of Preferred
Stock shall have such voting powers, full or limited, or no voting powers, and
such preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be stated
in such resolution of the Board of Directors providing for the issuance of such
series of Preferred Stock. The Board of Directors is
1
<PAGE>
further authorized to increase or decrease (but not below the number of
shares of such class or series then outstanding) the number of shares of any
series subsequent to the issuance of shares of that series.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute and subject to Article Sixth hereof, the Board of Directors is expressly
authorized to adopt, repeal, rescind, alter or amend in any respect the Bylaws
of the Corporation (the "Bylaws").
SIXTH: Notwithstanding Article Fifth hereof, the Bylaws may be adopted,
rescinded, altered or amended in any respect by the stockholders of the
Corporation, but only by the affirmative vote of the holders of not less than 66
2/3% of the voting power of all outstanding shares of voting stock regardless of
class and voting together as a single voting class; PROVIDED, HOWEVER, that
where such action is approved by a majority of the continuing directors the
affirmative vote of a majority of the voting power of all outstanding shares of
voting stock, regardless of class and voting together as a single voting class,
shall be required for approval of such action.
SEVENTH: The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors. Except as may otherwise be
provided pursuant to Section 2 of Article Fourth hereof in connection with
rights to elect additional directors under specified circumstances which may be
granted to the holders of any series of Preferred Stock, the exact number of
directors of the Corporation shall be determined from time to time by a Bylaw or
Amendment thereto provided that the number of directors shall not be reduced to
less than three (3), except that there need be only as many directors as there
are stockholders in the event that the outstanding shares are held of record by
fewer than three (3) stockholders.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
EIGHTH: Each director shall serve until his successor is elected and
qualified or until his death, resignation or removal; no decrease in the
authorized number of directors shall shorten the term of any incumbent director;
and additional directors, elected pursuant to Section 2 of Article Fourth hereof
in connection with rights to elect such additional directors under specified
circumstances which may be granted to the holders of any series of Preferred
Stock, shall not be included in any class, but shall serve for such term or
terms and pursuant to such other provisions as are specified in the resolution
of the Board of Directors establishing such series.
NINTH: Except as may otherwise be provided pursuant to Section 2 of
Article Fourth hereof in connection with rights to elect additional directors
under specified circumstances which may be granted to the holders of any series
of Preferred Stock, newly created directorships resulting from any increase in
the number of directors, or any vacancies on the Board of Directors resulting
from death, resignation, removal or other causes, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified or until such director's death, resignation or
removal, whichever first occurs.
TENTH: Except for such additional directors as may be elected by the
holders of any series of Preferred Stock pursuant to the terms thereof
established by a resolution of the Board of Directors pursuant to Article Fourth
hereof, any director may be removed from office with or without cause and only
by the affirmative vote of the holders of not less than 66 2/3% of the voting
power of all outstanding shares of voting stock entitled to vote in connection
with the election of such director regardless of class
2
<PAGE>
and voting together as a single voting class; PROVIDED, HOWEVER, that where
such removal is approved by a majority of the continuing directors, the
affirmative vote of a majority of the voting power of all outstanding shares
of voting stock entitled to vote in connection with the election of such
director, regardless of class and voting together as a single voting class,
shall be required for approval of such removal.
ELEVENTH: Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called Annual Meeting or at a
special meeting of stockholders of the Corporation, unless such action requiring
or permitting stockholder approval is approved by a majority of the continuing
directors, in which case such action may be authorized or taken by the written
consent of the holders of outstanding shares of voting stock having not less
than the minimum voting power that would be necessary to authorize or take such
action at a meeting of stockholders at which all shares entitled to vote thereon
were present and voted, provided all other requirements of applicable law and
this Certificate have been satisfied. Except as specifically set forth in this
Article Eleventh, no action may be taken by stockholders by written consent.
TWELFTH: 1. At the first Annual Meeting of Stockholders of the
Corporation (the "Annual Meeting") after the authorized number of directors is
six (6) or more, the Board of Directors shall be divided into three (3) classes:
Class I, Class II and Class III. The number of directors in each class shall be
the whole number contained in such quotient obtained by dividing the authorized
number of directors by three (3). If a fraction is also contained in such
quotient, then additional directors shall be apportioned as follows: If such
fraction is one-third, the additional director shall be a member of Class III;
and if such fraction is two-thirds, one of the additional directors shall be a
member of Class II and the other shall be a member of Class III. Each director
shall serve for a term ending on the date of the third Annual Meeting following
the Annual Meeting at which such director was elected; PROVIDED, HOWEVER, that
the directors first elected to Class I shall serve for a term ending on the date
of the first Annual Meeting following their election, the directors first
elected to Class II shall serve for a term ending on the date of the second
Annual Meeting following their election and the directors first elected to Class
III shall serve for a term ending on the date of the third Annual Meeting
following their election.
Whenever the authorized number of directors shall be reduced to less than
six (6) directors, the existing directors shall serve out the remainder of their
terms based upon their respective classes and each subsequently elected director
shall serve for a one (1) year term. At such subsequent time as the authorized
number of directors is six (6) or more directors, the prior paragraph shall
again become operative.
2. Notwithstanding the foregoing provisions of this Article Twelfth:
each director shall serve until his successor is elected and qualified or until
his death, resignation or removal; no decrease in the authorized number of
directors shall shorten the term of any incumbent director; and additional
directors, elected pursuant to Section 2 of Article Fourth hereof in connection
with rights to elect such additional directors under specified circumstances
which may be granted to the holders of any series of Preferred Stock, shall not
be included in any class, but shall serve for such term or terms and pursuant to
such other provisions as are specified in the resolution of the Board of
Directors establishing such series.
THIRTEENTH: Meetings of stockholders of the Corporation may be held within
or without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
FOURTEENTH: For the purposes of this Certificate of Incorporation, the
following definitions shall apply:
3
<PAGE>
(a) "continuing director" means: (i) any member of the Board of Directors
who (A) is not an interested stockholder or an affiliate or associate
of an interested stockholder and (B) was a member of the Board of
Directors prior to the time that an interested stockholder became an
interested stockholder; and (ii) any person who is elected or
nominated to succeed a continuing director, or to join the Board of
Directors, by a majority of the continuing directors.
(b) The terms "affiliate," "associate," "control," "interested
stockholder," "owner," "person" and "voting stock" shall have the
meanings set forth in Section 203(c) of the Delaware General
Corporation Law.
FIFTEENTH: The provisions set forth in this Article Fifteenth and in
Articles Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth and
Thirteenth hereof may not be repealed, rescinded, altered or amended in any
respect, and no other provision or provisions may be adopted which impair(s) in
any respect the operation or effect of any such provision, except by the
affirmative vote of the holders of not less than 66 2/3% of the voting power of
all outstanding shares of voting stock regardless of class and voting together
as a single voting class, and, where such action is proposed by an interested
stockholder or by any associate or affiliate of an interested stockholder, the
affirmative vote of the holders of a majority of the voting power of all
outstanding shares of voting stock, regardless of class and voting together as a
single class, other than shares held by the interested stockholder which
proposed (or the affiliate or associate of which proposed) such action, or any
affiliate or associate of such interested stockholder; PROVIDED, HOWEVER, that
where such action is approved by a majority of the continuing directors, the
affirmative vote of a majority of the voting power of all outstanding shares of
voting stock, regardless of class and voting together as a single voting class,
shall be required for approval of such action.
SIXTEENTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate in the
manner now or hereafter prescribed by applicable law, and all rights conferred
on stockholders herein are granted subject to this reservation. Notwithstanding
the preceding sentence, the provisions set forth in Articles Fifth, Sixth,
Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth and Fifteenth may
not be repealed, rescinded, altered or amended in any respect, and no other
provision or provisions may be adopted which impair(s) in any respect the
operation or effect of any such provision, unless such action is approved as
specified in Article Fifteenth hereof.
SEVENTEENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law. Any
repeal or modification of this Section by the stockholders of the Corporation
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
4
<PAGE>
EIGHTEENTH: No contract or other transaction of the Corporation with any
other person, firm or corporation, or in which this corporation is interested,
shall be affected or invalidated by: (a) the fact that any one or more of the
directors or officers of the Corporation is interested in or is a director or
officer of such other firm or corporation; or, (b) the fact that any director or
officer of the Corporation, individually or jointly with others, may be a party
to or may be interested in any such contract or transaction, so long as the
contract or transaction is authorized, approved or ratified at a meeting of the
Board of Directors by sufficient vote thereon by directors not interested
therein, to which such fact of relationship or interest has been disclosed, or
the contract or transaction has been approved or ratified by vote or written
consent of the stockholders entitled to vote, to whom such fact of relationship
or interest has been disclosed, or so long as the contract or transaction is
fair and reasonable to the Corporation. Each person who may become a director
or officer of the Corporation is hereby relieved from any liability that might
otherwise arise by reason of his contracting with the Corporation for the
benefit of himself or any firm or corporation in which he may in any way be
interested.
IN WITNESS WHEREOF NETWORK HOLDINGS INTERNATIONAL, INC. has caused this
Certificate of Incorporation to be executed by its Vice-President and to be
attested to by its Secretary as of the 20th day of November, 1997.
NETWORK HOLDINGS INTERNATIONAL, INC.
By: /s/ James C. Healy
---------------------------------
James C. Healy, Vice-President
By: /s/ Glenn Gallant
---------------------------------
Glenn Gallant, Secretary
5
<PAGE>
Exhibit 3.2 Bylaws.
BYLAWS
OF
NETWORK HOLDINGS INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
The following are the Bylaws of NETWORK HOLDINGS INTERNATIONAL, INC., a
Delaware corporation (the "Corporation"), effective as of November 20, 1997,
after approval by the Corporation's Board of Directors and stockholders:
ARTICLE I
Offices
Section 1.01. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the Corporation shall be located at 2701 West Oakland Park
Boulevard, Fort Lauderdale, Florida 33311. The Board of Directors of the
Corporation (the "Board of Directors") may change the location of said
principal executive office.
Section 1.02. OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State
of Delaware, as the Board of Directors may from time to time determine or as
the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of
the Corporation shall be held at a date and at such time as the Board of
Directors shall determine. At each annual meeting of stockholders, directors
shall be elected in accordance with the provisions of Section 3.03 hereof and
any other proper business may be transacted.
Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called at any time by a majority of the Board
of Directors, by the Chairman of the Board or by holders of not less than
fifty percent (50%) of the voting power of all outstanding shares of voting
stock regardless of class and voting together as a single voting class. The
term "voting stock" as used in these Bylaws shall have the meaning set forth
in Section 203(c) of the Delaware General Corporation Law. Special meetings
may not be called by any other person or persons. Each special meeting shall
be held at such date and time as is requested by the person or persons
calling the meeting, within the limits fixed by law.
Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of
stockholders shall be held at such location as may be determined by the Board
of Directors or, if no such determination is made, at such place as may be
determined by the Chairman of the Board. If no location is so determined,
any annual or special meeting shall be held at the principal executive office
of the Corporation.
Section 2.04. NOTICE OF MEETINGS. Written notice of each annual or
special meeting of stockholders stating the date and time when, and the place
where, it is to be held shall be delivered either personally or by mail to
stockholders entitled to vote at such meeting not less than ten (10) nor more
than
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sixty (60) days before the date of the meeting. The purpose or purposes for
which the meeting is called may, in the case of an annual meeting, and shall,
in the case of a special meeting, also be stated. If mailed, such notice
shall be directed to a stockholder at his address as it shall appear on the
stock books of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for him be mailed
to some other address, in which case such notice shall be mailed to the
address designated in such request.
Section 2.05. CONDUCT OF MEETINGS. All annual and special meetings of
stockholders shall be conducted in accordance with such rules and procedures
as the Board of Directors may determine subject to the requirements of
applicable law and, as to matters not governed by such rules and procedures,
as the chairman of such meeting shall determine. The chairman of any annual
or special meeting of stockholders shall be the Chairman of the Board. The
Secretary, or in the absence of the Secretary, a person designated by the
Chairman of the Board, shall act as secretary of the meeting.
Section 2.06. QUORUM. At any meeting of stockholders of the
Corporation, the presence, in person or by proxy, of the holders of record of
a majority of the shares then issued and outstanding and entitled to vote at
the meeting shall constitute a quorum for the transaction of business;
PROVIDED, HOWEVER, that this Section 2.06 shall not affect any different
requirement which may exist under statute, pursuant to the rights of any
authorized class or series of stock, or under the Certificate of
Incorporation of the Corporation, as amended or restated from time to time
(the "Certificate"), for the vote necessary for the adoption of any measure
governed thereby.
In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without further notice, may adjourn the meeting
from time to time until a quorum is attained. At any reconvened meeting
following such adjournment at which a quorum shall be present, any business
may be transacted which might have been transacted at the meeting as
originally notified.
Section 2.07. VOTES REQUIRED. The affirmative vote of a majority of
the shares present in person or represented by proxy at a duly called meeting
of stockholders of the Corporation, at which a quorum is present and entitled
to vote on the subject matter, shall be sufficient to take or authorize
action upon any matter which may properly come before the meeting, except
that the election of directors shall be by plurality vote, unless the vote of
a greater or different number thereof is required by statute, by the rights
of any authorized class of stock or by the Certificate.
Unless the Certificate or a resolution of the Board of Directors adopted
in connection with the issuance of shares of any class or series of stock
provides for a greater or lesser number of votes per share, or limits or
denies voting rights, each outstanding share of stock, regardless of class or
series, shall be entitled to one (1) vote on each matter submitted to a vote
at a meeting of stockholders.
Section 2.08. PROXIES. A stockholder may vote the shares owned of
record by him either in person or by proxy executed in writing (which shall
include writings sent by telex, telegraph, cable or facsimile transmission)
by the stockholder himself or by his duly authorized attorney-in-fact. No
proxy shall be valid after three (3) years from its date, unless the proxy
provides for a longer period. Each proxy shall be in writing, subscribed by
the stockholder or his duly authorized attorney-in-fact, and dated, but it
need not be sealed, witnessed or acknowledged.
Section 2.09. STOCKHOLDER ACTION. Any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called Annual Meeting, at a special meeting of stockholders of the
Corporation or authorized or taken by the written consent of the holders of
outstanding shares of voting stock having not less than the minimum voting
power that would be necessary to authorize or take such action at a meeting
of stockholders at which all shares entitled to vote thereon were present and
voted, provided all other requirements of applicable law and the Certificate
of Incorporation have been satisfied.
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Section 2.10. LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make (or cause to be prepared and made), at least ten (10)
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address of, and the number of shares registered in the name
of, each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the duration thereof, and may be
inspected by any stockholder who is present.
Section 2.11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint Inspectors of Election to
act at such meeting or at any adjournment or adjournments thereof. If such
Inspectors are not so appointed or fail or refuse to act, the chairman of any
such meeting may (and, upon the demand of any stockholder or stockholder's
proxy, shall) make such an appointment.
The number of Inspectors of Election shall be one (1) or three (3). If
there are three (3) Inspectors of Election, the decision, act or certificate
of a majority shall be effective and shall represent the decision, act or
certificate of all. No such Inspector need be a stockholder of the
Corporation.
Subject to any provisions of the Certificate of Incorporation, the
Inspectors of Election shall determine the number of shares outstanding, the
voting power of each, the shares represented at the meeting, the existence of
a quorum and the authenticity, validity and effect of proxies; they shall
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close and
determine the result; and finally, they shall do such acts as may be proper
to conduct the election or vote with fairness to all stockholders. On
request, the Inspectors shall make a report in writing to the secretary of
the meeting concerning any challenge, question or other matter as may have
been determined by them and shall execute and deliver to such secretary a
certificate of any fact found by them.
ARTICLE III
Directors
Section 3.01. POWERS. The business and affairs of the Corporation
shall be managed by and be under the direction of the Board of Directors.
The Board of Directors shall exercise all the powers of the Corporation,
except those that are conferred upon or reserved to the stockholders by
statute, the Certificate or these Bylaws.
Section 3.02. NUMBER. The number of directors shall be fixed from time
to time by resolution of the Board of Directors but shall not be less than
three (3) nor more than seven (7).
Section 3.03. ELECTION AND TERM OF OFFICE. Each director shall serve
until his successor is elected and qualified or until his death, resignation
or removal, no decrease in the authorized number of directors shall shorten
the term of any incumbent director, and additional directors elected in
connection with rights to elect such additional directors under specified
circumstances which may be granted to the holders of any series of Preferred
Stock shall not be included in any class, but shall serve for such term or
terms and pursuant to such other provisions as are specified in the
resolution of the Board of Directors establishing such series.
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Section 3.04. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational
meeting immediately following the annual meeting of stockholders, the
directors shall elect a Chairman of the Board from among the directors who
shall hold office until the corresponding meeting of the Board of Directors
in the next year and until his successor shall have been elected or until his
earlier resignation or removal. Any vacancy in such office may be filled for
the unexpired portion of the term in the same manner by the Board of
Directors at any regular or special meeting.
Section 3.05. REMOVAL. Any director may be removed from office only as
provided in the Certificate of Incorporation.
Section 3.06. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Newly created
directorships resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified.
No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
Section 3.07. REGULAR AND SPECIAL MEETINGS. Regular meetings of the
Board of Directors shall be held immediately following the annual meeting of
the stockholders; without call at such time as shall from time to time be
fixed by the Board of Directors; and as called by the Chairman of the Board
in accordance with applicable law.
Special meetings of the Board of Directors shall be held upon call
by or at the direction of the Chairman of the Board, the President or any two
(2) directors, except that when the Board of Directors consists of one
(1) director, then the one director may call a special meeting. Except as
otherwise required by law, notice of each special meeting shall be mailed to
each director, addressed to him at his residence or usual place of business,
at least three days before the day on which the meeting is to be held, or
shall be sent to him at such place by telex, telegram, cable, facsimile
transmission or telephoned or delivered to him personally, not later than the
day before the day on which the meeting is to be held. Such notice shall
state the time and place of such meeting, but need not state the purpose or
purposes thereof, unless otherwise required by law, the Certificate of
Incorporation or these Bylaws.
Notice of any meeting need not be given to any director who shall attend
such meeting in person (except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened) or who shall waive notice thereof, before or after such meeting, in
a signed writing.
Section 3.08. QUORUM. At all meetings of the Board of Directors, a
majority of the fixed number of directors shall constitute a quorum for the
transaction of business, except that when the Board of Directors consists of
one (1) director, then the one director shall constitute a quorum.
In the absence of a quorum, the directors present, by majority vote and
without notice other than by announcement, may adjourn the meeting from time
to time until a quorum shall be present. At any reconvened meeting following
such an adjournment at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 3.09. VOTES REQUIRED. Except as otherwise provided by
applicable law or by the Certificate of Incorporation, the vote of a majority
of the directors present at a meeting duly held at which a quorum is present
shall be sufficient to pass any measure.
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Section 3.10. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and
special meeting of the Board of Directors shall be held at a location
determined as follows: The Board of Directors may designate any place,
within or without the State of Delaware, for the holding of any meeting. If
no such designation is made: (a) any meeting called by a majority of the
directors shall be held at such location, within the county of the
Corporation's principal executive office, as the directors calling the
meeting shall designate; and (b) any other meeting shall be held at such
location, within the county of the Corporation's principal executive office,
as the Chairman of the Board may designate or, in the absence of such
designation, at the Corporation's principal executive office. Subject to the
requirements of applicable law, all regular and special meetings of the Board
of Directors shall be conducted in accordance with such rules and procedures
as the Board of Directors may approve and, as to matters not governed by such
rules and procedures, as the chairman of such meeting shall determine. The
chairman of any regular or special meeting shall be the Chairman of the
Board, or, in his absence, a person designated by the Board of Directors. The
Secretary, or, in the absence of the Secretary, a person designated by the
chairman of the meeting, shall act as secretary of the meeting.
Section 3.11. FEES AND COMPENSATION. Directors shall be paid such
compensation as may be fixed from time to time by resolution of the Board of
Directors: (a) for their usual and contemplated services as directors;
(b) for their services as members of committees appointed by the Board of
Directors, including attendance at committee meetings as well as services
which may be required when committee members must consult with management
staff; and (c) for extraordinary services as directors or as members of
committees appointed by the Board of Directors, over and above those services
for which compensation is fixed pursuant to items (a) and (b) in this
Section 3.11. Compensation may be in the form of an annual retainer fee or a
fee for attendance at meetings, or both, or in such other form or on such
basis as the resolutions of the Board of Directors shall fix. Directors
shall be reimbursed for all reasonable expenses incurred by them in attending
meetings of the Board of Directors and committees appointed by the Board of
Directors and in performing compensable extraordinary services. Nothing
contained herein shall be construed to preclude any director from serving the
Corporation in any other capacity, such as an officer, agent, employee,
consultant or otherwise, and receiving compensation therefor.
Section 3.12. COMMITTEES OF THE BOARD OF DIRECTORS. To the full extent
permitted by applicable law, the Board of Directors may from time to time
establish committees, including, but not limited to, standing or special
committees and an executive committee with authority and responsibility for
bookkeeping, with authority to act as signatories on Corporation bank or
similar accounts and with authority to choose attorneys for the Corporation
and direct litigation strategy, which shall have such duties and powers as
are authorized by these Bylaws or by the Board of Directors. Committee
members, and the chairman of each committee, shall be appointed by the Board
of Directors. The Chairman of the Board, in conjunction with the several
committee chairmen, shall make recommendations to the Board of Directors for
its final action concerning members to be appointed to the several committees
of the Board of Directors. Any member of any committee may be removed at any
time with or without cause by the Board of Directors. Vacancies which occur
on any committee shall be filled by a resolution of the Board of Directors.
If any vacancy shall occur in any committee by reason of death, resignation,
disqualification, removal or otherwise, the remaining members of such
committee, so long as a quorum is present, may continue to act until such
vacancy is filled by the Board of Directors. The Board of Directors may, by
resolution, at any time deemed desirable, discontinue any standing or special
committee. Members of standing committees, and their chairmen, shall be
elected yearly at the regular meeting of the Board of Directors which is held
immediately following the annual meeting of stockholders. The provisions of
Sections 3.07, 3.08, 3.09 and 3.10 of these Bylaws shall apply, MUTATIS
MUTANDIS, to any such Committee of the Board of Directors.
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ARTICLE IV
Officers
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The
Corporation shall have a Chairman of the Board, a President, Treasurer, such
senior vice presidents and vice presidents as the Board of Directors deems
appropriate, a Secretary and such other officers as the Board of Directors
may deem appropriate. These officers shall be elected annually by the Board
of Directors at the organizational meeting immediately following the annual
meeting of stockholders, and each such officer shall hold office until the
corresponding meeting of the Board of Directors in the next year and until
his successor shall have been elected and qualified or until his earlier
resignation, death or removal. Any vacancy in any of the above offices may
be filled for the unexpired portion of the term by the Board of Directors at
any regular or special meeting.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall preside at all meetings of the directors and shall have such
other powers and duties as may from time to time be assigned to him by the
Board of Directors.
Section 4.03. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall, subject to the power of the Board of
Directors, have general supervision, direction and control of the business
and affairs of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, at all
meetings of the directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and
shall have such other duties as may be assigned to him from time to time by
the Board of Directors.
Section 4.04. TREASURER. The Treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
account of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books of account
shall at all reasonable times be open to inspection by the directors.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as the Treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
Section 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, the Board of Directors and all committees. He
shall be the custodian of the corporate seal and shall affix it to all
documents which he is authorized by law or the Board of Directors to sign and
seal. He also shall perform such other duties as may be assigned to him from
time to time by the Board of Directors or the Chairman of the Board or
President.
Section 4.06. ASSISTANT OFFICERS. The President may appoint one or
more assistant secretaries and such other assistant officers as the business
of the Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as may be specified from
time to time by the President.
Section 4.07. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case
of absence or disability of an officer of the Corporation or for any other
reason that may seem sufficient to the Board of Directors, the Board of
Directors or any officer designated by it, or the President, may, for
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the time of the absence or disability, delegate such officer's duties and
powers to any other officer of the Corporation.
Section 4.08. OFFICERS HOLDING TWO OR MORE OFFICES. The same person
may hold any two (2) or more of the above-mentioned offices.
Section 4.09. COMPENSATION. The Board of Directors shall have the
power to fix the compensation of all officers and employees of the
Corporation.
Section 4.10. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors, to the President, or to the
Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein unless otherwise determined by the Board of Directors.
The acceptance of a resignation by the Corporation shall not be necessary to
make it effective.
Section 4.11. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the affirmative vote of a majority of the entire
Board of Directors. Any assistant officer of the Corporation may be removed,
with or without cause, by the President or by the Board of Directors.
ARTICLE V
Indemnification of Directors, Officers
Employees end other Corporate Agents
Section 5.01. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (all such
persons being referred to hereinafter as an "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful.
Section 5.02. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
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best interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall
deem proper.
Section 5.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Sections 5.01 or 5.02 (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Agent is proper in the
circumstances because the Agent has met the applicable standard of conduct
set forth in Sections 5.01 and 5.02 hereof, which determination is made (a)
by the Board of Directors, by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
Section 5.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article V, to the extent that an
Agent has been successful on the merits or otherwise, including the dismissal
of an action without prejudice or the settlement of an action without
admission of liability, in defense of any action, suit or proceeding referred
to in Sections 5.01 or 5.02 hereof, or in defense of any claim, issue or
matter therein, such Agent shall be indemnified against expenses, including
attorneys' fees actually and reasonably incurred by such Agent in connection
therewith.
Section 5.05. ADVANCES OF EXPENSES. Except as limited by Section 5.06
of this Article V, expenses incurred by an Agent in defending any civil or
criminal action, suit, or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding, if the
Agent shall undertake to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified as authorized
in this Article V. Notwithstanding the foregoing, no advance shall be made by
the Corporation if a determination is reasonably and promptly made by the
Board of Directors by a majority vote of a quorum of disinterested directors,
or (if such a quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs) by independent legal counsel in a written
opinion, that, based upon the facts known to the Board of Directors or
counsel at the time such determination is made, such person acted in bad
faith and in a manner that such person did not believe to be in or not
opposed to the best interest of the Corporation, or, with respect to any
criminal proceeding, that such person believed or had reasonable cause to
believe his conduct was unlawful.
Section 5.06. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification or advance under this
Article V shall be made promptly, and in any event within ninety days, upon
the written request of the Agent, unless a determination shall be made in the
manner set forth in the second sentence of Subsection 5.05 hereof that such
Agent acted in a manner set forth therein so as to justify the Corporation's
not indemnifying or making an advance to the Agent. The right to
indemnification or advances as granted by this Article V shall be enforceable
by the Agent in any court of competent jurisdiction, if the Board of
Directors or independent legal counsel denies the claim, in whole or in part,
or if no disposition of such claim is made within ninety (90) days. The
Agent's expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such proceeding shall
also be indemnified by the Corporation.
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Section 5.07. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights to which an Agent seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an Agent
and shall inure to the benefit of the heirs, executors and administrators of
such a person. All rights to indemnification under this Article V shall be
deemed to be provided by a contract between the Corporation and the Agent who
serves in such capacity at any time while these Bylaws and other relevant
provisions of the Delaware General Corporation Law and other applicable law,
if any, are in effect. Any repeal or modification thereof shall not affect
any rights or obligations then existing.
Section 5.08. INSURANCE. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of
any person who is or was an Agent against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 5.09. CONSTITUENT CORPORATIONS. For the purposes of this
Article V, references to "the Corporation" shall include, in addition to the
resulting corporation, all constituent corporations (including all
constituents of constituents) absorbed in a consolidation or merger as well
as the resulting or surviving corporation, which, if the separate existence
of such constituent corporation had continued, would have had power and
authority to indemnify its Agents, so that any Agent of such constituent
corporation shall stand in the same position under the provisions of the
Article V with respect to the resulting or surviving corporation as that
Agent would have with respect to such constituent corporation if its separate
existence had continued.
Section 5.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article V, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to any employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article V.
Section 5.11. SAVINGS CLAUSE. If this Article V or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether internal or external, including
a grand jury proceeding and an action or suit brought by or in the right of
the Corporation, to the full extent permitted by any applicable portion of
this Article V that shall not have been invalidated, or by any other
applicable law.
ARTICLE VI
Stock
Section 6.01. CERTIFICATES. Except as otherwise provided by law, each
stockholder shall be entitled to a certificate or certificates which shall
represent and certify the number and class (and series, if
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appropriate) of shares of stock owned by him in the Corporation. Each
certificate shall be signed in the name of the Corporation by the Chairman of
the Board or a Vice-Chairman of the Board or the President or a Vice
President, together with the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. Any or all of the signatures on any
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Section 6.02. TRANSFER OF SHARES. Shares of stock shall be
transferable on the books of the Corporation only by the holder thereof, in
person or by his duly authorized attorney, upon the surrender of the
certificate representing the shares to be transferred, properly endorsed, to
the Corporation's transfer agent, if the Corporation has a transfer agent, or
to the Corporation's registrar, if the Corporation has a registrar, or to the
Secretary, if the Corporation has neither a transfer agent nor a registrar.
The Board of Directors shall have power and authority to make such other
rules and regulations concerning the issue, transfer and registration of
certificates of the Corporation's stock as it may deem expedient.
Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock whose
respective duties the Board of Directors or the Secretary may, from time to
time, define. No certificate of stock shall be valid until countersigned by
a transfer agent, if the Corporation has a transfer agent, or until
registered by a registrar, if the Corporation has a registrar. The duties of
transfer agent and registrar may be combined.
Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers,
containing the names and addresses of the stockholders of the Corporation and
the number of shares of each class of stock held by them, shall be kept at
the principal executive office of the Corporation or at the office of its
transfer agent or registrar.
Section 6.05. RECORD DATES. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or
exchange of stock, or in order to make a determination of stockholders for
any other proper purpose. Such date in any case shall be not more than sixty
(60) days, and in case of a meeting of stockholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. Only those stockholders of
record on the date so fixed shall be entitled to any of the foregoing rights,
notwithstanding the transfer of any such stock on the books of the
Corporation after any such record date fixed by the Board of Directors.
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Exhibit 10.1 Form of Indemnification Agreement.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of the 16th
day of August, 1997, by and between TravelMax International, Inc., (the
"Company"), and __________________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance have been
severely limited;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and,
in part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancement of
expenses to Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
a. INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil,
criminal, administrative, investigative or other (hereinafter a "Claim") by
reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company (regardless of
whether it was a subsidiary of the Company at the time of the event giving
rise to Claim), or is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness
in or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
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penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than five (5) days
after written demand by Indemnitee therefor is presented to the Company.
b. REVIEWING PARTY. Notwithstanding the foregoing: (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; PROVIDED, HOWEVER, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Part determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
c. CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expense
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such
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counsel, among other things, shall render its written opinion to the Company
and Indemnitee as to whether and to what extent Indemnitee would be permitted
to be indemnified under applicable law and the Company agrees to abide by
such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to fully indemnify such
counsel against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
d. MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in
Section(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee
in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
a. ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than five (5) days after written demand by Indemnitee therefor to the
Company.
b. NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate
in writing to Indemnitee). In addition, Indemnitee shall give the Company
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
c. NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the
Reviewing Party to have made a determination as to whether Indemnitee has met
any particular standard of conduct or had any particular belief, nor an
actual determination by the Reviewing Party that Indemnitee has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by the Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
d. NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect
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which may cover such Claim, the Company shall give prompt notice of the
commencement of such Claim to the insurers in accordance with the procedures
set forth in the respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such action, suit, proceeding,
inquiry or investigation in accordance with the terms of such policies.
e. SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; PROVIDED, THAT: (i) Indemnitee
shall have the right to employ Indemnitee's counsel in any such Claim at
Indemnitee's expense, and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there be a conflict of interest between the Company
and Indemnitee in the conduct of any such defense, or (C) the Company shall
not continue to retain such counsel to defend such Claim, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the Company. The
Company shall have the right to conduct such defense as it sees fit in its
sole discretion, including the right to settle any claim against Indemnitee
without the consent of the Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
a. SCOPE. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
corporation of the Company's state of incorporation to indemnify a member of
its board of directors or an officer, employee, agent or fiduciary, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement
the greater benefits afforded by such change. In the event of any change in
any applicable law, statute or rule which narrows the right of a corporation
of the Company's state of incorporation to indemnify a member of its board of
directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to
this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder except as set forth in Section 8(a) hereof.
b. NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the laws of
the Company's state of incorporation, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
Indemnitee took or did not take while serving in an indemnified capacity even
though Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the
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extent Indemnitee has otherwise actually received payment (under any
insurance policy, Certificate of Incorporation, Bylaw or otherwise) of the
amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public
policy may prohibit the Company from indemnifying its directors, officers,
employees, agents or fiduciaries under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or
may be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's rights under public policy
to indemnify Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company's key employees, agents or fiduciaries, if Indemnitee is not an
officer or director but is a key employee, agent or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
a. EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee may not be
relieved of liability under applicable law.
b. CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except: (i) with respect
to proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other agreement or insurance policy or under the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to Claims for Indemnifiable Events, (ii) in specific cases if the
Board of Directors has approved the initiation or bringing of such suit, or
(iii) as otherwise as required under the laws of the Company's state of
incorporation, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
c. LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material
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assertions made by the Indemnitee in such proceeding was not made in good
faith or was frivolous; or
d. CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any similar
successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; PROVIDED,
HOWEVER, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
a. For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was serving at the request
of such constituent corporation as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting
or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee, agent or
fiduciary of the Company which imposes duties on, or involves services by,
such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this
Agreement.
c. For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
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consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by
the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two- thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all of the Company's assets.
d. For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provision of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other
than with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of
directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses,
heirs, and personal and legal representative. The Company shall require and
cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect with respect to Claims relating to
Indemnifiable Events regardless of whether Indemnitee continues to serve as a
director, officer, employee, agent or fiduciary of the Company or any other
enterprise at the Company's request.
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13. ATTORNEY'S FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless as a part of such
action, a court of competent jurisdiction over such action determines that
each of the materials assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an
action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee in defense of such
action (including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless, as a part of
such action, the court having jurisdiction over such action determines that
each of Indemnitee's material defenses to such action were made in bad faith
or were frivolous.
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given and shall in any
event be deemed to be given: (a) five (5) after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business
day after the business day of deposit with Federal Express or similar
overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if delivered by facsimile transmission,
with copy by first class mail, postage prepaid, and shall be addressed if to
Indemnitee, at the Indemnitee's address as set forth beneath Indemnitee's
signature to this Agreement and if to the Company at the address of its
principal corporate offices or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Superior Court of the State of California in and for Orange
County, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing
any provision held to be invalid, void or otherwise unenforceable that is not
itself invalid, void or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
California, as applied to contracts
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between California residents, entered into and to be performed entirely
within the State of California, without regard to the conflict of laws
principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written at Newport Beach, California.
TRAVELMAX INTERNATIONAL, INC.
By:
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James C. Healy, Executive Vice-President
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST WRITTEN ABOVE:
- -----------------------------------
[Name of Indemnitee]
Address:
--------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Telecopier No. --------------------
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Exhibit 10.2 Stock Option Plan.
TRAVELMAX INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Travelmax International, Inc. 1997 Stock
Option Plan (the "Plan"), is to provide an incentive to officers, directors,
employees, independent contractors, and consultants of Travelmax International,
Inc., a Utah corporation (sometimes referred to herein as the "Company"), and
any parent companies and subsidiaries (together with the Company herein
collectively referred to as "TMI") to remain in the employ of TMI or provide
services to TMI and contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue Code
of 1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meanings set forth in Sections 424(e) and (f) of the
Code.
This Plan was adopted by the Board of Directors of the Company as of July
29, 1997, and the stockholders of the Company as of August 16, 1997.
2. ADMINISTRATION. The Plan shall be administered by a Plan Committee
which shall be established by the Board of Directors of the Company (the
"Board"). The Plan Committee shall be comprised of at least two members who
shall be outside directors of the Company, as that term is defined in Treasury
Regulation Section 1.162-27, promulgated under the Internal Revenue Code of
1986. Members of the Plan Committee shall be appointed, both initially and as
vacancies occur, by the Board. The Board may serve as the Plan Committee if by
the terms of the Plan all members of the Board are otherwise eligible to serve
on the Plan Committee. The Board, at any time it so desires, may increase or
decrease, but not below two, the number of members of the Plan Committee, may
remove from membership on the Plan Committee all or any portion of its members,
and may appoint such person or persons as it desires to fill any vacancy
existing on the Plan Committee, whether by removal, resignation or otherwise.
The provisions of the Plan and all option and stock appreciation right (SAR)
agreements executed pursuant thereto, and its decisions shall be conclusive and
binding upon all interested persons. Subject to the provisions of the Plan, the
Plan Committee shall have the sole authority to determine:
(a) The persons (hereinafter, "optionees") to whom options to
purchase shares of Common Stock of the Company ("Stock") and SARs shall be
granted;
(b) The number of options and SARs to be granted to each optionee;
(c) The price to be paid for each share of Stock upon the exercise of
each option;
(d) The period within which each option and SAR shall be exercised
and, with the consent of the optionee, any extensions of such period (provided,
however, that the original period and all extensions shall not exceed the
maximum period permissible under the Plan); and
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(e) The terms and conditions of each stock option and/or SAR
agreement entered into between the Company and persons to whom the Company has
granted an option or SAR and of any amendments thereto (provided that the
optionee consents to each such amendment).
The Plan Committee shall meet at such times and places as it determines,
including by means of a telephone conference call. A majority of the members
shall constitute a quorum, and a decision of a majority of those present at any
meeting at which a quorum is present shall constitute the decision of the Plan
Committee. A memorandum signed by all of the members of the Plan Committee
shall constitute the decision of the Plan Committee without the necessity, in
such event, for holding an actual meeting.
3. ELIGIBILITY. Officers, directors and employees of TMI independent
contractors, consultants and other persons providing significant services to TMI
shall be eligible to receive grants of options under the Plan.
4. STOCK SUBJECT TO PLAN. There shall be reserved for issue, upon the
exercise of options granted under the Plan, 2,000,000 shares of Stock or the
number of shares of Stock, which, in accordance with the provisions of Section 9
hereof, shall be substituted therefor. Such shares may be treasury shares. If
an option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, unpurchased shares subject thereto shall
again be available for the purposes of the Plan. The maximum number of shares
with respect to which options which may be granted to an optionee shall not
exceed 1,000,000 shares in each fiscal year during the term of the Plan.
5. TERMS OF OPTIONS AND SARS.
(a) INCENTIVE STOCK OPTIONS. It is intended that options granted
pursuant to this Section 5(a) qualify as incentive stock options as defined in
Section 422 of the Code. Incentive stock options shall be granted only to
employees of TMI. Each stock option agreement evidencing an incentive stock
option shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Plan Committee may deem appropriate in each case:
(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of each incentive stock option shall be determined by the Plan
Committee at the time the option is granted, but shall in no event be less than
100% of the Fair Market Value (as defined below) of the shares on the date the
option is granted, or not less than 110% of the Fair Market Value of such shares
on the date such option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) 10% or more of the total
combined voting power of all classes of stock of the Company or of its Parent or
Subsidiaries. As used in this Plan, the term "date the option is granted" means
the date on which the Plan Committee authorizes the grant of an option hereunder
or any later date specified by the Plan Committee. For the purposes of the
Plan, Fair Market Value of the shares shall be (i) the closing sales price of
shares of Stock sold on the New York Stock Exchange, American Stock Exchange or
the NASDAQ National Market System on the date the option is granted (or if there
was no sale on
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such date, the highest asked price for the Stock on such date), (ii) if the
Stock is not listed on either of those exchanges or traded on the NASDAQ
National Market System on the date the option is granted, the mean between
the "bid" and "asked" price of the Stock in the National Over-The-Counter
Market (or other similar market quotation system) on the date the option is
granted, or (iii) if the Stock is not traded in any market, the price
determined by the Plan Committee to be the fair market value, based upon such
evidence as it may deem necessary or desirable.
(2) PERIOD OF OPTION AND EXERCISE. The period or periods within
which an option may be exercised shall be determined by the Plan Committee at
the time the option is granted, but in no event shall any option granted
hereunder be exercised more than ten years from the date the option was granted
nor more than five years from the date the option was granted in the case of an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiaries.
(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option price be payable, at
the election of the holder of the option and with the consent of the Plan
Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued upon exercise until full payment therefor has been made, and no optionee
shall have any rights as an owner of Stock until the date of issuance to him of
the stock certificate evidencing such Stock.
(4) LIMITATION ON AMOUNT BECOMING EXERCISABLE IN ANY ONE
CALENDAR YEAR. Subject to the overall limitations of Section 4 hereof (relating
to the aggregate shares subject to the Plan), the aggregate Fair Market Value
(determined as of the time the option is granted) of Stock with respect to which
incentive stock options are exercisable for the first time by the optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, the Parent, and Subsidiaries) shall not exceed $100,000.
(b) NONQUALIFIED STOCK OPTIONS. Nonqualified stock options may be granted
not only to employees but also to directors who are not employees of TMI and to
consultants, independent contractors and other persons who provide substantial
services to TMI. Each nonqualified stock option granted under the Plan shall be
evidenced by a stock option agreement between the person to whom such option is
granted and the Company. Such stock option agreement shall provide that the
option is subject to the following terms and conditions and to such other terms
and conditions not inconsistent therewith as the Plan Committee may deem
appropriate in each case:
(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of an option shall be determined by the Plan Committee at the
time the option is granted. As used in this Plan, the term "date the option is
granted" means the date on which the Plan Committee authorized the grant of an
option hereunder or any later date specified by the Plan Committee. To the
extent that the fair market value of Stock is relevant to the pricing of
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<PAGE>
the option by the Plan Committee, fair market value of the Stock shall be
determined as set forth in Section 5(a)(1) hereof.
(2) PERIOD OF OPTION AND EXERCISE. The periods, installments or
intervals during which an option may be exercised shall be determined by the
Plan Committee at the time the option is granted, but in no event shall such
period exceed 10 years from the date the option is granted.
(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option exercise price be
payable at the election of the holder of the option, with the consent of the
Plan Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued until full payment therefor has been made, and no optionee shall have any
rights as an owner of shares of Stock until the date of issuance to him of the
stock certificate evidencing such Stock.
(c) STOCK APPRECIATION RIGHTS. SARs may be granted in writing under the
Plan by the Plan Committee subject to the following terms and conditions and
such other terms and conditions as the Plan Committee may prescribe.
(1) RIGHT OF OPTIONEE. Each SAR shall entitle the holder
thereof, upon the exercise of the SAR, to receive from the Company in exchange
therefor an amount equal in value to the excess of the Fair Market Value on the
date of exercise of one share of Stock over its Fair Market Value on the date of
grant (or, in the case of an SAR granted in connection with an option, the
excess of the Fair Market Value of one share of Stock at the time of exercise
over the option exercise price per share under the option to which the SAR
relates), multiplied by the number of shares covered by the SAR or the option,
or portion thereof, that is surrendered. No SAR shall be exercisable at a time
that the amount determined under this subparagraph is negative. Payment by the
Company upon exercise of an SAR shall be made in Stock valued at the Fair Market
Value of the Stock on the date of exercise.
(2) EXERCISE. An SAR shall be exercisable only at the time or
times established by the Plan Committee. If an SAR is granted in connection
with an option, the following rules shall apply: (i) the SAR shall be
exercisable only to the extent and on the same conditions that the related
option could be exercised; (ii) upon exercise of the SAR, the option or portion
thereof to which the SAR relates terminates; and (iii) upon exercise of the
option, the related SAR or portion thereof terminates.
(3) RULES. The Plan Committee may withdraw any SAR granted
under the Plan at any time and may impose any conditions upon the exercise of an
SAR or adopt rules and regulations from time to time affecting the rights of
holders of SARs granted prior to adoption or amendment of such rules and
regulations as well as SARs granted thereafter.
(4) FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of an SAR. In lieu thereof, cash may be paid in an amount equal
to the value of the
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fraction or, if the Plan Committee shall determine, the number of shares may
be rounded downward to the next whole share.
(5) SHARES SUBJECT TO PLAN. Upon the exercise of an SAR for
shares, the number of shares of Stock reserved for issuance under the Plan shall
be reduced by the number of shares issued.
6. NONTRANSFERABILITY. The options and SARs granted pursuant to the Plan
shall be nontransferable except by will or the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death or for
options other than incentive stock options, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act and shall be exercisable during the optionee's lifetime only
by him (or, in the case of a transfer pursuant to a qualified domestic relations
order, by the transferee under such qualified domestic relations order) and
after his death, by his personal representative or by the person entitled
thereto under his will or the laws of intestate succession.
7. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Unless otherwise
specified in the applicable option and/or SAR agreement or SAR, upon termination
of the optionee's employment or other relationship with TMI, his rights to
exercise options and SARs then held by him shall be only as follows (in no case
do the time periods referred to below extend the term specified in any option):
(a) DEATH OR DISABILITY. Upon the death or disability (within the
meaning of Section 22(e)(3) of the Code) of an optionee, any option or SAR which
he holds may be exercised (to the extent exercisable at his death or
disability), unless it otherwise expires, within such period after the date of
his death (not less than six months nor more than twelve months) as the Plan
Committee shall prescribe in his option agreement or SAR, by the optionee or, in
the event of death, by the optionee's representative or by the person entitled
thereto under his will or the laws of intestate succession.
(b) RETIREMENT. Upon the retirement (either pursuant to an TMI
retirement plan, if any, or pursuant to the approval of the Board) of an
officer, director or employee, an outstanding option or SAR may be exercised (to
the extent exercisable at the date of such retirement) by him within such period
after the date of his retirement (provided that such period is no less than 30
days and no more than three months) as the Plan Committee shall prescribe in his
option agreement or SAR.
(c) OTHER TERMINATION. In the event an officer, director or employee
ceases to serve as an officer or director or leaves the employ of TMI for any
reasons other than as set forth in (a) and (b), above, or a nonemployee ceases
to provide services to TMI, any option or SAR which he holds shall remain
exercisable (to the extent exercisable as of the date of such termination) until
30 days after the date of such termination.
(d) PLAN COMMITTEE DISCRETION. The Plan Committee may in its sole
discretion accelerate the exercisability of any or all options or SARs.
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8. TRANSFER TO RELATED CORPORATION. In the event an employee leaves the
employ of the Company to become an employee of a Parent or a Subsidiary or any
employee leaves the employ of a Parent or a Subsidiary to become an employee of
the Company or another Parent or Subsidiary, such employee shall be deemed to
continue as an employee for purposes of this Plan.
9. ADJUSTMENT OF SHARES; TERMINATION OF OPTIONS AND SARS.
(a) ADJUSTMENT OF SHARES. In the event of changes in the outstanding
Stock by reason of stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the Plan
Committee), an appropriate adjustment shall be made by the Plan Committee in the
number of shares reserved under the Plan, in the number of shares set forth in
Section 4 hereof, in the number of shares and the option price per share
specified in any stock option agreement, and in the number of SARs with respect
to any unexercised shares. The determination of the Plan Committee as to what
adjustments shall be made shall be conclusive. Adjustments for any options to
purchase fractional shares shall also be determined by the Plan Committee. The
Plan Committee shall give prompt notice to all optionees of any adjustment
pursuant to this Section.
(b) TERMINATION OF OPTIONS AND SARS ON MERGER, REORGANIZATION OR
LIQUIDATION OF THE COMPANY. Notwithstanding anything to the contrary in this
Plan, in the event of any merger, consolidation or other reorganization of the
Company in which the Company is not the surviving or continuing corporation (as
determined by the Plan Committee) or in the event of the liquidation or
dissolution of the Company, all options and SARs granted hereunder shall
terminate on the effective date of the merger, consolidation, reorganization,
liquidation or dissolution unless there is an agreement with respect thereto
which expressly provides for the assumption of such options and SARs by the
continuing or surviving corporation.
10. SECURITIES LAW REQUIREMENTS. The Company's obligation to issue shares
of its Stock upon exercise of an option or SAR is expressly conditioned upon the
completion by the Company of any registration or other qualification of such
shares under any state and/or federal law or rulings and regulations of any
government regulatory body or the making of such investment representations or
other representations and undertakings by the optionee (or his legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
of such shares which the Company in its sole discretion shall deem necessary or
advisable. The Company may refuse to permit the sale or other disposition of
any shares acquired pursuant to any such representation until it is satisfied
that such sale or other disposition would not be in contravention of applicable
state or federal securities law.
11. TAX WITHHOLDING. As a condition to the exercise of an option or SAR
or otherwise, the Company may require an optionee to pay over to the Company all
applicable federal, state and local taxes which the Company is required to
withhold with respect to the exercise of an option or SAR granted hereunder. At
the discretion of the Plan Committee and upon the request of an optionee, the
minimum statutory withholding tax requirements may be satisfied by the
withholding of shares of Stock otherwise issuable to the optionee upon the
exercise of an option or SAR.
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12. AMENDMENT. The Board may amend the Plan at any time, except that
without shareholder approval:
(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 9(a) hereof;
(b) The option price per share of Stock subject to incentive stock
options may not be fixed at less than 100% of the Fair Market Value of a share
of Stock on the date the option is granted;
(c) The maximum period of ten (10) years during which the options or
SARs may be exercised may not be extended;
(d) The class of persons eligible to receive options or SARs under
the Plan as set forth in Section 3 shall not be changed; and
(e) This Section 12 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.
13. EFFECTIVE DATE. The Plan shall be effective upon the date of its
adoption by both the Board, and subject to the approval of the stockholders of
the Company within the 12 month period following such adoption date.
14. TERMINATION. The Plan shall terminate automatically as of the close
of business on the day preceding the 10th anniversary date of its effectiveness
or earlier by resolution of the Board, or upon consummation of any merger,
consolidation or other reorganization in which the options granted hereunder
terminate, all as described in Section 9(b) hereof. Unless otherwise provided
herein, the termination of the Plan shall not affect the validity of any option
agreement outstanding at the date of such termination.
15. STOCK OPTION AND SAR AGREEMENT. Each option and SAR granted under the
Plan shall be evidenced by a written agreement executed by the Company and
accepted by the optionee, which (i) shall contain each of the provisions and
agreements herein specifically required to be contained therein, (ii) shall
indicate whether an option is to be an incentive stock option or a nonqualified
stock option, and if it is to be an incentive stock option, the stock option
agreement shall contain terms and conditions permitting such option to qualify
for treatment as an incentive stock option under Section 422 of the Code, (iii)
may contain the agreement of the optionee to remain in the employ of, and/or to
render services to, the Company or any Parent or Subsidiary for a period of time
to be determined by the Plan Committee, and (iv) may contain such other terms
and conditions as the Plan Committee deems desirable and which are not
inconsistent with the Plan.
16. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any option or SAR
granted hereunder shall confer upon any optionee any right to continue in the
employ of TMI or to continue to perform services for TMI, or shall interfere
with or restrict in any way the rights of TMI to discharge or terminate any
officer, director, employee, independent contractor or consultant at any time
for any reason whatsoever, with or without good cause.
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Executed and dated as of the date first written above at Newport Beach,
California.
TRAVELMAX INTERNATIONAL, INC.
By: /s/ Mark Guest
--------------------------
Mark Guest, President
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Exhibit 10.3 Independent Representatives Stock Option Plan.
TRAVELMAX INTERNATIONAL, INC.
INDEPENDENT REPRESENTATIVES' STOCK OPTION PLAN
1. PURPOSE. The purpose of the TravelMax International, Inc.
Independent Representatives' Stock Option Plan (the "Plan"), is to provide an
incentive to certain independent contractors ("Participants") providing sales
services to TravelMax International, Inc., a Utah corporation and any parent
companies and subsidiaries (collectively referred to as "TMI") to provide
services to TMI and contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue
Code of 1986, as amended, and any successor statute, and the terms "Parent"
and "Subsidiary" shall have the meanings set forth in Code Sections 424(e)
and (f).
This Plan was adopted by the Board of Directors of TMI as of July 29,
1997, and by the stockholders of TMI as of August 16, 1997.
2. ADMINISTRATION. The Plan shall be administered by a Plan
Committee which shall be established by the Board of Directors of TMI (the
"Board"). Members of the Plan Committee shall be appointed, both initially
and as vacancies occur, by the Board. The Board, at any time it so desires,
may increase or decrease, but not below two, the number of members of the
Plan Committee, may remove from membership on the Plan Committee all or any
portion of its members, and may appoint such person or persons as it desires
to fill any vacancy existing on the Plan Committee, whether by removal,
resignation or otherwise. The provisions of the Plan and all option
agreements executed pursuant thereto, and its decisions shall be conclusive
and binding upon all interested persons. Subject to the provisions of the
Plan, the Plan Committee shall have the sole authority to determine:
(a) The persons (hereinafter, "optionees") to whom options to
purchase shares of Common Stock of TMI ("Stock") shall be granted;
(b) The number of options to be granted to each optionee;
(c) The price to be paid for each share of Stock upon the exercise
of each option;
(d) The period within which each option shall be exercised and,
with the consent of the optionee, any extensions of such period (provided,
however, that the original period and all extensions shall not exceed the
maximum period permissible under the Plan); and
(e) The terms and conditions of each stock option agreement
entered into between TMI and persons to whom TMI has granted an option and of
any amendments thereto (provided that the optionee consents to each such
amendment).
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The Plan Committee shall meet at such times and places as it determines,
including by means of a telephone conference call. A majority of the members
shall constitute a quorum, and a decision of a majority of those present at
any meeting at which a quorum is present shall constitute the decision of the
Plan Committee. A memorandum signed by all of the members of the Plan
Committee shall constitute the decision of the Plan Committee without the
necessity, in such event, for holding an actual meeting.
3. FORMULA GRANTS. Unless determined otherwise by the Plan Committee,
options shall be granted to Participants each week on the basis of the amount
of commissions paid in respect of services as an independent representative
of the Company, as follows:
<TABLE>
<S> <C>
$2250-$4499 Options for 250 shares
$4500-$6749 Options for 500 shares
$6750 or more Options for 1000 shares
</TABLE>
4. ELIGIBILITY. All Participants shall be eligible to receive grants
of options under the Plan.
5. STOCK SUBJECT TO PLAN. There shall be reserved for issue, upon the
exercise of options granted under the Plan, 2,900,000 shares of Stock or the
number of shares of Stock, which, in accordance with the provisions of
Section 9 hereof, shall be substituted therefor. Such shares may be treasury
shares. If an option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, unpurchased shares subject
thereto shall again be available for the purposes of the Plan.
Each nonqualified stock option granted under the Plan shall be evidenced
by a stock option agreement between the person to whom such option is granted
and TMI. Such stock option agreement shall provide that the option is
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Plan Committee may deem
appropriate in each case:
(a) OPTION PRICE. The price to be paid for each share of
Stock upon the exercise of an option shall be determined by the Plan
Committee at the time the option is granted , but shall in no event be less
than 100% of the Fair Market Value of the shares on the date the option is
granted. As used in this Plan, the term "date the option is granted" means
the date on which the Plan Committee authorized the grant of an option
hereunder or any later date specified by the Plan Committee.
(b) PERIOD OF OPTION AND EXERCISE. The periods, installments
or intervals during which an option may be exercised shall be determined by
the Plan Committee at the time the option is granted, but in no event shall
such period exceed 10 years from the date the option is granted. Unless
determined otherwise by the Plan Committee, options may be exercised as
follows:
<TABLE>
<S> <C>
2 years after grant 25% of options granted
3 years after grant 25% of options granted
4 years after grant 50% of options granted
</TABLE>
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(c) PAYMENT FOR STOCK. The option exercise price for each
share of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option exercise price be
payable at the election of the holder of the option, with the consent of the
Plan Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair
Market Value on the date on which the option is exercised. No share of Stock
shall be issued until full payment therefor has been made, and no optionee
shall have any rights as an owner of shares of Stock until the date of
issuance to him of the stock certificate evidencing such Stock.
6. NONTRANSFERABILITY. The options granted pursuant to the Plan shall
be nontransferable except by will or the laws of descent and distribution of
the state or country of the optionee's domicile at the time of death or
pursuant to a qualified domestic relations order as defined in the Code or
Title I of the Employee Retirement Income Security Act and shall be
exercisable during the optionee's lifetime only by him (or, in the case of a
transfer pursuant to a qualified domestic relations order, by the transferee
under such qualified domestic relations order) and after his death, by his
personal representative or by the person entitled thereto under his will or
the laws of intestate succession.
7. TERMINATION OF RELATIONSHIP. Unless otherwise specified in the
applicable option agreement upon termination of the optionee's relationship
with TMI, his rights to exercise options then held by him shall be only as
follows (in no case do the time periods referred to below extend the term
specified in any option):
(a) DEATH OR DISABILITY. Upon the death or disability (within the
meaning of Section 22(e)(3) of the Code) of an optionee, any option which he
holds may be exercised (to the extent exercisable at his death or
disability), unless it otherwise expires, within such period after the date
of his death (not less than six months nor more than twelve months) as the
Plan Committee shall prescribe in his option agreement by the optionee or, in
the event of death, by the optionee's representative or by the person
entitled thereto under his will or the laws of intestate succession.
(b) PLAN COMMITTEE DISCRETION. The Plan Committee may in its sole
discretion accelerate or extend the exercisability of any or all options.
8. ADJUSTMENT OF SHARES; TERMINATION OF OPTIONS.
(a) ADJUSTMENT OF SHARES. In the event of changes in the
outstanding Stock by reason of stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the Plan
Committee), an appropriate adjustment shall be made by the Plan Committee in
the number of shares reserved under the Plan, in the number of shares set
forth in Section 5 hereof, in the number of shares and the option price per
share specified in any stock option agreement with respect to any unexercised
shares. The determination of the Plan Committee as to what adjustments shall
be made shall be conclusive. Adjustments for any options to purchase
fractional shares shall also be determined by the Plan Committee. The Plan
Committee shall give prompt notice to all optionees of any adjustment
pursuant to this Section.
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(b) TERMINATION OF OPTIONS ON MERGER, REORGANIZATION OR
LIQUIDATION OF TMI. Notwithstanding anything to the contrary in this Plan,
in the event of any merger, consolidation or other reorganization of TMI in
which TMI is not the surviving or continuing corporation (as determined by
the Plan Committee) or in the event of the liquidation or dissolution of TMI,
all options granted hereunder shall terminate on the effective date of the
merger, consolidation, reorganization, liquidation or dissolution unless
there is an agreement with respect thereto which expressly provides for the
assumption of such options by the continuing or surviving corporation.
9. SECURITIES LAW REQUIREMENTS. TMI's obligation to issue shares of
its Stock upon exercise of an option is expressly conditioned upon the
completion by TMI of any registration or other qualification of such shares
under any state and/or federal law or rulings and regulations of any
government regulatory body or the making of such investment representations
or other representations and undertakings by the optionee (or his legal
representative, heir or legatee, as the case may be) in order to comply with
the requirements of any exemption from any such registration or other
qualification of such shares which TMI in its sole discretion shall deem
necessary or advisable. TMI may refuse to permit the sale or other
disposition of any shares acquired pursuant to any such representation until
it is satisfied that such sale or other disposition would not be in
contravention of applicable state or federal securities law.
10. TAX WITHHOLDING. As a condition to the exercise of an option or
otherwise, TMI may require an optionee to pay over to TMI all applicable
federal, state and local taxes which TMI is required to withhold with respect
to the exercise of an option granted hereunder. At the discretion of the
Plan Committee and upon the request of an optionee, the minimum statutory
withholding tax requirements may be satisfied by the withholding of shares of
Stock otherwise issuable to the optionee upon the exercise of an option.
11. AMENDMENT. The Board may amend the Plan at any time, except that
without shareholder approval:
(a) The number of shares of Stock which may be reserved for
issuance under the Plan shall not be increased except as provided in Section
8(a) hereof;
(b) The maximum period of ten (10) years during which the options
may be exercised may not be extended;
(c) The class of persons eligible to receive options under the
Plan as set forth in Section 3 shall not be changed; and
(d) This Section 11 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.
12. EFFECTIVE DATE. The Plan shall be effective upon the date of its
adoption by both the Board, and subject to the approval of the stockholders
of TMI within the 12 month period following such adoption date.
13. TERMINATION. The Plan shall terminate automatically as of the
close of business on the day preceding the 10th anniversary date of its
effectiveness or earlier by resolution of the
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Board, or upon consummation of any merger, consolidation or other
reorganization in which the options granted hereunder terminate, all as
described in Section 8(b) hereof. Unless otherwise provided herein, the
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination.
14. STOCK OPTION AGREEMENT. Each option granted under the Plan shall
be evidenced by a written agreement executed by TMI and accepted by the
optionee, which (i) shall contain each of the provisions and agreements
herein specifically required to be contained therein, (ii) may contain the
agreement of the optionee to render services to, TMI or any Parent or
Subsidiary for a period of time to be determined by the Plan Committee, and
(iii) may contain such other terms and conditions as the Plan Committee deems
desirable and which are not inconsistent with the Plan.
Executed and dated as of the date first written above at Newport Beach,
California.
TRAVELMAX INTERNATIONAL, INC.
By: /s/ Mark Guest
------------------------
Mark Guest, President
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Exhibit 10.4 Lease for Property at 3388 Via Lido, Newport Beach, CA 92663
LIDO MARINA VILLAGE
OFFICE LEASE
THIS LEASE dated this lst day of February 1996 is entered into by and between
"Lido Marina Village" Landlord and TravelMax International, Inc., a
California Corporation and William Alverson, and Dale Paisley (as
individuals),"Tenant".
In consideration of the rents and covenants hereinafter set forth, Landlord
hereby Leases to Tenant, and Tenant hereby rents from Landlord, the following
described premises upon the following terms and conditions:
ARTICLE I
FUNDAMENTAL LEASE PROVISIONS
The following terms shall have the following meanings in the this Lease:
Landlord: Lido Marina Village
Tenant: TravelMax International, Inc. a California
Corporation and William Alverson and Dale
Paisley, as individuals
Tenants Trade Name: TravelMax international
Lease Term: Seven (7) Years
Commencement Date: February 1, 1996
Building: 3388 Via Lido
Newport Beach, CA. 92663
Premises: First, Second, Third, Fourth and Fifth
Floors. Consisting of approximately 19,000
sq.ft.
Minimum Monthly Rent: Twenty Four Thousand seven Hundred Thirty
Five Dollars and no/100ths ($24,735.00).
Address for Notices:
Landlord: 3400 Via Oporto, #104
Newport Beach, CA. 92663
Tenant: 3388 Via Lido #500
Newport Beach, CA. 92663
Tenants Percentage Share 14.89% of Lido Marina Village
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Parking: All spaces in front of 3388 Via Lido & and
that portion be1onging to Lido Marina Village
at 32nd street and Villa, Newport Beach, CA.
The fo11owing are specia1 provisions, exhibits and the attached hereto are made
as part of this Lease:
Exhibit "A":
Exhibit "B":
Exhibit "C":
Amendments and Attachments:
Legal Description
Leasehold improvements
Rules and Regulations
See Attached Addendum
ARTICLE II
LEASE TERMS AND CONDITIONS
1. PREMISES
1.1 PREMISES: Landlord hereby leases to Tenant and Tenant hereby rents
from Landlord the Premises, subject to the following terms and conditions.
1.2 FIRST FLOOR: Tenant has accepted premises, rent commenced December
15, 1995.
1.3 SECOND FLOOR PREMISES: Upon Lease execution Landlord will notify
tenants of 2nd floor that Travelmax International, Inc will be the sole occupant
of the building.
1.4 THIRD FLOOR PREMISES: Tenant is aware that the third (3rd) floor is
currently occupied (as of February 1, 1996) and Landlord is diligently pursuing
the vacating of this tenant. Tenant is aware that certain inventory located
within the 3rd floor premises is Landlords personal property. A list of
inventoried items to be made a part of this Lease. Tenant is responsible for
the maintenance, repairs and replacement (if necessary) of Landlords personal
property. Tenant shall carry insurance covering the cost of replacement, repair
and maintenance. Tenant has the option but is not obligated to select certain
Landlord personal property items that is usable to Tenant for Tenant use or
accept all personal property for Tenant use. Tenant may at Tenants option
purchase a11 or a portion of the personal property items. In no event shall
this acceptance or denial of personal property change any rights under Article
11 Section 3. Rent).
Tenant shall deposit with Landlord the sum of Twenty Six Thousand Two
Hundred Fifty Dollars and no/100ths ($26,250.00) upon execution of the Lease.
Twenty Six Thousand Two
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Hundred Fifty Dollars and no/100ths ($26,250.00) represents a prepayment of
rent for the first three (3) months for the third (3rd) floor.
1.5 FOURTH FLOOR: Tenant has accepted premises, rent commenced December
15, 1995.
1.6 FIFTH FLOOR: Tenant has accepted premises, rent commenced December
15, 1995.
2. COMMENCEMENT OF TERM
If Landlord cannot deliver possession of the Premises to Tenant on the
Commencement Date, the term of this Lease shall commence upon such later date
as may be specified by written notice delivered to Land1ord to Tenant,
advising Tenant that the Premises are ready for occupancy and specifying a
revised Commencement Date, which shall not be less than thirty (30) days
following the date of such notice. In the event the Commencement Date is
revised, the rent set forth in Section 3 shall commence to accrue on the date
so revised. In the event that such written notice is not delivered to Tenant
within six (6) months following the date specified above, Tenant may
terminate this Lease by written notice to Landlord. In any event, Landlord
shall not be liable to Tenant for any loss Or damage resulting from
Landlord's inability, for whatever reason, to delivery possession Tenant. If
permission is given to Tenant to occupy the Premises prior to the
Commencement Date, such occupancy shall be subject to all of the provisions
of this Lease.
3. RENT
3.1 MINIMUM RENTAL: Tenant shall pay to Landlord Minimum Rental for
the use and occupancy of the Premises. Said annual rental shall be paid in
twelve (12) equal payments, paid in advance on the first day of each calendar
month from the Commencement Date and thereafter throughout the term of the
Lease. All rent to be paid by Tenant to Landlord shall be, lawful money of
the United States of America and shall be paid without deduction or offset,
prior notice or demand, and at such place or places, as designated from time
to time by Landlord in writing. Minimum monthly rent for the 1st, 4th and
5th floor is ($10,860.00) commenced on December 15, 1995; minimum rent for
the 2nd f1oor ($5,125.00) commences upon delivery of premises by Landlord;
and minimum rent for 3rd Floor ($8,750.00) commences upon delivery of
premises from Landlord.
3.2 LATE CHARGES: If any installment of rent due from Tenant shall not
be received Landlord or Landlord's assignee within five (5) days after such
amount shall be due, Tenant shall pay to Landlord a late charge equal to ten
percent (10%) of such overdue amount as more fully set forth in Paragraph
17.2 herein.
3.3 COST OF LIVING INCREASE: The Minimum Rental specified in Article I
shall be subject to increase, but not greater than three (3%) percent any one
year, from the base period in the United States Department Labor, Bureau of
Labor Statistics Consumer Price Index Subgroup "all items" entitled Consumer
Price Index for Urban Wage Earners and Clerical Workers (Revised Series) for
Los Angeles - Long Beach - Anaheim Average (1967 100). The index for said
subgroup published for January of the year in which this Lease is executed
shall be the base period. The index for January of every year after the base
period shall be used for comparison purposes to determine the amount of
increase, if any, in the Minimum Rental for the next
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successive year; provided, however, in no event shall the Minimum Rental be
less than the amount specified in Article 1. When the Minimum Rental for any
one year period is determined, Landlord shall Tenant written notice to that
effect indicating how the new minimum annual rental figure was completed.
The effective date of such increase shall be the first day of July of any
such year in which Tenant shall receive notice of an increase in Minimum
Rental. In no event shall the CPI adjustment exceed three (3%) in any one
year.
If at any rental adjustment date there shall not exist the Consumer
Price Index in the same format as recited in this Paragraph 3.3, the parties
shall substitute any official index published by the Bureau Of Labor
Statistics, or any successor or similar governmental agency, as may then be
in existence and shall be most nearly equivalent thereto. If the parties are
unable to agree upon a successor index, the parties shall refer the choice of
a successor index to arbitration in accordance with the rules of the American
Arbitration Association. At such time as the "Los Angeles - Long Beach -
Anaheim" index is replaced with the "Los Angeles - Riverside - Anaheim"
index, the parties agree that the latter index shall be utilized.
3. 4 OPERATING EXPENSE ADJUSTMENTS: In addition to the Minimum Rental,
Tenant shall pay to Landlord at the times set forth in this paragraph
Tenant's share of the Landlords expense, hereinafter referred to as "direct
expenses" or "expenses" or "operating expenses", of operating the property,
first year is thirty seven cents per square foot per month.
Landlords Operating Expenses, include, without limitation, those costs
of operation and maintenance of the property including walkways, deck area,
marina area, landscape areas, parking garage or parking areas designated by
Landlord, streets driveways, truckways, delivery passages, loading docks (if
any) sidewalks, pedestrian passage ways, exterior stairwells, bus stops,
retaining walls (if any), foundations, exterior walls, downspouts, gutters
and roofs. Tenant shall be responsible for repairs and/or maintenance of roof
if damage is the direct cause of Tenant, or Tenant contractors, etc. neglect.
Tenant shall be responsible for elevator repair, if such repair is the
direct cause of Tenant or Tenant customers, invitees or personnel of the
buildings at the property. All furniture, fixtures, equipment, machinery and
other persona1 property 1ocated therein owned by Landlord, restroom not
located within the Premises of any tenant, area adjacent thereto, and parking
areas for use by Tenants of the property, and boat slips and other areas and
improvements provided by Landlord for the common use of Landlord and tenants
of the property and their respective employees and invitees. Landlord may
make a change at any time and from time to time in the size, shape, location,
number and extent of these areas or any of them, and no such change shall
entitle Tenants to any abatement of rent set forth in the following
subparagraphs A and B.
Landlord shall operate, manage, equip, police, light, repair, clean, and
maintain these areas in such manner as Landlord may in its sole discretion,
determine to be appropriate. Landlord may temporarily close any of these
areas for repairs or alterations, to prevent a dedication thereof or the
accrual of prescriptive rights therein or for any other reason deemed
sufficient by Landlord. Landlord shall at all times during the term of this
Lease have the sole and exclusive control of these area and may, at any time
and from time to time during the term hereof, restrain any use of such areas
established by Landlord from time to time. If, it, the opinion of Landlord,
unauthorized persons are using any of these areas by reason of the presence
of Tenant in the property, Tenant, upon demand of Landlord, shall restrain
such unauthorized use by appropriate proceedings. Nothing herein shall
affect the right of Landlord at any time to
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remove any such unauthorized Person from these area or to prohibit use of
these areas by unauthorized persons.
Prior to the commencement of each fiscal year of Landlord, Landlord
shal1 give Tenant a written estimate of Tenants, share of such common area
cost for such fiscal year, and Tenant shall pay such estimated amount to
Landlord in twelve equal monthly installments, in advance on the first day of
each calendar month during such fiscal year. Within ninety (90) day, after
the end of each fiscal year of Landlord, Landlord shall furnish the Tenant a
statement showing in reasonable detail the cost and expenses, incurred by
Landlord for the operation and maintenance of the common area, during such
fiscal year, and the parties shall within thirty (30) days thereafter make
any payment of allowance necessary to adjust Tenant estimated payment to
Tenants actual proportionate share of common area costs as shown by such
Annual statement. In no event shall the common area cost increase more than
three (3%) in any one year.
A. All taxes, assessments water and sewer charges and other, similar
governmental charges levied on or attributable to the property or operation,
including, without limitation; (1) real property taxes assessments levied or
assessed against the property; (2) assessments or charges levied or assessed
against the property by any redevelopment agency, and (3) any tax measured by
gross rentals received from the leasing of the Premises, or Building,
excluding any net income, franchise capital stock, estate or inheritance
taxes imposed by the State or Federal Government or their agencies, branches,
or departments; provided that at any time during the term hereof any
governmental entity levies, assesses or imposes on Landlord any (a) general
or special, ad valorem or specified, excise, capital levy or other tax,
assessment, levy or charge directly on the rent received under this Lease or
on the rent received under any leases of space at the property, or (b) any
license fee, excise or franchise tax, such rent, or (3) any transfer,
transaction, or similar tax, assessment, levy or charge based directly or
indirectly upon the transaction represented by this Lease or such other
leases, or (4) any occupancy, use, per capita or other tax, assessment, levy
or charge based directly or indirectly upon the use or occupancy of the
Premises or other premises within the Building, then any such taxes,
assessments, levies and charges shall be deemed to be included in the term
Operating Expenses. In no event shall the taxes be less then tax year
1995/1996 or fifteen cents per square foot per month nor increased more than
three percent in any one year. If at any time during the Term the assessed
valuation of, or taxes, on the buildings are not based on a completed
Building having at least eighty Five Percent (85%) of the rentable area
occupied, then the component of the Operating Expenses shall be adjusted by
Landlord to reasonably approximate the taxes which would have been payable in
property were completed and at lease eighty five percent (85%) occupied.
B. Operating costs incurred by Landlord in maintaining and operating
the property, including without limitation the following: costs of (1)
utilities as defined as common area. Provided Tenant Premises is not
separately metered, Tenant shall be responsible, and reimburse Landlord for
Tenant Premise utilities cost based on square foot occupied by Tenant, if
Premise is separate1y metered, Tenant shall be responsible for utility cost
incurred for Premises, (2) supplies, (3) insurance (including public
liability, property damage, earthquake, and fire and extended coverage
insurance for full replacement cost of the property as required by Landlord
or its lenders for the property, (4) services of independent contractors; (5)
compensation (including employment taxes and fringe benefits) of all person
who perform duties connected with the operation, maintenance, repair or
overhaul of the property and equipment improvements and facilities, located
with the property including without limitation engineers, janitors, painters,
floor
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waxers, window washers, steam cleaning, security and parking personnel and
gardeners (but excluding persons performing services not uniformly available
to or performed for substantially all property tenants). Tenant shall pay to
Landlord in addition to the cost above fifteen percent (15%) supervision fee
of total expenses, including but not limited to Real Estate Taxes.
Even though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenants share of Operating Expenses
for the year in which this Lease terminates (including Options), Tenant shall
immediately pay any amounts due of expenses paid and, conversely, any
overpayment made in the event said expenses decreases shall be immediately
rebated by Landlord to Tenant. Such increase or decrease shall be determined
on a prorated basis based on the number of months that the Tenant occupied
the Premises in the year of termination.
Notwithstanding anything contained in this paragraph to the contrary,
the rental payable by Tenant shall in no event, be less than the rent
specified in Paragraph 3.1 hereinabove.
4. TAXES
4.1 TAX COST: Tenant shall pay to Lessor as additional rent hereunder
in the manner provided, Tenants proportionate share of any Real Estate Tax
Cost estimated, paid or incurred by Landlord before delinquent all taxes,
assessments, license fees and public charge levied, assessed or imposed upon
or measured by the value of its business operation, including, but not
limited to, the furniture, fixtures, leasehold improvements, equipment and
other property of Tenant at any time situated on or installed in the Premises
by Tenant. In no event shall the tax, increase be more than three percent in
any one year. If at any time during the term of this Lease any of the
foregoing are assessed as a part of the real property of which the Premises
are a part, Tenant shall pay the Landlord upon demand the amount of such
additional taxes as may be levied against said real property by reason
thereof. For the purpose of determining said amount, figures supp1ied by the
County Assessor as to the amount so assessed shall be conclusive.
5. SECURITY DEPOSIT
Concurrently with Tenants execution of this Lease, if applicable Tenant
shall deposit with Landlord the Security Deposit to be held by Landlord as
security for the faithful, performance by Tenant of all the terms, covenants,
and conditions of this Lease, to be kept and performed by Tenant during the
term hereof. If tenant defaults with respect to any provision of the Lease,
including, but not limited to, the provisions relating to the payment of rent
and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit
for the payment of any other amount which Landlord may spend by reason of
Tenants default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of tenants default. If any portion of Security
Deposit is so used or applied, Tenant shall, within ten (10) days after
written demand therefor, deposit with Landlord in an amount sufficient to
restore the Security Deposit to its original amount; Tenants failure to do so
shall be a material breach of this Lease. Landlord shall be required to keep
this Security Deposit separate from its general funds, and shall not be
entitled to interest on such deposit. If tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit or any balance thereof shall be returned to Tenant (or at Landlord
option, to the last assignee of Tenants interest hereunder) at the expiration
of the Lease term
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and after Tenant has vacated the Premises. In the event of termination of
Landlord interest in this Lease, Landlord shall transfer said Security
Deposit to Landlord, successor in interest, whereupon Tenant agree, to
release landlord from all for the return of such deposit or the accounting
therefor.
6. USE
6.1 USE: Tenant shall use the Premises for general office purposes and
under the trade name, if any, specified in Article I herein. For purposes of
this "Use" clause the 3rd floor of the premises is designated as bar, pool,
dancing, entertainment, music and related uses. Tenant not use or permit the
premises to be used for any other purpose or purposes under any other trade
name whatsoever without the prior written consent of Landlord.
6.2 SUITABILITY: Tenant acknowledges that neither Landlord nor agent
of Landlord has made any representation or warranty with respect to the
property or with respect to the suitability of the property for the conduct
of Tenants business, nor has Landlord agreed to undertake any modification,
alteration, or improvement to the Premises except as provided this Lease.
The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises were at such time in satisfactory condition
unless within fifteen (15) days after such date Tenant shall give Landlord
written notice specifying in reasonable detail the respects which the
Premises or the property were not in satisfactory condition.
6.3 USE PROHIBITED
A. TENANT further covenants and agrees that it will not use or
suffer or permit any person or persons to use the Premises or any thereof for
any use or purpose in violation of the laws of the United States of America
or the State in which the Premises is located, or the ordinances, regulations
and requirements of the City and County wherein Premises are situated, or any
covenant, condition or, restriction affecting the property and that during
said term the Premises, an every part thereof, shall be kept by the Tenant in
a clean and wholesome condition, free of objectionable noises, odors or
nuisances, and that all health and police regulation and Rules and
Regulations of the property shall, in all respect and at all times, be fully
complied with by the Tenant, its agents, employees, guests and invitees.
B. TENANT shall not do or permit anything to be done in or about
the Premises nor bring or keep anything therein which will in anyway increase
the existing rate or affect any fire or other insurance upon the Premises or
the property of which the Premises are a part or any of its contents, nor
shall Tenant sell or permit to be kept, used or sold in or about said
Premises any articles which may be prohibited by a standard form policy of
fire insurance.
C. TENANT shall not cause, maintain or permit any nuisance or on
about the property. Tenant shall not commit or suffer to be committed any
waste in or upon the Premises. Tenant shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants of the building.
7. UTILITY SERVICE
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Upon occupancy of the lst, 2nd, 3rd, 4th, and 5th floors, Tenant shall
be responsible to the governing utility companies for service and payment.
Tenant shall immediately, apply (not later than 10 days) to the various
utilities company's servicing the 3388 Via Lido, Newport Beach, CA. to
transfer the billing name and billing address to Tenant provided the utility
is for the 3388 Via Lido location only and does not service locations within
the Shopping Center. If such service is not billed directly to Tenant for any
reason, Tenant shall pay the Landlord, upon demand, the utility cost
attributed to the building at 3388 Via Lido. This utility cost is for
service to the premises only and not as defined in the common area cost which
is a separate charge. If any such charges are riot paid when due Landlord may
pay the same, and the amount so paid by Landlord shall thereupon become due
to Landlord from Tenant as additional rent. Landlord shall not be liable
for, and Tenants shall not be entitled to any abatement or reduction of
rental by reason of Landlords failure to furnish any of the foregoing when
such failure is caused by accidents, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, or by any other
cause, similar or dissimilar, beyond the reasonable control of landlord.
Landlord shall not be liable under any circumstances for loss of or injury to
property, however occurring, through or in connection with or incidental to
the property, however occurring, through or in connection with or incidental
to failure to furnish any of the foregoing.
Landlord shall not be liable in damages for any failure or interruption
of any utility service being furnished to Premises, and no such failure or
interruption shall entitle Tenant to terminate this Lease.
8. MAINTENANCE AND REPAIRS: ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS
A. By entry hereunder, Tenant accepts the Premises as being in
good, sanitary order, condition and repair. Tenant shall, at Tenants sole
cost and expense, keep the Premises and every part thereof, in good condition
and repair, including, but not limited to, the interior surfaces of the
ceilings, walls, floors, all doors, all interior windows, property standard
finishes, any plumbing and air conditioning which exclusively serves the
Premises, any elevators which exclusively serves the Premises, and special
items and equipment installed by Tenant. Tenant shall, upon the expiration
or sooner termination of the term hereof, surrender the Premises to Landlord
in the same condition as when received, ordinary wear and tear and damage by
fire, earthquake, act of God or other elements excepted. It is specifically
understood and agreed that Landlord has no obligation and has made no
promises to alter, remodel, improve, repair, decorate or paint the Premises
or any part thereof and that no representations respecting the condition of
the Premises or the Building of which the Premises are a part have been made
by Landlord to Tenant except as specifically herein set forth.
B. If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do such acts as
are reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion, then
Landlord shall have the right to do such acts and expend such funds at the
expense of Tenant as are responsibly required to perform such work. Any cost
expended by Landlord shall be reimbursed to Landlord by Tenant promptly after
demand with interest at the prime commercial rate then being charged plus
five percent (5%) per annum, from the date of such work, but not to exceed
the maximum rate then allowed by law. Landlord shall have not
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liability to Tenant for any damage, inconvenience, or interference with the
use of the Premises by Tenant as a result of performing any such work.
Nothing herein shall imply any duty of the part of Landlord to so any such
work which Tenant may be required to do, nor shall it constitute a waiver of
Tenants default in failing to do same.
C. Landlord and Tenant shall each do acts required to comply with
all applicable laws, ordinance, and rules of any public authority relating to
their respective maintenance obligations as set forth herein.
D. Tenant expressly waives the benefits of any statue now
hereafter in effect which would otherwise afford the Tenant the right to make
repairs at Landlords expense or to terminate this Lease because of Landlords
failure to keep the Premises in good order, condition and repair.
E. Tenant shall not place a load upon any floor of the Premise,
which exceeds the load per square foot which floor was designated to carry,
as determined by Landlord or Landlord's structural engineer. The cost of any
such determination made by Landlord's structural engineer shall be paid for
by Tenant upon demand. Tenant shall not install business machines or
mechanical equipment which cause noise vibration to such a degree a to be
objectionable to Landlord or other property tenants.
F. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant nor shall Tenants obligations under this
Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlords making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenants lease or required by law to
make in or to any portion of the property or the Premises. Landlord shall
nevertheless use reasonable efforts to minimize any interference with Tenants
business in the Premises.
G. Tenant shall give Landlord prompt notice of any damage to or
defective conditions of which Tenant is aware in any part or appurtenance of
the Buildings mechanical, electrical, plumbing, HVAC (if applicable), or
other systems servicing, located in, or passing through the Premises.
8.2 ALTERATIONS
A. Tenant shall not make any alterations or additions to the
Premises nor make any contract therefor without first procuring Landlords
written consent, which consent shall not be unreasonably withheld. All
alteration, additions and improvements made by Tenant to or upon the
Premises, except light fixtures, electrical equipment, cases, counters, work
stations, or other removable trade fixtures, shall at once, when made or
installed, be deemed to have attached to the freehold and to have become
property of Landlord; provided, however, if prior to termination of this
Lease, or within fifteen (15) days thereafter, Landlord so directs by written
notice to Tenant, Tenant shall promptly remove the additions, improvements,
fixtures, trade fixtures, and installations which were placed in the Premises
by Tenant and which are designated in said notice and shall repair any damage
occasioned by such removal and in default thereof Landlord may effect said
removal and repairs at Tenants expense.
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B. All work, with respect to any alterations, additions, and
changes, must be done in good and workmanlike manner and diligently
prosecuted to completion to the end that the Premises shall at all time, be a
complete unit except during the period of work. Landlord may, at Landlords
option, require that any such work be performed by Landlords contractor(s),
in which case the cost, of such work shall be paid for before commencement of
the work. Tenant shall pay to Landlord up to completion of any such work by
Landlord contractor(s), an administrative fee of fifteen percent (15%) of the
cost of the work.
C. Any such changes, alterations and improvements shall be
performed and done strictly in accordance with the laws and ordinances
relating thereto.
D. Before commencing any such work or construction in or about the
Premises, Tenant shall notify Landlord in writing of the expected date of
commencement thereof. Landlord shall have the right to any time and from
time to time post and maintain on the Premises and Landlord from mechanics'
liens, materialmen's liens, or any other lien(s).
9. ENTRY BY LANDLORD
Landlord and its agents shall have free access to the Premises during
all reasonable hours for the purpose of examining the Premises, to make
necessary repairs and/or maintenance, and to ascertain if they are in good
condition and repair.
10. LIENS
Tenant agrees that it will pay or cause to be paid all costs for work
done by it on the Premises, and Tenant will keep the Premises free and clear
of mechanics' liens on account of work done by Tenant or persons claiming
under tenant. Tenant agrees to and shall indemnify and save Landlord free
and harmless against liability, loss, damage, costs, attorney's fees, and all
other expenses on account of claims of lien of laborers or materialmen or
other for work performed or materials or supplies furnished for Tenant or
persons claiming under tenant
Landlord may require, at Landlords option that Tenant provide to
Landlord, at Tenants expense, a lien and completion bond in an amount equal
to at least one and one-half (1-1/2) times the total estimated cost of any
additions, alterations or improvements to be made in or to Premises, to
protect Landlord against any liability for mechanics and materials liens to
insure timely completion of the work.
If Tenant shall desire to contest any claim of lien, it shall furnish
Landlord adequate security of the value or in the amount of claim, plus
estimated costs and interest, or a bond of a responsible corporate surety in
such amount conditioned on the discharge of the lien(s). If a final judgment
establishing the validity or existence of a lien for any amount is entered,
Tenant shall pay and satisfy the same at once.
If Tenant shall be in default in paying any charge for which a mechanics
lien claim and suit to foreclose the lien have been filed, and shall not have
given Landlord security to protect the Premises, the Property and Landlord
against such claim of lien, Landlord may (but shall not be so required) pay
the claim and any costs, and the amount so paid together with reasonable
attorneys fees incurred in connection therewith, shall be immediately due and
owing from Tenant
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to Landlord, and Tenant agrees to and shall pay the same with interest at the
maximum legal rate per annum from the dates of Landlords payments.
Should any claims of lien be filed against the Premises or any action
affecting the title to the real property be commenced, the party receiving
notice of such lien or action shall forthwith give the other party written
notice thereof.
Landlord or its representatives shall have the right to go upon and
inspect the Premises, including the property at all reasonable times, and
shall have the right to post and keep posted thereon notices which Landlord
may deem to be proper for the protection of Landlords interest in the
Premises. Tenant shall, before the commencement of any work which might
result in any such lien, give the Landlord written notice of its intention so
to do in sufficient time to enable Landlord to file and record such notice(s).
11. INDEMNITY
11.1 INDEMNITY: Tenant shall indemnify and hold harmless Landlord from
and against any and all claims arising from Tenants use of the Premises or
the conduct of its business or from activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises, and shall further indemnify
and hold Landlord harmless from and against any and all claims arising from
any breach or default in the performance of any obligation on Tenants part to
be performed under the terms of this Lease, or arising from any act or
negligence of Tenant, or any of its agents, contractors, or employees and
from against all costs, attorneys fees, expenses and liabilities incurred in
or about any such claim or any action proceeding brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord, shall defend the
same at Tenant's expense by counsel reasonably satisfactory to landlord.
Tenant, a material part of the consideration to Landlord, hereby assumes all
risk of damage to property or injury to persons, in, or upon or about the
premises from any cause related to Tenants use of the Premises and Tenant
hereby waives all claims in respect thereof against Landlord.
11.2 EXEMPTION OF LANDLORD FROM LIABILITY: Landlord shall not be
liable for injury or damage which may be sustained by the person, goods,
wares, merchandise or property of Tenant, its employees, invitees or
customers, or any other person in or about the Premises caused by or
resulting from fire, steam, electricity, gas, water or rain, which may or
flow from or into any part of the Premises, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, appliances, plumbing, air
conditioning (if applicable) or lighting fixture, of the same, whether the
said damage or injury results from conditions arising upon the Premises or
upon other portions of the Building of which the Premises are a part, or from
other sources.
12. INSURANCE
12.1 WAIVER OF SUBROGATION: Landlord and Tenant hereby waive any
rights of recovery, each may have against the other on account of any loss or
damage occasioned to Landlord or Tenant, as the case may be, their respective
property, the Premises, or its contents, to the extent that such loss or
damage was insured against under any fire and extended coverage insurance
policy which either may have in force at the time of the loss or damage; and
the parties each, on behalf of their respective insurance companies insuring
the property of either Landlord or Tenant against any such 1oss, waive any
right of subrogation that it may have against respective
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insurance companies insuring the property of either Landlord or Tenant
against any such loss, wave any right of subrogation that it may have against
Landlord or Tenant, as the case may be. The foregoing waivers of subrogation
shall be operative only so long as available in the State of California and
so long as said waivers do not invalidate any such policy.
12.2 INSURANCE MAINTAINED AND PAID BY TENANT: Tenant further covenants
and agrees that from and after the date of delivery of the Premises from
Landlord to Tenant, Tenant will carry and maintain, at its sole cost and
expense, in the amounts specified and in the form hereinafter provided for, the
following types of insurance:
A. PUBLIC LIABILITY INSURANCE: Tenant shall, at Tenants expense,
obtain and keep in force during the term of this Lease an policy of Combined
Sing1e Limit, Bodily injury and Property Damage Insurance insuring Landlord and
Tenant against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises.
B. TENANT IMPROVEMENTS: Insurance covering Tenants leasehold
improvements, alterations, additions or improvements permitted under paragraph
8.2, trade fixtures, in the amount not less than ninety percent (90%) of their
full replacement cost from time to time during the term of this Lease, providing
protection against any peril included within the classification "Fire, Extended
Coverage," together with insurance against sprinkler leakage, earthquake
sprinkler leakage, vandalism and malicious mischief. Any policy proceeds shall
be used for repair or replacement of the property damaged or destroyed unless
this Lease shall cease and terminate under the provisions of Section 13 hereof.
C. POLICY FORM: All policies of insurance provided for herein shall
be issued by insurance companies, with general policy holder's rating of not
less an "A" and a financial rating of Class 13 or higher as rated in the most
current available "Bests" Policy Holder's Ratings, and authorized to do business
in the State of California. All such policies shall be issued in the names of
Landlord and Tenant, which policies shall be for the mutual and joint benefit
and protection of Landlord and Tenant, and executed copies of such policies of
insurance or certificates hereof shall be delivered to Land1ord within ten (10)
days after delivery of possession of the Premises to Tenant and thereafter
within thirty (30) days prior to the expiration of the term of such policy. All
public liability and property damage policies shall contain a provision that
Landlord, although named as an insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to it, its servants, agents
and employees by reason of negligence of Tenant. As often as any such policy
shall expire or terminate, renewal or additional policies shall be procured and
maintained by Tenant in like manner and to like extent. All policies of
insurance delivered to Landlord must contain a provision that the company
writing said policy will give to Landlord thirty (30) days notice in writing in
advance of any cancellation or lapse of the effective date of any reduction in
the amounts of insurance and Tenant shall procure a comparable policy or
policies satisfactory to Landlord within said thirty (30) day period. All
public liability, property damage and other policies shall be written as primary
policies, not contributing with and not in excess of coverage which Landlord may
carry.
D. BLANKET POLICIES: Notwithstanding anything to the contrary
contained within Section 12, Tenant's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; provided,
however, that Landlord shall be named as an additional insured thereunder as
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its interest may appear and that the coverage afforded Landlord will be
reduced or diminished by reason of the use of such blanket policy of
insurance; and provided further that the requirements set forth herein are
otherwise satisfied. Tenant agrees to permit Landlord at all reasonable times
to inspect the policies of insurance of Tenant covering risks upon the
Premises for which policies or copies thereof are not required to be
delivered to Landlord.
E. Tenant agrees that if Tenant fails to take out or maintain the
insurance required above, Landlord may (but shall not be required to) procure
such insurance on Tenant's behalf and charge the Tenant the amount of the
premiums together with a twenty-five percent (25%) handling charge, payable upon
demand.
13. DAMAGE OR DESTRUCTION
13.1 INSURED OR MINOR DAMAGES: Subject to the provisions of Paragraph
13.3, if at any time during the term hereof the Premises are destroyed or
damaged and either (a) such damage is not "substantial" as that term is
hereinafter defined, or (b) such damage was caused by casualty covered by an
insurance policy, then Landlord shall promptly repair such damage at
Landlord's expense and this Lease shall continue in full force and effect.
Notwithstanding the above, if insurance proceeds received by Landlord are not
sufficient to effect such repair, Landlord shall give notice to Tenant of the
amount required in addition to the insurance proceeds to effect such repair.
Tenant may, at Tenant's option contribute the required amount, but upon
failure to do so within thirty (30) days following such notice, Landlord may
cancel and terminate this Lease with no liability to Tenant.
13.2 MAJOR DAMAGE: Subject to the provision of Paragraph 13.3 if at
any time during the term hereof the Premises are destroyed or damaged and if
such damage is "substantial" as that term is hereinafter defined, and if such
damage was caused by casualty not insured against, then Landlord may at its
option either (a) repair such damage as soon as possible as reasonably
possibly at Landlord's expense, in which event this Lease shall continue in
full force and effect, or (b) cancel and terminate this Lease as of the date
of the occurrence of such damage, by giving Tenant written its election to do
so within ninety (90) days after the date of occurrence of such damage.
Tenant rent, if Landlord option is (a) shall be abated until such time as
Tenant re-enters and occupies the premises but in the event shall the time
limit exceed 60 day after written notice that premises is ready for
occupancy. Tenant shall notify Landlord within 60 days of Tenants intent to
occupy or terminate the agreement.
13.3 DAMAGE NEAR END OF TERM: If the Premises are destroyed or damaged
during the last twelve (12) months of the term (options included) of this
Lease and the estimated cost of repairs exceed ten percent (10%) of the
Minimum Monthly Rental then remaining to be paid by Tenant for the balance of
the term, Landlord may at its option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Tenant of
it election to do so within thirty (30) days after the date of occurrence of
such damage. If Landlord shall not so elect to terminate this Lease, the
repair of such damage shall, be governed by Paragraph 13.1 or Paragraph 13.2
as the case may be. In no event shall this termination of the Lease relieve
the Tenant from the obligation to reimburse Landlord of any outstanding rents
due under terms and conditions of this Lease, or other monies due Landlord.
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13.4 ABATEMENT OF RENT
A. If the Premises are destroyed or damaged and Landlord repairs
or restores them pursuant to the provisions of this section, Tenant shall
continue the operation of its business in the Premises to the extent
reasonably practicable from the standpoint of prudent business management;
and the monthly installments of Minimum Monthly Rental payable hereunder for
the period during which such damage, repair or restoration continues shall be
in proportion to the degree to which the Premises are rendered untenantable.
There shall be no abatement of additional rent or other monetary charge
payable hereunder.
13.5 DEFINITIONS
A. For the purpose of this Section, "substantial" damage to the
Premises shall be deemed to be damage, the estimated cost of repair of which
exceeds one-fifth (1/5) of the then estimated replacement cost of the
Premises (exclusive of Tenant's trade fixtures and equipment).
B. the determination in good faith by Landlord of the estimated
cost of repair of any damage and/or of the estimated replacement cost of any
building shall be conclusive for the purpose of this Section.
14. CONDEMNATION
14.1 ENTIRE OR SUBSTANTIAL TAKING: If the entire Premises, or such
portion thereof as to make the balance not reasonably adequate for the
conduct of Tenant's business, notwithstanding restoration by Landlord as
hereinafter provided, shall, be taken under the power of eminent domain,
this Lease shall automatically terminate as of the date of which the
condemning authority take title or possession on whichever first occurs.
14.2 PARTIAL TAKING: In the event of any taking under the power
eminent domain does not so result in a termination of the Liens, the Minimum
Monthly Rental payable hereunder shall be reduced, on an equitable basis,
taking into account the relative value of the portion taken as compared to
the repairing portion. Landlord shall promptly at its expense restore the
property of the Premises not so taken to as near its former condition as is
reasonably possible and this Lease shall continue in full force and effect.
14.3 AWARDS: Any award for any taking of all or any part of the
Premises under the power of eminent domain shall be the property of Landlord,
whether such award shall be made as compensation for diminution in value of
the leasehold or for the taking of the fee. Nothing contained herein,
however, shall be deemed to preclude Tenant from obtaining, or to give
Landlord any interest in, any award to Tenant for loss of or damage to
Tenant's trade fixtures and removable personal property or for damage for
cessation or interruption of Tenant's business.
14.4 SALE UNDER THREAT OF CONDEMNATION: A sale by Landlord to any
authority having the power eminent domain, either under treat of condemnation
or while condemnation proceedings are pending, shall be deemed a taking under
the power of eminent domain for all purposes under this Section 14.
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14.5 TENANT'S OPTION: A taking of ninety eight (98%) or more of the
floor area of the Premises shall confer upon Tenant the option, to be
exercised only within thirty (30) days after Tenant shall have received
notice thereof, to terminate this Lease effective as of date such taking,
upon written notice to Landlord. Failure of Tenant to exercise such option
shall constitute Tenant's agreement that the balance of the Premises is
reasonably adequate for the conduct of Tenant's business, and this Lease
shall remain in effect subject to paragraph 14.2 hereof.
15. ASSIGNMENT AND SUBLEASE
15.1 Tenant shall not voluntarily or by operation of law assign,
license, transfer, mortgage or otherwise encumber all or any part Tenants
interest in this Lease or in the Premises, and shall not sublet or license
any part of the Premises, without the prior written consent of Landlord in
each instance, and any attempted assignment, transfer, mortgage, encumbrance
or subletting without such consent shall be wholly void. Landlord cannot
unreasonable withhold consent.
15.2 No subletting or assignment, even with the consent of Landlord,
shall relieve Tenant of its obligation to pay the rent and to perform all of
the other obligations to be performed by Tenant hereunder. The acceptance of
rent by Landlord from any other person shall not be deemed a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent
assignment, subletting or other transfer.
15.3 If the tenant hereunder is a corporation which, under the then
current laws of the State of California is not deemed a public corporation,
or if the Tenant is an unincorporated association or partnership or limited
liability entity, the transfer, assignment or hypothecation of any stock or
interest in such corporation, association or partnership or limited liability
entity in the aggregate in excess of twenty five percent (25%) shall be
deemed an assignment within the meaning and provisions of this Section 15.
15.4 Any sums or economic consideration received by Tenant as a result
of an assignment or subletting which exceed, in the aggregate, (a) the total
sums which Tenant is obligated to pay to Landlord under this Lease, plus (b)
any real, estate brokerage commissions or similar fees, shall be paid to
Landlord as additional rent hereunder.
16. SUBORDINATION, QUIET ENJOYMENT AND ATTORNMENT
16.1 SUBORDINATION: This Lease, at Landlord's option, shall be subject
and subordinate to all ground or underlying leases which now exist or may
hereafter be executed affecting the Premises or the land upon which the
Premises are situated or both, and to the lien of any mortgages or deeds of
trust in any amount or amounts whatsoever now or hereafter placed on or
against the land or improvements or either thereof, of which the Premises are
a part, or on or against Landlords interest or estate therein, or on or
against any ground or underlying lease without the necessity of the execution
and delivery of any further instruments on the part of Tenant to effectuate
such subordination. If any mortgagee, trustee or ground lessor shall elect
to have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and shall give written notice thereof to Tenant, this Lease shall be
deemed prior to or subsequent to the date of said mortgage, deed of trust, or
ground lease or the date of recording thereof.
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16.2 SUBORDINATION AGREEMENT: Tenant covenants and agrees to execute
and delivery upon demand without charge therefor, such further instruments
evidencing such subordination of this Lease to such ground or underlying
leases and to the lien of any such mortgage or deeds of trust as may be
required by Landlord. Tenant hereby appoints Landlord as Tenants attorney in
fact, irrevocably, to execute and delivery any such agreements, instruments,
releases or other documents. No recording of this Lease or Memorandum of the
Lease shall be made without the prior expressed written consent of the
Landlord.
16.3 ATTORNMENT: In the event any proceedings are brought for default
under a ground or any underlying lease or in the event of foreclosure or the
exercise of the power of sale under any mortgage or deed of trust made by
Landlord covering the Premises, Tenant shall attorn to the purchase upon any
such foreclosure or sale and recognize such purchaser as the Landlord under
this Lease.
17. DEFAULT: REMEDIES
17.1 DEFAULT: Should Tenant at any time be in default hereunder with
respect to any rental payments or other charges payable by Tenant hereunder,
and should such default continue for a period of thirty (30) days after
written notice from Landlord to Tenant; or should Tenant be in default in the
prompt and full performance of any other of its promises, covenants or
agreements herein contained and should such default or breach of performance
continue for more than a reasonable time [in no event to exceed thirty
(30) days] after written notice thereof from Landlord Tenant specifying the
particulars of such default or breach of performance; or should Tenant
vacate or abandon the Premises; then Landlord may treat the occurrence of any
one or more of the foregoing events as a breach of this Lease, and in
addition to any or all other rights or remedies of Landlord hereunder by the
law provided, it shall be, at the option of Landlord, without further notice
or demand of any kind to Tenant or any other person.
A. In the event Tenant abandons or vacates the premises, the
Landlord has the right declare the term hereof ended and to re-enter the
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim thereon or thereunder; or
B. The right of Landlord without declaring this Lease ended to
re-enter the Premises and occupy the whole or any part thereof for and on
account of Tenant and to collect said rent that may thereafter become payable
to:
C. The right of Landlord, even though it may have re-entered the
Premises, to thereafter elect to terminate this Lease and all the rights of
Tenant in or to the Premises.
Should Landlord have re-entered the Premises under the provisions
of Paragraph 17.1B above, Landlord shall not be deemed to have terminated
this Lease, or the liability of Tenant to pay rent thereafter to accrue, or
its liability for damages under any of the provisions hereof, by any such
re-entry, by any action in unlawful detainer, or otherwise, to obtain
possession of the Premises, unless Landlord shall have notified Tenant in
writing that it has so elected to terminate this Lease and Tenant further
covenants that the service by Landlord of any notice pursuant to the unlawful
detainer statutes of the State of California and the surrender of possession
pursuant to such notice shall not (unless Landlord elects to the contrary at
the time of or at any time subsequent to serving of such notices and such
election be evidenced by a written
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notice to Tenant) be deemed to be a termination of this Lease. In the event
of any entry or taking possession of the Premises as aforesaid, Landlord
shall have the right, but not the obligation, to remove therefrom all or any
part of the personal property located therein and may place the same in
storage at a public warehouse at the expense and risk of the owner or owners
thereof.
Should Landlord elect to terminate this Lease under the provisions of
Paragraph 17.lA or 17.1C above, Landlord may recover from Tenant as damages:
(i) The worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenants failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom including, but not limited to any costs or
expenses incurred by Landlord maintaining or preserving the Premises after
such default, in preparing the Premises for reletting to a new tenant, any
repairs or alterations to the Premises for such reletting leasing
commissions, or any other costs necessary or appropriate to relet the
Premises.
(v) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by
applicable California law.
As used in subparagraphs (i) and (ii) above, the "worth
at the time of award" is computed by allowing interest at the maximum legal
rate. As used in subparagraph (iii) above, the "worth at the time of award"
is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award plus one percent (1%).
For all purposes of this Section 17, the term "rent" shall be
deemed to be the Minimum Annual Rental and all other sums required to be paid
by Tenant pursuant to the terms of this Lease. All such sums, other than the
Minimum Annual Rental, shall be computed on the basis of the average monthly
amount thereof accruing during the immediately preceding twenty four (24)
month period except that if it becomes necessary to compute such rental
before such a twenty four (24) mont period has occurred then on the basis of
the average monthly amount thereof accruing during such shorter period.
In the event of default, all of Tenant's fixtures, equipment,
improvements, additions, alterations, and other personal property, shall
remain on the Premises and in that
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event, and continuing during the length of said default, Landlord shall have
the right to take the exclusive possession of same and to use same, rent or
charge free, until all defaults are cured or, at its option, at any time
during the term of this Lease, to require Tenant to forthwith remove same.
Notwithstanding any other provisions of this section, Landlord
agrees that if the default complained of, other than for payment of monies,
is of such a nature that the same cannot be rectified or cured within the
thirty (30) day period requiring such rectification or curing as specified in
the written notice relating thereto, then such default shall be deemed to be
rectified or cured if Tenant within such period of thirty (30) days shall
have commended the rectification and during thereof and shall continue
thereafter with all due diligence to cause such rectification and curing and
does so complete the same with the use of such diligence as aforesaid.
The remedies given to Landlord in this Section 17 shall be in
addition and supplemental to all other rights or remedies which Landlord may
have under the laws then in force.
The waiver by Landlord of any breach of any term, covenant
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breath at the time of acceptance of
such rent. No covenant, term, or condition of Lease shall be deemed to have
been waived by Land1ord, unless such waiver be in writing by Landlord.
17.1 LATE CHARGE: Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will
be extremely, difficult to ascertain. Such cost include, but are not limited
to, processing and accounting charges and later charges which may be imposed
on Landlord by the terms of any mortgages or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's assignee within ten
(10) days after such amount shall, be due, Tenant shall pay to Landlord a
late charge equal to ten percent (10%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate
of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted
hereunder.
17.3 DEFAULT BY LANDLORD: Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than sixty (60) days after written
notice by Tenant to Landlord, specifying wherein Landlord has failed to
perform such obligations; provided, however, that if the nature Land1ord's
ob1igation is such that more than sixty (60) days are required for
performance,
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then Landlord shall not be in default if Landlord commenced performance
within such sixty (60) day period and thereafter diligently prosecutes the
same to completion.
17.4 ATTORNEY'S FEES: In the event of any legal action or proceeding
between the parties hereto, reasonable attorney's fees and expenses of the
prevailing party in any such action or proceeding may be added to the
judgement herein. Should Landlord be named as defendant in any suit brought
against Tenant in connection or arising out of Tenants occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
Landlord's reasonable attorneys' fees and costs of appeals Tenant shall also
pay Landlord's reasonable attorneys' fees incurred in connection with any act
of Tenant which requires Landlord's consent or approval.
18. BANKRUPTCY-INSOLVENCY
The Tenant agrees that in the event all or substantially all of the
Tenant's assets be placed in the hands of a receiver or trustee, and such
receivership or trusteeship continues for a period of thirty (30) days, or
should the Tenant make an assignment for the benefit of creditors or be
finally adjudicated a bankrupt, or should the Tenant institute any
proceedings under the Bankruptcy Act as the same now exists or any amendment
thereof which may hereafter be enacted, or under any other relating to the
subject of bankruptcy wherein the Tenant seeks to be adjudicated a bankrupt,
or to be discharged of its debts, or to effect plan of liquidation,
composition or reorganization, or should any involuntary proceeding be filed
against the Tenant under any such bankruptcy laws and such proceeding not be
removed within ninety (90) days thereafter, then this Lease or any interest
in and to the Premise shall not become as asset in any of such proceedings
and, in any such events and in addition to any and all rights or remedies of
the Landlord hereunder or by law provided, it shall be lawful for the
Landlord to declare the term thereof ended to re-enter the Premises and take
possession thereof and remove all persons therefrom, and the Tenant shall
have no further claim thereon or hereunder.
19. PARKING
It is hereby understood and agreed that Landlord, in its sole
discretion, deems it necessary to limit the total number of cars Tenant or
its patrons, customers, and employees may park on property in which Landlord,
or an affiliate of Landlord, as an interest, which property is located
adjacent to the Building in which the Premises are located. Further,
Landlord has established a parking charge, the monthly rates and terms and
conditions of which may vary from time to time during the term hereof.
Accordingly, it is hereby, agreed that throughout the term hereof, Tenant
shall have the right to rent parking in the parking areas of the property at
such monthly rates and on terms and conditions as Landlord may establish from
time to time during the term hereof, which charge is additional to any rental
payments hereunder. In addition to monthly rates, Landlord may at Landlord's
option established hourly rates to provide for parking for Tenant's
customers, patrons and invitees. Landlord shall have the right to designate
the areas were Tenant, its patrons, customers and employees shall park, but
shall not be required to make such specific spaces. The parking areas
referred to herein shall be used on a nonexclusive basis with occupants of
the subject building and any other buildings which now exist or may be
erected on the real property.
20. MISCELLANEOUS
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20.1 ESTOPPEL CERTIFICATE
A. Tenant shall at any time upon not less than ten (10) days
prior to written notice from Landlord, execute, acknowledge and delivery, to
Landlord a statement (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified is in full force and effect)
and the date to which the rent and other charges are paid in advance, if any;
and (ii) acknowledging that there are not, to Tenant's knowledge, any
uncurbed defaults on the part of Landlord hereunder, or specifying such
defaults if they are claimed. Any such statement may be, conclusively relied
upon by any prospective purchaser or encumbrancer of the Premises.
B. Tenant's fai1ure to de1iver such statement within such time
shall be conclusive upon tenant that (i) this Lease is in full force and
effect, without modification except as may be represented by Landlord; (ii)
that there are not uncured defaults in Landlord's performance; and (iii) that
not more than one month's installment of rent has been paid in advance.
C. If Landlord desires to finance or refinance the Premises or
any part thereof, Tenant hereby, agrees to delivery to any lender designated
by Landlord such financial statements of Tenant as may be reasonably required
by such lender. Such statements may include the past three (3) years
financial statement of Tenant. All such financial statements shall be
received by Landlord in confidence and shall be used only for purposes herein
set forth.
20.2 TRANSFER OF LANDLORD'S INTEREST: In the event of a sale
conveyance by Landlord of Landlord's interest in the Premises, other than
transfer for security purposes only, Landlord shall be relieved from and
after the date specified in any such notice of transfer of all obligations
and liabilities accruing thereafter on the part of Landlord, provided that
any funds in the hands of Landlord at the time of transfer in which Tenant
has an interest, shall be delivered to the successor of Landlord. This lease
shall not be affected by any such sale and Tenant agrees to attorn to the
purchaser or assignee provided all Landlord's obligations hereunder are
assumed in writing by the transferee.
20.3 CAPTIONS, ATTACHMENTS AND DEFINED TERMS
A. CAPTIONS: The caption of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in solving any
questions of interpretation or construction of any section of this Lease.
B. ATTACHMENTS: Exhibits attached hereto, and addendums and
schedules initialed by the parties, are deemed by attachments to constitute
part of this Lease and are incorporated herein.
C. DEFINED TERMS: The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in
neuter gender include the masculine and feminine and words in the masculine
or feminine gender include the neuter. If there is more than one Landlord or
Tenant, the obligations hereunder imposed upon Landlord or Tenant shall be
joint and several; as to a Tenant which consists of husband and wife, the
obligations shall extend individually to their sole and separate property as
well as community property. The term "Landlord" shall mean only the owner or
owners at the time in question of the fee title or a
20
<PAGE>
tenant's interest in a ground lease of the Premises. The ob1igations
contained in this Lease to be performed by Landlord shall be binding on
Landlord's successors and assigns during their respective periods of
ownership.
20.4 ENTIRE AGREEMENT: This agreement along with any exhibits and
attachment hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this agreement and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant.
It is understood that there are no oral agreements representations
between the parties hereto affecting this Lease, and this Lease supersedes
and cancels any and all previous negotiations, arrangements, brochures,
agreements of representations and understanding, if any, between the parties
hereto or displayed by Landlord to Tenant with respect to the subject matter
thereof, and none thereof shall be used to interpret or construe this Lease.
There are no other representations or warranties between the parties or the
representative and all reliance with respect to representations is solely
upon the representations and agreements contained in this document.
20.5 SEVERABILITY: If any term or provision of this Lease shall, to
any extent, be determined by a court of competent jurisdiction to be invalid
or unenforceable the remainder of this Lease shall be valid and enforceable
to the fullest extent permitted by law; and it is the intention of the
parties hereto that if any provision of this Lease is capable of two
constructions, one of which would render the provision void and other of
which would render the provision valid, then the provision shall have the
meaning which renders it valid.
20.6 COST OF SUIT
A. If Tenant or Landlord shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum
for attorneys' fees which shall be deemed to have accrued on the commencement
of such action and shall be paid whether or not such action is prosecuted to
judgment.
Should Landlord without fault on Landlord's part, be made a party
to any litigation instituted by Tenant or by any third party against Tenant,
or by or against any person holding under or using the Premises by license of
tenant, or for the foreclosure of any lien for labor or material furnished to
or for Tenant or any such other person or otherwise arising out of or
resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment
rendered against Landlord or the Premises or any part thereof, and all costs
and expenses, including reasonable Attorneys fees, incurred by Landlord or in
connection with such litigation.
20.7 TIME: JOINT AND SEVERAL LIABILITY: Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. All the
terms, covenants and conditions contained in this Lease to be performed by
either party, if such party shall consist of more than one person or
organization, shall be deemed to be joint and several, and all rights and
remedies of the parties shall be cumulative and nonexclusive of any other
remedy at law or in equity.
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<PAGE>
20.8 BINDING EFFECT; CHOICE OF LAW: The parties hereto agree that all
the provisions hereof are to be construed as both covenants and conducts as
though the words importing such covenants and conditions were used in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to Paragraph 20.2, all of the
provisions hereof shall bind and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns.
This Lease shall be governed by the laws of the State of California.
20.9 WAIVER: No covenant, term or conditions or the breach thereof
shall be deemed waived, except by written consent of the party against whom
the waiver is claimed, and any waiver or the breach of any covenant, term or
condition shall not be deemed to be a waiver of any covenant, term or
condition. Acceptance by Landlord of any performance by Tenant after the time
of the same shall have become due shall not constitute a waiver by Landlord
of the breach or default of any covenant, term or condition unless otherwise
expressly agreed to by Landlord in writing.
20.10 SURRENDER OF PREMISES: The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger,
and shall, at the option of Landlord, terminate all or any existing subleases
or subtenancies, or may, at the option of Landlord, operate as an assignment
to it of any or all such subleases or subtenancies.
20.11 HOLDING OVER: If Tenant remains in possession of all or part of
the Premises after the expiration of the term hereof, with or without the
express or implies consent of Landlord, such tenancy shall be from month to
month only, and not a renewal thereof or an extension for any further term,
and in such case, the rent due hereunder shall be increased to one hundred
fifty percent (150%) of the monthly installments of the Minimum Rental
payable by Tenant at the expiration of the term. Such rent shall be payable
in advance on or before the first day of each month and such month to month
tenancy shall be subject to every other term, covenant and agreement
contained herein.
20.12 FORCE MAJEURE: Any prevention, delay or, stoppage due to strike,
lockouts, labor disputes, acts of God, inability to obtain labor or materials
or reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action,
civil commotions, fire or other casualty, and other causes beyond the
reasonable control of the party obligated to perform, shall excuse the
performance by such party for a period equal to any such prevention, delay or
stoppage except the obligations imposed with regard to rent and other charges
to be paid by Tenant pursuant to this Lease.
20.13 INTEREST ON PAST DUE OBLIGATION: Except as expressly herein
provided, any amount due to Landlord not paid when due shall bear interest at
the maximum legal rate from that due date. Payment of such interest shall
not excuse or cure any default by Tenant under this Lease.
20.14 NOTICES: All notices or demands of any kind required of desired
to be given by Landlord or Tenant hereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or demand
in the United States mail, postage prepaid, addressed to the Landlord or
Tenant respectively at the addresses set forth after their signature at the
beginning of this Lease.
22
<PAGE>
20.15 BROKERAGE FEES: Tenant warrants and represents that it has not
dealt with any real estate broker or agent in connection with this Lease or
its negotiation except as stated in Article 1. Tenant shall indemnify and
hold Landlord harmless from any cost, expense or liability (including cost of
suit and reasonable attorneys' fees) for any compensation), commission or
fees claimed by any other real estate broker or agent if, connection with
this Lease or its negotiations by reason of any act of Tenant.
20.16 RELOCATION OF PREMISES: Landlord shall have the right to relocate
the Premises to another part of the building in accordance with the following:
A. The new premises shall be the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease, and
if the relocation occurs after the Commencement Date, shall be placed in that
condition by Landlord at its cost.
B. Landlord shall give Tenant at least sixty (60) days written
notice of Landlord's intention to relocate the Premises.
C. The physical relocation of the Premises shall take place on a
weekend and shall be completed before the following Monday. If the physical
relocation has not been completed in that time, the Rent shall be abated in
full from the time the physical relocation commences to the time it is
completed. Upon completion of such relocation, the new premises shall become
the"Premises" under this Lease.
D. All reasonable costs incurred by Tenant as a result. of the
relocation shall be paid by Landlord.
E. Tenant and Landlord shall immediately execute an amendment to
this Lease setting forth the relocation of the Premises, and change in terms
and condition of this Lease, a reduction of the Rental if any.
20.17 RIGHT TO RENOVATE: Landlord reserves the right from time to
time, but is not obligated to renovate the Shopping Center (as now existing
or as constructed hereafter) . Such renovation may included expansion,
reduction, remodeling, or renovation, it may also include the construction of
other buildings, other structure, parking, decks, docks, etc.
In the event that Landlord modifies, renovates or redevelop the
Shopping Center in a manner approved by the local city and governing
authorities as evidenced in plans to be filed with said authorities and said
plans calls for the space currently leased by Tenant to be renovated,
modified, or redeveloped, Landlord upon one hundred twenty days prior written
notice to Tenant, transfer or relocate Tenant to another location. The new
or temporary premises location shall be agreed to by Landlord and Tenant in
writing.
Landlord and Tenant shall have the option to negotiate a "buy out" of
the Lease (remaining term, and option(s) period), at an amount agreed to by
Landlord and Tenant. Tenant has the option, to terminate this Lease rather than
accept such relocation, upon sixty (60) days written notice given within twenty
(20) days of Landlord notice, whereupon this Lease shall terminate on the
effective date set forth in Tenants notice of termination, and neither party
shall
23
<PAGE>
have any further liability thereafter hereunder unless Landlord withdraws its
notice of relocation prior to such effective date. In the event of a
conflict this Section shall apply.
20.18 SIGN CONTROL: Tenant shall not affix, paint, erect or inscribe
any sign, projection, awning, signal or advertisement of any kind to any part
of the Premises or Building(s), including without limitation, the inside or
outside of windows or doors, without the written consent of Landlord.
Landlord shall have the right to remove any signs or other matter, installed
without Landlord's written permission, without being liable to Tenant by
reason of such removal, and to charge the cost of removal to Tenant as
additional rent hereunder, payable within ten (10) days of written demand by
Landlord. Provided Tenant is the one hundred percent (100%) occupant of the
premises (commonly known as 3388 Via Lido, Newport Beach, CA.) Tenant shall
have the right to install one (1) sign on the side of the building located
approximately at 4th floor level, there will be no additional rent charged
for the signage use. However, if Tenant is not the 100% occupant of the
premises (commonly known at 3388 Via Lido, [all floors]), the Landlord will
have the option, but not obligated to charge for the usage of the building
for signs rights.
20.19 CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants he
is duly authorized to execute and delivery this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws and said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms. If Tenant is a corporation, tenant shall, within
thirty (30) days after execution of this Lease, delivery to Landlord a
certified copy of a resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease.
24
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
date and year first above written.
Individuals signing on behalf of a principal warrant that they have the
authority to bind their principals. In the event that Tenant is a Corporation,
Limited Liability entity, Partnership etc, Tenant shall deliver to Landlord,
concurrently with the execution and delivery of Lease, a certified copy of the
resolutions adopted by Tenant authorizing said to enter into and perform the
Lease and authorizing the execution and delivery of the Lease on behalf of the
parties executing and delivering this Lease.
This Lease, whether or not executed by Tenant is subject to acceptance by
Landlord, acting itself or acting through its general manager, director of
operations, regional vice president, regional manager or assistant regional
manager at its home office.
LANDLORD TENANT
LIDO MARINA VILLAGE TRAVELMAX INTERNATIONAL, Inc.
a California Corp. and William Alverson and
Dale Paisley, individuals
- ----------------------- for /s/ Dale Paisley
by: Authorized Signature TravelMax International, Inc.
by /s/ William Alverson
--------------------
William Alverson, an individual
by /s/ Dale Paisley
----------------
Dale Paisley, an individual
25
<PAGE>
ADDENDUM TO LEASE
ADDENDUM TO THIS LEASE DATED February 1, 1996 BY AND BETWEEN Lido Marina
Village Landlord and TravelMax International Inc., a California Corporation
and William Alverson as Tenant.
OPTION TO EXTEND
Notwithstanding anything contained therein to the contrary, Landlord
hereby grants to Tenant an option to extend the term of this Lease for four
(4) additional three (3) year period(s), commencing upon the expiration of
the base term, subject to and contingent upon each of the following:
A. Tenant shall give Landlord six months prior written notice of its
intent to exercise each option and shall at that time, if required by
Landlord, execute any forms provided by, Landlord providing for said exercise
of each option:
B. During the term of Lease and at the time of giving notice of its
intent to exercise its option and at the time any Lease or Lease Amendment(s)
pursuant to such notice is entered into, Tenant shall not have been or be in
default under any terms or conditions of this Lease; and
C. In the event Tenant elects to exercise this option(s), it shall be
upon such terms, conditions, and lease form then in effect for comparable
space at the commencement of such extended term, excepting that the minimum
monthly rent at the commencement of the option period shall be adjusted by
the C.P.I. adjustment rate or market for Lido Marina Village whichever is the
greater of the two. In no event, however, shall the minimum rent be less
than the rental rate charged during the last year of the base term or more
than three (3%) percent thereafter. At the commencement of the second year
or the option period(s), and each year thereafter, the monthly rent payable
to Landlord shall be adjusted in accordance with the provisions within this
Lease.
<PAGE>
ADDENDUM #2 TO LEASE
The Lease dated February 1, 1996, by and between Lido Marina Village,
"Landlord" and William Alverson, Dale Paisley as individuals and TravelMax
International, Inc., a California Corporation, "Tenant", as herein amended as
follows:.
ARTICLE 11 LEASE TERMS AND CONDITIONS
1.4.1 THIRD FLOOR PREMISES:
Tenant agrees to pay rent for the 3rd floor at Eight Thousand Seven
Hundred Fifty Dollars and no/100ths ($8750.00) per month commencing on
Landlords delivery of possession of premises to Tenant. Tenant shall deposit
as first month rent with Landlord upon execution of this Addendum the sum of
Eight Thousand Seven Hundred Fifty Dollars ($8750.00). Landlord agrees to
assist Tenant as necessary, in Tenants approval process with the City of
Newport Beach and the Alcoholic Beverage Control Agency (ABC).
Landlord and Tenant agree that if at the end of a @)O period,
commencing on possession date, if Tenant is not approved for the licenses and
permits to operate as a nightclub, Tenant has the option of terminating the
lease and receiving all rent money paid to date allowing the lease to
continue (3rd floor only). If Tenant was the cause of the denial of permits
or licenses, then rent monies received by Landlord during the 90 day period
will not be returned to Tenant and lease shall stay in force.
With the exception of the above all of the terms covenants, and conditions of
the Lease dated February 1, 1996 shall apply to this addendum.
LANDLORD TENANT
Lido Marina Village William Alverson and Dale Paisley (as individuals) and
TravelMax International, Inc.
/s/ Dale Paisley
----------------
Travelmax International, Inc.
Date:
--------------
/s/ William Alverson
--------------------
William Alverson, an individual
Date:
---------------------
/s/ Dale Paisley
----------------
<PAGE>
Dale Paisley, an individual
Date:
----------------------
<PAGE>
ATTACHMENT #1 TO LEASE
Landlord hereby grants to Tenant the right of first refusal to purchase the
property commonly known at 3388 Via Lido, Newport Beach, CA. hereinafter
referred to as the "Building" upon the terms and conditions of a bona fide
offer to purchase the "Building" acceptable to Landlord from a third party.
Tenant shall have sixty (60) days from receipt of notice of such bona fide
offer in which to elect to purchase the "Building". Said notice shall
contain a true copy of the bona fide offer to purchase. In the event Tenant
does not timely elect to purchase on such terms, Landlord may sell the
"Building" to said thirty party upon the terms and conditions set forth in
the notice. In the event Landlord does not consummate the sale of the
"Building" to such third party upon the terms and conditions contained in the
notice to Tenant, this right of first refusal shall be revived in its
entirety. Should Tenant purchase the "Building" this lease shall terminate
upon the date title vests to Tenant, and Landlord shall remit to Tenant all
unearned rent(s).
LANDLORD TENANT
Lido Marina Village William Alverson and Dale Paisley (as individuals)
& TravelMax International, Inc.
/s/ Dale Paisley
- ------------------- ----------------
TravelMax International, Inc.
/s/ William Alverson
--------------------
William Alverson, an individual
/s/ Dale Paisley
-----------------
Dale Paisley, an individual
<PAGE>
GUARANTY OF LEASE
OBLIGATION GUARANTEED
1. For valuable consideration, the undersigned Glenn Gallant and Doug Baetz
(hereinafter called "Guarantors") jointly and severally unconditionally
guarantee to Marvin Engineering Co., Inc., dba Lido Marina Village
(hereinafter called "Obligee") the following obligation(s) of TravelMax
International, Inc., William Alverson and Dale Paisley (hereinafter called
"Obligors") ... All of the terms, conditions and obligations contained in
that certain agreement entitled "Lido Marina Village Office Lease" dated
February 1, 1996 by and between Lido Marina Village as landlord and TravelMax
International, Inc., a California corporation, William Alverson and Dale
Paisley as tenants, A true copy of said Office Lease is attached hereto as
Exhibit 1 and by such reference made a part hereof.
DEATH, INSOLVENCY, OR BANKRUPTCY OF 0BLIGOR
2. Guarantors jointly and severally unconditionally guarantee the
performance of all terms and conditions of said office lease, including all
payments required thereby.... whether or not due or payable by Obligee, upon
(a) the death, dissolution, insolvency, or business failure of, or any
assignment for the benefit of creditors by, or commencement of any
bankruptcy, reorganization, arrangement, moratorium, of other debtor relief
proceedings by or against Obligors or Guarantors, or (b) the appointment of a
receiver for, or the attachment, restraint of, or making or levying of any
court order or legal process affecting the property of Obligors or
Guarantors, and jointly and severally unconditionally promise to pay this
indebtedness to Obligee, or order, on demand, in lawful money of the United
States.
JOINDER OF PARTIES
3. The obligations of guarantors hereunder are joint and several, and
independent of the obligations of Obligors, and a separate action or actions
may be brought and prosecuted against Guarantors whether action is brought
against Obligors or whether Obligors be joined in such action or actions.
Guarantors waive, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting their liability under this agreement or the
enforcement of this agreement, Any payment by Obligors or other circumstance
that operates to toll any statute of limitations 83 to Obligors shall also
operate to toil the statute of limitations as to Guarantors.
CAPACITY AND AUTHORITY OF OBLIGORS
4. It is not necessary for Obligee to inquire into the capacity or powers
of Obligors or the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any indebtedness made or created in
reliance on the professed exercise of those powers shall be guaranteed under
this agreement. If one or more of the Obligors is a partnership, the words
"Obligors" and "indebtedness" as used in this, agreement include all
successor partnerships and their liabilities to Obligee.
SUBORDINATION
<PAGE>
5. Any indebtedness of Obligors now or hereafter held by Guarantors is
hereby subordinated to the indebtedness of Obligors to Obligee, and all such
indebtedness of Obligors to Guarantors, if Obligee so requests, shall be
collected, enforced, and received by Guarantors as trustees for Obligee and
be paid over to Obligee on account of the indebtedness of Obligors to
Obligee, without affecting or impairing in any manner the liability of
Guarantors under the other provisions of this guaranty.
WAIVER OF DEFENSES
6. Guarantors waive any right to require Obliges to (a) proceed against
Obligors; (b) proceed against or exhaust any security held from Obligors; or
(c) pursue any other remedy in Obligee's power whatsoever, Guarantors waive
any defense based on or arising out of any defense of Obligors other than
payment in full of the indebtedness, including without limitation any defense
based on or arising out of the disability of Obligors, the unenforceability
of the indebtedness any part thereof from any cause, or the cessation from
any cause of the liability of Obligors other than payment in full of the
indebtedness. Obligee may, at its election, foreclose on any security hold by
Obligee by one or more judicial sales, whether or not every aspect of any
such sale is commercially reasonable, or exercise any other right or remedy
Obligee may have against Obligors, or any security, without affecting or
impairing in any way the liability of Guarantors under this agreement, except
to the extent the indebtedness has been paid. Guarantors waives any defense
arising out of such an election by Obligee, even if the election operates to
impair or extinguish any right of reimbursement or subrogation or other right
or remedy of Guarantors against Obligors or any security. Guarantors waive
all presentments, demands for performance, notices of protest, notices of
dishonor, notices of acceptances of this guaranty, and notices of the
existence, creation, or incurring of now or additional indebtedness.
Guarantors assume all responsibility for keeping themselves informed of
Obligors' financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the indebtedness and the nature, scope
and extent of the
risks that Guarantors assume and incur under this agreement, and agree that
Obligee shall have no duty to advise Guarantors of information known to it
regarding those circumstances or risks.
ATTORNEYS' FEES AND COSTS
7. In addition to the amounts guaranteed under this agreement, Guarantors
jointly, and severally agree to pay reasonable attorneys' fees and all other
costs and expenses incurred by Obligee in enforcing this guaranty in any
action or proceeding arising out of, or relating to, this guaranty.
LIENS AND SETOFFS
8. No right or power of Obligee under this agreement shall be deemed to
have been waived by any act or conduct on the part of Obligee, or by any
neglect to exercise that right or power, or by any delay in so doing; and
every right or power shall continue in full force and effect until
specifically waived or released by an instrument in writing executed by
Obligee.
<PAGE>
MEANING OF TERMS
9. In all cases where there is but a single Obligor or a single Guarantor,
all words used herein in the plural shall be deemed to have been used in the
singular where the context and construction so require; and when there is
more than one Obligor named herein, or when this guaranty is executed by more
than one Guarantor, the word "Obligors" and the word "Guarantors"
respectively shall mean all and any one or more of them.
EFFECT ON HEIRS AND ASSIGNS
10. This guaranty and the liability and obligations of Guarantors under this
agreement are binding upon Guarantors and their respective heirs, executors,
and assigns, and inure to the benefit of and are enforceable by Obligor and
its successors, transferees, and assigns.
GOVERNING LAW AND MODIFICATION
11. This guaranty shall be deemed to be made under, and shall be governed
by, the laws of the State of California in all respects including matters of
construction, validity, and performance, and its terms and provisions may not
be waived, altered, modified or amended except in writing duly signed by an
authorized office of Obligee and by Guarantors.
3
INVALIDITY
12. If any provision of this guaranty contravenes or is hold invalid under
the laws of any jurisdiction, this guaranty shall be construed as though it
did not contain that provision, and the rights and liabilities of the parties
to this agreement shall be construed and enforced accordingly.
IN WITNESS WHEREOF, the undersigned Guarantors have executed this Guaranty on
May____, 1997 at Orange County, California.
/s/ Glenn Gallant
-----------------
GLENN GALLANT
/s/ Doug Baetz
--------------
DOUG BAETZ
<PAGE>
ASSIGNMENT OF LEASE
THIS AGREEMENT OF LEASE ("Assignment") is entered into on this day 15th
May 1997 between TravelMax International, Inc., a California Corporation and
William Alverson and Dale Paisley ("Assignor"), and Glenn Gallant and Doug
Baetz and TravelMax International Inc., a California Corporation,("Assignee").
RECITALS
Lido Marina Village, as Landlord, and Assignor, as Tenant, executed a
lease dated February 1, 1996 ("Lease"), a copy of which is attached and
incorporated by reference as Exhibit A, pursuant to which Landlord leased to
Tenant, and Tenant leased from Landlord, that certain property commonly known
as 3388 Via Lido, Newport Beach, CA., and more specifically referenced in the
Lease. The Lease was for a term of Seven (7) Years, commencing on February
1, 1996 and ending January 31, 2003, subject to earlier termination as
provided in the Lease.
SECTION 1: ASSIGNMENT
In consideration of the mutual promises and covenants set forth herein,
Assignor assigns and transfer to Assignee all right, title, and interest in
the Lease, and Assignee accepts from Assignor rights, title, and interest,
subject to the terms and condition set forth in this Assignment.
SECTION 2: ASSUMPTION OF LEASE OBLIGATIONS
Assignee assumes and agrees to perform and fulfill all the terms,
covenants, conditions, and obligations required to be performed and fulfilled
by Assignor as tenant under the Lease, including the making of all payments
due to or payable on behalf of Landlord under the Lease as they become due
and payable.
SECTION 3: ASSIGNOR'S COVENANTS
Assignor covenants that the copy of the Lease attached as Exhibit A is a
true and accurate copy of the Lease as currently in effect and that there
exists no other agreement affecting Assignor's tenancy under the Lease.
SECTION 4: LITIGATION COSTS
If any litigation between Assignor and Assignee arises out of this
Agreement or concerning the meaning of interpretation of this Assignment, the
losing party shall pay the prevailing party' s costs and expenses and this
litigation, including, without limitation, reasonable attorney fees.
<PAGE>
SECTION 5: INDEMNIFICATION
Assignor indemnified Assignee from and against any loss, cost, or
expense, including attorney fees and court costs relating to the failure of
Assignor to fulfill Assignor's obligations under the Lease, and accruing with
respect to the period on or prior to the date of this Assignment. Assignee
indemnifies Assignor from and against any loss, cost, or expense, including
attorney fees and court costs relating to the failure of Assignee to fulfill
obligations under the Lease, and accruing with respect to the, period
subsequent to the date of this Assignment.
SECTION 6: SUCCESSOR AND ASSIGNS
This Assignment shall be binding on and inure to the benefit of the
parties to it, their heirs, executors, administrators, successors in
interest, and assigns.
SECTION 7: GOVERNING LAW
This Assignment shall be governed by and construed in accordance with
California law.
SECTION 8: AUTHORITY
Each person signing hereunder warrants that they have the capacity and
the authority to sign this Assignment on behalf of the respective person or
entity which is being presented.
The parties have executed this Assignment on the date written above.
ASSIGNOR ASSIGNEE
- ------------------------ ------------------------
TravelMax International, TravelMax International,
Inc, a California Inc, a California
Corporation Corporation
/s/ William Alverson /s/ Glenn Gallant
- -------------------- -----------------
William Alverson Glenn Gallant
/s/ Dale Paisley /s/ Doug Baetz
- ---------------- --------------
Dale Paisley Doug Baetz
<PAGE>
CONSENT OF LANDLORD
The undersigned, as Landlord under the Lease, consents to this
Assignment of the Lease to Assignee, provided however, that notwithstanding
this Assignment and the undersigned' s consent to this Assignment, Assignor
shall remain primarily obligated as tenant under the Lease and the
undersigned does not waive or, relinquish any rights under the Lease against
Assignor or Assignee.
LIDO MARINA VILLAGE
- -----------------------
by
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Exhibit 10.5 Lease for property at 2701 West Oakland Park
Blvd, Suite 103, Ft. Lauderdale FL 33311
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of August 15, 1997,
by and between The Century Group, Inc. ("Landlord"), and Travel Maxx
International ("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant
Suite #103, consisting of 1,383 square feet of office space (the "Premises")
located at 2701 W. Oakland Park Blvd, Ft. Lauderhill, Florida 33311.
TERM. The lease term will begin on August 15, 1997 and will terminate on
August 14, 1998.
RENEWAL TERMS. This Lease shall automatically renew for an additional period
of 1 year per renewal term on the same terms as this Lease, unless either
party gives written notice of the termination no later than 60 days prior to
the end of the term or renewal term.
HOLDOVER. If Tenant maintains possession of the Premises for any period
after the termination of this Lease ("Holdover Period"), Tenant shall pay to
Landlord a lease payment for the Holdover Period based on the terms of the
following Lease Payments paragraph. Such holdover shall constitute a month
to month extension of this Lease.
LEASE PAYMENTS. Tenant shall pay to Landlord a total annual lease payment of
$20,738.52, payable in advance, in installments of $1,728.21 per month on the
first day of each month. Lease payments shall be made to the Landlord at
7177 W. Oakland Park Blvd., Lauderdale, Florida 33313, as may be changed
from time to time by Landlord.
LATE PAYMENTS. Tenant shall pay a late charge equal to 10.00% of the
required installment payment for each payment that is not paid within 5
business day(s) after the due date for such late payment.
NON-SUFFICIENT FUNDS. Tenant shall be charged $30.00 for each check that is
returned to Landlord for lack of sufficient funds.
SECURITY DEPOSIT. At the time of the signing of this Lease, Tenant shall pay
to Landlord, in trust, a security deposit of $1,728.21 to be held and
disbursed for Tenant damages to the Premises (if any) as provided by law.
POSSESSION. Tenant shall be entitled to possession on the first day of the
term of this Lease, and shall yield possession to Landlord on the last day of
the term of this Lease, unless otherwise agreed by both parties in writing.
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REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to
conduct any construction or remodeling (at Tenant's expense) that may be
required to use the Premises as specified above. Tenant may also construct
such fixtures on the Premises (at Tenant's expense) that appropriately
facilitate its use for such purposes. Such construction shall be undertaken
and such fixtures may be erected only with the prior written consent of the
Landlord which shall not be unreasonably withheld. At the end of the lease
term, Tenant shall be entitled to remove (or at the request of Landlord shall
remove) such fixtures, and shall restore the Premise to substantially the
same condition of the Premises at the commencement of this Lease.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not
be unreasonably withheld), Landlord shall have the right to enter the
Premises to make inspections, provide necessary services, or show the unit to
prospective buyers, mortgagees, tenants or workers. AS provided by law, in
the case of an emergency, Landlord may enter the Premises without Tenant's
consent.
UTILITIES AND SERVICES. Tenant shall be responsible for the following
utilities and services in connection with the Premises:
- electricity
- telephone service
Tenant acknowledges that Landlord has fully explained to Tenant the utility
rates, charges and services for which Tenant will be required to pay (if an),
other than those to be paid directly to the utility company furnishing the
service.
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to
maintain appropriate insurance for their respective interests in the Premises
and property located on the Premises.
LIABILITY INSURANCE. Tenant shall maintain liability insurance in total
aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate
evidence to Landlord as proof that adequate insurance is in force. Landlord
shall have the right to require that the Landlord receive notice of any
termination of such insurance policies.
INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold
harmless, and defend Landlord from and against any and all losses, claims,
liabilities, and expenses, including reasonable attorney fees, if any, which
Landlord may suffer or incur in connection with Tenant's use of the Premises.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any
article or thing of a dangerous, inflammable, or explosive character that
might substantially increase the danger of fire on the Premises, or that
might be considered hazardous by a responsible insurance company, unless the
prior written consent of Landlord is obtained and proof of adequate insurance
protection is provided by Tenant to Landlord.
TAXES. Taxes attributable to the Premises or the use of the Premises shall
be allocated as follows:
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Real Estate Taxes - Landlord shall pay all real estate taxes and
assessments for the Premises..
Personal Taxes - Tenant shall pay all personal taxes and any other charges
which may be levied against the Premises and which arc attributable to
Tenant's use of the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are partially
destroyed in a manner that prevents the conducting of Tenant's use of the
Premises in a normal manner, and if the damage is reasonable repairable
within sixty days after the occurrence of the destruction, and if the cost of
repair is less than $1,000.00, the Landlord shall repair the Premises and
lease payments shall abate during the period of the repair. However, if the
damage is not repairable within sixty days, or if the cost of repair is
$1,000.00 or more, or if Landlord is prevented from repairing the damage by
forces beyond Landlord's control, or if the property, is condemned, this
Lease shall terminate upon twenty days written notice of such event or
condition by either party.
MECHANICS LIENS. Neither the Tenant or anyone claiming through the Tenant
shall have the right to file mechanics lien or any other kind of lien on the
Premises and the filing of this Lease constitutes notice that such liens are
invalid. Further, Tenant agrees to give actual advance notice to any
contractors, subcontractors or suppliers of goods, labor, or services that
such liens will not be valid.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to
fulfill any lease obligation or term by which Tenant is bound. Subject to
any governing provisions of law to the contrary, if Tenant fails to cure any
financial obligations within 5 day(s) (or any other obligations within 10
day(s) after written notice of such default is provided by Landlord to
Tenant, Landlord may take possession of the Premises without further notice,
and without prejudicing Landlord's rights to damages. In the alternative,
Landlord may elect to cure any default and the cost of such action shall be
added to Tenant's financial obligations under this Lease. Tenant shall pay
all costs, damages, and expenses suffered by Landlord by reason of Tenant's
defaults.
ARBITRATION. Any controversy or claim relating to this contract, including
the construction or application of this contract, will be settled by binding
arbitration under the rules of the American Arbitration Association, and any
judgment granted by the arbitrator(s) may be enforced in any court of proper
jurisdiction.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in
the Premises without the prior written consent of Landlord, which shall not
be unreasonably withheld.
TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision of
this Lease, Landlord may terminate this lease upon 30 day(s) written notice
to Tenant that the Premises have been sold.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as
follows:
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LANDLORD:
The Century Group, Inc.
Attn: J. Christopher Fuhrmeister
7177 W. Oakland Park Blvd.
Lauderhill, Florida 33313
TENANT:
Travel Maxx International
Attn: Michael Sederoff
3388 Via Lido
Newport Beach, Ca 92663
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire
agreement of the parties and there are no other promises or conditions in any
other agreement whether oral or written. This Lease may be modified or
amended in writing, if the writing is signed by the party obligated under the
amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would
become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of
this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are
cumulative, and shall not be construed as exclusive unless otherwise required
by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of
the state of Florida.
ADDITIONAL PROVISIONS: As of the signing of this lease, the following
monetary sums are due; 1. first month's rent of $1,728.21, the last month's
rent of $1,728.21, and 3. security deposit of $1,728.21. The total amount due
is $5,184.63.
LANDLORD:
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The Century Group, Inc.
By: /s/ J. Christopher Fuhrmeister
----------------------------------------
J. Christopher Fuhrmeister - Controller
TENANT:
Travel Maxx International
By: /s/ Michael Sederoff
----------------------------------------
Michael Sederoff, C.F.O.
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Exhibit 10.6
Lease for property at 2701 West Oakland Park Blvd, Suite 305, Ft.
Lauderdale FL 33311
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of August 15, 1997,
by and between The Century Group, Inc. ("Landlord"), and Travel Maxx
International ("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant
Suite #305, consisting of 1,850 square feet of office space (the "Premises")
located at 2701 W. Oakland Park Blvd, Ft. Lauderhill, Florida 33311.
TERM. The lease term will begin on August 15, 1997 and will terminate on
August 14, 1998.
RENEWAL TERMS. This Lease shall automatically renew for an additional period
of 1 year per renewal term on the same terms as this Lease, unless either
party gives written notice of the termination no later than 60 days prior to
the end of the term or renewal term.
HOLDOVER. If Tenant maintains possession of the Premises for any period
after the termination of this Lease ("Holdover Period"), Tenant shall pay to
Landlord a lease payment for the Holdover Period based on the terms of the
following Lease Payments paragraph. Such holdover shall constitute a month
to month extension of this Lease.
LEASE PAYMENTS. Tenant shall pay to Landlord a total annual lease payment of
$27,754.68, payable in advance, in installments of $2,312.89 per month on the
first day of each month. Lease payments shall be made to the Landlord at
7177 W. Oakland Park Blvd., Lauderdale, Florida 33313, as may be changed
from time to time by Landlord.
LATE PAYMENTS. Tenant shall pay a late charge equal to 10.00% of the
required installment payment for each payment that is not paid within 5
business day(s) after the due date for such late payment.
NON-SUFFICIENT FUNDS. Tenant shall be charged $30.00 for each check that is
returned to Landlord for lack of sufficient funds.
SECURITY DEPOSIT. At the time of the signing of this Lease, Tenant shall pay
to Landlord, in trust, a security deposit of $2,312.89 to be held and
disbursed for Tenant damages to the Premises (if any) as provided by law.
POSSESSION. Tenant shall be entitled to possession on the first day of the
term of this Lease, and shall yield possession to Landlord on the last day of
the term of this Lease, unless otherwise agreed by both parties in writing.
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REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to
conduct any construction or remodeling (at Tenant's expense) that may be
required to use the Premises as specified above. Tenant may also construct
such fixtures on the Premises (at Tenant's expense) that appropriately
facilitate its use for such purposes. Such construction shall be undertaken
and such fixtures may be erected only with the prior written consent of the
Landlord which shall not be unreasonably withheld. At the end of the lease
term, Tenant shall be entitled to remove (or at the request of Landlord shall
remove) such fixtures, and shall restore the Premise to substantially the
same condition of the Premises at the commencement of this Lease.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not
be unreasonably withheld), Landlord shall have the right to enter the
Premises to make inspections, provide necessary services, or show the unit to
prospective buyers, mortgagees, tenants or workers. AS provided by law, in
the case of an emergency, Landlord may enter the Premises without Tenant's
consent.
UTILITIES AND SERVICES. Tenant shall be responsible for the following
utilities and services in connection with the Premises:
- electricity
- telephone service
Tenant acknowledges that Landlord has fully explained
to Tenant the utility rates, charges and services for which Tenant will be
required to pay (if an), other than those to be paid directly to the utility
company furnishing the service.
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to
maintain appropriate insurance for their respective interests in the Premises
and property located on the Premises.
LIABILITY INSURANCE. Tenant shall maintain liability insurance in total
aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate
evidence to Landlord as proof that adequate insurance is in force. Landlord
shall have the right to require that the Landlord receive notice of any
termination of such insurance policies.
INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold
harmless, and defend Landlord from and against any and all losses, claims,
liabilities, and expenses, including reasonable attorney fees, if any, which
Landlord may suffer or incur in connection with Tenant's use of the Premises.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any
article or thing of a dangerous, inflammable, or explosive character that
might substantially increase the danger of fire on the Premises, or that
might be considered hazardous by a responsible insurance company, unless the
prior written consent of Landlord is obtained and proof of adequate insurance
protection is provided by Tenant to Landlord.
TAXES. Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
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Real Estate Taxes - Landlord shall pay all real estate taxes and
assessments for the Premises..
Personal Taxes - Tenant shall pay all personal taxes and any other charges
which may be levied against the Premises and which arc attributable to
Tenant's use of the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are partially
destroyed in a manner that prevents the conducting of Tenant's use of the
Premises in a normal manner, and if the damage is reasonable repairable
within sixty days after the occurrence of the destruction, and if the cost of
repair is less than $1,000.00, the Landlord shall repair the Premises and
lease payments shall abate during the period of the repair. However, if the
damage is not repairable within sixty days, or if the cost of repair is
$1,000.00 or more, or if Landlord is prevented from repairing the damage by
forces beyond Landlord's control, or if the property, is condemned, this
Lease shall terminate upon twenty days written notice of such event or
condition by either party.
MECHANICS LIENS. Neither the Tenant or anyone claiming through the Tenant
shall have the right to file mechanics lien or any other kind of lien on the
Premises and the filing of this Lease constitutes notice that such liens are
invalid. Further, Tenant agrees to give actual advance notice to any
contractors, subcontractors or suppliers of goods, labor, or services that
such liens will not be valid.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to
fulfill any lease obligation or term by which Tenant is bound. Subject to
any governing provisions of law to the contrary, if Tenant fails to cure any
financial obligations within 5 day(s) (or any other obligations within 10
day(s) after written notice of such default is provided by Landlord to
Tenant, Landlord may take possession of the Premises without further notice,
and without prejudicing Landlord's rights to damages. In the alternative,
Landlord may elect to cure any default and the cost of such action shall be
added to Tenant's financial obligations under this Lease. Tenant shall pay
all costs, damages, and expenses suffered by Landlord by reason of Tenant's
defaults.
ARBITRATION. Any controversy or claim relating to this contract, including
the construction or application of this contract, will be settled by binding
arbitration under the rules of the American Arbitration Association, and any
judgment granted by the arbitrator(s) may be enforced in any court of proper
jurisdiction.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in
the Premises without the prior written consent of Landlord, which shall not
be unreasonably withheld.
TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision of
this Lease, Landlord may terminate this lease upon 30 day(s) written notice
to Tenant that the Premises have been sold.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as
follows:
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LANDLORD:
The Century Group, Inc.
Attn: J. Christopher Fuhrmeister
7177 W. Oakland Park Blvd.
Lauderhill, Florida 33313
TENANT:
Travel Maxx International
Attn: Michael Sederoff
3388 Via Lido
Newport Beach, Ca 92663
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire
agreement of the parties and there are no other promises or conditions in any
other agreement whether oral or written. This Lease may be modified or
amended in writing, if the writing is signed by the party obligated under the
amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would
become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of
this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are
cumulative, and shall not be construed as exclusive unless otherwise required
by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of
the state of Florida.
ADDITIONAL PROVISIONS: As of the signing of this lease, the following
monetary sums are due; 1. first month's rent of $2,312.89, the last month's
rent of $2,312.89, and 3. security deposit of $2,312.89. The total amount due
is $6,938.67.
LANDLORD:
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The Century Group, Inc.
By: /s/ J. Christopher Fuhrmeister
----------------------------------------
J. Christopher Fuhrmeister - Controller
TENANT:
Travel Maxx International
By: /s/ Michael Sederoff
-------------------------
Michael Sederoff, C.F.O.
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Exhibit 10.7 Management Agreement
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is entered into this 24th day
of April, 1997, by and among the following named individuals: Dale Paisley
("Paisley"), William M. Alverson ("Alverson"), Mark Guest ("Guest"), Doug Baetz
("Baetz") and Glenn Gallant ("Gallant") Messrs. Paisley, Guest and Alverson are
collectively referred to as the "TII Parties".
RECITALS
A. Paisley, Guest and Alverson are the duly elected three directors
of Travelmax International, Inc., a Utah corporation ("TII-Utah") and Travelmax
International, Inc., a California corporation ("TII-California")(collectively,
TII-Utah and TII-California are referred to as the "Companies"). Paisley is
also the Chief Financial Officer, Guest is the Executive Vice President and
Alverson is the Chief Executive Officer of the Companies. The Companies are, or
are on the verge of being, insolvent.
B. Baetz and Gallant are independent businessmen who are in the
position of being able to provide or arrange for additional capital and other
financing for troubled businesses and who are capable of assuming management
duties on behalf of the Companies. Notwithstanding the condition of the
Companies, Baetz and Gallant are willing to accept election to the board of
directors of the Companies and to accept appointment as officers of the
Companies, subject to the terms of this Agreement.
C. The directors and officers of the Company, Alverson, Guest and
Paisley, and the TII Parties agree that for the sake of saving the Companies
from bankruptcy, insolvency or other or further harm, it would in the best
interests of the Companies and the shareholders for: (i) Paisley and Alverson to
resign their respective positions as directors and officers of the Companies, as
applicable, and for Baetz and Gallant to replace Alverson and Paisley as
directors and officers of the Companies on the terms set forth in this
Agreement; and (ii) TII-Utah to issue to Gallant and Baetz shares of its common
stock in consideration for the services rendered and actions taken by them for
the preservation of TII-Utah, as described herein.
In consideration of the foregoing, the parties agree as follows:
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1. RESIGNATIONS AND ACCEPTANCE OF ELECTION. Contemporaneous with
the execution of this Agreement, Paisley and Alverson shall resign all
positions as directors and officers of TII-Utah and TII-California by
executing and delivering to the Secretary or another executive officer of the
Companies the Resignations attached hereto as Exhibits A and B, respectively;
provided, however, that Paisley shall resign first and effective upon his
resignation, the two remaining directors, Mark Guest ("Guest") and Alverson,
shall elect Baetz a director of each of the Companies by executing the
Directors' Action by Unanimous Written Consent in the forms attached as
Exhibits C and D, to fill the vacancy caused by the resignation of Paisley
and further provided, that Alverson shall resign immediately thereafter and
effective upon his resignation, the two remaining directors, Guest and Baetz,
shall elect Gallant a director of each of the Companies by executing the
Directors' Action by Unanimous Written Consent in the forms attached as
Exhibit E and F, to fill the vacancy caused by the resignation of Alverson.
Baetz and Gallant each agree to accept their respective election as a
director of each of TII-Utah and TII-California and to use their best
business judgment and business skills for and on behalf of, and for the
benefit of, the Companies. The resignations of directors Paisley and
Alverson shall be effective only after said directors have executed the
Unanimous Written Consent pursuant to Paragraph 6, below, and attached as
Exhibit I, regarding the issuance of shares of TII-Utah capital stock.
2. COOPERATION. In order to assist in the recovery of the
Companies and the transition to new management, after their resignations, the
TII Parties shall cooperate with the Companies by providing such information
and taking such actions as the Companies and its representatives may
reasonably request or as may be contemplated by the terms of this Agreement.
Without limitation, Paisley and Alverson agree to cooperate in deleting their
names, signatures and authorizations from all bank accounts, credit cards and
other assets of the Companies.
3. THE COMPANIES' ASSETS. Each of the TII Parties represents and
warrants to Baetz and Gallant and to the Companies that the assets listed in
Exhibit G are a true and complete list of all of the property, perquisites
and other assets and benefits of the Companies in the possession or control
of each of them or which either of them enjoy or may utilize or to which
either of them have access, as of the date of this Agreement (collectively,
the "Assets"). As promptly as possible but in no event later than 2 business
days after the execution of this Agreement, each of the TII Parties shall
return to the Companies, or relinquish to the Companies the control of, all
of the Companies' Assets identified in Exhibit G, by physically delivering
the Assets, where possible (such as, for example, files, lists, trade secret
and other Confidential Information (as defined below) of the Companies,
equipment automobiles, manuals, marketing and program materials) and/or by
physically delivering the means to access, use or control Assets (such as,
for example, membership cards, access cards, checks and other financial
instruments, credit and debit cards, keys, maps, directions, access codes and
signature cards) to the Companies at their headquarters at 3388 Via Lido,
Newport Beach, CA 92663. The TII Parties shall cooperate fully in the return
of the Assets to the Companies, including but not limited to, any changes in
title or registration or removal of their names from access or use of Assets.
4. NONSOLICITATION. From the date of this Agreement and thereafter
for the maximum period of time permitted by law, none of the TII Parties shall
solicit for employment or hire any employees of the Companies, except with the
prior written consent of the Companies.
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5. NONDISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION. Each of the
TII Parties agrees and represents that each knows, has used on behalf of the
Companies and each has had access to, all of the confidential, non-public and
proprietary information concerning the business and operations of the
Companies, including, but not limited to, trade secrets, know-how, lists,
manuals, structures and programs (collectively, the "Confidential
Information"). Confidential Information shall not include any information
that becomes generally available to the public other than as a result of
disclosure by any of the TII Parties in violation of this Agreement. Each
represents, warrants and covenants that for the maximum period permitted by
law, he will not disclose or use Confidential Information for any purpose
whatsoever, including any purpose competitive with the Companies' business or
in a manner which may otherwise harm or detract from the Companies' business,
provided, however, that their use of Confidential Information in connection
with cooperating with the Companies as required under this Agreement shall
not be considered a breach of this covenant. Each of the TII Parties further
agrees to return to the Companies all Confidential Information in whatever
form or medium existing in their possession or under their control pursuant
to Paragraph 3, above.
6. SALE OF RIGHTS TO SHARES OF TII-UTAH. In consideration of Baetz and
Gallant: (i) accepting election to the board of directors of the Companies,
(ii) accepting appointments as officers of the Companies, (iii) undertaking
to provide financing to prevent the Companies' bankruptcy or insolvency:
(a) And in consideration for paying the aggregate sum of $10.00 to
the TII Parties, each of Guest and Alverson hereby assign to the Company for
cancellation all of their right, title and interest in and to all of their
warrants, stock options and other rights of any kind to acquire shares of
capital stock of either of the Companies or any of their affiliates to which
any of them is entitled (collectively, the "Rights"), all as more
particularly identified in Exhibit H. Each of the TII Parties represents and
warrants that Exhibit H fully and accurately sets forth all of the Rights
owned or controlled by such TII Party or on his behalf. As used herein,
"affiliates" means: (i) any corporation or other business entity which is
wholly or partially owned by the Companies or in which the Companies have any
kind of an equity interest, and (ii) any corporation or other business entity
that operates in conjunction with or its operations are related to the
business or operations of the Companies. Each of the TII Parties shall
execute and deliver a stock power or assignment and such other documents as
may be requested by Gallant and Baetz in order to effect the transfer of the
Shares and the Rights as provided or contemplated in this Agreement.
(b) And in further consideration of the payment of $10.00 to
TII-Utah, the TII Parties, in their capacity as the directors of TII-Utah,
adopt a resolution to issue to Baetz and Gallant a number of common shares of
TII-Utah in an amount equal to two times the sum of: (i) all of the issued
and outstanding shares of capital stock of TII-Utah, plus (ii) the number of
shares issuable upon the exercise of all warrants, stock options and any
other rights to purchase or acquire capital stock of TII-Utah; less the
number of shares acquired by Gallant and Baetz under in subparagraph 6(a),
above. Attached as Exhibit I is a true and correct copy of the Action by
Unanimous Written Consent of the Board of Directors of TII-Utah, pursuant to
which the board of directors authorizes and approves the sale and issuance of
capital stock as provided herein.
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(c) The shares of TII-Utah capital stock issued to Baetz and
Gallant pursuant to subparagraph 6(b) are "restricted securities" under
applicable federal securities laws and regulations and are subject to
restrictions upon their transfer. The TII Parties each agree to restrict the
transfer of all of their shares of TII-Utah capital stock now owned or
controlled by them as if all of such shares were "restricted securities"
issued at the same time as the shares of TII-Utah capital stock issued to
Gallant and Baetz pursuant to subparagraph 6(b).
7. CONDITION. The effectiveness of this Agreement is conditioned
upon the execution of another agreement by Messrs. Lou Prescott, Lee Papier
and Matt Lothian pursuant to which each of them assigns to Baetz and Gallant
all of their right, title and interest in and to one-half (1/2) of all of the
shares of capital stock of the Companies and any of their affiliates, owned
or controlled by each of them or on their behalf and all of their respective
right, title and interest in and to all of the warrants, stock options and
other rights of any kind to acquire shares of capital stock of either of the
Companies or any of their affiliates to which any of them is entitled.
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8. ATTORNEYS' FEES. In the event of any suit, action or
proceeding brought by any party for the breach of any term hereof, or to
enforce any provisions hereof, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to court costs and other expenses of
litigation. This provision for attorneys' fees shall include any attorneys'
fees and costs incurred in connection with any appellate action.
9. SEVERABILITY AND GOVERNING LAW. If any provision of this
Agreement is determined to be unenforceable, validity and enforceability of
the remaining provisions of the Agreement shall not be affected. Each
provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by applicable law. Any provision determined to be invalid
or unenforceable may be reformed or modified to make such provision valid or
enforceable so as to accomplish the intent of the provision as closely as
possible. To the extent consistent with applicable law The validity,
enforcement, performance, construction, and interpretation of this Agreement
shall be determined in accordance with California law.
10. WAIVER. This Agreement shall not be changed or modified, and
no provision may be waived, in whole or in part, except as contained in a
written document signed by all the parties.
11. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of, the parties hereto and their respective successors and
assigns, but shall not be assignable by Paisley or Alverson.
12. INDEMNIFICATION. In addition to any other remedy at law or
equity available to Baetz and Gallant, each of the TII Parties, jointly and
individually, shall defend, indemnify and hold harmless Baetz and Gallant
from and against all loss, damage and liability, including attorneys fees and
costs, arising from any breach or nonperformance of this Agreement, including
without limitation, any misrepresentation, breach of a warranty or
nonperformance of a covenant.
13. RECITALS. The parties agree, represent and warrant that the
recitals are true and correct and the sane are incorporated in this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each counterpart shall be deemed to be on original
instrument, but all of such counterparts together shall constitute but one
agreement.
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The parties execute this Agreement on the date set forth above in
Newport Beach, California.
/s/ Doug Baetz /s/ Glenn Gallant
- ---------------------- ----------------------
Doug Baetz Glenn Gallant
/s/ William A. Alverson /s/ Dale Paisley
- ----------------------- ----------------------
William M. Alverson Dale Paisley
/s/ Mark Guest
- -----------------------
Mark Guest
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Exhibit 10.8 Asset Purchase Agreement
ASSET PURCHASE AGREEMENT
by and among
TRAVELMAX INTERNATIONAL, INC.,
a Utah corporation
and
JETAWAY TRAVEL CORPORATION,
a California corporation
and
JAMES MASSOLI,
an individual
Dated as of January 5, 1998
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AGREEMENT
This Asset Purchase Agreement ("Agreement"), made and entered into as of
January 5, 1998, by and among TravelMax International Inc., a Utah
corporation ("TMI" or "Purchaser"), on the one hand, and Jetaway Travel
Corporation ("JTC"), a California corporation, and James Massoli, an
individual ("Massoli") (collectively, "Sellers") on the other hand.
RECITALS
WHEREAS, JTS owns and operates the business, carried out under the names
of "Nu-Concepts in Travel" and "Jetaway Travel," of establishing independent
travel agents in home-based travel businesses (the "Business");
WHEREAS, Massoli owns 100% of the issued and outstanding shares of JTC
Common Stock; and
WHEREAS, Sellers desire to transfer to Purchaser and Purchaser desires
that Purchaser acquire from Sellers certain specific assets which are used in
operating the Business in exchange for the consideration delineated
hereinbelow;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and conditions herein contained, the parties hereto do
hereby agree as follows:
1. CERTAIN DEFINITIONS. The following terms as used in this Agreement
shall have the meanings set forth below:
"Proprietary Information" shall mean all of the information regarding
any products or services related to the Transferred Assets (defined below)
which constitute reliable trade secrets or proprietary business information,
including, without limitation, such information as encompassed in all
drawings, designs, formulas, devices, compilations, computer programs and
software devices, plans, manuals, proposals, financial information, costs,
pricing information, marketing or sales plans, accounting, customer lists or
any other trade secrets or proprietary information whether now existing or
hereinafter developed whether it gives the disclosing party any competitive
advantage over those who do not know or use it, or whether it is patentable
or subject to copyright or trademark protection.
"Technical Information" means all information, knowledge, engineering
and technical data, manufacturing data, raw data, developments, projections,
proprietary data, manufacturing drawings, product specifications,
manufacturing and assembly techniques, production descriptions, skills,
methods, trade secrets, processes, procedures and knowhow and other
information or improvements thereto in existence on the date hereof or
thereafter developed, that are pertinent to the maintenance and exploitation
of the Transferred Assets (defined below).
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2. TRANSFER OF ASSETS.
2.1 TRANSFERRED ASSETS. On the basis of the representations and
warranties and subject to the terms and conditions hereinafter set forth, on
the Closing Date (defined below), Sellers shall transfer or shall cause to be
transferred to Purchaser, and Purchaser shall acquire, the specific assets of
JTC described in this Section 2.1 and listed in Schedule 2.1 attached hereto
(the "Transferred Assets"). Subject to the foregoing, "Transferred Assets"
means:
(a) Names, addresses, telephone, facsimile and e-mail numbers and all
other information ("Agent Database"), in both electronic and paper form,
possessed by JTC concerning the approximately 100,000 independent agents
("Independent Agents") selling travel services in the Business;
(b) All information, whether in document, graphic or electronic form,
related to the participation of the Independent Agents in the Business,
including correspondence, books, records, files, documents, original
marketing communications material (including communications, art work, art
boards, photography and negatives), training material for Independent Agents,
sales literature, customer lists and other records, owned by and in the
possession of Sellers;
(c) All Proprietary Information, Technical Information owned by JTC and
used in the management of the Transferred Assets;
(d) JTC's site on the Worldwide Web ("JTC's Website"), located at
"www.nu-concepts.com" and maintained by Outwest Inc., pursuant to a contract
dated September 1, 1995, and a letter proposal dated January 7, 1998 for
future services, both as set forth in Schedule 2.1(d) hereto; and
(e) Introduction to the business opportunity in Canada with Travel
Travel Inc., as described in a letter by Richard Lawrence, dated January 9,
1997, set forth in schedule 2.1(e) hereto.
3. NO ASSUMPTION OF LIABILITIES; RECEIPT OF REVENUES.
(a) Purchaser shall assume no liabilities of Sellers of any kind.
(b) Purchaser shall, pursuant to this Agreement, own any and all
revenues ("Agent Revenues") received from any of the Independent Agents on or
after the Closing Date. Sellers authorize Purchaser to endorse the name of
"Jetaway Travel Corporation," "Nu-Concepts in Travel" or any reasonable
variation thereof on any check, money order, or other evidence of remittance
of Agent Revenues. Sellers hereby appoint Purchaser their attorney-in-fact to
take any action to demand, sue for, endorse, collect, and receive any and all
such Agent Revenues and to file any claim, proof of claim, or other
instrument of similar character and to take such other proceedings in
Sellers' name or in Purchaser's as the Purchaser may deem necessary or
advisable for the enforcement of this Agreement. Sellers shall execute and
deliver to Purchaser such other
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powers of attorney or other instruments as Sellers may request in order to
accomplish the foregoing.
4. PURCHASE PRICE. On the Closing Date (defined below), Purchaser
agrees to purchase the Transferred Assets in consideration of the following
as set forth below:
4.1 CASH PAYMENTS. On the Closing Date (defined below) Purchaser shall
deliver to Sellers the sum of $100,000, and sixty days thereafter shall
deliver to Sellers the sum of $50,000.
4.2 STOCK OF TMI. Ninety days after the Closing Date (defined below),
Purchaser shall deliver to Sellers a number of shares of the Common Stock of
TMI ("TMI Common Stock") equal in value to $150,000, as measured on the basis
of the average mean between the daily closing bid and asked price in the
over-the-counter market of such stock for each day in the five (5) business
day period ending on the date which is the eighty-ninth day after the Closing
Date.
5. CLOSING. The closing of this transaction (the "Closing") shall
take place as of the close of business on January 16, 1998 (the "Closing
Date") at the offices of Purchaser located at 3388 Via Lido, Newport Beach,
California 92663, or at such other place and date as the parties hereto agree
to in writing.
5.1 BOOKS AND RECORDS OF JTC. On or before Closing, Sellers shall
deliver or cause JTC to deliver to the office of Purchaser all of JTC's
books, records and other documents, for all necessary periods, which are
reasonable and necessary for the preparation of audited financial statements
("Financial Statements") of Purchaser, pursuant to Regulation S-X,
promulgated under the Securities Exchange Act of 1934, as amended. Purchaser
shall retain custody of such books, records and documents after the Closing,
shall maintain such books, records and documents in a separate location and
shall make them available to Sellers during all normal business hours.
Sellers agree to cooperate with Purchaser and accountants engaged by
Purchaser by providing any additional information and insuring that
employees, officers and directors of JTC are available for interviews, all
for the purpose of preparation of such Financial Statements.
6. REPRESENTATIONS AND WARRANTIES OF SELLERS.
6.1 ORGANIZATION AND GOOD STANDING; DUE AUTHORIZATION. JTC is a
corporation duly organized, validly existing, and in good standing under the
laws of California and has the corporate power and is duly authorized,
qualified, franchised and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to own all of its properties and
assets and to carry on its business in all material respects as it is now
being conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the assets
owned by it or the nature of the business transacted by it requires
qualification. Included in Schedule 6.1 are complete and correct copies of
the Articles of Incorporation and Bylaws of JTC as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of JTC's Articles of
Incorporation or Bylaws. JTC has taken all action required by law, its
Articles of Incorporation, its Bylaws or otherwise to authorize the execution
and delivery of this Agreement. JTC has full power, authority and legal
right and has taken all action required by law, its Articles of
Incorporation, Bylaws and otherwise to consummate the transactions herein
contemplated.
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6.2 TITLE TO TRANSFERRED ASSETS. At the Closing, Sellers shall have and
Purchaser shall receive good and marketable title to the Transferred Assets,
free and clear of any lien, mortgage, charge, security interest, pledge or
other encumbrance or other adverse claim or interest of any nature. JTC is
the sole and exclusive owner of the Transferred Assets as of the Closing
Date. Sellers have the right and power to assign all of its rights, title
and interest in and to the Transferred Assets. Sellers further represent and
warrant that they have not made any prior transfer, sale, assignment, pledge,
hypothecation or encumbrance to any other person or entity any right or
interest in, the Transferred Assets.
6.3 BINDING OBLIGATION; NO DEFAULT. Sellers have duly taken all action
necessary to authorize the execution, delivery and performance of this
Agreement and the other instruments and agreements contemplated hereby. Such
execution, delivery and performance does not and will not, to the best of
Sellers' knowledge, constitute a default under or a violation of any
agreement, order, award, judgment, decree, statute, law, rule, regulation or
any other instrument to which either Seller is a party or by which either
Seller or the property of either Seller may be bound or may be subject. This
Agreement constitutes the legal, valid and binding obligation of each Seller,
enforceable against each Seller in accordance with its terms.
6.4 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the execution and
delivery of this Agreement by Sellers nor compliance by Sellers with the
terms and conditions of this Agreement will: (a) require Sellers to obtain
the consent of any governmental agency; (b) result in any violation or breach
of any term of the Articles of Incorporation or bylaws of JTC; (c) constitute
a material default under any indenture, mortgage or deed of trust to which
either Seller is a party or by which either Seller or its properties may be
subject; (d) cause the creation or imposition of any lien, charge or
encumbrance on any of its assets; or (e) breach any statute or regulation of
any governmental authority, domestic or foreign, or will on the Closing Date
conflict with or result in a breach or any of the terms or conditions of any
judgment, order, injunction, decree or ruling of any court or governmental
authority, domestic or foreign, to which either Seller is subject.
6.5 CONSENTS. No consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority or any
third party is required to be made or obtained by Sellers in connection with
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
6.7 SECURITIES WARRANTIES. With respect to the TMI Common Stock, each
of the Sellers hereby represents and warrants to TMI that:
(a) The TMI Common Stock which may be acquired for the account of each
of the Sellers and not with a view to sale in connection with any
distribution of the TMI Common Stock;
(b) Each of the Sellers is acquiring the TMI Common Stock hereunder
without having received any form of general solicitation or general
advertising;
(c) Each of the Sellers or his representative, if any, has been provided
with, or given reasonable access to, full and fair disclosure of all material
information concerning TMI;
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(d) Each of the Sellers has a preexisting personal or business
relationship with TMI or certain of its officers, directors or controlling
persons, or by reason of his business or financial experience, each of the
Sellers can reasonably be assumed to have the capacity to represent his own
interests in connection with this Agreement;
(e) Each of the Sellers understands and hereby acknowledges that the TMI
Common Stock will be issued pursuant to those restrictions imposed by and
exemptions available pursuant to applicable federal and state laws and that
the certificates to be issued in respect of the TMI Common Stock may bear a
legend in a form satisfactory to counsel for TMI; in part, TMI's reliance
upon such exemptions is based on the representations and warranties made by
each of the Sellers in this Section 6.7;
(f) Each of the Sellers agrees that the certificates to be issued in
respect of the TMI Common Stock may bear a legend in a form satisfactory to
counsel for TMI reflecting the status of the TMI Common Stock as restricted
securities under Rule 144(a)(3) promulgated under the Securities Act of 1993
("Securities Act") and acknowledges that the transfer agent or registrar for
TMI may be instructed to restrict the transfer of the TMI Common Stock, in
accordance with such legend and any other restrictions provided in this
Agreement;
(g) Each of the Sellers hereby agrees that: (i) he will not sell,
transfer, hypothecate, pledge, assign or otherwise dispose of any of the TMI
Common Stock, except pursuant to the terms of this Agreement; and (ii) to a
registration statement filed under the provisions of the Securities Act, a
favorable no-action or interpretive letter received from the Commission or an
opinion of counsel satisfactory to TMI that such sale, transfer,
hypothecation, pledge, assignment or other disposition is exempt from the
registration requirements of the Securities Act and in California, pursuant
to an opinion of counsel satisfactory to TMI that such sale, transfer,
hypothecation, pledge, assignment or other disposition is exempt from the
registration requirements of the Securities Act and does not in any way
violate the terms of this Agreement; and
(h) Each of the Sellers hereby acknowledges that: (i) the shares of TMI
Common Stock referred to herein are being acquired after adequate
investigation of the business plan and prospects of TMI; (ii) each of the
Sellers is not relying upon the accuracy of any predictions as to the future
prospects or developments of TMI or its business and is well informed as to
the business of TMI and has reviewed its operations and financial statements;
(iii) each of the Sellers or their professional advisors has discussed the
financial condition and business operations of TMI with the officers and
directors of TMI and has been afforded the opportunity to ask questions with
respect thereto; and (iv) each of the Sellers specifically acknowledges that
the shares of TMI Common Stock are speculative and involve a very high degree
of risk and that there can be no assurance that TMI will achieve its business
objectives or, in particular, that it will ever have cash available for
distribution to its stockholders.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
7.1 ORGANIZATION AND GOOD STANDING; DUE AUTHORIZATION. TMI is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of Utah, and has the
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corporate power and is duly authorized, qualified, franchised and licensed
under all applicable laws, regulations, ordinances and orders of public
authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in the states in which
the character and location of the assets owned by it or the nature of the
business transacted by it requires qualification. Included in Schedule 7.1
are complete and correct copies of the Articles of Incorporation and Bylaws
of Purchaser as in effect on the date hereof. The execution and delivery of
this Agreement does not, and the consummation of the transaction contemplated
by this Agreement in accordance with the terms hereof will not, violate any
provision of Purchaser's articles of incorporation or Bylaws. Purchaser has
taken all action required by law, its articles of incorporation, its Bylaws
or otherwise to authorize the execution and delivery of this Agreement.
Purchaser has full power, authority and legal right and has taken all action
required by law, its articles of incorporation, Bylaws and otherwise to
consummate the transactions herein contemplated.
7.2 BINDING OBLIGATION; NO DEFAULT. Purchaser has duly taken all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement and the other instruments and agreements
contemplated hereby. Such execution, delivery and performance does not and
will not, violate its Articles of Incorporation or Bylaws, or to the best of
Purchaser's knowledge, constitute a default under or a violation of any
agreement, order, award, judgment, decree, statute, law, rule, regulation or
any other instrument to which Purchaser or the property of Purchaser may be
bound or may be subject. This Agreement constitutes the legal, valid and
binding obligation of Purchaser enforceable against Purchaser in accordance
with its terms.
7.3 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the execution and
delivery of this Agreement by Purchaser nor compliance by Purchaser with the
terms and conditions of this Agreement will: (a) require Purchaser to obtain
the consent of any governmental agency; (b) result in any violation or breach
of any term or provision of the Articles of Incorporation or Bylaws of
Purchaser; (c) constitute a material default under any indenture, mortgage or
deed of trust to which Purchaser is a party or by which Purchaser or its
property may be subject; (d) cause the creation or imposition of any lien,
charge or encumbrance on any of its assets; or (e) breach any statute or
regulation of any governmental authority, domestic or foreign, or will on the
Closing Date conflict with or result in a breach of any of the terms or
conditions of any judgment, order, injunction, decree or ruling of any court
or governmental authority, domestic or foreign, to which Purchaser is
subject.
7.4 CONSENTS. No consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority or any
third party is required to be made or obtained by Purchaser in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
7.5 TITLE TO THE TMI COMMON STOCK. Upon delivery to Sellers of the
certificates described in Section 4.2 of this Agreement, Sellers will receive
good and marketable title to the TMI Common Stock, and all such TMI Common
Stock shall be received by Sellers as validly issued, fully paid and
nonassessable, free and clear of all pledges, liens, encumbrances, security
interests, equities, options, claims, charges, limitations on voting rights
or rights to receive dividends, or other restrictions of any kind (other than
any generally imposed by federal, corporate or territorial securities laws or
as otherwise provided for in this Agreement).
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8. CONDITIONS TO SELLERS' OBLIGATIONS.
The obligations of each of Sellers to consummate the transactions
contemplated by this Agreement, both at the Closing and subsequently, are
subject to the fulfillment at the Closing of each of the conditions set forth in
this Section 8. Each of Sellers may waive any or all of these conditions in
whole or in part without prior notice; PROVIDED, HOWEVER, that no such waiver
shall constitute a waiver of any of its other rights or remedies, at law or in
equity, arising from any breach by Purchaser of any representation, warranty,
covenant or other agreement contained herein:
8.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. On the Closing Date,
all of the representations and warranties made herein by Purchaser shall be
true and correct as of that date, and all of the agreements of Purchaser
contained in this Agreement which are to be performed on or before the
Closing Date shall have been performed.
8.2 AUTHORIZATION OF ACTIONS. All action on the part of Purchaser
necessary and sufficient to authorize the execution, delivery and performance
of this Agreement and the consummation the transactions provided for herein
shall have been duly and validly taken by Purchaser, and Seller shall have
been furnished with a certificate of the Secretary or Assistant Secretary of
Purchaser setting forth a copy of the resolution or other instrument
authorizing the performance of all other transactions provided for in this
Agreement.
8.3 BINDING OBLIGATION; NO DEFAULT. The execution, delivery and
performance of this Agreement does not and will not violate Purchaser's
Articles of Incorporation or Bylaws or constitute a default under or a
violation of any agreement, order, award, judgment, decree, statute, law,
rule, regulation or any other instrument to which Purchaser is a party or by
which it or its property is bound or to which it or its property is bound or
to which it or its property is subject. This Agreement constitutes the
legal, valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its terms.
8.4 CONSENTS. All material consents, approvals or authorizations of, or
declarations, filings or registrations with, any governmental or regulatory
authority which are required to be made or obtained by Purchaser in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby shall have been obtained by Purchaser
and delivered to Sellers.
8.5 FORM OF DOCUMENTS. The form and substance of all certificates,
instruments and other documents delivered to Sellers under this Agreement
shall be satisfactory in all reasonable respects to Sellers and their counsel.
8.6 DELIVERY OF CLOSING DOCUMENTS. Purchaser shall have delivered to
Sellers on the Closing Date the closing documents required to be delivered
pursuant to Section 15 in form and substance satisfactory to Sellers and
their counsel.
8.7 ABSENCE OF PROCEEDINGS. No suit, action, investigation or other
proceeding shall be pending or threatened before any court or governmental or
regulatory agency or authority, and no suit, action, investigation or other
proceeding before any governmental or regulatory agency or authority shall
have been threatened, which seeks (or, in the case of an investigation,
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may lead to a suit, action or proceeding which seeks) to restrain, prohibit
or obtain damages or other relief in connection with the Agreement or the
consummation of the transactions contemplated hereby or which questions the
validity or legality of such transactions.
8.8 OPINION OF COUNSEL TO PURCHASER. Sellers shall receive an opinion,
dated the Closing Date, of Matthias & Berg LLP, counsel to Purchaser. Such
opinion shall be to the best of such counsel's knowledge and be in
substantially the following form:
(a) Purchaser is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Utah, and has the corporate
power and is duly authorized, qualified, franchised and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own all of its properties and assets and to carry on its business in all
material respects as it is now being conducted, including qualification to do
business as a foreign corporation in the states in which the character and
location of the assets owned by it or the nature of the business transacted
by it requires qualification;
(b) To the best knowledge of such legal counsel, the execution and
delivery by Purchaser of this Agreement and the consummation of the
transactions contemplated by this Agreement in accordance with the terms
hereof will not conflict with or result in the breach of any term or
provision of Purchaser's articles of incorporation or Bylaws or constitute a
default or give rise to a right of termination, cancellation or acceleration
under any material mortgage, indenture, deed of trust, license agreement or
other obligation or violate any court order, writ, injunction or decree
applicable to Purchaser or their properties or assets;
(c) To the best of such counsel's knowledge, the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
have been duly authorized and approved by all necessary action of the Board
of Directors of Purchaser, and there are no dissenters' rights or rights of
appraisal with respect to the authorization, approval, execution and
completion of the transactions contemplated by this Agreement. This
Agreement has been duly and validly authorized, executed, and delivered and
constitutes the legal and binding obligation of Purchaser, enforceable in
accordance with its terms, except as limited by bankruptcy and insolvency
laws and by other laws affecting the rights of creditors generally;
(d) To the best of such counsel's knowledge, no consent, approval or
authorization of or filing or registration with any governmental body or
agency of the United States federal government or of any state is required
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement.
9. CONDITIONS TO PURCHASER'S OBLIGATIONS.
The obligations of Purchaser to consummate the transactions contemplated
this Agreement, both at the Closing and subsequently, are subject to the
fulfillment at the Closing of each of the conditions set forth in this
Section 9. Purchaser may waive any or all of these conditions in whole or in
part without prior notice; PROVIDED, HOWEVER, that no such waiver shall
constitute a waiver of any of its other rights or remedies, at law or in
equity, arising from any breach by Sellers of any representation, warranty,
covenant or other agreement contained herein:
9.1 REPRESENTATIONS AND WARRANTIES OF SELLERS. On the Closing Date,
all of the representations and warranties made herein by each of Sellers
shall be true and correct as of that
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date, and all of the agreements of each of Sellers contained in this
Agreement which are to be performed on or before the Closing Date shall have
been performed.
9.2 AUTHORIZATION OF ACTIONS. All action on the part of Sellers
necessary and sufficient to authorize the execution, delivery and performance
of this Agreement and the consummation the transactions provided for herein
shall have been duly and validly taken by Sellers, and Purchaser shall have
been furnished with a certificate of the Secretary or Assistant Secretary of
JTC setting forth a copy of the resolution or other instrument authorizing
(a) the sale of the Transferred Assets and (b) the performance of all other
transactions provided for in this Agreement.
9.3 BINDING OBLIGATION; NO DEFAULT. The execution, delivery and
performance of this Agreement does not and will not violate JTC's Articles
of Incorporation or Bylaws or constitute a default under or a violation of
any agreement, order, award, judgment, decree, statute, law, rule, regulation
or any other instrument to which each of Sellers is a party or by which it or
its property is bound or to which it or its property is bound or to which it
or its property is subject. This Agreement constitutes the legal, valid and
binding obligation of each of Sellers, enforceable against each of Sellers in
accordance with its terms.
9.4 CONSENTS. All material consents, approvals or authorizations of,
or declarations, filings or registrations with, any governmental or
regulatory authority which are required to be made or obtained by Sellers in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby shall have been obtained by Sellers and
delivered to Purchaser.
9.5 FORM OF DOCUMENTS. The form and substance of all certificates,
instruments and other documents delivered to Purchaser under this Agreement
shall be satisfactory in all reasonable respects to Purchaser and their
counsel.
9.6 DELIVERY OF CLOSING DOCUMENTS. Sellers shall have delivered to
Purchaser on the Closing Date the closing documents required to be delivered
pursuant to Section 14 in form and substance reasonably satisfactory to
Purchaser and their counsel.
9.7 ABSENCE OF PROCEEDINGS. There is no suit, action, investigation or
other proceeding shall be pending before any court or governmental or
regulatory agency or authority, and no suit, action, investigation or other
proceeding before any governmental or regulatory authority shall have been
threatened, which seeks (or, in the case of investigation, may lead to a
suit, action or proceeding which seeks) to restrain, prohibit or obtain
damages or other relief in connection with this Agreement or the consummation
of the transactions contemplated hereby or which questions the validity or
legality of such transactions.
9.8 OPINION OF COUNSEL TO SELLERS. Purchaser shall receive an opinion,
dated as of the Closing Date, of Ira L. Dickstein, Attorney at Law, counsel
to Sellers, if appropriate. Such opinions shall be to the best of such
counsel's knowledge and be in substantially the following form:
(a) JTC is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California, and has the corporate
power and is duly authorized, qualified, franchised and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own all of its properties and assets and to carry on its business in all
material
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respects as it is now being conducted, including qualification to do business
as a foreign corporation in the states in which the character and location of
the assets owned by it or the nature of the business transacted by it
requires qualification;
(b) To the best knowledge of such legal counsel, the execution and
delivery by Sellers of this Agreement and the consummation of the
transactions contemplated by this Agreement in accordance with the terms
hereof will not conflict with or result in the breach of any term or
provision of JTC's Articles of Incorporation or Bylaws or constitute a
default or give rise to a right of termination, cancellation or acceleration
under any material mortgage, indenture, deed of trust, license, agreement or
other obligation or violate any court order, writ, injunction or decree
applicable to JTC, or their properties or assets;
(c) To the best knowledge of such legal counsel, the execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby have been duly authorized and approved by all necessary action of the
Board of Directors and stockholders of JTC, and there are no dissenters'
rights or rights of appraisal with respect to the authorization, approval,
execution and completion of the transactions contemplated by this Agreement.
This Agreement has been duly and validly authorized, executed and delivered
and constitutes the legal and binding obligations of JTC, enforceable in
accordance with its term, except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally;
(d) To the best knowledge of such legal counsel, there are no actions,
suits or proceedings pending or threatened by or against or affecting the
Transferred Assets or the ability of Sellers to deliver the Transferred
Assets to Purchaser, at law or in equity, before any court or other
governmental or industry agency or instrumentality, domestic or foreign or
before any arbitrator of any kind; and
(e) To the best of such counsel's knowledge, no consent, approval or
authorization of or filing or registration with any governmental body or
agency of the United States federal government or of any state is required
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement.
10. OTHER AGREEMENTS.
10.1 AGREEMENT TO OBTAIN CONSENTS AND APPROVALS. Purchaser and Sellers
shall cooperate with one another to use their best efforts to obtain any and
all governmental or third-party consents and approvals necessary to complete
the transactions contemplated by this Agreement.
10.2 AGREEMENT CONCERNING CONDITIONS TO CLOSING. Sellers and Purchaser
shall agree to use their best efforts to cause the conditions set forth in
Sections 8 and 9 to be met prior to the Closing Date.
10.3 TRANSFER AND OTHER TAXES. Sellers shall pay at the Closing any and
all taxes, whether federal, state, local or foreign in the nature of sales,
transfer or similar taxes, arising out of the transactions contemplated by
this Agreement; PROVIDED, HOWEVER, that if the amount of any such tax is not
known on the Closing Date, Sellers shall pay at the Closing the amount of
such tax estimated by Purchaser and shall pay any additional amount due with
respect to such tax within
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five days after notice of such amount by Purchaser, or, if any such estimated
amount paid by Sellers shall be in excess of the actual amount of such tax,
with respect to such tax Purchaser will reimburse Sellers for such amount
within five days of the date Purchaser has notice of the actual amount due;
and provided further, that Sellers shall reimburse Purchaser for the amount
of any tax required to be paid by Sellers under this Section 10.3 but
actually paid by Purchaser pursuant to legal requirements or otherwise.
10.4 EMPLOYMENT AGREEMENT. Larry Michaels shall enter into an
employment agreement ("Employment Agreement") with Purchaser attached hereto
as Schedule 10.4. Sellers hereby expressly agree and acknowledge that the
non-disclosure and non-competition provisions set forth in Section 6 of the
Employment Agreement are material considerations for Purchaser's entering
into this Agreement.
11. SPECIAL COVENANTS.
11.1 STOCKHOLDER MEETING OF JTC. JTC, at a meeting of its stockholders
duly called by the board of directors to be held as soon as practicable
following execution of this Agreement, or pursuant to a unanimous consent of
the stockholders, present for the authorization and approval of the
stockholders, in accordance with the applicable provisions of the laws of the
State of California, this Agreement and the consummation of the transactions
contemplated with Purchaser, as set forth herein. In lieu of this
requirement, JTC may provide the approval required under this Section 11.1 by
a written consent of its stockholders acceptable under California law as
legal action taken in lieu of a stockholders' meeting.
11.2 AVAILABILITY OF RULE 144. Each of the parties acknowledges that
the TMI Common Stock to be issued pursuant to this Agreement will be
"restricted securities," as that term is defined in Rule 144 promulgated
pursuant to the Securities Act. TMI is under no obligation to register such
shares under the Securities Act.
11.3 INFORMATION FOR PURCHASER'S PUBLIC REPORTS. Upon written request
of TMI or its counsel, Sellers shall furnish Purchaser with all information
concerning Sellers, including all financial statements required for inclusion
in any public reports required to be filed by TMI pursuant to the Securities
Act, the Exchange Act or any other applicable federal or state law. Sellers
represent and warrant to TMI that, to the best of their knowledge and belief,
all information so furnished shall be true and correct in all material
respects without omission of any material fact required to make the
information stated not misleading.
11.4 SPECIAL COVENANTS AND REPRESENTATIONS REGARDING THE TMI COMMON
STOCK. The consummation of this Agreement and the transactions herein
contemplated, including the issuance of the TMI Common Stock to the Sellers,
as contemplated hereby, constitutes the offer and sale of securities under
the Securities Act, and applicable state statutes. Such transactions shall
be consummated in reliance on exemptions from the registration and prospectus
delivery requirements of such statutes which depend, INTER ALIA, upon the
circumstances under which the Sellers acquire such securities.
12. ACCESS TO INFORMATION.
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12.1 SELLERS' OBLIGATIONS. After the Closing Date, JTC shall give, or
cause to be given, to Purchaser and its representatives, during normal
business hours at Seller's premises and at Purchaser's expense, such
reasonable access to the personnel, properties, titles, contracts, books,
records, files, documents and affairs of Sellers and copies of titles,
contracts, books, records, files and documents as is necessary to allow
Purchaser to obtain information in connection with the Transferred Assets and
any claims, demands, other audits, suits, actions or proceedings by or
against Purchaser as the previous owner of the Transferred Assets. Sellers
shall cooperate fully with Purchaser after the Closing Date with respect to
any claims, demands, suits, actions and proceedings by or against Purchaser
as the previous owner of the Transferred Assets.
14. CLOSING DOCUMENTS TO BE DELIVERED BY SELLERS. On the Closing Date,
Sellers shall deliver to Purchaser:
14.1 ASSIGNMENT. A Bill of Sale and Assignment in the form attached as
Schedule 14.1 hereto.
14.2 CERTIFICATE. A certificate dated the Closing Date, signed by a
duly authorized officer of JTC, stating that all of Sellers' representations
and warranties set forth in this Agreement are true and correct on and as of
the Closing Date as if made on the Closing Date.
14.3 FURTHER INSTRUMENTS. Such further instruments with respect to the
transactions contemplated by this Agreement as Sellers are required to
deliver or as Purchaser may reasonably request.
15. CLOSING DOCUMENTS TO BE DELIVERED BY PURCHASER.
15.1 FURTHER INSTRUMENTS. Such further instruments with respect to the
transactions contemplated by this Agreement as Purchaser is required to
deliver or as Sellers may reasonably request.
15.2 CERTIFICATE. A certificate dated the Closing Date, signed by a
duly authorized officer of Purchaser, stating that all of Purchaser's
representations and warranties set forth in this Agreement are true and
correct on and as of the Closing Date as if made on the Closing Date.
15.3 EMPLOYMENT AGREEMENT. An executed copy of the Employment Agreement
provided for in Section 10.5 hereof.
16. INDEMNIFICATION; NOTICE OF BREACH.
16.1 PURCHASER'S INDEMNIFICATION. After the Closing, Purchaser shall
protect, defend, indemnify and hold harmless each of Sellers, its parents,
subsidiaries, and its officers, directors, employees, successors and assigns
from and against any losses, damages (but not including consequential damages
and penalties) and expenses (including, without limitation, reasonable
counsel fees, costs and expenses incurred in investigating and defending
against the assertion of such liabilities) which may be sustained, suffered
or incurred by them and which (a) are related to any breach by Purchaser of
its representations and warranties in this Agreement, or (b) arise out of the
use by Purchaser of the Transferred Assets after the Closing Date.
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16.2 SELLERS' INDEMNIFICATION. After the Closing, each of Sellers
shall protect, defend, indemnify and hold harmless Purchaser, its parents,
subsidiaries, officers, directors, employees, successors and assigns from and
against any losses, damages (but not including consequential damages and
penalties) and expenses (including, without limitation, reasonable counsel
fees, costs and expenses incurred in investigating and defending against the
assertion of such liabilities) which may be sustained, suffered or incurred
by them and which (a) are related to any breach by Sellers of their
representations and warranties in this Agreement, or (b) are based solely
upon BONA FIDE claims asserted by third parties against Purchaser with
respect to the Transferred Assets.
16.3 NOTICE. If any action, suit or proceeding shall be commenced, or
any claim or demand shall be asserted, in respect or which one party (the
"Indemnitee") proposes to demand indemnification under Section 16.1 or 16.2,
the party from which indemnification is sought (the "Indemnitor") shall be
notified to that effect with reasonable promptness and shall have the right
to assume the entire control of (including the selection of counsel), subject
to the right of the Indemnitee to participate (with counsel of its choice)
in, the defense, compromise or settlement thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnitee unless (a) the
employment of such counsel by the Indemnitee has been specifically authorized
by the Indemnitor, or (b) the named parties to any such action (including any
impleaded parties) include both the Indemnitee and the Indemnitor and the
Indemnitee shall have been advised by its counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Indemnitor. The Indemnitee shall cooperate fully in
all respects with the Indemnitor in any such defense, compromise or
settlement, including, without limitation, by making available all pertinent
information under its control to the Indemnitor. The Indemnitor shall not
compromise or settle any such action, suit, proceeding, claim or demand
without the prior written consent of the Indemnitee; PROVIDED, HOWEVER, that
in the event the approval described above is withheld, then the liabilities
of the Indemnitor shall be limited to the total sum representing the amount
of the proposed compromise or settlement and the amount of counsel fees
accumulated at the time such approval is withheld.
17. MISCELLANEOUS.
17.1 BROKERAGE AND FINDER'S FEES. Sellers and Purchaser represent to
and agree with each other that no broker or finder has been or shall be
involved in any manner in the negotiation or consummation of the transactions
contemplated hereby. Each of Sellers agrees to indemnify and save Purchaser
harmless from and against any and all claims, liabilities or obligations with
respect to brokerage or finder's fees or commissions in connection with the
transactions contemplated by this Agreement asserted by any person on the
basis of any statement or representation made or alleged to have been made by
Sellers. Purchaser agrees to indemnify and save Sellers and one or more of
its subsidiaries harmless from and against any and all claims, liabilities or
obligations with respect to brokerage or finder's fees or commissions in
connection with the transactions contemplated by this Agreement asserted by
any person or persons on the basis of any statement or representation made or
alleged to have been made by Purchaser.
17.2 EXPENSES. Each of the parties to this Agreement shall bear all of
its own expenses incurred by it in connection with this Agreement.
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17.3 RISK OF LOSS. The risk of any loss, damage, impairment,
confiscation or condemnation of the Transferred Assets or any part thereof
shall be upon Sellers at all times prior to the Closing Date. Prior to the
Closing, in the event of any such loss, damage, impairment, confiscation or
condemnation, the proceeds of, or any claim for any loss payable under, each
of Sellers' insurance policy, judgment or award with respect thereto shall be
payable to Sellers, and Sellers shall have no obligation to Purchaser to
repair, replace or restore any such property or to pay all or any part of
such proceeds to Purchaser. In the event such loss so impairs the
Transferred Assets so that Purchaser, in its sole and absolute discretion no
longer believes that the Business can operate as it does on the date of this
Agreement, Purchaser may terminate this Agreement without liability to
Purchaser.
17.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sellers in this Agreement or in any instrument or document
delivered prior to or on the Closing Date shall survive indefinitely
following the Closing. The representations, warranties and covenants of
Purchaser in this Agreement or in any certificate or document delivered prior
to, on or after the Closing Date shall survive indefinitely following the
Closing.
17.5 LAW, FORUM AND JURISDICTION. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California. Sellers
and Purchaser agree that any dispute arising under this Agreement, whether
during the term of the Agreement or at any subsequent time, shall be resolved
exclusively in the courts of California and Sellers and Purchaser hereby
submit to the jurisdiction of such courts for all purposes provided herein.
17.6 NOTICES. All notices and other communications and legal process
shall be in writing and shall be personally delivered, transmitted by
overnight courier by telecopier and followed by first class mail, or
transmitted by registered or certified mail, postage prepaid, with return
receipt requested, as elected by the party giving such notice, addressed as
follows:
If to Sellers: Jetaway Travel Corporation
1820 East First Street
Santa Ana, California 92705
Attn: James Massoli
Tel: 714-667-2610
Fax: 714-667-2632
If to Purchaser: TravelMax International, Inc.
2701 West Oakland Park Boulevard
Fort Lauderdale, Florida
Attn: Joseph Ewart
Tel: 954-453-3400
Fax: 954-453-6557
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With a copy to Matthias & Berg LLP
1990 South Bundy Drive
Suite 790
Los Angeles, CA 90025
Attn: Jeffrey P. Berg, Esq.
tel: 310-820-0083
fax: 310-820-8313
Notices shall be deemed to have been given: (i) on the fifth business
day after posting, if mailed as provided above, (ii) on the date of receipt
if delivered personally or by overnight courier, or (iii) on the next
business day after transmission if transmitted by telecopier in the manner
set forth above (and appropriate answerbacks have been received). Any party
hereto may change its address for purposes hereof by notice to the other
parties hereto.
17.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties hereto. This Agreement
supersedes any and all previous agreements, commitments and understandings
among the parties hereto, whether such agreements, commitments or
understandings were oral or written, and neither party hereto has relied or
will rely on any representation of the other except to the extent set forth
herein.
17.8 HEADINGS; CONTEXT. The headings of the sections and paragraphs
contained in this Agreement are for convenience of reference only and do not
form a part hereof and in no way modify, interpret or construe the meaning of
this Agreement.
17.9 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other.
17.10 COMPLIANCE WITH BULK SALES LAWS. The parties hereto shall comply
in all material respects with bulk sales laws of California and in all other
jurisdictions in which compliance by the transactions contemplated by this
Agreement with bulk sales laws shall be required by law.
17.11 BENEFIT. This Agreement shall be binding upon and shall inure
only to the benefit of the parties hereto, and their permitted assigns
hereunder. This Agreement shall not be assigned by any party without the
prior written consent of the other party. In the event of any permitted
assignment by Purchaser, the assignee shall succeed to all of the rights and
obligations of the Purchaser under this Agreement; and in the event of any
permitted assignment by Sellers, the assignee shall succeed to all of the
rights and obligations of Sellers under this Agreement.
17.12 AMENDMENT AND WAIVER. This Agreement may be amended, or any
provision of this Agreement may be waived, provided that any such amendment
or waiver shall be binding on Purchaser only if such amendment or waiver is
set forth in a writing executed by Purchaser, and provided that any such
amendment or waiver shall be binding on Sellers only if such amendment or
waiver is set forth in a writing executed by Sellers. The waiver of any
party hereto of a breach
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of any provision of this Agreement shall not operate or be construed as a
waiver of any other breach.
17.13 PUBLIC ANNOUNCEMENTS. Except as may be required by law, neither
party shall make any public announcement or filing with respect to the
transactions provided for herein without the prior consent of the other party
hereto.
17.14 FURTHER ASSURANCES. After the Closing, Sellers and Purchaser
shall perform such further acts as may be necessary to transfer and convey
title to an possession of the Transferred Assets to Purchaser, and otherwise
comply with the terms of this Agreement. After the Closing Date, Sellers and
Purchaser shall give to each other, upon reasonable notice, reasonable access
to all relevant books, contracts and records concerning the Business as may
be required by Purchaser in its conduct thereof.
17.15 ATTORNEYS' FEES. In any action at law or in equity to enforce or
construe any provisions or rights under this Agreement, the unsuccessful
party or parties to such litigation, as determined by a court pursuant to a
final order, judgment or decree, shall pay to the successful party or parties
all costs, expenses and reasonable attorneys' fees incurred by such
successful party or parties (including, without limitation, such costs,
expenses and fees on any appeal), which costs, expenses and attorneys' fees
shall be included as part of any order, judgment or decree.
17.16 SEVERABILITY. In the event that any particular provision or
provisions of this Agreement or the other agreements contained herein shall
for any reason hereafter be determined to be unenforceable, or in violation
of any law, governmental order or regulation, such unenforcability or
violation shall not affect the remaining provisions of such agreements, which
shall continue in full force and effect and be binding upon the respective
parties hereto.
17.17 FAILURE OF CONDITIONS; TERMINATION. In the event any of the
conditions specified in this Agreement shall not be fulfilled on or before
the Closing Date, either Purchaser or Sellers have the right either to
proceed or, upon prompt written notice to the other, to terminate and rescind
this Agreement without liability to any other party. The election to proceed
shall not affect the right of such electing party reasonably to require the
other party to continue to use its efforts to fulfill the unmet conditions.
17.18 NO STRICT CONSTRUCTION. The language of this Agreement shall be
construed as a whole, according to its fair meaning and intendment, and not
strictly for or against either party hereto, regardless of who drafted or was
principally responsible for drafting the Agreement or any specific term or
conditions hereof.
17.19 EXECUTION KNOWING AND VOLUNTARY. In executing this Agreement,
Purchaser and Sellers severally acknowledge and represent that each: (a) has
fully and carefully read and considered this Agreement; (b) has been or has
had the opportunity to be fully apprised of his, her or its attorneys of the
legal effect and meaning of this document and all terms and conditions
hereof; (c) has been afforded the opportunity to negotiate as to any and all
terms hereof; and (d) is executing this Agreement voluntarily, free from any
influence, coercion or duress of any kind.
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17.20 LITIGATION BY THIRD PARTIES. In the event that suit is brought
by a third party to enjoin or otherwise interfere with the consummation of
the transactions contemplated herein, the parties agree that the bringing of
such litigation shall not entitle any party hereto to terminate the within
Agreement, but that the parties shall bring an action for declaratory relief
before a court of competent jurisdiction and shall terminate this Agreement
if such court adjudges termination to be required by the rights of such third
party.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be duly executed and delivered in its name and on its behalf, all as of
the day and year first above written at Newport Beach, California.
("TMI")
TravelMax International, Inc.
By: /s/ Joseph Ewart
----------------------------
Joseph Ewart, Vice-President
("JTC")
Jetaway Travel Corporation
By: /s/ James Massoli
----------------------------
James Massoli, President
("Massoli")
/s/ James Massoli
----------------------------
James Massoli
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Exhibit 10.9 Employment Agreement
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into and made
effective as of January 16, 1998, by and among TravelMax International, Inc.
("Employer" or "TMI"), a California corporation, and Larry Michaels
("Employee").
RECITALS
WHEREAS, Employer, Employee and certain other parties entered into
that certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated
January 5, 1998, with respect to the acquisition of certain assets related to
the business of establishing independent travel agents in their home-based
travel businesses (the "Business");
WHEREAS, pursuant to the Asset Purchase Agreement, Employee has
agreed to enter into an employment agreement with Employer;
WHEREAS, Employer is desirous of hiring Employee as one of its key
employees;
WHEREAS, Employee is willing to accept employment as an employee of
Employer; and
WHEREAS, the parties hereto desire to set forth herein the
responsibilities of Employee and the expectations of Employer;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and obligations herein contained, the parties hereto agree
as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions set
forth in this Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the
terms of this Agreement shall commence as of January 16, 1998, and shall
continue for a period of two (2) years, unless sooner terminated pursuant to
the provisions hereof.
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the
Board of Directors of Employer, Employee shall serve as a Senior
Vice-President and shall fulfill all duties and obligations of such office.
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3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing,
Employee shall perform such other or different duties related to those set
forth in Paragraph 3.1 as may be assigned to him from time to time by
Employer; PROVIDED, HOWEVER, that any such additional assignment shall be at
a level of responsibility commensurate with that set forth in Paragraph 3.1
and PROVIDED, FURTHER, that Employee may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies
or entities that in the sole and absolute judgment of Employer will not
present any conflict of interest with Employer or any of its operations or
adversely affect the performance of Employee's duties pursuant to this
Agreement.
3.3. PLACE OF PERFORMANCE OF DUTIES. The services of Employee
shall be performed at Employer's place of business and at such other
locations as shall be designated from time to time by Employer.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this Agreement,
Employer shall pay and Employee shall accept the following:
(1) For each year of this Agreement, measured from the effective date
hereof, base compensation of one hundred thousand dollars ($100,000)
per year, with such upward adjustments as may be approved from time to
time by the Board of Directors of Employer. Such adjustments may be
based on the performance of Employer, the value of Employee to
Employer or any other factors considered relevant by Employer.
(2) Reimbursement of such discretionary expenses as are reasonable and
necessary, in the judgment of the Board of Directors, for Employee's
performance of his responsibilities under this Agreement. Such
reimbursement of expenses shall include the reasonable, in the
judgment of both Employer and Employee, expenses of moving Employee
and his family to Florida in connection with his work as an Employee.
(3) Participation in Employer's employee fringe benefit programs in
effect from time to time for employees at comparable levels of
responsibility. Participation will be in accordance with any
applicable policies adopted by Employer. Employee shall be entitled
to vacations, absences for illness, and to similar benefits of
employment, and shall be subject to such policies and procedures as
may be adopted by Employer.
(4) A number of shares of the Common Stock (the "TMI Stock) of
TravelMax International Inc., a Utah corporation which owns 100% of
the issued and outstanding shares of common stock of Employer, equal
in value to $50,000, as measured on the basis of the average mean
between the daily closing bid and asked prices in the over-the-counter
market of the TMI Stock for each day in the five business day period
ending on January 15, 1998.
4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation
provided for in Section 4.1 hereof as follows:
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(1) Employer shall pay the base compensation in cash semi-monthly in
twenty-four equal installments or in accordance with Employer's
payroll practices for all its employees, but in no event less
frequently than monthly.
(2) Employer shall pay in cash the reimbursement of such discretionary
expenses provided in Section 4.1(2) hereof.
(3) Employer shall deliver the TMI Common Stock upon the execution of
this Agreement by Employer and Employee.
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement, and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination.
5.2. OTHER TERMINATION. This Agreement, and the employment of
Employee hereunder, shall terminate immediately upon the occurrence of any
one of the following events:
(1) The death or mental or physical incapacity of Employee.
(2) The loss by Employee of legal capacity (other than as described
in Section 5.2(1) hereof).
(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
wilful and habitual neglect of duties.
(4) The willful engaging by Employee in an act of dishonesty
constituting a felony under the laws of the state in which
Employer's principal place of business is located, resulting or
intending to result in gain or personal enrichment at the expense
of Employer or to the detriment of Employer's business and to
which Employee is not legally entitled.
(5) The continued incapacity in excess of sixty (60) days on the part
of Employee to perform his duties, unless waived by Employer.
(6) The mutual written agreement of Employee and Employer.
(7) The expiration of the term of this Agreement.
(8) Employee's breach of this Agreement.
5.3 TERMINATION WITHOUT CAUSE. If Employer terminates Employee
without any cause whatever and in breach of this Agreement, and Employee has
not breached this Agreement in any manner, then any unpaid compensation for
the remaining term of this Agreement shall be paid to Employee within ninety
days of such termination or at such time as may be agreed by Employer and
Employee.
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5.4. REMEDIES. No termination of the employment of Employee
pursuant to the terms of this Agreement shall prejudice any other remedy to
which any party to this Agreement may be entitled either at law, in equity,
or under this Agreement.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade
secrets" shall include without limitation any and all financial, cost and
pricing information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind, data,
formulas, specifications, concepts or ideas, where such information is
reasonably related to the business of Employer and has not previously been
publicly released by duly authorized representatives of Employer or Parent or
otherwise lawfully entered the public domain.
6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business that have
been or may be obtained or learned by him by reason of his employment or
otherwise. Employee will not, without the written consent of Employer, either
use for his own benefit or purposes or disclose or permit disclosure to any
third parties, either during the term of his employment hereunder or
thereafter (except as required in fulfilling the duties of his employment),
any trade secret connected with the business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
disclose to Employer or induce Employer to use any trade secrets belonging to
any third party.
6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans
(including, without limitation, marketing and sales plans), proposals,
customer lists, computer software or hardware, and similar materials that are
made by him or come into his possession by reason of his employment with
Employer are the property of Employer and shall not be used by him in any way
adverse to Employer's interests. Employee will not allow any such documents
or things, or any copies, reproductions or summaries thereof to be delivered
to or used by any third party without the specific consent of Employer.
Employee agrees to deliver to the Board of Directors of Employer or its
designee, upon demand, and in any event upon the termination of Employee's
employment, all of such documents and things which are in Employee's
possession or under his control.
6.5 NON-COMPETITION BY EMPLOYEE.
6.5.1 General. Employee agrees during the two years following the
termination of his Employment, not to actively recruit, engage in passive
hiring efforts, solicit or induce any person or entity who, during such
two-year period, or within one (1) year prior to the termination of
Employee's employment with Employer, was an employee, agent, representative
or sales person of Employer or any of its affiliates ("Employer Group") to
leave or cease his employment or other relationship with Employer Group for
any reason whatsoever or hire or engage the services of such person for
Employee in any business substantially similar to or competitive with that in
which Employer Group was engaged during the Employee's employment.
4
<PAGE>
6.5.2 Non-Solicitation of Customers. Employee acknowledges that in
the course of his employment, he will learn about Employer Group's business,
services, materials, programs and products and the manner in which they are
developed, marketed, served and provided. Employee knows and acknowledges
that Employer Group has invested considerable time and money in developing
its programs, agreements, offices, representatives, services, products and
marketing techniques and that they are unique and original. Employee further
acknowledges that Employer Group must keep secret all pertinent information
divulged to Employee about Employer Group business concepts, ideas, programs,
plans and processes, so as not to aid Employer Group's competitors.
Accordingly, Employer Group is entitled to the following protection, which
Employee agrees is reasonable:
Employee agrees that for a period of two (2) years following the
termination of his employment, he will not, on his own behalf or on behalf of
any person, firm, partnership, association, corporation, or other business
organization, entity or enterprise, knowingly solicit, call upon, or initiate
communication or contact with any person or entity or any representative of
any person or entity, with whom Employee had contact during his employment,
with a view to the sale or the providing of any product, equipment or service
sold or provided or under development by Employer Group during the period of
two (2) years immediately preceding the date of Employee's termination. The
restrictions set forth in this section shall apply only to persons or
entities with whom Employee had actual contact during the two (2) years prior
to termination of his employment with a view toward the sale or providing of
any product, equipment or service sold or provided or under development by
Employer Group.
6.5.3 Non-Competition. Employee acknowledges that he will be a
significant person in Employer Group's business who is in possession of
selective and specialized skills, learning abilities, customer contacts, and
customer information as a result of his relationship with Employer Group and
prior experience, and agrees that Employer Group has a substantial business
interest in the covenant described below. Employee, therefore, agrees for a
period of two (2) years from the termination of his employment, not to,
either directly, whether as an employee, sole proprietor, partner
shareholder, joint venture or the like, in the same or similar capacity in
which he worked for Employer Group, compete with Employer Group in business
activities substantially similar to those in which Employee was engaged on
behalf of Employer Group. The territory in which this non-competition
covenant shall apply will be limited to the area commensurate with the
territory in which Employee marketed, sold or provided products or services
for Employer Group during the two years preceding termination of Employment.
"Business activities," as described in this paragraph, shall, in
particular, include provision of any products or services which represent the
kind of product or services Employee was engaged in selling, providing,
servicing or working with for Employer Group as an employee of Employer Group.
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise
agreed to in writing between the parties hereto, the provisions of this
Section 6 shall survive the termination of this Agreement. The covenants in
this Section 6 shall be construed as separate covenants and to the extent any
covenant shall be judicially unenforceable, it shall not affect the
enforcement of any other covenant. In the event Employee breaches any of the
provisions of this Section 6, Employee agrees that Employer shall be entitled
to injunctive relief in addition to any other remedy to which Employer may be
entitled.
5
<PAGE>
6.7 SECURITIES WARRANTIES. With respect to the TMI Common Stock,
Employee hereby represents and warrants to TMI that:
(a) The TMI Common Stock which may be acquired for the account of
Employee and not with a view to sale in connection with any distribution of
the TMI Common Stock;
(b) Employee is acquiring the TMI Common Stock hereunder without having
received any form of general solicitation or general advertising;
(c) Employee or his representative, if any, has been provided with, or
given reasonable access to, full and fair disclosure of all material
information concerning TMI;
(d) Employee has a preexisting personal or business relationship with
TMI or certain of its officers, directors or controlling persons, or by
reason of his business or financial experience, Employee can reasonably be
assumed to have the capacity to represent his own interests in connection
with this Agreement;
(e) Employee understands and hereby acknowledges that the TMI Common
Stock will be issued pursuant to those restrictions imposed by and exemptions
available pursuant to applicable federal and state laws and that the
certificates to be issued in respect of the TMI Common Stock may bear a
legend in a form satisfactory to counsel for TMI; in part, TMI's reliance
upon such exemptions is based on the representations and warranties made by
Employee in this Section 6.7;
(f) Employee agrees that the certificates to be issued in respect of the
TMI Common Stock may bear a legend in a form satisfactory to counsel for TMI
reflecting the status of the TMI Common Stock as restricted securities under
Rule 144(a)(3) promulgated under the Securities Act and acknowledges that the
transfer agent or registrar for TMI may be instructed to restrict the
transfer of the TMI Common Stock, in accordance with such legend and any
other restrictions provided in this Agreement;
(g) Employee hereby agrees that: (i) he will not sell, transfer,
hypothecate, pledge, assign or otherwise dispose of any of the TMI Common
Stock, except pursuant to the terms of this Agreement; and (ii) to a
registration statement filed under the provisions of the Securities Act, a
favorable no-action or interpretive letter received from the Commission or an
opinion of counsel satisfactory to TMI that such sale, transfer,
hypothecation, pledge, assignment or other disposition is exempt from the
registration requirements of the Securities Act and in California, pursuant
to an opinion of counsel satisfactory to TMI that such sale, transfer,
hypothecation, pledge, assignment or other disposition is exempt from the
registration requirements of the Securities Act and does not in any way
violate the terms of this Agreement; and
(h) Employee hereby acknowledges that: (i) the shares of TMI Common Stock
referred to herein are being acquired after adequate investigation of the
business plan and prospects of TMI; (ii) Employee is not relying upon the
accuracy of any predictions as to the future prospects or developments of TMI or
its business and is well informed as to the business of TMI and has reviewed its
operations and financial statements; (iii) Employee or his professional advisors
has discussed the financial condition and business operations of TMI with the
officers and directors of TMI and has been afforded the opportunity to ask
questions with respect thereto; and (iv) Employee specifically acknowledges that
the shares of TMI Common Stock are speculative and
6
<PAGE>
involve a very high degree of risk and that there can be no assurance that
TMI will achieve its business objectives or, in particular, that it will ever
have cash available for distribution to its stockholders.
7. GENERAL PROVISIONS.
7.1. NOTICES. Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in
writing and served personally or sent by certified mail, postage prepaid and
return receipt requested, addressed as follows:
If to Employer: TravelMax International, Inc.
2701 West Oakland Park Boulevard
Fort Lauderdale, Florida
Attn: Joseph Ewart
tel: 954-453-3400
fax: 954-453-6557
If to Employee: Larry Michaels
1820 East First Street
Santa Ana, California 92705
Tel: 714-667-2610
Fax: 714-667-2632
However, either party may change his/its address for purposes of this
Agreement by giving written notice of such change to the other party in
accordance with this Paragraph 7.1. Notices delivered personally shall be
deemed effective as of the day delivered and notices delivered by mail shall
be deemed effective as of three days after mailing (excluding weekends and
federal holidays).
7.2. CHOICE OF LAW AND FORUM. Except as expressly provided
otherwise in this Agreement, this Agreement shall be governed by and
construed in accordance with the laws of the State of California. The
parties agree that any dispute arising under this Agreement, whether during
the term of this Agreement or at any subsequent time, shall be resolved
exclusively in the courts of the State of California and the parties hereby
submit to the jurisdiction of such courts for all purposes provided herein
and appoint the Secretary of State of the State of California as agent for
service of process for all purposes provided herein.
7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or written,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not
7
<PAGE>
similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
7.4. ASSIGNMENT. Because of the personal nature of the services
to be rendered hereunder, this Agreement may not be assigned in whole or in
part by Employee without the prior written consent of Employer. However,
subject to the foregoing limitation, this Agreement shall be binding on, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legatees, executors, administrators, legal representatives, successors and
assigns.
7.5. SEVERABILITY. If for any reason whatsoever, any one or more
of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable, or invalid as applied to any particular case or
in all cases, such circumstances shall not have the effect of rendering any
such provision inoperative, unenforceable, or invalid in any other case or of
rendering any of the other provisions of this Agreement inoperative,
unenforceable or invalid.
7.6 CORPORATE AUTHORITY. Employer represents and warrants as of
the date hereof that Employer's execution and delivery of this Agreement to
Employee and the carrying out of the provisions hereof have been duly
authorized by Employer's Board of Directors and authorized by Employer's
shareholders and further represents and warrants that neither the execution
and delivery of this Agreement, nor the compliance with the terms and
provisions thereof by Employer will result in the breach of any state
regulation, administrative or court order, nor will such compliance conflict
with, or result in the breach of, any of the terms or conditions of
Employer's Articles of Incorporation or Bylaws, as amended, or any agreement
or other instrument to which Employer is a party, or by which Employer is or
may be bound, or constitute an event of default thereunder, or with the lapse
of time or the giving of notice or both constitute an event of default
thereunder.
7.7. ATTORNEYS' FEES. In any action at law or in equity to
enforce or construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as determined by the courts
pursuant to a final judgment or decree, shall pay the successful party or
parties all costs, expenses, and reasonable attorneys' fees incurred by such
successful party or parties (including, without limitation, such costs,
expenses, and fees on any appeals), and if such successful party or parties
shall recover judgment in any such action or proceedings, such costs,
expenses, and attorneys' fees shall be included as part of such judgment.
7.8. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
7.9. HEADINGS AND CAPTIONS. Headings and captions are included
for purposes of convenience only and are not a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Newport Beach,
California.
"Employer"
8
<PAGE>
TRAVELMAX INTERNATIONAL, INC.
a California corporation
By: /s/ Joseph Ewart
----------------
Joseph Ewart, Vice-President
"Employee"
/s/ Larry Michaels
------------------
Larry Michaels
9
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<PAGE>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<CASH> 63,605
<SECURITIES> 0
<RECEIVABLES> 14,327
<ALLOWANCES> 0
<INVENTORY> 208,988
<CURRENT-ASSETS> 297,520
<PP&E> 1,784,741
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,871,573
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<INCOME-PRETAX> (13,726,340)
<INCOME-TAX> 243
<INCOME-CONTINUING> (13,726,583)
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